Yochai, Les Valdasz and Reed Hundt Panel

(entry last updated: 2003-07-01 18:38:32)

(While waiting for the session to start, read this Slashdot flamefeat: Bill Gates On Linux, responding to this USA Today article: Gates on Linux – an astounding rewriting of the past 20 years of PC history!)

Larry has called us to order…. (Donna’s notes here)

A panel discussion today from Les Valdasz (ex-Intel) and Reed Hundt (ex-FCC chair, currently at McKinsey). This afternoon we turn from theory to practical. Larry and Yochai will also cross-examine

(Sorry – Reed Hundt has asked that the postings of his statements be taken down, so I have to put in some work to sanitize this posting. It will be back, but I won’t get to it until tonight…)

Reed Hundt’s office called to request that his remarks be removed from blogs, because apparently he did ask not to be quoted. I realize this is a toughie and that most people don’t like to remove things they’ve blogged, but it would be great if you could consider removing his portion of your entry.

OK – here’s an attempt – note that I will be running this past the Berkman’s to make sure they’re OK with it. But, for the moment at least, my notes are back.

(Since Reed Hundt asked not to be quoted, the following is going to be an interpretation of some of the key things that I thought he said. It should be noted that these are my thoughts on what I thought I heard, and I am the only person responsible for the ideas expressed – you have to rely on my interpretation, which could certainly be wrong, and Mr. Hundt should feel free to contradict me as he sees fit – FRF)

Reed Hundt’s opening remarks were largely focused upon a set of concerns arising out of what appears to be a wholesale reversal of course in the FCC’s actions over the past three years. While the period preceding those three years was certainly not perfect, there were many actions taken that strove to ensure that a competitive market for communication services would be maintained.

In spite of these efforts, the telecomm business has seen essentially no real revenue growth, outside of wireless. Compared with wireless, internet revenue is not even on the radar. Moreover, most of the overall revenue growth in telecomm has not been captured by the carriers; rather, the big winners have been the hardware companies with good technology assets.

The lesson from wireless is that the traditional carriers didn’t make much from the new technology; yet the internet business is being constrained to support the entrenched network owners (cable and telephone) in direct contravention of the lessons of the success of the wireless market. Moreover, a duopoly has been created, where wireless was about offering access to many more firms. And, we have allowed these established firms to use revenues from other business units to support their internet businesses, violating yet another lesson learned in wireless.

The reasons for the creation of this structure remain cloudy at best – there doesn’t appear to be a clear rationale, or a policy imperative that has been articulated that this set of actions would require.

Moreover, there are some policies that should be revisited. In no particular order, these include:

  1. Mandate interconnection at the broadband provider level. Access should not be something that the provider can turn on or off at the provider’s discretion

  2. Universal service for broadband should be promoted rather than subsidizing voice interconnection

  3. The Antitrust Division of the DoJ should revisit the current presumption that vertical integration in telecommunication is not harmful. (Aside: Certainly not if you believe Yochai’s layer model!)

  4. And maybe spectrum should be auctioned to hardware makers, who then supply hardware to intermediary service providers – then the price of the auction is reflected in the price of the hardware and the technologies embedded to emply that spectrum.

====== End of Summary of Reed Hundt’s Opening Remarks =====

Les Valdasz: I have never been in a room with so many Apple logos facing me as I speak – *laughter*

I want to talk about how one firm has worked to push wireless. And you should know that I was not been a believer in wireless for a long time. Seeing the rise of the voluntary hot spot, however, I have seen that there is something real there.

A surprise that the innovation has led to this kind of reliable access. I’m not going to argue that it’s not great to have wireless for your PC – or even your Mac! It is, of course, but getting there is not terribly straightforward. It’s not just designing, building and supplying a product. We already had 10,000,000 cards out there; yet there is still lots of ad hoc issues facing those who want to get on the wireless nets today – even with this standard.

Participation in standards committees are needed, so Intel is now a part of them. But you also need to engage the community of users. We do this in several ways. First, we put lots of money into firms in the wireless ecosystem, to promote development of much of the necessary glue – security, antennas, etc.

Before we got to Centrino, we had 15,000 easy access points installed that would work without hassle with our tech. We want to get many more of these access points out.

