THE OUTER LIMITS OF IVDS: WE NOW RETURN

CONTROL OF YOUR TELEVISION SET TO YOU

Michael P. Donahue

Imagine being able to access hundreds of movieswith all the control of a VCR, browse through andpurchase items from three-dimensional shoppingmalls and grocery stores, and access customized newsand financial databases, all without leaving your liv-ing room. Imagine further a system that puts theseand many other services at a viewer's fingertips.This is the world of interactive television and theseare only some of the possibilities that interactive tele-vision offers.

Interactive television is a unique system that turnsan ordinary television set into a two-way transmit-ter/receiver, enabling a viewer to "communicate"with his television. Interactive television allows aviewer to select from various services, includinghome shopping and video-on-demand simply bypressing a button on a television remote.

Although interactive television was envisioned overten years ago, it has not been until recently thatworking interactive systems have appeared. In 1991,the Federal Communications Commission ("FCC"or "Commission") allocated spectrum and estab-lished rules for the Interactive Video and Data Ser-vice ("IVDS"), one of several alternative technolo-gies for providing interactive services. The FCCbelieved that IVDS would be a low-cost, interactivealternative, which could bring interactive services tothe public in a short period of time. In fact, in 1991IVDS was really the only interactive service beingconsidered. Since 1991, however, other forms of in-teractive television have developed and are now of-fered to limited numbers of subscribers, while IVDSis still virtually unavailable. It remains to be seenwhether IVDS will indeed be the system of choicefor interactive providers. Whatever the future holdsfor interactive television, it is clear that many

I The other interactive alternatives discussed later in thisComment are not currently subject to FCC licensing require-ments or regulations.

' In re Amendment of Pts. 0, 1, 2, and 95 of the Commis-sion's Rules to Provide Interactive Video and Data Services, Re-port and Order, 7 FCC Rcd. 1630, para. 1 (1992) (codified at

changes, both technological and regulatory, will benecessary before interactive television becomes a re-ality. The FCC, Congress, and telecommunicationscompanies will have to reevaluate and perhapschange many aspects of the telecommunications in-dustry in order to provide for the continued develop-ment of IVDS and other interactive technologies.

This Comment analyzes the development of IVDSand other interactive technologies and predicts poten-tial problems or complications that may arise in thefuture. Part I discusses the development of interac-tive technology. Part II analyzes the regulatory envi-ronment surrounding IVDS and related services.Part III discusses the current status of the existinginteractive technologies. Part IV explores possibili-ties for the future, both technological and regulatory,including problem areas and issues that may compli-cate, delay, or prevent the development of interactiveservices. This Comment concludes that if appropri-ate steps are taken to ensure its development andregulation, interactive television can become the val-uable technology that it was envisioned to be.

I. THE EXISTING TECHNOLOGIES

A. Interactive Video and Data Service

IVDS is an FCC-licensed medium for interactivetelevision service.' It is a two-way, interactive systemthat downloads images or data to a subscriber's tele-vision while simultaneously responding to commandstransmitted from the subscriber's remote, all via theradio spectrum.2 Unlike pay-per-view or cable,which is transmitted to a subscriber's television viaco-axial or fiber-optic cables, IVDS relies entirely onradio signals.3 These radio signals are transmitted

47 C.F.R. pts. 0, 1, 2, and 95) [hereinafter IVDS Report];Michael Dresser, Low-Cost Interactive Upstart, BALTIMORESUN, Nov. 28, 1994, 14C.

I See IVDS Report,, supra note 2 (establishing IVDS as apersonal radio service to provide radio-based interactive ser-vices). There are other interactive systems, such as Time

COMMLAW CONSPECTUS

and received through a device separate from the tele-vision unit. In other words, both the video informa-tion and the subscriber's remote signals are transmit-ted through a set-top box,4 similar to a cableconverter box, which sits on top of the television andacts as a radio transmitter/receiver. Because IVDSutilizes radio signals to transmit video images andremote commands, it is not necessary to developtechnology to convert the television itself into a two-way device. 5 The relative simplicity of IVDS, com-pared to other types of interactive systems, has leadmany critics to claim that it is a "dumb" system.'Such negativity may be premature, however, sinceIVDS offers a low-cost alternative for providers wholack existing cable infrastructures.7

In fact, IVDS is anything but "dumb." The sim-plicity of a radio-based system belies the fact that itmust be capable of handling large amounts of infor-mation at incredibly high speeds in order to providethe real-time responsiveness necessary for true inter-activity.8 In addition, IVDS provides what no otherradio services offer-a combination of two-way com-munication with the transmission of images, data,and other information. 9 Therefore, in order to per-form as envisioned, IVDS requires a sophisticatedcentral control center to smoothly and instantane-ously coordinate communications to and from theviewer while simultaneously transmitting images,

Warner Inc.'s Full Service Network, which rely on traditionalcoaxial and fiber optic cable. Phillip Elmer-Dewitt, Ready forPrime Time?; Time Warner's Full Service Network is the Cad-illac of Interactive-TV Tests - and Surprisingly Fun to Drive,TIME, Jan. 2, 1995, 125.

' Dresser, supra note 2, at 14C.5 See id.

See id. Many of these critics cite the lack of material forIVDS to interact with and limited signal capacity as some of theproblems with IVDS. Id. However, the FCC touts IVDS as alow-cost alternative for interactive service that can be deliveredby or coordinated with any broadcast or cable television deliverysystem. See IVDS Report, supra note 2, para. 1.

For example, the cost of a system utilizing coaxial and/orfiber optic cable for interactive service could exceed $50 billiondollars industry-wide. Edmund L. Andrews, Forward, but HowFast, in Interactive TV, N.Y. TIMES, Jan. 3, 1995, C16. There-fore, IVDS offers unique opportunities for both large and smallcompanies, as well as individuals. See, e.g. id. (stating that"many telephone executives view video-on-demand [a systemcomparable to IVDS] as crucial to capturing significant marketfrom the entrenched cable operators"). In fact, it is particularlyinteresting to note that the majority of IVDS licensees are notmulti-million dollar telecommunications behemoths. See Interac-tive Video and Data Serv. (IVDS) Applications Accepted forFiling, Public Notice, 9 FCC Rcd. 6227 (1994) (listing 460 ap-plications for IVDS licenses).

' See Joe Kilsheimer, FSN Secret Lies in Stream of

data and other information to the viewers televi-sion.'" Whether or not such a system can truly per-form as expected will be determined in the next fewmonths as IVDS licensees begin putting their sys-tems into operation."

B. Other Interactive Television Options

1. Full Service Network

In addition to IVDS, there are other interactivetelevision applications that offer similar servicesthrough different media. Time Warner, Inc. ("TimeWarner") offers interactive services through its "FullService Network" ("FSN"). Unlike IVDS, TimeWarner's FSN operates directly through existingcable lines offering greater potential for interactiveservices. 2 More importantly, systems like FSN arenot regulated by the FCC beyond those regulationscurrently governing cable and telephone compa-nies."3 This lack of regulation may make such sys-tems more attractive for entities, such as TimeWarner, who wish to expand their existing cable of-ferings. Such systems may also appeal to regionalbell operating companies ("RBOCs") or other tele-phone service providers as a way to compete withcable companies for video services.' 4

FSN operates by using existing coaxial and fiber-

Superfast Pulses, ORLANDO SENTINEL, Dec. 15, 1994, A8 (stat-ing that "response time is critical" for proper operation of aninteractive system).

' An IVDS system does not actually transmit full-motionvideo, rather the system transmits signals to a control center thattransmits the requested video, service, or program to the viewerstelevision. See IVDS Report, supra note 1, paras. 2, 4; see also47 C.F.R. § 95.805(d) (1994).

10 In re Amendment of Pts. 0, 1, 2 and 95 of the Commis-sion's Rules to Provide Interactive Video and Data Servs., No-tice of Proposed Rule Making, 6 FCC Rcd. 1368, para. 2(1991) [hereinafter IVDS Notice].

"' The Commission's Rules require that IVDS licenseesmake the service available to at least 10% of the population orarea within their service area within one year of receiving a li-cense. 47 C.F.R. § 95.833(a) (1994). One company, IVDS Co.,has met this benchmark and will began conducting field tests inBethesda, Maryland this year. See COMM. DAILY, Vol. 15, No.38 (March 13, 1995).

"' See Kilsheimer, supra note 8 at A8 (describing FSN as aninteractive system combining cable television, telephone, andcomputer technologies).

s See, e.g., 47 U.S.C. §§ 521-611 (1988 & Supp. V 1993).14 Andrews, supra note 7, at C16. This is especially impor-

tant given the fact that telephone service providers are no longerprohibited from offering video programming. See TelephoneCompany-Cable Television Cross-Ownership Rules §§ 63.54-63.58, Second Report and Order, Recommendation to Congress,

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OUTER LIMITS OF IVDS

optic cable in conjunction with high-speed switchingmachines, large computerized servers, and set-topboxes with five times the computing power of a top-of-the-line personal computer ("PC"). 5 When asubscriber presses a button on their remote control, asignal is sent from the remote control through a set-top box and over the existing coaxial cable to a unitcalled a "node.""' The signal travels over fiber-opticcable to the Network Operating Center ("NOC")where it is processed by modulators and high-speedsignal switching machines and then sent to theserver.17 The server transmits the requested informa-tion back to the viewer via the same system. Thistransmission occurs in less than one second, so theviewer does not notice any delay. 8 Although thissystem performed smoothly during a public demon-stration of a single unit, no one knows how it willperform when subjected to simultaneous requestsfrom thousands of customers. 9

Systems similar to FSN offer several advantagesover IVDS. First, unlike IVDS, an FSN-like systemwould not pose potential problems of interferencewith Channel 13 TV operations since the systemdoes not rely on radio transmissions."0 Similarly, themillions of cable subscribers and "cable-ready"

and Further Notice of Proposed Rule Making, 7 FCC Rcd.5781 (1992), affd & modified, Memorandum Opinion and Or-der on Reconsideration and Third Further Notice of ProposedRulemaking, 10 FCC Rcd. 244 (1995), appeal pending subnom. Mankato Citizens Tel. Co., et al. v. FCC, Nos. 92-1404,et al. (D.C. Cir. filed Sept. 9, 1992) [hereinafter Cross-Owner-ship Rules].

