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Remarks of
Commissioner Susan Ness
New York
June 7, 2000

The Net Effects on Communications Policy
(or how the Internet and Convergence are Revamping Regulatory Regimes)

Thank you for inviting me to join you this morning. And a special welcome to the students participating in the IRTS summer fellowship program.

R.D. Lang once said, "We live in a moment of history where change is so speeded up that we begin to see the present only when it is disappearing."

This is true for society as a whole, but it is especially true for the world of communications. We are experiencing a tidal wave of change, so rapid, so fundamental, and so exciting, that it compels us to reexamine our core policy values and institutions.

Just think. I joined the FCC six short years ago. Back then, Bluetooth was a Nordic conquerer; portals was the proposed site for the FCC’s new headquarters; surfing was a beach activity, and Leonardo was a Renaissance artist and scientist.

Six years ago, the world wide web was just being launched. Since then, the number of Internet users worldwide has grown from 4 million people to more than 250 million people. The average amount of time that an American user is on line has expanded to almost one and a half hours a day. That’s more than twice as much time as our average citizen spends reading a newspaper or magazine.

So what are the effects of the Net on communications policy? Let’s start at the beginning.

The Good Old Regulatory Days

In the beginning there were industry structures and FCC rules based upon and designed around "natural" monopolies (in the telecom and cable TV world) and oligopolies (in the broadcast world).

Twenty years ago all you needed to know about the entire communications sector was six letters: A,B,C,N,S and T. Those six letters translated into four firms: AT&T, ABC, CBS, and NBC. That’s all you really needed to know. Those four firms WERE telecommunications and broadcasting for all practical purposes.

And broadcasting was separate from telecommunications. Companies didn’t cross the line and neither did the FCC which was … and still is… organized around traditional industry boundaries.


The New Communications Economy

My how the world has changed! We’ve had a revolution in technology. In twenty short years, we’ve seen the blossoming of multi-channel competitors such as cable TV and DBS, digital TV, and broadband technologies. We’ve seen the advent of convergence. And we’ve seen the explosion of the Internet.

The revolution in communications technology has taken several forms. First, we’re moving from the analog world to the digital world. This also means that we’re seeing the shift from circuit transmission and switching to packet transmission and switching.

Packetization and digitization are leading to the convergence of video, voice, and data on the same platform at the same time that intelligence is moving from the centralized network to the edge of the networks.

This means that whether you’re talking about telephones, broadcasting, or cable TV, consumers can use smarter and smarter devices in their homes to do more things over which they have more control than ever before.

Whether it’s smart set top box, a WebTV, a computer, or a TiVO recorder, consumers are wresting control of their communications from traditional networks, whether they are television networks or telephone networks.

And technology is facilitating the move from wireline to wireless, as more and more mobile phones and PDA’s feature Internet Access. Consumers can execute stock trades, make hotel reservations, and even order and pay for snacks from smart vending machines. Using global positioning system technology together with push technology, consumers may soon get location-specific messages – such as for nearby restaurants -- as they traverse the globe.

Indeed, some analysts predict that by the year 2002, there will be more Internet access on wireless devices than on computers. Internet backbone usage is doubling every 100 days. Already, 40% of U.S. households have Internet access. Wireless access may well drive that level to 90% over the course of the next decade. That suggests that there will be explosive demand for spectrum.

Much of this growth is propelled by the convergence of telephone, video, and computers.



Convergence is something people have talked about for a long time and finally has arrived but still seems to be difficult to pin down. The fact is that convergence has many faces.

There is convergence of technologies. Telephone networks and cable television networks are beginning to use similar technologies and similar hybrid fiber copper networks.

There is convergence of services. Internet delivered over telephone networks or cable TV networks can stream local and distant radio stations that blur the distinctions between telecom and broadcasting. Thousands of radio stations are extending their reach by streaming their programming on the Web. And every day the Internet becomes more and more a source of streamed video programming.

There is convergence of markets. The emerging voice over the Internet is provided by incumbent telephone companies as well as by new entrants. And telephone companies like US West are using broadband Web access to provide cable TV service.

And perhaps most importantly, there is convergence within consumers’ perceptions. The traditional boundaries are blurring in consumers’ minds. They do not care whether they get their TV from a local broadcaster, cable TV company, satellite company, their telephone company, or even over the Internet. It’s becoming all the same – especially for the younger generation.

And, there is convergence of and among firms. After divestiture, AT&T was a long distance company that also manufactured telecom equipment. Today, even after spinning off its manufacturing division, it’s much, much more. Is it a long distance company? A wireless company? A TV programming company? A cable TV company? An Internet company? All of the above? Frankly, who cares?

Lots of folks care! Why?

What’s at stake in this new digital world is content that either is -- or can be -- digital. What’s at stake is the quarter of a trillion dollar market that comprises the U.S. content business. This includes radio, television, cable television, motion pictures, recorded music, video and computer games, newspapers, magazines, and non-operating system computer software.

It all can be digitized and distributed electronically over multiple channels and platforms. It’s all up for grabs. No one has a lock on the customer. This may be what "content is King" means in this brave new digital world. Copyright holders control, but traditional distributors are in a scramble.

That’s a quarter of a trillion on the content side.

