Losing Signal

The digital revolution has transformed the Federal Communications Commission into a Washington powerhouse. But just as the stakes are rising, the agency is ceding control to multimedia corporations and their lobbyists.

Early last December, as the postelection fracas neared its end, the conservative Progress and Freedom Foundation hosted a one-day Washington conference on the future of communications. The event drew a Who's Who of telecom lobbyists, elite members of prestigious K Street firms that represent companies like Verizon, AT&T, and Viacom. The top draw was a keynote speech by Michael K. Powell, a member of the Federal Communications Commission who was widely expected to become the agency's next chairman.

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The high-powered audience was eager to learn how Powell, son of Secretary of State Colin Powell, would steer the FCC through the second digital revolution -- a time when multimedia corporations are establishing unprecedented control over the nation's airwaves, wires, and cables. The crowd was not disappointed. Powell bookended his speech with Dr. Seuss-style couplets comparing the FCC to the Grinch, a regulatory spoilsport that could impede what he termed a historic transformation akin to the opening of the West. "The oppressor here is regulation," declared the man George W. Bush would soon appoint his top telecommunications watchdog, prompting a round of enthusiastic applause.

Not long ago, it would have been unlikely that an FCC official could so delight a roomful of industry emissaries -- or, for that matter, generate much Washington buzz at all. Before TV cables carried Internet access, before media conglomerates' revenues shot into the billions and cell phones became middle-class accessories, the FCC was a bureaucratic backwater. Its chief tasks included doling out broadcast licenses to radio stations and keeping the airwaves free of "indecent" language like comedian George Carlin's "Seven Dirty Words" routine. In The Politics of Regulation, James Q. Wilson's authoritative 1980 treatise on the Washington bureaucracy, the FCC merited just a single, passing mention; the Federal Maritime Commission got its own chapter.

But the advent of the information economy has turned the FCC from a minor D.C. player into one of the government's most powerful agencies. As the de facto czar of the nation's communications infrastructure, the commission now makes daily decisions affecting America's technological destiny -- reviewing megamergers like the AOL Time Warner union, evaluating the Baby Bells' expansion plans, determining whether cable companies should decide what Web content their Internet customers can view. And no one appreciates the FCC's newfound authority better than the communications industry, whose lobbying expenses now stand at roughly $125 million, more than twice the amount spent by defense firms.

Most observers agree that the $950-billion telecom industry is headed for seismic change over the coming years, even the next few months. According to a recent study by the financial research firm Legg Mason, the Bush-era FCC, along with Congress and the courts, is "poised to unleash sweeping consolidation" across the broadcast and telecommunications sectors. Much of the wireless spectrum -- a priceless public commodity and the key to the mobile communications boom -- could fall into fewer than half a dozen corporate hands, the report noted. And if the merger craze persists, most of the nation's cable lines could soon be controlled by just two corporations, Comcast and AOLTime Warner.

Meanwhile, companies are scrambling to secure control over what Powell's speech extolled as "the great digital broadband migration." As the nation gets wired for high-speed Internet access, multimedia giants are positioning themselves to sell online news, movies, and digital music over the same connections -- and, if the FCC allows it, to restrict customers' access to anyone else's news, movies, or music. Privacy debates are heating up as companies develop the power to gather data on everything from consumers' tastes in late-night TV to online buying habits and even -- thanks to new tracking devices -- the physical movements of cell-phone users.

With regulation lagging far behind technology, the only check on many of these developments is the FCC's power to block practices it deems contrary to the public's "best interest." But just as the stakes are rising, the commission has been adopting a hands-off approach. Hear the same DJ whether you're driving through Arizona or Minnesota? The radio industry, with FCC approval, has consolidated into four companies that control 90 percent of the advertising revenue and beam their programs nationwide. Wish you could ditch your sluggish phone company? Fewer than 10 percent of Americans have any meaningful choice of local telephone service, according to Consumers Union, while the four Bells -- down from seven a decade ago, via FCC-blessed mergers -- rake in upward of $60 billion per year. Meanwhile, basic cable rates have risen 33 percent since 1996, almost three times the rate of inflation; the typical monthly charge for high-speed Internet access is $49.95, up $10 from a year ago; and phone bills have crept up due to increases in voice-mail charges and basic hardware fees.

