Remarks of Commissioner Susan Ness before the Northern California Chapter Federal Communications Bar Association November 18, 1996 "Competition, Kids, and Convergence" It is a pleasure to visit with the Northern California chapter of the FCBA. Today, I thought I'd bring you the latest communications news from Washington. The lead story involves the recent actions of the Distilled Spirits Council of the United States. The Council is developing a plan to sponsor three hours per week of children's television broadcasting and has offered to fund Children's Television Workshop, if CTW will agree to change the name of its flagship program. Bert and Ernie would no longer live on "Sesame Street" but on "Bourbon Street." Before dinner, younger children would be able to partake of "Barney's Happy Hour." It's a whole new world. In a related development, Jack Valenti is completing industry efforts to devise a rating system to implement the V-chip. Children, of course, will be the only ones able to operate the complex new technology. They'll be able to program the television to protect their parents against shows such as Millennium (coded "PG" for pretty gruesome), This Week with David Brinkley (coded "R" for rude), and Jenny Jones ("G" for gross). Turning to business news, merger activity is continuing apace. Microsoft and AirTouch are combining to form SoftTouch. Home Box Office and Teleport are merging to become Home Port. NextWave and WorldCom will combine as Next World. And Northern Telecom, Eastern Telelogic, BellSouth, and Westinghouse will create "North, East, South, and West." Everyone, it seems, is branching out in all directions. Enough of the news, I feel right at home here in San Francisco, after spending an earth- shaking year back in Washington. For many years, Californians have worried about "The Big One." Well, from the FCC's perspective, "The Big One" hit us on February 8, 1996. The seismic shocks from the Telecommunications Act will be felt for years. The landscape has been changed forever. Some of you may be more interested in the common carrier aspects of the legislation. Others may be interested in mass media, wireless, or cable. So, what I thought I'd do is highlight a few current issues and then answer your questions. I'll focus my remarks on three areas: competition, kids, and convergence. Competition First, I want to talk about competition, with particular emphasis on local telephony. Curiously, the nation's largest communications market is also the one with the least competition. Today, incumbent local telephone companies control close to 99 percent of the nearly $100 billion local telephone market. Competition is the dominant theme of the Telecommunications Act, and ending the local telephone monopoly was the new law's single most important goal. The FCC shares this goal and has worked diligently to make it a reality. We labored for six months to produce local competition rules that will encourage new entry and fair competition. Even though key elements of the FCC rules have been temporarily stayed by the 8th Circuit Court of Appeals, I am delighted that many state public utility commissions are nonetheless following the pricing principles we adopted. Having a coherent national set of principles -- even though the actual prices will differ from state to state -- will speed competition throughout the country. I remain optimistic that the courts will ultimately affirm our rules on the merits. But I believe that considerable progress can -- and must -- be made while the appeal is pending. We have different perspectives on some issues, but I believe that the vast majority of state regulators share the FCC's and the Congress's enthusiasm for competition. Rest assured, we will also share the glory -- or the blame -- for the resulting level of competition and prices. The next year will reveal a lot about how well competition can be introduced into the local market. I want to emphasize: we want competition, but it must be fair competition, on terms that meet the legitimate needs of both incumbents and new entrants alike. We want to eliminate inefficient monopoly pricing, but not by artificially encouraging competitive entry. Correct economic signals are essential, including prices based on forward-looking costs and subsidies being explicit, targeted, and competitively neutral. That's why it is so vitally important that, in addition to the interconnection order, the Commission rapidly conclude the other two legs of the local competition stool: access reform and universal service. Only when all three elements of the "trilogy" are completed can the fairness and sustainability of the regime be assessed. While the FCC completes these rulemakings, the states are arbitrating requests for interconnection and reviewing interconnection agreements -- completing the preparatory steps for the introduction of local competition. These developments, in turn, will set the stage for the first Bell company petitions for entry into long distance. Much remains to be done before consumers can reap the benefits that Congress intended. But I believe that state and federal regulators are generally on the right track and that the benefits of increased local and long distance competition will in fact become marketplace realities in the not-too-distant future. Moreover, as I know from my participation in the WTO telecom negotiations in Geneva, our progress here can mean more competition abroad as well. Our trading partners are monitoring U.S. developments closely. Our ability to persuade them to open their markets will depend to some degree on our success in opening domestic markets to competition. Children Now I'd like to talk about several issues affecting children. A. Children's Television Act In August, the Commission finally resolved longstanding issues regarding the obligation of broadcasters to provide children's educational programming. Building on a landmark agreement brokered by President Clinton, the Commission required each TV broadcast licensee to provide three hours per week, or equivalent, of educational and informational programming. In addition, we directed that information about educational programming be disseminated, in advance, to publishers of program guides. Parents and teachers will now be able to identify the shows they want to encourage children to watch. This should help to build audiences for educational programs. Program information will also empower the community to work with broadcasters to ensure that the programs claimed to be educational really are. The requirement to provide information to program guides becomes effective January first. The three hour safe harbor becomes effective next September. The FCC rulemaking is over, but the job is not yet done. If we are to see a renaissance of children's educational programming, concerned citizens must work with broadcasters on their program choices. The public must encourage advertisers to support quality programming. And communities must persuade newspapers and program guide publishers to prominently display the