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EX-FCC HONCHO HUNDT: STILL BUTTING HEADS WITH BROADCASTERS

Former Federal Communications Commission Chairman Reed E. Hundt was at the FCC when the federal government loaned broadcasters spectrum for digital TV in the 1996 Telecommunications Act. In an Oct. 2 interview with Business Week Correspondent Catherine Yang, he chastises the industry for whining about the current lack of money-making business models for high-definition television. The future for broadcasters lies in their ability to innovate, he says, and with free new spectrum, the industry has the tools to do just that.

For years, over-the-air analog broadcasts have been fighting a losing battle with cable systems, whose fat, underground pipes deliver many more channels via an interference-free medium. Now, broadcasters have upgraded technology with which to compete. With their new spectrum, says Hundt, they could offer not only high-definition programming but also multiple standard-definition TV channels and even interactive, Web-related services.

Furthermore, Hundt says, broadcasters should no longer insist that cable operators carry digital broadcasts in the same way that cable systems now must carry analog broadcast programs by law. Even though cable operators deliver TV to two-thirds of American households, digital transmissions give broadcasters the new possibility of an independent means of delivering their signals into the home.

This so-callled cable carriage is a crutch that will prevent broadcasters from fighting to keep over-the-air transmissions as a competitive alternative to cable's distribution channels, says Hundt. It will also deter broadcasters from devising more fruitful alliances with other players that could help deliver their signal, such as over-the-air satellite broadcasters.

Here's Hundt, in his own words:

"Digital TV was given to the broadcasters for nothing. Any other new entrant would have spent millions [to get in]. They were given a football at the five-yard line with no tacklers in the way and asked to score from here. All they got to do is think about it, and then they'll score. But right now, they've just figured out they have the ball.

"As businesses, broadcasters have to completely change. They have to develop new products, new business plans, new ways of obtaining new revenue. They have to completely transform their business model. But so does everybody else in the communications space. They've just never had to face it before. But unlike everyone else, they were handed the opportunity on a cost-free basis. Nobody else would be whining."

"This is about digital TV, not high-definition TV. It's about joining the digital revolution and rapidly moving away from the one-size-fits-all, point-to-multipoint, single-picture business. They need to develop different ways to attract consumers through interactivity, strike alliances with interactive businesses, change broadcast TV into a portal on the Internet, target ads to segments instead of sending them to nowhere and not knowing who's watching."

On cable carriage of digital broadcast programs:

"Must-carry [the law requiring cable systems to carry analog broadcast programs] is like smoking. Once you get started, especially at an early age, you really can't stop. Without must-carry, broadcasters would be forced to think clearly about their competitive alternatives."

"The natural alliance for digital broadcast is satellite broadcast, and alternatively, the phone networks. It may seem like must-carry will solve all your problems. You don't have to worry if your audience even buys new TVs because cable converts the signals to analog TV."

"But instead of using digital broadcast to create new business opportunities, broadcasters are likely to be seduced into deals with cable. At the end of the day, cable does want to carry the [digital broadcast] signals but for a price. They don't want to be obliged to carry them."

"It's bad for broadcasters to get what they want. Cable is not the natural strategic alliance to advance the medium. The more must-carry you give digital broadcasting, the less likely the country watches digital broadcast, and just sticks with the cable pipeline."

"The more must-carry you have, the more it stunts digital broadcast's growth and threatens its future. An opportunistic industry would take the competitive path. But this is not an industry that takes opportunities to transform itself technologically."

On the future for broadcasters:

"The most likely result is that broadcast as medium faces insignificance. But it's also possible that digital broadcasting blossoms."

"The large trend is that microprocessors will put more intelligence in all electronic appliances -- dishwashers, even the TV. TV is the most popular electronic appliance on the globe. It's a great unexplored market for the microprocessor business. That's going to happen."

"The right answer is for local broadcasters to be in business ventures and alliances with chip- and software-makers. It's inevitable."

"But the networks are primarily oriented toward cable in terms of their future business. Consequently, the networks, for the most part, are not going to underwrite the digital TV buildout for their affiliates, because they think their future lies down the cable pipe. You see that with Disney, NBC, and Fox's plans, not so much with CBS."

"The TV itself will change, offer many more features. Gradually, it will come to resemble the PC in its capability."




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