i can t believe i actually read a laugh out loud funny profile of the fcc commissioner fer crissakes so the following article comes recommended a fine explanation of michael powell s extraordinary equivocation on the other hand i can also agree with werbach s werblog entry rohit a trip to f c c world nicholas lemann has a piece in the new yorker this week about fcc chairman michael powell it s one of the first articles i ve seen that captures some of powell s real personality and the way he s viewed in washington unfortunately lemann ends by endorsing conventional political wisdom after describing how powell isn t really a fire breathing ideological conservative he concludes that in essence powell favors the inumbent local bell telephone companies while a democratic fcc would favor new entrants i know that s not how powell sees the world and though i disagree with him on many issues i think he s right to resist the old dichotomy the telecom collapse should be a humbling experience for anyone who went through it the disaster wasn t the regulators fault as some conservatives argue but something clearly went horribly wrong and policy makers should learn from that experience contrary to lemann s speculation the upstart carriers won t be successful in a gore administration because it s too late virtually all of them are dead and wall street has turned off the capital tap for the foreseeable future some may survive but as small players rather than world dominators the battle between clecs and rbocs that lemann so astutely parodies is old news the next important battle in telecom will be between those who want to stay within the traditional boxes and those who use different models entirely that s why open broadband networks and open spectrum are so important whatever the regulatory environment there is going to be consolidation in telecom those left out in that consolidation will face increasing pressure to create new pipes into the home or slowly die the victors in the consolidation game will cut back on innovation and raise prices which will create further pressure for alternatives lemann is right that policy making looks much drier and more ambiguous on the ground than through the lens of history but he s wrong in thinking that telecom s future will be something like its past friday october NUMBER NUMBER NUMBER NUMBER NUMBER am comments NUMBER URL the chairman by nicholas lemann he s the other powell and no one is sure what he s up to new yorker october NUMBER NUMBER last year my middle son in eighth grade and encountering his first fairly serious american history course indignantly reported that the whole subject was incomprehensible i was shocked what about gettysburg and the declaration of independence and the selma to montgomery march just look at my textbook he said and when i did i saw his point his class had got up to the eighteen forties what i expected was a big beefing up of the roles of sacagawea and crispus attucks and in deed there was some of that but the main difference between my son s text and that of my own childhood was that somebody had made the disastrous decision to devote most of it to what had actually happened in american history there were pages and pages on tariffs and bank charters and reciprocal trade agreements i skipped ahead past the civil war hoping for easier going only to encounter currency floats and the regulation of freight rates only a few decades into the twentieth century did it become possible to see the federal government s main function as responding to dramatic crises and launching crusades for social justice instead of attempting to referee competing claims from economic interests even now if one were to reveal what really goes on behind the pretty speeches and the sanctimonious hearings in washington what you d find is thousands of lawyers and lobbyists madly vying for advantage not so much over the public as over each other agribusiness versus real estate banks versus insurance companies and so on the arena in which this competition mainly takes place is regulatory agencies and commissions and the congressional committees that supervise them it s an insider s game less because the players are secretive than because the public and the press encouraged by the players who speak in jargon can t get themselves interested one corner of washington might be called f c c world for the federal communications commission f c c world has perhaps five thousand denizens they work at the commission itself at the house and senate commerce committees and at the washington offices of the companies that the commission regulates they read communications daily subscription price NUMBER NUMBER a year and every year around christmastime they grumblingly attend the chairman s dinner at a washington hotel where the high point of the evening is a scripted supposedly self deprecating comedy routine by the commission s chairman of all the federal agencies and commissions the f c c is the one that americans ought to be most interested in after all it is involved with a business sector that accounts for about fifteen per cent of the american economy as well as important aspects of daily life telephone and television and radio and newspapers and the internet and right now f c c world is in if not a crisis at least a very soapy lather because a good portion of what the angry public thinks of as the corporate scandals concerns the economic collapse of companies regulated by the f c c qwest worldcom adelphia and global crossing among others are or were part of f c c world aol time warner is part of f c c world jack grubman