Deregulation: Why Michael Powell Is Wrong

Recently, Clear Channel Communications Inc. (CCU), the giant radio chain whose vice-chairman is a crony of President George W. Bush, became an embarrassment to sponsors of deregulation. Thanks to the decontrol of radio in 1996, Clear Channel now owns 1,214 local stations, including every single station in some small cities, and it is exercising its power. Last month, Clear Channel appears to have discouraged its radio stations from playing the pop group the Dixie Chicks because their lead singer criticized the President. After September 11, a program director at the chain suggested that other songs, including Paul Simon's Bridge over Troubled Waters and the John Lennon anthem Imagine not be played. Clear Channel's market power has been criticized by advertisers and concert promoters for allegedly starving competitors into submission and jacking up ad rates.

Deregulators, beware. You can mess with V.I. Lenin, but not John Lennon. This kind of media concentration, with its dogmatic control over content and bullying of competitors, is fast becoming the wrong kind of poster child for deregulation, which supposedly relies on market forces to keep the airwaves free.

If you like Clear Channel's ham-handedness, you will love what Federal Communications Commission Chairman Michael K. Powell has in mind for the rest of telecom. His across-the-board deregulation drive has stalled only slightly, owing to his doctrinaire views and clumsy handling of fellow commissioners. Powell's first target is telephone service. The 1996 Telecommunications Act let local phone monopolies into long-distance once they opened their local markets to competition. That determination has fallen largely to state public utilities commissions, because market conditions differ state by state.

The Baby Bells have fought to weaken the law by challenging requirements that they lease lines to rivals at competitive costs. In February, Powell tried to give the Baby Bells their way, arguing "inter-modal competition" would moot the threat of monopoly. In other words, if the local phone monopoly rips you off, you can always get a cell phone and even Internet phone service. Powell cites Manhattan, where 14 different providers offer service. But, as consumer groups observe, this hardly describes Manhattan, Kan. Most of the country lacks New York City's density and does not attract multiple vendors of phone service. Nor is cell-phone service a perfect substitute for land lines. State utilities commissioners resisted the FCC's power grab and were joined by many Republicans. Powell was out-voted by 3 to 2 in February.

A second crucial realm Powell would go after is broadband. Here, the stakes are even higher. The Internet is the 21st century's medium of commerce. Contrary to claims of free-market zealots, its development has been an intriguing blend of pure laissez-faire and public-interest regulation. The content of the Net has been the fruit of a wide-open bazaar, but its transmission -- the ability of information purveyors and users to freely connect with each other -- has depended on the principle that common carriers cannot discriminate, a creature of regulation.

This principle has already been abandoned for cable companies, which are mostly deregulated. And if Powell gets his way, broadband providers will be free to decide what they carry and on what terms. In such a world, Clear Channel is the unfortunate role model. With deregulated broadband, the local phone company, offering DSL service, would provide one avenue of Internet access, and it would strike deals with big content providers to channel users their way. Competing Internet service providers could be charged higher rates and squeezed out. If you didn't like the phone company's package, you could always switch to the rival cable monopoly, which would offer a different mix of pricing and content bundling. This is Powell's utopia of intermodal competition, as realized in practice. It recalls the choice between Pravda and Izvestia.

The final realm of prospective deregulation is the FCC's long-standing rules on media concentration, which have limited the market share of any single cable giant, capped the number of local TV stations owned by networks, and prohibited newspaper-TV cross-ownership. Powell, on his own authority, wants to scrap most of that, too, ceding to market forces the FCC's historic role in protecting the diversity of news and information. But the recent history of newspaper publishing and TV broadcasting reveals that market forces produce conglomeration and centralization. FCC Commissioner Michael J. Copps was so incensed that he scheduled his own set of field hearings. Powell, defensively and belatedly, scheduled a single hearing in the friendly territory of Richmond, Va.

Powell has set June 2 for FCC action on these troubled waters. Lately he has gotten criticism from Republican senators Gordon Allott (Colo.), Olympia J. Snowe (Me.), and Susan Collins (Me.), as well as Commerce Committee Chairman John McCain (Ariz.). It takes a lot to make Republicans skeptical of deregulation, but Powell is managing it. Imagine. By Robert Kuttner

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