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Clinton's Lightning Rod At The Fcc


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CLINTON'S LIGHTNING ROD AT THE FCC

In late March, Reed E. Hundt had to make a choice. The new Federal Communications Commission chairman could go to the National Association of Broadcasters annual convention in Las Vegas, a de rigueur appearance for an FCC chief. Or he could fly to a conference in Buenos Aires on the development of telephone infrastructures in the Third World, something that could help U.S. telecommunications companies expand overseas. Hundt opted to head south and even persuaded his old prep school chum, Vice-President Al Gore, to show up at the Argentina meeting.

Some broadcasters were outraged at the snub, joining cable operators and telephone carriers in a chorus of growing dismay over Hundt. The flaunting of tradition was just one more goad to the critics who have attacked the 45-year-old antitrust litigator since he was confirmed by the Senate last November. But the trip to a conference on emerging markets represents Hundt's eagerness to make the communications industry an engine for economic prosperity. His mission, as he puts it, is to "fashion a regulatory environment that stimulates private investment, leading to robust economic growth and challenging new jobs in the communications sector."

That goal will be Hundt's guide as he ushers in a fresh era of competition for the telecommunications industry. He wants to make sure a new wireless phone service will be able to have the financial muscle to compete with existing cellular service. He is mulling new rules for broadcasters so that they can compete more effectively with cable and phone companies. And he will be in charge of guiding the phone industry toward more competition. The blueprint for this will be legislation that Congress is expected to pass this summer--the first major change in the nation's communications laws in 60 years.

So far, Hundt has moved with a deliberation that can be seen as sensible or obstructionist, depending on the viewer. "We worry that he wants to reinvent the wheel with every new issue that comes along," says one telephone-industry executive. One of Hundt's first actions since taking office, for example, was to delay the auction of licenses for the wireless service called per-sonal communications service (PCS) so he could study the issues. The auction, first scheduled for early 1994, is now tentatively expected to go forward this summer or fall. Potential operators worry the delay could cause them to fall way behind in the wireless wars. But Hundt says the issue is too complex to rush: "I worry that five years from now, when my term is up, I'll say, `Boy, was this decision a mistake."'

Such cautiousness should be commended, Hundt's supporters assert. "This is not a man propelled by emotion or impulse," says Clarence L. Irving Jr., head of the National Telecommunications & Information Administration, part of the Commerce Dept. "He believes in his intellect and that reasonable people will see the logic of his ways."

OLD YALIES. At first blush, Hundt might seem an odd choice for the job, and he wasn't the White House's first pick. President Clinton had intended to nominate Antoinette D. Cooke, a Washington communications attorney. But she withdrew from consideration over questions about her involvement in a 1980s radio deal. Hundt wasn't even the obvious backup. In his 20 years in the Washington office of Los Angeles-based Latham & Watkins, he only represented communications clients on antitrust matters.

But Hundt shares the Administration's core belief that high-tech industries must play a key role in the economy's future. It helped that he has close personal ties to both Bill Clinton, a Yale University Law School classmate, and Gore. Those ties, however, have raised eyebrows, especially among Republicans who want the independent regulatory agency to be truly independent. Representative Jack Fields (R-Tex.), the ranking Republican on the House telecommunications subcommittee, has blasted Hundt as a "political puppet."

NO NOTES. Hundt denies the charge, but there's no denying that he and Gore have been close since their days together at Washington's St. Albans prep school. The FCC chief says he talks to Gore every few weeks, although he insists they don't discuss specific matters pending before the agency.

And he does win praise in Washington for being more than a political crony. A highly analytical lawyer, he is known for poring over the details of issues without losing sight of the big picture. At a recent hearing on Capitol Hill, he answered a barrage of technical questions on such issues as universal service without consulting notes or aides. "Thus far, he has not ducked any of the tough questions," says Representative Edward J. Markey (D-Mass.), chairman of the House telecommunications and finance subcommittee.

