|News||June 4, 1996|
In a speech today before the New York chapter of the Federal Communications Bar Association, Commissioner Ness noted that Congress has liberalized media ownership rules in several respects, that the Commission is considering additional ownership changes, and that "many recent broadcast deals are premised on expectations that greater media concentration will be allowed."
She expressed her view that "those who propose to reduce the number of independent broadcast voices should bear the burden of showing that the public will benefit." For example, "we should consider very carefully before we eliminate our TV duopoly rule or abandon newspaper-broadcast cross-ownership provisions." She also warned that ownership rules should not be permitted to be circumvented through local marketing agreements or other nonattributable interests.
On the topic of local telephone competition, Commissioner Ness commented that "merely removing barriers to entry is not enough. Enabling measures are also needed for competition to thrive . . . Our top challenge is to decide what federal rules are needed" to resolve "fairly and quickly" the respective needs of "both the incumbents and insurgents."
She also predicted increasing cross-sector competition. "The Commission has no interest in trying to maintain tidy, artificial divisions between telephone companies, cable companies, broadcasters, and others. To the contrary, we are aggressively creating new opportunities for competition across sectoral lines."
And she forecast that competition would shift power from service providers to consumers. "For monopoly providers that do not make the necessary adjustments, the verdict will be swift."
Finally, Commissioner Ness also discussed the growing globalization of communications markets. "The FCC's interest in promoting competition does not stop at the water's edge. We are committed to pursuing 'effective competitive opportunities' for U.S. firms in foreign markets."
She predicted that "other nations will agree to facilitate global communications competition. Advances in technology and pressure from the private sector will cause foreign markets to open at a much more rapid clip. Monopolies die hard, but few nations want to risk missing out on the investment and societal benefits from competition."
Contact: James L. Casserly at (202) 418-2100.
June 4, 1996
Washington is the nation's capital, but the Big Apple is the "capital capital." Your city and mine both have powerful impacts on the operation of markets.
You talk in terms of billions of dollars. So do we.
Being here at Black Rock, I flirted with the notion of presenting a David Letterman-style Top Ten List. I thought of telling you about the Top Ten Gratuitous and Cumbersome Communications Acronyms (that's TTGACCA, for short). Or the Top Ten Cable Channels that I hope no one will ever think to develop. Or perhaps the Top Ten Inconsistencies between what communications company leaders tell financial analysts in New York and what they tell policymakers in Washington.
But instead, I thought I'd offer 10 predictions -- serious ones -- for the coming year or two.
Prediction Number One: Creating local telephone competition will be our most important and challenging task.
Competition is the dominant theme of the Telecommunications Act of 1996. The Act has many specific directives and tight deadlines. Some 80 separate rulemakings are required.
It's now Day 117. We have 63 days left to resolve several of the most critical issues, including rules to facilitate competition in the market for local telephone service.
The stakes are enormous: $100 billion in annual revenues.
Today, incumbent local telephone companies receive over 99 percent of these revenues. But the Telecommunications Act will bring fundamental change. Many new companies are poised to challenge the incumbents, if workable conditions for competition are established.
The new statute requires us to strike down state laws which inhibit entry. But merely removing barriers to entry is not enough. Enabling measures are also needed for competition to thrive.
It will be impossible for the new entrants to replicate completely the networks that the incumbent telephone companies have constructed over the past century. That's approximately $300 billion of original investment (before depreciation and amortization). The new entrants will need access to the networks which the incumbents have already built .
Specifically, they will need to resell the incumbents' retail services. And they will need to purchase unbundled capabilities from the incumbents, to combine them with their own facilities.
Our top challenge is to decide what federal rules are needed to ensure that resale and interconnection arrangements can be achieved fairly and quickly. We must understand the needs and concerns of both the incumbents and the insurgents.
We must form a partnership with state public utility commissions. We need to find ways to achieve Congress's goal of promoting competition in all 50 states, without reversing the admirable progress that some states have already made.
We will also cooperate with the states to develop new universal service and access charge mechanisms. Today's regime of hidden subsidies is not competitively neutral and, in any event, cannot be sustained in the new marketplace.
Prediction Number Two: Cross-sector competition will intensify.
Old lines between industries are blurring. New technologies are making it possible for service providers to break out of their traditional roles.
The Commission has no interest in preserving tidy, artificial divisions between telephone companies, cable companies, broadcasters, and others. To the contrary, we are aggressively creating new opportunities for competition across sectoral lines.
For example, on Friday, we adopted final rules for Open Video Systems, first cousin to the late lamented video dialtone. OVS will enable telephone companies to offer video services, free of many of the traditional constraints of cable regulation. The price for this freedom is the establishment of platforms which offer access to unaffiliated programmers.
