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"IPTV: From the Vast Wasteland to the Vast Wonderland"

Address by
Chairman William E. Kennard
Federal Communications Commission
to the
Consumer Electronics Show

January 7, 2000
Las Vegas, Nevada
(As Prepared for Delivery)


Thank you, Gary, for that kind introduction.

I am delighted to be at the Consumer Electronics Show.

I was touring the exhibit floor this morning and I saw some innovative examples of interactive television. Quite a change from my days growing up when interactive television was when my mom yelled at me to turn down the TV set.

But today I want to talk about the real interactive television, and about its future.

In the old world, services like television and cable and telephone constituted different ways of delivering different products. The conduit defined the content. But the rules where conduit defined content have been rewritten by digitization.

Conduit no longer defines content; the lines of competition and regulation have been blurred, and new consumer electronics devices are blended versions of the old.

But in one area digital technology has yet to fully take hold: And thatís television.

Televisions are almost all still analog. Where broadcast digital TV is available, it is not yet carried on cable. And if you buy a digital TV, it probably wonít work with your cable TV.

To watch cable, you would have to watch it on your old set, or employ a converter that dissipates much of the resolution advantage of digital transmission. Thatís a little like riding on a train and having to move from first class to coach class at the border.

The Digital Dream: IPTV

For years visionaries have predicted that the future of television was, in fact, not really television at all, or at least not the television we have all been used to, but rather something more like the computer.

The vision has been of two-way, interactive TV that has the digital agility of the computer, but the display quality of a movie theater that can be summoned on-demand.

A single device would be a multimedia source of news, information, and entertainment. It would marry the various platforms, whether cable, broadcasting, satellite or the Internet, in a way that allows them to coordinate and compete at the same time.

And it would offer the viewer program choices that take us from what one of my predecessors called the vast wasteland of television to a vast wonderland of limitless content. From our couch potato past to the interactive future. The viewer actively engages the programming. The viewer can replay portions of TV shows as they are being aired, summon sports scores and web sites instantly, or download movies in a snap.

Itís a world in which time shifting is the rule, not the exception.

We have a name for this future: IPTV. Like digital TV itself, IPTV can be many things.

IPTV can mean "Interactive Personal TV," because it allows viewers to personalize the programming to their own particular needs.

It can mean "Intelligent Personal TV," because it is a "smart TV," and has much of the intelligence formerly in the network now in the television set.

And IPTV can mean "Internet Protocol TV," because it can serve as an on-ramp to the Internet.

Today you can go onto the exhibit floor of this convention and see wonderful glimpses of the future of television, and it is all about IPTV.

But IPTV has yet to become a part of the American household.

Why is this?

It is not because of lack of consumer demand.

Studies, focus groups, people on the street will tell you that they want the features that fully capable digital television could offer: High-quality programming and the ability to interact with that programming.

It is not because the government has blocked the rollout of IPTV.

Congress and the FCC have made a big push to launch the digital revolution. Congress shifted spectrum to broadcasters for digital transmissions, and the FCC implemented policies to stimulate high-speed Internet access through cable and copper.

Some broadcasters have responded, and now more than 100 stations reaching 50% of the American people offer high quality digital TV signals. Dealers have received delivery of about 111,000 digital TVs since August of 1998.

Cable modems are now in nearly 1.5 million households, and an estimated 4.1 million households subscribe to digital cable, and it is available to millions more. Almost 500,000 households access the Internet using high-speed DSL connections. And there are almost 11 million digital satellite households.

So whatís the problem? Why arenít more Americans able to enjoy IPTV?

The problem is that those in the cable and consumer electronics and programming industries involved in making fully capable digital TV a reality cannot reach agreement in two key areas:

The industries have made great strides toward closing the gap on the first problem, on compatibility standards. You have been working on this problem since at least 1994, and by some estimates you have solved 90% of the problems.

But how do we close that last 10%?

Thatís the dilemma. Thereís general agreement on the end game, on the general notion of IPTV, but getting there is the rub. Details matter.



Making IPTV A Reality for American Consumers

Here are the three elements of the dilemma:

First, the economic and technological barriers to rolling out IPTV are so numerous that the market has had a tough time crafting a solution. There are so many industries involved, each with their own competing architectures and incentives, that finding common ground has been extremely difficult.

This situation contrasts dramatically with the way color TV rolled out in the early 1950ís. Things were a lot simpler then. At that time, one firm, RCA, was involved in every aspect of the system, from start to finish. RCA manufactured TVs and transmitters, and it owned a leading TV network, NBC. It had the incentive and the ability to lead the conversion to color, and, whether measured by color television sets sold or color programming transmitted, RCA led the way.

In the case of IPTV it is much more complicated. There are multiple players and competing incentives. Broadcasters, for example, want cable-ready television sets, because cable carriage will allow broadcasters to capture more market share for their advertisers.

Cable operators, however, are hesitant to transfer too much of their network intelligence to the viewerís television. They worry about losing control of the viewer, because, for example, the viewer might use someone elseís program guide.