the former salomon smith barney analyst who seems to have succeeded kenneth lay of enron as the embodiment of the corporate scandals is part of f c c world in the past two years companies belonging to f c c world have lost trillions of dollars in stock market valuation and have collectively served as a dead weight pulling down the entire stock market this year an alarmed and acerbic anonymous memorandum about the state of the f c c has been circulating widely within f c c world it evokes f c c world s feverish mood the f c c is fiddling while rome burns and suggests why nobody besides residents of f c c world has thought of the commission in connection with the corporate scandals the sentence i just quoted is followed by this explanation the ilecs appear likely to enter all l d markets within twelve months while losing virtually no residential customers to attackers since NUMBER and suffering about NUMBER market share loss in business lines to clecs it s a lot easier to think about evil c e o s than to decipher that even in good times f c c world pays obsessive attention to the commission s chairman in bad times the attention becomes especially intense and when the chairman is a celebrity f c c world devotes itself to full time chairman watching the current chairman michael powell is a celebrity at least by government official standards because he is the only son of colin powell the secretary of state unlike his father he has a kind of mesmerizing ambiguity which generates enormous and at times apoplectically toned speculation about who he really is and what he s really up to powell is young to be the head of a federal agency he is thirty nine and genially charming everybody likes him before becoming chairman he was for three years one of the f c c s five commissioners not only is he fluent in the f c c s incomprehensible patois he has a clintonesque love of the arcane details of communications policy he s always saying that he s an avid moderate and yet he has a rage inciting quality one of his predecessors as chairman reed hundt quoted in forbes compared powell to herbert hoover mark cooper of the consumer federation of america calls him radical and extreme just as often as he s accused of being a right wing ideologue powell gets accused of being paralytically cautious it ain t about singing kum ba yah around the campfire another former chairman william kennard says you have to have an answer one day last spring powell testifying before a senate subcommittee delivered an anodyne opening statement and the subcommittee s chairman ernest hollings of south carolina berated him you don t care about these regulations hollings said you don t care about the law or what congress sets down that s the fundamental that s the misgiving i have of your administration over there it just is amazing to me you just pell mell down the road and seem to not care at all i think you d be a wonderful executive vice president of a chamber of commerce but not a chairman of a regulatory commission at the government level are you happy in your job extremely powell said with an amiable smile one cannot understand powell s maddening effect at least on democrats and liberal activists without understanding not just the stated purpose of the commission he chairs but also its real purpose the f c c was created by congress in NUMBER but it existed in prototype well before the new deal because it performs a function that is one of the classic easy cases for government intervention in the private economy making sure that broadcasters stick to their assigned spots on the airwaves its other original function was preventing american telephone telegraph the national monopoly phone company from treating its customers unfairly over the decades as f c c world grew up into a comfortable well established place the f c c segued into the role of industrial supervision its real purpose it was supposed to manage the competition among communications companies so that it didn t become too bloody by artfully deciding who would be allowed to enter what line of business in addition to looking out for the public s interest the commission more specifically protected the interests of members of congress many of whom regard the media companies in their districts as the single most terrifying category of interest group you can cross the local bank president and live to tell the tale but not the local broadcaster according to an oft told f c c world anecdote president clinton once blocked an attempt to allow television stations to buy daily newspapers in the same city because he said if the so and so who owned the anti clinton little rock democrat gazette had owned the leading tv station in little rock too clinton would never have become president f c c world may have been con tentious but it was settled too because all the reasonably powerful players had created secure economic niches for themselves then in the nineteen eighties the successful breakup of a t t by far the biggest and most important company the commission regulated deposited a thick additional sediment of self confidence onto the consciousness of f c c world a generation ago for most americans there was one local phone company one long distance company and one company that manufactured telephones which customers were not permitted to own and they were all the same company it was illegal to plug any device into a phone line by the mid nineteen nineties there were a dozen economically viable local phone companies a handful of national long distance companies competing to offer customers the lowest price and best service