The 2000 Elections and the FCC

Panel One: President Bush or President Gore: Policies or Priorities?
Panel Two: The Internet: "Hands Off" or "Public Interest" Regulation?

Panel One

MR. WHELAN:Welcome to the Federalist Society's Telecommunications and Electronic Media Practice Group.

Forty-one days from today, we will have our 2000 election, choosing the President, a third of the Senate, the whole House of Representatives, and many key state officials. Today, in our conference on the FCC and the 2000 elections, we're going to explore the potential ramifications of that election and its relation to regulation of telecommunications, cable broadcasting, and the Internet over the next three or four years. At the outset, I would like to call your attention to a panel that the Telecommunications and Electronic Media Practice Group will be sponsoring at the 2000 National Lawyers Convention on November 16th, "How Does the President Affect the FCC?" We have an all-star cast consisting of former Chairman Dick Wiley and former Commissioners James Quello and Henry Rivera. So, again, that will be on Thursday, November 16th, at 11:30.Before we turn to the panels, I want to introduce each of the moderators today. We're thankful for their organizing these panels.

Our first moderator is Adrian Cronauer. If his name sounds familiar to you, perhaps that's from his work with the law firm of Burke & Cronauer or from his participation in the Federalist Society. More likely, it's from the fact that Robin Williams played Adrian Cronauer in "Good Morning, Vietnam." Adrian worked as a broadcaster in Vietnam.Adrian will be hosting our first panel on "President Bush or President Gore? Policies and Priorities."

Our second panel will be hosted by David Lawson of Sidley & Austin.

Our third panel will be hosted by Chairman Raymond Gifford of the Colorado PUC. Chairman Gifford's panel is titled "The Internet: 'Hands Off' or 'Public Interest' Regulation?"And our final panel will be moderated by Larry Secrest.

It's on "Broadcasting and Cable: What's the Big Picture?"

Larry Secrest is a partner at Wiley, Rein & Fielding, specializing in broadcast, cable, and other electronic media.Thank you very much.[Applause.]

MR. CRONAUER: Good morning.

I read from time to time people, especially the third and fourth and umpteenth party candidates, making comments to the effect that it really doesn't matter who is elected, because the two major party candidates are practically identical and it's merely a choice between tweedle-dee and tweedle-dum. However, I think, if you look more closely, you can see significant differences.

Certainly in the field of telecommunications regulation, we've seen where the people who are appointed to the FCC, and certainly the Chairmen who are appointed, do have a significant role to play in determining the future of telecommunications regulation. We saw that Mark Fowler and Patrick Dennis, when they came in, certainly had a big effect on the future direction of the FCC, and then, with Reed Hundt and Bill Kennard, we have seen a reversal of some of the things that Fowler and Patrick tried to accomplish. And so, it's not unreasonable to presume that whoever is elected President, their choices for the FCC will have a significant effect on the future of telecommunications regulation. To discuss this topic this morning, we have two people who are familiar with the respective campaigns. Trying to guess what a President Bush would do, we have Dan Troy.

Daniel E. Troy is a partner at the Washington law firm of Wiley, Rein & Fielding, where he specializes in constitutional and appellate litigation.

Mr. Troy regularly argues before federal and state courts of appeal. He has appeared before the U.S. Supreme Court, where he successfully argued Bush v. Vera, a landmark racial gerrymandering case.He has also submitted numerous briefs to the U.S. Supreme Court, as well as lower appellate courts on First Amendment, insurance and a variety of other issues, and in addition, he's an associate scholar at the American Enterprise Institute.Dan has written "Retroactive Legislation," which was published by AEI Press in 1998. Last year, he published "Advertising: Not Low-Value Speech" in the Yale Journal of Regulation.He's currently writing books on commercial speech, administrative law, and constitutional law, collaborating with Judge Bork.He also has been published in the Wall Street Journal, the Weekly Standard, the Washington Times, National Review, the American Spectator, the National Law Journal, the Journal of Law and Politics, the Administrative Law Review, and Policy Review, among others.Before joining Wiley, Rein & Fielding, Mr. Troy served in the Office of Legal Counsel of the U.S. Department of Justice as an attorney-advisor.From '83 to '84, he clerked for D.C. Circuit Judge Robert Bork.He has also served as a lecturer in law at his alma mater, Columbia Law School, where he was book review editor of the Columbia Law Review, a Harmon Fisk Stone and James Kent scholar. And significant to our discussion today, he is the immediate past chair of the Mass Media Subcommittee for the Federalist Society. Trying to anticipate what a President Gore would do, we have -- and we thank him for stepping in at the last minute, because we had anticipated having someone from the Vice President's office -- is Gerry Waldron.

Gerard J. Waldron is a partner at Covington & Burling and is Chairman of the firm's Communications Practice Group.He represents broadcasters, technology companies, telephone companies, software providers, and sports leagues before the FCC and Congress.He also counsels investment banks on transactions in the communications field.Prior to joining Covington, Gerry served as a Senior Counsel for the House Subcommittee on Telecommunications and Finance from 1991 through 1995.In '92, he served on the Clinton-Gore presidential transition team for the FCC. So, you see he's well familiar with the agency.From '82 to '87, he held a number of positions on the Commerce Committee, and with Congressman Ed Markey, handling telecommunications and energy issues.Gerry is a graduate of the University of Virginia and Duke University Law School, where he was editor-in-chief of the Law Journal.He clerked for Judge Dixon Philips on the U.S. Court of Appeals for the Fourth Circuit.

Now, I've asked each of these gentlemen to do an opening statement, and I thought, for an opening statement, we might want to discuss what the FCC might look like under a Gore presidency or under a Bush presidency. After the opening statements, we'll go to more of a open discussion format. Then we'll open it up for questions and answers as time will allow. Our first item, what would the Commission look like -- for example, when the Clinton administration came in, they made a very determined effort to ensure that all of their nominees would be minorities and/or female, but beyond that, what would they look like in terms of the issues they would focus on? Would it be an activist agenda, an activist Commission, or would they give deference to the Hill? After all, the Commission is the creature of Congress and, theoretically at least, it's supposed to do Congress's bidding. Nevertheless, the Commissioners are all presidential appointees and certainly know what their administration's views are. Ultimately, do they believe in re-regulation or de-regulation?


MR. TROY: Thank you.

Doesn't he have a great voice?

MR. CRONAUER: I make my living with it.

MR. TROY: I can understand why he was a broadcaster.

I want to thank the Federalist Society for this opportunity. I particularly want to thank Gerry Waldron for stepping in. Anything that I say, it's not a direct attack on you. I'll be talking about the Clinton-Gore FCC, but we're really very grateful to you for coming over here, and I want to thank Pete Fundara from my firm for helping me prepare, trying to anticipate some of the issues that we're going to be talking about. I want to be very clear. I am speaking for myself as an advocate for the Bush campaign. I am not from the Bush campaign and I'm not an official surrogate speaker.

