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Regulatory Reform of the Telecommunications Industry Message to the Congress.

September 21, 1979

To the Congress of the United States:

I am today announcing my support for efforts in Congress to reform the regulation of telecommunications. Legislation is needed to eliminate needless regulatory controls, encourage competition and innovation, and keep telephone service affordable throughout the country.

Regulatory reform is one of my highest national priorities. Where the marketplace can work, we must get the government out of making marketplace decisions. Where regulation is needed, we must ensure it is well managed.

Last year the Administration and Congress worked together to deregulate airlines, introducing competition that already has saved over $2.5 billion for passengers while increasing air travel and airline revenues. This year we have submitted to Congress far-reaching regulatory reform proposals affecting trucking, railroads, banking, drugs, and regulatory procedures.

The 45-year-old regulatory charter for telecommunications also needs revisions. This industry can provide more and better services while cutting many costs. It can help fight inflation and promote growth. We cannot afford to have this progress frustrated by unwarranted regulation. We must ensure that competitors fight through their salesmen in the marketplace rather than through their lawyers in government hearings.

Telecommunications is crucial to our society. This industry—which includes the telephone companies and the firms which provide satellite communications, computer links, and other specialized services-has more than one million employees and annual revenues of over $50 billion. The availability of nationwide, high-quality communications is vital to the economy, national security, and the quality of our lives. Sophisticated new communications systems are providing better services, lower costs, and improved productivity in an economy that depends more and more on information transfers.

Telecommunications firms are regulated by the Federal Communications Commission under the Communications Act of 1934. That Act was designed at a time when technology made monopoly the logical structure for telecommunications. That system, assisted by the rural telephone loan program, has nearly achieved the national goal of universal service—96 percent of all households and nearly all businesses have telephone service.

Two critical changes have occurred since 1934. First, there have been extraordinary technological advances. In addition to the wired network, the telephone companies and new, competing firms are using satellites, lasers, microwaves. and miniature computers to provide more and more systems and services for business and homes. The new technology makes it possible to hold meetings, transmit messages, do research, bank, shop and receive a widening variety of information and entertainment-all through electronics. In the process, the technology has invalidated the old assumption that all aspects of telecommunications service are natural monopolies. Second, FCC and court actions over the last decade opened portions of the industry to competition. Despite these far-reaching developments, the statutory framework has remained unchanged, and regulatory changes have come slowly.

Outmoded regulatory controls and slow procedures are harming new competitors, established telephone companies, and the users of telephone and other telecommunications services. Regulatory delays and uncertainties discourage firms from entering new markets and offering new services. In a dynamic industry, these delays can mean that the product or service offered is obsolete by the time the regulatory proceeding ends. Innovation is hobbled by uncertainty and by the need to respond to artificial regulatory conditions instead of real consumer demand.

Consumers are the final beneficiaries of competition, through lower prices and wider choices. The competition already allowed in the telecommunications industry is producing benefits. For example, the market for telephone sets and other terminal equipment recently was opened to competition. Consumers now can shop around for good prices, choose from a wide variety of products, and decide whether to buy or lease. Competition is also providing more choices among sophisticated, new services, such as those that combine data processing and transmission.

The choice is clear. Competition is a fact of life in this industry. It cannot and should not be rolled back, and we should not allow it to continue developing haphazardly. That approach means delay and uncertainty, and it poses a long-run danger to the health of our telecommunications system. Instead, we need both legislation and well-planned action at the FCC. The task is to create a structure that will give consumers the benefits of competition and deregulation wherever they make sense while keeping telephone service reliable and affordable.

The FCC under Chairman Charles Ferris is working hard on this effort, but the Act itself needs change. The House and Senate Communications Subcommittees are now working on legislation to meet this challenge. I urge Congress to press forward and enact a bill that incorporates the following basic principles:

• Competition should be encouraged and fully competitive markets should be deregulated. The bill should set a policy of encouraging competition wherever it is workable and of eliminating needless regulation. Deregulation makes sense for competitive markets, such as terminal equipment, and for small firms that cannot dominate markets. Many communications and equipment offerings should be deregulated now, and legislation is needed to avoid endless litigation over the FCC's authority to do so. Of course, some communications markets, such as the local exchange, may remain regulated monopolies indefinitely. The legislation should not, however, preclude competition in any market.

