Don't Lose Heart, Says Hundt

SAN JOSE, Calif. -- Opticon 2001 -- If he'd had a few more minutes to speak, Reed Hundt might have eventually got around to pounding the lectern, while shouting "Never give up! Never give up! Never give up!"

Like a general rallying the troops, Hundt's Wednesday morning keynote speech exhorted attendees at the Opticon show here to retain their confidence in the battered telecom business, and to keep battling to build the networks of the future, from which revenues will one day flow again.

Backing his words with some research from his associates at consultancy McKinsey & Company -- while flavoring his speech with regular touches of humor -- the former FCC Chairman tried to brush away the current gloom with his contention that the spoils will be there for those who build the products and provide the services for the smarter networks of the future.

"This is not the 'pet rock' business, where people are going to wake up one day and say I don't want these things," said Hundt, who is also chairman of Sigma Networks, a startup in the metro services arena (see Sigma Relies on Star Power).

"Demand [for telecom services] is not steady: It is going up as a factor of disposable income... We do not have a demand problem. We just have not, as a country, or an industry, gotten anywhere close to delivering the services and products the country demands."

Hundt laid the blame for the current market situation at the feet of the companies and investors who fueled the largely inefficient buildup of networks over the past few years, a situation that has caused the current scenario of too much bandwidth in the network core and too few compelling services to attract new customers.

The current long-haul overcapacity came, Hundt said, via "chaotic" network planning that was not rational. "It [the buildout] produced 14 intercity long-haul networks, which is more than we need and more than we can sustain."

While telecom-related capital expenditures were increasing from $41 billion in 1996 to $110 billion in 2000, Hundt said return on those expenditures dropped by 50 percent during the same period, showing that "people from the financial community didn't look at this chart."

Hundt, who was chairman of the FCC from 1993 to 1997, defended his legacy, the oft-assaulted Telecom Act of 1996. Though many detractors say the Act has created a market with less competition and higher prices -- the opposite of its stated goal -- Hundt said it's time to stop whining, and take advantage of the ability to compete.

"Nobody was guaranteed to win [because of the Telecom Act], but everyone can try," Hundt said. "When someone loses, it's always the law that was responsible. I don't know why it should be different for this industry. When PC companies fail, nobody says we should change the law."

However, Hundt did concede that government action -- or inaction -- is not in step with the rapid change that the telecom and technology industries deal with on a daily basis. Laying blame on slow courts and a current FCC administration he characterizes as "asleep," Hundt said telecom revolutionists need to have some patience to go along with their enthusiasm.

"Unfortunately, the kind of change we want is responsible for interminable litigation. The truth is, it can take five to 10 years to actually get policy in place."

Though not wanting to predict when a market turnaround might start, Hundt did offer McKinsey figures that foresee an 86 percent overall growth in IP traffic by 2005, as well as an increase in metro-market expenditures from $15 billion to $50 billion.

Service providers can make money, he said, by providing better services, especially on the operational and provisioning fronts. Better pricing, like that found in the long-distance voice market, also needs to emerge.

Long-distance voice providers have learned to "market with brilliance," he said, noting the multitude of pricing plans, which vary by time-of-day usage and other parameters.

"We haven't seen that yet in the IP business, to price services by time of day. I think it's just too soon."

While Hundt, an ardent Democrat, dinged the Bush administration for its lack of any initiatives on the telecom infrastructure front, he also said that the future lies in the hands of people like the Opticon attendees -- the builders of next-generation networking products and the service providers that use those wares.

"Think about this as a battle between packet-switch attackers and circuit-switch incumbents. And attackers take casualties."

But eventually, Hundt said, the attackers have the advantage, because they can build next-generation networks at a fraction of the cost of the incumbents. What keeps Hundt awake at night is the thought that the warriors might leave the field of battle too soon.

"What worries me the most is people losing confidence," Hundt said. "It's just a question whether we have the confidence to pursue these goals. Americans have shown they're willing to tackle problems that exist. This one can be tackled, and we're counting on you to do it."

