January 6, 1995 CHAIRMAN HUNDT DISCUSSES DIGITIZATION OF BROADCASTING AT ELECTRONIC INDUSTRIES ASSOCIATION CONVENTION In an address today before the Electronic Industries Association in Las Vegas, NV, FCC Chairman Reed E. Hundt discussed the decisions being made today or in the near future that effect communications, especially the impact of digitization on radio and TV. "I think 1995 may be the most important year in the history of broadcasting in America," Hundt said, "and I'd like to tell you why." "The conversion of television from analog to digital is the beginning of the second phase of the history of television in this country. Back in the first phase when I was in college Marshall McLuhan said, with respect to TV, that 'the medium was the message.' I was never sure exactly what he meant, but I can tell you this: the medium is about to be reinvented. And as a result the potential of the message will profoundly change. I believe that broadcast TV and radio have made great contributions to our culture, our politics, our way of life. All these contributions can be expanded and bettered if broadcasters fully realize the potential of DTV [digital television]" "All the commercial possibilities of DTV have hardly begun to be considered. But in deciding whether and how broadcasters should receive spectrum for converting to digital, everyone should debate the right TV policy for the country." Chairman Hundt said key questions about the conversion include: First, how can we make sure that broadcasters can continue to reach their audiences' analog televisions during the digital conversion? Second, how long should we allow for the transition to DTV to take place? Third, is there a good reason to set a national standard for digital broadcast transmission and reception? Fourth, would the public interest be served better if broadcasters paid spectrum fees or had to compete for spectrum in an auction, especially if they used a digital signal to provide, for example, subscription services? Or, would it instead be in the public interest to ask the new generation of digital broadcasters to pay for the spectrum -- not with money but with commitments to devote time to children's programming, national and local news, and free time for political debate to occur in the electronic forum? He said, "In looking for answers about digital TV or any other new communications issues, I think we should always be guided by our policy of competition. Markets, we believe, do work, as long as fair rules of competition are created." He warned that industry and government must guard against bottlenecks in the emerging technologies, such as exist now in the telcos's local loops. "We must make sure that no one industry obtains an unfair advantage over its rivals through some bottleneck at the receiver. At the same time, we need to be extremely careful not to select . . . some interface standard that freezes out technological innovation and in the long run hurts the development of the digital communications revolution." - FCC - "COMPETITION AND DIGITAL TELEVISION" ADDRESS OF FCC CHAIRMAN REED E. HUNDT TO THE ELECTRONIC INDUSTRIES ASSOCIATION CONSUMER ELECTRONICS SHOW, LAS VEGAS, NV, JANUARY 6, 1995 [Insert chart 1] [Hard copies of the charts referenced throughout the speech area available at the FCC Office of Public Affairs at (202) 418-0500] Good morning everyone. Thank you, Joe, for that very generous introduction. I am very grateful to the Electronic Industries Association for inviting me to this wonderful convention. Its always fun to be in Las Vegas. Of course back in Washington momentous political change is occurring. But I suspect that outside the Beltway, the people of this country care a lot less about who is in office than they do about how successful we are. I think that they want everyone to cooperate to make the decisions that can increase opportunity for all businesses and all American working men and women. Many of these decisions involve communications and the FCC. And it's some of those decisions that I want to talk about with you today. In particular, I want to talk to you about the impact of digitization on all parts of the communications sector of the economy, but especially on radio and television. I think 1995 may be the most important year in the history of broadcasting in America, and I'd like to tell you why . Before getting into that, let me ask you this: Don't you agree that the many decisions that you face in business and we face in policy debates often seem to be pulled into one confusing vague muddle by the famous, frustrating, sweeping, mega- and meta- question: How should the information highway be built? Some people say the term information highway is overused. It is a true fact that the expression was coined by a freshman Democratic Congressman from Tennessee in a meeting with the president of Corning Glass in the late 1970s. The president of Corning said that he was making a new kind of glass fiber that could carry messages at the speed of light. "With something like that," said young Congressman Al Gore, "you could build an information highway." Now, almost twenty years later, Vice President Gore has occasionally confessed that he wouldn't mind moving on to a different metaphor - but he will never give up his dream of bringing the benefits of modern communications to all Americans. Incidentally, in a recent poll about the