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annals of communications
The New Yorker - January 17, 1994

under the wire

Will the telecommunications revolution end in monopoly or Big Brotherhood? Neither, if Al Gore gets his way.

by ken auletta

Ask Vice-President Al Gore about telecommunications and he thinks of highways. During a recent interview at his office, in the West Wing of the White House, Gore recalled that when he was a boy in Carthage, Tennessee, his family couldn't get into their new car and drive to Nashville--a fifty-mile trip--with any speed, because the road was just two lanes all the way. He also recalled a scene from the fifties: "I watched my father preside over the creation of the interstate-highway system as the chairman of a subcommittee of the Senate Public Works Committee. I remember sitting in the room when they voted to make the signs green on the interstate system." He recalls, in sum, that an assertive government helped open the country to travel and commerce.

Four decades later, Gore believes that he has an opportunity to emulate his father. Computers and telephone and cable and wireless communications have "overwhelmed the equivalent of the little two-lane communications networks that existed," he said. "So it's been obvious for a long time that we must have an information-superhighway network that is as accessible and as open and as democratic and as ubiquitous as the telephone network that will carry vast quantities of data quickly." Only government, he believes, can prevent a multimedia electronic traffic jam and open new economic and social vistas.

Americans have lately been so distracted by megadeals and mergers among communications companies that they have largely failed to notice a fundamental shift taking place in the nation's capital. During the twelve-year reign of Ronald Reagan and George Bush, marketplace forces were free to determine the direction of the media revolution; in contrast, the Clinton-Gore Administration wants government to assert a role. "We want to serve the public interest with a minimalist approach to regulation," Gore said, but his definition of government's role proved not to be minimalist. Asked to describe government's mission, he answered, "Referee. Facilitator. Envisioner. Definer." Under Reagan and Bush, he said, government was a mere spectator.

As a senator, Gore was considered a telecommunications expert. Today, he is the Administration's acknowledged leader of the information age. In the first year of their Administration, Bill Clinton and Al Gore have championed the information superhighway, and within months of taking office established an interagency Information Infrastructure Task Force, with Commerce Secretary Ronald H. Brown as its chairman and Gore as its silent supervisor. Its report, which was released in September, pledged that the Administration would rely on the private sector to build the information superhighway. Government's role, the report concluded, was to devise investment incentives, to insure affordable universal service, to keep the highway democratic, and to protect both privacy and intellectual-property rights. The Administration hoped to delineate its plans in a speech by Gore in Los Angeles on January 11th, and then submit a package of legislation to Congress within a month. Greg C. Simon, Gore's domestic-policy adviser, said that once the rules were in place the government could impartially enforce them. "It's hard to be a referee unless you know what the rules are," he said.

This much is certain: there is growing support from within government and without for government to set up rules for the electronic superhighway. The stakes are high. Together, the electronic media, according to Larry Irving, the Assistant Secretary of Commerce for Communications and Information, now account for roughly the same share of the gross national product--about fifteen per cent--as the health-care industry. And by the year 2000, Gore has predicted, telecommunications will be America's foremost export and the world's No. 1 business.

Representative Edward J. Markey, of Massachusetts, the chairman of the House Telecommunications and Finance Subcommittee, told a U.S. Telephone Association convention last October that the business was changing so fast that he felt as if he were "riding front car on the roller coaster," and added, "It may look like you're steering the cars, but in fact you're just holding on."

The trend is clearly toward the mating of the big-seven communications industries--cable, telephone, computer, studios, broadcasting, publishing, and consumer electronics. What is unknown is whether this consolidation will result in more cross-industry competition or less. If, as promised, the consumer is truly in command, free to choose from an almost infinite number of channels, is it possible that the consumer will exercise more control than the communications giants? Perhaps corporate giantism--the concern underlying antitrust law--will matter less in the communications business. Perhaps not.

