Remarks of Senior Advisor Zinman at the NECA National Symposium on Rural Telecom Issues

The Future of RuralTelecommunications
Las Vegas, NV
September 16, 2002

Remarks by
Senior Advisor Jack Zinman
As Prepared for Delivery to the
NECA National Symposium on Rural Telecom Issues
Las Vegas, Nevada
Monday, September 16, 2002

THE FUTURE OF RURAL TELECOMMUNICATIONS

Thank you, Bob and Carol, for inviting me to participate in today's event. In my time at the FCC and now at NTIA, I've worked with NECA and many of its member companies on the challenging issues affecting rural America. So it's a real pleasure to be here with you in Las Vegas to address NECA's National Symposium on Rural Telecom Issues.

Given the current environment in the telecommunications sector, I think Las Vegas is a particularly appropriate place for today's symposium. As anyone who has been down to the casino floor knows, this town provides great lessons in risks and rewards. And the future of telecommunications in rural America is really about finding the right balance between risks and rewards.

NTIA RESPONSIBILITIES

Before turning to the future of rural telecommunications, I should give you a clearer picture about NTIA's role in telecommunications for the Administration. We have a somewhat unique position that involves wearing two hats. NTIA is part of the U.S. Department of Commerce and we report to Secretary of Commerce Don Evans. At the same time, we are the principal advisor to the President on telecommunications and information policy.

Our most visible duties fall into three basic areas. First, NTIA helps to create the executive branch's domestic and international communications and information policies. This obviously involves a wide swath of potential issues.

Second, we serve as the manager of federal government spectrum. As you know, the FCC under Chairman Michael Powell manages the non-federal spectrum. Since spectrum is often shared, NTIA and the FCC regularly engage in coordination of spectrum uses and spectrum policies.

Third, NTIA has broad responsibilities for Internet domain name management. This includes awarding and overseeing the contract for the .us top-level domain as well as dealing with responsibilities and practices of the Internet Corporation for Assigned Names and Numbers, or ICANN. There are a host of Internet-related questions that get subsumed within the scope of those NTIA duties.

OUTLOOK FOR THE FUTURE OF RURAL TELECOMMUNICATIONS

In discussing the future of rural telecom today, I would like to start out with a quick review of where we came from - the Telecommunications Act of 1996. Then, I want to discuss a topic that's sure to figure in all of your futures - broadband. Finally, I want to share some potential strategies for you and your companies to consider.

The Telecommunications Act of 1996

In trying to divine what the future of rural telecommunications holds, I think it's instructive to look at the past to sift for clues to where we might be headed. For our purposes, that past begins with the Telecommunications Act of 1996. I'm not going to review all that's happened since 1996, but I do want to highlight three lasting effects of the 1996 Act that will impact the way rural carriers conduct business in the future.

First, it opened the door for new types of competition in the telecommunications marketplace. Yes, it gave birth to the CLEC industry, but more broadly it set the stage for wireless providers, cable systems, satellite providers, and telephone companies to begin competing with each other for consumers' telecom dollars. After a slow start, we're beginning to see some of that intermodal, or cross-platform, competition take root. Wireless substitution for landline service and cable telephony are a few notable examples.

Second, the 1996 Act changed the way that capital markets view the telecom sector. Initially, the Act served as a catalyst for a huge capital infusion into telecom. Wall street brokerages and main street investors pumped billions into the stocks of service providers and equipment vendors. The pendulum that swung the telecom sector to great heights in the late 1990s has just as quickly brought the industry back to earth in the last two years. While there is always an inherent amount of unpredictability in capital markets, one thing is certain - capital markets don't view telecom providers as "plain vanilla" utility companies anymore.

Third, the 1996 Act recognized the unique challenges facing rural communities and the telecom providers that serve them. It directed the FCC and the states to ensure that rural America participates in the digital economy. While many factors influence their decisions, policymakers are now obliged to consider how their actions affect rural carriers.

Broadband and Rural Telecom

So, what is the future of telecom in rural America? Well, I don't pretend to be clairvoyant, but I'm pretty sure it's going to involve broadband. All of us have glimpsed the promise of the high-speed future. Although broadband is a somewhat elusive concept that will continue to evolve over time, broadband has the potential to provide a lightning fast means of data transmission that could revolutionize the way we all send and receive information.

In addition to enhancing business efficiencies and enlarging commercial opportunities, broadband holds the promise of expanding educational opportunities, improving health care, increasing governments' responsiveness to its citizens, and generally enhancing our global competitiveness. Thousands of new jobs could result from greater broadband deployment, both directly through network construction, and indirectly through industries related to advanced networks and services. Not surprisingly, then, broadband is an important potential source of growth and investment for rural America, our country, and for others around the world.

