CHAIRMAN REED E. HUNDT
           Federal Communications Commission

       NATIONAL CABLE TELEVISION ASSOCIATION
                   Dallas, Texas
                   May 9, 1995 



Just like Freddie Krueger in the sequels of the film Friday the Thirteenth: "I'm back!"

It's been a year since our last breakfast.  Has anything much happened?  The Dow is at a
record high, and the dollar is at a record low.  We've liberated Haiti and left Somalia.  We
have a new Congress that, whether you compliment it or criticize it, has done more in any
one hundred days than any Congress since the Johnson Administration.  And the tragic
terrorist attack in Oklahoma City, not far north from here, has galvanized our country's will
to reestablish peace and civility in our communications and in our society. 

Confusing challenges confront everyone in our country.  Our economy and our culture is in
the midst of profound change.  Traditionally, at times of uncertainty, we turn to the great
centers of learning for advice and guidance.  And, as luck would have it, a tenured Harvard
professor has just published a book that offers new insight into the source of our country's
difficulties.

This scholar has concluded from extensive research that, on occasion, aliens have in fact
occupied the bodies of certain Americans.

I'm not making this up.

Everyone in Cambridge is buying the book.  They want to know if they're in it.

But the Harvard faculty is upset.  They have convened a committee to check the professor's
research.  It seems they're suspicious that his evidence might be questionable.

At Harvard, they're very sharp.

Now I'm from Washington.  In our town, a speechwriter writes the speeches you give, staff
negotiates the agreements you sign, focus groups tell you the opinions you express, and
media advisers tell you what to wear and how to talk.

So that if I were told that a political figure in Washington had an alien occupy his body, I'd
say, hey, that's just a guy who's taken the game to a whole new level.

By the way, for those of you who think that the professor's alien theory explains some of the
Commission's implementation of the 1992 Cable Act, I do know the truth. 

But they won't let me tell you.

At any rate, with or without alien intervention, Congress may very well pass a sweeping
overhaul of the 1934 Communications Act.

If dreams come true, Congress will give the Commission explicit authority to create
incentives that will extend communications networks into each of the 2 million classrooms in
this country.  In classrooms today, teachers and students essentially have none of the tools of
modern communications.  

Every one here works in business. Your competitiveness depends on cheap, accurate
transmission of information by computers using electronic mail fax and data transfer.  

But teachers in the classroom don't even have telephones. American education needs the
same communications tools available to American business.  The FCC needs the statutory
tools to make this happen.

This is my dream; I wish you would make it yours too.

Another dream that should come true is that Congress should remove all barriers to
competition in all communications markets.  No telephone company monopoly should be able
to use its influence over state regulators or state legislators to bar competition from cable. 
The Commission should be delegated the power to give new entrants like cable fair rules for
interconnecting to today's monopoly telephone company networks.

This will be crucial as cable companies start providing telephony over their networks.  It will
be even more crucial as cable companies investing billions in PCS need to interconnect to the
existing wire networks.

As you weigh the staggering risks and vast rewards of competing in new communications
markets, I know you are hoping to see Congress modify the 1992 Cable Act.  You know that
any success in modifying that Act will depend on striking a balance between consumer
sensitivity about rate increases and industry concerns about maximizing revenue in order to
finance investment. 

But perhaps the biggest concern is that the escalating congressional budget debate may sap
the legislative energy necessary to reform our communications law.  If that happens, there's
no telling whether the long-awaited rewrite of the '34 Act will happen this year.

Even if there is no new law, the Commission will keep promoting competition in all
communications markets, and keep seeking practical application of existing laws to the
communications problems of today and tomorrow.  But our preference is to see a good new
law written, passed, and signed by the President.

When it comes to policy matters, it's time for us all to get back to the issues of the future.

The future is digital -- and as you said about this convention, the digital future is on cable. 

Digitization is the Morse Code of the 21st century.  It is a way to send information, pictures
and data down a pipe or over the air by converting the content to a stream of one's and
zero's called bits. 

These bits are like boxes loaded onto freight cars.  Then the freight cars are delivered to a
digital downconverter or receiver that unloads them for consumption as voice, video or data. 

I don't understand one thing more about the technology.

But as a lawyer I'm prepared to talk about it anyway.

For many years you have been competing with broadcasters for audience and advertising
revenue.  Through your increased penetration and terrific content, you're doing better and
better in this battle.  But the rules of this competition in the marketplace and the FCC's own
rules will be substantially rewritten as broadcasting and cable go digital.

