MICHAEL K. POWELL

Commissioner

Federal Communications Commission

Before the

42nd Annual MSTV Membership Meeting

Las Vegas, Nevada

April 6, 1998

New Regulatory Thinking

(As Prepared For Delivery)

Good morning. It is a great pleasure to have this opportunity to speak
to the 42nd Annual MSTV Membership Meeting. I noticed that you have
yourselves on a pretty tight time schedule this morning, so I will keep
my remarks brief.

Let me start by thanking MSTV and you, its members, for your continuing
efforts to make digital television a reality. MSTV has been there since
the very beginning of this effort, working to ensure that television
makes a smooth transition into the digital era. I personally found
MSTV\'s efforts in the latest round of digital television decisions at
the FCC particularly helpful. You worked not just to inform me and my
staff of problems, but to suggest workable solutions. And, while the
Commission did not do everything that MSTV suggested, I believe that the
decisions we reached are good ones that will allow the television
industry to take this technological leap forward.

As we contemplate that leap, it seems somehow appropriate to me that we
are here in Las Vegas \-- the city of chance. You have to admit, this
transition is a really big gamble. You are gambling that the American
people will embrace digital television and put their money on the table
to buy into the game. And, I suspect that there are more than a few
sweaty palms in this room, worrying whether this bet will pay off. Worry
or not, however, there is no turning back, the cards are on the table
and it is time to turn them over.

The broadcast industry, like every other aspect of modern communications
has been forever altered by the advent of digital technology. Digital
technology has liberated information. Information of all types (voice,
pictures, video and text) can be encoded, transmitted and decoded by
tiny microprocessors with an efficiency never before imagined.
Information is no longer constrained to any particular means of
distribution and can be manipulated in an unlimited number of ways.

What are the full implications of a digital world? First and foremost,
digital means even greater technological convergence. There will be more
similarities in the production and distribution of entertainment,
information, and telecommunications than differences. No matter who you
are and what you want to communicate, you will do it in basically the
same manner as everyone else that does it.

While digital convergence will homogenize communications infrastructure,
it will not mean sameness in product. By making information infinitely
malleable and distributable, digital technology gives those who design
and use it the broadest possible palette with which to develop and
showcase their creativity. It unleashes infinite possibilities for new
and innovative services. This new technology also promises to usher in a
new level of intimacy with the consumer. In the world of television,
where the consumers relationship with the TV is described as couch
potato culture, digital will bring into the home a more sensory
stimulating viewing experience, where the viewer can hear, see and
almost touch and taste action on the screen as if actually there.
Consumers do not know the complexities of binary code and broadband
technology or what all this digital hub-bub is about. It will be
broadcasters who bring it to life for the Joneses, and the Smiths, and
the Wilsons.

Convergence will also mean more competition. Because of the infinite
flexibility of digital, traditional market barriers will crumble. For
you in the broadcast industry, it opens up new programming options and
offers new ways to compete with other medium. The quality of DTV and the
capacity it affords may allow broadcasters to compete more effectively
with cable and DBS, and even information services. Across the board in
the communications industry, providers of traditionally distinct
technologies and services may now cross into new markets and attack each
other with a panoply of applications and services.

Convergence may even change the United States Constitution. The growing
convergence of technology will not allow us to continue to maintain two
First Amendment standards, one for broadcasting and one for every other
communications medium. The sameness that convergence does produce and
the exponential increase in capacity that digital allows is making it
impossible to maintain that broadcasting is uniquely undeserving of full
First Amendment protection. It is just fantastic to maintain that the
First Amendment changes as you click through the channels on your
television set.

Convergence is also going to drastically change the FCC and
communications regulation as well. We must adapt the regulatory regime
so that it looks forward into the digital future and not backward toward
the analog past. There are a few truths about regulating in the era of
digital convergence that we must take to heart:

[First]{.underline}, it is futile to attempt to preserve the balkanized
regulatory framework that presently exists. The dramatic evolution of
technology will erode and ultimately eliminate the legal, economic and
conceptual boundaries that traditionally have separated the various
communications media. Thus, we need to be bold and decisive and
undertake strategic, persistent efforts to eliminate these boundaries.

[Second]{.underline}, we have to accept that the changes ushered in by
the digital revolution are inevitable. Even if we were so inclined, we
could not stop the march of technological change. This truth counsels
for humility. We policymakers should not arrogantly maintain that we can
control the destiny of digital technology. We may shepherd change, but
we must not make the error of thinking we can engineer it.

[Third]{.underline}, we must acknowledge that we cannot accurately
predict what technologies and services will ultimately prevail in the
marketplace. Regulatory history is filled with examples of failed
predications about technological progress. Remember that there were
those who thought television was a fad and the color television sets
would be too expensive to become truly popular. The truth of
unpredictability counsels restraint. We should not dare to pick
technology winners or losers, whether consciously or unconsciously,
because we will assuredly be wrong more than right. I have a Betamax VCR
in my basement to prove it.

