Subject: [NEXTEL-1] Trust the Market Remarks by FCC Commissioner Kathleen Q. Abernathy to the Women’s High-Tech Coalition

From: Marcel <[email-masked]>
Date: Wed, 07 May 2003 18:33:19 -0400

Trust the Market- Remarks by FCC Commissioner Kathleen Q. Abernathy to the Women’s
High-Tech Coalition
May 6, 2003
(As prepared for delivery)

Thank you for your introduction.  I want to thank you for inviting me to join your group
today for lunch.  I believe that the mission of the Women’s High-Tech Coalition to
leverage the significant power of women senior executives from both the public and private
sector to impact public policy is extremely important.  We cannot underestimate the
influence and power we have as a group.  I know that in my role as FCC Commissioner, I
have endeavored to engage in frequent dialogues with other women in both the public and
private sector to gain their insights into key policy issues, and learn from their
experiences.  I believe that the very traits that sometimes hold women back, a lack of
faith in our own ability, that drives us to be better and work harder, can, in time,
become our strength and our best asset.  As Harriet Beecher Stowe wrote, “women are the
architects of our society.”

Today, I thought I would talk about how government regulation intersects with market
realities.  More specifically, why, as a policy maker, one of the principles I have tried
to adhere to throughout my term is reliance on market competitive forces, as opposed to
increased regulation when I am granted the discretion in making decisions.  I firmly
believe that as a regulator I have the obligation to trust the market and forbear from
imposing unnecessary regulation because fully functioning competitive markets make better
decisions than the government can or will.  As past examples demonstrate, this type of
decision-making ultimately results in the most innovative and reasonably priced services
being provided to consumers by the communications industry.
One such example is the United States wireless industry.  When the rules for the wireless
industry were being developed by the FCC, the Commission considered imposing Section II
common carrier type regulation.  That is, it could have imposed price regulation, service
quality controls, mandated certain technologies or demanded tariffing. But the FCC instead
let go of the reins and relied on market forces to govern pricing and service terms for
PCS and other mobile services.
This is not to say, however, that there was no regulatory intervention. The FCC continued
to place additional spectrum into the marketplace - thus allowing multiple players to pave
their own wireless last mile and to compete with existing providers. Included in this
policy was a spectrum cap that guaranteed, at least initially, that there would be at
least four distinct wireless providers in each market. The Commission also developed and
enforced strict interference rules that prevented competitors from interfering with each
other.
So while the approach to wireless was largely deregulatory, the Commission also engaged in
limited interventions to ensure, for example, that there was a diversity of providers of
the "last wireless mile" and to prevent competitors from externalizing costs onto one
another or consumers. In sum, the wireless experience illustrates how Commission policy
ought to work: We establish policies that encourage entry into the marketplace; firms
compete with one another based on price and service quality; and consumers make choices
that maximize their welfare. In the end, some firms succeed while others fail, and it is
the role of regulators to referee between carriers and consumers and among providers - not
to pick winners and losers.  Based on the success of the U.S. mobile telephony industry, I
believe that.
When I began as a Commissioner, I believed that adhering to the core principle of trusting
the marketplace would be relatively easy as a Commissioner. In reality, it is often quite
difficult.  Regulators are often hesitant to trust markets to operate rationally, even if
they believe it is the right thing to do and even if past Commission decisions, such as
the cellular decision, support such an approach.  This is despite the fact that time and
time again marketplace forces have delivered innovation, competition and their
accompanying benefits to consumers.  There is always a tendency to believe that direct
intervention and manipulation will somehow yield a better result for consumers.

Today I would like to share with you some of the more recent decisions that the FCC has
made whereby the Commission has placed its faith in the marketplace as opposed to imposing
market-stifling regulations.  In addition, I would also like to spend a few minutes
discussing with you a decision where the Commission, by failing to trust the marketplace
created an uncertain regulatory environment that has deterred investment and innovation.
But, first the good news ---

The FCC has recently focused on moving towards increasing the amount of unlicensed
spectrum that is available for new entrants to provide telecommunications services.
Today American consumers increasingly rely on unlicensed devices in their day to day work
and home environments.  For example, your cordless telephone, garage door opener and
computer all operate on an unlicensed basis under the FCC’s rules.  In addition, many more
innovative devices operating in the unlicensed bands are becoming commercially available.
These include Wi-Fi which allows you to have wireless access from your computer to your
ISP, and blue tooth which provides wireless connections between your mobile phone, PDA,
and other devices, such as keyboards and earphones.

