**Remarks of**

**Michael K. Powell**

**Chairman**

**Federal Communications Commission**

## At the

## National Summit on Broadband Deployment

**Washington, D.C.**

### **October 25, 2001**

**\[as prepared for delivery\]**

Broadband is on the tip of everyone's tongue. It has certainly become
the central communications policy objective in America. It is, at once,
trumpeted as the elixir for everlasting life and the cure to all our
ills. Though our euphoria for broadband may, at times, be quite
over-inflated, I share the view that deployment will have very positive
benefits for the Nation and the world.

I must say, however, I continue to find the broadband discussion and
debate hazy and muddled. I have attended many conferences on the subject
and often the central conclusion is nothing more than broadband is
really great stuff and we all want it. What I think is lurking in many
of these forums, is what role government should play in quenching our
thirst. I believe to address that question we need to dig deeper than
endorsing the benefits of faster deployment and reciting the challenges.
I believe we need to have a more focused discussion on a very key set of
questions:

1.  **[What is broadband?]{.underline}**

Oddly enough a clear, uniformly accepted definition evades us. It is
accepted that whatever broadband is, it is fast (the Commission has
defined it as 200kbs). We have very forceful debates about how fast is
fast enough. I submit, however, that broadband is not a speed. It is a
medium that offers a wide potential set of applications and uses. With
the telephone, we knew what the "killer app" was. It was voice. The
"broad" in broadband should be recognized as meaning more than the "fat,
fast pipe." It should represent the nearly infinite possible uses and
applications that might be developed and that a consumer might use. I
think broadband should be viewed holistically as a technical capability
that can be matched to consumers' broad communication, entertainment,
information, and commercial desires.

I start by trying to come together on what are the indispensable
components of broadband functionality. It is, to my mind, (1) a digital
architecture, (2) capable of carrying IP or other multi-layered
protocols, (3) that has an "always on" functionality, and (4) that is
capable of scaling to greater capacity and functionality as uses evolve
and bandwidth hungry applications emerge.

I also believe that we should conceptualize broadband capability as a
function that can ride on many different electronic platforms. Broadband
is not a copper wire. It is not a coaxial cable. It is not a wireless
channel. It is all of these things. The capability can ride on many
platforms (and should) in order to tailor solutions to consumer patterns
and interests.

2.  **[How should we measure broadband deployment progress and
    success?]{.underline}**

As I have said, we all want some broadband. There also is some angst
that it is not here, or that it is not coming fast enough. There is a
feeling of disappointment and anxiety. Yet, before we argue for
particular actions, especially government actions, we should have some
common understanding of what to measure.

I believe that the key measure is *availability* of the service, not
adoption rates. I emphasize availability, because there are many
questions that remain as to what services consumers will value, and to
what degree they will be willing to subscribe. I am hesitant to let
adoption rates drive government responses, for a developing market needs
the cues provided by consumer free choice.

By some measures, we have fairly wide deployment of broadband service.
According to J.P. Morgan, 73% of households have cable modem service
available, and 45% of households have access to DSL. Combined, broadband
availability is estimated to be this year almost 85%. The intriguing
statistic is that though this many households have availability, only
12% of these households have chosen to subscribe.

There are many possible reasons for this demand gap. Consumers may not
yet value the services at the prices they are being offered. That is,
the prices may be too high, in the minds of consumers, for the value
they get. This highlights the classic chicken and egg dilemma. Broadband
applications that consumers value are not yet offered to justify
broadband service, yet the lack of broadband subscribers inhibits
subscription---similar problems exits in many network industries.

The content-egg/distribution-chicken is a common, and major obstacle in
industries that have complimentary network effects. The CD player would
not be successful without available CDs to play. Game consoles like
PlayStation struggle with the same problem, and digital television is
facing this challenge as well.

Broadband hungry applications are still trying to make their debut. It
is important to observe that much of the broadband-intensive content
that is likely to be the core of broadband applications (like movies and
music) is in the hands of major copyright holders that are unlikely to
make it widely available without stringent protections and a way to
profit from its distribution (see, for example, the Napster experience).
This will take some hard work and time.

