Remarks

By

MICHAEL K. POWELL

## Commissioner {#commissioner .unnumbered}

## Federal Communications Commission {#federal-communications-commission .unnumbered}

Before the

Federal Communications Bar Association

(Chicago Chapter)

Chicago, Illinois

# June 15, 1999 {#june-15-1999 .unnumbered}

(As Prepared for Delivery)

I. INTRODUCTION

I recently read a wonderful tribute by George Will, saluting Meg
Greenfield, the long time editor of the *Washington Post*\'s editorial
page and *Newsweek* magazine, who recently lost her battle with cancer.
Her passing is a great loss for us all.

Will\'s contention was that Ms. Greenfield had a powerful influence on
Washington because she brought \"judicious intelligence\" to bear on
complex questions of policy. He praised her wisdom and her insistence on
intellectual rigor. One passage particularly struck a chord with me
because it seemed to touch on something I encounter too often in debates
about communications policy. Will wrote: \"Intellectual rigor annoys
people because it interferes with the pleasure they derive from allowing
their wishes to be the fathers of their thoughts. That failing is common
to humankind, but is especially prevalent in a company town where the
company\'s business is politics.\"

The passage resonates with me because I find that regulators often are
invited or tempted to take actions and promulgate rules based on sunny
or stormy pictures painted by the advocates of action, without digging
below the rhetoric and testing whether our intervention will really
benefit the public. One area that risks having that character is that of
advanced services and the associated bevy of issues, including the
question of the day: government-mandated access to cable by Internet
Service Providers (ISPs). As we begin to consider whether and how
regulators should decide the question, I would like to push past the
semantic food fight that has been going on with respect to this issue
and offer some considerations, which I believe frame the Commission\'s
current approach and which I can only hope would bring a smile of
satisfaction to Ms. Greenfield\'s face.

II\. MANDATED CABLE ACCESS: LENSES OF EVALUATION

I believe there are several lenses through which we can bring to bear
\"judicious intelligence\" on the question of mandated cable access. Two
of the most important of these lenses involve matters of technology and
competitive policy.

# Technological

I attended a wonderful briefing on the Internet economy, hosted by Cisco
Systems. A government official asked CEO John Chambers what it was that
government could do to help hasten, rather than hinder, the Internet
economy. He answered that, above all else, regulators should understand
the technology and the market before we act.

I believe we have much more work to do in this regard. The danger is
that we have an intimate understanding of phone systems and cable
provision of video services, but we do not have much experience with the
two-way cable data infrastructure. There are very significant
differences and the risk is that, if we are not careful, we could
clumsily apply regulatory devices that have been developed on the
technological assumptions of phone service.

There are clear and potentially very important differences between
telephone dial up and cable modem Internet access services. For example,
dial up connections offer a dedicated circuit for reaching the Internet.
The cable configuration requires clusters of consumers to share access,
much like a local area network (LAN). Consequently, the issues
associated with shared access among competitors might be much more
complicated. Rather than handing over a loop to a competing service,
cable interconnection would require unprecedented joint/multi-provider
coordination and cooperation that may prove too daunting.

Additionally, one needs to take into account the very unique nature of
providing an Internet Protocol-based service, rather than the
traditional provision of voice circuits. In the Internet Protocol (IP)
world, unlike the circuit-switched world, the brilliance is in the fact
that the intelligence is not in the center of the network. Instead, the
user can employ her computing device and IP protocols to dynamically
demand only the capacity she needs, and to specify the route and
destination of her communication without constraint. In this model, the
provider has less ability to control access to content that is available
on the open web.

Given the flexibility of IP protocols, those who suggest that the cable
plant represents a technological barrier to content must be able to
demonstrate why the open IP protocol is insufficient to ensure access.
Is a firm\'s control of cable plant an actual barrier to competition (an
essential facility), or is such control just a more efficient way for
that firm to provide services to its customers? The former may be a
competitive problem, deserving of government attention. The latter may
be an acceptable competitive advantage.

# Competitive Policy Considerations

The second lens for examining the access issue is competitive policy. In
peering through this lens, the threshold question we regulators must ask
ourselves is whether government intervention is appropriate. Sadly, we
too often fail to live up to Greenfield\'s model of \"judicious
intelligence\" here, opting instead to apply ideological or partisan
labels where clearly none is useful. Either you are \"pro-market\" or
\"pro-consumer.\" But Greenfield, whom George Will suggests is more
liberal than not, probably would not have let us hide in such
oversimplifications. So let us look a little closer.