For some, battle lines seem to be hardening along ideological fronts. Liberals, like Herbert I. Schiller, professor emeritus of communications at the University of California at San Diego, want government to be more intrusive. "I think the direction we have been going, toward increasingly paying for information, is dangerous," Schiller says. "Inevitably, it will restructure the population into payers and non-payers." The businesses offering cable news or Lexis/Nexis and other research tools see these services as commercial; Schiller sees them as social. "Most information is social, and may need a public subsidy," he says. "Libraries are free. The public-library standard should be our standard for the twenty-first century." Schiller has full confidence in government. Many conservatives do not. They believe that decisions should be left to the marketplace, because markets are smarter, more nimble, and more efficient than government.

Not surprisingly, Vice-President Gore does not agree that government should play such a passive role. It must "step in and prevent abuses and help the country avoid huge mistakes," he said. "All these guys who say government has no role in this--if their philosophy had prevailed when A.T. & T. was broken up, A.T. & T. would not have been broken up. And this competitive explosion would never have taken place. And we would not dominate the fastest-growing market in the world today." Government's challenge, Gore said, is to "steer the enterprise away from the shoals" of both monopolistic business practices and bureaucratic government.

Between those shoals lies the broad political consensus, Gore believes. For, just as the industries converge, a convergence of sorts is taking place in the political realm. It is now common to hear officials in Washington proclaim, paradoxically, that government must have both fewer rules and more rules. The prevailing belief is that the government rule book is too crowded. To prevent monopolistic practices, for example, the seven Baby Bells are not permitted to enter the video business, to manufacture equipment, or to offer long-distance service. The law also dictates that a TV broadcast network may own a cable-programming network (like ESPN) but not a cable system (the box). Cable systems can't freely sell telephone service. Government allocates the limited over-the-air-spectrum space to both broadcasters and the growing wireless telephone and pager businesses. And, backed by the Clayton and the Sherman Antitrust Acts, government grants itself wide latitude to police industry practices--as it is now doing in investigating Microsoft and the proposed mergers of Bell Atlantic / Tele-Communications, Inc. (T.C.I.), and A.T. & T. / McCaw Cellular.

Vice-President Gore believes that some of these rules are antiquated, but until this week he has been spare with specifics. At the same time, he believes that technology and the blending of once distinct industries will require new rules. What, for instance, will replace the principle of scarcity, which is the bedrock of the Communications Act of 1934? That act gave government the right to license and to punish broadcasters because the government was lending them scarce airspace. But technological advances, including digital compression (which permits many more signals to be squeezed into existing wires), have weakened the notion of scarcity, and the proliferation of channel choices opens television to more viewpoints, to more entertainment, to more culture. And, of course, cable and telephone wires don't use the airwaves. Is there a new principle to be invoked to replace scarcity?

The questions about the electronic future multiply. With five hundred--or five thousand--pay-channel choices, how should government help preserve free television? To insure access, should it strictly regulate the superhighway? Or help finance it? Since Congress is now outraged about the violence and sex on our limited channel choices, how might it regulate an outpouring of such programs on multiple pay channels? To reduce consumer costs, government could make data more accessible to the advertisers who subsidize free TV; but would government grant advertisers access to private data collected by the viewers' own set-top TV boxes?

Stimulated in part by such questions, four basic issues have come to dominate the debate in Washington: antitrust policy; universal access; fairness; and privacy.

Would stringent antitrust regulations promote or restrain competition? This question arose with the proposed merger of Bell Atlantic and T.C.I., and this thirty-two-billion-dollar marriage was debated on October 27th before the Senate Judiciary Subcommittee on Antitrust, Monopolies, and Business Rights. The chairman, Howard Metzenbaum, who is an Ohio Democrat, declared at the outset that his main concern was whether a combination of Bell Atlantic and T.C.I. would have "excessive market power." He left little doubt that he thought it would. "Together these monopolists will form a colossus which will have a telephone or a cable wire connecting approximately forty per cent of the homes in America," he pointed out. Among potential competitors, there would be "powerful incentives to coexist instead of compete," he said. "In antitrust terms, this is called mutual forbearance. The theory is that a conglomerate which is relatively strong in a particular market may refrain from competing aggressively with a conglomerate in another market out of fear of retaliation." Thus consumers would lose, he said, because monopolies would be free to set prices.

