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It’s the FCC on the Line

Indecency is just one channel of a post-Powell FCC show.
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Once upon a time, issues like universal service and the splintering of monopolies defined the role of the Federal Communication Commission’s authority on communication. Who would have thought that a fancy dance move by Justin Timberlake resulting in an "wardrobe malfunction" affecting Janet Jackson could push all that onto the sidelines?

After all, it wasn’t just flesh that was exposed on that Superbowl Sunday stage in early 2004. The moment also changed and redefined the role of the FCC—at least through the eyes of the public.

But indecent two-steps aside, there’s much more to what the FCC is charged with presiding over, even if questionable curse words and primetime peep shows are what garners the most press. And the next few years of the always-morphing telecom market will demand that the recently named new head of the FCC, Kevin Martin, can hold onto the reins to ensure fair competition and expanding, economical broadband access so the consumer and the industry don’t suffer from their own wardrobe malfunctions.

In his own words, Michael Powell, who exited the FCC’s chairman role in March, said his tenure was about trying to "get the law right in order to stimulate innovative technology that puts more power in the hands of the American people, giving them greater choices that enrich their lives." There’s no doubt that the four years since he signed on as chairman (in January 2001), and the eight years since he’d been a commissioner (November 1997), technology was stimulated; it seeped into every nook and cranny of the average person’s everyday life.

Powell’s FCC career began just as the ink on the Telecom Act of 1996, designed to promote competition, was drying. And in the years that followed, cell phones, with a current 175 million users in the U.S. alone, have become ubiquitous. Broadband access has replaced dial-up connections as the mode of choice for connecting to the Internet (in 2002 new broadband accounts outnumbered new dial-up accounts, according to Jupiter Research). Cable, DSL, and satellite services scramble to outprice and outpromote each other to attract customers, especially in the most lucrative suburbs. Automobiles are being equipped with telematics and eventually high-speed Internet access. And voice over the Internet, or VoIP, has certainly flourished during his term, nibbling into traditional landline offerings and providing more options in economical communications.

Increasingly, it is the content that’s questioned, as the pipes to deliver that content become more sophisticated and available.

But while serving as the FCC’s chairman, Powell was equally heralded for fostering technology as he was harangued for indulging industry. Critics charged that he made progress at the expense of the public, that big media and telecom companies had little in the ways of a checks and balances system under Powell’s watch. And that he could have done much more to champion the little guy.

"As for Powell’s legacy, he came in a bad time," says Daryl Schoolar, analyst at research house Cahner’s In-Stat. "The telecom industry was already post-bubble weakened. I am disappointed that he did little with his position to make the market healthier and more competitive, especially for the consumer."

In a post-Powell FCC, the issues that ignited during his stewardship will likely continue, say experts, especially since both Kevin Martin’s and Michael Powell’s tenures occurred under the same Bush administration. While consumer-protecting policies like the Do Not Call list, which forbade telemarketers from harassing an uninterested public, and local number portability, which allowed wireless customers to bring their phone numbers with them when they abandoned their wireless providers, were championed by Powell’s FCC, there were other issues that squeezed consumer freedoms. That same tug-of-war, of being pulled by big industry while steering an agency that espouses to protect the public, will continue.

One of the most publicized issues that Powell’s FCC found itself facing was the lines drawn in the sand over content. As the walls crumbled down on what the public would allow into their living rooms, such as people swallowing bug larvae on a reality TV show, and what they wouldn’t tolerate (Jackson’s wardrobe malfunction, as evidenced by more than a half million complaints to the FCC), the agency in 2004 found itself acting as the Nanny Cam of society. When Bono, the singer with the musical group U2, uttered an expletive, was it indecent or just passionate (the latter, according to an FCC ruling that it didn’t violate obscenity rules because the word was used more as an adjective). When TV actress Nicolette Sheridan staged dropping her bath towel in front of football player Terrell Owens, and by association millions of Monday Night Football viewers, was it offensive or defensive, even worth a penalty? It took the FCC approximately nine weeks to "throw in the towel" and judge the spot fair game.

Morality and decency—a significant part of the George Bush platform and a big reason for his reelection—of content was now to be as important as the placement of the pipes that delivered the broadband in the first place. It’s unlikely that under this administration, there will be little loosening of the content rules governing what’s acceptable. Indecency complaints hovered around 14,000 in 2002, up from about 350 in the previous year, according to reports. (That all pales in comparison to the hundreds of thousands of complaints the halftime performance garnered.) It marked "a dramatic rise in public concern and outrage about what is being broadcast into their homes," said Powell, as reported in Adweek in December 2004.

Who should control the content that consumers ingest also came into question during Powell’s term, and will probably be revisited. The FCC had voted 3 to 2, along party lines to soften the rules governing media ownership, meaning one company could own more radio and television stations per market. The Circuit Court found that the FCC didn’t have grounds to bend such rules. While the Bush administration, at the end of January, decided not to appeal the judgment, experts expect the issue—of much importance to mega-broadcasters—will surface again. Still, two of the FCC commissioners, both democrats, blessed the decision as a win for the public at large.

