Remarks of Kyle McSlarrow
President & CEO, National Cable & Telecommunications Association (NCTA)
To the Washington Metropolitan Cable Club (WMCC)

June 7, 2005

ATTACHMENT: NCTA White Paper, Working Toward a Deregulated Video Marketplace

I'm honored to address the Washington Metropolitan Cable Club and to join a long tradition of distinguished speakers who have addressed you over the years. On behalf of NCTA and the industry here in Washington, I want to express our sincere appreciation to people such as John Evans, Char Beales, Steve Effros, and of course, NCTA's own Barbara York, for helping keep this tradition alive.

Today I'd like to focus on something that may affect the state of our business for years to come.

Congress has begun to hold hearings on it. Lobbying groups have spent tens of millions of dollars on advertising about it, some of it quite clever. National magazines have launched new publications and sponsored big events around it. And specialty Web sites have been buzzing about it.

It's the re-evaluation of the 1996 Telecommunications Act.

Now, if you've seen some of the advertising I just mentioned – or seen experts quoted in some of those new publications that have sprung up – you might come away with the impression that the '96 Act has been a complete failure.

While the Act may not be perfect, any American who considers the sheer diversity and scope of telecommunications and its contribution to our quality of life today doesn't need a policy wonk to explain it for them. They know that the regulatory framework in place today has either fostered – or at least not prevented – the spectacular growth of the Internet, the wireless industry, and more competition in services and applications in voice, video and data, than anyone could have imagined in 1996.

While we can all imagine ways to improve telecommunications policy, it is neither helpful nor accurate to ignore the spectacular changes in productivity and the overwhelming proof all around us of how our lives have been enriched – not just in America, but around the world. It is more helpful to understand those parts of the Act that worked.

The ‘96 Act was intended to foster competition in the provision of all communications services – and to get rid of outmoded layers of economic regulation.

Deregulation was meant to provide incentives for existing providers – telephone companies and cable operators – to undertake the large-scale investments necessary to compete in each other's businesses.

When it comes to the cable industry, this approach obviously worked. When Congress began crafting the ‘96 Act, cable endorsed those efforts. We signaled that we were ready to make significant investments in our facilities and deploy new services to consumers.

Congress acted – and we delivered. We embarked on a massive rebuild of our systems, adding substantial new capacity and digital capabilities.  Since 1996, the cable industry has spent more than 95 billion dollars on system upgrades – that's more than 13-hundred dollars for every cable subscriber. And, we've invested tens of billions more in creating exciting new content, more than doubling the number of nationally-delivered cable networks in less than a decade.

So, where are we today?

The industry's investment in programming is paying big dividends for consumers, who are enjoying more programming choices than ever before. Cable is increasingly recognized as the source for diverse and compelling programming by critics and the viewing public. In the just completed 2004/2005 TV season, ad-supported cable networks for the second year in a row attracted more viewers than the major broadcast networks.

We're providing the finest quality high-speed Internet service available on the market today.

Starting from scratch, cable operators took the risk of introducing cable modem service and fundamentally changed the Internet experience for residential users. As a result, local telephone companies, which had been warehousing DSL technologies in favor of selling more expensive T-1 and ISDN services, jumped from the sidelines to market residential DSL. Cable modem service and DSL now compete vigorously.  High-speed service is already available to more than 90 percent of the nation, and 22 million households subscribe to the service provided by their local cable operator. 

President Bush has provided a vision of universal broadband deployment, and just last week FCC Chairman Martin made clear how important this was for all Americans. The cable industry supports this vision, and is proud to lead the way.

What about voice service? Well, here too, cable operators are making real their promise to give consumers a full-scale, facilities-based alternative to their local telephone company.  Using its upgraded broadband network, cable operators provide telephone service to more than 3.5 million residential customers.  Initially, some companies deployed traditional circuit-switched telephony. In the last two years, many companies have launched Internet Protocol-based – or IP – voice service.  By year end, one industry analyst estimates that cable will market IP voice service to nearly 63 million homes. 

