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After Loss, Powell Licks His Wounds

3/09/2003 7:00 PM Eastern

Washington— He's too old to cry, and it hurts too much to laugh. So Federal Communications Commission chairman Michael Powell is trying to just move on.

Powell, who recently suffered his first major defeat since he took the job in January 2001, met with reporters last Tuesday to explain that although the loss was tough to absorb, he intended to plow ahead, win or lose.

"The commission agenda is in firm control. It is going to continue to move forward," Powell declared. "You don't measure whether you are winning the war by whether you lose an occasional battle along the way."

Over the next few months, the FCC is expected to adopt new ownership rules for the cable and broadcast industries, as well as new rules to apply to high-speed Internet access providers.

Powell's loss was over a plan to revive the telecommunications sector through new national rules that would have eliminated the right of local phone entrants to rely entirely on the incumbent networks operated by the Baby Bell companies.

Backed switchers

Powell wanted everyone in as many markets as economically possible to have some skin in the game, and favored a policy requiring new entrants to acquire their own switching capability.

That effort fell victim to Republican FCC member Kevin Martin's ability to form a majority coalition with the agency's two Democrats. They backed a rule authorizing state regulators to decide when it was no longer necessary to make the entire Bell platform available at cheap wholesale rates to such firms as AT&T Corp. and WorldCom Inc.

Powell argued his plan was both legally correct and economically necessary to spark Baby Bell investment that would feed all links in the supply chain.

In his successful challenge to Powell's plan, Martin argued that states were better equipped than the FCC to make granular judgments about the status of local phone competition. The commissioner cited a recent court decision requiring the FCC to ensure that analyses were performed on a market-by-market basis.

Last week, Powell told reporters he had been relentless in attacking the legal and economic underpinnings of the ruling.

"I think it's a decision that does very little to help with the economy. I think the economy will suffer some of the consequences of it," Powell said.

"I think in some ways it's the worst decision you could have possibly made, because it doesn't embrace a coherent federal policy. It basically embraces a decision not to decide."

Financially, the ruling's fallout was immediate. Stocks in the Baby Bells and various equipment vendors lost about $15 billion over the next few trading days.

A tidal wave of litigation is also expected once the FCC releases the 400-page decision.

Powell predicted the ruling would spawn "more litigation combined than we have previously seen with the entirety of" the Telecommunications Act of 1996.

He was careful not to inundate the media with just gloom and doom.

Sees bright side

With Martin's help, Powell won approval for a rule that would exempt Baby Bell fiber deployments from unbundling rules, though exact details await the order's release. Powell said he was confident the FCC took a major deregulatory step in the right direction.

"I might surprise you to tell you that, believe it or not, I am largely satisfied" with the overall decision, Powell said. "I am particularly proud and excited about the broadband component."

But Precursor Group telecom and media analyst Scott Cleland indicated in a report last week that the FCC's broadband deregulation was less than comprehensive.

For example, Cleland said fiber overbuilds of existing networks were exempt from data unbundling rules, but not from voice competition rules.

"New fiber/packet plant is basically the only equipment that does not have to be sold wholesale at government rates, can earn a market return, and can be a competitive advantage, not an enabler or subsidizer of resale competition," Cleland wrote.

Cleland said Corning Inc. and Cisco Systems Inc. were likely beneficiaries of the FCC's new fiber-centric policies.

Draws the line

If there was something in the broadband ruling that irked Powell, it centered on the line-sharing decision. Powell scolded Martin and Democrats Michael Copps and Jonathan Adelstein for killing off line sharing.

"The line-sharing decision is abysmal. There is no defense for it," Powell told reporters. "When I hear commissioners openly opine that they only did it to make a deal, well, explain that to the employees of Covad" Communications Group.

Under line sharing, Covad could save money by leasing just the portion of a local copper loop needed to provide high-speed Internet access.

Covad, which had already been trading as a penny stock, saw its share price collapse even further on Feb. 20, when three FCC commissioners voted to phase out line sharing within three years.

To maintain access, Covad will be required to purchase the entire line, and likely will need to find a partner willing to provide voice services.

Powell extolled Covad as a facilities-based broadband provider that needed access to a single essential facility — the copper loop and not the entire network, like resellers — and claimed Covad's presence represented the kind of competition that Congress sought in 1996.

Line sharing has failed to make deep inroads in the market. According to the most recent FCC data, line-sharing companies served no more than 227,000 U.S. subscribers as of June 2002.

 

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