His job encompasses more than just a knowledge of complex technology. Hundt sees one of his main missions as making sure that U.S. companies have access to the many tightly regulated telecommunications markets abroad. In early April, Hundt met with Canadian officials to discuss, among other things, allowing U.S. direct-broadcast satellite companies to serve Canada. The FCC will be working with the International Telecommunications Union to make worldwide frequencies available for new satellite phone services. And Hundt has been active in helping Third World countries develop telecommunications infrastructures, figuring such progress will open up new markets for U.S. companies.

The FCC chairman's role as an industry advocate overseas was obscured by the blasting he took at home for the agency's decision in March to cut cable rates by 7%. The cable industry blamed him for killing two big deals, Bell Atlantic's $21.4 billion acquisition of Tele-Communications and Southwestern Bell's $4.9 billion joint cable-TV venture with Cox Enterprises. Hundt insists the rate decision was actually a boon to the industry because it permits cable operators to charge consumers the cost of new channels plus 7.5%, while the old rules limited fees for new channels to the average cost of the system's channels.

But his defense falls largely on deaf ears. As Senate Minority Leader Bob Dole of Kansas put it: "I can assure [Hundt] that these deals are not being called off just to embarrass him."

Hundt hasn't won much support for his reasoning behind the delay in the PCS auction, either. Under the original PCS proposal, as many as seven licenses would be awarded in each operating region. But Hundt thinks the industry could be launched faster by giving out fewer licenses, which presumably would go to deep-pocketed bidders. "It's very important that we grant licenses that provide economies of scale," he says.

Hundt's move could backfire, though, by postponing the issuance of any licenses, handing the advantage to wireless technologies ready to go now. The auction delay "is starting to undermine investor confidence," frets Thomas A. Stroup, former president of the Personal Communications Industry Assn.

FERTILIZING MISSION. Not all of Hundt's actions have met with criticism. He backs legislation that would give broadcasters more flexibility in the way they use additional spectrum space first allocated in 1991. The measure would give the FCC the power to decide what new services broadcasters could provide, from interactive channels to data transmission. "This is crucial to our survival as an industry in the future," says Jeffrey Bauman, general counsel for the National Association of Broadcasters. To give broadcasters an additional boost, Hundt is considering expanding the number of stations a network may own, thus enhancing their ability to distribute programming. "I just want to do what we can to create the conditions that will help broadcasters flourish," the chairman says.

The pending legislation also would overhaul phone service. The FCC would supervise the growth of competition for the local network in return for letting the Baby Bells reenter the $60 billion long-distance business. But that won't be allowed until their local rivals, in the FCC's view, are strong enough to prevent the Bells from subsidizing long-distance business with local revenues.

All these decisions are sure to generate more controversy. But the FCC chief says he is only looking to strengthen the communications industry. "After all, I have a 20-year history of being in favor of competition," he says. "That's what we antitrust lawyers are always arguing for." Still, any change in the status quo can't help but antagonize some competitors.

QUESTIONS THAT KEEP REED HUNDT UP AT NIGHT

BROADCASTING Should the FCC allow broadcasters to use part of their spectrum for services such as data communications, rather than just for HDTV? Should restrictions be removed that limit the number of stations the networks can own?

WIRELESS How should the agency shape the market for a new form of wireless communications called personal communications services? Also, the FCC must decide how to auction off PCS licenses.

TELECOMMUNICATIONS Should U.S. telecom markets be made open to foreign competition only if they also have greater access to foreign markets? Also, the FCC is looking for ways to encourage Third World countries to develop telecom infrastructures that would use U.S. equipment and services.

ACCESS How can regulators make sure that universal access to phone service is maintained as the communications industry changes and evolves?

INTERNAL ISSUES How can the FCC install state-of-the-art equipment, everything from phones to computers, so that it can better deal with growth in the businesses it oversees?Mark Lewyn in Washington


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