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December 23, 2003, 9:00 AM ET, Alert No. 805.
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Powell Prophesies the Digital Revolution

12/18. Federal Communications Commission (FCC) Chairman Michael Powell gave a speech [10 pages in PDF] to the Chicago Economic Club titled "And a Child Shall Lead Them".

The title is an allusion to the Prophet Isaiah. (See,  Isaiah 11, Verse 6.) The theme of Powell's speech was that it is the "kids" or the "digital generation" that will lead the adoption and use of new technologies. He said that "Our kids and the technologies that they embrace shows us what our society will look like from a personal perspective and, by extension, what business will look like as it adapts to accommodate these new citizens."

He cited as examples his own kids' use of technology. For example, one of his sons "hates television", because "He must command his medium". The lad "expects nothing less than to be within arms link of some digital device and to be plugged into the net whenever he wants."

Michael PowellPowell (at right) also said that kids are "comfortable with this technology and they present enormous opportunities for new markets, new products, and new services. But, beware. If you do not move to serve their needs in the way that they require, they know how to use the technology to help themselves."

Powell cited Napster as an example, He said that it demonstrated that kids "want to program the album and assemble songs in collections to their liking. They do not want the record label putting 1 great song in a package with 10 crummy songs and forcing them to buy the whole thing at ridiculously high prices. If industry will not serve that need, this generation will do it themselves. Nineteen year old Shawn Fanning invented Napster because the record labels didn't. While the record business will fight back, they may have lost a whole generation of consumers that have come to expect free music."

Free Markets. It was not a speech about how to regulate. Rather it was Powell's overview of the direction of various technologies, and the progress of convergence. He discussed old industries over which the FCC has statutory authority (such as phone, cable, and broadcast), and new industries over which the FCC does not have statutory authority (such as software, computer, and networking). Finally, without addressing specific proceedings, he offered his view of what this digital revolution means for competitors and for regulators.

His vision for regulators is limited. Free markets, individual freedom, consumer choice and control, and limiting regulation, is the best policy. "We must place our faith in entrepreneurs and not extinguish the burning energy of innovation with the wet blanket of over-regulation, as some seem to prefer", said Powell.

He said in this speech that "A revolution is rarely government led." (Thus, he did not cover the FCC's efforts to plan a transition to digital television.)

Internet Paradigm. Powell spoke at length about his understanding of many of the developments in technology. For example, he opined that "To boil it all down, more and more power will be shifted to individuals. Traditionally, in communication services, a corporate carrier and a regulator stand at the center of everything. The service provider controls the brains of the network and regulators set the rules. The carrier makes decisions about when your phone rings, what number you will have, what services are available to you and at what price. Your telephone is a dumb machine. You have little role in this system other than to pay your bill."

"The Internet paradigm puts more of those choices into the hands of individuals at the edge of the network", said Powell. "This is a radical departure from the cozy world of telephone regulation. Consumers, like our children, will be more in command."

Brutal Competition. The Book of Isaiah states that "The wolf also shall dwell with the lamb, and the leopard shall lie down with the kid; and the calf and the young lion and the fatling together; and a little child shall lead them." In Isaiah's prophecy, even natural enemies shall live in peace together.

In contrast, Powell's vision for the future of technology is more Schumpeter than Isaiah. Powell predicts that "competition in communications is going to be brutally intense." (See, Joseph Schumpeter, Capitalism, Socialism and Democracy.)

Incumbent companies will have to "rebuild their infrastructure in order to compete with new digital age companies". Powell continued that "they have to invest capital today to generate uncertain revenue tomorrow that may cannibalize today's business. They have little choice, however, for if they don't someone else will and they will be dead."

"Cable companies have had to rebuild their networks to compete with digital satellite systems. Telephone companies have to upgrade their copper voice lines to compete with cable TV’s broadband service. Television broadcasters have to replace their analog service with digital television to compete with cable and satellite. All this investment is critical if one hopes to have any chance to compete for the business of the digital generation."

Powell said the increasing competition will come for a variety of reasons. First there is the shift in government policy from support for monopolies to competition. Second, there is the "rapid technological erosion of the walls that separated different industry segments from each other."

Moreover, "The Internet threat is even greater. Over the Internet, applications are separated from the infrastructure. Now, services can all be software applications that ride over the platform as bits. ... The fact that applications are divorced from infrastructure means companies like Microsoft, Intel and Apple are suddenly competitors to traditional communications companies."

