Washington— The rumor was that Kevin Martin wanted to be chairman of the Federal Communications Commission. Last week, rumor became reality.
Martin, the boyish-looking Republican FCC member, decided to play hardball with fellow Republican FCC chairman Michael Powell on key phone-competition rules — and won.
Despite political pressure from Capitol Hill, Martin forged a coalition with the two FCC Democrats to scuttle Powell's plan to deregulate the Baby Bell phone giants and revive the hobbled telecommunications sector.
As all could see last Thursday at FCC headquarters, Martin demonstrated that with some clever politicking, he is capable of neutralizing Powell and taking control of the agency in a power grab that others have attempted, but with much less success.
In fact, few FCC observers could recall seeing such an overt challenge to the chairman's authority succeed on such a grand scale.
Martin's willingness to abandon the GOP majority could create problems for those in the cable and broadcasting industries who've been taking their cues from Powell that deregulation is the order of the day.
"What we have witnessed in the last couple of weeks is an increasingly dynamic scenario at the commission, which basically indicates that very little is set in concrete," a cable industry source said. "That increases the challenge for any shop in town that is trying to represent an industry before the commission right now."
In a speech last month, Martin implored broadcasters to revive the family hour for five nights per week, and urged the cable industry to establish family-friendly programming tiers and give refunds for channels on a tier that families refuse to purchase.
In contesting Powell's policies, some suggested Martin was carrying out orders from the Bush White House's top political strategist, Karl Rove, who reportedly wants to keep telecom turmoil far from the Oval Office.
But on CNBC last Thursday night, Powell said the White House did not influence the outcome at the FCC.
Martin's clash with Powell produced a tongue lashing from Rep. Billy Tauzin (R-La.), the House Energy and Commerce Committee chairman. Tauzin issued a statement seething with vituperation at Martin.
Tauzin, a Baby Bell supporter who backed Powell for chairman, accused Martin of betraying President Bush and backstabbing Powell to take control of the FCC's agenda.
"A palace coup led by … Martin has breathed new life into the dying era of big-government control over U.S. telecommunications policy," said Tauzin.
In terms of substance, Martin and the FCC's Democrats, Michael Copps and Jonathan Adelstein, refused to topple rules that allow such competitors as AT&T Corp. and WorldCom Inc. to access local Bell networks in residential markets at cheap wholesale rates. The trio decided to let state regulators drive those decisions.
Powell and Tauzin think the rules Martin favors have killed investment and decimated the telecom sector at each point in the supply chain.
While some dwelled on the points at which Powell and Martin clashed, Martin preferred to focus on areas in which they agreed.
In a ruling just as big as the phone issue, the FCC agreed to shield the Bells from network sharing rules for fiber-to-the-home facilities and for hybrid fiber/copper facilities that use packet-switching technology.
"I don't think what the commission did today was the status quo. The commission made dramatic steps on providing regulatory relief on broadband," Martin told reporters. "We deregulated broadband [and] provided new wholesale rates for any new investment going forward."
Martin's FCC maneuverings bear ongoing inspection because his alliance with Copps and Adelstein appears ready to make large concessions to maintain its cohesion, commission and industry sources said.
As part of last week's decision, the Martin-led majority voted to eliminate line sharing, which allows Covad Communications Group Inc. to provide digital subscriber service line over Baby Bell lines in partnerships with such Internet-service providers as America Online.
Under the new rules, which phase in over three years, Covad has to lease the entire copper line, not just the high-frequency DSL bands.
Powell and Kathleen Abernathy, a Republican, opposed killing off line sharing.
Both Copps and Adelstein lamented having to go along on line sharing, but it was evidently a necessary condition in order to gain Martin's vote to block the much broader deregulation of the Bells favored by Powell.
"Look what [Martin] did today. He saved AT&T and threw Covad under the bus," a Powell aide said. "What's that? I don't know."
Last December, Powell told reporters he would use his prerogative as chairman to block the release of rules with which he disagreed. But last week he reversed himself.
In fact, a court mandate required the FCC to adopt new phone network-sharing rules by Feb. 20, or all of them would disappear. Powell could have let Feb. 20 come and go and all of his policy outcomes would have been achieved, except for line sharing.
"It would have been irresponsible to do that," Powell told reporters on his way back to his office. "I think it's good public policy to put it behind us and move on to other things."
Impact on cable
Where does the Martin coalition go from here, now that Powell is willing to accept defeat?
It's conceivable that Martin's horse-trading with Copps and Adelstein could result in new digital-television obligations for cable operators. Martin is expected to support mandatory cable carriage of multiple digital broadcast streams, while cable favors carriage of just one — the so-called primary signal.
It's also possible the Martin majority might impose nondiscrimination requirements on cable-modem service providers, under which cable operators would be banned from using control of the network to steer consumers to Internet content providers with which they have a financial relationship.
Paul Misener — vice president of global public policy for Amazon.com, and a former Martin colleague when both worked for then-FCC member Harold Furchtgott-Roth — is leading the nondiscrimination fight against cable with the support of The Walt Disney Co. and Microsoft Corp.
"I have heard a rumor that people out there think they have three votes for the reimposition of fin-syn. So anything is possible and we won't know until we get there," a top FCC official said. Fin-syn, or the financial interest and syndication rules repealed in the early 1990s, barred the major TV networks from holding a financial interest in domestically syndicated primetime programming.
"Nothing can be taken for granted going forward," added a cable source.