I am a supporter of the Bush campaign. believe that a Bush FCC would be a better FCC than a Gore-led FCC, but my remarks cannot be fairly chargeable to the Bush campaign.

I've read what the campaigns have put out, and I'll be candid, there's not that much. So, one of the things I'm going to have to do in some cases is surmise. But I do think that there are enough points of real serious difference and departure that we can have a very illuminating debate. In particular, I'm going to focus particularly on this FCC because of the role that Gore has played in this FCC.

This FCC has manifested at least two interrelated features that show just how much a part of this administration it has been.

The first is they claim to do one thing but, in fact, they do another. In this case, they mouth the mantra of deregulation, but they're actually quite regulatory and are not, in fact, deregulatory. Second, the Commission has repeatedly failed to follow the law, instead politicizing almost every issue it touches.

Turning to substance, the Gore FCC, I think, is trapped in a now ancient paradigm in which mass media outlets are scarce, telecommunications is dominated by monopoly, and the federal government is here to help.

As a result, this FCC has consistently refused to forebear from unnecessary regulation in the telecomm field.

It has refused to seriously entertain lifting obsolete regulations despite not only congressional mandates ordering it to do so but executive orders and, indeed, Gore-led NPR programs urging it to do so.

It has defended existing and outdated restrictions on ownership.

It has fought to preserve and extend content regulation.

It has overridden state regulation in the telecomm arena and preserved and defended an outdated taxing and pricing system, and it claims to be implementing a customer service mentality, which it admits in its more candid moments, that it's not close to reaching.

Those are at least some of the issues I want to talk about.

Now, I'm not going to tell you that a Bush FCC is going to cure immediately all of these problems, but you can bet that it would not brag about a record like this one. Indeed, if you take a look at the Republican platform and the statements that the Bush campaign has made about telecommunications, you can see that they recognize the value of real, not faux, deregulation in the telecommunications market

MR. WALDRON: Thank you, Dan.

Let me say that, when the Vice President's office called me last night to see if I would step in for them, I said what group do you want me to talk to? And they told me the Federalist Society, and I said, "Okay, we're going to put this in the you-owe-me-one category."

But I'm pleased to be here and have actually spoken to this group in a former life, when I was on the Hill as the Chief Counsel on the Subcommittee on Telecommunications. I will say that, as Adrian noted, I've worked in communications going back to 1982, and there's probably a few people in the room who can say that they worked on the break-up of AT&T in 1982 and the '96 act and the few bills in between.

One thing that strikes me -- and this is somewhat contrary to my message, which I will state up front and be clear about it -- vote for Al Gore. It's a vote for the future of progress in America.

But having said that, one of the hallmarks of telecommunications policy, and whether it was under John Dingle and Ed Markey or under Tom Bliley and Billy Tauzin and Jack Fields, has been that, frankly, other than in the cable area and perhaps the broadcast area, it's been largely bipartisan.

That doesn't mean that everybody agrees, but if you actually look at the votes -- Tom Bliley and Ed Markey actually vote together more often than Tom Bliley and Billy Tauzin or Ed Markey and John Dingle -- it tends to be an environment which does split Republican-Democrat.

The split tends to be between those who embrace competition, who embrace a role for government in promoting competition versus those who either embrace a monopoly model or those believe the monopoly model should be done away with only one sentence that says "the monopoly model is done and we leave the room and we'll see what the marketplace turns up." That has been the fundamental debate.

This was the fundamental debate in 1982 when AT&T was broken up. It was the fundamental debate in when the 1996 Act was passed, and it's been the fundamental debate for the past four years, during which people have debated whether the Act should be reopened. I also suspect it will be the fundamental debate in the next administration, regardless of who wins.

The debate is about whether the government should facilitate and promote competition or simply declare that markets are open and leave the room. This is a decision about whether to let the giants walk the earth and stomp on the little animals as they go along or whether the government creates an environment in which -- and this was the goal of the Clinton-Gore administration -- the end result is competition, a successful 1996 Act that lets the FCC's role dwindle to a limited enforcement role.

And that's what I would say, with the FCC, the goal would be after eight years of the Gore-Lieberman administration. The FCC's role would be dramatically reduced so that it would look more like the Securities and Exchange Commission, which has a sizeable enforcement-making role but a relatively small policy-making role.

The FCC has tried to manage the transition to competition. Why did it do that? Because Congress told it to, and the Supreme Court declared that this a proper and appropriate role for the FCC.

In terms of sort of what the FCC will look like, a clear priority of the Vice President is that his administration will help to create 10 million new high-wage, high-tech jobs.

A critical factor in the promotion of those jobs has been and will be the information technology industry. That has been an important goal of the FCC.

The 1996 Act unleashed $25 billion in investment and created many new jobs. Some of the companies that weren't around in 1996 are represented in this room.

That kind of explosive entrepreneurship was unleashed by the '96 act, and the FCC will continue to have a role in promoting that.

The last thing I want to touch on is that the Vice President has emphasized that there are three revolutions that we are, frankly, in the early stages of.

The Internet revolution -- as we all know, Internet traffic doubles every 100 days. That will continue, and that's a fact of life that the FCC will need to pay attention to.

The second one is broadband -- faster and farther, and that is the goal of the Gore administration, faster in terms of higher bandwidth, father in terms of bridging the digital divide.

And the third aspect of it is wireless -- the anytime, anywhere aspect of broadband and the Internet. Obviously, the upcoming 3G spectrum being made available for wireless service is a critical aspect of that revolution.

So, in summary, I would say, as someone who worked in the Clinton-Gore administration in 1992, you have to look back and say that they accomplished the goals that they set out to do.

In 1992, local telephone competition was something that about 18 people knew on Capitol Hill and no one had ever heard of.

The '96 Act was a tremendous accomplishment, and it has begun to pay the dividends that the Clinton-Gore administration promised.I think we can expect to continue and advance to move to the next phase of that revolution.


MR. CRONAUER: I want to issue a personal disclaimer here. I should have at the beginning.

I am an advocate for the Bush campaign. I'm National Vice Chairman of Veterans for Bush and have done a lot of surrogate speaking already to various veterans groups, but that has been solely in the area of veterans issues and not telecommunications issues. I am going to make a concerted effort to try and be non-partisan in my role as moderator today.

Now, when you think about the Federal Communications Commission, most people immediately think about regulation of radio and television and other parts of the spectrum.

Spectrum is an interesting phenomenon, because it is the only natural resource that you cannot have private property rights in. You cannot own spectrum.

You can own timber, you can own minerals, you can own water, you can own land, but not spectrum, and that goes all the way back to the Communications Act of '34, and even earlier. Since 1934, that has caused problems from time to time, financial problems, other kinds of problems, and it has allowed the Commission to engage in content regulation.

So, I thought, first of all, I'd like to talk about content regulation, things like sex and violence and safe harbors. What about the V-chip? Does it work? What about mandatory children's programming? Does the government have a right to dictate that? What about must-carry policies? Are they still relevant?


