Remarks of Commissioner Rachelle Chong to the Personal Communications Industry Association's PCS '95 Conference Orlando, Florida September 21, 1995 Introduction Good afternoon. It is a great pleasure to be here at this PCS '95 conference in Orlando. I was dazzled by that great laser show at the Opening Session this morning, and fascinated by your industry leaders' predictions of the future. George Schmitt talked about how he thinks in 30 years, the next generation will demand Dick Tracy-like radio wrist-watches and similar applications. I think he's right, but I think 30 years might be a little too conservative. You see, I have not used a computer since kindergarten, like many kids do now, but I got one in law school and have been a technology nut ever since. I "surf the Net," I use two wireless communicators already, and I access news and do research on my home computer. This morning, I used my laptop and modem to contact my office, read my E-mail, and send documents. I've learned that in Washington, you sometimes get a rather distorted view of life. That's why I like to get outside the Beltway, where I can get a glimpse of real life and real people. That's right -- I'm going to Disney World! Of course, I grew up with Disney -- the original, West Coast version. So I was delighted when PCIA set up this opportunity for us to get together in the Magic Kingdom. I am looking forward to chatting with you about wireless issues, but I admit I have an ulterior motive. I'm here on a special research project. You see, we're working really hard at the Commission with all that's going on in this dynamic industry, not to mention broadcasting, cable, and the rest. So I thought to give ourselves a break, we should look into opening up a chapter of the Mickey Mouse Club at 1919 M Street. I think my fellow Commissioners would look great in mouse ears at FCC meetings. And of course, they'd have to have nicknames stitched on their hats -- Reedie, Jimmy, Andy, and Sue-Sue. As soon as I get back, I plan on taking this up with Reedie -- I mean, the Chairman! Of course, I don't want people to get the wrong idea -- you know, that we deal only with Mickey Mouse items or that we're like Alice in Wonderland. I'm reminded of the fact that a few weeks ago in an interview, TV producer Steven Bochco referred to the FCC Commissioners as "six dopes in suits." Now, I will concede that Mr. Bochco is good with a sound bite and produces terrific TV shows, but his comment is a little harsh. First, there are only five FCC Commissioners. Second, we don't wear suits all summer or on Fridays. And finally, while all five of us have been Sleepy, Grumpy, Happy, Sneezy, or Bashful on occasion, I wouldn't call any of us Dopey. Wireless This is the first PCIA convention I have attended, and I am delighted to have this chance to listen and learn from you, the leaders of the wireless industry. I attended the Board of Directors dinner and industry awards last night. I was impressed by all of the people at PCIA who have been and continue to be trailblazers in the wireless industry. I was also inspired by your LifePage program to provide free paging service to people waiting for organ transplants. LifePage is a wonderful example of voluntary public service by your industry. I urge you to keep donating pagers and service to the program, and to train your employees about the program. Keep up the great work! As many of you know, my background is firmly rooted in wireless. My interest began back in college, where I first heard about plans for mobile phones. For me, it was like going to Fantasyland. From the start, I was fascinated by the potential for wireless communications to change the way that average Americans communicate. Since then, I've spent most of my legal career representing wireless clients, such as cellular carriers and paging companies. What I have loved about the world of wireless is the sheer excitement of creating a new industry with risk-taking entrepreneurs like you. This was the Adventureland phase of my career -- in fact, the sensation of those early years was a lot like riding the Matterhorn. Not surprisingly, this experience has deeply influenced my outlook as a regulator. I have known for a long time that in wireless, competition is the norm, not the exception, and that competition works. This makes it especially rewarding to serve as an FCC Commissioner at a time when we are moving into Tomorrowland. The Commission is encouraging ever more competitors to enter the wireless market, and many of you are here at this convention. It is also gratifying to see the promise of wireless that I first saw back in college being recognized by those in the highest places in government -- the President, the Vice President, and the Speaker of the House. This high- level interest in your business has brought benefits -- I expect that wireless will be a beneficiary of the new national telecom policy that is being shaped on Capitol Hill and at the Commission. "Because Frontiers Don't Stand Still" I wanted to make a special point of saluting the theme of your conference, "Because Frontiers Don't Stand Still." As some of you may know, I am a Star Trek fan, so I think of your mission, like that of the starship Enterprise, as being