TRANSCRIPT OF CONVERSATION BETWEEN

FCC CHAIRMAN MICHAEL K. POWELL

AND SAM DONALDSON

NAB 2001 CONVENTION

Las Vegas, Nevada

April 24, 2001

Sam Donaldson: What we were laughing about -- it was my high school
picture. I've never looked better. I'm delighted to be here. Preston
Padden has sent me, actually, to drive out all the radicals in this
room. You know who you are, so if you would just leave quietly and save
me the trouble. I see. That's what I told him, "it's going to be a tough
job, Preston." But, we're not here to talk about that.

We're here to talk to the Chairman of the FCC. You know Michael Powell.
He is a retired Army officer. He served in the Pentagon as a special
advisor. He, of course, is a lawyer who served in private practice with
emphasis on telecommunications policy. He served as Chief of Staff of
the Antitrust Division of the Justice Department. You know that he
joined the Commission in 1997, and became Chairman this year. It sounds
wonderful. But he is not a man without some critics out there. For
instance, ladies and gentlemen, I give you the man who says he doesn't
care if cable prices rise. I give you the man who says on-the-air
broadcasting may soon go the way of the dodo bird. I give you the
Chairman of the FCC, Michael Powell.

Mr. Chairman. Welcome. It's nice to see you.

Chairman Michael Powell: Thank you.

SD: We can leave the business about cable rates, I think, until later.
But we've got to start with your explaining your suggestion that
on-the-air broadcasting and telecasting may soon go the way of the dodo
bird.

MKP: For the record, I never said dodo bird.

SD: That's right. That was my added . . .

MKP: I wouldn't be caught dead using that word. No, what you're
referring to are statements I made, which I think are important when
people are willing to be self-examining and pick up on persistent trends
that are likely going to present challenges for them. It's one of the
themes that we're being quite insistent on following at the FCC. That
is, I have no idea what the future is, but I understand that I can work
hard to pick up persistent and continuing trends that are going to raise
significant questions for my business, in the form of regulation. I
think similarly for all the businesses in the midst of this great
digital and information revolution. Each year we watch a certain
percentage more Americans who are willing to pay for television. It's
just a fact. I think the current fact is 80% to 84% of Americans are
paying for one or the other of multichannel services. Broadcasting is an
important presence there, but nonetheless that trend should have
far-reaching implications for not only the regulatory paradigm, but how
people will run their businesses. And I think that it's important when
we see trends like that to be able to sit back at an early stage and say
"well, what will we need when the day arrives, if it does, that 90% or
95% or 98% of Americans are willing to pay for their news, information
and entertainment?" What will that mean for free over-the-air TV? It
shouldn't mean that it's dead, necessarily. It shouldn't mean that the
enormous value that broadcasting provides won't find a place in that
space, as well. But I do think that it's sort of naïve not to be
identifying, watching, examining and thinking long and hard about what
those trends may mean in a fairly short amount of time.

SD: So, you're talking about people willing to pay, but then you're not
talking about not using an over-the-air signal. Or are you? Are you
saying that the internet and cable will replace the over-the-air signal?

MKP: Well, I think nothing is off the table. For example, it's not
irreconcilable that people pay for things that are over-the-air, too.
You know, you look at the wireless telephone industry that's rapidly
pursuing internet pay services. I assure you they intend to make you pay
for the use of them. But, I think that there'll be any combination of
things. I don't personally believe that free over-the-air TV will ever
be dead. I think there will always be a service for that form of digital
broadcasting as we transition into digital. But I also think that, given
the new environment, you'll have to sort of understand the new and
changing behaviors of consumers and understand how you're going to serve
them in digital space.

SD: Let's talk about digital. Everyone that I've talked to says there's
not a chance of meeting the 2006 deadline to convert completely to
digital. Bob Wright of NBC as you know has said it is out of sequence.
You would never meet it. And there's the 2002 deadline to start the
digital service for television stations, although I understand they'd
keep their analog signal. If that's right, you're going to have to slip
the deadlines, right?

MKP: Well, conceivably. First of all, let me be clear about which
deadlines I own and which ones I don't. \[laughter\] I do not own the
2006 deadline. That's one established by Congress and one that has, in
itself, a trigger that will limit the consequences it would have
normally triggered -- the return of the analog spectrum. Clearly,
Congress set out that there would have to be an 85% penetration in terms
of the number of Americans able to receive the signal, or the
consequences wouldn't default. So, it has the seeds of its own
modification to some degree.

