IP: Michael K. Powell Chairman, Federal Communications Commission Press Briefing on WorldCom Situation

[Dave Farber <dave () farber net>]

Remarks of Michael K. Powell
Chairman, Federal Communications Commission
Press Briefing on WorldCom Situation
July 16, 2002
 
CHAIRMAN POWELL:   Thank you. Welcome again to everyone. I wanted to take
this opportunity to make a couple of brief statements about the continuing
WorldCom situation and give you an opportunity to ask any questions you
might have given that the situation is a fluid one, and I think new
speculations continue daily. 
 
            The first thing I wanted to say is that while we often debate
the subtleties and sophistication of competition policy in the various
things we do here, there is no greater sacrosanct role, either for carriers
or the Commission, than to ensure the critical continuity of operations of
those vital services for consumers, and critical consuming users, like the
federal government.
 
            So our focus has been principally and importantly on the
importance of ensuring, to the extent that we can, that WorldCom continues
to be a carrier that is able to continue its continuity of services for its
critical consumer base, I think both in the traditional telephone services
and the Internet services.  And we have focused quite extensively on both
our role, and in working with the company, to ensure that.  In a minute I
will say a little bit about what we've done in that regard. 
 
            But I want to emphasize this first and foremost:  in our best
judgment, at this moment in time, things look okay in that regard.  That is,
we don't think that the possibility of significant disruption in service is
imminent, and we don't think that the current financial troubles, even if
they lead to a bankruptcy situation, will present a catastrophic situation
for consumers.
 
            I can tell you that my experience, having visited the critical
financial sectors in Wall Street, and having talked exhaustively with
interagency governmental officials who also have acute interest in this,
that that view is generally and universally shared, barring something else
that might present a greater threat to that. 
 
            So I want to assure customers and consumers that, at least in
our best judgment at the moment, the continuity of operations is in
relatively decent condition.
 
            I commend the company for its efforts in this regard, the
financial sector, who I think has been astute and sensitive to that anxiety
as well and the federal and State governments that have tried to do what
they can to ensure that to be the case.  That will be a continuing focus of
the Commission:  the critical importance of continuity of operation.
 
            The Commission will also additionally continue to consider the
deep and continuing problems that the financial crisis presents for the
telecommunications sector more broadly.  I don't need to remind any of you
that the day before any us learned about these seemingly heinous acts, that
this stock was trading near a $1 anyway.  There were problems in the telecom
sector that were continuing to present stresses, and there was no sector who
needed less to be kicked in the gut than the telecom sector at this moment
in time.
 
            So we continue to be focused on what policy can do and
regulatory authorities can do to continue to try to ensure the economic
viability of competitors and the competitive visions that were imagined by
Congress in the 1996 act.
 
            Let me say briefly a little bit about what we have done. 
 
            Nearly a short day and a half after learning of this situation,
we made an immediate decision to travel to New York.  The purpose,
principally, was to meet with that community that truly controls the
financial circumstances of carriers in these environments.
 
            It includes, among others, bond rating agencies who
substantially impact the cost of capital for carriers like WorldCom.  The
discussion centered around not only WorldCom specifically but the sector
more generally.  There's been much debate about the rating of these
carriers, and we wanted to gain a more intimate understanding of that, as
well as open up a channel of communication that has not traditionally
existed with a regulator with those agencies so that we have a better sense
of those stresses and at least can keep our eye on the kinds of things that
might trigger more significant problems for the public interest and for
consumers.
 
            We also met with members of the investment community whose
confidence is critical to restore this area.  We also met with banks who are
holders of much of the credit that is critical to WorldCom and other
companies' continued operations.  And we met with a number of key
telecommunications CEOs, not so much to discuss the specifics of their
companies but to draw on some of their vast experience in helping understand
the kind of challenges that we were presented.
 
            As I said at the outset, we left with greater confidence that
WorldCom was not about to go into cardiac arrest in the provision of
services.  The financial sector seemed to be quite comfortable about that as
well.  We will continue to stand guard and be vigilant about that.  That was
the purpose of that.
 
            The other thing which has been going on for some time, again,
perhaps not as visibly to your eye, but we have been engaged with our state
colleagues for quite some time now as bankruptcies have become a more common
part of our responsibility.  And I say responsibility in the sense that
traditionally this has been an area of limited focus of the Commission. 
Particularly, in the era of regulated monopoly, we didn't deal with a lot of
potential and real carrier bankruptcies.
 
