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FCC Finds Itself Up to Its Neck in Hot Issues
[January 27, 2005]

FCC Finds Itself Up to Its Neck in Hot Issues

Michael K. Powell, the outgoing chairman of the Federal Communications Commission, didn't make it easy for his successor.

Powell, who said last week that he would step down by the end of March, pushed more hot-button issues to the forefront at the FCC than he was able to resolve.

For the telecommunications and media companies the agency regulates, billions of dollars in revenue are on the line. For the American people, what's at stake is how much choice they'll have in content and carriers, and how much they'll have to pay.

Commissioner Kevin J. Martin, who sometimes clashed with Powell, is the leading prospect to replace him. The Bush administration will have another opportunity to fine-tune the commission if, as some observers have predicted, Powell supporter Kathleen Q. Abernathy resigns from the five-member commission.

A look at some key issues facing the new FCC:


Media Ownership

The media ownership rules that created problems for Powell are likely to test his successor as well, according to industry pundits.

In 2003, the FCC loosened federal rules to allow companies to own more TV stations in a single market and to enable them to control both a newspaper and a TV or radio station in the same city. That was positive for News Corp. and Viacom Inc., which were in violation of ownership limits because of aggressive TV station acquisitions, and Los Angeles Times owner Tribune Co., which, in anticipation of further deregulation, had purchased newspapers in markets where it already owned TV stations, such as Los Angeles.

But the new rules never went into effect. After criticism by consumer groups and by a Congress that worried about reducing the diversity of voices in the marketplace, the courts blocked the rules and ordered the FCC to provide better justification for having drafted them.

The commission is expected to ask the Supreme Court to review the case at the end of the month. If the high court takes the case and sides with the lower courts, the FCC could once again find itself caught between the media industry and Congress, which, emboldened by public interest groups, wants to put the brakes on consolidation.

"It could potentially be Powell's term revisited," said one executive in the broadcast industry.

Indecency

Under Powell, the FCC issued more fines for the airing of indecent material, and the indecency debate will no doubt continue. "We're watching very carefully," said Leslie Moonves, co-president of Viacom, the owner of CBS, Paramount Pictures and cable channels such as MTV and Comedy Central.

Viacom took significant indecency hits. CBS stations were fined a record $550,000 for airing singer Janet Jackson's "wardrobe malfunction" during the 2004 Super Bowl football half-time show -- a penalty Moonves said the network would continue to fight -- and Viacom agreed to pay a record $3.5-million settlement in November for off-color remarks by radio shock jock Howard Stern and others.

Moonves said this issue was one that "has nothing to do with politics." Indeed, Commissioner Michael Copps, a Democrat, has been one of the FCC's most outspoken critics of indecency. Powell, a Republican, was a staunch 1st Amendment proponent when he first became chairman but changed direction under pressure from the White House, Congress and the public. Many broadcasters have been loath to complain about the tightening of indecency enforcement for fear of inflaming tensions at a time when radio and TV stations are up for renewal in 30 states, including California, New York and Texas.

Yet many of them complain that the process is rigged. They say that many of the complaints that trigger FCC indecency inquiries are the products of organized campaigns by advocacy groups. One group in particular, the Parents Television Council, routinely complains to the FCC.

Other critics say enforcement is inconsistent. For instance, Spanish-language indecency is relatively unchecked because the FCC doesn't have enough Spanish-language investigators.

Adam Thierer, director of telecommunications studies at the libertarian Cato Institute in Washington, said the effect of the FCC's indecency actions were unwelcome to free-speech advocates.

"We live in defining times for media," Thierer said, with regulators and lawmakers "on the cusp of a historic change in 1st Amendment law."

Digital Television

The federally mandated shift to digital TV sped up significantly during Powell's tenure, with manufacturers expecting to sell more than 10 million digital sets this year alone. Local stations across the country are broadcasting on both digital and analog channels, and hundreds of hours of digital programming are being pumped out weekly by broadcasters, cable operators and satellite services.

One of the most important questions about the transition remains unanswered: When will local broadcasters have to turn off their analog signals and surrender their old channels? Those airwaves could generate more than $500 billion in fees for the government and services for the public, economist Thomas Hazlett of the conservative think tank Manhattan Institute estimated last year.

As part of the Balanced Budget Act of 1997, Congress decreed that local TV stations didn't have to stop analog broadcasts until the end of 2006. But the deadline was flexible; analog channels could stay on in any market where less than 85% of the homes with televisions could tune in a digital signal.

Powell's appointee as head of the FCC Media Bureau, Ken Ferree, laid out a plan last year that was designed to hit the 85% threshold by 2009. The proposal assumes that cable operators, responding to customer demand, will convert digital TV signals to analog for subscribers who don't have digital TV sets.

Broadcasters blasted the proposal, arguing that scrapping the analog channels in 2009 would strand millions of Americans with analog TVs who rely on over-the-air signals. The issue may be too hot for the FCC to handle, requiring Congress to intervene.

On another digital front, the FCC tried to protect Hollywood and local broadcasters from online piracy in November 2003 by barring digital TV equipment from transmitting programs through the Internet. The FCC may have to revisit the issue after Powell leaves because the U.S. Court of Appeals for the District of Columbia Circuit will hear challenges to the rule next month.

"They are controlling how people can use the content that comes out of the television set, and that is unprecedented," said Gigi Sohn of Public Knowledge, an advocacy group for more limited copyrights that is suing the FCC.

Fritz Attaway, a top lobbyist for the Motion Picture Assn. of America, said the FCC's move had plenty of precedents but added that the regulations "still need to be fine-tuned." Among other things, the MPAA says it needs more protection against expert hackers.

Telecom

The commission already has given the local phone giants, such as Verizon Communications Inc. and SBC Communications Inc., the go-ahead to build out new, super-fast fiber-optic networks to carry voice, video and data and to free the network owners from rules forcing them to share the lines with rivals.

While Verizon and SBC are putting fiber into neighborhoods to deliver video and compete with cable companies, they want more assurance that those lines will be free of regulations. Key to that, they believe, is a declaration that broadband is an information service not subject to rules and taxes and other fees.

Competitors contend that FCC rulings already are turning broadband into a duopoly, giving cable and local phone companies each monopolies over high-speed services.

"We have less broadband competition than we had just a few years ago," said Rich Tehrani, president of Technology Marketing Corp., which focuses on Internet telephony.

With the only pipes delivering services into the home, he said, phone and cable companies could squeeze out other providers of voice over Internet protocol, or VOIP, a technology that sends voice, like e-mail, over high-speed lines.

Tied up in various FCC proceedings are proposals on handling VOIP and interrelated matters such as fees that networks charge for completing calls and contributions to the Universal Service Fund, which helps defray the higher cost of serving rural America.

Powell has tried to protect VOIP services from any regulation, but as more companies use the technology, more are avoiding those payments to SBC, Verizon and other network owners and to the Universal Service Fund, which already is in trouble.

Though Powell opened a proceeding on inter-carrier compensation four years ago, the commission has done little with it. Instead, it is expected to set up another proceeding that mostly tracks an industry coalition's recent proposal that would largely eliminate access fees to complete calls.

In addition, the panel has to deal with the court appeal of its local phone competition rules. Should they be reversed a fourth time, the contentious matter would be back in the FCC's lap.

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