CHAIRMAN REED E. HUNDT
                      SPEECH BEFORE THE 43rd ANNUAL 
                          CONVENTION & EXPOSITION
               OF THE NATIONAL CABLE TELEVISION ASSOCIATION
                          NEW ORLEANS, LOUISIANA

                               May 24, 1994


ACKNOWLEDGEMENTS

     Thank you, Decker, for the introduction.

INTRODUCTION

     It is a great honor to be invited to speak to you.  Many of you started your businesses
years ago and built them from scratch; others arrived in this industry more recently; but all of
you belong in the ranks of the great entrepreneurs in American business history.  Together
and separately, you have built a coaxial cable network that passes almost every home in our
country.  It is an essential part of the information highway.

     But many of you have told me that your business success is jeopardized by the Cable
Act and its implementation.  Others have told me that the problem isn't so much that your
current businesses are threatened, but that after years of continued investment and expansion,
your ability to grow is now in doubt.  

     I've come here with sympathy and concern for your problems.  I want to be clear,
however, where I stand.  I'm not here to commiserate over your decline or to eulogize at your
wake.  As far as I can tell, and I hope I'm not wrong, this industry is on the verge of a new
dawn.  It is going to enter new markets and create new markets and achieve new heights of
growth.  That's what I believe and what I believe good government policy should encourage.  

     The issue then is how to promote continued investment and growth in your business in
the aftermath of the Cable Act.  In my view it is critically important that the Cable Act be
implemented not only in full compliance with the Congressional intent but also with a
recognition of the necessity that the cable industry needs a fair opportunity to continue its
remarkable growth and evolution.  

     I absolutely refuse to be misunderstood on my direction.  I aim for this goal:  Your
growth and your future should be determined by your customers, your competitors and your
creativity; not by regulators and courts. 

     To get to this goal we need to work and talk together.  I have very much looked
forward to attending your convention because I know it will be an important education for me
on many subjects.  I also want to acknowledge the gratitude I feel at the hospitality that
Decker Anstrom and his colleagues have shown me.  And I want to acknowledge many of the
industry leaders with whom I have met in recent weeks.

     Decker may have been, however, a little solicitous when he sent me an invitation letter
to this breakfast that promised no silverware at any table.  By the way, is it true that everyone
else is also wearing Kevlar?  

     The truth is that Decker, if not always a humorist, has been a powerful advocate on
many issues important to you.  During the last six weeks in particular, he and the many cable
executives and programmers with whom I met have greatly helped us in thinking how to
clarify, refine and proceed with, not only rate regulation, but also with the implementation of
the crucial three and a half pages of our going forward rules.

     In commenting on only some individuals, I do not wish to slight any others. 
However, I hope you will permit me to compliment Ralph and Brian Roberts for their
statesmanship and guidance on your behalf and, frankly, on behalf of the public interest. 
I studied very carefully Brian's inspiring speech last week, and I think he's going to be every
bit the leader that his father has long been.

     There is going to be room enough for many leaders in the cable industry because your
best years lie ahead.  Based on everything I hear from Wall Street to Main Street, you have
the opportunity to lead the communications sector in fulfilling the straightforward, simple
goal that I think we should all share for this critical and growing part of the economy. 

     That goal can be summed up in one word:  competition.  

     Extraordinary inventions, remarkable entrepreneurship, and your cable systems have
given Americans an unparalleled opportunity to benefit from competition in all
communications markets.  

     A fundamental truth of American economic history is that competition makes the most
of business energy, invention and financial resources.  That is the history of our industrial
economy, and it should be the future of our telecommunications economy.  

     Only in long distance telephony have we embraced competition, as we did in breaking
up the AT&T monopoly ten years ago.

     In this decade, we can benefit from competition among cable, telephone, satellite,
broadcast, wireless cable, wireless telephony and even electric utilities to build the
information highway in the best way, at the cheapest cost, to the greatest number of
consumers, to the greatest benefit of the economy, with the largest number of new jobs
created.

