FCC Chairman Alfred Sikes explains a year of massive change

In a brief lull before yet another rubber-chicken conference lunch in Chicago, Federal Communications Commission chairman Alfred Sikes spent an hour with Digital Media editor Denise Caruso, discussing the massive changes taking place in the telecommunications industry that is his purview.

Sikes has arguably the most exciting job in the country today — laying the foundation for a global, interconnected network of digital technologies. He’s certainly not wasting any time. In the past year, the FCC has presided over moving the regional Bell Operating Companies into information services, provided for a “video dial tone,” pushed hard on a standard for high-definition television (hdtv), and allocated spectrum to interactive television services, and much more.

Though over the past year the Commission’s most radical moves — spearheaded by Sikes — shocked many industry observers, one walks away from an interview with Al Sikes recalling a wry sense of humor, a deep respect for the power of technology, and an unwavering belief that deregulation and competition are the critical elements to making the digital world a reality.

Digital Media: Based on everything that’s happened in the past year — deregulation of the Bell Operating Companies, allowing their entry into information services, so-called video dial tone, progress toward digital hdtv — it appears that you believe demand for video entertainment in the home will finance the installation of a broadband fiber network in the United States. Is that a fair statement?

Alfred Sikes: Well, entertainment generally has been a supply-demand leader. For better or for worse, the American public seems to have an insatiable appetite for entertainment. If you say to telephone companies, for example, “You can’t get into the video carriage of entertainment,” then you obviously deny a large revenue stream which might help in the modernization of the network.

We just don’t think that it makes a lot of sense to say, especially as we go into a digital world, that you can carry this, but you can’t carry that. So, we believe that saying to the telephone companies, “You can’t get into video carriage” would be a mistake.

DM: It looks as if what you’re trying to do is find a way for the U.S. to be able to modernize the infrastructure and find a way to pay for it at the same time. Is that why it was important to you to let the regional Bell Operating Companies get into information services?

Sikes: Yes, essentially we now have technologies of enormous promise, which are either not deployed at all or deployed in a limited way, or are deployed in private networks but not in public networks. The question then becomes, how do you optimize the potential for the deployment of those technologies, whether it is fiber, whether it is the use of digital compression techniques to enlarge existing media, whether it is additional computer functionalities or whatever? How do you, without government funding, stimulate the universal deployment of those technologies?

Now, our experience in the U.S. has been that with competitive markets comes a race to meet demand and also to stimulate, create, find demand. And we find also that sometimes with that competitive need companies are willing to take a loss in the short term for the potential in the long term.

DM: Do you believe that that can happen with the phone company?

Sikes: AT&T, for example, wrote off a huge amount of copper plant because it felt it must meet the competition, by say, Sprint, which was going to an all-fiber and all-digital network. So our view isn’t that the phone company should or shouldn’t do well in any given market. Our view is that the phone company should be allowed to compete, but that the obligation that goes with that latitude will be the obligation of having an open platform, which is available to those who want to use those communications links for whatever services they want to perform.

DM: Are you talking about Open Network Architecture? [ONA, or Open Network Architecture, is a network design that requires phone companies to unbundle and provide equal access to all the network's basic functions, such as call-waiting or caller party ID. ONA lets enhanced service providers package these features together and resell them at the same tariff that the phone company must charge itself to sell them.]

Sikes: Yes.

DM: Do you think that ONA and opening up the network like that also opens up competition in the local loop?

Sikes: Sure, I mean that’s what we’re at right now. We’re looking at various ways that alternative providers, sometimes called competitive providers, can interconnect with a local network — that is, with the subscribers, with the telephone users — so they can get into the local and inter-city telephone business.

DM: How do we make sure that these alternative networks are as reliable as we’ve been accustomed to over the years? We’ve seen more phone network failures in the past two years than I can remember in my entire life. Is that a function of opening up long distance to competition, or is it a function of technology that’s in the process of changing?

Sikes: We’ve been working on the issue of reliability globally — and so I have been able to look into the Belgium market, Swiss market, the Swedes’ market, the Japanese and other markets — and you find that in a number of different parts of the world where these modern technologies are being introduced or widely deployed that there have been some transitional difficulties. So what we have done, both through the International Telecommunication Union and then domestically at the FCC (although we brought Mexico and Canada in as well), is we have set up a reliability forum. A number of committees are developing within that forum that are going to address a whole series of questions. Now, some of the questions are decidedly low-tech, that is, how can we to the greatest possible degree keep people from severing cables, you know, when they’re using backhoes.

DM: A nontrivial matter actually.

