REED HUNDT - Interviewed August 23, 1995 in Washington DC.
Hundt is the
Chairman of the Federal Communications Commission, the government agency that
oversees the telecommunications industry.
Q: The information revolution seems to be coming from the top down.
Citizens are being pulled into it, rather then leading it. Do you agree?
RH: Well right now the information revolution is like the French revolution without any great thinker that sets the agenda or dominates the
world of ideas. It is very much a grass roots effort in that there are all
kinds of enterprises all over the country that are starting up to use new
communications technologies in new ways. But there's no controlling idea.
There is no declaration of independence or statement of beliefs that is
setting the ideological agenda.
Q: What does that lead to?
RH: Well it leads to chaos. The information revolution is a great example of
chaos. It is demonstrating that markets would like to be rational but they
don't know how to be rational when they don't know what to think. It
demonstrates that unpredictability is the norm, it demonstrates that we are
all seeing through glasses very darkly.
Q: What does business want to accomplish here?
RH: I think that businesses and the communications information and
entertainment sector right now are focussed first and foremost on the
following survival. They want to make sure that the new technologies don't
take away from the bottom line that they already are enjoying. Most
businesses in this sector of the economy are doing great and they want to
continue to do great. So they are interested in survival and a lot of their
strategies are based on defense. Number two, every single business or
business person in the communications information and entertainment sector is
very, very worried about the hot breath on the back of their neck. The new
guy with the new idea who is just come out of the University of Illinois with
something called Netscape.
Q: Is there a message in that?
RH: The message is everybody who doesn't have a brand new idea is worried
sick about the other person who does have a brand new idea and there is an
intense competition to get the right idea to get the controlling idea. The
idea that sets the agenda in terms of how you're going to use communications
technology to deliver services that people will pay for. Everyone's in
search of that idea and everyone is playing with all the panoply of new
communications tools to try to uncover that new idea.
Q: What would the elements of that controlling idea be?
RH: Let me answer the question this way. For decades people were
experimenting with how to build automobiles, the last couple of decades of
the 19th century, first decade of this century, lots of different ideas,
electric cars, internal combustion cars. There was an absolute limit on the
number of vehicles that would be sold, the limit was defined by the number of
people who could be trained and hired as chauffeurs. That was an idea that
the predecessor of the Mercedes Benz company had and it was widely accepted
in many circles. Along came Henry Ford who said "I'm going to make a car
that is easy to use, that is going to carry you anywhere you want to go, that
you can fix yourself, that is cheap, that has standardized parts and I'm
going to do it on a scale where I have enough generated and that I have
enough people actually building the car that I'm going to be putting wealth
in the pockets of the builders and they themselves are going to buy the
cars". So he democratized the automobile. That's an example of putting all
the pieces together and taking an invention that was proceeding in many
different ways along many different tracks and giving it one controlling
idea. Everyone is looking for that idea in the cyberspace business and no
one knows where it is. When it's found or when two or three of those ideas are
found then everyone will say "that was inevitable, we knew that all along".
Q: What will be the impact of the digital world on the average person's life?
RH: In a famous piece in the Harvard Business Review, called "Marketing
Myopia", Ted Levitt about 40 years ago said that one of the great myths about
any product is that consumers were buying the product by reference to its
component parts. For example, there's the great story of Charles Revson and
the sale of Revlon perfumes. Somebody once said to him, what are you selling,
are you selling chemical products that are carried in a spray of aerosol? He
said of course not, I'm selling dreams. When you're successful, you're always
selling an idea, a concept, an emotional connection to a consumer. That's
what people are looking for in cyberspace. That's what people are groping
Q: Do people actually understand the stakes involved in cyberspace?
RH: Well consumers know what they like and it's really, really important to
listen to consumers who are also voters who are also the public. Let's listen
to some of the things they've been saying right now. Number one they don't
like broadcast television. They don't like what's on TV today. Two thirds of
the people in this country think that one of the primary causes of violence
and permissive attitude in society is television. This is a wake up call for
TV, this is not good news when you're consuming public says I don't like the
product, that means it's time for a change. Consumers say that personal
computers are tremendous tools. They will pay high prices and boy, they would
like them to be simple. A lot of progress is being made right now but it is
not yet the case that anyone has invented in the PC world what the Model T
was for automobiles--and that is the product that truly democratizes the whole
Q: You said I predict 1995 will be the end of the first era of television.
