***Telecommunications Transformation: How Broadband Networks and
IP-Enabled Services Are Revolutionizing Communications***

**North Rhine-Westphalia Media Conference**

**German-American Lawyers Association**

**July 4, 2005**

(As prepared for delivery)

Thank you very much for inviting me to participate today. I have been
fortunate to serve at the Federal Communications Commission during a
time of great transformation. The U.S. communications marketplace  much
like in Germany, the E.U., and most of the developed world  is in the
midst of a profound migration from analog to digital, and increasingly
from digital to IP-enabled services. More and more, network owners are
racing to build out broadband networks, over which they can provide
integrated bundles of voice, video, and data services. Such networks can
consist of fiber optics, coaxial cable, wireless spectrum, satellite
connections, and powerline systems, and all of them will be able to
support a wide range of IP-enabled services.

This technological migration has significant implications for industry,
as well as for regulators. For industry participants, new competitive
threats are emerging from sectors that formerly were entirely distinct.
For example, telecom carriers face competition from cable operators'
voice-over-IP services, cable operators have to contend with telecom
carriers' emerging video services, and broadcasters have to deal with
the fact that consumers enjoy a multitude of new content options.
Regulators also face enormous challenges, because many of our
traditional regulations were designed on a sector-specific basis and did
not anticipate this marketplace convergence.

What I would like to do this evening is highlight some of the regulatory
issues that are posed by technological changes and marketplace
convergence, and then discuss the principles I have tried to follow in
addressing these issues.

#### Regulatory Challenges

The most talked-about IP-based service is undoubtedly voice-over-IP. But
it's important to recognize that VOIP is just one of many applications
that consumers will enjoy over broadband networks. In fact, some of the
most intriguing regulatory issues arise from the provision of *video*
over IP.

In the United States, one significant debate is whether competitive
video services provided over fiber optic networks should be subject to
the same obligations as cable television services. Cable operators
generally are required to obtain local franchises from local or state
governments. As a condition of obtaining the franchise, cable operators
must set aside channel capacity for public access, they must commit to
serve the entire community, and they must pay a percentage of their
revenues to the franchising authority, among other obligations.
Naturally, cable operators take the position that new entrants into the
video market  typically local telephone companies  should have to
fulfill all of the same obligations. Not surprisingly, the new entrants
argue that it would impede competition and slow the delivery of new
services if they were required to obtain local franchises in every local
jurisdiction and meet stringent regulatory requirements in each. It is
too soon to predict how this debate will be resolved. The issue has been
raised in individual franchising proceedings, in state legislatures,
before the FCC, and in Congress. I expect it will continue to be a major
focus for policymakers over the next few years.

Another key question is the extent to which indecency restrictions will
apply to content other than broadcast programming. We have an
interesting and challenging law in the U.S. Under U.S. law, the FCC is
required by statute to prohibit the broadcasting of indecent programming
during the hours that children would most likely be in the audience 
namely, between 6:00 a.m. and 10:00 p.m. Indecency is defined as
material that depicts or describes sexual or excretory activities or
organs in a patently offensive manner. Needless to say, there has been a
great deal of controversy surrounding the application of this standard.
Our Superbowl halftime show involving Janet Jackson and other
high-profile incidents made indecency a heated political issue. But it
remains very difficult to draw a bright line between what is indecent
and what is not. Some might find any suggestive references to sexuality
to be indecent, while others believe the standard should be far more
permissive. Some argue that violent content is more damaging to children
than sexual content. But there are currently no legal restrictions on
the broadcast of violent content. The range of opinions is nearly
limitless.

Our task at the FCC is to apply contemporary community standards as
objectively as we can. But our focus is strictly limited to over-the-air
broadcasting, and it is limited to sexuality, not violence. This is our
statutory framework, and it is up to Congress, not the regulatory
agency, to decide whether changes are warranted. We also do not regulate
content transmitted over subscription cable or satellite services; nor
do we regulate Internet content. Many policymakers have begun to
question this differential treatment.

Some advocates argue that it no longer makes sense to distinguish
between broadcast and other content, because the vast majority of
consumers view video programming via cable or satellite, rather than
over the air. These parties argue that we shouldn't continue to regulate
broadcast content when most viewers receive their video signals via
cable or satellite. Others argue that the government should focus on
protecting children from indecent content, regardless of whether it is
transmitted over the air, over cable or satellite, or even over the
Internet.

But critics of extending indecency regulations point out that the
justifications traditionally employed in defense of broadcast indecency
rules simply do not apply to subscription services. In contrast to the
pervasiveness of free over-the-air broadcasting, cable and satellite
services are available only if parents take the affirmative step of
paying a subscription fee. Such services also include blocking tools
that enable parents to screen out certain programming that they deem
inappropriate for their children. In light of the need to subscribe and
the availability of blocking tools, cable and satellite operators,
presumably joined by the new telephone company video providers, argue
that extending mandatory indecency restrictions would not only
constitute bad policy but it would be inconsistent with the First
Amendment's guarantee of free speech; while that concern may apply only
in the United States, the broader policy debate is universal.