and stores everywhere selling telephone equipment from many manufacturers and millions of americans had a fax machine and a modem operating over the telephone lines a t t had argued for years that it was a natural monopoly requiring protection from economic competition and total control over its lines so much for that argument over the same period the f c c had assisted in the birth of cable television and cell phones and the internet it was the dream of federal agency success come true consumers vastly better served and the industry much bigger and more prosperous too the next big step was supposed to be the telecommunications act of NUMBER one of those massive endlessly lobbied over pieces of legislation which most people outside f c c world probably felt it was safe to ignore although the telecom act sailed under the rhetorical banner of modernization and deregulation its essence was a grand interest group bargain in which the local phone companies known to headline writers as baby bells and to f c c world as arbocks the pronounced version of rbocs or regional bell operating companies would be permitted to offer long distance service in exchange for letting the long distance companies and smaller new phone companies use their lines to compete for customers consumers would win because for the first time they would get the benefits of competition in local service while getting even more competition than they already had in long distance but the politics and economics of the telecom act which was shepherded through congress by vice president gore were just as important democrats saw the act as helping to reposition them as the technology party the party that brought the internet into every home created hundreds of thousands of jobs in new companies and not least set off an investment boom whose beneficiaries might become the party s new contributor base clinton s slogans about the information superhighway and building a bridge to the twenty first century which like all clinton slogans artfully sent different messages to different constituencies were the rhetorical correlates of the telecom act and gore s cruise to the presidency was supposed to be powered substantially by the act s success the f c c had a crucial role in all this the arbocks are rich aggressive politically powerful and generally republican though like all important interest groups they work with both parties they immediately filed lawsuits which wound up tying the hands of their new competitors in the local phone market for more than three years through rule making enforcement and litigation the f c c then headed by reed hundt who was gore s classmate at st albans was supposed to keep the arbocks in their cages so that not only long distance companies like a t t and mci worldcom but also a whole category of new companies see lecks the pronounced version of clecs or competitive local exchange carriers could emerge this entailed the regulatory equivalent of hand to hand combat the see leck is supposed to have access to the arbock s switching equipment the arbock won t give the seeleck a key to the room where it s kept so the see leck asks the f c c to rule that the arbock has to give it the key partly because hundt assured the see lecks and other new companies that he would protect them and partly because of the generally booming condition of the economy then investment capital flooded into the see lecks companies with names like winstar covad and teligent and into other telecommunications companies even not obviously related technology companies like cisco systems benefitted from the telecom boom demand for their products was supposed to come from the see lecks and other new players there would be no conflict between the interests of the new telecom companies and those of consumers as one of hundt s former lieutenants told me reed used to joke that my job was to make sure that all prices went down and all stocks went up the years following the passage of the telecom act were the peak of the boom wall street had its blood up and that meant not just more startups but also more mergers of existing communications companies time warner and aol decided to throw in together and a t t and comcast and so on surely worldcom and the other telecom bad guys believed that their self dealing stock overselling and creative accounting would go unnoticed because the market was so undiscriminating by the time the outcome of the NUMBER presidential election had been determined the telecom crash was well under way nonetheless the chairmanship of the f c c remained one of the best jobs in terms of influence and visibility available to a career government regulator three republicans emerged as candidates powell who was a commissioner harold furchtgott roth the farthest to the right commissioner and patrick wood the head of the texas public utility commission and as such a george w bush guy in texas however wood had crossed the most powerful person in the arbock camp edward whitacre the c e o of s b c communications which is headquartered in san antonio this meant that the arbocks didn t want wood as head of the f c c because he might be too pro see leck wood is now the head of the federal energy regulatory commission michael powell had to signal the arbocks that he wasn t as threatening as wood while also signalling the conservative movement that he was only negligibly farther to the left than furchtgott roth powell did this deftly for example in december of NUMBER he appeared before a conservative group called the progress freedom foundation and gave a very michael powell speech whimsical