NEWS November 22, 1996 FCC CHIEF OF STAFF LEVIN SAYS DTV IS OPPORTUNITY FOR BROADCASTERS TO BREAK TECHNOLOGICAL BOUNDS OF SINGLE CHANNEL WORLD FCC Chief of Staff Blair Levin today warned broadcasters that using digital television simply to defend their current position in the video marketplace "could kill DTV." He said, "The future of DTV could be compromised by some of its advocates who instead of seeing DTV as an opportunity to exploit new markets, seek government intervention to try to protect existing markets." In a speech to Citizens for a Sound Economy, Levin praised the "extraordinary engineering achievement and economic opportunity" of DTV and described Chairman Hundt's view of DTV, "as an opportunity to break the technological bounds that have restricted broadcasters to a single channel world and the regulatory bounds that have kept broadcasters from entering new markets." Levin noted that "just as broadcasters face competition not only from Nickelodeon but also computer games, so should broadcasters have the ability to broadcast their content to computers.... Just as the unforeseen potential of Internet has created extraordinary wealth and tens of thousands of new jobs, so can the unforeseen potential of DTV create a bountiful future," he said. After describing a number of proposed rules which Levin argued could restrict the development of DTV, Levin cited as an example of "the defensive, narrow thinking that could kill DTV," a comment in a recent National Journal article in which a lobbyist said, 'Bill Gates has to decide whether he's in the broadcast business or the computer business.' "That vision is wrong," Levin said, "If there is one public policy vision firmly agreed upon in the Telecommunications Act of 1996, it is that everyone should have the opportunity to get in everyone else's business." He added, "Broadcasters should welcome the opportunity to send their product to more places in more ways. As the greatest creators of audience in history, they should welcome the chance to create new ways to build still greater audiences." Saying that advocates for the developers of the industry's DTV proposal "sometimes remind me of Col. Nicholson, the character played by Alec Guinness in the movie The Bridge Over the River Kwai," Levin pointed out that Col. Nicholson "comes to care only about the bridge, not about the war" and that he "neglected the larger vision." - more Levin said,"Those who think we should use DTV to protect the status quo of analog broadcasting, instead of using it to open a brighter future for digital broadcasters, perhaps suffer a similar failure of vision. For if we shackle DTV's use with needless regulation, if we use government authority to circumscribe the platform upon which economic growth can be built, DTV will become a Bridge Over the River Kwai; a lonely testament to engineering greatness, but not necessarily a great business." In Chairman Hundt's eyes, Levin said, "DTV presents an opportunity to ditch the plethora of rules currently restricting market behavior and replace them with three simple rules: (1) no interference; (2), a spectrum cap to assure no one has undue market power; and (3), a clear, reasonable public interest obligation." However, Levin said, "Others see DTV not as a way to free broadcasting from the technological and regulatory constraints of their single channel world, but rather as a way of replicating the status quo." Instead, Levin concluded, "if we trust markets and we let all players compete who are brave enough to have that platform, DTV can be a bridge to a bright shining future for broadcasters and the American economy." - FCC - BLAIR LEVIN CHIEF OF STAFF TO THE CHAIRMAN FEDERAL COMMUNICATIONS COMMISSION Delivered to CITIZENS FOR A SOUND ECONOMY Washington, DC November 22, 1996 DTV: BRIDGE TO THE FUTURE OR BRIDGE OVER THE RIVER KWAI? First, let me say that I don't have any introductory jokes for you today. Those of you who saw USA Today's article about Reed Hundt yesterday will understand when I tell you my problem: the Chairman was out of town so I'm short on gags. I suppose you all think there's nothing funny about today's topic. During the first quarter of 1997 the FCC will complete three rulemakings that will lead to a new generation of television; the era of digital television. Affecting as they do, the next half century of broadcasting, they could not be more momentous. Or more important to the FCC to get right. This will be an historic moment. The broadcasting of bits represents an extraordinary engineering achievement and an economic opportunity equivalent to the Louisiana Purchase in opening up vast new territories of communications. And the guarantee of a free, universal digital medium of communication is vastly important to our country in unquantifiable ways. But for this opportunity to be realized and this guarantee to be given, we have to make sure the genius of DTV is not handcuffed; for ironically the future of DTV could be compromised by some of its advocates who instead of seeing DTV as an opportunity to exploit new markets, seek government intervention to try to protect existing markets. To understand how to give DTV the freedom to be all that it can be, one has to understand the history of DTV. In talking about the history, let's not make the mistake of the lobbyist who told me with a straight face and no sense of irony, that I shouldn't listen to what the cable industry said about DTV because, after all, "they have a vested interest." Let's admit that there's nothing unAmerican about broadcasters wanting to obtain use of more spectrum; there's nothing untoward in manufacturers, be they U.S.