SPEECH BY REED HUNDT CHAIRMAN FEDERAL COMMUNICATIONS COMMISSION FALL BUSINESS CONFERENCE COMPETITIVE TELECOMMUNICATIONS ASSOCIATION (COMPTEL) NEW ORLEANS, LOUISIANA (AS PREPARED FOR DELIVERY) OCTOBER 10, 1995 I'm delighted to have the chance to talk to you at COMPTEL's Fall Business Confer- ence, even if it's only a virtual presence I have with you. Here am I in the entertainment capital of the world: Washington, D.C. And you are in a far far better place: the food capital of the world, New Orleans. I confess I am a little disgruntled with your industry for not having invented yet a way to communicate to me over your longlines the smell of jumbalaya. At any rate, here I am working away on your problems even while you are partying day and night down on the Bayou. I'm not jealous. The truth is I do have the best job in the government that you don't have to get elected to. One of the great things about my job is that I don't have a boss. At least as long as you don't count 435 Congressmen, 100 Senators, the American people, four other commissioners, and, of course, the federal office of personnel management. Management is a challenge in the government. Recently I had to announce the closing of more than half our field offices and a reduction in force of about 10%. This was painful and difficult, and I'm still taking criticism from various quarters. Some wanted me to cut more; others wanted us to spend less but keep the same number of people on the payroll. If anyone knows how to do that, please let me know. At any rate, hardly anyone thinks I made exactly the right call. Except me. But you've got to make the decisions and move on. We at the FCC need to be at least as efficient and effective as the best of American businesses. This is a duty we owe to the American consumer and to our great businesses, such as represented at your convention. And we need to tee up the issues, take our best shot, and move on. Taking it easy; getting bogged down with politics and personality issues -- these are the sure ways to betray our client, the American public, and to disappoint all of you who want to keep the communi- cations revolution rolling. So I want to tell you today some of the key issues that we at the FCC need to address in the next few months. We want your help; your advice; and most of all your willingness to compromise and cooperate so we can make the best decisions we know how to make. Let me begin with philosophy. There are two prongs to our philosophy at the FCC: Competition does most of what we want and need in communications policy. And it doesn't do everything: the rest is what advocacy of the public interest is all about. So the FCC has a twin mission. We should write fair rules of competition. These should be simple, clear, easily understood, and focussed on outputs and deliverables as opposed to detailed accounting and bookkeeping requirements. And we should represent the public interest where competition policy won't deliver all the socially desirable benefits of the communications revolution. If you were broadcasters I would tell you I'm for raising broadcast ownership limits and getting rid of rules like finsyn and the prime time access rule. But I'm also for rules requiring educational TV for kids, because competition won't give us that, and our kids need that education on free over the air broadcast channels. Common carriers also fit this two-part model. We need to simplify and make specific our common carrier rules to promote competition. And we have to drill down harder, as Bill Gates says, to make sure the public interest dimension of common carrier policy is achieved. That's why we need to focus hard on getting the right results from our universal service policies, which right now are a mare's nest of conflicting goals and unnecessary subsidies and ineffective accomplishment. Now I want to tell you some specific steps we need to take according to the twin precepts of private competition and public interest. First, we need to do much more to permit interexchange carriers to compete in every local exchange market. We have made great strides with key state regulators to make sure all states open up the local loop to competition. If Congress makes competition the law of the land, so much the better. But meanwhile we have to move on with an aggressive interconnec- tion policy. And we need effective number portability policies. We will be pursuing both these items in rulemakings over the next six months. I would like to see final orders by the spring. Second, where we have competition we can simplify our rules. This policy is what got me to start acting on AT&T's nondominance petition earlier this year. And in record time we have teed up that decision for a vote two days from now. Never has the Commission moved so fast on a matter of such significance to so many Americans. And in just two days I'll tell you what we're going to decide, right now after our open meeting. Third, we need to reform access charges. The history of access charges demonstrates that notwithstanding all the analysis and argument that money can buy, few if any of us are guaranteed to be right. Those of you as old as I am remember the days in which AT&T argued that competition would lead to harm to the network. And you remember the days in which MCI argued that ENFIA rates hid MCI's efficiency advantages over AT&T. And perhaps you remember when Bill Baxter of the antitrust division confidently asserted that access charges did not cause long-distance service to subsidize local service. But someone who was on target early was FCC Commissioner Anne Jones. During the divestiture era -- also called AT&T Breakup Part One -- she argued that access charges ultimately had to be converted to economically rational pricing. She pointed out that otherwise inefficient bypass was inevitable. She noted that drawing subsidies from high long- distance rates in order to keep local service prices low was inconsistent with a competition policy. And she said this policy was unsustainable in the long run. The long run has just about arrived. It's time for the FCC