Remarks by Larry Irving
Assistant Secretary for Communications and Information
National Telecommunications and Information Administration
U.S. Department of Commerce
Communications Law in the Next Millennium
April 12, 1999
Good afternoon. I'd like to thank Prof. Leonard Baynes for inviting me to your conference on "Communications Law in the Next Millennium."
I've been asked to share my thoughts today on the current and future shape of the telecommunications world, in the wake of the 1996 Telecommunications Act. As a New Yorker, I'm reminded of former Mayor Ed Koch's continual refrain: "How am I doing?" In the telecommunications arena, it also helps to continually evaluate how we're doing and to predict the new issues down the road.
And, I can tell you, that while many of today's questions will persist in the future, tomorrow's questions will generally be very different. Today, we're still grappling with competition in the local telephone and long-distance markets. We're still trying to figure out how to promote local telephone competition in the residential markets, for example. But the issues of the future are going to focus largely on expanding access to high-speed data networks, as data traffic rapidly overtakes voice. Puff Daddy wrote "It's All About the Benjamins;" with all due respect, I believe that the future of telecommunications will be "All About Bandwidth."
Progress Made: Increased Competition
Before we look at the issues of the future, let's take a step back and look at how far we've progressed since the 1996 Act. When President Clinton signed the 1996 Act, he declared that it would clearly enable the age of possibility in America to expand to include more Americans. It will create many, many high-wage jobs. It will provide for more information and more entertainment to virtually every American home. It embodies our best values by supporting . . . market reforms . . as well as the V-chip.
We had lofty aspirations for this legislation. And, three years after the Act's passage, we are beginning to fulfill some of these goals. The telecommunications sector is contributing significantly to our nation's economy. In 1998 alone, communications services and equipment companies generated $408 billion.
Today, there are more than twice as many public telecommunications companies than there were five years ago. And that doesn't include the hundreds of private companies that have proliferated in the market recently. We have seen a whole new range of providers emerge -- from Covad to Nextlink to Winstar -- all competing against incumbent providers to offer data and telecommunications services.
New companies and expanded services have meant new jobs -- in the last five years, we have created approximately 800,000 new jobs in telecommunications services, equipment, and the data service sectors.
Competition has also meant lower prices and new services for consumers, particularly in long-distance and wireless services. Today, we can make long distance calls for as little as 5 cents a minute, and wireless service is the same low price as wirelined under some plans.
Competition is gradually arriving in the local telephone markets as well, although it is arriving far more rapidly for business customers than for residential consumers. Today, only 4% of Americans have a choice in local telephone provider. Nevertheless, there are some promising indications that this tide is turning. Competitive providers, or CLECs, are capturing an increasing share of the market. In Arlington, Massachusetts, for example, residents can now choose among Bell Atlantic, a cable company, and a new CLEC for local telephone service. Such examples give hope that competition will ultimately come to all residential areas.
Remaining Challenges: the Effect of Consolidation
These are some of the benefits that have emerged as a result of the 1996 Act. But the Act has also raised new questions and challenges -- particularly with respect to the recent spate of mergers.
As we all know, the "urge to merge" has run rampant in all industry sectors, most visibly in the telecommunications sector. When the Telecom Act was passed, there were seven BOCs and GTE. If the pending SBC-Ameritech and GTE-Bell Atlantic mergers are approved, there will only be four major providers of local telephony, and these two newly merged entities would control approximately two-thirds of the nation's access lines.
We need to think seriously about the repercussions of these mergers. There may be merit to the Bells' argument that mergers will help companies compete globally. But at what point does such an argument no longer apply? When there are three BOCs, or two?
I like to remind people that, when the FCC issued its order on the Bell Atlantic-NYNEX merger, it cautioned that "further reductions in the number of Bell Companies or comparable incumbent LECs would present serious public interest concerns." The FCC has found that the pending SBC-Ameritech merger may, indeed, impact the public interest. [I therefore commend Chairman Kennard's recent request for conditions that might alleviate these concerns.]
But the Telecommunications Act has given rise to more than consolidation in the telecommunications field. It has also resulted in unprecedented consolidation in media and broadcasting by raising the television ownership level from 25 percent to 35 percent. That change, and economic pressures in the industry, are pushing many smaller or minority owners to sell out to larger, majority-owned companies. As a result, there are fewer broadcast licensees today, even though the number of licences has increased. And in the last year, three of the largest and most experienced minority television station owners sold their stations to majority-owned companies. Last year, NTIA found that while Blacks, Hispanics, Asians, and Native Americans collectively represent nearly 30% of the total U.S. population, they owned more less than 3% of the nation's broadcast stations.
This pattern of consolidation could seriously impinge our ability to bring about diversity and localism in broadcasting. When I was in Memphis, for example, I was told that the Black-owned radio station called upon listeners to go to the polls, which helped get an African-American mayor elected. That radio station is now majority-owned and no longer makes such appeals.