But right now, only a relatively small segment of the American population is enjoying the benefits of broadband. A report co-authored by NTIA and the Economic and Statistics Administration, titled "A Nation Online: How Americans Are Expanding Their Use of the Internet," found that 54% of Americans are using the Internet. However, of those users, only roughly 20% have broadband access (that's only about 11% of the overall population). While the FCC's most recent broadband data show that the market for broadband service is continuing to grow, we still have a long way to go before realizing broadband's full potential - especially in rural America where low population density and long loop lengths present unique challenges.

The Administration recognizes the importance of broadband to America's future. As President Bush recently emphasized, "[i]n order to make sure the economy grows, we must bring the promise of broadband technology to millions of Americans." And indeed, the Administration has been taking a number of steps to create incentives for investment, to stimulate demand and usage, and to remove unnecessary government impediments to competition and deployment. In order to create incentives to deployment, the Administration has:

 

  • extended the Internet tax moratorium;
  • successfully urged Congress to modify the tax depreciation schedules to allow companies to depreciate the capital costs associated with broadband roll-out over a shorter time period; and
  • extended the research and experimentation tax credit (and we continue to urge Congress to make it permanent).

The Administration has also taken steps to help promote demand for these exciting new services by:

 

  • making e-government a priority for all agencies, leveraging $52 billion in federal IT procurement to make government run more efficiently;
  • making broadband demand a priority of the President's Council of Advisors on Science & Technology;
  • holding workshops on key demand issues, such as digital rights management and the benefits of broadband for small business; and
  • exploring ways to expand telework opportunities.

The Administration has also been working to identify and eliminate unnecessary government impediments to broadband competition and deployment. As many of you know, one issue where NTIA is focusing its attention is on public rights-of-way management. This issue stands alone in one regard: all sectors of the broadband industry - rural carriers, Bell Operating Companies, CLECs, cable companies, overbuilders, and wireless providers - actually share the same point-of-view! These providers are concerned that restrictions by certain municipalities and federal government landowners on accessing public rights-of-way and tower sites might be inhibiting or at least delaying broadband network construction. While the industry admits that the problems seem to lie with only a small number of jurisdictions, due to the nature of networks, a few bad actors can have a disproportionately adverse effect on the roll-out of national, statewide or regional advanced services networks. Conversely, public rights-of-way managers have also identified problems they maintain are created by some service providers.

To ensure that rights-of-way regulation is appropriate and not an impediment to broadband deployment, NTIA has undertaken a series of actions. We conducted a broadband forum last fall and launched a broadband deployment proceeding at the end of last year, both of which raised rights-of-way as an issue. We have participated in NARUC's rights-of-way discussions, particularly its Rights-of-Way Study Committee. NTIA has also met with representatives of the cities and their associations, such as the National Association of Telecommunications Officers and the National League of Cities, to identify means for improving and simplifying current processes where needed, while ensuring sufficient flexibility for municipalities to best serve their citizens. Later this year, we intend to take an in-depth look at some communities to learn up-close how they handle rights-of-way management at the state and local level. And we plan to issue a rights-of-way report highlighting what we learn.

While state and local rights-of-way policies will be crucial to widespread broadband deployment, we're also acutely aware that the federal government manages important rights-of-way over millions of acres of federal land. To make sure we're doing our part to eliminate any unnecessary impediments in this area, the Administration has formed a Federal Rights-of-Way Working Group, chaired by Assistant Secretary of Commerce Nancy Victory, which includes representatives from all of the federal agencies with major rights-of-way management responsibilities. Our mission is to develop "best practices" for federal rights-of-way management, particularly as it impacts broadband deployment. Our tasks include streamlining and standardizing current federal rights-of-way application processes where possible, ensuring that federal fee structures are just and reasonable, and developing appropriate policies to make certain that telecommunications providers fulfill their rights-of-way obligations. We want to see the federal government lead by example, and create a model of cooperation that others can emulate.

The Working Group met for the first time in July, and then again just last week. We have been pleasantly surprised by the enthusiasm with which the various agency participants approached the effort. This is a group excited to compare notes on rights-of-way experiences and eager to streamline and simplify the process. At the suggestion of the agencies, we invited industry representatives, both large and small, rural and non-rural, to meet with the Working Group and share their points of view as to where things work well and where more attention needs to be focused. Ultimately, we expect the Working Group to be at the forefront of crafting federal rights-of-way policies that will help bring the promise of broadband to all Americans.

Meanwhile, the FCC is moving ahead with proposals for broadband regulatory reform. President Bush has expressed confidence in the Commission, its leadership and its expertise to fashion the optimum framework for our broadband future. As the Commission moves ahead with its efforts, NTIA will be assessing when and where its views could contribute to a better outcome for competition, deregulation and the American consumer.

Opportunities For Rural Carriers

So what can you as rural carriers do to ensure that you participate, and indeed prosper, in the future of broadband and rural telecom? Well, I don't have all the answers, but I think there are four areas where hard work and good decisions now will pay off later.

(1) Corporate Responsibility and Accountability: The Foundation for America's Broadband Future.

