**Remarks of**

**Michael K. Powell**

**Chairman, Federal Communications Commission**

**At the**

**Chicago Economic Club**

**"And a Child Shall Lead Them"**

**Chicago, Illinois**

**December 18, 2003**

I want to wish everyone a happy holiday season. This a wonderful time of
year, especially for children. Many of us are rushing around to find
that special gift for our kids. Have you noticed that almost every
special toy on their list seems to have a power plug or battery?
Everything has suddenly gone digital.

Gone are the Lincoln Logs, Mr. Potato Head, and Etch-a-Sketch from the
Christmas lists of our little darlings. No, instead their lists read
like the procurement budget for a small IT department. They want Xbox,
Playstation, Gamboy, DVD players, digital cameras, Palm Pilots and cell
phones.

These gadgets are packed with massive computing power. That Xbox your
son has his hands on is more than 17 thousand times faster than the
computer on the Apollo Command Module that guided Neil Armstrong to the
moon. And, more and more, this stuff is networked---in your house and to
the world through the Internet.

We are witnessing the rise of the first "digital generation." Our kids
are bathed in bits. As Dan Tapscott notes in his book [Growing Up
Digital]{.underline}, "kids are accustomed to the strong presence of
technology in their lives and they will develop and superimpose their
culture on the rest of society. They are learning, playing,
communicating, working, and creating communities very different than
their parents. They are a force for social transformation."

I have this new species of kid right under my roof. My two sons, Jeffrey
and Bryan, are digital age creatures. I first noticed how far they had
advanced from my own generation while we were cleaning out the basement.
We were plowing through stuff when Jeff, like Dr. Leakey, made a
fantastic discovery. He stumbled on a record player. He pulled it up,
dusted it off and asked, "Dad, what on earth is this thing." I was not
amused to realize that I was suddenly part of the elevator music
generation. I explained what it was as best I could. He seemed curious
about this relic, not quite able to piece it together.

Then Bryan, who was digging just north of the water heater, discovered a
box of old records. He exclaimed, "Jeff, come quick! I have found the
missing link." They pulled the black vinyl from its cardboard sleeve
(even the cover seemed Neanderthal to these digital archeologists). I
worked to explain how it all worked. They were dismayed you could not
load it into a computer, or play it in a portable music player. They
quickly lost interest, left the vinyl for dead and raced off to play
Super Mario Brothers.

I sat there disoriented in the rubble and committed myself to study this
new species, which I named Homo Digiteus. It's only a working title.

Let me share some of my experiences so far. Jeff, my oldest, will soon
be 15 years old. He is a typical teenager. I asked him the other day
what he wanted most, if he could have anything. He said a 1972 Chevy
Chevelle. I thought, how wonderful, some things are timeless---a teenage
boy who wants a classic car. Then he blurted, "but Dad, for it to really
rock, it has got have satellite radio."

My teenager apparently has his first girlfriend. I say apparently
because I rarely see her. They spend most of their time together in
cyberspace. Instant Messenger is the new ice cream parlor, drive-in, or
mall. I know this girl's smiley face icon better than I know her. It's
not all bad. I figure as long as they are touching keyboards rather than
each other, I still have time to talk to him about the birds and the
bees.

Then there is my 9 year old Bryan---A digital Leonardo. This child
expects nothing less than to be within arms link of some digital device
and to be plugged into the net whenever he wants.

We recently experienced a hurricane in Virginia, and were without power
for a few days. Bryan burst into our room grief-stricken. "What do you
mean there is no power? I cannot play Xbox?" "No." "I cannot get on the
internet?" "No." "I cannot watch a movie?" "No, Bryan the power is out.
Go read a book, or play outside." He sulked away. I heard him get
dressed and go outside. I thought "great, he will get some fresh air."
Then, I looked out front and saw him and five friends piling into our
Lincoln Navigator with a box of DVDs and some popcorn. He realized they
could watch movies in the car.

Bryan hates television. I ask why and he responds, "it does not DO
anything." To him, even the remote control is passé. He must command his
medium.

One final story, before moving on. Even quaint traditions, like the
tooth fairy are in digital danger. Bryan wanted to know if there was a
tooth fairy, after losing his last tooth. We said "yes", wanting him to
keep this magic in his life a little longer. He went to bed. Late that
night, Jane crept into his room to put some money under his pillow.
Suddenly, a loud siren went off and Bryan popped out of bed. Jane
screamed, "Bryan what is that!" He exclaimed proudly, "it is my tooth
fairy trap." "Does it work, she said?" He looked at her with an air of
superiority and said "It looks like it works to me, tooth fairy."

