Remarks of Acting Assistant Secretary Gallagher at the Computer & Communications Industry Association

Returning Health to the Telecom Sector While Opening Doors to Disruptive Technology
September 24, 2003

TALKING POINTS
AS PREPARED FOR DELIVERY

Michael D. Gallagher
Acting Assistant Secretary
U.S. Department of Commerce
National Telecommunications and Information Administration

Computer & Communications Industry Association
Wednesday, September 24, 2003

Luncheon Address:
"Returning Health to the Telecom Sector
While Opening Doors to Disruptive Technology"

Introduction

It's great to be here and a part of this program. I see that you have a number of fine speakers on your agenda, for example, Bruce Mehlman from the Technology Administration, and Marsha MacBride, who is substituting from Bryan Tramont from the FCC. You also have a number of Members of Congress from both sides of the aisle who are well qualified to speak on these issues.

It's been less than a week since hurricane Isabel passed through Washington, and we're not done talking about her yet. Hurricanes like Isabel prove the point about developing strength through adversity:

    • The hurricane showed how information (including weather information given by the Department of Commerce's National Weather Service, a part of NOAA) and advance planning can help people address difficult situations and come out relatively unscathed. (Thousands of lives were lost in the past where the government did not provide warnings of hurricanes, for example in Galveston in 1900 (12,000 lives lost) or later in an era of radio communications, in the Great Unnamed New England hurricane of 1938 (700 lives lost).)

    • Even the terrible hurricane of 1933 had the unexpectedly good result of opening a new channel through the barrier reef at Ocean City Maryland. In one day that storm created an opening to the waters behind, saving about $200,000 planned for a channel and creating new economic opportunities for the city.

In the technology and telecommunications sectors, it seems the competitive environment is one continuous hurricane. First we had the technology and telecom lead the recession - -the popping of the telecom bubble - - terrorist attacks that further challenged our economy - - a wave of corporate scandals largely centered in telecommunications and technology - - and then two wars.

However, I don't need to remind anyone in this room how important telecommunications is to the vitality of the economy, and what a challenge the past few years have been. Enterprises struggle constantly in the winds of innovation and the currents of economic change. In the midst of these challenging times, the government has several legitimate roles to fulfill, from providing information, to fostering competition, and in some places, like spectrum policy, providing the fuel to keep the motors running.

So-called "disruptive technology" is an important part of the mix. Although the term is relatively new and has evolved quickly, it has come to refer not to the disruptions something like a hurricane can cause, but to a new product or service that disrupts an industry and eventually wins most of the market share. While the term may be new, the reality is not. It was at work when Japanese automakers seized market share in the 1970s, for example, through the simultaneous engineering approach that they pioneered.

Going back further still, the father of the electric light bulb, Thomas Edison, fought in vain to protect the dominance of his direct current electric system against the superior alternating current developed by Serbian-Croatian immigrant Nikola Tesla and promoted by George Westinghouse. Edison, an opponent of executions, designed the first electric chair as a way to demonstrate the dangers of AC; some say at least part of his motivation was competitive. Despite the genius of Edison, the world would have been a far different place without the disruption caused by AC. I saw that from experience having just had my electricity restored last night!

In fact, throughout history one disruptive technology has supplanted another. A horse may have beaten the steam locomotive "Tom Thumb" in 1830, but that didn't stop railroads from being disruptive to stagecoaches and canal boats. Jet airplanes were disruptive to the railroads. CD and DVD were disruptive to audio and video cassettes. And so it goes.

It is vital that today's government policymakers understand the appropriate role of the government. As the President said when releasing the Administration's Technology Agenda in 2002: "The role of government is not to create wealth; the role of our government is to create an environment in which the entrepreneur can flourish, in which minds can expand, in which technologies can reach new frontiers."

Under the leadership of Secretary Don Evans, the Commerce Department has addressed a number of technology and telecommunications issues. This work involves a number of Commerce organizations, including the Patent and Trademark Office, The Technology Administration, and the National Telecommunications and Information Administration, or NTIA, where I serve as Acting Assistant Secretary.

The work of these agencies encompasses issues that parallel the public policy interests of the CCIA. For instance, the PTO has done some very good work with respect to the intellectual property issues presented by the DMCA and in other contexts.