1\. [History Has Reached A Verdict: It Finds For The Market]{.underline}

It is now established, without much question, that free markets work
better than any other economic form ever tried by mankind to allocate
resources, to inspire innovation, to maximize public welfare, and even
to protect and empower individuals. Government in virtually every nation
tried forms of state-centered regulation, believing they could hatch
national blueprints, models and programs that beat the market.

Yet, today, one looks around the world and sees barely a whiff of
state-planned economic thinking. Governments in nearly every capital are
de-regulating and putting private markets in place, are privatizing
commercial activity, are allowing private capital to flow more freely as
the market sees fit. This, more than anything else, is the triumph of
the 20th century. This is well-documented by Daniel Yergin in his
exceptional book, *Commanding Heights*, which is just one of the many
scholarly works proliferating bookshelves and web pages that lay out the
triumph of market dynamics for improving the lives of our citizens.

This triumph is exemplified by the handling of our own economy by the
Clinton administration. Robert Rubin, who recently stepped down as
Secretary of the Treasury, is widely, and rightly, hailed for his
commitment to market forces and governmental restraint. One commentator
described this commitment:

\"\[R\]estraint was the watchword of Rubin\'s tenure. He avoided grand,
costly initiatives, emphasizing instead the discipline of balanced
budgets and the efficiency of the private markets. . . Respect for
market forces more than governmental interference was Rubin\'s guiding
theme.\"

This, in a nutshell, identifies the secret of Secretary Rubin\'s success
in guiding this economy through one of its most sustained growth periods
ever.

Notwithstanding Rubin\'s achievements, healthy restraint and respect for
market forces are not mere character traits, but are the necessary
attitudes for stewardship of sound economic policy. Larry Summers, who
will replace Rubin, has demonstrated that he, too, shares these views
about the proper relationship between government and the economy.
Summers recently talked about the change in people\'s thinking around
the world about this relationship. He said:

\"First, they have seen how badly the public sector can mess things up.
With competition, things seem to go better. Innovation happens. The
world is more focused on variety than quantity. Secondly, markets are
able to do things that people used to think required government
coordination. Markets make it possible to rent videos in every town in
America, with no public involvement. There is now skepticism about the
view that you have to have the public sector to get things done.\"

Moreover, when asked \"What\'s the single most important thing to learn
from an economics course today?\" Summers replied, \"That the invisible
hand is more powerful than the hidden hand. Things will happen in
well-organized efforts, without direction, controls, plans. That is the
consensus among economists.\"

But markets are not merely superior in maximizing wealth and innovation.
By empowering individuals and corporations to engage in mutually
beneficial exchanges free of government coercion, markets also maximize
personal and political freedom. It is not a coincidence that the freest
places on earth, with the highest standards of living, are where markets
reign. This century, in large measure, has been consumed by discourse,
debate, and even war over central planning versus markets. Wealth is
power, and one of the cornerstones of a free and democratic society is
that too much power should not be allowed to reside in the government.
For that reason, much of our Constitutional system is designed to
prevent the government from undermining individual rights.

I am reminded of a wonderful book I read recently by P.J. O\'Rourke
called *Eat the Rich*. It is a humorous look at economics and economic
systems that rightly concludes that the market is moral and essential to
consumer well-being. In the book, O\'Rourke relates one of the most
enduring lessons of free society: \"Never let the people with all the
money and the people with all the guns be the same people.\" Sure, the
government can always step in to force individuals to make deals other
than those they would freely make. In cases where there is true,
identifiable market power, such intervention arguably costs individuals
and society nothing, as consumers did not have a real choice anyway. In
the absence of actual market power, however, we must recognize that
government intervention comes at the expense of our freedom and welfare.

In the case of free markets versus government intervention, history has
rendered a verdict, and that verdict is decidedly in favor of markets
and against intervention. Although we have seen that markets do not at
any moment deploy resources in precisely the ways regulators prefer,
markets unquestionably deploy resources better and more consistently
than does the state. Thus, restraint should be the watchword for
governments in any new economy driven by unrelenting currents of
technological change and innovation, such as communications and advanced
services.

> 2\. [\"To the winner goes the spoils\"]{.underline}

Once we accept the superiority of markets over government intervention,
our competitive inquiry is still not done. We still have the challenge
of deciding whether the cries for government intervention result from
real risks to competition. Let us look at a few competitive principles
and test the competitive landscape.