-based or offshore, wanting new inventions to drive the sale of their products. But let's also recognize that we at the FCC have a role in protecting the public interest; which means we ought to listen to broadcasters, manufacturers, the cable industry and everyone else to sift through the arguments to find where the public interest lies. As to the manufacturers' quest for a new technology, it brings to mind Tracy Kidder's classic book, The Soul of the New Machine. That book told the marvelous tale of how the engineers at Data General tackled the engineering and corporate problems to create the Eclipse MV/8000. In many ways the DTV story is similar. The creation of digital television is a story of great engineering which involved not just engineering principles, but personalities and corporate politics. But the story of digital television is also very different than Kidder's classic. The engineers at Data General were not asking anything of the United States government. By contrast, broadcasters and manufacturers are asking a lot. First, they are asking that spectrum worth billions of dollars be set aside for an unspecified but lengthy period, for the purpose of offering this new product. Second, they are asking us to make it illegal for anyone to broadcast using a different technology. Some argue that spectrum grants and government standards are necessary to develop new technologies. History argues otherwise. The FCC has created opportunities for other new technologies without similar government actions. The FCC auctioned the PCS spectrum and set no standards. DBS, again without a government standard and with an auction, constituted the fastest consumer product introduction in history, and has proven the viability of delivering video using digital technology directly and affordably to consumers. So given this extraordinary request for government intervention, what should we do? Aye, there's the rub. For the government position on DTV has changed numerous times since the idea was first introduced. What began as a way to compete with the Japanese, became -- even after the Japanese government's own industrial policy failed miserably -- a way to bring the American public a new generation of prettier and far larger pictures. But the public interest analysis should really boil down to just two questions: what policy best generates economic growth, and what policy best provides that the benefits of the communication revolution will include benefits which the public generally agrees are important, but that the market itself will not generate. The economic growth issues were inherent in a number of different issues raised in the DTV saga. First, there was the decision whether or not to auction the spectrum. When Chairman Hundt arrived no one wanted even to discuss this issue. Indeed, some expressed outrage when some in Congress debated this issue. But it would not be appropriate for a question of that magnitude not to addressed by Congress. Congress has now had several opportunities specifically to address the issue. The law and the message seems clear that a majority of Congress wants existing broadcasters to receive DTV licenses without an auction. It was in the public interest that Congress had that debate and that the FCC did not act, under the cover of darkness, to hand over the spectrum. The FCC must follow the clear intent of Congress, and of course we shall. A second issue affecting economic growth is whether government should require broadcasters to offer high definition transmissions. When Chairman Hundt arrived at the Commission, FCC policy effectively mandated that every broadcaster utilize all the spectrum to offer high definition television. One of the first things that the Chairman did was to argue that the degree of resolution was a decision for the market, not the Commission. To maximize economic growth, broadcasters should be free to offer high-definition. But if the public is not interested in high definition programming, then broadcasters should have the flexibility to use the spectrum in other ways that maximize their economic opportunity, just as satellite and cable and, by the way, digital terrestrial broadcasters in other countries will be doing. This seems simple now but it was very hard, initially, to make this argument because there was almost a conspiracy of silence about how flexible the DTV technology would be. History should examine whether there was an effort to leave undisclosed the facts about the ability to broadcast formats other than HDTV from the Commission, from the Congress and from the American public. Perhaps an historian can clarify whether the Grand Alliance did not want to test the standard definition formats for fear of hurting the spectrum debate; or whether such tests might hurt relationships with other multichannel providers, who naturally would favor broadcasters only offering a single high definition program, instead of multichannel, offerings; or whether the interest in a high definition mandate stemmed from concerns about legal challenges to the spectrum grant. But fortunately, the debate has shifted dramatically since Chairman Hundt first argued for spectrum flexibility. We've gone from the Commission requiring 168 hours a week of HDTV to where, at most, some are saying that the Commission should require broadcasters to do five hours a week of high definition. And we have a law, accompanied by Congressional debate, that apparently dispenses with any legal problem relating to the assignment of DTV licenses to broadcasters. The five-hour rule is still without serious purpose, of course. Why does that intrusion on the business strategies of the fledgling DTV industry serve the public interest? Besides, any such rule mandating HDTV would be easy to make hollow -- while imposing wasteful costs on broadcasters and wasting FCC resources and taxpayer dollars enforcing it. What if someone showed high-definition programming five hours a week by showing such programming from midnight to 5 in the morning once a week? And if, in the Commission's efforts to insure this did not happen we required the high definition transmission during prime time, would we forbid counting Sunday afternoon football against the five hours? What about Saturday morning bowling? But whether or not such a five-hour rule is of any merit, the elimination of the burden of the high-definition simulcast requirement is a huge victory for broadcasters, the economy and, above all, the American public. A third issue related to economic growth involves whether to have a government standard. There are benefits to having