But none of these developments rivals the changes in store as the FCC's new Bush-appointed majority -- led by Republican loyalist Powell and former US West lobbyist Kathleen Abernathy -- redefines the agency's role. Among the Powell commission's first actions was an April decision to relax a decades-old rule prohibiting companies from owning multiple broadcast networks. The move allowed Viacom, which merged with CBS last year, to hold on to upn. A few weeks earlier, Powell had expedited the approval of 32 radio-station mergers. And in the coming months, the commission is slated to discuss whether to lift anti-concentration rules designed to prevent media monopolies, whether to permit broadcasters to sell billions of dollars' worth of publicly owned spectrum, and whether to allow wireless companies to gather data on their customers' every move.

On these and other far-reaching questions, the agency's positions are shaping up to be virtually identical to the ones being drawn up in corporate boardrooms. In April, during a panel discussion conducted by the American Bar Association, Powell dismissed the FCC's historic mandate to evaluate corporate actions based on the public interest. That standard, he said, "is about as empty a vessel as you can accord a regulatory agency." In other comments, Powell has signaled what kind of philosophy he prefers to the outdated concept of public interest: During his first visit to Capitol Hill as chairman, Powell referred to corporations simply as "our clients."

When the FCC was created in 1934, New Deal politicians considered the nation's communications infrastructure a vital public asset, akin to the railroads. As that asset's trustee, the commission was charged with protecting consumers from industry monopolies and price gouging. An appointed body, the theory went, would be insulated from influence peddling, and thus better equipped than politicians to safeguard the public.

Those Roosevelt-era idealists would be stunned at the scale of corporate solicitation directed at today's FCC. "There's a song called 'Pressure Drop' by The Specials -- that ought to be your theme song if you're chairman of the FCC," says Reed Hundt, the commission's head from 1993 to 1997. "You're really struck by the pressure of the lobbying. It just stuns you -- it's ubiquitous, it's personal, it's hard-edged. It's also seductive."

Representatives from SBC Communications ($9.5 million in lobbying expenditures for 1999), AT&T ($8.56 million), and the National Association of Broadcasters ($4.9 million) have long been omnipresent on Capitol Hill; now they're regulars at the commission, too. In a memoir of his FCC tenure, You Say You Want a Revolution, Hundt recalls his surprise at the lobbyists' tenacity: "On questions like the price paid by long-distance companies for connecting to the local telephone system, as many as 50 different teams of lobbyists pounded the linoleum halls of the commission building for not hours, but weeks, sometimes months. A single company might send soldiers from its regiments to the commission as many as 100 times [on a single issue], visit or phone the chairman on a dozen occasions, call the chairman's staff perhaps daily."

The FCC press office did not return phone calls seeking interviews with Powell or other commissioners. But disclosure filings confirm that commissioners and their staff spend a large chunk of each day listening to corporate representatives in meetings known as ex parte proceedings. Mother Jones reviewed the records for 43 such meetings reported from June 4 to June 7, a typical stretch. At least 38 of those sessions were with lobbyists from SBC, AT&T, WorldCom, and other corporate interests.

Public-interest advocates, by contrast, rarely have enough time or staff to make their presence felt. "It's a real problem for us -- we only have the capacity to go in there every couple of weeks," says Christopher R. Day of Georgetown University's Institute for Public Representation, which has fought the sale of 10 TV stations owned by Chris-Craft Industries to Rupert Murdoch's Fox. "Fox has, for one particular commissioner, sent in attorneys and lobbyists from three different law firms."

Among the Fox lawyers' victories during the ex parte meetings was an FCC decision to seal Murdoch's and Chris-Craft's financial records -- a move that hampered critics' ability to pull together a counterargument. In other cases, public-interest advocates only learn of FCC decisions after the fact: The sole public notice of a recent radio-station merger in Montana, Day notes, was a line on the agency's lengthy list of "broadcast applications received."

Much more far-reaching decisions are sometimes made behind closed doors. Last year, the FCC reviewed AT&T's $54-billion purchase of cable giant MediaOne, which stood to give the company control of 42 percent of the nation's cable market. Citing a rule limiting a single firm's share to 30 percent, the commission allowed the merger to proceed, but ordered AT&T to sell some of its holdings.