In the unlicensed environment, the FCC does intervene to establish certain rules of the
road to avoid harmful interference and allow multiple devices to operate in the same
frequency band.  The success of the unlicensed approach to spectrum regulation has been do
in large part to the Commission’s willingness and ability to clearly define the rules that
govern the common use of this resource, while resisting the urge to impose heavy-handed
regulation.  This approach has encouraged capital investment, and in turn, new services,
have been introduced to the American people.  Unlicensed bands, unlike the licensed bands,
do not create property like rights, but rather focus on communal use.  Accordingly, like
drivers on the highway, all users must comprehend and obey the rules of the road and the
FCC, as the regulator, must ensure its rules are clear.

The FCC is continuing to examine its current spectrum allocations to see if additional
spectrum can be made available for unlicensed use.  Most recently, the FCC affirmed its
decision to allow ultra-wide band devices on an unlicensed basis to be deployed in a large
portion of the lower frequency bands.  Ultra-wide band technology holds great promise for
many applications including public safety.  For instance, one company has developed a
device that allows police officers to see through the walls of buildings to locate
hostages.

The Commission is also looking at additional frequency bands at 70, 80 and 90 MHz for
other unlicensed devices.  And just last month the FCC issued a notice of inquiry seeking
information on what technical rules are required to allow power line broadband carrier
services to be utilized. We are hopeful that power lines might offer a new broadband pipe
to the home and office over the existing power infrastructure by operating in unlicensed
frequency bands.

Another area where the Commission is adopting market-based solutions is in crafting
service rules for wireless providers.  A good example of this was our recent decision to
craft a flexible regulatory regime that offers mobile satellite service operators the
ability to include an ancillary terrestrial component to their satellite systems, as long
as the satellite operator meets certain gating criteria.  This decision enables mobile
satellite operators to maximize the value of their spectrum by offering an integrated
service package of both satellite and terrestrial mobile services in rural and urban areas
of the United States.

Similarly, the FCC last month adopted an order providing flexibility to public safety
licensees who use the 4.9 GHz band so they can offer both mobile and fixed broadband
applications.  Such flexibility will allow each public safety licensee to deploy systems
in a manner that best serves the service and technological needs of their community.

Unfortunately, in some instances, the Commission has taken a step back from relying on
competitive market forces to deliver value to consumers.  Such slippage will ultimately
harm consumers by stifling innovation and choice in the marketplace which may ultimately
lead to fewer choices and higher rates for consumers. It can also lead to unintended
consequences, such as uncertainty and a lack of capital investment.  This is what happened
in part of the recently adopted triennial review order.  While we remain in our sunshine
period, I am limited to discussing my own take on the issues, so let me offer a brief
summary of my views on two of the key issues decided in that proceeding.  One of which I
supported and one I did not.

One of these issues concerns the imposition of unbundling obligations on fiber loop
facilities used to provide broadband services, and the other concerns UNE-P, which stands
for the unbundled network element platform.  First, the good news. As most of you probably
know, the Commission decided not to impose unbundling obligations on new investment in
fiber loop facilities.  Specifically, the Commission will not require incumbent LECs to
unbundle fiber-to-the-home loops.  Nor will incumbent LECs be required to unbundled a
packetized broadband channel over hybrid fiber/copper loops.  What this means is that
CLECs will continue to get exactly what they get today ? access to copper loops, and
access to high-capacity loops over fiber, using a non-packetized technology called TDM.
In addition, I want to make clear that when I say incumbents are not required to unbundle
these fiber facilities, I mean that they need not provide them at TELRIC prices.  But the
Bell operating companies still must make the facilities available to competitors on a
wholesale basis, because section 271 requires them to provide competitive access to their
loops.