1" Kilsheimer, supra note 8, at A8.Is Id. A "node" is a utility box that links individual neigh-

borhoods to the Network Operating Center or "NOC." Id. Co-axial cable runs from each home to the node, which is linked tothe NOC by faster fiber optic cable. Id.

17 Id. The server, which is a magnetic storage device, is theunit that actually contains the movie, shopping or other servicethat the viewer requested. Id.

18 Id.19 Elmer-Dewitt, supra note 3, at 125. The device that is

supposed to smoothly and invisibly handle thousands of simulta-neous requests is still being developed. Id.

2 FSN signals are transmitted entirely over existing coaxialand fiber-optic cables and, thus, do not use radio transmissionsthat may interfere with neighboring Channel 13 TV operations.See Kilsheimer, supra note 7, at A8. Channel 13 TV is a basicbroadcast television channel provided by local and network tele-vision stations. See 47 C.F.R. §§ 73.601-73.603 (1994). Channel13 TV signals, like radio transmissions, are broadcast over theair to television receivers in viewer's homes. See id. BecauseChannel 13 TV uses the airwaves rather than cables for trans-mitting signals, it is especially susceptible to interference fromIVDS transmissions. See IVDS Report, supra note 2, para. 21.

2 IVDS is a new service and consequently, has no existingcustomers. Therefore, IVDS providers will have to advertise

homes create a ready market for a system like FSN,whereas an IVDS licensee must create its own mar-ket by soliciting subscribers." In many cases, IVDSwill be competing directly with existing cable opera-tions, and, depending on which technology developsfirst, perhaps with other interactive services." In ad-dition, companies such as Time Warner, which haveestablished cable and related operations, will have atremendous advantage in the amount and kind ofprogramming available for an interactive system.28

Finally, a system akin to FSN would not be re-stricted by the kind of regulations to which IVDS issubjected." '

2. Interactive Service in Connection with VideoDialtone

In December 1994, the FCC approved a plan byAmeritech Operating Companies ("Ameritech") toprovide video dialtone to its customers in Illinois.15

The FCC's Order allows Ameritech to construct avideo dialtone network to provide both traditionalanalog multicast service and switched digital ser-

their services to potential subscribers in their service areas in or-der to create a market for their product. In contrast, cable com-panies already have a large number of subscribers and do notneed to advertise in order to market their services. See, e.g.,Cable Television Consumer Protection and Competition Act of1992; Congressional Findings and Statement of Policy, P.L. No.102-385, 106 Stat. 1460, § 2(a)(3) (codified at 47 U.S.C. § 521note (stating that nearly 56,000,000 households subscribe tocable television).

22 See IVDS Report, supra note 2, para. 54., Andrews, supra note 7, at C16. The advantage is even

greater in the case of a company like Time Warner, which asthe owner of a movie studio, has greater access to and perhapseven controls the use of new movies. See id. Situations like thiscould lead to potential antitrust or other problems if companiesowning movie rights prohibit or impede their use by IVDS prov-iders in order to promote their own interactive services. SeeCable Television Consumer Protection and Competition Act of1992; Congressional Findings and Statement of Policy, P.L. No.102-385, § 2(a)(5), 106 Stat. 1460, 1461 (codified at 47 U.S.C.§ 521 note) (stating that "cable operators have the incentive andability to favor their affiliated programmers" because of verticalintegration of cable industry).

24 For example, an FSN-like system would not be subject tothe construction and service requirements that IVDS providersmust meet. See 47 C.F.R. §§ 95.831 and 95.833 (1994).

" See In re Applications of Ameritech Operating Cos., Or-der and Authorization, 76 Rad. Reg. 2d (P & F) 1505 (1995)[hereinafter Ameritech VDT Order]. A similar system was alsoapproved for Carolina Telephone and Telegraph Company("Carolina T&T"). In re Application of Carolina Tel. & Tel.Co., 76 Rad. Reg. 2d (P & F) 1496 (1994).

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vice."' Switched digital service could be used to pro-vide multimedia training, interactive shopping,video-on-demand, and other interactive transac-tions."' Ameritech's network will allow the regionaltelephone company to enter into the video market-place 28 and essentially compete with cable providersas a video programmer. 29 In addition, the AmeritechVDT Order allows Ameritech to provide unregu-lated non-common carrier services directly to end-users.30 Generally, the FCC has required that videodialtone providers offer a basic common carrier plat-form to multiple video programmers on a non-dis-criminatory basis."1 Although this common-carrierrequirement prohibits telephone companies from di-rectly providing video programming, the FCC specif-ically allows video dialtone providers to offer non-regulated services related to video programming"without regard to whether the video programmerpurchasing such services has any nexus to the [videodialtone provider]. '3 2 Many interactive services ar-guably fall into the category of non-regulated ser-vices. Therefore, the FCC's Order offers Ameritechthe opportunity to become directly involved in pro-viding interactive services to customers in its servicearea long before its cable competitors can provideequivalent systems."3 The market advantage gainedby Ameritech during its video dialtone trial will beeven greater if Congress lifts its ban on telephone/

2" Ameritech VDT Order, supra note 25, para. 5. Amer-itech's switched digital service would be capable of providingtwo-way control signals in connection with one-way transport ofcompressed digital video signals. Id. para. 5 n.15.*I Id. para. 49 n.145.

I Id. para. 2.* Id. paras. 20-27.8I Id. paras. 2 & n.6, 26.8' See, e.g., Ameritech VDT Order, supra note 25, para. 2

(describing FCC determination that telephone companies can of-fer video programming via video dialtone on common carrier ba-sis); Cross-Ownership Rules, supra note 14, para. 2.

8, Ameritech VDT Order, supra note 25, para. 2 n.6.88 See Frederick H. Lowe, FCC Approves Ameritech Plan

for Interactive TV Network, CHIc. SUN TIMES, Dec. 24, 1994,at 32 (stating that cable industry representatives claim that the"FCC is picking the winners in this industry and it's veryunfair").

84 This may not be very far away given the fact that oneUnited States Court of Appeals and United States DistrictCourts in four other circuits have held the cross-ownership re-striction unconstitutional. See Carolina Tel. & Tel. Order, supranote 25, para. 2 n.5 (Dec. 23, 1994) (citing cases holding thatcross-ownership restrictions violate First Amendment). In addi-tion, the FCC has recommended that Congress amend the CableAct to allow telephone companies to provide video programmingin their telephone service areas. Cross-Ownership Rules, supranote 14, para. 135.

cable cross-ownership." ' Ameritech will then be freeto directly offer all forms of interactive video pro-gramming, while other video programmers in theservice area will no longer have the benefit of non-discriminatory access to Ameritech's network.

II. REGULATORY HISTORY OF IVDS ANDOTHER INTERACTIVE TECHNOLOGIES

A. Petition for Rule Making and Notice of Pro-posed Rule Making Regarding IVDS

On December 2, 1987, TV Answer, Inc. ("TVAnswer") first presented IVDS to the FCC by filinga petition requesting that the FCC allocate spectrumfor a new technology designed to provide real-timeviewer responses to various types of programming. 8

TV Answer's proposal suggested a number of possi-ble uses for its new radio-based interactive technol-ogy, including educational and pay-per-view pro-gramming, home shopping, home banking, and otherinteractive services.36 In response to TV Answer'spetition,"1 the FCC, on March 4, 1991, issued a No-tice of Proposed Rule Making" outlining its policiesregarding IVDS and proposing rules for the licens-ing and regulation of IVDS providers. 9

88 IVDS Notice, supra note 10.8I Id. para. 2. TV Answer's proposed system consisted of in-

home units, local base stations, and a central control facility, allof which worked together to distribute information to the sub-scriber and process requests from the subscriber in response toqueries from the system. Id. For example, a regular televisioncommercial could be accompanied by a prompt that would allowthe subscriber to order the advertised product. Id.

87 The FCC received over 115 comments in response to TVAnswer's Petition, many of which were from entities concernedwith the possible impact of TV Answer's proposal on the Auto-mated Maritime Telecommunications System ("AMTS"). IVDSNotice, supra note 8 app. B. AMTS is an integrated and inter-connected maritime communications system occupying the 216-220 MHz band, which provides communications service to shipsand offshore platforms. 47 C.F.R. § 80.385 (1994). AMTS isdivided into four groups of 20 paired coast and ship stationchannels of 25 kHz each. IVDS Notice, supra note 10, para. 12n.11.

8' In re Amendment of Pts. 0, 1, 2 and 95 of the Commis-sion's Rules to Provide Interactive Video and Data Servs., No-tice of Proposed Rule Making, 6 FCC Rcd. 1368 (1991).

89 Id. paras. 10-18, 21-27. The FCC proposed and re-quested comment on: 1) allocating spectrum in the frequencysegment 218 - 218.5 MHz for IVDS; 2) establishing technicalrules for IVDS; and 3) promulgating rules establishing serviceareas and markets, licensing procedures, and constructionbenchmarks. Id.

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B. The Original IVDS Rule Making

After reviewing the comments submitted in re-sponse to its Notice of Proposed Rule Making,'0 theFCC issued a Report and Order establishing IVDSand allocating spectrum for its use.' 1 The IVDS Re-port also promulgated final rules for IVDS basedsubstantially on those proposed in the IVDS No-tice."2 The Commission concluded that a consumerinteractive service, such as IVDS, would serve thepublic interest' and that its use within the spectrumallocated under the IVDS Report would only mini-mally affect existing services.""

1. Allocation of Spectrum for IVDS

A substantial majority of the comments receivedby the Commission supported an allocation of spec-trum for IVDS use. However, the comments re-

40 In addition to the 115 comments received in response to

TV Answer's Petition, the FCC received 26 reply comments inresponse to the Notice. IVDS Report, supra note 2, app. B. Thecommentators ranged from the American Petroleum Institute toSouthwestern Bell and included educational, publishing, commu-nications and broadcasting entities, both for and not-for-profit.Id.

41 In re Amendment of Pts. 0, 1, 2, and 95 of the Commis-sion's Rules to Provide Interactive Video and Data Services, Re-port and Order, 7 FCC Rcd. 1630 (1992).

42 See id. app. A. The final rules adopted by the Commis-sion (now codified at 47 C.F.R. pts. 0, 1, 2, and 95), asamended, reflected several modifications suggested by the com-ments received in response to the IVDS Notice. The rules con-tained mostly technical and administrative requirements forIVDS and did not address potential problems such as competi-tion or monopolies. Nor did the rules provide guidance as to howIVDS would be regulated once a large number of systems werebeyond the construction stage and in full operation.

