Tulips and Telecom - Ending Excesses
And Encouraging Economic Growth
Keynote Address by
Nancy J. Victory
Assistant Secretary for Communications & Information
As Prepared for Delivery to
The United States Telecom Association
Boca Raton, Florida
October 2, 2002
Good Morning. I am pleased to have this opportunity to discuss the critical issues facing the telecom industry. This is my first formal appearance before USTA. However, during the past year, many of you in this room have provided me with insights, ideas and perspectives on key policy issues. I look forward to renewing old acquaintances and making new friends.
In particular, I look forward to working with your new USTA Chair, Margaret Greene. You are fortunate to have such a savvy telecom veteran to provide leadership in the deliberations looming so large in the days ahead. I shall listen with great interest as Margaret shortly delivers her first address as the head of your organization.
TULIPS AND TELECOM - LESSONS FOR SOUND POLICIES
The dot com boom and bust has taken its toll on our country's economy and the telecom sector. The excesses and misdeeds are startling and unacceptable. They have caused a perfect storm of contracted demand, capacity glut and investor alarm. The resulting bankruptcies, lay offs and capital cuts have had a ripple effect touching almost every aspect of American commerce. It's almost enough to prompt your friends in other lines of work to send you condolence flowers.
If so, they just might want to send tulips.
Why tulips? Some of you might recall that the 17th century tulip craze in Holland is studied in economics classes. Tulips, like many dot com stocks, became the hot investment fad in that era. Using local taverns as their trading floors, Dutch speculators wildly bought and sold tulip bulbs at exorbitant prices - the assumption was that someone would always come along to buy the bulbs at an even higher price. Predictably, the tulip bulb craze came to a crashing halt. Fortunes gained overnight were lost overnight. Sound familiar?
Ultimately, however, there was light at the end of the tulip tunnel. After this collision of speculation of marketplace realities, the bulb business rebounded. There was a real demand for the flowers that Dutch horticulturalists could produce. In fact, today, it's a $4 billion industry employing more than 90,000 people!
Similarly, the telecom industry with its broadband future is a solid business with an enormous potential for growth - growth based upon sound economic realities rather than hype, excess and cooked books. The challenge for you is to get back on that path to the future. The challenge for those of us in government is to provide a policy framework in which our country's telecom industry can prosper, innovate and advance to the benefit of us all.
Today, let me address several key aspects of creating conditions in which our common policy goals can be accomplished. First, there must be corporate responsibility in order to earn public confidence. Second, as President Bush has said, we must remove barriers to broadband deployment at all levels of government. Third, we must ensure that our nation's networks can deliver the best of services in the worst of time. Last, but not least, we must look ahead to anticipate the challenges that the transition to a digital broadband telecom world will pose for important universal service goals.
CORPORATE RESPONSIBILITY AND PUBLIC TRUST
In the last two years, we have seen a wave of financial collapses littering the telecommunications landscape. There have been a reported 500,000 jobs eliminated, $2 trillion in market value lost, and more than 75 telecom bankruptcies. WorldCom substantially added to these woes with the largest bankruptcy in history, not to mention it startling accounting revelations.
President Bush has made clear that corporate responsibility is the essential foundation for building confidence in our future. Every one of you and every one of your companies has a job to do. You have a clear duty to ensure that regulators, investors and the public can trust the accuracy of your representations and rely upon the propriety of your company's conduct. Nothing less can be expected. Nothing less will be tolerated. Your actions in this area are critical to restoring confidence in the telecom industry.
REMOVING BROADBAND BARRIERS AT ALL LEVELS OF GOVERNMENT
Just as we demand corporate responsibility, we recognize that those of us in government have responsibilities of our own. Uncertainty about the regulatory future does not serve the interests of any segment of your industry. The FCC currently has a number of critically important proceedings pending that could impact almost every aspect of your businesses. Doubts about the resulting ground rules for competition hinder both investment in the industry and investment by the industry.
I know that Chairman Powell and his fellow Commissioners recognize the imperative to resolve these uncertainties as quickly as practicable. The answers to your questions should begin coming soon as the Commission moves from contemplation to resolution in its local competition and broadband dockets. Clearly, knowing the rules of the road is essential to having confidence in the path ahead.
Broadband remains a key to future economic growth for the telecom industry and the economy as a whole. 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 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 - headed by NTIA - 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 a few weeks ago. At our last meeting, we invited industry representatives, large and small, rural and non-rural, to meet with the Working Group and to share their points of view as to where things work well and where more attention needs to be focused. We will next be breaking into smaller working groups to formulate recommendations for improvements in key areas. I have been pleasantly surprised by the enthusiasm with which the various agency participants have so far approached the effort. This is a group excited to compare notes on rights-of-way experiences and eager to streamline and simplify the process. I have high hopes for what we can achieve.
Meanwhile, as I mentioned earlier, 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 maximizing opportunities for industry growth and benefits to American consumers.