to explore the "final frontier" of wireless communications, and to boldly go where no communications company has gone before! In fact, you may have noticed that on Star Trek, everybody uses personal wireless communicators, even when they're talking to their computers. There's not a phone cord in sight! So I think your vision of the wireless future is a smart one. I also know you will succeed in your mission, and that one key strength is your diversity. PCIA draws together many technologies and services, including paging, specialized mobile radio, cellular, and PCS, as well as private system users, and site owners and managers. Many of these groups began by providing particularized service to different specialized markets. Today, it is no secret that the old classifications are blurring as all of you enter one another's businesses and explore new frontiers. Today's new frontier is PCS, but there will soon be others: for example, the proposed General Wireless Communications Service in the 4 GHz band. How will the FCC help you conquer the final frontier? Since I've joined the Commission over a year ago, I like to ask licensees how the FCC can be of service to them. Many are surprised by this customer service oriented question, but this attitude of how the FCC can help you grow and prosper really is at the heart of my regulatory philosophy. As technologies converge, I have come to see my overriding goal at the Commission as encouraging full competition in as many markets as possible -- as quickly as possible. I want to ensure that similarly-situated companies compete according to similar ground rules. This is not always easy, of course. For one thing, our authority to regulate comes from a 61-year-old statute, and while the 1934 Communications Act was a remarkable piece of legislation, it is definitely getting long in the tooth. Even though distinctions in the marketplace are vanishing, the Act continues to regulate each segment of the industry in isolation. So we end up with different rules for broadcasters, cable operators, and common carriers, and wireless common carriers are regulated differently from wireline carriers! It has become increasingly clear to Members of Congress -- as well as to us "dopes in suits" at the Commission -- that these obsolete laws and regulations must be changed if free and full competition is to prevail. 1993 Budget Act The good news for your industry is that Congress began to address these issues for wireless providers in the 1993 Omnibus Budget Reconciliation Act. The Act required the FCC to equalize regulation of substantially similar commercial mobile radio services. Last year, the Commission adopted new CMRS rules that go a long way toward achieving this goal. The '93 Budget Act also gave the Commission the authority to exempt CMRS providers from many of the regulatory burdens that had previously been imposed on them as common carriers. This "forbearance" authority has enabled the Commission to eliminate tariff requirements, preempt unnecessary state regulation, and generally to take market forces into account in deciding what regulations do and don't make sense. The Commission's goal has been and continues to be to streamline regulations for the wireless industry. It is my goal to have you focussing on being successful in the marketplace and not spending all your time and resources complying with a heap of FCC regulations. Telecommunications Legislation In what I hope will be more good news, Congress has turned its attention this year to bringing more competition to the wireline telephone industry. No, they aren't breaking up AT&T again; AT&T seems to be doing it voluntarily this time! As you probably know, Congress has made significant progress toward passage of much-needed telecom reform legislation. I thought I would share with you the current state of play on the pending bills, although it seems to change hourly. Both the House and the Senate have now passed comprehensive reform bills by wide margins. Though not identical, the two bills take a similar approach to many issues. First, both bills would open up the local telephone loop to competition by long distance companies, cable television companies, and -- of course -- wireless companies. The bills would also give the Commission authority, under certain conditions, to allow the Bell Operating Companies into the manufacturing and long distance businesses, and would permit telephone companies to provide video programming to subscribers within their service areas. While the pending legislation mostly will affect wireline service, some provisions in the bill directly affect wireless providers like you. For example, the House bill includes provisions on siting of wireless facilities. I'll return to this a little later when I talk in more detail on tower siting. Now that the House and Senate bills are passed, what's next? Well, the two legislative bodies must now get together and work out the differences between their two bills. There are some controversial issues on which the bills differ, like cable regulation and violence on TV. Thus, it may take a while for the House and Senate to find common ground. Moreover, President Clinton has suggested he may not sign the bill if certain provisions