Q & A With Former FCC Chairman Reed Hundt

He may no longer be the FCC commish, but when it comes to matters telecom Reed Hundt is always worth listening to. The gracious Mr. Hundt, who wears many investment and advisory hats (in addition to his "day job" as senior advisor to McKinsey & Co.), sat down last week with Networking Pipeline for a "fireside chat" at the Stanford Court Hotel in Palo Alto, on topics ranging from the apparent ecomomic recovery to why VoIP needs a new acronym and no regulation.

Networking Pipeline: Is this a real recovery? It seems like telecom and networking is finally waking up again.

Reed Hundt: There is definitely that familiar smell of boom in the air again. I think that booms are innately about exuberance, as opposed to rationality -- although they have to have the seeds of rationality in them. I think that if we are going to have an uplift, it would be good if it did not also involve a corruption of trust, as occurred previously in the '90s. The one lesson we should take from the last boom/bust cycle is that you can be in a boom or in a bust, but you ought to be honest.

Having said that, there's nothing fundamentally wrong with exuberance. Honest exuberance is a darn good thing, and the smell is in the air again. I'm referring in particular to wireless, wireless broadband, and also the core notions of software, at last, really moving into the Web. There's also the obvious progress of Linux, and the creation of whole new distribution chains and a whole new space for service... just as you like to see, in a period of hope and uplift, these things are all distantly related, all variations on a theme. What is the fundamental theme? More and more bits, more and more users, greater and greater penetration in the domestic space, in the enterprise space, and on a global level.

It's exciting! Everyone's sweated through nigh on three years of wondering whether or not they could keep their job and enjoy the next uplift. All the survivors are pinching themselves, looking around the room to see who's still standing, and then deciding it's time to walk tall. That's the way it feels to me.Networking Pipeline: The last time we talked, a few years ago, you were talking about the prospects of bringing fiber to the home. Are you surprised at the rapid acceptance of broadband services?

Hundt: What's extremely interesting is the long-desired convergence of data and voice, which has naturally been given an acronym that would be meaningless to the user, VoIP. The way I like to think of it is as "broadband voice." I think it's better to talk about it as broadband voice, because what it means is you have broadband, and you get voice along with. That's what it is.

[And] Government should no more think about regulating the bits that are voice than they think about regulating the bits that are music or the bits that are a web page, or software that is downloaded from a server.

Of course, this is a sea change to say to this huge apparatus of regulation designed for the very lawful and legitimate purpose of building a web of communication that creates a common culture -- to say to this apparatus at the state and federal level that "we don't need you anymore," because bits are bits are bits and all we need is broadband -- their appropriate response is, well, not everybody has broadband.

But if you do the math, very simply, on the back of an envelope -- if I'm paying 40 bucks a month for two phone lines and willing to pay 20 bucks a month for broadband access, that's $60. Would $60 a month, per household, be enough money to float real broadband, "big broadband," as I call it? At speeds of 10 to 100 Mbps? Sure it would. For 60 bucks a month, times 100 million households... that's $6 billion a month, $72 billion a year. What we need is to have the business models converge to fit this opportunity.Networking Pipeline: And as you've said before, the demand for big broadband already exists.

Hundt: You bet. Now [the question is], who's going to provide it? We have a market structure problem, we've got some regulatory issues about the ability for consumers to buy broadband voice when they want it, instead of circuit-switched voice, which they might not want. Because when you buy broadband voice you're going to want to phone somebody on a circuit network, and you're not going to want the regulators to say, "to do that, you've got to pay access fees." You want to make a broadband voice phone call at the same charge as if you went to a web page and downloaded text -- which is zero.

So that's a huge regulatory issue. If the regulators say, "well, we sort of want to regulate VoIP," my view is: Be suspicious, be wary, be alarmed, be worried. Because what they should say is, we have no more business interfering with the flow of bits that are voice than we do with the bits that are the picture you sent to somebody to see if you can persuade her to go have a drink with you because you were connected by Match.com. That's personal, and the voice call also ought to be personal.

Networking Pipeline: But it's not that easy -- there are lobbyists, big companies with entrenched positions that stand to lose a lot...

Hundt: It's simple to figure out where you stand. If you really believe that the Internet for economic reasons and for cultural reasons, ought to be the medium that ties our culture together, and creates the web of meaning that gives a purpose to life... if you really believe that, it should be really easy to fly like a hawk over the regulators and say, don't you do that -- don't you have intercarrier charges for connecting between the broadband voice and circuit-switched voice networks. Don't you tell us that people can fiddle around with the software protocols, and make the Internet not really work when it's voice. Don't you tell us that you're going to identify voice packets, and have them carry an extra charge enforced by the government because there's going to be a tax system on voice packets, [something] that you would never enforce on someone downloading packets from Amazon.Networking Pipeline: I'm not sure the current FCC makeup is for or against more regulation, as much as they seem to be for big businesses.

Hundt: The good news is, that the power of the Internet is such that the regulators at the FCC and for the most part at the state level are afraid to say that they want to regulate the Internet. the trick is, it's important that those who believe of the economic efficiency and cultural benefits of the Internet have to understand that there are three key, unfortunately obscure issues that they have to worry about:

Number One: Inter-carrier compensation. In the dawn of cellular telephony, could you call a wireline phone? Absolutely. Why? Because your FCC stepped in and said the intercarrier charge was very very low. So the network effects of the base of telephony users on the fixed lines were shared with the new wireless companies, who could take advantage [of it] by offering their customers cheap access to 200 million fixed lines.

You've got to have the same thing with broadband voice or it won't go anywhere. You need to be able to take a broadband voice call from cable or DSL, and place it on a circuit-switched line without paying a meaningful charge. I'll compromise: Point 1 cent a minute would be fine. That's .1 cent, not 1 cent, per minute. And not 10 [cents per minute]!

Number Two: It's got to be possible for the user to be sure, no matter who their broadband provider is, that they can go to the Internet, and can make a voice call anywhere. There have to be industry practices about openness -- whether they need to be enshrined in regulation it's too early to say. They need to be charged to everybody, so you can have multiple software application vendors actually hatch applications to a voice protocol. That's what a conference call is. If we're going to replicate the human experience, it's going to involve lots of different applications. We need to have them be based on the same precepts of the Internet that we now know and love, but sometimes forget.Number Three, and not last at all: We can't have it be that the new media will be taxed to support the old media. You shouldn't have to pay a tax for broadband voice any more than you pay a tax to download... what's her name, London Ritz, or Paris Hilton, or whatever her name is.

Those three things -- the whole Internet community, if I could just get everybody to say yeah, yeah, yeah, and send a hundred million emails to all the regulators, saying just take care of those three things and let the market go, we'd be fine.