A host of tough questions face Kevin Martin's Federal Communications Commission now that Robert M. McDowell is on board

The U.S. Senate has confirmed President Bush's nominee Robert M. McDowell to the last remaining seat on the Federal Communications Commission. The Friday, May 26th decision brought quick praise from his fellow Republican, FCC Chair Kevin Martin, and even from the agency's two Democratic commissioners.

"I am pleased that Congress has confirmed the appointment of Robert M. McDowell to serve as a Commissioner of the FCC," said Jonathan Adelstein, one of the Democrats, who appeared with McDowell at a March 9th Senate confirmation hearing to show his support for the nominee. "Rob has a great deal of experience in the field of telecommunications that should be of significant value to all of us at the Commission."

Procedural blocks in the Senate coming from Jay Rockefeller of West Virginia and Mary Landrieu of Louisiana, both Democrats, stalled the confirmation for weeks. Rockefeller wanted assurances that funding for programs that support rural telephone service would remain stable. Landrieu wanted to show her displeasure with the quality of White House support for post-Katrina recovery efforts.

With assurances from the White House and the FCC, both lifted their holds on McDowell's appointment. The FCC now has a full complement of commissioners: three Republicans and two Democrats. With the two/two party tie ended, FCC Chair Kevin Martin enjoys a majority and can make policy on a wide variety of issues facing the Commission.

At least in theory.

A full commissioner?

McDowell indeed brings to the FCC a great deal of experience with telecommunications, but a lot of that background comes as a lobbyist for the telecom industry (see LL-FCC, January 30, 2006).

For years McDowell worked as an advocate for two organizations: Comptel, the Competitive Telecommunications Association, and America's Carriers Telecommunications Association (ACTA). Both groups represent Competitive Local Exchange Carriers (CLECs), upstart phone companies that the Telecommunications Act of 1996 mandated must be allowed to connect to the infrastructures built by Incumbent Local Exchange Carriers (ILECs), many of them Regional Bell Operating Companies (RBOCs). These include BellSouth, Verizon, and AT&T.

Through the late 1990s, McDowell lobbied the FCC aggressively on questions regarding truth-in-billing, "slamming"—switching a consumer's telephone service without permission, and "cramming"—fooling consumers with misleading information about their telephone bills. He pushed hard to get the Commission to follow a "voluntary code concept" regarding these problems, which McDowell argued comported with the 1996 Telecom Act's "deregulatory intent."

But at the same time McDowell lobbied for tough regulation for his clients competitors, the big RBOCs. He demanded that the FCC use stricter formulas for determining rates that established carriers charge his CLECs for access to RBOC networks. " . . . it is inconsistent and capricious for the Commission to conclude," he scolded the FCC in one filing, "that local competition does not exist, and simultaneously opine that competition is sufficient to bring access charges down to true cost . . . "

McDowell's history as a lobbyist presents one problem for the FCC and another for FCC Chair Kevin Martin. As the full complement of commissioners face complex problems such as AT&T's application to acquire BellSouth, FCC legal staff will have to decide whether McDowell must recuse himself in some instances.

At his confirmation hearing, McDowell assured Senators that he would "wipe the slate clean," regarding telecom policy. "I will prejudge nothing and I ask that my ability to be impartial not be prejudged," he said. And in truth, McDowell may not always be a reliable Republican when it comes to deciding the fate of his old adversaries in big telecom.

But he also assured senators that he would defer to the FCC General Counsel regarding possible conflicts of interest he might have in upcoming FCC cases. There may be more than a few.

Media Ownership Fight, Part Deux

FCC Chair Kevin Martin has already faced a host of complex questions, and he has handled them better than his predecessor, Michael Powell. The latter won an unwelcome reputation for blunt commentary, most famously on the digital divide problem. "I think there's a Mercedes divide," Powell told reporters during his first press conference. "I'd like to have one, but I can't afford one."

Soft spoken and even deferential in public, Martin tries to win fights by defusing tensions, dividing policy questions into small pieces, and avoiding making himself the issue. He is also not above plainly dodging bullets, such as last week's call by Massachusetts Congressmember Edward Markey for the FCC to launch an investigation of news reports that AT&T, BellSouth, and Verizon provided the National Security Agency with millions of consumer phone records.

