"And the Winner Is . . ."
Remarks by Larry Irving
Assistant Secretary for Communications and Information
National Telecommunications and Information Administration
U.S. Department of Commerce
First Annual Competitive Local Access Conference
March 22, 1999
Good morning. It's a privilege to be able to kick off the First Annual Competitive Local Access Conference.
I know that many of you were probably up late last night watching the Academy Awards, and are still musing over the Academy's choices. Personally, I'm still trying to figure out how you can win the "Best Director" award, but not receive the award for "Best Picture." And, three years from now, after we have forgotten all about "Shakespeare in Love," which won "Best Picture," we'll still remember the energy, vibrancy, and vitality of Roberto Benigni, the star, author, creator, and director of "Life is Beautiful." He demonstrated that, if you have vision and passion about what you do, you can accomplish anything. And that is what many of you here today are also demonstrating in the telecommunications field, as well.
Because I don't want to start out your morning with too abrupt a transition, I'd like to take this opportunity to continue the awards ceremony by honoring the winners in the telecommunications field this past year. Just as Hollywood had an exciting round of new movies to award, we've had an equally - no perhaps more - exciting year of developments in telecommunications.
This year, we've seen a tremendous growth of new players, new technologies, and new services and products on the market. The choices for consumers are vast, and keep growing. What if you want to contact your child at college, at the airport, or on the playground? Today you have a range of options. You can use e-mail, a cell phone, or a traditional telephone. But the options don't end there. If you're e-mailing, you can do it over a PC, a Web TV, a Net phone, or a wireless laptop. If you're using wireless, you can use a digital or analog cellular or PCS device. Or you can use a dual mode device and switch back and forth between digital and analog. And even the plain old telephone is no longer just a plain old telephone. Your calls may be carried over traditional copper wire or cable, or fiber, or even over the Internet if you're using Internet telephony. And, this doesn't even begin to cover the range of options that are available.
These types of developments are changing the lives of hundreds of thousands of consumers and businesses. They deserve as much recognition as any blockbuster movie, and for that reason I'd like to begin the awards ceremony.
Best Screenplay - The Telecommunications Act
First, the award for the "best screenplay." I know it may be hard to believe, but I would give it to the Telecommunications Act of 1996, which laid down the template for competition and open markets. We can attribute many of the recent changes in the local access market to technological developments. But many of this year's changes were also set into play by the 1996 Act. When Congress enacted the Telecommunications Act, it intended to create an open, competitive environment in the local telephone market to spur new products, services, and lower prices in this market.
And, how has the Act fared? As you know, it has received mixed reviews three years after its passage. (But then again, a lot of the Oscar-winning movies also received mixed reviews.) Many are finding fault with the Act itself. Some argue that the Act should be revised because we still haven't seen entry by the Bells in the long distance market. Others are lamenting that, despite the Act's deregulation of the industry, the Federal Communications Commission proceeded to issue hundreds of thousands of pages of regulations.
Certainly, many of the Act's promises have not yet fully materialized. The Act was intended to result in greater competition and lower prices for consumers in the local telephone market. Yet, there is no denying that competition is coming far faster to the high-end, business customer, than to the average consumer. More than 96% of America is still without a choice for local telephone provider. And, while a few cable companies are beginning to offer telephone service, we are not yet at the point where we can say that cable and telephone are rapidly engaging in each others' business.
Although the Act has not immediately produced all the intended results, we are nevertheless beginning to see results and reap its benefits. Should the Act win an award for "best screenplay"? Well, I don't think anyone would argue that it's the model of grace or clarity. It has taken the FCC and state commissions several years to interpret its terms, and companies have spent billions of dollars contesting these interpretations in court.
Nevertheless, despite the Act's ambiguities, it has set the stage for tremendous competition, investment, and innovation. 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. The investments in advanced infrastructure are growing dramatically. That is why so many streets in D.C. are being dug up, according to a recent Washington Post article. New companies are laying down new fiber because they believe in the future of the industry and have a vision for the future. (Of course, why we continue to then have potholes is a whole other story . . . .)
In addition to investments, we're seeing a dramatic rise in exports of telecommunications equipment - a near doubling in the last five years to $25 billion. And we have generated more than 200,000 new jobs in the telecommunications sector and 800,000 in data services. (And that figure does not even take into account the many hundreds of thousands of jobs created in related computer hardware and software industries.)
The growth of companies, and infusion of capital, is greater today than at any previous point in telecommunications history. And that is also having positive effects for consumers. Today, we can get long distance service for as little as 5 cents a minute. Wireless plans are offering wireless service for the same low rate as wirelined. And some consumers are able to make long distance calls for only a few cents a minute using Internet telephony.
So, consumers are beginning to see benefits. And, although it has been a slower process getting this "show on the road" than we originally anticipated, we are finally getting to where we want to be.
Best Director - The Recent Supreme Court Decisions
And what about the "best director" award? Given the complexities of the screenplay, we owe a lot to the new directors that have set this play in motion. This year, we are most indebted to the Supreme Court decisions that have resolved many of the key issues.
