NEWS September 19, 1996 Commissioner Chong Sees Wireless Industry As Well-Positioned to Survive the New World of Competition Speaking at Personal Communications Industry Association's PCS '96 Conference in San Francisco, FCC Commissioner Rachelle Chong called the post-Telecommunications Act of 1996 a "new world" in which competition will be brutal. She stated that the wireless industry is well positioned to survive in the new world, given that the industry has always embraced and thrived on competition. Commissioner Chong urged wireless carriers to learn the "ins and outs" of the FCC's recent Interconnection order. First, she noted that this order may bring wireless carriers lower interconnection rates, an area in which she acknowledged that wireless industry players may have suffered past discrimination by some local telephone companies and states. She also urged wireless companies to take advantage of new opportunities to go head-to-head with the local telephone company and compete in the local loop. The Commissioner acknowledged that some wireless companies were disappointed that pursuant to the 1996 Act and the FCC's interconnection order, the states will become reinvolved with Commercial Mobile Radio Service (CMRS) in the interconnection area. "I fully understand and appreciate the unique multi-state nature of commercial mobile radio service," she stated. "I am concerned that the state-by-state arbitration process may prove unduly burdensome, cause delay or otherwise inhibit your industry's growth.... I personally will not hesitate to exercise our jurisdiction if the circumstances warrant." On the issue of number portability, she noted that it is crucial to a wireless providers' ability to compete head-to-head with the local telephone companies and each other. She said that the FCC's July order will require local telephone companies to begin to implement number portability technology in the top 100 MSAs no later than October 1997, with full deployment by the end of 1998. She noted that cellular, broadband PCS and certain SMR providers also have this obligation. (over) - 2 - On the issue of siting, Commissioner Chong highlighted new Section 704 of the Act, in which Congress confirmed that jurisdiction over siting of wireless facilities remains with the local agencies, subject to five important limitations. She encouraged carriers to become familiar with these five limitations on a local agency's discretion. For example, she noted that local agencies cannot prohibit wireless services, they cannot unreasonably discriminate between providers of personal wireless services, they must act on permit requests in a reasonable amount of time, any denials must be in writing and be supported by substantial evidence in a written record, and that local agencies are prohibited from regulating the placement of wireless facilities based on the environmental effects of RF emissions. She noted that one uniform national RF emissions standard ought to make wireless facilities siting faster and less controversial. She emphasized that the new hybrid approach of the FCC's new RF emissions guidelines is broadly supported by the federal agencies charged with the protection of public health. She urged the industry to use the new Siting Fact Sheets available on the Wireless Bureau's homepage to educate local agencies about the RF emission guidelines and to explain that the FCC has imposed safeguards to ensure that the RF emission guidelines are fully complied with. Commissioner Chong also discussed a "spate of petitions" filed recently at the FCC seeking preemption of certain state and local regulations imposed on CMRS providers. One sought to overturn an Oregon state tax on a PCS licensee, while another sought preemption of a Minnesota ordinance that imposes conditions that FCC licensees must meet before providing services. She said that she is "troubled" by this trend of state action inhibiting wireless licensees from providing service, and pointed to Sections 332 and 253 of the Communications Act which clearly establish that states and local governments cannot regulate the rates or entry of CMRS providers and cannot impose barriers of entry. She said the FCC would look carefully at these controversial state and local regulations and see if they have the effect of restricting the provision of services by mobile providers, or of disproportionately affecting the wireless industry as opposed to wired telephone providers. She praised PCIA's Foundation for its LifePage program which provides pagers and paging service to organ transplant patients awaiting donors. She urged wireless providers to consider getting involved in providing telecommunications service to the nation's schools. - FCC - Remarks of Commissioner Rachelle Chong to the Personal Communications Industry Association '96 Conference September 19, 1996 San Francisco, California It s a New World and Welcome to It Introduction It s a new world since the passage of the Telecommunications Act of 1996. Welcome to it! In this new world, every telecom carrier, including wireless and wired companies, will compete more and worry less about regulation. And if you don t compete . . . Well, it brings to mind the story of the first day of law school. The nervous new students show up to their first class. The crusty law professor fixes his eagle eyes on them. He orders each of them to look at the person on their left and the person on their right. Only one of the three of you will survive to become a lawyer! he barks. Competition can be that brutal. You ve got to be lean and