- Paul Kapustka, Editor at Large, Light Reading

lightjudge 12/4/2012 | 7:57:06 PM
re: Don't Lose Heart, Says Hundt the Telecom Act is a total failure!
Brattain 12/4/2012 | 7:56:59 PM
re: Don't Lose Heart, Says Hundt I would like to see more articles that
anaylze why the optical bubble happened
and why we have this crash.

e.g., Milton Chang's comments and
some of Hundt's were interesting to

What I DON'T want to see is more chearleading
of how the market is going to supposedly
explode again, especially by those who
have an obvious financial gain in
pumping up the market, i.e., Caspian,
McKinsey(Hundt), etc.

our industry has too much hype, not
enough substance.

www.ins-group.com 12/4/2012 | 7:56:55 PM
re: Don't Lose Heart, Says Hundt Why did the optical bubble burst? Multi-million dollar (or Euro) question.

My guess is too much dumb money chasing too many ideas that claimed they could change the world. Like it or lump it, we need this shakedown to a certain extent!?!?!
SoftwareBoy 12/4/2012 | 7:56:54 PM
re: Don't Lose Heart, Says Hundt While Reed Hundt is an extremely glib and polished speaker, he isn't a quarter as brilliant as he thinks he is. An incessant self-promoter, he's the type that always points the finger elsewhere. If you want the real scoop on the great Telco disaster, read Gilder's recent op-ed. In five minutes you will know more about what happened then in ten hours of listening to Hundt.


Not that Gilder's not a self-promoter as well, naturally....

cfaller 12/4/2012 | 7:56:48 PM
re: Don't Lose Heart, Says Hundt I read Gilder's op-ed, and I'm familiar with Hundt's opinions as to what went wrong. Gilder proposes getting rid of the last mile subsidies, and Hundt proposes more aggressive regulation and, well, patience.

Both are right in that their suggestions are sufficient to improve the industry in the long term. Both are wrong in that none of these measures are necessary to keep the industry healthy.

What went 'wrong' is that the telecom industry transformed from a monopolistic economy to a competitive marketplace. In a monopoly environment, there is incentive to waste- the more money you spend, the more money you receive as your guaranteed rate of return.

Now, telcos have to answer to a higher authority- Wall Street ;), and as a result we are seeing the first telecom industry recession ever. The shakeout, however, is necessary and healthy for this industry- it weeds out the sick and the infirmed, making the herd better for it.
fk 12/4/2012 | 7:56:44 PM
re: Don't Lose Heart, Says Hundt It's an open question as to whether the current shakeout is going to be beneficial to future growth or not. Nobody's really sure if the shakeout in the competitive marketplace is going to have the effect of eliminating the competition to return the industry to the days of effective monopoly or not. The CLECs, may their souls rest in peace, at least caused the incumbents to consider upgrading their networks faster than the glacial pace of the pre- Telecom Act of 1996 oligarchies. Without the pressure of lost business to competitors, the industry is lacking the sort of engine needed to drive the incumbents to upgrade equipment and expand services. The ILECs were a pretty complacent and slow moving bunch before the prodding of competition. With the end of effective competition, they may just go back to the ways of old. We can hope not, but it's a very real danger. Hopefully, the remaining survivors will be capitalized sufficiently to continue to pressure the old guard into improving their networks. And we can expect companies like Qwest, Broadwing and Worldcom to impact things as well. I remain cautiously optimistic, but alert to the very real dangers that the loss of the CLECs represents.

l8tereader 12/4/2012 | 7:56:38 PM
re: Don't Lose Heart, Says Hundt Gov't could do a few interesting things:

1. Upgrade federal/local government infrastructure (i.e., becoming better, more proactive customers to the telco's - forcing them to change or moving their business to upstarts); an affirmative action plan for communications.

2. Subsidize outright the development of competitive networks - it would need to be tied to performance (like matching EBITDA PROFITS or something along those lines).

3. Breakup the local telcos themselves and force them to compete from an installed base of customers. This would also entail allowing each to compete in long distance as well w/o restriction.

My 2 cents.
willydog 12/4/2012 | 7:56:36 PM
re: Don't Lose Heart, Says Hundt Gilder is all style and no substance, a hype artist of the first order. Hundt's closer to getting it, but he's got big gaps, too. Look, this all became a stock promotion game. No one was doing any real investigation and testing of products, and they weren't applying any standards to the service businesses that were getting funded.

The sad thing is that once you really sift it all out, there are probably a few thousand people who really made big money on the speculation, while in real terms there is damn little to show for it. The whole country got itself involved in a Ponzi scheme, kind of like Romania after the communists fell.

This is going to take years to fix.

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