 

For NTIA specifically, the challenge is to create and implement national policies that will promote the health and stability of the telecommunications sector, but not at the expense of exciting new "disruptive" technologies that are arriving rapidly at the doorsteps and desktops of U.S. consumers and businesses. The policies also must also reflect the new realities of the security and defense needs of the country.

 

The Bush Administration is pursuing aggressively the macro-economic and technical policies that lay the groundwork for our economy today. For the rest of my time today, I'd like to talk about a half dozen or so of the many areas in which have achieved success so far and in which we plan to make improvements for the future - - Internet taxation, ENUM, radiofrequency spectrum use, IPv6, and cybersecurity.


Internet Access Tax Moratorium

 

One of the easiest and most unfortunate ways for a government to stifle innovation and slow growth is to impose taxes. It's worse when a tax is on an important new segment of the economy or the most advanced version of a product and worse still when it isn't just one tax but confusing and possibly overlapping taxes. The moratorium on Internet access taxes has served us well, and the Administration worked to keep that moratorium in place.

President Bush and Secretary Evans firmly believe that less regulation and lower taxes are a recipe for prosperity. A few days ago the Administration underscored this commitment for the fourth time this year through its strong support for H.R. 49, to make permanent the moratorium on taxes on Internet access, regardless of the speed of that access, and on multiple or discriminatory taxes on electronic commerce.

As Commerce Secretary Evans and Treasury Secretary John Snow said when H.R. 49 passed the House last week, keeping the Internet free of such taxes will create an environment for innovation and will ensure that electronic commerce will remain a vital and growing part of our economy.


•IPV6


Another Internet related issue which is moving quickly is Internet Protocol Version Six (IPv6).

This next-generation Internet Protocol could pave the way for the emergence of a host of new Internet capabilities by providing a vastly expanded number of addresses for Internet-connected devices. In addition, it may facilitate improved security and reduce operational expenses for Internet users. As with any development, however, there are different views on the costs and benefits of deploying a new protocol. The federal government must be a policy maker and an informed consumer as IPv6 matures.

Very soon, the Commerce Department will announce the launch of a federal government Task Force to study how deployment of IPv6 could positively affect competitiveness, security, and the needs of Internet users.

The Task Force, called for in President Bush's National Strategy to Secure Cyberspace, released early this year, will be co-chaired by the Commerce Department's National Telecommunications and Information Administration (NTIA) and the National Institute of Standards and Technology (NIST) and will operate in consultation with the Department of Homeland Security and other federal offices and agencies.

The Task Force will examine the benefits and costs of the new Internet Protocol and the federal government's role in its deployment. It will seek input from the public, and from government and industry experts on a number of issues relating to IPv6 deployment.


 •Electronic Numbering (ENUM)

Straddling the line between Internet and telecommunications issues is ENUM. This, as you may know, is a protocol that maps a telephone number from the public-switched telephone network to the Internet's Domain Name System, and vice versa. This protocol would allow a person to be contacted by e-mail, telephone, fax, or cell phone through use of any single identifier: whether it is a telephone number or email address.


NTIA has played an active role in the International Telecommunication Union's Study Group 2, which is working on the finalization of the proposed ENUM protocol. The U.S. supports a global tree under e164.arpa, as long as it allows for competition wherever possible, promotes interworking between different approaches and systems, and encourages innovation.

While NTIA believes that ENUM holds a lot of promise for consumers and businesses alike, we have not yet "opted in" to the global tree (unlike several E.U. countries including the U.K. and France). There are a number of steps the U.S. must consider before we opt in. First, unlike other country codes, the U.S. has the added complication of coordinating with the 18 other countries that use Country Code 1 in order to opt in to the global domain. Second, we want to be sure that any implementation satisfies pro-competitive and pro-consumer principles, such as maximizing security and privacy. Finally, we are also exploring appropriate mechanisms to select an administrative and technical contact for the Tier 1 provider or providers.

Industry is taking the lead on several of these points, such as selecting the most effective mechanism for selection of the Tier 1 provider(s). The U.S. government is supporting these industry efforts and will work with industry to be sure that ENUM is implemented most effectively in the U.S. The overriding goal is to marry the best of the Internet (flexibility, adaptability, and breadth) with the best of the telephone system (simplicity, market penetration and acceptance, and reliability) - - and NOT to create the "Bride of Frankenstein" by combining telemarketing with spam!