"At least for today, the power of the American people triumphed over narrow corporate interests. It’s a victory for millions of people who voiced their concern about letting big media companies get even bigger. It signals how badly the FCC failed to comply with the law," stated commissioner Jonathan Adelstein in an FCC statement after the decision not to appeal. "We need to go back to the drawing board and get it right. I hope we learned our lesson that public anger flares quickly when the government sides with media conglomerates. We ought to listen to the public this time." Increasingly, it is the content that’s questioned, as the pipes to deliver that content become more sophisticated and available. But if all that content was coming from a handful of sources, it would be devoid of diversity, regardless of the myriad ways there are to access that content. Is that really progress?

The FCC has enabled the era of the mega-merger in telecom, another movement that’s likely to continue. Only a week after Powell’s announcement to step down, SBC Communications bought up AT&T in a deal valued at $16 billion that was still pending regulatory approval in late March; the companies are expecting the merger to close in late 2005/early 2006. The biggest deal before that in telecom was the acquisition of AT&T Wireless by Cingular Wireless, jointly owned by SBC Communications and BellSouth. That deal hatched the largest wireless company in the U.S. Only weeks before Powell’s term started, America Online was approved to officially buy up traditional publishing company Time-Warner. The independent service providers wanted Time-Warner’s pipes opened for access, and consumer groups feared the worst. William Kennard, the then-chairman of the FCC, put on some safety brakes on that merger, imposing "some very narrowly tailored conditions to make sure that these companies can come together, pool their resources and innovate without becoming the 800-pound gorilla that could unfortunately squelch competition by other competitors." One of those conditions, believe it or not, was to open up the then-on-the-verge-of-exploding Instant Messaging service jump-started by AOL. But even though it was a condition of the merger, complete interoperability with IM services is still being hashed out. According to a late-March article on PDFZone, AOL’s Steve Case told the FCC at a hearing on the AOL/Time-Warner merger that "the challenge we all face now is to create server-to-server interoperability that allows users of all these different services to talk to each other seamlessly. To that end, AOL has taken several steps forward." A statement to which that not all IM competitors peeking into AOL’s so-called walled garden agree.

Likewise, multimedia messaging on mobile phones, too, lacks interoperability. So while you can take a great photo with your camera phone, you might be blocked from sending it to another person who uses a different wireless network. That’s an innovative technology that’s been stifled because the service providers can’t agree to agree on how to share revenues. That doesn’t benefit the technology, the industry, or the consumer.

"You know, I sometimes get worried when I hear people talk about being business friendly," Kennard said in an interview on the Online News Hour after he had announced his plans to leave the post. "Business friendly means competition, it means holding a check on consolidation and making sure that this explosion and new entrepreneurial companies continue to flourish. And that will require that government continue to play a role in this area."

While you can take a great photo with your camera phone, you might be blocked from sending it to another person who uses a different wireless network.

Consolidation is a mainstay of the communications industry, but many worry about entrepreneurial companies being able to survive, never mind flourish. Although they have denied it, the two biggest players in satellite radio, XM and Sirius, have dodged persistent rumors of a mega-merger of the two companies. XM’s 3.2 million subscribers and Sirius’s 1.2 million have already staked ground at some "unique" content of the two companies. Sirius put $500 million in the pocket of FCC-fined radio personality Howard Stern, while XM went more mainstream with its own $650 million deal to exclusively carry Major League Baseball. A merger of sorts would put one satellite radio company in charge of content.

Besides policing indecency and watching over mergers, other front-burner issues the new FCC chief Martin must watch include VoIP, spectrum reform, and the move to digital TV, say experts like Jim Speta, a professor of law at Northwestern University. There are still issues to be figured out on VoIP, like universal service and 911 wiretapping, and these will demand the FCC’s attention.

As new technologies—such as biometrics and nanotechnology—emerge, the FCC will find itself pulling harder on those reins just to keep on the horse.

"Its role is changing that’s for sure," says industry analyst Jeff Kagan regarding the FCC. "It has to stand back and let the industry continue to find itself and reinvent itself." He adds: "We’ve seen the FCC change in the last decade, but it’s a continual process. A heavy hand of regulation will guide the change in technology for better or probably for worse."

It was the Telecommunications Act of 1996 that empowered the FCC to monitor interconnection, spectrum interference, indecency, and universal service, say market experts. In the nearly 10 years since, the industry has ridden the Internet bubble and suffered from its devastating pop.

"Going forward, as markets become consistently competitive, the scope of the FCC’s mandate should, of course, change," says Northwestern’s Jim Speta. "And, at that time, there should be a serious debate about the place of regulation; antitrust may be the only necessary backstop."

The FCC will directly impact not only what we see and hear on our airwaves, but also evaluate the prices that we pay for the communications services we are offered, ensure the ability for less fortunate areas to have the same access to the Internet, and safeguarding a fair marketplace. The FCC chairman directs the agency as it advises Congress about the state of the markets and how the statute should change, Speta says. "Chairman Powell was particularly thoughtful about the future of regulation," he says.

Now let’s see if Kevin Martin can keep that train of thought going, while making sure the consumer isn’t taken for a ride.

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