Manufacturers want to sell equipment that works and that consumers can afford.

My concern must lie, first and foremost, with the interests of the consumer. And so the challenge is to harness the divergent industry interests in a way that best serves the consumer.

Second, it is the nature of open markets that if a bottleneck appears in one part of the market, the market will find a way around that bottleneck in another part of the market. Those waiting in line at the bottleneck will be left behind.

This may be happening already. While you have been negotiating standards, the marketplace is moving on. Services like "iCrave TV" and the European service "Chello" are developing internet-based TV distribution that threatens the market share of traditional media. And "Broadcast.com" is streaming video, although not yet in broadcast quality.

I know many of you may be troubled by these developments, but the best way for you to respond is to resolve these compatibility problems that I have been talking about today. Break down the bottleneck that is preventing consumers from getting IPTV.

Third, where the market does not work to promote consumer welfare, the Commission must. Thatís my job. Itís in the law. Itís our responsibility, and the public rightfully relies on the FCC when the market does not protect the publicís interests.

To date, the Commission has exercised restraint on this matter, preferring to have you resolve the problems on your own. But this "hands off" phase is about to end. Your time - and our patience - are running out.

Thus, you either have to bring closure to years of negotiations, or the Commission has to act.

We can say we have met the dilemma, and it is us -- meaning all of us.

The Commission has tried to let you solve this problem. We have been cajoling and goading and nagging. But so far the job is not done.

The story begins as early as 1994. Thatís when the FCC began pushing your industry to set standards for making digital televisions compatible with cable. At that time, industry representatives said they would have standards by 1995, so the Commission declined to act.

In August of 1998, I wrote to industry leaders and again asked for resolution of the compatibility problems, in particular for agreement on a 1394 connector standard.

In October, 1998, industry groups said there would be cable-ready, content-protected retail sets available by November, 1999.

When standards still were not resolved, I called a public forum in May, and asked your industry to give me a timetable by July 1, 1999.

On July 1, I received assurances that the copy protection problem would be solved by August 1, and that the compatibility specifications would be available by November 1.

In December, we still werenít there yet, so I asked the Commissionís top engineer, Dale Hatfield, to convene a group from NCTA, CEA, OpenCable and others to identify the last remaining issues and to resolve them.

And now here we are, in the year 2000, six years after industry first asked the Commission to refrain from acting and there is no resolution. In Internet time, 1994 is the prehistoric age, because there was not even a commercial Internet then. And yet six years later, we have still not resolved the compatibility issues. Why not?

Here are two important compatibility sticking points:

The Commissionís rules require that, as of July 1, 2000, consumers must be able to purchase set top boxes on the retail market. This will mark an early opportunity for consumers to see first hand that industry has addressed at least some of the compatibility issues. I was pleased to hear from Dick Green at Cable Labs that we appear to be on track to meet the July 1 deadline.

Copy protection is another major sticking point. Consumers will not purchase high-priced digital TV sets if there is not high-quality digital programming available. Just look at the explosion of DVD sales now that Hollywood is making product available for that market.

I appreciate the need for content owners to protect their product in the digital world. But this problem has to be solved. And it can be solved.

Here too, the Commission has encouraged negotiations between content providers and distributors and CE manufacturers. 5C appears to be the most promising copy protection technology. But there remain significant licensing and implementation issues.

Then there are the naysayers. Parties who say there can be no viable copy protection solution . . . that if programming is made available, there will be theft, and that therefore the options are either theft or no programming at all.

But I reject this all-or-nothing approach. Through the creative use of the technology, we can both get good programming to the public and protect the rights of its creators.

Consumers can have choice without theft. The technology can be used, for example, to limit use of the programming to one copy, or one viewing, or multiple copies and viewings for a price. This was the concept behind Divix, even though that particular solution was not accepted by the marketplace. But the technology that presents the problem also offers the promise of a solution. We must not let the naysayers stop progress toward a solution.

Finally, with regard to programming, too many broadcasters have just not realized the potential of IPTV. Many see it simply as high-definition television - - prettier pictures that alone will not provide the returns to justify new investment in digital TV. IPTV, with its interactive capabilities, however, offers much more.

To make IPTV a reality, broadcasters will have to develop new business models and forge new ground.

I frankly do not know which problem is the prime obstacle here -- equipment compatibility or copy protection Ė but frankly, consumers donít care. They just want the problem solved.

And we owe to them to solve it. I have an obligation to solve.

Consequently, I have directed the FCC staff to draft a set of proposed rules for digital TV compatibility standards. So, if cannot solve these problems by April of this year, we will. If industry is unable to reach an agreement on its own by April, I will urge the Commission to adopt compatibility rules to protect the public interest.

I would rather have your industry sort out these problems. But they have to get solved.

So I once again am laying down the challenge. Letís get these compatibility issues behind us. Letís solve the copy protection problem. Letís fulfill the digital promise for the American consumer. Letís make IPTV a reality.

Thank you.

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