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As increasingly bad news flows daily from the nations largest telecommunications carriers, top telecom cop Michael Powell asked Congress today for more authority to prevent telephone and Internet service interruptions. Powell also told lawmakers that the sector will not recover economically without a restructuring among service providers, but he refused to tip his hand on whether he would approve a merger between a distressed long distance carrier, such as WorldCom Inc., and a Regional Bell Operating Company.
Federal Communications Commission (FCC) Chairman Powell appeared before the committee of senators who oversee his agency this morning, where lawmakers sought assurances from him and from executives of WorldCom, Global Crossing Ltd. and Qwest Communications International that the countrys major networks wont go dark.
“I am confident that we are not facing a crisis in the provision of service stemming from this [WorldCom] bankruptcy,” Powell told senators. The FCC chairman said that he had had discussions with WorldCom creditors, lenders and senior executives, as well as with government agencies, which are major WorldCom customers, and he believes that there is no imminent threat of service disruption.
However, Powell said that he does remain concerned about whether other carriers have committed the kinds of deception WorldCom is charged with. The FCC has opened an initiative to re-examine other carriers data and may require some to recertify their filings. Without naming names, Powell said that most of the telecom carriers under scrutiny today are the ones who were most aggressive in pursuing Internet-related business.
The Communications Act of 1934 authorizes the FCC to prevent common carriers, such as traditional local and long distance telephone companies, from discontinuing service before providing notice to customers and regulators, but Powell asked the Senate Commerce Committee today to extend his authority unequivocally to include less conventional telecommunications providers, such as Internet backbone providers and cable companies.
Because the FCC historically has had little occasion to promote its policies before bankruptcy judges (as telcos generally were regulated monopolies), questions remain with regard to the intersection of communications law and bankruptcy law. Although the commission has been fairly successful so far in preventing major service disruptions from bankrupt companies that fall outside the traditional common carrier designation, Powell said he was concerned that bankruptcy judges would not always understand the FCC position.
“One of real struggles we often have is were trying to get blood from a turnip,” Powell said, adding that bankruptcy judges often first seek ways to stop companies from bleeding resources during the restructuring. “Fortunately to date we have usually been able to wrestle these situations to ground.”
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Committee Chairman Ernest Hollings, D-S.C., said that he wanted to try to include expanded FCC authority in legislation passed this summer. Powell also asked the Senate to approve legislation, which the House already passed, increasing fines against carriers that violate FCC regulations.
Among several steps Powell outlined as necessary for the telecommunications industry to recover from its economic slump was a “prudent industry restructuring.” Charging that the long haul market is “absolutely glutted with excess capacity,” and that long distance and wireless companies will face continued pressure to restructure or exit the market, Powell said such restructuring would not be contrary to consumer interests. Having taken heat from earlier reported statements that he does not necessarily oppose a merger between WorldCom and a Baby Bell, he told senators that “some mergers clearly present a severe threat to competition” and that each case would have to be reviewed independently.
Several committee members warned the FCC chairman against facilitating a restricting pool of service providers that could lead to less competition, and they cautioned him not to pursue some pending deregulatory proposals, including an easing of accounting requirements.
“The market system begs for effective regulation and oversight,” said Sen. Byron Dorgan, D-N.D., “We need effective, aggressive regulation. . . . Fewer choices by definition almost always mean less competition.”
Some lawmakers were more explicit in their warnings against the Baby Bells in this difficult telecommunications climate. Recalling the many lawsuits the Bells have brought against the FCC since the enactment of the Telecommunications Act of 1996, Hollings told Powell that he must watch the local carriers more closely.
“Dont let the demise of competition be used to extend the monopolies. [The Bells] have got every gimmick in the book to extend their monopolies,” Hollings said, alluding to recent petitions from Verizon Communications Inc. and BellSouth Corp. to demand upfront payments or enhanced security deposits from bankrupt carriers like WorldCom.
Powell responded with a smile. “Im not so easily rolled over,” he said. “Ill just leave it at that.”
The committee today also grilled WorldComs John Sidgmore, as well as John Legere, CEO of Global Crossing Ltd. and Afshin Mohebbi, president and chief operating officer of Qwest Communications International. The senators waxed particularly stridently about the wealth that top executives accrued through stock options, bonuses and stock options, while so many rank-and-file employees lost their savings and jobs.
For the most part, the telecom executives declined to respond directly to the senators questions, citing ongoing investigations of alleged wrong-doing. However, when questioned whether executives stock options should be accounted for as an expense, Sidgmore said he believed they should be.
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