Radiofrequency Spectrum Issues


Of all telecommunications issues, the issue of radiofrequency spectrum has commanded the bulk of my energy and focus since coming to Washington. Spectrum policy - - by which I mean the policies and the many decisions regarding the who, what, where, when, and why of spectrum access, is an area that Secretary Evans identified as having great potential for government action and for having a positive effect on economic and national security.


NTIA manages all spectrum use by Federal government departments and agencies, which puts NTIA in the middle of many spectrum debates. There is much more to it than that. Spectrum is an input to not one but several industries.

It is easy to overlook how pervasive spectrum use is. The radio spectrum is a part of everyone's daily lives, whether they think about it or not. That cell phone in your pocket uses radio frequencies identified at an international conference, allocated to the service, and licensed to a carrier by the FCC. If you're on a Wi-Fi wireless network at your office, at a coffee bar including more than 2100 Starbucks, or at home, or you are sending signals on spectrum the FCC has allocated for unlicensed use. More broadly, spectrum is the basis for over-the-air television and radio, satellite communications, and other commercial and business applications. It is crucial to the work of police and fire departments, it is essential to air and ground transportation systems, is used by NASA for such things as Galileo and to bring us the views from the Hubble Space Telescope. As important as any of these, it is used by the military for everything from two-way radios, to precision guided weapons to radars. Recently, the Wall Street Journal called the military's use of GPS - - Global Positioning System - - the "core of its might." In military terms, spectrum is a force multiplier that ensures when we send our men and women into harm's way: it is not a fair fight.

While the wireless industry, along with the entire telecommunications industry, was hurt by the burst of the technology bubble and high-profile corporate fraud, in wireless the lines are still pointing upward, if not perhaps not as steeply as once expected. In a relatively short period of time, we've seen the growth of the U.S. mobile wireless industry: 148 million customers, more than $75 billion revenues and $120 billion capital investment and more than 200,000 employees.


This is an area in which disruptive technologies are poised to move in. We've heard a lot about "Wi-Fi" unlicensed technology. Some analysts have questioned the business models for Wi-Fi and pointed out that Wi-Fi service revenue for 2003 will "only" be about $20 million to $60 million. Equipment sales for 2003 are projected to be $1.5 billion. What is the big deal about a technology generating less than $2 billion in activity today in the overall $763 billion telecommunications market? The CEO of Intel has noted that 15,000 access points sold per day is a faster adoption rate than was seen with cell phones. The important thing is not what Wi-Fi is today, but what Wi-Fi and the host of other advancing wireless technologies -- whether Wi-Max/802.16 or Third Generation or Ultrawideband or something else - will mean in the future. The great possibilities lie in the combination of new chip technologies, new battery technologies, and availability of spectrum, which together are leading to a revolution in the transmission high-speed data and voice communications.

The Federal Government has traditionally decided who would use spectrum and under what conditions. New approaches to leave behind command and control regulation in favor of flexibility and market-driven decisions do not eliminate the Federal Government's role in this area, particularly because of the extensive use of spectrum for national defense, public safety, and other important government missions. As Secretary Evans told me shortly after I arrived at the Department of Commerce: "Given a choice between economic security and national security . . . Do both!"


The Bush Administration already has a proven track record in spectrum issues, and there are more successes in the pipeline. This Administration has cut the proverbial Gordian Knot on the tangled issues of spectrum for Third Generation licensed services and Ultrawideband technology. Keep your eyes open for exciting developments at 70 - 80 GHz and more unlicensed spectrum below 4 GHz.

Most recently, U.S. delegation at 2003 World Radio Conference was successful in reaching agreement at so-called "5 GHz" band, that in essence doubles the amount of spectrum available for unlicensed services like Wi-Fi. The Administration moved this issues from a dead stop in May 2002, to an agreement on a U.S. position by February 2003, to worldwide agreement in July at the end of the WRC in July.