43 IVDS Report, supra note 2, para. 13. The FCC statedthat its IVDS spectrum allocation "is warranted in order to per-mit development of a convenient, low-cost system that providestwo-way interaction with commercial and educational program-ming along with information and data services that may be de-livered by, and coordinated with, broadcast television, cable tele-vision, wireless cable, direct satellite, or any future televisiondelivery methods." Id. para. 1. As will be discussed later, theFCC's optimistic view regarding the potential for IVDS maynever be matched by the realities of technology and the market.See infra pp. 12-15.

"' IVDS Report, supra note 2, para. 4. The FCC was refer-ring to services then eligible to use, or that abutted, the frequen-cies being allocated for IVDS, including AMTS and TV Chan-nel 13 television operations. Id. para. 4. The FCC concludedthat its IVDS interference rules would reduce the possible affectof IVDS operations on existing services. Id. para. 16.

" IVDS Report, supra note 2, para. 6. The comments ad-dressed two different issues: 1) whether the amount of spectrumallocated was sufficient; and 2) whether IVDS would interfere

flected differing views with respect to the amount ofspectrum to be allocated and the location of such al-location.'" Some of the comments suggested the 218.5- 219 MHz band for IVDS because this rangewould make TV Channel 13 operations less suscep-tible to interference. 46 A few of the comments, par-ticularly those submitted by maritime interests, vig-orously opposed any allocation of spectrum forIVDS.4

7

The Commission accepted the view of TV Answerand other proponents of IVDS, concluding thatgreater public benefit would result from allocatingspectrum to IVDS than from releasing the unusedportions of the spectrum to the AMTS. 4' The FCCdismissed arguments against the reallocation of spec-trum set aside for AMTS, stating that consumer de-mands for services change over time and the demandfor AMTS had not materialized as originally envi-sioned.'9 Additionally, the FCC concluded that new

with other adjacent services despite the Commission's efforts toprovide sufficient interference protection in the IVDS rules. Id.Many of the comments directed to the first issue also offeredsuggestions as to which half of the 218-219 MHz band shouldbe allocated to IVDS use. Id.

4" Id. para. 7. The Association for Maximum Service Tele-vision ("MSTV") and the National Association of Broadcasters("NAB") led this group of commenters. They not only suggestedthat an allocation in the upper range of the 218-219 MHz bandwould provide additional frequency spacing to protect Channel13 operations, but they also stated that an allocation of morethan 500 kHz was premature at a time when the potential forIVDS use was still uncertain. Id.

,7 The maritime comments were submitted by such entitiesas Waterway Communications, Inc. ("Waterway"), the RadioTechnical Commission for Maritime Services, as well as numer-ous individual users of AMTS. IVDS Report, supra note 2,para. 11 & n.1 5. These comments argued that the spectrum wasneeded by AMTS to eliminate the blocking experienced at cer-tain shore stations and to provide for the future growth of thesystem. Id. para. 11. Waterway also pointed out that TV An-swer's proposal had not yet been demonstrated, and in fact, stillhad unresolved technical difficulties. Therefore, Waterway ar-gued no allocation was as yet warranted for IVDS. Id. Interest-ingly, TV Answer conducted an independent study of AMTSuse and concluded in its Reply Comments that Waterway usedno more than eight of its forty assigned channels and this usagehas remained unchanged since 1989. Id. para. 12.

48 IVDS Report, supra note 2, para 13. The Commissionconcluded that IVDS would provide service 'in a spectrum un-suitable for other uses, including AMTS, because of those ser-vices' potential interference with Channel 13 operations; inter-ference that the Commission believed would be prevented by itsIVDS regulations. Id. para. 16. In addition, the FCC concludedthat an IVDS allocation would further the Commission's goalsof encouraging the development of innovative communicationsservices and promoting efficient use of the electromagnetic spec-trum. Id. para. 13.

49 Id. para. 14.

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services, such as cellular, radio and Specialized Mo-bile Radio Services, were meeting some of the needsof the maritime community, thus offsetting the needfor additional spectrum." The FCC similarly dis-missed arguments that IVDS would interfere withChannel 13 services, citing MSTV's concession thatappropriate protections could prevent interference, aswell as its own adoption of "stringent interferencerules" to ensure protection of Channel 13 signals.5"

As to the amount of spectrum to be allocated, theCommission stated that more than 500 kKz wouldbe needed to provide the proper frequency coordina-tion and market coverage for the proposed IVDSuses, and to allow for potential future interactive ser-vices.5

' The FCC concluded that because IVDS, un-like AMTS, offered many potential applications toserve wide ranging consumer and educational uses,and provided the potential to reach every televisionhousehold in the country, allocating the entire 218-219 MHz band would best serve the publicinterest. 53

2. Operational Requirements

After considering the comments pertaining to spe-

0 IVDS Report, supra note 2, para. 14. The Commissionpointed out that none of the maritime comments demonstratedthat additional spectrum was required. Id. para. 15 n.22. Fur-ther, the Commission outlined possible alternatives to additionalspectrum, such as more efficient use of existing frequencies, ge-neric mobile satellite services, and cellular telephone service, allof which could be utilized should AMTS operations become con-gested. Id. para. 15 n.23.

81 IVDS Report, supra note 2, para. 16 & n.26.52 IVDS Report, supra note 2, paras. 17-19. This conclusion

was based on statements by TV Answer and others that an allo-cation of 250 kHz to each of two licensees in each market mightimpair the full development of the service and possibly delay theemergence of competitive providers. Id. para. 17.

88 Id. para. 18. The FCC highlighted the concern of manyeducational and public service entities that limiting the allocationto only 250 kHz per provider could leave little capacity for non-commercial applications. Id. para. 19. The Commission shiedaway, however, from setting aside spectrum for non-commercialuses, preferring instead to allow competition to dictate the ser-vices provided. Id. This decision may lead to problems similar tothose experienced by the broadcasting and cable industries whichled to the Commission's "must carry" regulations. See 42 U.S.C.§§ 532-535 (1988 & Supp. V 1993). It remains to be seenwhether such measures will be required in the future if commer-cial applications dominate IVDS usage to the exclusion of edu-cational and other non-commercial services. See, e.g., Andrews,supra note 7, at 16 (stating that real profits will come from of-fering a bundle of services, not just entertainment, such as video-on-demand).

8' IVDS Report, supra note 2, para. 23. The modificationswere based on comments by potential IVDS providers arguing

cific technical aspects of IVDS, the Commission de-cided to modify the technical proposals it announcedin the IVDS Notice."' The Commission stated thatthe modifications were intended to prevent the estab-lishment of a particular interactive system as the dejure or de facto standard and to allow for innovationand development of alternative technologies." In ad-dition to modifying the technical requirements, theFCC decided to require that all IVDS cell transmit-ter stations ("CTSs") and all response transmitterunits ("RTUs") be type-accepted 6 in accordancewith the Commission's Rules.5 7 The FCC believedthat its rules, as modified, would reduce the potentialfor interference with adjacent services, yet would besufficiently narrow to allow for alternativetechnologies.5 8

In the IVDS Report, the Commission first ad-dressed the power levels of CTSs. In the IVDS No-tice, the FCC proposed limiting the effective radiatedpower ("ERP") of CTSs and RTUs to the mini-mum level necessary for successful two-way commu-nication, not to exceed a maximum level of twentywatts.59 The IVDS Notice also proposed automaticcontrol of RTU power levels by the CTS.60 TheCommission concluded that the predicted Grade B

for more flexible technical rules. Id.

88 Id. para. 22. Since the FCC's proposed regulations were

based on TV Answer's submissions, many of the comments re-ceived reflected concern that the standards were too narrow andthat they established TV Answer's technology as the regulatorystandard without providing flexibility for new or different tech-nologies not modelled after TV Answer. Id.

8" Type-acceptance is the process through which the FCCensures that equipment to be used in connection with an FCC-issued license meets certain technical requirements designed topromote efficient use of the radio spectrum. See 47 C.F.R. pt. 2,subpt. J (1994) (FCC's rules on type-acceptance); see also In reRequests for Waivers in the First Auction of 594 InteractiveVideo and Data Serv. Licenses, Order, 9 FCC Rcd. 6384, para.4, n.4 (1994). Through this process, equipment manufacturersdemonstrate that their equipment meets the Commission's re-quirements. 47 C.F.R. pt. 2, subpt. J (1994). Under the Com-mission's IVDS rules, only type-accepted equipment may beused in the operation of an IVDS system. See 47 C.F.R.§ 95.851 (1994).

87 42 C.F.R. pt. 2, subpt. J (1994).88 IVDS Report, supra note 2, para. 23.8 See IVDS Notice, supra note 10, paras. 14-16.*o Id. para. 15. The IVDS Notice also proposed additional

regulations on ERP for IVDS units located in TV Channel 13service areas as follows:TV Channel 13 Maximum Base

Service Area Station ERPPrincipal Community 20 wattsGrade A 7 wattsGrade B 1 wattGrade B 2 miles 1 watt

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contour of the Channel 13 station would serve as themost appropriate basis for determining the maxi-mum power levels for IVDS CTSs. 1 The Commis-sion stated that basing station power limits on actualfield strength would be unreliable and would undulyburden IVDS licensees because field strength valuescan vary substantially over time and under changingenvironmental conditions.62 In addition, the Com-mission recognized that its requirement that IVDSlicensees correct their power levels or cease operationwhen interference was discovered would resolve anypotential conflict when actual conditions caused sig-nal levels different from those predicted."

The FCC applied similar conditions to the powerlevels of in-home units within an IVDS system. TheIVDS Notice proposed that: 1) the in-home units notexceed a maximum power level of twenty watts, 2)that the units incorporate automatic power control toensure the use of the minimum amount of power,and 3) that the RTU antenna serve as an integralpart of the unit. 4 The IVDS Report adopted theseproposed rules, stating that the rules furthered theCommission's goal of ensuring that adequate protec-tions were in place to prevent IVDS systems frominterfering with Channel 13 TV operations . 5 Withregard to RTU antennas, the Commission acknowl-edged that the proposed integral antenna require-

Grade B 3 miles 3 wattsGrade B 4 miles 10 wattsGrade B 5 miles and beyond 20 watts

Id. para. 14. These limits are also contained in the Final Rules.See 47 C.F.R. § 95.855(b) (1994).