One fundamental premise of the competitive market is that if one
invests, takes risk to develop superior goods and services, they should
be allowed to enjoy exclusively the fruits of their efforts. The
government should not be quick to step in and redistribute those
benefits to other firms that could themselves have taken the same steps.
For example, the firms seeking open access to cable systems could have
bought their own such systems. Others could have made the decision to
spend vast sums of money and take significant risk to build and deploy
these systems. If they did not, or if they misread the market, arguably
that is their problem. As we think about whether and how to decide the
cable open access question, we should not dismiss lightly this
fundamental tenet of free market, entrepreneurial capitalism.

O\'Rourke describes how elementary this concept is in his book. In the
last chapter of *Eat the Rich*, he relays that he has been thinking
about the Bible, and particularly the Tenth Commandment, in
socioeconomic terms. Let me read the passage to you. He begins:

\"Thou shalt not covet thy neighbor\'s house, thou shalt not covet thy
neighbors wife, nor his manservant, nor his maidservant, nor his ox, nor
his ass, nor anything that is thy neighbor\'s.\" Here are God\'s basic
rules about how we should live, a very brief list of sacred obligations
and solemn moral precepts, and right at the end of it is, \"Don\'t envy
your buddy\'s cow.\" What is it doing there? Why would God, with just
ten things to tell Moses, choose, as one of them, jealousy about the
livestock next door? And yet, think about how important to the
well-being of a community this Commandment is. If you want a donkey, if
you want a pot roast, if you want a cleaning lady, don\'t \[complain\]
about what the people across the street have. *Get your own.*

The moral of the story is that a fundamental premise of competition and
markets is that the general rule is that you are supposed to \"Get your
own cow.\" This dynamic of individualism and pursuit of self-interest is
what drives the proper functioning of a market, and we should not take
the cow from its owner, chop it up into steaks and distribute them to
his neighbors without a compelling case for doing so. For all we know,
everyone would have been better off (except perhaps the cow) had we let
the owner keep the cow alive and sell its milk to his thirsty neighbors.

3.  [Is there a clear anticompetitive effect on consumers]{.underline}?

As regulators, our charge is to serve the public. Competition policy
should focus on the benefits and harms to consumers, not the effect on
firms. For those of you who have been lulled into believing the rhetoric
that the free market and consumer protection are at odds with each
other: Surprise! The market has a heart (sort of). As I have said, in
the absence of real, identifiable market power, the market allows
consumers to make themselves better off. The market also allows
consumers to protect themselves by selecting a new provider that the
consumer, rather than regulators, believes offers an adequate substitute
or even superior product or service.

Although it is easy to identify what risks cable Internet access may
pose to some firms, such as narrowband ISPs and other providers of
broadband service, it seems less clear that there are substantial
anticompetitive effects on consumers. By most estimates, the
developments in cable over the last year have been a great boon for
consumers. By any estimate, the efforts undertaken by AT&T, Cox,
Cablevision and so many others, have hastened the day in which average
Americans will have available to them high speed, broadband capacity to
access the Internet and to make phone calls at affordable rates.
Furthermore, upgrades to cable plant have intensified a potential
competitive threat that has led, I believe, to heightened investment in
alternative broadband technologies by other firms. We should be
skeptical of the protestations from those who now feel the heat of a
viable competitive threat and who themselves did not take successful
steps to bring these benefits to the public. These developments,
arguably, present a very high value proposition for consumers, and we
should pause long before monkey-ing around with this overall increase in
welfare.

Perhaps the only way developments like those we see in cable broadband
deployment could harm consumers of Internet access services is if cable
firms also have market power in the provision of Internet access. But I
have seen no evidence to suggest cable has developed any such market
power. There are scarcely 600,000 residential subscribers of cable modem
services. That pales in comparison to the multi-millions that are
currently accessing the Internet via narrowband technologies and phone
services. It is true that the slow deployment of these services accounts
for this disparity, but the fact remains we have little on which to base
a conclusion that broadband service is a market segment distinct from
narrowband Internet access.

How much bandwidth is enough? What are the killer applications that
absolutely require great bandwidth and that are so indispensable that
consumers should not be without them? If one takes note of the
representations that many cable access proponents have made to Wall
Street, you will find a continued assertion that broadband is not likely
to overtake narrowband provision for quite some time, and that many
consumers will opt for less expensive narrowband service for e-mail and
basic applications, rather than pay more for capacity they will not use.
Will broadband replace narrowband, or will there be two classes of
service, sort of coach and first class? In my view, these questions may
not need to be decided by regulators; rather, we should let that
decision fall to consumers and the firms vying to serve them in the
marketplace.

