Exit of FCCs Powell Leaves Deregulation Future Open

His legacy may be indelibly marked by the travails of Janet Jackson and Howard Stern, but the resignation of Federal Communications Commission Chairman Michael Powell clears the way for Congress to rewrite the rules at the foundation of telecommunications.

Despite his notoriety in the debate over public decency, it is in the arcane world of telecommunications rules that Powell made his biggest impact and drew his harshest criticism.

Now, as legislators prepare to revisit the Telecommunications Act of 1996, the departure of a staunch advocate for deregulation has both sides on edge.

"This is going to be a period in which all eyes turn back to Congress," said Adam Thierer, director of telecommunications studies at the Cato Institute, a libertarian think tank in Washington.

"I doubt theres going to be a chairman like Michael Powell ... who has a clear vision and blazes his own trail, for a while."

At stake are the underpinnings of telecom, the structure that purports to spur competition and reduce prices for consumers. Powells departure has generated a chorus of praise from RBOCs (Regional Bell Operating Companies) and a cacophony of criticism from startups and long-distance companies that seek to compete in local telephony.

For business users who increasingly seek the services of competitive carriers and are eyeing adoption of IP-based communications, the debate is hardly academic.

"The policies this commission has put in place have introduced different ingredients into the recipe," Powell told eWEEK last week. "In addition to CLECs [Competitive Local Exchange Carriers] and RBOCs, PCS [Personal Communications Service] and a host of new wireless communications devices are finding a permanent and growing role as a substitute phone service for a growing number of consumers, especially younger ones. And new VOIP [voice over IP] service offered by cable and telco providers as well as new entrants like Vonage [Holdings Corp.] are providing a new version of competing local phone service."

To read more from Powell, click here.

Not all agree on the effectiveness of the present administration, however. Former FCC Chairman Reed Hundt, who presided over the FCC when the Telecommunications Act was passed, said Powells policies have resulted in high local phone prices and an uncertain regulatory environment for new data applications, particularly VOIP.

"In the last four years, it is the sad truth that the Federal Communications Commission has failed to maintain its own commitment to competition," said Hundt, who chaired the agency from 1993 to 1997. "Contrary to the law, the chairman of the commission has favored consolidation and combination over competition."

Industry critics went a step further. "My working assumption is that the regulators are sort of a wholly owned subsidiary of the Bells," said Dan Berninger, a Washington-based analyst for Tier 1 Research. "Theres a long list of anti-competitive behaviors that the Bells were doing since 1996 to block rivals from succeeding. [The act] needed enforcement."

When the Telecommunications Act was passed, Congress painted a vision of robust local telephone competition, in which new providers would have a chance to challenge the century-old monopolies at their own game, bringing lower prices and greater innovations to the market. The result, however, has been a stream of litigation, constant rewriting of the rules, evaporation of a massive capital infusion that flowed in the immediate aftermath of the act and an atmosphere of regulatory uncertainty.

"The one assumption [in the act] that was at root flawed was the assumption that the Bells would go along with it," said Berninger. "The Bells were offered carrots in order to go along. They collected all the carrots, but they didnt concede."

Sen. Ernest Hollings, D-S.C., who played a key role in the passage of the act, lambasted it with growing fervor before announcing his retirement last year. "[The Bells] wrote it, but they lied," Hollings said at a Senate hearing in January 2003. "It was a pure sham."

Hollings said he feared a continuation of Powells deregulatory policies would lead back to limited choices and higher prices, particularly for SMBs (small and midsize businesses), which have begun to turn to CLECs in large numbers. "The FCC," he said, "would destroy competition at the very moment its about to take hold."

Powells four-year tenure as chairman, guided by his penchant for deregulation, has been marked foremost by an erosion of rules requiring RBOCs to lease networks to rivals at nondiscriminatory rates. Powell favors competition based on rivals owning their own facilities—despite the acts explicit provision for competitors to lease lines from incumbents—and he set his sights on wireless, satellite and power-line operators to spur competition in the market.

"I remember saying early on in my tenure as a commissioner that it is a fallacy for policy-makers to look at competition as a product rather than as a process," said Powell, whose resignation is effective March 1. He added that he is satisfied with the current state of competition in telephony. Still, he supports rewriting the act.

"Notwithstanding its successes, the 96 Act is showing its age. It mirrors the analog age that is winding down, not the digital age that is coming on," Powell said. "The existing framework of federal [and] state regulation may no longer be sustainable given the reality of jurisdictionally seamless digital communication. What constitutes essential telecom service, and how it is subsidized, must change as consumers use of advanced digital services proliferates."

Today, nearly one-third of small businesses in urban areas have turned to alternative offerings delivered by competitive carriers, according to the CLEC trade group CompTel/Ascent, in Washington.

One of those small businesses, Atlanta-based Intermark Language Services Corp., switched to a CLEC in 2001 after becoming frustrated with high prices and poor service from the local telephone company. Intermark could not afford a T-1 line at the rate available from the RBOC, so it turned to Cbeyond Communications LLC, also of Atlanta, which provides it with local and long-distance phone service as well as a T-1 line.

"Getting a T-1 line [from the local incumbent] would cost more than the whole package from Cbeyond," said Intermark owner Tom West.

Besides pricing, customer service—or the lack thereof—drove many SMBs away from incumbent carriers. "They were so unresponsive, I couldnt wait to get rid of them," West said. "What you want, as a small business, is for your phone and Internet to work."

Read more here about FCC VOIP rulings.

Powell has not been alone, however, in his desire to phase out the Bells obligations toward CLECs. Some industry observers find more fault with the law itself than with its implementation. "The buck stops nowhere with the Telecom Act; it just goes round and round," said Catos Thierer, who applauds Powells deregulatory initiatives. "What we need is completely different network architectures or innovations."

The challenge for Congress will be to address the effect of the changing communications landscape without hampering the development of burgeoning new technologies, insiders said. On Jan. 4, the opening day of the new Congress, VOIP was already the subject of new legislation, a bill introduced by Rep. Cliff Stearns, R-Fla., that attempts to protect VOIP and other Internet-based services from being saddled with state and local taxes or regulations.

It will likely take more than a year to assemble the next telecom overhaul, but forces are lining up now, calculating points of entry. If anything is sure, it is that rural interests will feature prominently on the agenda, with Sen. Ted Stevens, R-Alaska, taking over the Senate Committee on Commerce, Science & Transportation, and with Sen. Daniel Inouye, D-Hawaii, as the top minority member. Those favoring further rapid deregulation and a regulatory pass for VOIP may have cause for concern.

FCC UNDER POWELL

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