intellectual and free associative biblical history joseph schumpeter moore s law that began by making fun of the idea that the f c c should try to keep new telecom companies alive in the wake of the NUMBER act the f c c is often cast as the grinch who stole christmas powell said like the whos down in who ville who feast on who pudding and rare who roast beast the communications industry was preparing to feast on the deregulatory fruits it believed would inevitably sprout from the act s fertile soil but this feast the f c c grinch did not like in the least so it is thought thus powell was indicating that if he became chairman he didn t expect to administer first aid to the see lecks as part of the job he was appointed to the chairmanship on the first day of the bush administration twenty months into the administration nearly all the see lecks are dead or dying nearly all long distance companies not just worldcom are in serious trouble cable companies have lost half their value satellite companies are staggering the crash has had an automatically concentrating effect because as new companies die the existing companies market share increases and if the existing companies are in good shape financially they have the opportunity to pick up damaged companies at bargain prices during the bush administration as the financial carnage in communications has worsened the communications industry has moved in the direction of more concentration if the bells wind up protecting their regional monopolies in local phone service and if they also merge the country will be on its way to having a national duopoly in local service verizon in the east and s b c in the west and these companies could dominate long distance as well because of the poor health of the long distance companies the cable business also seems close to having two dominant national companies aol time warner and comcast unlike the phone companies they don t have to share their wiring with other companies and so can more fully control what material they allow to enter people s homes as part of the complicated bargaining with interest groups that led to the NUMBER telecom act the limits on concentration in the radio industry were significantly loosened and in the past six years the number of radio station owners in the united states has been cut by twenty five per cent today a large portion of local and national radio news programming is supplied by a single company westwood one a subsidiary of viacom in this situation many democrats and liberals think the f c c should be hyperactive the superhero of government regulation springing to the rescue of both consumers and the communications industry it should try to breathe life into the see lecks and other new companies it should disallow mergers maintain ownership limits and otherwise restrain the forces of concentration it should use the government s money and muscle to get new technology especially fast internet connections into the homes of people who can t afford it at current market prices an analogy that a lot of people in f c c world make is between telecom and the middle east the clinton people blame the bloodshed on the bush people because they disengaged when they came into office and the bush people blame it on the clinton people because they raised too many expectations and stirred too many passions but michael powell s f c c has not been hyperactive powell has been conducting internal policy reviews and reforming the management of the f c c and waiting for the federal courts and the congress to send him signals in mid september powell finally initiated a formal review of the f c c s limits on media concentration this doesn t mean he has been inactive rather he has been active in a way that further infuriates his critics in a manner that smoothly blends the genial and the provocative he muses about whether the fundamental premises of f c c world really make sense while giving the impression that he s having the time of his life as chairman at his first press conference when he was asked what he was going to do about the digital divide that is economic inequality in access to the internet he said you know i think there is a mercedes divide i d like to have one and i can t afford one at the national cable telecommunications association convention in chicago powell following a troupe of tumblers to the stage interrupted his walk to the podium to perform a somersault not long ago i went to see powell in his office at the f c c until NUMBER when the commission moved to a new building in southwest washington near the city s open air fish market f c c world was at the western edge of downtown where everybody would encounter everybody else at a few familiar restaurants and bars today the f c c building looks like the office of a mortgage company in a suburban office park even the chairman s suite though large is beige carpeted and fluorescent powell is a bulky man who wears gold rimmed glasses and walks with a pronounced limp the result of injuries he suffered in a jeep accident in germany in NUMBER when he was an army officer because of the accident he left the army and went to law school where he became entranced with conservative ideas about regulation particularly the idea that the government rather than trying to correct the flaws of the market before the fact prophylactically as he likes to say should wait till the flaws manifest themselves and then use antitrust litigation to fix them he worked briefly at a corporate law firm and then became a protégé of joel klein the head of the antitrust division of the clinton justice