: Dream Nears Reality: Ease Up at the F.C.C.

[Dave Farber <dave () farber net>]

Dream Nears Reality: Ease Up at the F.C.C.

February 2, 2003
By STEPHEN LABATON 




 



   WASHINGTON 

MORE than five years after he began his career at the
Federal Communications Commission as a lonely dissenter,
Michael K. Powell is poised to fulfill a long-held vision
by unshackling the nation's largest telephone companies and
media giants from decades of regulation.

Mr. Powell, 39, now the agency's chairman, is in the final
stages of negotiations with the four other commissioners on
a broad overhaul of the byzantine telephone rules. If, as
most expect, the commission adopts a version of the latest
draft of the revisions at its Feb. 13 meeting, the new
rules will favor the regional Bell operating companies and
will hurt the small start-up local carriers and the ailing
long-distance giants like AT&T and WorldCom.

By spring, Mr. Powell also intends to repeal or relax the
ownership rules that have kept the biggest media
conglomerates from growing larger.

Mr. Powell and his supporters say the changes will
encourage tremendous new investment and promote innovation
and competition through a heavier reliance on market
forces. 

But his detractors, including consumer groups and smaller
companies, say the Powell agenda will simply make big
companies bigger. By relaxing rules now, they assert, the
government will stifle competition, reduce the diversity of
media voices and play into the hands of the largest
companies, which are trying to shut down their rivals.

Mr. Powell views the changes as imperative to help
industries that have moved slowly in making the
transformation from analog to digital communications.

"It's ketchup on bad meat," he says in describing the way
the phone, cable and satellite industries use technologies
that are rapidly becoming outdated.

He insists there will still be plenty of rules when he is
finished. "I don't know what anybody is talking about when
they say this is deregulation," he said. "We are talking
about a paradigm of competition, but in a very regulatory
way. This is not an Adam Smith market. This is industrial
management." 

But some officials say that he is moving too fast and that
his revisions will retard years of slow progress that have
barely begun to open uncompetitive markets.

At a recent Senate hearing, Ernest F. Hollings, Democrat of
South Carolina, urged the commission not to sweep aside the
telephone rules. "You are supposed to promote competition,"
an exasperated Mr. Hollings said, lecturing Mr. Powell.
"Just at the time that the Telecommunications Act is really
beginning to work - because of the delays of the Bell
companies - now you are going to reward them and expand
their monopoly." 

As the debate plays out, Mr. Powell has found himself in an
enviable position. This promises to be a seminal year in
the agency's oversight of industries that produce one-sixth
of the nation's output, and he has the political luxury of
strong allies in the Republican-led Congress. In contrast
with the Clinton administration, the current White House
has played a minimal role in shaping telecom policy,
leaving the toughest decisions to the F.C.C.

Siding with the largest telecom conglomerates, federal
courts have made a sport out of striking down many
regulations written by Mr. Powell's predecessors.

And the meltdown of the telecom market, Mr. Powell says,
has demonstrated the falsity of the idea that rigorous
regulation leads to robust competition.

Still, for all the political, legal and economic forces in
Mr. Powell's favor, the commission is hardly unified and
has shown signs of wanting to temper his agenda. Its two
Democrats have shown signs of taking a different view on
many issues. And one of the panel's two Republicans has
expressed reservations about the pace and scope of Mr.
Powell's agenda. 

Mr. Powell speaks with thoughtful confidence about his
vision of reducing the role of government, and he has
little doubt that he is on the right side. He says he wants
to clean up "an ugly and messy" legacy of contradictory
rules that have stifled markets.

"I've seen plenty of bubbles of competition that have blown
up," he said last week, implicitly criticizing his
predecessors, who tried to take credit for introducing
competition into some markets - like cable television or
local phone service - through regulation. "I don't think
we've done anybody any good if it is a flash in the pan,
and I can take credit for it and walk out of here and then
it pops." 

To Mr. Powell, the Wall Street woes of many telecom
companies are Exhibit A of the failures of previous policy
makers. "If the status quo is so compelling," he said, "how
is it that innovators and incumbents are suffering?"

Among other things, the proposed changes would broadly
exempt the Bell companies from being forced to let rivals
have low-cost access to new equipment for high-speed
Internet services - a market with enormous potential.

Gregarious and personable, Mr. Powell approaches issues
with academic intensity. A bit of a technogeek, he carries
multiple gadgets on his belt, loves to play with the latest
electronic devices and keeps up with the newest advances in
cellphones and other techie toys. His original plan, to
follow his father, Secretary of State Colin L. Powell, in a
military career, ended abruptly in 1987, when he was nearly
killed in a car accident in Germany. After a year of
debilitating operations, he decided to pursue a career in
law. Among Republicans, Mr. Powell is seen as a rising star
who could be an attractive candidate for public office
someday. 

Like Ronald Reagan and William H. Rehnquist, Mr. Powell has
evolved from naysayer to agenda setter. But now he faces
his own set of dissenters. Moving from the role of
dissenting commissioner to chairman has not been easy, but
he says that even in his loneliest days, he never "tried to
burn down the house" or "act subversively."

