You had to know it would happen: Reed Hundt is having his say in a recently published book called You Say You Want a Revolution: A Story of Information Age Politics (Yale University Press). In "Chapter Four: Learning the Ropes, April 1994 to July 1994," Hundt learns the perils of bantering argumentatively with reporters (they print what you say) and basks in published praise from Barry Diller after agreeing to tweak rate regulations on Diller's advice. He easily recovers from a hyperbolic fatwa issued by John Malone in a national magazine. And he takes to heart a philosophic bromide from Ted Turner.
It's not what you do ... It's who you know and the smile on your face!
-Willy Loman in Arthur Miller's Death of a Salesman
As I was driven in the chairman's official Buick to The Washington Post, I saw flowering in the street-side gardens of April the pink and many-petaled peonies that suggest optimism. My host and the newspaper's chief owner, Katharine Graham, the grandest figure in Washington, explained that it was the Post's tradition at these "newsmaker" lunches to serve a fine meal to the dozen writers and the target guest, but not to give the guest time to eat. All at the table laughed at this oft-told tale. I assumed Mrs. Graham was kidding, but as I took knife and fork to my plate, a business-page writer opened fire:
"There's no doubt you've tremendously hurt the market value of the cable industry just when the businesses needed to raise tremendous sums to compete with the telephone industry. Wouldn't you say the 1992 Cable Act was misguided, and that you made it worse by taking this extra bite out of cable prices?"
Possibly because I was hungry, I felt rising in me an unstoppable will to argue-always a dreadful mistake with the print media. I said cable was not as bad off as cable said, for three reasons.
"First," I said, "there's an inflation price increase in September, so the rate reduction is half as bad as you say. Second, because of our regulations, consumers are much happier with cable-service quality than ever before. Third, with lower prices, cable is getting more subscribers and making more money from increased penetration."
In the wake of the "lunch" meeting, the Post reported that I said cable should be "grateful" for rate reduction. Even I thought the quote made me look like a fool. At the 8:30 a.m. staff meeting, with the miserable story in hand, I asked [FCC chief of staff] Blair [Levin] to write a correction letter.
"Sure, boss," he said, "I'll just ask them to print that cable shouldn't be grateful to you."
Later that week, the reporter from Broadcasting & Cable magazine asked if I knew anything about business. "I understand business better than any chairman this agency has had, probably ever," was my response. This they printed in large type.
I asked Judy Harris [director of the FCC's Office of Legislative and Intergovernmental Affairs] to write a correction letter to be printed in the magazine. "Sure," she said. "I'll just write that you don't know anything about business."
Blair said, "The White House is buzzing over these quotes." A chief of staff introduces bad news by talking about what others are saying.
"What are you saying?" I asked.
"I think we may be getting some visitors."
A legion of longtime Democratic operatives, moderate Republicans, former officeholders and not-on-deadline reporters came to counsel me. Blair spread the word that I was prepared to listen. More friendly advisors visited. All explained that I was distant, stubborn and disagreeable, although all flayed my thin skin most solicitously.
The best and kindest visitor was Barry Diller. I had not seen him since [Vice President] Al [Gore's] UCLA speech. His bid to buy Paramount had failed, but now, I was told by intermediaries, he hoped to persuade me to support a clarification of our cable regulations that would encourage cable companies to carry QVC, his shopping channel. I invited him to lunch with Blair and me in my office.
"I can't believe it," Diller said as we sat down. "They always do this."
"Is something wrong?" I asked.
"This is what happens when you have a public image," said Barry sonorously. The fluorescent lights of the chairman's office glistened on his pate.
"I am, you see, well known for some things. People believe they know what I like." And here, he chuckled, a sound like sea waves retreating from a breakwater, "People are so dumb."
The intimate tone of his voice implied that the term "people" meant everyone outside the room.
Then the denouement. "Once someone wrote that I liked egg-salad sandwiches. Now wherever I go, that's what I get for lunch," he said, chewing on the word "lunch" as if it were a piece of lettuce inserted along with the egg. "It's boring," he added. How many hours, I wondered, had others devoted to apprehending Barry's desires for food?
"I had dinner with the president," he continued. "The president asked for my views on the proposed new telecommunications bill. I wrote him a memo. I do almost all of my own writing. It takes time. I have to get it down in a way that I'm comfortable with." His voice grew very low, as if he were saddened by the difficulty of the creative process.
