**Remarks**

**Of**

**Michael K. Powell**

**Commissioner**

**Federal Communications Commission**

**Before**

**D.C. Bar Association Computer and Telecommunications Law Section**

**and The Federal Communications Bar Association**

**Washington, D.C.**

**September 29, 1999**

**\"Law in the Internet Age\"**

INTRODUCTION

Good morning, ladies and gentlemen. It is my pleasure to be here with
you today and to participate in the D.C. Bar Association\'s fifth annual
technology law conference on \"The Challenge of Regulating the Digital
Marketplace While Advancing E-Commerce.\"

ALL HAIL THE INTERNET

Interestingly, a few years ago, many of you in the audience, lawyers and
such, probably were not thinking of or discussing the Internet,
electronic commerce and the digital marketplace. It was the exclusive
domain of engineers, principally in Silicon Valley. But everything today
is the Internet, the Internet and more Internet. Our world is one where
every billboard, bus sign and advertisement is stamped with some URL.
The Internet, in a relatively small amount of time, now captures so much
of our collective attention and interest. The advent of the telephone
was ushered in when Alexander Graham Bell uttered the first words to be
carried over wire: \"Mr. Watson, come here, I want you.\" Close to a
hundred years after those words, in October 1969, a similar moment
transpired when the University of California at Los Angeles linked a
computer over ordinary telephone lines to a computer installed in Menlo
Park, California. Once the line was opened, UCLA typed the dry message
\"login\" to activate the line. Although the system crashed moments
later, it was a defining moment for networked computers and heralded the
arrival of the Internet.

Today, this technological development is changing nearly every aspect of
our lives, faster and perhaps more profoundly than any preceding
development: including the railroad, the telephone, electricity, air
travel, radio & television, and even plastics.

Now I am not one to tick off statistics normally, especially when
hyperbole is so often used to color artificially the importance of a
given technology or service. However, the magnitude and frenetic pace of
Internet change is so plainly revealed by the gravity of the numbers,
and probably even understated because we are so slow to capture the
relevant data, that I must convey what I find truly impressive:

1.  Consider that in 1969, with the advent of Arpanet, the precursor to
    the Internet, there were four interconnecting university networks.
    By 1980, the number of Internet users expanded to 10,000. By June
    1999, there were 100 million worldwide users in June 1999. Today,
    there are 200 million users. And, given the fact that the Internet
    doubles every 100 days, that figure may have been eclipsed already.

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1.  Put another way: According to the Department of Commerce\'s 1998
    report on \"The Emerging Digital Economy,\" the Internet has
    shattered the penetration rates of all previous technologies. Radio
    was in existence 38 years before 50 million people tuned in.
    Television took 13 years. PCs took 16 years. The Internet hit the
    ticker tape in 4 years and is still going strong.

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1.  A recent University of Texas study estimates that the Internet
    engine already generates \$301 billion if you include online sales
    of industrial and consumer goods and services as well as equipment
    and software to support e-commerce. Major industry commentators
    forecast that e-commerce revenues could soar as high as \$1 trillion
    by 2005.

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1.  And users of e-mail, the lifeblood that pulses through the veins of
    the Internet, has exploded. In 1995, the number of e-mail messages
    sent on an average day was 300 million. That number will reach 3.5
    billion this year, and is expected to be 8 billion by 2002.

    The Irish poet John O\'Donohue once remarked that \"E-mail is like
    coming home at night after a long day and finding 70 people in your
    kitchen.\"

    The Internet, clearly is one of the most profound developments of
    our time, for it affects the most fundamental tenet of human
    civilization-communication. How we talk, how we love, how we buy,
    how we sell, how we fight, and how we build. Communities are molded
    by our method and manner of communications.

    The Internet is all things, at once, that we need and use: it is a
    communications medium, it is a market, it is a library, it is a
    bank, it is a grocery store, it is a movie theatre, it is a
    government, and, regrettably, it is also a crime scene.

    Because this zone of activity is where commerce will be found, where
    privacy will be violated, where money is transferred and contracts
    made, and where fraud is practiced, it is unquestionable that
    government and the rule of law, too, will ultimately be found,
    though perhaps in very different forms.

    And, because the FCC has had historical regulatory responsibility
    for the underlying infrastructure (the "rails") on which
    communications ride, such fundamental changes in communications will
    raise serious questions for policymakers as well. Perhaps not
    directly, but we most definitely do, and will increasingly, regulate
    aspects of the Internet.

    The important public policy question is not whether to regulate the
    Internet or not, as if that were a realistic choice. Rather, it is
    how to regulate it responsibly in a manner that maximizes consumer
    welfare and does not stunt its infinite growth and innovation
    potential.

    GUIDING PRINCIPLES OF REGULATION IN AN INTERNET WORLD

    In reflecting on the Internet, I have come to believe that a
    responsible regulatory model must weave into its philosophy, its
    organization, and its rules certain key guiding principles, which I
    would like to outline.

