Statement of Reed E. Hundt Chairman Federal Communications Commission on H.R. 1555, The Communications Act of 1995 before the Subcommittee on Telecommunications and Finance Committee on Commerce U.S. House of Representatives May 11, 1995 Mr. Chairman and Members of the Subcommittee: Introduction It is a pleasure and a privilege to appear before you today to discuss H.R. 1555, the "Communications Act of 1995", and telecommunications reform in general. The Members and their staffs who participated in its drafting are to be heartily commended. H.R. 1555 represents a comprehensive effort, building on those of the last Congress, to bring the communications laws up to date to reflect the tremendous changes in this sector. First, I want to note how much I support the basic policy thrust of promoting competition in telecommunications markets. The bill will advance this goal in many areas. There are provisions, however, that I believe should be reexamined. In one vitally important policy area -- bringing advanced telecommunications services into our classrooms and libraries and anchoring them in all our communities -- I think we need to do more. The Commission's Role H.R. 1555 commits considerable responsibility to the Commission to carry out the bill's policy. By doing so, it recognizes that in several vital areas, competition remains but a goal and legislative as well as administrative action will be necessary to make this a reality. The bill recognizes that in the absence of a competitive environment, neither the purchasers of goods or services, or the economy as a whole, are well served. H.R. 1555 comprehends that it is the transition of moving markets toward a competitive environment where the work of the Commission, as well as state authorities, is imperative. Competition is an effective means of pursuing lower costs and prices, higher quality, innovation, and quick response to changing needs. But competitive markets do not suddenly mature by legislative or administrative mandate. The Commission has long worked to foster competition. In the deregulation of customer premises equipment ("CPE"), in the development and implementation of a system permitting competing long distance companies to use the local telephone network to originate and terminate calls, and in the creation of the technical capability that permit consumers to select their long distance carrier, the Commission has played a critical role in removing barriers to entry by new competitors and ensuring that users have access to competing service providers. In the development of the new personal communications services (PCS), the Commission's key premise was to allow the market to determine the number of competitors, the services offered and prices charged. The Commission's work in PCS has demonstrated the tangible benefits of competition. With the authority that Congress gave the Commission in 1993, it launched the first-ever auctions of the public airwaves, permitting the market, rather than bureaucrats and lobbyists, to determine who gets valuable wireless licenses. High bids in the auctions the Commission has held to date total nearly $9 billion -- the equivalent of $35 per United States citizen or about $100 per U.S. household. That is also $9 billion toward deficit reduction. Just as important, the PCS auctions introduced advanced wireless telephone and data services, stimulating tens of billions of dollars in investment and creating hundreds of thousands of jobs throughout the country. PCS will provide competition to the cellular telephone business, reducing rates dramatically. There are predictions that 40% of the population will be wireless users in ten years and that wireless will challenge the traditional wired network for basic phone service. The Commission's role in removing barriers to entry by new competitors and ensuring that users have access to competing service providers is further reflected in its expanded interconnection proceeding. Expanded interconnection enables competitive access providers (CAPs), interexchange carriers (IXCs), and others to terminate their own transmission facilities at the local exchange carrier's (LEC) central office and to interconnect with interstate access services, including switched and special access services. Its import is greater user choice, increased LEC efficiency, faster deployment of new technology and reduced rates for services. Additionally, in implementing the program access policies of Title VI of the Communications Act , the Commission's work has been directed toward enhancing competition and diversity in the video programming market. The provisions of the law prohibit unfair or discriminatory practice in the selling of programming to multichannel programming distributors. The Commission's implementation has set a careful balance of prohibiting exclusivity in the sale of video programming except where such exclusivity is justified by factors such as promotion of new services. In these and a range of other areas, the Commission has shown its commitment to competition's value. Its actions show that these efforts include confronting unnecessary or duplicative regulations that increase costs and hinder development of fully competitive markets in telecommunications services. This is a fundamental aspect of the Commission's responsibilities. That competition is effective does not mean that its potential is an adequate substitute. In several important market segments, most notably local telephone service and cable service, competition has not arrived. Furthermore, competition will not reach all areas and all users at the same time. Competition arrives first to high-volume users in urban and suburban areas. The telecommunications revolution is in transition to a new environment where there can be choice among competing suppliers of local, long distance, video and wireless telephone services. In this transition, federal and state officials have a responsibility to promote competition wherever and whenever possible and to enhance access to competitive markets for both consumers and providers of services and products. They must be cognizant of markets not yet competitive and have an ability to refrain from imposing obligations that undermine rather than foster the continued development of competitive markets. But there are limits to what the Commission can do within its present authority alone. The American people and business need telecommunications legislation to bring about a new era of competition. H.R. 1555 provides the impetus in many important respects. For example, H.R. 1555 addresses the interconnection responsibilities of telecommunications providers which are essential to telephone competition. The specific interconnection duties enumerated for local exchange carriers provide the Commission with the guidance it needs to promulgate clear rules. In addition, H.R. 1555 commits to the Commission the flexibility necessary to permit it to refrain from imposing obligations that would undermine rather than foster competitive markets. While these responsibilities are well within the Commission's expertise, the timeframes imposed, as well as the potential number of individual petitions the Commission will have to act upon, imposes a substantial challenge. The provisions of H.R. 1555 relating to license terms of broadcasters seek to structurea two step license renewal process. These provisions are consistent with recommendations of the Commission's Special Counsel on Reinventing Government. With respect to foreign ownership restrictions contained in current law, reexamination of these provisions is timely and appropriate. Section 310 is a most powerful lever