national information highway, more than 50% of all Americans said they were in favor of it. And two thirds said they didn't know what it was. At the risk of hurting the term's approval rating, let me tell you what I think it is. The information highway is how we deliver voice, video and data. It's all the forms of communication used by businesses and consumers, teachers and doctors, grown-ups and kids. [Insert chart 2] It's also the fastest growing sector of our economy. By the year 1997 the communications, information and entertainment sector will be one seventh of our nation's economy. It is where the greatest number of high paid new jobs will be created. It is the key to America's worldwide rating as number one in productivity. It will be the fastest growing sector of the world economy in the twenty-first century. There are five separate lanes of the information highway today: satellite, cable, wireless, wired, and broadcast. Each of those lanes is being repaved right now. In their new form each lane will carry more and different traffic. By repaving I mean each lane of the information highway is being converted from analog to digital signals. I suspect everyone in this audience knows far better than I that digitization is the Morse code of the twenty-first century. As someone who couldn't cut it in college physics I don't know one thing more about digitization. But as a lawyer with twenty years of courtroom practice before I got my current job, I am fully prepared to talk about it anyhow. When each lane of the information highway converts to digital signals it can be used to deliver almost any combination of voice, video and data. That gives us the opportunity to encourage competition in all communications markets among all the proprietors of these previously separate industries. The satellite services can compete with everybody else to deliver video. Cable can carry telephone traffic. Wireless communications can compete in the local loop. The telephone company can go into the video business. And broadcast TV and radio - the most important influence in American culture since World War II - can become an even more important commercial and social force in our country. So how does everyone in this room make the most of the repaving of these lanes? If you ask me to boil our answer down to one word, that word is this: competition. We want all the lanes of the information highway to compete in delivering all the voice, video and data products that you in this audience can create. It's competition that will build the information highway in the fastest, cheapest, most efficient, fairest and most consumer friendly way conceivable. Our competition policy is founded on three precepts. Consumers deserve choice of all communications products. Businesses deserve full opportunity to participate in the communications revolution. And competition flourishes only if we have fair rules among competitors so that new entrants are not squeezed out by dominant incumbents. Our special challenge is to rewrite these rules of competition for the digital age. Let's look at the way some of the rules of competition are working on the different lanes of the information highway today. Then let's talk about how competition can drive the move from analog to digital signals for over-the-air broadcast. Starting with the highest lane first, many years ago we adopted an open skies policy to encourage competition among satellite services. But it wasn't until the 1992 Cable Act that we had the power to force the breakthrough behind today's competition between Hughes' DirecTv, Hubbard's USSB and Prime Star in the delivery of multichannel video programming. Among the many successes of that law are the rules that deny cable franchisees the power to obtain exclusive rights to all programming. The ability to acquire cable programming is the reason Hubbard and DirectTv were able to get their businesses going. Second, the next lane on the highway is something no other country possesses: a coaxial cable network that passes almost every home. That pipeline is filled largely with analog signals. But just last week Cablevision, one of the largest cable companies, announced it would spend $100 million to build an end-to-end digital system in Long island. They will pay for the upgrade by selling new services at whatever prices the market will bear, while continuing to offer traditional basic packages at the fair prices set by our rules. Other operators will be following quickly along this path. Meanwhile, the consortium of cable companies allied with Sprint is the biggest bidder in the biggest auction ever held. As I you might know, we at the Commission are making history by selling rights to use the airwaves for wireless communication. Here's how many licenses we are selling: as many as we could create from available spectrum and more than enough for vigorous competition. As a result, we expect to see a boom in digital wireless communication. It will extend into the next century. Experts say that over ten years we will have a $50 billion a year wireless communications industry and a million new jobs. Our commitment to competition in digital wireless communications is unique. No other country on the planet has decided to copy us. My reaction to that is this: sometimes you have to dare to be right. [Insert chart 3, 4] Speaking as the chair for what we informally call the FCAC, the