While we’re doing this, the government issued a report that wireless was unsafe, insecure and unreliable. Terribly helpful, of course. So Intel had to invest in a host of associated technologies, and we made sure that it would work by ensuring that Intel ate its own dog food – wireless is available at every Intel site. Secure enough for work, and probably better than many wired locations in that respect.

Regulatory agencies are unavoidable in communications. There are some needs that emerge out of this effort. We need more unlicensed spectrum. It would be nice if this were reconciled across jurisdictions, but we could cope. It would be really nice, however, if spectrum policy were to reflect the state of the technologies available – in particular, the concept of the non-interfering use of spectrum otherwise allocated is an opportunity that the FCC does seem to be moving toward, albeit slowly.

Ubiquitous access is thus possible; where does that take us? 802.11 is short range, something else is longer distance (I missed the number). This could upset the tragic inadequacy of the current home broadband capabilities; and thus opening up a host of new applications – VoIP, entertainment, etc. It should be that one can just buy transport, with applications supplied by a wider range of competitors than we see today.

With luck Centrino pushes us toward this future.

Larry: OK, Les, tell me what you think about what Reed had to say about how the dinosaurs are defeating the innovators.

Reed told a terrible story; will wireless be allowed to blow these dinosaurs away? Will the political fight go your way.

Les: I am not politically savvy; and you ask a great question. The vision of the current participants are seeing the world as it is, rather than it might be. The Internet may very well need its own infrastructure (!). Municipalities are probably going to be the needed base for this sort of political action.

But, it may also be that the Verizons of the world will get interested, and the land grab weill be on. We have an opportunity, perhaps.

Yochai: The DoD seems to be playing around with Congress in spectrum allocation, negotiating some sort of non-interference/operating restrictions game. Similarly, the unused TV spectrum in particular localities that could be shared right now, so a software radio can be used on otherwise allocated spectrum. And we have Verizon giving out WiFi spots at payphones being used as a selling point to getting you to subscribe to Verizon DSL. Three areas where there is action. Are there opportunities/pitfalls?

Les: This is clearly an example of the chaos I spoke about. Intel should do a deal with Verizon – more access is better; I have no idea if they are doing so. More spectrum is nice, but we need to makethe most of what we have, too. Since it takes along time to move the government, and a short time to innovate the technology, we need to do both.

And a small plug, again, to get away from the nonsense of spectrum auction.

Reed: Here he says something about the idea that technology owners who can put that technology into hardware make the money these days. And he doesn’t see that giving away spectrum works any better than selling it.

Larry: Let’s get back to the point Les made about life within the technological world of rationality. But how to get Washington to understand the land grab that he fears?

Reed: Here he says that almost anything could happen – maybe even the cable and telecomm companies can learn to innovate in this space. And maybe spectrum is not getting priced correctly, not to mention that unlicensed spectrum still is costly to manage, a cost being borne by the hardware buyer

Les: I know more about the computer side rather than the dynamics of the communication area. But, the mainframe companies would never have gotten into the PC business without competition. It’s very hard to engineer change from within a business. How can one create competitive pressures to the the firm behavior that is needed to innovate? We need market pressures.

Reed: He agrees to the need for market pressure – that’s what leads to innovation. But the government should intervene as little as possible as they work to induce that innovation

Larry: But we’ve failed, as you’ve said, in the broadband context.

Reed: We’ve collectively reacted oddly to the flight of capital from this market. Just as the response to the Depression was the creation of agencies to create scarcity so that there was a return to capital investment in communication (that’s what the creation of the FCC did). Do we want to create a situation where there are more opportunities to lose money in this market?

A question on vertical integration: Reed points out that the antitrust perspective today doesn’t believe that there is a real economic loss to vertical integration. In network markets, this ought to be revisited.

A question about capital flight from telecomm; it seems to be about foolish decisions, not about interconnection: Reed suggests two models; the government creates a ubiquitous network, or one where interconnection is required. In the latter, more capital is saved.

Q: we spoke of how pipe owners could exert control over content. What might the FCC do today to avoid this problem? Open access or something else? Reed says this is just too hard to solve – there haven’t been good answers to managing this problem at the regulatory level. This may come down to a question of what sort of distribution model should exist?

I’m not sure I really managed this one well, and I didn’t get to ask my question, so you get to see it here: Les talks about the need for market pressure to promote innovation, and Reed is really happy about markets. Is it possible that part of our problem today is that we are seeing the development of markets that don’t exert the necessary pressure?