OPENING STATEMENT
                                
                               of
                                
                       MICHAEL K. POWELL
                          Commissioner
               Federal Communications Commission
                                
                           Before the
                                
                 Subcommittee on Communications
of the Senate Committee on Commerce, Science and Transportation
 




                                 

                253 Russell Senate Office Building
                         Washington, D.C.
                          June 10, 1998

                      OPENING STATEMENT OF
               FCC COMMISSIONER MICHAEL K. POWELL
                           BEFORE THE
                 SUBCOMMITTEE ON COMMUNICATIONS
OF THE SENATE COMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATION
                                
                                

     Good morning, Mr. Chairman and distinguished members of the Subcommittee.  I am
delighted to be here today to assist you as the Subcommittee deliberates the statutory
reauthorization of the Federal Communications Commission.  Because I know that you have
specific questions for my colleagues and me, I will keep my remarks very brief. 

     In the seven months that I have been at the Commission, I have been struck by the fact
that this agency is responsible for a truly historic and important job.  As provided by the
Telecommunications Act of 1996, the Commission is directed to implement the momentous
transformation of the telecommunications industry from a highly-regulated, closed-market
regime to a pro-competitive, de-regulatory regime.  The entire Commission -- from the
Commissioners to the dedicated and capable employees in the bureaus -- is consequently
working to alter the legal and regulatory structure that governed the communications industry for
nearly a century, change the fundamental economics that drive the industry's growth, and spur
technological innovation, all in a way that does not trample the American consumer. 

     We are all witnesses to the dramatic changes in the communications industry:  in wireline
telephony, competition in the local and interexchange telephone markets is slowly but surely
becoming reality; in television broadcast, digital technology is taking over; in terrestrial wireless,
as evidenced by the Commission's recent report on wireless competition, there are encouraging
signs of continuing and increased subscribership, increased revenues, increased infrastructure
investment, more market entrants, and decreasing prices; and in multi-channel video service,
there are increasing numbers of DBS, MMDS, traditional franchise cable, and telephone
companies that are offering a panoply of innovative and competitive programming bundles.  

     In considering the Commission's future role in continuing the work of the 1996 Act as
well as the Communications Act, I am committed to working with this Subcommittee as we at
the FCC attempt to keep pace with truly competitive and deregulated markets driven by rapidly
evolving -- and, increasingly often, converging -- advanced technology and services.  For my
own part, I have urged policymakers and industry players to continue (i) to believe in the
transformation to a competitive and de-regulated telecommunications marketplace; (ii) to
promote innovation, because innovation breeds new markets and shatters the entrenched
advantages of incumbency, as the recent history of communications has shown; (iii) to address
convergence, because technology will continue to erase the differences that historically have
justified regulating different services differently and thereby force policymakers to reconcile
these conflicting regulatory approaches; and (iv) to strengthen enforcement, rather than
continuing to rely on prospective, prophylactic regulation.  Let me elaborate briefly on each of
these four tenets.

COMPETITION

     First, I believe devoutly that this great communications revolution demands a much more
committed and sincere faith in consumers as well as the competitive and de-regulated
marketplace.  The 1996 Act commands policymakers and industry to move away from the
monopoly-oriented, over-regulatory origins of communications policy and toward a world in
which the market, rather than bureaucracy, determines how communications resources should be
utilized.  Yet, so often, policymakers cannot actually bring themselves to let go, to jump off our
regulatory perch.  Indeed, many policymakers have a tendency to over-credit regulatory action
for creating competition.

     Let me point out that competition is a journey, rather than a destination.  Competition
promises to allocate goods to their highest and best uses and has been shown to be indispensable
to innovation.  Competition is a self-correcting dynamic process, not a static state.  No
policymaker can accurately or timely declare the arrival of competition, and thus one should not
justify continued regulation on that premise.

     It is important to emphasize that continued regulation is not costless.  It imposes direct
opportunity costs on the competitive process.  I readily concede that regulatory intervention has
its place, but it must be fully understood that it distorts the competitive process from seeking
economic efficiency and often, thereby, puts at risk the possibility that things will reach their
highest and best uses.  Regulatory intervention interjects the regulator between commercial
providers and their consumers and thus fundamentally infringes upon the key relationship that
makes markets work.  

     Regulatory intervention also fundamentally affects the risk to capital and often skews the
decisions of the capital markets.  Competition growth is highly dependent on a steady flow of
large amounts of capital, and even our most minor or inadvertent intervention often sours the
enthusiasm of investors.  Such intervention introduces uncertainty, and thus new risks.  There are
many forms of this risk: risk that regulation will stifle the full potential of a new business, risk
that regulators will change their minds in mid-stream and adversely affect business plans already
implemented and risk that regulations once on the books will linger on, long after their useful life
has expired.