Martin just walked away from the problem, letting Markey know via letter that the FCC could not help out, sorry. Markey made the letter public, not Martin.

But Martin's dodging and diplomatic skills will be stretched to the limit by the FCC's impending review (or perhaps more accurately re-review) of its media ownership policies, delayed by the lack of a fifth commissioner, until now.

At stake are three prominent questions: To what degree should the FCC relax its restrictions on newspapers owning TV stations? To what extent should corporations be able to own more than one TV station in the same market? And how many TV stations can a corporation own nationally?

In 2002 Michael Powell's FCC rolled these questions into one omnibus package and, a year later, relaxed media ownership restrictions almost across the board. But the issue galvanized media democracy activists across the country, who held noisy hearings on the controversy in dozens of cities, many attended by the Commission's two Democrats: Adelstein and Michael Copps.

Activist groups took the ruling to court and won. In 2004, in Prometheus Project vs. FCC, the U.S. Third Circuit Court of Appeals decided that the FCC's formulas for measuring the impact of their new rules on local diversity all had "the same essential flaw." Namely, "an unjustified assumption that media outlets of the same type make an equal contribution to diversity and competition in local markets."

The court agreed with the FCC's critics: owning a Web site is not the same as owning a TV station, at least not yet. The judges told the FCC to come up with a better diversity formula, or at least a better explanation for their rules.

Since that decision, advocates of Michael Powell's direction have focused on eliminating the newspaper/TV station cross ownership ban. The Media General corporation, which owns dozens of newspapers, TV, and radio stations in the southeast, has filed almost the same statement with the FCC on a monthly basis, calling for a total repeal of the restriction.

But Martin, also an advocate of ending the TV/newspaper cross-ownership limits, knows that this will be a tough fight. On April 5th he told the Newspaper Association of America's annual convention that the "public has not been convinced of the need" for lifting the FCC's restrictions on TV/newspaper cross-ownership.

"The public needs to understand both the value that your papers offer and the struggles you face in continuing to provide news in an increasingly competitive media market," Martin said. "Indeed, the failure of the Commission to modify our rules is not our fault alone."

Martin may try the strategy urged by free market advocate Adam Thierer. "Disaggregate" the issues, Thierer told LL-FCC in a March 31st interview, "take them on a case by case or one-by-one basis, and look at each rule as is needed and determine where you can make a little bit of inroad and achieve some reform successfully." But the FCC's chair should still expect another strong mobilization by the media democracy movement, no matter how he packages the questions.

And that's not the only issue on which the public is storming the castle.

Wiretaps and license flipping

The FCC may have ducked the NSA/phone records controversy, but it can't avoid the fallout from its call for the nation's ISPs and VoIP systems to open their lines to the FBI and Justice Department. On May 5th, a Federal judge called "gobbledegook" the Commission's case for making broadband providers, including schools, comply with the Communications Assistance Law Enforcement Act (CALEA).

A veritable battalion of universities, ISPs, trade groups, consumer and civil liberties groups have sued to stop the FCC, whose Commissioners bipartisanly agree that the 1994 law, originally designed to make digital phone networks more easily wiretapped, should be extended to most of broadband. And much of the private sector's hostility to the plan is only matched by law enforcement's insistence that it go forward.

Even Canada's cops sent the FCC a statement on this issue (see LL-FCC, January 15, 2006). Perhaps a negative court ruling represents the Commission's only way out of the tunnel.

Then there's the spectrum auction mess. The public got a glimpse of the iceberg late last year when the Wall Street Journal published a story about the spectrum lawsuit directed at Mario Gabelli. The billionaire money manager (whose GAMCO Gabelli Funds owns a big chunk of Media General stock) is accused in a civil suit of fronting a team of cell phone "small businesses" who, thanks to FCC policies, bought auctioned spectrum at small business discounts.

Some of these companies' owners testified in court that they had no experience with cell phones, according to the WSJ story. One said that she did not know what spectrum was. Others did not have control over their accounts or the ability to write checks.

"There was no fraud," Gabelli told USA Today after the Justice Department took over the case in March. And that may be true. The FCC's auction system may be so full of holes that a firm worth billions can legally walk right through them. Recognizing the problem, the Commission has begun revising its auction discount rules to make its Advanced Wireless Services auction scheduled for August 9th more accountable.

