CHAIRMAN REED E. HUNDT SPEECH BEFORE THE 7th ANNUAL WIRELESS CABLE CONVENTION Las Vegas, Nevada June 22, 1994 Introduction Thank you, Bob, for that kind introduction and for this eagle that will land on my shelf. I would like to thank the members of the Board of Directors of the Wireless Cable Association for inviting me to be with you today. I also would like to acknowledge Jim Clark, who has put together such an outstanding convention. Finally, I want to thank my former colleague, former neighbor, long-time friend and your very able Washington attorney, Nick Allard. I can't count the many ways in which he has given me invaluable help in doing my job. I'm banging the drum for competition and I'm very enthusiastic about wireless. That message isn't necessarily welcome everywhere, so here at least I'm playing at home. This is your 7th Annual Wireless Convention. We are here to celebrate the acceleration of wireless cable as a viable competitor in the United States and world markets. This is the end of seven lean years and the beginning of seven fat years. I am sure this is a celebration because I've seen people here lending money. In American business, debt financing is the highest form of congratulation. I am honored to be the first incumbent FCC Chairman to address this convention. And as some of you know from the reporting on my six months in this job, I turned down all offers to address all other conventions in Vegas just so my first trip here could be with you. On a personal level, I know very well how far your industry has come. I know that each and every one of you deserves credit for your patience, your persistence, and your skill in advancing the cause of wireless cable. You have created businesses almost literally out of thin air. My own personal journey is similar. After six months in my great job I still ask, "Where am I?", but I always remember where I came from. I remember, for example, that I attended the first Wireless Cable Convention in the basement of Washington's Ramada Renaissance Hotel. I think there were about 60 or so people at that first convention. As some of you may recall, I got FCC Chairman Mark Fowler, who had just resigned his post, to speak to you. Mark said he had never spoken to such a small crowd but I said "Yes, Mark, but they've got big hearts". I am told that this year's convention has attracted a record crowd of nearly 2,000. Mark wanted to come back but I wouldn't let him. Not everyone has survived the rough business journey of the last seven years, the journey from the dark days of monopoly power in cable directed at you to the brighter days of the opportunity to compete. However, I do recall one far-sighted cable vet who attended that first convention. This fellow spoke up from the audience, and indicated that he was interested in getting into the wireless cable business, but his friends in the cable industry that he used to be the head of were not thrilled about the prospect of his launching a competitive alternative. Now this fellow has more business energy than he has kids and charities -- and he has lots of kids and charities. I'm talking about Bob Schmidt. Bob is anything but fainthearted. So it didn't bother Bob or his legislative advisor, Nick Allard, that everyone in Washington said they didn't dare take on cable, that cable was the most powerful lobby around. Bob said he didn't care, he had taken harder hits from the practice squads at USC and Notre Dame. In truth, a completely prudent person -- someone who hadn't taken quite SO MANY hits -- might well not have entered the wireless cable industry just then. But, how have things turned out for Bob and Nick and the business in the seven years since that first convention? Those seven lean years have given way to what may be seven fat years and many things are different now. You don't have to pay cash in advance for your rooms. Lenders -- a previously invisible type -- not only attend, but give away free food and drink to have a chance to talk to you. And the hotels let you out of the basement. Earlier this month, The Wall Street Journal ran an article saying, "Wall Street loves wireless." As the headline said, "Wireless Cable-Television Sector Is On Acquisition Binge; Stock Offerings Fuel the Frenzy. . ." Frenzy, Binge -- in Vegas they are dangerous words but on Wall Street they're terrific. Of course on Wall Street a frenzy is when you go with just the belt and skip the suspenders. I had the opportunity to tour the show this morning. I was sold on the virtues of the "Beambender." I thought it was a little unusual when I was told that if I asked for Scotty the product could transport me to the Starship Enterprise. But the truth is that some of the two-way digital technologies on your convention floor make real what seemed like magic only a few years ago. I've been told that in the future all human interaction will be digital. Digital communication is a code language whereby an electronic or photonic yes and no or on and off signal is used to communicate all messages. Those of you who have talked to a teenager lately understand that the era of yes/no communications has already arrived. But digitization and compression are the keys to extraordinary change in the communications industry. They are the keys to convergence of delivery systems that can compete in delivering product. It is as if when they rebuilt the Santa Monica Freeway, robust competitors raced to complete numerous parallel freeways at the same time. Here are some of the changes: 1) The telephone companies can use their networks to deliver video. 