"' IVDS Report, supra note 2, para. 26.62 Id.

I Id.

IVDS Notice, supra note 10, para. 15. Several com-menters argued that it was unnecessary to require that an RTUantenna be an integral part of the unit as such a requirementwould severely restrict the usefulness of the system. These corn-menters pointed to the example of an apartment building wherea single external master antenna would be more feasible thanindividual antennas for each unit. IVDS Report, supra note 2,para. 36.

6 Id. para. 37.a Id. para. 31.

07 Id. para. 37. The Commission did provide for the use of

exterior antennas in limited situations, if they were installed aspart of a master antenna system. Id. In no event, however, couldan exterior antenna exceed 20 feet (6.1 meters) above ground orany existing man-made structure. Id.

a HAAT is the height of the center of the radiating elementof the antenna above average terrain. IVDS Notice, supra note8, para. 14 n.16.

as Id. para. 14.70 Id.71 IVDS Report, supra note 2, para. 30. The Commission

did, however, acknowledge that it would consider waivers of the

ments could, in certain circumstances, unnecessarilyrestrict IVDS operations. 6 Nonetheless, the Com-mission concluded that all RTUs marketed or in-stalled as individual units must include an integralantenna, as connection to exterior antennas couldlead to interference with Channel 13 TV.67

Next, the Commission addressed CTS antennaheights. The IVDS Notice proposed a maximumheight above average terrain ("HAAT") 6 of 120feet (36.6 meters) for antennas located within tenmiles or less of a Grade B contour TV Channel 13station. 6

" The proposed maximum antenna heightfor a site outside the ten-mile range was 500 feet(152.5 meters).70 Despite TV Answer's claim that amaximum antenna height was unnecessary given theproposed limitations on CTS power levels, the FCCadopted the rule as proposed in the IVDS Notice.7 1

Finally, the Commission addressed its proposedrules regarding interference. The IVDS Notice pro-posed that IVDS licensees inform all televisionhouseholds within the Grade B TV Channel 13 cov-erage area of the potential for interference from theirIVDS system.72 In addition, the IVDS Notice pro-posed that IVDS licensees install, free of charge, in-terference-reduction devices in each householdwithin the Grade B contour that experiences inter-ference from the IVDS system .7 The Commission

maximum height requirement on a case-by-case basis. Id. para.31. In order to obtain a waiver, an IVDS licensee would be re-quired to submit a showing justifying an exception supported byadequate technical analyses demonstrating that its proposed sig-nal level would be no greater than if it had adhered to the re-quirement. Id. The Commission emphasized that in all cases, theIVDS licensee would be responsible for resolving any complaintsof interference with television service. Id. para. 31.

72 IVDS Notice, supra note 10, para. 16. Several com-menters pointed out that the proposed rules provided no timeperiod during which IVDS operators must inform households ofpotential interference. IVDS Report, supra note 2, para. 47.The Commission rejected the notification schedule submitted byone such commenter as overly burdensome, but agreed that arequirement of notifying households no more than two weeksbefore and no more than two weeks after initiation of IVDS ser-vice in the area was reasonable. Id. para. 50. Consequently, theCommission revised its rules to provide for the modified notifica-tion period. Id.

" IVDS Notice, supra note 10, para. 16. The FCC alsoproposed in its IVDS Notice a requirement that IVDS licenseesinvestigate and eliminate any interference complained of within30 days of being notified in writing of such complaint. Id. TheIVDS Report adopted this proposal without modification, butemphasized the overall requirement that IVDS service be pro-vided without causing interference with television reception.IVDS Report, supra note 2, para. 49. The Commission in thisregard went so far as to state that if interference could not beeliminated through the use of a filtration device or other mea-sures, the IVDS operator would be required to cease operation.

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COMMLAW CONSPECTUS

adopted all of the proposed rules." In addition tothose modifications discussed above, the Commissionalso addressed its proposed rules regarding minimumseparation distance, emissions, and channelization.The Commission concluded that its proposed 200foot minimum separation distance between a CTSand nearby residences was necessary to protect tele-vision receivers in such residences from interfer-ence. 7

' The Commission, however, removed its pro-posed requirement that emissions be limited to classVID 7 and adopted a rule that allowed any emissiontype that complied with certain standards for unnec-essary radiation.7 7 Finally, the Commission con-cluded that channelization, as proposed by TV An-swer, 78 would not provide additional protection frominterference nor improve the potential coverage ofIVDS service and therefore, should not be requiredin IVDS systems.7

9

3. Regulatory Structure

In the IVDS Notice, the FCC proposed regulatingIVDS as a personal radio service due to the fact thatthe service was to be provided on a private, subscrip-tion basis rather than through a broad public offer-ing." Additionally, the FCC proposed making fre-quency assignments on an exclusive basis. 81 In the

Id.

'7 IVDS Report, supra note 2, para. 49.75 Id. para. 34. The Commission declined, however, to es-

tablish a minimum separation distance for CTSs stating thatthere was no indication that overlapping IVDS signals wouldincrease the potential for interference as suggested by some com-menters. Id.

7 The VID, or pulsed data type of emission can be de-scribed as a sequence of pulses, modulated by various means,consisting of a single channel of quantitized or digital informa-tion without the use of a modulating sub-carrier, and transmit-ting data, telemetry, or telecommand. IVDS Notice, supra note10, para. 17 n.18.

" IVDS Report, supra note 10, para. 41; see also 47 C.F.R.§ 95.857 (1994) (outlining emission standards for IVDS CTSsand RTUs).

78 TV Answer's proposal consisted of dividing the 500 kHzspectrum into ten 50 kHz channels and using these channels in acellular-like manner. IVDS Notice, supra note 10, para. 17;IVDS Report, supra note 2, para. 42.

"' IVDS Report, supra note 2, para. 44.80 IVDS Notice, supra note 10, para. 19.8" Id. The term "exclusive" as applied by the FCC in the

IVDS Notice and IVDS Report means that "a licensee is theonly party authorized to use its assigned frequency in the geo-graphic area it is licensed to serve." IVDS Notice supra note 10,para. 19 n.21; see also IVDS Report, supra note 2, para. 54n.82.

81 IVDS Report, supra note 2, para. 54. The FCC modified

IVDS Report, the Commission compromised byadopting both of these proposals with slight modifi-cation.82 The FCC supported its decision by statingthat IVDS was envisioned as a personal service thatwould provide information and products, and acceptinteractive responses from individual subscribers, notthe public at large.8

The FCC provided several reasons for its decisionto regulate IVDS licensees as private carriers. First,the FCC stated that IVDS providers would not holdthemselves out to serve the public,8" but would befree to determine to whom and on what terms servicewould be offered. Further, given the competitivenessof the market for interactive service, the FCC foundthere was no public interest reason that supportedrequiring IVDS licensees to provide common carrierservice.8 5 Finally, the FCC determined that becausesubscription to IVDS was purely discretionary,IVDS was not an essential service.88

In both its proposed and final rules, the FCC ad-dressed several other licensing concerns, including li-cense service areas, licensing procedures and criteria,and license terms. In the IVDS Notice, the FCC rec-ommended limiting the service area of an IVDS li-censee to approximately 250 square miles.8" TheIVDS Report, however, provided that IVDS serviceareas would be defined in terms of the existing cellu-

its rules to provide for alternative technologies, such as use of apersonal computer rather than a television for interaction andservices, in order to give licensees sufficient flexibility to betterserve the public. Id. para. 54 & n. 83. Many experts have sug-gested that a personal computer, rather than a set-top box, mayprove to be the only viable interactive device, at least for the nextfew years. Mary Jo Foley, PCs Will Be First Viable Interac-tive-TV Clients; Microsoft Corp, IBM and DEC Among Com-panies Planning Products, PC WK., Dec. 12, 1994, 29, 29. Simi-larly, since IVDS will use on-screen text messages to promptviewers, many experts believe that personal computers, withtheir sharper resolution, may be better suited than televisions foruse as an interactive medium. Paul Farhi & Elizabeth Corcoran,Interactive in Orlando; 'Data Highway' Gets Consumer AcidTest, WASH. POST, Dec. 13, 1994, at Al.

88 IVDS Report, supra note 2, para. 54.8 Id.; see generally National Assoc. of Regulatory Comm'rs

v. FCC, 525 F.2d 630, 641-42 (D.C. Cir.) (holding SpecializedMobile Radio Systems to be private carriers), cert. denied, 425U.S. 992 (1976).

88 IVDS Report, supra note 2, para. 54. Competition wouldbe protected, according to the Commission, by the fact that eachmarket would have two IVDS providers, thus making directcompetition possible. Id. Similarly, the Commission indicatedthat IVDS providers would face competition from other technol-ogies, such as public switched telephone networks and two-waycable television systems. Id.

11 IVDS Report, supra note 2, para. 54 & n. 80.87 IVDS Notice, supra note 10, para. 22.

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lar service areas,88 as this would reduce the adminis-trative burden on both the public and the Commis-sion." The FCC chose to keep IVDS service areaslocal despite comments arguing for a nationwide li-censing approach. 90 The Commission stated that anational licensing scheme would run counter to itsgoal of encouraging competition in the market andwould restrict the flexibility of licensees.91

The licensing procedures established in the IVDSReport were intended to promote uniformity, andthereby decrease the administrative burden of the li-censing process. First, the FCC determined thatIVDS licensees would be selected by lottery fromamong mutually exclusive applicants.92 A lotteryprocess, according to the FCC, would be less expen-sive and time-consuming than individual licensinghearings.9" Therefore, this was the best methodavailable for expediting the introduction of IVDSservices to the public.94 Next, the FCC determinedthat each IVDS area would be assigned two licensesfor a predetermined number of CTSs (the commis-sion set this number at forty).95 The FCC stated thatlicensing IVDS systems in this manner would elimi-nate the potential for different fees for each market,therefore avoiding the possibility of increased licens-ing costs due to factors beyond an applicant's con-trol.9 Finally, the FCC determined that IVDS li-censes would be valid for a period of five years.97

The FCC selected a five-year license term as a rea-sonable balance between the administrative burdenof relicensing and the Commission's desire to trackthe progress of IVDS operations.98

Finally, the Commission established one-year,

a See Public Notice, Report No. 92-40 Uan. 14, 1992).sB IVDS Report, supra note 2, para. 62.

