Like the two-headed Roman god Janus, Powell needs to build a new beginning for the telecom industry, but many of his pronouncements seem to point back to the days of telco monopolies and government compliance.

by Jim Wagner Managing Editor, ISP-Lists [August 2, 2002]

An earnest and appealing Federal Communications Commission (FCC) chairman sat before a board of U.S. Senate finance committee members Tuesday, telling Congressmen the agency needs sweeping reform to prevent networks from going dark in the event of a telecom bankruptcy.

Michael Powell put forth his "Pyramid Chart on Six Critical Steps for Telecom Industry Recovery," to U.S. Senators on the Commerce Committee, laying out the groundwork for an industry rebound in the wake of a devastating stock freefall—a freefall caused by improper accounting and a severe downturn in demand for broadband.

"I can't tell you how what a kick in the stomach the (recent) news has caused to an industry that's already on its knees," Michael Powell said.

One of Powell's six steps includes giving the FCC the authority to mandate a 31-day waiting notice for any provider even thinking about shutting down its network.

It sounds like good, common sense.

Protecting large comapnies from the small
The only problem is this—Powell's spent the past year doing his best to allow carriers and cable companies to prevent open access (or "forced access," as cable companies call it), which lets competitive ISPs and carriers on the network—like the telephone companies do with DSL—something that could come back to haunt him in the face of intense public scrutiny over the financial failure of America's biggest telecom carriers.

In March, he and other FCC commissioners deemed cable broadband Internet access (the most popular form of high-speed Internet access in the U.S.) an "information service with a telecommunications component," and free from open access requirements.

Two months later, the FCC helped spur a U.S. Court of Appeals decision, which reversed line-sharing requirements for the Baby Bells when dealing with competitors. The Bells see this as a distinct victory, maintaining the "serious affect" putting data and voice traffic on the same telephone wire has on consumer service.

These rulings pose a problem for the FCC now. After spending the past couple years trying to deregulate the telecom industry, Powell now wants some regulatory power over the very carriers he was trying to deregulate in the first place.

Currently, the only provision giving the FCC the power to impose a discontinuance notice is a little-known paragraph found in Title II, Section 214 of the ancient Communications Act of 1934:

No carrier shall discontinue, reduce, or impair service to a community, or part of a community, unless and until there shall first have been obtained from the (FCC) a certificate that neither the present nor future public convenience and necessity will be adversely affected hereby.

The only time people hear about the obscure rule is when one of the four Baby Bells violates the conditions imposed by it and is penalized by the FCC. For example, SBC was fined $3.6 million in May, $84,000 in March, and $354,000 earlier for disobeying the agreement it signed with the FCC when it merged with Ameritech.

Touching Section 214, relic of a bygone telecom era that it is, to keep networks open would raise even bigger questions in the industry, according to Scott McCollough, a telecom lawyer with Stumpf, Craddock, Massey & Pulman in Texas.

Generally, only incumbent telephone companies (ILECS) like Verizon Communications and Qwest Communications are required to comply with Section 214 rules. Telecom service providers not considered "common carriers", such as competitive local exchange carriers (CLECs) and cable companies, aren't required to file with the FCC under the section.

Section 214 requires common carriers to open their lines for competitors to lease on a non-discriminatory and equitable base, and contribute money to the universal service fund, telecommunications relay service and North American Numbering Plan.

The warts of deregulation
McCollough said, "recall that Powell wants to deregulate broadband by finding it to be an 'information service.' (Powell) is now apparently finding out that deregulation has its warts—like when lots of consumers get harmed because a large deregulated entity tanks overnight."

There are a lot of unanswered questions, McCollough said, in Powell's call for power. What does the FCC do when cable companies are labeled common carriers under Section 214? What does that mean to the FCC's current policy, which treats cable companies as an information service?

"For example, if a cable company is now a carrier, it must interconnect with other providers carriers under (Sections) 201 and 251(a)(1), which applies to all carriers," he said. "I can turn the interconnection obligation into something close to open access. (Or) is the FCC is going to eliminate the interconnection obligation for all carriers? If it does that, then we have undone 80 years of work making the network seamless and interoperable."