            And so there is a very exhaustive dialogue going on between the
Commission and state regulatory commissioners to discuss the role of
regulatory authority in the context of impending or existing bankruptcy
proceedings.  There has been a great cooperation in trying to capture the
experiences of regulatory authorities who have had to be in the middle of
bankruptcy proceedings.  We have evaluated our role in those proceedings and
are trying to develop appropriate responses as they become more frequent,
which they sadly have for the moment.
 
            States are also working with us in an effort to keep a survey of
what the impacts are on more of a market-by-market basis and the impacts on
their particular states.  And they've been really terrific in that regard,
and we, again, had an exhaustive conference call on this just a few days ago
in our continuing effort to do that.
 
            The second thing that we are spending a lot of time on is
working with other agencies within the United States government.  You all
have seen the press reports that I personally have been asked to serve on
the Corporate Fraud Task Force that President Bush announced, largely in the
role of a special advisor task force member who is in a position to help
those that are investigating and pursuing cases, both criminal and civil
fraud, and that are trying to restore confidence through the enforcement
mechanism, have the benefit of our expertise in helping to put in context
issues that are associated with the telecommunications sector and to provide
advice and counsel about things that they may encounter in the context of
their investigation.
 
            We are not a criminal or civil enforcement authority; they're
well aware of that.  We don't imagine participating, which I think would be
inappropriate, on the leading edge of criminal or civil investigations under
the securities and banking laws.  I think our role is perceived as helping
them understand the kinds of things that they might encounter given that
some of the investigations are in the communications sector.
 
            We also, as a consequence of that, have recognized the
importance of potentially establishing more formal procedures to allow for
consultation and flow of information.  Should something come coincidentally
into our possession that would raise questions about violations of
securities and banking laws, we would have a provision by which we would
make those agencies aware.
 
            We're currently exploring, for example, proposing formal
³memorandums of understandings² with the SEC and perhaps with other
government agencies that would facilitate and routinize the process by which
we would make them available, things that we might encounter in the context
of our regulatory responsibilities.  As I said before, this is not something
I think the Commission's had before it.  It hasn't really had cause to.  But
I think that it¹s warranted at this point in time.
 
            Finally, we have been working extensively in the interagency
government process to really emphasize what the consequences are, and the
importance of a carrier like WorldCom are, to both U.S. government policy,
to the U.S. economy, to the U.S. competitive objectives.  We have
consistently urged those within governments to be quite conscious of the
potential consequences and not inadvertently contribute to a self-fulfilling
prophecy in which the company is harmed, not so much as a consequence of the
wrong acts of particular individuals, but because of the reaction of
government and its response to the situation.  We continue to have a seat at
that table and continue to express our concerns to be cognizant of those
things.
 
            Finally, two last things.  Any time you have a situation like
this, it's very vital to work with Congress.  We have been in pretty
exhaustive dialogue with key members of Congress about this situation, both
in terms of understanding it, both in terms of their desire to understand
our role, which we welcome the opportunity to explain, and I think that
that's going quite well.
 
            We also have been asked to explore whether we believe that the
Commission needs any additional authority in the context of protecting
consumers through potential bankruptcies.  I can tell you that I have
concluded, and yesterday specifically in a letter to Congressman Markey,
invited Congress to consider an expansion of the Commission's authority to
have a role in the discontinuance of service when classes of carriers are in
bankruptcy.  
 
            We do have some limited authority dating back to the 1930s with
respect to common carriers or particular classes of carriers.  There are
some growing concerns that some classes of carriers or certain types of
services might not be covered.  I have no problem whatsoever if Congress in
its wisdom believes that that provision is inadequate, that it should be
expanded, and we would be happy to enforce it.
 
            But I would emphasize that I don't believe, contrary to some
press reports, that the Commission is powerless without that authority.  I
think in every single bankruptcy situation that we've been presented with,
we were an active and aggressive participant in the bankruptcy court, with
the bankruptcy judge, in an effort to protect and transition consumers to
new services.
 
            In Excite At Home, for example, a company that's neither a cable
company or a telecommunication carrier, but a traditional ISP to which 214
doesn't apply, we intervened both in writing and repeatedly with the parties
involved in an effort to minimize the impact of a bankruptcy ruling that
might have ordered prematurely a shutdown.
 
            And, finally, the Commission itself, working with my colleagues,
will consider whether to hold ³en bancs² or any other important information
gathering vehicles in the Fall.  I would not today announce that
specifically, but it is something that I think we have under active
consideration.
 
- FCC -


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