Federal Communications Auction Commission, we were proud to be given the authority by Congress and President Clinton in 1993 to develop this new way to turn public property of the airwaves into public proceeds from the auction. By the way, if you ask me, I'd like to see Congress give some of the auction revenues to our schools and libraries. Then they could buy modern communications networks for every child in the class room and every adult in a public library. Nothing would do more to improve education and lifelong learning in this country. And I don't think it's asking too much for every teacher in every classroom to have the same communications tools that are available to every shopping clerk at Walmart. Meanwhile the telephone companies with their billions of dollars of sunk costs in wired networks are wide awake at their switches. At the Commission, we are in the middle of reviewing, modifying and granting in part applications by telephone companies to construct video dialtone systems. These platforms would deliver packages of video programming to approximately eight percent of American homes. It is our job to make sure that the telcos don't overcharge telephone subscribers in order to cross-subsidize their entry into the cable business. Let's turn to the last and in some ways most intriguing of the lanes of the information highway: over-the-air broadcasting. When I was born in 1948, television was just being introduced and, by the way, the Republicans were in control of Congress. Now forty-seven years later television is about to be reinvented and what do you know, look who's back in charge of Congress. As a lifelong Democrat, I assure you it's just a coincidence! The occasion for the reinvention of radio and TV is the conversion to digital transmission. Because of digitization it will be economically viable for radio signals to be broadcast from a satellite to every place in the nation. Within a few months, we will allocate spectrum for national radio. Meanwhile, here in the US, a consortium, called the Grand Alliance, working without government monies, is about to agree on a magnificently supple and flexible digital standard -- as opposed to the Japanese analog scheme. Some have called this effort the American version of HDTV. Others prefer to label it Advanced Television, or ATV. I think the best term is DTV - digital television. The conversion of television from analog to digital is the beginning of the second phase of the history of television in this country. Back in the first phase when I was in college Marshall McLuhan said, with respect to TV, that "the medium was the message." I was never sure exactly what he meant, but I can tell you this: the medium is about to be reinvented. And as a result the potential of the message will profoundly change. I believe that broadcast TV and radio have made great contributions to our culture, our politics, our way of life. All these contributions can be expanded and bettered if broadcasters fully realize the potential of DTV. [Insert chart 5, 6, 7] Let me show you a couple of charts that demonstrate some of the capabilities of a digital signal. I assume most of the people in this room understand this technology far better than I do. Fortunately some of the experts in this field have the job of telling me what to say to you. It's a tough job, but they work hard at it. I think you can see the digital medium can be many different messages. All the commercial possibilities of DTV have hardly begun to be considered. But in deciding whether and how broadcasters should receive spectrum for converting to digital, everyone should debate the right TV policy for the country. Let me discuss some of the key questions with you. First, how can we make sure that broadcasters can continue to reach their audiences' analog televisions during the digital conversion? As I think you may know, there are a lot of analog TVs in this country. Nobody thinks it's reasonable to ask the owners of 233 million analog televisions to throw them out and buy digital receivers or spend money on digital convertors. So how can broadcasters convert to digital transmission without losing their audiences? Second, how long should we allow for the transition to DTV to take place? Our current plan is to let broadcasters keep their existing spectrum for analog signals for as long as fifteen years while they might use other spectrum for digital signals during this period. Is it really necessary to have a fifteen year transition? After all, the quicker broadcasters move from one place in the spectrum to another, the faster we could recover the valuable public property of the airwaves. Then we could auction it for other uses. Third, is there a good reason to set a national standard for digital broadcast transmission and reception? Most people tell me that a national standard would promote competition. Where standard setting promotes competition, I tend to be for it. When legal or de facto standards are anti-competitive, I worry a lot about them. This is the guideline we will follow when considering whether to set a national standard. Fourth, would the public interest be served better if broadcasters paid spectrum fees or had to compete for spectrum in an auction, especially if they used a digital signal to provide, for example, subscription services? Or would it instead be in the public interest to ask the new generation