Sikes: Well, it’s not trivial. It is a very serious matter, whether it may be sharks in the underseas
cable environment .• . .

DM: … It seems so silly, but it’s obvious.

Sikes: But then you’re looking at questions like, the introduction of out-of-band signaling systems, and what new challenges Open Network Architecture poses. Now, from my standpoint there is no question that we have to move forward, that the promises are too great to stand still.

But as we move forward, as we introduce a higher level of competition, as we go to a more pluralistic vendor environment, as we go to a point where it is at least possible to concentrate more traffic — it may not be intelligent to do it, but it is possible to do it — and a whole range of these kind of developments, how do we make sure that they not undermine the reliability of the network so we’re acting on that front? I’m optimistic that we can do the job.

DM: If you really wanted to be paranoid, just sit and think about what people could actually do — can actually do today — to an all-digital network that’s not properly protected. Security issues become very interesting when you’re moving software around on a network, which is essentially what we’re going to be doing pretty much full time from here on.

Sikes: I don’t think there’s much doubt that we have greater challenges. You know, in retrospect one might liken the situation to the Wright brothers in the kind of simple questions they were dealing with, versus the complicated questions on the launch of Endeavor and the effort to recapture the Intelset satellite as the Endeavor and the satellite are spinning around the earth at 17,000 miles an hour. The challenges are orders of magnitude greater, but we going to have to address them. There are going to be some difficulties, but I think we can address them successfully.

DM: Let’s talk about the RBOCs and information services. The Association of Newspaper Publishers of America is furious and the cable industry is maybe not as furious, but also worried. How do we make sure that the RBOCs don’t exercise undue power in that situation? Is the FCC working on what kind of regulatory safeguards have to be there?

Sikes: We’re not working on it, the regulatory safeguards are in place. And it is quite feasible to keep them from discriminating, and it is quite feasible to keep them from cross-subsidizing, and we will do both. Will they be done perfectly? Is human endeavor perfect? But, what you have is you’ve got a battle between industries and you’ve got industries wanting to stop potential competition that develops through new technologies. I think to stand still because particular industries are no longer as secure as they once were would be a mistake.

On the other hand, to not understand that the telephone companies have significant market power, and that therefore, there is a need to have a regulatory system that safeguards people from that market power, would be similarly naive. Phone companies have been involved in information services certainly for as long as either of us can remember.

Take the Yellow Pages, for example. If you tell them that they’ve got to continue to print, in a city like Chicago, a book that’s about the size of a large Webster’s dictionary, and then cut down trees to do that and then, throw those books in landfills — as it has become increasingly possible to provide that kind of data service electronically — I don’t think it makes sense to do that. And yet from ANPA’s standpoint, that’s precisely the service they are most concerned about. Because they see that service as potentially coming head-to-head with their classified advertising service. Now, ANPA does appropriately look to the FCC to provide safeguards, and we will do that.

DM: Let’s take ANPA out of it. I’m more concerned about smaller companies that want to provide information services, people that might not be visible to the FCC. It doesn’t seem like it would be very helpful to have their recourse be to file a multi-million dollar lawsuit against the phone company in order to get access to communication lines for information services. What is the grievance procedure now?

Sikes: Well, it depends a little bit on what the question is, but with regard to most questions, they can come to the FCC. Obviously the courts are available as well. You know, filing complaints and pursuing them is often somewhat costly. I wish that weren’t so, but it is.

But for the most part, the little companies will be, in my view, the ones to profit most tremendously if you have a video dial tone with essentially an infinite network potential.

Because then you could turn Digital Media into a national provider of services by simply providing the information to those who want to use whatever networks you might develop. Today, however, if you want to use a broadband network, if you want to, say, take what you do and turn it into a video network, you may not have a common carrier platform to which you are assured access.

DM: That leads into a question about common carriage. At the recent Computers, Freedom & Privacy conference in Washington, there was a conversation about open access to the networks. One panelist said what he was worried about regarding the phone company and information services was not services that could be provided by common carriage, but enhanced services. It is the enhanced services that the phone company can decide that they won’t bill for. What’s the difference between an enhanced service and something that should be provided via common carriage?

Sikes: “Common carriage” is typically a legal phrase that goes across a very broad spectrum of potential services, including everything from voice mail, which for the most part is not a content service, all the way to, say, 976, and as I recall my numerology, that’s the combination of digits used for Dial-a-Porn.

DM: Was it just for Dial-a-Porn?

