NEWS March 27, 1996 COMMISSIONER CHONG ENCOURAGES WIRELESS PROVIDERS TO ENTER THE LOCAL LOOP "SOUP" AT CTIA CONFERENCE At the Cellular Telephone Industry Association's (CTIA) Wireless '96 Conference on March 26, Commissioner Rachelle B. Chong encouraged wireless companies to provide competition in the local telephone market -- which she called "getting into the soup of the local loop." She described some of the "ingredients" that Congress and the FCC were giving wireless providers to help them enter the local exchange market including spectrum flexibility, reasonable rates and terms of interconnection, unbundled network elements and number portability. Analogizing spectrum to a "place to make . . . local loop soup" Commissioner Chong stated that the FCC had made a significant amount of spectrum available and was in the process of auctioning more spectrum. She said she supported flexible use of spectrum for fixed as well as mobile uses because such flexibility encourages competition in the local exchange market, promotes efficient use of the spectrum and enhances customer choice. The Commissioner expressed concern that PCS licensees be able to quickly relocate microwave incumbents so that they could begin providing new services soon. Acknowledging the significant capital investments needed to establish a competing local telephone company, she noted that wireless carriers should be able to combine pieces of their network with pieces of the existing wireline telephone network to get into the local loop. She expressed concern that the Commission's existing interconnection policies did not do enough to encourage local loop competition. She reaffirmed her support for the adoption of an interim interconnection policy because "the Commission ought to move quickly to establish sensible, efficient, and fair interconnection policy." Commissioner Chong described some of the ways that the 1996 Telecommunications Act will make it easier for wireless carriers to obtain and permit sites, namely RF emisisons and number portability. She encouraged carriers to make their local loop service more enticing to customers by adding some spicy applications or offering a menu of services. She noted, however, that with wireless providers' new status as a provider of basic telephone service comes certain social responsibilities. She said that wireless providers may be the most economically efficient universal service providers in rural, remote or insular areas. She concluded by encouraging wireless providers to get out there and start cooking their local loop soup, noting "If Yan can cook, so can you!" Remarks of Commissioner Rachelle Chong to the Cellular Telecommunications Industry Association 11th Annual Convention and Exposition March 26, 1996 Dallas, Texas Getting into the Soup of the Local Loop: Wireless Competition in the Local Exchange Market" Good afternoon. It is always a pleasure to be with my friends at CTIA. I have here in my hand the speech I gave last year. The big question we kicked around together was whether we would have a new telecom bill. Well, that question is about as useful today as a Pet Rock -- or discussing the virtues of new Coke! As you all know, the communications universe realigned itself on February 8th. And one of the future benefits of the Information Age is that it is going to be interactive. So I thought I'd have an interactive moment in my speech. Here's a trivia challenge: What favorite character from the hit Sixties show "Laugh In" attended via cyberspace the signing of the Telecommunications Act of 1996? The answer is Ernestine the Operator. To be absolutely clear for the Generation X ers that we have in this room, Ernestine is not the dime lady, she s the lady with the bun who used to say: one ringey dingey, two ringey dingey. Anyhow, Ernestine really did surf in via modem from Hollywood, and she livened up the signing ceremony by calling the Vice President a "techno-nerd." She even flirted with the President! All kidding aside, it was a very exciting moment to watch the President and Congress deliver to all Americans the keys to the Information Age. And now it is in the Commission s hands to implement the bill. The big question that I keep getting this year is whether the FCC will be able to implement the 1996 Act within the statutory deadlines. My answer is that the Commission is ready and up to the task -- although, if the crazy pace of the first six weeks are any indication, we aren t going to be getting much sleep this year. Just this once, I will agree with those that describe the FCC as a sleepy little agency. One of the key things the 1996 Act does is to eliminate any remaining barriers to competition in the local telephone market. And I don t have to tell this crowd that the local telephone market is ripe for competition. Almost everyone who comes to lobby me has a plan for getting a piece of the action. And these plans are like music to my ears! I have always believed that it would be this industry that would give ordinary people like Ernestine more choice for basic telephone service. You see, I envision a world where consumers have choices galore for their communications needs. In this world, the paths that deliver these communications services may be wired, wireless or both. I am sure you are all strategizing about how you can jump on the local exchange bandwagon. How do we get from here to there? Our current challenge is how to achieve the transition from our current world to the pro-competitive, deregulatory world that Congress envisioned. Consistent with the new Legislation and the theme of CTIA '96, I have entitled this year's speech Getting into the Soup of the Local Loop: Wireless Competition in the Local Exchange Market." Congress has given us a great recipe for getting you into the local loop. So let's get cooking. Spectrum First, you need to have a place to make your local loop soup. The government has granted you some spectrum in which to cook -- uh, I mean to operate. Together, Congress, NTIA and the Commission have already taken steps to make available more spectrum for wireless applications. And