MR. TROY:I'm going to talk about content regulation for a moment but probably not address the sub-issues, in part because the Bush campaign, so far as I know, hasn't said very much about it.

Some of you may know this story, so I'll try and tell it quickly, but 20 years ago, the National Association of Broadcasters, whom I represent in this matter -- let me disclose this -- proposed getting rid of certain rules called the personal attack in political editorializing rules.

The political editorializing rule has the effect of banning broadcasters from editorializing on behalf of candidates. If you endorse a candidate, you've got to give every other candidate a right to reply, and as a result, people don't do that.

Well, in 1983, the FCC proposed getting rid of it.

In 1985, it got rid of the fairness doctrine, which these rules were adjuncts to and in support of.

The fairness doctrine, some of you may remember, requires broadcasters to address controversial issues of public importance and to address all sides of that issue.

Well, the FCC got rid of that, but they didn't get rid of these two subsidiary rules, because the Democratic Congress went crazy when they lifted the fairness doctrine, and these rules have been on the books now for 15 years after the fairness doctrine has gone away.

My clients have filed at least two petitions for writ of mandamus, and the FCC was deadlocked, it was deadlocked, it was deadlocked, they did nothing.

We finally went to court, forced the FCC to make a decision.

The two Democratic Commissioners want to keep it. They tried to come up with six different theories to keep these rules.

A Democratic panel from the D.C. Circuit reviewed this, rejected all of these theories, said this is ridiculous, you cannot justify these rules given that you've gotten rid of the fairness doctrine. What's happened with that?

Well, then the Democratic platform called for the re-imposition of the fairness doctrine.

So, Gerry says that the ultimate goal is to get government out of the role of managing the market and regulating, make it more like the SEC, but that's not the direction that the Democratic platform points to. And suddenly, Bill Kennard, who had been recused from this matter because he worked on it when he was First Amendment counsel for NAB, has suddenly released a statement saying that he has un-recused himself.

And the word out of the agency that we now hear -- it's been reported in the trade press -- is they are now going to propose re-imposing the fairness doctrine so they can justify these rules.

I guess nobody disagrees, Gerry, that government should have a role in breaking up monopoly, and nobody disagrees that, on occasion, government action is necessary to preserve and promote competition. But the question is, at what point does the government get out of the business?

It's not, do you leave the giants on the field or the monopolists on the field and leave the room? If the mass media market is not competitive now, then when is it ever going to be?

What we've seen from the Clinton-Gore FCC is that, even though competition has increased -- certainly in the mass media area -- regulation has increased, not decreased. So, with the fairness doctrine, we boldly go back to 1960s-style regulation.

MR. WALDRON:Let me address part of that. I do want to clarify that, in fairness to Bill Kennard, he recused himself at the request of broadcasters, and NAB actually supported the fact that he would recuse himself because the deadlock prevented judicial review.

So, the fact that he is now going to vote will give the D.C. Circuit something to shoot at. That was a positive step that he reluctantly made and was supported by all the parties involved.

In terms of the Gore-Lieberman ticket, there has been an enormous amount of attention in the last two weeks or so on the question of Hollywood values and violence and sex in the media.

As a matter of fact, while we speak, there is a hearing today before the Senate Commerce Committee in which the industry is stepping forward to talk about their guidelines on marketing violence to kids. I do want to address this question because I think there is some misunderstanding and misimpression exactly what the Vice President and Senator Lieberman have said on this topic.

First, they are not for content regulation. They have urged that the industry step forward with voluntary guidelines, and they have also said that the industry's marketing violent material to kids could potentially become an FTC issue. Although the industry claims that its marketing is age-appropriate, they roll out an advertising plan that is ostensibly targeted to adults but is, in fact, geared towards an audience of 10 to 13, not 17 to 21.

At some point, that could arguably be a false and misleading advertising, and so, the Gore-Lieberman message to Hollywood has been that we are not going to engage in content regulation. Rather, we urge you to apply some self-restraint; if you're going to make movies that you claim are for an adult audience, then you have to market and advertise those to adults, not to kids.

I will also say that the Gore-Lieberman approach has been to keep an eye on the industry's marketing activity and see, after six to 12 months, if that marketing activity continues. Then, at that point it may be appropriate to look to the FTC.

The issue is very similar to the government's position on privacy policies for Internet companies. The government doesn't make Web sites or privacy policies, but if you have a privacy policy, you have to enforce it. Otherwise, it becomes an unfair trade practice. That is what the Gore-Lieberman message has been with respect to content; it's not content regulation, but you must market and advertise content in an age-appropriate manner.

MR. CRONAUER: Along with the idea of content regulation, there are other issues that relate to ownership rights or property rights in spectrum.

For example, when do you have too much of a market share? What should be the requirement or the restrictions on the amount of stations you can own?

What about foreign ownership? Fritz Hollings, from what I read, wants a cap of about 25 percent.

What about auctions? Have they stimulated the economy or created delays and gridlock?

And now the Commission is struggling with the question of what to do about auction winners who go bankrupt. Do you have to take the frequency back? How do you deal with this? How will each administration deal with this?

MR. WALDRON: Maybe I'll go first on that one, because the record is pretty clear, and I can point to it.

Let me say first, before I address this question, that I represent the CBS and NBC affiliates, who are very much against any increase in the ownership cap. So, I will disclose that.

With respect to the ownership cap, that was a critical aspect of the '96 act, and it was very hotly contested to the end, and the Clinton-Gore White House at the time made clear their opposition to significant increases in the ownership cap with respect to the number of TV stations that you can own.

The administration, via the NTIA, has also weighed in on the question of cable ownership caps, as well as broadcast ownership caps, and has generally supported them.

I note that the D.C. Circuit has upheld those ownership cap rules.

With respect to foreign ownership, the White House -- and this is not fair to ascribe this to Vice President Gore because I don't know his position -- has indicated that it is not supporting Senator Hollings' effort to limit foreign government ownership, and the U.S. Trade Representative testified before the House subcommittee on that point recently.

I think they understand what Senator Hollings is trying to get at, that it's actually foreign government-owned companies, not all foreign investment. But the Clinton administration has thought that this approach is a somewhat clumsy way to tackle the problem.

I know no reason to think that would be different in a Gore administration. But that's an open question.

In terms of auctions, I think you have to say -- and I was there when the '93 budget act was written and spent a lot of time worrying about auctions and property rights -- that we looked very carefully at analogs and property rights and whether you could sell it.

And I will tell you, we don't sell the George's Bank, which is offshore drilling rights. We don't sell that. We lease it. There's a property right in the lease and the Government imposes restrictions on that. If the government acts in an untoward manner towards a lease-holder you can collect money. I will confess that my law firm represented some of the oil companies that just won a $100 million verdict against the Department of Energy with a lease.

So, there is a substantial property interest in a lease, and I think it's important to remember that this is not the only time where the government doesn't sell property.

