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Guest Column

Toward A Wireless Revolution

Reed Hundt

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Welcome soldiers of the communications revolution. Isn't it grand? We are at the very dawn of the greatest period of wealth creation in human history. In the next ten years, if only we avoid what the engineers call human error, the communications revolution will add one trillion dollars to the world economy. Yes! So much.

If we only adopt the right policies, the communications revolution will bring learning to the ignorant, health to the sick, care to the needy, wealth to the world. I was born only three years after the conclusion of our human experiment at self-destruction: the second world war. In that year, the transistor was invented and the communications revolution began. No one knew then that it was in fact the third of the industrial revolutions.

We now see the shape of all three. The first was the era of steam and engines. Arising in England two centuries ago, this revolution gave us capitalism, corporations, urban life, and the beginning of truly great disparities between the have's and the have-nots.

The second industrial revolution was the time between the telegraph and the transistor, from the 1830s to my birth date, 1948. It gave us empires, multinational corporations, global war, factory life, the invention of producer goods and the true princes of modernity: consumers. And the disparities between the have's and have-nots became even grander.

Now we are on the rising curve toward the zenith of the third industrial revolution. This is driven by multiple evolutions:

∑from analog to digital,

∑from ways to replicate human speech, hearing and thought to ways to extend infinitely all the senses,

∑from commodities to specialized products,

∑from government mandates to market created solutions,

∑from misunderstood top-down economics to practically applied entrepreneurial economics.

The single most important sign, symbol, and result of the third industrial revolution is of course the magical, ungovernable, world-changing Internet. In this third industrial revolution, and in its special manifestation as the perfection of the third generation of CDMA, we will see the Internet come to all the billions of humans on our small planet----unless governments blunder.

In this Internet-driven third industrial revolution, we will see created for all the world's peoples a new possibility of mutual understanding and reinforcement of basic principles of liberty, self-governance, and the fulfillment of opportunities for the creation of wealth and harmony -- unless governments blunder.

If governments do not lead us the wrong way, the wireless industry will succeed in wrapping the world in a great nerve of intelligence. This was the phrase and the vision of Nathaniel Hawthorne, the great American writer, when the telegraph was invented. That device permitted the second industrial revolution; but at an average price of one dollar per word, it was hardly suitable for consumer consumption.

At a price of a fraction of a penny per word, the wireless industry will make Hawthorne's vision come true. Billions who have never experienced any of the benefits of the communications revolution will join the world community. This will be our global destiny, unless governments fail to create the right structures for technologies to unfold. We know that governments often act on short-term national goals, succumb to a chronic reluctance to change, are paralyzed by the fear of the unknown effects of technology. When governments do not welcome the future but instead try to sustain the past then they blunder when confronted with new technology.

The history of this century tells us in stark terms that we should eagerly embrace the future. It is the past of the 20th century that we must never live through again. Indeed we have barely escaped this terrible 20th century. As events in India and Pakistan have only this month reminded us, the world has learned, and cannot forget, how it can destroy itself in a flash. More than 200 million have died in wars; another 200 million in plagues spread by global commerce.

We owe it to the next generation to enter the 21st century with gratitude to our different gods and guiding stars. And we owe it to the next generation to deliver a global society founded on enduring principles of peace and economic growth, of universal opportunity and universal liberty of speech and invention.

There is no industry more important to reflecting, acting upon, and benefiting from these goals than the wireless industry. There is no story in all communications more important, inspiring and crucial than the story of the technology that has brought us together from all around the world. Code Division Multiple Access.

Let me just share a secret; don't take this outside the conference; we should have picked a different name. CDMA is so hard on the tongue. A better name would have been Windows. cdmaOne doesn't help much. And wideband cdmaOne, plainly an attempt at harmonization, just doesn't sing.

Instead of wideband cdmaOne I think it would be better to choose a new name. My suggestion is: Michael Jordan. If this technology were called Michael, its brandname recognition could easily have leaped past Coca-Cola.

Michael Jordan is a positive image for the world and certainly for the United States. I ask you to focus on him instead of, for example, our world cup soccer team, as I discuss my own country with you.

What can you say about America: Ours is a country that has the presumption to rename football soccer and then decides that all children up to the age of 12 should play it and no one older should show any sense of the game.