Diller told us how David Geffen, Jeffrey Katzenberg and Steven Spielberg were advising the White House, using their creative skills to help define a new kind of presidency. Diller was pulling back a curtain on a world of opinion shaping and decision-influencing.
In our tumbledown offices at the commission, we tingled at any news from 1600 Pennsylvania Ave., three blocks east, five blocks south and a vast political distance from our dumb sandwiches. I hoped, as I listened to Diller's tales from the great world, that he might tell his friends in the White House that I was not as impossible as described in the press.
Then Diller swooped down, with eagle eyes, on his issue. "I can't believe anyone except an idiot would interpret the Cable Act any other way than the way we see it," he said. "Obviously, a shopping channel can share its revenue with the cable operator without violating your cable rules. Audiences need a clarification of your cable rules in order to get QVC on their cable systems. We get a channel by sharing sales revenue with the operators. If an operator has to subtract our payment from its subscription rates because of the workings of your rate-regulation formula," he waved his hand at the silly workings of the formula, "they won't carry the shopping channel. That's a crazy result."
I was totally persuaded. It would be crazy to write a rule that had such effect. The previous commission had interpreted the Cable Act as mandating that the commission's rules should discourage cable operators from carrying shopping channels. This attitude seemed to violate the First Amendment, and it was snobbism, as well, although it did demonstrate the power of FCC regulations to shape markets. Our rate regulation had unintentionally perpetuated this policy. I decided to correct the error.
Diller's visit marked the first time a major industry executive had made a persuasive argument that had changed my mind. Perhaps I could listen; perhaps this was the way "Mr. Chairman" was supposed to do his job.
Since the creation of administrative agencies to write detailed rules, Congress has routinely passed general laws that contain ambiguous and often contradictory provisions. In its rulemakings, the FCC dealt with the hard details that Congress had delegated away in the law. Indeed, it was as if we were Congress, only far more obscure and not elected. It was right and proper, then, for me to try to bargain with industry leaders on these hard details, not like a judge, but rather like a legislator.
In such negotiations, any agency has the opportunity to turn a poorly written law into a good piece of legislation. Or it can strip even a fine law of significance. The commissioners of the agency can do the right thing without fear of political retribution because they face no elections and they need not raise money from business to buy advertising time. Or they can do the wrong thing with little risk of attracting attention from the public. Most surprising to me, they decide right and wrong primarily by their own standards.
The next day, I read Diller's assessment of me in The Washington Post: "He's getting crucified. I think he's much more sensible than he's been given credit for. I say, give him time. Let's see if he can balance the intentions of Congress [and] the muddled voice of the [Clinton] administration into a coherent regulatory agency." The lunch had gone well.
But Diller's comment only briefly interrupted my streak of bad press. Business Week reported that I was "Clinton's lightning rod." I flipped the magazine into the wastebasket and plodded, reluctant as a man headed to court for sentencing, down the hall to the elevator. I was bound for New Orleans that May, the site of the annual convention of the National Cable Television Association.
That evening, Blair and I dined with the cable industry's leaders: avuncular Amos Hostetter of Continental [Cablevision Inc.]; soft-spoken Brian Roberts of Comcast [Corp.]; and subtle [NCTA president] Decker Anstrom, one of the few Washington lobbyists who always showed that he understood the listener's perspective. (Indeed, he often figured out my point of view better than I did.)
They brought their investment banker and their commercial lender. Each explained that I had killed private investment in the information highway and-surely without malice, or even though aforethought-wrecked the administration's communications policy.
The next day, I addressed at breakfast the top 150 executives in the industry. Feeling the chill of disdain in the air, I tried joking my way into rapport. "I hope the rolls are nailed to the table." "Is it true that everyone else is also wearing Kevlar?" "I'm coming to praise cable, not to worry it." The substance of my speech was not threatening, although not apologetic.
The rustle of napkins, the tinkle of an occasional fork against glass in the hushed room and small suspicious laughter composed the response. But the questions from the audience, although not friendly, were not hostile.
After the speech, I walked the gauntlet of the convention floor. Programmers explained that they could not get carriage on cable systems because rate cuts caused operators to cut back plans to expand the number of channels. None were happy with me, but all talked to me.