2) The cable companies are going to convert their networks to deliver voice communications. 3) Broadcasters are developing new ways to use their spectrum. These technological changes and convergence of industries give us the opportunity to encourage competition in the delivery of communications services. The benefits of competition are historically proven in many industries. Competition has always lowered prices, improved service and stimulated economic growth. As a framework for bringing about competition, I will look to three principles: choice, opportunity and fairness. Choice Choice is really the watchword for the wireless cable industry. Choice means choice for consumers. It means you can go to more than one provider for telephone services or cable TV. Right now there are not enough choices in the communications market. In most places in this nation, as you well know, there is almost no choice available for video programming. If you want ESPN, preferred by my eight-year-old son Natty, or Nickelodeon, my five-year-old Sara's favorite network, in all but 1% of the country you have just a single company to which you can subscribe. If you don't like their prices or the way they treat you, it's take it or leave it. We all know choice means lower prices for consumers. And no choice means higher prices. For example, the average buyer of basic cable service who had no choice except just take it or leave it faced a bill in 1993 that was 141% higher than the bill ten years earlier. You all know that. It was only the Cable Act of 1992 that broke the back of those continuing price increases. That's why rates haven't gone up very much in the last of couple years. In addition, in the Cable Act, Congress expressed a clear preference for the type of competition that the wireless cable industry provides. Once effective competition exists in a franchise area, regulation disappears. And you're bringing that competition to cable markets. Meanwhile, you are exempted from rate regulation. This was done through the definition of "cable system" used in the Act -- wireless cable systems do not transmit signals via a "closed transmission path." This is good public policy because you are not the monopolists, you are the would-be competitors. When you arrive in a market and obtain sufficient penetration, there is no rate regulation even for cable, so there's certainly no need to regulate wireless cable as the new entrant. Already, consumers benefit from the additional choice you provide them. In Riverside, California, Cross Country Wireless Cable TV entered the market in early 1991. Cross Country offers a package of programming for $18.95 a month. To meet that offer, one of the wire cable incumbents charges $20.95 a month for comparable enhanced basic service. But in nearby Buena Park, where the same cable operator faces no competition, it charges five dollars more for the same service. So the "captive" consumers that do not have the choice of moving to wireless cable pay 24% more than the consumers who have the option of switching to Cross Country Wireless. Opportunity Competitive markets create more opportunities for new entrants to participate. Since wireless cable was first made possible by the FCC in the early 1980s, the industry has grown to nearly 200 systems in operation within the United States. Over the past two years in particular, the industry has experienced major growth. Hundreds of millions of dollars in investment money has been attracted in just the last six months. In Philadelphia, ACS Enterprises -- the first wireless cable company to go public, in December 1992 -- has been adding subscribers recently at a rate exceeding six percent a month. People's Choice TV Corporation, after its IPO last July, has gone from 13,000 customers in Tucson to 22,000 currently. It is not surprising and it is not overly ambitious for Bob Schmidt to predict, as he has, that the industry's subscriber numbers will double each year for the remainder of the decade. I bet (that's Vegas talk) you are becoming increasingly excited about your prospects overseas. Millions of subscribers already receive wireless cable in over 50 countries. The explosion of wireless cable overseas is a result of increased demand and of wireless' low cost and its ability to reach areas with high rural populations. For example, in Mexico, MVS Multivision has close to 300,000 wireless cable customers in Mexico City -- a 12-fold increase from its level in 1990. It predicts 540,000 Mexican subscribers by the end of next year, including 420,000 in Mexico City. I'm told that in Eastern Europe, a wireless cable operator intends to use the technology to introduce telephone service in the fourth quarter of 1994. This international growth has already led to more than $100 million in purchases of United States equipment. Your industry is creating competition within the United States, and you're helping our balance of payments, and you're making United States technology the de facto worldwide standard, and you're helping build what the Vice President calls the Global Information Infrastructure. Not bad for an industry that was down in the basement of the hotel of opportunity only seven years ago. Now at the FCC, we needed to change our regulations to help you take the opportunity to compete in the video programming marketplace. Here's some of what we've done: (1) Reduced the minimum programming requirements for new ITFS licensees for the first two years from 20 hours per channel per week to 12 hours per channel per week (1990); (2) Increased the maximum MDS and ITFS transmitter output from 