SPEECH BY REED HUNDT WC: 2657CHAIRMAN FEDERAL COMMUNICATIONS COMMISSION NATIONAL CABLE TELEVISION ASSOCIATION 45TH ANNUAL CONVENTION LOS ANGELES, CALIFORNIA (AS PREPARED FOR DELIVERY) APRIL 30, 1996 Thanks, Decker, for that kind introduction. And thank you for inviting me for the third straight year to talk with you about cable's policy issues. The third time, they say, is a charm. And I think that must be true: Here at NCTA 1996 is the right time and right place to talk about our twin goals of competition in communications and public benefits from communications -- because they are now both the Commission's goals and cable's goals. With your fast lane on the Information Super Highway, you can give us real choice in the telephone markets. And with your many channels and your presence in the classrooms of America, you are helping the country meet the goal of delivering the benefits of the communications revolution to all our children. I have talked about these goals of private competition and public benefits with other industries, including our friends at the National Association of Broadcasters just last week. But when I talk about three hours of educational TV to you, you think I mean three hours per hour...since that's what cable is already doing with Nickelodeon, the Learning Channel, Court TV, Discovery, and other programs. Leaders like Rich Frank and John Hendricks intend to focus on making sure your shows really teach kids. And it sure isn't Ted Turner who is fighting a minimum requirement of three hours of educational TV per week on broadcast networks. Ted averages about 14 hours of educational children's television on WTBS per week. In fact, most of the public interest issues we're pushing in the broadcast area are drawn from observing what cable is already doing. So what should we talk about this morning? As you probably know, these speeches are collective efforts to state policy goals and to explain our decisions. They are designed to demonstrate the art of gentle persuasion and to enhance my reputation in some circles for being an easy going, mildmannered fellow. These are very very small circles. But they could grow. It could happen. So to this end, my team gathered in my office a couple weeks ago to talk about upcoming speeches. Well, said someone, let's go to NAB and talk about auctions. That will be a crowdpleaser. The next person said how about telling the United States Telephone Association about the possibility of preempting state telephony regulations. That'll be fun. The third person suggested I repeat my lecture to the Senate and House oversight committees on the longrun future of the FCC as an enforcer of procompetition rules in all communications markets. That'd be popular. Now I actually do consider those kinds of speeches to be fun. Of course 20 years of experience as a litigator might have distorted my idea of fun. But, I said to my team, for once how about an easy speech. Oh, they said, that'll be cable. Now I think everyone here knows I haven't had a lot of experience in giving easy speeches to cable crowds. The circumstances haven't exactly been opportune in the past. For example, I remember two years ago when I asked an experienced Washington politico what to say at NCTA, he suggested I stand up and say: "Thank you and good bye." But with the passage of time and the passage of the Telcom Act of 1996, things have changed. Didn't you enjoy the Vice President's terrific speech here yesterday? I want to join him in congratulating your good judgment and effective advocacy in the fierce telcom wars on the Hill. You didn't get everything you wanted, but I hope and believe you got everything you need. I know Decker Anstrom deserves special credit, but I also want to honor your current and future chairmen Brian Roberts and Ted Turner. Their vision for cable's contribution to the public interest and to competition make them not only leaders of this industry but also of this country. On a personal level, during the last two and half years I have very much appreciated their patient and good counsel offered even in the toughest of times. In the wake of the passage of the new Telcom Law I need that advice more than ever. Fortunately the FCC is in pretty good shape. As CEO of a government agency I perhaps have more limited powers than a business CEO. For example, I can decide what magazines should be put in our waiting room but we have to have a full Commission vote on how long they should stay before being returned to the dentist's office. But as CEO I am permitted to report on the agency's recent operating performance. The last two years have been banner years for us and our 250 million shareholders. In 1993 our board gave us new authority to go into a new airwave license product line. We're using auctions to build interest. Unlike some businesses our board has more than 500 members, most of whom are elected for only two year terms and some of whom wish to put us out of business. Still that board did the right thing in '93. As this first slide demonstrates, our revenues have increased from $200 million in 1993 to $11.4 billion in 1996. This represents an increase in our earnings per shareholder from 15 cents in 1993 to $45.23 in 1996. Our cash flow margin has improved from a negative 