Remarks of Assistant Secretary Irving at CompTel's 1998 Fall Business Conference

Bringing Competition to the Local Telephone Markets
San Antonio, TX
October 06, 1998
"Bringing Competition to the Local Telephone Markets"
Remarks by Larry Irving
Assistant Secretary for Communications and Information
National Telecommunications and Information Administration
U.S. Department of Commerce
 
at
 
CompTel's 1998 Fall Business Conference
San Antonio,TX
 
October 6, 1998

 


Good morning. It's a pleasure to be here at CompTel's Fall Conference. Now that we are nearly 1,000 days into the 1996 Telecommunications Act, I can think of no better time than this conference to assess how far we have come in promoting competition in telecommunications. I'd like to take this opportunity to evaluate what has worked, what hasn't, and what we should do from here.

The good news is that we are now seeing increasing choice and services in the local telephone market. After much anticipation, cable companies are now beginning to offer telephone service. Cox, for example, is offering service in Phoenix, Omaha, and Orange County. MediaOne is now offering cable telephony service in Atlantia, Los Angeles, and certain areas of Massachusetts, promising rates up to 47 percent lower than the competition. And AT&T, of course, is banking on the success of cable telephony in merging with TCI.

Competitive local exchange carriers (CLECs) are also becoming major players in the local market, as demonstrated by the large turnout at this conference. Two and a half years after the passage of the Telecom Act, there are more certified CLECs than there are incumbent LECs, according to a State Telephone Regulation Report released two weeks ago. To be exact, there are 1,429 CLECs holding 2,832 certificates issued by state regulators.

Of course, the vast majority of those holding certificates are not yet operational. But, it is safe to assume that the number of operational CLECs will also grow. In 1993, there were 20 CLECs; at the end of 1997, there were 150. That's nearly an 800% growth over 4 years -- not bad for a new industry sector!

With increased competition, we are also seeing greater investment in advanced technologies. Most switches today are digital, and fiber optic links now carry a high percentage of our nation's calls. According to the FCC's latest calculations, local telephone companies had almost 14 million miles of fiber in place at the end of 1996, almost 3 million miles more than the previous year. Ten percent of these fiber miles were laid out by new entrants!

Fiber optics are among the many new technologies that are enabling consumers to gain access to new services, such as high-speed Internet access. There are now over 70 million Americans connected to the Net, compared to 900,000 scientists and researchers five years ago. Access to the Net is becoming critical to our nation's economic prosperity, as more and more business is conducted on-line. And it is revolutionizing the way we conduct our daily lives: consumers can listen to remote radio stations through "Real Audio," watch programs using video streaming, connect to hospitals for at-home medical care, or take courses through distance learning programs.

While it is safe to say that consumers have benefitted tremendously from enhanced services and deregulation in the last 2 ½ years, there is no question that we still have a long ways to go in promoting competition in the local telephone market. As residential customers can tell you, there are still very few areas where they have a choice in selecting their local phone provider. Earlier this year, USA Today reported that half of the 20 million households living in big apartment buildings and other clustered communities will have that choice within the next two years. We need to make that prediction a reality. The same choice that we now have in the long-distance market should also be available in the local market, and at the same low prices.
 

Actions Affecting Local Competition

I am encouraged by a number of pending actions that, I believe, have strong potential to further competition in the local telephone markets.

First, as you know, the U.S. Supreme Court will be hearing oral argument later this month on the two Eighth Circuit decisions on the FCC's local competition rules. The Eighth Circuit's rulings, which invalidated a number of the FCC's rules, have created endless confusion and delay in implementing the 1996 Telecom Act. No matter how the Supreme Court rules, we can at least look forward to certainty in this area.

Let's hope that we can also look forward to a ruling that will open the doors for greater competition. The Eighth Circuit's decision, for example, held that the 1996 Act does not create a duty on the part of incumbent carrier to recombine the network elements that they make available to competing carriers. This ruling has made it difficult for prospective entrants to use unbundled network elements as an entry strategy. The Supreme Court will be looking critically at this ruling and, I hope, make it easier for new entrants to enter the market using unbundled network elements.

Second, the Commission has also undertaken action to evaluate the type of access incumbent carriers provide to their operation support systems (or OSS). This action was initiated by a petition filed by CompTel and LCI, which NTIA fully supported. Access to an incumbent LEC's OSS, on a basis of parity, is essential to an interconnecting CLEC's ability to compete. If a competing carrier cannot get pre-ordering information while a potential customer is on the line, it may lose that customer's business. If it cannot get repairs done in a timely fashion, it will be seen to have poor service. If it cannot get billing information on a timely basis, its customer bills will be sent out late.

CLECs need assurance that they are receiving these services from an incumbent LEC in the same way the LEC provides them to itself. The FCC's model rules to measure parity of access are a step in the right direction. I hope they will prompt an increasing number of incumbent carriers to adopt these measurements to demonstrate that they are complying with 1996 Act's "parity" requirement.

A third action, with which I'm sure you're all familiar, is the ongoing 706 proceeding regarding the deployment of advanced services. This proceeding should help spur investment in high bandwidth services so that consumers can obtain the information services they need. For too long, we have heard the World Wide Web referred to as the "World Wide Wait."

The Clinton Administration has long believed that investments in infrastructure can be promoted by fostering vigorous competition in telecommunication markets. That is why we counseled the FCC not to grant the BOCs' 706 petitions to forbear from applying section 251's resale and unbundling requirements. Forbearance is appropriate only when the BOCs and other incumbent LECs have taken steps to open their local DSL markets to competition. As yet, we have not seen evidence of such competition.

