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"The Emergence of Convergence"
remarks as prepared for delivery
Deborah A. Lathen, Chief, Cable Services Bureau
Federal Communications Commission
Strategic Research Institute
July 22, 1999
Introduction and Context
The Emergence of Convergence
- 1999. The end of the twentieth century. Innovation,
information, and technology are the order of the day.
- The year 2000. The beginning of a long-awaited new
millennium and the dawn of a new day in information and
- My friends, we are indeed living in interesting times in which
challenges and opportunities abound not only in the United
States, but throughout the world.
- I don't know about you, but I am excited, encouraged, and
energized by the promise of what is to come. The fact that I
have the opportunity to play a small role in this historic process
is humbling, and I look forward to the challenges ahead.
- I have had the good fortune to serve as chief of the FCC's Cable
Services Bureau for almost a year now, and what a year it has
- In the U.S. alone, we have been witnesses to what many are
calling a "Cable Renaissance".
- An industry once thought to be on the ropes has rebounded with
an economic vigor that is fueling phenomenal growth and strong
- While the cable industry has been on a steady incline, it seems
that the last year has been especially dynamic.
- In addition to the internal changes occurring within the cable
industry itself, we have come to recognize the potential of cable
technology as a vehicle for the delivery of voice and data.
- As a key component of a broader revolution in communications
technology, cable is in the forefront of the new wave of
advanced communications services otherwise known as
- I believe it is important to recognize the historical significance
of where we are in the communications continuum.
- The current revolution in communications and expansion of
technology is as important to our lives today, as the invention of
the Gutenberg press was some five hundred and fifty years ago.
- Johannes Gutenberg's printing press was arguably the single
most important invention of the millennium. It led to sweeping
social, economic and cultural changes across Europe, and
throughout the New World, facilitating the Reformation and the
Age of Enlightenment.
- The dissemination of the printed word influenced art, literature,
philosophy, and politics. The very foundation of society, as it
was known then, was rocked by the rise of an informed middle-
class. No longer could people be kept in the dark.
- The printing press re-created the world by shifting paradigms of
information dissemination and communication among masses of
- As we stand on the doorstep of the new millennium, we are
poised to witness the creation of new technologies that will in
our own time, contribute to equally important paradigm shifts.
- At the very core of all of these changes is what I call the
"Emergence of Convergence".
- Convergence has become a major market force. More than
mere consolidation, we are seeing entire industries converge.
AT&T is no longer just a telephone company, it is also now one
of the world's largest cable companies. Cable companies are
providing high-speed Internet access. Power companies are
seeking to provide a variety of communications services.
- We see traditional broadcast networks and cable networks
establishing web sites, providing content to supplement their
- Technologies are converging as well. The development of cable
modems and DSL technology will introduce us to a world in
which all communications modes video, voice and data are
readily accessible and conveniently bundled. DSL is broadband
over the telephone lines.
- The digital age has brought us phones that can be used to check
e-mail and computers that can be used as phones.
- Markets are converging. The rapid growth and expansion of
communications technology is leading to a decentralization of
traditional economic markets throughout the world.
- We now have a tremendously inter-connected global economy,
where currency fluctuations in Asia can have serious
repercussions on the American stock market. It is a market
where physical borders and distance are becomingly
Broadband is in its Infancy
- As this New World unfolds, the development and effective
deployment of broadband technology becomes ever more
- Rapid dissemination of information. Global communication in
an instant. The ability to reach billions of people inexpensively
and efficiently. This, in part, is what the new communications
technology means to us all.
- High-speed access to data, video and telephony will affect the
way we live, the way our children will be educated, the way we
receive entertainment, and the way we do business.
- It is this technology that best reflects what convergence is all
about, and where we see the most stirring developments in the
- The prospect of seamless convergence of voice, video and data,
available in our homes, virtually on demand also is fueling
massive capital investment in related industries.
Cable State of Affairs
- Communications technology is being developed at a speed that
defies comparison. To put it into perspective, it took radio 38
years to reach 50 million people. It took television 13 years and
personal computers 16 years. It took the Internet only 4 years to
reach 50 million people.
- In February 1999, the FCC released its Section 706 Report on
the Deployment of Advanced Services to Congress. In that
report, the Commission concluded that advanced
telecommunications capabilities are being deployed to all
Americans in a reasonable and timely manner, and that no
regulatory intervention is necessary at this time. This finding
was based, in part, on the nascent nature of the market
- Last year, about 100,000 homes had cable modems. Today,
there are over 1 million cable subscribers who receive Internet
access via cable. But this is just a fraction of the over 30 million
American homes that are online.