Last month, when I asked Peter Barton, the president of Liberty Media, about Metzenbaum's "mutual forbearance," he replied that such a notion was unrealistic, because corporate giants were readying themselves to win the cable competition, not just to settle for a tie. "All the regional Bell companies are lining up to compete against one another, with cable lining up as their shock troops," he said. "At the same time, the direct-broadcast-satellite guys are lining up, led by General Motors. At the same time, A.T. & T. and McCaw are lining up cellular. Huge competitors, with lots of resources, are about to get into a conflagration." Barton went on to say that government should decide on the rules of battle, then get out of the way, so "competitors can fight with two hands."

Sumner Redstone, of Viacom, one of three leaders of communications companies who were called to testify, asserted that John Malone, of T.C.I., and his Bell Atlantic partner, Raymond W. Smith, would control access not to forty per cent of all American homes but to fifty per cent. Seated beside Redstone was Smith himself, the chairman and C.E.O. of Bell Atlantic, and Redstone spoke of him as if he were the junior partner, not the senior one, in the proposed alliance with T.C.I. With control over nearly one out of four cable boxes, Redstone said, "a decision by T.C.I. not to carry or favorably market a programming service on its exclusive-access cable systems would require that that service, at a minimum, be carried by nearly every other cable system in the United States for it to succeed commercially--an impossible hurdle to overcome." And if the merger with Smith's Baby Bell was approved, Redstone said, it would extend this monopoly to "the coming communications superhighway." Instead of two or more wires, there would be one. And standing guard at the gate would be John Malone.

"Mr. Redstone is talking about the past," Smith said. "We are talking about the future." He went on to attack the "antique notion of scarcity," and then to reassure the committee that there would be more than one wire. And even if there were only one, he said, it would be like a telephone dial tone: anyone could use it. Smith said that in the near future, when the telephone wire and the cable wire were joined, consumers would have access to an unlimited number of channels, and then the consumer, not the wire owner, would "rule the roost." Without costing the government a dime, the merger would promote a vision promulgated by Clinton and Gore, "an information superhighway."

As it happens, a Washington compact is forming to support the Bell Atlantic /T.C.I. merger, the chief reason being the hope that alliances between cable and telephone companies will guarantee the presence of more than a single wire in each home. A number of people in Congress, both liberals and conservatives, have been sponsoring legislation meant to encourage such competition. Instead of ceding a geographic area to a phone company or a cable system, as is happening today, the consensus would welcome phone companies into the video business and invite cable or phone companies from one region to link up with those in another, thus putting phone and cable companies on the same field of battle.

As for universal access, would the wire be open to all? "That's the central question," Gore said. "What are the essential links in the chain that ought to be treated extra carefully to prevent someone from taking advantage or unfairly bludgeoning valuable competition?" Gore's model, like Raymond Smith's, is a telephone dial tone, which anyone can get. To prevent telephone companies from choosing what travels over their wires, government banished them from certain businesses (like video), in the early eighties. The comparable question for the information superhighway is this: If rival wires are permitted in people's homes, should either of the wire owners be allowed to own the programming or the data transmitted over its wire? "What goes with the notion of common carriage is: Don't give people an incentive to discriminate," one liberal Democratic Senate aide says. "If I make more money showing my stuff on my wire than showing your stuff, I will show my stuff." Yet even this aide is not prepared to legislate a ban on ownership of both a wire and its programming.

The broad middle ground is occupied by Senator John Danforth, a conservative Missouri Republican, who, like Representative Markey, believes that for the immediate future the wire owner should be allowed to own only a limited percentage of programming. Jon Chambers, who serves as Danforth's adviser and is the minority staff director of the Senate Commerce Committee, says their bias is "to get government out of the way." Yet they also want government, through the Federal Communications Commission, to develop rules like those contained in the 1992 Cable Act, which provides that the wire must be open to all programmers. In many respects, Danforth's position parallels the Clinton Administration's. The Commerce Department's Larry Irving wants neither a ban nor a blank check for the wire owner. He worries as much about heavy-handed regulations that could strangle initia-tive as he does about corporate abuses. He would leave it up to such regula-tory bodies as the F.C.C., the Federal Trade Commission, and the Justice Department to "watch self-dealing" and to keep "the architecture" open.