in opening restricted overseas markets to U.S. investment. But, it would be a mistake simply to repeal Section 310(b). Any change should be flexible enough to be market opening, not market closing. The Commission has instituted a proceeding proposing that the public interest standard it uses in determining whether to apply Section 310 take into account the reciprocal openness of the market in the nation from which a potential foreign owner comes. Any revision of Section 310 should embody this reciprocity principle. As to advanced television, it is essential that after a reasonable transition period, the government recapture the current analog spectrum. Only then will large amounts of contiguous nationwide spectrum be available so that its value is maximized to spur additional jobs, investment, competition and auction revenue. Additionally, any fee structure that is imposed should not distort use and stifle consumption. The Commission should also not become intensely involved in monitoring, allocating and auditing the relative uses of the spectrum. The sections of H.R. 1555 relating to advanced television raise these concerns. The extensive provisions of H.R. 1555 that address the local telephone exchange and impose interconnection responsibilities on the local exchange carriers, as well as the conditions for entry into long distance service by the Bell Operating Companies, are carefully tailored to ensure that a fair competitive balance emerges. In contrast, the provisions addressing cable, where there is similarly virtually no competition, reflect no such balance. The definition of effective competition will deregulate the cable programming services tier in most markets, without a showing of actual competition or service offerings by potential competitors. Further, in setting a new threshold for rate complaints, the authority of the franchising authority is eliminated. The provision will essentially eliminate the ability of individual subscriber complaints to be considered or reviewed. Serving All Americans The provisions of H.R. 1555 addressing the reform of universal service seek to ensure that its important objectives are implemented in a manner that does not distort efficient investment or competitive markets. The bill recognizes the need for a comprehensive review and directs the Commission to commence its review promptly. Importantly, H.R. 1555 needs to be expanded to bring the benefits of telecommunications to all Americans. President Clinton and Vice President Gore have stated a national goal of connecting the nation's schools and libraries to the information superhighway by the Year 2000. Speaker Gingrich has noted the importance of bringing advanced telecommunications to the schools. It was only last week that I appeared with him at a public school in Washington to demonstrate how telecommunications technology can enhance the education of our Nation's children. The information revolution is leaving our schools behind. As telecommunications technology increases productivity and access to information across our economy, our classrooms are cut off from the communications revolution. Sadly, an educator from the 19th Century would feel completely at home with the technology of today's classroom. Every day, 45 million teachers and students enter a setting in which only 12% of the workplaces -- the classrooms -- have even basic phone lines. In this day and age, in which every shipping clerk is hooked up to a computer network and half of all workers use a computer at work, only 3% of the classrooms are networked. A computer network connected to the classroom means that every teacher and child has access to the world's greatest libraries; every child can improve his or her math skills by working with tutors and interactive programs on-line. Basic literacy today has to include computer literacy. Teachers can be far more productive on a network. Studies show productivity increases of as much as 30%. Networked teachers can exchange lesson plans, get tips from their colleagues, or obtain access to the Library of Congress or the National Archives for teaching materials. In rural areas, you can teach subjects through distance learning that the consolidated school district can't provide teachers for. Yet teachers simply do not have adequate tools to use the resources of the information revolution. Technology can draw parents into the education process. Already, in schools that use simple voice-mail technology, parents can call into a mailbox to find out the homework assignment or information about a class trip. In the future, classroom networks could eventually extend to the home and thereby fulfill what educators say is their biggest unmet need: lengthening the learning day and involving the parents. These community nodes can be the town squares of the future. They can serve rural areas as well as the inner city. A fundamental element of universal service should include improving the quality of educating our children. We will not have to network every home if there is ready access in the community to advanced telecommunications services. The private sector needs to develop the technology and do the work to network the classrooms and libraries. But there is an important leadership role for federal, state and local government. I suggest the following principles: Assist with installation costs. The initial cost of networking the classrooms is the largest of all classroom network start-up costs. Every classroom should have e-mail and the capability to access the Internet. Preferential service rates for schools will only help once the network is in place. Identify a support mechanism that is fair and efficient. The mechanism chosen shouldn't burden a narrow set of ratepayers. A universal service support mechanism from all telecommunications carriers should be considered. Create no new bureaucracy. An education support fund might be created resembling the Universal Service Fund. Be technology neutral. Schools should be free to choose among competing networking technologies and providers, i.e., satellite, cable television, wireless cable, and wireless telephone, in addition to local telephone connections. Create network and leverage other investments. In order to keep the cost low and ensure that awards are made only to school authorities committed to using and maintaining the technology, support should be based on a matching commitment to create the network -- and not to fund the purchase of computers, program software, or teacher training. Developing networks should inspire educational technology markets and economies of scale. Conclusion In summary, the world has changed dramatically since enactment of the Communications Act of 1934. The technological innovations, the entrepreneurial zeal that pervades many aspects of the industry, the extraordinary growth and enhanced rivalry, have contributed to its primacy in our economy and its impact on the quality of the lives of the citizens. These changes, however, have not brought about competitive markets in several vital areas, nor will the enactment of legislation. Nor are technological advances alone enough to make their benefits accessible to those in the most need, our children. It is only through the commitment to bring about competitive markets, and entrusting the Commission with the necessary tools and resources to effectuate these important principles, can the new environment fulfill the promise of enhancing the lives of all Americans. Again, I appreciate the opportunity to appear today. As always, the Commission's staff is available to assist the Committee in any way in bringing this legislation forward to enactment.