Personal Communications Service is another example of increasing cross-sector competition. PCS was rolled out initially to provide a much-needed alternative to cellular telephone service. But we will soon authorize PCS providers to offer fixed local loop services, in competition with wired telephony.
We have also rapidly processed applications by electric companies that are now permitted to enter the telecommunications marketplace.
In these and other areas, licensees are given greater flexibility to transcend traditional boundaries and enter new markets. At the same time, they face increasing exposure to new competition in their own markets. Each company will need both offensive and defensive strategies.
Prediction Number Three: Communications companies will become increasingly market-driven.
Remember Ernestine, Lily Tomlin's telephone operator? "We don't have to care. We're the telephone company."
The future will be different.
Marketing prowess will be a major factor in determining which companies succeed in the new environment. Those with strong brand names and large advertising budgets will have an advantage over some of the smaller players.
Still, the key ingredient for success in a competitive marketplace is the ability to deliver the right service at the right price. It's easy to maintain a hold on a customer who has no other choice of service providers -- even if getting a line installed takes two months. Sad to say, some consumers have this experience today in parts of the United States.
Once competitive alternatives are available, the situation should be radically different. Power will shift from the service provider to the consumer.
For monopoly providers that do not make the necessary adjustments, the verdict will be swift.
Prediction Number Four: Consumers will find change to be unsettling, but ultimately worthwhile.
We are on the road to increased innovation, expanded choice, better service, and lower prices. But there will be bumps in the road, and the occasional detour.
In cable, for example, rate adjustments under preexisting rules, plus complete deregulation of smaller systems under the Act, have caused price increases for some consumers. We do not yet have effective competition that permits consumers to reject these rate hikes and choose a substitutable service at a better price. So consumer complaints may soon be on the rise again.
Meanwhile, carriers may claim that new local competition rules justify rate increases for local telephone service. Although in the long term competition will put downward pressure on rates, in the short term many consumers will not have sufficient choice to protect them. The FCC and the state commissions must work together to avert the demand for rate hikes.
Higher phone rates are not what Congress had in mind.
Divestiture taught us that many consumers are resistant to change. Some don't want the hassle of having to make informed choices from multiple options. Others just don't pay attention.
Incredibly, 12 years after divestiture, 30 percent of Americans still believe that their local phone company is AT&T. Who knows? They may soon be right!
Cynics may suggest that the primary benefits of the new communications landscape will accrue to Madison Avenue. My view is that consumers, despite any confusion they might experience, will be the greatest beneficiaries. My own efforts will be directed towards this goal.
Prediction Number Five: The Commission will authorize several breakthrough wireless services.
Let me introduce this subject with a serving of acronym soup: DTV, DARS, and LMDS.
First, DTV. The day of digital television is finally at hand.
After years of effort, the Commission has proposed a DTV standard which supports both high-definition signals and multiple standard-definition channels. The industry is establishing an experimental DTV broadcasting operation in Washington, D.C. I am pushing for prompt action on allotment and assignment rules, on the assumption that broadcasters will soon work out arrangements with Congress and the Administration for expeditious return of analog channels.
I believe we must press ahead forcefully on DTV. To do so will mean new services to consumers, greater opportunities for broadcasters, and continued U.S. leadership in digital transmission technology.
Another new service that should soon get off the ground (so to speak) is Digital Audio Radio Service, delivered by satellite.
DARS will offer consumers up to 50 channels of digital programming, nationwide, per licensee. We will structure this service to maximize its unique consumer benefits and minimize its adverse effects on local radio broadcasting.
DARS has been entangled in a budget debate on Capitol Hill, but I anticipate that the service will be authorized later this month.
We are also clearing the way for Local Multipoint Distribution Service.
Today, LMDS is commercially available only in New York City and offers only one-way delivery of analog video channels. This 28 GHz wireless technology is now being designed as a flexible digital broadband "pipe" that will compete directly with the services offered by both telephone and cable companies.
I am determined to complete the 28 GHz rulemaking promptly.
Each of these services -- DTV, DARS, and LMDS -- represents a significant new opportunity. New markets are being opened, and existing markets will be transformed.
Prediction Number Six: The market for mergers, acquisitions, and other alliances will be vibrant.
New rules and new technologies create new business opportunities. We see this from the occasional announcement of multi-billion-dollar deals involving the networks, cable operators, and the regional Bell companies. We also see more frequent reports of smaller but still sizable broadcast transactions.
Some of the dealmakers are seeking economies of scale and scope. Some are pursuing synergies. Some are just hedging their bets.