Auctions have worked fabulously well. I will tell you, my old boss, Ed Markey, hated lotteries, thought it was the most illegitimate, obscene way for the Government to run anything and was not originally a big fan of auctions. But he came to the view that the hearing process as ridiculous, and if you ask lawyers who have been around for a little while, somebody got a license because they were on the Kiwanis Club and the Elks and somebody else was only on the Chamber of Commerce, and that's why they got the license, and it came down to such artificial distinctions that it was not meaningful.

Auctions have been wildly successful in putting spectrum in the hands of entrepreneurial firms. This is a very Republican idea. I was told that for all my years on the Hill, and I now embrace it.

Republicans always argued -- and Mr. Oxley was the chief proponent of this, and the Democrats agreed -- auctions put spectrum in the hands of those who are going to put it to its highest and best use. As the Second Circuit found in a very well-written opinion, it is a good regulatory decision to put spectrum in the hands of those who can pay for it and use it.

You're not selling it. That's a regulatory decision, and if somebody is not able to pay for it, then therefore, they are not serving the public, because they are not putting it to its highest and best use.

So, yes, the C-block auctions had their problems, and there's been two-and-a-half years of litigation. But I think you have to look at the tremendous growth in competition in the wireless area and the speed with which it's unraveled and compare that with the speed with which cellular rolled out, which was measured in years and decades.

I think you have to look at auctions as a success but understand that there were problems that need to be addressed in terms of making sure there's certainty in the marketplace.


MR. TROY: The Bush campaign, so far as I know, has not addressed the issue of auctions, but I'm glad to hear Gerry acknowledge that it is a very Republican approach that the Democrats finally came around to. I think we can, based on different party philosophies, expect that we would see more of that than we've seen in the Clinton-Gore FCC.

I want to address the issue of ownership, and I do have to disclose that I am involved in representing both the Newspaper Association of America and Viacomm/CBS in opposing the caps.

One provision of the 1996 Telecomm Act, which the FCC was not in favor of, required a biennial review of restrictions on ownership of mass media outlets, and the FCC was specifically charged with explaining why changes in competition have not rendered broadcast ownership rules superfluous in promoting the public interest.

Well, how many years did it take the FCC to do this biennial review? Four. And their conclusion at the end of this process was that only one minor rule warranted repeal, and I think this suggests disregard for the law.

The other thing that the FCC has tried to do -- and this is a typical move that the Clinton-Gore FCC has done over and over again -- is place the burden on those who would lift the rule, when the thrust of the statute is, I think, very clearly the other way.

And instead of focusing on the effect of competition on the need for the rules, the FCC discusses the effect of other regulatory actions on the rules, so they don't even undertake the statutorily mandated analysis. What this all goes back to is the FCC, the Clinton-Gore FCC, and particularly Gore's appointees -- the people who are close to Gore on the FCC -- refuse to recognize the newly-competitive environment. They take this approach not just in the content regulation context but also in the ownership context, clinging to this outdated scarcity rationale, which Tristani and Ness, two Democratic appointees, explicitly referred to in trying to defend the personal attack and political editorializing rules, despite the fact that it was exploded by the FCC and by the D.C. Circuit in 1985 and, more importantly, by reality. The notion that government is needed to regulate broadcasters these days to ensure diversity of views in a world of the Internet and cable and DTV, and all it ends up doing is, frankly, discriminating against broadcasters and hampering broadcasters.

Now, Bush hasn't said a lot about this, but one thing that he has said is he would revise the newspaper-broadcast cross-ownership rule -- again, I represent a client in that -- treats newspapers vis-à-vis owning broadcast stations in the same category as foreign governments and felons, which most of us don't normally think of when we think about newspapers.

MR. WALDRON: If I could have just a small rejoinder on that, not to dispute the felon part, but in terms of auctions -- it can't be right that the Bush administration will do more auctions than the Gore administration, because Congress wrote the law on this and said that everything will be auctioned.

So, unless the Bush administration is not going to follow the Communications Act -- a I can't imagine that would be the case -- we can expect the exact same number of auctions in use at the FCC.

MR. CRONAUER: We haven't talked about telephony yet, and there are lots of subjects or headings that we could look at.

What is the difference between a tax and a fee? Does or should the FCC have authority to levy taxes? And what is the relationship between Federal and state regulation? Should the FCC be dictating to the states, or should the states run the whole show? Where do you draw the line in between?

MR. WALDRON: As to the difference between a tax and a fee, from my very narrow parochial perspective as a Commerce Committee staffer, lies in the House Parliamentarian, because taxes go to the Ways and Means Committee and fees go to the Commerce Committee. So we always managed to convince them that they were all fees and not taxes.

So we won and that's why you know it's a fee, because it went to the Commerce Committee. As you all know, taxing matters have to originate in the Ways and Means Committee, by the Constitution.

So, that's an important distinction. It's a very, very important distinction, one that only a Hill lawyer would know.

I think the biggest example of fees and taxes that we know about in this past five years is the e-rate program. I really want to bring up the e-rate because you don't hear about it anymore.

Remember this was a hugely controversial issue about two or three years ago, and it was called the Gore tax, and everyone thought that was a very clever, funny play on the words. But the Vice President is extremely proud of the e-rate, and I find it remarkable that, two, three years ago, there was a lot of criticism of the e-rate, how it was the Gore tax and it was a terrible thing, and what has happened?

There's money in the program, schools have been getting granted, one million school children have been connected via the funds made available by the e-rate.

School districts and schools across America are taking advantage of this program, are connecting their schools to the classrooms, and suddenly, congressmen think that this is a good idea, or else they shut up about it, depending on who you are.You don't hear anyone criticize the e-rate anymore, and I would also point to that as one of the measure of accomplishments.

Politically, the fact is there was no constituency for the e-rate, because it was an idea, it wasn't actually a real program, and it's always good to whack an idea, and it's pretty easy to whack an idea. But now that it's a real program with money coming in and money going out, you never hear anybody complain about it.

So, I think that is one of the remarkable aspects of it, and yes, the Vice President is extremely proud of his efforts, you know, in that regard.

The lawyer can debate whether it's a tax or a fee. The simple answer -- and you can accuse me of being circular -- if it's a fee, the FCC can approve it. If the Commerce Committee gave them authority to do it, then it must be a fee. This is something in which the courts have generally embraced, and by the way, this is not a new argument.

In 1982, I had only been working on the Hill a very short while, and I was a very young staffer working for a very young congressman at the time. There was a proposal to put in place the early precursor to the slip charges, and the Commerce Committee staff had to go over to the Ways and Means Committee staff and explain the difference between a fee and a tax, and the FCC won that issue again.

So this is a pretty settled question.

The last issue I want to touch on is an important one, which is states' rights. As the Supreme Court has recognized time and again, in our Communications Act, there's a dual federalism.

There is a role for the states; there is a role for the FCC.

