**Keynote of**

**Jonathan S. Adelstein**

**Commissioner, Federal Communications Commission**

**Progress and Freedom Foundation**

**12^th^ Aspen Summit**

**August 20, 2006**

\[As prepared for delivery\]

Thank you Ray for that introduction, and for your leadership at PFF over
the years.  I'm pleased to know that you will continue to share your
scholarship and insight with us from Denver.  It's great to be with so
many business leaders, scholars and policy makers to share information,
analysis and what you call "informed speculation."  So, I guess today's
my turn to engage in some informed speculation of my own.

To kick things off tonight, I want to share with you my perspective on
the proper role of the FCC during a challenging time of technological
transformation in the media and entertainment industries.

Since "freedom" is literally PFF's middle name, I'll discuss these
policy challenges from the perspective of freedom: free speech and free
markets \-- issues PFF cares about a lot. I won't talk about free
services, because that makes a lot of you nervous. When talking about
these freedoms, I will discuss how the FCC's statutory obligation is to
balance market forces against sometimes competing social needs and
obligations \-- the public interest.

It sometimes seems like regulators and people in the private sector
speak different languages and do not understand each other's roles and
responsibilities. In simple terms, businesses seek to maximize profit,
while government officials are expected to promote the public interest.

From my perspective, the public interest includes significant
consideration of our greater economic *and* social welfare. As the needs
of our technological society become increasingly complex, members of the
public and private sectors must work together as never before to solve
problems. By doing so, businesses will profit, and consumers will
receive better services and products at competitive prices.

At my first confirmation hearing in 2002, I testified I generally
preferred market-oriented solutions over government mandates when the
markets function properly \-- and competitively \-- and when government
intervention is not necessary to promote the public interest.

In most circumstances, in the absence of market failures, it's best for
the government to refrain from acting intrusively. Under other
circumstances, it's best for the government to tread carefully, and
impose an appropriate regulatory solution. In those instances when
overriding issues of central importance to America's democracy and way
of life are at stake, a strong government role can be necessary.

Today, I would like to reflect on some key issues we are dealing with in
the context of the proper role of government, and where restraint is
appropriate in the absence of market failures or public interest
considerations. There are four key issues I will focus on that are at
forefront of our agenda and recent headlines. We've heard from PFF on
them. They include multicast must-carry; á la carte pricing; media
ownership; and of course, indecency.

On three of these issues, I believe the FCC should show more restraint
than some have advocated. On media ownership, I continue to believe its
central importance to our society merits a strong, continuing government
role.

[Multicast Must-Carry]{.underline}

Perhaps the best example of government overreach was an item that many
of you know circulated on the eighth floor for some time -- multicast
must-carry. The item would have imposed a requirement on cable operators
to carry all of a broadcast station's free, over-the-air programming --
which could include up to 5 or 6 channels. If it had been approved, it
would've been misguided and unfortunate.

Without clear congressional directive or public interest obligations, I
see no market failure or public interest rationale to justify such a
governmental intrusion. In the heyday of analog broadcasting, the
essential local service that broadcasters provided led Congress to
establish, and the Supreme Court to narrowly uphold, a single-channel
carriage mandate. At that time, without must-carry, over-the-air viewers
were threatened with losing many of the broadcast channels.

Today, the digital television transition holds the promise that
broadcasters will deliver great new services to consumers. But without
protections for the public, nothing useful is guaranteed. Theoretically,
the FCC could be mandating 24/7 infomercials -- minus 3 hours a week for
required children's programming. What's the market failure that is
designed to address? How is the public interest benefited by squeezing
out C-SPAN 3 to make room for Home Shopping Extravaganza -- the Ocho?
Why is the government even thinking about intervening in those
marketplace decisions?

This isn't entirely theoretical. I'm already concerned with reports of
the level of paid programming already on the public airwaves. A 2003
study found that community public affairs programming accounts for less
than 1/2 of 1 percent of local TV programming nationwide -- that
compares to 14.4 percent for paid programming. Need the government
mandate more?

Broadcasters would have the FCC impose mandatory multicast carriage
obligations on cable companies without any assurance that true local
service will materialize on each new digital program stream, and in the
absence of a demonstrated market failure. In fact, cable operators have
a strong market incentive to carry quality local programming because of
competition from more spectrum-limited DBS satellite competitors. And,
with the entry of the phone companies into the multichannel video
programming market, along with growing options on the Internet,
broadcasters are in a strong position to negotiate carriage of their
multiple programming streams.

Absent any clear benefit for the public, multicast must-carry is Exhibit
A of government overreach and over-regulation.

[Á la Carte]{.underline}

Turning to a potential Exhibit B \-- is mandatory á la carte pricing. We
need to carefully consider how regulation may affect consumers by
undercutting the business models of many segments of the media and
entertainment industry.

Of course, á la carte has been proposed as part of the solution to cable
rate hikes, a consumer\'s \"right\" to choose the programming she wants,
and the ability of parents to protect their children from objectionable
programming.

