[Congressional Record Volume 141, Number 52 (Tuesday, March 21, 1995)]
[Senate]
[Pages S4210-S4212]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


 TELECOMMUNICATIONS DEREGULATION AND COMPETITION: ITS IMPACT ON RURAL 
                                AMERICA

  Mr. DORGAN. Mr. President, when Congress passed the Communications 
Act in 1934, telephones were a novelty. Sixty years later, most 
Americans have affordable telephone service, thanks largely through a 
universal service system of support mechanisms. This is a success 
story.
  Universal service has been a success because policymakers had the 
foresight to understand that market forces, left to their own devices, 
would not serve every American. Support mechanisms are necessary to 
ensure that every American could have access to phone service and 
electricity. This was true in building a nationwide phone network and 
it will be true in the future to deploy an advanced telecommunications 
network.
  Today we stand at the advent of a telecommunications revolution that 
promises to bring an explosion of economic activity and growth in rural 
America that will rival the delivery of electricity to farms in the 
early part of the century. The information age promises to bring 
opportunity to previously disadvantaged areas. Until now, geography has 
been, a disadvantage for rural America. Much of the 
[[Page S4211]]  business growth and development in America happens to 
occur in major urban centers out of geographic necessity, leaving rural 
America at a significant disadvantage. The telecommunications 
revolution is quickly changing all that, making a rural community in 
North Dakota as close to Manhattan as the Hudson River.
  Satellites, fiber optic cable, digital switching devises and other 
technological developments make it possible for voice, video, and data 
transmission to occur effectively and immediately between two locations 
thousands of miles apart. This means jobs, economic development, and 
opportunity unprecedented in rural areas that have historically been 
struggling to build a promising future.
  On the eve of our consideration of new major national 
telecommunications policy, I am concerned that issues essential to 
rural America may be overshadowing by the battles between the industry 
titans, like the regional Bell operating companies, long distance 
carriers and national cable networks. We cannot forget to do what is 
right for all, and not just a few, Americans.
  There is an obsession and worship of competition and deregulation 
these days. After all, a free market driven by competition comprises 
the economic fabric on which our Nation was built. At the same time, 
however, the country has always understood that these principles are 
not always in everyone's best in interest. This dichotomy is of 
significant note as we chart the development of our Nation's 
telecommunications policy and its impact on rural America.
  The structure and the economics of the telecommunications industry is 
as complicated as scholastic philosophy. Our Nation already possesses a 
quality integrated telephone network that most Americans can access and 
enjoy the benefits of coast-to-coast communications. However, few 
understand and the complex interaction and coordination that is 
required to connect the hundreds of local phone companies and long 
distance carriers. Although most Americans know the difference between 
local and long distance phone calls, few understand and appreciate the 
complexities of how long distance and local phone companies 
interconnect.
  For example, I would guess many Americans are not aware that the 
seven regional Bell operating companies [RBOC's] are not the Nation's 
only local exchange carriers [LEC's]. Many Americans are surprised to 
learn that there are hundreds of LEC's throughout
 the Nation. In fact, there are approximately 1,400 small cooperative 
and commercial systems serving people and communities throughout rural 
America. These small and rural LEC's originated to bring service to 
areas considered unprofitable and undesirable by the industry's early 
leaders.

  Together, these small and rural LEC's provide telecommunications 
service to approximately 6.6 million rural Americans. Their combined 
service areas cover some 1.7 million square miles and represent 
approximately 1 million route miles of infrastructure. While they serve 
about 5 percent of the U.S. population, their service areas encompass 
40 percent of the Nation's land area. On average, their investment 
totals approximately $2,500 for each subscriber. And, for the most 
part, the services they provide are equal or superior to those offered 
by the industry giants.
  With these facts in mind, it should come as no surprise that these 
low-density, high-cost areas are not natural candidates for competition 
and need support to deliver affordable service. They are neither 
magnets for capital nor market-stimulating sources of revenues and 
profits. Yet, despite the challenges these small and rural LEC's face, 
they consistently provide universal service to their constituency. This 
is possible only through sound public policy that has historically 
recognized rural is different.
  That's what we really need to focus on today. Rural areas are 
different. This does not suggest that competition should be rejected 
for rural areas. Rather, we need to understand that competition in 
rural and high cost markets needs to be structured differently in rural 
areas. Universal service support is critical and the introduction of 
competition must be addressed with carefully constructed policy--not 
blind obedience to competition and deregulation.
  There are two cardinal rules I want to impress upon my colleagues 
today. The first rule is that telecommunications reform must protect 
and preserve universal service support. Without such support, the 
future of rural telecommunications is a guaranteed disaster rather than 
a promise for opportunity. The second cardinal rule is that competition 
in rural areas needs to be structured appropriately and it is 
imperative that safeguards be in place to ensure an orderly transition 
to a competitive marketplace.