258% to a positive 98%. We were able to do this with a minimum of operating expenses. As the next slide demonstrates, at over $5.7 million per employee our workers have become the most productive in the world.. Based on a standard price to earnings ratio, these results translate to a stock valuation that has increased over 30,000% over the last several years. By contrast the S&P went up 40% in the same period. Now our board has not yet decided if we can auction all the airwaves in our portfolio. It seems as if the NAB has some objections. We don't mean to intervene in that debate but I did want to share with you a promo from our new advertising campaign emphasizing our auctions capability. (We're planning a big buy on cable as its cost effectiveness is so great). (PLAY VIDEO) In any event, we all know the truth is that the FCC exists not primarily to raise money but to try to achieve the country's policy goals in the communications sector. We really have just two goals for communications policy: we want competition in all communications markets and we want public benefits from communications for all Americans. Of course the big story of the new law is the mandate that the FCC and the states open the local exchange markets to competition. The new law rejects the old assumption that monopolies were best suited to deliver high quality service and universal affordability. Under the new law competition should be given a chance in all communications markets. And at the same time we must guarantee affordable phone service to all Americans. These two objectives require the FCC to make tough decisions about the sort of interconnection rules that should be written and the method and purpose of funding universal service. We just put out a notice of proposed rulemaking on the first subject. I hope you'll excuse me for using some very Washington terms to explain that notice. Suppose the competitor of the local phone company were the Washington Redskins and the incumbent phone company was the Dallas Cowboys. Congress has said that the Washington Redskins have the right to borrow Emmitt Smith for any number of plays. That is called unbundling an element of the incumbent's network. And the Redskins can use the entire Cowboy team at a discount off what Jerry Jones has paid them. That's called resale. Also the Redskins can hand off the ball to Smith if their own runners aren't doing so well. That's called interconnection. If Smith helps the Redskins get into the end zone, that's called termination, for which some think the Cowboys should be paid nothing but the Skins should get the points. On the other hand, the Cowboys could terminate with the Skins players. As if. This is quite an interesting football game Congress has created, and writing its rules will be tough.. I have four concerns about the FCC's ability to meet the challenge of writing the new rules of competition. The first is time. We have very little time in which to get our competition rules issued. The good news is that thanks to Senators Hollings and Stevens, among others, our budget is now up to a bearable level. I no longer have to worry about whether we have enough money to pay for air conditioning in June. Second, we would love to endorse or copy anything successfully done in the states to encourage competition. But we've got to come to grips with the fundamental issue of whether the country should have a set of uniform, national, specific rules or whether we should have 50 different statewide versions of telephone competition.. Third, in our justice system new laws are fields of dreams for lawyers. They dream of many hours and many dollars and lengthy, protracted, conflicting results. Will litigation give us years and years of delay in determining the answers to the fundamental policy questions of the new telephony game? The only alternative to having the Telcom Act underwrite the litigation careers of most of today's law students is for the FCC and the states to cooperate to write fair, specific and easily enforceable rules of competition. Fourth, at the FCC we have to find a way to make the essential decisions in the worst of times: the middle of a Presidential election year. Right now Washington's spring is bringing out the pollen and making everyone sneeze -- and every sneeze is watched for its implications on the big ball game: the election. At the Commission it is our duty to take a pass on the partisan politics of the season in order to deliver all four of our votes in support of our procompetition and universal rules. I know November is hugely important to the country but I hope no one will use us as a political dartboard while we're trying to make the difficult decisions about the local exchange market required by the new law. The Act gives the Federal Communications Commission and its state counterparts the tools to ensure that competition means consumers pay less, not more, and that all our communications companies have a fair chance to thrive. But a mountain of work is before us. To get to the top we need to follow a very perilous path of pragmatic policymaking. We must not slip into the abyss of partisanship. If any of you see us teetering, I'm counting on you getting us on the right track. The other goal for policy is to guarantee public