I'd rather talk about our economy. Our economic growth in the United States is a wonderful relief for those of us who recall the pessimism and poverty of ideas and spirit that marked America only a few years ago. We have this great growth now for a number of reasons that luckily have combined at the same time in history: A moderate Democratic President and a moderate United States Senate have balanced the budget, permitting low interest rates.

Mobility and fluidity in the work force have led to huge downsizing at large corporations more than outweighed by massive hiring in small businesses. Productivity gains have killed inflation even as growth has exceeded all predictions. I recall meeting with then President elect Clinton in Little Rock, Arkansas in the winter of 1992.

Every adviser told him that to get the economy going again he had to be the author of a huge tax increase or a tremendous cut in Medicare and social security. He said he would take some steps but that fundamentally we were going to grow our way out of our budget problems. He was right; the advisers were all wrong.

The number one reason why we have achieved such staggering growth -- more than 13 million new jobs in the last five years -- is the communications revolution. More than $20 billion has been invested in new competitive telephone companies in just the last two years: Allegiance Telcom, Northpoint Communications, Level 3, Qwest, Rhythymnet, more than a 100 different entrepreneurial ventures.

More than $50 billion will be spent from 1993 to 2003 on wireless ventures started up because of our auctions of spectrum. I'm proud that I personally am the most successful auctioneer in history. I raised $13 billion in cash; if only I could have kept one or two percent. But what was truly important was this: auctions inevitably create massive, immediate investment, because the right firms buy the licenses, and having paid for them, they invest quickly to recoup their money.

All this new investment is driving prices down and spreading communications in massive amounts to more people than ever before. The top two countries in line growth are China and the United States. China is adding the equivalent of a Bell company per year. But in United States the growth is driven by data: by bits: by fax, Internet, work at home, and the individualization of communications: at least one separate phone number person seems like a constitutional right. Already more than one quarter of all homes in California have two or more phone lines. High speed line growth is approximately 30 percent a year.

Wireless growth continues at staggering rates: America added more than 11 million new wireless subscribers last year, and the growth curve is exponential; Carrier revenues were up 16.3%; Carrier employment up 30%; Cumulative capital investment in equipment and infrastructure was up 41% to more than $46 billion.

All this is driven by competition. Prices are dropping. Penetration is soaring. Usage is going up, yet the average monthly bill for customers fell by almost five dollars in 1997.

The future of wireless in America is as bright as its past has been horrific. The fact is that until very recently the United States had the worst wireless system of any developed country in the world, and that was because the US had the worst policies. Until 1993, we limited competition to two firms. We divided licenses into incredibly small geographic areas, forcing firms like McCaw to devote years to assembling useful regional footprints. We had no sensible roaming rules and permitted wireline companies to charge exorbitant interconnection rates. We declined calling party pays. We did only one thing right, and that almost by accident: we didn't mandate the European GSM standard. Starting in 1993 with our auctions we took our policies in the opposite direction and by doing that found the secret of success.

First, we sold multiple licenses, so that in many smaller markets there is no more spectrum than anyone wants to use. That's good! It means the inherent value of spectrum is verging toward zero, and firms are creating value by their own work and not simply by winkling a license out of government.

Second, in our simultaneous auctions we solved the problem of market definition by letting the bidders configure their own regional plans, and sell some or all of their spectrum in the private market. We want to see spectrum sold like land: with brokers and markets, not governments, deciding who buys what.

Third, we've adopted the policy that all interconnection should be the same price, and reciprocal compensation should be paid wireless to wire. Courts have blundered by interfering somewhat, but still we are making progress.

Fourth, we have eliminated all retail price regulation of wireless. The market and not the government sets the price.

Fifth, we have at last started an initiative for calling party pays. The government should move forward quickly to correct this glaring deficiency in our policy.

Sixth, and most important, we did not pick any technology. We let the market, in the auctions, decide whether the country would support CDMA or TDMA, regardless of generation. Not surprisingly, companies are battling it out on technological grounds. Not surprisingly, new receivers are coming on stream to ease consumer problems. And not surprisingly, CDMA is by and large prevailing.