are not changed in the conference between the House and the Senate. Based on my conversations with key players on the Hill on both sides of the aisle, I know they are deeply committed to getting a bill enacted. I am told that the hope is to have a final bill negotiated before Thanksgiving. As someone who strongly believes that a new telecommunications bill is decades overdue and that current law is hindering competition, I am hopeful that the remaining issues -- both between the House and the Senate, and between Congress and the President -- can be worked out. A new telecom bill would sure make me whistle while I work! Of course, even without Congress's help, there is a lot that I think the Commission can do to help you get to the Tomorrowland of wireless competition. In the time remaining, I would like to focus on some regulatory issues important to your industry, and give you a hint as to how I plan to approach them. Microwave Relocation One important issue is the process for relocating the microwave incumbents who now occupy the 2 GHz band where the Commission will be placing the PCS licensees. This process has just begun with the recent grant of the PCS A and B block licenses. Naturally, PCS licensees are interested in getting the spectrum cleared as soon as possible so they can build out their systems quickly. They are also interested in developing a way to ensure that the first PCS licensees get reimbursed by future licensees for moving microwave incumbents. The Commission has before it a Petition for Rule Making proposing a relocation cost- sharing mechanism. This mechanism would enable the first wave of PCS licensees who relocate microwave incumbents to recoup a portion of their costs from later licensees who benefit from the relocation. I want to commend Pacific Bell Mobile Services for initiating this proposal and PCIA for helping to fashion an industry consensus in support of the proposed cost-sharing plan. We expect to consider a Notice of Proposed Rule Making on cost sharing this fall. I look forward to studying the details of the industry proposal, but from my briefing, I think many of the elements of the proposal make a lot of sense. I also think it would be helpful to have input from those of you with actual experience negotiating with incumbents. Talk to me or talk to any of the FCC's Wireless Staff that are here. A second aspect of the microwave relocation issue involves the Commission's rules establishing the procedures for relocation. These rules provide for a two year period for voluntary negotiations between PCS licensees and microwave incumbents, other than public safety incumbents, followed by a one year period of mandatory negotiations. Public safety incumbents get a three year voluntary period followed by a two year mandatory period. As the relocation process begins, I and our staff have started to hear two conflicting versions of how voluntary negotiations are going. Some PCS licensees contend that these rules tilt unfairly in favor of microwave incumbents. They tell us that a small but significant percentage of incumbents are refusing to consider reasonable offers to relocate, and that incumbents are instead demanding unreasonable premiums, hoping to "get rich quick." We are hearing a different story from the microwave incumbents. They emphasize that the existing relocation rules were developed based on extensive notice and comment in a prior proceeding, and that PCS licensees were aware of these rules when they bid in the auction. Furthermore, the incumbents note that during the voluntary negotiation period, they are free to seek premiums to relocate early, or not to negotiate at all. Finally, incumbents say that negotiations between PCS licensees and incumbents are going smoothly and that claims of abuses are unfounded. Let me say at the outset that I am sympathetic with the desire of the PCS licensees to move ahead quickly and provide coverage that will be competitive to current wireless providers. Further, I expect microwave incumbents to negotiate in good faith and accept reasonable offers. On the other hand, I am reluctant to revisit rules that were the product of a carefully crafted compromise arrived at after a long rulemaking. From the statement of the Chairman at this morning's session, it sounds like he too is reluctant to revisit our rules at this time. I believe the burden is on PCS licensees to provide specific evidence of any abuses that may have occurred and to offer practical suggestions for addressing such abuses. For example, perhaps both PCS licensees and microwave incumbents can agree on clarifications to the rules that are mutually acceptable. Our goal is to balance the public's interest in rapid rollout of PCS services with our desire to protect the legitimate rights of microwave incumbents. Finally, as the Chairman mentioned, there is the possibility that Congress will address this issue. In the House Commerce Committee, Congressman Ralph Hall has added an amendment to the proposed Budget Reconciliation bill. It would shorten the two year voluntary negotiation period for non-public safety incumbents to one year. The Reconciliation bill must still be considered by the full House and the Senate, and any differences between the