Remarks by
Charles R. Lee
Chairman and
Chief Executive Officer
GTE CORPORATION
THE FOUR SEASONS OLYMPIC HOTEL
SEATTLE, WASHINGTON
MAY 8, 1997
The telecommunications industry is in the early stages of a major transformation ... a transformation that's being driven by three powerful forces:
Rapid-fire technological changes ... increasing customer expectations ... and shifting regulatory policies.
Now ... given the topic of this conference, my remarks today will center on customer expectations and technological developments.
But I couldn't help noticing that Vice President Gore and FCC Chairman Reed Hundt are on the program.
So I also want to say a few words later on about the importance of having regulations that promote a level competitive playing field.
With that background, I'd like to offer a few observations about the future of telecommunications services and information-related technologies.
Clearly, the Information Superhighway is under construction ... and the world of cyberspace is developing at an ever-increasing pace. In just a few words, we're headed toward ... the economical and virtually instantaneous delivery of almost unlimited amounts of information.
The cyberspace world will be characterized by all-digital networks with full broadband capabilities ... ubiquitous wireless technologies ... a wide range of software-defined products ... and multiple competitive networks overlapping the same territories.
Universal connectivity will be the watchword. And customized solutions will be the rallying cry.
We'll see a whole host of specialized and general-purpose digital devices that consumers and businesses will use to send, receive, store and manipulate information.
We'll see a quantum jump in the wireless transmission of information in the form of data, video and voice messages.
But wireline networks are not going to suddenly disappear ... and wireless networks are not likely to take over.
When you get right down to it ... The Road Ahead - which, of course, is the title of Bill Gates' insightful book - will in fact be many different roads.
There won't be simply one huge, all-encompassing "Superhighway" - but many highways ... many parallel paths ... as we make our way to the 21st century.
And we all have a major stake in exploring these various technology highways because the telecommunications services industry is so vitally important to all of us in this room ... to our businesses ... and to the overall economy.
Virtually any successful company today has achieved that success by learning how to put these technologies to effective use ... in running their businesses ... in reaching out to new markets ... and in serving their customers.
In the next few years, reaching out to new markets and serving customer needs are going to involve massive increases in data transmissions, including multimedia.
In fact, we expect industry-wide data revenues in the U.S. - driven by increased demand from residential and business customers - will quadruple over the next 10 years - rising from about $100 billion to over $400 billion.
A number of factors will stimulate data's growth surge.
To begin with ... data is cheaper than voice communications. And lower cost naturally stimulates greater demand.
Another key factor is the widespread availability of PCs - thanks to Microsoft ... and a few other software and hardware developers.
Today, more than a third of U.S. households have a PC. In a few years, that number will rise to half.
Also ... newer PCs increasingly have impressive multimedia capabilities, making them hungry for more bandwidth.
And very importantly ... the emergence of the Internet Protocol has enabled data communications to migrate from the realm of academia to the masses.
All this - along with innovations like computerized smart phones and even smart TVs - will stimulate more data and multimedia usage in the residential market.
Important as the residential market is ... however ... it's in the business market where we're likely to see the most dramatic upswing in data and multimedia usage.
The main point I want to make is that a number of innovations are now underway - or will soon be available - that are likely to unleash business demand for advanced data applications.
For example, we've been hearing for years about Electronic Commerce. You know about the hype here.
Business in the future was going to be carried out over the network.
Buyers and sellers would be linked through databases and various user interfaces.
Goods and services, information, and funds of all kinds would flow over the network in an instant.
Well, where is it?
The fact is, e-commerce has been slow to roll out because of legitimate concerns about security, trust and ease of use.
Well ... I'm here to tell you that technology truly is beginning to catch up with the hype.
We're approaching the day when all electronic transactions will be protected by foolproof security and anti-fraud measures.
We can already certify electronic signatures. And GTE has a service called "CyberTrust" that provides fraud protection for the financial community.
As a result of these enhanced security and authentication efforts, we now expect the volume of e-commerce to grow from about $15 billion today to something like $80 billion in about five years.
Or consider the often-discussed concepts of Virtual Workgroups and Remote Offices.
Again ... where the heck are they?
Well ... we're making progress, but at something of a snail's pace.
Thanks to ongoing technological innovations ... we're now on the threshold of turning those Information Age fantasies into business reality.
New methods of communications and data networking are providing greater geographic flexibility than ever before.
Increasingly, work groups won't have to move offices, computers, copy machines and faxes to complete a project together.
Documents will be shared, filed and swapped electronically among workers in geographically dispersed offices ... not to mention homes ... planes ... cars or hotel rooms.
And while a host of technologies will facilitate these developments, I want to highlight one particularly promising technology.
This technology is called ADSL - which stands for Asymmetrical Digital Subscriber Line.
Basically, ADSL enables the transmission of an enormous amount of information - at speeds ranging from 1.5 to 4 megabits per second - over existing, twisted pair, copper phone lines.