By the time I come to this convention breakfast next year, I predict the FCC will have
authorized a new standard for sending digital broadcast signals over the air.  Based on what I
read in the Senate and the House bills, it will probably be the law that broadcasters obtain
new spectrum for broadcasting streams of digital bits.  For example, each station in a market
would get  6 megahertz of new spectrum, permitting it to deliver 20 million bits per second. 
In a ten station market, broadcasters would transmit as a whole a total of 200 million bits per
second.

As a lawyer,  I had help with the math I'm using here.

I predict that Congress is going to state that broadcasters can use their bits for whatever they
want to send.  With 200 million bits per second, ten broadcasters could, as a group, transmit
40 to 60 different TV signals.  And they could deliver hundreds of radio signals using the
same spectrum.  Incidentally, they could transmit every newspaper and periodical in the
country directly into every subscribing laptop computer in their market. 

In the digital age, the FCC will want to focus principally on two kinds of rules for
broadcasters.  First, we want to do exactly what we did in the PCS auction:  in any
geographic market, you should be able to buy as much spectrum as you want in order to
compete, but not so much that you exercise monopoly or market power in any geographic
market.  

In the digital age, today's cross-ownership restrictions will need overhaul.  Newspapers and
cable companies should be able to acquire some digital spectrum if they want it.  Sound
antitrust policy should dictate the framework of our rules for acquiring and using digital
spectrum.

Second, broadcasters should have clear, concrete obligations to the public in return for their
use of the public property of the airwaves.  The current insubstantiality of the broadcasters'
public interest obligations is not fair to broadcasters' competitors, does not permit the
Commission to clearly apply law to specific facts in license renewals, and is not truly in the
public interest.  In the digital age, the broadcasters' public interest obligation should at last
become real and specific.

In the digital age broadcasters will have new ways to compete with cable.  And broadcasters
aren't the only competitors you have on the digital playing field.  Later this year the
Commission will authorize MMDS to go digital.  Telcos will deliver digital signals to
perhaps 20% or more of American homes within 10 years.  DBS already sends a digital
signal. 

But cable has the great advantage of a superior transmission medium that passes 95% of all
homes. 

I call this transmission medium by the highly technical term 'pipe.' I used to talk about
wires, but Bill Gates told me that was an analog term only used by middle-aged has-beens.
He told me he uses the term 'pipe.'

So now I use the term 'pipe.'

I figure if I use his lingo, I could make a billion bucks.

That's all there is to it, right?

Moreover, cable is rapidly upgrading its pipes.  In 1994, 7.2 million kilometers of fiber were
purchased in this country, a more than one-quarter increase over the previous year.  And
cable bought 32% of it.  It is expected that in 1995 fiber sales to cable for the first time will
exceed telco purchases.

Even better, unlike broadcasters, cable can migrate to digital incrementally.  Broadcasters
need wholly new spectrum to transmit digitally, whereas you can divide your pipe between
analog and digital transmission.  You only need a bit of the pipe for digital -- pun intended.
Moreover, you can deliver twice as many digital bits down 6 megahertz of pipe as
broadcasters can send over 6 megahertz of airwaves.

With your pipes, you will be able to send the consumer a package of multiple analog
channels, multiple digital channels with standard quality, a handful of eye-popping high
definition signals for action-filled content, a return path for telephony and interactivity, a
trunkline for mobile communications, and virtually unlimited data delivery.

It will be of incalculable value to our country when you build two-way digital networks into
our businesses, our classrooms, and our homes. 

No industry has a better chance than cable to be the leader in the country's conversion to the
digital age.

At the Commission we know many of the technological challenges have not yet been fully
met.  But like you, I've seen the inventions.  I know you can make them work in the
marketplace.

A huge issue in the digital conversion is the receiver in the home.  We have 233 million
analog televisions in 100 million homes.  Over a five year period, almost every home buys a
new television.  When will consumers start buying digital televisions?  What content will
drive the purchases of digital receivers?  Moreover, revenue from PC sales last year for the
first time exceeded TV sales.  So what is the right name, configuration, and price for the
appliance that will receive your digital signals?  Will it be a television, or a computer, or a
telecomputer?  Instead of buying digital receivers, will consumers prefer digital converter
boxes attached to their analog TVs?  Or will millions of consumers reconfigure their homes
around a digital high definition theater, so that an end to end digital signal will replace the
need to find a babysitter on Saturday night?

Just in case anyone here is doing market research, in my area the baby sitters are charging
$5 an hour, and I'd much rather pay you that money to stay at home and enjoy digital.