OK, so maybe my kids are a bit overboard, but they are not atypical.
This world may seem completely foreign to us, but it is natural to them
and provides a glimpse into the next decade when these Homo Digiteus
become adults.

As scripture says "A child shall lead them." These children are our
future. They will in a very short few years become the purveyors of
commerce and society's consumers. They will be our workers and our
leaders, our politicians and our voters. They are the key to our
prosperity. They will leave their youth with breathtaking technological
expectations---about the way to work and play.

Our mission is to prepare the way for them, for they are growing up
quickly.

**WHAT WE CAN EXPECT**

Our kids and the technologies that they embrace shows us what our
society will look like from a personal perspective and, by extension,
what business will look like as it adapts to accommodate these new
citizens.

The digital revolution is the most important economic development of our
time. We must be guided by the fundamentals of technology in planning
for tomorrow. In brief, two great technological trends have converged to
change our lives. The first is the communications revolution. Every
since James Maxwell codified the laws of electromagnetism, innovators
have been developing more ways to communicate electronically. The basic
principles brought us the telegraph and then the telephone. The radio
and then the television.

The second critical breakthrough occurred when Robert Noyce and Gordon
Moore first assembled a silicon computer chip. With the birth of
microprocessor the world changed forever. We have all been witness to
the explosion of computing power. As chips became faster, cheaper and
smaller, entire new possibilities for data and information became
possible.

The Information Age we now live in was ignited when computers merged
with communications. Suddenly, there was a new language for
communicating and it consisted of only two digits, zero and one. Put
those two digits together in one order and they are a picture taken from
your digital camera, put them in another order and they are an MP3 song.
Your messages could now be converted into computer language. As such,
they could be manipulated and controlled rather than just repeated. A
photo can be improved (cutting out an old girlfriend for example) and
sent to grandma. A video clip can be stored on your computer and watched
when you are ready. Music, as the industry painfully learned, could be
copied and shipped around the world---and not just by Sony's shipping
department.

Just think of the explosion of innovation that has sprung up in just 25
years. Email, instant messaging, digital cameras, eye-popping video game
consoles, plasma televisions, cell phones that got smaller and then got
smarter, home networks using free wireless spectrum and low cost
devices, music sharing programs, Palm Pilots, Blackberrys, satellite
television, and digital television. Most importantly, all of these
mini-computers can be attached to a network. They can find each other.
They afford users unprecedented access to information from around the
world, allowing them to shop from any store, or get medical advice from
a doctor a thousand miles away. Personal power had arrived.

If one understands the fundamental drivers of technology---Silicon,
Storage and Speedy access---you see how our lives will continue to
change. The computer gets smaller and more powerful almost by the day.
And, storage of information gets cheaper and larger by the hour. This is
driving ever more powerful devices into smaller, cheaper forms. Thus, we
now see an explosion of consumer electronic gadgets that are putting
massive amounts of intelligence and power in our hands. Just consider
that the Ipod music player, barely larger than a credit card, can store
the entire contents of the ancient library at Alexandria and have enough
left over for enough songs to play for two weeks without ever repeating
a single song.

As the technology continues to evolve, computing will become pervasive,
indeed invisible. I recently visited a lab working on smart dust---tiny
little sensors equipped with a radio. Such devices can be scattered
(like dust) almost anywhere and collect and transmit minute changes in
environment. These devices are being used today on grapevines and in
forests to measure conditions for optimal growth.

To boil it all down, more and more power will be shifted to individuals.
Traditionally, in communication services, a corporate carrier and a
regulator stand at the center of everything. The service provider
controls the brains of the network and regulators set the rules. The
carrier makes decisions about when your phone rings, what number you
will have, what services are available to you and at what price. Your
telephone is a dumb machine. You have little role in this system other
than to pay your bill.

The Internet paradigm puts more of those choices into the hands of
individuals at the edge of the network. Thus, as smart powerful devices
go from your desktop, to your lap, to your palm and beyond you will be
able to connect them to a network capable of reaching out to any source
in the world. This is a radical departure from the cozy world of
telephone regulation. Consumers, like our children, will be more in
command. The Internet paradigm promises more choices for service, more
flexibility, and cheaper rates.

