Commentary: Getting Real At The FCC

Unlike Powell, the next chairman must put ideology aside to foster new services

When Michael K. Powell exits as chairman of the Federal Communications Commission in March, his successor will face a world of dizzying technological change. Cell phones, digital TV, Wi-Fi hot spots, and music downloads are becoming the stuff of everyday life for many Americans. Meanwhile, the growing adoption of broadband is delivering ever-niftier services, from movie downloads to phone calls, over the Internet. The FCC will be navigating a world of real convergence between data, phone, and video services long predicted by futurists.

But as the agency wrestles with the issues raised by these dazzling developments, its new chairman must avoid the trap into which Powell fell: He came to hold an unshakable belief that technological advances would sweep aside the necessity for regulation. In the long run, Powell's dream may come true -- and his deregulatory bent did boost competition. The Bells, for example, are building fast fiber networks to compete with cable carriers to bring Web, phone, and TV services to homes. Yet the market is still a long way from the competitive nirvana that Powell envisioned. As a result, the new chairman must safeguard basic communications services and promote new entrants who'll create competition.

While the White House isn't tipping its hand, Powell's likely successor appears to be FCC Commissioner Kevin J. Martin. He has shown that he understands the need for regulation when marketplace competition has yet to fully flower. He clashed with Powell -- and ultimately lost -- on local phone rules. Martin argued that local phone competition hadn't taken sufficient hold to warrant unshackling the Bells from requirements to lease their networks at a discount to local phone startups. But whether it's Martin or someone else, the next chief will have a full plate. In four key issues -- spanning tomorrow's media, phone, TV, and Internet services -- consumers need muscular action from regulators to protect them as technology develops.

BIG MEDIA. Powell tried unsuccessfully to lift restrictions on the number of broadcast stations and newspapers one company can own. The advent of cable and the Web, he reasoned, created so many outlets that Old Media consolidation would not reduce the diversity of viewpoints. But many of the most-trafficked New Media outlets are owned by Old Media companies and may not offer the diversity he envisions. A federal appeals court overturned many of Powell's proposals. If the FCC pursues a U.S. Supreme Court appeal and loses, the new chairman must be more measured to instill a free flow of ideas.

PHONES FOR EVERYONE. A century ago, AT&T (T ) and the Feds established a subsidy system to ensure affordable telephone service to all, especially in hard-to-reach rural America. Today, universal service guarantees a communications lifeline for the poor and those in remote areas. But as more consumers abandon copper-wire networks to make their phone calls over the Web, that system is eroding. Voice-over-Internet providers often don't pay the universal service fee. Given the enduring consensus for universal service, the FCC needs to retrofit the program to ensure that all phone providers -- wireless, Web, or traditional -- that use the old phone network pay into the $6.7 billion fund.

Meanwhile, lawmakers and the FCC should examine how big that fund needs to be as more families have access to cheaper wireless and Web phoning.

DIGITAL TV. Next, the FCC has to take on TV broadcasters to get back airwaves needed to expand wireless broadband service. Back in 1996 lawmakers gave broadcasters a new part of the radio spectrum for digital transmissions. Broadcasters were supposed to relinquish the airwaves they use for analog signals when 85% of U.S. households can get digital TV -- and no later than 2006. By either measure, the deadline is nigh, and wireless broadband innovators are clamoring for airspace in which to ply wireless services, such as WiMax. But broadcasters aren't about to give anything back without kicking and screaming. The FCC, with help from Congress, should step in and take back the spectrum it's owed while finding a way to migrate everyone to digital TV.

BROADBAND RULES. Perhaps the biggest challenge confronting the FCC is the wild frontier of broadband service provided by cable companies. The Supreme Court will decide this year whether cable broadband access is subject to regulation. However the high court decides, it will still be up to the FCC to ensure that cable companies don't discriminate against third-party services that run over their broadband networks. Today, for example, Vonage Holdings Corp. sells its Web-phone service using Time Warner Cable's (TWX ) broadband pipes. But as Time Warner and other cable carriers start selling their own Web-phone services, they must be required to route Vonage's phone calls as efficiently as their own. Now, only the Bells' DSL offerings are subject to such requirements. "If you're going to advance broadband to the greatest number of Americans, you create an environment where competitive products can thrive," says Dave Baker, vice-president of law and public policy at Atlanta-based Internet service provider EarthLink Inc. (ELNK ), which would depend on access to cable high-speed and DSL networks to survive in a broadband world.

Maybe one day, a sufficient number of new technologies will compete vigorously enough with one another that the FCC will be free to step aside. But for now, the regulatory hand is still needed to ensure a smooth transition to that future.

By Catherine Yang

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