Let me tell you ... that's a lot of information ... transmitted in a very short period of time ... and much more cost-effectively than is the case using standard 28.8 modems and infrastructure.
From a business perspective, the real benefit of ADSL is that it will enable our employees to work from home as if they're plugged into their corporate LAN.
And ADSL isn't off in the distant future. It's happening right now.
In fact, GTE is conducting a major test of our ADSL technology right here in the Seattle area with Microsoft and a number of other companies. And the results are very encouraging.
So encouraging, in fact, that we've recently expanded the test to include an additional 1,000 Microsoft employees ... which makes the GTE ADSL test the largest of its kind in the world.
Over the next several years, we should see ADSL technologies rolling out in a big way around the country. The impact on business organizations and cultures could be dramatic.
All of these developments I've been discussing will be facilitated and enhanced by another key technological evolution. It's often referred to as Total Systems Integration ... and it's about to become reality.
We're not far away from the complete integration of local networks, Intranets, Extranets and the Internet ... through totally open, interconnecting systems. And this integration will make possible a host of business and residential applications ... everything from the interconnection of customer and supplier databases to unified messaging services that bring together messages from various services ... home voice mail ... work voice mail ... mobile voice mail, e-mail, faxes, paging.
Increasingly, the name of the telecom game will be "one-stop shopping."
GTE is prepared to make some big investments to provide our customers with the most technologically advanced services and the convenience of one-stop shopping ... whether it's for data, local, long distance, Internet, paging, video.
You name it ... and we want to provide it to our customers.
Of course, other companies are trying to do the same thing. And technology is making it all possible.
We're beginning to reach critical mass. The building blocks - the equipment, the systems, and the skills - are all coming together.
And over the next few years, the developments I've been talking about will have a big impact on our personal and business lives.
But as Al Haig once said ... let me "caveat" that statement.
If these advances are to continue along the lines I've suggested ... we desperately need the right regulatory climate.
And here's where I want to say a few words about the new Telecommunications Law - and how it's being implemented.
Let me be very clear.
GTE is a big supporter of the new Telecommunications Act ... and we're a big supporter of competition in the industry.
However, it must be fair to all participants.
The law offers a rare opportunity to create a telecommunications marketplace in which technology, customer demand and public policy work together as never before.
If the law is properly implemented, the resulting competition is expected to create more than 3 million new jobs in the U.S. ... add nearly $300 billion to our Gross Domestic Product by the end of this decade ... and save consumers a cumulative $550 billion on existing services.
In other words ... if implemented properly and fairly, the new law's free market approach will unleash the forces of technological innovation ... and allow the industry to respond to growing customer expectations.
But, unfortunately, that appears to be a VERY ... BIG ... IF.
The new law assigned the Federal Communications Commission - the FCC - dozens of regulatory issues to resolve. The three most important were:
Interconnection ... which deals with how other companies connect to existing local networks to provide competing services.
Universal Service ... which concerns our nation's traditional and laudable commitment to making telephone service available and affordable to all Americans.
And Access Charges ... which deals with the charge long distance companies now pay to complete calls on the local network.
The FCC's first action was to issue a 668-page interconnection order last August. In contrast, that section of the bill was only seven pages long ... and the entire Telecom Act was only about a hundred pages long.
In my opinion ... the interconnection order did NOT follow the clear and sensible intent of Congress.
In response ... GTE and others took the FCC to court. And so far the courts have agreed with GTE's position.
The basic issue is that the FCC wants local companies - like GTE - to let our competitors use our network at prices that are well below our cost.
That's bad enough as a general principle.
But the truly mind-boggling thing is that this below-cost pricing applies to the benefit of small, start-up companies like AT&T ... and British Telecom via its acquisition of MCI!
Let's be clear: Nobody will invest in network improvements - or even basic network maintenance - if local companies are forced to sell the use of our networks below cost.
You know ... what the FCC has done so far with this very positive new law reminds me of the story about a man who's traveling through the jungles of New Guinea.
One day, he comes across an amazing tropical bird. It's absolutely beautiful ... and talented. The bird can sing various arias ... recite poetry ... and even speak seven languages.
The man's so impressed, he decides to send the bird home to his mother as a gift. A few weeks later, he calls his mother and asks how she liked the bird he sent her. And she says: "It was delicious!"
Well ... the man's mother obviously had the wrong idea. She didn't appreciate what the bird was for. And that's exactly what's happening at the FCC as it relates to the 1996 Telecom Act.
Now, I understand that the FCC has a lot of issues on its plate. I know they're trying to balance various interests and points of view.
But the fact remains that Congress sent them a beautiful law ... and instead of following congressional intent ... the FCC seems to be intent on destroying it.
There's a great deal at stake here.
Our national telecommunications infrastructure is an important national resource. One we all use ... and increasingly depend on ... every day.
And I'm afraid the FCC's actions could stifle - not stimulate - future technological innovations.
If that happens, the road ahead could well become a road backward.
And for the sake of our businesses ... for our national economic well-being ... and for our children's future ... we simply can't let that happen.
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