If the architecture is to be open, there must be a common technical standard for the set-top box converter. Without a single standard, every community could choose its own technology. As Apple's computer software has not been compatible with I.B.M.'s, so these various set-top boxes might be unable to talk to one another, and the result would be anarchy. Conversely, if everyone used the same box, the danger would be that the box owner would enjoy the kind of monopoly power denied to the wire owners--precisely the charge that competitors have lodged against Microsoft's dominance of computer software.

Another of the basic issues is how government should define fairness and promote equal customer access to the information superhighway. The Clinton Administration wants the superhighway to have public channels, but it doesn't want to expend public dollars to accomplish that; it wants rigorous enforcement of the antitrust laws, yet also wants friendly relations with corporate America. Sometimes, obviously, such goals collide. The opening of the communications superhighway renews a fundamental philosophical question about the clash between equal opportunity and an equal outcome. Will government insist that the superhighway and its digital technology be available only to those who can pay or be affordable for all, including those who can't pay? Is it fair for public schools in San Jose, California, to make their students computer-literate and link them to the Internet, while schools in poor neighborhoods don't have computers?

The catch is that someone will have to subsidize certain public uses--either taxpayers or business--and subsidies might be prohibitively expensive. And, at a time when polls show that taxpayers are dubious about how much they are willing to pay for universal health care, it's unlikely that taxpayers would support the equivalent of TV or information subsidies. Vice-President Gore says, "I want a schoolchild in Carthage, Tennessee, to come to school and be able to plug into the Library of Congress and work at home at his own pace . . . regardless of that child's income." Though Gore does not identify who would pay for these services, he does cite the telephone model, where long-distance users pay more, to help defray the costs for low-income customers and those who live in remote, expensive-to-reach areas. When Gore and others speak of "universal service," they usually mean that all the people in America, regardless of where they live, would have access to the superhighway. But they don't mean that everyone should get HBO. Therefore, the information superhighway is both more democratic and less universal. It offers viewers many more choices, but, with sports and other programs gravitating from free TV to pay TV, it may offer fewer choices to those without means.

As for the issue of privacy, with technology transforming our homes into glass houses what should the rule book say about privacy? With the set-top box digesting huge amounts of information about consumers, the box becomes a camera in the home. "When you put those powerful converter boxes in the home, they will know your habits," Viacom's president and C.E.O., Frank Biondi, Jr., says. "Marketers want to know your habits." To sell advertising, communications companies will naturally want to sell information that citizens would rather keep private. Who, if not government, would protect citizens from what has been called data rape?

Privacy is an issue that obliterates all ideological boundaries. Today, a cellular-phone conversation is not private, since listeners can scan frequencies almost as easily as ham-radio operators can. "You might as well be on WABC radio," Representative Markey says. And, just as phone conversations can be eavesdropped on, so hackers can peer into computer data banks. Caller ID flashes our phone number to those we call. Automatic Number Identification allows companies to retrieve telephone numbers, names, and billing addresses of each caller to an 800 or 900 number. With a name and an address, computers can retrieve personal credit reports, including data on where people eat or shop. Medical records sent from one personal-digital-assistant screen to another could be intercepted.

Few people question the need to establish privacy rules, particularly over the next several years. Conservatives like Walter Wriston, the former Citicorp chairman, who has written cogently on the communications revolution, say that government rules should start and end with the Bill of Rights. But, as activist judges have shown, such rights can be defined broadly. If government does not at times intercede as a referee, it leaves the very success of the information superhighway at risk. "Justifiable or not, one horror story of any magnitude could lead people to believe that their most intimate secrets can be compromised over this information superhighway," Markey says.

Clinton and Gore, to their credit, have used the White House as a bully pulpit for placing the information superhighway on the nation's agenda. After twelve years of conservative rule--as John Malone can attest--government is back. Despite all the talk of deals and converging technologies, and of how the seven players--cable, telephone, computer, studios, broadcasting, publishing, and consumer electronics--may shift allegiances, perhaps the role most often overlooked has been that played by an eighth force--the suddenly assertive government referee. (c)

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