two versions will have to be worked out in conference. Local Zoning and Land Use Issue Another issue of interest to the wireless industry and of concern to me is the siting of wireless facilities. Having spent seven years representing cellular carriers before local zoning authorities, I am very familiar with the trials and tribulations of obtaining site approvals. I have seen challenges based on aesthetics, health and safety concerns, and claims that wireless phones interfere with medical devices or garage door openers. I recognize that this issue is a serious one for both local communities and the wireless industry. With the advent of PCS and wide-area SMR, as well as the ongoing expansion of cellular, there may be as many as seven wireless providers in some markets looking for sites. Traditionally, siting issues have been handled solely at the local level. Up to now, this seemed appropriate, given that zoning and land use issues are inherently local. However, as the demand for sites continues to mushroom, I am concerned that some local agencies will become completely overwhelmed by the sheer number of site applications, resulting in substantial buildout delays. Other jurisdictions may decide to simply reject future applications for wireless sites. To avoid this result, I encourage you to keep working cooperatively with local jurisdictions. You well know that you are members of these communities. So, of course, you will want to be a good neighbor, and be sensitive and responsive to their concerns about your transmission facilities. One thing you can continue to do is encourage your manufacturers to make smaller and more attractive facilities. Another thing you can do is to collocate your facilities with others. While I recognize you compete on coverage, collocation is one way to minimize the problem of increased siting applications to local authorities. Sharing is good; I learned it in kindergarten. But I also think the federal government can play an important leadership role in setting guidelines for handling of siting issues at the local level. The FCC has received a Petition for Rule Making seeking federal preemption of state and local regulation of tower siting for CMRS providers. The petitioner argues that local regulations that preclude tower construction conflict with the federal objective of promoting a national wireless infrastructure. As you can see, these issues are complex, and the legitimate interests of localities must be weighed in the balance. The Wireless Bureau is reviewing the record of comments and preparing a response to the petition. The Commissioners expect to receive their recommendations shortly. Tower siting is also a subject that could be affected by the telecom legislation, as I mentioned earlier. The House bill requires the Commission to establish a national tower siting policy, based on consultations with state and local governments, industry, and public safety agencies. If this provision becomes law, the Commission would be able to expedite the site approval process while preserving the legitimate decisionmaking role of local authorities. Interconnection and Resale Policies Two other issues of importance to your industry are interconnection and resale. Interconnection On the issue of interconnection, in June of 1994, the Commission began a proceeding to determine whether CMRS providers should be required to provide interconnection to other CMRS providers. Last April, we decided it was premature to impose such a general requirement. I agreed with this decision for two main reasons. First, the CMRS industry is undergoing tremendous changes in terms of technologies and facilities employed. At this time, short of gazing into a crystal ball, we can't even predict what some CMRS networks -- like PCS -- will look like, or what technologies will be employed. So, any interconnection rules we could impose now would be based on guesswork and speculation. Second, I firmly believe that business needs will drive interconnection agreements to be struck when it's appropriate and necessary. When traffic volumes between CMRS systems justify direct connections between their systems, the industry will interconnect because it makes good business sense to do so. Resale On the resale issue, the Commission is currently considering whether to adopt a rule prohibiting CMRS providers from restricting resale of their services. In April, we tentatively concluded that requiring CMRS providers to provide resale upon request would be in the public interest. We concluded that mandatory resale would encourage additional competition and would "jump start" the entry of PCS into the wireless marketplace. The Commission also tentatively concluded that we should place a time limitation on the resale obligation of facilities-based CMRS providers. Since we put out our notice, I have been reviewing the positions of the parties on this issue. At this point, the issue is still being debated among the Commissioners. But there are several factors in this debate that suggest to me that it may be time for the Commission to take stock of its traditional approach to resale. My office has been doing some research on the historical basis of the Commission's resale policy. The Commission first imposed