With a smart machine and the Internet you also get more personalized
service. We have already seen this trend in computer products. PCs are
made to your specifications. Websites allow high degrees of
customization. Amazon.com is cool, but MY Amazon is tailor made. You see
the books you like and the DVDs that you like. The more you use it, the
more it breaks in like a comfortable leather jacket. This high degree of
personalization is now moving to communications products and services.

Take the cell phone. It is transforming voice communications, in part,
because it is a more personalized communication device. It is mobile and
goes with you everywhere. The type of phone you choose reflects your
personality---flip or candy bar style. Changeable faceplates are
available to suit your mood. Programmable interfaces with wallpaper of
your choice. Who would have imagined that folks would pay good money to
download personalized ring tones? You can even set up different rings
for different people in your lives. Even billing packages offer you
plans that fit your lifestyle. Compare these features with those of the
phone sitting on your desk.

Now consider trends in television, the ultimate mass medium. Thirty
years ago, you had basically three choices---CBS, ABC and NBC. You had
to watch the news at the appointed time or you missed it. It was a one
way street; the network picked what you watched and when you watched it
and you just sat there. We even coined the phrase "couch potato" to
describe our lethargic experience. Cable brought more choices built
around smaller, more diverse interests. You still could not pick exactly
what you wanted at a given time, but you could be guaranteed to see a
particular type of programming. On the History Channel, you find
history. ESPN is dedicated all day to sports. And our kids watch
children's programming almost exclusively on Nickelodeon, Disney
Channel, WAM! and Cartoon Network. Cable is now moving to offer
interactive services, movies on demand and personal digital recorders to
further personalize service.

Look now at the Internet and devices like TiVo. People do not make
appointments to work or to be entertained. They have, and will have, an
enormous library to choose from on demand. They will pick what and when
they will watch or listen. And, more and more, they will choose what
form they will do that in.

Witness also what we have seen in music. Users can sit down to a smart
machine and listen to hundreds of radio stations around the world.
Perhaps your old college radio station for old time's sake. Or perhaps
you want to download the song you danced to at your wedding. Or, better
yet, burn it to a CD and play it in your car on the drive back from a
romantic dinner. Or still better, load it on your Apple Ipod or Rio
player and keep it with you all the time---no, take all 4000 of your
favorite songs with you all the time!

This personal innovation trend is now breaking into the once
impenetrable world of voice communications. In addition to substituting
for voice calls by using email or instant messaging, more and more you
can use a voice over Internet product or service. You can download for
free a piece of software right now and call people over your smart
machine, almost anywhere in the world, bypassing much, if not all, of
the traditional phone network. VOIP providers are now offering services
that use the Internet to bring consumers a bevy of personal features.
With an Internet phone you can log in at any location and have your
phone ring at that location using the same number. You can tell your IP
phone what hours not to ring, say at dinner. You can pick an area code
from your home town and use it in another state. The possibilities are
endless and they are brought about by the same forces---powerful silicon
chips, storage, and speedy access to the Internet. These services are
quickly coming to market.

The FCC fully embraces this direction. We look to the Internet,
entrepreneurs and technology for the world of tomorrow, rather than the
telephone, monopoly and dated regulation.

At the FCC, we embrace the vision of tomorrow that gives individuals the
freedom to be in control. Just in recent months we have passed local
number portability rules so a user can keep her personal number when
switching services---personalization. We have provided more unlicensed
spectrum, so that innovators can use it to make low cost computing and
communication products that let consumers network devices in their home
and access the Internet without wires. "Hot spots" have sprouted where
we dwell---Starbucks, hotels, public parks, airport lounges are all
places you can wirelessly connect to the Internet. Sales of WiFi chips
grew from five million in 2000 to an estimated 35 million this year.

We have promoted technologies like ultrawideband that soon will let you
get rid of all those pesky wires and connections in your home. Buy a
flatscreen TV and a surround sound system and they will just have one
cord to plug in for power. The TV on your wall might actually look like
it does in the advertisement.

Now, I know what many of you are thinking. We heard this talk before
during the dot com boom. It flopped.

Things looked wildly exciting in just a few years. Companies were
changing their names to strange, glowing symbols of the new, new thing.
"E" became the only letter that mattered in the alphabet. The Old
Economy was out, replaced by the New. And even that venerable
punctuation mark, the period, got a hip make-over, becoming the "dot!"
and rejecting as passé just being known as the punctuation mark formerly
known as period."

