Subject: [NEXTEL-1] Exit Interview With Powell??

From: NEXTEL-1
Date: Fri, 02 Jul 2004 17:03:33 -0400

Michael K. Powell, a Republican, was nominated 31 July 1997 as a member
of the FCC by President William J. Clinton and confirmed by the U.S.
Senate on 28 October 1997. President George W. Bush appointed Powell
chairman of the FCC on 22 January 2001. Gartner Fellow Kenneth McGee met
recently with Chairman Powell in his Washington, DC, office to discuss
issues and policies concerning broadband, telecommunications, media
ownership and content issues and digital TV.

Interview conducted 15 June 2004

Broadband
Kenneth McGee:

You've stated many times that broadband deployment is your central
communications policy. Why is that so important? And what are the
benefits that we'll derive from it?

Michael K. Powell:

There are a couple of reasons. First is the quasi public-utility nature
of this different kind of service and a government model that can form
around it, contrasted against the last 100 years of telephone
regulation. Back then, we wanted telephone service to be ubiquitous and
affordable, meaning we wanted everybody to have it. The scale required
to do that, given the economics, tended toward monopoly; indeed, the
government blessed and sanctioned a single provider, under the theory
that phone service was a natural monopoly. Because the economics were so
daunting in rural America, you had to create an enormous universal
service subsidy fund to offset the costs of reaching the goal. And then
you needed anticompetitive regulations to protect against the worst
instincts of a monopolist.

So as I look at transitioning to the communication platforms of the
future, I see that the beauty of Internet protocols is you get the
separation of the layers between service and technology. Unlike the
phone system, which is engineered around an application, the Internet
layered model allows you to, in essence, separate applications from
infrastructure. What's exciting about that is almost any platform can be
a broadband bit-carrying platform.

The first thing I feel like we have the potential to do is to deliver to
consumers more roots to their home. Already we have doubled our utility,
with digital subscriber line (DSL) and cable modem technologies, which
is better than the one-technology approach of twisted copper wire
deployed by telephone companies a century ago. And there's
unquestionably going to be a third technology — in some places fixed
wireless, satellite or something else, such as broadband over the power
line.

The comparison to the old world is something to get excited about. We
have the potential for more choice and innovation, and a different
regulatory environment that doesn't place as much weight on economic
regulations of terms and conditions. That's because you'll get something
of a market going.

McGee:

Let's fast-forward ten years from now. How will we know that we
economically benefited from broadband deployment during your reign?

Powell:

In simple terms, I think you're going to have lower prices, lower cost
networks and 50 times the innovations. Look at Vonage's VoIP (Voice over
Internet Protocol) service. Jeff Citron (Vonage co-founder, CEO and
chairman) comes along (in 1999) and says, "I'm going to create a system
that treats voice like data," which means it speaks the language of a
computer, and "I'm going to use the Internet to be a transport vehicle."
Look at what his consumer product will do. The programmability of the
communication service is 50 times the traditional spoke-and-hubs
central-office model of the phone system. So I can go to Germany and log
in with my telephone number, and have it ring there. I can tell it not
to ring at dinner and ring different ways for my wife and kids. Or I can
tell it to convert the voice message into text and send it as a short
message to my wireless phone. There are enormous innovations to come
that are just not at all possible on the current fading infrastructure.

McGee:

But from an economic perspective, do you envision any tectonic plate
shifts in the economy? Today, two-thirds of the economy is
consumer-based. Do you envision some massive, grand shift that will
change the way consumers behave?

Powell:

I try to be a bit of a student of history. First it's all hyperbole and
over exaggeration; we went through that in the 1990s with the dot-com
bubble. We really got quite 'techno-ecstatic.' And I think that's an
error, although natural. The same thing could have been said about
railroads or the telegraph. We think the whole world's going to change,
and forget that human beings are still human beings; we have the same
five senses, we still interact the same way, we still love and hate the
same way, but marketers lose track of that. But then it comes down to
earth. It starts to deepen and mature, and I think we're going into that
cycle.

I do think it'll change behaviors. But it's not my generation that's
going to change. My mother has a new computer and she uses it like a
typewriter. And she's always going to. My child doesn't think of his
computer as a typewriter; he doesn't even know what a typewriter is. My
child sees that computing device as an information appliance, that has
all kinds of interactive capability. So it is reordering the way a
family lives, the way a business orients itself.