I am one of those who is pretty openly critical that the date, as
originally envisioned, will in any way be realized. And frankly, it's
quite out of sequence with, or inconsistent with, what we've seen
historically with development of other technologies and other products
of similar transition. It takes a long time to transition consumers and
consumers are going to be asked to bear a significant burden of this
transition in terms of the cost to replace sets. Some 94% of American
families have television, a lot of families average three to four
televisions, that's a long transition. We have to be sure we know what
we're going to give them before we ask them to do this. And there is a
little chick in the egg. It'll have to be sort of a little bit here and
a little bit there. But I think that one of the things you want to make
sure is that we transition efficiently in a way that consumers find the
value so they don't choke on the service in its initial rollout. I
think, unfortunately, we're potentially setting it back even further.

The other deadline is one that we have some control over. I would note
that we've had two previous deadlines already. In the top 10 markets,
the first deadline some year ago. And we have another one recently in
November of 1999. In each one of those, we've had some slippage, but
we've had a vast majority of broadcasters required to meet those
deadlines meet them. Which we're thankful for. My view is that 2002 ...
just like I talked about trends, I know what the trend lines are. I know
that when that date arrives we're going to have questions about whether
there are stations that haven't been able to meet the obligation,
whether the conditions have prevented them from doing that. We'll have
to work through that as partners, as we would in any case. I also won't
sit here and pronounce now that we're going to waive the deadline in
advance. I think it's important to keep driving toward the objective as
efficiently as we can.

SD: Well, if I understand that though, because I received an email from
someone that owns two small stations to be sure and ask about this,
because if . . . first of all, I don't have the money to come to the
convention and second, we don't have the resources now to meet that 2002
deadline. It sounds to me like you're saying to that small station
owner, "not to worry, we're not going to put you out of business, if in
fact it makes sense to let you have a little more time."

MKP: Well, I would say you don't necessarily have to worry that we're
going to be unreasonable when taking those kinds of things under
consideration when that day comes. But I do think you have to worry
because it's an expensive transition that the industry is committed to.
And, ultimately, that station and everyone else are going to have find a
business model, the case for the investment, the approach that's going
to provide value to consumers in a way to allow them to function in a
healthy way in the new digital environment. So, I think it's a real
serious challenge. I think the government part is only one part of it,
but trying to make sure that you find the business that's going to be
adequate to sustain oneself in the digital environment is the bigger
question -- one to which I would say to that broadcaster, "you will need
to probably do some worrying."

SD: A little worry. But let me press you some more. Because I think this
is a big issue, here. You, yourself, brought up the fact that there's a
marketplace out there. At the moment I don't have the figures, but it
must be very low the number of sets in use that can receive digital
signals. How can you ask stations, or how can they be asked to put it in
the passive, to meet this kind of deadline if their customers really
aren't prepared to accept the signal? And in that connection, are you
exploring the possibility of requiring manufacturers . . . it has to do
with the fact that there aren't digital sets out there to receive this
signal which you're going to require stations by the year 2002 be able
to send.

MKP: Well, the reality is the transition has hundreds of variables --
any one of them could disrupt the pace of the transition and the
efficacy of it. The broadcasters have a substantial part of the
responsibility, consumer set manufacturers have a significant part of
the responsibility. The regulatory model has a significant part of the
responsibility. Congress, consumers, whether people have carriage on
cable systems or DBS systems ultimately ... All of that is going to go
into the soup of whether this transitions well or not. Part of my view
is that, all of that when looked at soberly is why you understand that
maybe the timelines are quite aggressive. With that said, it's a little
. . . I guess we say that's the chicken and egg problem. Some people do
have to drive in the form of leadership. Any in many ways it was the
great work of broadcasting that invented high definition television. It
took the lead. It took a leadership role with the government in driving
the policy that would facilitate the transition. And I think that they
sort of nobly will stay at the lead and will need to be out front in
terms of being able to ensure that there's a distribution platform for
content providers to write to, for consumers to tune into. And I assure
you any one of those groups ... I go to all the conventions, I can sit
at the electronics show and the question will be, "Well, how can you ask
us to do that if they won't do that first?" The question is, everybody
has to keep moving. We have to try to keep this whole thing moving in
this sort of fashion. And I think that broadcasters have always taken a
leadership role. They've asked the government to have confidence in
their leadership role, and I think they're going to continue to meet it.

SD: You're a great believer in the marketplace, and the marketplace
forces. But in the marketplace forces that we've been talking about,
there may be some losers.