standards. Many industries set standards for consumer products. The question here is not whether there should be an industry standard. Of course, there should. The question is whether the government itself should mandate and enforce the standard. Reams of economic papers have been written on the subject warning against the government setting technical standards that favor one industry or business strategy over another. Proponents of government mandated standards counter by pointing to the definition of the RJ11 jack used in telephony or the early government investment in the development of the Internet. But if anything these stories show the value of minimal government intervention. No one would have proposed the government choose (or even plan) the fax standard or voice mail or electronic banking features, and no one would propose today we squelch unforeseen innovations evolving from the hot competition over the Internet by setting government standards for Internet protocol. Proponents of government-set standards are quick to cry out "remember AM stereo!" But can anyone even tentatively prove that the failure of AM stereo was anything more mysterious than a rejection by consumers in favor of the far superior FM service already available. It is like suggesting that quadraphonic records were going to challenge the early success of CDs. From the day Chairman Hundt arrived, some have wanted the Commission, without any debate, to require everyone to do precisely whatever the Grand Alliance proposed. They argued this view despite a lengthy record in this proceeding (even before 1993) expressing the Commission's grave skepticism in mandating particular technical solutions. Chairman Hundt raised the standard issue in the hopes of generating a vigorous analytical debate, with all sides presenting solid economic and technical evidence on whether a standard should be required by the government. And he personally ------ the computer software industry to participate -- precisely to that broadcasters would have that audience to send messages to as well as the conventional TV watchers. Despite numerous assertions in paid advertising that a government mandated standard would create thousands of jobs in the United States, the record lacks any study by an economist which demonstrates that setting a standard would create more jobs than those created by the competition that would break out without a government standard. Grand Alliance advocates have clearly not spent more on economists than lobbying. Let me be clear: I'm not saying that the proponents of the standard are necessarily wrong. I'm just saying that the more vigorous and better reasoned the debate, the more likely it is that we will have a better reasoned decision. The New York Times editorial two weeks ago got it right. Nonetheless, progress has been made. From comments by the editorial pages of the trade press as well as from others in the Grand Alliance, there has been movement toward the principles of (1) limiting the standards to bare necessities, as we did with the RJ11, (2) ending the standard after an interim period, and (3) creating a glidepath towards PC and TV convergence, so that the TV of the future can be a hospitable, competitively neutral platform to the host of new services and new competition the television industry, and all participants in the communications revolution can bring. All of these changes will help generate economic growth. An economic growth perspective also requires efficient use of the spectrum. Again, the original Commission plan would have been a blunder for both broadcasters and the economy. For example, the original plan had uniform service areas that would have provided all stations with the same size DTV markets. Broadcasters argued that this would undermine the current investment and competitive structure of the industry. We've revised the recommendation to adopt a replication plan that maintains the status quo. The original plan had a first-come, first-served channel assignment which would give broadcasters willing to take the early risk a preference on the best channels. Broadcasters convincingly argued that economics argued for starting DTV from the current market position. The Commission's plan provided a preference for DTV over NTSC with regard to interference. This approach would have permitted more interference to existing television service. The FCC staff now recommends no preference. The original plan would have utilized only UHF channels, putting most broadcasters in the least desirable portions of the spectrum where the propagation is worse and more power (and larger utility bills) would be needed to reach today's service areas. Now the Commission's engineers have developed a plan to optimize the use of spectrum by providing broadcasters with the necessary spectrum to make a more successful offering of digital television while providing an opportunity for the public to reclaim spectrum for new services almost immediately. The staff has worked extremely hard with all interested parties to assure that the plan makes sense. Though the record has not yet closed, it appears that there is no material difference in the amount of interference the American public would find between a plan which utilizes the unassigned portions of 60-69 for as yet undefined, even unimagined, new services and one which utilizes that spectrum only for television. This spectrum could be auctioned in a way that creates another investment boon in communications or used in part to serve the needs of the public safety community. We do not need to make that decision today, but we do need to keep our options open so we do not preclude the opportunity to choose later. So when it comes to maximizing economic growth through our DTV policy, we've made progress. The second public interest issue -- assuring programming the public thinks important but the market doesn't provide -- goes to the heart of what is the value of free-over-the-air television. For if the value is solely to provide commercial offerings, there is no reason for the government to be involved. After all, the government does not now require