4.  [There still is great innovation potential for alternative
    access]{.underline}

And even if broadband service becomes a market segment distinct from
narrowband, it seems likely that alternative technologies will compete
successfully with cable in the relatively near term. Contrary to what
some suggest, there are a number of quite viable technologies and
service providers in the broadband race, including DSL (AOL has deals
with SBC and Bell Atlantic), narrowband dial up connections (numerous
CLECs compete), ISDN, wireless (particularly after 3G---note the recent
deal between Microsoft and Nextel), satellite (deals between Microsoft
and Echostar and, recently announced, AOL and Direct TV), and electric
utilities. Moreover, in such an innovation driven market, one cannot
forget about the kid in the garage that undoubtedly is working on a new
technology that will potentially open up many new possibilities.

One great fear is that if we ordain cable an essential facility and
begin to mandate a right of access on favorable terms, it may well
stifle aggressive attempts to develop competing methods of bypassing the
cable plant. Interestingly enough, what got AT&T into cable in the first
place is their recognition that it was unworkable to be dependent on the
local facilities of an ILEC. They found a bypass. Indeed, the intense
fear and anxiety over AT&T\'s cable play has led to more energy and
action on the DSL and wireless fronts than we have ever seen.
Competitors are responding. The market has identified the risks of cable
monopoly and is working on a solution. Investment is flowing. The market
may fail to find a solution and cable in fact may gain such control, but
for now, the huge benefits of the market succeeding favor letting it run
its course before cutting it off prematurely.

Of course, if a cable company were to monopolize the access market,
there would be some loss of consumer choice, but this loss is probably
overstated. As discussed above, consumers will retain in all likelihood,
full choice of content. That, more than anything else, is what is
critical. The real value of the Internet is that it allows users to
visit any corner of the world, trade in virtually any market in the
world, purchase from nearly any seller in the world, communicate with
nearly anyone with the basic computing tools in the world. If these
choices are fully maintained, the most critical risk associated with
cable plant monopolization is averted.

Undoubtedly, a vertically-integrated cable Internet provider may have
the ability and even some incentives to attempt to corral consumers into
particular content choices, or bar them access to others, but I
seriously question whether that business model will be sustainable in
the long run. The day someone sees a web URL on the side of a bus for a
cool store that sells a jacket they want, and the cable company\'s
portal does not let them get there, or impedes their ability to get
there, I would not want to be on the customer service line when the call
came in. This kind of interference or blockage should become even less
tolerable over time, as younger, more sophisticated generations become
purchasers. This reasoning is consistent with the history of Microsoft
Network and other firms whose near death experiences suggest that
service providers may not succeed in the long run if they pursue a
proprietary approach to computing and the Internet.

5.  [What is the public policy interest served by protecting
    competitors?]{.underline}

The flip-side of focusing government intervention on protecting
consumers is that regulators should avoid intervening merely to protect
competitors. As I have repeatedly stated, our job is normally not to
protect competitors. And, to the extent appeals for regulatory
intervention are premised on protecting particular competitors or
classes of competitors we must demand to know why or how that is the
appropriate focus of public policy.

Internet time is brutal. It is not surprising that in the relentless
race to innovate, firms will seek to use government to slow the pace,
gain an extra step on their competition, or hold back their competition.

But government should not allow itself to be used as leverage in
business transactions, or to be used to remedy bad business decisions or
mitigate untold risks. Nor should we act to preserve business segments
or models that may have been transitional, or that do not add
significant value to the distribution chain where new technologies have
been introduced. For example, ISPs are critical in a dial up system.
ISPs receive analog phone signals converted them to digital IP protocols
and pass them through to the Internet. Yet, in a cable platform, ISPs\'
value may become diminished somewhat if the signal comes out of the home
already converted to IP and passes to the Internet directly by the cable
system.

This is not to say ISPs will disappear. They will continue to provide
important services in dial up and will do so for the foreseeable future.
Moreover, most of these providers have core competencies that I believe
can be easily converted to other Internet and data based endeavors. But
absent a clear anticompetitive effect on consumers, preserving a leading
role for ISPs in cable platforms, where they may be less important, is
arguably protectionist.

## III. REGULATORY ACTION {#iii.-regulatory-action .unnumbered}

So what lessons for those who advocate or consider government
intervention can we learn from this application of \"judicious
intelligence\" to the question of mandated cable access?