mean to survive, and it's possible that not all of you will make it. Compared to other telecom players, however, I think that the wireless industry is well positioned to survive. After all, wireless has always embraced and indeed thrived on competition. There s no better evidence of the success of your industry than the record attendance at this year s convention and the overflowing exhibit hall outside. As more evidence of your industry's success, you ve got Alex Mandl deciding to skip out on a pretty nice job at AT&T to become the CEO of a start-up wireless company. This move sent shock waves through the entire business community. It made everyone sit up and take notice of the wireless industry. Well, as a wireless industry veteran, I think I may have some insight into Mr. Mandl s strategic move. With apologies to Letterman, I wanted to share with you my Top Seven Reasons why I think a talented guy like Alex Mandl would leave AT&T for a small wireless company. (I used to have Ten Reasons, but in order to meet my competition, I've downsized the list to seven reasons). Number 7: Not only can Mr. Mandl learn the name of every employee at his new company, but he can learn the name of every subscriber! Number 6: He can calculate his market share on the back of a cocktail napkin and still have room to wipe his mouth! Number 5: At the annual meeting, which no longer needs to be held in a stadium, he can count on being the most dissident shareholder there! Number 4: On the company financial statements, he doesn't have to omit a lot of zeros anymore! Number 3: There simply aren t enough employees to lay off to make the cover of Newsweek magazine. Number 2: The executive dining room at the new company has drive through service. And the Number 1 reason why I think Alex Mandl made the move: Friends and Family can be a good thing again! The Telecom Act Today, I ll talk about what the new Telecom Act means for your industry. I will focus my remarks on five areas: interconnection, number portability, facilities siting, several recent preemption petitions, and universal service. Interconnection Let s start with the War and Peace of the FCC s implementation efforts to date. I refer to our hefty, multi-purpose interconnection order, featuring 726 pages and 3,273 scintillating footnotes. At this length, the order makes great bedtime reading and is also suitable for use as a doorstop. Despite its length, you really do need to learn the ins and outs of our interconnection order. Why? Because it likely will get you cheaper interconnection rates than you are currently getting from your local telephone company. It also mandates reciprocal compensation if you aren't getting it now. And finally, it gives you a chance to go head to head with the telephone company if you want to get into the soup of the local loop. Improvements in the Interconnection Process: Let's talk first about some improvements we made to the basic interconnection process. Up until now, I understand that the interconnection negotiation process has been an uphill battle for your industry. I heard an earful this summer from many of your members about discriminatory treatment of some CMRS providers by some LECs. I heard about local telephone companies charging wireless providers many times more than their cost for interconnection and refusing to pay mutual compensation even though our regulations said they should. We also had record evidence that some states discriminated against wireless providers, refusing to offer them the more reasonable interconnection rates they established for wireline carriers. Although the FCC has not solved every problem, our interconnection order goes a long way towards ensuring that wireless providers will pay fair, reasonable and non-discriminatory interconnection rates. Under our order: Local exchange carriers cannot charge different interconnection rates for wired and wireless providers. Local exchange carriers can no longer charge providers for the traffic the LEC originates. Local exchange carriers must pay mutual compensation for interconnection, and the rates should generally be symmetrical. CMRS providers who formerly had non-mutual compensation arrangements can renegotiate those agreements without incurring any early termination penalties. New entrants without interconnection agreements can pay default proxy rates while negotiating agreements. Most favored nation clauses are read into all interconnection agreements. This ensures that all interconnecting carriers, including wireless carriers, can be certain that they are always getting the lowest available rate. Entry into Local Loop: In addition to interconnecting to the LEC network for your traditional mobile businesses, I encourage wireless providers to enter the fray of local loop competition. Our interconnection order contains a number of provisions to make entry into that new market easier. Let me back up for a moment. The 1996 Act opens up the local telephone network to competitors and provides new entrants like you with unprecedented access to the local network. Our interconnection order provides a national policy framework that we believe will introduce competition in an orderly and efficient manner. The rules do not favor any particular industry or player, but instead free them all from outdated regulatory restraints in order to encourage competition. How will the local telephone market be opened? The Act provides three entry methods for new competitors:  First, new entrants are invited to compete using their own facilities-based networks. Local telephone monopolies are basically passe.  