Much Work Looms for FCC's Powell

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FCC chairman Michael Powell, who's nearing the end of his first year in office, has a heavy in-basket. Over the next few months, Powell must decide whether cable operators have to carry unaffiliated ISPs, like the phone companies; whether EchoStar Communications Corp. may merge with DirecTV Inc.; a
nd whether Northpoint Communications Ltd. will be able to share direct-broadcast satellite spectrum to compete against both cable and DBS.
Multichannel News Washington news editor Ted Hearn sat down with Powell for an interview on Nov. 27. An edited transcript follows.

MCN: I want to ask about TV channels 60 to 69: It looks as if dozens of broadcasters are going to be able to walk away with millions, if not billions, of dollars that were supposed to go to the Treasury. Why is that a good deal for taxpayers?

Powell:
Because you focus on the wrong thing. … It's important to remember in this controversy the metrics the commission is dealing with. One, we have a mandate that broadcasters got it for free. One might want to re-argue whether that was a good decision many years ago, when it was made, but it was the decision the government made long ago, and some people, I believe, are re-fighting that fight. It was given to them for free and then, interestingly enough, in 1997, the Congress says, additionally, 'Auction that spectrum long before the deadline for its return and, oh, by the way, there are these very valuable uses we'd like it to be put to, not the least of which is public safety.'

So, in my opinion, the commission is in the position of sort of a Hobson's choice in some ways. We could simply auction the spectrum, completely encumbered by broadcasters. It would fetch a very small amount at auction, in my opinion, because it wouldn't be able to be effectively utilized, because it would be occupied. And, based on the way the DTV transition works, it will be occupied for a very long time absent a change in law. It's not coming back in 2006.

MCN: Why didn't the FCC take back one of the licenses?

Powell:
I don't believe the commission can do that under the statute. It's important to remember that certain aspects of the transition and the broadcasters' rights in the spectrum are not a simple licensing decision of the commission, unencumbered by the statute. Congress was very substantially involved in the way the DTV transition worked. Many of the parameters of the second spectrum license and the terms and conditions of future auctions are ones set by statute.

MCN: Is cable-provided Internet access a cable service, an information service, a telecom service or a combination of them?

Powell:
To be determined, and hopefully soon. Courts have reached different interpretations. You have some courts who thought it was a telecom service, some courts who thought it was an information service, some courts who thought it was a cable service. It is rightfully a question that the commission needs to answer. We have, in prioritizing broadband, included within that obligation an effort to quickly move to resolve the definition.

MCN: Are you buying cable's argument that it's a cable service?

Powell:
Well, I'm not going to comment on what it is or not yet, because we do have proceedings in which we're going to answer that question, so that is exactly what we're going to answer. But all of those are possibilities.

MCN: You said that you don't support forced access and that you would flee the room if anyone suggested it.

Powell:
No. I said common-carrier regulation.

MCN: Is there a difference?

Powell:
Oh, sure. Look at Title II. There's a lot of things that common carriage means in addition to access.

MCN: Is it fair to say that you are trying to move the FCC in a direction of establishing some sort of new regulatory regime in which broadband providers are lightly regulated, or not regulated at all?

Powell:
I think it's generally fair. I don't know how much is completely divorced from stuff that previously existed. A lot of that and its particulars are yet to be determined. But, yes, you're basically right. I mean, I do think that we are trying to create a sensible, minimally regulated space where broadband lives, where the regulatory judgments are the product of an understanding of that service, that market, and not just an accidental igniting of other regulatory provisions that were minted for very different purposes.

MCN: Do you think cable operators should be regulated to look more like phone companies, or should phone companies be regulated to look more like cable companies in the provision of high-speed Internet service?

Powell:
I think that one's fairly easy. You know, I used to articulate it that there's this unregulated world about to crash into this regulated world, and one will fall on the other. I certainly hope that the lesser regulatory model prevails more in the particulars than the regulated model. I'll be very willing to say I hope and pray and will do everything to not have the full bevy of common-carriage-type regulation to move into cable.

MCN: Do I understand you to believe that if there are multiple providers of broadband that the content access issues will resolve themselves?

Powell:
It dramatically improves it, right? Competition is always tricky because it's a little bit of a sliding scale. The more rigorous the competitive conditions, the less you need a prophylactic regulation to ensure a positive outcome. This is, very simply, a supply-and-demand thing. If I have four places to distribute my content, and I don't like the access or terms and conditions that one's giving, one of my options is to leave them and go to another one.

MCN: Is cable going to have to follow the AOL Time Warner Inc. model of carrying multiple ISPs?

Powell:
I think I know what you're saying, but the problem here is you're asking for the end of the proceeding that's not over, and I just don't answer. One of the hesitancies of the commission all along has been its belief — and one that I share to a great degree — that there are very powerful market reasons why you'd want access. And, indeed, we don't have such a rule right now. And we've seen some very positive developments in access availability on the cable side that are a consequence not of regulatory intervention, [but] because of judgments that it makes economic sense to do so.

I will tell you, I'm a believer in making sure consumers have access. But I'm also a firm believer that the characteristic of many of these new services is a drive toward openness.