     I think business, government and the whole country should make an irrevocable and
total commitment to competition.  

     The information highway is inevitable, and to a degree it already exists.

     But competition to build the highway, and competition in providing services is not so
inevitable.

     The truth is not everyone favors it.  Just last Friday, I was at MIT addressing one of
Nick Negroponte's industry seminars.  I ended up debating George Gilder, who spoke before
me.  George is well known as a futurist.  I can tell you it's a daunting task to be asked to
speak following a futurist:  where does that put you?
 
     In any event, George said he opposed competition.  He said it would cost too much
for the cable companies to gear up to compete with the telephone industry and vice versa.  So
why didn't we just cut to the bottom line?  Let everyone merge to build a single big fat pipe
to almost every home, impose common carriage requirements on the pipe owner, and call it a
good day's work.  Or, at worst, a good decade's.  And, in truth, this isn't too much different
from some of the comments at the Western Cable Show last December.  

     I was not persuaded by Gilder.  I know I don't have his crystal ball, but I am an
unrepentant apostle of the credo of competition.  The economy and the consumers should
have the benefit of full-scale head-on competition among all voice, video, and data providers,
including competition both in content and in conduit.  And, beyond that, the future can take
care of itself.

     For example, I think cable can, and should, compete to provide local telephone
services.  That's what the cable system in Montgomery County, Maryland, where I live,
proposes to do, and that's what Time Warner Cable proposes to do in Rochester, New York. 
And that's the competition all consumers should be able to enjoy as soon as possible.

     Your industry has told me, and more importantly, has told Congress, that you endorse
this commitment to competition.  You support the telecommunications reform legislation
introduced by Congressmen Dingell, Markey, Brooks, Fields and others in the House, and by
Senator Hollings and others in the Senate.  

     Now this isn't the first time that law and regulations have had to be changed to give
you the opportunity to compete against established incumbents and to enter new monopolized
markets.

     In the 1970's, it took the FCC's open skies satellite policy to help create national cable
programming services, starting with Home Box Office, to compete against the network.  
     
     In 1976, the Commission encouraged new channels and services by eliminating state
and municipal regulations of pay-per-view.

     In that same year, the compulsory copyright law helped cable compete in the video
marketplace, even while broadcasters claimed you would be siphoning off their business.

     In 1978, Congress passed a law to prevent cable operators from paying unreasonable
prices for pole attachment rights.

     In 1984, Congress barred telephone company entry into your business so that you
would have further opportunity to grow without being quashed by the local telephone
company monopoly.

     Now, ten years later, it is time for you to take on those monopolies.

     Although these actions were important to cable's development, the great historical
success of cable did not come from government.  It came from the entrepreneurs of the
industry and the willingness of the industry's founders to take major financial risks in the
hopes of reaping major rewards.  

     In the course of building your business, you have brought much pleasure and
edification to many Americans.  You have redefined the nature of television watching in this
country, bringing the world live to all of us, bringing "surfing" from California to TV
channels.  In doing so, you have created a special relationship with your consumers.  

     That relationship is so strong that some consumers have come to regard cable TV as
something essential to their quality of life.  

     Many businesses envy your strong bond with consumers.  

     But because of that bond consumers have also come to believe the industry "owes"
everyone something beyond delivery of the product itself.  

     You have recognized this, you have responded to it, with your Cable in the Classroom
initiative.  This program now reaches over 63,000 schools and 34 and one-half million
students, representing an investment of more than $86 million in 1993-1994 alone.  

     As you participate in meeting the President's challenge to link all classrooms to the
information highway by the end of the century, you will build on this triumph.  As a former
teacher, I give you my heartfelt thanks.  

     And you've taken on the problem of violence in television content with your
outstanding Voices Against Violence initiative.  Your announcement last week of the
selection of an independent reviewer of your programming is another positive step.  

