The Progress & Freedom Foundation
"THE GREAT DIGITAL BROADBAND MIGRATION"
December 8, 2000
Good morning. It is a pleasure to be with you this holiday season. I applaud the Progress & Freedom Foundation's ambitious effort to develop and offer a prescription for FCC and communications policy reform.
In the wake of the 1996 Act, the FCC is often cast as the Grinch who stole Christmas. Like the Whos, down in Who-ville, who feast on Who-pudding and rare Who-roast beast, the communications industry was preparing to feast on the deregulatory fruits it believed would inevitably sprout from the Act's fertile soil. But this feast the FCC Grinch did not like in the least, so it is thought.
It is undoubtedly appealing to see the government as the Grinch who stole Christmas as telecommunications companies still scurry around the marketplace looking for their colorfully-clad presents. I submit, however, that something more profound is occurring that cannot be simplistically cast as poor implementation of the 1996 Act. Instead, there has been a dramatic change in the climate and conditions in which communication "life-forms" exist. FCC and communication policy "reform" is not the question. Instead, the real questions are revealed by opening our eyes to the great exodus from legacy business models, legacy technical infrastructures, and legacy regulations.
I would conceptualize our challenge as a great migration. A migration is defined as a movement from one place, region, or country to another with the intention of making permanent settlement in a new location. A migration leads to more rapid diffusion of cultures, tools, habits, ideas and forms of organization.
Ancient migrations shaped the world we live in today. The invasion of Palestine by the Hebrew tribes (which developed the ideas on which the Jewish, Christian and Islamic religions are founded) had a significant impact on Western civilization.
More recent movements have advanced science, realigned our politics and demographics, and altered our economy. European migration to the United States during the World Wars, the Great Migration of African-Americans from the South to the North, and migration from rural areas to industrial areas during the great depression, all profoundly altered the character of our nation.
Today, I want to speak to you about a great migration that is having a similarly profound effect on the communications industry and on our society as a whole. It is not a movement of people, though it will change how people live. Rather, it is a fundamental shift of technology—the arrival of "disrupting technologies" (in the words of Clayton Christensen, the author of Innovator's Dilemma). And it is the unleashing of the power of "creative destruction," the phrase coined by the late great economist Joseph A. Schumpeter, who is celebrated more and more as the father-figure of the New Economy. Schumpeter saw that technological change "incessantly revolutionizes the economic structure from within." Rather than talk of "reform," a relatively pedestrian, incremental notion, we need to consider the Schumpeterian effect on policy and regulation. That is, what are the implications of "creative destruction" economics on economic-regulatory policy.
Before I move to the great technological migration that is occurring today, let me say a word about the 1996 Act, which is a very important catalyst of change, but should not be seen as the end of the journey itself. In other words, our challenge is not simply the faithful implementation of the statute, but one that requires us to use the principles of the statute to adapt to a more dramatic shift taking place in communications.
III. THE 1996 ACT: THE FIRST STEP
The Telecommunications Act of 1996 was a remarkable and important shift in telecommunications policy. Its purpose was to move from a regulated monopoly model of telecommunications to a deregulatory competitive markets model. The Act's preamble declares that its purpose is to "promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers."
The 1996 Act is focused principally on deregulation and the move to markets. It is not a technology statute. It was not a direct response to the tectonic shift in communications technology that was only beginning to be felt in 1996.
Rather, the 1996 Act is best understood as an important change in legal and economic thinking that helped ignite what I call the Broadband Digital Migration. As to the law, the Act, at its heart, is a political compact between local phone companies and long distance carriers to end the Modified Final Judgment, and the oversight of telecommunications markets by Judge Harold Green, stemming from the historic divestiture of AT&T. The most sweeping provisions of the statute deal with the terms and conditions for Bell Operating Company entry into long distance markets, and the terms for new entrants, principally long distance companies, to enter the local markets.
On another dimension, the 1996 Act represented a changed economic judgement. For nearly a century, we regulated the telecommunications industry on the assumption that phone service was a natural monopoly and that the public was best served by a single regulated carrier. This promoted the objective of a universal, seamless, low-cost network. Though there had long been some erosion in the natural monopoly thesis, and increasing experimentation and interest in competition, the 1996 Act was a seminal and resounding declaration of faith in competition.
There are parts of the statute that recognize growing technological convergence, but they offer only modest guidance for regulation in the converged digital era. For example, the statute opens up some previously prohibited cross-market competition and Section 706 commands us to "encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans." But such provisions are best understood as providing a commitment to remove regulatory barriers to competition and promote pro-competitive measures, rather than demonstrating a more fundamental understanding of the degree to which technological change is revolutionizing communications markets and policy.
Furthermore, the statute left unchanged the balkanized regulatory treatment of different technologies and industries that existed in the Communications Act of 1934. Our greatest challenges today at the FCC are definitional. With increasingly converged services it is difficult to rationally label and, thus, assign regulatory treatment to an innovative provider, product or service. This graying diffusion of the legal structure, smudged by technological change, is at the forefront of the challenges facing policymakers. A clear example is the continuing uncertainty over how to treat the multitude of services that can be bundled over high-speed cable plant. Just as quantum theory challenges the physicist to deal paradoxically with quanta that simultaneously exhibit the characteristics of particles and waves, the policymaker is faced with services that are, at once, different legal constructs.
