**Remarks of**

**Michael K. Powell**

**Chairman**

**Federal Communications Commission**

**at the**

**Association for Maximum Television DTV Update Conference**

**"Digital Television: The Time is Now"**

**October 22, 2002**

**Washington, D.C.**

I.  [INTRODUCTION]{.underline}

Good morning. It's a pleasure to be with you to kick off MSTV's annual
conference on digital television.

As we sit today to discuss digital television, the Federal
Communications Commission presides over a communications industry in
transition. Nearly every sector within the communications industry is
confronting dramatic industry-changing trends---migrations if you will.
And, it is doing so at a time of great economic upheaval. These are
tough days to be in the communications game.

The challenges are numerous and multi-dimensional: tough capital
markets; changing market structure; new forms of competition; fractured
consumer interests; and above all, technological disruption. This
technical dimension is, to my mind, the most central change from which
so many of the others stem.

Every communications sector is embarked on an unavoidable
journey---migrating to digital architecture in order to provide the
services of the future. These services will be marked by greater
personalization of content; diminishing significance of time and place
for communicating, informing and entertaining the consumer; and less
centralized control of services.

No communications industry is exempt. Traditional telephone providers
must migrate from copper cages to digital architecture in order to lower
costs to address greater competition and to provide new broadband data
services that consumers will demand. Cable is deploying fiber
architecture that will allow it to meet the capacity challenges faced by
satellite and to offer more of the digital and interactive services, as
well as internet and data services, that consumers are beginning to want
and expect. Wireless companies have made the switch to digital systems,
but are just now starting to focus on the kinds of new and novel
services that can run over those platforms. Radio is just starting to
introduce new products as they set foot on the digital shore. Internet
radio, satellite radio and the new IBOC standard are beginning to
arrive.

And then there is free over the air television.

Every communications sector has a leasehold on the digital land of
plenty. Their slice of the digital future is dependant on how well that
real estate is developed and utilized. Your little corner of digital
earth is Digital Television and HDTV. It is your clear chance at a
robust future.

II. [Do Not Be Fooled by the Current Upheaval]{.underline}

The dot.com craze of the late 1990s popped so loud it could be heard
around the world. It was followed by an even more spectacular decline in
the telecommunications markets as the fortune tellers' predictions of
infinite bandwidth, back-of-the-napkin business models and
never-can-loose investing all proved a dream. While fortunes were lost,
many---some of you, no doubt---could not hide your giddiness. We were a
bit tired of 26 year old millionaire phenoms, clad in khaki, denim and
soft-soled shoes, preaching the digital future like a messiah come to
show us the errors of our misguided ways.

Some of you breathed a big sigh of relief. "Ah ha,!" you were heard to
exclaim, "these "digital.coneheads" were not invincible after all."
"They have been put back in their place," you cheer as you fetch your
old ties out of the closet and ship them off to the cleaners. Nothing
like the tried and true old business you grew up with. "Digital fad, who
needs it." Smugly, you think about putting on the three-piece suit,
trading in the pea green VW bug for an Olds 98, and hey, maybe even
throwing out the computer altogether and using the old slide rule just
for kicks. "Happy Days are Here Again."

Think again. Please, for the sake of everyone around you, leave the Aqua
Velva and the brown leisure suit in the past.

It would be a grave error to see the present set back in digital life as
either a validation of the old ways, or a rejection of digital change.
Current economic conditions, discredited internet business plans and
other signs mistakenly might give that impression.

What we are witnessing, instead, is merely the classic pattern of
volatile technological change. Rather than becoming complacent about the
imperative of change, we must prepare for the inevitable rebound that
will take us further into the future. We have not been given a reprieve
from change, for history tells another story.

Brian Arthur has identified five technology revolutions over the past
few centuries, beginning with the Industrial Revolution and ending with
the current Digital Revolution. He found that each followed a specific
pattern.

At first a new and little-noticed technology "cluster" is introduced,
and technical people start small companies based on the new ideas. These
small companies compete intensely in a turbulent "start-up" phase. As
successes build, the lure of extraordinary profits leads to
over-speculation and eventually a crash.

But the interesting thing is that after the crash, the technology enters
into a period of sustained build-out or a "golden age," during which it
becomes the engine for growth for the economy.

