*Pages 1--5 from Microsoft Word - 27529.doc* 1 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 1 2 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 2