Challenges Await Powell's FCC Successor
Rapidly Changing Telecom, Media and Internet
Technologies Will Pose Tough Questions
By ANNE MARIE SQUEO
Staff Reporter of THE WALL STREET JOURNAL
January 24, 2005; Page A4
WASHINGTON -- The successor to Michael Powell as chairman of the Federal Communications Commission will inherit a legacy of broad, often-contentious deregulatory policy and confront tough decisions critical to the rapidly changing world of telecom, media and Internet technologies.
During his four-year tenure as the FCC's chief, Mr. Powell worked to promote competition among quickly converging businesses, such as cable and telephone companies, that once had been clearly separate.
The next chairman's agenda will include: the rapid transition of broadcasts to digital signals; the financial problems of the Universal Service Fund, which subsidizes phone service for rural and low-income Americans; and the haphazard system by which different telephone companies compensate each other for completing their calls.
[Michael Powell]
Also still open for consideration are several decisions about how to treat emerging Internet phone services. Though Mr. Powell's commission recently voted unanimously to exempt such services from state regulations, there are still questions about what federal taxes, fees and consumer-protection responsibilities, like "911" calls, might apply to the technology.
"What remains are the nettlesome subsidy issues," and "the government has to choose winners and losers," said Scott Cleland, head of Precursor Group, a Washington telecom-consulting firm.
By the summer, for example, the FCC is expected to rule on an industry proposal to phase out over the next three or four years the current intercarrier compensation system, under which companies pay each other for completing calls. The commission also faces thorny issues involving the $6.7 billion Universal Service Fund; because of mounting demands for subsidies, the fund is paying out more than it is taking in.
Both issues are politically charged, in large part because they have a major impact on the hundreds of small, rural phone companies that provide service to vast parts of the U.S. About two-thirds of these companies' annual revenues come from intercarrier compensation and USF payments.
On another issue, the FCC faces a fight in trying to force broadcasters to return old, analog spectrum by a certain date and to switch completely to digital transmissions, which require much less bandwidth. Mr. Powell's staff had been pushing last year to set 2009 as the year for the handover but backed off because of industry opposition and the press of other business.
On media consolidation, the FCC must decide whether to seek Supreme Court review of an appeals-court ruling that tossed out rules easing restrictions on media ownership. Without a successful appeal, the five-member commission must begin working on media-ownership rules all over again.
Besides Chairman Powell, Commissioner Kathleen Abernathy, his closest ally, also is widely expected to leave in coming months. Mr. Powell said he decided to leave the FCC after its March 10 public meeting because "the seeds of our policy are taking root and starting to blossom."
Commissioner Kevin Martin, a Republican with close ties to the White House who occasionally has clashed with Mr. Powell, is a leading candidate for the chairmanship and is likely to be named acting chairman following Mr. Powell's departure. But other contenders also have emerged, including two former Texas regulators and a telecom consultant, all of whom have longstanding ties to President Bush. The Bush administration is likely to choose a successor dedicated to keeping the FCC on a path of deregulation.
Mr. Martin has sometimes caught flak from the White House for battling Mr. Powell. But he has some clear advantages: He wouldn't have to be confirmed by the Senate because he already was confirmed as a commissioner. In addition, he is well-regarded by the regional Bell telecom giants and their rivals, and has worked closely with the FCC's two Democratic commissioners. His wife, Catherine Martin, is a special assistant to the president on economic policy and used to work for Vice President Dick Cheney.
[Next in Line]
Other candidates said to be on the short list for the FCC chairmanship include: Rebecca Armendariz Klein, a former Texas utility regulator who is close to President Bush, and Janice Obuchowski, a telecom consultant with FCC experience and a good relationship with both President Bush and his father. Ms. Klein's husband, Dale Klein, is a senior Pentagon official.
One person close to the administration said Ms. Obuchowski could be the compromise choice if the White House can't reach a consensus in favor of Mr. Martin or Ms. Klein. Patrick Wood, the chairman of the Federal Energy Regulatory Commission, and Michael Gallagher, the assistant Commerce Department secretary responsible for spectrum and other technology issues, also are considered possibilities.
The tenure of Mr. Powell -- a free-market ideologue and self-proclaimed gadget geek -- produced mixed results. Appointed to the commission in 1997 by President Clinton, he was in the Republican minority until President Bush named him chairman in 2001. He took over five years after passage of the Telecommunications Act of 1996, which unleashed competition in industries previously controlled by monopolies, and pushed to cast aside old regulations he believed were anachronistic and hindering change. But while he was praised for his enthusiastic embrace of new technologies, especially those involving the Internet, he also was criticized for his failure to line up the support of his fellow commissioners on crucial issues such as local-phone rules.
Mr. Powell was effusive in his admiration of TiVo Inc.'s newest improvement in its digital video recorders and the technology behind Microsoft Corp.'s Xbox Live. On a trip last year to New Hampshire, he ended a day of travel and back-to-back events by visiting a new Web site someone mentioned at dinner that provides satellite imagery of any place in the world -- down to specific houses. "My passion is technology," he said Friday, and "I trust it to put more power in the hands of consumers."
His philosophy won him accolades and criticism. John Chambers, chief executive of Cisco Systems Inc., a major maker of telecom equipment, issued a statement Friday calling Mr. Powell "a visionary" who "understands Internet technology and its implications for the future of our country."
But Andrew Schwartzman, chief executive of the Media Access Project, a nonprofit public-interest group focused on telecom and media issues, reflected the mixed legacy: While lauding Mr. Powell's goal of speeding development of new technologies, Mr. Schwartzman criticized him for giving the largest companies unfair advantages over newcomers, saying, "He had the wrong mechanism -- letting the big boys do it."
--John D. McKinnon contributed to this article.
Write to Anne Marie Squeo at annemarie.squeo@wsj.com2
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