Tales of a Tele-revolutionary
Hundt failed to block the giveaway of second channels to TV stations, but he changed the rules of the DTV game
Staff -- Broadcasting & Cable, 4/9/2000 8:00:00 PM
A Broadcasting & Cable book excerpt
Early on in his FCC chairmanship, Reed Hundt visited John Dingell, then the powerful and intimidating chairman of the House Energy and Commerce Committee. Dingell shared some advice he received from a newspaper editor when he first ran for Congress: "Son, you're going into politics..Grow thick skin."
Over the next four years, Hundt would need all the layers he could get. He charged into the agency in November 1993 determined to advance Vice President Al Gore's telecommunications agenda, even if it happened, as it often did, to run up against the broadcasting, cable and telephone lobbies and their allies on Capitol Hill and at the commission. As he soon learned, policy debates could turn personal and required deft political and PR skills to win.
Hundt recounts that Dingell visit, the policy battles and his growth as a Washington player in You Say You Want a Revolution: A Story of Information Age Politics, just published by the Yale University Press.
The book weaves together several stories, in which Hundt and his lieutenants take on the Washington telecom establishment. Excerpted here is how Hundt, an antitrust attorney and long-time friend of Gore's, sought the FCC's top job, and how he used it to reshape Congress'and broadcasting's plans for digital television.
Hundt gets a new job
I had long wanted the opportunity of public service. Al's interest in promoting new technologies meant that it could be interesting and even important to be the chairman of the Federal Communications Commission. If the Vice President-elect wanted to cause change in this part of the economy, he needed someone dependable at the FCC. I decided to seek the post.
To broach the subject of my ambition, I had lunch with Roy Neel, designated to be Gore's chief of staff. [Neel is now president of the United States Telephone Association.] In the clatter of the cheap silverware and heavy china of the Excelsior Hotel coffee room in Little Rock, open to the lobby where other office seekers could see us, I could not hear what Roy was saying. I asked him to repeat.
He said, "It's kind of cold in Little Rock in November, isn't it? I was freezing at the election party. Did you think Al went on too long? It didn't seem to bother Clinton. They sure make a great couple of families."
Roy continued, "I wish we could move back to Washington right away. Have to wait for inauguration, I suppose; that's traditional. So Al will have to stay at the Colonial at least through Christmas. Then he's going to have to move from Arlington. He won't like that. Loves his neighborhood, and I hear the Vice President's mansion is a rat trap, wind blowing through the clapboard."
He explored his soup with his spoon. "Now who do you think should be Secretary of Education or Labor or HHS?" he asked. "The Governor, or President-elect-whichever we're supposed to call him-asked Al this morning."
Ignoring his question, I made my move, "Roy, I would like to be chairman of the Federal Communications Commission."
I explained that as Al's lieutenant at the most important communications agency, I could effectively implement his agenda. And, I added, from the work of Bob Reich's committee I could tell that the new Administration would want to promote investment by pushing a pro-competition agenda. In that event, an antitrust lawyer like me would be the right sort of person for the job.
"What's your second choice?" asked Roy, as he brought the bisque up from the bowl.
"There isn't one."
'The biggest disgrace'
In response to the Japanese HDTV threat.in 1987, American broadcasters persuaded the FCC to give each local television station a second channel (or additional six megahertz of spectrum) for high-definition and a standard-definition broadcasting in analog. In theory, broadcasters would simultaneously transmit a high-definition version of their signals. When viewers compared the sharp image of a show with its normal image, they would replace their old sets with new, high-definition home theaters. It would be like color's rapid replacement of black-and-white. When all 100 million households had swung over to HDTV, the local stations would shut off the old standard definition broadcast channels and return the spectrum to the government. It was an insanely complex scheme. Its unraveling, however, came not from its complexity, but from the source of so much other change: digitization.
In the course of development of HDTV in the United States, as if by accident, engineers applied the new magic of digital technology, rather than analog, to over-the-air broadcast. They found that by sending packets of digital information, coded in bits in the frequency of the wave transmitted over the air, they could communicate much more information than in analog broadcast. The big point of the crucial new discovery was that by digitizing and compressing the signals, over a single channel's worth of spectrum, the broadcasters could deliver not just one but a total of six simultaneous programs in traditional or standard definition.
With the extra carrying capacity that digital technology enabled, the FCC could order whole new channels to be dedicated to such public purposes as educational television. From the cornucopia of new digital broadcasting channel, political figures could be given free time for addressing voters: we could reform the campaign finance process.