After the crash, we all retreated to do our penance for being so wild.
Back to fundamentals and hard-soled shoes. Risk taking became a thing of
the past. Many secretly enjoyed watching 25 year old millionaires
crumble and return to jobs at the Dairy Queen dishing out soft-serve
cones.

Yet, despite the crash, technological advances marched relentlessly
forward, undeterred by a sluggish economy, war or disease. The microchip
continued to increase in speed at an astonishing rate. Memory continues
to double and triple while prices fall. Optical technology surges
forward as photons work to overtake electrons as the mail carrier of
communications, just as Patent Clerk 2^nd^ Class Albert Einstein
imagined.

We have seen nothing more than the classic boom-bust cycle of new
technology. But it is always followed by a golden age, just as it was
with railroads and other new technologies. As our economy briskly
recovers, we are poised for a golden age of information technology. And,
we have a coming generation of early adopters that will be ready to
drink it up.

**WHAT BUSINESS CAN EXPECT**

Businesses will face great opportunities, but serious challenges as
well. For starters, there is an entire generation of early adopters
emerging. These kids will try out new products and services and take
risks that their elders are reluctant to. Many young people, for
example, are cutting the cord and not subscribing to a local or long
distance home telephone service. Instead, they have made their wireless
phone, with its highly personalized attributes, their only phone.

The Homo Digiteus child is comfortable with this technology and they
present enormous opportunities for new markets, new products, and new
services. But, beware. If you do not move to serve their needs in the
way that they require, they know how to use the technology to help
themselves.

The best example is clearly Napster. I do not think most teens want to
break the law. They do, however, insist on buying individual songs at
low prices, or free as the case may be. Again, they want to program the
album and assemble songs in collections to their liking. They do not
want the record label putting 1 great song in a package with 10 crummy
songs and forcing them to buy the whole thing at ridiculously high
prices. If industry will not serve that need, this generation will do it
themselves. Nineteen year old Shawn Fanning invented Napster because the
record labels didn't. While the record business will fight back, they
may have lost a whole generation of consumers that have come to expect
free music.

Digital also means providers can invade other markets that their
infrastructure long kept them from. Cable companies can use their fiber
network to deliver telephone service to their customers, as well as data
services and video services. Phone companies can offer higher value
content services over their DSL lines---including video. It will be
challenging for them to branch out from their core, but the opportunity
is there for a bold CEO to snatch.

To realize these opportunities, companies will have to surmount major
obstacles. [First]{.underline}, the digital migration means that
companies that grew up in the analog world have to reinvest in and
rebuild their infrastructure in order to compete with new digital-age
companies in providing the new services that consumers and businesses
want. The dilemma for an incumbent is that they have to invest capital
today to generate uncertain revenue tomorrow that may cannibalize
today's business. They have little choice, however, for if they don't
someone else will and they will be dead. This is a classic innovator's
dilemma.

The march is on. Cable companies have had to rebuild their networks to
compete with digital satellite systems. Telephone companies have to
upgrade their copper voice lines to compete with cable TV's broadband
service. Television broadcasters have to replace their analog service
with digital television to compete with cable and satellite. All this
investment is critical if one hopes to have any chance to compete for
the business of the digital generation.

[Second]{.underline}, competition in communications is going to be
brutally intense. This comes not just from a policy that now favors
competition over the state-supported monopoly model, but more
dramatically it will come from the rapid technological erosion of the
walls that separated different industry segments from each other. Not
long ago, you would have said SBC is a telephone company. Comcast is a
cable company. T-Mobile is a cell phone company and NBC is a television
company. They enjoyed near-monopoly positions within their lanes and had
no significant cause for concern from companies in other lanes. But with
digitalization transforming all communication services into data
applications that can run over any platform, these barriers will fall
revealing new and formidable competitors. Any player with a digital
platform can now provide almost any form of human communication.

But you ain't seen anything yet. The Internet threat is even greater.
Over the Internet, applications are separated from the infrastructure.
Now, services can all be software applications that ride over the
platform as bits. A consumer can download a piece of software over a
broadband connection and set up their own communication channel. Your
kids have done that with programs like AOL Instant Messenger and Skype.
Voice, video and data all can ride over Internet networks easily, and
will.

The fact that applications are divorced from infrastructure means
companies like Microsoft, Intel and Apple are suddenly competitors to
traditional communications companies. Apple, for example, sells a high
quality web camera that combined with free software enables very easy
computer to computer video conferencing to anyone with a broadband
Internet connection. All for \$149. What did any of you pay recently for
video conferencing services? The once vaunted picture-phone the phone
company promised has finally been delivered by the Internet industry.