Applying indecency regulations to Internet content would present still
further complications. Like cable and satellite, Internet access
services require a subscription and also offer parental filtering tools.
In addition, policing such content would present a host of pragmatic
questions for policymakers, given the open and decentralized nature of
Internet architecture. When Internet content is stored on server in a
foreign jurisdiction halfway around the world, how can one country's
regulator effectively control access to it? While it is possible to
block access to a broad range of websites  and some countries such as
China do this  you also end up shutting off adults from content and
information they may wish to obtain. Thus, even if regulators wanted to
police Internet content, it is not clear how we would go about doing so.

While I have tried to highlight some of the regulatory issues that arise
in the context of the new video programming marketplace, it is worth
noting that the voice-over-IP debates present very similar issues.
Established service providers tend to argue that new VOIP entrants
should be subject to many, if not all, of the traditional social
obligations, such as the requirement to provide location-capable
emergency calling services, which we call E911 in the United States.
Some go further and argue that *all* of the traditional phone company
regulations  including economic regulations of entry, price, and
service quality  should apply. In contrast, new entrants  as in the
video context  generally argue for a light regulatory touch, pointing
out that many traditional forms of regulation were designed to curb
monopoly power, something that is plainly absent in the new market for
IP-enabled services.

#### Principles for the New Regulatory Age

So, faced with all of these difficult issues, how should regulators
respond? Should we focus on establishing a level playing field by
extending traditional regulatory requirements to new entrants?---by
regulating up? If we take this path new video competitors would be
subject to franchise-type requirements and indecency restrictions? And
should the new VOIP providers be subject to traditional common carrier
regulations designed for the monopoly telephone companies? Or, should
regulators take a more circumspect approach, refraining from applying
many traditional forms of regulation and applying requirements on a
narrower, more targeted basis?

My own view is more sympathetic to the latter position  that we should
give new platforms room to breathe instead of saddling them with legacy
regulatory requirements. This is something I have called the Nascent
Services Doctrine. My thesis is that reflexively extending legacy rules
can do great harm, and is often unnecessary, because the conditions that
justified adoption of such rules may not apply to new entrants. Most
importantly, where the justification for legacy rules was an incumbent
provider's market power, it is counterproductive to apply such rules to
entities that *lack* market power. Regulatory parity is an important
long-term goal, but it should be achieved by lifting legacy restrictions
on incumbents once new platforms have emerged, rather than extending
those rules to the new platform. This approach is consistent with my
experience that fully functioning markets invariably do a better job of
maximizing consumer welfare than regulators can hope to achieve. I am
encouraged that other regulatory authorities, such as Ofcom, are
increasingly endorsing this approach in dealing with IP-enabled
services. So where an entity lacks market power, we should focus on
ensuring the fulfillment of essential social obligations, like emergency
calling services; but we should ***not*** regulate prices and service
quality or adopt other forms of economic regulation.

In the video context, the debate is a bit more complex because we are
also dealing with content issues. But there are other kinds of
regulatory requirements we can forego. For example, I do not believe IP
video providers should be subject to the full slate of public access
mandates, build-out requirements, or other traditional service
obligations. Imposing such requirements could choke off new investment
and thereby undermine the development of effective competition and its
resultant consumer benefits. If we succeed in developing new platforms
for the delivery of video programming, consumers will enjoy innovative
new features, lower prices, and better service. We should not risk the
denial of these benefits by insisting on perfect regulatory parity right
at the outset. While new entrants should not be permitted to
discriminate against low-income consumers, nor should they be required
to build-out networks capable of serving all parts of a market
simultaneously. Regulations must take account of realistic restraints on
capital investment; they must be flexible enough to recognize the risk
inherent in becoming a new competitor to more entrenched platforms.
Thus, just as I believe that new voice-over-IP providers should be
exempt from most traditional telephone common carrier or public utility
regulations, I believe that video-over-IP providers should be free from
most traditional franchising obligations as they roll out new services.

In time, once new services are established, the question for regulators
will be whether the legacy regulatory requirements remain necessary for
**any** providers. Some regulations  such as the social policy
obligations regarding emergency calling, universal service, and access
for persons with disabilities  probably should apply irrespective of
the competitive state of the market, because such rules are not
market-driven. We adopt them because we believe there are fundamental
social expectations, not because we are trying to curb market power. But
economic regulations, build-out requirements, and other rules designed
to compensate for an insufficient level of competition  these are the
sort of rules that should be abandoned once competition becomes more
robust. Thus, rather than achieving regulatory parity by extending these
traditional rules to new providers, we get there by eliminating the
economic regulations altogether.

But what about content regulation. How do we resolve that dilemma. I
know from my experience in the U.S. that many viewers while clearly
having choice in the 100 channel universe, also feel like they have lost
control. So I do believe as a regulator I should try to figure out the
scope of the problem and potential solutions. I tend to believe that
giving parents better tools to manage the 100 channel universe is better
than attempting to regulate content. That is why the FCC has created a
website called the Parent's Place where we provide information on
parental controls like the V-chip and channel blocking. We are also
working with industry on better navigational tools that direct parents
to the kid friendly educational programming that is available today but
is sometimes difficult to find.

At the end of the day consumers must be better educated to take
advantage of the many new technologies. That is why regulators must
shift their focus from an entity that primarily writes rules to one that
emphasizes consumer education and enforcement. We need to rethink our
regulatory responsibility in the face of the many new technologies
available today so that consumers benefit from better content, more
choices, lower prices and a broadband world that improves education and
healthcare.