The M&A market will remain active, but I foresee more joint ventures and other teaming arrangements, which allow for greater flexibility. Companies often want to test the waters in a new area, or see what they can learn from a differently positioned company, without making a full-scale commitment.
Resources, too, are an issue. It's a big country, not to mention a big globe. Even AT&T cannot cover all markets and all services at once.
Prediction Number Seven: Media concentration will become increasingly controversial.
Congress has liberalized broadcast ownership rules in several important ways. For example, it increased the national limit on TV ownership reach and allowed a single company to own up to eight radio stations in a single market.
The Commission is considering proposals to alter other ownership rules. Many recent broadcast deals are premised on expectations that greater media concentration will be allowed.
I expect that the trend toward media concentration will receive increased public scrutiny. In my view, it should.
Media concentration affects not just economic markets but also the marketplace of ideas.
Broadcasting, in particular, needs to be treated with special care. TV and radio are our only free, universally available media. They are uniquely pervasive and persuasive.
I reject the notion of broadcast television as just a "toaster with pictures." Manufacturers of toasters have no right to require stores to carry their products, much less to place them on the most popular shelves. But must-carry and channel positioning represent comparable entitlements for broadcasters. TV broadcasters also seek exclusive rights to free but temporary use of a second 6 MHz channel for conversion to digital broadcasting.
In exchange, I believe it is fair for us to continue to establish and enforce public interest obligations, such as a commitment to educational and informational programming for children. (Happily, I predict that the kidvid issues will soon be resolved!)
And I think we should consider very carefully before we eliminate our TV duopoly rule, or abandon newspaper-broadcast cross-ownership provisions. Nor should we permit our ownership limitations to be circumvented through local marketing agreements or other nonattributable interests.
Some circumstances may justify liberalizing ownership limits. But in my judgment, it is those who propose to reduce the number of independent broadcast voices who should bear the burden of showing that the public will benefit.
Prediction Number Eight: Global competition will intensify.
Thus far, my focus has been primarily domestic. But communications markets are becoming increasingly globalized.
The FCC's interest in promoting competition does not stop at the water's edge. Our decisions have global ramifications. We are committed to pursuing "effective competitive opportunities" for U.S. firms in foreign markets.
I am optimistic that the next year will bring a new multinational agreement on basic telecommunications services. Our negotiators in Geneva wisely extended the talks through February 15, 1997. The U.S. Government needs more time to persuade our negotiating partners to present market-opening offers that match the level of liberalization that we have offered.
I believe that other nations will agree to facilitate global communications competition. Advances in technology and pressure from the private sector will cause foreign markets to open at a much more rapid clip. Monopolies die hard, but few nations want to risk missing out on the investment and societal benefits from competition.
U.S. firms are well positioned to take advantage of the new opportunities that are being created. The FCC will do its part to help.
Prediction Number Nine: Reinventing government initiatives will continue at the FCC.
Despite the 80 rulemakings and everything else that will flow from the Telecommunications Act, the Commission will continue to meet its other responsibilities.
Budget dollars are tight, and our intrepid agency is smaller now than it was 15 years ago -- when our sector of the economy represented a much smaller portion of Gross Domestic Product. But challenged by Vice President Gore's Reinventing Government project, the Commission is deploying its resources much more efficiently and effectively, for the benefit of both industry and the public.
Every function we perform is under review. In each case, we are asking ourselves whether what we are doing or requiring others to do can be eliminated, streamlined, or privatized. Regulatory forbearance, electronic filing, and other new tools are being harnessed to make our operations lean, efficient, and responsive.
We invite your suggestions on ways we can do even better.
Meanwhile, our spectrum auctions are enabling radio licenses to be awarded quickly and fairly. We have already grossed over $20 billion for the U.S. Treasury, with administrative costs of only 19/100ths of one percent. And licensees for auctioned spectrum are being given wide latitude in the use of their frequencies.
Finally, we will find ways to fulfill Congress's goal that small companies -- who contribute disproportionately to job growth and to innovation -- can participate in the development of this dynamic industry.
Prediction Number Ten: Many predictions about the future will prove to be wrong.
I predict that the future will be full of surprises.
Conventional wisdom is overrated. Group-think can lead to group error.
This year's hot ticket is "bundles." Last year it was multimedia. The year before it was telco-cable.
Let's not forget the prediction that cellular, if successful, would have one million customers by the year 2000. (The current number is 35 million, with four more years to go.)
Remember Bill Gates's declaration that computer users would never be able to use more than 256 kB of memory?
Reminding ourselves of errors like these helps to keep us humble. Our job at the FCC is not really to predict the future, but to create an environment that allows the full range of possibilities to flourish.
Thank you. I would be happy to take your questions.