we will continue our efforts. In addition to the cellular spectrum, the FCC has been auctioning PCS spectrum, and 900 MHz spectrum. On deck for the remainder of 1996 are auctions for the D, E & F blocks of PCS spectrum, for LMDS spectrum and possibly for 800 MHz. PCS Microwave Relocation Okay, so you've got your place to cook your local loop soup, but there's one little problem. There are already some other cooks in the kitchen where you want to operate -- unfortunately, no one as famous as Julia Child or the Frugal Gourmet! No, the cooks slicing and dicing away in your kitchen are the microwave incumbents. And you need to move them out of the way in order to make your soup. Now you can't just toss the microwave incumbents out of the kitchen, because they've been cooking for a long time with great success. You need to help them pack up all their pots and pans, and move them to another kitchen that the FCC has waiting for them. Last April, relocation negotiations between PCS providers and microwave incumbents began when we granted the A and B block licenses. In October, we issued a Notice of Proposed Rule Making that raised a number of issues geared toward ironing out some wrinkles in the negotiation process to date. We have three big tasks in this rulemaking proceeding: establishing a cost sharing plan, creating a clearinghouse to administer the cost sharing plan, and clarifying our existing relocation rules. With respect to the first task, most people favor adoption of our proposed cost-sharing plan. We proposed this plan because it would let PCS licensees that pay to relocate microwave links collect reimbursement from other PCS licensees that benefit from the cleared spectrum. We are now working out the details of the plan. With respect to the second task, we are looking to the industry to take the lead. We proposed that the clearinghouse would be industry-supported. We are counting on the major PCS players to get together and agree on the best way to implement the plan. The third task -- clarifying our relocation rules -- has sparked the most controversy. Our existing rules provide for a two year period for voluntary negotiations followed by a one year period of mandatory negotiations. Public safety incumbents have a slightly longer period. Now that negotiations have been going on for almost a year, we are hearing that, for the most part, deals are being made. This is great news. Nevertheless, I am still hearing from PCS licensees that a small number of incumbents are not considering reasonable offers to relocate. They tell me that a few incumbents are seeking unreasonable premiums well over their costs to relocate. I am concerned about these reports, and we are carefully considering how to best address this issue. We realize that you are anxious to start your local loop soup. We intend to act very quickly so you can get your spot at the stove. Unbundling Once you've secured your kitchen space, get out a large pot, and take stock of what you have for your soup. Now, you may need to buy some ingredients from some one else. You might need some local loop call completion, some switching, or some transport from another cook who's been providing reliable PSTN fare for years. You might need some links from the butcher -- microwave links, that is. The ability to buy what you need for your particular soup from others is critical to your ability to deliver local loop soup to your hungry diners. You see, broad-based facilities entry into the local exchange market requires significant capital investment and will take many years to achieve. I believe that carriers should be able to create a competing local exchange service by combining pieces of their own wireless networks with pieces of the existing networks. For example, a wireless carrier may want to carry calls via its system all the way to the central office, and then use the telephone company's copper wire for the last mile to the customer's home. In order to be able to freely "mix and match" elements of the networks, the wireless carrier will have to be able to purchase network elements on an unbundled basis. The 1996 Act recognizes the importance of unbundling the local exchange network. Section 251(c)(3) of the Act requires incumbent local exchange carriers to provide nondiscriminatory access to network elements on an unbundled basis "at any technically feasible point." LECs must also provide the elements in such a manner that another carrier can combine them to provide a competing telecommunications service. If you need to buy ingredients for your local loop soup, and you probably will, it's important that you buy only what you need at a reasonable price. Luckily, Congress agreed. Section 251(c)(3) also requires that the network elements be offered at rates that are "just, reasonable and non-discriminatory." The Common Carrier Bureau is working on a notice addressing unbundling and related issues under Sections 251 and 252 of the Act. We plan to issue the Notice within the next two months. Interconnection Now that you have your basic ingredients, the first thing you have to do is make the soup stock. The stock is the base of the soup; it is what holds the soup together. Although it is not a perfect analogy, I think of interconnection as the stock of wireless local loop. Just as it is impossible to make good soup without a good stock, it is impossible to create a viable local loop service without fair and reasonable interconnection rates and terms. On December 15 of last year, we issued a Notice of Proposed Rule Making on LEC-CMRS interconnection. We were concerned that the current interconnection policies may not do enough to encourage the development of CMRS -- especially in competition with LEC-provided wireline service. We were troubled by reports that LECs refused to pay CMRS providers to terminate calls initiated on the PSTN. We were also told that CMRS providers are typically paying about three cents a minute for interconnection, even though the cost to the LEC appears to be closer to 2/10 of a cent per minute. We were concerned that any significant delay in the resolution