Second, new entrants can purchase unbundled elements from the incumbent local exchange carrier. This means you can buy piece parts of the LEC s network and combine them with your own facilities to provide a complete package of local telephone service.  Finally, new entrants have the option of resale. This means you can buy a LEC s retail services at wholesale, and rebrand them for sale to your own customers. Negotiation/Arbitration Process: Now if you're intrigued with the idea of local loop competition, you might be wondering how you can get these benefits. The law is clear that the parties -- meaning the interconnecting party and the incumbent local telephone company -- will first negotiate in the free market without any government intervention. If they come to agreement, that interconnection agreement governs. Government will step in only if the negotiations between the two parties fail. In that case, the new Act provides that the state commissions arbitrate the disputes. The FCC has jurisdiction over interconnection matters generally, however. Our order sets forth a national baseline of terms and conditions for an arbitrated interconnection agreement. This baseline includes the pricing methodology that will guide the states in setting cost-based rates. We also established default proxies that states may use on an interim basis while they are setting rates, in order to jump start competition in the local telephone market. The only default proxy we couldn't set due to a lack of record evidence was for paging. I was disappointed about this, but we hope to set a default proxy for paging in a further rulemaking very soon. I wanted to take this opportunity to tell you why I supported this national interconnection framework. There were three reasons: First, I believe that minimum national guidelines will help interconnection agreements be reached faster. Knowing what you will get in an arbitration if you fail to agree, tends to be a strong motivating force for voluntary negotiations between parties. Second, a baseline of terms and conditions should make it easier for a state commission to quickly approve an interconnection agreement. Third, in setting some national minimum baselines, we help new entrants who have national or regional strategies. Without such baselines, these new entrants could face a "patchwork quilt" of differing state regulatory requirements. I felt that forcing a new entrant to meet many different state requirements would only increase entry costs and cause delays in competition. Jurisdictional Questions. Now I know that there are some of you out there who are not too happy about the states' reinvolvement in the interconnection process. I know that you thought that you got out from under the states' jurisdiction with the enactment of Section 332 in 1993. You may be disappointed that the FCC asked CMRS providers to use the Sections 251 & 252 process in which the states play an active role. I fully understand and appreciate the unique multi-state nature of commercial mobile radio service. For example, I know that broadband PCS licensees worry that some states will take different approaches within a single MTA, making marketing and pricing difficult. Like you, I am concerned that the state-by-state arbitration process may prove unduly burdensome, cause delay or otherwise inhibit your industry's growth. For this reason I fought very hard to ensure that the Commission reserved its Section 332 jurisdiction. I personally will not hesitate to exercise our jurisdiction if the circumstances warrant. Number Portability Let s move now to number portability. Number portability is crucial to your ability to compete head-to-head with the local telephone companies and each other. It s a fact that customers are less likely to change providers if it means they have to suffer the inconvenience of changing their telephone numbers. The new Act imposes an obligation on all LECs to provide, to the extent technically feasible, number portability, in accordance with FCC requirements. In July, the FCC issued a decision implementing this section of the Act. The decision requires local telephone companies to begin to implement number portability technology in the top one hundred MSAs no later than October, 1997 and to complete deployment by the end of 1998. Cellular, broadband PCS and certain SMR providers are required to be able to complete calls to ported numbers by December 31, 1998. These wireless carriers will have to offer customers the option of retaining their phone numbers when they switch carriers by June 30, 1999. No number portability requirements were imposed on other types of wireless providers. Siting and RF Emissions I would like to talk to you about another aspect of the new Act that impacts your industry -- Section 704 having to do with facilities siting. In Section 704, Congress confirmed that jurisdiction over the siting of personal wireless service facilities remains with the local agencies, subject to five important limitations. These five limitations on the local agency's discretion are very important, so if you are involved in siting at all, you should know them inside and out.  First, local agencies cannot flat out prohibit or effectively prohibit the provision of functionally equivalent wireless services.  Second, local agencies cannot unreasonably discriminate between providers of personal wireless services. In other words, they can't allow a cellular site in, but not a PCS site.  