department and the man who led the government s legal case against microsoft he was recently appointed chancellor of the new york public school system it testifies to powell s political skill that he is probably the only high official in the bush administration who not only served in the clinton administration but also maintains close ties to bush s nemesis senator john mccain of arizona one of the things about powell that annoy people is his enduring love of law school it s sort of like a law school study session over there one democratic former commissioner said as if to confirm the charge powell when i arrived introduced me to four law students summer interns at the commission whom he d invited to sit in i began by asking powell whether he agreed with the founding assumptions of the f c c for example could private companies have apportioned the airwaves among themselves without the government being involved i think we ll never know powell said i don t think it s an automatically bad idea the way some people will argue land is probably the best analogue we don t seize all the land in the united states and say the government will issue licenses to use land if my neighbor puts a fence one foot onto my property line there s a whole body of law about what i can do about that including whether i can tear it down if a wireless company was interfering with another wireless company it s a similar proposition there are scholars who argue indeed the famous ronald coase treatise that won the nobel prize was about this that spectrum policy is lunacy the market could work this out in the kinds of ways that we re accustomed to talking to powell was fun unlike most high government officials he doesn t seem to be invested in appearing dignified or commanding he slumps in his chair and fiddles with his tie and riffs he speaks in ironic air quotes he s like your libertarian friend in college who enjoyed staying up all night asking impertinent rhetorical questions about aspects of life that everybody else takes for granted but that he sees as sentimental or illogical after a while i asked him whether he thought his predecessors excitement about the NUMBER telecommunications act had been excessive i would start with a caveat powell said look i can t fault those judgments in and of themselves given the time and what people thought they were not the only ones who were hysterical about the opportunities but frankly i ve always been a little bit critical first of all anybody who works with the act knows that it doesn t come anywhere close to matching the hyperbole that was associated with it by the president on down about the kinds of things it s going to open up i mean i don t know what provisions are the information superhighway provisions or what provisions are so digitally oriented or some of the things that were a big part of the theatre of its introduction when one starts reading the details one searches often in vain for these provisions but nonetheless there was a rising dot com excitement and an internet excitement and people thought this was historic legislation and it certainly was but we were sucking helium out of balloons with the kinds of expectations that were being bandied around and this is before the economy or the market even gets in trouble it was a dramatically exaggerated expectation by the leadership of the commission by politicians by the market itself by companies themselves it was a gold rush and led to some very detrimental business decisions ones that government encouraged by its policies frankly everybody wanted to see numbers go up on the board powell began imitating an imagined true believer in the telecom act i want to see ten competitors twenty competitors i want to see thirty per cent market share fifty per cent market share i want the bells to bleed then we ll know we ve succeeded now powell returned to being powell i think that expectation was astonishingly unrealistic in the short term they wanted to see it while they re there we were starting to get drunk on the juice we were drinking and the market was getting drunk on the juice we were drinking there s no question we went too soon too fast too many companies took on too much debt too fast before the market really had a product or a business model how could the telecom act have been handled better we could have chosen policies that were less hellbent on a single objective and were slightly more balanced and put more economic discipline in the system powell said money chased what seemed like government promised opportunity the problem with that is there s a morning after and we re in it and the problem is there is no short fix for this problem this debt is going to take years to bring down to a realistic level in some ways for short term gain we paid a price in long term stability powell went on to say that it might have turned out differently if there had been a more reasonable level of investment no we wouldn t have every home in america with competitive choice yet but we don t anyway i don t think it s the remonopolization of telephone service i don t buy that the bells will prosper but did anybody believe they wouldn t the part of the story that didn t materialize was that people thought so would mci worldcom and sprint other local phone companies he added hadn t materialized as viable businesses either and they never might everybody s always saying the regulators did this and this and this but candidly the story s quite the opposite i think the regulators bent over backward for six years to give them a chance conditions don t get that good except once every thirty