***Reaching Broadband Nirvana***

**United PowerLine Council Annual Conference**

**Remarks of Commissioner Kathleen Q. Abernathy**

**September 22, 2003**

**(As prepared for delivery)**

Thank you very much for inviting me to speak with you. I am very excited
about broadband-over-powerline technology. I have seen it in action, and
I believe it has a very bright future. It is a real honor to be your
keynote speaker at this important juncture for BPL.

As a regulator, I am keenly interested in BPL technology for a number of
reasons. One of my central objectives as an FCC commissioner is to
facilitate the deployment of broadband services to all Americans. I also
fundamentally believe that the FCC can best promote consumer welfare by
relying on market forces, rather than heavy-handed regulation. The
development of BPL networks will serve both of these key goals. It will
not only bring broadband to previously unserved communities, but the
introduction of a new broadband pipeline into the home will foster the
kind of competitive marketplace that will eventually enable the
Commission to let go of the regulatory reins. I want consumers to have a
choice of multiple, facilities-based providers, including not only cable
and DSL, but also powerline, wireless, and satellite services. Such a
robustly competitive and diversified marketplace is something I would
call broadband Nirvana. We will not get there overnight, but the
continuing development of BPL technology is a major step forward.

While the long-term objective is a robustly competitive marketplace that
is free of regulatory distortions, a more immediate question is: What
should the FCC do to help foster such an environment? Sticking with my
Nirvana metaphor, I guess the question would be, what is the path to
enlightenment?

I believe the answer, in short, is regulatory restraint. It is tempting
for regulators to take every new technology or service that comes along
and apply the same rules that govern incumbent services. After all,
regulatory parity and a level playing field are intuitively appealing
concepts. But I believe that it would be a huge mistake to carry forward
legacy regulations whenever new technology platforms are established.
Many of our regulations are premised on the *absence* of competition,
and when that rationale is eroded, we must not reflexively hold on to
regulations that no longer serve their intended purpose. In fact, many
of our old rules not only become unnecessary as markets evolve, but they
can be fatal to new services that need room to breathe.

**The Nascent Services Doctrine**

This policy of restraint is something I have described as the Nascent
Services Doctrine. By avoiding the imposition of anachronistic
regulations, regulators can best allow new technologies and services to
flourish. Once facilities-based competition has taken root, regulators
can begin to dismantle legacy regulatory regimes, rather than extend
those regimes to include the new platforms. This is not a matter of
picking winners and losers; it is about creating an environment
conducive to investment in new infrastructure, because new platform
providers create competition and innovation that ultimately benefits
consumers far more than prescriptive regulation. In essence, short-term
regulatory disparities are tolerated to generate long-term
facilities-based competition.

Incubating new technologies and platforms helps establish new
facilities-based competitors, and the increased competition ultimately
delivers to consumers the benefits of lower prices, better service
quality, more innovation, and more choice. Regulatory restraint is a
necessary part of fostering such competition, because there is little
doubt that overregulation can do substantial damage to nascent
technologies and platforms. As the recent turbulence in the capital
markets has shown, companies take enormous risks when they invest
heavily in communications networks --- such as the broadband networks
being built today. To avoid creating additional disincentives to invest
--- beyond those risks that are inherent in the marketplace --- we must
resist the reflexive tendency to apply legacy regulations to new
platforms.

As I will discuss in a moment, regulatory parity is an important
*long-term* goal, because applying different regulations to providers in
a single market inevitably causes marketplace distortions and leads to
inefficient investment. As a *short-term* policy, however, accepting
some degree of disparity is not only tolerable, it is essential. For
example, when the DBS platform was created, it was appropriately exempt
from most of the legacy regulations imposed on cable operators. This
regulatory restraint allowed those nascent platforms to develop into
effective competitors. Today, as electric utilities, wireless carriers,
and satellite operators strive to bring new broadband platforms to
market, it will be equally important to avoid stifling those nascent
platforms with the heavy-handed broadband regulations associated with
the wireline telecom platform. Just as you would not build a tree house
in a sapling ― because you might kill the tree and hurt yourself in the
fall ― it does not make sense for regulators to immediately and
reflexively burden new providers with a full regulatory load. If the
ultimate goal is to develop sustainable facilities-based competition ―
and I think it is ― it seems reasonable to me to allow the new service
to develop free of most legacy regulatory burdens.