to try to put Commissioner Jones' views more thoroughly into practice. We need to fix the Carrier Common Line Charge. This part of access charges works to make high-volume users subsidize lower-volume users. Waivers requested by Rochester, NYNEX, and Ameritech underscore the fact that as competition hits the local exchange market the system cannot continue. The fact is that the CCLC tends to drive access charges way above cost. That raises long-distance prices, and hurts your volume. It's time to reform. If we fix the SCLC, then obviously we need to take a hard look at the hard caps on the Subscriber Line Charge. These charges are the two sides of the coin paid for access. Internet customers pay a flat rate; isn't it high time to rely more on flat rates in local loop pricing? We need to find ways to let the subscriber line charge caps approximate economi- cally rational pricing for consumers and single line businesses. This historically has been the third rail for FCC chairmen to touch only when feeling suicidal. But, heck, if you can lower cable prices 17% , you ought to be able to do the right thing on the SCLC. We should be concerned about price shocks rocking consumers. But, we shouldn't be concerned about nickel and dime differences on the local telephone bill at the expense of having rational pricing. Only economically rational pricing will permit true, efficient competition to break into the telco monopolies. And that competition will do more to lower telephone rates than anything government can do. Fourth, we need to reform and refocus universal service. Obviously, if we're going to change access charges we need a different funding mechanism for universal service. The core principle should be that all communications competitors pay in, and that all get a chance to compete for any transfers or subsidies that are necessary to guarantee universal service. In addition we need to refocus and restrict such subsidies. What we don't need to do is keep the price of the second phoneline at the ski condo abnormally low. We also need to recognize the failings in our current universal service. Our current 93.8% penetration of phone lines is a high number. It is also a low number. One of every five homes in Camden, N.J. does not have active telephone service. In three states, more than 10% of the homes do not have an active telephone. More than 20% of the children in this country live in poverty, and a very high percentage of these children live in a home without an active phone. That means that in an emergency, they cannot call 911. Our economy would perform better; our social problems would be less if we did better than this. In part we need to narrow subsidies and focus them better. We also need different ideas to promote subscribership. For example, we should consider ending the practice of having local telephone companies terminate service for failure to pay a long-distance bill. This is a convenient practice. But it isn't the way cellular companies bill. Or cable companies. Or DBS. And I am not sure that this practice can survive IXCs competing in the local loop. I can't see a new competitor letting the incumbent do its billing for long. Moreover, the practice appears to have significant negative effects on universal service. Studies show that when people get down on their luck and are late in paying long- distance toll charges, they end up getting cut off not only for long-distance, but also for local service. When they lose local service they have a harder time getting work. They can't make the call back to a prospective employer. They can't find parttime work. They can't call for a babysitter so they can go to the job interview. So their situation gets worse. It gets harder to pay the toll call bill. And they stay off the network that is the key to participation in the 21st-century economy. In Pennsylvania, they decoupled long-distance nonpayment and local exchange disconnection. And as a result, Pennsylvania has a huge upswing in subscription rate. Should we adopt this idea everywhere? We would like your help on this issue in the reply comments due soon on the rulemaking. We also need to redefine what we mean by universal service. One thing the term definitely should include is putting communications technology into every classroom, school, and library in the country. Schools are as much in the communications business as you are. But while you're roaring into the 21st-century information age, 45 million American children go to school in a 19th-century world. Only 12% of the classrooms have basic phone lines, and only 4% of our classrooms have computer networks. Phone lines in classrooms are the on-ramps to the information superhighway. They are gateways to the information age. In Washington today, and in San Francisco a couple of weeks ago, President Clinton started laying out his plans to make sure every classroom in our country is connected to the information superhighway by the year 2000. Last week British Labour Party leader Tony Blair picked up the President's theme when he called for a Britain in which every school, hospital, and library is wired into the information superhighway, and every child has a laptop computer. Copying is a great compliment. But we need to do more so there can be more to copy. One positive step is the Snow-Rockefeller provision of the Telecommunications Reform bill that will order the FCC to create special tariffs for schools. All these initiatives are, frankly, very gratifying for us at the FCC who initiated this pursuit almost two years ago. But this is way too early to rest on our laurels. We haven't yet figured out really how to deliver communications technology efficiently and effectively to every classroom. But the good news is that the country is waking up to the very important goal here, and with your specific input we can build an efficient, workable system for giving our kids access to the information superhighway. The items I've discussed will come out best if we get your help on the concepts and on the details. I know you can help, and I am counting on you. Thanks. - FCC -