MCN: Regarding the EchoStar-DirecTV merger — you said the deal would cause significant concentration. Wasn't that a snap judgment coming from someone who demands empirical data to support claims of media concentration?

Powell:
It's not a snap judgment. Whether it's anti-competitive or not, it's an objective fact that it's significant concentration. I don't think you have to do an analysis to know going from two providers to one is significant concentration. It doesn't mean it's anti-competitive, or it's illegal, or it should be stopped. It only means that it's significant concentration.

MCN: This merger is likely to arrive at the FCC not in violation of any agency rules. What's your plan for evaluating a merger that doesn't clash with any rules along public-interest lines? Is this going to be a mini-antitrust review?

Powell:
A good question, but I think that's developing. First, we're far from clear whether it does or doesn't violate any rules. We have to see what the particulars are which, as you pointed out, we haven't. So that's certainly one thing. Depending on how you choose to characterize the transfer-application process, there are going to be people who argue vociferously that if it's not in the public interest, it is violating a communications rule. It's the rule that transfers have to be in the public interest.

Now, I have expressed criticism that that's a fairly ambiguous provision. But, I think, absolutely, that some component of it is an evaluation of its concentration and competitive impact.

Is some of that duplicative with the Department of Justice? Absolutely. If I were writing the statute all over again, would I have such a transfer provision? I certainly would debate it. But I do have such a provision. I have an obligation to make that judgment.

MCN: Are you going to impose some discipline on the review process? Rep. Billy Tauzin (R-La.) thinks that was lacking in previous mergers, AOL Time Warner perhaps being an example. Is there a plan to get this merger reviewed in five or six months, and perhaps finish it before the Justice Department does?

Powell:
I think that's right. From my perspective, it is the first big one that has showed up on my watch and I think that I'm very, very sincerely committed that we impose some discipline on the process. Going back to your last question, that is exactly what round one was about. I think that was the beginning of an effort to impose discipline and be more expeditious in our review. I'll tell you right now, if I have anything to do with it, it won't be a year.

And — as far as waiting for the Justice Department — I think our standard stands independently of them and, while we certainly have heavy interest in what they're doing, and they have a heavy interest in what we're doing, I don't believe that that curtails our ability to be as expeditious as possible. I think that our timeline will not be governed by theirs.

MCN: The National Association of Broadcasters has apparently thrown in the towel on dual must-carry. Was that a smart move that faced up to the inevitable?

Powell:
I hadn't heard someone say that. I can't speak for them. I think that the kinds of things that someone should be concerned about is, No. 1, no matter what it is, it is transitional. That is, it is something that you're going to have a big fight over, spend a lot of capital over, and it is inherently a transitional mechanism. It is not about penultimate rights, it's about what would be the environment that's going to govern.

What I hope it's partly reflective of is seeing some energy, both at the commission and in Congress, to try to continue to work on helping facilitate the transition in a reasonable way. If there's some optimism about that, and if there are enough places where judgments can be considered and reconsidered, then maybe dual must-carry isn't the Holy Grail.

I also think that there is a serious reality about must-carry, no matter what you believe the merits are of it. I think it's far from clear that it would have been, or is, the silver bullet to the transition. But, just as importantly, there are absolutely serious constitutional issues that would arise. It would unquestionably prompt another major body of litigation, including another Supreme Court case. If that happens, that will be a long period in being mired in that.

I mean, is it worth the carrot? I think, potentially, that's very threatening to the must-carry rights that exist already. The commission has acted on must-carry, at least with respect to a single channel. It stated already very clearly that you have a right to must-carry on your one digital channel. We have clarified that part. So the only real must-carry issue that remains is dual carriage. I think that one has to ask, 'Are you potentially doing so at the risk of rights that already exist?' And I certainly think that there are dangers like that involved.

MCN: I think you were quoted this year as saying program-access rules have more merit than some other issues. What's your current thinking on extending the program-access rules or letting them sunset next October?

Powell:
I don't know that it's evolved much more than when you heard that. We haven't really turned to that yet.

MCN: Do you see it as a key input for DBS, and if the industry doesn't get access to vertically integrated cable programming, it's in big trouble?

Powell:
To be honest here, I don't know if it's an obvious call. But I do think that there are important issues that are in the context of program access that are somewhat different than some of the structural prohibitions.

You might have a different comfort level with the number of distributors and the number of outlets to make something viable, or you might have a different comfort level about the vertical integration of the piece.

I happen to be of sort of the biased view that what consumers buy is content. Consumers don't buy pipes. Consumers, I don't think, buy cable. I don't think they buy DBS. I think they buy what they get to see on those things.

MCN: When are we going to see a decision on Northpoint's sharing DBS spectrum. By the end of the year?

Powell:
We're still shooting for that, or very shortly thereafter. That's my goal.

MCN: Have you made a call on whether Northpoint has demonstrated that it can share the spectrum without harmful interference?

Powell:
I pretty much closely made up my mind, but I'm not going to tell you what it is yet.

MCN: What about auctions? Have you made a decision about mutual exclusivity with MDS America or anybody else that wants to come in to share that spectrum?

Powell:
You know, the commission has not decided. But go back to the first thing I said: If it's potentially 30 days from being done, most of these judgments are pretty far along in the commission's thinking.

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