     We cannot allow the debate of telecommunications to collapse into a finger-pointing
exercise regarding who is pro-business and who is pro-consumer.  It is a grave mistake to believe
that favoring competition and free markets somehow is favoring the interests of businesses over
consumers.  Quite the contrary,  I think it is absolutely clear that competition and markets are the
most consumer-benefiting mechanisms ever to be devised.  Competition puts consumers into the
decisional game by creating powerful incentives to satisfy consumer preferences and by
leveraging the broadest possible set of resources to accomplish this goal.  As the economist
Friedrich von Hayek noted, markets are superior to planned economies because they "utilize the
knowledge and skill of all members of society to a much greater extent than would be possible in
any order created by central direction."  

TECHNOLOGICAL INNOVATION

     My second observation is that policymakers, industry players, politicians, investors,
analysts and consumers would do well to recognize that the only constant in the
telecommunications revolution is change itself.  Innovation breeds new markets, and shatters the
entrenched advantages of incumbency, as the recent history of telecommunications has shown. 
As such, policymakers must, even as they strive to correct short-term problems, work to avoid (i)
slowing the pace of innovation in technology and service offerings and (ii) inadvertently picking
or conferring advantage to a particular technology or service.

     If regulation is necessary at all, it should be flexible and consistent with the competitive
markets to maximize consumer benefit, choice and preference.  Markets have always proven to
be better than central planning models at empowering consumers to bring technology and
services to their highest and best use.  Policymakers should also pursue policies that are
technologically-neutral, and that will promote technological innovation.  We cannot possibly
predict accurately the direction and impact of fast changing technology, nor are we able to guess
correctly whether or not consumers will embrace one technology or another. We must keep that
in mind and make sure that we are not prevented from utilizing some breakthrough technology
because we have committed ourselves to something else, or conferred a decisive competitive
advantage to an incumbent, a specific type of technology or particular use of technology.  

     We must also respect the need for speed.  This is not a time for the timid.  The advance of
innovation continues in leaps and bounds, spurred most notably by advances in microprocessing
technology.  Moore's law holds that the maximum processing power of a microchip, at a given
price, doubles roughly every eighteen months.  We would be well advised to adopt the urgency
that Moore's law suggests in all telecommunications markets, including telephony, which I dare
say is not accustomed to such explosive changes.

REGULATORY AND TECHNICAL CONVERGENCE

     My third observation is that policymakers would be well-advised to focus on regulatory
and technical convergence.  Communications historically has been regulated (or not regulated)
according to the method of transmission.  Services and capability offered via one method of
transmission could not, as a general matter, be offered via a second method of transmission in a
manner that customers would view the two services as substitutes for each other.  What
ultimately developed was a form of "apartheid" among the various telecommunications services
whereby, for example, telephony -- and its attending regulatory, legal and economic structure --
was contained under Title II of the Act, cable was contained under Title VI, and so on.

     Such regulatory balkanization was sustainable in the era before digitalization, but
policymakers are fast approaching a moment of truth in which we will have to decide whether
digital services similar to those traditionally offered over one medium should be regulated in the
same manner as services offered over another medium.  As digital technology erases the
differences between various communications services, communications policymakers will need
to reconcile conflicting regulatory approaches in a way that reinforces forward-thinking,
pro-competitive approaches and discards outdated approaches.

ENFORCEMENT

     Finally, communications policy leaders should look to enforcement as a means to protect
the public against certain identifiable harms without hindering companies from improving their
existing offerings or from entering new markets that lie outside their traditional regulatory
boundaries.  Communications policy has historically emphasized prospective, prophylactic
regulation, whereby companies providing one type of service were regulated with respect to the
way they provided that service and were legally precluded from offering other types of services. 
This approach tended to preserve the arbitrary regulatory distinctions that technological
innovation acts to eliminate.  Antitrust law, however, illustrates an alternative approach   one
that emphasizes performance measurement and vigorous enforcement rather than prospective
regulation.

     In closing, I submit that it is not time to look backward, for I believe that we have passed
the point of no return in the transition to competitive markets.  I firmly believe that, even if
policymakers do nothing, technical innovation and competition will march on, though perhaps
hobbled by existing regulatory regimes.  As technology evolves, even the most entrenched
incumbents will, in the long run, find themselves supplanted by new market entrants who will be
committed to implementing innovative business plans involving new and advanced services. 
This does not mean that policymakers should avoid the hard work of tearing down the market
barriers that law, economics or history have erected, just that we should not delude ourselves that
our actions are more important than those of competitors in the marketplace.

     I undertake my responsibilities as an FCC Commissioner with a healthy and sober
understanding of the Commission's obligations under the Communications Act of 1934, and the
Telecommunications Act of 1996.  I recognize the fact that the Commission is an extension of
Congressional power.  As we at the Commission do our work, we must acknowledge that the
Commission has only the authority which has been expressly delegated to it by this venerable
body.  
     
     I look forward to continuing to work with the members of this Subcommittee and with
my colleagues on the many challenges, and tremendous opportunities, that await us in
implementing the 1996 Act.  I trust that, by working collaboratively and by having faith in the
competitive and de-regulated telecommunications marketplace, we will bring the benefits of
competition, choice, and service to American consumers.

     Thank you for your interest.  I will be happy to answer any questions.