Michael Powell's Communication Failure


By Jane Black When Michael K. Powell took the helm of the Federal Communications Commission in 2001, he was unequivocal about his objectives. He would free the Bells -- Verizon (VZ), SBC (SBC), BellSouth (BLS), and Qwest (Q) -- from local competitors, liberate the media from ownership caps, and spare cable and telecom companies from having to open their lines to competitors that wanted to offer high-speed Internet service. Powell the Regulator had just one goal: to deregulate.

Two-and-a-half years later, Powell has seen his dreams of deregulation dashed. In February, his vision for the local-phone carriers suffered a stinging political defeat when fellow Republican Commissioner Kevin J. Martin joined forces with two Democrats to support a competing plan. In May, the Ninth Circuit Court of Appeals grilled FCC attorneys in a case challenging the agency's decision to grant exclusive control over Internet access to cable giants. This month, committees in both houses of Congress moved to reverse the liberalization of the cap of national TV ownership.

No wonder rumors are swirling that Powell could resign as early as September. Such speculation is bolstered by the recent departure of Susan Eid, his former spokesperson, who has been replaced by an "interim" appointee. Sources say two other staff members have also been putting out feelers. The FCC has denied that Powell, who is on a two-week vacation, intends to resign.

SILENCE ISN'T GOLDEN. What happened? Powell, a former antitrust lawyer at the Justice Dept., may be a brilliant visionary, but he has turned out to be less of a diplomat and politician than his father, Secretary of State Colin Powell. On his three top issues, Chairman Powell devised strong arguments for deregulation, advancing logic within the Byzantine world of telecom policy. But he always seemed reluctant to make his case publicly, or even privately to his fellow commissioners, until it was too late.

"This job is a lot tougher than it looks," says Blair Levin, a telecom policy analyst at investment firm Legg Mason who served as FCC chief of staff from 1993 to 1997. "Balancing the different constituencies at the commission and the Congress, business, and the public interest is essential."

Take the media-ownership debacle. Though Powell had the support of the two Republican commissioners as well as business lobbyists, he never made a case for why relaxing rules on media mergers was in the public interest. This despite the fact that poll after poll showed that the majority of Americans are against media consolidation.

OVERWHELMING RESPONSE. Instead, Powell advanced a pragmatic, legal argument that might have sounded good to a judge but never would have flown with a jury. In his June 2 statement announcing new rules that, among other things, would boost the number of stations a network could own to equal 45% of the national TV audience from the current 35%, Powell stated that "keeping the rules exactly as they are...was not a viable option" because doing so wouldn't be sustained by the courts.

The result: A populist revolt backed by interest groups ranging from the National Organization for Women and good-government group Common Cause to the National Rifle Assn. and the pro-life Family Research Council. The FCC received more than a half-million e-mail responses to the ruling, causing the agency's servers to crash (see BW Online, 6/16/03, "Mad as Hell at the FCC"). Last week, the House Appropriations Committee didn't hesitate to adopt an amendment to freeze network ownership at the 35% level. And on July 15, a bipartisan group of senators introduced a joint resolution to overturn the FCC's order in its entirety.

Powell advocated sweeping deregulation that would have quickly eliminated rules that the Baby Bells claimed were allowing competitors to offer service over their network below cost. But on Feb. 20, the commission voted 3-2 to allow the states to decide if competition is well-rooted enough to permit deregulation. To date, state regulators have proved sympathetic to the Bells' competitors, such as AT&T (T) (see BW Online, 3/10/03, "Telecom: What the FCC Has Wrought").

"TRIVIAL MISUSE." On the day of the vote, Powell spoke eloquently about the danger of handing that power to the states, arguing that it would create myriad sets of rules and undermine a cohesive national telecom policy. In a dissenting statement, Powell ridiculed the states' rights argument, calling it a "trivial misuse of a cherished constitutional precept.... States are given control over the rates set for unbundled elements," he continued, "but it is principally the obligation of the FCC to determine what those elements will be.... States can assist in that effort, but our responsibilities should not be released to them."

Why didn't Powell make this case in the months leading up to the decision? That's what Martin, the Republican commissioner whose policy ultimately prevailed, did three months earlier at a Washington (D.C.) telecom conference. More important, why didn't Powell present his position to Martin himself? Insiders say the two commissioners didn't exchange views until the week before the rulemaking and that the two have been estranged since.

Will Powell go? He's no Harvey Pitt, the former Securities & Exchange Commission chairman with two political left feet who was forced out last year. The White House might prefer to keep Powell right where he is, avoiding what could be a controversial confirmation hearing for the new chairman. And the Ninth Circuit could still rule this fall in Powell's favor on the contentious definition of broadband service, giving the chairman a much-needed victory and new confidence in his agenda.

However, the rampant rumors may have already taken their toll. Powell is young, smart, and ambitious. If he decides that he'll be unable to advance his vision, he may have little incentive to stick around. Today, Powell's focus may be less on how to free big business from regulation and more on whether to free himself from the role of communications regulator-in-chief. Black covers telecom policy for BusinessWeek Online


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