At the time of drafting, there were proposals for a Title VII that would recognize converged communications services more fundamentally and offer specific guidance as to its regulatory treatment, but the Congress rejected the proposal, not yet seeing how cracked and unstable the current foundation would become.
Do not get me wrong, the 1996 Act is a critical force that in many ways split the atom, unleashing much of the power and potential that is now represented in the market. Law and policy, however, must now ride the torrent and adapt to the new conditions. These new conditions are unfolding and are just beginning to crystallize.
IV. THE DIGITAL BROADBAND MIGRATION
As I have said, the 1996 Act is a critical piece of legislation. It set the foundation for deregulated competitive markets, which are essential for innovation and technological change. But, rather than looking back and measuring policy progress by its literal terms, we need to focus ahead toward the far-reaching transformation of the Digital Broadband Migration.
This remarkable movement is not a direct response to a legislative, or regulatory policy change, but is instead driven by technological breakthroughs or as John Chambers would say "inflexions." In contrast to the market changes that flowed directly from the1996 Act, this time it is policy and law that is going to have to respond to more spontaneous changes in the market.
Let me say a word about the key cylinders that combine to create the enormous horsepower that is driving change—change so disrupting and fundamental that we rightly recognize that we are in the midst of a revolution as profound as the agricultural and industrial revolutions.
In actuality, the quickening, almost frenetic pace of change results from the confluence of two separate technological streams: The first is the century-and-a-half old communications revolution. The second is the computer/micro-processing revolution.
Communications technology has its roots in the basic laws of electromagnetism that were brilliantly codified by James Maxwell in 1878. His basic mathematical principles gave birth to a host of communications developments. The invention of the telephone by Bell in 1875 and deployment of the first public telephone network in Connecticut in 1878. The move to the airwaves over radio made possible by the efforts of Marconi in 1898. And the invention of the television by Baird in 1926. These technologies shaped telecommunications policy and gave birth to the Federal Radio Commission in 1927, and the FCC in 1934. As remarkable as these analog technologies are, the missing ingredient in these communications systems is processing. Digital systems, as compared to analog, allow one to work with and manipulate content. Information processing, and its promise of an information revolution, needed another ingredient.
That ingredient arrived in 1958 when Robert Noyce and Gordon Moore created the integrated silicon chip, following on the work of William Shockley who had invented the transistor in 1948. The company they founded was Intel. Intel really broke the computing barrier in 1974 with the 8080 chip that was virtually an entire computer on a single chip. In 1977, Apple gave us the Apple II, and the desktop computer was born. This all unleashed a chain reaction of faster and cheaper chips embodied in the now famous principle of Moore's Law. Add memory (which evolves even faster than the micro-chip) and software and you have the final ingredients of the Information Age. Computer systems working in parity with communications have spawned the Internet and the advanced networks we see today that fully integrate satellites, telephones, wireless devices, broadcasting and cable over fiber-optic, broadband, and wireless networks. The result is what we now call convergence.
Convergence is not just a technological phenomenon. Given the technical underpinnings, we see the collapsing of previously distinct markets and competitors. Convergence is radically altering economic assumptions and underlying cost structures. It is changing the game of capital formation and altering business models. The culmination of these changes is what I am referring to by the Broadband Digital Migration. The challenge for us is to make a similar leap from analog-rooted regulations to ones that are applicable and relevant to the digital environment.
We are clearly and dramatically seeing the dust rising from a multitude on the move. Species migrate both to seek more favorable environments and to escape hostile ones. Such can be observed in the Broadband Digital Migration.
Much of the rush to the broadband digital world is prompted by the promise of greener pastures. Companies are seeking the benefits of cheaper and more efficient infrastructures, though deployment comes at great cost. The markets are in search of greater material gain from that infrastructure by offering more services over it and by bundling those services for consumers. Moreover, The Promised Land holds out hope for entirely new markets and new innovative services.
But, people also migrate to escape hostile conditions and we see such movements in the Digital Broadband Migration as well. Consider the adverse conditions that often trigger flight from one's homeland:
V. THE POLICY CHALLENGE OF BROADBAND MIGRATION
We need an agenda that is reflective of the Broadband Digital Migration. I offer just a few starting points.
Since I started this way, let me conclude as Dr. Seuss might this holiday season:
So it's time to awaken from our dreams with a pinch,
though I might quibble with Whos down in Who-ville that think we're the Grinch.
But to those who do, I would sing with full range
that we CAN, WILL and MUST adapt to this change!
Leaving the past will cause pain we all feel,
but it's change that even the FCC cannot STEM, STALL or STEAL!
We need to rapidly join in this technology migration,
then we can all bask in the glow of a very thankful nation.
So packing our bags and catching up with the times
is a perfect jumping off point for ending this rhyme.