The NAB told Congress that the industry was only borrowing the second channel and would use it chiefly for high-definition. After everyone in the United States bought a high-definition television, they said, the broadcasters would return to the government the analog channels they currently used.
I never met anyone who truly believed that the broadcasters would give back the analog channels. In the foreseeable future, Americans were not about to throw away their 200 million analog televisions, so broadcasters would not stop sending signals to these televisions. Nor did anyone truly think high-definition televisions would supplement analog televisions-not at several thousand dollars a set to watch the exact same shows available on existing televisions, albeit in a sharper resolution. We had inherited a crazy policy.
Ironically, the spectrum was intrinsically valuable for mobile communications, if not digital television broadcast. It could be auctioned for billions if Congress did not limit its use. But Congress, broadcasters, and previous Commissions were bent on giving analog television station license holders the gift of the so-called second channel. This would be the largest grant of government largesse since the 19th century donation of 10 percent of the public land in the West to three dozen railroad companies in order to persuade them to build transcontinental railroads. Yet unlike the railroads the recipients had no plausible business plans for using the boon from Washington.
On a torpid day in July 1994, [aides Judy Harris, Blair Levin] and I went to see the latest HDTV demonstration in a studio somewhere in the trackless reaches of northern Virginia. The technicians and lobbyists running the demonstration would not let me sit in the back. Nor was I permitted to sit in the front, although all the seats were empty. They wanted me 12 to 14 feet from the screen. Why? Because only at that distance could one appreciate the vividness of the "high-definition" picture on the huge screen before us.
"How many Americans put their couches 14 feet from the TV screen?" Blair asked the broadcasters'representative.
"An increasing number," said the lobbyist, with practiced certainty.
When the demonstration ended and we were on the way back to the Commission, Blair said, "This spectrum giveaway could be the biggest disgrace of your chairmanship."
A visit to Redmond
In March 1995, Blair and I went to Seattle to meet [Bill] Gates and his [Microsoft] team. Our Baby Boomer politics was on the defensive in the other Washington, whereas Bill Gates and other PC revolutionaries had become the new powers of American business. My immodest goal was to persuade Gates to align his corporate interests and the public good, and then exercise political as well as business leadership. Specifically, Blair and I wanted Microsoft to block the hi-definition television channel giveaway and to break the grip of broadcast television on the country's politics.
If Gates led the software industry into battle with the broadcast lobby, then it was possible that the FCC could escape from the hopeless congressional plan of creating by regulation a national high-definition television market. With the power that would come from the wealth of the software industry, Gates'celebrity, and the installed base of personal computers, we might be able to persuade congress to let the FCC write rules promoting instead a national over-the-air internet access network-ubiquitous, rich with both entertainment and educational content, perhaps even, like broadcast television, free.
The staff of six that arranged my trips turned down a dozen meetings for every one held. They negotiated time, place, and agenda for the agreed upon events. Gates had at least as many go-betweens. For me to come face-to-face with a business leader was like Stanley discovering Livingstone after bushwhacking through a jungle of disparaging lobbyists, problem-generating lawyers, personality-disguising public relations advisers. But discovered in the clearing of the small, plain office, and at last left to his own inclinations, Gates was affable, engaged. [Microsoft executives Nathan] Myrhvold and [Bill] Neukom were involved, but Gates was in charge.
"Those auctions were successful, weren't they?" he said politely. Everyone in business was impressed that the Federal Communications Commission had become a profit center. I thanked Gates for the compliment and pulled out the stack of diagrammed pages, called "slides" in the business world, for our presentation.
Blair and I laid out bar graphs, pie charts, and revenue forecasts that showed that the airwaves Congress would force us to give to the broadcasters were worth perhaps $10 or $20 billion if used by entrepreneurs to broadcast voice, video, and data in digital formats that were compatible with the new data networks. But they were perhaps worthless if used for broadcasting hi-definition signals, one per channel, programs for big screen televisions that would cost so much that less than one percent of Americans would buy them.
If those who bought the spectrum at an open auction could ignore the networks'deal with Congress and abandon hi-definition television, they could transmit digital information to PCs. Already Americans spent more money on PCs ($2,000 each) than televisions (average price $300), and soon even PC unit sales, not just revenue, would surpass television sales. Not only was the world going digital, it was heading toward computerization and broadband. Capturing the value of these trends, a continuous local digital stream-to PCs, cable head ends, telephone company central offices, dishes on residential rooftops-could engender dozens of entrepreneurial business plans. As for traditional analog television-the medium that dominated Baby Boomers'childhood memories, and fifty years of advertising and politics-our proposal was to let it alone. I suspected that many digital media, especially cable, would steal its audience, but the best government policy would be to allow the attackers to take their chances, while giving no handouts (like the digital television spectrum) to the incumbent defenders.