of these issues would harm CMRS providers. We tentatively concluded that, on an interim basis, interconnection rates should be priced on a "bill and keep" basis -- in other words, that both the LEC and CMRS providers should charge a rate of zero for termination of traffic on each other's networks. Well, this tentative conclusion on bill and keep really woke up the local exchange carriers and must have gotten their economists creative juices flowing. All of a sudden, I began getting visits from telephone companies who are very upset about our proposal to use "bill and keep" as an interim policy. There are a number of difficult issues in this proceeding. As a threshold matter, we must decide what the impact of the Act is on our current LEC-CMRS interconnection proceeding. We must also decide whether the Commission has jurisdiction to establish requirements for interstate and intrastate interconnection. We need to decide whether an interim interconnection policy is needed and if so, what it should be. Finally we need to decide on a long term interconnection policy. I supported an interim approach because I think the Commission ought to move quickly to establish a sensible, efficient, and fair interconnection policy. We thought that "bill and keep" should be that interim policy, because it is economically efficient, keeps incumbent LECs with market power from charging excessively high rates, and is administratively simple. Thus it could be implemented quickly. I remain open, however, to considering suggestions for other proxies to cost that we should adopt as an interim or long-term approach. I stress though that what I am looking for is a proxy to cost -- not cost studies. In my view, cost studies may impose too much delay and administrative burden, in an area where we need quick action to promote competition to the local loop. Interconnection delayed may be interconnection denied. It is my hope that the approaches outlined above will be transitional. A government-imposed proxy model for cost may be appropriate at these early stages. However, as competition increases, negotiated agreements may be adequate to achieve our policy goals. In the long term, we will need to monitor our interconnection decisions and revisit our policies when necessary. Siting, Local Land Use Issues and RF Emissions Back to the kitchen. Let's assume that you have worked out getting what you need from other cooks, and have your stock simmering away on the stove. But it will be a pretty boring soup without something in it. Well, the good news is that Congress arrived in your kitchen with a big bagful of yummy things to put in your soup. But instead of carrots, celery and onions, they have delivered to you Section 704 of the Act. This section will help you get sites more easily. In Section 704, Congress confirmed that jurisdiction over siting of CMRS facilities remains with the local agencies, subject to some important limitations. For example, locals can't impose moratoria on construction of wireless facilities. In addition, they have to treat PCS providers the same as cellular carriers, and they have to treat wireless providers of the local loop the same as the local telephone company. State and local governments must act on permit requests in a reasonable amount of time. Finally, local agencies are prohibited from regulating the placement or construction of wireless facilities on the basis of the environmental effects of RF emissions. Congress directed the FCC to complete its action in its RF Emission docket by August 8, 1996. I realize that you've been waiting a long time for this decision. Our staff tells me that they are close to making their long awaited recommendation to the Commission. Over the last few weeks, they have been meeting with other federal agencies who have expertise in the areas of health and safety, as well as industry representatives, to work out a few remaining issues. I know there are strong feelings about which standard should be adopted. The industry has supported adoption of the 1992 ANSI standard. The EPA and some other federal agencies have expressed concern about some aspects of the ANSI standard -- for example, in the higher microwave frequencies -- and have advocated adoption of some of the power density guidelines recommended by NCRP. The Commission does not have expertise in the area of health and safety matters. Therefore, we must carefully consider the views of other federal agencies who do have more expertise in these areas. However, the Commission has successfully used the ANSI standard for over ten years. It was the standard proposed in the notice and recently adopted for PCS licensees. And I personally have worked with the ANSI standard and feel comfortable with it. Accordingly, I look forward to hearing from those other agencies who feel that we should change our standards. The good news for all concerned though is that it appears that the RF emissions from wireless facilities are well within the exposure limits prescribed by both ANSI and NCRP. I am pleased that the industry is continuing its research on the effects of RF emission and encourage it to keep up the good work. The other good thing that came in Congress' bag of goodies is that they have made it easier to find a site. Section 703 requires all utilities to make their poles and rights-of-ways available to any telecommunications provider at reasonable rates. Section 704(c) essentially codifies an existing Presidential memorandum on the use of Federal properties for the siting of wireless facilities. I understand that GSA has recently issued draft guidelines on this issue. The guidelines state that each federal agency should revise its commercial leasing policy to ensure it fully supports antenna siting. Agencies are encouraged to act on siting requests in as soon as possible, but not later than sixty days. CMRS Flexibility Now, so far you've got your stock, your vegetables and now you need your carbohydrates. As a gourmet chef, you don't want government to decide whether you should use noodles, rice, or potatoes in your local loop soup. You want to be able to