Id. para. 60.01 Id. para. 61." Id.93 Id.

" IVDS Report, supra note 2, para. 65. The use of a lotteryprocess for issuing IVDS licenses was changed by Congress'amendment of the Communications Act of 1934 to allow com-petitive bidding for certain FCC-issued licenses. See text andnotes pp. 10-11, infra.

95 IVDS Report, supra note 2, para. 71. The FCC decidedto license IVDS systems in this manner because each systemcould require a different number of CTSs to perform efficientlyand individually licensing each CTSs would increase the burdenfor both applicants and the Commission. Id. para. 71 n.112.

" IVDS Report, supra note 2, para. 71. Since certain fac-tors, including the population density and location of Channel13 TV transmitters, would affect the number of CTSs thatwould be necessary in a given market, the FCC determined thatestablishing a minimum number for each license would make thecost of obtaining a license uniform. Id. para. 71 n.112. In addi-tion, requiring each licensee to pay for the same number of

three-year, and five-year construction benchmarksfor IVDS licensees.99 Under the rules established bythe FCC, an IVDS licensee would be required toconstruct a sufficient number of stations to cover tenpercent of the poplulation or geographic area withinthe service area within one year, thirty percentwithin three years, and fifty percent within fiveyears.' 00 These requirements were included to pre-vent speculative applications, the warehousing ofspectrum, and to ensure that IVDS services wouldbe available to the public in as short a period of timeas possible.' The FCC reasoned that constructiondeadlines would prevent speculators from investingin IVDS licenses solely for the purpose of transfer-ring the license at a profit. 0 2

C. Amendments to the IVDS Rules

In response to several requests for reconsiderationsubmitted by potential IVDS applicants, the FCCtwice amended the rules governing IVDS.'0° In thefirst of its two Opinion and Orders regarding IVDS,the FCC amended its maximum CTS antennaheight requirement.' 4 The amendment provided fora range of permissible CTS antenna heights from 0to 2000 feet with a corresponding reduction in CTSpower level as the antenna height increased.' 0 5 TheCommission also modified its requirement that anIVDS licensee notify TV Channel 13 stations in itsarea of the potential for interference from the IVDSsystem."" The modification provided that such noti-fication could be waived if the IVDS licensee ob-

CTSs would prevent applicants from submitting a low estimateof the number required in order to reduce the cost of obtaining alicense. Id. para. 71.

97 IVDS Report, supra note 2, para. 79.98 Id. para. 79.99 Id. para. 78.100 Id. para. 78.101 Id. paras. 77 - 79.

102 See id. para. 79 (stating the "rules will prevent "traffick-

ing in licenses by persons who have no real interest in construct-ing IVDS systems").

103 See In re Amendment of Pts. 0, 1, 2 and 95 of the Com-mission's Rules to Provide for Interactive Video Data Servs.,Memorandum Opinion and Order, 7 FCC Rcd. 4923 (1992)[hereinafter IVDS Opinion and Order]; In re Amendment ofPts. 0, 1, 2 and 95 of the Commission's Rules to Provide forInteractive Video Data Servs., Second Memorandum Opinionand Order, 8 FCC Rcd. 2787 (1993) [hereinafter Second IVDSOpinion and Order ].

104 IVDS Opinion and Order, supra note 103, para. 10.105 Id. para. 10.10 Id. para. 14.

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COMMLAW CONSPECTUS

tained written consent from any affected TV Chan-nel 13 stations.10

7

The IVDS Opinion and Order also clarified twoprovisions of the IVDS rules. The first clarificationdealt with the rules pertaining to the types of sys-tems that are permitted to interact with IVDS. 08

The rule as originally promulgated provided forIVDS service in conjunction with broadcast andcable operations. The Petitioners argued that theoriginal wording of the rule did not allow for the useof wireless cable or Direct Broadcast Satellite in con-junction with IVDS.'0 9 The FCC modified the ruleto provide for the interaction of IVDS in conjunctionwith video or data delivery systems." 0

The Second IVDS Opinion and Order made onesignificant change to the fee requirements for IVDSand provided clarification as to the types of entitiesthat could seek IVDS licenses. The IVDS Report re-quired that applicants submit a thirty-five dollar feefor each of forty CTSs regardless of the number ofCTSs actually required for efficient operation in agiven service area."' The Committee to PreserveStatutory Fees ("CPSF") petitioned the FCC to re-consider its mandatory fee requirement, arguing, in-ter alia, that the fee was unreasonable in certain cir-cumstances, for example, where less than 40 CTSscould cover a given service area."2 In response, theFCC deleted the initial fee requirement" s and modi-fied its rules to allow applicants to submit their ap-plications with a fee for one call sign, regardless ofthe number of CTSs they intended to construct." 4

The Second IVDS Opinion and Order further clari-

107 Id. para 14.10 Id. para. 9.109 Id. para. 2.11o Id. para. 9.III IVDS Report, supra note 2, para. 71.11 Second IVDS Opinion and Order, supra note 103, para.

3.11 Id. para. 10.' Id. para. 10. The FCC further stated that it would re-

fund any amount greater than $35.00 paid by applicants andwould reinstate those applications that had been rejected for fail-ure to include the previous minimum payment of $1,400.00. Id.

"' Second IVDS Opinion and Order, supra not 100, para.12.

lie Id."1 Communications Act of 1934, ch. 652, 48 Stat. 1070

(codified at 47 U.S.C. §§ 151-713)., 47 U.S.C. § 309(j) (Supp. V 1993).

11 The FCC issued proposed rules on September 22, 1993,

see In re Implementation of Sect. 309(j) of the CommunicationsAct - Competitive Bidding, Notice of Proposed Rule Making, 8FCC Rcd. 7635 (1993) and final rules on April 20, 1994. See Inre Implementation of Sect. 3090) of the Communications Act -Competitive Bidding, Second Report and Order, 9 FCC Rcd.

fled that trusts and educational and governmentalentities were eligible to be IVDS licensees.11 5 TheCommission indicated that it inadvertently omittedthese entities from the original list of qualifiedapplicants." 6

D. Change to Auction Rather than Lottery forIVDS Licenses

On August 10, 1993, Congress added Section3090) to the Communications Act of 1934.. author-izing the Commission to use competitive biddingprocedures to choose among mutually exclusive ap-plications for initial licenses for certain services.11

By April, 1994, the Commission issued final rules toimplement section 309(j)." 9 IVDS was included inthe final rules as a new service that satisfied the stat-utory prerequisites for competitive bidding. 2 Thus,IVDS licenses would be selected under the new rulesestablished by the Commission to govern competitivebidding rather than through the lottery process envi-sioned in the IVDS Report.1 2

1

On May 10, 1994, however, the Commission is-sued a Fourth Report and Order regarding Competi-tive Bidding in which the Commission, inter alia, se-lected a bidding methodology other than the primarymethodology specified in the general competitive bid-ding rules. 22 The Commission found that the ex-pected value of IVDS licenses would not be suffi-ciently high to justify use of the primarymethodology of simultaneous mutliple round bid-

2348 (1994).

120 See In re Implementation of Sect. 3090) of the Commu-nications Act - Competitive Bidding, Second Report and Order,9 FCC Rcd. 2348, paras. 49-53 (1994); 47 C.F.R.§ 1.2102(a)(1) (1994).

1 In re Implementation of Sect. 3090) of the Communica-tions Act - Competitive Bidding, Second Report and Order, 9FCC Rcd. 2384, para. 49-53 (1994). In addition to addingIVDS to the list of services eligible for competitive bidding, theCommission later revised its IVDS rules to provide that thoseIVDS licenses which had been acquired through competitivebidding procedures could be transferred, assigned, sold, or givenaway only pursuant to 47 C.F.R. § 1.2111. See 47 C.F.R.§ 95.819 (1994). Licenses not acquired through competitive bid-ding would remain nontransferable until completion of the five-year construction benchmark. Id.

"" See In re Implementation of Sect. 3090) of the Commu-nications Act - Competitive Bidding, Fourth Report and Order,9 FCC Rcd. 2330 (1994). The FCC also promulgated rules andprocedures to prevent abuse of the IVDS bidding and licensingproceedings and established preferences, including bidding cred-its, for small businesses and business owned by minorities orwomen. Id. para. 2. IVDS still follows the general rules exceptwhen the Fourth Report and Order specifies otherwise.

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ding. 2' The Commission concluded that IVDS li-censes would be selected by oral outcry auction andsingle round sealed bidding."'

E. The Laws Governing Other Forms Of Interac-tive Technologies

Unlike IVDS, other forms of interactive serviceare not subject to specific regulation beyond those towhich the cable, television, or telephone operator ofthe system is subjected."' Although these laws, andthe regulations promulgated to implement them, maybe broad enough to encompass interactive services,sufficient ambiguities exist to present loopholes forcreative interactive service providers. 2

1. Cable Operators

Owners and operators of cable systems are re-quired in certain circumstances to provide capacityfor commercial use by persons unaffiliated with theoperator,"' as well as to carry the signals of localtelevision stations 2 " and qualified noncommercialeducational television stations.' 29 These laws are in-tended to prevent cable operators from engaging inmonopolistic behavior in order to promote competi-tion in video programming.' " So far these "mustcarry" requirements have withstood constitutionalchallenges' and they appear to be effective. How-ever, it is unclear how, or even whether, they will

123 Id. para. 2. The Commission concluded that IVDS was

more suited for less complex, and therefore, less expensive auc-tion procedures. Id. para. 11. In addition, the Commission statedthat its alterative auction procedures for IVDS would be morelikely to further the rapid implementation of IVDS. Id.

124 Id. Since IVDS service areas corresponded to cellular ra-dio service areas, open outcry auctions would be used for select-ing IVDS licenses in Metropolitan Statistical Areas and singleround sealed bid auctions would be used for Rural Service Ar-eas. Id. para. 16.

5 See, e.g., 47 U.S.C. §§ 521-611 (1988 and Supp. V1993) (containing provisions governing cable operations andservice).

126 For example, "cable service" is defined to include sub-scriber interaction required for the selection of video program-ming or other programming service. 47 U.S.C. § 522(6)(B)(Supp. V 1993). However, neither video programming nor otherprogramming service is defined broadly enough to include manyof the possible applications of interactive service.