Role of the Regulator
- The cable industry is squarely at the center of the convergence
trend. Fifty years after its birth as a solution to television signal
problems, cable technology has emerged as an important
platform for a new digital world.
- It is a platform that holds the promise of ushering in a
competitive and robust marketplace where multiple players
compete to provide a wide range of advanced services.
- Developments in cable technology are already pushing the
envelope of competition. Where cable modem service has been
introduced, DSL has followed.
- For instance, in May 1997, At Home launched service in
Phoenix; four months later, US West launched DSL there. That
same month, At Home began offering service in San Diego;
soon thereafter, Pacific Bell began offering DSL. In June 1998,
At Home entered Denver; that same month so did US West.
- Today, the cable industry is strong. Some analysts have cited
cable as "Holding the Keys to the Kingdom" meaning in their
view that it is the only industry in position today to offer
multiple advanced digital services voice, data, video to the
- If stock prices are any indication, shares of cable stocks have
risen about 50% so far this year, as compared with 10% for the
The Cable Bureau's Mandate
- Given this state of affairs, in this market, at this point in time,
the obvious question becomes what is the role of the regulator?
What should we be doing at this critical juncture?
- Well, aside from our statutory mandate, which I will talk about
in a few minutes, I believe we have at least three major
- First, we have a responsibility to ensure that advanced services
and technologies are actually built and deployed. Keep in mind
that most Americans are not yet tuned in to this broadband
world. Therefore, our focus must be on deployment.
- Second, we have an obligation to ensure that deployment of
advanced services is conducted in a manner that benefits the
broadest number of Americans.
- In that respect, we must be mindful of the "digital divide' we
have heard so much about the gap between the information
"haves" and information "have nots" in our society, and the
chasm between blacks and whites, Hispanics and whites, and
rich and poor in the use of basic and advanced technology.
- Third, in our efforts to ensure that the largest numbers of
Americans are benefiting from advanced services, we must be
careful not to promote one technology over another as the
- In other words, our actions as regulators must have a neutral
effect on the type of technology that is to be deployed.
Balancing Public Policy Interests
- The Cable Bureau's mandate also has changed from the not-too-
long-ago days of wholesale rate regulation.
- As the communications paradigm has shifted, so too has the role
of the Cable Services Bureau.
- When Congress passed the 1992 Cable Act, it mandated that
cable rates be regulated. The CSB was formed in 1993 to
implement these goals. It was a bureau born of regulation.
- In adopting the Telecommunications Act of 1996, Congress
mandated a pro-competitive, de-regulatory national framework.
- The 96 Act mandated the deployment of advanced
telecommunications and information technologies and services
to all Americans by opening all telecommunications markets to
- Thus, although our mandate has become decidedly deregulatory,
we are still charged with protecting the public interest.
This concludes my formal presentation. If time permits, I would
be happy to update you on some of the pending matters that might
be of interest to you.
- In light of these policy directives, we as regulators have a
careful balancing act to perform. We must promote the opening
of markets and the deployment of new technologies, on one
hand, and we must carefully protect the interests of consumers,
on the other.
- First and foremost, our role is to promote and protect the public
interest. The central mission of the Cable Services Bureau is one
which puts the interests of the consumers first. At every stage
of every decision, we must ask ourselves is this in the best
interest of the American consumer?
- Second, as new technologies are deployed, we have a special
obligation to ensure that no one is left behind.
- The recent report by the National Telecommunications
Information Agency (NTIA) on the digital divide demonstrates
both promise and peril. We know that at the end of 1998, over
40% of American households owned a computer, and 25% of
these households have access to the Internet.
- But we also learned that households with an income of $75,000
are twenty times more likely to have access to the Internet than
households at lower incomes. Whites are more likely to have
access to the Internet from home than blacks and Hispanics have
from any location. And rural Americans are half as likely to
have access to the Internet as urban Americans earning the same
- Our success will be measured in both economic and human
terms. We will be judged by the number and diversity of
Americans who enjoy access to advanced information and
- Third, our policies must continue to promote competition by the
elimination of barriers. Our approach must create the conditions
to allow investors to invest in a competitive market where
competing technologies such as cable modems, digital
subscriber lines, terrestrial wireless, satellite and others, provide
consumers with real alternatives.
- If we believe what analysts say about our approach so far, then
it has been successful. A recent report by the FCC's Office of
Plans and Policy noted that the government was instrumental in
creating the Internet and preserving the competitive
environment that allows it to thrive today.
- However, the study reminds us that this was accomplished in a
- Fourth, and finally, our regulatory action cannot favor one
technology over another, nor can we pick the winners and
losers. That role is more appropriately left to the marketplace.