choose what to put in, according to the tastes and preferences of your diners. If you are confused, I am talking about the request of CMRS providers for spectrum flexibility. Some of you have asked for additional flexibility to use your CMRS spectrum to compete with wireline telephone companies. We started a proceeding to address this issue in January. We proposed that broadband CMRS providers be permitted to use their spectrum to provide wireless local loop. We also proposed to regulate fixed wireless services as CMRS so long as the carrier also offers mobile services. I supported these proposals because I believe that giving carriers more flexibility as to spectrum use has many benefits. It encourages competition in the local exchange loop. It also promotes efficient use of the spectrum and enhances customer choice. Some concern was expressed by the states and the wireline telcos about allowing fixed wireless local loop services to be regulated in the same manner as mobile services. I share this concern. However, I think CMRS providers need some regulatory latitude to develop wireless local loop services. Why? Because I think wireless local loop will provide much needed competition in the local telephone market. Our goal is to issue a decision on this matter before our remaining PCS auctions begin this summer. We want prospective bidders to be able to factor this into their bidding strategy. Spicing up Your Soup Now your soup has lots of good things in it, but the big question is, what are you going to do to your soup to make people want to eat your soup, as opposed to other soups? Now, when I learned to cook from my mom who was a good cook, she always told me that spice is nice. So I've always added to my dishes parsley, sage, rosemary and thyme. Hmm, maybe that wasn't my mom's influence; maybe that was Simon and Garfunkle. Anyway, my Aunt Blanche, also a good cook, always advised me to make lots of different dishes so people could pick and choose what they want. Some of you might follow my mother's advice and add some spicy applications to your local loop services -- like those Mark Porat of General Magic was showing us yesterday. Others may adopt my Aunt Blanche's approach of offering a broad menu of mobile and fixed local and long distance wireless services to meet your customers' needs. Of course there may be those of you who choose to ignore the sage advice of the good cooks in my family and serve plain soup - - but I warn you, the women in my family are never wrong when it comes to food! Number Portability Once you've made up your mouthwatering soup and it's attracted attention from a horde of hungry diners, you need to make it easy for people to dish up your soup. You don't want to make them buy a special ladle just to get your soup. You want them to be able to use the ladle they already have and are used too. To make it convenient for your customers to choose your wireless local loop services, the subscriber must be able to use their current telephone number. Number portability is crucial to your ability to compete with LECs. Customers will not want to change their telephone numbers when they change providers. Section 251(b)(2) of the Act imposes an obligation on all LECs to provide, to the extent technically feasible, number portability, in accordance with requirements prescribed by the Commission. Responsibilities as a Local Loop Provider I hope what I have described this afternoon gets you excited about the many opportunities for the future -- or at least inspires you to go home and make some soup. However, with your new status as a provider of basic telephone services comes certain social responsibilities. It has always been my contention that many unserved or underserved communities could better be served by wireless telephone service. Congress must have agreed. Section 254 of the Act clears the way for any communications provider to become a universal service provider. In unserved areas, it allows the government (state or federal) to choose a universal service provider and order them to serve an unserved community. In my view, the provider chosen may well be a wireless provider because your systems often are the most economically efficient in rural, remote or insular situations. I hope that the wireless community will be active in our universal service docket and be ready to serve its community, as you have done so very well in emergency and other disaster scenarios to date. In this regard, I would like to echo Commissioner Ness' praise of CTIA and the public safety community for reaching a compromise on E911. The advancements in location technology that flow from that agreement will provide a great public benefit. Recently, however, the industry has gone beyond its traditional role of disaster do-gooder and has begun providing public service to their communities. For example, I am pleased about CTIA's work on the Flathead Indian Reservation in Montana. The CTIA Foundation provided the Tribal Mental Health Program with cellular phones and wireless modems that put those workers in immediate touch with doctors, law enforcement officers, patients and their families. This means that mobile health care workers can instantly receive treatment authorizations and access patient histories. You also do outstanding work in the classroom. The benefits of the ClassLink program were readily apparent from the enthusiasm of the students, their teachers and principal at yesterday's demonstration. I encourage you to continue to work with your communities and increase the services you provide. I look forward to hearing more success stories. At the opening session yesterday, Jim Dwyer talked a bit about the opportunities and challenges of this new era. He said that the question was whether Congress and the FCC could continue to support the industry's open competition. Although I cannot speak for Congress, I can say that the Commission has every intention of implementing the Act in a way that encourages competition -- especially in the local loop soup. So get out there and start cooking! If Yan can cook, so can you! Thank you very much.