As the industry moves toward competition and deregulation, some continued controls will be needed because one firm dominates the telecommunications industry and others have local monopolies. Firms should be prevented from using monopoly power and revenues in some markets to gain advantage over competitors in others. Any monopoly facilities used in providing competitive services should be available to all competitors at the same rates and terms. In addition, changes in companies' structures will be needed, such as mandating fully separate subsidiaries. Where such changes are made, the employment, pension, and union rights of the employees should be protected.

• Restrictions based on out-of-date market divisions should be removed. The line between telecommunications and data processing has become blurred; new equipment and services involve both. Existing controls based on this distinction have produced years of regulatory proceedings and are delaying the use of new technologies. In addition, the rules that divide some communications services between domestic and international companies are outmoded and need change. These problems should be solved through open competition by all, without extending the scope of regulation. To ensure fair competition, creation of fully separate subsidiaries, including separate accounts and marketing, will be needed, and some of the restrictions on international service will have to be removed gradually.

• Universal availability of basic telephone service at affordable rates must be maintained. Overall long-distance revenues currently contribute to keeping some local and toll rates affordable. This is done through complex accounting processes largely determined by the telephone industry. Because of the developments of the last decade, this system is in trouble. The industry is considering changing it in order to match the new competitors' rates, and that could mean significant rate increases in some rural areas.

These are important public policy decisions and should not be left solely to the industry. We need a new system, which would be administered openly by public officials. The legislation should provide for a charge on all long-distance services-including those of the new competitors-which use local exchanges. This "access charge" would cover the actual cost of using local facilities, provide support for local service, and finance protection for rural residents against large toll rate increases.

These provisions should be drawn to encourage the FCC, state regulators and the telephone companies to take longterm steps to support universal service. Such steps include prices based on actual use; low "lifeline" rates for basic service; and use of new technologies that can provide low-cost service over long distances.

In addition, the rural telephone companies and cooperatives should 'be encouraged to help extend to rural Americans the benefits of all the new communications technologies. As my policy statement on rural communications said last January, the current rules that restrict rural telephone companies from offering cable TV services should be removed.

• Appropriate jurisdictional boundaries should be set. The current boundary between Federal and state regulatory jurisdictions—the state line—is inconsistent with technological realities. The bill should set new, clear boundaries: service within local exchanges should be regulated by the states, while service between exchanges should be under Federal control.

• The FCC should be given the authority to develop efficient means of assigning non-broadcast frequencies. Many of the new telecommunications systems use radio frequencies, such as satellite links, microwaves, and mobile radio. The FCC currently assigns many of these frequencies through "comparative hearings" which impose months or years of delay and waste FCC resources. Under the current system, once a frequency is assigned there is no incentive to use it efficiently. That is a problem because growing numbers of users, here and abroad, are crowding the limited space in the radio spectrum.

We need assignment systems that are fast, flexible, and that provide incentives to use the spectrum efficiently. The legislation should give the FCC authority to design new procedures which use marketplace forces, such as auctions, leasing, and re-sale. These procedures will help ensure that the spectrum is used sensibly, just as similar tools are employed for oil leases and other limited natural resources.

• The antitrust laws should remain applicable as before. It should be explicit that the legislation is neutral as to pending and any future litigation.

• The technical quality of the telecommunications network should be protected. The legislation should not impede cooperation between the carriers to plan and manage national systems. To provide for technical quality, national security, and .emergency preparedness needs, the FCC should retain authority to set technical standards and ensure that facilities are capable of interconnection where appropriate.

• Public participation in regulatory decision making should be encouraged. Effective participation by the users of telecommunications services will help the FCC and state regulators make their difficult decisions. Such involvement should be encouraged through open proceedings and by providing funding for groups that could not otherwise afford to participate and that represent an important interest that would not otherwise be heard.

I congratulate Chairman Lionel Van Deerlin of the House Communications Subcommittee and Chairmen Howard Cannon and Ernest Hollings of the Senate Commerce Committee and the Communications Subcommittee and their colleagues for the extensive and informative hearings they have held and the thoughtful bills they have introduced covering the issues I have outlined and other important communications matters. My Administration will continue to provide assistance on specific provisions. I urge Congress to move forward with this important effort.

JIMMY CARTER

The White House,

September 21, 1979.

Jimmy Carter, Regulatory Reform of the Telecommunications Industry Message to the Congress. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/248232

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