In Powell's prediction, "Companies will have to operate faster, more nimble organizations. They will have to get comfortable with greater risk taking and with failure. They will have to invest in research and development. Small companies unburdened by a legacy network will spring up constantly and attack."

But, like Schumpeter, Powell welcomes this competition and creative destruction. He said that "At the FCC we are moving in a direction that embraces revolutionary change." And, "We look to the Internet, entrepreneurs and technology for the world of tomorrow, rather than the telephone, monopoly and dated regulation."

FCC Proceedings. Powell made a few vague references that pertain to some ongoing proceeding, or proceeding likely to be initiated soon.

Powell discussed voice over internet protocol (VOIP). But, he only addressed the new technologies. He said nothing about how the FCC might classify various VOIP services for regulatory purposes, or whether the FCC might extend universal service, E-911, CALEA, or other legacy rules to any VOIP services.

Powell also briefly referenced the FCC's local number portability (LNP) rules when discussing new phone technologies, the ultrawideband (UWB) rules when discussing electronic devices for the home, and the FCC's allocation of more spectrum for unlicensed devices when discussing Wi-Fi developments.

He also alluded to the FCC's triennial review order, released on August 21, 2003. While discussing what the FCC is doing to promote broadband deployment, he stated that "We have adopted policies that provide incentives for building fiber to homes, by limiting unnecessary regulations so that entrepreneurs can focus on their work and not on filling out regulatory forms and hiring lobbyists."

FCC Releases Telephone Subscriber Data

12/22. The Federal Communications Commission (FCC) Wireless Competition Bureau's (WCB) Industry Analysis and Technology Division (IATD) released a report [21 pages in PDF] titled "Local Telephone Competition: Status as of June 30, 2003". See also, FCC release [PDF].

The report shows that the total number of reported end user switched access lines continues to decline. However, the number reported by competitive local exchange carriers (CLECs) continues to grow. The data in the table below is taken from Table 1 of the report.

  ILEC Lines CLEC Lines Total Lines

June 2002

167,472,318 21,644,928 189,117,246
Dec. 2002 162,742,937 24,780,979 187,523,916
June 2003 155,922,118 26,890,594 182,812,712

The report shows that the reported number of mobile wireless telephone subscribers continues to grow. The report states that the total reported for June 2002 was 130,751,459. For December 2002 it was 138,878,293. And, for June 2003 it was 147,623,734. (See, Table 13.)

The report shows that cable telephony grew modestly in the first half of 2003. The report states that the number of CLEC coaxial cable lines reported for June 2002 was 2,597,000. For December 2003 it was 2,988,000. And, for June 2003 it was 3,028,000.

The report also states that "CLECs reported providing about 18% (a decline from 43% in December 1999) of their switched access lines by reselling the services of other carriers and about 58% (an increase from 24% in December 1999) by means of unbundled network elements (UNEs) leased from other carriers. The remainder of CLEC lines was provided over local-loop facilities owned by the CLECs."

It also states that "ILECs reported providing about 27% more unbundled network element (UNE) loops with switching to unaffiliated carriers at the end of June 2003 than they reported six months earlier (13.0 million compared to 10.2 million) and about 1% fewer UNE loops without switching (about 4.2 million compared to 4.3 million)."

More FCC News

12/22. The Federal Communications Commission (FCC) released a report [715 pages in PDF] titled "Universal Service Monitoring Report; CC Docket No. 98-202; 2003". See also, FCC release [2 pages in PDF]. This report covers all of the FCC universal service subsidy programs, including low income support, high cost support, the e-rate program, and rural health care support.

12/22. The Federal Communications Commission (FCC) announced that "In response to the December 21, 2003 increase in the Homeland Security Threat Level from "Elevated" (Yellow) to "High" (Orange), the FCC has taken additional security precautions that will limit visitor access to the FCC headquarters building in Washington, DC. Until further notice, the Maine Avenue lobby is closed. All visitors must enter the building through the 12th Street lobby, and must be escorted by FCC staff. The Reference Information Center is closed. Filing and docket information remains accessible online."