[Third]{.underline}, innovation will be the most important driver of
success. Most telephone companies and cable companies are accustomed to
mature, high quality networks. Innovations from the phone company over
the years has been (shall we say) leisurely. While \*69 and call waiting
are fine, we can expect much more in the Internet environment. Because
the software world and the computer world follow Moore's Law,
innovations will come more rapidly and from many more sectors. Companies
will have to operate faster, more nimble organizations. They will have
to get comfortable with greater risk taking and with failure. They will
have to invest in research and development. Small companies unburdened
by a legacy network will spring up constantly and attack. Products will
have to be reinvented regularly. This is a sea change for traditional
communications providers.

At the FCC we are moving in a direction that embraces revolutionary
change. We know we have to help get broadband built and deployed to
every American. We are 10^th^ in the world right now, an unacceptable
position for the world's leading economy. We are trying to change that.
We have adopted policies that provide incentives for building fiber to
homes, by limiting unnecessary regulations so that entrepreneurs can
focus on their work and not on filling out regulatory forms and hiring
lobbyists. We have particularly explored opportunities to lower
regulatory barriers in rural and underserved areas to further promote
wireless Internet deployment where it may be the most efficient path.

We have pushed for more platforms that can deliver digital: We believe
in getting multiple digital pipes to the consumer---Cable modems, DSL,
WIFI, Fixed Wireless, Powerline networks, satellites and anything else
that emerges from the innovator's garage.

These policies will drive investment and growth in the sector as
companies must reinvest to adapt and compete. We see the beginnings of
this process, according to the Department of Commerce, IT spending
accounted for more than a fourth of economic growth for the first three
quarters of 2003.

We also understand the continuing challenge of protecting our citizens
from those who wish us harm. We push for more facilities-based
competitors, in order to have redundant networks, so that if one is
knocked out, there are alternatives. We have supported efforts to
develop best practices that can better secure our networks.

We see the need to better empower police and fire departments as the
first responders in an emergency. We have released more spectrum for use
by first responders, which will help them communicate with different
departments and agencies that must respond to a crisis. We are driving
the wireless industry to deploy E911 services that can pinpoint the
location of a caller in need. We have expanded programs to support
tele-medicine in rural communities so access to a top doctor is not just
something accessible to the well-to-do. These efforts mean technology
will not just touch lives, it will save lives.

**BENEFITS TO OUR NATION**

The 20^th^ Century was the American Century. It was not just the triumph
of democracy over communism, but the triumph of free market capitalism
over central-planned economies. Now we turn to the future and ask how we
will fare in the 21^st^ Century. Will we forget the lesson we learned,
that the free-market is the kiln where invention and creativity are
fired---a place where risk, well-executed, is rewarded.

With the arrival of new markets and new services will come great
opportunities for growth. The deepening deployment of information
technology is leading to greater productivity. From 1989 to 2001 IT
intensive industries experienced average annual labor productivity
growth of over 3% \-- compared with 1.6 % pace of the overall non-farm
economy. The United States remains the global leader in IT exports,
topping 1 trillion dollars in 2002.

The jobs our children will need will be created in fields that demand
greater technical skill. The need to maintain technological superiority
is vital to keep the upper hand against a cunning and innovative enemy
intent on harming our people.

However, all signs do not yet point in our favor. Rather than being
first in the world, we lag badly in broadband deployment. More and more
jobs dependant on this 21^st^ century architecture are going off-shore
to China and India. And, we risk worsening trade deficits if more and
more products and services that could be produced here at home are
driven to other corners of the world, where our citizens can order them
just as easily as if they were down the street. A revolution is rarely
government led. We must place our faith in entrepreneurs and not
extinguish the burning energy of innovation with the wet blanket of
over-regulation, as some seem to prefer.

The Information Age should be a period of great glory for the United
States. We have always tilled the richest soil for innovation and
entrepreneurship, the clear touchstones of the next generation. The
premium we place on individual freedom and empowerment are culturally
suited to the characteristics of this technology age. We need a national
commitment to embrace the potential of the next century and drive it
forward. Our children have sampled the promise and we must make for them
a world in which they can work, learn, play and communicate in the
manner that they are used to and that they expect. They deserve nothing
less as the heirs to the American Dream.

Happy Holidays, God Bless and Thank You.

\- FCC -