IP: FCC Chairman Speaks on Internet

[David Farber <farber () cis upenn edu>]

                    Speech by
    Federal Communications Commission Chairman
                  Reed E. Hundt
                         
The Institute of Electrical and Electronics Engineers
            The Symposium on Hot Chips
                         
       The Internet: From Here to Ubiquity
                         
            (as prepared for delivery)


                 August 26, 1997
                         
     Taking credit. Getting blamed. Earning your just deserts; getting just
what you deserve.


     This is the story of American life.


     No one knows better than the denizens of the great Valley that
America is about success vs. failure; going public vs. going bust;
> getting an
A vs. an F; getting credited or getting debited.


     So, because we're here at Valuation Central, the Home of the Rave
and the Land of the Screed, I'm willing to pose my test question.


     So how has the FCC done in the four years while I've been the
chairman?


     Let's go to the data points:


     --   When I started as chairman at the end of 1993 there were
          30,000 domain names; now there are 1.6 million.


     --   there was no such thing as a browser; now every cp (that's
          computer person)  rides the info highway.


     --   the small handful of Internet access providers charged by the
          minute, with costs reaching triple figures per month; now
          $19.95 buys you all the bits you can eat and ISP's (intrepid
          sellers of progress) number 4000 and counting upwards.


     --   the law supported monopolies and regulation in telco and
          cable; now the FCC has got a new law that backs
          competition and deregulation in all communications markets
          -- which, I remind you, are almost three times the size of the
          software market.


     Also, while I've been Chairman, 


     --   we've discovered that life on earth probably began on Mars
          and we have the best pictures ever from our birth planet; 


     --   the tobacco industry admitted it causes cancer; 


     --   my law school classmate and high school classmate were
          reelected President and Vice President; 
     
     --   the nation has had its longest economic boom in history; 


     --   NATO has extended to some of its enemies and most of the
          rest want in;


     --   the budget's been balanced;


     --   Silicon Valley has seen, as John Doerr puts it, the greatest
          creation of wealth in history;


     --   welfare, big government, and medicare have all been
reformed;
     
     and


     --   Cal Ripken broke the consecutive game streak and my team,
          the Orioles, is best in baseball;


     So I don't know about all of you, but I'm running on my record.
     
     It wasn't that hard really. 


     The Internet stuff I have particularly enjoyed taking credit for.


     At any rate, with the market at an all-time, it does seem like a good
time to quit.


     If it drops now, blame the new guy.


     The Senate is preparing to confirm in September four new
commissioners, including my successor, the FCC's fine and able Californian,
general counsel Bill Kennard. 


     He will have to go some to top that cloning I invented in some of my
spare time.


     But as a kind of farewell message to the Valley I want today to talk
to you about what no one has yet done, and what needs doing for and by all
of us, because none of us can do it acting alone.


     It is this: we need a fully developed Internet to give us competition,
deregulation, economic growth, social change, high productivity, new
record sales of hardware and software: in short, a better America.


     We're not getting it fast enough or spread far enough through our
country's different geographic regions and demographic groups.


     I want to see the Internet grow like kudzu everywhere in this
country, with access for poor and rich, seniors and kids, English speakers
and people just learning the lingua franca.


     I also want to see the Internet provide a key answer to the problem
of competition in the local telephone markets.  A year and a half after the
opening of California's telephone markets only about one percent of
consumers are taking phone service from anyone but the traditional
monopolist. And many major companies are delaying or cancelling plans to
compete. This is totally unsatisfactory. The Internet can change the
> picture,
introducing competition in data and ultimately video and voice.


     In short, we need an alternative, packet switched, worldwide
network. We can keep the current circuit switched network too; but we
need both.
     
     In terms of architecture,  we need a highspeed, congestion-free,
always reliable, friction-free, packet switched, big bandwidth, data
> friendly
network that is universally available, competitively priced, and capable of
driving our economy to new heights."  We need a data network that can
easily carry voice, instead of what we have today, a voice network
struggling to carry data.


     In terms of social impact, we need instant access to the libraries of
the world at the fingertips of every child in every classroom in every
> school
in the country pursuant to the Snowe-Rockefeller law that takes effect in
January.  With this step alone we would do more to eliminate inequality in
educational opportunity than has ever been done since Horace Mann
invented public schools. 


     And we need the alternative big bandwidth highspeed data network
installed in all rural health care facilities, under the same law.
> > Education and
health care ought to be primarily dependent on this new digital network.


