It is a great pleasure to join you again at the Consumer Electronics Show -- my second in as many years. Gary, you have put together a terrific exhibition.

Digital convergence has arrived. The consumer electronics industry is in the midst of an exciting transition. So is the FCC.

Ours is due to a move. After decades at 1919 M Street, the FCC is finally moving its headquarters -- an event that has taken longer and has had more twists and turns than the introduction of digital television.

As I left Washington, D.C. last evening, I closed my office door for the last time. On Monday, my colleagues and I will be working from our new home in a building called the Portals.

Over the past 30 or so years, many decisions of critical importance to the consumer electronics industry were rendered from 1919 M St., including the introduction of mobile telephony, paging, mobile satellites, spectrum for unlicensed devices...and yes, digital television.

The Launch of Digital TV

There are few transitions now underway that will have a greater impact on the American consumer than television's historic shift from analog to digital technology.

How far have we come?

A year ago when I addressed CES, we were still ten months away from DTV being a commercial reality. After years of hard work by so many people, would the launch of broadcast DTV be successful?

Well, the launch was a success. By the way, Gary, I know you are good, but how did you get NASA to schedule the shuttle launch to coincide with the launch of broadcast digital television? Many Americans will remember John Glenn's historic return to space as the first time they saw DTV. That's awesome.

In the days immediately following the launch, there was a string of announcements from stations around the country. Forty-two stations -- almost double the number that originally volunteered -- announced plans to commence DTV broadcasts. Twenty-eight stations in sixteen cities from Hawaii to Boston are on the air with final operating authority, and several others have experimental licenses.

Notably, it's not just the biggest players in the biggest markets that are among the DTV vanguard. A number of stations in medium and smaller markets -- cities such as Columbus, Madison, Charlotte, and Honolulu -- have decided that digital is the way of the future, and that early introduction is the best way to embrace that future.

So we have reached a milestone -- DTV is real, it's in the market, and consumers are interested.

Industry Cooperation

Before we turn our attention to the next set of DTV milestones, we should recognize that the launch of DTV has been the result of remarkable cooperation and coordination among different industries.

• Television stations have made required investments. They've built towers, installed transmitters, and purchased new equipment;

• Cable operators have expended billions of dollars to upgrade their systems to offer digital programming;

• Broadcast and cable networks have begun to make DTV content available;

• DBS providers -- digital from inception -- have made early commitments to provide nationwide high definition programming;

• Equipment suppliers have developed professional products and are helping station engineers install, integrate, and operate new equipment;

• Consumer electronics manufacturers have delivered the first generation of DTV receiving equipment;

• Computer industry members have positioned computers to receive and display digital television broadcasts, and to offer interactive content with broadcasts;

• Retailers -- together with manufacturers and programmers -- have arranged exciting educational displays and events to introduce consumers to DTV.

We at the FCC have continued to do our part, as well:

• We are addressing tower and antenna siting issues, working collaboratively with broadcasters, DBS providers, and local governments to expedite DTV operations and to ensure that consumers can receive video transmissions;

• We are coordinating with our counterparts in Mexico and Canada to approve digital frequency assignments whose signals spill across national borders;

• And as I promised last year, we have adopted DTV implementation rules including channel allotments, interference rules, and streamlined construction permit processing.

In short, it took a collective effort to enable a successful broadcast DTV launch. I congratulate all who labored on this historic lift-off.

The Challenges Ahead

As we enter the first full year in which DTV is a commercial reality, it is useful to be mindful of the challenges that remain. Broadcast DTV has just cleared the launch pad, but there's a long journey ahead.

Our goal is to achieve widespread acceptance of digital television.

It is incumbent on industry to spark the demand for DTV. DTV may radically change the way people use television. But we should never forget that consumers must do something to get DTV -- they must buy a new DTV receiver or decoder box, or subscribe to a multichannel service that will provide DTV signals.

Who better than this audience understands the importance of sparking demand for DTV? The amazing products displayed on the convention floor are testament to the creative efforts to develop, design, and market products that resonate with consumers.

Marketplace competition has spawned a wide range of DTV approaches by manufacturers, from component television receivers to new ideas for feature-rich set-top boxes. Truly, you have the ability to spark demand for DTV and to respond effectively to consumers.

But the consumer electronics industry cannot do it alone. As I noted, industry coordination was needed to launch broadcast DTV service. Even greater cooperation among these industries -- broadcasters, cable and DBS operators, programmers and service providers, Silicon Valley, consumer electronics manufacturers and retailers -- is necessary if you are to win the hearts and pocketbooks of consumers.

Each of these industries is successful only if it attracts consumers. As I will discuss momentarily, there are still significant open issues among industry players. But if each sector focuses squarely on what is best for the consumer, these issues can be resolved expeditiously.

In order for the conversion to digital television to succeed, you need a critical mass of consumers who have access in one form or another to DTV. And it is the symbiotic relationship between these industries that will provide the marketplace for consumers to decide.

Conditions for Success

There are three conditions driving consumer adoption that I will be monitoring closely as the first full year of DTV unfolds:

• Digital equipment must work well as intended and be compatible with other television services equipment;

• There must be compelling content; and

• Digital television must be affordable.

  Let's look more closely at each of these factors:

Consumer Equipment Must be Compatible

First, consumers need to be educated about the benefits and new capabilities and limitations of digital products. They will demand choices in digital television products and services. And they will demand compatibility and simple "plug and play" interoperability.