In response to the BOCs' petitions, the FCC initiated a rulemaking in which it proposes to lift certain regulations if an incumbent provides DSL services through a separate affiliate. While the Administration agrees that forbearance might be warranted in that circumstance, we believe that certain steps are still necessary to ensure that new entrants are placed in a truly competitive position.

To begin with, CLECs must be able to obtain unbundled access to the loops that are capable of supporting DSL-type services. We recognize that identifying these loops may be difficult. We also recognize that it may be difficult to identify points of interconnection that are technically feasible. Nevertheless, these are issues that can and must be resolved by the negotiating parties. By requiring that incumbents treat competitors in the same manner as their affiliates, we hope incumbents will also have an incentive to resolve these issues quickly and cheaply.

We have also advocated more flexible collocation rules would make it easier and cheaper for CLECs to interconnect or access network elements. Not all CLECs need 100 square feet of space or cages around their equipment, for example. More importantly, CLECs should be able to collocate a wider variety of equipment in incumbents' central offices. If collocation arrangements were better tailored to the needs of individual CLECs, we might see more new entrants offering advanced services. And that, of course, is the ultimate goal of this proceeding.

Finally, I'd like to mention a fourth action that I think will also make a real difference in promoting competition: the "truth in billing" proceeding. While NTIA's position in the 706 proceeding, and elsewhere, has been the promotion of pro-competitive policies, we recognize that competition will only truly benefit the consumer if he or she can make an informed choice. In a world of expanding players and expanding services, it is easy to get overwhelmed. It is also easy to fall prey to telecommunications scams and fraud. Competition only serves the public if the consumer can determine who's selling a product and at what price and quality.

For these reasons, I am tremendously heartened by the "truth in billing" proceeding. Several weeks ago, the FCC proposed to make telephone bills more consumer-friendly by providing consumers with more information in a better format. Among the Commission's proposals is reformatting the bill so that consumers can easily detect new charges or changes. This will enable consumers to determine whether they've been slammed (switched to a new phone company without their consent) or crammed (charged for a service that they did not order). The Commission is also proposing that each charge be accompanied by a brief description and the name of the provider responsible for the charge.

Having an explanation of each charge should greatly help the customer. If you are like me, you may have several providers. You might have a dial-around company for long-distance, a separate international provider, and a local telephone company -- all on the same bill. Knowing who's responsible for which charge, and how you can reach the provider, will help resolve any questions that arise.

Consumers also appreciate an explanation for each charge, as we learned with regard to the separate itemization for the schools and libraries fund. Much of the resistence over this new line item was because consumers didn't know where the funds were going. Once people were informed that the funds would assist schools and libraries, we found that a high percentage reported that they were willing to pay the charge. We should learn from that example.

I applaud the FCC's efforts to give greater clarity to customers' bills. At the same time, I question whether regulation should be necessary in this area. The "truth in billing" proposals make good business sense, and whether or not the FCC issues final rules, I hope all local telephone providers will adopt these practices.

Given the four actions I've mentioned above, I am optimistic for the future of competition. I think the opportunities for new entrants to compete in the local markets will continue to expand and that consumers will increasingly benefit from broader options and lower prices.
 

Obligations for Competing Carriers

But the opportunities available to new entrants do not come without their own set of obligations. I am talking first, and most obviously, about the universal service obligation. The Clinton Administration is a strong proponent of the principle that every household should have access to affordable telephone service. As America has increasingly become an information society, that concept has broadened to include access to information services. That means that even the most remote areas should be wired, and even the most distressed areas or households must get service.

With regard to telephone service, the United States has managed to maintain a penetration rate nearing 94%. That is commendable, but it still means that 6% of this country's households lack telephone service. In a recent NTIA study, we found that Blacks and Hispanic have a 14% chance of not having a phone in there house. And if you are a Black or Hispanic person earning less than $15,000, chances are almost one in four that you do not have a phone.

Competing carriers are helping to connect our nation's households by contributing to the universal service funds. Along with these contributions, I hope that new entrants will increasingly serve residential communities of all types, whether urban, suburban, or rural. We need to bring choice to local residents, as well as to large businesses, so that all Americans can enjoy better quality service and improved options at lower prices.

Second, I am also calling upon your help in preparing for the year 2000, or Y2K. No, I'm not talking about getting out on the campaign trail. I'm talking about making sure that your software and computer systems will be fully functional when the new millennium arrives. The fear is that computer systems around the country will process year 2000 as "1900," causing endless errors and glitches.

To prevent this from happening, you need to test your systems to make sure they are "Y2K compliant" well before the next century arrives. I also implore you to talk over Y2K compliance with your vendors, your major customers, and any incumbent LECs whose systems you use. Their failure to achieve Y2K compliance could affect you as much as it does them. If you depend on an incumbent LEC for billing, for example, you'll want to be sure that its OSS has been tested so that you can continue to get billing information. It is therefore in your best interest, and the interest of your customers, to get a head start in this area, if you have not already done so.
 

Conclusion

This is an exciting time for the local telecommunications industry, a time of great flux and development. All of you in this room will have the opportunity to take advantage of the increasing opportunities as competition takes holds of this market. At the same time, you are all positioned to have a lasting impact by providing choice and better services to all Americans. I look forward to working with you on both these fronts: to make the most of these opportunities, and to do so in ways that have the greatest impact.