Kennard Still Packs ‘Em In

May 18, 2001

As Former Chairman of the FCC, William Kennard recently outraged a radio broadcaster by stating that a paradigm shift prompted by the Internet was going to radically change the fundamental economics of radio. But he silenced the man’s objections with a simple statement: "Well, sir, shift happens."

Kennard, newly instated as managing director of the Carlyle Group, brought a similar message to this week’s Telecom Leaders Summit, an Arbinet-thexchange-hosted luncheon roundtable held at the Global Traffic Meeting in Washington DC. "Shift happens, and we’re going to be ready for it," he told the gathered telecom executives.

The man on whose shoulders the enactment of the Telecom Act of 1996 rested says the "irrational exuberance" of the 1990s has been replaced by an equally "irrational pessimism" about what’s happening in the telecom market today.

"Everyone is sort of in the doldrums these days. It’s a terrible market and people are talking about whether there’s a recession or not. In the telecom industry, there’s a depression, let’s face it. Things are not very good. But I tend to be very optimistic about what’s happening," he says. Kennard picked out a few demoralizing myths of "conventional wisdom" in need of debunking.

It’s not true that demand for broadband has plateaued, he says. Private sector studies Kennard reviewed while writing broadband demand reports for Congress painted a bright picture, especially in the small enterprise and residential markets. "Most studies conclude that 30 to 50 percent of residential subscribers in the United States will have broadband by 2005," he says. "The challenge for most broadband providers at the retail level is keeping up with that demand and dealing with all the OSS and provisioning issues that entails."

Another myth gaining currency these days is that the CLEC model is dead, he says. "It is not a failed model in its essence," he says. "We’ve had problems of execution and implementation. In my view, we’ve had a mis-emphasis in some of these business plans: Too many of them have adopted the theory that we’ll just build ubiquitous networks and customers will come."

It’s obvious that Wall Street has exhausted its desire to finance that business plan, says Kennard. But interest is growing in businesses that are "building to maximize revenue per subscriber, moving into the enterprise space in particular where there’s high density of lines. Those businesses will be healthy and will survive. So we have to be rational about the industry as a whole."

The final myth Kennard is out to quash is the quest for the Next Big Thing. The focus on the next technology – optics, switching, and so on – is the wrong way to approach this marketplace, he says.

"The history of this marketplace is that applications drive deployment, not the other way around," he says. "The bandwidth technology is there. What we’re waiting for and need is the applications that are going to drive demand in this space. The reality is, we haven’t discovered what the killer application is for broadband. We know what the killer app is in the narrow-band space – it’s e-mail. But predictions in this area are often wrong… Predictions about applications are often misplaced," he says. New apps usually come from unexpected places, says Kennard, highlighting Napster, a single application created by a 19-year-old that alone consumed 4 percent of broadband traffic in the U.S.

"You never know where these applications are coming from. The paradigm shift in broadband will probably come from applications that we can’t even envision today," says Kennard.