In the wake of Business Week's Apr. 8 Special Report on telecommunications, the guests in this Apr. 1 event were Susan Ness, a commissioner of the Federal Communications Commission, and BW Associate Editor Catherine Arnst, one of the principal authors of the report. They discussed what's ahead in the new world of telecom.
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OnlineHost: Welcome to Business Week Online. Tonight we're talking about the new age of telecommunications, a Special Report in the current BW (Apr. 8). And we're honored to have as a special guest Susan Ness, a member of the Federal Communications Commission (CMMR NESS). She is on stage with BW Associate Editor Catherine Arnst (ArnstBW). The moderator is BW Online Consulting Editor Jack Dierdorff (JackBW).
JackBW: Good evening to all of you on AOL. Welcome, Susan Ness of the FCC. And hi, Catherine Arnst.
CMMR NESS: Hi, Jack and Catherine.
ArnstBW: Hello, thank you for joining us.
JackBW: Commissioner Ness, here's a question for you to start us off in our discussion of the new world of telecom.
Question: The Telecommunications Act has been hailed as deregulating the industry. What regulatory role do you see for the FCC in this new world of telecom?
CMMR NESS: Well, as you know, the Congress passed a major new law that charts a course for the industry. Now, competition will be the primary means of ensuring that consumers enjoy a wide selection of services and products at good prices. As competition develops, the role of regulation will diminish. But competition is not yet here, and we have a big job -- working with the states -- to make it happen.
JackBW: Now a question from Cathy Arnst, who wrote a big chunk of the BW Special Report.
ArnstBW: Commissioner Ness, in light of the PacTel-SBC merger announced today, do you think there is a danger that the industry might end up with more concentration rather than less?
CMMR NESS: Yes, that is a real danger. I can't comment on this specific merger, of course, because it will come before the FCC for review. Generally, we need to evaluate this kind of transaction to determine whether the potential for competition is enhanced or diminished.
JackBW: For either or both of you: What's the best betting now on who will win out in the new competition? Telecoms, cable operators, media companies, who?
JackBW: Cathy, want to try it first?
ArnstBW: Because the most important skills in this new converging communications industry will be marketing and brand name, the long-distance companies, which are used to competition, would seem to have the edge, over the long term, although at first it will be tough going.
JackBW: Commissioner Ness?
CMMR NESS: The FCC doesn't pick winners and losers. Our job is to eliminate barriers to entry and to promulgate and enforce rules of fair competition. We anticipate competition coming from multiple sectors of the industry, including from sectors and technologies that have not previously been part of the telecom arena.
JackBW: Here's a question from BobAB in Teaneck, N.J.
Question: How do you think consumers will benefit most from the realigning of the industry: lower prices for telecom services, or greater innovation?
CMMR NESS: Competition brings both lower prices and increased innovation. Unfortunately, to some extent it also brings confusion.
JackBW: Cathy, what's your view?
ArnstBW: I think consumers will pay a lower price overall for their communications package, which will include long distance, local, cable, Internet access, and so on, but some individual pieces of the package may go up at first, such as local phone service in some regions.
JackBW: Commissioner, Bdinesjr in the audience asks you this one.
Question: Susan, who will compete for local loop access, and how will they accomplish it?
CMMR NESS: Cable companies, wireless, companies, and long-distance companies all tell us they plan to compete in the local loop. They will be reselling services obtained from the incumbent carriers, and also building their own facilities to reach consumers. There are other potential competitors, such as electric companies and a new wireless service called Local Multipoint Distribution Service.
JackBW: Cathy, what's your perspective?
ArnstBW: In Texas, Central & South West Utilities has already filed to offer service in Austin and Laredo, proving the commissioner's point. Everyone is going to want to get into local service somehow, because that gives them the direct connection to the customer.
JackBW: Cathy, part of your report dealt with technology -- so this is for you, for starters.
Question: How far away is the technology to bring the Information Highway into most homes, full video and all?
ArnstBW: Well, a lot longer than originally thought, but not because the technology doesn't exist. It's just too expensive to install things like interactive cable boxes and video over phone lines now. Some technologies, though, like wireless local access, will probably be ready in 18 months.
CMMR NESS: The new telecom law will stimulate investment, but Cathy's right that it's an expensive proposition to build a broad-band plant. Satellite technology is offering broad-band connections to a growing number of households.
JackBW: MikeMerc in South Plainfield, N.J., has another regulatory question for Commissioner Ness.
Question: Do you anticipate any regulatory problems for the regional Bell companies that may merge -- say, Nynex and Bell Atlantic? Is there any limit to how many could recombine?
CMMR NESS: Again, I can't comment on specific transactions, but I am very concerned that ownership not become excessively concentrated -- not just in telephone but mass media, too.