     In terms of media, we need to change forever the anti-individual,
exclusively mass market, conglomerate-dominated centralized control model
of lowest common denominator  (lcd) content. We need to replace it with
unrestricted capacity to send and limitless capability to choose. 


     Are you with me on this folks?


     The country's communications network of today is a  $300 billion
sunk cost circuit switched telco network whale with the tiny market of
ISP's
circling around like pilot fish.


     Today's network is not the new species of communications network
that I'm hoping for and that the country needs.


     We've built new infrastructures before: a hundred years ago the
country needed ubiquitous, heavy trafficked railroad and telephone systems.


     The stories of the railroads and the telephone are stories of how
bottleneck monopolies built the economy but also choked competition,
raised prices, created wealth and pockets of poverty, and sparked
government intervention to assure some fairness in the balance between
citizens and capitalism.


     The construction of the 21st century network, our packet switched
Internet, will be equally complicated and challenging. But I believe
that we
can get this job done better and smarter and fairer than any other major
construction project in history. Our successes so far encourage us. 


     But I see five major threats to the rapid and successful development
of this new world of communication.


     First, the economics of the Internet at this time are, to use a
technical term, wacky.


     Demand for bandwidth isn't met; reliability is too uncertain; and
prices for many components and services are too high.


     The principal reason is that the Internet is for the most part a
legacy
of the hybrid of  regulated monopoly telcos and the anarchic not-for-profit
academic world. 
          
     This hybrid needs to evolve.


     But unless efficient and competitive markets drive the growth of the
Internet, its successful evolution is threatened.


     Already dangerous signs of congestion appear: the circuit switched
network designed for three minute calls is far from ready to handle several
hours of Internet traffic per household per day. 


     There's only one sure way to solve the congestion problem: open
and aggressive and efficient competition.  


     But the key congestion points of the Internet aren't effectively open
to competition.
     
     Demand goes unsatisfied.  Data, including fax, is the fastest growing
segment of telecommunications traffic.  But we're not yet able to use the
Internet to promote local competition with the telephone company.


     And Internet businesses aren't yet able to provide the highly
reliable,
high-bandwidth services needed to drive the Internet from here to
> ubiquity.  


     So it turns out that the battle you've been reading about between the
long distance companies and the local telco monopolies isn't just about
those two sets of players.  It's very much about companies trying to build
the Internet and about others -- like our glorious software industry --
that
will benefit from competition.


     And it turns out that the FCC's fight for meaningful local
competition isn't just about whether consumers will have a meaningful
choice for telephone service. It's also about whether the great mass of
American consumers will have a meaningful and affordable and enjoyable
opportunity to use the Internet and its services.


     Just look at some of the congestion points and what's needed to
relieve them.


     1.   The Local Loop.    Those wires weren't engineered for digital,
packet-switched communications, and they are owned by  monopolies that
want to dictate their use and their users.   We need to free up those loops
for high-speed digital communications.  We need rules that ensure that any
competitor can lease them and put them to any new souped up
coppercopeia use.    


     2.   The Local Switch.  Local switches are what telcos use to route
traffic from users to ISP's.  These switches are for the most part owned by
monopolies.  We need to ensure that any new competitor can share their
efficiencies or, better yet, route data traffic around them onto packet
networks.
     
     3.   T1 circuits.  T1s are the basic data transmission circuits
purchased by ISP's.  They are usually offered by telco monopolies, and the
prices are far higher than they should be. Competition is necessary to
lower
these prices.  In the meantime the FCC needs the power to lower these
prices for both interstate and intrastate T1s. This is a $5-10 billion
> annual
business for telcos; decreased prices will threaten telcos, but will have a
huge positive impact on the Internet.


     4.  The Internet addressing system. We need a new means of
managing Internet domain names and other addresses.  The current system
is not reliable or fair.


     5.  Inside and Outside Wiring.  The connection to the house and the
wires inside the house need to be open to competitors.  The existing telcos
and cable companies have legitimate rights to some of these facilities, but
these rights can't be used to exercise their monopoly power and thwart
competition.


     So my first point is that for our high bandwidth, packet switched,
Internet-friendly world we need the right rules to guarantee competition at
each of these congestion points. 


     My second point is that we can't have the wrong rules written. 
There are continued efforts to write new rules of law to "help" the
> > Internet. 
So far they aren't being written right.
The first example is the Communications Decency Act, overturned by the
Supreme Court, fortunately.  