of digital broadcasters to pay the public for the spectrum - not with money, but with commitments to devote time to children's programming, national and local news, and free time for political debate to occur in the electronic forum? For example, almost every parent in America would like to see more television programming that is suitable for children. Because they receive scarce spectrum without paying any auction revenues or annual fees, broadcasters are asked by law and regulation to show at least some suitable children's programs. Early this year at the FCC we intend to suggest some ways for broadcasters to implement the Children's Television Act of 1990. But we recognize it will be much easier for broadcasters to do more for kids if they can exploit digital technology to increase the total number of programs they deliver. Then there is the use of electronic media as our source of news. Seventy percent of all Americans get 100% of their news and information from radio and TV. In many respects the electronic media do a terrific job at informing the public. Everybody in broadcasting would tell you they could do the job of informing us better if they had more resources and more channels. DTV can give them that chance. And as long as we are exploring the best uses of the public airwaves, let's ask whether the political process would be vastly improved if candidates didn't have to buy advertising time in order to run for office? Suppose they could obtain free access to the public over the airwaves? Suppose they didn't have to devote so much time and energy to raising vast sums of money just to buy a means to communicate to voters? Reserving a few hours of free air time for a fair presentation of competing views in every election season is not a new idea. It has never been thought practical when broadcasters were confined to only a few channels using scarce spectrum. DTV can redefine this debate as well. These are only some of the ways that the use of the public's spectrum for free, over- the-air broadcast can be changed forever and for better by the conversion to digital transmission. But now is the time to consider the possibilities. Now, as TV enters the digital age it is time for the public to decide what it expects from broadcasters' use of the public property of the air waves. And now is the time for broadcasters to figure out the best way they can create market potential and new revenues by adopting the flexibility of a digital signal. In looking for answers about digital TV or any other new communications issue I think we should always be guided by our policy of competition. Markets, we believe, do work, as long as fair rules of competition are created. To make markets work fairly, we must continue to guard against the biggest obstacle to competition in communications markets: the possibility of bottlenecks on the information highway. Today access to the telcos' local loops is a bottleneck. Today, the coaxial cable network is a bottleneck. Tomorrow, these bottlenecks can be erased, especially if we let all lanes of the information highway converge and compete. But the digitization of satellite, cable and broadcast signals gives rise to the potential of a new bottleneck being created at the receiver end of the information highway. Broadcast, cable, telephone networks, wireless networks, and satellite services are all going to feed voice, video and data, in the form of digital bits, through the television. As this occurs, we must make sure that no one industry obtains an unfair advantage over its rivals through some bottleneck at the receiver. At the same time, we need to be extremely careful not to select as a matter of law or practice some interface standard that freezes out technological innovation and in the long run hurts the development of the digital communications revolution. As a guide for our decision making we should probably focus on what gives the consumers real choice. I came here to try to ask questions and to encourage you to help answer them. Getting the right answers is the key to the continuing success of the communications revolution. That revolution won't be any less important for Americans in the future than it was in a crucially important time in the history of my own family. In 1930, in the midst of the depression, my father, who was age nine, lived in Milwaukee with his widowed mother. She had to find work to make ends meet. The job she got was one of the new positions created by the communications revolution of that time: she became a switchboard operator. It was new, hard and fatiguing work. But it paid a decent wage and gave her a decent life. She kept the family together and eventually sent my father off to college. With his education and the opportunities that opened for him, he in turn was able to provide for his children. Our family across four generations has been able to live the American Dream. Somewhere in this country today there is a nine year old with a single parent who needs work to keep the family going. Somewhere there is a child whose future depends on the communications revolution. That's what it means to create opportunity. That's what in a real sense we're all trying to do in our different jobs building the information highway. Good luck to all of you and I'll look forward to your help in answering all the exciting questions rolling down that highway for decision at the FCC.