10 watts to 100 watts so that signal strength would consistently reach 15 miles (1990); (3) Authorized use of channel mapping technology by ITFS licensees and wireless cable operators (1990); (4) Authorized the use of signal boosters, which are needed when line-of-sight transmission is not possible (1990); and (5) Eliminated restrictive time-of-day and day-of-week regulations, thus permitting ITFS licensees to fulfill their minimum programming requirements on any day and at any time of day (1991). Earlier this month, we took several additional actions to help give wireless cable the opportunity to compete. On June 9, we: * Transferred MMDS to the Mass Media Bureau's Video Services Division in order to permit "one-stop shopping" for ITFS and MMDS licensing. We are assembling a team to handle new MMDS applications and as soon as things are ready will lift the freeze on applications. * We approved "channel loading" for ITFS licensees so as to maximize your ability to offer subscribers greater access to advanced television features like picture-in- picture and the ability to record one program while viewing another. The wireless cable industry worked well with ITFS licenses to come up with the compromise that formed the basis of our decision. * We decided to accept the filing of new applications for major changes to existing ITFS facilities, as well as any competing applications. * We announced that we will use a window filing system for ITFS applications to eliminate duplicative review. Most important, we are assembling 20 skilled people borrowed from the Cable Services Bureau and the Common Carrier Bureau into a team headed by Roy Stewart and Barbara Kreisman that is committed to eliminating the backlog of MMDS applications and legal cases. I also know there is tremendous interest in the industry in providing wireless cable system operators with some sort of preference in securing fallow channels in their markets, and we will explore that possibility. In addition, other moves we should consider include whether the FCC should change its inside home wiring rules to give cable competitors access to the wiring. For example, should we change the demarcation point from one foot away from the entry point to some more distant point? Should we shorten the time for cable operators to pull out their wires when a customer wants to switch to a competitor? Would we promote the opportunity to compete with cable if we gave subscribers greater access to cable home wiring before they had in fact switched to an alternative provider? These are real and serious questions about the all important last few feet of the information superhighway. We are looking carefully into these questions. Fairness The third principle for competition is fairness. You need not just an opportunity to compete, but a fair opportunity. No one wants big companies to take unfair advantage of small companies through prohibited exclusive dealing, illegal discriminatory pricing or other unfair trade tactics. Competition for the new entrants will be tough enough; incumbents will have to play fair. This is especially so in the cable business. Cable has annual revenues of $22 billion and that's going to grow. As recent deals have shown, cable companies are generally strong and powerful businesses. The cable industry passes 97% of the country's homes. Cable has about 60 million subscribers, enrolling as subscribers more than 62% of homes passed. Those numbers are also going to grow. By comparison, wireless cable today is about a $1 billion industry serving half a million subscribers with a penetration rate of about one-half of one percent. You've got a bright sunny day of opportunity ahead of you but you already know you have a tough road of competition to travel down. Congress ensured one very important way in which incumbent cable operators will have to play fair when it adopted the program access provisions of the 1992 Cable Act. Although the Wireless Cable Association and its allies were way outnumbered, you prevailed on the program access issue because you convinced Congress that vertically integrated cable operators should not be able to thwart competition by locking up programming in which they have an interest. The program access rules are working. Earlier this month, the Commission issued its first two program access decisions. In the first case, Time Warner sought authority to enforce exclusive distribution agreements for Court TV. We turned that down. In the second case, the Commission granted an unopposed request by New England Cable News, a regional all-news network, for authority to offer cable operators in the New England states exclusivity. In that case, exclusivity was in the public interest because it would help attract investment and secure distribution. So this is a line we drew. Following that line, late last week, Time Warner withdrew a petition seeking to enforce exclusive agreements with Prime Ticket, a sports channel that carries Lakers and LA Kings games, for systems in nine southern California communities. That's good news, I hear, for Vanguard Cable, a wireless cable operator in southern California. Now when I was in New Orleans at the cable convention, 150 programmers were there clamoring for clearance, and the cable industry assured them that there is no space for them right now on most cable systems. If what I hear is true, compression technologies are coming that will greatly enhance cable's channel capacity. Competition is coming for you, too. With 150 programmers in the wings, you have a challenge and an opportunity to offer these