With upgraded and expanding networks, and a technology that leap-frogs past other models, cable operators are poised to become sturdy, long-term competitors in the local voice marketplace.

Meanwhile, more than 25 million customers currently purchase “digital tiers” of video, which include up to 260 additional channels of video programming, increasing numbers of high definition cable networks and broadcast channels, and CD-quality music. 

Digital technology and the additional capacity on cable systems enable consumers to choose multiple channels of premium movie services, as well as a broad array of pay-per-view programming. 

“Video on demand” services and digital video recorders provide consumers with the ability to pause, rewind and fast-forward through movies and other programming of their choice. It's just as if they checked out a DVD at the video store, but better, because they get more variety, and they never have to go out in the rain or snow. Thousands of hours of this programming are available at no additional charge.

We've also provided connectivity to more than 80,000 schools, and many libraries and community centers, for multichannel video and high-speed Internet access. We've strongly supported initiatives to educate the public about television content and how to manage it through cable's parental controls and the V-Chip. And we've invested heavily in our local communities, through more than two billion dollars annually in franchise fees, local programming, and a broad variety of public affairs programs and projects.

So, did the '96 Act spur investment by cable operators and benefit the American consumer by reducing economic regulation? Absolutely.

And by the way, this approach should apply to our competition as well. NCTA and the industry I represent have a proud history of not seeking regulatory protection from competition and not advocating regulation of our competitors. And that's not going to change.

Our business is unusually dependent on technology and innovation, so we've always been especially sensitive to the stifling effects that regulation and uncertainty can have on investment and technological development. And we've also recognized how competition can stimulate innovation and keep us on our toes and on the cutting edge. We and our competitors should benefit from a light regulatory touch, except where there is a genuine threat of anticompetitive conduct or a need to ensure compliance with a set of social responsibilities universally recognized as important.

The 1996 Act clearly laid the foundation for the next wave of services in The Digital Age. But as the communications marketplace evolves, and as existing players continue to enter new businesses or each other's businesses, our communications laws deserve continuing and careful examination.

Taking a fresh look is also justified by the rapid changes in how consumers use communication technologies.

As we've witnessed at major industry events so far this year – like the Consumer Electronics Show and The National Show – we've entered an age of personalization in broadband services.

American consumers today, more and more, are able to watch, see, or listen to what they want, when they want it, on the device of their choice.

Whether it's “Storm Stories” or “Total Request Live,” some customers may want to see it on a 60-inch plasma screen; others on a 6-inch PDA. They may watch it streamed, stored, or on-demand. They may want it interactively. And cable will deliver that product to the customer in whatever form he or she wants it. Because if we don't, there's someone out there who eventually will.

With the power we're putting into the hands of consumers, each individual gets to decide what the future looks like – on demand – for them and for their families.

But, let's face it. We need to ensure a regulatory climate that permits us to get to that future.

Our goals for the right framework should be:

Innovation, not regulation.

Fostering competition, not imposing government controls.

And letting the marketplace lead, not looking to our political institutions to intervene in what are properly marketplace negotiations.

Congress has begun the process of reviewing the 1996 Telecom Act, to determine what needs to be updated, what should be changed, and what can be discarded. After 10 years in an area as dynamic as communications, such an enterprise makes good sense. And I commend the leadership in Congress of Chairman Barton, Chairman Stevens, Congressman Dingell, Senator Inouye and other leaders in both parties for their decision to initiate it.

What is cable's stake in this review? Plenty. If we look for ways to refine the regulatory framework to ensure that investment and competition will continue, our industry can build on the successes of the past decade and bring consumers the exciting new services I've just described.

Let me suggest a few principles.

First, minimal economic regulation and a reliance on market forces wherever possible should animate any revisions of national policy.

Second, any regulatory regime must account for certain universally recognized social responsibilities and objectives to be borne by providers of communications services. For instance, as Chairman Martin and the FCC noted just a few weeks ago, E-911 isn't an option, it's a must-have. At the same time, regulation should be no greater than what's necessary to ensure the fulfillment of those responsibilities.