MKP: There are always losers. I mean the test of your principles are
when they yield results that are difficult to stomach. But principles
are not designed for the moment. They're designed for the long-term
general welfare of the population. I often get asked questions on
television and they say well, you're for market and consumer groups say
that means you're anti-consumer, and I find that to be the most
ridiculous thing I've ever heard. I don't know of another economic
system in the history of the world that's produced as much consumer
welfare for its citizenry as American capitalism has. You name to me the
state central plan system that better served the maximum consumer
welfare of its citizens as the free market did in American stock
capitalism? I think that's the penultimate conclusion of the end of the
20^th^ Century that not only did democracy prevail, as a social value
and political value, but the capital economy prevailed as the leading
environment for the welfare of citizens and for the ferment of
innovation and revolution. Bill Gates and the great innovators -- many
of them in this room -- can only be born in this sort of environment.
And I think that we sometimes are cynical about these things for the
wrong reason. And you're right, sometimes markets fail and sometimes
government needs to step in. I have no problem with that at all. I also
think that sometimes it visits unfortunate circumstances on different
parts of the population. I'm not always happy and comfortable about
that. But that doesn't mean, to my mind, that you suddenly revise the
principles, change the paradigm, dramatically for what happens on the
ends of the spectrum of the main effort. And I think that this area,
more than any, can demonstrate its successes in the use of markets more
than you can demonstrate the successes of rules that were intended to do
the same.

SD: While we're talking about consumers, let's move on to that other
famous quote, which I also may have mangled, but you can correct it.
Which is a Powell quote that you don't really care if cable prices rise
for the consumer.

MKP: Do you care? I care about a lot of things.

SD: Does your heart bleed?

MKP: But what I've learned about you is ... reporters, when they report
this stuff, they never report the question. And the question to me on
that statement was, "do you think they've risen to justify
re-regulation?" No. Not to my mind they don't. Do you care? Yeah. You
know what, I'm one of the people who pay this additional expense. I care
quite a bit. But whether I think it's the order of magnitude that would
justify regulatory or governmental reintervention, absolutely not. And I
think that . . . you know, one of the things I'm finding is that people
have short memories about environments that have only recently been
passed. This is not a cable show, but if one were to look back at the
health of cable companies at the height of regulation, and looked at the
staleness in innovation and the prices you were paying for limited
services, I do not believe that you would make an objective case that
that was a better environment than the one that exists today. You just
couldn't make that. But we forget about that in the current time frame.

SD: Well, let me play the devil's advocate on this. A Mays, a Fritts, a
Donaldson, a Powell. We can . . . another few dollars a month, we can
pay that. A lot of people, it may be the margin.

MKP: Let me tell you something I'm extremely proud about. At the FCC,
you really do have a front seat at the revolution and our portfolio is
enormous. We operate in the area of television, cable television,
wireless telephony, regular telephone service, satellite service,
aspects of the internet. Every one of the services which I work with is
the most price-competitive of the kinds of utilities provided to
Americans in the world. Whether it be free -- in the form of television
-- average cable rates don't even come close to comparing to what you
pay for gas or for electric service. My electric bill is by an order of
magnitude higher than my phone bill ever is or ever will be an order of
magnitude higher than my cable bill, and certainly television.
Certainly, my wireless phone is cheaper than my air conditioning
services. So, yes, in a market where prices are part of the fluctuation
that calibrate services, there are prices where people can't pay and
prices where people can. But the truth is, despite what everyone wants
to talk about, by isolating a price in almost every one of my sectors
that I just described, we're talking about 90+ percentage penetrations
for American consumers. Here's an interesting statistic -- more
Americans in this country have television than have indoor plumbing.
\[laughter\] That's an absolute truth. Now that's saying something. . .
That is value \[laughter\]

SD: Let's move on to another interesting subject. Does the phrase "35%
rule" mean anything to you? Read my lips.

MKP: It does to them.

SD: Yes, indeed. So, what about it? What are you going to do? You're
evaluating it now a court has sort of said . . . you've got to take
another look at this?

MKP: Well, at the moment I think it's in a holding pattern because the
court said it's going to take another look at it, and apparently it's
going to take a hard look at it. For those of you who may or may not
know, the 35% national audience cap for broadcasting, which has been
around for quite some time, is before the United States Court of Appeals
for the DC Circuit. CBS Viacom actually sought a stay in the context of
their merger for having to divest stations which would have put them
over the cap. The court recently issued a stay, which means that we are
prohibited from requiring them to comply with the condition until the
court has the opportunity to rule on the cap. Many people see that as a
grave sign for the life of the rule for two reasons. The first is not so
many weeks ago the court struck down horizontal limits in the cable
context -- potentially signaling sort of similar skepticism about this
rule. Secondly, for those lawyers in the room who do know this, others
may not, but a stay, part of the condition is likelihood to prevail on
the merits. So in the court's judgment, not only is the harm potentially
irreparable, such that it doesn't want the action to go forward, it has
made already some judgment that there is a likelihood to prevail on the
merits of the petition.