Third, local agencies have to act on permit requests in a reasonable amount of time, taking into account the nature and scope of the request.  Fourth, any decision denying a request must be in writing and supported by substantial evidence in a written record.  Finally, and perhaps most significantly, local agencies are prohibited from regulating the placement or construction of wireless facilities on the basis of the environmental effects of RF emissions. The final point ought to help a great deal. Congress wisely decided to give the FCC the jurisdiction to adopt a national RF emissions standard, and I'm very pleased about that. One uniform national standard ought to make wireless facilities siting faster and less controversial. One national standard also recognizes that the public's concerns regarding RF emissions do not vary from one city to another. The Telecom Act also directed the FCC to complete our RF emissions proceeding, which we finally did, to my everlasting relief. Our new RF emissions guidelines are based on the most conservative of the limits contained in the ANSI/IEEE 1992 standard and the NCRP 1986 report. Although I had some concern about this hybrid approach (I would have preferred a pure ANSI/IEEE approach), the good thing about the hybrid guidelines is that they command the broad support of federal agencies charged with the protection of the public health. Now, as is the case with any new law, there have been lots of questions about how Section 704 should be interpreted, and about the respective roles and responsibilities of state and local jurisdictions, the FCC, and the carriers. To help, the Commission has formed a wireless Facilities Siting Task Force to serve as an information resource. Roz Allen of our staff is the head of the Task Force. She is here at the conference to answer questions that you may have. The FCC s Siting Task Force has put out two Fact Sheets that are full of useful information about siting and RF emissions. You can get a copy of the Fact Sheets and other siting information by going to the FCC's web site, www.fcc.gov, and going to the Wireless Bureau's home page. One thing that the Fact Sheets do not address, however, is what role local jurisdictions should have (if any) in determining compliance with the FCC's radio frequency regulations. Section 704 preempts state and local governments from regulating the placement or construction of wireless facilities on the basis of the environmental effects of RF emissions, if the wireless facilities comply with the FCC's RF emission guidelines. The key question, however, is should a local jurisdiction be able to require a carrier to demonstrate compliance with the FCC's RF emissions standards before it permits a site? In my view, the RF issue is one that is squarely within the FCC's jurisdiction. I believe that local jurisdictions should rely on the FCC to ensure compliance with RF standards. The FCC is responsible for ensuring compliance and has a number of safeguards to make sure that its licensees do, in fact, comply. For example, we require licensees to use type accepted equipment and that this equipment be installed in a way that complies with our RF emissions standard. Thus, I don't believe that locals need to impose requirements on carriers in this regard. I am particularly concerned about local agencies that require testing -- especially repeated testing of a site -- to verify RF emissions compliance. This testing can be expensive for the licensee and can delay the permitting process. However, no matter what the local jurisdictions can legally require, I suggest to you that it makes good business sense for wireless providers to reassure local agencies and local citizens that your project meets the national RF standards. Be proactive in educating and in sharing information with your local agencies. Explain to them how our guidelines work and what safeguards the FCC has in place to make sure they are complied with. Use our Fact Sheets to help you in these efforts. Show the local agency that your proposed facility complies with our guidelines. Give them a drawing; show them your calculations. I know that the industry is already taking steps along these lines. I commend PCIA and its Site Owners and Managers Association section for the work they are doing in this area. I know that PCIA has been working hard with local government agencies on this issue, and I applaud PCIA on these efforts. Preemption Petitions There seems to be a spate of petitions filed recently at the Commission seeking preemption of certain state or local regulations imposed on CMRS providers. One petition seeks to overturn an Oregon state tax on a PCS license. Another seeks preemption of certain Minnesota ordinances that impose conditions that FCC licensees must meet before providing service. There are several other petitions along the same lines. The common thread among these petitions is that they allege that the state or local law in question constitutes entry regulation or a barrier to entry. I'm troubled by this trend of state action inhibiting wireless licensees from providing service. Let me tell you why. The law clearly says that states and local governments cannot regulate the rates or entry of CMRS providers and cannot impose barriers to entry. That type of state regulation was expressly preempted by Congress in Sections 332 and 253 of the Communications Act. In addition, the Communications Act does not tolerate discrimination between service providers that has the effect of restricting competition. Given this law, the FCC is looking carefully at these state and local regulations to see if they