Copyright 1999 Federal News Service, Inc.
Federal News Service
FEBRUARY 25, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
4690 words
HEADLINE: PREPARED STATEMENT OF
WILLIAM
E. KENNARD
CHAIRMAN
FEDERAL COMMUNICATIONS COMMISSION
BEFORE THE
SENATE JUDICIARY COMMITTEE
SUBCOMMITTEE ON ANTITRUST,
BUSINESS RIGHTS AND COMPETITION
SUBJECT - STATE OF COMPETITION IN THE
TELECOMMUNICATIONS INDUSTRY
BODY:
Mr. Chairman
and Members of the Subcommittee, thank you for the opportunity to review with
you today the status of competition in telecommunications markets and the
progress that has been made in the three years since the enactment of the
Telecommunications Act of 1996. Because so much of that Act was focused on
promoting competition in local telecommunications services, encouraging
deployment of advanced services and promoting deregulation where market forces
are strong, I will focus my remarks today on these subjects.
I am pleased to
report that the Act is working: consumers are beginning to see competitive
choices in local telecommunications services, competitive deployment of advanced
broadband services is well underway and the stage is therefore set for less
regulation as competition expands. I can also say that we are by no means near
the end of the process of introducing local competition and then deregulating
the competitive markets.
But I can say that we are approaching the end of
the beginning and we can see some tantalizing glimpses of this competitive,
deregulated future. I believe that many -- but not all -- of the fundamental
prerequisites for a fully competitive telecommunications industry are now in
place as the result of the Act and the vigorous implementation of the Act by the
FCC and our colleagues in the State Public Utility Commissions.
This is not
to say that fully competitive markets are inevitable and that we could now
declare victory and simply walk away. Indeed, today we are at that very delicate
"tipping point": with just a little more time -- and probably a lot more effort
-- we'll be "over the top" and competition will gain a firm foothold. But if we
are unable or unwilling to make this final effort, the momentum toward
competitive markets will slow, the balance will tip the other way and just as
inevitably send us back to 1996 and even 1990.
Telecommunications
competition is not yet firmly established in local markets and it will take
diligence and hard work by the FCC and our partners in the State Public Utility
Commissions before fully competitive local markets are the norm. I know that the
dedicated women and men at the FCC and the State Commissions are ready and
willing to undertake this hard work. I hope that you and all the members of the
Judiciary Committee, the Senate and the entire Congress will support us in this
effort.
Good News: The Telecommunications Sector Is Thriving
By every
measure, the telecommunications industry is thriving. Since the passage of the
Telecom Act, revenues of the communications sector of our economy have grown by
over $140 billion. Stock values of the companies in the telecommunications
sector are up, indicating that Wall Street sees a future of a rapidly enlarging
pie that is big enough for all, not a zero sum game.
One-fourth of our
country's economic growth has come from the information technology sector.For
1998, it is estimated that the communications sector of our economy will have
revenues in excess of $500 billion dollars. This growth has touched the lives of
almost every American. Now, a growing number of American families across this
nation have a choice of a vast array of high-tech communications services,
services that now cost less.
This growth comes not only from established
providers but, since the passage of the Act, we can now clearly see benefits
flowing from the new competitors. The revenues of new local service providers
more than doubled in 1997, and they increased substantially again in 1998. And
this growth has meant new jobs for thousands of Americans. In the wireless
industry, capital investment in 1998 has more than tripled since 1993, with more
than $50 billion of cumulative investment through 1998. Similarly, the wireless
industry generated almost three times as many jobs as in 1993. All this while
the cost of service to the consumer has dropped. A cell phone is no longer a
luxury for the privileged, but with the advances in cellular service, the advent
of PCS and digital, mobile phones are now a common communications tool for over
60 million people every day.
AT&T, BellSouth, MCI Worldcom, Ameritech,
Sprint, SBC, Bell Atlantic and US West are all among the top 20
telecommunications companies, by revenue, worldwide. Similarly, GE Americom,
Hughes, Loral and Panamsat are among the top 20 satellite service providers, by
revenue, worldwide. And US satellite manufacturers such as Hughes, Lockheed
Martin, Loral, Motorola and Orbital Sciences, maintain a strong lead in
contracting and subcontracting satellite systems worldwide.