SD: If I may interrupt, it's even non-lawyers now who know that rule.
You recall the Saturday that the Supreme Court stayed the counting in
Florida . . .

MKP: Well, that's true.

SD: . . . on the likelihood that George W. Bush's petition would win on
the merits. And, indeed it did, 5 to 4. Go ahead.

MKP: So, that's where we are. My own view is I think that we will need
to see in a way what the specific guidance is that comes out of that
ruling. Because any examination of the rule that we might do is going to
need to fit within the confines of whatever the court says, just as our
attempt to revalidate the cable rules are going to have to fit squarely
within the context of the courts.

SD: But, if anyone looks at your record and listens to your words this
morning and all of the other times you've spoken -- again, as a free
market guy, as someone who believes that these forces out there are the
best way to have the system work -- it seems to me that deep down in
your heart you'd like to do away with this rule.

MKP: Well, for people who know me, too I don't pre-pronounce anything
I'm going to do until I've actually examined the proceeding, have a
record and have some basis to make an informed opinion, and not make it
on the basis of just hyperbole and discourse over the value of rules.
But I make no secret . . . I'm skeptical, generally, including of this
rule, of the straight, prophylactic prohibitions on ownership or reach.
My experience with them both in antitrust and in this context are that
they almost always are poorly calibrated and impossible to actually
calibrate. That is, they always catch people you wish they wouldn't, and
they always don't catch some people you wish they would. And yet, you
have this sort of absolute rule about it which I think doesn't always,
as its predicted to, really average out the balances. I think it's very
difficult if you talk about concentration to make broad pronouncements
about how much is too much, in a rule-like sense, as opposed to more
case-specific evaluations.

There's a reason, for example, that the Sherman antitrust statutes are
case-by-case examinations. The antitrust division would never attempt to
declare in advance that no automobile company could own more than 35% of
the automobiles on the road at any given time, because even in
antitrust, a monopoly is not illegal all by itself. It's what the
effects of that concentration are. And so rules tend to have a tension
there. I also think that, which I think is what's gotten the court's
attention, when you're talking about media space, you're talking about,
speaking of the First Amendment, entanglement with that value. That is,
think about the way the national ownership cap is written. I know on the
local level there are real reasons why people are concerned about the
relief of the cap. The cap says you can't talk to any more than 35% of
the national audience -- you can't talk to them. You can own as many
stations as you want, depending on what your reach is, but you can't
talk to more than that many Americans. And there is something somewhat
offensive to First Amendment values about that sort of limitation. I
think that's what the court is intrigued by and I think that's going to
be the substance of their examination.

Now, the third thing there . . . one -- the First Amendment upper limit
on what you can do, and secondly my view that rules like that are not
good for concentration purposes ... the third is the one that's the
hardest, which is this value of diversity ... the idea that we like
multiple voices. We like localism. We like the things that are produced.
We recognize that there's tension that if you didn't have such a rule,
you might have an increasing nationalization of broadcasting outlets.
And that's something we have to think about and reconcile. On the other
hand, you have some dimensions of that already with larger and larger
radio groups, larger and larger television groups who then themselves
have new kinds of market power. All of that's to say that's why we will
look at it. That's why we'll get a record and see what we can do.

SD: Well, Congress has now lifted the cap on radio ownership. Do we have
enough experience yet to know whether that's made any difference? Radio
really . . . the bulk of stations come down to two large companies
anyway, without that.

MKP: That's interesting. I don't know if we do or don't. It depends on
what we're focusing on. I think that you could objectively examine what
the effects are on advertising rates and markets to see whether you
think, in an antitrust sort of sense, the markets become too
concentrated. And I think that that's principally the efforts of the
antitrust division of the FTC in examining. Secondly, though, whether it
has an effect on the diversity of the medium is really the question that
most occupies the Commission, I think. And here's where it really just
gets hard. We don't know, exactly, and we've never had an effective way
to exactly measure that. I could say somebody has so many stations, but
does that mean, on it's face, its less diverse? I think we have enough
experience to say, no, not necessarily. Just like . . . not necessarily
. . . if each and every station was owned by very different owners, it
doesn't necessarily mean, from the perspective of the consumer, that
there's actual diverse choice either. I think that people argue about
what kind of diversity they like. The only kind to me that seems to make
sense and has a legitimate role in government is the kind that consumers
perceive. I don't have as much interest as some as to whether this
wealth class or that wealth class gets to own property, in and of
itself. But I do think there are values associated with who they are and
how much they're concentrated from a consumer's perspective. There are
even theories that suggest that with some level of concentration, you
get more diversity given that an owner who is trying to maximize
eyeballs or maximize years will try to program in a way that captures
the most amount of those interests as possible.