     It is also true that the public's deep and emotional reliance on cable was a key reason
for the 1992 Cable Act.  The problems in quality of service and the size of price increases for
basic and enhanced basic from 1986 to 1992 are too familiar for me to revisit with you.  The
point I want to underscore is that Congress and its agency felt, and still feel acutely, the
public's strong desire to make sure that regulated services -- including basic, enhanced basic,
and equipment -- are priced at reasonable levels.

     The best way to fulfill this goal is to let competition set prices.  As everyone here
knows -- when there is effective competition in any cable market, rate regulation disappears.  

     Now as we move to what some have called the sunny uplands of competition and
market pricing we should be guided by three key principles:  choice, opportunity and fairness.


Choice

     The first principle, choice, means programmers should be able to choose among
different outlets to consumers and consumers should be able to choose among sellers of
programming.  

     In American business history, choice has always meant a rising tide of competition
that lifts the boats of all competitors.  For example, in the long distance telephone market,
AT&T has lost market share every quarter since the breakup a decade ago.  It has also
increased its net revenues every year. 

     Nevertheless, the coming of competition does sharpen the need to resolve the problem
of how the cable industry can invest and grow while complying with the 1992 Cable Act.  

Opportunity

     This leads me to the second principle, opportunity.  

     As you face emerging competition from telephone, satellite, and other delivery
systems, you need to have the opportunity to innovate, to expand your bandwidth, to develop
new kinds of content, so that you can compete effectively.  It won't do you or consumers any
good to declare that effective competition within the meaning of the Act has arrived, and rate
regulation is over, only to discover at the time of this happy declaration that meanwhile you
have been so hindered by regulation that you can't give the new entrants the stiff battle that
consumers would enjoy.

     Moreover, there is the information highway to be built.  If we want that construction
project to proceed competitively (and I think we do), then you need to attract the investment
necessary to install the switches and the fiber and the servers and the software necessary to
transform your coax systems into the broadband interactive networks that will deliver all the
imaginable and even the unimaginable applications that the consumers will want. 

     And consumers will also benefit greatly if cable companies are able to attract the
investment necessary to compete in the $100 billion a year telephony market. 


Fairness

     The third principle for the policy of competition is fairness.  Fairness means that
consumers should not have to pay an unreasonably high price for basic and enhanced-basic
service.  That is the law.  

     When I arrived at the Commission six months ago I was told by many, many people
that we had to do a better job implementing the intent of Congress in this respect.  More than
four dozen petitions for reconsideration were on my desk.  Many thought we had not gone far
enough to lower rates.  Some said the competitive differential should be close to 30%.   

     My own view was that we had to take another look at the methodology used to
calculate the competitive differential and that, at the same time, we had to take two other
steps immediately. 

     First, we had to end the rate freeze as soon as possible, because it was hurting growth
and investment in a silent but serious way. 

     Second, we had to issue going-forward rules as soon as possible, and not later than the
reconsideration of the rate order, because the industry needed to know those rules in order to
invest and grow while complying with the Act.

     One of you suggested my situation reminded him of a story.  A man was charged with
the two crimes of being publicly drunk and lighting his bed on fire.  Hauled before the judge,
he said, "Your honor.  It's true I was drunk.  But that bed was on fire when I got into it."

     Anyhow, our sober judgment was that statistics on prices where there is an overbuild
gave the best indication of the appropriate competitive differential.  We therefore set the
competitive differential where the statistics indicated -- 7% lower -- and also provided for the
end of the freeze nine days ago, an inflation adjustment effective this September, and the
possibility of additional price increases for new channels and external costs. 

     And let me tell you what we didn't do:  we didn't adopt a rate of return or so-called
utility model of rate regulation.  I didn't think cable is a utility and I didn't think the Cable
Act required us to restrict your prices or profits to some fixed percentage of a defined rate
base.

     Any disagreement about the legality of our calculations of the competitive differential 
will be resolved by the United States Court of Appeals for the District of Columbia.

     In any event, even while the lawyers take the case up on appeal, we must continue to
consult and cooperate so as to move on to the most important issue.  