But in 2004, the FCC released a study, relying on the economic analysis
of Booz Allen, which found that there was not systematic market failure
that would justify mandatory á la carte pricing. In fact, it found that
such a regime would hurt consumers.

Commission staff recently revised the 2004 study, in part to correct an
error in Booz Allen's computation. This "Further Report" concluded that
some consumers might see lower bills with á la carte pricing. But, it
ran contrary to the FCC's initial report and to many independent
economic analyses that concluded á la carte would cost consumers more
for fewer channels and, in fact, hurt diversity of programming..

Jeff Eisenach, who we will hear from tomorrow, and Richard Ludwick
pointed out that the Further Report did not state that an á la carte
mandate would benefit consumers or increase economic welfare, nor did it
support such a conclusion. The Further Report merely concluded that
"many consumers could be better off under an á la carte model."

Even the nonpartisan Congressional Research Service criticized the FCC,
observing that "these inconsistent findings by expert agency have caused
some confusion."  CRS concluded that "most of the criticism of the
initial report that are presented in the further report either are not
supported by the available market data or cannot be proven."

The Further Report also failed to fully analyze basic economic costs
that any objective study should have considered. For instances, what
about the transition costs: more than half of all cable subscribers
receive analog cable service and would need set-top boxes for á la
carte. Paying approximately \$4.50 per month for each set-top box,
two-television households would have to pay an additional \$9.00 on
their monthly bill.

What about the transaction costs? Operators would have to restrict
access to those networks the household chooses to purchase and to bill
households for their selections. This would certainly negatively impact
demand.

And, what about the increased marketing costs to retain subscribers? As
Disney reported, during Disney Channel's early years as an á la carte
service, it had to contend with churn which was as much as 75 percent
per year! From 1990 through 1997, Disney Channel invested an average of
10 percent of its total revenue from sales each year on telemarketing,
subscriber acquisition programs and retention programs. And what about
the programmer's reduced ad revenue?

One of the most striking aspects of the Further Report is that it failed
to consider our statutory obligation to promote diversity of programming
-- one of the principle goals of the Commission's media oversight.
There's no good reason or justification for such a blatant omission.

So, in short, an á la carte mandate could be an intrusive regulation
that most studies say would cost consumers more for fewer channels. And
that study -- the second FCC report -- is inconsistent with the FCC's
own first report, and has come under criticism from the independent
Congressional Research Service.

[Media Ownership]{.underline}

If we were serious about getting to the root cause of the bundling that
can raise cable bills and reduce consumer choice, we would focus on the
impact of media consolidation. Addressing that issue might truly move us
closer to an á la carte world. If there is one area where public
interest considerations are overriding, it is media ownership, which
affects our very democracy and what the Supreme Court has called the
"uninhibited marketplace of ideas."

As you all know, last month we launched a rulemaking proceeding to
address the Third Circuit's remand and to perform the quadrennial review
of all of our media ownership rules, as Congress required. Recently,
Commissioner McDowell referred to this proceeding as "one big kidney
stone" that needs to pass. I tend to agree, but I think we need to add
more fiber to our diet before you try to pass it.

My job is to promote the public interest and, in the context of media
ownership, that has always meant localism, diversity and competition.
Broadcasters, unlike any other FCC licensees, have a primary responsibly
to promote the public interest as well. And to help them meet that
responsibility, the federal government -- without any competitive
bidding or public auction -- granted broadcasters exclusive use of the
some of the best spectrum to perform a public service. The value of that
spectrum is tens of billions of dollars.

In the capital markets, when investors back a business, they expect the
companies will report their financials on a quarterly and annually
basis, and they will be held to certain performance standards. Well,
shouldn't media companies provide the public --a principal investor in
their company -- with information about how they are satisfying their
specific, quantifiable public interest obligations?

Some argue that, in today's media marketplace, consumers have a plethora
of information sources so there is little need for government
intervention to promote the public interest because the marketplace will
do it. While there seem to be more outlets than ever for Americans to
get news, a recent Harris Poll and Pew Research study found that the
majority continues to choose to get its news and information most
frequently from broadcast media and their associated websites.

In the emerging age of digital broadcasting, the FCC needs to retain
strong media ownership limits, enhance digital broadcasters' public
interest obligations, and at the very least, enforce consumer protection
laws, such as our anti-payola and sponsorship ID rules, which we still
have on the books. Allowing fewer media companies to control what
Americans, see, hear and read, without quantifiable public interest
standards or a clear obligation to comply with anti-deceptive
advertisement laws, will not further our public interest goals. More
importantly, it will not make our democracy well informed and equipped
to participate in important public policy discourse.

I believe that the battle over media ownership has deep roots in
American history and tradition. It is no coincidence that the uprising
over the attempt to allow big media to get bigger was so heartfelt and
widespread. Distrust of "big media" and centralization of the means of
communications is rooted in the spirit of America. And, I intend to
fight for that spirit.

