Moderator Eli Noam, Professor of Finance and Economics at Columbia University, opened the panel by remarking that in permitting local exchange competition, several issues need to be addressed. First, if cable companies offer local services at rates based on marginal cost, then telephone companies and perhaps others would argue that these competitive offerings are being subsidized by the cable companies' monopoly services. Moreover, competition for narrowband services will emerge sooner than for broadband because of the expensive network upgrades required for the latter. Local competition will affect universal service, necessitating a system of subsidies. Professor Noam's NetTrans system would require that each carrier's net revenues be debited proportionately--that is, transmission revenues minus access charges paid to other carriers. Service providers would also receive credits for universal service that they already provide, up to a limit set by a formula. All affected customers would then receive virtual vouchers, permitting them to choose their carriers freely.
The first panelist, Ellen Craig, Chairman of the Illinois Commerce Commission, stated that state government officials have a strong recognition of the importance and value of telecommunications infrastructure and its relation to the economic vitality of Illinois. The officials agree with the premises of the NII that both universal service and competition, where appropriate, should be encouraged, and that government should set telecommunications goals and promote new applications for public services. They are pleased that NII will have a grants program for innovative demonstrations, and Chairman Craig noted the extensive teleconferencing and educational links that her state has established. Illinois is trying to match real economic and social needs with what technology can deliver. She noted that for many Americans, new services will be experienced for the first time in the school or the workplace, perhaps creating demand.
Susan Herman, General Manager of the Department of Telecommunications for the City of Los Angeles, remarked that NATOA sees universal service as "motherhood and apple pie," requiring both nurturing and making choices. Competition does not necessarily bring universal service, so the challenge is to try to balance the two. Americans today look at a variety of screens--penetration rates range from 96 percent for TVs to 94 percent for telephones to 31 percent for personal computers. The "old-fashioned" post office model may provide some insights for modernizing universal service in that service progressed from post-office boxes to personalized delivery to everyone's home. Just as many older Americans found typing to be a key skill for becoming literate and later for using computers, telecommunications will be the skill of the future that will lead to good jobs. Universal service is the foundation for making this possible. Local government has the important role of informing the public about this opportunity, making telecommunications part of the educational curriculum, and helping assure that networks are open and interoperable "so that we ultimately don't create telecommunications ghettos."
Robert Pepper, Chief of the FCC's Office of Plans and Policy, observed that telecommunications is important to people because it permits them to stay in touch, increase their productivity, provide better services, or participate in the postindustrial world. The service component of universal service has evolved over time, from a telephone in your neighborhood to a multi-party line to a single line, including touchtone in many areas. He noted that there is a risk of prematurely selecting a defined basket of services. Because of market failure, there is a role for government in ensuring universal availability of the basket for those who are economically disadvantaged or live in high-cost areas. On average, universal service has been achieved and has increased since 1984, but there are still areas where deficiencies exist. Another set of market failures that need to be addressed by government center on access to information. These include access to government information, affordability for everyone of electronically accessed information, and assurance that there will be available information that society needs but that the market does not produce.
Michael Nelson, Special Assistant for Information Technology at the White House Office of Science and Technology Policy, stated that the Administration is moving forward with an omnibus Telecommunications Policy Reform bill that addresses, among other things, universal service. 6 The latter represents the "thorniest" area of all because the industry is undergoing a transformation from monopoly to multiple providers. Telecommunications will become fundamental for people in their everyday lives, affecting such aspects as education, health care, and electronic government. A key issue is how best to subsidize lower-income users to ensure their access to the information infrastructure.
Richard Varn, Chairman of the Iowa Senate Communications and Policy Committee, remarked that a collaboration of federal, state, and "substate" levels of government is needed to make the NII available to all. Federal preemption of state control would not allow the varying demographic and economic needs of state and local areas to be addressed by those governments closest to those needs. In Iowa, circumstances dictated that the state government own (but not build or operate) a state-wide fiber-optic advanced information infrastructure because of price reasons. Yet, if large users leave the public-switched network, "how can we afford to have universal service"? State testbeds can answer these types of questions better than the federal government. Iowa is also collaborating with the private sector to disseminate public and educational information to schools and through libraries at low-cost nodes. To achieve the NII vision, the federal government should partner with the various states to permit testing and learning from the "different paths."
During the audience participation period, members of the FCC and the White House noted that their electronic capabilities are or will be enhanced in the near future. Mr. Nelson and Senator Varn agreed that rational regulation structures are needed and that any federal preemption should leave some role for government at other levels. A discussion followed in which Commissioner Gordon asked if monopoly revenues would be needed as a source of subsidies to maintain universal service, and Dr. Pepper and Professor Noam indicated no. A warning was sounded by Indianapolis Director of Telecommunications Jane Gerdeman about the pressing need to resolve privacy questions related to the NII. NTIA's Jim Vorhies asked about the case of local telephone companies selling off unwanted rural exchanges, and Professor Noam and Senator Varn responded that the key to universal service is the transfer mechanisms used, including low-cost developmental loans. Chairman Nelson asserted that open exit and the abandonment of rural markets by telephone companies must be addressed, as well as a realistic market basket of universally available services.