have the effect of restricting the provision of telecommunications services by mobile providers. We are also looking to see if these regulations disproportionately affect the wireless industry as opposed to, say, wired telephone providers. We have sought comment on these petitions and intend to act on them expeditiously. We are committed to eliminating entry barriers where they exist and providing certainty to competitors about the rules under which they will be expected to compete. Universal Service I wanted to move to the next big implementation item on the FCC s radar screen -- our universal service proceeding. In addition to the pro-competitive, deregulatory goals of the 1996 Act, the new law requires that universal telephone service for all Americans be preserved and advanced. I am one of the three FCC commissioners who serves on a new Federal State Joint Board charged with this task. Also on the Joint Board are four state commissioners and a consumer advocate. I have always believed that many unserved or underserved communities could more efficiently get telephone service from wireless telephone providers. Congress apparently agreed, because in new Section 254, any communications provider -- not just a wireline telephone company -- is eligible to become a universal service provider. Alaska: During the August break, I went up to Alaska to do some fact finding on universal service matters. I thought that if I could better understand the challenges of bringing basic telephone service to the remote Alaska Bush areas, I would have better insights on how to bring universal service to any rural, insular or high cost area in America. In Alaska, I climbed into some small float planes to visit some tiny Alaskan communities in the middle of nowhere. We flew over lots of mountainous terrain, landed in the middle of rivers and lakes, and then waded ashore, where we braved bears and swarms of mosquitoes to talk to people about their telephone service and to inspect some wireless telephone facilities. Most of these Alaskans -- real pioneers by the way -- rely on wireless communications out in the bush because it is cost efficient and effective. The good news is that the new Telecom Act provides for the first time that telecommunications carriers who use wireless facilities to provide universal service to people living in remote, insular and high cost areas will be eligible for universal service subsidies. Because wireless will surely play more of a role in delivering universal service in the future, I strongly encourage each wireless company to participate in our universal service docket if you aren t already. The decisions we make there may greatly impact you in the future -- providing new opportunities and, perhaps, imposing new obligations you have not had before. I say "obligations" because its possible in the future that a state commission or the FCC can designate a wireless provider to be the universal provider to an unserved area. The Federal-State Joint Board must issue its recommendation on universal service no later than November 8, 1996, so you should be focusing on this issue right now. Final rules will be issued by the FCC in May of next year. Making a Difference Universal service is not the only way the wireless industry can make a difference. As you work on your business plans, I urge you to consider how your company can do its part for its community. I'm talking here about corporate responsibility and the spirit of volunteerism. I would like to take this opportunity to salute PCIA and its members for its innovative LifePage program, which provides pagers to transplant patients awaiting organ donors. It is a wonderful program that I admire very much. I note that PCIA's membership has greatly diversified recently, and wireless telephone and data services are now offered by many of your members. As you seek out new opportunities to make a difference, I would like to encourage you to consider how you can help prepare our students for the Information Age. Many telephone, cable and wireless telephone providers are voluntarily helping connect the schools to our communications infrastructure. I hope your industry will help in this effort. One possibility is simply providing wireless phone service to classrooms. Some great things have happened at schools where mobile phones have been voluntarily put into place by cellular companies. Teachers and students report that classroom safety is enhanced, parent-teacher communications are improved, teachers have become more efficient and the curriculum is enriched. Another possible application could be working with schools to install wireless local area networks that will link students and faculty. These wireless LAN networks could provide things like electronic mail, data sharing (say, between a central library and other libraries on campus), and Internet access between administrators, teachers and students. Of course, wireless devices are particularly desirable in older school buildings. Wireless means that asbestos-filled walls do not need to be disturbed, and there's no tangle of wires around the classroom to trip over. As you take advantage of the new competitive world you face in the coming years, I hope you will continue to serve your communities and the public interest by doing your part to get our children excited about technology. Children take to wireless devices like ducks take to water. And your industry can make a difference as we get them ready for the Information Age. Thank you very much. I'll be happy to try and answer any questions you have.