Hundt spoke to Network World Senior Editor Tim Greene about the pending mergers of SBC with AT&T and Verizon with MCI.
Reed Hundt was FCC chairman in 1996 when the Telecom Reform Act opened up local phone markets to competition. Since then, FCC rulings on how much competitors have to pay to the major local carriers to lease wires and switching (known as UNE-L and UNE-P) have pretty much choked off serious competition. Today Hundt is a director of Intel, an adviser to private equity firm Blackstone Group, and a consultant to business consultants McKinsey & Co. Hundt spoke to Network World Senior Editor Tim Greene about the pending mergers of SBC with AT&T and Verizon with MCI .
Is this what you expected when the Telecom Reform Act was signed?
The idea of the 1996 Telecom Act was that the big long-distance companies would compete against the local Bells in the local market and the Bells would compete against the big long-distance companies in long distance.
Well, the Bells have competed in long distance, but the outgoing FCC Chairman Michael Powell basically killed competition in the local consumer market. He put the kibosh on UNE-P and he altered the pricing for UNE-L and did a number of other things to discourage the long distance companies from making the necessary investments [in local networks].
It went against the congressional intent, and it goes against what anyone wanted. It’s exactly what Michael Powell wanted, to have these mergers take place. The irony is that his successor will now be one of the most important people in telecom history because his successor in reviewing the mergers may choose to attach conditions to any approval. And those conditions can be anything he or she wants. Anything. Literally. They have to meet some test of reasonable relationship to competition, but other than that they can be anything.
What conditions are you talking about?
There’s no telling whether the next FCC chair will want to attach conditions, but the most obvious one would be a condition to require investment in broadband.
Is that because broadband is being embraced more in Asia than the U.S.?
Everybody knows America is falling behind other countries in broadband. The obvious thing for any government to require is that these companies at their new huge size free from the burden of competition in the local market would plow more money into broadband. Specifically the obvious condition would be to give money to Lucent [and other U.S. broadband equipment vendors] to build broadband networks.
Does it seem to you that the structure of U.S. telecom is regressing to the monolithic model from before AT&T was broken up?
Before 1984 we had one had one Ma Bell. Now we have two Papa Bells [SBC and Verizon] one Mama Bell (BellSouth) and one Baby Bell (Qwest). So the family is definitely in its second generation or third generation. We used to have one huge phone company. Now we’re going to have two enormous phone companies and one middle-sized one and one smaller one. Plus, as always, numerous independents.
It’s a very big consolidation, and yes, it’s a very different industry structure than even two years ago. The question is whether government says, yes, whatever – or whether government says, yes, but here are some conditions.