127 See 47 U.S.C. § 532 (Supp. V 1993).128 Id. § 534.1"8 Id. § 535.10 See id. § 521; see also Cable Television Consumer Pro-

tection and Competition Act of 1992; Congressional Findingsand Statement of Policy, P.L. No. 102-385, § 2(a)(4), 106 Stat.1460 (1992) (describing cable industry concentration as barrier

apply to interactive services.In addition, cable companies are subject to various

fee and rate requirements. " ' These requirementsare sufficiently broad to cover interactive services, " 'however, they are limited to regulation of ratescharged for such services. Consequently these provi-sions offer no substantive authority for effective reg-ulation of interactive networks similar to the regula-tions governing IVDS. It is therefore clear that cableoperators wishing to provide interactive serviceswould be far less restricted in developing such sys-tems than their IVDS competitors."

2. Telephone Companies

Except in special circumstances, telephone compa-nies are currently prohibited from providing videoprogramming directly to their subscribers. "' Re-cently,. however, this restriction has been eased some-what" 6 and may be eliminated in the near future. 3 7

If the FCC removes or Congress repeals or lifts thecross-ownership ban, it is unclear how telephonecompanies providing video or other programmingwill be regulated. If "cable service" is construed toinclude interactive applications, a telephone companythat provides video programming via an interactivenetwork would clearly meet the definition of a "cableoperator" in the Cable Communications Policy Actof 1984. "8 However, as discussed above, it is notclear that the definition of cable service can be so

to entry for new programmers).181 See, e.g., Turner Broadcasting Sys. v. FCC, 114 S. Ct.

2445 (1993) (finding §§ 534 and 535 constitutional).132 See, e.g., 47 U.S.C. § 543 (Supp. V 1993) (describing

FCC authority to regulate rates for cable service).1" For example, § 543(a) provides that any franchising au-

thority may regulate the rates for provision of "any ... commu-nications service provided over a cable system to cable subscrib-ers". 47 U.S.C. § 543(a) (1988)(emphasis added).

1' For example, whereas an IVDS licensee must meet par-ticular construction deadlines in order to keep its license, 47C.F.R. § 95.833(a) (1994), cable operators are free to take aslong as they wish to construct their networks, subject of course totheir desire to compete. See, e.g., Elmer-Dewitt, supra note 3, at125 (stating that FSN is eight months behind schedule).

135 See 47 U.S.C. § 533(b)(1) (Supp. V 1993).in The ban does not include enhanced and non-common

carrier services related to video programming. Ameritech VDTOrder, supra note 23, para. 2 n.6.

187 See In re Telephone Company-Cable Television Cross-Ownership Rules, §§ 63.54-63.58, Fourth Report and Order, 10FCC Rcd. 231 (1995).

18 Cable Communications Policy Act of 1984, P.L. No. 98-549, 98 Stat. 2780 (1984) (codified at 47 U.S.C. §§ 521-611).Section 522(4) defines cable operator as:''any person or group of persons (A) who provides cable service

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COMMLAW CONSPECTUS

broadly interpreted. If telephone companies that pro-vide interactive services cannot be regulated underthe rules governing cable companies, then they willnot be subject to any regulation whatsoever underexisting law.' This will clearly put telephone com-panies at a distinct advantage over both IVDS prov-iders and cable operators.

III. THE CURRENT STATUS OF IVDS,FSN, AND OTHER INTERACTIVETECHNOLOGIES

Today's competing technologies in the interactivetelevision marketplace are IVDS, FSN, and video di-altone services. Time Warner's FSN system is cur-rently the market leader,140 but telephone companieslike Ameritech and Carolina T&T have been devel-oping conpetitive systems."' These phone-based sys-tems pose a serious challenge to FSN because manyof the components for these systems are already inplace in the form of existing telephone lines andservers. IVDS, initially envisioned as the least costlyand easiest technology to implement, now appearslikely to be the last system to develop a broad marketbase.

over a cable system and directly or through one or more affiliatesowns a significant interest in such cable system, or (B) who oth-erwise controls or is responsible for, through any arrangement,the management and operation of such a cable system." 47U.S.C. § 522(5) (1988).... See In re Telephone Co. - Cable Television Cross-Own-

ership Rules, §§ 63.54-63.58, Memorandum Opinion and Orderon Reconsideration and Third Further Notice of ProposedRulemaking, 10 FCC Rcd. 244, para. 6 (1995) (stating that lackof legislation "heightens" need for regulations to promote videodialtone); but see id. para. 48 (stating that maintaining ban oncross-ownership will benefit public by promoting greater compe-tition in video delivery). It is clear that the Commission feelslifting the cross-ownership ban will hinder competition in videodelivery. The anticompetitive effects of lifting the cross-owner-ship ban, absent specific regulations governing interactive televi-sion/IVDS, could similarly hinder competition between interac-tive service providers.

140 See Farhi and Corcoran, supra note 82, at Al.141 See Ameritech VDT Order, supra note 25, para. 6; In re

Application of Carolina Tel. & Tel. Co., Order and Authoriza-tion, 76 Rad. Reg. (P & F) 1496, para. 5 (1994).

142 Alan Brody, Are We Ready to Plug Into Nationwide In-teractive TV? TV Answer Inc. Offers Equipment for InteractiveTelevision, MARKETING COMPUTERS, Dec. 1991, 31, 31.

143 Id. This early system was only a pilot-site model. Id. InCerritos, California in 1989, GTE Corp. also conducted a small-scale test of an early interactive system that offered movies,games, and on-line educational programming. Farhi & Corco-ran, supra note 80 at A22. However, the system never developedbeyond the trial stage. Id.

144 Farhi & Corcoran, supra note 82, A22 (describing Time

A. IVDS

In 1981, Fernando Morales, an engineer at Mex-ico's University of Monterrey invented IVDS tech-nology." However, the first operational prototypeof an interactive television system did not make itsdebut until 1986. " Several large-scale tests of inter-active systems are currently underway and more areexpected to commence this year."' Despite the factthat IVDS is perhaps the least expensive form of in-teractive television, none of these test systems utilizesan IVDS system.

Following an open outcry auction on July 28 and29, 1994, 490 winning bidders, representing nearly300 markets, submitted IVDS license applications." 5

On January 18, 1995, the FCC granted 153 IVDSlicenses covering 98 markets."46 On February 28,1995, the FCC granted the remaining 337 licensescovering 187 markets. 14 Few of the licensees havebegun construction of their systems" 8 and, in fact, anumber of applicants have petitioned the Commis-sion to delay the payment schedule for license fees,claiming that equipment for IVDS service is notreadily available." 9 Still other lottery winners havepetitioned the Commission for waiver of the con-

Warner, Inc.'s Full Service Network test in Orlando); FCC Ap-proves BellSouth Cable Test, ATLANTA J. & CONST., Feb. 8,1995, E3 (describing BellSouth test in Chamblee); KathyRobello & Gail DeGeorge, Sneak Previews of Interactive TV,Bus. WK., Dec. 19, 1994, 115 (describing U S West, Inc.'s testin Omaha, Neb.).... See Interactive Video and Data Serv. (IVDS) Applica-

tions Accepted for Filing, Public Notice (Nov. 30, 1994). These490 applicants represent 83% of the 594 IVDS licenses availableand cover 285 of the 297 IVDS markets. Id.

148 See Interactive Video and Data Serv. (IVDS) Applica-tions to Be Granted Jan. 18, 1995, News (Dec. 29, 1994).... See Interactive Video and Data Service (IVDS) Applica-

tions to be Granted Feb. 28, 1995, Public Notice, DA 95-152(Feb. 8, 1995).

148 One system, owned by IVDS Co., has actually met theten percent build-out requirement and field trials are being con-ducted in Bethesda, Maryland. COMM. DAILY, Vol. 15, No. 38,Feb. 27, 1995. Four or five other companies are close behind inmeeting the ten percent build-out requirement. Id.

1" See, e.g. In re Requests for Waivers in the First Auctionof 594 Interactive Video and Data Service Licenses, Order, 9FCC Rcd. 6384 (1994); In re Interactive Video and Data Ser-vice (IVDS) Licenses Requests by Lottery Winners to ExtendConstruction Deadline, Order, DA 95-481 (March 13, 1995).Two developers of IVDS equipment, Radio Telecom and Tech-nology, Inc. ("RTT") and EON Corporation ("EON") vigor-ously disputed the assertion that their equipment was not readilyavailable. In re Requests for Waivers in the First Auction of 594Interactive Video and Data Service Licenses, Order, 9 FCCRcd. 6384, para. 8 (1994). The FCC denied the requested waiv-ers, the payments were made, and the licenses were eventually

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struction benchmarks. 5 In contrast to this, other in-teractive systems are currently in the testing phaseand may be fully operational in the near future.15 '

This data indicates that IVDS may be slower to de-velop than originally predicted. In fact, it remains tobe seen whether IVDS will be technologically feasi-ble in the near future.15 2

B. FSN

Although FSN may hold more potential for inter-active services than other systems,' 58 the complexityand related cost of such a system may prove prohibi-tive. 5 An FSN-like system must be capable of han-dling thousands of bits of information instantly inorder to provide full interactivity.' 55 In addition, thetechnology necessary to run a system like FSN isstill being developed.156 These factors have contrib-uted to delay in the implementation of FSN.157

However, despite these drawbacks, FSN and similarsystems offer a viable interactive alternative for thoseentities with the financial wherewithal to undertakeprojects of this magnitude.

granted. See nn. 145-48 and accompanying text. Subsequent re-quests have been granted. See, e.g., In re Interactive Video andData Service (IVDS) Licenses Requests by Lottery Winners toExtend Construction Deadline, Order, DA 95-481 (March 13,1995). Despite such waivers, it is clear that technological con-cerns are going to plauge IVDS providers as they attempt toimplement their systems in the timeframes set out by theCommission.

15o See In re Interactive Video and Data Service (IVDS) Li-censes Requests by Lottery Winners to Extend ConstructionDeadline, Order, DA 95-481 (March 13, 1995); In re Interac-tive Video and Data Service (IVDS) Licenses Additional Re-quests by Lottery Winners to Extend Construction Deadline,Order, DA 95-617 (March 24, 1995). The Commission hasgranted these requests, stating that waiving the requirementswill not result in delays in service to the public and will providethe licensees flexibility in meeting the construction deadlines.See, e.g., In re Interactive Video and Data Service (IVDS)Liceneses Requests by Lottery Winners to Extend ConstructionDeadline, Order, DA 95-481, para. 4 (March 13, 1995).