Consumers want complete solutions and -- quite frankly -- most don't want to know the details of 1080i vs. 480p; or "5C" vs. XCA copy protection; or 1394 vs. component video connections. They just want sets that work, that are easy to use, that are affordable, and that are compatible with current and future choices in video entertainment.

If consumers have a lot of trouble getting a signal -- or accessing their preferred sources of programming -- they will be turned off to digital television.

I'm therefore encouraged by the efforts of retailers to assist early adopters to achieve the best possible over-the-air reception. Antenna reception issues must continue to be addressed. In addition, DTV receivers must be designed to maximize receipt of quality, interference-free, over-the-air DTV signals.

DBS signals are ubiquitous. I applaud the commitment of DBS operators to provide programming in high definition. Now consumers throughout the country, in towns large and small, can sample high definition and enhanced digital programming. It's not just the top ten cities anymore. I also want to see all fifty states -- not just the lower 48 -- have access to DBS.

DBS subscribership is growing at a healthy pace. But DBS would be an even more attractive option for consumers if its subscribers could easily receive local signals, including local DTV signals. That's why I am heartened by the availability of DTV receivers with integrated DBS capability, and I encourage all of the industry groups to work with Congress to resolve copyright and other issues so that local signals can be retransmitted by DBS.

Some observers believe that DBS's superior picture quality has spurred cable operators to make digital upgrades. Consumers will benefit from this emerging digital foot race, which likely will involve cable, DBS, broadcasters as well as video-capable computers.

Cable system compatibility with digital broadcasting is a critical component of a smooth transition to digital. Over two-thirds of Americans rely on cable to receive local stations.

Consumers should not have to choose between their digital television sets and cable. In any event, early DTV adopters are likely to be among a cable operator's most valuable customers -- and attractive prospects for DBS operators as well. These early adopters will demand access to DTV programming, including broadcast DTV signals. So it is in the best interests of cable operators to resolve rapidly the compatibility issues.

I'm therefore pleased with the recent efforts of consumer electronics makers and cable operators to resolve the many compatibility issues. The recent agreement on a baseline IEEE 1394 standard was completed swiftly -- a clear demonstration of inter-industry cooperation.

I also understand that the industries are collaborating on specifications for digital cable-ready sets. Cable-ready sets must be available as a choice for consumers who just don't want to be "boxed in." I want to hear from our next panel on the topic of cable compatibility solutions, and in particular on the outlook for digital cable-ready sets.

And I also believe that it is not enough that cable subscribers merely be able to receive local digital signals. By cable compatibility, I mean that consumers should be able to receive broadcast signals as they are transmitted. And all of the features of a digital set should work, including new digital services such as program guides.

Time Warner and CBS recently agreed on a signal carriage method that will not degrade broadcast DTV signals. I applaud Time Warner and CBS, and I hope other cable MSOs and broadcasters will follow suit.

These and other recent developments indicate a growing willingness of industries to recognize their mutual interests and work together -- cooperation which is essential for the smooth transition consumers want and need. And when the consumer wins, we all win.

Compelling Content

The condition driving consumer adoption is compelling content. Programmers and entrepreneurs are hard at work developing new content and creative services. What will be the "killer apps" of the new DTV medium? Will it be widescreen, high-definition movies for viewing on home theater systems? Will it be "enhanced" TV that integrates video and the internet? Will it be new services as yet undiscovered? Only the market will decide. But industry must work together so that these new services can be delivered and put to the test of market acceptance.

Copy protection is one particularly vital issue that must be resolved. High-value content in high-definition will be key to consumer enthusiasm for digital television. And conversely, the lack of a copy protection solution could stymie delivery of compelling content, and slow the transition.

I know that the members of our next panel have differing views on how to address copy protection, and I am very interested in their perspectives on how this issue can best be resolved -- for consumers.

Affordability

The third and final condition driving consumer acceptance is affordability. Digital television must be affordable if consumers are going to embrace the conversion to digital. Manufacturers have sizable R&D investments to recover, and there certainly will be a market for high-end DTV equipment. But I am very encouraged to see some of the low-cost options on display here at the CES show such as Thomson's "all format DTV decoder" box.

In particular, a vital element of the DTV adoption process could be products that allow consumers to take an incremental approach to DTV. Lower priced products such as digital-to-analog set-top decoders or DTV cards for personal computers could allow consumers to test the DTV waters in ways that deliver benefits such as improved picture quality on analog sets.

This could lead to additional purchases, such as DVD players, digital receivers, or HD displays -- once their appetites for DTV have been whetted. Widespread consumer familiarity with DTV means a bigger market opportunity for all of the industries involved in the transition.

CONCLUSION

To succeed, the conversion from analog to digital must be driven by the marketplace -- not by government. But government does have a role to play in fostering a fair and open market environment.

Therefore, in 1999 I hope the FCC will continue to work to ensure a smooth deployment of DTV. We should poke and prod, jawbone and cajole, and shine a light on inter-industry problems that are slowing the progress of delivering the benefits of DTV to consumers.

We should closely monitor the critical role of the cable and DBS industries in supporting the DTV transition. We will complete our pending rulemaking on cable carriage and related issues.

We will track the progress of inter-industry efforts to develop standards for equipment compatibility, copy protection, and next-generation DTV services.

And we eagerly anticipate the innovation that you will deliver. If industries cooperate, the result will be equipment compatibility, bringing choice and compelling content, at affordable prices.

Given the promise of digital television, I am confident that the consumers will be there.

Thank you very much for the invitation to address this super session. I look forward to an enlightening panel discussion of what to expect from the next generation of DTV products.