McGee:

Twenty years from today, how will people link to networks — say, 50
percent wireline, 50 percent wireless?

Powell:

I've started thinking about networks as Legos. There are red bricks and
blue bricks, and you can snap the bricks together. Our notion currently
is the network, this network and that network. Networks are going to be
separable and distinguishable from the way we think of them today.

A great example is a North Carolina power line company bringing
broadband to a neighborhood over high-voltage lines, using transformers
every four houses. The company puts WiFi (Wireless Fidelity) antennae in
the transformers. So, should we count that neighborhood as a wireline
broadband network or a wireless one?

I think wireline will be essentially ubiquitous to fixed locations by
2024. We'll be at around 90 percent access. But it doesn't mean that
that will be the preference of people at a given moment or given time
when they want information. I personally think that a lot of daily tasks
will be wireless last mile or last inches to a wireline haul. I already
live this way in my house. I love my DSL, but I love my WiFi more. And I
probably get on the Internet 40 percent to 50 percent more because of
the combination of those technologies.

Telecommunications
McGee:

Recent events touch on competition in the interexchange and local
exchange wireline markets. For example, the U.S. Court of Appeals ruled
in March 2004 against unbundled network elements (the means by which
interexchange carriers such as AT&T and MCI lease facilities from local
phone companies to reach businesses and homes to provide competitive
local phone service). Then the U.S. Solicitor General decided in early
June to not appeal the ruling. You then issued a press release (14 June)
announcing you will start work on adopting final rules for local
competition. Why did you not want the administration to appeal that
Court decision?

Powell:

Because win or lose, it's too late. It's what I thought a year ago, and
now we've wasted a year getting back to the same question.

McGee:

If you decided new competition rules tomorrow...?

Powell:

Doesn't matter. I don't care how they come out; it's too late. This
country is wasting too much time on this problem, when the real game is
someplace else — broadband and not just plain old communications
services. That's where everyone has to be, and where all are going. In
two years, no one significant will be competing using unbundled network
elements. So should the U.S. Supreme Court spend its time and resources
on a case that won't even be ruled on until July 2005? Can the market
afford another year of uncertainty?

McGee:

Why do we need an AT&T, MCI or Sprint anymore? Would you agree with the
scenario that it's over for the interexchange carrier?

Powell:

I think you have to be in the communications business. And for every
segment that you're limiting yourself to, you're decreasing your
viability. So, no, I don't think there's a compelling case for a
stand-alone long distance company over a long period of time.

McGee:

What would that period of time be?

Powell:

I think it's crashing fast. And part of it may be long over. We know
what the cost of a long distant minute is — basically nothing. You can
sell nothing for a mark-up for a while, but only until something starts
eating away at it. Now I can go home and click on Yahoo, call my sister
and talk over a microphone for free. The generational difference will
give the long distance carriers a little time, because my mother isn't
going to do tomorrow what I just described. But my son's absolutely
going to. And that window's closing very rapidly. And I think the
carriers understand that. They just haven't yet figured out how to get
to where they think they need to go.

McGee:

Do you see the big carriers and the Bell companies recognizing the
threat that's waiting for them?

Powell:

I think some are. They get mad at me, but I think they should be more
scared. For all their size and success and revenue, their cards are not
great.

McGee:

Why don't they get it?

Powell:

When you've invested in the old, and you pay a dividend, and nobody
likes to lend you risk capital or let you go into debt much — you have a
real financial problem of how to take the risks and make the leaps and
innovations that a little Vonage can. And if you don't figure out how to
do it, all of a sudden those who can are eating your lunch.

McGee:

But do you really see the Davids being able to push around the Goliaths
in the next phase? If it is indeed the Bells and the wireless providers,
and alternatives, do you see an opportunity for small companies to
really change the telecom playing field?

Powell:

Yes, I do see an opportunity, but I also think you should remember there
are a whole lot of big giants who live in this particular jungle. If I
was the CEO of a phone company, I'd be equally worried about Bill Gates,
Steve Jobs, Carly Fiorina, and Intel, consumer electronics manufacturers
or the cable companies.

There'll be room for small companies and there will be niches. But it's
all about access to an infinite amount of information, and whoever can
get organized and present that information or data — whether news,
information, entertainment or basic communications — is going to
prosper. And anybody who thinks in narrow platform terms such as cable,
satellite or wireless is going to lose; they're not going to get it fast
enough.

