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.

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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 for.

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 industry.

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 those things.

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 media.

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 companies?

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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