     A new bill introduced in Congress last month called the Internet
Protection Act is another example of a grievous misstep.  Though the stated
aims of the bill are generally worthy, in practical effect the bill would
> let
telcos overcharge ISP's; would stymie access to their loops by the 40 xDSL
companies getting going in California alone right now; and would fail to
cure any of the market failures that cause Internet congestion today.


     Third,  even if we have the right rules of law, they can be frustrated
and undermined by the rules of lawyers.  The 1996 Telcom Act is a right
law but the legal process of implementing it is turning out to be a
> nightmare
of delay and distortion by reviewing courts.


     So far the monopoly telcos have persuaded judges to hold that the
FCC has no power to insist on competition in local telephone markets. 
We're trying to get this case to the Supreme Court but the telephone
companies are fighting for delay. 


     Here we have a law that everyone thought empowered the FCC to
open all communications markets, and the courts are enjoining us,
telling us
that the states get to decide these matters.  When the states' rights
> > agenda is
used to help shrink big government I admit to some sympathy.  But when
it's used to bolster monopolies and stifle interstate commerce and create
years of litigation-induced delay, I think something's gone grievously
wrong
with our legal culture.


     I admire lawyers' arguments.   But that's because I'm a lawyer. Even
worse, I'm a son of a lawyer.
     
     On the other hand, only vibrant competition and not debates about
jurisdiction will attract the investment necessary to build our data
> > networks.
Only vigorous competition, as opposed to vigorous courtroom advocacy,
will alleviate bottlenecks in response to real demand.


     Fourth, the new data networks and the new services they will carry
depend on big bandwidth.  No bandwidth, no business.  The faster it's made
available the faster it will be used.  The spectrum is an enormous
opportunity for a bandwidth explosion, and the FCC's economists and
spectrum experts have invented a new spectrum policy designed to produce
make high volumes of bandwidth available at low cost. 


     But the pushback against pro-bandwidth spectrum policies has
already begun.


     Last month Congress nearly passed a law ordering the FCC not to
let spectrum licensees have freedom to use their spectrum the way they
wanted.  That could have stopped us from just getting out of the way, for
example, when wireless cable firms and, recently, a Low Power TV licensee
decided to use their spectrum for the new and different use of high-speed
Internet access.


     Congress also nearly required the FCC to slow down the pace of
licensing unused spectrum.  The big bandwidth networks of the future will
use as much bandwidth as we get on the market.  But the status quo is
threatened by this policy and they're pushing back.
     
     Last spring the FCC distributed licenses for the new over-the-air
local medium called digital TV.  We refused to mandate computer-
unfriendly interlaced high definition TV, which would have forced licensees
to devote virtually all of their digital capacity to picture quality --
> > whether
the public wanted it or not; indeed, whether the public could tell the
difference between one format or another.


     Our view was digital television was an opportunity for big
bandwidth -- not big government pushing its bad ideas on business.


     Now this fall, with innovators at ABC, Sinclair and other broadcast
companies developing new multichannel digital programming and services
to broadcast to any kind of digital receiver -- converter boxes, digital TV
sets and I hope even laptops -- some in Congress are protesting.


     As ABC's President Preston Padden explained in a letter to the Hill,
digital technology allows broadcasters to compete effectively in a
fractionalized media market while also offering multiple wide-screen
pictures of a quality "virtually indistinguishable to the consumer" from
> high
definition TV.  Even after hearing that explanation, a Congressional aide
said yesterday that Congress wouldn't let broadcasters "off the hook" and
would insist on high definition.


     Why doesn't everyone want a new high-bandwidth digital medium? 
Why does anyone want to use government power to promote high-end
multi-thousand dollar appliances for the electronics industry to sell?  


     And as a backup they want the FCC to tax the heck out of any
subscription digital use, including Internet access.   If you can't ban
> > it, tax it,
is the theory from these congressional leaders.


     Me, I'm an anti-tax, pro First Amendment, marketplace-oriented
guy.  So I would love this fight.  It almost makes me want to stay in
government.
     
     The fifth threat to the construction of a ubiquitous alternative
broadband packet switched digital network is the reaction of the status
> quo. 
The Internet today is like the buccaneers of England's first queen
> Elizabeth,
jauntily stealing the gold from the galleons of Spain -- that's the
existing
proprietary networks that rake in north of $200 billion in revenue and
don't
mind too much losing a bill or two to the ISP's.  But eventually the
Spanish
Armada will set sail on merry England; eventually when the  poaching gets
rich enough and there's Internet access in every pager, curtain rod,
beltbuckle and laptop, the powers of the status quo will mount an army of
lobbyists and public relations firms and economists to take on the packet
switched threat.  So I suspect.