Before we can hope to launch into the broadband future, we must make certain that we have a solid foundation of corporate responsibility and accountability. As you know all too well, acts by an irresponsible few have shaken the foundations of the responsible many in the telecom industry. President Bush has spoken clearly and unequivocally that corporate responsibility and corporate accountability are the cornerstones for a sound American economy. Secretary Evans has strongly reinforced those views within the Department of Commerce. And let me leave no doubt that corporate responsibility is our top priority at NTIA. Without investor confidence and public trust, the dreams of a bright telecom future and a broadband world will prove illusory. In rebuilding confidence and trust, we need a coordinated approach in which federal and state decision-makers work together with industry to address our common concerns and to achieve our common goals. Ultimately, the success or failure of these efforts rests with you, the ones charged with directing your companies' actions. So many of your companies represent true American values of honesty, integrity, and hard work. We implore you to redouble your commitment to those values in the months and years ahead.

(2) Play to Your Strengths

In the not too distant past, rural ILECs were viewed by some as sleepy little telephone companies that provided plain old telephone service (POTS) to middle and lower income America. With all of the excitement created by the Internet and wireless services in the late 1990s, your companies were, quite frankly, perceived as boring.

Fast forward to today, however, and now some of those same attributes are seen in a much more positive light. Many of your companies are stable, family-owned enterprises that have been part of the telecommunications business for several decades. Through good times and bad, you've remained part of this industry. Over those years, your companies have built close customer relationships. You work and live in the same communities with your customers and this gives you unique insights into what your customers want. And lastly, you own the pipe - the connection to the customer premises. As facilities-based carriers, you have the opportunity to explore options for providing many new services over that existing pipe. And that leads into my third point . . . .

(3) Embrace Opportunities for Smart Revenue Growth

One of the most challenging issues confronting rural carriers is the dynamic nature of the business model for telecommunications. It's clearly not business as usual providing POTS. Since the 1996 Act, your sources of revenue have undergone a significant transformation. Access charges have come down, while universal service payments and subscriber line charges have increased. At the same time, consumers have a variety of new services to choose from that challenge their reliance on traditional POTS-based offerings. Wireless providers, cable companies, ISPs, and others are all competing for dollars in your customers' telecom budgets.

How can you thrive and prosper in this changing telecom business environment? By embracing opportunities for smart revenue growth. As I mentioned before, many of you have long term relationships with your customers. Talk to them, figure out what they want, and then give it to them. Whether it's additional features for local service, long distance service, dial-up Internet access, broadband services, video services, wireless services, or something else. You can build it, buy it, lease it, or partner with someone else who provides it.

Some of you are already doing this. NECA was kind enough to take me and some of my colleagues on a field trip last year to see firsthand how some rural carriers are offering innovative new services. We visited a rural carrier that was providing local service with a suite of features, competitively priced long distance service, high-speed Internet access, and high-quality television service, all over its own plant. We visited another rural carrier that partnered with other service providers to give its consumers a comprehensive package of services.

I want to emphasize, however, that you should be pursuing smart revenue growth. In the recent past, there was a mind set of "build it and they will come." Today, unfortunately, we're experiencing the fall-out from that strategy. Instead of pursuing growth at any cost, you should focus on well-researched and well-thought-out business plans that will allow you to add new services and new subscribers at a manageable and sustainable pace. We're entering a new era of telecommunications and there are tremendous rewards to be had by forward-looking companies that take prudent risks.

(4) Stay Engaged with Your Regulators and Legislators, and Work for Reasonable Solutions

One of the most important things you can do to ensure a bright future for rural telecommunications is to stay engaged in the regulatory and legislative processes at the state and federal levels. As you're probably well aware, your voices carry alot of weight in state capitols and in the nation's capitol. While rural carriers have been effective advocates in the past, you will need to continue that advocacy in the coming months because there a large number of open issues that will shape telecommunications for years to come. Indeed, the FCC alone has several pending proceedings open on a variety of broadband issues, as well as far-reaching proceedings on intercarrier compensation and universal service.

When you do engage with your regulators, I would encourage you to work for reasonable solutions. In my experience, the most effective advocates propose solutions that solve not only their own problems, but also the larger problems of the industry and the regulator. Otherwise, you get delay while policymakers sort out conflicting proposals and you get solutions that you don't want. It shouldn't be a win for "my side" only; instead it should be a win for all sides in the debate.

CONCLUSION

Let me close where I began - finding the right balance between risks and rewards. I think the strategies I've just talked about can help you find that balance, both in rural telecom and in Las Vegas. So to help you remember those strategies and to bring you some good fortune while you're here, I'll translate them into advice you can use on the casino floor:

 

    (1) Maintain corporate accountability. Translation: play by the rules of the game. (2) Understand your strengths. Translation: find the games you're good at. (3) Embrace smart revenue growth. Translation: don't bet the farm on a long shot. (4) Work with policymakers for reasonable solutions. Translation: always be nice to the people dealing the cards.

Thank you and good luck.