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New Regulatory Thinking
(As Prepared For Delivery)
Let me start by thanking MSTV and you, its members, for your continuing efforts to make digital television a reality. MSTV has been there since the very beginning of this effort, working to ensure that television makes a smooth transition into the digital era. I personally found MSTV's efforts in the latest round of digital television decisions at the FCC particularly helpful. You worked not just to inform me and my staff of problems, but to suggest workable solutions. And, while the Commission did not do everything that MSTV suggested, I believe that the decisions we reached are good ones that will allow the television industry to take this technological leap forward.
As we contemplate that leap, it seems somehow appropriate to me that we are here in Las Vegas -- the city of chance. You have to admit, this transition is a really big gamble. You are gambling that the American people will embrace digital television and put their money on the table to buy into the game. And, I suspect that there are more than a few sweaty palms in this room, worrying whether this bet will pay off. Worry or not, however, there is no turning back, the cards are on the table and it is time to turn them over.
The broadcast industry, like every other aspect of modern communications has been forever altered by the advent of digital technology. Digital technology has liberated information. Information of all types (voice, pictures, video and text) can be encoded, transmitted and decoded by tiny microprocessors with an efficiency never before imagined. Information is no longer constrained to any particular means of distribution and can be manipulated in an unlimited number of ways.
What are the full implications of a digital world? First and foremost, digital means even greater technological convergence. There will be more similarities in the production and distribution of entertainment, information, and telecommunications than differences. No matter who you are and what you want to communicate, you will do it in basically the same manner as everyone else that does it.
While digital convergence will homogenize communications infrastructure, it will not mean Asameness@ in product. By making information infinitely malleable and distributable, digital technology gives those who design and use it the broadest possible palette with which to develop and showcase their creativity. It unleashes infinite possibilities for new and innovative services. This new technology also promises to usher in a new level of intimacy with the consumer. In the world of television, where the consumer=s relationship with the TV is described as Acouch potato@ culture, digital will bring into the home a more sensory stimulating viewing experience, where the viewer can hear, see and almost touch and taste action on the screen as if actually there. Consumers do not know the complexities of binary code and broadband technology or what all this digital hub-bub is about. It will be broadcasters who bring it to life for the Joneses, and the Smiths, and the Wilsons.
Convergence will also mean more competition. Because of the infinite flexibility of digital, traditional market barriers will crumble. For you in the broadcast industry, it opens up new programming options and offers new ways to compete with other medium. The quality of DTV and the capacity it affords may allow broadcasters to compete more effectively with cable and DBS, and even information services. Across the board in the communications industry, providers of traditionally distinct technologies and services may now cross into new markets and attack each other with a panoply of applications and services.
Convergence may even change the United States Constitution. The growing convergence of technology will not allow us to continue to maintain two First Amendment standards, one for broadcasting and one for every other communications medium. The Asameness@ that convergence does produce and the exponential increase in capacity that digital allows is making it impossible to maintain that broadcasting is uniquely undeserving of full First Amendment protection. It is just fantastic to maintain that the First Amendment changes as you click through the channels on your television set.
Convergence is also going to drastically change the FCC and communications regulation as well. We must adapt the regulatory regime so that it looks forward into the digital future and not backward toward the analog past. There are a few truths about regulating in the era of digital convergence that we must take to heart:
First, it is futile to attempt to preserve the balkanized regulatory framework that presently exists. The dramatic evolution of technology will erode and ultimately eliminate the legal, economic and conceptual boundaries that traditionally have separated the various communications media. Thus, we need to be bold and decisive and undertake strategic, persistent efforts to eliminate these boundaries.
Second, we have to accept that the changes ushered in by the digital revolution are inevitable. Even if we were so inclined, we could not stop the march of technological change. This truth counsels for humility. We policymakers should not arrogantly maintain that we can control the destiny of digital technology. We may shepherd change, but we must not make the error of thinking we can engineer it.
Third, we must acknowledge that we cannot accurately predict what technologies and services will ultimately prevail in the marketplace. Regulatory history is filled with examples of failed predications about technological progress. Remember that there were those who thought television was a fad and the color television sets would be too expensive to become truly popular. The truth of unpredictability counsels restraint. We should not dare to pick technology winners or losers, whether consciously or unconsciously, because we will assuredly be wrong more than right. I have a Betamax VCR in my basement to prove it.
