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Industry Standard

Congress doubts FCC up to managing Internet


March 16, 1999
Web posted at: 11:16 a.m. EST (1616 GMT)

by Elizabeth Wasserman

WASHINGTON (IDG) -- Even in tradition-bound Washington, few institutions have a more byzantine bureaucracy than the Federal Communications Commission. Nor can many other agencies match the FCC in sheer power.

With regulatory responsibility for the nation's telecommunications and broadcast infrastructure, the FCC oversees companies that generate revenues of hundreds of billions of dollars a year. But inside and outside the Beltway there are growing doubts that the commission is up to the job.

Starting next week, Congress will begin a series of hearings to take a long, hard look at the FCC's current structure, and consider whether a major overhaul is required. Rep. W.J. "Billy" Tauzin, the Louisiana Republican who heads the House telecommunications subcommittee, plans to summon FCC Chairman William Kennard and the four other FCC commissioners to a Capitol Hill hearing room to discuss reauthorizing and possibly restructuring the commission. The Senate plans similar hearings.

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But Kennard pre-empted the hearings on Friday, telling reporters he will unveil his own proposal for restructuring the agency when he testifies.

Kennard says his goal is to refocus the FCC on three main areas: consumer services, including universal service; enforcement of regulations to keep competition open; and allocation of spectrum. The restructuring could include revision of the FCC's bureau system but would not include the creation of any separate Internet bureau. He hopes to release the "blueprint" of his proposal this spring, solicit public comment and implement some of the changes by fall.

"I don't want FCC reform to become a wish list for industry," says Kennard, though he acknowledges that reform may be appropriate in light of the fact that convergence is changing the industries the FCC regulates. "It needs to be about consumers."

Meanwhile, Tauzin wants to do for the FCC what last year's congressional spotlight did for the Internal Revenue Service.

"The horror stories at the IRS hearings drove some reforms," says Tauzin. "I'd like to go further [with the FCC]." His goal is nothing less than an entirely new FCC.

Tauzin says he is interested in addressing a variety of issues, including whether changes are needed in the number of commissioners and the way they are appointed. He also wants to study the way oversight is exercised over the agency.

Among his concerns are complaints from companies that have had to wait long periods for FCC decisions, such as on rules of competition or approval of mergers. While the Justice Department reviews mergers, the FCC also has oversight of telecommunications-related acquisitions. The FCC has approved the pending merger of AT&T and Tele-Communications Inc., while the jury is not expected to be back until mid-year on the proposed mergers between phone giants SBC and Ameritech, and Bell Atlantic and GTE.

The FCC's critics question whether an agency created in the New Deal era has a place in the Internet Economy. Among other things, they point to the FCC's lackluster implementation of the 1996 Telecommunications Act, which was supposed to deregulate the telecom business, bringing Americans both cheaper and more plentiful sources of information and entertainment. Three years later, cable rates are up, competition in the local residential telephone market has failed to materialize, and the Internet is changing the definitions of the industries the FCC regulates.

Headed by a panel of three Democrats and two Republicans, the FCC has taken a cautious approach to Internet issues. Publicly, the commissioners say they want to keep the Net free of regulation, but regulating the communications lines over which Net traffic travels is central to their mission. They have issued rulings on some key issues, recently deciding, for instance, that dial-up Internet connections are long-distance calls even when made through a local number. Kennard contends that this ruling only affects the fees phone companies pay each other for terminating calls, and not the cost of Internet service to consumers. But critics allege it opens the door to per-minute Internet charges.

The FCC has so far stayed away from the really difficult issues, such as whether IP-based telephone calls should be subject to standard telephone-industry rules. "As long as I am chairman of the Federal Communications Commission, this agency will not regulate the Internet," Kennard told analysts at the Legg Mason Precursor Group conference in Washington last Thursday. Some members of Congress would go even further. Not only do they say the FCC has no statutory authority to regulate the Net, they charge that the commission has ignored provisions in the Telecom Act under which regulated industries can be deregulated to speed up deployment of high-speed Internet services.

The criticism comes from both sides of the aisle. "It is time for Congress to step in," says Rep. Rick Boucher, a Virginia Democrat. "Not to regulate, but to draft a measure for the growth and development of the Internet. The commission has been too reluctant to address a core set of concerns." Boucher and Rep. Bob Goodlatte, a Republican from Virginia, are the cochairmen of the Congressional Internet Caucus. They plan to introduce a wide-ranging bill that would lift some regulations during this legislative session.

Created in 1934, the FCC was charged with regulating the radio, telephone and telegraph industries, all of which were then in a Net-like boom. The FCC predated the first round-the-world telephone call and the first commercial television broadcast - not to mention the advent of satellites, modems, cable and PCs. In short, there's been a communications revolution.