years and it didn t happen so whatever the reason we re looking at a worldcom that s teetering we re looking at a long distance business that has had a rapid decline in its revenue base a t t is breaking itself up sprint has struggled could the f c c have done anything to make the long distance companies stronger at the f c c i think i ll just be blunt my political answer yes there s all kinds of things we can do at the margin to try to help but i can t find thirty billion dollars for worldcom somewhere i can t mitigate the impacts of an accounting scandal and an s e c investigation were i king it would be wonderful but i don t have those kinds of levers i don t know whether anybody does at some point companies are expected to run themselves in a way that keeps them from dying powell couldn t have made it much clearer that he doesn t think it s his responsibility to do anything about the telecom crash he has demonstrated his sure political touch by making accommodationist gestures in august for example five months after disbanding the f c c s accounting safeguards division powell announced that he was appointing a committee to study accounting standards in the communications industry but that shows that powell is better at riding out the storm than say harvey pitt his counterpart at the securities and exchange commission and does not mean that he plans to try to shore up the telecom industry i asked powell if it would bother him if for most people only one company provided cable television and only one provided local phone service yes he said it concerns us that there s one of each of those things but let s not diminish the importance of there being one of each of those things that still is a nice suite of communications capabilities even if they aren t direct analogues of each other anyway powell said before long the phone companies will be able to provide video service over their lines and the cable companies will provide data service over their lines so there will be more choice so yeah we have this anxiety we have one of everything the question is does it stay that way the concentration of ownership and the concentrated control of information did not appear to trouble powell either he said that people confuse bigness which brings many benefits with concentration which distorts markets if this were just economics it s easy if you were to say to me mike just worry about economic concentration we know how to do that the econometrics of antitrust i can tell you when a market s too concentrated and prices are going to rise the problem is other dimensions like political ideological sometimes emotional take the question of if everybody s controlling what you see the assumption there is that somehow there ll be this viewpoint a monolithic viewpoint pushed on you by your media and you won t get diversity i think that s a possibility i don t think it s nearly the possibility that s ascribed to it sometimes powell explained sometimes when we see very pointed political or parochial programming it gets attacked as unfair i see some of the same people who claim they want diversity go crazy when rush limbaugh exists they love diversity but somehow we should run howard stern off the planet if it has a point of view then it becomes accused of bias and then we have policies like here his tone went from ironic to sarcastic the fairness doctrine which seems to me like the antithesis of what i thought those people cared about so when somebody is pointed and opinionated we do all this stuff in the name of journalistic fairness and integrity or whatever to make them balance it out f c c world abounds in theories about michael powell one is that he can t make up his mind about how to address the crisis in the industries he regulates so he talks and talks and talks flamboyantly about the market in order to buy himself time another is that he s carrying water for the arbocks and the big cable companies another is that he is planning to run for the senate from virginia or to be appointed attorney general in a second bush term and doesn t want to do anything at the f c c that would diminish his chances another is that he s waiting to move until there is more consensus on some course of action so that he doesn t wind up going first and getting caught in the crossfire between the arbocks and the cable companies and the television networks in f c c world this is known as the powell doctrine of telecom after colin powell s idea that the united states should never commit itself militarily without a clear objective overwhelming force and an exit strategy and another is that he actually believes what he says and thinks the telecommunications crash is natural healthy and irreversible and more concentration would be just fine this is why elections matter reed hundt who isn t happy about what has become of his telecom act told me it s true that the f c c much more than say the war in afghanistan is a case in which a gore administration would be acting quite differently from the bush administration consumers might have noticed the difference by now but there s no question whether communications companies have noticed the arbocks are doing better against their internal rivals than they would have done if gore had won next election they ll help the party that helped them if the republicans win policy will tilt further in the arbocks favor if they lose perhaps the arbocks rivals the long distance companies and the telecommunications upstarts with their friends now in power will stage a comeback america s present is not unrecognizably different from america s past 