Taking aim at the FCC

The 1996 Telecommunications Act was supposed to push telephone companies into a new round of competition for consumer dollars. It never did.

Now, after three years and a series of setbacks, Congress is trying to get communications reform back on track.

New congressional hearings and a handful of associated bills are taking aim at the Federal Communications Commission and the way it has handled the 1996 legislation. Critics say the FCC has misinterpreted the act and has actually slowed the entry of new players into the telco arena, rather than encouraging competition as originally envisioned.

None of the bills on the agenda addresses the immediate decline of consumer phone rates. But the issues being discussed will ultimately help determine how much power government has to control the actions of the big telecommunications companies.

This week, a Senate antitrust and competition subcommittee will tackle the proposed Baby Bell mergers that have been born in part by deregulation. Sen. Mike Dewine (R-Ohio), who will introduce legislation to reduce the time taken by the FCC in reviewing such mergers, will lead the hearings.

And next month, Sen. John McCain (R-Arizona) is expected to launch a series of hearings on the FCC's budget, effectively putting the agency's decisions on telecommunications competition under a microscope.

These various Beltway efforts are the work of a bipartisan group of legislators who say the FCC has warped the spirit of the original Telecommunications Act. The renewed congressional action follows a series of court decisions that have strengthened the FCC's position, potentially giving it more power to push for residential competition.

"We gave the FCC a tremendous amount of discretion," said Jack Fields, a former GOP representative who helped lead the law through the House. "Now we have had the FCC acting not as a backstop but as a deterrent to competition. That to me completely voids the intent of the act."

Shifting legal lines
The bill originally was intended to jump-start competition in the corporate and consumers telephone market. Under the three-year-old telecom law, Baby Bells would be allowed into the long distance business, as long as they let other firms compete in the local phone market.

The law has been mired in litigation almost since it was enacted, and the resulting uncertainty over how to interpret the law has slowed the march toward competition. But a series of recent rulings by the Supreme Court has settled some critical outstanding issues.

"[These legal decisions] are a very big turning point," said Reed Hundt, the former Federal Communications Commission chairman who guided the agency through the Act's early days. "It's called starting over."

In late January, the court overturned most of a federal judge's ruling that had questioned the FCC's ability to set local pricing rules for the regional Bell telephone companies.

This earlier ruling had undermined the agency's ability to dictate how companies would allow competitors access to their vast network of existing phone lines. By returning this power to the FCC, the agency now has more muscle to enforce its decisions across the country, many observers said.

"The biggest single problem with the Telecommunications Act had been judicial interference," said Hundt, who is now a partner with Benchmark Capital. "The courts refused to allow us to have a national system, condemning us to a balkanized system with different rules in different states."

"The FCC now must enforce its pricing rules," Hundt added. "If the FCC stays the course, competition will develop over the course of this year."

Just last week, the commission approved the merger between AT&T and Tele-Communications Incorporated. Some analysts say that deal, which is slated to bring cable-based local phone service to most TCI territories by the end of next year, holds out the best hope for fufilling the act's goal of genuine local competition.

Others are less optimistic, saying real competition at the consumer level isn't likely for several years, until the cable companies are able to offer cheap, local dial-tone service through their television service lines.