I inferred that the most important fact about the cable convention was that I had attended. I had given an unhappy constituency a chance to petition its government. No one expected me to backtrack, but all felt that I owed them a personal appearance, and they got it.
MALONE SHOOTS FROM THE HIP
In the summer of 1994, the cool thing in the information sector was to get interviewed in Wired magazine. How could John Malone, the president of Tele-Communications Inc., turn down the chance to be on the front page of the July issue, pictured with his grinning face on the body of Mel Gibson's character from The Road Warrior?
As he was always prone to do, Malone let it rip in the interview. When asked by Wired what would be the best way to get the information highway built, John verbally threw out a hip in John Wayne style and said, "Shoot Hundt."
Standing in my office, holding the magazine in my hand, I said, "This is strong stuff. How do you think he meant it?"
"I have an idea," said Blair, who, like all chiefs of staff, treated most of my questions as purely rhetorical.
Blair told the wire services about the printed threat made on the life of the chairman, guaranteeing that the Wired story was reported throughout the press. Reporters from the major newspapers asked if Malone had called to apologize. Blair responded sorrowfully in the negative. This led to fairly widespread coverage of TCI's failure to express regret.
Malone's Washington representative called to say he regretted his boss's statement. Blair explained that he could not necessarily stop an inquiry into the seriousness of the threat, although he was sure Malone was guilty only of a poor choice of words. The FBI, he suggested, might not take lightly threats against the life of a government official. He said the chairman would be pleased to hear from Mr. Malone directly.
I received a letter from TCI's Washington representative that reflected careful crafting to avoid a quotable expression of remorse. Blair told reporters Malone had still not called. They raced to ask TCI if the company was intentionally insulting the chairman.
Pressured by the reporters and doubtlessly advised by his lobbyists that he had lost this media skirmish, Malone at last called me.
Affable and direct, he said, "I went too far. I need to apologize."
"I accept," I said.
I told Malone I would have to tell reporters he had called. "I suppose so," he acknowledged. After the story of his apology went over the wire, one reporter said this was universally regarded as the first expression of public regret ever voiced by John Malone. Proving that I could listen was one lesson, but learning to fight a public-relations battle was also a necessary part of my training.
The next month, Blair and I had lunch with Malone, Diller, Sumner Redstone of Viacom [Inc.], Ray Smith of Bell Atlantic [Corp.], Ralph Roberts of Comcast and Craig McCaw of McCaw Cellular Communications. The all-star cast was assembled by a college friend, Steve Schwarzman, founder of prodigiously successful merchant-banking firm The Blackstone Group.
Steve reasoned that if important business leaders knew me on a personal level-as in a meeting where large policy directions were on the table-they might conclude that I was a reasonable person, contrary to reports in the press or from lobbyists.
Before we sat down, Barry Diller whispered to me, "This will be my first meeting with Sumner since I cost him so much more for Paramount." In light of the widespread view that Redstone had overpaid in the bidding for the studio, Diller had won by losing the auction.
After we took our chairs around the circular table, Diller looked across the table at Redstone. He asked politely, "How are you, Sumner?"
"Pretty good, considering that you made me pay a couple of extra billion," Redstone said, with only faint asperity.
"Congratulations," Diller said. Redstone had paid him the compliment of acknowledging the infliction of pain.
The conversation turned to the status of investment in the so-called information highway. A public failure to close a deal often casts a cloud over an executive, but Smith was irrepressible. "It is too expensive to build two or more routes to the household," he pronounced. "One lane on the information highway with multiple channels-that's the only cost-effective way to connect the pipe to every home. We have the engineers. We have the switches and the intelligent network. We will build it." (In Smith's view, convergence meant new combinations of capital.)
Roberts, proprietor of the cable systems that occupied the mid-Atlantic heart of Ray's Bell Atlantic system, asked modestly, "I wonder if cable has a place in your vision. What happens to our network?"
"Forget about it," Smith said buoyantly. "It's cheaper to let us carry your channels for you." Roberts raised his eyebrows, as if Smith had elected to eat the delicate Blackstone lunch with his fingers, and responded, "I would prefer to carry my own programs on my own network." For him, convergence meant the combination of content and conduit under one corporate roof.
Diller watched the conversation intently. Owning the content, he wanted a choice of distribution channels. He wanted to compel cable and telephone companies to compete to offer him low-price delivery of his programs to the audience.