One thing I do reject is that I don't think that there isn't a
commercial motivation for diversity. I believe pretty strongly in
diversity. I just reject the idea that the only way you get it is by
government fiat, or that a programmer or a station owner themselves
don't have a bottom-line, selfish, greedy, Adam Smith invisible hand
reason to serve consumer interests. And I don't know that I think
television or radio would look that different with the rule or with
market dynamics. And I just think we have to be ready to test those
propositions.

SD: All right. Let's talk about low power FM radio. A lot broadcasters
don't want to see these stations take away from them, particularly if
they're in the margin, some listeners. What's going to be the bottom
line?

MKP: Well, right now the bottom line has been established by Congress
which is we have been required by statute to conduct a pretty exhaustive
technical examination of low power FM. That, as the statute seems to be
written, would require real world experiences. That is, not just
laboratory testing of the potential interferences, but some actual
demonstration in the context of real and operating stations. Congress
also reversed the Commission's judgment about what level of spacing
protection will be required and so licenses that are issued will be
issued with third adjacency protection instead of second, which was the
original determination. The ultimate effect of that, as everyone knows,
is that there will be many fewer of them that are possible to license in
that context. So, in many ways, we're just going to follow through on
what we've been told to do. Which is, right now we are in the process of
completing the letting of the contracts for purposes of the technical
examinations. Filing windows have been opened on the service, and we
will ultimately have stations that are in operation to which the
Congressionally mandated test can be applied. And we'll see where we end
up.

SD: Let's talk about the internet and broadband -- two interrelated
subjects -- but perhaps some separate questions there, too. The
internet, at the moment, is proceeding in an almost completely
unregulated fashion. You don't even charge sales tax on it. Do you see
the day when the Commission will step in and begin trying to make
regulations concerning activities on the internet? And, what about the
off-shore quality of this medium?

MKP: That's a great question. Let me speak not as the FCC, but "the
Government," the way I think it will roll out. The first is, it's a
mischaracterization in some ways to say the internet is not regulated.
The internet rides on an infrastructure that I assure you is very
heavily regulated. The telephone line that you use to dial up your local
ISP with 56K is heavily, heavily regulated. The terms and conditions of
compensation between your internet service provider and the telephone
company is heavily part of the regulatory environment. The backbones on
which long-haul internet traffic is transported is in the hands of the
largest long-haul telephone companies, in essence, with the U-Net,
PCINet, Sprint's network, AT&T's network, the global network -- all are
a part. And architecture matters in the new environment. That is, the
regulatory conditions over architecture have a direct impact on the kind
of services that will ride over the top of the layer.

What isn't regulated is content, in essence. And I think that that's the
thing that should always stay unregulated or the burden should be
extraordinarily high as to why to regulate it. I make the same argument
just as passionately about television, or any other medium that has a
platform that puts content over the top of it. Yes, the difference there
is sort of the internet is the golden regulatory child. Which is,
Congressmen and regulators are falling over themselves to prove that
they're the most committed to not regulating the internet which, in
effect, really is not just less regulation it's actually an implicit
subsidy an implicit subsidization of internet commerce. When you say
that other goods in the society are taxed but those on the internet
don't, I wouldn't call that unregulated. That's actually, in a way, a
subsidization of this growth. You're not subjecting it to the rules of
other similarly situated things. Many of our rules that govern
compensation could be characterized as implicitly subsidizing ISP growth
and services.

I think that that will largely stay the same because I think the
economics of internet architecture are very price aggressive. That is,
in their normal operation in the market, there are services that get
driven to cost very aggressively. See NASDAQ. And sometimes they get
driven under. But the economics are very, very good in the internet
space. I mean, without any government price subsidies, like we do in
telephones, you know the average person pays anywhere from \$9.95 to
\$19.95 for unlimited internet access, even getting on anytime, any
where. And, in some cases, you even have free access. So that's pretty
price-competitive. As long as the economics, I think, maximize consumer
welfare in that way, the government won't be overly invited to
intervene.

But here's the part we shouldn't lose sight of. The revolution may have
changed digitalization and technology, but it didn't change the human
machine that much. That is, your eyes have the same band width level,
our human relationships are similar, the way we hear is similar. The
internet will be all of these wonderful things, but it's also going to
be all of the bad things we don't like in society. It's not just going
to be a library, it's going to be a crime scene. And it's going to be a
place where pornography is transited. It's going to be a place where
people are defrauded and their money is stolen. I assure you, as this
service becomes more ubiquitous, and people become increasingly
dependent and trusting in it to their liability, they will cry out to
their governments and others when these things happen to them. If your
bank account vanishes one night, I assure you you're not gong to want to
hear me say, "well, let the markets work. It's all okay." "Sorry."