12/17. The Federal Communications Commission (FCC) announced that it has adopted a Notice of Proposed Rulemaking and Order that contains proposals, and seeks comments, regarding the use and applications of cognitive, or smart, radio systems. This item is FCC 03-322 in ET Docket No. 03-108 and ET Docket No. 00-47. The FCC issued only a press release [PDF] describing the NPRM and Order. It states that "The Notice seeks comment on the ways in which the Commission can encourage and remove regulatory impediments to continued development and deployment of smart radio technologies, including, for example, facilitating the ability of licensed spectrum users to deploy them for their own use to increase spectrum efficiency, and to facilitate secondary markets, allowing licensees to lease their spectrum access to third parties using such technologies. The Notice also seeks comment on ways in which smart radios can facilitate opportunistic use of the spectrum by unlicensed devices, while protecting incumbents from harmful interference." See also, separate statement [PDF] of Chairman Michael Powell, separate statement [PDF] of Commissioner Kevin Martin, separate statement [PDF] of Commissioner Michael Copps, and separate statement [PDF] of Commissioner Jonathan Adelstein.

12/17. The Federal Communications Commission (FCC) announced that it has adopted a Report and Order regarding intelligent transport systems. This item adopts licensing and service rules for the 5.850-5.925 GHz band for Dedicated Short-Range Communications (DSRC) in the Intelligent Transportation Systems (ITS) Radio Service. This item is FCC 03-324 in WT Docket No. 01-90. See, FCC press release [PDF] describing this item. See also, separate statement [PDF] of Chairman Michael Powell, and statement [PDF] of Commissioner Jonathan Adelstein.

12/17. The Federal Communications Commission (FCC) announced that it has adopted a Third Report and Order and Second Further Notice of Proposed Rulemaking pertaining to the administration of the FCC's e-rate subsidy program for schools and libraries. This item is FCC 03-323 in Docket No. 02-6. The FCC issued a press release [PDF] describing this item.


The TLJ Daily E-Mail Alert will not be published on Wednesday, December 24, Thursday, December 25, or Friday, December 26.

IRS Plans Crack Down on Charitable Contributions Deductions Involving Transfers of Intellectual Property

The Internal Revenue Service (IRS) issued a notice [3 pages in PDF] that states that the IRS "is aware that some taxpayers that transfer patents or other intellectual property to charitable organizations are claiming charitable contribution deductions in excess of the amounts to which they are entitled under § 170 of the Internal Revenue Code."

Mark EversonIRS Commissioner Mark Everson (at right) stated in a release that "We're seeing an increasing number of donations that don't pass the smell test. Donations that are overly inflated or made with strings attached are going to receive increased scrutiny."

The IRS notice provides more detail. It states that "the IRS has become aware of purported charitable contributions of intellectual property in which one or more of the following issues are present: 1) transfer of a nondeductible partial interest in intellectual property; 2) the taxpayer’s expectation or receipt of a benefit in exchange for the transfer; 3) inadequate substantiation of the contribution; and 4) overvaluation of the intellectual property transferred."

The notice warns that "The purpose of this notice is to advise taxpayers that, in appropriate cases, the IRS intends to disallow all or part of these improper deductions and may impose penalties under § 6662. In addition, this notice advises promoters and appraisers that the IRS intends to review promotions of transactions involving these improper deductions, and that the promoters and appraisers of the intellectual property may be subject to penalties under §§ 6700, 6701, and 6694."

Solicitor General Files Brief in COPA Case

12/16. The Department of Justice's (DOJ) Office of the Solicitor General (OSG) filed its brief on the merits with the U.S. Supreme Court in Ashcroft v. ACLU, a case regarding the constitutionality of the Child Online Protection Act (COPA).

This will be the second time for the Supreme Court to consider the COPA, which bans sending to minors over the web material that is harmful to minors. On March 6, 2003 the U.S. Court of Appeals (3rdCir) issued its opinion [59 pages in PDF] holding the COPA unconstitutional on First Amendment grounds.

The COPA provides, in part, that "Whoever knowingly and with knowledge of the character of the material, in interstate or foreign commerce by means of the World Wide Web, makes any communication for commercial purposes that is available to any minor and that includes any material that is harmful to minors shall be fined not more than $50,000, imprisoned not more than 6 months, or both."

The COPA further provides that "It is an affirmative defense to prosecution under this section that the defendant, in good faith, has restricted access by minors to material that is harmful to minors ... by requiring use of a credit card, debit account, adult access code, or adult personal identification number ... by accepting a digital certificate that verifies age; or ... by any other reasonable measures that are feasible under available technology." The COPA is now codified at 47 U.S.C. § 231.