In large measure because of these truths, regulatory policy in the next century must be marked by (1) regulators yielding to competitive markets as the means for allocating communications resources; (2) a greater focus on policies that promote innovation; (3) deconstruction of the categorical regulatory scheme in which what law you are subject to is dependent upon how you send your message; and (4) regulatory efficiency.
Consider the fruits of competition and innovation. I note that over the past week or so, different networks have announced that they will adopt different high definition television formats. ABC is going with 720 progressive, CBS and NBC are going do use 1080i. It seems to me that this is technological competition at work. American consumers will (and must) be able to experience different formats and react. In other words, there will be choices made by consumers in the market, rather than regulators in Washington. I believe we should let this play out. This competitive event will likely produce significant innovation in the quality and nature of the offerings available to the consumer. The consumer will be the winner.
If regulators attempt to intrude on these types of decisions, I fear that the consequence will be to stifle innovation. Innovation has consistently been responsible the most significant advances in the communications marketplace. There is nothing like feeling the hot breath of a competitor on one=s neck to drive you to find new and creative ways to stay ahead.
Let me focus for a moment on regulatory efficiency. We must (1) make timely decisions; (2) be sensitive to business realities and capital markets; and (3) shift our efforts away from prospective regulation toward enforcement. Let me elaborate
Technology is an impatient master and cannot wait long for regulators to reach decisions. Technical innovation and the capital markets abhor uncertainty and demand timely responses. A decision by the Commission that is right, but too late, might as well not have been made at all. In the Army, we used to implore combat leaders, "Damn it, right or wrong do something! You can be killed just standing there." Companies would rather cope with an adverse result than watch their business strategies deteriorate in the face of regulatory uncertainty. This is not a time for the timid or casual regulator. The advance of innovation continues in leaps and bounds. In the computer markets, Moore's law holds that the maximum processing power of a microchip, at a given price, doubles roughly every eighteen months. We would be well advised to adopt the urgency that Moore's law suggests in all our endeavors.
2. Business and Market Sensitivity
In this fast-paced competitive environment, regulators are going to have to be sensitive to the variables that go into business decisions and the factors that affect the flow of capital. We must take account of the variables that inform decisions by company executives, such as the returns on investment, the cost of capital, and the efficiencies and synergies of choices. Only by understanding these variables can we make thoughtful choices about how to satisfy national goals in a manner that is consistent with competitive and economic principles.
Of growing significance is the degree to which our decisions affect the flow of capital. Innovation is extremely dependent on this spigot staying on. If we are slow in our deliberations or ambiguous in our pronouncements, we will introduce uncertainty into the marketplace and, consequently, expose those who invest the capital that drives the economic engine to additional, unnecessary risk.
3. Shift to Enforcement
Another way that we can make regulation more efficient is to shift our resources from prospective regulation to enforcement. Communications regulatory agencies like the FCC have historically allowed companies to operate in certain market segments and to take action, only by the grace of prior approval. This process has often been resource-intensive and time-consuming. A prospective regulatory approach had more viability when dealing with monopolists and oligopolist, but quickly loses its currency in a dynamic market that cannot afford the costs of this process in money or time. Antitrust law, however, illustrates an alternative approach -- one that emphasizes vigorous enforcement, rather than prospective regulation.
Communications policymakers should look to enforcement as a means to protect the public against certain harms without hindering companies from entering new markets that lie outside their traditional regulatory boundaries. Also by doing so, we will cut down on the speculative predictions that characterize many of our deliberations presently. Rather than imagining all the dangers that might result if we let a company do what it has asked and then take equally speculative action to meet those speculative dangers, let's instead police conduct and make decisions based on real facts. If there are "teeth" in our enforcement efforts, companies will take heed or pay the price.
The Commission took a step in this direction just last week in the Notice of Proposed Rulemaking to streamline broadcast regulation. Historically, the Commission has engaged in prophylactic regulation of broadcasting -- carefully scrutinizing application before allowing construction or modification. The process has often been resource-intensive and time consuming. The proposal we put out for comment flips the emphasis. We propose to rely on certification and subsequent enforcement, rather than pre-screening.
In closing, let me simply urge you to roll those dice and move head with the digital era as quickly as possible. For my part, I will pledge to work for a regulatory framework that will facilitate rather than hinder your efforts.