Asked if any commissioners are embarked on that kind of
subversive path, he politely declined to comment.

Among lobbyists, lawmakers and telecom executives, one of
the most interesting shows in town is on the eighth floor
of the communications commission, where Mr. Powell's focus
has been on finding votes among the four other
commissioners. 

Although there are three Republicans on the panel, one,
Kevin J. Martin, has already outlined significant
differences. Mr. Martin, 36, arrived at the commission last
year from the White House, where he served as a senior
adviser to President Bush on telecommunications issues
after working on the Bush presidential campaign. His wife,
Cathie Martin, is a top aide to Vice President Dick Cheney.


While professing faith in market forces, Mr. Martin has
articulated a more pragmatic form of deregulation, which
calls for the government to move cautiously in markets
dominated by a few players.

Mr. Powell, by contrast, has asserted that deregulation
"should not be like a dessert that you serve after people
have fed on their vegetables and is a reward for the
creation of competition." Rather, he said, deregulation is
"a critical ingredient to facilitating competition."

Just how their philosophical differences translate into
policy differences is clear from a speech Mr. Martin made
recently, creating a stir in the telephone industry.
Implicitly contrasting himself with Mr. Powell, Mr. Martin
said he favored a longer transition period to ensure stable
markets. He also expressed support for a strong role for
state regulators, a stance that would have the effect of
preserving many existing rules. Finally, he seemed to be
less far-reaching in cutting back some current rules that
have given rival phone companies access to many of the
networks and equipment of the regional Bell companies at
low prices. 

Meanwhile, a Democratic commissioner, Michael J. Copps, has
begun to marshal opposition to any broad changes in the
media ownership rules. Mr. Copps is a 62-year-old
historian, a self-styled New Deal Democrat and former aide
to Mr. Hollings, who is the ranking Democrat on the
committee that oversees the commission and the most
persistent Senate critic of Mr. Powell. Mr. Copps has
helped lead an influential coalition of conservatives and
liberals who fear the consequences of eliminating rules
they say have fostered diversity and local input in
broadcasting and prevented media companies from becoming
too large. 

Mr. Copps has raised the profile of the media ownership
issues through public hearings by the commission. Mr.
Powell refused to hold more than one hearing - set for
Richmond, Va., later this month - then agreed to attend one
in New York set up by Mr. Copps. Mr. Powell will not,
however, attend a hearing, arranged by Mr. Copps and
others, to be held in Los Angeles, where the artistic
community has voiced deep concerns about his plans.

The telephone rules the agency is preparing to overhaul in
effect dictate how much the four Bell regionals must charge
rivals for using their networks and equipment, a
requirement imposed by the Telecommunications Act of 1996.
The requirements have been hailed by consumer groups,
long-distance carriers and smaller local phone companies
for creating new competition.

  
SUPPORTERS of the rules say Mr. Powell's plan could
eliminate emerging competition for local service, further
tightening the grip held by the four Bell companies.

John W. Mayo, dean of Georgetown University's business
school, said that "any move by the Federal Communications
Commission to make the rates, terms or availability" of the
current network pricing scheme "less attractive at this
point will not create more competition but will, rather,
almost certainly - and perversely - spell the end of the
development of local exchange competition."

But to Mr. Powell, the rules have failed to live up to
their promise. The Bells actually face powerful new
competition for local service, he says, from wireless
providers and cable companies. Rather than promote
competition, he says, the regulations have enabled some
companies to make use of the most valuable equipment to
provide service to the most profitable consumers without
having to bear any of the costs of serving the less
profitable, and more needy, market sectors.

Mr. Powell and the Bell regionals have also criticized
recent moves by some states to keep the rates low for using
essential network elements. The states have made the rate
reductions in response to the urgent pleas of companies
under severe financial pressure, notably AT&T. Mr. Powell
and his supporters say a change in the rules will stimulate
the economy by encouraging the largest phone companies and
their rivals to build more networks and spend more at
equipment makers like Lucent, Corning, Cisco and Intel.

Mr. Powell, who joined the commission after working as
chief of staff for Joel I. Klein when he headed the
antitrust division at the Justice Department, is broadly
dismissive of the predictions that his actions will simply
permit entrenched monopolies to grow stronger.

But his critics say there are plenty of powerful examples
of the failure of deregulation. They see the consolidation
of the deregulated radio broadcasting industry, for
instance, as the coal-mine canary. They also point to the
cable industry, where by some measures rates have jumped at
three times the rate of inflation since deregulation began
in the 1990's. 

Mr. Powell likewise rejects the idea that changing the
ownership rules will result in less diversity and local
input in broadcasting by pointing out that there have never
been so many outlets and views on the airwaves. He has also
draped his argument in the flag of the First Amendment,
which he suggests ought to be a powerful constraint against
government limits on media.

"The First Amendment means something to me," he said. "It's
well and good to be concerned about Citizen Kane, but not
at the consequence of returning to King George." 

http://www.nytimes.com/2003/02/02/business/yourmoney/02FCCC.html?ex=10451732
42&ei=1&en=c807a35b91f72fd1



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