    [The Uncertainty Principle]{.underline}

    The first lesson that must guide our understanding is that it is
    nearly impossible to predict where the Internet and digital
    convergence are going. Indeed, it has become a bit of a hobby of
    mine to collect quotes of learned individual\'s failed predictions
    about the future course of new technologies. (As an aside, if you
    like such things, I recommend Cerf and Navasky\'s book [The Experts
    Speak: The Definitive Compendium of Authoritative
    Misinformation]{.underline}). Consider a few:

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1.  Thomas Edison\'s failed prediction that \"The radio craze . . . will
    die out in time.\"

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1.  Or Western Union\'s statement in 1876 that \"This telephone has too
    many shortcomings to be seriously considered as a means of
    communication.\"

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1.  Or, the statement that \"640k ought to be enough for anybody\"
    espoused by Bill Gates.

    This point about uncertainty simply cautions us to heed the
    economist Friedrich von Hayek\'s warning that \"it is high time. .
    .that we take our ignorance more seriously.\" Rules rest on
    assumptions-about technology, about costs, about markets, and about
    behavior. The stability and usefulness of our rules are dependant on
    these assumptions remaining valid for at least some reasonable
    interval of time. In Internet time, the assumptions can be fleeting,
    for the dynamic is one of swift, and at times, blistering change and
    evolution. Our rules and policies must recognize this and
    incorporate mechanisms for dealing with changing foundations.

    In more practical terms, Robert Cringely, host of the PBS
    mini-series \"Triumph of the Nerds,\" proffered 5 rules of
    prognostication:

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1.  [First]{.underline}, we tend to overestimate change in the short
    term

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1.  [Second]{.underline}, we tend to underestimate change in the long
    term.

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1.  [Third]{.underline}, the more specific a prediction, the less likely
    it is to be correct.

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1.  [Fourth]{.underline}, past performance is a predictor of future
    result, but not a good one.

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1.  [Finally]{.underline}, the most reliable predictions are those that
    follow established trends.

Rulemaking requires some speculation about the future and change, but we
would be wise to keep Cringely\'s rules in mind.

Speculations about markets and competitive developments are particularly
challenging in Internet space. Long-held assumptions about monopoly and
entry may themselves be evolving. For one, the near immediate
dissemination of new ideas and concepts make protecting monopoly
positions difficult to maintain. Consider Microsoft\'s competitive
predicament, facing competitive attacks by upstarts from all quarters.
Also, one may have to look for new entry by previously unimagined firms.
Consider the company Global Crossing. This company was founded about 2
years ago, with \$75 million. This year, they made an astonishing bid to
buy USWest-one of the oldest most venerable old line institutions in our
economy. US West was ultimately purchased by Qwest, a company not much
older than Global Crossing. This is mind-boggling. A few short years ago
it would have been thought to take generations to enter a market and
subsume a company of US West\'s size and venerability. Similarly, could
car dealers have imagined that one of their biggest competitors would be
AOL or Microsoft? We must take account that previously unimaginable
things have entered the realm of the possible.

Uncertainty also presents a challenge. The technology markets create
enormous competitive opportunity, but great anxiety as well. Because of
the pace of change and the quickness with which one can challenge
established competitors, companies will naturally hunger for both
regulatory assistance in inhibiting a competitor, and help in setting
the direction of market developments (usually to the proponent\'s
favor). Arguments to intervene often are couched as necessary to prevent
anti-competitive behavior, even if such behavior has yet to occur. I
strongly believe the Government has a role to play in stopping
anti-competitive conduct, but it is a dicey business to do so based upon
speculation about the future consequences in such a rapidly changing
marketplace. Indeed, quite often, proponents of intervention are
attempting to get the government to embrace a particular vision about
the future and take actions in furtherance of that vision. This kind of
activity used to go by the name of \"industrial policy.\" I think such
action is dangerous, because such a dynamic marketplace, driven by
change and innovation, should not be tipped by government but should be
allowed to play out.

> [The Spontaneous Generation Principle]{.underline}

A related principle is what I call the \"spontaneous generation
principle.\" This principle is akin to the \"uncertainty principle,\"
but with a key difference. Many people understand the perils of
prediction, but they still assume that in the future that some
destination will be reached and change will settle out, for at least
awhile, as it has often done in prior revolutions.

In the Internet sphere, however, change may be more akin to biological
evolution than to the concept of simply doing something differently.
That is, the market [never]{.underline} settles fully, but is in an
un-ending state of flux and innovation, constantly re-making itself,
sitting still for no one, no company and certainly no regulator. This is
not a radically new idea. In fact, it is a slight variation on economist
Joseph Schumpeter\'s concept of creative destruction, where
entrepreneurship \"incessantly revolutionizes the economic structure
from within, incessantly destroying the old one, incessantly creating a
new one.\"

But the catalyst of the Internet and digital convergence makes this
regeneration more rapid and explosive than Schumpeter may have ever
imagined. Moreover, the billions of interactions of ideas that are
facilitated by the Internet mean that the genesis of entirely new
species of products and solutions are now possible (perhaps
inconceivable to any one person or institution before).