In the Iowa Utilities case, the Supreme Court said that Congress, as a constitutional matter, as a Commerce Clause matter, can occupy the whole field and has chosen to leave some of that to the states.

In the '96 Act, frankly, Congress reached a little farther than it had before and declared that local telephone competition is national policy.

So, of necessity, the FCC is going to have to go deeper into the traditional province of states in order to do it.

I think the FCC has worked very hard and tried to work cooperatively with the state commissioners through the federal-state joint process to set broad parameters, including in the area of pricing -- and obviously, the Eighth Circuit is reviewing the pricing -- but set broad parameters in the area of pricing and allow the states to fill in some of the critical details.

This is an uneasy relationship. Frankly -- and I know John Morbido would agree with me on this -- the number one issue when I was on the Hill that you worried about in the telephone area was federal-state relations, and you spent an enormous amount of time worrying about it. You don't always get it right, but you really do spend -- and the FCC, they spend -- an enormous amount of time worrying about it.

I'm sure the state regulators will tell them that they don't get it right, but you really do spend time on it.

That's going to have to go on, and regardless of which administration prevails, there is going to continue to be tension. But I think the Supreme Court, in the Iowa Utilities case, made the authority of the FCC clear.

MR. TROY: Your description of the e-rate, which I can't really criticize from the Bush campaign perspective, because they haven't really said very much about it, perfectly captures the problem of public choice. The notion that now there's a program, now there's money, so all of a sudden people are in favor of it. Well that's what public choice teaches.

Now, talking about telephone taxes, one of the things that the Republican platform calls for is for getting rid of this 3-percent phone tax, which was imposed to finance, no, not the Korean War, not World War II, not World War I but the Spanish-American War. That war is over. It's time to get rid of that tax.

But one of the things that's really outrageous about what the Clinton-Gore FCC has done on taxes is they have consistently tried to hide taxes.

When some telephone providers threatened to put on their phone bill what the taxes were going to be and label them as such, basically the FCC went crazy and with a lot of very ugly pressure, basically forced these providers -- who, of course, are repeat players and are subject to the jurisdiction of the FCC -- to cave and to not do that. That's not the only time that there's been secret back-room deals.

In setting price caps, which I'll confess, I represented a client in the first case, there was this initial deal with AT&T that was declared illegal by the D.C. Circuit, but then the FCC cuts this secret, behind-closed-door deal to implement the proposal by what's called CALLS, the Coalition for Affordable Local and Long-Distance Service.

They invite certain companies to the table, not all companies to the table, they don't comply with the requirements, and all of the sudden, they come out with something that runs roughshod over transparency, openness, and all of the good government principles that the Gore NPR pretends to be in favor of.

And with respect to federal mandates on the states, you know, there's a reason why the case was called Iowa Utilities Board.

I don't think the states thought that what the FCC was doing was in their interest and was the right thing to do.

The Republican platform calls for giving states guidance and then "getting out of the way" and letting the states implement and operate these policies as best as they know how.

I think the '96 Act tried to do this. It deliberately avoided FCC involvement by providing for review of interconnection agreements by federal district courts.

Now, the FCC took this as a mandate for massive regulation.

Their implementation of the interconnection provisions of 251, 252 of the telecomm act was one of the longest and most arduous things I have ever had to read. It ran over 100 pages, maybe 700 footnotes.

It imposed this pricing system which basically robbed state regulators of autonomy.

Now, yes, the FCC did prevail in the Supreme Court five-four, and that means, since the Supreme Court gets the last word, that this interpretation was within the range of their discretion given Chevron, but this is a policy matter and a political matter, and they did not have to exercise their jurisdiction in as regulatory a manner as they did. I really believe that if you had a Bush FCC, there would have been a lot more autonomy and authority given to the states so that they would not have had to have a case called Iowa Utilities Board vs. FCC.

MR. CRONAUER: The final issue that we have to get to involves the Internet and the supposed digital divide. As a problem, is it de minimis or is it a real problem?

What about content? Does the FCC have a role and how would it have a role in Internet content? Is it possible to control content of the Internet?

And what about the issue relating to cable systems and open access?

MR. WALDRON: I'll start on that.

In terms of the digital divide, I think no one would argue that the Clinton-Gore administration actually came up with the term, and it's real, and it has been documented.

The e-rate was designed before the digital divide term was created to deal with part of this problem in terms of school-age children in a school setting environment. Connecting libraries has been another way.

We're all aware of the role of the Internet in our daily lives. Our children are probably blessed to enjoy in the comfort of their homes access to the Internet. The Clinton-Gore administration has been concerned, as will the Gore-Lieberman administration be concerned, to make sure that affluence and income level does not deny people the ability to get this critical resource.

This perhaps an overstatement, and this is Gerry Waldron talking, but we're almost at the point -- I don't think we're there yet, and I know somebody will mischaracterize this as me saying universal service for Internet -- but we're almost at the point where, to be a functioning member of society, you need to access the Internet to get to a government web-page to get information. I do remember a time when -- and so do most people in this room -- touch-tone was considered a luxury.

Well, you can't communicate with your government if you don't have a touch-tone phone, because when you call up, they say, for health services, press 1, for the dog catcher, press 2, etc.

So, if you don't have touch-tone, you actually literally cannot communicate with your government, and there's a program in place to deal with that, and we call it the universal service program.

The Internet, 10 years from now, we might look back and say you need access to it. I'm not saying a lap-top in every bedroom, but there are certain basic policy steps that government can do to promote, and the Gore-Lieberman administration, I expect, will build upon the private partnership.

And that's been a strong emphasis. A number of Silicon Valley companies have come together with the President and the Vice President at the White House to promote private partnership -- Oracle, Microsoft, Dell, Cisco and a number of companies understand that this is part of their social obligation.

So, the digital divide is an ongoing issue, and I expect modest steps. More of that is outside of the FCC than in the FCC, but that is a modest step in that regard.

In terms of content regulation on the Internet, the FCC has very carefully steered clear of that issue.

Congress has obviously tried to get into that issue and has lost and lost again, and I really don't expect much different on that.

I think there will be a filtering debate, and that's something that is playing out on the Hill now, and I expect that will play out in the future, by the way, regardless of which administration is in power, because there continues to be a latent concern on that.

In terms of open access issues, I'm not really able to speak to that because the administration has left those important decisions to the regulators.

The FCC, as everyone knows, has decided not to take that step, though obviously it's been teed up in the context of the AOL/Time-Warner merger by both the FTC and FCC. But they have not declared themselves specifically on that step, and indeed, the marketplace and this merger review might solve much of the problem anyway.

MR. TROY: There's, I think, even less that I can say on this.

Certainly, the Bush campaign has not declared itself at all on open access. Why would they? They have said that they're in favor of the Internet Tax Freedom Act. For all I know, that may be in the Democratic platform, as well, I'm not sure, but certainly, the Bush campaign has come out strongly in favor of that.