that broadcasters offer free-over-the-air television. They do so because advertisers support it. That a big asset for the audience. It's critical that DTV, like analog TV, guarantee the survival of free TV. But that can happen by and only if broadcasters have few rules hampering DTV and quickly build out their DTV systems. At the same time, let's recognize that there are some things which free-over-the-air television does that are not market-driven. For example, the agreement reached about children's television is a clear example of how the free-over-the-air broadcast medium can be used to benefit American society in very special, valuable ways. In looking at digital television, it is worth asking the same question; whether the market is not providing certain kinds of programming, that nonetheless is sufficiently in the public interest that action ought to be taken. This is a debate that made a great leap forward when broadcasters agreed that a quantitative guideline with children's educational programming was better than the historically vague requirements that subjected them to uncertainty about license renewal. A similar agreement, providing clarity and flexibility, could quickly resolve the issue for DTV. When one looks at all these issues, you see that on many critical issues the broadcasters' interests are aligned with the Chairman's view of good public policy: spectrum flexibility and an allotment rule that doesn't cripple the analog market are good for the economy and broadcasters. The original simulcast requirement and allotment decisions were bad public policy and would have been terrible for broadcasters. Even on the standards issue, some broadcasters have privately admitted they made a huge strategic mistake in allying so closely with the manufacturers; they should have just set an industry standard, avoided the fight with the computer industry and moved forward. After all, manufacturers build to what broadcasters transmit. The broadcasters don't need government to put them in the drivers' seat; indeed, asking for government action creates an unnecessary back seat driver. Fundamentally, the Chairman sees DTV as an opportunity to break the technological bounds that have restricted broadcasters to a single channel world and the regulatory bounds that have kept broadcasters from entering new markets. The Chairman has set forth a deregulatory vision of DTV; saying that it presents an opportunity to ditch the plethora of rules currently restricting market behavior and replace with three simple rules: first, no interference; second, a spectrum cap to assure no one has undue market power; and third, a clear, reasonable public interest obligation. Others see DTV not as a way to free broadcasting from the technological and regulatory constraints of their single channel world, but rather as a way of replicating the status quo. This is rooted in the history of DTV. After all, DTV began as a defense against the land mobile radio spectrum efforts; then a defense against the Japanese; now it's a defense against high-definition efforts by satellite and cable or a defense against audience encroachment by the Internet. The defensive view is also similar to the view of many industries and individuals in the face of change. Change is tough. Change is risky. But in communications, change is inevitable. Perhaps the best example of the defensive, narrow thinking that could kill DTV was a comment in a recent National Journal article in which a lobbyist said, "Bill Gates has to decide whether he's in the broadcast business or the computer business." With all due respect, that vision is dead wrong. That vision will kill DTV. It is like trying to build a bridge to the past; a world of just three networks, no cable and easy profits. And that can't be done. In today's world Bill Gates should be in broadcasting and computers. And broadcasters should welcome him. Isn't that what Bill Gates and Bob Wright are showing in their joint venture? For just as broadcasters face competition not only from Nickelodeon but also computer games, so should broadcasters have the ability to broadcast their content to computers. If there is one public policy vision firmly agreed upon in the Telecommunications Act of 1996, it is that everyone should have the opportunity to get in everyone else's business. This is the right vision for our country; it is a vision of competition and innovation. It is also the right vision for broadcasters. They should welcome the opportunity to send their product to more places in more ways. As the greatest creators of audience in history they should welcome the chance to create new ways to build still greater audiences. Just as the unforeseen potential Internet has created extraordinary wealth and tens of thousands of new jobs, so can the unforeseen potential of DTV create a bountiful future. The debate brings to mind the movie, The Bridge Over the River Kwai. Advocates for the Grand Alliance sometimes remind me of Col. Nicholson, the character played by Alec Guinness. As you recall, Col. Nicholson comes to care only about the bridge, not about the war. He forgets that it is not in the British interest that the bridge be completed or remain standing. Now it is no criticism of Col. Nicholson and those who built the bridge, honorable, courageous and talented men, to note that they were not the heroes of the film. Because good as they were, they neglected the larger vision. And those who think we should use DTV to protect the status quo of analog broadcasting, instead of using it to open a brighter future for digital broadcasters, perhaps suffer a similar failure of vision. For if we shackle DTV's use with needless regulation, if we use government authority to circumscribe the platform upon which economic growth can be built, DTV will become a Bridge Over the River Kwai; a lonely testament to engineering greatness but not necessarily a great business. But if, instead, we trust markets and we let all players compete who are brave enough to have that platform, DTV can be a bridge to a bright shining future for broadcasters and the American economy. * * * * *