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Talk about battle scars. William E. Kennard has served as chairman of the Federal Communications Commission during one the most tumultuous times in telecom history. Appointed by President Clinton to the post in 1997, Job One for Kennard was implementing the highly controversial 1996 Telecommunications Act, which deregulated much of the industry. At the same time, he had to figure out how, as a regulator, he should deal with the explosion of the Internet as a telecommunications medium.
Kennard is expected to announce his departure soon, probably after approving one of the biggest mergers in U.S. history and by far the largest on his watch -- America Online and Time Warner. On New Year's Day 2001, he sat down with Business Week Washington Correspondent Catherine Yang to look back on his tenure at the FCC and examine some of the issues facing the FCC under the incoming Bush Administration. Here are edited excerpts from their conversation:
Q: What progress have we made with the 1996 Telecommunications Act?
A: I walked into a situation where a lot of people were at war. The state commissions were at war with the FCC, the FCC with the Bell companies, and the Act was being litigated all over the country. Now, we have linked arms with the common goal to bring competition to these markets. We prevailed all the way to the Supreme Court and reaffirmed the commission's authority to implement the Act.
Q: Why does the FCC want to get involved in the competitive issues surrounding interactive TV?
A: If you're a content provider and you don't control the pipe [into homes and offices], you have a potential bottleneck problem. It's important that the FCC step in if necessary to prevent discrimination. It's all about access to the end user if you don't control the conduit.
It's really wise to study [the] lessons of [the] past as we move into the new digital future. There was a brief shining moment up till 1913 when you had thousands of independent phone companies in the country. But then AT&T clearly had the dominant position, and they would not allow the little independents to interconnect. AT&T faced the prospect of an antitrust suit or having to compete. They cleverly convinced the government that the phone business was a natural monopoly, and that led to 50 years of federal phone regulation. We can ensure [that] we don't recreate those problems today.
"There's a huge demand for [broadband]. That means someone is going to provide it"
Q: But look at local phone service under deregulation. Many of the companies that were expected to open up the local phone markets -- such as AT&T and the local exchange carrier startups -- are stumbling. What is the prospect of real competition?
A: It's certainly a disappointment. Everyone would have hoped we would [be] farther along today. I'm fundamentally optimistic. We're farther along in creating conditions for competition in the local markets four years into this Act than four years after divestiture. There will be strong players that emerge that will become the new competitive local-exchange industry.
Clearly, there's demand out there for these services. Look at the potential for the growth of broadband. While only 3.5 million people in the U.S. have broadband in their homes, there's a huge demand for it. That means someone is going to provide it.
Q: Are you satisfied with the marketplace impact of the megamergers you approved -- such as AT&T with Tele-Communications Inc. and the MediaOne Group, WorldCom with MCI, and SBC Communications with Ameritech?
A: In all these mergers, it's a mixed bag. You need to envision what would have happened if the FCC had said no. If we had said no to the SBC-Ameritech merger, we would have been farther behind in spurring competition from either of those companies. On balance, the mergers didn't slow the progress of competition, and in many ways, accelerated it.
Q: Should the FCC have taken a more proactive stance regulating open access to the Internet? It seems the Federal Trade Commission has taken the lead on that issue, with the conditions it placed on the AOL-Time Warner merger to sign up at least three independent ISPs to run on its cable pipes.
A: We were wise to be patient for this reason: We do have multiple technologies competing. What I have tried to do is create incentives for the cable industry to roll out broadband. We were successful in doing that. That created an incentive for the Bell companies to deploy DSL. We spurred a lot of investment in broadband very quickly.
Q: Will the FCC be able to keep its hands-off Internet policy?
A: Up until 1995, the Internet was not commercialized. In the last five years, there's been intense commercial activity in the Internet, and that changes the incentives for private players. You have parties that want to dominate it. There's a resurgence of problems that caused us a lot of pain in the monopoly phone network.
"The goal is to get as many competitive networks out there so regulators can shut down"
In a lot of these areas, whether it's open access or instant messaging, regulators are going to have to look carefully at whether a single party or small group of parties is able to dominate. Otherwise, consumers will not continue to enjoy the openness, innovation, and competition the Internet has come to characterize. There's a role for enlightened government intervention.
Q: What should we expect from the next Administration on communications policy?
A: We have thus far grown up in a world in which all these technologies have been separate in these regulatory niches. The '96 Act said you can compete against each other. But it didn't go far enough to recognize these technologies still are regulated differently.
I call it the problem of boxes and bottlenecks. You still have whole industries regulated in boxes, competing with industries that aren't in those boxes at all. When you're in a box, you desperately want all your competitors to be in the box with you. That's why the phone companies are crying for cable companies to be regulated just like them. The solution is not to create more boxes but to create as much competition as you can. Liberate everyone from boxes. The goal is to get as many competitive networks out there so regulators can shut down.
My goal and the goal of the future Administration will be to focus on where the bottlenecks are and less on what kind of provider you are.