Sixty-five years after its creation, the FCC has a staff of 1,975, a budget of $192 million and six bureaus with regulatory authority over an estimated $500 billion chunk of the U.S. economy. And each of the industries it regulates are subject to different rules. And therein lies the problem posed by convergence. The cable and telephone industries want to sell consumers the same thing: high-speed Internet connections. "It almost doesn't make sense to keep putting out more powerful computers if you can only access a trickle of information," says Fiona Branton, VP of the Information Technology Industry Council, which represents computer hardware manufacturers. "The problem is basically regulatory gridlock. The local phone and long-distance industries are stuck in this argument about who can get into whose business .Meanwhile, this technology is just out there. We stand on the sidelines and watch this battle."

Peter Pitsch, a former FCC chief of staff who now directs communications policy in Washington for Intel, has been pushing hard to get the FCC to take a more proactive role. "We believe the widespread availability of broadband will tap the full potential and drive computer sales," Pitsch says. "What the FCC needs to do is make the right decision expeditiously."

The commission is expected to shortly finalize rules defining how the Baby Bells sell ultrafast digital subscriber line services to American consumers. Last year, the Bells asked the FCC for permission to sell DSL services outside the scope of regulations covering the local voice market. Among other things, the Bells are required to resell local phone service to competitors at wholesale prices. The commission indicated last fall that the Bells could provide DSL services without these obligations - if they set up separate subsidiaries. So far, though, none of those companies have done this; they're waiting to hear whether similar requirements will be placed on their data services.

An FCC report to Congress last month on the DSL issue was met with derision. Sen. John McCain, an Arizona Republican who chairs the Senate Commerce Committee, mocked the FCC's conclusion that "high-speed Internet access is now a reality at affordable prices." In a statement, McCain sneered at the FCC's forecast that high-speed access is "expected to soar," noting that "it's hard to pick an argument with this conclusion, at least mathematically; with fewer than 2 percent of all households having access today, virtually any increase would be substantial."

The Bells, of course, have been lobbying for a free hand to offer high-speed access, especially since their rivals in the cable business have a head start. A recent FCC study estimates that there are only 25,000 DSL subscribers, compared to 375,000 cable-modem subscribers, although the author admits those figures are outdated.

"The statutes under which the FCC operates makes it very difficult for the FCC to work in the digital age," says Tom Tauke, VP for government relations for Bell Atlantic and a former congressman. "In the digital age, you have convergence. Everything is bits. You can't tell video from voice and data. Distance means very little.

"Even staunch supporters of the FCC say some restructuring would help bring "regulatory parity" to industries that now compete head-to-head anyway. "The way the FCC is set up, institutionally and legally, is that it's based on a vertical division of the world by different categories," explains Kevin Werbach, managing editor of Release 2.0, a technology newsletter. In 1997, while working at the FCC, Werbach wrote "The Digital Tornado," an influential report on the implications of the Internet on telecommunications. "The Telecom Act and the laws the FCC has to apply are divided up into ideological categories - telecom vs. information services. The Internet crosses over those barriers."

The FCC's defenders say the agency is just one actor on a multiplayer stage dominated by Congress, the White House and industry. "The FCC is in a very difficult position," says Michael Nelson, program director for Internet technology at IBM. "They are trying to deregulate a regulated industry in a way that creates new competition and doesn't lead to new regulation of the new industry. Frankly, the FCC is trying to untie this Gordian knot one strand at a time."

Meanwhile, the knot is getting knottier. Internet service providers, including America Online, MindSpring and Prodigy, have stepped up efforts to convince the FCC and Congress to force the cable industry to let them offer their services via cable. The cable companies, says James Love, director of the Consumer Project on Technology, "have been evil in the past. They've used their control over transport to discriminate in content. They will do it over the Internet, too, if they're allowed." Internet content companies have moved to the sidelines, fearing that a drawn-out battle on the issue will slow the rollout of broadband services. "You're going to see a lot of heavyweights slugging it out in the ring," says one company's lobbyist.

Not even the FCC's harshest congressional critics think the commission needs to be entirely dismantled. But the upcoming hearings will consider which FCC activities are unnecessary, and might better be handled by the states. Another hot issue: whether the FCC should have the power to review telecom mergers. This will be the first time Congress has taken a hard look at the FCC since 1970. Back then, says Tauzin aide Ken Johnson, "there was one telephone company and three TV networks - and no one had heard of Bill Gates."

FCC chairman nixes rumor of Internet long-distance charges
March 11, 1999
FCC rules ISP calls are interstate, not local
February 26, 1999
Senate committee to review Telecommunications Act
February 11, 1999
Users, advertisers await FCC decision on Internet charges
November 7, 1998

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Uncle Sam looks to do right by the Net; Uncle Al overreaches
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