But the FCC is stuck on the obvious question: To what degree should small businesses (or "Designated Entities [DEs]" in FCC lingo), have to demonstrate their independence from deep pocket telecom firms? While the Commission has put penalties on auction winners that engage in "license flipping"—selling their newly won spectrum to a bigger outfit—Commissioner Jonathan Adelstein has all but lost patience with the agency's inertia on the big picture.

"It truly was stunning that my colleagues did not take action to specifically address the single biggest issue facing the DE program given the overwhelming support in the record to do so," Adelstein told the National Spectrum Manager's Association on May 16th. "We missed a real opportunity to shut down what almost everyone recognizes has the potential for the largest abuse of our DE program."

Expect a lot more fireworks on this issue, especially as the FCC starts auctioning off analog spectrum made available by the Great Digital TV Conversion, due to conclude by February of 2009.

Throwing out the Lifeline

While most of the press follows FCC issues like obscenity enforcement with obsessive regularity, a less publicized controversy deserves more attention. The FCC's Universal Service Fund works. It puts a small tax on long distance phone calls and, with the help of state matching funds, provides a Lifeline assistance plan that subsidizes phone service for poor families.

A new FCC study shows that states that invest in the plan enjoy much higher household telephone service penetration rates than states that do not. The program also subsidizes broadband for schools, libraries, rural areas, and rural health care facilities.

But the USF is also in trouble. Big telcos try to duck their payments. In April the FCC slapped Globcom, a long distance outfit, with a $715,000 fine for shirking its USF dues (see LL-FCC, January 15, 2006). And as more people go with national wireless plans, funding the system with a tithe on long distance calls is starting to get that fuzzy, unworkable feeling.

Some big wireless firms have a solution to the problem—put a flat tax on each working telephone number rather than long distance volume. But as the Keep USF Fair Coalition points out, the proposal could shift the burden onto the 40 percent of U.S. households that rarely make long distance calls. It could also put a punishing price tag on colleges and universities that provide millions of phone numbers for their students, a cost that they will almost certainly shift over to admissions fees.

So here's hoping that Deborah Taylor Tate, the FCC's second most recent Commissioner and new student of the problem, will resist the siren cry to "fix" the USF, Newt Gingrich style. Tate's a Republican and mentions that she's from Tennessee about every five minutes, but she also has a long record of social service and policy analysis in a state where nearly 14 percent of the population fall below the poverty line.

Tate recently told the Rural Cellular Association's annual convention that there is "no one solution" to the question of USF funding, and instead offered a sensible range of possible answers, including "fixing the USF collection mechanism," restricting some rural regions to just one USF funded carrier, and creating separate funding systems for wired and wireless phone services.

Sounds like the Commissioner knows my favorite H.L. Mencken quote: "For every complex problem, there is a solution that is simple, neat, and wrong."

It still costs a lot of money . . .

There is no escaping the fact that this is an FCC in the Age of Bush. That means that we bash "big government" every chance we get, yet somehow the government keeps getting bigger. We emphasize a "light regulatory touch," except for our competitors. And especially except for the nation's cable providers. Martin and his ally John McCain are pushing a new, yet to be disclosed Federal law that will "encourage" them to offer "a la carte" packages to consumers.

But even in the Age of Bush, Reality Happens. And the closer it gets to your face, the harder it is to blow it away with Cato Institute rhetoric. Reality means that in a world full of Worldcom execs, Hurricane Katrinas, and People Without Money, telecom has to be governed, and that means limits and systems and rules.

I can't put it any better than Republican Senator Conrad Burns of Montana, speaking at a March 2nd, Senate Commerce Committee hearing on the future of the Universal Service Fund, so I won't.

You tell 'em, Conrad:

For those who say that the Universal Service [Fund] no longer makes sense, or that it should be repealed or scaled back—I encourage them to visit Montana or other rural areas and see the fund in action. The day has not arrived when technology and the free market can make affordable telecommunications services available everywhere. Simply put, competition and technology have not changed the fact that it still costs a lot of money to provide telephone service in Montana and other rural areas. Until that time arrives, Universal Service funds are the only alternative.

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