The OSG argues that the COPA "is narrowly tailored to further the government's compelling interest in shielding minors from material that is harmful to them. It therefore does not violate the First Amendment."

This case is John Ashcroft v. American Civil Liberties Union, Supreme Court of the U.S., No. 03-218, on petition for writ of certiorari to the U.S. Court of Appeals for the 3rd Circuit.

People and Appointments

12/18. John Pistole was named Executive Assistant Director (EAD) for Counterterrorism and Counterintelligence at the Federal Bureau of Investigation (FBI). He has been Assistant Director for Counterterrorism since September 2003. He has worked for the FBI since 1983. See, FBI release.

More News

12/22. The General Accounting Office (GAO) released a report [64 pages in PDF] titled "Information Technology: Architecture Needed to Guide NASA's Financial Management Modernization". The report was prepared for the Chairman and ranking Democrats on the Senate Commerce Committee and the House Science Committee.

12/19. The National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) release the first draft of a report titled "NIST Special Publication 800-60, Guide for Mapping Types of Information and Information Systems to Security Categories". See, Volume I [PDF] and Volume II [PDF]. Public comments are due by February 20, 2004. The NIST will hold a two day conference on February 26-27, 2004. However, it will be closed to the public.

12/22. The Copyright Office adopted a new seal. It will be used to authenticate copyright registrations, certifications of documents and other official documents. See, notice [PDF] in the Federal Register, December 22, 2003, Vol. 68, No. 245, at Pages 71171. The seal appears to be a big circle, with a big letter C inside the circle -- that is, the copyright symbol, ©. In addition, there is an eagle perched in the letter C, with its wings spread, and a shield on its chest. It resembles the eagle on the back of the one dollar bill. Although, unlike many other government eagles, the Copyright Eagle clutches no arrows in its talons -- not even a § 512(h) subpoena.

Washington Tech Calendar
New items are highlighted in red.
Tuesday, December 23

The House is in adjournment.

The Senate is in adjournment. (It will convene on January 20, 2004.)

The Supreme Court is in recess. (It will return on January 12, 2004.)

Thursday, December 25

Christmas. Executive branch agencies will be closed.

Friday, December 26

Executive branch agencies will be closed. See, Executive Order.

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its notice of proposed rulemaking (NPRM) regarding digital low power television and television translator stations. This is FCC 03-198, in MB Docket No. 03-185. See, notice in the Federal Register, September 26, 2003, Vol. 68, No. 187, at Pages 55566 - 55573.

Monday, December 29

Deadline to submit comments to the Federal Communications Commission (FCC) regarding its notice of proposed rulemaking (NPRM) pertaining to promoting spectrum based services in rural areas. See, notice in the Federal Register summarizing this NPRM, and story titled "FCC Announces NPRM Regarding Regulations Affecting the Use of Spectrum in Rural Areas" in TLJ Daily E-Mail Alert No. 739, September 15, 2003. This NPRM is FCC 03-222 in WT Docket Nos. 02-381, 01-14, and 03-202. The FCC adopted this NPRM on September 10, 2003, and released it on October 6, 2003. See, Federal Register, November 12, 2003, Vol. 68, No. 218, at Pages 64050-64072.

Wednesday, December 31

Deadline to submit a paper or panel proposal for the National Institute of Standards and Technology's (NIST) Spam Technology Workshop to be held on February 27, 2004. For more information, contact Joan Hash at 301 975-3357. See, notice in the Federal Register, November 25, 2003, Vol. 68, No. 227, at Pages 66075 - 66076.

Thursday, January 1

News Years Day.

Friday, January 2

The Federal Communications Commission's (FCC) new broadcast flag mandate takes effect. The FCC announced and released its Report and Order Further Notice of Proposed Rulemaking [72 pages in PDF] on November 4, 2003. This item is FCC 03-273 in MB Docket 02-230. See, notice in the Federal Register (December 3, 2003, Vol. 68, No. 232, at Pages 67599 - 67607) summarizing and stating the effective date of these rules. For more information, contact Rick Chessen or Susan Mort at or 202-418-7200. See also, stories titled "FCC Releases Broadcast Flag Rule" in TLJ Daily E-Mail Alert No. 772, November 5, 2003; and "FCC Publishes Notices Regarding Broadcast Flag Proceeding" in TLJ Daily E-Mail Alert No. 794, December 8, 2003.

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