When nine U.S. lawmakers from Washington State approached Michael Powell last month, they brought a foreboding message: If the Federal Communications Commission rejects the proposed acquisition of Washington-based VoiceStream Wireless Corp. by German telecom giant Deutsche Telekom AG, the politicians contend, FCC Chairman Powell will be responsible for sparking an international trade war.
Whats a good son to do?
For the first time in more than four decades, a family duo has received presidential appointments in the same administration. At a time when business deals—especially in telecommunications—are increasingly international, the naming of Michael Powell to the top FCC spot while his father, retired Army Gen. Colin Powell, was named secretary of state is raising questions and concerns about propriety.
In the DT-VoiceStream deal, for example, it is within the younger Powells public policy sphere to conduct the regulatory review of the merger. But the elder Powell must deal with the broader issues of international trade. Some observers said they are concerned that the Powells personal relationship could lead to undue influence between the institutions on such deals.
"Its a good thing [my father] knows nothing about telecom, and I know nothing about foreign policy," said the younger Powell. "Weve had a hard time even saying Hi to each other these days."
Beyond that, the FCC chairman declined further comment about the situation, which most agree is rare.
Not everyone in telecommunications is looking at the Powells positions as problematic. The opportunity for a more open and fluid dialogue between the State Department and the FCC plays well in industry circles.
"If anything, I think this is, hopefully, a benefit," said Brian Fontes, vice president of federal relations at Atlanta-based Cingular Wireless. "They could sit down and talk about telecommunications.I think these are two people who respect each others turf."
It is well-documented that the FCC is in a position to defer its judgments on telecom matters to those of the State Department and other Cabinet agencies. Whether such deference works to the advantage or to the disadvantage of parties before the FCC depends on individual circumstances.
For example, in 1997, two Japanese telecom carriers, Nippon Telegraph and Telephone Corp. and Kokusaki Denshin Denwa, sought FCC licenses to begin offering limited service in the United States. The FCC began processing the requests on a fast track, but the State Department, the Commerce Department and the Office of the U.S. Trade Representative asked the commission to delay the proceeding. The trade officials were seeking an improved bilateral agreement with Japan regarding the purchase of U.S. equipment by Japanese carriers, and they also wanted looser rules on foreign equity ownership in Japanese carriers.
Dismayed that the FCC licensing matter was held hostage to broader bilateral trade negotiations, Japanese officials reportedly said they would not discuss the procurement agreement or the ownership restrictions until NTT and KDD received FCC approval of their license applications. Eventually, the larger trade matters were resolved, and the licenses were approved—but not before the Japanese cried foul over the linkage between the agencies agendas.
Unlike the Japanese, the Europeans are eager today to link the DT and VoiceStream license transfer at the FCC to larger international trade issues.
At the end of January, the European Union turned to the State Department to urge the FCC to approve the merger. In a Note Verbale—as such an appeal is known in diplomatic parlance—EU Ambassador Guenter Burghardt made it clear to Undersecretary of State Alan Larson that Europe is prepared to seek recourse in the larger international trade arena if the FCC does not endorse DTs purchase of VoiceStream, in Bellevue.
"If the FCC were now to adopt an interpretation of U.S. law abrogating a key U.S. commitment, the FCC could irreparably damage the implementation of commitments under the General Agreement on Trade in Services worldwide, as well as jeopardize the negotiations for further liberalization of trade in services," Burghardt said.
The State Department has conveyed that message to the FCC. With two Powells in charge, some wonder how that conversation will continue to play out.
"There may be a concern that institutional interests could be undermined," said Patrick Dobel, associate dean of the Graduate School of Public Affairs at the University of Washington, in Seattle. "But they could also be enhanced because of the candid and friendly discussions that could result. There are good reasons to have friendly relationships across agencies."
"I talked to Secretary Powell about it, and everybody laughed," said Philip Reeker, deputy spokesman at the State Department, in Washington. "The two people represent the same interests, and that is the interests of the United States. There is no conflict."
The FCC is due to rule on the DT-VoiceStream matter in mid-April, according to sources close to the review process.
The last time the propriety of father-son federal appointments was raised was in 1958, when President Dwight Eisenhower named George Lodge to the post of assistant secretary of labor, while his father, Henry Cabot Lodge, served as ambassador to the United Nations.