[First]{.underline}, given the dynamic record of the Internet market
dynamics, I start with a rule of decision---a burden of proof, if you
will. I am of the view that anyone advocating the extension or intrusion
of regulation into such a vibrant market bears a heavy burden of proving
that the \"public\" will be harmed, absent doing so. Proffered arguments
should be eyed skeptically and critically. We must have enough courage
to test and cross-examine rhetorical appeals -- \"digital divide,\"
\"light touch,\" etc. are great sound bites, but are they truly
meritorious arguments, or just clever window dressing for purely
short-term self-interest? This is what we must examine.

[Second]{.underline}, we should favor antitrust application to actual,
substantial harms to consumers over industrial policy.
Government-orchestrated industrial development may be unwise generally,
but it is especially inappropriate in a market like the Internet. The
Internet is driven aggressively by constant change. Predictive
speculation is dangerous enough when practiced by experts steeped in
this industry. It is completely fool-hardy (if not dangerous) when
practiced by government. Moreover, government simply is not responsive
enough to manage such rapid change. Every rule or ruling we issue is
likely to be obsolete the day it is written.

Proponents of cable access regulation often sprinkle their arguments
with a parade of speculative harms that will befall consumers or the
market. If we truly are focused on addressing real, rather than
speculative, harms, one must demand an answer as to why the existing
antitrust laws are not sufficient to protect consumers. The advantage of
such laws is that they do not impede market development in the early,
more speculative stages of development. Rather, antitrust steps in when
one can demonstrate, through a fact-intensive inquiry tested in court,
that there are likely anticompetitive effects.

[Third]{.underline}, we should carefully assess the costs of regulation,
including direct costs, indirect costs and opportunity costs. It is not
that difficult to identify a problem and suggest the answer in terms of
a general rule or provision of law. In so doing, however, it is easy to
ignore the enormous costs and complexities of trying to actually craft
and implement rules that are clear, effective and efficient.

For example, as mightily as proponents resist the argument, it seems
inescapable that if we mandate a right to equal access to cable plant,
we will quickly find ourselves mired in \"common carrier-like\"
regulation. Undoubtedly, the minute that an entrant asks to have access
to a proprietary cable Internet system, there would be disputes over the
price. It does not take much to imagine that dispute being brought back
to the Agency or the courts with a demand for non-discriminatory pricing
parameters, maybe even forward--looking pricing (TELRIC even!).
Subsequently, one can imagine, an entrant (ISP) asking to interconnect
at the CMAT, which would require placing equipment on the premises of
the incumbent. Calls for collocation rules would soon follow. Disputes
over ordering (OSS), disputes over maintenance and trouble ticketing,
etc.

Every common carrier staffer knows the litany and the expense in terms
of man-hours, litigation, cost of compliance, and most importantly in
this new Internet world, LOSS OF TIME! Mandating open access to cable
could unleash a never-ending regulatory exercise to catch up with
change. One must ask if that exercise would be ultimately futile.

Government intervention may also engender opportunity costs. For
example, if we intervene prematurely to mandate access to cable plant,
the harm may be greater to consumers than they would incur if regulators
waited until evidence of sustained market power develops. Such
intervention could stifle the development of alternative paths to the
home that are currently under development and which are attracting
investment. Ironically pronouncing cable an essential asset and
declaring regulation of that asset may risk condemning customers to
regulated monopoly control of access. On the other hand, if we decline
to mandate such access until we have something tangible to address, we
would be in a position to surgically tailor government intervention in a
manner that is least disruptive to the market. I generally reject the
retort that it will be too late if we wait until then, for I believe
that an access requirement now would only be marginally less complicated
than one later.

In closing, I would note that whatever the answer to the question of
mandated cable access is, I am skeptical that answer can be developed in
hundreds of different ways by state and local franchise authorities. If,
in the wake of the recent decision in Portland, we see a contagion of
different approaches proliferate throughout the country we will end up
with an incoherent, disjointed policy melange that seems sure to impede
the development of advance services, in any form, for our citizens. Such
concerns underlie the Constitutional commitment to interstate commerce
and the federal supremacy clause.

But for now, I hope to focus the debate not on *how* or *by whom* access
to cable should be mandated, but rather on whether mandated access is a
wise policy at all. In sum, my current view is that the Commission has
wisely chosen to follow the path revealed so often on the pages of Meg
Greenfield\'s columns: the path of \"judicious intelligence\" and rigor.
Though we remain open to the merits of mandated cable access, we have
wisely, and affirmatively, elected to place a very high burden of proof
on those who would have us supplant the market in such a robust and
vibrant industry as the Internet.

Thank you.