JackBW: Cathy has a question now.
ArnstBW: Are there any restrictions that would prevent a long-distance carrier and a Bell from merging?
CMMR NESS: No. The new law eliminates a judicial decree that previously prevented AT&T from buying into a Bell company.
JackBW: Bat do in Baltimore wants to know about ISDN service.
Question: Can you tell me something about ISDN lines? This service is being offered in my area. I don't know yet whether it's for business only or residential as well.
CMMR NESS: Decisions about whether to offer this service, to whom, and at what price are between the telecommunications carrier and its state regulators.
ArnstBW: This is one area where the local phone companies really blew it. Although they are trying to market ISDN to homes as well as businesses, prices are still way too high and installation too tough to order for the most part.
JackBW: This question is addressed to Susan Ness of the FCC and/or Cathy Arnst of BW.
Question: For either of you -- what does Time Warner's flub in Orlando, plus its pitiable 3% of the local phone market in Rochester, say about the chances of outsiders to break into the business? Do they have enough smarts? Won't established telecoms squash them?
CMMR NESS: Chances for an outsider to break in are much improved by the new legislation. Barriers to entry have been outlawed, and the FCC and the states will work to enable competitors to purchase the network elements they need to structure their own services. Fair prices for these network elements -- or for resold services -- together with interconnection arrangements required by the law should speed entry.
ArnstBW: Even so, it will still take some time for the monopoly local phone companies to lose significant market share. Remember, it took AT&T 10 years to lose 40% of its market. And the Bells have a much tighter lock, as it's very expensive to build an alternative network.
JackBW: Here's another question from the consumer's viewpoint.
Question: As the competition among all these new parties to sell all the available services heats up, how is the average consumer bombarded with this technomarketing hype going to make smart choices? Any government help on truth in advertising here?
CMMR NESS: A competitive market means choice. The successful competitors will be those who make it easy for consumers to see value in the services they are choosing. The FCC has an enforcement role in preventing certain abuses of consumers, as does the Federal Trade Commission.
JackBW: A follow-up question to an earlier answer from Commissioner Ness.
Question: Commissioner, you've mentioned excessive concentration twice. What will or can the FCC do under the new legislation if it thinks it sees too much concentration?
CMMR NESS: We have the power to disapprove a proposed merger, or to place conditions upon it. In certain areas, we have rules that restrict the amount of spectrum, or the number of broadcast properties, a single entity may own.
JackBW: Another question about the FCC.
Question: What's the FCC's role going to be over the next year in sorting out the legislation? What remains to be decided, argued over, lobbied over?
CMMR NESS: We estimate that approximately 80 rule-makings are required by the new statute. Major issues, as suggested earlier, include the terms and conditions for interconnection by new competitors with incumbent phone companies. We will also be reviewing Bell company proposals to enter the long-distance business in their home territories. We're revising our broadcast ownership rules and developing new structures to ensure universal telephone service to all Americans, especially through schools and libraries.
JackBW: Cathy Arnst of BW wants to follow up on this.
ArnstBW: You have a very ambitious timetable, and a lot of industry observers wonder how you can meet it.
CMMR NESS: The timetable is incredibly ambitious -- but we will meet it, with or without sleep!
JackBW: Another timetable question, from LBetin in Plano, Tex.
Question: What timeframe do you see for the local telcos to get into the long-distance market viably?
CMMR NESS: All telcos other than the Bell companies are free to provide all long-distance services already. The Bell companies are free to provide long-distance outside of their regions today. Once they meet a competitive checklist established by Congress, and the FCC finds their entry to be in the public interest, the Bells can offer long distance in their regions. This determination will be made state by state, and they will not all be ready at the same time.
JackBW: Here's a final question -- yes, we're almost out of time.
Question: Do you worry about the effect deregulation might have on the reliability of the country's telecom infrastructure?
CMMR NESS: We have already seen some disturbing signs of diminishing service quality in some areas. We'll just have to keep a vigilant eye on this.
JackBW: Thanks so much for being with us tonight, Commissioner Susan Ness of the FCC. And thanks for joining us on stage, Cathy Arnst of Business Week. Plus, we appreciate the questions from the audience.
CMMR NESS: It was a pleasure. Can I just encourage everyone to visit my Internet home page? The address is http://www,.fcc.gov/nesshome.html.
JackBW: The FCC is truly online.
CMMR NESS: Goodnight.
JackBW: Transcripts of this and all BW Online conferences are available soon after the event. Look under Talk & Conferences on the BW Online screen. Thanks again and goodnight.
Copyright 1996 by The McGraw-Hill Companies, Inc. All rights reserved.