Gates rocked in his chair. His eyes magnified by his glasses, he stared at me, and asked urgently, "Does anyone else know about this?"
Only a thousand lobbyists, I thought. But I reported accurately, "The digital television giveaway is not the subject of national discussion."
Then Gates explained with brilliant clarity the half-dozen reasons why he agreed that the broadcasters would never make a successful business from digital television despite the spectrum gift: extra cost, no new advertising revenue, insufficient bandwidth per licensee for downloading software, lack of vertical integration, no two-way communication. His reasoning was far more compelling than our presentation. I believed at least we had his interest.
"But you could turn this mess into a good opportunity," I said.
He leaned forward and glanced at Myrhvold, who nodded.
"We'll have to look into this," he said. That was enough of a day's work, I thought. I did not raise the goal of connecting classrooms.
When we emerged from the Microsoft maze, Blair and I swam in the optimism that the richest man in the world might mount a political advocacy campaign for our ends.
Later in November , a Microsoft lieutenant came to the eighth floor for final negotiations with the NAB on a new technological standard for the transmission of the signal. Gates wanted broadcasters to use a particular protocol that would make the digital broadcast in a manner suitable for display on a computer screen. In addition, the Microsoft solution would be easily compatible with their software, which they wanted to inject into every new "digital" television receiver made to view these new signals. I had suggested that Microsoft should finance the building of the digital television broadcasting towers that each of the country's approximately 2,000 television stations had to construct. This would cost Microsoft at the most about a billion dollars. In return, broadcasters would accept Microsoft's preferred transmission standards. Microsoft negotiated hard, but offered nothing to broadcasters. The broadcasters preferred their own standards. None of the other commissioners was willing to override the NAB on the issue. Finally, we called a halt to the negotiations and compromised on no governmentally mandated standard at all. This result is what my team had favored all along. If Microsoft had not won what it wanted, without their help we could not have obtained our desired result.
In early January 1997, I sat with my team in one of our early morning conferences and read out loud an article reporting that I was a "spineless weasel" because of my refusal to block the giveaway of digital television spectrum to the broadcasters.
Blair responded, "No one thinks 'spineless' is fair."
A giveaway with strings
In March , congressional leaders wrote to demand that the FCC expedite the gift of digital television licenses to broadcasters. We had persuaded the editorial pages of most large newspapers in the country to opine in favor of auctioning the licenses. But editorial page consensus against the giveaway had not altered congressional ardor for it. Bob Dole and Barney Frank had been almost our only vocal congressional supporters. The former was now a Washington lawyer and the latter could not protect us from the entire Congress.
We wanted to eliminate the Commission's commitment to ordering high definition television. We believed that the best use in the marketplace for this spectrum was not, in any event, video broadcast. Instead, it was for high-speed access to the Internet, also more generally called wireless data. This particular swatch of spectrum (frequencies of radio waves) was ideal for penetrating buildings. (That is why you can watch television indoors!) Consequently it would be desirable to use this spectrum for wireless connections from laptop computers.
The solution was to eliminate the FCC's requirement that the digital licenses be used only for video....Two years later, as we predicted, broadcasters began to discuss publicly the possibility of using the new licenses for data transmission. If we had auctioned the licenses in the first place, as we wanted, the auction winners would almost certainly have been firms that had wireless data business plans.
Our last point was to demand that the broadcasters use the spectrum. As we approached the moment of actual giveaway by rulemaking, the NAB explained that it was unwilling to promise that any station construct digital broadcast facilities in the near future. We took to the press the story that broadcasters wanted gifts but then would not unwrap them. The other commissioners took the NAB's side, but we bluffed commissioners [Jim] Quello and [Rachelle] Chong into thinking that we would postpone the spectrum giveaway until after the April NAB convention. That distressed them. They wanted to be thanked at their last NAB. They voted for our compromise package.
We also insisted on getting back from broadcasters twice the amount of unused spectrum the previous Commission had sought, speeding up the build-out, and in all other respects eliminating the government-mandated planning for what broadcasters would do with the licenses. Although we had not been able to prevent the entire giveaway of spectrum to the broadcasters, we had achieved most of our objectives. On the eve of the  NAB convention, the FCC issued the digital television rulemaking and finally gave the licenses for free to the broadcasters. The broadcasters are now on their own in the marketplace, wondering how to use the spectrum instead of depending on the government and the NAB to tell them what to do.
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