These policies cause some marketplace confusion. Competition always does. These policies limit the role of government, and some with close ties to government regret that. These policies invite non-American participation, in receivers and in the wireless service businesses, and that causes anxiety for some. These policies are guaranteed to assure a brilliant future for wireless in the United States, as long as they are kept in place.

Right now wireless accounts for less than 5% of all communications in America. It will within a decade account for more than 50% of all voice traffic; and within the lifetime of everyone here it will have a significant chunk of the exploding data market. As long as we stick with our new American paradigm at least in the United States wireless will bring the Internet into ubiquitous, continuous contact with everyone, at home, in the car, walking down the street, in the office. You may not want up to date web feeds on the stock market when you take the dog out for a walk; but you'll be able to get it. You may want to escape the multimedia shared whiteboard multipoint business conference but you won't be able to get out of it by saying you're at the beach.

All this will lead to continued productivity gains and fantastic economic growth. And the glory of this communications revolution -- the grandeur of this particular industrial revolution -- is that it is not confined to one country or one region. Other industrial revolutions depended on scarce resources like oil or coal. Other industrial revolutions create dominant continents and exploited continents.

This one can be different. The communications industrial revolution can bring economic growth and social benefits to all countries, all peoples, all continents. Glass, chips, and brains are everywhere available and those are the only necessities for jump-starting this revolution in every economy: with one exception. Policy. Governments have to make the right decisions. Technology is always trumped by economics; and economics can always be trumped by politics. That's the lesson of the late and unlamented Soviet Union, and it's a chilling one. When governments singly or together aspire to select technologies, they almost always get it wrong. That's not because governments are incapable of thinking things through; it's because in government bad investments aren't written off and directions aren't easily changed and consumer demand is not paramount.

I preach you this: historically the role of government in technology has often been to thwart, delay, or deny the benefits of new technology. Let us put such history behind us. Instead governments focus on these questions:

∑ How can we create jobs? ∑ How can we gain exports? ∑ How can we solve political problems?

These are not the questions businesses need to answer as they explore the brave new worlds of wireless applications. You want to minimize the payroll not become the nation's biggest employer; be flexible in your plan not meet the state Treasurer's tax revenue goals; make a profit not a patriotic gesture.

There's nothing wrong with the goals of many governments except that they have nothing to do with the right goals of wireless businesses. A better government is the one that recognizes what a free market can do to benefit a society. Look at the record: Many governments allied with national phone companies to build the future of data networking on ISDN and not on the Internet. This was everywhere a multibillion dollar blunder. Many governments have allied with broadcasters to design high definition TV schemes. This has been everywhere a useless and expensive exercise. When I arrived at the FCC in 1993 everyone was sure that switched video was the way telephone companies would compete with cable companies. By good luck we did not let government endorse such a policy. In Japan the government decided to steal a march on the world by introducing the Handy Phone. This was an expensive wrong turn.

By contrast, where Asia has trusted the free markets, granted numerous wireless licenses, and given CDMA a chance, every country and world growth has benefited. Hutchison Telecom introduced the first commercial CDMA service in the world in 1995. South Korea, which mandated the use of CDMA by its digital operators, has become one of the first two dominant markets for the technology along with the United States. In addition, commercial cdmaOne service is available in India, the Philippines, and Thailand, with deployments in Singapore, Indonesia, China and Bangladesh. And at last cdmaOne is now being deployed for the first time in Japan. Next month, DDI and IDO will launch cdmaOne systems with an expectation of full cdmaOne coverage in Japan by July 1999.

The battle to define the third generation of wireless again pits governments against governments and continents against continents. This should not be so. The third generation battle should only be companies against companies. It should be determined in markets not in legislatures and administrative agencies and unelected international bodies like the ITU.

