Commentary: Powell must do balancing act

Michael Powell, the newly appointed chairman of the Federal Communications Commission, will need to balance less regulation in general with strong action in a few areas.

The incoming Republican administration of George W. Bush is widely expected to do even less regulating of the economy and American business than did the Clinton administration.

In the near term, the telecommunications industry in general will likely have a renewed fixation on financial realities and discipline, making a laissez-faire attitude on the part of the FCC appropriate. Recent months have seen not only telecommunications stocks plummeting but also debt structures being downgraded. This has a major impact on the capital expenditure and infrastructure buildout plans of the telecommunications industry.

As commodity prices, such as those for long-distance voice minutes, fall through the floor, the basic business models of telecommunications providers come into question. In response, even the largest players (such as AT&T and WorldCom) are considering divesting and restructuring business lines to improve focus and financials, which we believe will be the biggest driver of change in telecommunications.

However, three specific areas stand out and demand FCC action: wireless services, competitive access to local services, and equal access to high-speed services for inner cities and rural areas.

Wireless services
If the new FCC chairman takes a laissez-faire attitude toward issues like wireless, America will be set back even further than it is now, and we may not see anything resembling nationwide 3G (third-generation) wireless until after 2010.

For some time, America has been at least three years behind Europe and other parts of the world in the areas of wireless services. Today, Europeans are further down the road to agreeing on a consistent approach to 3G wireless and are beginning to upgrade to the new level of service. Meanwhile, the United States continues to struggle with a patchwork of wireless systems that interoperate only with significant pain and do not have a clear migration to 3G. Europe has GSM (Global System for Mobile Communications) today because the European regulatory bodies got together several years ago and dictated that this would be the standard.

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The reason radio and television took off as quickly as they did was that the FCC established a clear standard, whether individual players liked it or not. Competing technologies only make it less likely that new digital services will be successful and wireless use will increase, generating the cash flow that the carriers need to support the huge debt they are running up to build out the wireless infrastructure. In general, international standards are the ones to go with.

Competitive access to local services
FCC activism is also needed in the area of competitive access to local-loop services. Both incumbent local exchange carriers (ILECs) and cable TV providers have been slow to enable competitive access to their infrastructures. As it has with the AOL-Time Warner merger, the FCC needs to continue to push cable providers to provide access to numerous information and service providers, such as Internet service providers.

Similarly, ILECs need to be pushed to provide straightforward, rapid interconnectivity to players such as the competitive local exchange carriers (CLECs) offering DSL services. Otherwise, local-loop services will continue to be mired in the bickering and obstructionism that comes with deregulating any monopoly environment.

In contrast, Michael Powell's recent history of dissenting from majority votes forcing AOL to interoperate its instant-messaging system with competitors is appropriate. A laissez-faire attitude toward this issue will work itself out as products actually come to market and competitive pressures rise, although the FCC likely would have gotten involved further down the road.

Equal access
FCC action is also needed in the area of equal access. The suburbs have always subsidized telephone service to rural areas and low-income portions of cities. The FCC must address the issue of advanced services being brought to areas where the business case is not clear--into inner cities and other nonaffluent areas and out to the farms--or the "digital divide" between richer and poorer areas will grow larger.

Corporate and individual wireless users should urge the FCC to show continuing vigor in enforcing real competition through intelligent allocation of spectrum, driving clear wireless standards, ensuring competitive local-loop interconnection, and providing advanced communications services across the entire nation and not just in affluent areas. Meanwhile, users should be aggressive in managing their telephone services and avoid long-term contracts.

Meta Group analysts David Willis, Peter Burris, Val Sribar, Jack Gold, and William Zachmann contributed to this article.

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