Coincidentally, the transmission side… local and long distance telephones, wireless, cable and satellite communications is another quarter trillion dollars. And this market, too, is up for grabs in the new digital world.

Combined, that’s a half trillion dollars in revenue that incumbents want to protect and that new entrants want to take. The problem is that incumbents in one traditional market segment are the insurgents in other market segments.

So the wave of industry reorganizations through mergers, alliances, and new entry are all about surviving in this new digital world of convergence.


Old World Concepts Battle New World Realities

This world of digital technology and distributed intelligence over the Internet is turning the old regulatory world upside down. The old rules were written when the type of transmission – telephone, cable TV, broadcasting – told you something about the content and defined boundaries. The Commission tried to ensure that service providers did not abuse or limit consumers as a result of their monopoly, or oligopoly, on conduit and content.

But with digitization, the conduit is no longer necessarily linked to the content. Old pipes are converging, wireless pipes are emerging, and the Internet is placing control in the hands of users, consumers, and viewers. Everyone can become a content provider as well as consumer.

These changes are being driven more by technology and business models than by government. But the FCC's policies of fostering competition, while taking a hands-off approach to the Internet and information services, have facilitated many of these changes.

The Internet and the new digital convergence are challenging the old rules -- old rules of industry structure and old rules in the Code of Federal Regulations. But what regulations ought to apply in a converging world? How do we avoid the unintended consequences of our actions?

The New Economic Model

Our challenge at the FCC is to foster these new technologies and changes that benefit consumers and users while ensuring a competitive marketplace that works for all Americans.

That’s catchy, but how do we get there?

First, we have to examine the underlying public purpose behind our rules to ensure that the goals are still valid. Second, assuming our involvement is essential (or required by statute), we must ensure that any government intervention is the least intrusive possible to accomplish the public policy. Third, we must think creatively and rapidly. By the time we complete a rulemaking, its time may have come and gone. Fourth, we must rely less on government regulation and let the marketplace rule.

One suggestion to respond more rapidly, more consistently, and more equitably would be to restructure the agency – from industry lines to functional lines. Separate policy, licensing, and enforcement bureaus would help address convergence issues. That concept is included in Chairman Kennard’s Plan for the 21st Century.

Also, we are emphasizing flexibility in service offerings, to allow licensees to adapt to the rapidly changing marketplace without further approval.

As markets become more competitive we need to step back from traditional regulation and let the marketplace govern outcomes. At the same time, we must ensure that legacy bottlenecks do not extend to new services. And new entrants must not be burdened by legacy regulation designed for the last century.

The Internet has also forced the FCC to take proactive measures to advance the transition to competition. For example, in our CALLS telephone decision rendered last week, we proscriptively squeezed out the subsidies embedded in access charges, and in so doing, also reduced the regulatory arbitrage inherent in Internet phone service.

The Internet also has prompted us to rethink competitive access to the last mile. So we ruled that unbundled telephone loops are not just limited to voice. Now competitors can gain access to unbundled local loops for data services, and can even share those lines with the local voice carrier. And to encourage broadband roll-out, we deregulated advanced services such as DSL, where competitors have access to loops and can collocate their equipment.

On the wireless front, we are proposing solutions to spectrum scarcity that fundamentally rethink how we allocate and assign spectrum. We are seeking innovative ways to make more spectrum available and to maximize spectrum efficiency. We have proposed to adopt rules for promising new technologies -- such as software defined radio -- which can adapt their signals to comply with technical requirements for a wide swath of bands. We are also exploring strategies for encouraging a private secondary market in spectrum.

We also encourage greater flexibility in using spectrum. For example, broadcasters are deploying innovative data applications while providing consumers with a free over-the-air digital broadcast service. At least three such entities – Geocast, iBlast, and the Digital Broadcast Cooperative -- are developing plans to use digital TV to datacast Internet-like content to computers and television receivers.

I recognize the continuing need to ensure access to the new technologies and services by everyone in America. Universal service policies, whether embodied in free over-the-air TV or affordable telephone service, have served our country well during the last half of the last century. We need to ensure that these benefits continue for new technologies and services.

In most cases, the market will take care of this but in some instances it will not. That’s where we, as a society, and as a government, need to craft policies to address marketplace failures. And one advantage of the new digital world is that we now have the ability to craft policies that ride the wave of competition.

While the FCC may do less in the future, each action we take may have a greater "Net" impact.

The rules that we adopt, or do not adopt, to facilitate a digital transition, may effect the ability of broadcasters to provide services that compete with cable companies and wireless companies (that will offer digital broadband access).

The rules that we adopt -- or do not adopt -- may facilitate satellite companies' ability to compete with terrestrial wireless and broadband pipe competitors.

With a combined half trillion dollars at stake in the content market and the content delivery market, we have to make sure that the "Net effect" of our communications policy is the fullest amount of competition between all these services and service providers.


So, where does this leave us? To quote Elizabeth Cady Stanton, "Come, come my conservative friend. Wipe the dew off your spectacles, and see that the world is moving!"

Your challenge is to reinvent your firms and industries to emerge from this unstable transition from analog to digital worlds and thrive as you serve increasingly demanding consumers.

My challenge, as a public policymaker, is to craft policies and rules compatible with the new age, that permit the market to work while ensuring that be benefits of the information revolution are available to all Americans.

Thank you very much.