- Similarly, while we should not act prophylactically or
prospectively, we must maintain a constant vigil over the
direction of market events and trends.
- As new technologies alter the communications landscape, we
will be ever vigilant to prevent the creation of bottlenecks that
block free and fair access to essential facilities.
- 550 years ago, Gutenberg's printing press was the engine
fueling the Age of Enlightenment.
- Today, convergence in the communications sector promises to
usher in a new era of development, but this promise will not be
fulfilled if investment is stifled.
- Two weeks ago, I convened a Monitoring Session to discuss
open access with 6 top Wall Street analysts who follow the
telecommunications, cable, satellite, wireless and Internet
- 5out of 6 agreed that the FCC's policy of restraint is correct.
They cautioned that regulation of the Internet would stifle
- They also cautioned that we must continue to monitor the
market to ensure that a proprietary system does not evolve.
- Finally, they expressed concern over the mushrooming of local
legislation in this area, and encouraged us to do whatever
possible to maintain a national policy.
- Why do we care about what the investment community has to
say about these issues? We care because we want the public to
have these services. And we recognize that the U.S will be
looked to as a role model for global precedent on this important
- Thus, we are seeking the views of all the major stakeholders and
- I look forward to hearing from each of you on how we, as
policymakers, can achieve that objective.
- As we look down the bright and promising path, we want to
follow a policy that will ensure that all Americans have the
opportunity to access the best technologies, services and
information in the new Information Era.
I would like to thank the Strategic Research Institute and
particularly your co-chairs Frank Lloyd and Stephanie Richards for
inviting me here today
There are at least three:
Mergers and Consolidation
- Our approach to mergers under review;
- Horizontal Ownership and Attribution Rules; and
- Our concern about local legislative activities on broadband.
Horizontal Ownership and Attribution Rules
- As many of you are aware, AT&T and MediaOne recently filed
their merger applications with the Commission. We will be
issuing a Public Notice tomorrow, inviting comments on the
- While I cannot comment on the substance of this pending
proceeding, I can assure you that we take very seriously our
obligation to analyze this merger to determine whether it serves
the public interest.
- Our public interest standard is a flexible one that encompasses
the "broad aims of the Communications Act."
- These broad aims include, among other things,
(1) the implementation of Congress' "pro-competitive, de-
regulatory national framework designed to . . . open all
telecommunications markets to competition,"
(2) "preserving and advancing universal service," and
(3) "accelerat[ing] rapidly private sector deployment of
advanced telecommunications and information
technologies and services."
- The statutory standard we must apply necessarily involves a
balancing of the potential public interest harms against the
potential public benefits from the AT&T/MediaOne merger.
- Thus, we will test, for example, the reality and scope of AT&T's
claimed merger benefits of accelerated deployment of local
phone service and provision of the full bundle of phone, video,
and advanced services for consumers, in competition against
- We will explore the effects of AT&T's post-merger size and
deployment efforts on the relevant markets, particularly in the
broadband area. Mr. Armstrong has stated that AT&T wants
"open access" to its cable systems for competing Internet
services providers. We will examine closely what Mr.
Armstrong means when he says "open access."
- As part of our review, we also must examine the merger's
effects on the implementation and enforcement of the
Communications Act and federal communications policy.
- We therefore will scrutinize the application of our cable
horizontal ownership rules to AT&T's diverse ownership
- Section 613 of the Communications Act requires the
Commission to establish a limit on the number of subscribers a
cable operator may reach nationwide.
- The Commission has voluntarily stayed our horizontal
ownership rules pending the D.C. Circuit's review of challenges
to the statute and our rules.
- Our current horizontal ownership rules prohibit any person from
reaching, through owned or attributed cable systems, more than
30% of all homes passed nationwide by cable.
- We currently are reviewing these rules and plan to issue an
order in the next few months.
- Our rulemaking aims to serve the statutory purposes of (1)
ensuring that no single cable operator or group of cable
operators can become "media gatekeepers" by virtue of their
large size, while (2) recognizing the efficiencies that a cable
operator may gain through large size, and (3) adjusting the rules
to reflect the dynamic nature of the marketplace.
- We also are revising our cable ownership attribution rules to
better capture interests that confer on their holders the ability to
influence or control entities subject to our rules. We plan to
issue that order in the next few months as well.
- As you know, the Chairman has instructed the General Counsel
to prepare an amicus brief for the 9th Circuit Appeal of the
- The prospect of inconsistent rules and regulations promulgated
by 30,000 local regulatory agencies does not produce a
predictable regulatory environment.
- We have a national policy. It is a policy of vigilant restraint and
monitoring of the marketplace to ensure that the Internet
remains open and free and that it will continue to flourish.