benefits from communications, and the primary focus for those public benefits is on children. You already produce shows parents want their kids to watch. In my family special favorites have included shows like Big Bag Storyporch, Assignment: Discovery, Shakespeare, The Animated Tales and Shelly Duvall's Bedtime Tales. In fact my seven year old daughter Sara thinks the good channels start with the number 10 and go up from there. With your Voices Against Violence initiatives, you've led the way in informing viewers about violence in TV programming and reducing the quantity of TV violence. And your early and strong leadership on the need to give parents more control over what their kids watch was crucial to the passage of the V-chip legislation. As Vice President Gore said yesterday, this has won you many friends and well-deserved praise throughout Washington, D.C. and the country. And look what you've done about the need for candidates to communicate to the public through television without having to buy advertising slots as if they were selling soap or software instead of solutions to America's problems. You invented C-SPAN, the granddaddy of real-time, unfiltered political coverage of government in action, and CNN, which probably commits more airtime to political news than anyone on earth. And more than a dozen top cable companies, and many regional cable networks, are carrying the "Race for the Presidency" stories from TCI News, a show that's making it possible for candidates to communicate in something other than 30-second sound bites. You will help television viewers better understand the impact the media have on the 1996 electoral process with programs like Continental "View Smart to Vote Smart", or Lifetime, MTV or Nickelodeon offerings of issue education programming. With all these accomplishments, you are ready for the ultimate challenge. In 1994 President Clinton said in the State of the Union that we needed to put every child in every classroom on the information Super Highway by the end of this century. That goal is now the law of the land. It is the mandate of the FCC to create financial incentives that will put communications networks in every classroom. And there's nothing more exciting for us at the Commission than this chance to transform education in America. So what industry is going to do the job of networking the classrooms? Traditionally we have looked to the local telephone company monopolies to link us all together. But since February of this year those monopolies are over. And with the invention of the internet and the introduction of the twoway modem, cable now has as good or better a claim on the right to bring our children into the 21st century of learning. You're already in every classroom with Cable in the Classroom. It would be a shame to see the telcos take sole advantage of the opportunity to bring our kids into the information age. With your new modems you can hold your lead in teaching our kids and even extend it. Already, both TimeWarner and Continental have agreed, as part of their Social Contracts with the Commission, to provide a free cable connection to public schools, free service to each outlet within the school, additional wiring needed within the school provided at cost, and educational program guides with curriculum support ideas to assist educators in effectively using the new services. Continental has also offered free internet access and free cable modems to all schools in their franchise area. And smaller cable operators are also doing their part. Booth Communications in Birmingham, Michigan has equipped students' homes with interactive cable TV boxes for two-way communication between school and home, so students and their parents can interact with data, audio and still video programmed by teachers. These efforts are just the groundbreaking of the huge construction project of networking classrooms. The cost of networks, servers, and computers will be in the billions. The job won't be done in a day. Teachers have to be trained; security has to be provided; curricula have to be revised. But the chance is there for cable to compete to do this fantastically important job. As you build networks into classrooms, you will have a new basis for trying to attract more customers. Won't the parents in a community want to mail the teacher? Won't everyone be interested in connecting to the local library? Why shouldn't cable provide these services? Moreover, under the new telcom law the companies building the networks should be able to receive incentives and funds from a common, universal service pool. You should have a chance to compete for your fair share. If we're successful at the FCC in writing fair competition rules, everyone in this room will have a real chance to compete. I know you will succeed. And if, as you succeed in business, you maintain your public interest commitment, then our children will have finer educations and better jobs as a result. The Internet really is the Information Super Highway. Your lane really is the fast lane on the highway. The chance to drive the communications revolution is in your hands. And as long as we do our job right at the FCC I believe I will have a chance again next year to give another easy speech here at NCTA. Thank you.