And I can't
finish a summary of the sector without mentioning the Internet. It goes without
saying that the Internet is booming, creating new jobs, new and better means of
education and commerce, the Information Age has clearly arrived. The Internet is
a testament to a wise regulatory policy: don't regulate unless there is a
clearly demonstrable need to do so. The reality is that something as dynamic and
revolutionary as the Internet probably can't be regulated and, unless and until
there is a demonstrable market failure affecting the general public, we should
resist calls to regulate it. The unregulated, highly competitive Internet is a
useful model for the more traditional telecommunications sectors.
These are
just a few examples of how the telecommunications economy and market are
thriving, and are doing so in an increasingly competitive environment.
Status of Competition
Let me take a few minutes to give you an idea of
how competition is evolving, starting with the long distance market.
At the
end of 1997, there were over 600 long distance providers offering services, some
on their own facilities, some entirely by resale and still others by a
combination of owned facilities and resale. The competition they bring has had
an appreciable difference on the consumer price for long distance service.
Long distance prices have steadily dropped over the past few years. The
average cost of domestic interstate long distance dropped from 11.8 cents per
minute to 10.3 cents per minute from 1996 to 1997. At the same time, the average
rate per minute for an international call dropped from $0.70 in 1996 to $0.64 in
1997. We do not yet have the data for 1998, but I expect that it will show
similar decreases. Consumers have responded to these rate reductions by
increasing their use of these services. Interstate and international calling
increased from 468.1 billion minutes in 1996 to 497.3 billion minutes in 1997.
The wireless industry is surging.
Everything that is supposed to be up
is up, everything that is supposed to be down is down. Subscribership is up,
jobs are up, investment is up, consumer bills are down, and the wait for a
license is down. What is important to remember is that this surge of the
wireless industry followed the elimination of the original duopoly structure and
the introduction of competition by making more spectrum available to more
players. In other words, FCC policies to foster competition have proven to work
for consumers' benefit and we expect that our local competition policies will
bring similar benefits to wireline services.
The international market is
also flourishing. With the adoption and implementation of the WTO Agreement
countries representing 90 percent of the $600 billion global market for basic
telecommunications have pledged to open their markets to international
competition. And, we have been successful in our negotiation of bi-lateral
agreements with other governments to permit provision of satellite service in
their countries, such as Mexico and Argentina.
But local service competition
was a principal focus of the Telecommunications Act and I would like to review
the progress in this area in more detail.
Local competition is still
nascent, but it is making significant strides. The revenues of local service
competitors are $4 billion since 1996. It is estimated that new local
competitors now provide, over their own networks or by reselling incumbent
company lines and UNE loops, between four and five million telephone lines to
customers -- between two to three percent of the nation's total telephone lines.
Local competitors are taking an increasing share of nationwide local service
revenues. Local competition is broadening: new competitors are reselling
incumbent company lines in almost every state -- and about 40 percent of the
incumbent telco lines they resell are connected to residences; new
facilities-based competitors are active in almost every state. Local competitors
continue to attract investment capital and deploy their networks. Industry
sources report that 20 publicly traded competitive local exchange carriers
(CLECs) have a total market capitalization of $33 billion -- compared to 6 such
companies with $1.3 billion of total market capitalization prior to the 1996
Act. And these new competitors are working faster and working smarter. They
continue to build fiber optic-based networks at a faster rate than incumbents.
Advanced Services / Broadband Deployment
I would like to
speak briefly about the progress in the last three years in the area of
"advanced telecommunications capability," or "broadband" as it is popularly
known.
What is broadband? It is two-way communications of voice, data and
images via any technology and, most importantly, at vastly higher speeds than
most consumers have ever had in their homes.
In practical terms, broadband
will make it possible to change web pages as fast as you can flip through the
pages of a book; will make possible two-way video conferencing in the home so
that family members can see each other instead of just talking; and can make
possible the downloading of feature length movies in minutes.
Broadband can
also greatly increase the possibilities of distance learning and medical
treatment at home; and its potential for persons with disabilities -- for
increased communications via sign language or speech reading with the advantage
of facial expressions and other nuances, and the possibility of text-based
Internet pages converted into braille -- is enormous.
Section 706 of the
1996 Act, of course, makes it a national goal for the Commission to encourage
the deployment of broadband to all Americans on a reasonable and timely basis,
and we just released a Report on our nation's progress towards that goal.
Our Report is just a snapshot taken a few seconds after the starting gun of
a very long race -we and the runners in that race have a long way to go. But we
find that at present, the deployment of broadband appears to be reasonable and
timely.
We see two things, in particular.