I am also concerned that the reduction in minority ownership may also reduce employment opportunities for minorities in broadcasting. As we know, the number of minorities employed in cable and broadcasting is already low. Reducing the number of minority owners could further lower those figures.
The Need for More Bandwidth
These are the issues that we face today, and that will persist into the future. But, what are the major issues for the next millennium? As I mentioned before -- again, with apologies to Puff Daddy -- the future is will be all about bandwidth. As our need for data explodes, we will increasingly need to focus on issues regarding the pipelines that carry that data.
This new focus is necessitated by the explosive growth of data transported over our networks. When the Telecommunications Act was passed, 90% of the traffic crossing our wires was voice traffic. Today, data traffic exceeds voice traffic, and is growing ten times faster than voice. Within the next five years, data traffic is likely to compose 80% of all traffic going over our systems.
Why this surge in data traffic? To begin with, more people today are going online than ever before. In 1997, there were 78 million computers and other devices with access to the Internet. In 2002, there will be 515 such devices connected to the Net worldwide.
People are going online to email, to shop, to buy stocks, to look at real estate, listen to music, and even to watch live video footage. Look, for example, at the growth in electronic commerce. We may not have had a "White Christmas," but many Americans had a "Web Christmas." By some accounts, Americans spent $8 billion purchasing gifts online - nearly three times more than was anticipated. In 1997, $9 billion of goods and services were purchased online. In 1998, that figure tripled to $30 billion. And, according to estimates, we could generate $3.2 trillion in revenues through online business by 2002.
Our use of e-mail is also soaring. Last year, 78 trillion e-mail messages were sent worldwide. That figure is projected to grow more than 40% every year. By 2003, we could be sending more than 450 trillion e-mails.
Another important factor is that our electronic needs are growing ever more sophisticated. An increasing number are using video and audio streaming technologies, which are particularly data-intensive. I thought I was ahead of the curve because I regularly buy CDs from Amazon.com. But my teenage nephew told me that he and all his friends now download music directly from the Net using MP3 technology. They make their own CDs on their CD-Rom drive. Or they download the music to a new device called the Rio, which is now about the size of a wallet but will soon be the size of a credit card.
An article in last week's New York Times noted that college students are not the only ones using MP3 technology. Office works are now just as likely to download music from the Internet. In fact, Beethoven's Moonlight Sonata has been the most popular recent download - the piece was downloaded 100,000 times last month, mostly by corporations and government agencies!
Video and audio streaming technologies will continue to play an increasing role in the future, as more film, music, and video is carried online. Broadcast.com (a streaming video provider) demonstrated that even online fashion shows will become a trend in the future. It's webcasting of Victoria's Secret's fashion show drew 1.5 million viewers in February. It also drew the attention of Yahoo!, which demonstrated its interest in streaming technologies by announcing its purchase of Broadcast.com for $5.7 billion last week.
All of this is to show that our use of the Internet and other electronic services, and therefore our need for bandwidth, are growing at rapid speeds. According to MCI WorldCom, the demand for broadband service is growing 1000% percent a year. Without high-capacity networks, gaining access to the Internet is like draining a pool of water with a straw, when what we really need is a garden hose.
With high-capacity networks and broadband services, however, we will be able to pull down information services quickly and efficiently. It will mean the difference between a high-speed ramp onto the Information Superhighway versus slow-speed access along a dirt road.
Spurring the Deployment of Broadband
But we're still at the early stages of broadband deployment. Currently, only a small fraction of Americans (less than half a million, according to most estimates) have high-speed access to the Internet through fiber, cable modems, or digital subscriber lines (DSL). And the desire for high-speed access is mounting. According to one cable modem provider, it's not uncommon for people to chase "our vans down the street like an ice-cream truck."
In the next few years, we will need to figure out how to promote the buildout of these networks, what kind of access companies should have to such pipelines, and how to make them more accessible to more Americans.
With respect to the buildout of high-speed networks, the Clinton Administration has long believed that competition is the most effective method to promote new investment. Competition is indeed spurring the deployment of high-speed networks. As companies recognize the demand for bandwidth, they are installing more fiber, more cable modems, and additional digital subscriber lines every day. PacBell, which is new to the business of broadband service, will soon be offering high-speed access to half of California's 8.8 million residents. AT&T, which completed its merger with TCI last month, plans to offer broadband service to 15-20% of all homes over TCI's cable modems in the next 5 years. And Internet service providers (ISPs) around the country are forming alliances with telephone providers to provide high-speed DSL access to the Internet.
Wireless and satellite providers will also become significant broadband providers in the future, allowing us to obtain data on an "anywhere, anytime" basis. Already, there are campuses where students can go online using wireless laptops, and certain devices - like my Ricochet - provide wireless access to e-mail and the Internet. If MCI WorldCom's announcement last week of its investment in four wireless cable operators is any indication of the future, we should expect that broadband wireless will become increasingly commonplace.