Sikes: I don’t know. I don’t have a problem with my memory, I just haven’t used it. Now GTE got indicted a couple of years ago for its distribution of a couple of what were generally called “blue” cable channels. They had X-rated material, and they got indicted for distributing pornography. The phone companies have been picketed by organizations who objected to their phone lines being used for the distribution of the sex chat lines.

That sets up a difficult question. Phone companies don’t like to be indicted, that’s for damn sure, and they don’t like to be picketed either. So, it strikes me that what we’re going to find, is we’re going to find a legal testing of how restrictive phone companies can be. That’s going to raise this probably to both the judicial and Congressional levels, where in the final analysis there will be decisions made.

In the Dial-a-Porn area, for example, the Congress said, and the court upheld, that Dial-a-Porn services don’t have to be billed by the telephone company, that what is billed to customers doesn’t have to be collected by the telephone company. And additionally the telephone company can choose to not provide those services except to those who ask for them. As I said, that was the law passed by the Congress and upheld by the courts.

As we get into these new technologies and all of the hundreds and thousands of applications that will result, we’re going to have some difficult questions to work through.

DM: I’m not fond of dial-up pornography either. However, there is a thing called the First Amendment here that I get concerned about in many areas other than pornography.

Sikes: But what’s happening more and more is these information service providers are using credit cards — MasterCard, Visa and others — for purposes of payment and billing and collection.

DM: Well, I’ll just go ahead and argue the other side of my own argument and say that the phone company may find that it has to accept some services that it might not otherwise want to accept, if it wants to stay competitive. Cable doesn’t seem to have a problem with finding a way to deal with controversial subject matter such as pornography.

That aside, let’s talk about the cellular data networks and other alternative networks such as cable and satellite, and whether they will be granted common carrier status.

Sikes: I don’t think they will seek common carrier status.

DM: Because it’s so regulated?

Sikes: That’s right. The common carrier must by law hold itself out to like customers on the same terms and conditions, at the same rates. For the most part companies want to avoid having their contractual and pricing policies be determined by governments. What we have essentially said is that where a particular business is monopolized, then it is appropriate that that business operate on a common carrier basis. But where competitive providers have emerged and the markets have become effectively competitive, then we think competition and not the regulatory agency should determine price and services and things like that.

DM: Because it’s assumed that there will be competition for local phone services, you don’t think there will come a point where government has to step in and say, “Cable, cellular data, satellites — you all are charging too much money and we need to have some equal access provided to people who can’t pay your exorbitant prices”?

Sikes: I don’t see an environment where these companies can charge too much money.

DM: You think the competition is just going to take care of it?

Sikes: I think competition is going to, that’s right. It’s going to keep price very close to cost.

DM: How long before broadband network communications become a commodity in terms of pricing? Do you think that could happen by the turn of the century?

Sikes: Well, it depends on what kind of broadband networks you’re talking about. If you’re talking about domestic satellite broadband networks, those are very competitive right now. If you’re talking about the subscriber loop and its universal availability in a broadband configuration, I would say that is going to be somewhat after the turn of the century.

DM: And what about in between, what will happen with cable?

Sikes: If municipalities won’t perform as protectors of monopoly status, then I’m convinced the cable market will become competitive. There are enough dollars in that market; it’s growing particularly as pay-for-view becomes more attractive, as advertisers seek out cable as a means of reaching a targeted audience. I think that cable can be a competitive market. It tends to be noncompetitive because municipalities are protecting the monopoly.

DM: What would you like to see the United States look like in the year 2000?

Sikes: I believe strongly that if markets are freed and if we do our work to make sure they stay free, there will be enormous strides in unforeseen ways. I believe that the American public wants certain things, even though they might not be articulating what they want in easily determined and measured ways, and that these technologies and [most importantly] the applications are going to serve those wants.

I think the American public, at least a portion of it, wants to be able to get in touch or to be reached regardless of where they are, and I think we are going to get there in not all that many years.

I think the American public would like choice in how they get their video. For the most part, over land or in wire-based manner, they don’t have choice today. They can do it only through the cable company. I think that choice spreads across the full spectrum of services. Choice will be one of the real signal characteristics of where we’re going.

The third thing the public wants is help with this blizzard of information. It wants to be able to pinpoint and get much more quickly the answer or the movie or whatever it is they’re seeking, and I think the applications people in particular will help the public get that.

And then I could talk about speed. I think there will be the capability to get things much more quickly. I see an enormous opportunity for the rural areas, just as Walmart stores used its [satellite] network to help create the fastest-growing retail empire. And rural America, as these technologies are more and more universally deployed, has enormous opportunity to get out of the disadvantages of isolation. So those are some of the things I see ahead.