SD: What about content? Let me stop you right there. Have you logged on
to nakednews.com?

MKP: I have not.

SD: Well, I just wondered.

MKP: I just read about it.

SD: I wonder what the Commission's position would be if they suddenly
got a raft of letters from a particular community saying an over-the-air
telecaster was doing naked news, in which the news starts with a young
lady completely clothed, but by the end the young lady . . . I have
logged on only for research purposes. . . \[laughter\] At the end, the
young lady standing frontally nude to the camera, making no lewd
gestures, but standing there frontally nude and finishes reading the
news. What would the Commission say about that? Let all flowers bloom?
\[laughter\]

MKP: I know your ratings are low, but don't go there. \[laughter\]

SD: As I said to a group yesterday, even in my prime, it would have been
a terrible site. But, it's a serious question. You just said you're
going to have deal with it if my bank account vanishes. What if I'm
horrified when my children see this. Because you've just said on the
internet all these things are happening, maybe at some point people
would cry out to government.

MKP: I don't think the Commission probably, given who they would be at
that time, would like that. I don't think Congress would like that. I'm
not so sure the public would like that. But here's the interesting
thing, which is, I think as we move forward and have a proliferation of
medium where people can go for news, entertainment and information, who
have very different regulatory environments. . . and by the way, this is
where I get most passionate about the First Amendment, different First
Amendments . . . if I wanted to do something about this on broadcasting,
the First Amendment and its jurisprudence might let me. If I tried to
stop this on cable, it probably wouldn't let me, or it would be a close
call. If you tried to stop it on the internet, you would lose. The
Supreme Court of the United States, the very one that sometimes seeks to
sanction the greater intrusion in broadcasting, voted 9 to 0, without
question, on the communication indecency act when it moves to the
internet. There is a phenomenal sort of tension between the firebreak
they have drawn on the First Amendment rights on the internet space and
what they've historically done in the context of broadcasting, I have a
whole theory about it's the clerks who are internet savvy who write the
opinions.

You know, the great cases of the 70's, when the court was dealing with
obscenity, you know the whole story about these folks going down to
watch dirty movies and the clerks, you know. . . but this really is --
this is something the court has staked a flag and said "We're going to
master the internet. We're going to guard it." When the government
starts playing around and what comes over and we're going to be pretty
aggressive. I mean 9 to 0 liberals and conservatives alike. So, but you
know, my 12 year-old increasingly . . . his world is a seamless world. I
mean, I hate to tell you this, but I don't think any of my children
would know what broadcast is versus anything else they watch. I don't
think that they even make that many distinctions between their Nintendo
and the computer. They're just experiences to them. And they are
becoming fluent in how to achieve them. And I've watched my child get on
Napster and I've watched them go to . . . you know, the thing that I
like watching is they buy the video games, then they go on the internet
to find how to cheat on the video games. You all know this. My 6
year-old searches the internet for all the codes to break the game so he
can play at the levels. And to him, that's all part of the sort of
seamless way he's entertaining himself. And the TV is on at the same
time. So, as a parent and as a regulator and as a government policy . .
. I can talk about drawing these firebreaks. Like this world we'll keep
clean. The reality is that society, you understand, has to start to
adapt to the fact that, just like I wish I could, but I can't, my child
walks out into the real world every morning. And you know what? I'm not
capable of keeping him from the multitudes of ways he learns things.
What I find is, me trying to draw that break is not what works. It's
getting in touch with his life, knowing what he does and being able to
be a trusted voice to him so that when I say "not this one," he'll
believe me. Trust me, I've listened to more Dr. Dre rap than I care to,
trying to know what attracts him. And I have to yield on things I
wouldn't want to yield on. Not because I don't like them, but he does
and I've got to have some credibility. It's not so different in
regulation, really.

There are times where I think as a society we're going to want outrage.
We're going to say, "that's enough." But I think that if we want the
moral high ground and credibility to do that, we can't nit-pick at
things that are silly, because you know someone can just do the exact
same thing with no transition possible. And so, volume matters. And
where you make your noise and where you take your stand matters.
Nakednews -- I don't know.

SD: Recently you know that a man was arrested in Paris suspected of
shooting Dr. Schlepin, one of the doctors at an abortion clinic in
upstate New York. And concurrent with that, not in the same day, the
Ninth Circuit Court ruled against the idea that a website which targets
these doctors puts a "Wanted" sign under their picture and that they are
committing crimes against humanity and should be brought to justice.
That's free speech, according to the Ninth Circuit. I guess as a
preamble to listening to what you say, Mr. Chairman, about today's
fast-paced life and mores, the courts and how they have, and the
Congress, looking at this with heavy emphasis on the First Amendment.
That that old faded blue book, which talked about the public interest
convenience and necessity and Red Lion Case and all of that. I should
just tear that up -- hmmm?