mandatory resale on wireline carriers in the era of monopoly telephone providers, that is, when the telephone market was far from competitive. In that context, the rule helped to apply pressure on the wireline carriers by promoting competitive pricing alternatives. In the wireless arena, we adopted mandatory resale in the early days of cellular. Again, this policy was procompetitive. First, it minimized the headstart advantage that the wireline cellular carriers had over the nonwireline carriers because they got their FCC licenses first. Second, in some of the larger markets, we were able to introduce additional retail competition into the duopoly cellular marketplace by requiring facilities-based cellular carriers to allow resale by non- facilities-based carriers. But in today's wireless marketplace, we have a lot more competition than when we first adopted our resale policy, and competition is ever increasing. As a general matter of regulatory philosophy, I believe that as markets become more competitive, we should periodically reexamine the level of government regulation that is needed. Thus, I believe that now is the time to evaluate whether our resale policy still makes sense. If the wireless market is fully competitive, I seriously question whether such regulation is necessary. For example, resellers have flourished in the paging market, which everyone agrees is highly competitive, without any regulatory intervention by the Commission. I am also sympathetic to the claim of some CMRS providers -- such as air-to-ground licensees -- that mandatory resale is either technologically infeasible or economically unreasonable for them. But I am willing to consider the possibility that mandatory resale is still needed in some instances, particularly where we are trying to promote competitive entry by new service providers. For example, a case can be made that existing carriers should not be allowed to restrict resale by newly licensed PCS providers, because the existing carriers enjoy the same headstart advantage over PCS that wireline cellular carriers enjoyed a decade ago. In sum, I am still looking for answers on this one. But I suspect that a "one-size-fits- all" resale policy is not the answer. As PCIA's diverse membership indicates, there is tremendous variety in the services that make up the wireless market, and the competitive conditions they face vary also. I want to be sure that our resale policy is flexible enough to take these differences into account. I welcome continued input on this issue from you in the industry. Numbering Another important issue for your industry involves the administration and use of telephone numbers. As you know, numbering has been a hot issue recently. I'm going to address just two aspects of numbering -- area code relief plans and 800 number exhaust. Area Code Relief Plans The area code relief issue raises a question of great importance to both wireline and wireless services: how do we allocate telephone numbers between the two, particularly as numbers become scarce? This issue was recently presented to us by a petition filed by Ameritech Corporation. Ameritech was concerned that it was running out of numbers in the 312 area code covering Chicago. To lessen the demand, Ameritech proposed to require all cellular and paging customers in the Chicago area to use a new area code. In addition, Ameritech wanted these wireless carriers and their customers to return all previously assigned 312 numbers for exclusive use by wireline carriers. Of course, you can imagine how much time, expense, and inconvenience would have resulted from this approach. What did the Commission do? We rejected Ameritech's proposal and announced guidelines intended to ensure that numbering resources would be available to all communications service providers on a timely and efficient basis. Specifically, we found that the Ameritech proposal discriminated unfairly against wireless providers. We stated that the administration of numbers must be nondiscriminatory and technology-neutral. We intend to apply these same principles to future numbering cases that come before us to ensure that your industry is not discriminated against in access to numbers. 800 Number Exhaust Another "hot" numbering issue is the management and distribution of toll free numbers. Recently, we learned that the current "800" toll free numbers might run out before the new toll free "888" (triple 8) numbers were ready for rollout. To avoid this problem, the Common Carrier Bureau has been meeting regularly with industry to find ways to conserve the remaining 800 numbers and accelerate the introduction of triple 8 numbers. I am told that the 888 rollout should go forward on March 1st. And, under the conservation plan worked out, the 800 numbers should last until March 1996. I commend the industry participants and the Common Carrier Bureau for their efforts to resolve the short- term problem and avoid a crisis. However, we need to review our toll free number policies to try to avoid a situation like this in the future, particularly as demand grows for "personal" toll free numbers. The Commission will soon begin a proceeding to promote the efficient use of toll free numbers and to ensure fair distribution of