And I guess I would say the one big difference that I can identify with respect to Internet policy is that, again, the Bush policy is less top-down and would give states more discretion and is more in the direction of -- it's not quite a block grant proposal, but it gives the states a lot more discretion about how to spend their money vis-a-vis the use of the Internet in the education context. This actually gets more into their education policy than into their communications policy, but they would give a lot more local autonomy, a lot more authority to the states, as opposed to the top-down approach that we see from the Washington-knows-best regulators at the Clinton-Gore FCC.

MR. WALDRON: One small difference. There's no money in the Bush budget.

So, they give it to the local authorities, and there are zero dollars, and you an look that up, too. There are zero dollars in the budget. They would actually move it to Department of Education, and then there's zero money for it.

So, that is also a difference, I think.

MR. CRONAUER: The whole issue of FCC funding -- and everybody at the FCC always thinks they're under-funded -- was something that I wanted to get into, but we're running out of time.

I always forget, when you're dealing with lawyers, they tend to talk more than you expect them to, and I wanted to have at least time for one or two questions from the floor.

I think we'll forego our closing statements and just take one or two, if there are any questions that you would like to ask the panelists.

AUDIENCE: It seems to me that there are two approaches that you can take on the digital divide. You can have -- there is a pejorative way to say it -- more of a government-oriented solution, where you have subsidies and programs rolled out to make sure that all the pockets are served and, no matter what the cost, the same services are available to folks. Or you can have a market-oriented approach, which basically deregulates Internet traffic, perhaps offers tax incentives. Or you could have a mix of both, which at the end of the day in Washington is usually what you end up with.

I'd like both of you to address that and talk from both sides, again, at a larger philosophical level about how the two campaigns or the two prospective presidents might deal with that issue.

MR. WALDRON: Well, I like and embrace your realistic point that it's a little bit of both. Indeed, one of the principle reasons why the Clinton-Gore White House has urged and argued for competition is that competition is a good thing; it actually will promote universal service and promote the deployment of advanced technology.

Do we really think that -- I don't want to defend anybody here -- that the ABC-Bell Company would be deploying service via cell in another area if the cable company had not shown up and started to roll out cable modems or if a DSL company had not shown up?

Competition actually promotes wider deployment of services.

Competition is an important solution to the problem, but it cannot be the only solution to the problem. That's where you need to focus on targeted programs with very targeted audiences. There are many different digital divides, and maybe you worry about some more than others and have very specific programs to target some of the more pernicious digital divides.

It is a blend of a general embrace of competition. It has made the ILECs better and it's made the CLECs better and it's made the cable industry better. We all have to agree today that everybody is doing more on broadband because they're competing against each other -- continue to promote competition but realize that there are going to be gaps that it does not fill.

AUDIENCE: There are different ways you can use the word "competition."

It sounds like you're saying that competition is too important to leave up to the marketplace to decide who wins and loses, and there needs to be some targeting or at least steering of investment in certain areas, as opposed others.

MR. WALDRON: I hate to say this about Father Bush, but it's the line of Ann Richards: President Bush was born on third base and he thought he hit a triple.

Some of the ILECs were born on third base and say, okay,let's start competing. Let's start right now. You're equal and I'm equal, and one of the great injustices is to treat unequal people equally. Running against the Bell Company is like running against somebody who's been in office for 70 years. They have a huge incumbent advantage, and the notion of making and facilitating competition -- that has been what the '96 Act is about. That has been what the FCC has tried to promote.

I said, at the end of the day, the hope is that the FCC can get out of that business. But you have to acknowledge that we are still in a transition period, and that's been the strong view of the Vice President -- that the end goal is there but, in the interim, there is a transition role for regulators.

MR. CRONAUER: We've all been drinking a lot of coffee, and there's another session starting at 10:15. So, we're going to have to wrap this up, but I do want to give Dan a quick chance for a follow up on that.

MR. TROY: Thank you.

I think that Gerry has highlighted it. To the Gore people, competition is never the answer, the transition will never end, entitlements, in fact, are necessary. Eventually we'll hear calls for lap-tops in every study if not in the bedroom.

Al Gore's FCC may, on occasion, say that it thinks that the era of big government is over. But instead, it just imposes lots and lots of small government.

Rather than get things approximately right by adopting simple rules, they prefer to get things exactly wrong.

They impose pages and pages of rules, micro-managing regulated companies. With respect to almost any of the issues we've been talking about, I have to believe a Bush FCC would be an improvement by promoting real deregulation, state and individual autonomy.

And I thank you all for your attention.

MR. CRONAUER: And I thank you all for coming, and a special thanks to Gerry Waldron and Dan Troy.

Panel Two

MR. LAWSON: Our next panel is going to touch on one of the thorniest issues facing the FCC for the next few years, and that's what to do or not to do about the Internet.

As technologies and services have changed very rapidly over the last few years and, more and more, the things that people desire from their communications providers are either traveling over the public Internet or over private networks that use Internet technologies, and also, as things that used to look very different are becoming more and more alike, it's raised some very difficult legal and regulatory issues for the FCC. Those are things the FCC has struggled with over the last couple of years, and there's still a lot of work to do that in area.

But for our panelists today, the more important issue is what about the policy and economic issues that are raised by this new technology and its increasing importance in the communications realm.

We're lucky today to have three very distinguished panelists to discuss those issues.

We've got Tom Krattenmaker, who is Senior Counsel at Mintz, Levin.

Prior to joining Mintz, Levin, Tom was the Director of Research in the Office of Plans and Policy at the FCC, a role in which he oversaw most of the staff review of some very big mergers that addressed a lot of Internet issues. Prior to that, Tom had a very long and distinguished career in both government service and academia, with stints at the FTC, the Department of Justice, and Georgetown University.

We also have Jim Speta. Jim is an Assistant Professor of Law at Northwest University. Prior to joining the faculty, three years ago, Jim was a telecommunications practitioner. He's been writing quite a lot about issues related to open access and the Internet.

And then, finally, we have someone we don't normally have at these types of discussions -- someone that actually knows something about the Internet and how the services that we're talking about work.

Dave Farber is the Chief Technologist for the FCC, and he's had that job for not quite a year yet.

Prior to coming to the FCC, Dave was at the University of Pennsylvania, where he was a telecommunications professor.

Dave's an engineer, an expert in networking and distributed computer architecture, has a long history in academia and also with Rand Corporation and Bell Laboratories.

I think Tom is going to give our first opening speech, followed by Jim and then Dave.

MR. KRATTENMAKER: Good morning.

I'm going to try to give you a positive theory of government regulation, and I'm going to tell you what's going to happen with respect to the Internet and the FCC, even though it hasn't happened yet. This comes in two parts.

The first part, the first chapter, I call "Don't Worry, Be Happy," and you should all have a smile on your face about this part.

Don't worry, be happy.

Someone out there -- I don't know where and I don't know who -- is inventing a new telecommunications technology that is going to overwhelm the Internet, and when that comes on the scene, it will also overwhelm all the inefficiencies that the government is about to inject on the Internet through the regulations it would impose over the next decade.