It has taken the last several years to implement the Telecommunications Act, and many people have been complaining about this delay. (I like to remind people, in this situation, that it took Congress sixteen years to pass meaningful telecommunications legislation, so three years pales in comparison).
Initially we were waiting for regulations from the FCC and state commissions, and I'd like to commend the FCC for giving the long hours and attention in getting these regulations out. We've benefitted from many of the FCC's regulations, such as the collocation order it issued last Thursday, which will make it easier for CLECs to gain access to incumbent LECs' networks.
One of the most significant reasons for the delay, however, has been the extensive litigation interpreting the Act's terms. Many have called the 1996 Act the "lawyers' relief act." But, in fact, in many cases there was a need to get into the courts to seek clarity on the Act's terms.
Fortunately, much of the litigation has now been resolved by several recent Supreme Court decisions. In one key decision, the Supreme Court upheld the constitutionality of several of the Act's provisions that had been challenged by the Bells. In another decision, the Court upheld key portions of the FCC's local competition rules, which had previously been invalidated by the Eighth Circuit. Among other things, the Court upheld the FCC's claimed authority to govern the pricing of interconnection, unbundled network elements, and resold services. It also affirmed the obligation of incumbent carriers to recombine network elements, upon request. This ruling will make it easier for prospective entrants to use unbundled network elements as an entry strategy.
The most significant result of these decisions, however, is that we now have certainty regarding the Act's obligations. As an investor, you now know how the FCC and the courts have interpreted the Act, and will be more willing to make investments, negotiate with other parties, and comply with the Act's terms. This is not an insignificant outcome!
At this point, it rests with government and regulators to ensure that competition continues to flourish in the local access markets. By saying that, I don't mean that we should heavily regulate the industry. If anything, we need rules that are flexible and that promote private sector ventures and the development of new technologies.
We have seen this flexible, market-oriented approach work in the context of the Internet.
By refusing to regulate the Internet, we have seen millions of companies jump online, offering a vast range of services and programs. Today, there are millions of companies marketing online, over 5000 Net radio stations, over 500 online auction sites, and numerous online brokers. By some estimates, we will be purchasing $3.2 trillion in goods over the Internet in the next few years. Three years ago, we would never have imagined that the Internet would have so profoundly changed our culture and our marketplace.
The same remarkable changes are impacting the local access market as well. Questions concerning competition in the telephone market no longer involve just the Bells and long-distance carriers; they now also involve Internet Service Providers, the "next generation" telephone companies carrying voice on the Net, and the myriad wireless and satellite providers.
As Vice President Gore explained last week, we are dealing with a high-tech world that is governed by Moore's law (the concept that the power of microprocessors doubles every eighteen months.) But in the policy world, we have no regulatory equivalent.
If we are to keep up with this fast-changing world, we are going to need regulations and policies that are fluid and flexible. Every day there are new questions involving new technologies. For example, should broadband services, such as DSL, be treated the same way as other unbundled elements? Should we require cable operators to provide equivalent access to cable modems? These are questions that have arisen in the last six months alone, that we never could have anticipated last year. By next year's Academy Awards, I hope we'll see new candidates for "Best Director" who have created forward-looking, flexible policies that cater to these new technologies and new actors.
Best Actor - The Emerging Competitors
And speaking of new actors . . . If you think the Academy had a tough choice selecting a "Best Actor" from its five candidates, imagine how tough it would be to select a "Best Actor" among the myriad new players in the telecommunications field, many of whom have the vision and creative energy of Benigni! That is why I think all the emerging providers should win the award this year.
Three years ago, consumers had no choice in their local telephone service provider. Now, many consumers can turn to competing carriers, companies offering Voice on the Net, cable operators, electric utilities, and wireless operators for their telephone service.
Among the many new players that have emerged in the last few years are the competitive local exchange carriers, or CLECs. There were more than 500 CLECs at end of last year, according to one analyst. Within two to three years, CLECs could compose nearly 15% of the local telephone market.
While the majority of CLECs are still reselling incumbents' services, those building their own networks truly stand out. These CLECs recognize that our telecommunications needs are rapidly changing. When the Telecommunications Act was passed, 90% of the traffic crossing our wires was voice traffic. Today, data traffic exceeds voice traffic, and it 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. One analyst (RHK) estimates that the explosion of the Internet, along with strong growth in ATM and frame relay services, will cause data traffic to exceed voice traffic in the public network by a 30:1 ratio by 2003
Who's using this network? You can ask my nephew, who's a college student. He's downloading hundreds of songs every day from the Internet, using MP3 and his Rio. Snap just announced today that it's targeting high-speed Internet access users by offering high-bandwidth audio and video functions. And, many consumers are going online today to look at cars in 3-D or to look at real estate listings. The programs available today make it possible to walk inside a house, explore each room, and even see the view into the back yard.
But these opportunities are only available if we have enough capacity on our system. Many CLECs recognize this need and are creating networks, based on packet switches and fiber networks, that can accommodate huge data flows at far lower costs. Qwest, for example, will be completing a high capacity, IP-based fiber optic network by mid-year. Level 3 is also constructing an IP-based system that can carry data as easily as voice. The fiber in one pair of conduits installed by Level 3 will be able to transmit 60 trillion bits of information per second - the equivalent of 750 million simultaneous phone calls. That's 15 times the capacity as now services the best-wired city in the world - New York. And Level 3 plans to install, not one, but five to seven of these pairs in its network.