              PROTECTING AND PRESERVING UNIVERSAL SERVICE

  A recent study entitled ``Keeping Rural America Connected: Costs and 
Rates in the Competitive ERA'' reveals how the rural telecommunications 
marketplace could be devastated without universal service support. 
Specifically, it shows that rates would skyrocket to the point that 
many rural Americans would be forced to simply decline service.
  For example, the study demonstrates that without universal service 
support, local monthly rates would increase by $12.84 on average. 
Monthly toll rates would climb by $18.43. The combined monthly increase 
would average an astounding 72.3 percent. And these are study-wide 
averages; the effects in some States are even worse.
  Maintaining universal telecommunications service must remain our 
highest priority. Any emerging national policy must embrace the concept 
of an ongoing and evolving universal service mandate. Moreover, such 
policy must ensure that universal service initiatives are financially 
sustained by all market providers.
  Some have argued in favor of reducing, and in some cases, 
eliminating, the level of universal service support. This is flagrantly 
inconsistent with this Nation's 60-plus year commitment to universal 
service for all Americans. Congress and the administration alike have 
set many ambitious goals for the Nation's telecommunications industry--
goals that can be met only if we are willing to make a renewed 
commitment to support, not abandon, the policy of universal service.
  The objective of introducing competition in local phone service is to 
drive prices toward cost. In contrast, current practice reflects the 
long-established national policy goal of setting rates at levels that 
maximize subscription and use. That policy has proved very effective, 
enabling all of us to reap what economists call the ``external 
benefits'' of broad access to the Nation's public switched network.
  The largest LEC's want to base their rates on cost in order to 
confront their onrushing competitors more effectively. That is 
certainly understandable. They are large enough to make such pricing 
work for both themselves and their subscribers. Nevertheless, it does 
not necessarily make economic sense to force similar arrangements on 
small, rural LEC's. Cost-based pricing by rural LEC's would lead to 
dramatic rate increases for rural consumers. The value of a phone in 
Regent, ND is the same as the value of a phone in New York City. The 
only way to prevent rate increases is to offset them through universal 
service cost recovery mechanisms. This clearly points out the 
importance of establishing strong universal service support mechanisms 
prior to permitting the modification of the industry's rate structure 
scheme.
  Rural areas must have access to telecommunications capabilities and 
services comparable to those in urban areas. To ensure this, Congress, 
the FCC, and the telecommunications industry have established a number 
of support mechanisms, including geographic toll rate averaging, 
lifeline and linkup programs, local rate averaging, and the rural 
utilities service's, formerly REA, telephone loan program. These 
programs and policies have made state-of-the-art telecommunications 
technologies available to rural Americans. In return for these 
supports, LEC's agree to serve every resident in their service area who 
wants to be served. In many cases, it would have been impossible for 
LEC's to serve the entirety of sparsely populated service areas without 
support.
              [[Page S4212]] competition in rural markets

  The second cardinal rule is that blind allegiance to competition will 
hurt rural telecommunications delivery. The fact is that competition--
without conditions--does not serve rural markets. Airline deregulation 
is but one example. In a deregulated environment, airlines have chosen 
not to serve many rural areas. Why? Because the economics of 
competitive industry do not drive service into rural areas.
  The fundamental premise in the telecommunications reform legislation 
we considered last year--and that is emerging this year--is that 
competition will lead to lower rates and encourage investment. In most 
cases, this is the correct approach. Competition should be introduced 
into all aspects of telecommunications. When the old Ma Bell was 
divested of its local monopolies, separating long distance and 
manufacturing services into competitive markets, competition lead to 
lower long-distance prices and a flood of new equipment into the 
marketplace. Nobody can question that consumers have benefited from the 
emergence of hundreds of long distance companies and the thousands of 
new products that were borne from a competitive equipment manufacturing 
industry. Consumers have benefited from allowing competition in long 
distance and manufacturing industries and I am confident that consumers 
will also benefit under competitive local exchange service. Introducing 
competition into local telephone service can produce the same positive 
result--but only if it is done right and a one-size-fits-all approach 
is not taken.
  If unstructured competition is permitted in rural markets and 
competitors are allowed to cherry pick only the high revenue customers, 
serious destruction of the incumbent carrier, who is obligated to serve 
all customers, including the high cost residents, will occur. A local 
telephone exchange is like a tent and if a competitor is permitted to 
take out the center pole, the whole tent collapses. Larger markets may 
be able to sustain some cherry picking, but in smaller rural markets, 
the results could be higher residential rates.
  The fact is that competition can be destructive in markets that 
cannot sustain multiple competitors. A blind allegiance to competition 
could result in higher costs and diminished services for rural 
Americans. The question is not whether or not competition should occur 
in rural areas. Rather the question is how can the rules of competition 
be structured to ensure that rural consumers continued to relieve 
quality, affordable service. Without caution, we could be setting the 
stage for competition to jeopardize the national public switched 
network--
 and universal service--that almost all Americans enjoy today.