listing of programs broadcasters designate as educational. I am optimistic that the new year will bring us a bounty of new shows that are both educational and entertaining. For three hours a week, let the broadcasters compete not just for eyeballs but for young minds. B. Connecting the Classroom The interests of children also figure prominently in the universal service provisions of the Telecommunications Act. There, Congress directed that elementary and secondary schools be given discounts on telecommunications services. Just ten days ago, the Federal-State Joint Board on universal service delivered its recommended decision for consideration by the Commission. I was delighted by the Joint Board's recommendation regarding discounts for schools. By a unanimous vote, the eight-member board called for a schedule of discounts ranging from 20 to 90 percent, with the largest discounts targeted to schools serving the most disadvantaged students. The Joint Board's recommendation also includes discounted access to basic Internet connections and to internal connections needed for wired or wireless classroom networking. These proposals will go a long way toward Congress's goal of enabling all classrooms to have access to advanced telecommunications and information services. The Joint Board's plan will also advance the President's proposal to connect every classroom to the Information Superhighway by the year 2000. I have emphasized the value of this program to young people, but the benefits will extend to adults as well. The discounts apply not just to schools but also to libraries. All Americans will have the opportunity to access Information Age services. During my last visit here, I saw how communications and information technology is being deployed by the San Francisco Library. I was truly impressed by the way in which the vast resources of this great library are being made available to citizens throughout the Bay Area through their branch libraries and, through the Internet, to classrooms, community centers, and homes. All this, without the time and expense of travelling downtown. My biggest fear about the growing popularity of computer and information technology has been that the cultural and economic gap between rich and poor would widen. Targeted discounts for access to communications services can help to bridge the chasm between information "haves" and information "have nots." Of course, discounts for communications service are only one piece of the puzzle. Students will benefit only if schools have the budgets needed for computers, software, and teacher training -- all of which are outside the purview of the Joint Board and the Commission. Still, the Joint Board's recommendation represents a major stride forward in preparing our children for life in the 21st century. C. Hard Liquor The interests of children are also front and center in the debate that has just erupted over advertising of hard liquor. For over 50 years, the distilled spirits industry has had a voluntary code against advertising their products on radio and TV. Last week, they repealed their code. Several broadcasters have succumbed to temptation and are airing hard liquor advertisements. This has triggered a vigorous debate over the appropriateness of such ads. Alarms have been sounded about the potential harm to children from ads designed to stimulate the consumption of alcohol. Alcohol abuse is a serious problem. It is a special problem for teenagers, who face peer pressure and do not recognize how alcohol impairs their driving ability. Many adults believe that we should not increase the exposure of children and teens to a culture of drinking. These are all legitimate concerns. The distilled spirits industry responds that beer and wine can be as harmful as hard liquor, that beer and wine are free to advertise on broadcast media, and that forbidding the advertising of legal beverages would raise serious First Amendment concerns. These points, too, must be considered. Personally, I strongly prefer that the distilled spirits industry reinstate its voluntary ban on TV and radio advertising. And, frankly, I am surprised that broadcasters would set themselves up -- yet again -- for the criticisms that inevitably will result from a decision to air these ads. I applaud the four networks and the others that have decided to act responsibly and not air liquor ads. I hope others will follow their lead. I am not ready to predict what action might be taken by the FCC, the FTC, or Congress, if these ads continue. The one thing I can say for sure is that broadcasters have it within their power to make this issue go away. Convergence Let me now turn to the issue of convergence. 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 business sectors. Last spring, we adopted 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 now we have authorized PCS providers to offer fixed local loop services, in competition with wired telephony. Meanwhile, Local Multipoint Distribution Service will offer competition to both cable and telephone companies. Direct Broadcast Satellite services are winning market share from cable, while also offering rapid downstream delivery of Internet information. In these and other areas, industry players are transcending traditional boundaries and entering new markets. At the same time, they face increasing exposure to new competition in their own markets. Convergence creates new opportunities -- and new risks -- for all industry participants. Finally, let me say a few words about digital television, which I believe will have a profound effect on American consumers. Earlier this year, the Commission proposed a DTV standard which supports both high- definition signals and multiple standard-definition channels. That standard was recommended by a broadly representative, FCC-established Advisory Committee that had worked on the matter for eight years. Computer manufacturers and some in Hollywood objected to the standard, complaining that it does not provide an adequate measure of compatibility with computers and wide-screen programming. I have urged these parties to meet and attempt to settle their differences no later than November 25. In response to my suggestion, a number of meetings have already been held. Although time is short, I believe a solution can be reached. I believe there is a lot of common ground if the parties work together in good faith. While all points of view should be considered, the time has come to press ahead forcefully on DTV. We need to settle the issue of a DTV standard this year, and resolve allotment and assignment issues early next year, so that DTV can become a reality. DTV can bring new video and interactive services to consumers, greater opportunities for broadcasters, and continued U.S. leadership in digital transmission technology. We cannot permit this issue to be delayed any longer. So, that's a quick summary of some of the hot issues we're grappling with at the moment. Obviously, I have omitted many other important matters, but I'll be happy to discuss whatever interests you.