I believe this decision strikes the appropriate balance between the goals of providing
incentives to invest in new infrastructure and of giving competitors access to bottleneck
facilities.  As I mentioned, CLECs will not lose access to any existing UNEs.  But we are
refusing to extend new unbundling obligations to the advanced networks of tomorrow that do
not yet exist.  Why?  First, because I generally do not support adopting regulations based
on what might happen, because it is difficult to make accurate predictions about
impairment.  Second, I believe that those next-generation networks may never get built if
incumbents are required to turn over the fruits of their investment at TELRIC prices.

I did disagree with one aspect of the broadband analysis, which was the decision by the
majority to eliminate line sharing over copper loops.  Unlike new fiber investment, copper
loops are already in place.  So giving competitors like Covad the ability to share those
loops does not deter investment at all.  In fact, allowing competitors to offer DSL
through line sharing promotes competition and investment.  If the incumbent wants to find
a way to differentiate its service offerings, it can build new fiber loop facilities
without being subject to the TELRIC unbundling regime.  I recognize that, in time,
intermodal competition from sources like cable, wireless, and satellite will be very
beneficial for consumers, but in the short term, as some of these new broadband platforms
are still getting off the ground, I think line sharing would have provided a much-needed
competitive alternative, but I was in the minority on that point.

Finally, let me say a few words about UNE-P and why it represents a failure to put some
faith in the market.  Fundamentally, I believe the majority’s decision to allow each state
commission to decide the fate of unbundled switching, based on a largely subjective
analysis, was bad for the telecom market and, in the long term, will be bad for
consumers.  The majority concluded that, even though CLECs have deployed more than 1,300
switches nationwide ? in some 86% of all wire centers ? they were unable to reach any
conclusions about whether competitors are impaired in the absence of unbundled switching.

I believe that the Commission had a legal obligation to take on the challenge of deciding
the circumstances in which impairment exists.  For example, all the Commissioners believe
that certain operational issues surrounding the hot cut process needed to be addressed
through performance metrics and other rules.  The Commission also could have determined
that economic impairment exists in markets where fewer than a particular number of
switches have been deployed, or in markets with fewer than a set number of lines, or based
on a variety of other tests in the record.  But I believe we were not permitted to throw
up our hands and turn over the entirety of the job to the states.  The FCC and state
commissions have an important partnership in promoting local competition, but each has a
statutorily defined role to play in that partnership.  Section 251(d)(2) of the Act makes
clear that the FCC ? not the states ? must decide which network elements must be
unbundled.

While I believe the decision is legally indefensible, I am equally concerned about its
impact on the marketplace.  What this market needs to promote investment is certainty.  A
better approach, which I would still have dissented from, would have been to make an
actual finding that impairment exists.  But instead the majority established a presumption
that will give CLECs and ILECs no indication of whether UNE-P will be available in a given
state.  Rather than adjusting business plans to a new federal regime and investing in
facilities-based competition, carriers will now spend the next several years litigating
before each state commission, and then litigating in federal district court, and
ultimately litigating in the courts of appeals.  To be sure, any decision by the FCC would
have been appealed as well, but there is an enormous difference between the timing and
uncertainty involved in a single federal appeal and 50 separate litigation tracks.

I am disappointed by this outcome, because the FCC had an opportunity to put us on a path
towards more sustainable facilities-based competition and, ultimately, a greater reliance
on market forces.  Instead, the majority opted for an extraordinary degree of regulatory
oversight and uncertainty.  And while I have no doubt that the state commissions will
attempt in good faith to make economically sound decisions, I also know that different
states will reach diametrically opposed conclusions based on the same underlying facts.
That can’t be a good outcome for consumers.  In the meantime, legal and regulatory costs
escalate for all the carriers, whether incumbent wireline provider or new competitor.  And
this fact combined with the overall uncertainty of the process drives down the market
valuation of all the players.  At the end of the day, both competition and innovation
would have been better served by an approach that recognized the value of allowing the
market to work with lighter touch regulatory oversight.

The good news, however, is despite regulatory failures, which are inevitable since we lack
perfect knowledge, technology never stands still.  New, innovative life changing services
find their way to the market despite the hurdles we may erect.  And my hope is that we
learn from our past mistakes and continue to trust in competitive market forces to deliver
innovation and value to consumers.  We can then focus our regulatory efforts on
enforcement and consumer protection, which is a speech for another day.

Thank you for the opportunity to discuss these important issues.  I would be happy to take
some questions.

http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-234175A1.doc

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