First, since the 1996 Act,
there has been an enormous amount of activity in the broadband area. Investment
in broadband facilities has been tens of billions of dollars -- large sums even
by the standards of this business. In what is usually the most difficult part of
this business to enter -the so-called "last mile" to the home -- many companies
are building last miles, or giving serious study to the idea.
- Local
exchange carriers, both incumbent and competitive, are deploying new technology
that has reinvigorated the ubiquitous and simple copper telephone loops into
effective and low cost broadband connections for residential consumers as well
as businesses.
- Cable television companies are adding two-way broadband
capabilities to their networks which are inherently focused on residential
consumers, including rural and non-urban areas.
- Electrical power
utilities, wireless cable companies, mobile and fixed radio companies, and many
satellite companies are building or planning broadband systems -- some with
revolutionary new technologies -- to serve residential consumers.
Second, in
terms of residential subscribers who are paying for the service, today broadband
is on par with, or ahead of, the telephone, black-and-white and color tv, and
cellular service at the same stage in their deployment. And according to the
cable and telephone companies, by the end of this year they will be offering
broadband to millions of residences.
I also want to note that broadband is
being offered to residential consumers in a number of small towns and rural
areas, which indicates that rural areas do not present intractable problems for
broadband deployment. Rural areas may be targeted especially by
satellite companies, which already have the highest proportion of their
customers for Direct Broadcast Satellite television services in rural areas.
The success of broadband so far is the result of many longstanding FCC
policies. For example, the FCC has sought to facilitate new competition in all
phases of the telecommunications business, giving newcomers access to essential
elements of incumbent networks, and allocating large blocks of spectrum in ways
that make them useable for any technically feasible service.
Because this is
the very early stage in broadband's deployment, the nature of
consumer demand is very unclear. Certainly, at present, it seems that many
companies are entering broadband and offering it at consumer-friendly prices,
and residential consumers are starting to find out about broadband. The market
seems to be working and the best role for government is to observe, monitor and
enforce our long- standing policies of promoting competition and providing the
spectrum and access rights that are the building blocks for a competitive
market.
Telecommunications Mergers and Acquisitions: Reconsolidation or
Foundation for the Future.9
A strong effort to firmly establish competition
in local markets and your support of this goal is all the more necessary since
the telecommunications industry is experiencing a wave of mergers and
acquisitions. As this Subcommittee is aware, smaller companies are "bulking up"
by merging with each other, major "name brand" telecommunications companies are
also merging as well as acquiring the smaller, younger companies.
This
activity could portend a reconsolidation of the telecommunications industry that
reduces competition, to the public's detriment, or it could establish a strong
foundation for aggressive competition and innovation that greatly benefits the
public.
With the stakes so high, when formerly monopolized markets are being
opened to competition, it is essential that we do as much as we can to prevent
anything that will retard the development of competition. This means lowering
entry barriers, ensuring efficient interconnection of facilities, and
encouraging the development and deployment of new technologies.
This
also means that the Commission needs to be particularly careful in evaluating
mergers during this time of change and uncertainty, because a merger, once
consummated, cannot easily be broken up. You can't unscramble an egg.
"Good"
mergers can spur competition by creating merged entities that can compete more
aggressively and that can more quickly move into previously monopolized markets.
Just last week, for example, the FCC approved the merger of AT&T and TCI,
two companies that have complementary skills and assets with which to enter the
local exchange service markets. This merged company will have an incentive to
build out local telephone systems that will be able to compete with the largest
local exchange companies, particularly in residential markets. If this
competition develops, it will make it possible to substantially deregulate the
local exchange markets, just as strong competition justified the substantial
deregulation of the long distance and wireless markets.
But "bad" mergers
are likely to slow the development of competition. Among the anticompetitive
harms arising from a "bad" merger are: eliminating firms that would have entered
markets; raising barriers to entry; discouraging investment; increasing the
ability of the merged entity to engage in anticompetitive conduct; and making it
more difficult for the Commission and State Public Utility Commissions to
monitor and implement procompetitive policies.
In this time of great change
and uncertainty, the FCC needs to be particularly vigilant to not allow any
developments, including mergers, to slow the development of competition. That is
why the FCC and, in some cases, State Public Utility Commissions, need to apply
their unique knowledge, expertise and judgement in reviewing proposed mergers
and acquisitions under the Communications Act's "public interest" standard.