[Indecency]{.underline}

Finally, I would like to discuss indecency regulation.

Indecency is another difficult area where the FCC has competing
obligations.  We have to protect freedom of speech, but it is also our
duty is to regulate the broadcast of indecent material to the fullest
extent permitted by the Constitution.  After all, safeguarding the
well-being of our children is truly a compelling national interest.

The Commission's authority to regulate indecent content over the public
airwaves was narrowly upheld by the Supreme Court with the admonition
that we should exercise that authority with the utmost restraint.  Given
the Court's guidance in *Pacifica,* the Commission has repeatedly stated
that we would judiciously walk a "tightrope" in exercising our
regulatory authority.  To put it simply, I believe that a rational and
principled "restrained enforcement policy" is not a matter of mere
regulatory convenience; it is a constitutional requirement.

I was the sole partial dissenter in the Commission's most recent
decision because while some of the programs discussed in the Omnibus
Order were indecent and deserving of sanction, some of them, contrary to
the Commission's findings, were not. 

I believe that the Commission's last batch of decisions dangerously
expands the scope of indecency and profanity law, without first
attempting to determine whether we are applying the appropriate
contemporary community standards.

The Order built on and stretched beyond the limits of our precedent in
one of the most difficult cases we have ever decided, the *Golden Globe
Awards* case. The precedent set in that case -- any use of the f-word
was *per se* indecent and profane -- had been questioned by numerous
broadcasters, constitutional scholars and public interest groups, who
have asked us to clarify our reasoning.

Rather than reexamine the *Golden Globe Awards* case, the majority used
it as a springboard to add new words to the pantheon of those deemed to
be inherently sexual or excretory, and consequently indecent and
profane, irrespective of a fleeting and isolated use. By failing to
address the many serious concerns raised in *Golden Globe Awards*,
before prohibiting the use of additional words, we fell short of meeting
the constitutional standard and walking the tightrope of a restrained
enforcement policy.

As it turned out, because the FCC failed to act on the petitions for
reconsideration of the *Golden Globe Awards* case, which were filed over
two years ago, the Commission has had to take the embarrassing step of
asking the Second Circuit Court of Appeals to remand to the FCC a number
of indecency cases in the Omnibus Order that were squarely based on
*Golden Globe Awards*.

At the time of the Omnibus decision, I cautioned that the Commission's
careless approach endangered the very authority we so delicately
retained to enforce broadcast decency rules.  I warned that, if the
Commission's zeal leads it to overstep its statutory authority, the
Commission could find its authority circumscribed by the courts. We may
forever lose the ability to prevent the airing of indecent material,
barring an unlikely constitutional amendment setting limits on the First
Amendment. 

In the Omnibus order, I expressed concern with regard to the example of
the acclaimed Martin Scorsese documentary "The Blues: Godfathers and
Sons."  It was clear from a commonsense viewing of the program that
coarse language is a part of the culture of blues musicians and
performers.  To accurately reflect their viewpoint and emotion for blues
music requires the airing of certain material that, if prohibited, would
undercut the ability of the filmmaker to convey the reality of the
subject of the documentary.

Over my objection, however, the Commission found the documentary
indecent. As a result, PBS and other news and information outlets are
forced to take extra steps of precaution to avoid the wrath of the
Commission. They're now perplexed about what to do with a WWII
documentary by Ken Burns. If "Saving Private Ryan" was acceptable, why
not real soldiers talking about the same conflict? But if you can't say
it in a blues documentary, why can you say it in a war documentary? You
can see us tying ourselves in knots and confusing everyone. That's not
the restraint the Commission promised the Supreme Court in *Pacifica*.

I don't believe the Commission has provided broadcasters a coherent and
principled framework that is rooted in commonsense and sound
constitutional grounds. While we often spend most of our time taking
about economic freedom, freedom from governmental intrusion into speech
is just as important. As a father of two, I believe that the government
has a legitimate interest in protecting children from indecent and
overly commercial content. I fully support that, and have participated
in stepping up our enforcement efforts. But I also believe that, as
government officials, we are sworn to uphold the Constitution, and need
to avoid overstepping our bounds.

[Conclusion]{.underline}

As you reflect on all of these issues I've raised this evening, it may
come as a surprise to some of you that I am concerned on three out of
four of these top issues with the potential for the FCC overstepping its
bounds through heavy-handed regulation of the media. Because I have been
such an outspoken opponent of media consolidation, for which I make no
apology, it may not always be clear that I believe restraint is often
warranted. In fact, because I take the public interest and consumer
welfare so seriously, I loathe having the government intervene in cases
like multicast must carry or á la carte based on unclear justifications
as to how mandates would help the public. As I said at the beginning, we
should only do so when there are demonstrated market failures or public
interest considerations. To the extent possible, we should let the many
benefits of free markets and free speech guide our deliberations.

Thank you for having me, and I look forward to a wonderful conference in
Aspen.