Nevertheless, the market alone will not resolve all issues. One question that is still pending is whether there will be adequate spectrum for wireless broadband services. If wireless providers become major players in the broadband market, they may well need additional frequencies to serve increasing customer demand. Whether such frequencies will be available, and how we should allocate them, are issues we will need to explore in the future.
Another issue is whether incumbent telephone companies need added incentives to roll out new digital subscriber lines. Currently, only 6% of broadband households have high-speed access over DSL loops. The incumbent LECs claim deployment of these loops is slow because they are required to share these loops with competing providers under the 1996 Act.
In the current 706 proceeding, the FCC is considering whether to revise these obligations. The Commission has proposed, and the Administration has supported, the waiver of these regulatory requirements as long as DSL is provided through a separate affiliate. We believe that this modification will facilitate the deployment of broadband services, while continuing to promote competition between incumbents and their competitors.
We are also considering other steps to spur the deployment of broadband services. Last week, the FCC -- at the urging of the Administration --- released an order agreeing to more stringent collocation requirements. This means that a competing provider, interconnecting with an incumbent LEC's network, will have an easier time placing equipment in the incumbent's central office. Among other things, competing providers will be able to place switches in offices, inspect the offices for space, and meet the same safety requirements as the incumbent LEC itself follows. It will even require the incumbent LEC to provide access to parking and bathrooms! This ruling should spur competition by facilitating the provision of telephone service and advanced network services by competing providers.
Making Networks Available to All Americans
Spurring competition among bandwidth providers will remain a key goal for the future. Another goal will be ensuring the availability of high-speed networks to all Americans, whether rich or poor, White or African-American, or urban or rural.
Access to broadband services will make a significant difference in the lives of families, communities, and regions. A family with high-speed access can seek political information quickly, contact friends and family at lower costs, or view news-breaking events online. It means an adult can follow courses at universities worldwide, simply by logging on at home. It also means a child can view photos of our galaxy, rather than just imagine its planets and contours.
High-speed access to the Internet can also change the fortunes of towns and regions. It means that a company can close a deal in seconds flat, rather than wait for a paper order or confirmation. A farmer or cattle rancher can locate the highest bid for his goods at just the click of a key.
High-speed networks have even changed the fate of a region, from a slow growth area to a commercial hub. The phrase "If you build it, they will come" may apply to baseball fields, but it is certainly holding true for advanced technologies. Providing high-speed online access and communications services is now as important as a good highway system in luring new companies, jobs, and capital.
In the years ahead, we will need to be sure that advanced services do not fall into the hands of a few, while remaining inaccessible to many. For one thing, we will need to be sure that Internet access is available in public places -- such as schools, libraries, or community centers -- so that all will have access to the wealth of online resources.
We will also need to be sure that certain regions are not ignored when broadband networks are constructed. Some rural areas argue that, already, they have been left behind in the Information Age. The "digital divide," they say, applies as much to a rural/urban split as to a divide by income and race.
We need to give serious thought to how best to spur the development of high-speed networks in rural regions. Some rural carriers argue that it is too expensive to build data services in rural areas within the existing LATA boundaries. U.S. WEST has therefore petitioned the FCC to either lift the ban on interLATA data carriage or redefine LATA boundaries to encompass broader territories.
I agree that there is a real need to explore this issue. Nevertheless, this particular request for relief seems too broad. We have no evidence that all rural areas lack high-speed data services. Nor have the carriers guaranteed that interLATA data relief would secure data services for rural residents, and not just high-end business customers.
Lifting the ban on all interLATA data carriage may not be the tailored remedy that we need. It may be tantamount to dousing a forest to squelch a small brush fire. I have also likened it to helping a friend pay her mortgage: paying off the entire mortgage on the house is unnecessary, when a loan for one-month's payment would be sufficient. What we need, instead, is to determine which areas lack services and how to spur deployment of those services to those particular customers.
Providing data services to rural areas, low-income areas, and residents young and old will remain a challenge through the next millennium. But it is a worthwhile challenge. When we think about the 1996 Telecommunications Act, we must remember that its ultimate goals are to make telecommunications services cheaper and more broadly available, and to extend new advanced services to as many Americans as possible. As President Clinton said, "The new promise of the global economy, the information age, unimagined new work, life-enhancing technology: all these are ours to seize. That is our honor and our challege. We must be shapers of events, not observers, for if we do not act, the moment will pass and we will lose the best possibilities of our future."
Let's be sure that we can bring the benefits of new technologies to all. Puff Daddy sings that: "Sky is the limit and you know that you can have what you want." New technologies really can make the sky the limit. Now let's be sure they're within the reach of all Americans.