SPEECH BY REED HUNDT CHAIRMAN FEDERAL COMMUNICATIONS COMMISSION NATIONAL CONSUMERS WEEK SYMPOSIUM FOUR SEASONS HOTEL WASHINGTON, D.C. (AS PREPARED FOR DELIVERY) OCTOBER 26, 1995 FIFTY-NINE MILLION CONSUMERS MIGHT BE RIGHT Thank you, Bernice, for that kind introduction. In addition, I would like to recognize a few folks from the FCC who are here today, Mary Beth Richards from the Common Carrier Bureau, and Martha Contee, Diane Stamm and Alan Cohn from the Public Affairs Office. It is a great pleasure to be with you during this National Consumers Week symposium, cosponsored by the United States Office of Consumer Affairs and the National Association of Attorneys-General. The FCC has a twin mission: we are for private competition in communications, and for public benefits from communications. As to private competition, this is the most deregulatory, procompetitive, rules- simplifying, market oriented FCC in history. As to public benefits, we are the most de-monopolizing, consumer-aware, family- friendly FCC in history. For example: -- We set price caps for local telephone companies at a level that does more to drive down the cost of a long distance call than any previous FCC action by a factor of almost two. Under our new formula the charge for connecting long distance to most local telephone companies for consumers goes down more than 5% every year. -- We freed up AT&T to compete more vigorously for high volume customers. But we also guaranteed that AT&T would not charge above a maximum price ceiling for the 30 million homes that make less than one hour of long distance calls a month; guaranteed that AT&T would offer a special fair price for 10 to 15 million low-income homes; and guaranteed that even the mere possibility of price coordination among the big three carriers will be strongly discouraged. -- We killed hyperinflation of enhanced basic cable rates and set proportionately lower basic cable rates. We also struck social contracts with Continental, TimeWarner and others that gave millions of dollars of refunds and guaranteed price ceilings for years into the future as new channels are added. The results are that cable subscriptions are at record levels, cable cash flow is up, cable is healthier than ever, customers are happier than ever, and consumers have received a $3 billion benefit that accrues every single year. -- In broadcasting we have eliminated unnecessary rules like the financial interest and syndication rule and the prime time access rule. The government should neither censor nor micromanage broadcasting. -- And, finally, we have moved to auctions for granting licenses. This is the single most valuable step for American taxpayers that the FCC has taken in its 61-year history. We have collected $9 billion so far. Senators John McCain, Russ Feingold, Fred Thompson, and John Kerrey have cosponsored an amendment that tells us to auction still more spectrum. The New York Times yesterday supported this view, urging us to auction digital broadcast spectrum worth $40 billion. Let me say this: if Congress gives us the airwaves to sell, we'll do a great job raising money for the taxpayer and jumpstarting competition with auctions. There's no better way to get competition going in a hurry than selling the airwaves to the businesses that value them the most. FCC stands for Federal Cash Cow. As Winston Churchill said, so much accomplished, so much left to do. Let me talk about some of what is left to do to promote private competition in communications and public benefits from communications. First, we need to do much more to open local exchange telephone markets to competition from long distance companies, wireless companies, cable companies. We have made great strides with key state regulators to make sure all states open up the local loop to competition. If Congress makes competition the law of the land, so much the better. But meanwhile we have to move on with an aggressive interconnection policy. All the new competitors should have fair prices for connecting to the local exchanges. Second, we need effective number portability policies. The new competitors need numbers and customers need to keep their numbers when they switch among carriers. Third, we need to reform our method of access charges for connection by long distance companies to the local exchange markets. Emerging competition strips the current system of good sense. This means we need to fix the Carrier Common Line Charge. This part of access charges makes high-volume users subsidize lower-volume users. Waivers requested by Rochester, NYNEX, and Ameritech underscore the fact that as competition hits the local exchange market the system cannot continue. The fact is that the CCLC tends to drive access charges way above cost. That raises long-distance prices, and reduces the number of calls people make. It's time for reform. As we fix the CCLC, we need to take a hard look at the hard caps on the Subscriber Line Charge. These charges are the two sides of the coin paid by long distance carriers to the local telephone company monopolies. Internet customers pay a flat rate; isn't it high time to rely more on flat rates in local loop pricing? Subscriber line charges should reflect economically rational pricing for consumers and single line businesses. This historically has been the third rail for FCC chairmen to touch only if feeling suicidal. But, heck, if you can lower cable prices 17%, the SLC should be a piece of cake. We should be cautious about these reforms causing pricequakes that shake consumers. But we shouldn't be overly worried about nickel and dime differences on the local telephone bill at the expense of having a rational pricing for emerging competition. Only economically rational pricing will encourage efficient competition against the telco monopolies. And that competition in the long run will do more to lower telephone rates than regulation can do. Fourth, we need to reform and refocus universal service. Obviously, if we're going to change access charges we need a different funding mechanism for universal service. The core principle should be that all communications competitors pay in, and that all get a chance to compete for any transfers or subsidies that are necessary to guarantee universal service. In addition, we need to refocus and restrict such subsidies. What we don't need to do is keep the price of the second phoneline at the ski condo abnormally low. We also need to recognize the failings in our current universal service. Our current 93.8% penetration of phone lines is a high number. It is also a low number. One of every five homes in Camden, N.J. does not have active telephone service. In three states, more than 10% of the homes do not have an active telephone. More than 20% of the children in this country live in poverty, and a very high percentage of these children live in a home without an active phone. In an emergency, they cannot even call 911. Our economy would perform better, our social problems would be less, if we did better than this. In part we need to narrow subsidies and focus them better. We also need to redefine what we mean by universal service. One thing the term definitely should include is putting communications technology into every classroom, clinic and library in the country. Schools are in the communications business. But while commercial