TCS Daily

How Not to Be a Regulator

By James K. Glassman - January 27, 2005 12:00 AM

Michael Powell's decision Friday to step down as chairman of the Federal Communications Commission is a blessed event. It paves the way for a successor who can bring consistency and stability to revive telecom policy -- and competition and lower prices to benefit consumers.

Powell, 41, took over the FCC four years ago, pledging a free-market approach. Many key decisions, however, promoted the opposite. For example, after saying that he would end the double standard on indecency (which leaves cable and satellite networks largely free of government censorship), he instead slapped huge fines on radio and TV broadcasters and expanded the federal mandate for meddling in an area that should be policed by media, advertisers and consumers themselves.

Powell's excuse was that Congress pressured him, but -- in a more important area to consumers -- Powell made his mark by ignoring the will of Congress.

That area involved the access of competitors to local telecom networks established by the Bell companies operating as a government-protected monopoly for a century.

In 1996, Congress, with conservatives concurring, established a blueprint to bring competition to local telephony, just as an earlier court decision had brought competition -- plus better service and lower prices -- to long distance. The bargain was that the local Bells, then seven and now merged to just four, would be allowed into long distance in return for giving smaller competitors access -- at a price -- to their networks.

The Bells got long distance, and, after long and nasty fights in the courts and in Congress, they were forced to comply on access. Better broadband (fast Internet connection) technology spread, and so did lower prices.

But Powell, along with another commissioner, Kathleen Abernathy (who is also leaving), battled on the Bells' behalf for years, producing the kind of uncertainty that deterred investors from committing capital to the sector.

Powell lost a key vote, and the stage seemed set for an explosion of competition. Instead, the courts got into the act once more, and the Bush Administration itself, which had wisely sat on the sidelines during the controversy, came down on Powell's side and refused to appeal.

The result: cutbacks in employment at companies like AT&T, MCI and at the Bells themselves (the hallmark of a monopolist is to reduce supply) and rate increases across the country (30 percent in Illinois, 19 percent in California, etc.). Plus, of course, increased uncertainty.

"Everyone will be looking forward to working with a new commission because of the unproductive attitude that has enveloped this one," said Jessica Zufolo, an analyst for Medley Global Advisors.

Powell's regime, in fact, provided a model for how not to run a regulatory agency. What's required is strong leadership, consistency, transparency and consensus, which give markets the confidence that a clear path is set and decisions will stick. With Powell, you got the reverse.

"The key thing we're looking for is some uniformity," said Jeff Zucker, president of NBC, after the announcement. "Right now it has appeared that everything has been dealt with so indiscriminately and differently in each case."

In addition, Powell's thirst for approval -- and his aggressive courtship of the media -- not only turned off potential allies but also led to self-deception, overconfidence and poor decisions.

His departure itself was classic. His office issued a five-page statement of his achievements, and he announced his exit in an embarrassing, self-congratulatory op-ed. Powell wrote, "Having completed a bold and aggressive agenda, it is time for me to pursue...."

One doubts that Powell's father, the outgoing Secretary of State, would pat himself on the back this way.

In fact, the younger Powell's agenda is nowhere near completed. In an interview, Blair Levin of Legg Mason, the financial firm, cited the backlog of "unfinished business." Among the items: hands-off rules that will allow Internet telephony to thrive, a final decision on how many stations media companies can own (after a fiasco in which Powell irked the administration), and reasonable access by competitors to local networks.

I don't think a regulator should have an agenda at all -- if, as in Powell's case, an agenda means a personal plan for how technology should evolve and which companies should be winners and losers. Instead, regulators should be agnostic about the future and let it be determined by innovation, competition and the tastes of consumers. This, Michael Powell has not done. His successor must.


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