FCC walks fine line in 2000

In multiple areas of telecom and Internet policy, Kennard's FCC has advocated and practiced what he calls "vigilant restraint," using regulation in a way he believes can help address market inequities and boost competition. His commission fought in court the right to auction wireless licenses while making room for more wireless carriers. It began examining broadband access but didn't rush to write rules.

The result has been that few industry lobbyists, consumer advocates or members of Congress have been particularly happy with the commission's approach. With a new administration arriving under President-elect George W. Bush, the lessons learned from Kennard's handling of hot-button technology issues will be closely scrutinized amid acrimony regarding his tenure.

"The FCC repeatedly oversteps its statutory authority," Rep. Billy Tauzin, R-La., told a conference on FCC reform recently. Tauzin is someone the commission will likely have to face even more in the coming session, as he is the odds-on favorite to chair the House Commerce Committee next year.

By the same token, some view Kennard's stewardship of the agency as too hands-off.

"The FCC under Bill Clinton has been absolutely useless," said Jeff Chester, president of the Center for Media Education, who feels the commission never goes far enough in protecting the interests of consumers. He has been prodding the agency for three years to force cable companies to allow competing Internet service providers on their broadband networks.

The result is an unclear future for a commission that could have a broad effect on the way the Internet and communications technologies will touch the lives of U.S. consumers.

How open is your access?
Perhaps no issue has created more heat during Kennard's tenure than open access, which was intended to open up cable networks to third-party Internet service providers. Kennard has repeatedly cited the broadband market as a nascent one not appropriate for regulation and only chose to launch an inquiry on the subject after conflicting court cases all but demanded the FCC provide some clarification.

But his approach has been faulted. Consumer advocates and media watchdogs say that once the cable companies establish a beachhead on high-speed Internet access, it will be much harder for the FCC to break open the market.

Kennard has also won some praise, however. Robert Sachs, president of the National Cable TV Association, clearly opposes open access and wasn't thrilled that the FCC launched an inquiry. "Our companies have invested billions of dollars and bet it on broadband."

But he said he has found acceptable the FCC's "vigilant oversight" policy on broadband, primarily because FCC studies have shown increasing competition from DSL, satellite and fixed wireless companies. As a result, the FCC has yet to intercede in the broadband market.

Opening the skies a slice at a time
Earlier this year Kennard issued a strong warning to the wireless industry.

Using the scientific term for the airwaves used by wireless phone providers and other services, Kennard said "we are in danger of a spectrum drought." Promising strong action by the FCC, he warned "the demand for spectrum is outstripping supply."

One result of Kennard's focus was a new set of rules issued last month that will make it easier for wireless carriers to lease unused spectrum to others. But even some commissioners agreed the rules will free up only a fraction of the existing spectrum.

The agency continued to fight for its right to re-auction 95 wireless licenses that NextWave Telecom defaulted on when it declared bankruptcy. The FCC has repeatedly won that fight and is selling those and hundreds more licenses in an auction now under way. But there are two thorny issues the FCC has yet to resolve.

One is the spectrum cap, which limits the amount of airwaves one company can control in a market. Both Democrats and Republicans in Congress have been calling for the FCC to abolish or raise the cap because they fear large providers such as Verizon Wireless and AT&T Wireless won't be able to offer next-generation, or 3G, services.

As for finding new spectrum space for 3G services, incumbent users in the federal government, mostly in defense agencies, have been resisting reallocation or spectrum sharing.

With the FCC making no visible progress on this front, President Bill Clinton recently issued an executive order setting strict deadlines on the commission to clear up spectrum. The FCC has begun to operate with that schedule in mind, but there's no guarantee that the Pentagon will become more cooperative.

Competitors hear a dial tone
In the wired world, the FCC watched as numerous competitive local exchange carriers (CLECs) ran out of money in 2000, according to John Windhausen, president of the Association of Local Telecommunications Services.

Why is this relevant to the FCC?

Because "the CLECs were born out of an Act (in 1996) with the intent to have competition" in the phone industry, said Gartner analyst David Rendall. He said the primary thrust of the Telecom Act was to break open the Baby Bell monopolies, and the FCC's actions have failed to pull that off.

The CLECs say part of the problem is that the Bells continue to resist allowing the competitors to connect with the Bell networks. Windhausen wants the commission to force Bells to "separate their phone companies into wholesale and retail" units without financial ties. That way the CLEC can contract access with a wholesale company that won't perceive the CLEC as a competitor, the way the retail unit of a Baby Bell would.

Network access "is the last nut to crack" from the Telecom Act, said Ellen Blackler, special assistant in the FCC Common Carrier Bureau. But she suggested that Windhausen's aggressive approach isn't likely to prevail. Instead, the FCC "is moving more to an enforcement environment" of cracking down on Bells when they fail to cooperate with CLECs.

In an example of that strategy, the FCC recently marked the first year of its new Enforcement Bureau, which has negotiated several penalties with Bells.

Other CLECs, such as Winstar, have also been clamoring for access to multitenant buildings, either for rooftop antennas or for the inside wiring so they can offer telecom services to tenants. But due in part to questions concerning the FCC's jurisdiction over landlords, it was cautious in writing new access rules.

One individual who would have liked the FCC to be more aggressive is Terry Monroe, vice president of the Competitive Telecommunications Association. "A lot of the investment community has turned sour" because so many CLECs offer traditional phone and high-speed Internet access via rooftop but haven't received the clearances the venture capitalists anticipated, he said.

The FCC placed coal in the CLECs' Christmas stockings, meanwhile, in a recent vote to phase out the compensation they receive from Bells for taking calls. Many of those calls terminated at ISPs, and the process was netting the CLEC industry billions of dollars annually--revenue that will cease as a result of the FCC's action.

Flexing muscle?
The FCC's voice was also heard at the outset of what turned out to be a doomed merger between two of the telecommunications industry's largest companies: WorldCom and Sprint. The FCC played only a small role in sinking the companies' ambitious merger, as it characteristically works more slowly than the Department of Justice. But it was clear from the beginning that FCC regulators were looking on the deal with a skeptical eye.

In comments shortly after the agreement was announced, Kennard told reporters that it was a "surrender" of competition. "How can this be good for consumers?" he asked. "The parties will bear a heavy burden to show how consumers would be better off."

Kennard's controversial tenure as FCC chairman is coming to an end, as Bush will name his own chairman, most likely current commissioner Michael Powell.

Powell laid down a blistering critique of the FCC in a recent public speech, suggesting the agency needs to completely rethink its role in the telecommunications marketplace. What's unclear is how aggressively a Powell commission would stray from the FCC's current path.

News.com's John Borland contributed to this report.