In the final phase, the technology is mature. It has saturated its
possibilities and complacency sets in. The economy becomes ripe for the
next revolution.

Consider the railroad revolution Arthur describes in Britain beginning
in about 1825. By the 1840s, improvements in rail technology brought
about a full-scale railroad mania. Queen Victoria made her first rail
trip in 1842 and declared she was "quite charmed by it."

Suddenly, railways became fashionable. Entrepreneurs rushed in. Railway
valuations soared. Fortunes were made. New railway lines were built to
connect little-known towns to other little-known towns. People poured
their savings into railway stock. And why not? It looked like a sure
thing. That is, until reality set in and railway shares began
plummeting. By 1847, railway companies had lost 85% of their value and
several hundred had folded. Sound familiar?

But again, the important observation Arthur makes is that it wasn't the
end of the railway revolution. Most of the growth in railroads occurred
*after* the initial bubble had burst. In 1845, before the crash, there
were 2,148 miles of railway in Britain. By 1910, there were *21,000
miles*. The great majority of the railway build-out occurred *after* the
speculative mania had passed.

If Arthur is right, the digital revolution is struggling through the
aftermath of the initial speculative crash, but its best days \-- its
golden age \-- are yet to come.

III\. [THE DTV MIGRATION IS REGAINING STEAM]{.underline}

In the five years that I have been on the Commission, I have heard a
great deal of grumbling about the DTV transition: "It is a great
government give-away;" "Consumers do not want it;" "It is an unnecessary
industrial policy;" and "It's too expensive with little return."

The cold truth, however, is that we have no choice---not just because
Congress has mandated it (which is reason enough) but because the trends
in technology and the forces of change will ultimately demand it of any
provider that hopes to be relevant in the digital future.

The Commission itself has embraced the change. We recognized last April
that the transition had to be driven forward---to satisfy the wishes of
Congress, to meet the expectations of consumers, and, most importantly,
to advance free television's future---perhaps even to ensure its
survival.

Consequently, we took up an aggressive leadership role to assist in
bringing the transition home.

We began working with Congressman Tauzin and other key members of
Congress to re-energize the dialog around solutions that would move
things faster. Subsequently, we crafted a voluntary plan to speed the
transition and I am proud to say that industry has responded. We called
on the top four networks and HBO and Showtime to provide consumers with
high-definition or value added DTV programming during prime time. We
called on broadcast licensees to pass through and promote network DTV
programming. We asked cable operators and DBS operators to carry more
digital programming services and to market those services, and to allow
consumers to access that content. And we called on the equipment
manufacturers and retailers to produce the devices that will allow
consumers to view digital programming.

We have not stopped there. We have used our offices to keep pressure on
all segments of the industry to find solutions to clearing DTV
roadblocks. We are actively and aggressively engaged in matters
involving equipment compatibility, copyright protections, and carriage
obligations, just to name a few. Moreover, we have used our power to
mandate change when an industry could not - or would not- come to a
solution. We will not fail to act to keep things moving.

Comparing today with where we were one short year ago, we see great
strides made toward getting to the digital side of television's
migration.

-   High definition content on the broadcast networks is up about 50%
    during prime-time.

-   There's more HD content on cable and satellite, such as Discovery's
    24-hour HD channel. Premier sporting events like the Olympics and
    the NCAA Final Four are broadcast in HD.

-   More HD sports are on the way. ESPN HD will launch next April.
    Monday Night Football will be in HD next year, as will the Super
    Bowl, the NBA Finals and the NHL Stanley Cup.

-   Hundreds more stations are on the air in digital. Last year at this
    time, we had about 200 stations on the air. Now we have over 550. In
    the top 30 markets, which cover 54% of TV households, 113 of 119
    top-four network affiliates are on the air with DTV. According to
    some figures, DTV signals are now transmitted in markets covering
    91.9% of households.

-   Cable is coming on board. The ten largest cable operators
    (representing more than 85% of subscribers nationwide) have agreed
    to carry HD programming and deploy HD-capable set-top boxes in the
    near future.

-   We now have a DTV tuner mandate in place, so that consumers can be
    assured that their television sets will go on working in the digital
    world just as they do today. And we adopted a phased-in requirement
    starting with the largest sets, so the price impact on consumers
    would be minimized.