There are many things, other than availability, that can and should be
measured. Demand may not be the right measure to justify government
intervention, but it tells us a great deal about how central this
innovation is to our lives and how highly consumers value it. It is
important to identify patterns of deployment to see if market failures
are barring deployment in certain areas of our Nation. Policymakers that
are concerned about education, telemedicine, public health and safety,
and other important areas may wish to focus on demographic differences
as well.

3.  **[Do we have a problem that needs a solution, or are we arguing for
    an industrial policy?]{.underline}**

As we discuss and debate what to do, we must make clear what government
role we are arguing for. On the one hand, there is the view that we are
trying to study the market and diagnose problems that might be
addressed. Here, I think we should be looking for clear market failures.
I caution, however, that we have to thoughtfully distinguish between a
true market failure, and what is simply hard or challenging. Market
participants will pound away at difficult challenges in order to deliver
service. They are very often capable of solving those problems through
technological innovations, marketing, creative financing and many other
skills that solid businesses possess. In struggling through the
challenge, it will be common for some to want to try and leap ahead by
securing government assistance. Market failure might demand a government
response, but market challenges should be left to market players.

The broadband debate often echoes not as a discussion over the need for
government solutions, but as a call for a national industrial policy to
affirmatively drive broadband deployment. I will not dismiss that such
an approach might have merit, though I am generally skeptical of this
role for government (incidentally, it is the approach we took with
digital television). Yet, we need to be very clear which exercise we are
talking about, so as to focus our energies on the right problems and the
right solutions.

4.  **[What are the tools and solutions available to
    government?]{.underline}**

A lot of energy has been expended on whether there is a case for
government involvement, but it is often divorced from what form of
involvement is possible or realistic. Affirmatively, government has only
a handful of tools and it may be useful to tailor discussion about
broadband deployment around them. Those tools are:

-   **Directly paying for build-out, by subsidizing consumers or
    providers.**

Government can always, if it chooses, offer direct subsidies to pay
producers to produce service or pay consumers to consume it. Such direct
subsidization is fairly out of favor in the federal government these
days, generally, and would require the most compelling justifications.
Of course, government sometimes compels carriers to pay a portion of the
cost to subsidize consumers. This is what essentially we have in the
universal service program for telephone service. This form of universal
service, however, would have to be levied very broadly among producers
and service providers, or we run the risk of only adding to the
formidable expense of constructing these networks, and further
restricting progress.

-   **Indirectly paying, by offering tax incentives to either consumers
    or providers.**

A corollary to direct payment is tax breaks of all varieties. The
federal government in recent years is somewhat more willing to consider
targeted tax cuts to stimulate favored economic activity, but here too
the burden of proof to justify a major program is fairly substantial.
Again, such tax breaks could be targeted on either the supply side, or
the demand side. Given the investment incentives needed to drive
decisions to build the infrastructure, demand-side tax breaks may be
more meritorious.

There are other forms of tax relief, however, that might be employed.
One, very often debated, is to allow for more accelerated depreciation
of infrastructure and equipment. The faster one can depreciate assets,
the greater tax advantage in any given year, which might stimulate
high-tech investment generally. Given that a great deal of equipment
being deployed for advanced services have much shorter useful lives than
once assumed, this may be a fruitful area for consideration.

State and local governments have routinely demonstrated creative use of
tax incentives and subsidies to attract investment. Whether it is
attracting a new stadium, a manufacturing plant, a corporate
headquarters, or a WallMart, States have a vast amount of experience in
the art of attracting investment. I believe there is a great deal that
can be done in using these methods to attract broadband investment, as
well.

-   **The Government can Aggregate Demand**

Governments can also use their resources to aggregate demand for new
services that may bring in investment. Government might do this in two
ways. First, as a large purchaser itself, it can demand high-speed
broadband services for its operations that stimulate investment. The
recent tragedy has brought renewed attention to security of networks,
redundancy, high-speed reliable capability and this may result in
greater government expenditures on networks.