RH: This is a fateful fall for television, the fall of 1995. It is the end of
the first 50 years of tv in this country or the beginning of the end of
analogue tv and it's the beginning of a new kind of television, digital
television. Digital television is the technology that still requires a better
product. It is the technology that gives the capability on the supply side to
deliver tv in a very, very different way. Again more choices, more options
for consumer but also easier ways for consumers to sort through the avalanche
of programming that comes in uninvited into their homes today. What digital
tv needs is new kinds of combinations of companies that are going to sell the
receivers and create the special kind of programming that needs new people
committed to the conversion to digital. This is a tremendous business
opportunity, tremendous business opportunity and I'm just starting to hear
from the kinds of creative people who I think will take advantage of it.
Q: Why is interactive TV so attractive to marketers?
RH: Well advertisers of course spend truly more than a hundred billion
dollars a year trying to find ways to sell other products over communications
media. In doing that advertisers have a dilemma that is still unresolved.
They would love to focus the advertising specifically on certain customers
who are very likely to buy and they would also like to develop a brand name
that is known just about by everyone. A name like Coca Cola or AT&T. So
they find themselves caught between those two goals and never quite sure what
is the best way to spend their resources to accomplish those two goals. Take
digital television, that I think does both at the same time. Permits you to
use the technology to focus specific messages to specific consumers by coding
the digital bit stream a certain way while at the same time having a broad
scale message that you can hit everybody with, that's the virtue of broadcast
technology. Now if I'm right once we get going on digital tv, advertisers are
going to say great, a double edged sword cuts both my gordian knots at the
same time. I'm going to support that all the way.
Q: Does that concentration of information power concern you?
RH: You know consumers are part of the Darwinian evolutionary process.
Second by second, minute by minute, consumers evolve, their tastes evolve.
Their desire for new experiences constantly replenishing itself and they're
always looking for new things. Anybody who thinks that targeting a consumer
on a specific day means that you can safely bombard them to buy the exact
same kind of things, they're not really in touch with that consumer. So I
don't think that we're dealing with a static situation. I think that learning
about what a consumer is doing and pitching your products to a consumer means
coping with an evolutionary process. And again I think that modern
communications tools will help advertisers do that and will also be very
welcome to consumers because it'll mean different choices, newer choices,
even while they can get access to their old reliable products.
Q: Why are some companies calling for the abolition of the FCC?
RH: Well actually companies aren't calling for the abolition of the FCC. The
accounting firm Deloitte and Haskins did a poll of businesses and the polls
showed that overwhelmingly in category after category American business wants
the FCC to exist.
Q: Those would be the smaller businesses.
RH: No. Those would be all the businesses. The cable companies want us to
exist to establish fair rules for them to interconnect to the telephone
network. The telephone companies want us to exist to establish fair rules
for them to get into long distance. The long distance companies want us to
exist for us to establish fair rules so they can get into the local exchange
market. Everybody in business wants some independent agency to set fair rules
of competition and lay out a blue print for competition. It's a good reason
for us to exist.
It's a good mission for us to have and then there's the
second mission. The public very generally wants us to stake out the claim of
the public interest in cyberspace. They want someone to represent the public
interest in terms of figuring out how the communications revolution can work
for all Americans. How can it help people with disabilities, how can it get
communications technology into the class room, how can it make sure that the
broadcast airwaves are used to deliver childrens' educational tv. I'm saying
to you that the public wants us to stake out a claim for public interest and
business wants us to set up fair rules of competition and we ought to do both
Q: How do you enforce those requirements?
RH: Well,take children's educational tv. We absolutely ought to have a
minimum requirement on anyone who has a tv license in this country to deliver
a certain amount of educational tv for kids. So that any parents who want to
turn that on and plunk their kids down in front of it, have something to
chose. That's a fair rule, that ought to be a rule that the FCC adopts and we
ought to be the FCC which stands for "friendly to children and community."
Q: What would happen if there was no government role?
RH: If there was no FCC, it would have to be invented. Businesses that want
to get started in industries that are monopolized or dominated by incumbents,
they need somebody to give them a fair shake, they need somebody to set up
fair rules of competition. And they shouldn't be told they just hire a lawyer
and file a law suit, that's the clumsy, expensive and ineffectual way to try
to get into these new markets. And the public should not be ignored here.
The public doesn't like broadcast tv the way it is. Somebody ought to help
them advocate their views to television networks. The public will want
communications technology for all kids in every classroom, somebody needs to
figure out a way to have that happen. That just doesn't happen accidentally.
If markets made that happen, it already would have happened.
Q: Do you worry about that concentration of mass media in a few hands?