In large measure because of these truths, regulatory policy in the next
century must be marked by (1) regulators yielding to competitive markets
as the means for allocating communications resources; (2) a greater
focus on policies that promote innovation; (3) deconstruction of the
categorical regulatory scheme in which what law you are subject to is
dependent upon how you send your message; and (4) regulatory efficiency.

Consider the fruits of competition and innovation. I note that over the
past week or so, different networks have announced that they will adopt
different high definition television formats. ABC is going with 720
progressive, CBS and NBC are going do use 1080i. It seems to me that
this is technological competition at work. American consumers will (and
must) be able to experience different formats and react. In other words,
there will be choices made by consumers in the market, rather than
regulators in Washington. I believe we should let this play out. This
competitive event will likely produce significant innovation in the
quality and nature of the offerings available to the consumer. The
consumer will be the winner.

If regulators attempt to intrude on these types of decisions, I fear
that the consequence will be to stifle innovation. Innovation has
consistently been responsible the most significant advances in the
communications marketplace. There is nothing like feeling the hot breath
of a competitor on ones neck to drive you to find new and creative ways
to stay ahead.

Let me focus for a moment on regulatory efficiency. We must (1) make
timely decisions; (2) be sensitive to business realities and capital
markets; and (3) shift our efforts away from prospective regulation
toward enforcement. Let me elaborate

> **1. Timeliness**

Technology is an impatient master and cannot wait long for regulators to
reach decisions. Technical innovation and the capital markets abhor
uncertainty and demand timely responses. A decision by the Commission
that is right, but too late, might as well not have been made at all. In
the Army, we used to implore combat leaders, \"Damn it, right or wrong
do something! You can be killed just standing there.\" Companies would
rather cope with an adverse result than watch their business strategies
deteriorate in the face of regulatory uncertainty. This is not a time
for the timid or casual regulator. The advance of innovation continues
in leaps and bounds. In the computer markets, Moore\'s law holds that
the maximum processing power of a microchip, at a given price, doubles
roughly every eighteen months. We would be well advised to adopt the
urgency that Moore\'s law suggests in all our endeavors.

> **2. Business and Market Sensitivity**

In this fast-paced competitive environment, regulators are going to have
to be sensitive to the variables that go into business decisions and the
factors that affect the flow of capital. We must take account of the
variables that inform decisions by company executives, such as the
returns on investment, the cost of capital, and the efficiencies and
synergies of choices. Only by understanding these variables can we make
thoughtful choices about how to satisfy national goals in a manner that
is consistent with competitive and economic principles.

Of growing significance is the degree to which our decisions affect the
flow of capital. Innovation is extremely dependent on this spigot
staying on. If we are slow in our deliberations or ambiguous in our
pronouncements, we will introduce uncertainty into the marketplace and,
consequently, expose those who invest the capital that drives the
economic engine to additional, unnecessary risk.

> **3. Shift to Enforcement**

Another way that we can make regulation more efficient is to shift our
resources from prospective regulation to enforcement. Communications
regulatory agencies like the FCC have historically allowed companies to
operate in certain market segments and to take action, only by the grace
of prior approval. This process has often been resource-intensive and
time-consuming. A prospective regulatory approach had more viability
when dealing with monopolists and oligopolist, but quickly loses its
currency in a dynamic market that cannot afford the costs of this
process in money or time. Antitrust law, however, illustrates an
alternative approach \-- one that emphasizes vigorous enforcement,
rather than prospective regulation.

Communications policymakers should look to enforcement as a means to
protect the public against certain harms without hindering companies
from entering new markets that lie outside their traditional regulatory
boundaries. Also by doing so, we will cut down on the speculative
predictions that characterize many of our deliberations presently.
Rather than imagining all the dangers that might result if we let a
company do what it has asked and then take equally speculative action to
meet those speculative dangers, let\'s instead police conduct and make
decisions based on real facts. If there are \"teeth\" in our enforcement
efforts, companies will take heed or pay the price.

The Commission took a step in this direction just last week in the
Notice of Proposed Rulemaking to streamline broadcast regulation.
Historically, the Commission has engaged in prophylactic regulation of
broadcasting \-- carefully scrutinizing application before allowing
construction or modification. The process has often been
resource-intensive and time consuming. The proposal we put out for
comment flips the emphasis. We propose to rely on certification and
subsequent enforcement, rather than pre-screening.

In closing, let me simply urge you to roll those dice and move head with
the digital era as quickly as possible. For my part, I will pledge to
work for a regulatory framework that will facilitate rather than hinder
your efforts.