For these companies, voice traffic will become incidental to data traffic. As Level 3 said, "[t]hey will carry voice because they think voice rides free on their network," but their real interest is in data applications.
With the growth in high-speed data networks, we should also expect to see an increase in Internet telephony. IP telephony still accounts for a small percentage of total phone traffic. Nevertheless, companies carrying Voice on the Net are already offering some savvy consumers cheap alternatives in long distance service. The cost efficiencies of Voice on the Net are prompting even the long distance giants, such as AT&T, British Telecom, and Deutsche Telekom, to experiment with voice over IP. It shouldn't surprise any of us if IP telephony accounts for one-third to one half of voice communications by early in the next century.
Other new contenders in the local telephone market are the newly merged telephone companies. Now, I realize that mergers may not necessarily be pro-competitive. But if they live up to their promises, two of the recently merged companies - AT&T/TCI and MCI WorldCom - will create further competition in the local market. MCI WorldCom will be one of the first long distance providers offering local telephone service on a broad, residential basis. It announced last month that it is offering local telephone service to residents throughout New York State, by reselling Bell Atlantic's services.
AT&T/TCI also promises to compete directly with the incumbent LECs by offering local telephone service and Internet access over TCI's cable modems. This strategy should help make AT&T a formidable, facilities-based competitor, and will provide more bandwidth to consumers.
Finally, no discussion of local competition would be complete without mentioning wireless providers. Today, one in four Americans has a wireless phone. That's 60% more than two years ago. In the next few years, I expect wireless phones will be as prevalent as traditional wirelined telephones. Already, the price and the quality of phone service are nearly identical.
Wireless is poised to become a significant competitor to wirelined service, both for voice and data. In towns, such as Regent, North Dakota, we are already seeing local residents get their primary phone service from a wireless provider. Many other wireless companies are preparing to build wireless local loop systems that will allow them to compete head-to-head with the incumbent telephone company. Companies, such as AT&T, are also planning to use fixed wireless technology to provide local telephone service to companies that it can't reach through cable lines. Over time, obtaining primary telephone service from a wireless provider may become almost commonplace.
As for data services, wireless providers -- such as Teligent and WinStar -- are already demonstrating that it is possible to send data and video services over a broadband, fixed wireless network. By 2002, one analyst estimated, nearly 12.6 million US consumers will be spending $5 billion on wireless data devices.
These developments promise that wireless will become a key player in offering primary telephone and data services. But, they are obviously only one of a wide range of competitors in these fields.
I am optimistic that the choices for local service will only continue to grow, as CLECs, long distance providers, cable operators, and others reach out to residential customers. We should continue to see a growing range of players in this field, making the selection of "best actor" even more difficult in the years to come.
Best Picture - A Connected Society
But if selecting a "best actor" is tough, choosing the "best picture" of the year is easy. The rosy picture of the future of local access competition will not be complete unless all Americans have choice and access. That is the "best picture" we can imagine.
The Clinton-Gore 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 their house. 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. And, on many Indian reservations today, chances are one out of two that you have no phone.
Competition in the local telephone market is only meaningful if it helps us connect all our nation's households. Everyone should have access to reasonable, reliable phone service and a high-speed data network. Programs, such as the Lifeline program (which helps low-income residents afford basic telephone service) and the "e-rate" program (which helps connect schools and libraries to the Internet), are moving us towards these goals. But we must continue to frame our policies, and our business decisions, to bring choice to all local residents. That's my selection for the "best picture" for this year, and for all years to come.
At a time of awards ceremonies, it is exciting to watch the selection of winners and losers. But in the telecom field, we want everyone to be a winner. No American should lose out on the growing opportunities to receive diverse services that will increasingly be offered at a higher quality and a lower price.
We need to promote competition, not as an ends in and of itself, but because of the benefits that competition brings. As I've said before, anyone in the business of regulation should be trying to work him or herself out of a job. Competition in the local access market will help broaden access to communications services, and make possible our dreams of the future. As Vice President Gore stated recently, "[t]oday, on the eve of a new century and a new millennium, we have an unprecedented opportunity to use these powerful new forces of technology to advance our oldest and most cherished values. . . . Today, we are more connected than ever before. Now, let us use our new tools and technology to build on that interdependence - to build a stronger global community, and to make real our common values."
That's a perfect summation of what our goals should be today. Last night, a billion people around the world watched the Oscars. Right now, six billion people around the world are watching what the United States is doing in telecommunications, because they know that we are leaders in this field. Last night, we had an opportunity to make compelling choices and witness creative energies and vision. Today, the telecommunications revolution presents us with equally compelling choices and dynamic actors. Our goal is to make the right choices, and to use our creative energies, so that we are all winners in the field of telecommunications. And that will only happen if folks in this room make it happen, and those of us in government facilitate that process.