Barriers to Competition Remain
Some of the most crucial prerequisites
for local competition take a considerable period of time to put in place, even
under the best of circumstances. Unfortunately, but not surprisingly, the
availability of some of the most important prerequisites have been delayed,
sometimes through litigation, sometimes through the intransigence of parties
that are threatened by competition, and sometimes through the sheer scale and
complexity of the task. This latter factor -- the sheer complexity of the task
-- cannot be ignored: the development of local exchange competition is simply an
order of magnitude more complicated, more labor intensive and more
capital-intensive than was the development of long distance competition.
While the industry players actually have to do the work, regulators can play
a critical role by getting the players together, insisting that a solution be
found, setting standards and deadlines, and by resolving implementation
disputes. For example, by facilitating the development of the technical solution
and establishing a clear implementation schedule for Local Number Portability,
the FCC played a catalytic role in eliminating one complex technical barrier to
competition.
Although some amount of litigation is inevitable, the Supreme
Court's recent reaffirmation of the FCC's fundamental responsibility for
implementing the Act has removed considerable uncertainty that may have been
slowing the development of local competition. And one major barrier to local
competition will fall as soon as the FCC is able to complete the determination
of what constitutes "Unbundled Network Elements" -- or UNEs -- in accordance
with the Supreme Court's remand.
It is important that those of us in
government work to bring stability to the legal and regulatory environment. In
the wake of the Supreme Court decision, there was immediate and deep concern
among CLECs and investors that incumbent local exchange carriers (ILECs) would
use the uncertainty of this remand as an excuse to slow down the evolution of
local competition.
That is why we sought and obtained commitments from the
regional Bell operating companies and GTE to honor their current
inter-connection agreements to provide unbundled network elements while the FCC
considers the UNE issue in accordance with the Court's opinion. This is the good
faith needed for all of us to move forward to a competitive marketplace, and to
bring more stability to the marketplace.
Unfortunately, the litigation isn't
over: some of the parties who were disappointed by the Supreme Court's decision
on the Commission's authority are now asking the 8th Circuit to review the
substance of the Commission's pricing standards.
And there are some very
disturbing reports of incumbents attempting to deny fundamental interconnection
rights to competitors. I have said this before, and I'll say this again: under
my chairmanship, no competitor will be denied fair interconnection. It is
inexcusable. And it won't be tolerated.
To keep markets open and the
competitive momentum going, the FCC will act as the liaison between the
incumbent LECs and the CLECs to minimize disputes and avoid lengthy proceedings
and litigation. And where the FCC's intervention cannot quickly resolve
interconnection problems informally, we are using our "rocket docket" to end
these disagreements quickly, and to keep the market functioning smoothly.
The Last Mile and the Last Meter: the Last Bottleneck?
Just as a chain
is only as strong as its weakest link, a fully competitive local market can't be
achieved unless ALL the fundamental prerequisites are in place. Unfortunately,
there are two essential prerequisites -- access to rights-of-way and access to
buildings -- that are increasingly problematic and may not be readily amenable
to resolution by the FCC.
There is a simple truth: before we can have local
competition, new entrants must be able to deploy their competitive network
facilities and reach prospective customers on roughly the same basis as the
incumbents. Unfortunately, this is not always possible today because of the
inherent tension between property owners' rights to control the use of their
property and the need of CLECs to use public and private property on the same
basis as the ILECs to deploy the "last mile" and the "last meter" of their
competitive networks.Congress enacted Sec. 253 of the Communications Act to
resolve some of the issues relating to municipal rights of way. However, a few
municipal governments are making it difficult for CLECs to use public
rights-of-way for fiber optic cables. Indeed, some communities have imposed
obligations ostensibly related to the use of rights-of-way even on competitors
that do not use public rights-of-way for their own facilities, such as wireless
service providers and resellers. Section 253 is currently subject to litigation
so it is too early to know whether it will solve all the problems.
Obtaining
rights-of-way on private property for the "last meter" is often even more
problematic for local competitors. Facilities to which competitive providers
require access on private property in order to serve occupants of office and
apartment buildings typically include inside wire, riser conduit, and, in the
case of wireless providers, rooftops for the placement of antennas. Some State
laws permit public utilities to condemn rights-of-way, but CLECs are not always
classified as public utilities for these purposes. In any case, the condemnation
process is generally expensive and very time consuming. I am committed to
exploring what we can do to address these critical issues.