There are two distinct applications of this doctrine. First, it applies
to *nascent technologies*, which appear in the market without any clear
sense of the services they will ultimately support or the markets in
which they will ultimately compete. And second, it applies to *nascent
platforms*, which I think of as new competitors to incumbents in
already-defined markets. Ultra-wideband is an example of a nascent
technology. We do not know precisely how this technology will be used,
but we do know that it has tremendous potential and we should approach
it in a restrained manner. Broadband over powerline is the
quintessential example of a nascent platform. There is little question
that BPL services will compete with more-established cable modem and DSL
services ― and in some markets, satellite and fixed wireless services.

The FCC has a pretty good track record of adhering to these principles.
When wireless voice services were first developed, the Commission
refrained from imposing common carrier price and service-quality
regulations, despite many calls to do so in order to establish parity
with wireline regulation. Similarly, the Commission generally took a
hands-off approach to DBS services as they emerged as competitors to
cable in the MVPD market.

I am especially pleased that, when the FCC adopted its Notice of Inquiry
on BPL systems in April, we rejected proposals to seek comment on the
application of legacy regulatory requirements to this platform. For
example, some argued that the Commission should consider issues such as
nondiscriminatory access for unaffiliated ISPs, and other regulatory
requirements imposed on common carriers. I opposed such efforts because
it is premature even to *consider* such regulatory intervention. We do
not know at this point how BPL systems will evolve or, candidly, the
extent to which BPL services will succeed in the marketplace. The flow
of capital at this formative stage is critical. If the Commission
signaled that it was heading down a path toward extension of our legacy
rules, that would have a chilling effect on investment. Therefore,
raising the specter of heavy-handed regulation ― that is, ignoring the
central premise of the Nascent Services Doctrine ― would threaten to
undermine our core goals of fostering facilities-based competition and
broadband deployment.

Of course, the interest in nurturing nascent platforms cannot justify
preserving regulatory disparities forever. While my Nascent Services
Doctrine calls for tolerating short-term disparities, it also recognizes
that the *benefit* of such disparities is that they provide the impetus
to reconsider the appropriateness of our regulation of incumbent
providers. If we succeed in spurring investment in new platforms --- and
robust facilities-based competition takes hold --- we can then begin to
dismantle regulations imposed on incumbent providers and replace them
with more appropriate rules. In this way the Nascent Services Doctrine
provides a laboratory to assess the necessity of our regulatory
intervention on the incumbent provider when compared with its nascent
competitor. In contrast, if we were to extend legacy regulations
immediately in a reflexive drive toward symmetry, that would assume the
ongoing need for the underlying regulation and never allow us to assess
deregulation in the real world. Indeed, reflexive symmetry actually
institutionalizes the legacy regulation by imposing it on more providers
across all platforms, ultimately making it all the more difficult to
remove regulations from the books ― even after they have outlived their
usefulness. The Nascent Services Doctrine places the burden on the
regulator to re-institutionalize the regulations after a new competitor
has established itself in the marketplace.

We are seeing this process unfold right now as we review the rules
applied to wireline broadband services offered by incumbent LECs. The
emergence of cable operators as the leading providers of mass market
broadband services makes clear that applying more stringent regulations
to wireline providers at a minimum must be reconsidered. As other
platforms, including BPL and wireless, become more widely available,
that will further undermine the justification for regulating incumbent
LECs' broadband services as if they were the only available offerings.
When the Commission completes this rulemaking, I expect that we will
eliminate many existing rules and substantially modify others; the
central question is the degree of regulation that will remain during the
transition to a more robustly competitive market.

Finally, it is important to recognize that although the emergence of new
platforms like BPL will eliminate the need for many
*competition-related* regulations, *other* types of regulation may well
remain necessary. For example, the FCC must implement public policy
goals unrelated to competition, or even at odds with competition.
Universal service and access for persons with disabilities are examples
of this kind of regulation. These public policy goals generally should
be applied to *all* service providers, to the extent permitted by the
Communications Act. The FCC also must intervene to prevent competitors
from imposing externalities on one another and to protect consumers
where market failures are identified. Although, as I have noted, the
Commission was right to refrain from imposing heavy-handed price and
service-quality regulations on PCS services when the were introduced, it
was also right to adopt strict interference rules to prevent competitors
from externalizing their costs. The same principle will apply to BPL.
They key point is that, while some degree of regulation is both
inevitable and desirable, we should ensure that it is narrowly tailored
to the particular governmental interests at stake.

I appreciate the opportunity to share these thoughts with you, and I
would be happy to answer a few questions if we have time.