Government and community leaders can also attempt to organize
communities and then partner with local broadband providers to bring in
service. We have seen a number of very effective initiatives by local
communities that aggregate demand in a manner that entices broadband
providers to serve that community (for example, in Berkshire and Cape
Cod, MA, and Evanston, IL). Additionally, efforts to build technology
community centers, wire schools and libraries and other such efforts can
make a community more attractive for broadband investment (we see this
happening today, for instance, in Alaska).

I propose working with the Joint Federal-State Conference to identify
successful community-industry partnerships, aggregate their experiences,
and make them available to communities interested in employing
successful approaches to bringing advanced services to their
communities.

-   **Removing Legal Barriers**

Clearly, legal restraints can retard deployment of new services. The
government (as the author, keeper and enforcer of the laws) can look at
modifying or relaxing laws and regulations that impede deployment. Let
me offer some examples. I discussed earlier the chicken and egg problem
of broadband content and distribution. Much of what is holding broadband
content back is caused by copyright holders trying to protect their
goods in a digitized environment (in other words, a perfect reproduction
world). Stimulating content creation might involve a re-examination of
the copyright laws. Arguably, VCRs would not be widely available today
if Universal Studios had won its infringement case against Sony in 1984.
They won in the Supreme Court by a vote of 5-4.

Another example is the regulations that govern rights of way, zoning,
and building codes. I often hear venture capitalists and broadband
providers complain that these local restrictions are some of the most
vexing problems in bringing new services to consumers. No town likes a
cell tower nestled among the fall foliage. Few cities welcome trenches
through their streets during rush hour. Nonetheless,
governments---principally state and local---control the terms and
conditions of local upgrades and can be more pro-active in facilitating
deployment in their community, if they initiate broadband initiatives
that encompass judgments about these rules.

Regulatory classification of broadband service and the terms of its
regulation is also a critical area where government affects broadband
investment. I believe strongly that broadband should exist in a
minimally regulated space. Substantial investment is required to build
these networks and we should limit regulatory costs and uncertainty. We
should vigilantly guard against regulatory creep of existing models into
broadband, in order to encourage investment. Moreover, very substantial
questions remain about consumer demand for new applications. Innovation
is critical and can be stifled by constricting regulations. Regulators
absolutely retain a vital role, however; they should steward the
development of a minimally regulated broadband regime, and they should
focus their energies on demonstrable anticompetitive risks in
provisioning.

A final area, admittedly of great controversy, is where government draws
the line in its competition policy. In the 1900s, the government made a
concerted decision to sanction monopoly in order to get the scale and
scope to bring ubiquitous and affordable service to all Americans. It
was believed that telephony was a public good and was best provided by a
single firm. It was a decision that certainly succeeded in its goal, but
at some future cost. Such an approach requires heavy regulation to
protect against the anticompetitive and anti-consumer tendencies of a
monopolist. And, it requires heavy government management of expenses,
revenues and rates. One can hear the faint sound of trolley cars
clicking along in today's debates about how broadband will get to all
Americans and who will do it.

Economic scale does matter and it does take a great deal of resources to
deploy these networks. There will be a very strong pull towards greater
concentration in these markets to get the job done and we will be forced
to consider the trade-offs. I am equally convinced, however, that
competition can exist in the race to deploy broadband platforms and that
policy should not foreclose competition and jump on the monopoly trolley
as it did in the early 1900s. No matter what your view, it is important
for us to identify this issue---that competition policy must take
account of our broadband deployment goals and that we have to calibrate
our judgments and, most importantly, our expectations.

5.  **[What Dangers must we avoid?]{.underline}**

As we wrestle with developing a coherent broadband policy, it is very
important to hone in on dangers and pitfalls to consciously avoid. I
have tried to identify a few that are critical in my own mind:

# Avoid the "One-Wire" Problem

We should strive with all our might to avoid the "one-wire" problem that
precipitated heavy regulation and still confounds so many of our
competitive objectives in telephone policy. So much of the government's
involvement in the regulation of telephone services, and the deep and
legitimate concerns about anticompetitive and discriminatory behavior,
stems from the fact that the telephone system evolved around a single
loop bringing service into the home. That loop arguably became an
essential facility---prohibitively expensive to duplicate by other
would-be providers. That necessitated a hornets-nest of regulations to
ensure some amount of non-discriminatory access to the customer.