Just as the FCC
must work in partnership with State Public Utility Commissions on the broad
range of regulatory issues affecting telecommunications services, the FCC must
work cooperatively with the State and local government organizations whose
actions can advance or retard competition. I have therefore worked hard to
involve the Commission's Local and State Government Advisory Committee (LSGAC)
in these issues.In August 1998, the Commission announced an agreement between
the LSGAC, the Cellular Telecommunications Industry Association (CTIA), the
Personal Communications Industry Association (PCIA), and the American Mobile
Telecommunications Association (AMTA) addressing local zoning requirements
relating to the siting of personal wireless service facilities. The groups
presented a joint agreement setting forth voluntary guidelines for the use of
moratoria on tower and antenna siting, as well as an informal dispute resolution
process for moratorium issues. These groups are also pursuing similar
discussions regarding other issues relating to wireless facilities siting. I
hope and expect that this process will help to reduce many of the problems
associated with wireless facilities siting, and I hope that similar arrangements
can be established to speed the deployment of fiber optic cables in public
streets.
With respect to the issue of access to private property, some
states have enacted nondiscrimination requirements applicable to private
landowners, and the National Association of Regulatory Utility Commissioners
(NARUC) has passed a resolution supporting such requirements.
I intend
to continue working with NARUC and the appropriate State government bodies to
further this policy. It is not clear, however, whether piecemeal State
legislation can be fully adequate to address these issues.
ILECs are not as
adversely affected by these property issues as CLECs because they generally have
their networks in place. This has an insidious side-effect: it makes the CLECs
even more dependent on the ILECs for the last mile and last meter connection to
customers. And it neutralizes a CLEC's ability to bargain with ILECs over the
price and availability of unbundled loops because CLECs don't always have a
"build it yourself' option if the ILEC's terms and conditions are unreasonable.
Conclusion
We have come a long way towards a more competitive market
place in communications, but we have much more work to do. The transition from
monopoly regulation to open markets, from today's technologies to tomorrow's
breakthroughs, is not yet complete. For the coming year our agenda is clear - to
promote competition, to foster new technologies, to protect consumers, and to
ensure that all Americans have access to the communications revolution.
These will be the goals that guide us as we implement the Supreme Court's
instructions on UNEs, as we continue opening local phone markets, as we work to
make communications available to all Americans, as we review the mergers now
before the Commission as well as those that may come.
The agenda for this
year continues on the foundation laid last year - competition, community, common
sense. We have a lot of work to do, and we have the will to do it well.
- We
will promote competition in all sectors of the marketplace. We will reform
access charges, and ensure that proposed mergers are pro- competitive and
benefit consumers.
- We will continue to deregulate as competition develops,
eliminating any unnecessary regulatory burdens, reducing reporting requirements,
streamlining rules and our own internal functions.
- We will continue to
protect consumers from unscrupulous competitors, and give customers the
information they need to make wise choices in a robust and competitive
marketplace. We will continue our policy of "zero tolerance" for those
competitors who would rather cheat than compete.
- We will work to ensure
that the Act's provisions on RBOC entry into the long distance marketplace are
implemented in a manner that promotes competition and consumer welfare and is
fair to all of the parties.
- We will ensure broad access to communications
services and technologies for all Americans, no matter where they live. We will
complete universal service reforms, continue oversight of the schools and
libraries and rural health care universal service programs, encourage
accessibility of emergency information via closed-captioning and video
description, and ensure that the 54 million Americans with disabilities can use
and have access to the communications network.
- We will foster innovation,
working to ensure that America remains the world's leader in innovation. We will
continue to promote the development and deployment of high speed Internet
access, promote compatibility of digital video technologies with existing
equipment and services, and promote competitive alternatives to cable and
broadcast TV.
- Finally, we will advance these concepts worldwide, serving
as an example and advocate of telecommunications competition worldwide. We will
work to encourage the development of international standards for global
interconnectivity, work to promote the fair use of spectrum through the WRC
2000, and aggressively work on the worldwide adoption of the WTO Agreement for
Basic Telecommunications. We will continue to assist other nations in
establishing conditions for deregulation, competition, and increased private
investment in their telecommunications infrastructure so that they too, can
share in the promise of the Information Age, and become our trading partners.
During this time the ground rules we set now will structure competition and
the telecommunications industry for years to come. Decisions we make today will
determine whether or not all Americans - irrespective of where they live, their
race, their age, or their special needs - can share in the promise of the
Information Age.
Thank you. I look forward to answering any questions you
may have.
END
LOAD-DATE: February 27, 1999