I caught a glimpse of what the purpose of the Bell Atlantic-TCI merger would have been: In two-thirds of the country, the new company would be the dominant monopoly proprietor of the information highway. The consumers of cable programs and telephone services would pay a great deal to the TCI-Bell Atlantic monopoly in order to fund its investment needs. Smaller rivals, like Comcast, would have been brushed away by the capital-raising power of the Smith-Malone firm. The merger would have realized the George Gilder-Nick Negroponte vision.
The administration and the Democratic Congress sought instead to create competition and choice, benefiting sellers like Diller and buyers such as residential consumers. But if competition reduced revenue, perhaps it would discourage investment. Then no one would build the new networks that could deliver both video and voice. It was a conundrum.
Turning to Malone, I asked, "Is your business doing well?"
"I'm getting more involved again," he answered. "I thought I wouldn't have to work again when I thought I was selling the company."
Then came a pause, during which I privately rejected as absurd the idea that I should feel guilty that rate regulation had delayed Malone's early retirement.
He recommenced, "Sorry I fired my mouth off at you in that magazine. Sometimes I should keep my powder dry."
"Sometimes it's a matter of choice of metaphor," I said.
He continued, "I just shoot from the hip sometimes."
"Please stop," I said. "Your armory of phrases is being exhausted."
I thought I was pretty witty in my punning, but the conversation withered. Nevertheless, the lunch was another demonstration that I was willing to attend on the moguls and show them the deference of listening to their views.
Schwarzman's plan had worked. As the people's representative (the privilege of public office), I was in an "in" group, where great matters were discussed personably and directly. The question then was what to do with that access.
The cable rate-regulation battle had left me with an enhanced fear of failure and caused me to revise my thinking about regulating retail prices to benefit consumers. The gains from price regulation were small for each beneficiary, the losses huge for the regulated.
Cable regulation meant so little to the former (perhaps one hamburger per month) and so much to the latter (a difference of billions of dollars in foregone capital expenditure) that inevitably, the regulator was buried under a mountain of resentment from an industry and its financiers, while mere pebbles of gratitude were proffered from the consumer-advocacy groups.
Most Americans, indeed, never knew that their cable bill had been lowered by, say, $1 per month, making it about 3 percent to 5 percent less than what it might have been. Much of the savings went to buy an additional premium channel or a cable outlet in the basement or a kids' room. What, indeed, was the point of the regulation if the beneficiaries were neither thankful nor economically better off?
By late 1994, I was convinced instead that worthwhile government action lay primarily in increasing investment in entrepreneurship in order to stimulate competition against monopolies. Competition would generate new choices for consumers who, in turn, would spend more on media and communications and get more for their money. The expanding size of the market would attract more investment, and more competitive enterprises would be funded.
After competition emerged-ideally before the November 1996 election-we would happily deregulate the newly competitive telephone and video markets. The purpose of pro-competitive rulemaking ultimately would be the elimination of rules.
As a first step down the path to such sunny days, we needed the Democratic Congress to pass the telecommunications-reform bill before the end of the 1994 legislative session. Then, in 1995, I could get to work on the implementing regulations, which would repair my reputation among academics, investors and businesspersons.
ENTER THE PC
Andy Grove, CEO of Intel [Corp.], fabricator of the miraculous microprocessors that can inject intelligence into every object in the man-made world, is one of the most well-regarded businessmen in America. When he invited me to dinner in July 1994, I felt I was being offered an entrée to the "in" crowd of Silicon Valley, the other coast's equivalent to lunch at the Blackstone. Apple [Computer Inc.], Sun [Microsystems Inc.] and others came with Grove to dinner at the Stanford Park Hotel in Palo Alto, Calif. The subject was the convergence of computing and communications.
By 1994, Grove and the other Valley chiefs understood that digital PCs were destined to be devices for communicating in competition with and through the public switched- telephone network.
In the past, almost to the date of our dinner, anyone possessing a PC could operate as an autarkic entity, generating in the home office or on the workplace desk essays, graphic presentations, income-tax returns, business models and high scores on video games. (A revealing metric was that revenues from software games had surpassed revenues from movie tickets.)
