The View From Former FCC Chairman Reed Hundt

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The debate rages to this day. There are those who believe deregulation and consolidation after the Telecommunications Act of 1996 ruined radio, homogenized its sound, and killed jobs. Others argue that still more deregulation is needed, saying national scale is important for radio to keep up against more competition for the attention of consumers than ever before.

But there is one important point that often seems to be overlooked when debating the Telecom Act: A great many radio stations were in real financial peril in 1996. They were all over America, and they were barely surviving. The act enabled a lot of those stations to be sold and bundled into clusters, where expenses could be reduced and signals saved.

As the act took on a life of its own, it meant a flurry of deals, many of them perhaps overpriced, and a good number of people were able to walk away from radio with a decent amount of spending money. Others stayed in the game and built ever bigger companies. The selling and buying continued at a frantic pace for as long as the economy allowed.

In every issue of Radio Ink in 2016, we’ll be looking back at this historic piece of legislation, and we’ll be interviewing all the major players who had a front seat for history. Our first interview is with Reed Hundt, who was the chairman of the FCC at the time the Reed HundtTelecommunications Act was passed. It was his commission’s job to set it in motion. And while radio was just a small portion of a piece of legislation that deregulated many industries, we focused our questions for Hundt on radio.

RI: What was the reason radio was included in the 1996 Telecom Act?

Hundt: Radio, specifically, was included for a reason that is absolutely unique to radio: A handful of companies wanted to buy many, many radio stations. They did not like it that the existing rules did not allow them to buy a lot of stations. So radio went to the FCC and said, “We want to build very large national radio networks. We want you to tell the FCC that they can’t stop us.”

So the radio titans had a dinner meeting with me in New Orleans, and they told me this was the way it was going to be. This was at the NAB radio convention in the winter of 1995-96. It was Lowry Mays and others, about five or six of the titans in radio. I said, “Well, this consolidation is in the opposite direction of everything else that’s in the bill that’s being negotiated.” They said, “Fine, but we want it our way, and we’ve convinced the Newt Gingrich House of Representatives to do it our way.” And I said, “Well, I don’t like it. I think you’re making a big mistake. I think it’s going to hurt the quality of radio and it’s going to hurt content and it’s going to hurt the country, and I don’t even know that it will work out for you guys.”

And they said, “We are just politely telling you. It’s really none of your business. Congress is going to tell you to do whatever we want.” And that’s what happened with radio. The radio people cut their special deal with Gingrich.

RI: Why were the radio numbers picked the way they were?

Hundt: The half dozen titans went to Congress and told Congress to do it their way. They pointed out to Congress that right-wing radio talk shows were very, very popular, and Gingrich thought they should be able to get exactly what they wanted.

RI: Looking back, what are your thoughts on the specific station numbers in the act for radio?

Hundt: My thoughts are that things worked out very badly for most of the radio guys that thought it was an industry that should be consolidated, meaning you can’t predict the future.

RI: What did you think at the time would have been the right thing to do? Just leave it the way it was? Or was there some modified plan you thought might have worked?

Hundt: I went to the Department of Justice and I said, “The radio guys are over consolidating and they’re building regional and local oligopolies. This is bad for content and bad for consumers.” The Department of Justice agreed with me, but the law was very, very explicit and there was very little that the Department of Justice or the FCC could do.

The problem is, it was bad luck for the buyers. They were buying at a time when the markets were soaring in 1996, ’97, ’98, ’99. They were overpaying. Then we got to 2000 and 2001 and the stock market asset prices began to decline and they borrowed too much money and bought too much, and they ran into a whole bunch of trouble.

Like I said, you can’t predict. They got what they asked for.

RI: As you look back now on 20 years, and you see the radio industry and where it sits right now, what are your thoughts? What is your opinion on what has taken place as a result of the new numbers back then?

 Hundt: Look, let’s be honest. As a fraction of the advertising industry, it is not very big. It’s not like broadcast TV or the Internet, right? Or even newspapers. Radio is really great. I love radio. But it was never going to be a huge growth market for advertising revenue, like the Internet was destined to be. It couldn’t be. So the idea that a few guys should be able to build really big empires wasn’t a very good idea, because they weren’t building in a fundamentally growing market. They were building in a fundamentally limited market. I’m not saying anything negative about radio, I’m just talking reality. What’s the purpose of radio? The purpose of radio is to have a bunch of truly local stations. The content might be available in many, many places. A talk show would be available in many towns. But what is really, really cool about radio is when it’s really local. That’s what we love about it.

You can disagree, but that’s what I think. The consolidation tends to drive out local content and local innovation and local quirkiness and tended to homogenize radio. I think in terms of quality, it was a mistake. In terms of the business dreams of the buyers, like I told you, they bought high and they ended up selling low. Some of them went bankrupt. They got ahead of their skis. I am sorry, but that’s what happened. They got exactly what they asked for out of Congress, but it didn’t work out so well for most of them. For the country, I don’t think it worked out so well. That’s what I think.

In a market with 45 or more

RI: What are your thoughts when people still say radio needs more consolidation?

Hundt: Ask if prices are really high again. It might be a big mistake. (Laughs) I would say learn from history and be a little bit cautious.

RI: Do you think that overall, the 1996 Telecommunications Act — not just for radio — was a good thing for the country?

Hundt: The act as a whole was awesomely great. The act permitted the FCC to get rid of a lot of restrictive rules. It permitted us to open markets, many, many markets, to competition. We were able to greatly encourage wireless to take over as the primary way people talk to each other, like you and me right now. We were able to give the Internet service providers absolute capability to start the business out of nothing and do as much as they possibly could. I think it was great.

Now here’s the thing. Competition doesn’t guarantee that anybody is going to be a winner. It actually tends to mean that there’s going to be a winner and a loser. That’s why they call it competition, right? Before the 1990s, it was unusual in telecom to have those losers. There were almost no bankruptcies. That was the deal we did. Innovation, competition, and risk. I think that’s the American way, and I think it worked out great.

By the way, let’s mention some statistics. The communications boom catalyzed economic growth that in the 1990s produced budget surpluses instead of budget deficits. The only years since the 1950s when the federal budget has been in surplus were the last couple of years of the 1990s, and that was all stimulated and catalyzed by the communications- industry boom. The Internet was at the core of it, but so was wireless and so were all the other industries that were affected by this pro-competition, pro-entrepreneurial law called the 1996 Telecom Act.

So the budget went into surplus, 2.1 million net jobs were created. American individuals sold more than $2 trillion on a net basis of stock — net basis meaning more was sold than was bought, and the reason that is the case is because when you have an IPO, you’re creating brand-new stock and you sell. A lot of it was sold to foreigners and companies, but individuals made a huge amount of money. Every income quintile in the United States went up in the late 1990s — the only decade since the 1960s that has happened. The communications revolution isn’t the only contributing factor, but it is the primary contributing factor.

RI: Other than the radio side, anything you wish would have been done differently?

Hundt: We made some mistakes. We did so many things that we must have made some mistakes. They’re pretty technical. Here’s an example: We didn’t know a good rule for what is called “special access,” which is the fiber connection to a cellphone tower. And that remains a problem to this day. You have to kind of be in the wireless industry to dig into that. But that’s a problem. The commission in 1998, 1999, 2000 to 2001, should’ve maintained its commitment to unbundling, but it gave up. It gave up too soon. Michael Powell repudiated much of the telecom rules when he was the Bush FCC chairman, and he shouldn’t have done that. But, you know, nothing is perfect. By and large, it worked out really, really well.

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