MKP: I think they tore it up already.

SD: As a regulatory issue.

MKP: I don't want to get too philosophical. One, it still does exist in
the regulatory structure. Not the blue book, but to be candid, we still
have rules that go to indecency and obscenity. We still have rules that
go to things that are inappropriate in television. We still have
policies that we advance that are designed to create a wholesome balance
of programming for children and in other contexts. We don't . . . we're
not in this nearly as intrusively as the Commission once was. I think
that's a good thing, frankly. Because I don't know that three of five
unelected representatives with no direct accountability to the people
should subject the world to their value choices just because they hold
the stick.

But the First Amendment, and in a free society, this stuff gets tricky.
You know, when I was in Moscow I was also deeply hurt that the Klan can
march in the street in Mississippi and that's the First Amendment. Well
you know what? To me, that's the most offensive thing, the most scary
thing, that I ever have to witness. But my Constitution says they get to
do it. Or the Nazi marches in Skokie and the First Amendment says they
get to do it.

Now, what I've always understood the framers' brilliance to be is the
First Amendment will have, like any rule, will be over-inclusive and
under-inclusive. There'll be times when you wish you'd make an
exception. But we will tolerate those things in exchange for the
enormous value and the enormous benefits to society of the rest being
permitted. And I could play this game all day. I can find plenty of
things that I will be outraged by.

But then, as a rulemaker, what I'm always frustrated by is I'm the guy
who's got to go back and put the pen to paper. I'm the one who . . . you
know, I can be a critic too, but at the end of the day, what's it
supposed to say? And how do I not catch stuff that shouldn't get caught.
At the end of the day, one of the reasons that I restored my faith in
the First Amendment, because I'll be honest with you -- a month ago I
hated it -- it's an irony you know. In the other context of First
Amendment theory, there's a liberal notion. Somehow in TV the liberal
notion's been the exact opposite. It's okay for Skokie, but it's not
okay to let a broadcaster show what they want.

But at the end of the day we have to be careful. Because I don't think
that it's easy to draw that line, and you have to remember who is doing
the drawing, that when your government starts telling you about which
messages it prefers you see and which ones you don't, I think that's
what kept Thomas Jefferson up at night.

SD: You clearly stand with the late Justice Marshall who said, "The
First Amendment says no. It doesn't say no but, no maybe, no sometimes.
It says no." Let's talk about spectrum. You've got an auction coming up
. . . one of many and once delayed. Gonna make some money? Gonna auction
off the spectrum? Still using it, but it's all right. How are you going
to handle that?

MKP: How are we going to make the money?

SD: Well, no.

MKP: You know, spectrum is enormously challenging. I think this is the
area that probably gives me a headache much more than any because,
particularly in this period of extraordinary intervention and
technological advancement that increasingly is making really robust and
reliable use of airwaves as a platform, the demand is dramatically
higher than the supply and supply being only constrained, in essence,
not by the technology, in my opinion, but by the commitment to protect
against people's uses and interference. Just like the LPFM example. At
third adjacency, this many. At second adjacency, that many. I mean,
where you draw the technical interference standards are critical to
whether you can satisfy demand and whether everybody is happy with their
services.

Let me say something about auctions. I believe deeply and strongly,
though I don't know if everyone agrees, auctions have nothing to do with
money, in my opinion, for the government. I pretty much reject the
notion that you should intertangle budget policy and monetary policy
with communication policy. Auctions are outstanding because they're an
excellent way to efficiently distribute licenses and airways to people
who value them the most. As the government, I'm not a business. I don't
really care that much if I get \$5 for it or \$17 billion for it. I know
the budgeters do. But, that to me is not a principle consideration in
the way I look at spectrum issues. Because I think when you start
entangling that objective with policy, you can cause real problems. For
example, we are going to wrestle with Congressional mandates to auction
spectrum that people in this room own. We're going to auction encumbered
spectrum. How valuable do you think that's going to be to people? And,
even if they buy it, there's going to be some period of uncertainty
about who is going to use it, and how they're going to work out these
arrangements. That problem is a consequence of looking to these things
as a way of increasing revenue -- not because they're the smart
communication policy. And to give you another example, Europe is going
to crush itself over what it paid for third generation wireless
spectrum. And it paid too much and it wanted the money. And a company
like British Telecom is sitting on \$35 billion of debt with no service
and no customers and it's not clear whether some of these huge companies
are going to come out. Somebody pointed out to me how dramatic that was.
For the same amount of money you could have wired every home in England
with fiberoptic cable. So, when the money, when the billions, becomes
the stars in your eyes of communication policy, that can be a big
mistake. One that I try to hope that we avoid.