Thanks to the marvels of computer hardware and software, the digital receiver can be much
"smarter" than the "dumb" television.  As broadcasters and cable gear up for digital
competition, everyone will want to know about the location and use of the new intelligence. 
Who will install, who will sell, who will control the v-chip, the interface software, the menu
of choices and the encryption and decryption devices?

Getting back to the future means that, in discussions between this industry and policy
makers, at the Commission and elsewhere, we should start with framing these questions
accurately.  It means that we should admit that no one yet knows all the answers, but the
country will be holding all of us accountable for the consequences of the digital conversion.  

For example,  we have seen in the analog world what happens when television and cable
service don't work well together.  Congress steps in, or at least threatens to step in, and
directs the Commission to create standards of compatibility.  As we enter the digital world,
we need to talk about how to make sure that consumers don't have to pay hundreds of extra
dollars for a digital receiver, and hundreds more redundant dollars to make the cable
connection compatible.

Shouldn't we all think about the conversion this way: from the consumer perspective, what is
the fastest and cheapest way to convert to digital?  After all, the less the consumer has to
spend on the equipment for digital reception, the more the consumer can spend for digital
content.

There are, by our count, 49 separate industry groups worldwide working on standard setting
for multimedia.

In general, I think the government should not select standards, so long as industry standards
are not used to preclude competition.

But, this is a tricky and subtle topic in the field of network economics.  A case in point is
the Department of Justice's recent lawsuit against that very large computer software company
whose CEO told me about this term 'pipe'.  Economists differ seriously over when de facto
standards set by industry are anticompetitive or procompetitive.

But cable, telephone, satellite, and broadcast companies cannot wait on economic theory
before spending billions to convert to digital.  And consumers will inevitably spend billions
of dollars on new equipment for receiving digital signals. 

We don't need economists to tell us that if consumers believe the digital conversion is
overpriced, confusing, and annoying, the private and public sectors will feel the heat.

To get to the sunny uplands of digital communication quickly, cheaply, and competitively,
the private and public sectors should identify and address conversion issues as soon as
possible.

This is the best way to make sure that America maintains its world lead in communications
as we move to the digital age.

We will be reaching out to you in the next few weeks to seek your advice on the
Commission's role concerning what we might call digital compatibility issues.  I will look
forward to your guidance.

By talking with each other we will build understanding and guarantee results. After all, that
is what we just did with respect to the small system relief that the Commission adopted on
Friday.  These rules were not mandated by the Cable Act, but our Cable Bureau perceived
the possibility of such rules in the flexibility of the statute.  With the industry's useful
advice, we were able to make a change that will be very important to two-thirds of the cable
operators in the country and fair to the 7 million subscribers they serve.  

Similarly, through candid, sincere, and fact-intensive discussion, the Commission and
Continental Cablevision recently reached a comprehensive, long-range understanding that is
in the best interest of the company, its consumers, and the economy.

I know we can work together.

Of course, cable's competitive success fundamentally depends on its content.  And the good
news is that cable content is becoming more competitive all the time.

It is a great achievement for cable that in one month earlier this year, for the very first time,
your share of the viewing audience in cable homes was equal to the broadcasters' share.

Your entertainment values are going up.  Your children's programs are proliferating.  Cable
in the Classroom now includes 6200 local cable companies and reaches 2/3 of all schools.  
Publications like Continental's Better Viewing magazine steal a march on your competitors,
and establish a relationship of trust with families.  Your Voices Against Violence campaign
is forging new  bonds between you and your audience.  Your Kaitz Foundation focuses on
the need to bring minorities into your industry's management ranks.   Your initiative on
customer service is characteristically bold and imaginative.

Despite these and many other positive developments, the coming of increased competition to
cable causes anxiety for everyone.  New competition is nevertheless a chance for cable to
take its game to a whole new level.  Vigorous competition makes all great industries better,
and cable is a great industry.

Fortunately, you aren't restricted to playing defense in your own markets.  With the potential
of digital transmission two-way through your pipe, you can take a goodly share of voice and
data markets almost ten times the size of your own.  

With the inherent power of your pipes to connect to the networks of networks that are the
information highway, you can take a goodly share of huge markets yet to be created. 

In order to give you a fair chance to compete against the telephone monopolies, against the
long distance companies, against all your rivals, you are going to need fair rules of
competition.  The Commission will be there to set and enforce those rules.  We are the
Federal Competition in Communications Commission.

By seizing the opportunity to compete, cable will become a multimedia giant.  The chance,
the change, the opportunity is the air.  Or, perhaps I should say, it's in the pipe. 

I know you'll make the most of it.

Thank you for inviting me.  And I look forward to next year.

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