Setting the stage for a classic Washington power struggle, all three branches of government have begun reviewing the nations telecommunications laws with a view toward sweeping away barriers to competition.
When the dust settles, the Internet may be governed by a Rubiks Cube of regulation or let loose to carry its broadband purveyors to unprecedented levels of freedom.
Heightening expectations are a new Republican president, a hands-off Federal Communications Commission chairman, a powerful congressman pushing deregulation and a Supreme Court wading into the murky milieu of Internet-blind telecom laws.
Sensing a new opportunity to shove their high-speed data services beyond the watchful eye of the FCC, the regional Bells and other former monopoly local carriers have been marshaling forces for broadband deregulation and parity with the comparatively footloose cable industry. At the same time, the incumbents want to make fewer concessions to upstart local competitors.
"We think it will be a good year," said Michelle Tober, spokeswoman at the U.S. Telecom Association, which represents the Bells. "We have a new Congress, a new FCC chairman, a new House Commerce Committee chairman and a new president, and we look forward to working with them on deregulation."
Naturally, the critically ailing competitive local carrier industry fears efforts to fully unleash the power of the mega-Bells. "Our companies dont have strong enough roots to survive a policy change," said John D. Windhausen Jr., president of the Association for Local Telecommunications Services.
Lobbyists and lawyers for cable operators, incumbent carriers, local competitors and Internet service providers will be working overtime to influence outcomes in three arenas: Congress, the FCC and the Supreme Court.
In Congress, Rep. W.J. "Billy" Tauzin, R-La., the new chairman of the House Energy and Commerce Committee, said he favors efforts to deregulate broadband services and shield the Internet from red tape, while sharply curtailing the FCCs power. Tauzin, an ally of the regional Bells, echoed the incumbent carriers frustration with the pace of FCC merger approvals and decision making on issues such as how fees are allocated between incumbent and competitive local carriers. In the Senate, broadband deregulation faces a tougher political fight with a 50-50 split between Republicans and Democrats.
Newly named FCC Chairman Michael Powell leans toward less regulation and bolder decision making. The Republican Powell, son of Secretary of State Colin Powell, reflects the new Bush administrations hands-off attitude toward Internet regulation and is seen as a potential champion for the regional Bells. While his predecessor, William Kennard, raised the question of whether cable operators should be forced to allow multiple Internet service providers onto their pipes, Powell and the FCC as currently constituted are unlikely to change the status quo.
Still, in Powells first week on the job, the FCC continued to referee the broadband wars. The agency ordered a new level of sharing from incumbents, requiring a process called line-splitting to give competitors access to more Digital Subscriber Lines. Showing that the FCC could still give and take at the same time, the agency granted SBC Communications, an incumbent Bell, the right to sell long-distance services in Kansas and Oklahoma.
Meanwhile, the justices of the Supreme Court have agreed to consider several cases during their session starting in October that touch on broad questions of communications policy. The court will review how Bells set prices for technologies leased to competitors, as well as fees utilities charge cable companies for connecting to poles.
What About the Net?
Underlying those issues is the question of where the Internet fits into current telecommunications law, especially the landmark 1996 Telecommunications Act. The court could also expand or limit the FCCs power to regulate Internet-related prices.
Of particular concern to cable operators is whether their high-speed Internet service should be regulated like similar services sold by the regional Bells. If high-speed Internet is a telecom service, as the 9th Circuit Court of Appeals in San Francisco ruled last year, then cables special exemption could be in jeopardy.
The fact that so much uncertainty surrounds telecommunications regulation five years after the 1996 Telecommunications Act set deregulation in motion is due largely to the revolution in Internet data services.
Conservatives see the problem as one created by the FCCs failure to treat all manner of broadband data delivery as a single class of service deserving a hands-off regulatory approach. Instead, they said, the FCC has created different rules for traditional telecommunications carriers, which the agency has long regulated, and new entrants with unregulated businesses. Because of that and the ensuing protracted legal battles, broadband service is not nearly as widespread as it should be, conservative critics argued.
But the FCC, in response to the Supreme Courts agreement to hear the cases, said commissioners were following the wishes of Congress outlined in the 1996 law. The rules the FCC will defend before the high court "will speed the deployment of high-speed Internet access service and the development of competition in all markets," said Christopher Wright, general counsel at the FCC, in a statement.
The man who chaired the FCC when the regulations were created said the Supreme Court could "put at risk" the information economy if it undermines the commissions rule-making authority.
"If the court reaffirms the rules and affirms the commissions authority to have a pro-competitive paradigm, then competition will flourish," said Reed Hundt, who left the FCC in 1997. "If the court overturns the rules, the information economy will be balkanized."
The FCCs Powell — who assumed the chair at almost the same time the court agreed to hear the cases — has been too busy with internal organizational matters to outline his regulatory stance, a spokesman said.
But Randolph J. May, a senior fellow at the Progress and Freedom Foundation advising the Bush administration, said Powell "will and should try to change things to a certain extent, to a philosophy that is more deregulatory than the previous regime."
That leaves Congress, and the potential of action by power brokers like Tauzin. He was critical of the FCC under Clintons two appointed chairmen, Hundt and Kennard, and praised Powells appointment as a promise to "complete the task of deregulating the telecommunications industry." But he also pledged to play a role in correcting what he sees as flaws in execution of the act, especially when it comes to broadband.
As the Supreme Court sifts through the fine points of the 1996 Telecom Act, "the wild card here is whether Congress takes action in the interim," said J. Gregory Sidak of the American Enterprise Institute.