business is roaring into the 21st-century information age, 45 million American children go to school in a 19th-century world. Only 12% of the classrooms have basic phone lines, and only 4% of our classrooms have computer networks. In San Francisco a couple of weeks ago, President Clinton started laying out his plans to make sure every classroom in our country is connected to the information superhighway by the year 2000. Recently, British Labour Party leader Tony Blair picked up the President's theme when he called for a Britain in which every school, hospital, and library is wired into the information superhighway, and every child has a laptop computer. Copying is a great compliment. But we need to do more so there can be more to copy. One positive step will be the Snowe-Rockefeller-Exon-Kerrey provision of the Telecommunications Reform bill that will tell the FCC to order special prices for schools. Another public benefit we should guarantee to all parents and children is this: everyone should have access to high-quality, free, over-the-air educational television for kids. At the FCC we jump-started our moldering Notice of Inquiry about educational TV in 1994 when I arrived. After a full day of hearing and a large written record was reviewed, the full Commission voted to put out a notice of proposed rulemaking to try to fix our current, failed children's TV rules. In that proceeding and related matters we have received some 1,500 comments. Overwhelmingly, the commenters representing the public have supported rules that place minimum duties on all broadcasters to deliver educational TV free over the air. In our comments so far, the public has expressed its wishes through groups such as the Parents and Teachers Association, the U.S. Catholic Conference, the Consumer Federation of America, the Black Community Crusade for Children, the Children's Defense Fund, the American Academy of Pediatrics, the National Education Association, and the American Psychiatric Association. The membership of the groups formally lodging support for minimum quantitative requirements is nearly 59,000,000. Fifty-nine million people might be right. Interestingly, the networks themselves seem to be concluding that they should do a better job programming for kids. In the New York Times yesterday I read an article reporting that the networks are losing audience share to cable. According to an ABC executive, one reason is that the networks have gone too far in delivering sexually suggestive shows to young adults, and have made a "business mistake" by not focusing more on the family audience. And an NBC executive said his network should focus more on children because he said, "We don't want to give up on whole groups of audience and say, 'Cable's for you' because we believe our future generations should be watching now. We want them now: we want them as kids, we want them right out of the womb." If in response to the market the networks are going to deliver TV entertainment to newborns fresh out of the womb, then I feel even more strongly that our rules should also guarantee that they deliver high quality educational TV for young kids. I'd like to see the networks compete with cable and with each other not only for entertaining Americans of all ages, but also for educating them. I'd like to see each network compete to put on the air its own "Barney," its own "Sesame Street." Why doesn't each network agree to prepare and produce at least one daytime weekday show that is intended to and has the effect of teaching kids? What would be wrong with more high quality educational choices for parents and kids? Meanwhile, today NBC is coming to Washington to persuade members of Congress that they are meeting their obligations under the children's TV act by showing the sitcom "Saved by the Bell." And I have on my desk a letter from NBC asserting vigorously that "Inside NBA Stuff" is educational. Are these shows really helping teach kids skills they need to compete in a 21st- century economy? That's the key question. But we shouldn't trivialize the debate about educating children with claims that the definition of "educational" needs to be so broad you could drive a truck through it, as my friend and colleague Commissioner Chong says. A specific definition focused on whether a show actually imparts learning and skills to a child would help give broadcasters and the FCC guidance in deciding whether stations are complying with the Act. Lawyers and lobbyists will moan about the problems of any definition. But remember two things. First, two million people decide every single day what educates kids. These are teachers in classrooms. We can look to them to help us define an educational show. Indeed experts like Professors Huston and Wright at the University of Kansas have already given us guidance. In a study of 250 low-income preschoolers, they found that children who watched high quality educational programming were better prepared for school and actually performed better on verbal and math tests. Maybe shows that have these results are the only ones that should be defined as in compliance with the children's TV Act. Second, today, although many TV stations try to comply with even the FCC's vague unclear children's TV rules, some take advantage of the current, vague definition used by the FCC to claim as educational these shows: "Biker Mice from Mars," "Mighty Morphin Power Rangers," and "America's Funniest Home Videos." There is nothing funny about a definition that tells a TV station that its obligations to teach our kids is met by these shows. I suspect all two million teachers could tell us how crazy our current definition is. I hope, as the network executives said in the newspaper, that the goal of reaching kids could also be "good business." It is in any event consistent with the spirit, intent, and letter of the Children's TV Act. And it is a main reason why broadcasters should be proud to say that they are the trustees of the public's airwaves. I hope open public debate about the responsibility of the broadcasters will lead to more concrete, specific, and real commitments by broadcasters to serve the public. The intense competition of the marketplace will guarantee us that broadcasters will fight hard to keep entertaining us. So much the better. But simple, fair rules by the FCC are going to be necessary to make sure broadcasters have the incentive and the mandate to compete also to educate our children. As consumers, citizens, and parents we all know that there is no higher goal for any of us than keeping the American Dream alive for our children. Some say that our country's historic commitment to kids and community is being shaken by our collective self-doubt and repeated waves of greedy self-interest. I'm an optimist. I believe this country still believes in the American Dream. I don't believe that our children will find the American Dream is as empty as our conscience on occasion seems to be. The opportunities of the communications revolution are limitless. There should be no limits on who has those opportunities. That's the essence of the American Dream. The fight for children's educational TV on the public's airwaves is important in itself. But it is also part of the most important fight of all: the fight for opportunity for all. Thank you for pitching into that battle. -FCC-