Summary of Remarks of Donald Vial Chair, Policy Committee, Alliance For Public Technology (APT) NARUC Committee on Telecommunication, July 28, 1998

Panel on "Policy Perspectives on Section 706" Chaired by Commissioner Julia Johnson

I. No Hope for "Universal Service" in Digital Age without Implementing Section 706 of Telecommunications Act of l996

More than a decade into telecommunications restructuring, and thirty months under the

Telecommunications Act of 1996, reality is emerging. There is no hope of extending the public utility concept of "universal service" into the digital age of advanced communications and information technologies without implementing Section 706 of the 1996 Act--the nation's commitment to deploy advanced telecommunications capability to "all" Americans. "Universal service" has no meaning in a marketplace that operates by fragmenting and segmenting consumer markets. It has been necessary for the public utility concept of "universal service" to be recast to be compatible with the competitive restructuring of telecommunications--in the process, triggering major problems concerning the explicit funding mechanisms needed to advance universal service objectives in an inhospitable marketplace. It was foreseeable to APT that the development and implementation of current internalized, explicit-funding mechanisms to support "safety nets" for the poor, access to basic services in high cost areas, and discounts for advanced services for schools, libraries and health care--all feeding out of the same trough--would become a bottomless pit of controversy, both politically and within the industry. At best, adequately funded, these mechanisms function as an essential base for bringing everyone within the orbit of the digital age as mandated by Section 706.

II. Rolling Out High-Capacity Bandwidth under Mandate of Section 706--"Ubiquity" is the Goal, not Fostering a Competitive Race to the High End of the Market.

Time has run out on the failed policies of the FCC and the states which have severed their responsibilities for implementing Section 706 from major decisions affecting universal service obligations, competitive interconnections, and related network access issues.

Putting all policy eggs in the basket of "competition" to implement Section 706, when other policy options under the 1996 Act were clearly available to the FCC and states to promote advanced infrastructure investments, has been a well-intentioned, but failed policy from the outset. Specifically, the conscious choice of a "price competition" model, based on the unbundling of local network elements and heavy discounting of them for resale, has failed to significantly advance competition in the local exchange, except for high-margin consumers. Its policy impact has been to discourage facilities-based competition and to become increasingly out of step with the reality of how the convergent technologies are driving the upgrading and the reconfiguration of networks to deliver the advanced products and services of the digital age. FCC chairman Kennard is on the right track in seeking to extricate advanced network investments of incumbent local exchanges from the disincentives of unbundling and resale requirements applicable to their networks. We applaud his efforts as being compatible with APT's view on how high capacity technologies like xDSL can be rolled out in a fully competitive environment, along with other emerging technologies for implementing Section 706. The devil is in the details, however. Beyond competitive access to local loops and co-location of equipment in central offices, APT has grave concerns that the conditioning requirements being advanced to accommodate the competitors of local exchanges in these rollouts are overboard. They would condition incumbent local exchanges to participate fully in the competitive race to deploy high capacity technologies, but the race would be circumscribed so that it is certain to be a race to the high-end of the market by ILECs and CLECs alike. While assuring a competitive environment for CLECs, for example, the requirement that ILEC's deploy their high-capacity services through an independent subsidiary has a major downside. It virtually forces the ILECs to go after the high end of the market like their competitors. APT supports the consideration of a separate subsidiary requirement, but we recognize that its imposition will require strong pro-active policies focused on "marginalized" communities to overcome the downside. State regulators, particularly, working cooperatively with the FCC, have a major role to play to make sure that the competition being fostered reaches beyond the high end of the market to advance the "ubiquity" commitment of Section 706.

III. Market-oriented, Pro-active Policies are Required to Extend High Capacity Bandwidth to "Marginalized" Communities and Overcome Growing Digital Divide

A competitive marketplace is not an end itself. Market failures render it ineffective for major segments of the society. Under current public policies, electronic redlining of the marketplace is rampant. The digital divide is growing, and removing barriers to advanced infrastructure investments will do little for communities "marginalized" by the marketplace unless facilities-based investment incentives are buttressed by pro-active policies to bring the digital world within their reach. TIIAP grants have demonstrated the enabling capacity of advanced communications and information technologies to build "community" and to enrich the lives of everyone. Yet that experience is not being integrated into the implementation of Section 706 as urged by APT. Specifically, there is an urgent need for a Federal/State program to help communities, rural and urban, confront the reality of how market forces are playing out in their backyards. The reality is that competitive providers in the converged communications industry lack sustainable marketing vehicles or processes for accessing the innovative capacity of community-based organizations, small business groups and residents of "marginalized" communities. There are few if any on-going community-based relationships with competitive providers for addressing applications-development specifically targeted to the life needs in underserved communities. Unlocking the innovative capacity of these communities is the key to aggregating demand that attracts profitable investments in high capacity bandwidth to the home. It is a challenge requiring state initiatives in cooperation with the FCC. APT has outlined a model for such initiatives in its Section 706 filing with the FCC. What must be taken seriously by regulators is the message in a cartoon that appeared a few months ago in the New Yorker magazine. Two men are shown standing in front of some buildings in a less than affluent area. One person is pointing toward the sky, saying to the other: "Look! There it is again! The invisible hand of the marketplace giving us the finger". That is a message being forgotten in the implementation of Section 706.