these numbers. I urge you to participate in this rule making -- file comments and tell us your concerns. PCS C Block Auctions Let me turn to PCS for a moment. I know many of you are concerned about the trials and tribulations of the Broadband PCS C block auction. Believe me, I'm as disappointed as anyone about the delays in this auction caused by judicial challenges. I sympathize with the designated entities as they have tried to negotiate and close deals in the midst of great uncertainty. The problem, of course, is that the C block auction has been caught up in a larger debate on affirmative action. In giving us auction authority, Congress told the Commission to "promote economic opportunity for a wide variety of applicants, including small business, rural telephone companies, and businesses owned by members of minority groups and women." I think the Commission made a good faith effort to implement these requirements as Congress intended. However, the Supreme Court's recent ruling in the Adarand case caused the Commission to go back and review all of its race- and gender-based rules to ensure they can withstand a higher level of scrutiny, called strict scrutiny. Under this standard, the government must show that any federal program that makes distinctions on the basis of race is narrowly tailored to meet a compelling government interest. In the wake of Adarand, I think it is important for us to continue to explore the option of race- and gender-based provisions where they are needed, and to gather the data necessary to uphold such provisions under the strict scrutiny standard. I want to commend the many groups who are helping to provide the Commission with this information. In the case of the C Block, however, we decided to drop all race- or gender-based provisions from our rules. We did this because we felt it was more important to proceed to auction as quickly as possible than to delay the auction while defending our rules against a likely strict scrutiny challenge. This decision was strongly supported by the designated entity community. However, even without race- and gender-based provisions, some aspects of the new rules have been challenged in court. On July 27, the D.C. Circuit issued a stay pending completion of the case. Oral arguments are scheduled for next week, and we hope for a swift decision by the court. The House Commerce Committee has also weighed in on this matter. As part of its budget reconciliation bill, the Committee adopted an amendment that codifies the Commission's C block auction rules, and requires us to conduct the auction by December 4. At this point, we just have to wait and see what happens. I believe the Commission has a strong legal case to present in Court. We also may get some help from the Hill if the House Commerce Committee amendment is enacted. In either case, we remain committed to proceeding with the C block auction as soon as possible. Paging Let me touch on one final issue I know many of you are interested in -- market-area licensing of paging channels. Over the past several years, the Commission has been moving away from transmitter-by-transmitter licensing toward market-area licensing for many services. In my view, this licensing system makes sense for a lot of reasons. First, market-area licensing simplifies expansion of the licensee's system. Second, it reduces the administrative burden on both licensees and the Commission. Third, it enhances regulatory symmetry among CMRS services. Finally, it eliminates "daisy chained" applications and therefore simplifies the grouping of mutually exclusive applications for selection. The Commission now has before it a draft of a notice of proposed rulemaking on whether to apply market-area licensing to the paging industry. I am generally supportive of market-area licensing, because I think the benefits outweigh the drawbacks. However, I also recognize that there may be some circumstances where switching paging systems to market-area licensing creates more problems than it solves. I am therefore very interested in receiving your comments and hearing your thoughts on our paging proposals. Conclusion These are just some of the issues facing your industry as you contemplate your role in the unfolding Information Age. I was pleased to hear Jay Kitchen encourage you to "think outside of the box" in his greeting this morning. I couldn't agree with him more. By this way, this apparently is a rather trendy cry, as I made a speech on this theme recently in Washington, only to discover afterward that the Speaker of the House had also made a speech to this effect before me. What I mean by thinking outside the box is that I believe we must put away our old ways of thinking and be bold and creative. I believe it's a whole new ballgame for telecom players right now. Look at the legislation. Look at where technology has brought us. Look at what competition has brought Americans so far in telephony. I can only see a bright future for your industry. And the success of the wireless industry to date has largely been a result of your courageous vision of a wireless future. I have great confidence that this vision will continue to move us all from a wireless Fantasyland to a wireless Tomorrowland. Thank you very much.