A Pair Of Live Wires Will Charge The Telecom Debate

John McCain was one of just five senators to vote against the landmark Telecommunications Act of 1996. His beef: The law deregulating the telecom industry didn't go far enough. Now the Arizona Republican is in line to chair the Senate commerce committee that crafted the sweeping reforms. And that may well mean political fireworks ahead.

McCain is a far cry from the current chairman, bland South Dakotan Larry Pressler, who lost reelection. McCain's bold stands have riled some in the industry. He has favored making broadcasters pay billions for new airwave capacity that Pressler wanted to sell on better terms for the industry. McCain also wants to lift limits on foreign ownership of U.S. communications companies. And while Pressler was considered an ineffectual overseer of the Federal Communications Commission, McCain will keep the FCC on a short leash.

McCain's pressure on the FCC will be mirrored by a fellow deregulator in the House. Representative W.J. "Billy" Tauzin (R-La.), the new head of the House telecom subcommittee, plans his own hearings on whether the agency is going too far in setting new rules for creating competition. "They are both assertive and not averse to expressing their views," says Scott Cleland, managing director with Schwab Washington Research Group.

IDEOLOGICAL BATTLES. That's good news for the Baby Bells--hardly FCC fans. A brawl is now brewing over how to overhaul the system of subsidies that keeps local phone rates low in high-cost rural areas. The FCC plans to add bargain-basement Internet access for schools and libraries to the new subsidy system. But that could force local phone companies to kick more into the new subsidy fund. McCain, who pushed to cut existing subsidies, and Tauzin are likely to challenge that. "The FCC is doing a little social engineering," Tauzin gripes.

Though the Bells may be cheered by such stands, others in the industry are worried about the change in committee leadership. Broadcasters want free use of additional spectrum to shift from the current analog television system to digital TV. Until all Americans have digital TV sets, they argue, they'll need the extra airspace to beam programs in both analog and digital form. But McCain wants them to pay up front at auctions, which could raise at least $10 billion.

Given broadcasters' power, an auction remains a long shot. Still, McCain could use that as a bargaining chip to win other concessions, such as free TV time for political candidates. "The real issue is: If they escape auctions, what do they give up in return?" says Nicholas W. Allard, a lawyer with Latham & Watkins.

Or give in return. McCain and Tauzin should see their own campaign coffers swell because of their new clout. Both chairmanships have typically been a magnet for business contributions. While McCain, who's up for reelection in 1998, is promoting campaign finance curbs, aides say he has no plans to refuse donations from the industries he influences.

The most lasting impression McCain and Tauzin may have on the industry is the future of the FCC. Tauzin has shown interest in defanging the powerful federal regulator. And McCain will have great influence over the five-member commission next year because the Senate may confirm up to three new members--plus there's talk that Chairman Reed E. Hundt also may depart in 1997.

Of course, McCain's and Tauzin's ambitious plans to reshape telecom deregulation could spark clashes with some Demo-crats as well as within the industry. "There will be some serious ideological battles," warns one Capitol Hill staffer. With these new powerbrokers in charge, last year's historic telecom fight may have been only Round One.

    Before it's here, it's on the Bloomberg Terminal.