     Is it possible that the packet switched technology is that big a
threat
to the status quo?


     As the great poet Wallace Stevens wrote:  "By one caterpillar is
great Africa devoured, and Gibralter dissolved like spit in the wind."


     In my view within five years in some markets and ten in most,
packet switched minutes will exceed circuit switched.


     And the Armada will set sail.
     
     Already you have seen this year  that the telcos combined to seek
from the FCC new charges, called access charges, on the Internet. Their
idea was that all Internet traffic would generate about six cents per
minute
in charges paid to the local phone companies that originate and terminate
the call on their local loop, the lines to your house or office.


     At a couple of hours of usage per day --hardly unusual for Internet
folk --- that's about $200 a month. 


     Prominent political forces told the FCC to agree with the phone
companies.


     We didn't.


     But being in lobbying means never having to say you're sorry.


     This and other arguments will return.


     If humans can create all these obstacles to rapid, efficient, and
private sector development of the future networks of America, then humans
can solve them.  Here's what should be done: We do need a new law, a Free
the Internet Law. It can be blessedly short. Here are its key components.
     
     First, the First Amendment should clearly protect Internet content
from government regulation.  


     Second, the FCC should have the power to order states not to
regulate digital packet network services, whether offered by new
entrants or
by incumbents.   There are thousands of pages of rules written by state
legislatures and state commissions that regulate investment, pricing,
> service
quality and almost every other aspect of the existing telephone networks. 
These are the rules the FCC should be able to order the states not to apply
to the country's data networks.


     Third, the data networks should be free from subsidy.  They
shouldn't pay into any subsidy pool and they shouldn't take out.   Let the
markets build them.  


     Fourth, the FCC should have clear authority to impose in every state
policies that open any and all communications bottlenecks to competition. 


     Fifth, this is America and every citizen has a right to take the
government and any other citizen to court.  But does every court in the
country have to be involved?  So far GTE has sued in 30 federal district
courts in 23 states arguing that they are entitled to charge competitors
for
their historic cost of building their networks.  All judicial review of the
essential issues in the telcom world should be in a single court of
> > appeals.  
Simplicity is the mother of wisdom.  Complexity is the father of confusion
and delay.
     
     A short and simple law along these lines would be a real Internet
Promotion Act. 


     The law wouldn't guarantee the Internet's success.  Whether we have
a ubiquitous high speed high bandwidth packet switched digital network
really depends on the brilliant entrepreneurs here in the Valley and
elsewhere working around the clock to invent the services and products that
will drive Internet expansion.


     Washington can't make the Internet succeed.  But it can be an
obstacle to its success -- through unwise action and unwise inaction.  


     There are plenty good ideas in Washington.  Whether my modest,
market-oriented, competition-friendly, deregulatory proposals fall in that
category -- you be the judge. 


     But I'm confident this nation can get its communications  policies
right and get the real info highway built fast fairly and efficiently all
> > across
this land.
     
     One person who added to my confidence, and the market's, lately, is
Alan Greenspan.


     Some say he deserves credit for some of those economic wonders I
mentioned happened during my term at the FCC.


     I guess you'll be the judge there too.


     But I praise him not only for his steady brilliant monetary
management but also for his insights into the power of the Internet.  In
testimony to Congress last month Chairman Greenspan noted that there
have been "increasingly successful and pervasive applications of recent
technological advances, especially in telecommunications and computers
[that] enhance efficiencies in production processes throughout the
economy."  


      He continued: "An expected result of the widespread and effective
application of information and other technologies would be a significant
increase in productivity and reduction in business cost."


     Central bankers are not given to hyperbole, but I think I can say that
the Chairman is forecasting a marvelous era of growth and opportunity
driven in large part by the new, widespread, effective networks of the
future.


     In short, if we build it, the wonders will come.


     And any one who had a hand in this fantastic future will get what
they deserve: a brighter future for the next generation here and all over
the world.


> > Kelly Jo MacArthur
> > General Counsel
> > Progressive Networks, Inc. -- Home of RealAudio
> > 1111 Third Avenue, Suite 500
> > Seattle, WA  98101
> > Telephone:  (206) 674-2213
> > Fax:       (206) 674-2695
> >
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