PLANNING FOR THE BEST OF NETWORKS IN THE WORST OF TIMES - HOMELAND DEFENSE
Last year, on September 11th, I was the "new kid" on the telecom block. I had just completed Senate confirmation and taken the oath of office when our world was turned upside down. As you might imagine, the Bush Administration's priorities and resources were quickly reordered and refocused. Understandably, national security concerns became a central fixture in all sorts of government activities, including the formulation of telecommunications policy.
The President's Homeland Defense initiatives are a comprehensive response to the threats facing the country. Within the Department of Commerce generally and with respect to NTIA specifically, we've taken a number of key steps to protect the integrity of telecommunications networks and to promote the capabilities of telecommunications to respond in crises. Our goal has been to ensure the best of services, even in the worst of circumstances.
Let me briefly review a few of the actions taken and efforts currently underway with respect to Homeland Defense and public safety. At the government-wide level, the President established the Office of Homeland Security within the Executive Office of the President as an important first step in focusing resources to secure our nation. The President has since proposed creating a Department of Homeland Security to consolidate federal homeland security responsibilities under one roof. The goal of this new agency is to ensure a comprehensive and coordinated approach to protecting the United States from terrorist threats or attacks.
At the Department of Commerce, our Critical Infrastructure Assurance Office, or CIAO, has ratcheted-up its efforts on homeland security. Initially created in 1998, the CIAO serves an important coordination function by addressing critical infrastructure protection issues that cut across industry sectors. It acts as a single point of contact between the government and the private sector and helps to raise awareness and encourage participation in critical infrastructure protection efforts. After September 11th, the CIAO's role was expanded to encompass greater outreach and coordination functions, which include providing support to the President's Critical Infrastructure Protection Board, the Partnership for Critical Infrastructure Security, and the National Infrastructure Assurance Council.
And we've been busy at NTIA too. NTIA contributed legal and policy advice on the two Executive Orders that President Bush signed in October 2001, creating the Office of Homeland Security and the President's Critical Infrastructure Protection Board. We've also been heavily involved in producing the National Strategy to Secure Cyberspace. The National Strategy is a comprehensive road map for securing U.S. information systems against deliberate, malicious disruption. The National Strategy recognizes that the vast majority of cyber infrastructure is in private hands, and therefore the government and private sector must work together as partners to secure cyberspace. The National Strategy was recently released for public comment and we're anxiously awaiting your feedback.
We've also stepped-up our own outreach efforts at NTIA, through our participation on the National Security Telecommunications Advisory Committee (NSTAC), the Communications and Industry Sector Working Group (CISWG), the FCC's Network Reliability and Interoperability Council (NRIC), and in various forums on international issues. And we're looking forward to continuing this vitally important dialogue with all of you in the months and years ahead. Working together, we can ensure confidence in the security of our networks.
ANTICIPATING IMPLICATIONS OF THE BROADBAND FUTURE FOR UNIVERSAL SERVICE
While confidence and opportunity are essential to initiating growth, foresight is indispensable to making such growth sustainable. Foresight is necessary by industry executives to ensure their business plans are flexible enough to change with developing technology and consumer tastes. Foresight is also necessary by government policymakers, who likewise must ensure that their policies are able to achieve their goals despite changing technologies, services and usage.
The focus of this USTA conference on the implications of broadband for universal service is timely and important. There is no doubt that our nation's program to ensure service to high-cost areas and low-income citizens is going to be stress-tested by the wireline and wireless changes coming ahead. Foresight now is needed to avoid future pitfalls.
We are facing the increasing transition from yesterday's narrowband to tomorrow's broadband. We have the growing possibility of breakthroughs in Internet Protocol telephony. We have unlicensed products like Wi-Fi or 802.11 that are starting to make their mark. And we have providers offering a wide variety of bundled services that are beginning to blur jurisdictional lines and regulatory classifications.
We need to understand fully the potential effects of new services and technologies upon important policy goals such as universal service. There are many fundamental questions currently being asked on a host of universal service issues. Who should contribute? How should contributions be calculated? Who should receive support? And what should they use it for? We need thoughtful answers to these questions so we can begin the process of adapting legacy programs to the new realities of the emerging broadband world. And we need to be doing this now!
Knowledge is the key to foresight. In the upcoming months, I invite USTA's leadership and you, its members, to provide your thoughts and ideas about maintaining a sound universal service program. At NTIA, we will be doing our part to assist the Congress, the FCC and the state commissions in shaping the optimum framework to ensure that all Americans benefit from our country's broadband future.
* * * *
It is clearly a challenging time for our nation and the telecommunications sector. But I believe there is a bright future ahead. You are the leaders of a sector known for its growth and innovation. Put those skills to use! Help those of us in government restore confidence to your sector, identify roadblocks to opportunities, and have the foresight to create policies that work for the long term. I believe these are the stepping stones to a telecom future we will all be proud of. But government and industry must work together to put them in place.
Let me close with this one final observation about tulips and telecom. If one of your friends does splurge on sending you tulips, just remember that in the 17th century boom times they would have cost $100,000. Today, at a more rational $30 a dozen, you wouldn't be able to make a fortune on e-Bay, but you would be contributing to a healthy Dutch economy where supply and demand produce good profits, good jobs and a good economy.
Thank you for your kind attention.