But in the future, users would use their PCs primarily to communicate with the information on the Net and over the Net to other PC users. Silicon Valley, therefore, had to enter the communications world in order to realize its business future. They dreaded two things about this old world: its regulations and the bias of existing businesses toward analog and voice communications, as opposed to digital and data.
None of us at dinner could predict how the telecommunications law being written in Congress would affect the convergence of computing and communications or the delivery of data over parts of the national voice network. But this much was certain: Grove and the Silicon Valley business leaders did not want the government to shape the convergence of the new computer world and the old communications world.
Yet unless the government intervened, the owners of the PSTN-principally the Baby Bells-would charge high prices for carrying data on their networks, especially over local phone lines, thus reducing Internet access and thwarting the growth of the new data networks. This outcome was a danger of the Smith "one-pipe" vision.
I assured the Valley executives that FCC should never stand for "Federal Computing Commission," but that the government's competition goal was the answer to their fear of high changes on data transport by the telephone monopoly. (They were allies of Diller's two-pipe dream, although they wanted data, instead of television programs, to have multiple conduits.)
And I argued that the convergence of computing and communication gave rise to the quintessential social goal for Silicon Valley: to connect all children to the new data networks through PCs in every classroom. They appeared pleased, although still suspicious.
Over the sea bass, I pressed my education argument. I said the Valley would lack for trained employees if technology education lagged behind business growth.
Over the gooey chocolate dessert, I said the children of the 21st century should learn with and about the communications and computer convergence that defined our economy.
Over decaf cappuccino, I begged that the Valley join us in trying to get the telecommunications legislation moving through Congress.
When the table was cleared and I had paid my minutely calculated share of the bill (industry could not buy me, I meant to communicate by my accounting), Grove, with a half-smile and a glitter in his eye, said, "This was the best meeting I've ever had with anyone from government." The praise bubbled in my head like a glass of champagne.
"Because," he added, "you didn't ask us for money."
MEETING WITH TED
The next week, the Democratic House passed a telecommunications-reform bill that comported with the White House agenda crafted in Gore's office. Among other things, its provisions gave the FCC great discretion to encourage competition in all voice and video markets and to promote various social goals. It called for the FCC to order reduced rates for telecommunications use by schools.
Contrary to Republican wishes, it did not permit significant concentration in radio or television markets. A disappointment was that it would not necessarily let the FCC fund the connection of every classroom to the information highway, but its language was fuzzy enough to pave the way for an amendment to this effect in the conference-committee negotiations that would reconcile the House and Senate versions of the bill. Of course, Sen. Fritz Hollings (D-S.C.) first needed to pass the Senate version of the bill.
While political powers mobilized for the Senate fight, I went to Atlanta to pay court to cable tycoon Ted Turner [chairman of Turner Broadcasting System Inc., and now vice chairman of Time Warner Inc.]. He welcomed me into his office in the CNN Tower high above the city. "Lead, follow, or get out of the way," read the famous sign on his desk. An artifact. An artful fact.
"This is the building built by an idea," Turner said. "A global, round-the-clock news station. They said I was crazy. I used to sleep here. Right in the office." He pointed to a wall where he had installed a Murphy bed. (Romance is found everywhere.)
Walking purposefully around the room like a newly caged animal, he continued, "Jane [Fonda] and I were going to give $1 billion to your friend Gore. Not to him, but to those environmental causes he cares about. I agree with him. I'm the only one who agrees with him."
He raised his voice: "Gore's right. But you'll never hear it on the network news. I should own a broadcast network. I'd make a difference. Balance the Fox network with a liberal one. Pollution is writing the death warrant for the planet."
Then Ted lowered his voice and said slowly, sadly, like a television newscaster reporting on a funeral, "I can't give the money away now. It's gone. You took it away. You killed Al's foundation when you lowered cable rates."
Then he said gently, "I don't blame you. You did what Congress asked you to do. You cost the environment $1 billion, though."
I had no words.
"What are you trying to do at that FCC?" he asked. "What are you trying to accomplish?"
"We're focusing on education," I said lamely, thinking to myself that I had hardly justified cable-rate regulation with that answer.
"Well," he said, "here's my advice: Your dreams need to be worth your time."
Returning from Atlanta, I was summoned to the vice president's office for a one-on-one meeting. His staff would not inform me about its purpose-a bad sign.