     The issue here is too important to wait on.  Let me state it:  how should the going
forward rules be expressed, clarified, refined, or even changed to make sure that you can play
your historically energetic role in the competitive that is coming.  How can we make sure the
Cable Act does not stand in the way of the benefits the country will receive from your
competitive zeal?  

     As a starting point, cable operators should be able to add channels to regulated tiers
and then charge a reasonable but higher price for that tier.  I think that is consistent with the
Cable Act, even though the implication of what I have said is that the price may go up and
not down.  

     My view is that Congress intended that the average consumer who buys the exact
same package of regulated tiers and equipment in the fall of 1994 should pay less than he or
she did for the exact same thing in the fall of 1992 -- on a literal apples-to-apples
comparison.  With the 17% differential, on average, a six-cent apple should now cost a
nickel, subject to the inflation adjustment. 

     But if the consumer is not buying the same apple today, but instead is buying --
forgive me for the metaphor -- the whole fruit plate, then that consumer should now pay
more.  If you get more channels in basic or enhanced basic, you should have to pay more --
although certainly something less than might have been charged before the Cable Act was
passed.

     I do not know if consumers will understand or accept this view of the Cable Act. 
I think their reaction this summer and in the future depends very much on you -- on what you
say in your envelope stuffers announcing bill changes, on what you say in the media, on how
you present your compliance with the Cable Act.  It depends a little on what we say at the
Commission, but you have a much greater ability to reach the public than we do.

     I can tell you this, I've seen a number of draft and final letters from operators to
consumers.  Speaking as a consumer, they fall into two categories:  one -- intimidating and
confusing, and anti-government.  Two -- straightforward announcements of consumer benefits
in terms of price and quality, which equal value.

     While you prepare for the changes mandated by the law, let me say that even if the
Court of Appeals will review the lawyers' arguments, but the real judge and jury of the
implementation of the Cable Act will be the American consumers.  From the public's
perspective, it doesn't matter if the Commission and the cable industry are contesting in the
court or are talking in conference rooms.  What matters from the public's perspective is the
changes in the bill and in the quality of service.  

     And in this media age, what also matters is what the public hears and reads about the
bill.  A few months ago a poll reported that only one-seventh of all consumers thought their
bills went down in 1993, although our figures reported that two-thirds had a decrease in
regulated service.  As someone in your industry said to me, if there had to be a price
decrease, at least the cable companies should have gotten some credit! 

     I hardly need to remind you that the same question will come up for polling this
election year.  What will be the effect on prices as you implement the law, and what will
consumers think is the effect?  Much depends on the answer to these questions. 


Going Forward

     But whatever happens with prices this summer and fall and with consumer and voter
reaction, we must continue to work together on the going forward issues.  As I mentioned
before, our rules set no cap for return on investment, no limit on profit or cash flow margins,
and no set prices for a la carte offerings.  

     But the Cable Act created the question of how channels and services could be added
to the regulated tiers.  On the one hand, we don't want government to micromanage and
constrain cable's creativity and marketing energy.  On the other hand, we have to satisfy the
requirement of the Act that prices for regulated tiers and remain "reasonable."
 
     It is imperative that we answer this key question posed by the Cable Act.  A practical
solution can lead to increased investment, increased job growth, increased competitive energy
in the whole cable industry. 

     I wish there were a single simple solution, but instead I think the answer lies in
numerous specific decisions that should be made during the crucial transition period we are
now in.  So let's go over some specifics.

     First, I've had many discussions with industry leaders about the so-called 2%
productivity offset.  This is part of an outstanding Further Notice of Proposed Rulemaking,
and I cannot prejudge the record.  But let me point out that we didn't adopt any such offset in
our February decision.  I don't know of any reason to adopt it now.  This sort of offset is
generally found in the regulations of a utility, but cable is not a utility.  

     Further, I have taken steps to speed up completion of the rulemaking.  I don't want
concern about this issue to cast a cloud over your investment prospects.