There is in short simply no compelling need for governments in any country to micro-manage a transition to a third generation. Ah, Europe, will you agree? Oh, Japan will you come along with the new way? The traditional European approach has been to use communications to tie all nations together in a common market. This is a worthy goal. But in addition Europe determined to create in GSM a standard of global reach, with European-based firms as its primary exporters. European wide licensing of multiple wireless carriers was the only necessary step to building a pan European wireless business. It was never necessary for Europe to give in to what we all recognize as a kind of technological colonialism. One of the predictable byproducts of Europe's GSM standardization was that all Europe found itself behind the curve of technology as CDMA was perfected. It is now crystal clear that CDMA is the preferable path to the wireless world. Europe need only grant more licenses, permit license holders to sell of some of their spectrum, and free all spectrum up to any kind of technology. These steps alone would permit Europe to move at last to CDMA. And these steps would permit wideband cdmaOne to compete in Europe. These steps alone would permit wideband cdmaOne to demonstrate that it shows complete respect for existing facilities and delivers the best solution to the demand for bandwidth that will sweep that continent in the first decade of the next century. As many of you know, QUALCOMM has developed, tested and reported results of a GSM/CDMA hybrid system in Europe. The results point to a clear path for nations to move toward a harmonized 3G cdmaOne standard.

Based on the results, it would seem attractive to any incumbent GSM operator Ů particularly those operators seeking greater spectral efficiency due to growing markets. All this must be proved in the marketplace. To make that marketplace competition work, however, European governments must assure all operators that experimentation with this new technology will not jeopardize their chances of new 3G spectrum.

With its huge unemployment and difficulties in promoting innovation and entrepreneurship Europe should be just the place where enlightened governments simply welcome marketplace forces as the way to select technologies. Europe should be just the place, given its challenges and opportunities, where governments should say they are getting out of the standards business. Instead European governments, pressed by certain powerful firms, want more than ever to make wireless standards their special business. Instead, the European direction is again to have governments control technological change, to limit competition in the market, and to focus not on consumers or cost efficiencies but instead on short-term business advantage. This isn't consistent with the spirit or meaning of the WTO telcom agreements; it is not fair; and it will not in the long run benefit the businesses of Europe. Japan is another cause for concern. The whole world respects the stupendous achievements of Japan in building the world's second largest economy from the ruins of the Second World War. With admiration the world now asks Japan to do something perhaps even harder than reconstructing its economy: we are hoping for a change in the principles and practices of that marvelously productive economy.

I would point out that this sort of change is what the world preached to the United States throughout the 80s. We were told to exercise world leadership by balancing our federal budget, lowering interest rates, and opening our markets. We listened and we succeeded.

I grant that changing course for a huge economy is a politically difficult task of gargantuan proportion. It is not done in a day or in a meeting. I grant that to build something from nothing is one sort of challenge; to change something fantastically complex and self-dependent is a harder challenge. That is what is before Japan now. The world hopes that Japan focus on that challenge in banking and retail distribution and trade policies. We also hope that Japan will take on this challenge in its wireless industry.

It is neither necessary nor advisable that Japan see the third generation as another opportunity to seize world leadership in a new technology, increase exports, and limit opportunities for sales into its own market. It is not necessary that Japan press forward with haste and massive expenditure to achieve its government's best guess about the right and proper technology.

Suppose Europe, Japan and all other countries simply made spectrum available and let it be transferred in the private market. Suppose that countries simply granted multiple licenses in the 1.8 and 1.8 GHz range, and then permitted any private transfer of some or all of the spectrum, with no restrictions on technological use, and no requirements for type of service. That would permit experimentation with extending 2G technology.

Then firms operating under marketplace pressures would design the transition to the 3G to be cost-effective and completely oriented to the consumer's needs. Then third generation services will naturally be deployed as markets demand. That is the best way to obtain the benefits of competitive markets. That is the way to avoid the huge mistakes of government-orchestrated capital expenditure that ultimately put at risk banking systems and currencies. That is the way to wrap the world in a giant nerve of wireless intelligence. That nerve will ultimately be the Internet. What a marvelous event in human history: a common language of communication that permits many tongues and many cultures to thrive in the new world of cyberspace: a common medium of communication that permits many inventions and many applications to thrive in the new soil of cyberspace: a common path that teaches all inventors and even all governments the power of individual creativity and the wise limits of regulatory intervention.

Within less than a decade it can be the common discovery of billions of people that the wireless industries of today provide the path to the Internet tomorrow. This dream will not come true so quickly, profitably, and universally unless governments act wisely.

This dream is important to all of us, but most important to the billions of people on the planet who have yet to enjoy any of the benefits of the communication revolution. For all of them, as well as ourselves, let's make that dream come true.



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