151 See, e.g., Elmer-Dewitt, supra note 3, at 125 (detailingsuccessful test of Time Warner Inc.'s Full Service Network).

15" The Commission recently issued a Notice of ProposedRulemaking that would allow IVDS licensees to provide mobileservice to subscribers. In re Amendment of Part 95 of the Com-mission's Rules to Allow Interactive Video and Data ServiceLicensees to Provide Mobile Service to Subscribers, Notice'ofProposed Rulemaking, FCC 95-158 (May 5, 1995). The Com-mission stated that allowing IVDS licensees to provide limitedmobile services would enhance the efficient, economic use of thespectrum, encourage the development of IVDS, and help IVDSlicensees compete with other interactive television providers. Id.para. 7. According to one IVDS equipment provider, the tech-nology can be refined to allow for mobil service. Id. para. 3.

The delay in the delivery of FSN is also occurringbecause Time Warner is testing the full spectrum ofinteractive services, rather than simple video-on-de-mand or similar video programming. '5 Given thefact that there are few active competitors in the mar-ket currently, Time Warner's efforts may pay off ifit can deliver a fully operational system that offers avariety of services. However, FSN is currently onlyserving a small percentage of the 4,000 homes TimeWarner expected to have on-line by 1995.'59 If otherinteractive technologies can gain a foothold in the in-teractive market through other formats, such asvideo-on-demand, Time Warner may be disadvan-taged by the delay.' 60

C. Video on Demand

Rochester Telephone Corporation and USA VideoCorporation recently completed a test of video-on-de-mand services in Brighton, New York.' 6 ' Althoughthe test was limited to providing video programming,it provided valuable data regarding customer prefer-

Although still only in the comment stage, the Commission's pro-posed change to the IVDS rules could provide IVDS licenseeswith the edge they need to compete with other interactive televi-sion providers. This is especially true given the fact that no otherinteractive television format currently envisioned can providemobile service.

1" For example, the Time Warner FSN system promisesregular video-on-demand services as well as home shopping,games, sports-on-demand, and an instant medical-checkup ser-vice. Id.

154 See Andrews, supra note 7, at C16 (stating that indus-try's investment in interactive networks may exceed $ 50 billion,assuming $ 1000 per household).

' Farhi & Corcoran, supra note 82, at A22; Kilsheimer,supra note 8, at A8.

"' Kilsheimer, supra note 8, at A8. The individual compo-nents of the FSN system are based on existing technology, butthe system itself has to be developed from scratch-a process thattakes several months and involves many high-tech companies. Id.

187 See Elmer-Dewitt, supra note 3, at 125 (stating thatFSN 8 months behind schedule and 3,995 customers short ofprojected distribution).

18 See Robello & DeGeorge, supra note 144, at 115.189 Id.160 For example, U S West, Inc. has plans to test an interac-

tive television system in Omaha that is expected to reach 50,000homes by mid-1995. Robello & DeGeorge, supra note 144, at115. However, the fact that U S West, Inc. is Time Warner'spartner may work to both parties' advantage given the fact thatthey will be addressing different markets through differentmedia.

101 See USA Video and Rochester Telephone CompleteTrial of Video-on-Demand Services, Bus. WIRE, Jan. 19, 1995,1,1.

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ences and usage.' 62 In addition, the test gave Roches-ter Telephone Corporation the opportunity to learnhow to install and maintain the technology necessaryfor a full service interactive network as well as howto integrate interactive services into its existing net-work." Such knowledge will enable the telephonecompany to easily expand its network to includeother interactive services."" This test demonstratesyet another opportunity for telephone service provid-ers to enter into the interactive market and thus com-pete with cable operators to provide video program-ming to subscribers in their service areas.

IV. THE FUTURE OF INTERACTIVE

SERVICES

A. A Need for New Technology

Although interactive television has been envisionedas a multi-billion dollar industry-offering every-thing from video programming to telemedicine-itremains little more than an idea.' 65 Much of thetechnology necessary for interactive television has notbeen developed yet.' 66 The few operational systemsbeing tested are still too expensive to be commer-cially feasible.' 67 IVDS, which the FCC envisionedas a low-cost way to provide interactive services tothe public within a short period of time, is runninginto technological problems."' These problemsdemonstrate the need for new and better technologyin order to establish and operate the large interactivenetworks envisioned by the industry.

At this early stage in the development of interac-tive networks, many companies are finding that thehardware necessary to operate and control a large

162 Id.163 Id.164 See id. (quoting Rochester Telephone Corp. executive as

stating, "we intend to continue to evaluate opportunities in videoand the broader information services arena").

168 See Robello & DeGeorge, supra note 144, at 115.166 Elmer-Dewitt, supra note 3, 125.167 Farhi & Corcoran, supra note 80, at A22.166 See, e.g., In re Requests for Waivers in the First Auction

of 594 Interactive Video and Data Serv. Licenses, Order, 9 FCCRcd. 6384 (1994) (waiver requests premised on alleged equip-ment unavailability denied).

166 See Farhi & Corcoran, supra note 82, at A22 (statingthat main problem was designing computer system).

17 See Kilsheimer, supra note 8, at A8.1 See Farhi & Corcoran, supra note 82, at A22 (stating

that set-top box must contain more.processing power than themost sophisticated personal computer on the market).

172 See Elmer-Dewitt, supra note 3, at 125.173 See Joe Kilsheimer, supra note 8, at A8. For example,

interactive network does not exist." 9 Even wheresome technology does exist, industry experts arefinding that integrating the technology into an inter-active network requires substantial modifications toboth the existing network and the interactive hard-ware. 0 Existing set-top boxes do not have the com-puter processing power to operate in a real-time in-teractive system.' Similarly, the network operatingsystem necessary to coordinate and control a largeinteractive system is still being developed even assystems such as FSN are being tested on the pub-lic. 17 2 Even the remote controls used in the systemscurrently being tested required modifications in or-der to perform satisfactorily.1 7

' Therefore, it is clearthat realization of the full potential of interactive tel-evision may require significant technological achieve-ments at each stage of its development.

With different companies rushing to be the first toprovide full interactive network services to their cus-tomers, standardizing the equipment becomes a low-priority. 1' This lack of standardization may resultin many competing equipment models in some areas,and few in others with no universal standardiza-tion. 1 7 5 Such conditions will cause problems for sys-tems and software providers.1 76 The Video Electron-ics Standards Association and other organizationshave tried to standardize the technology, but the in-dustry has been reluctant to agree to the recommen-dations of such entities.17 7 In this regard, IVDS hasan advantage because any equipment used in anIVDS system must be approved by the FCC underits type-acceptance regulations.7

7 Therefore, unlikeother interactive systems, most IVDS systems willuse similar equipment. It may be that the FCC willhave to intercede and promulgate rules governing the

with most existing television remotes, it takes 140 millisecondsfor a signal to reach the set-top box. This response time had tobe cut by two-thirds in order to provide acceptable response timefor an operational interactive system. Id.

174 See Erica Schroeder, VESA Debuts Set-Top Box Spec:Design Covers Hardware Components for Interactive Services,PC WK., Nov. 21, 1994, 44, 44.

17' Each company developing an interactive system is creat-ing its own hardware as it goes, therefore, there is no uniformityof components from one system to the next. Id.

176 Alan Cane, Media Futures: Multimedia is in for aRough Ride, Says Price Waterhouse, FIN. TIMES, Jan. 2, 1995,10, 10. Software and systems providers prefer defined, industry-wide standards because this gives them the greatest opportunityto sell their products in volume. Id. Differing standards andcomponents diffuse the energies of software and systems develop-ers, thus deterring investment in interactive projects. Id.

177 See Erica Schroeder, supra note 174, at 44.178 See 47 C.F.R. § 95.851 (1994); 47 C.F.R. pt. 2, subpt. J

(1994).

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type of equipment to be used in all interactive sys-tems. At the very least, type-acceptance requirementssimilar to those in the Commission's rules17 9 may berequired in order to ensure that companies proposingto offer interactive services have the necessary facili-ties and equipment to provide such services.

B. Competition from Computer-Based Systems

Many experts believe that PCs rather than televi-sion sets offer the best medium for interactive ser-vices.180 They argue that PCs currently offer interac-tive capabilities and are declining in price and thusoffer an attractive option to television set-topboxes."' 1 Other analysts argue that the sharper reso-lution of PCs is more suitable for the use of text and,therefore, PCs would be better interactive devices forhome shopping, news on demand, and other textualapplications.

1 81

In addition, computer services such as Com-puserve and Prodigy, already offer many of the ap-plications that interactive television may provide. 88

Similarly, many experts believe that because of theirlower cost, computers will remain the interactive me-dium of choice for business purposes such as interac-tive training and advertising. 4 Even the FCC in itsIVDS Report stated that IVDS licensees may chooseto use PCs rather than the television for interactionand services.

185

Unless IVDS and other television-based interac-tive applications offer unique services or products,such systems may be hard-pressed to compete withexisting computer-based interactive services. Simi-larly, if the current technological problems associatedwith operating an interactive system with set-topboxes continues, many interactive service providersmay turn to the computer as a more suitable mediumfor interactivity. The potential competition whichservices such as Prodigy and Compuserve presentsmay be yet another factor that delays or even pre-vents the entry of IVDS into the interactivemarketplace.

