Michael Powell's call
Will FCC chairman fulfill his pledge to punish wrongdoing by SBC?
By Aaron Pressman
May 28, 2001: 11:37 a.m. ET
NEW YORK (thestandard.com) - Michael Powell, the new Federal Communications Commission chairman, came into office promising to give corporate America his own brand of tough love. He vowed to ease regulatory burdens but warned that those caught breaking the rules would face his wrath. "When you cheat, I'm going to hurt you and hurt you hard," he told lawmakers at a March 29 congressional hearing.
Powell's pledge will soon be put to the test, thanks to the disclosure this week that SBC Communications (SBC: down $0.74 to $42.35, Research, Estimates), the nation's second-largest local phone company, provided false information when it won FCC permission to offer long-distance service in two states. The chairman's response will be closely watched; with phone competition foundering, many watchdogs argue that only stronger government enforcement can ensure a level playing field.
SBC executives admitted in a letter to the FCC that they had given "inaccurate information" to the agency last year about customers' eligibility to receive broadband Internet services provided by the phone company's competitors. To obtain approval to provide long-distance service in Kansas and Oklahoma, SBC had to show that it had opened up its network to rivals.
These competitors -- mainly small, local telecom companies -- charged that when they queried an SBC database about whether they could provide a particular address with broadband service, they sometimes received a "no" when the answer should have been "yes." Given that SBC was providing service to some of those addresses, the rivals complained that the problem constituted an anticompetitive practice. Three SBC executives denied the charges in sworn statements. The FCC cited those specific assurances -- which SBC execs later admitted were false -- when it approved the San Antonio-based Baby Bell's long-distance application in January.
The company now says those executives "simply misunderstood" how the database worked. SBC's admission drew little notice until this week, when a group of upstart phone companies that compete with SBC ratcheted up the pressure on Powell. In a May 21 letter to the agency's enforcement bureau, the president of the Competitive Telecommunications Association, a trade group, urged the commission to impose heavy fines and a ban on SBC long-distance service in the two states. Representatives from telecommunications giant WorldCom also complained to agency officials in May about SBC's alleged anticompetitive practices.
SBC executives say the incident is being blown out of proportion. "This is something that we became aware of ourselves which we brought to the attention of the FCC and which we have already rectified," said spokesman John Emra. "We don't believe that any competitor was ever harmed."
Although the FCC is unlikely to yank SBC service, it can fine the company up to $1.2 million for violating the 1996 Telecommunications Act. That's pocket change for a company such as SBC with $50 billion in annual revenue. But if Powell finds that the telecom company cooked its books, imposing such penalties will signal his intent to crack down on rule-breakers.
"The commission needs to show that it will enforce its regulations in a serious and consistent way," attorney Scott Harris, a former FCC official, asserted. "If it doesn't, one of Chairman Powell's key objectives, turning the FCC into a credible enforcement agency, will be undermined."
FCC officials say they are investigating the SBC complaints but declined to comment further.
It remains to be seen how hard Powell will hit SBC. But he has moved to put his money where his mouth is; in May, Powell asked Congress to raise the maximum fine for phone companies that engage in anticompetitive behavior to $10 million.
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