We know this. The new technology is going to overwhelm the inefficiencies of regulation that will be imposed on the Internet, and then, after two or three more waves of new technologies after that, the current fad, the Internet, will achieve the blissful state of regulatory benign neglect.

The best example I can give you right now is terrestrial AM radio. It's now free to be all that it can be, terrestrial AM radio. If you've ever looked at your AM band recently, you will find community-oriented programming that is frequently ethnically-based or religious-directed, oftentimes driven by local concerns or local community groups.

That's exactly where AM radio was headed in 1927, when the Federal Radio Commission was established to prevent that from happening, and if you haven't read Tom Hazlett's work on the origins of the Federal Radio Commission, Tom, that well-known, fire-breathing radical explained exactly why, in 1927, the Federal Radio Commission was created, to prevent radio from falling into the hands of local groups or church groups or union groups.

Something like what had happened to terrestrial AM radio will happen to the Internet, and it will eventually be free to be all that it can be.

This we know for sure, because this is all weaved in the story of telecommunications technology -- maybe I should say communications technology, going back to things like smoke signals, which, like electronic communication, travel at the speed of light and use endcoders at one end and decoders at the other end; they're just less efficient than the Internet and therefore a bit overwhelmed by it.

But we don't have smoke signal regulation today, although from the prior panel, it looked to me like maybe we might get some from either the Bush or the Gore administration.

So, don't worry, be happy.

By the way, Dave may know what this technology is. If I wanted to guess, I'd guess it might be something like some massive micro-processors, some kind of massive storage device whereby all human information is contained in everybody's home, so the signals that get sent out only have to be like one or two or three dots and then it opens up something in your television, just makes the Internet completely obsolete, because it takes so long to get information from the Internet.

In any event, don't worry, be happy; 40 to 70 years from now, nobody will be worrying about Internet regulation anymore than they worry about AM terrestrial radio regulation.

Now, here, unfortunately, comes part two of my talk. In between now and 70 years, you have, roughly speaking, 140,000 hours you need to bill, and so there must be something we can do about this in the meantime. I believe that there certainly is and what I'm going to try to do is talk about what kind of Internet regulation are we going to get.

It seems to me -- forgive me for sounding like a lapsed academic, but that's what I am -- that you have to have some theory of regulation, some knowledge of what drives regulators, to understand what they're likely to impose.

I manage to believe in two different theories of regulation at the same time.

The first one I'll call the Cincinnatist theory, and that is that FCC regulation is conducted by a bunch of public-spirited, selfless individuals who step aside from their private concerns for a short period of time and go on to the FCC and try to drive industry in a public interest direction.

If you sprinkle this with a dose of reality, you might continue to hold that belief.

The reality is that, at every single point in the FCC's history -- I believe you can check this out and verify it -- a majority of the Commissioners sitting were people who had no knowledge of the industry when they were appointed to the FCC.

At every single point in time with the FCC's history -- and I think this could even go back to the Federal Radio Commission -- pick any year, a majority of the Commissioners then sitting had no knowledge of the industry when they were appointed.

So, if you believe in the Cincinnatist theory of regulation, you also have to add the fact that a majority of the people don't know anything about this public-spirited, selfless industry that they are driving, and so they won't all think that the apocalypse is upon us. They will think the Internet is something new, something permanent. They won't imagine that it's just a little different than smoke signals and it's only waiting until the next technology comes along, but rather, this is the dramatic incident that they confront.

Now, there's a second theory of regulation, of course. If you're all card-carrying members of the Federalist Society, then you're more likely to subscribe to this one.

I don't have a good name for it. I call it the Owen-Breutigam theory, because I first encountered a book by Bruce Owen and his colleague, Dr. Breutigam -- but I'm sure somebody else came across it first -- that explains what regulation is about. Not just at the Federal Communications Commission but generally in this country, regulation it's created to slow the process of economic dislocation that's brought about by technical change.

The paradigmatic example of this is the Interstate Commerce Commission, when it was worried that the trucking industry was going to destroy the railroad system. What did we do? We brought the trucks within the confines of regulation in order that we might cushion the dislocation.

Did the railroads eventually undergo great transformation? Of course they did, but in the meantime, the trucks and, to the extent we're talking about human passenger person, the buses all went under one regulation in order to could cushion the change.

The FCC has a perfect history of this. I think there's probably nothing that explains better the course of regulation at the FCC than that it is designed not to impede technological process; that can't be done. Remember, that was my point number one.

These technologies, thank goodness for people like Dave Farber, come along and work when the regulators try to stop them. But the regulators slow their ability to immediately move us into a situation where, for example, unionized workers are all out of work or where, for example, people with large investments in telecomm facilities will all of a sudden find those investments worth zero dollars or where, for example, American consumers find themselves holding instruments that no longer produce entertainment because now it's not on a radio, it's on a television set.

So, the other view of regulation is that it's designed to slow the pace of economic dislocation that's brought about by technological change.

If I'm right about these two views, the FCC will look the same in, let's say, 2010, even when we're beyond these two campaigns.

I believe that these two views converge on three points about the Internet.

One, the FCC will come to see the Internet as a public trough. It will be a source of income that can be taken from Peter and given to Paul. This has happened with every telecommunications technology so far. It is bound to happen with the internet.

The phrase might be "digital divide." It might be "universal service." It might be "access for low-income." I don't know what it will be, but just as we are now giving free telecommunications service to wealthy people who own condos in Aspen, because they are "rural," people will wind up treating the wired infrastructure as a trough.

The FCC, I believe, will come to see the Internet as a trough and will know that it is imperative, whether it's the Cincinnatist view or the Owen-Breutigam view, that it take some of the stuff out of that trough and give it to some people who are not currently feeding from it.

The second thing, the second view, I believe, is the Commission will come to have a view of the Internet as a bellwether of the Nation's moral fiber.

Once again, the Commission has a consistent history on this point. The Commission will, sooner or later, decide that sex and violence on the Internet is corrupting the moral fiber of our youth, is undermining the social fabric, and is leading to divisions in society that the Commission needs to heal.

It made that decision about radio, it made that decision about television, and it made that decision about cable. Under either of my theories of regulation, you can be quite sure that's what's going to happen.

The third way, beyond looking at the Internet as a public trough and as a bellwether of the Nation's moral fiber, I believe that it's quite predictable that the Commission is going to come to see the Internet as an indispensable input for all ancillary services that use the Internet, or for those of you that prefer a shorter phrase, as a bottleneck or as a monopoly that needs to be regulated.

Sooner or later the Commission is going to come to the view that every business plan ought to be able to share the bounty of uninhibited or at least equal access to the Internet.

I'm not talking here simply about the open access issue. Rather, I'm talking about whether we will see imposed on the Internet something like we're currently seeing imposed on the wired analog telecommunications structure.

I think it's quite predictable that the Commission will come to see the Internet as something from which we need to be protected in economic as well as in a moral way.