Al showed me a new photograph that nearly filled a wall in his office: the first complete photograph of Earth, assembled from a sequence of satellite shots. I recalled Turner's scuttled foundation and sat down on the couch.
Al pulled his wing-backed chair close to me and asked, "Have you heard about the man who invented a new kind of dog food?"
"No."
"He studied the chemical composition of all of the dog foods on the market. Then he combined all of the formulas to create the new brand. He contracted with the grocery stores and put the new product on the shelves. He analyzed everything perfectly. Do you know what happened?"
"No."
"He went out of business."
Silence.
"The dogs didn't like the dog food."
When I returned to the commission, I repeated this story to Judy and Blair. Judy said, "That's the kindest way of giving advice I've ever heard."
"What do you mean?" I asked.
"You get it," she said.
"He's saying inputs don't matter, outputs do. And the key output is convincing people that our policies make sense" Blair said. We went to work on the redesign and selling of the dog food. We decided that two or three times per week, sandwiched between 10 and 15 hours of meetings with staff in my office, I would speak to the outside world about my objectives as chairman.
I lined up meetings with business leaders and speeches to groups of 50 or 100. Working with speechwriters, we prepared a standard stump speech. I did not like to read other people's words. It was like using someone else's toothbrush. And I could not determine what I wanted to say without writing the important paragraphs myself. But I did not have clear enough views about my agenda to write a clear speech myself.
The ideal was to speak without notes. Although I was afraid to discuss the details of communications policy without a text, I could manage an opening in the conventional self-deprecatory style.
"A lot of people think I was named FCC chair because I went to high school with the vice president. Just a coincidence [laughter]. Or because I went to law school with the president [more laughter], and the first lady [ditto]. And the secretary of labor, comptroller of the currency, deputy administrator of the Environmental Protection Agency and the United States attorney for San Diego [laughter fading as the extent of the personal network knits a few brows]. All coincidences [laughter renewed]!
The truth is that I got the job because I have the same birthday as Alexander Graham Bell [Ha ha!]. Why did you think the president picked me?"
But then what to say? The majority of Americans approved of the information highway, although only one-third knew what it was. Fewer still had heard of the FCC. What was its purpose? Was the FCC designing, funding, or getting out of the way of the information highway? Were we for regulation or deregulation; big government or small; one technology or another, mergers or breakups?
Al Gore's agenda was clearly to promote competition, to stimulate investment and innovation and to guarantee social benefits. The Democratic Congress had compromised among different industries but focused on protecting consumers from monopoly prices. The details were left to the FCC.
I gained nothing from discussing the specifics of regulation before Congress passed the new law. No one had asked the FCC to articulate a philosophy of the role of government in the information age.
One day, as Blair and I drove to an auditorium on the campus of the Georgia Institute of Technology for a conference on education technology, Blair looked at my draft speech. It was a bag of nostrums about competition and technology.
"You should throw this away," he said, "and talk to them about what you care about."
I told Blair a true story as he directed the car to circle the building. After college, I got a job as a schoolteacher in Philadelphia. I taught seventh-grade social studies. On average, in the three years at my school, a child would fall two years behind in reading skills. Only one-half of my seventh-graders would graduate from junior-high school, and only one-half of them from high school. The best way out was to physically get out: to be permitted to enroll in one of the city's magnet schools.
I had three students out of 150 who started seventh-grade reading well enough to give them a chance to be admitted to the magnet school in eighth grade. Every Saturday for several months, I tutored them on how to pass the entrance exam. The day of the exam came. All of my students failed the test.
In my government job, I wanted to make sure that schoolchildren today have better ways to escape poverty. I wanted teachers to have better tools than I did. I wanted to make recompense for my own failings as a teacher.
Blair said: "Right now, everyone thinks you're just trying to deliver a kind of politically acceptable package on behalf of Al and the Democratic Congress. But this story about the kids and how you feel, that gets across to people. You have to make your job be about yourself."
"Because then. it's worth my time," I said, thinking of Turner.
"As long as no one asks why, if you care so much, you are not at the Department of Education," said deflating Blair.
But as he wished, I told the story of my teaching experience to the curious crowd.
The applause had a quality of sympathy I had never heard before. It appeared that as Mr. Chairman, I was obliged to put at stake not only my career, but also myself. Public office required not thick skin, but no skin at all.