Even where challenges remain, we have made much progress this year.

-   On "plug and play" cable compatibility, the basic technical
    standards are now largely complete. The cable and CE industries are
    working to resolve the remaining business issues, and they're making
    significant progress. Panasonic's announcement last week that it
    signed the PHILA agreement is an extremely encouraging sign.

-   On the "broadcast flag" copy protection, the various industries have
    worked to narrow their differences over the past year. Last August
    we initiated a proceeding to determine whether and how the
    Commission should issue rules in this area.

So to paraphrase President Reagan, "Is the DTV transition better off
today than it was a year ago?" The answer is a resounding "yes."

But it will take some time before the impact of DTV is fully felt. Look
at DVDs \-- a tremendous success story, now in 31 million homes and
rising fast. Yet studios are still learning how to develop digital
content for the DVD market. For instance, the studios are beginning to
plan the DVD "extra features" up front, as an integral part of the
process, rather than simply as an afterthought once the movie is
finished.

Eventually, digital will change television in fundamental ways. It will
change the way stories are written and told. It's a learning process, a
re-wiring of our analog brains.

Digital is simply a different species than analog.

Digital is also changing the distribution business -- not that I have to
tell you. You are all \-- I hope \-- operating two transmitters \-- one
analog and one digital \-- and experiencing the differences first-hand.
One of the major differences is the digital "cliff effect." Unlike
analog, with digital you either get a perfect picture or you get a blank
screen. There is no gradual degradation. That's a challenge for you and
it's a challenge for equipment manufacturers to ensure that consumers do
not lose service as the transition proceeds.

Cable and satellite distribute their products digitally as well.
Satellite has always been all-digital, and cable has been engaged in a
massive digital upgrade effort. Up to now, cable has used digital
technology primarily to deliver more channels to subscribers. But now,
as I mentioned earlier, the ten largest cable operators are beginning to
use digital technology to provide high definition services as well.

And again, broadband platforms, from cable modem to DSL to fixed
wireless to satellite, are proliferating---allowing ever-expanding,
diverse digital programming to reach consumers.

Manufacturers, of course, must completely retool for digital. It's both
a major challenge and a huge opportunity for the CE industry. Given the
highly competitive nature of the industry, I have every confidence that
they will be successful.

The final link in the chain is the retailers. Retailers must train their
staffs and redesign their space to sell digital. And they must find a
way to get HD content onto the sets on the display floor. If a consumer
is shopping for a high definition set, they should be able to see high
definition content. DVDs are good, but they're not HD.

Consumers, too, are beginning to embrace the digital television.

I have no doubt that we have a major consumer education effort in front
of us. But I also think that when the pieces of a transition come
together -- as they are now doing -- that can happen quickly.

There are some positive signs that digital television is beginning to
penetrate the public consciousness.

-   TV commercials for retailers and manufacturers now specifically
    target the DTV market.

-   Wal-Mart is rolling out HDTV in 1,500 stores nationwide.

-   USA Today notes which shows are in HD in its TV listings, and
    programs increasingly brand their shows with HDTV labels.

-   According to CEA, as of September there has been an increase of DTV
    Set and Monitor sales of over 77% from last year this time, with
    270,000 units sold just in the month of September of this year.

These are all small but important signs that market forces are beginning
to take hold. Real businesses now think they can make real money
marketing digital television to the American public.

We are starting to see the synergy of all these segments and I believe
DTV will begin to accelerate exponentially in the next year or so.

> V. [CONCLUSION]{.underline}

We're not there yet, but the pieces of the puzzle are starting to come
together. When that happens, we'll finally have the content, the
distribution and the equipment necessary to shift the transition into
high gear.

We are where we are. There is no turning back and no retreat.

At the FCC, we will lead guided by pragmatism, but backed up by
regulatory action that we will not hesitate to employ where necessary.

How you handle this transition and how creatively you embrace the
challenge will determine whether free TV prospers, or indeed whether it
survives.

It's time to redouble our efforts. This transition is only as strong as
the weakest link in the chain.

To end where this conference begins, "Digital Television: The Time Is
Now."

Thank you.