In a recent *Business Week* article, Robert Hof finds a good description
of this phenomenon, by way of Jeffrey Bezos of Amazon.com, who suggests
that one must go back deep in time to find an apt precedent for what is
occurring. Bezos says, to the Cambrian period, 550 million years ago,
where something snapped. In the space of less than 10 million years,
there was an explosion of multi-celled organisms. Strange new life forms
appeared. These species were so varied and numerous that their basic
makeup underlies nearly all life today. Says Bezos: \"Evolution tried
every conceivable path-really fast.\"

Such a living market is not customary to regulators and it will be our
supreme challenge to adapt to its demands.

> [The User Rules Principle]{.underline}

The third principle is the \"user rules principle.\" Regulation has had
the persistent character of being somewhat paternalistic. Consumers are
often presumed to be naïve about the complexities of the industry and in
need of a bit of protection from daddy and mommy regulator. In the
freedom of contract era, before the dramatic rise of the regulatory
state, we often left buyers to fend for themselves, cautioning *caveat
emptor*. Regulation, in part, was designed to help protect and equalize
the inequities of power in this relationship with good reason, because
many companies viewed customer ignorance as a profit center.

But things have changed because of the Internet. For one, the network
architecture itself has changed. Previously, the brains of the network
were centralized, controlled by a handful of companies and institutions.
On the periphery lived the customer, using dumb devices usually to
receive that which was pushed to them by those in control-the ring and
voice of a phone call, the images of broadcast or cable television.

The Internet is fundamentally different. It is the network that is
stupid. The brains reside in the hands of the users on the outside of
the network. On command, these users eventually will have the power to
choose what they wish to hear and perhaps in what form and in what
language. They will be able to view the movies and entertainment they
want from a worldwide selection, when they want. And, they will be able
to dynamically configure the network to their needs, without a call to
the local phone company or bit provider.

Business is beginning to recognize this sea change. Again*, Business
Week* noted, \"A Copernican revolution of sorts is under way. Executives
used to imagine their companies as the center of a solar system orbited
by suppliers and customers. The Internet is changing that-dramatically.
Now the customer is becoming the center of the entire business
universe.\"

In short, the Internet model is shifting the balance of power further
toward the consumer. The consumer will have new tools to protect their
interests and maximize their welfare. There may be less of a need for a
government nurse-made. Certainly not entirely, but I am convinced that
rules and regulations will have to increasingly yield, or perhaps more
appropriately liberate consumers to use the new tools to make
personalized, tailored choices about goods, services and risk they want
to assume, without the one-size-fits all interference of governmental
rules.

> [The Borderless Principle]{.underline}

The fourth consideration for future regulation is the need to appreciate
that the Internet and communications will know no borders and respect no
limits. It will not respect the artificial boundaries of nations,
states, or LATAs.

This poses significant challenges for the regulator. Traditionally, we
have used distance as an organizational principle. There is long
distance service, local service, and intra-LATA tolls. There is state
and federal jurisdiction and regulations. There are rules for Europe,
and different rules for Asia. The Internet, however, could care less
just as, increasingly, could those who use it. Markets will become even
more global.

Yet, traditionally, telecommunications regulation and law generally rest
on borders. The challenges of jurisdiction alone are extremely thorny.
Many of our rules use different cost assumptions and service assumptions
based on their defined geographic scope. This will be less meaningful in
the future.

> [The Futility Principle]{.underline}

Finally, I will conclude with what I call my \"futility principle.\" In
short, no matter how genuine our concern, or sincere our effort to
address an imperfection in the market, we must stop and ask ourselves if
it is futile to attempt to craft a meaningful rule in a timely manner.

We at the FCC are saddled with an organizational structure that may not
be adept at efficiently addressing certain developments in the market.
We have limited resources, a legacy bias and limited ability to keep
pace with technological changes and trends. Therefore, we must
constantly, and honestly, ask ourselves whether a proposed rule can be
crafted quickly enough and clearly enough to make a positive
contribution to the market, for a really good rule adopted too late may
as well not have been adopted at all.

THE LAW WILL MATTER

Since I am speaking to a group of attorneys let me conclude by saying
that law will matter in the Internet Era, despite the idyllic
libertarian predictions to the contrary of some. The medium may change
but humans and their relationships fundamentally will not.

Markets still desperately depend on the rule of law for their proper
functioning. Contractual commitments still must be binding in
cyberspace. Questions about whose law will govern in a borderless world
will have to be answered. Private property still will have to be
protected - in a space where it is easily trespassed or stolen. People
still will be harmed by tortuous activity. And, bad actors will only
find more creative ways to steal, cheat, deceive, injure and even kill.

Law will have to venture into this new world. Improved understanding and
experimentation in self-governing will be necessary, and use of
technological solutions may have to be explored and understood.

This is the challenge of our law schools and the bar. We must work
diligently to adapt the curriculum, our statutes and the common law to
this revolution. I predict-of course at my own peril-it will be our most
important task for the foreseeable future.