SPEECH BY

REED E. HUNDT

CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION

VARIETY/SCHRODER WERTHEIM MEDIA CONFERENCE

NEW YORK, NY

APRIL 1, 1997

Thank you for that introduction. This is my fourth opportunity to speak at this conference. The first time was right after our cable rate decision in 1994. The small number of you who had shorted cable stocks remember the day with pleasure.

Unfortunately, most everyone here in 1994 had gone long.

I recall that you greeted me..... warmly. But time passes, things change, and today I have just this simple consoling message: I'm not Alan Greenspan.

Now in my fourth year at the Commission, I still believe I have the best job in Washington you don't have to get elected to. But occasionally the thought occurs that there can be too much of a good thing.

For example, at this moment we are crafting a complete overhaul of the Universal Service and Interstate Access Charge regime that underwrites basic dial-tone service. You may have noticed that the front page of the New York Times reported on Sunday that I was considering raising every consumer's bill.

It ain't me, babe, but I'll return to this in a minute.

And we're also supposed to decide the rules for the roll-out and operation of the broadcast TV business of the 21st century; local terrestrial digital TV. Every newspaper in the country thinks Congress should have auctioned the DTV licenses. Practically everyone in Congress except Bob Dole last year and John McCain this year thinks we should give the billions of dollars worth of licenses to today's broadcasters. Even though virtually everything about television is reported on television, for some reason the DTV story is never carried over the air.

With or without the attention of TV journalism -- I love that phrase -- the questions involving the transmogrification of broadcast into a digital medium are myriad, mysterious, and momentous.

Fate has chosen to synchronize the birth of local terrestrial digital TV with the possible emergence of a new generation of national satellite digital TV services that could compete with or even substitute for or retransmit local broadcast. This is not the convergence that you and I were talking about in 1994, but it does make for a nice coincidence with the re-release of Star Wars.

Most people in Washington intuitively feel that the cable-satellite-broadcast brouhaha bruited about right now at the very least will replace the long distance-telco conflict as a rich source of lobbying fees and campaign contributions.

It's human nature everywhere to start with the money and work up to the high mindedness.

But I do think that it's a happy chance for people of goodwill and commitment to the preservation and advancement of democracy in an information age that the development of new digital medium gives us a chance to craft a wholly new way of giving political candidates access to the public without having to raise private money to buy TV access as if they're pitching commercial products instead of their candidacy for the privilege of public office.

So I agree with President Clinton and Senator John McCain and Walter Cronkite and Barry Diller that the Federal Communications Commission should commence a notice of inquiry on whether to give a half billion dollars of free air time to political candidates in order to make our contribution to campaign finance reform.

Then we're also preparing to play our appropriate role in implementing the World Trade Organization agreement that overthrows the monopoly paradigm in favor of the competition model in 69 countries around the world. This is the best possible news for the great communications, computer, and information companies that will generate continuous economic growth for the American and world economy for at least the rest of the lives of everyone in this room, notwithstanding Mr. Greenspan's non-exuberance.

But there's a lot of work for the US government to do in crafting the nuts and bolts of a pro-competitive policy for a global information economy.

Meanwhile, we're supposed to pack our bags and move the agency from the seven buildings it now occupies to a single new structure, the location of which I am tempted to suggest perhaps should forever remain secret.

All the decisions in front of us at the FCC seem so momentous, and occasionally even I wonder if we will avoid making serious mistakes.

I am comforted by the recent news that the universe has 10 billion years to go before the show is over. That should give us enough time to get telephony prices to cost.

One of the Bell Company executives, however, told me that 10 billion was only half as many dollars as are at stake in interstate access. You just can't avoid short-term thinking.

We have approximately 80,000 pages of comments filed on the interstate access and universal service questions. They boil down to this: the telcos want the long distance companies to pay for almost half of the past and future costs of the network, and that means the long distance companies would charge their consumers. The long distance companies want the local telephone companies to bear the cost, and that means that the telcos would charge their consumers.

Both the long distance companies and the telephone companies agree that I should be in charge of explaining the new proposed price increases to the consumers.

Meanwhile, it turns out that consumers are also called voters, and no one in Congress wants the voters to pay anything by reason of the new communications law.

I know you are beginning to see why I want to keep the new location of the FCC a secret.

We may make the right calls or we make the wrong calls on the issues in front of us, but deep into my fourth year on this job I have reached just one basic conclusion about public service. We owe you a continuous candid detailed explanation of at least what we are trying to accomplish.

We're trying to do two things.

First, be truly pro-competitive.

So we should auction licenses and not give them away. And we should tell auction winners they can do anything they want with the licenses, without getting FCC approval for their business plans or service offerings. And we should write rules of competition in telephony that don't favor anyone, but that also don't assume that the economies of scale and scope in local telephony can be overcome without specific procompetitive rules that permit new entrants to share those economies.

The second thing we need to do is recognize that markets don't give us all the public goods and public services the country wants and needs.