Two-and-a-quarter centuries after shedding bloodline aristocracy, the United States remains wary of the advantages of public power flowing from one family member to another. President George W. Bush and his rival for the White House, former Vice President Al Gore, took considerable criticism during their campaigns because of their once politically powerful fathers.
In the case of the Powells, Michael is by all accounts qualified for the job hes been given. According to sources close to the Powells, the father may be the war hero in the family, but the son is unusually articulate, amiable and politically adept in his own right. And neither Powell reports to the other, nor are they responsible for each others budgets or other financial matters. Prior to being confirmed by the Senate, Secretary of State Powell was required to complete a financial disclosure form, which was certified by the Office of Government Ethics and sent to Capitol Hill, thereby ending the governments interest in the matter, an OGE spokesman said.
"They happen to be two relatives who work for separate departments," said Michael Daigneault, president of the Ethics Resource Center, in Washington. "I dont see a problem. There is a sufficient amount of distance between the two that it doesnt raise any red flags for me."
But "the question that could emerge is whether the personal relationship could tempt an individual to defer to the other institution or to give it more weight than he or she otherwise would," the University of Washingtons Dobel said. "When you hold an official position, you have an institutional responsibility in addition to a responsibility to pursue policy.
"Ethics goes far beyond legality. What this situation is going to require is extraordinary sensitivity to the perceptual issues and institutional issues. [Colin Powell] comes from a tradition where honor is extremely important," Dobel said. Michael Powell, who pursued a career in the Army until a car accident in Germany left him hospitalized and looking for a new vocation, comes from the same tradition.
"As we take a look at these positions, our focus would be on the capabilities and integrity of the individuals," said Cathy Slesinger, vice president of public policy at Cable and Wireless plc., in Washington. "[Both] come to their roles as individuals who had experience in their policy areas."
European concerns about the DT-VoiceStream deal stem largely from efforts by members of Congress, led by Sen. Ernest Hollings, D-S.C., to stymie the deal. To support his opposition, Hollings points to U.S. law that prohibits foreign companies with more than 25 percent government ownership from buying U.S. telecommunications companies. Today, despite ongoing privatization efforts, the German governments stake in DT exceeds the 25 percent limit.
Hollings is preparing to reintroduce legislation he sponsored in the last session of Congress to make it clear that the FCC cannot waive this prohibition on account of any diplomatic pact not ratified by the Senate, an aide said. In the senators view, the agreement that merger proponents said compels the FCC to approve the deal "represents nothing more than an Executive Agreement."
"The normal position of the State Department is to always give away anything to any foreign party that wants it," said A. Michael Noll, a professor at the Annenberg School for Communication at the University of Southern California, in Los Angeles, who testified before Congress in opposition to the DT-VoiceStream deal last year. "We dont want governments lobbying governments over business issues. That leads to war.
"I could see the potential for problems, and I could see the potential for conflicts of interest," Noll said of the Powell father and son appointments. "But just because theres a relationship between the two doesnt mean that they cant be independent."
Industry sources said Michael Powell has long held the explicit belief that regulators shouldnt stand in the way of marketplace developments unless a market failure is demonstrated. And he carries just one vote in five.
"Whenever the FCC gets involved [in international telecommunications matters], its not just a chairmans issue," Cingulars Fontes said. "Its not as if Michael can act independently of his colleagues. A type of checks-and-balances system exists there."
Whether someone could reasonably perceive a familial conflict in this situation depends on the distance between the appointees spheres of influence, ethicists said. In the case of the Lodges, the distance was more than arms length. The intersection of the work of the ambassador to the United Nations and the assistant secretary of labor was not apparent. More important, perhaps, neither Lodge held ultimate responsibility for the public policy sphere to which he was appointed.
For the Powells, that means conflict concerns would be greater if the father worked in one of the federal trade organizations, sources said. Not only does the secretary of state have duties more pressing than intervening in the FCCs work, but other agencies, including the Department of Commerce and the USTR, play a larger role in international business.
"In terms of trade relations, it is more likely that USTR is the agency working in an aggressive way," said an official with one foreign telecommunications carrier.
"In all my years, I havent seen the State Department taking a different tack than what the FCC or [National Telecommunications and Information Administration] recommended," said Fontes, a former FCC chief of staff. "They never advocated policy positions independently."