  Unstructured competition could lead to geographic winners and losers. 
We must not agree to any policy that creates a system of information-
age haves and have-nots. I cannot and will not support public policy 
that leaves rural Americans reeling in its wake. An unrestricted 
competitive and deregulatory telecommunications policy will not work in 
rural America. Such policy in fact threatens higher, not lower, 
consumer prices. Such policy in fact threatens less, not more, consumer 
choice. And such policy in fact will cost taxpayers more, not less, 
when it forces existing LEC's out of business.
  Telecommunications reform should not adopt a one-size-fits-all policy 
of competition and deregulation for the entire Nation. Competition and 
deregulation cannot work as a national policy without rural safeguards.
  I am not interested in giving telephone companies a competitive 
advantage over other telecommunications carriers. But I am interested 
in ensuring an affordable, high-quality telecommunications network in 
rural America. The cable industry and electric utilities want to 
compete in the local exchange market and phone companies want to 
compete in cable. I support breaking down the barriers that prohibit 
these industries from competing in each other's businesses. However, we 
must adopt safeguards that are in the interest of rural consumers who 
must be our first concern. Only with safeguards are all rural Americans 
guaranteed to receive the high-quality, affordable telecommunications 
service they deserve. That's the bottom line. New telecommunications 
policy must be about rural consumers.
  In exchange for universal service support mechanisms, telephone 
companies serving rural and high-cost areas have undertaken the 
obligation to serve areas that market forces would leave behind. The 
only reason why thousands of Americans living in rural areas have phone 
service is because our existing policies require certain carriers to 
provide that service. In addition, necessary support mechanisms to 
ensure that service are available so that service can be provided at an 
affordable rate. It seems to me that if competition is going to enter 
into rural and high-cost areas, competitors ought to be required to 
undertake the same responsibilities. Let's not close the door to 
competition--but let's require competitors and incumbents alike to 
carry the same burdens. This is the only way we can have fair 
competition in rural areas.
  The fact is that U.S. telecommunications policy has always recognized 
local exchange service as essential to the well-being of all Americans. 
The same cannot be said of cable TV or other related services. The key 
point here is that we must not adopt any policy that would jeopardize 
the provision of essential local exchange service. And we must 
certainly not adopt any policy that would alter current policy so 
dramatically that the interests of rural consumers would suffer.


                               conclusion

  In summary, preserving universal service is sound public policy. 
Universal service benefits the entire Nation, not just rural areas. As 
we pursue new telecommunications policy, we must also ensure that real, 
effective mechanisms remain in place to preserve and advance universal 
service. It is equally important to provide rural safeguards to ensure 
that competition results in positive benefits for rural consumers. The 
conventional wisdom of free-market economics generally does not apply 
to the different conditions in rural America where low population 
density and vast service areas translate to less demand and higher 
costs.
  Telecommunications reform legislation is one of the most 
comprehensive and significant pieces of legislation that many of us 
will work on in our congressional careers. Not only does billions of 
dollars hang in the balance between some of the largest corporations in 
the world, but more importantly, the affordability and effectiveness of 
a central element of economic and social life of Americans is at 
stake--an advanced telecommunications network. I urge my colleagues to 
address this legislation with an understanding and appreciation for the 
complexities involved and not to resort to easy ideological solutions. 
There is too much at stake. Not only do all Senators have a common 
national goal to promote the development of an advanced 
telecommunications network, but we share the same responsibility to 
ensure that all Americans have access to that network--regardless of 
their geographic residence.


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