I was pleased to see that the CCIA supports the Administration's spectrum relocation fund legislation. If passed by Congress, the legislation would take the place of the current law, which requires winning bidders to negotiate directly with federal entities upon the close of an auction and to pay the agencies directly for their relocation costs. This process would provide more certainty for both Federal and commercial entities in the auction of reallocated Federal spectrum.

A technological trend that I believe will emerge to continue to challenge our spectrum policy foundation, as well as raise other significant policy issues, is sensors. The ability to make extremely small computer chips that use the spectrum to communicate with one another (coupled with the advancements in battery technology) will create a world with exponentially more emitters or "users" of spectrum that will be in constant communication with one another rather than tied to a human. The applications are very exciting for our economy and enriching our lives, but spectrum policy today is poorly suited to allowing their operation.


In the larger picture, NTIA is undertaking an initiative started by President Bush in an Executive memorandum in June to examine how the radio frequency spectrum is used and managed in the United States. This initiative will bring together the government users of spectrum - - including the Departments of Defense and Homeland Security - - the FCC, OMB and others to examine both the processes and the institutions responsible for managing this resource.

Cybersecurity


Pervasive throughout all policies of this Administration are concerns about security of this Nation. Technology and telecommunications are no exception. National security and economic security are a continuing and growing concern across the Administration.

Millions of people were affected by the Blaster and Sobig worms that came one upon another this past August. The Blaster worm (formally known as the "MSBlaster" or "W32/Blaster" is thought to have infected 500,000 computers worldwide. Estimates are that it cost approximately $1.3 billion to correct and in lost productivity. Sobig (in its several variants) is generally characterized as the fastest virus yet to spread on computers; yet detection efforts were able to reduce significantly its potential damage.
Although, fortunately, these particular worms had only a minor to moderate effect on the operations of companies, government agencies, and individuals, the episodes demonstrated again how dependent all of us have become on computers. Even limited attacks can cause tremendous losses of productivity. Last year the White House issued the National Strategy to Secure President's Cyberspace, a report that identified the security and privacy risks of telecommunications. This report identified the need for private and government resources to combat the growing threats to cybersecurity and called for a commitment by all parties to work together on security issues. I am very encouraged by what I am hearing about industry's response to that call.

The Bush Administration has taken some very real, very specific steps to deal with attacks and challenges to our cybersecurity:

 

  •  The Administration created the National Cyber Security Division of the Department of Homeland Security's Directorate of Information Analysis and Infrastructure Protection.
  • The Administration issued Homeland Security Presidential Directives that coordinate and help organize the cybersecurity efforts of federal agencies, state and local governments, and the private sector.
  • As I mentioned above, following a recommendation from the National Strategy, the Department of Commerce's NTIA initiated an IPv6 task force which will examine the strengths, weaknesses, and economic consequences of IPv6.


  • U.S. industry has increasingly come forward to assist in these efforts, ranging from new practices, such as Dell Inc.'s decision to sell products with industry-recommended security settings installed at the factory before shipment, to activities designed to disseminate best practices that network operators, service providers, and equipment manufacturers can employ to prevent or recover from cyber attacks, to an increased willingness to report attacks when they occur, helping both industry organizations and government agencies to track the sources and request assistance from officials in other countries.


In the Wi-Fi arena, I am very encouraged by what I am seeing in the development of 802.11(i) and its ability to address the security issues present in current Wi-Fi equipment.


It is often the role of the government to raise the caution flag on security and to call on industry to provide robust, economic, and timely solutions. There is a lot at stake. Whether government or private sector, we are all Americans who are called to lead the world economically and to defend our homeland.

 •Conclusion

In closing, I want to observe that preparations for hurricanes and typhoons require creativity, adaptability and preservation of critical assets. There is a lot the government can do, but a lot depends on individual effort and ingenuity. Storms will make landfall. Disruption is certain. Planning gives way to execution. The government must execute its mission. Reports, plans, approaches, models, paradigms - - whether they are at home or abroad, in our economy or in military conflict - - are necessary to focus resources and attention to goals. But, as we have seen over and over again, our best laid plans consistently fail to take fully into account the true breadth of American genius and our indomitable entrepreneurial spirit. New technologies will leap forward and challenge old ways of thinking, and together we will continue to lead the world.


Thank you.