programmers clearance. There is a great explosion in creativity and you can use it to your advantage. By the way, no one has locked those programmers into exclusive agreements -- yet. Another thing I want to learn from you is how you can help complete the "information superhighway" so that it reaches all Americans. I'm particularly concerned about the 45 million Americans who work and play every day in buildings largely cut off from the modern information age. These are our children in schools, kindergarten through grade 12. In only half of the classrooms are there computers and in only 4% of the classrooms are the computers connected to telephone lines. Thus, only one out of 25 classrooms has the opportunity to connect to the communications revolution. President Clinton has called for us to connect all classrooms, libraries and health clinics to the information superhighway by the end of the decade. Farsighted legislation sponsored by Senator Hollings and Congressmen Dingell, Markey and Fields would ensure that the President's goal is met. Is the wireless cable industry prepared to accept the President's challenge? Is it possible that building the information highway to the classroom can be a business opportunity for you as well as the gift you might make to our children of the opportunity to participate fully in our economy? Another thing I'd like to learn from you is how you plan to ensure that all Americans share in the opportunities available in the wireless cable industry. Women and minorities should have opportunities in employment and ownership in the industries that are going to grow through the communications revolution. As I'm sure you know, for many years broadcasters and cable operators have been subject to the Commission's Equal Employment Opportunity (EEO) Rules. Our 1992 Annual Report concluded that women and minorities are to a degree under-represented in both the broadcasting and cable industries. As a result of the 1992 Cable Act, the scope of our EEO enforcement responsibilities was expanded to include wireless cable operators. Wireless cable operators were sent EEO reporting forms early this year. Those forms were due to be filed at the Commission on May 31, 1994. We are just now beginning the process of reviewing those forms, so I cannot tell you what they reveal about the industry's EEO compliance. But you should know that from this date on we will be evaluating not just your EEO profile but your hiring practices. We also are conducting random on-site audits of wireless cable operators to evaluate their EEO programs. We recently completed the first of these audits. Others will follow. EEO compliance should not be regarded as, and should not become a paperwork problem or administrative hassle for you. Equal employment opportunity should be seen as perfectly consistent with the equal competitive opportunity that you've long sought and long deserved. As you take that opportunity, you'll be creating many, many new jobs and ownership opportunities. It is vitally important that women and minorities share in those employment and ownership opportunities. Let's not get together again next year to talk about how you've left undone what you ought to have done and you've done that which you ought not to have done. Instead, let's meet to talk about how you've managed as an industry to start to look like the people you serve. Finally, we're counting on you to keep your own house in order. The Association is to be complimented for your strong stand against investment scams and the so-called "application mills." You have worked hard to comply with industry standards to protect investors. I think this work is essential for your business reputation. More recently, the Association has helped securities authorities focus on telephone sales operations that provide inadequate disclosure to unsophisticated investors. I note that an official from the U.S. Securities and Exchange Commission will be speaking on a panel here this afternoon about this problem, and describing initiatives that are currently underway. Everyone's grateful for your good work in making responsible and ethical conduct a priority for your industry. Conclusion The older I get the harder it is for me to tell the difference between luck and getting your just desserts. I know I've been lucky in getting this wonderful job that I have which includes the great privilege of being able to come out here, talk to you, and join Nick on one of his three trips to the gym yesterday. We all also know that you can work very hard in the life of business and in the business of life without necessarily having all your dreams come true as you may well deserve. That's because as Clint Eastwood said to Gene Hackman in "The Unforgiven" before shooting him, "It ain't about deserving." But whether it's because of luck or maybe your just desserts, notwithstanding Eastwood, the fact is that for you in this room opportunity is at hand. George Washington Plunkett was the boss of the political machine called Tammany Hall in New York about a century ago. When asked at the end of his long and profitable career what was the secret of his success, he said, "I seen my chances and I took 'em." Your chances have come your way because of good laws and your hard work. Your chances are part of this country's policy of enhancing choice, opportunity and fairness for consumers and industry alike. But they're still just chances. You see 'em. And it's up to you to take 'em. As a consumer, I'm counting on you, and I wish you much success as a full participant in the communications revolution.