POWELL ASKS SENATE FOR MORE POWER TO ENSURE CONTINUITY OF SERVICE
FCC Chmn. Powell told Senate Commerce Committee that it needed to expand scope of Sec. 214 of Communications Act for Commission to ensure continuity of variety of telecom services. Powell made comments in committee hearing Tues. on financial turmoil in telecom industry that also featured high-level officers of Global Crossing, Qwest and WorldCom. Committee Chmn. Hollings (D-S.C.) agreed Congress should broaden scope of Act’s section that gave FCC power to prevent communications networks from cutting service as result of bankruptcy and said he would try to make legislative changes before Congress’s adjournment scheduled for first week of Oct. Hollings asked Powell to send recommendations to Committee. Powell wouldn’t elaborate on how broad Sec. 214 scope should be, although he did mention cable companies and Internet service providers. He said there often was conflict between bankruptcy law and Commission’s powers under Sec. 214. Although he said he could envision scenario where scope of Sec. 214 could hamper FCC efforts to prevent loss of service, there were no current bankruptcies where agency didn’t have power to act.
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Powell also asked for increase in fines for common carrier enforcement. He said fines for single violation should be raised to $1 million from $120,000 and for continuing violation to $10 million from $1.2 million. Congress also should do something to provide “proper regulatory framework” for broadband deployment, he said. However, he didn’t take position on “myriad of proposals before the Senate,” which include bills by Committee members Hollings (S-2448) and Breaux (D-La.)(S-2430). Powell talked of importance of telecom companies to be able to offer new services and said: “Broadband very likely holds the key for the long-term recovery of the telecommunications industry.” Hollings cautioned Powell not to be swayed by bills such as Breaux’s, which he said promised parity, but only would extend monopoly of Bells.
While Powell said one would “have to be naive not to see this is a market in distress,” he said he didn’t believe the telecom market was in “crisis” because it wasn’t on verge of failure. However, he said industry would have to endure “many years of painful change.” Mergers were likely in industry, he said, which regulators should carefully review to prevent lack of competition. He said govt. should intervene to prevent cases of high-level corporate excess, such as those of WorldCom and Global Crossing, which were cited several times by Committee members. He said scandals were “kick in the stomach to an industry that couldn’t take it.” FCC would be able to help federal regulators identify fraud through agreements with SEC, Powell said. FCC is considering reviewing some disclosures made by some companies, he said, adding that if they lied on financial disclosures, they could have lied on FCC documents. However, he added that most financial and other disclosures made to FCC were for purpose of setting rates and other regulatory purposes and likely wouldn’t provide evidence of financial fraud.
WorldCom CEO John Sidgmore said he believed company would emerge from its Ch. 11 bankruptcy filing. He urged senators to continue procompetition policies and said Telecom Act of 1996 set right policy direction and should be enforced. Sidgmore also said he believed fraudulent accounting practices at WorldCom should have been caught earlier through audit process. Global Crossing CEO John Legere said it was “perfect storm” of telecom recession, not accounting practices, that led his company to bankruptcy. He said Global Crossing hoped to emerge from bankruptcy by early part of next year. Qwest COO Afshin Mohebbi said that critical telecom services his company offered weren’t in jeopardy. All said they were likely to continue to offer stock options as form of compensation. Sidgmore said WorldCom probably would expense stock options. WorldCom was delisted by Nasdaq Tues.
While corporate scandals have dominated headlines, Powell said problems with telecom industry occurred because demand never materialized to utilize capital invested in building new networks. Telecom industry has lost $2 trillion in market value, 500,000 jobs and has a debt of nearly $1 trillion, he said. While experts believed demand turnout would double every 100 days, it actually doubled every year, Powell said, emphasizing that the growth in telecom and Internet sector still was impressive, just not enough to sustain capital investments.
Powell said FCC, in cooperation with state regulators, was working to achieve 3 goals: (1) Maintain operation of network. (2) Contain fallout to prevent damage to other companies. (3) Provide for orderly transition of customers and assets. He classified FCC action in 4 components: (1) Heightened alert so there could be advance warning of trouble. (2) Intergovernmental coordination, particularly with Justice Dept. in bankruptcy proceedings and entities such as National Communications System (NCS) for mission critical communications needs of federal govt. (3) Active engagement in bankruptcy proceedings. (4) Consumer awareness.
Senate Commerce Committee’s ranking Republican McCain (Ariz.) said Telecom Act of 1996 bore some responsibility for telecom meltdown, particularly because it encouraged infrastructure deployment that outpaced industry. But Sen. Brownback (R-Kan.) said corporate fraud in telecom industry shouldn’t be blamed on Act. Brownback, co-sponsor of Breaux’s broadband bill, said Act needed some specific changes to encourage broadband deployment. Many senators said problems in telecom market showed govt. regulation still was needed. Sen. Cleland (D-Ga.) said: “The marketplace is a wonderful thing, but without the continuing presence of government regulation, it runs amok.”