Now, if all these things make you gloomy, if you're not happy with the prospect that the Commission is quite certainly going to come, perhaps as late as 2010, when I can be sure to be retired by then, as a public trough, as a bellwether of the Nation's moral fiber, and as an indispensable input for all ancillary telecomm services in society, let me remind you of point one: Don't worry, be happy. It's only going to last for a while.

If Moses could handle wandering around in the desert for 40 years, American society is going to be able to handle 40 or 50 years of heavy-handed intrusive regulation of the Internet. This, too, shall pass, and eventually, like AM radio, the Internet will be free to be all it can be.

It's just that I'm not going to be around to see it.

MR. LAWSON: Let's start off with a question about the kinds of mistakes you see lawyers and policy wonks making in this area.

MR. KRATTENMAKER: I do not disagree with what Dave said. He's certainly right about the "don't regulate me, regulate him" phenomenon. The other problem is proposals that don't address the consequences of how things will be different once a proposal is put in place.

More specifically, I don't know how many times, when I was supervising merger review, somebody would say "put this condition on that firm" and forget the issues of whether we had jurisdiction. Moreover, people oftentimes, did not think about how companies could change their behavior and simply walk around the purpose you're trying to achieve by changing their business plan, their structure, etc.

At a very extreme level, what I'm talking about here is the difference between structural and behavioral regulations.

In a prior stint at the FCC -- back in the '70s, together with Stan Bessen -- I ran a thing called "The Network Inquiry." We tried, in some detail, to explain how rules regulating the network affiliate relationship were evaded -- not illegally, not in any bad faith, but the networks and affiliates had interest in trying to make the pie big and then divide it.

Every time the Commission tried to keep them from doing that, they found new ways to do it because they had to. Thus, in addition to not committing what I'd call sin number one, which is David's -- coming in and not understanding how the system works -- number two is not understanding the economics; understanding that the intrusion of regulation doesn't change the underlying incentives to engage in the behavior people are trying to stop in the first place.

MR. LAWSON: Another issue we hear a lot about these days when people want to regulate some aspect of the Internet is network effects.

MR. KRATTENMAKER: I want to finish with one thing.

Unlike Dave, however, I don't think the suggestion is to get more technology people and more good regulatory economists at the FCC. The answer is to get rid of the FCC.

MR. KRATTENMAKER: Well, it doesn't qualify me as an expert, but it is true that I've also worked at the Federal Trade Commission and the Department of Justice, and given the choices Dave had, I find it to be an easy one. Give me an agency that is not industry-specific. So, I find it quite easy to prefer the Federal Trade Commission or the Department of Justice, and that's based on personal experience.

MR. LAWSON: With respect to the issue of network affects, the argument you hear from people that want someone regulated is that once someone gets so big, it's impossible for someone else to get into that market. There are network effects in the sense that, in the old AT&T days, AT&T had 90 percent of the market, and people claimed that unless AT&T interconnected with other networks, the other networks wouldn't have a chance to get off the ground. You hear the same arguments today about things like broadband access, instant messaging and other new services.

What's your view on how those issues should be addressed?

MR. LAWSON: What about that, Dave? On the technology side, does the network effects argument actually work in the Internet space?

MR. LAWSON: Professor Speta, that's your interconnection point, right?

MR. LAWSON: Why don't we take some questions from the audience, if we have some?

UDIENCE: I have a question for Professor Speta.

Maybe I didn't understand your point. I understood you to say that we don't need to worry about broadband, giving users access to all sites, and I just wonder what that's based on. Could you just comment on that?

AUDIENCE: Mr. Farber, isn't that economic model based on the assumption that you're charging for carriage rather than charging for the value of the content? Are you suggesting that cable operators should not or should be able to charge the value of the content?

AUDIENCE: The reason I ask the question is it that much of the open access debate is a revisiting of history of the network rules. That is to say, we're really arguing over who has the right to capture and control the value of the intellectual content. I'd ask the panel, do you think the cable operator ought to be able to capture the value of the intellectual content or should that be something belongs to the copyright holder.

MR. LAWSON:You seem to be assuming that cable is the monopolist at this point, as opposed to other networks being available.

AUDIENCE: The discussion presumes that obviously the cable operator would provide more bandwidth if the cable operator could make more money. But there are two ways of making money. One is to charge for the carriage. The other is you charge for the content.

MR. LAWSON: Another is to get more customers.

MR. KRATTENMAKER: I thought Jim made some extremely good comments about interconnection and the limits to it. When you talk about the specific application, first of all, don't propose something that can't work with the present technology. With the present technology, an open access regime is, at best, difficult to implement.

Secondly, remember that if you impose a behavioral regulation, the person you've imposed it on has an incentive to try to get to the same kind of result. That means we need to talk about things like price regulation, because I can deny Dave access either by telling him he can't get on the system or by telling him it's going to cost him $2 million a second. Each of those would be equally effective.

Let me try a really easy answer to your question. The person that owns the copyright should be able to control the distribution of it, but I doubt there is a huge need for government regulation in order to ensure that happening. Means of enforcing copyrights, like copyright collectives, will arise.

If you have property rights announced, it would simply be that the cable system needs to acquire the property right in the program, and they can't acquire it if the network has achieved that it will only distribute in this area through a certain kind of a channel.

I would say that what society should do is enforce the copyright interests of whoever is doing video streaming as against whoever it is that's downloading it.

AUDIENCE: Well, historically, if you look at the FCC's role with respect to network programming versus affiliate, ownership versus Hollywood, and the prohibition on the networks owning any of the intellectual content of the shows that they used to distribute over the broadcast system, those divisions were based on a historic argument between the copyright-holder -- i.e., Hollywood -- and the network operator -- i.e., the three broadcast networks -- as to who can capture the value of that intellectual property.

Now, in the cable television industry, historically, we moved away from that model and we permitted the cable distribution network to capture that value. The model was, you want my system, I take 20 percent equity in your intellectual content. Otherwise, you don't get on my system.

And I guess my question to the panel is, are we inevitably headed in that direction, that if you want on these cable modem systems, you're going to have to give the cable operator 20 percent or some ownership interest -- i.e., ability to capture the monopoly value of that intellectual content -- to be on that system?

MR. KRATTENMAKER: If you only have one pipeline into the home that can show video, that pipeline is likely to be able to capture the entire value of having video in the home. No matter what rule you put in place, it's going to achieve that result.

Therefore, the answer is to get other pipelines into the home.

AUDIENCE: And is that a problem?

AUDIENCE: But doesn't it suppress the production of content if you're letting the network operator capture all the monopoly grants --

MR. KRATTENMAKER: If you think the only content in the world comes down the cable pipe, we are suppressing the content.

If you really believe the only way to get informed is to go through a cable system in this world, then a regulatory solution is likely to be appropriate. But you don't want to impose a regulatory solution whose costs are so huge that the gain isn't worth the candle.


2003 The Federalist Society