This process is proving cumbersome and nearly intractable. If at all
possible we should work to keep multiple platforms and routes to the
home open and viable in a broadband world. We need to keep incentives
alive that encourage investment in alternate platforms (such as cable,
wireless, and satellite) and push entrepreneurs to find creative ways to
bypass incumbents and get into the home.

-   **Achieve Universal Service, but in a Sound Economic Manner**

First principles first. It is beyond question that our objective has
been, and should remain, achieving ubiquitous availability of service at
affordable rates for all Americans. It is the right goal, and it is the
law. I do not waiver in my commitment to that principle. Universal
service has been very successful in bringing telephone service to
Americans, and narrowband Internet services as well. Yet, the program we
steward today was constructed on the presumption of a monopoly
environment. It was an outgrowth of that turn of the century marriage
between Ma Bell and Uncle Sam. It has also proven to be an
under-appreciated obstacle to bringing competitive services to all
Americans, after we sued for divorce in 1996. I think we have a golden
opportunity with broadband to deploy new services to all Americans,
while ensuring proper economic principles are preserved, so that those
services are low priced, competitive, and innovative.

-   **Be Cautious not to Embed Inferior Technology**

Government is a notoriously bad investor. It tends to buy high and sell
low when it comes to predicting technology winners and losers. One
lesson from all of this is that we should be careful to embrace too
quickly any one technology or service. For example, I believe wiring of
America's classrooms has been successful, but if starting again today we
might have built wireless LANs in the schools rather than hardwire every
classroom. It would have been cheaper and probably easier to upgrade and
evolve as new applications arrived. Industrial policy overseas has often
erred by placing its arms around a particular technology, a particular
form of service, and, very often, a particular set of providers. This
very often leads to expensive flops, when the real killer applications
emerge and more elegant solutions are designed.

The market is the best vehicle designed by mankind for innovation, for
technology change and evolution. I would caution we review fully the
lessons of economic history to deepen our appreciation of that fact.

-   **Do Not Misalign Incentives**

Government sometimes, resting on hubris I suppose, has a tendency to
have inflated confidence in its ability to make, force or demand a
result against the will of a market participant. The government
sometimes acts like an indignant customer demanding to be served, but
who has no intention of paying. We place orders for public policy
widgets and expect them to be delivered at provider expense. This in
some ways is like an unfunded mandate.

We have to recognize that a supplier at the end of the day is going to
do very little to fill the order if it does not have an economical way
of doing so and getting paid. These suppliers are normally owned by
public shareholders---you and me---and their first fiduciary duty is to
serve the public, by maximizing the interests of that segment of the
public that owns the company. In setting out our policy goals, we must
simultaneously attempt to support an economic environment that will
allow the supplier to get adequately compensated, or we will have many
years of dissatisfaction because the supplier will rarely fully perform.
In short, we must be much better at trying to pursue public policy
objectives that align provider incentives, rather than act at
cross-purposes with them. Government rarely has enough muscle to force
private actors to their knees.

-   **Avoid Heavy Regulatory Models**

I have said something of this already. But let me be more blunt. When
someone advocates regulatory regimes for broadband that look like, smell
like, feel like common carriage, scream at them! They will almost always
suggest it is just a "light touch." Demand to see the size of the hand
that is going to lay its finger on the market. Insist on knowing where
it all stops. Require they explain who gets to make the key
decisions---if it is enlightened regulators, rather than consumers and
producers, walk out of the meeting.

Broadband is a synergetic product of two great waves crashing into each
other. The first is the mature and heavy regulated world of
communications. The second is the swift and unregulated peak of the
computer revolution. The world waits to see whether the force of the
second will subsume the regulatory energy contained in the first. It
should and it will if we let nature take its course and not let the
yellow submarine of central planning come crashing to the surface.

I hope my remarks have been helpful in focusing the debate on broadband
policy. I thank you for inviting me to be with you today.