RH: That's what we ought to focus on the most. If you live in Richmond,
Virginia or Sacramento, California or any other town in between you want to
be assured that the FCC and other agencies are guaranteeing you diverse view
points. Guaranteeing you a chance to express yourself. And are assuring you
that there isn't going to be just one company that owns the newspaper, the
cable company and the television networks and the telephone system. Because
America is not a country where just one point of view is all that ought to be
authorized. Let's recognize the power of the electronic media, let's
stipulate to the fact that the electronic media is the way most people in
America get most or all of their information and let's make sure that it
isn't just one point of view and that big brother turns out not to be the
government but some huge media conglomerate that controls all the electronic
Q: Are telecommunications companies acting out of fear or opportunity?
RH: 99% of all telephone calls made in America today start in a monopoly and end in a monopoly all right. These monopolies may very well thrive and be successful as monopolies for a very long period of time or just to give you an example, we might find out that within two or three years the new wireless competition is going to undercut them and take away 20, 30,40, 50% of their market share. Here's the problem. No one knows the answer to that question. No one knows which future is more likely. That would make you anxious if you were in the business. It would also make you lathered up with excitement if you were on the new competition side of it. that's a test- that's a dynamic confrontation of business of historical proportions and there's no way to predict the outcome right now. Absolutely no way except if you're part of the American public to sit back and enjoy the benefits of the competition. Lower price, more innovation, more service.
And there is going to be an element of failure possible in the communications sector that has never been the case before. There's always been a cushion there. The reason why we can't afford to take that cushion away is that we're going to have redundant duplicative systems of communicatoin. If we have two, three, four, five different entities that can provide local communication, local phone service then if one of them does bad, we can afford as a country to say I'm sorry, but that's tough luck. Before when there was just one, we had to guarantee that it succeeded or else we wouldn't be able to communicate. That's a sea change in our attitude, our philosophy and in the amount of risk that is going to be injected in this sector.
Q: The status quo is going to be chucked out the window to some degree in the digital world.
RH: I'm not so sure if the digital world won't repeal the economic law of
diminishing returns. I'm not so sure if we won't find that in the dynamic
markets of the communications sector, new rules have to be written to
describe the behavior that will in fact prove to be successful.
Q: That sounds a tad threatening to more than a few people.
RH: Well it's exciting but the smart people -- and there's a lot of smart
people in today's communications sector -- the smart people are way ahead of
this on the power curve and know more about it than I do and have research
labs cooking up schemes that you and I don't even know much about right now.
I'll give you one surfacing of this. I saw a little piece in the paper the
other day that talked about how AT&T would be offering very, very cheap
internet access. Something's going on there. That means something very
significant about the use of the Internet as a commercial proposition.
Q: Are we witnessing a shift in who controls information?
RH: Yes, yes we absolutely are. Whole new alliances are going to be
formed, whole new combinations of businesses are going to be formed. Let me
give you an example. Digital television. I truly believe that digital
television ultimately will be perpetuated by a combination of manufacturers
of digital tvs, people who can make digital content, that can be broadcast
digitally in a way that makes it much more exciting and interesting than
regular old analogue tv. And people who know how to market. Now a
combination like that doesn't really exist and I think will ultimately
probably be masterminded by people who understand that tv itself is going to
change in the digital age and will be more like a computer. So it boils down,
I think in the digital tv age, you're probably looking at an alliance between
manufacturers of the telecomputer, software companies, creative people, and
people who know how to market. I'm not sure there's an alliance quite like
that anywhere in the world.
Q: If information is more valuable after the revolution, aren't those who
control it more powerful than ever?
RH: Well they're more powerful I suppose if you assume that they'll grab
their position and keep it forever but what you're seeing in the
communications revolution is that the half life of ideas is shrinking, the
half life of products is shrinking and the futures of companies are becoming
more uncertain, not more certain. If you believe in competition as I do,
that's all to the good.
Q: What happens if the public airwaves are controlled by a few provate
RH: You know there's nothing wrong with making money, but there's nobody in
their individual life who thinks that making money is all there is to living.
And it isn't correct that the only policy for this country, the exclusive policy is to let businesses do whatever they want. What is
correct is we rely on competition in market places to generate wealth. And
we also have a clear role for the public interest. The airwaves ought to be
used to deliver educational tv to kids. Telephone companies and anyone else
in the communications business, they have to have a requirement to provide
affordable service to everyone in this country. These are plain public
interest obligations and they ought to be maintained and kept up to date by
the FCC. Meanwhile for 98% of the energy that they have, these companies
can compete like crazy in the world of commerce and we'll get the best of
both worlds. Economic growth and the advancing of the public interest.
Q: What would you say to the consumers that would address the privacy question?
RH: Two answers, first of all there is going to be hardware and software that
people can purchase and install quite easily that will guarantee them all the
privacy that they possibly would want and second, as a last resort, you can
always pull out the plug.
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