We want all classrooms to be connected to the vast libraries of the Internet. That won't happen by markets' natural operation so we should take some small money, less than a percent from all telcom revenue and spend it to connect all classrooms.

And we should have all broadcasters give us a minimum amount of educational TV.

And we should be very concerned about using the public's airwaves for hard liquor ads.

Today, I am receiving a letter from the President of the United States asking that the Commission undertake an inquiry as to what is in the public interest regarding the advertising of hard liquor on television.

I applaud the President's letter and urge my colleagues to agree that we should do the fact finding necessary to help both the Commission and other public officials understand the situation and determine how to proceed.

Yesterday's Supreme Court decision upholding the must-carry law acknowledges that broadcasting ought to be afforded special protection in the marketplace.

But it should be clear to everyone that the Court's justification for that special protection is a recognition that the marketplace will not, without government intervention, provide everyone with programming that is in the public interest.

The decision, congruent as it is with the advent of digital television, makes this the perfect time to define anew the public interest broadcasters can serve in the digital age.

Everyone would agree that the most market oriented, deregulatory approach to DTV would have been to auction the DTV licenses.

But Congress told us not to sell these licenses. They directed us instead to award them to existing broadcasters.

But just because we didn't use a market-based approach to assign the licenses, doesn't mean we shouldn't use a market based whenever appropriate.

For example, some argue that since these licenses won't be auctioned, we should require licensees to provide a certain amount of high definition television or preclude them from using this spectrum to provide subscription based services.

I disagree. As long as broadcasters air at least the same amount of free television that they do today, we should allow broadcasters to place on their digital channel whatever package of programming and services will most attract viewers to digital television and to the purchase of digital TV receivers.

Another issue was whether the government should impose a transmission standard.

I opposed having the government mandate a standard, preferring a market-driven industry standard.

While we ultimately did adopt a standard, we were able to make it far more flexible and open so that market forces could develop new innovations that would not require Commission approval.

This open standard has allowed two very powerful industries, each with different visions, to compete to determine what digital television will become. We fought for a standard that would encompass both and will allow the consumer, not the government, to decide which vision prevails.

The issue of the DTV build out is perhaps the most critical in terms of whether the transition to DTV will have a chance to succeed.

Some contend that the Commission need not adopt build-out requirements at all.

Had Congress decided that the digital spectrum would be awarded by auction, I think that would have been correct. As we have seen with PCS, where licensees realize the opportunity cost of spectrum, the market will ensure that the spectrum is put quickly to its highest and best use.

But without an auction, there are many incentives for licensees to move slowly. Initially, the audience for a broadcaster's digital transmissions will consist of viewers already watching the broadcaster's analog channel. DTV requires every broadcaster to invest funds in order to capture viewers for which it is already receiving advertising revenue.

What's at stake is the success of the only medium in the country offering a free television service to all Americans.

Rapid build-out is not only critical to digital television's domestic competitiveness but also to its ability to compete internationally. Other countries are moving swiftly to establish their own terrestrial digital television services. But countries are using a different standard. The longer it takes to launch digital television in the U.S., the less likely it becomes that the American standard will be adopted around the world.

In my view the Commission should adopt rules that guarantee that, in time for the Holiday 1998 shopping season, at least three of the four big networks are up and running digitally in each of the country's largest markets.

We need not look far back in broadcasting history to see why this is important. In the early days of color television, just one network aired color programming and, not surprisingly, penetration of color TV sets was flat for many years. When all three networks began broadcasting in color, consumers started buying color TV sets in droves.

If history repeats itself, we know that there must be at least 3 or 4 signals in every major market before we can expect consumers to begin purchasing digital sets.

A successful transition cannot be guaranteed. However, if the Commission does not take the right steps, we can be certain the transition will fail. In light of the economic pressures and marketplace realities, a necessary right step is to have a rule that requires broadcasters, as a condition of receipt of the license, to build out on a schedule that creates the possibility of a successful transition.

On the public interest, I think we need to develop clear rules that identify specifically how broadcasters can meet their public interest obligations.

While we need not necessarily do so today, every broadcaster who takes a digital television license should do so knowing that they will be subject to public interest requirements that will be clear and quantifiable and commensurate with the new opportunities afforded by the digital channels they are receiving. And the Commission should commit to seeking comment on and adopting public interest rules as soon as possible.

President Clinton suggested in a speech a few weeks ago that broadcasters renew their public interest commitment by providing substantial amounts of air time for direct access by candidates to voters.

Broadcasters could help renew and revitalize our democracy in this way by contributing just one percent of the time they devote to advertising to allowing candidates for federal office to communicate directly with voters.

Our competition policies are not normally supported by incumbents.

And our public interest policies are not always supported by commercial interests.

But generally in America open debate gets us pretty good answers, and it certainly wins us the admiration of the world. Our economy and our system of government, for all its willingness to be criticized and all its self-criticism, are truly the envy of the world. That is true of our marvelous information economy and is the basic reason why I'm proud and happy and grateful to have my job, and to speak to you today.

Thank you.

- FCC -