The FCC chair has always maintained the markets should compete, free from regulation, in order to spur broadband Internet services throughout the country. But what happens when the markets start to fail?

It's a question House Democrats have been asking a lot these days. Earlier this week, Congressmen called on Powell to rethink his broadband strategy in the wake of recent events, saying deregulation obviously has some problems.

Freedom's meltdown
While there appears to be no danger, at present, that a carrier like WorldCom (whose UUNet carries a significant portion of the world's IP traffic) will shut down its networks, it remains a possibility. KPN Qwest's Ebone in Europe is only partially alive.

It's a nightmare scenario @Home cable Internet subscribers found themselves in only eight months ago, when bondholders tried to shut down the network to save money during a Chapter 7 bankruptcy proceeding.

The FCC had asked the federal judge to keep the network open, but didn't have the legal means to force the judge to comply. Powell himself spoke up in defense of consumers, asking the judge to "balance not just the interests of one debtor and its creditors, but also those millions of customers and the American public."

The plea fell on deaf ears: the judge soon approved the bondholder request to shut down the network. It's a decision Powell understands, though he couldn't have done anything about because of existing FCC policy, which doesn't (and doesn't want to, if previous rulings are any indicator) have the same power over cable companies as it does with telephone companies.

It was certainly a nightmare for former NorthPoint Communications digital subscriber line (DSL) customers. They woke up one morning to find out their DSL modem was nothing more than a paperweight after bondholders convinced a Chapter 7 bankruptcy judge to shut down the NorthPoint network to save money.

"It's like bleeding a turnip," Powell told Congressmen Tuesday. "The bankruptcy court looks to stop the bleeding by helping bondholders get some money back on their investment, sometimes for only pennies on the dollar. When regulators try to keep operations open, it's keeping the bleeding going in the eyes of the bankruptcy court."

While the specter of a telephone or cable network shutdown is seen merely as a hypothetical exercise (despite the two very real exercises mentioned above), Powell wouldn't rule out its possibility. It was enough to spook legislators into action.

The possibility of another NorthPoint or @Home was dire enough for Sen. Fritz Hollings (D-SC), chairman of the commerce, science and transportation committee, to demand a FCC plan "immediately"—spelling out a shutdown strategy—before Congress goes on break for the summer.

The truth is too complex for prime time
Will Congress act? Dave Burstein, editor of the popular newsletter DSL Prime, said the Senate doesn't have much of a clue when it comes to the technical arcana of telecom and is looking for an answer only because of recent events.

"I think that nobody (cares) about anything other than $300 billion CEO scandals," he said. "So things like definitions of whether someone is an 'information service' or not, I don't think they have any idea of what that's about."

The FCC chairman, he said, knows exactly what he's doing, which is to make it look like he's championing consumers while, in effect, he's protecting service providers from much of their regulatory obligations.

"He specifically asked Congress to give him legislation that would allow him to take 'information service' folks, not put them under everything (in Section 214), but give the FCC the ability to prevent them from shutting down," Burstein said. "He's talking out of three sides of his mouth."

Certainly, one could find some sympathy with the FCC's dilemma, an agency, which in the words of Sen. John McCain (R-AZ), a Senate commerce committee member, is there to "serve and protect the consumer."

It certainly seems to make sense to apply Section 214 to cable companies and service providers; after all, what happens when the next telecom crisis reaches consumer America?

But Powell's words and his actions don't seem to add up: does he want more regulatory authority over his constituents (a la shutdown authority) or doesn't he (broadband as an information service).

Telecom regulation—a thorny issue in the best of times—is made worse with the possibility of more network shutdowns and bankruptcy cases.

According to Roman mythology, Janus was the two-headed god in charge of new beginnings, who looked in different directions to gaze at the start and end of each day. Powell, from his lofty perch as ruler of the telecom world, is looking at both the old telecom world and the new, and has the power to make change.

So which head is speaking, the old regulatory dictates of the past or the new broadband of tomorrow? Only Powell seems to know right now.

— End