C. IVDS Versus Other Interactive Services

The future of interactive television may see many

17 See 47 C.F.R. pt. 2, subpt. J (1994)'60 See Foley, supra note 82, at 29.181 Id.182 See Farhi & Corcoran, supra note 82, at A22.181 See IVDS Notice, supra note 10, para. 9.104 Foley, supra note 82, at 29.

conflicts between IVDS and other interactive tech-nologies. Demonstrations of interactive services bycable companies and video dialtone trials by tele-phone companies are already underway, albeit, on alimited basis. And yet, IVDS is barely beyond thelicensing stage with only one system actually opera-tional. 86 IVDS still has a chance to become econom-ically viable, at least for the near future, since it maytake years for systems such as Time Warner's FSNto reach large segments of the population.1 87

If IVDS licensees are able to cover thirty percentof their service areas within three years, as requiredby the FCC, they may be able to gain a foothold ininteractive applications, in certain local markets. Ifthey cover less than thirty percent, they may not beable to compete against large cable and telephonecompanies offering comparable, or in many cases su-perior, service. In addition, many IVDS licenseesmay be forced to relinquish their licenses, as mostwill lack the capital to go head-to-head with themuch larger telecommunications companies. In thisregard, IVDS licensees are especially disadvantagedbecause once a cable or telephone company estab-lishes an interactive network, it can easily expandthe service across its existing lines.1 88

D. Regulatory and Other Potential Problems

1. IVDS Licensees

In order to compete with larger, better-financedcable and telephone companies, IVDS licensees needsome regulatory advantages to offset their weaker fi-nancial position. The FCC must carefully monitorthe development and expansion of non-IVDS inter-active technologies to ensure that they do not over-shadow and eliminate IVDS as an alternative. Evena limited number of non-IVDS interactive serviceproviders in a given market may have the potentialto stifle the very competition that the FCC claims isessential for furthering the public interest.

In addition, the development of IVDS may behampered by the FCC's licensing requirements. Forexample, comments were submitted to the FCC ar-guing that licensing IVDS on a national basis wouldpromote standardization, efficiency and uniform-

'85 See IVDS Report note 2, para. 54 n.83.18e See COMM. DAILY, Vol. 15, No. 38 (Feb. 27, 1995).187 See, e.g., Farhi & Corcoran, supra note 82, at A22 (stat-

ing that features of FSN to become part of other cable systemswithin two or three years).

188 See Kilsheimer, supra note 8, at AS.

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ity.189 In response, the FCC stated that a regional ornational product marketer could enter into separateagreements with the local IVDS licensees in thoseareas it wished to cover.1 90 This response, however,ignores the fact that forcing national marketers toenter into dozens or even hundreds of individualagreements with separate IVDS licensees will lead toinconsistencies in terms, prices, and opportunities. Ifthe licensees in each of the areas a marketer wishesto cover are all separate entities, the marketer couldbe faced with several agreements, each with differentterms and conditions and each offering differentlevels of exposure. Such an arrangement would makemarketing a product nationally unpredictable andsubject to the whims of local IVDS licensees. Thebest a marketer could hope for is that one of the li-censes in each of the areas the marketer wished tocover was held by the same entity. In such a case,the marketer would likely be able to enter into a sin-gle agreement which would govern service at each ofthe local areas.'9"

The FCC's clarification in the Second IVDSOpinion and Order 192 as to the types of entities eli-gible to receive IVDS licenses is particularly signifi-cant because it created the opportunity for smallcompanies and non-profit organizations to enter intoa market that might otherwise be dominated by theexisting telecommunications conglomerates. In fact,the clarification may allow IVDS systems to developa local flavor, offering programming and servicesunique to a particular service area. Conditions likethis might not develop if significant numbers ofIVDS licenses were held by large cable, television, ortelephone companies seeking to take advantage ofeconomies of scale by offering uniform services andprogramming to all of their service areas.1 93

Finally, the development and poplularity of IVDSmay be enhanced by the Commission's recent deci-sion to amend the IVDS rules to allow for mobile

189 See IVDS Report, supra note 1, para. 60.190 Id. para. 61.191 An examination of the licensees for five areas (Cleveland,

Buffalo, New Orleans, Ventura, and Trenton) reveals eight dif-ferent entities. See Interactive Video and Data Serv. (IVDS) Ap-plications to Be Granted Jan. 18, 1995, News (Dec. 29, 1994).Ventura and Cleveland share one similar licensee and Clevelandand Buffalo share another similar licensee. Id. It is therefore un-likely that a marketer would be able to obtain national coverageby contracting with only a small number of entities.

193 Second IVDS Opinion and Order, supra note 103, para.12.

19' For example, Time Warner's FSN, now being tested insuburban Orlando, could be expanded to include other areas ac-cessible by Time Warner's cable networks. See Elmer-Dewitt,

IVDS service. The ability to provide mobile serviceis currently unique to IVDS because of its "wire-less" technology. No other currently envisioned in-teractive television technology can offer this option'toit's subscribers because these systems rely on cablesfor transmission of signals and data. If IVDS licen-sees are successfully able to develop and implementmobile service, it may give them a distinct advantageover their non-IVDS competitors. Unfortunately, thedetails of mobile IVDS service may have to wait un-til the Commission issues its final rules on the sub-ject, and this may be too late to help many IVDSlicensees.

2. Other Interactive Service Providers-Cable

The existing statutes and regulations governingcable and telephone companies may have to bechanged in order to accommodate the establishmentof interactive networks. Many of the applications ofan interactive system do not fit neatly into the lan-guage of the statutes and regulations governing cableservice."9 Additionally, it is not clear how the re-quirements of section 532, 534, and 535 of the Com-munications Act of 1934 will apply to interactiveservices. For example, the FCC must determinewhether an interactive network consists of only oneor many channels1 95 before cable operators can berequired to allocate capacity on the network to non-commercial, local or governmental and educationalprogramming. It may be necessary to turn the tradi-tionally non-common carrier cable companies intocommon carriers for purposes of providing diverseinteractive services. An alternative such as this likelywould be met by vehement opposition from the cableindustry.

Similarly, antitrust and other laws may have to bechanged to account for the unique environment ofinteractive applications. There is little to prevent a

supra note 3, at 125. However, it is unlikely that the FSNwould offer different services to these diverse locales. Id.

19, For example, video programming is defined as "pro-

gramming provided by, or generally considered comparable toprogramming provided by, a television broadcast station". 47U.S.C. § 522(19) (Supp. V. 1993). Interactive services are notcurrently provided by television stations. In addition, since inter-active television involves two-way transmission of electronic sig-nals whereas television broadcasts are only one-way, interactivetelevision is not "comparable" to television programming.

195 47 U.S.C. § 522(4) (Supp. V 1993) defines "cable chan-nel" or "channel" as "a portion of the electromagnetic frequencyspectrum which is used in a cable system and is capable of deliv-ering a television channel (as television channel is defined by theCommission by regulation.").

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cable company from favoring its own services orthose of its affiliates over those of other programmersand service providers (e.g, IVDS licensees) when de-termining what to offer over its interactive net-work.19' Even if a cable company does not favor itsaffiliates, it will have monopoly control over aunique new medium through which thousands oreven millions of people may be reached by retailers,educators, or entertainers. The incentive for abuse ofsuch access is significant given the substantial reve-nue possibilities interactive television presents. Asubstantial amount of regulation may be necessary toensure that diversity, equity, and competition remainthe factors which guide network operators in select-ing which services to provide.

3. Other Interactive Service Providers -Telephone

Unlike both IVDS licensees and cable providers ofinteractive service, telephone companies providinginteractive service may not be subject to any regula-tion. Although telephone companies are currentlyprohibited from offering video programming directlyto customers, they may not be so restricted for long.Such unfettered discretion creates the same potentialfor abuse that prompted Congress to prohibit tele-phone companies from providing videoprogramming.

Additionally, unregulated or insufficiently regu-lated telephone company interactive service providerswill have a significant advantage over their regulatedcable and IVDS competitors. Telephone companies,particularly Local Exchange Carriers, have substan-tial hardware in place that can provide the two-waycommunication necessary for interactive service.Therefore, they do not need to construct additionalnetwork facilities or install additional cables. Simi-larly, telephone companies are currently not subjectto many of the carriage restrictions (e.g., sections532, 534, and 535 of the Communications Act of1934) with which cable companies must comply.Nor are telephone companies currently mandated toattain certain construction benchmarks similar tothose placed on IVDS licensees.1 9 7

194 The regulations governing cable companies only requirethat up to 15% of a cable operator's channels be made availableto unaffiliated persons. See 47 U.S.C. § 532(b) (1988). Thispresents the problem again of determining the number of chan-nels which an interactive network contains.

10 See 47 C.F.R. § 95.833 (1994). Although a telephonecompany requesting authority to provide video dialtone servicemay be subjected to specific construction deadlines, see Amer-

4. Other Concerns

IVDS and other interactive systems will provide avariety of differing services and entertainment appli-cations. The accessibility of these services may pre-sent numerous copyright, royalty, and other intellec-tual property problems. 9 Determining howroyalties for a new movie about to be released inconnection with an interactive network will be calcu-lated may cause technical as well as practicalproblems and may involve members of the entertain-ment industry as well as the interactive service pro-vider. Similarly, licensing potential products such asvideo games or interactive medical services may pre-sent new obstacles for interactive network operators.Preventing subscribers from downloading video andother programming for their personal use, e.g., videotaping, presents another possible regulatory concernwhich may affect interactive service providers. Fi-nally, some form of rate regulation for interactiveservice must be established to protect the public fromexcessive charges and to prevent monopolistic pricingby those entities that establish interactive networksahead of their competitors.

V. CONCLUSION

Interactive television has a long way to go beforeit attains the status of existing technologies. Never-theless, as interactive technologies develop, legislatorsand regulators must pay close attention to the variedproblems which can and may arise as interactive tel-evision becomes a reality. There are currently threedifferent types of interactive service being developed.Each has its own unique advantages and disadvan-tages and each is developing at a different pace.However, of the three, IVDS currently is subjectedto the most regulation and perhaps consequently,IVDS is the least developed of the interactive tech-nologies. Not one of the available interactive technol-ogies is free of technological problems, and substan-tial progress must be made in this area in order tofoster the continued development of interactive televi-sion. In addition, as with any new technology, thereis little guidance or regulation in existence to govern

itech VDT Order, supra note 25, para. 13 (stating that capacityrequirements reviewed on a case-by-case basis), the Commissionspecifically stated that it will not require that entire communitiesbe wired before anyone can receive service. Id. para. 27.

198 See, e.g., Daniel L. Brenner, In Search of the Mul-

timedia Grail 39 FED. COM. L.J. 197, 200-201 (Dec., 1994)(discussing copyright and other problems of multimedia).

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the development, implementation, and operation ofeach of the available interactive formats. It is clearthat the technology cannot continue to expand orreach its full potential unless steps are taken to regu-late, monitor and guide its growth. Therefore, the

FCC must carefully monitor the progress of interac-tive television and ensure that sufficient safeguardsare in place to promote competition and ensure theavailability of alternative interactive televisiontechnologies.

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