Media
McGee:

How does one reconcile the apparent desire of the Commission to promote
competition, but expand the media ownership ruling? Are they not in
conflict with one another? And how does the public benefit?

Powell:

We're required to review rules at a very high, ruthless standard. A lot
of the rules, which are 30 or 35 years old, are difficult empirically to
justify in the current environment. There's really only one rule that
everybody's talking about — the national ownership cap, which most
people think means we let you own 45 percent of the country. It's only
audience reach, right? You don't explain to me why satellite can reach
100 percent or cable can reach 100 percent, but broadcast uniquely only
reaches 45 percent.

If you listen carefully to the debate about ownership, there's always a
quiet struggle going on, just like there is in any antitrust case is:
how do you define the market? We did the work, we did the research; this
market is not concentrated in antitrust terms.

McGee:

A message that seems to be finding traction is that the Commission
doesn't seem to be consistently applying a competitive spirit to its
undertakings, but now wants to regulate content. What's going on?

Powell:

Here's the truth: the ownership debate is about nothing but content.
Don't be fooled. I mean, this is my greatest warning to the American
public. It's easy to go after every ill in society by claiming it's the
media's fault. It's the American pastime, right? Anything you don't
like, it's the media's fault.

What scared me in that debate is that it's not about the ownership rules
at all. The vast majority of people don't even know what the rules say,
to be perfectly candid. Name all six of them. Name what they actually
do. Nobody can. They became a stalking horse for a debate about the role
of media in our society. I can expect and understand consumer anger and
anxiety about that. But the ownership rules are not the cause or the
cure. It was really an invitation for people with particular viewpoints
to push for a thumb on the scale, for content in a direction that people
preferred.

The danger with that? It's easy to say, "I'm comfortable with that when
the government's doing it for something I like. But I get really scared
when it's something I don't." And what is juxtaposed against the media
ownership debate? Indeceny, which maybe is what you mean by content.
Hollywood was happy to beat up on ownership liberalization because they
want the government to intervene so we can promote more independent
programming — which is content. But the same Hollywood says the
government can't say that Howard Stern can't say the F word, because
that's censorship and inappropriate.

McGee:

What's your response?

Powell:

First of all, there's a separate response for indeceny, since Congress
has passed a statute and the Supreme Court upheld it. So I don't have
any choice other than to believe that it is a constitutionally
permissible restriction that the people, through their representatives,
have imposed as a matter of law.

But if you're outraged by that, you've got to be principled all the way
through. You can't pick when it aligns with your interest and then
scream about it when it doesn't. We wouldn't have had as much steam in
the media ownership debate if Rupert Murdoch hadn't come into the world.
Conservatives were griping for decades about liberal media and nobody
paid attention. Now, all of a sudden, one news channel has gotten a
whole new community of people freaked out.

Digital TV
As of May 2003, more than 1,000 stations in the United States were on
the air with DTV signals, and every major TV market was served by at
least one DTV station. The target date set by Congress for the
completion of the transition to DTV is 31 December 2006. However, that
date may be extended until 85 percent of homes in an area can watch DTV
programming. At that point, broadcasting on analog channels will end and
the spectrum will be put to other uses. Until the transition to DTV is
completed, television stations are required to broadcast on both digital
and analog channels.

McGee:

With regard to digital TV and the 85-percent threshold or the December
2006 transition date, what percentage of the population knows they're
going to have to do something about their TVs, as analog gets turned off
and digital becomes the coin of the realm?

Powell:

Few. I think people have a vague sense that the television system is
changing.

McGee:

Do you think even that? That they know it's changing?

Powell:

I think a huge percentage of customers are aware of high-definition TV.

McGee:

But do they know they will be compelled to do something in the very near
future?

Powell:

No, because the truth is it's not clear that they are compelled to do
something in the very near future. We're trying to fix this with the
plan we've been floating. Now, the law says the transition ends in 2006
or — and the "or" is the only part that matters — 85 percent of
Americans go buy a digital TV. It took 35 years for the video cassette
recorder to reach 85 percent. If that's the measure, we won't be
transitioning for 40 years. The December 2006 date is false and was the
day it was written. Our plan is to try and figure out a way to measure
this, so we have a greater certainty when it does end.

McGee:

You've been very kind. Thank you so much.

Powell:

It's been an interesting discussion.

http://www4.gartner.com/research/fellows/asset_91308_1176.jsp

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