     Second, prior to the adoption of the most recent rules, there were no explicit
provisions governing adjustment of rates when channels were added to regulated tiers.  Now
we have broad guidelines for going forward, but many have told me that we need to refine
and possibly change these rules.

      In response, we have already fine-tuned the rules so as to clear the way to launch
new networks, new shopping services and new sports programming.  We've also clarified that
operators can continue their historic practice of receiving reimbursements from programmers
for promoting and marketing new services, without having to offset such payments against
increased programming costs.  

     Third, many of you have told me that we need to give clear guidance on a la carte
offerings.  We will soon issue decisions on more than 40 pending letters of inquiry.  These
decisions should provide greater clarity.  If more needs to be done, we'll do it.  The goal here
is to lay out quickly as many understandable and useful models for lawful a la carte offerings
as the industry says it needs.   

     Fourth, at the urging of many people in this room, we are doing a cost study on the
cable industry, in order to have an accurate picture of the cable industry.  

     After we decided to do the cost study, other people in your industry have told me that
some see the cost study as a tactic to permit a further reduction of the competitive
differential.  To anyone who has entertained this suspicion, let me clearly and unequivocally
disabuse you of that idea.  I know of no evidence to support a further reduction of the
competitive differential and we are not looking for such evidence.  

     Fifth, numerous industry leaders have told us that the cost plus method of pricing
additional channels gives insufficient incentive for new programming.  The question of 
course is how to balance incentives against the task of setting a "reasonable" price for basic
and enhanced basic. 

     There is much merit in the presentations that I have heard.  However, not all the
proposals are consistent with each other.  We need to discuss the different proposals in more
detail and more publicly, including at this convention.  Again, I'm mindful of the real judge
and jury here:  the consumers.  But I do believe that more refinement of the going forward
rules may be necessary, and that we need to address this subject promptly.  I solicit your
suggestions as quickly as you can prepare them. 

     Sixth, we are dedicated to making sure that small systems also have an opportunity to
grow and flourish.  You already know that cable operators with less than 15,000 subscribers
do not now need to make any rate reductions.  And to stay in close touch with small systems
and small operators, effective June 1 we are establishing a special telephone "hotline" for
their inquiries.

     Seventh, on all these issues of incentives for new investments, it's critical that we be
able to communicate effectively and clearly with you.  That's why we computerized our
forms; why we set up a fax service; and why we set up regional teams within the Cable
Services Bureau to provide one-stop shopping for operators who call with questions about the
rules.

     Eighth, and finally, on a long range basis, we need to make sure that the Cable Act
does not block any cable company from making the investments necessary to offer the
broadband services of the future.  The Administration's Title VII proposal was an attempt to
address that issue.  Without a legislative solution, we need to consult together to make sure
that the regulatory landscape does not impede the development of broadband interactive
services.  


Conclusion

     As I mentioned before, I very much want to learn from you and the best way to do
that is to stop talking and start listening. 

     Although I've said I'm no futurist like George Gilder, I want to close by sharing with
you two ways to talk about the future of cable.  

     The first way is to say that cable is dead in the water, caned, crippled, deprived of
bright prospects purely for political reasons.  Speaking along these lines, you could emphasize
uncertainty in financing and you could talk about despair among programmers.

     The second way is to say that you have the unwelcome burden of accommodating the
intrusions of the Cable Act into your ongoing business plans, but you have the strength,
creativity and resilience to manage this change successfully.  You could say that the cable
industry has substantial, real, bankable, prospects for increasing gross and net revenues,
multiplying the number of services offered to customers, and seizing the leadership among
businesses that will build the information highway.  As you could assert that you are going to
be one of the key leaders of our economy as we enter the 21st century.

     I prefer the second way.  I think it's much more accurate than the first.  But your help,
guidance, and adviceare necessary to make this vision become real.  I will ask for that
guidance not only today but many times in the future.  With the inspired leadership found in
your association and in your great companies I know the country can count on you.

     Thank you.

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