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To date, Federal Communications Commission Chairman Michael Powell has played his cards close to the chest. Nevertheless, he has made it clear that he's in favor of less regulation and allowing market forces to shape the telecommunications sector. But how that would translate into actual policies at the FCC has remained largely a mystery to both bureaucrats and boardroom denizens.
In the second week of February, strong hints started to emerge. On Feb. 14, the chairman and the FCC tentatively proposed reclassifying the Baby Bells' Internet offerings from a standard telecommunications service to an "information service," which would free them from many regulatory constraints. That could harm independent Internet service providers, which have depended on the Bells to carry their services. Meanwhile, earlier moves by the FCC could limit rules requiring the Bells to lease facilities to digital subscriber line competitors -- which could potentially kill off the ailing independent DSL industry.
None of this bothers Powell, however, who sees competition for broadband coming from cable, wireless, and even nascent systems yet to leave the drawing board. More broadly, the FCC announcement suggests that Powell and his colleagues could seek to remove federal constraints from much of the telecommunications market. BusinessWeek's Catherine Yang spoke about deregulation with Powell in his office on Feb. 14. Edited excerpts from their conversation follow:
Q: What's the FCC's objective in broadband policy?
A: What we're trying to do is examine whether we can provide a minimal regulatory environment [while still] protecting important public-policy goals. [It needs to be a less-intrusive environment] than what existed for traditional telephone regulation. If you just treat the new, innovative system the same as the mature system, you run the risk that it doesn't get built or that it takes too long to get built.
There's uncertainty and risk associated with not knowing what the regulatory environment for deployment is. If you're going to borrow a lot of money, dig up a lot of streets, invest a lot of capital -- in a terrible economic environment, by the way -- it's extremely punishing to be wrong. Companies will be very hesitant to undertake those risks when they don't even know how their service will be categorized.
In broadband, there are two kinds of costs. There is the real money [what is actually spent on deployment]. But regulatory and transactions costs are also a huge expense to the infrastructure providers. Knowing what the parameters are is really critical.
Q: Will there be enough competition from other players to give the Bells a run for their money?
A: Despite the short-term anxiety, this is going to have a good impact. Why? Because broadband is going to develop in a truly competitive way. That's something we never successfully achieved with the phone companies.
Right now, [for broadband] you have a choice of a telephone-based provider -- DSL -- or a cable provider. At a minimum, there's going to be those two vying for your business in the vast majority of the country. Both of them have infrastructures that reach over 90% of all Americans -- rural, poor, you name it, cable and telephone system runs near it. Depending on where you live, there's probably going to be a satellite company that can deliver high-speed data, too.
When we talk about 3G [third-generation cell-phone service], when we talk about advanced wireless, we're talking about broadband. We'll see that fourth platform provider. And I'm ready to say there will be a fifth. Somebody is going to [figure out how to] use the electrical grid as a broadband platform. Just last week, there were a number of new companies announcing new businesses that are going after using the electrical system for broadband.
Think about it. If every electrical plug becomes a broadband port, that would be huge. If all those things mature, that's five competitive platforms offering consumers differentiated choice of service. Telephone never achieved anything remotely like that.
Q: What happens to the smaller DSL companies that were competing with the Bells?
A: We're supportive of competition within DSL or cable. But I'm not necessarily in the business of guaranteeing it. I can't promise you the business model makes sense. That said, there is always a place for niche competition. There are going to be parts of the country where it's going to make a lot of sense to be a specialized provider for certain localities under certain conditions. The big providers won't be able to do as well as they'd like to pretend they will.
Q: Will the FCC enact universal service provisions for broadband, like it does for basic telephone service?
A: It's way too early to know. Is the goal of universal services to have ubiquity, to have all of America connected? Yes. Is it our goal that that service is affordable? Yes. Is it clear yet that the market will deliver that without government help? We've gotten conditioned to thinking of the universal service program and all its billions of dollars of subsidies as the functional equivalent of the goal. That's the way we reached the goal with telephone. [Government intervention] may not need to be the way we reach the goal with broadband.
I'm encouraged with the possibilities of the market providing universal broadband at reasonable prices. In the 1900s, the biggest problem with telephone service was where it hadn't gone. You had to cross the Colorado [River] and go to some remote places. Today, we're talking about a broadband infrastructure that's largely in place and merely needs to be systematically upgraded. So the incremental costs might be manageable.
People tell me broadband is the new electricity, the new water, the new natural gas, in terms of its importance to consumers. If that's true, then broadband [at monthly prices ranging from the mid-$30s to the mid-$50s] is demonstrating a pretty good track record in terms of being deployed at a good price.
Q: To what extent does the broadband question revolve around demand, not deployment?
A: Every new service is dependent on demand, and I can't guarantee it. It's up to the AOL Time Warners and Earthlinks of the world to demonstrate to consumers that the prices they are charging are worth it. If the companies don't get it right, nothing we do can make it better.
Hopefully, the Internet and high-speed access will live up to their hype and promise. At the end of the day, it's about consumers and content. I don't think consumers buy pipes. What they do care about is what they get over the pipes. The company that figures out how to provide content reliably on a mass-market scale and offer good customer service will profit handsomely.