Finally, like services should be treated alike, and everyone should play by the same rules. What matters to consumers, and what should matter to policymakers, is not the technology used to provide services, but the services themselves.

Last year, the cable industry applied those principles to the provision of voice-over-IP services when we put forward a proposed framework of rights and responsibilities for IP voice providers. Rights would include the opportunity for facilities-based providers to interconnect on an efficient basis while at the same time ensuring deployment of these new services largely free of economic regulation.    In return, we agreed that VoIP providers should be bound by certain responsibilities, such as provisioning E-911 service to customers, and the requirements of the law enforcement act, CALEA.

We believe a similar doctrine should govern the regulation of IP video services. Robust competition already exists between cable and direct broadcast satellite providers. In the first quarter of 2000, DBS providers had 12 million subscribers; in the first quarter of this year, that had more than doubled to 26 million. There may have been a time when some wondered if there was enough competition in the multichannel provider universe. That debate is now over.

Moreover, IP technology has the potential to benefit the already competitive video marketplace by fostering innovation and efficiencies in the delivery of video programming.

On the other hand, many of the issues raised by IP video have no parallel in IP voice, so they haven't been part of the debate over the proper framework for voice offerings. Legislating or regulating in advance of a careful consideration of these issues, such as localism, content rights management, and redlining, could inadvertently undermine important public policies.

Today NCTA is releasing a position paper that sets out our view on how public policy should accommodate the competitive changes that IP video will bring. Our aim is to be fair and forward-looking, presenting a blueprint we hope Congress will find helpful as it considers whether it should revise the framework for multichannel video adopted in 1984. The hallmarks of our video white paper are the same ones that characterized our VoIP framework – minimal economic regulation, treating like services alike, and regulation no greater than what is necessary to ensure the fulfillment of certain social obligations.

Our proposed framework also recognizes that video services are interstate. That means moving to a federal framework, with uniform national rules. This is simply not an area where each state should develop its own policy. To the contrary, piecemeal policymaking is the antithesis of the stable regulatory framework that best fosters the massive investment necessary for facilities-based video competition.

This potential for additional competition warrants a comprehensive re-examination of the existing regulatory framework adopted 21 years ago when the video marketplace was far less competitive. The existing federal framework allocates some regulatory tasks to the FCC, some to state governments, and some to local governments. It is time to take a fresh look at that division of labor in light of the new technology.

For instance, obligations that involve local circumstances – such as managing rights of way to protect health and safety – might be best managed by local regulation as implemented by the local franchise agreement. But transfers and renewals in a competitive video environment might make less sense on a hamlet-by-hamlet basis.

In any event, existing providers and new entrants should be treated alike in this regard. And if newcomers are subject to less restrictive requirements, or granted longer service terms, such lighter regulation ought to apply to existing franchisees, too. The government must avoid picking winners and losers by imposing regulation based on the particular mix of technology a video provider deploys.

Fair competition also requires that like services pay equivalent fees and taxes. All competing video providers that are within the taxing authority of a state or locality – including Direct Broadcast Satellite and Internet-based video distributors – should pay comparable taxes for doing business with the residents of a community or state.

If these are the rules we think should govern the new video marketplace – what should facilities-based providers offer in return?

Certain established responsibilities remain relevant and appropriate – whether or not IP or more conventional technology is used.

Providers should:

Make service available to all residents, regardless of income.

Protect subscriber privacy.

Offer equal employment opportunities.

Make channel blocking equipment available so that customers can control the programming that comes into their homes.

Meet the local information needs of the communities they serve.

Protect copyright interests.

And, comply with consumer protection obligations.

We think these responsibilities make good business sense, and even better common sense. They reflect the consensus of what the public expects from video providers.

Today we're on the verge of a new opportunity. An opportunity to define the marketplace for multichannel video services for decades to come. An opportunity to bring even greater value to consumers. An opportunity to deploy new technologies that, like technologies before them, represent a quantum leap into new possibilities in entertainment and information for all Americans.

The framework I've laid out for you today is a way to get us there. We look forward to working with Congress and the FCC to begin the discussion.

Thank you for listening. I look forward to your questions.

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