SD: See, I don't know enough about the issue to even ask a follow-up
question on this. I'm sure . . .

MKP: I tried to take it that way.

SD: He's cleared very smoothly over what you guys really want to hear
about. I said, when we talked about the Internet, we talked about one
side and broadband was another side, although they are interrelated. The
Telecom Act now, you believe, has opened the floodgates to now an
increased speed and rapidity of going to broadband. What is your
prediction, looking into the future as far as human eye can see?

MKP: I don't like to talk about it, frankly, in terms of broadband or
not broadband. They are all relative terms. What we're talking about is
whether you'll be able to be delivered using certain protocol, voice,
video, entertainment, at a level that is perceptible to your senses as
real time.

SD: It's watchable, if I may, sir.

MKP: It's watchable. And what's interesting is . . . I think this is
fascinating because a lot of people don't think about something as
simple as how fast can your eye calculate visual images. It turns out
that that is a demonstrable number. But some people would have you
believe you need extraordinary amounts of bandwidth that the eye will
never be able to take advantage of anyway in a given strain. The ears
can only hear at certain kilohertz, at the range limitations. Getting
back to first principles, like flesh and blood, what people can, and
will do is really going to be critical as to how much these services,
... it's the Guttenberg bible or it's a fancy experiment for a
technophile. But I think we get really euphoric about the technology for
its own sake, without thinking long and hard about what it means for
people and how they change your life. Which is really the only factor
that will determine the robustness and the value of its future.

Now that said, I think it is here to stay. And when I say "here," I
think it's a confluence of two extraordinary revolutions that have
finally come together and gotten married. One is the communication
revolution that was begun with the telegraph and telephone and the basic
use of electromagnetic spectrum to transmit images and messages. And
that has grown and matured. The phone system is the most extraordinary
engineering experiment in the history of the world with beautiful
reliability and it's extraordinary. But it's very mature. It's really
sophisticated tin cans and string, just the way it was when it was first
introduced. But the other revolution is a microprocessing revolution,
with the silicon chip and the transistor and Intel's production of fast
processors on silicon wafers. And then Microsoft operating systems
software. These two things have sort of been coming at each other for
the better part of the century and they've slammed into each other --
finally. And processing power, now being brought to bear on information,
can then actually process information. So I can call you and now maybe I
can call you in English and it comes out French. Because the computer
can be involved in the communications.

And this coming together is embodied in what I think the Internet is.
The Internet is the first explosion of a product that took processing
power and transmission power and blocked them together in this
enormously powerful thing. I think we are not even in the first inning
of what that means. But that's going to mean average consumers on a mass
market level being somehow able to access communication medium at rates,
enough not to take advantage of it, ... Broadband. That's coming. It's
going to come. It is unstoppable, in my opinion. The only question is
how long will it take and what will it look like. Because even in the
almost three and a half, four years, I've been at the Commission, I've
watched things people told me couldn't be done already commercially
deployed. Oh you can't do broadband over satellites, ever. Except
companies are now offering that service to consumers. You couldn't do .
. . the wireless technology will never be an effective substitute for
telephone service, except kids are rapidly getting cell phones and
putting away their . . . and then there's . . . I haven't said this in a
while. There's the thing we haven't been introduced to yet, while we're
sitting here having breakfast, somebody's in some garage making. That's
maybe the thing that makes this thing explode and we haven't even had
the slightest inkling of it. That's the mushy part that's exciting. You
couldn't have . . . you know, I'm a student of technology history and
what amazes me is that the great inventors are always the heretics. The
first time Einstein sat on a stage and talked about quantum mechanics,
he was booed off the stage by the leading scientists of the age, except
he was right. There's a tendency for us, as Gilder would say, to tilt at
monsters. These things, when they first come, look like heretics.
They're disrupting the paradigm. You put them back in the box and get
rid of them. But I think you haven't seen that fourth thing yet. I think
that fourth thing is probably what's going to take this thing into the
mainstream of people's lives. And it's not my generation. It's no one in
this room's generation. It's our little kids. And my 6 year-old already
freaks me out with the degree to which . . . this is just his world. He
was laughing about me because he saw my record player the other day and
had no idea what it was.

SD: On that note . . . . Chairman Powell, we're out of time. This has
been a great conversation. We thank you.

MKP: Thank you, Sam.