In March, a federal appeals court struck down the 30 percent cap. The ruling did not void the divestiture order, since the FCC has the power to impose conditions simply to protect the public interest. But AT&T's lawyers quickly arranged an ex parte meeting, at which they asked FCC staffers to drop the mandate. "Within a week, the divestiture process was thrown out the window," says Cheryl Leanza of the Media Access Project, a public-interest law firm. "Not a piece of paper was filed by AT&T. We never had an opportunity to present arguments in response." For his part, Powell told reporters that the suspension was needed to give his agency "adequate time to carefully consider the impact of the court's decision." Most industry observers believe the FCC will not reinstate the order.

Lobbying isn't restricted to the FCC's Washington offices. Commissioners and their staffs travel the globe at the private sector's expense, attending summits and expos from Taipei and Madrid to resort destinations such as Palm Springs and Ocho Rios, Jamaica. In the six-month span between October 1, 2000, and March 31, 2001, disclosure documents show, 130 FCC staffers received nearly $300,000 worth of trips paid for by the communications industry. And as the commission's importance has increased, so has the cost of the junkets. Over the past two years, industry spending on FCC travel has grown by 60 percent.

Though many trips involve routine conventions, some destinations are more extravagant. Alan Stillwell, an FCC economic adviser, accepted an $8,000 trip to Buenos Aires last October, where he attended a weeklong conference sponsored by an industry group, the Advanced Television Systems Committee. Just days later, Kathryn A. O'Brien of the commission's international bureau was treated to a $1,100 trip to Cancun, where she spoke at a forum sponsored by the Gartner Group, a consulting firm. That same month, David H. Solomon, chief of the enforcement bureau, made a three-day, $1,700 visit to San Francisco for a conference hosted by the Competitive Telecommunications Association, a long-distance lobbying group. And finally, in November, the California Cable Television Association spent $25,000 to shuttle Powell and 12 commission employees to Los Angeles for its three-day Western Show; the tab for Powell alone came to $3,600.

Many of the events FCC commissioners and staffers attend are put together by the Institute for International Research, a multinational conferencing firm whose brochures tout its ability to attract "key decision makers" (and whose clients include AT&T and Qwest). According to the Center for Public Integrity, a spending watchdog, the institute spent almost $100,000 on FCC travel between 1995 and 2000; last year alone it took commission staffers to conferences in São Paulo, Boston, and New York. Another firm, AIC Conferences, spent $3,500 ferrying an FCC attorney to a two-day summit in Tokyo.

David Goodfriend, a senior adviser to Clinton-era commissioner Susan Ness, has defended the conferences as "a great way to learn," adding that only a "pretty cynical" observer would think the gratis trips influence the agency. But the Media Access Project's Leanza is skeptical, noting that her peers are rarely invited to the gatherings. "The FCC should be able to fund travel to these events if they are necessary," she says. "It should not be up to the whims of industry."

The FCC has long enjoyed a cozy relationship with the industry it regulates -- not surprisingly, given that commissioners and their staff frequently come from corporate backgrounds or move on to lucrative posts in the private sector. One former chairman, Dennis Patrick, is now president of AOL Wireless; Powell's immediate predecessor, William Kennard, came to the FCC from the powerful law and lobbying firm Verner Liipfert, known for its influential communications practice. Powell's chief of staff, Marsha McBride, formerly lobbied for Disney, and Powell's only post-law school job in the private sector was as an attorney at a D.C. law firm where his clients included gte. (Now 38, Powell joined the commission in 1997, after a brief stint at the Justice Department.)

But the Bush-era FCC is diverging from its predecessors in one key respect. While Powell wants to step up enforcement of specific rules (the FCC has recently revived the indecency debate, fining a Colorado station for playing a sanitized version of Eminem's "The Real Slim Shady"), he seeks to eliminate many of the commission's broader regulations, including antimonopoly rules he considers "artificial." In addition to the ban on corporate ownership of multiple broadcast networks, the chairman has vowed to review the "cross-ownership" rule, which forbids companies from owning a newspaper and a TV station in the same region. And he has expressed doubts about rules that limit how much wireless spectrum a company can own in any one market.

On other issues, the future may be determined by the Powell commission's deliberate inaction. One hot-button topic is open access -- the question of whether owners of broadband lines, specifically TV cables used for high-speed Web connections, should be compelled to give customers a choice of Internet service providers (ISPs). Phone lines, the Internet's original highway, have always operated under open-access conditions; a Verizon or SBC customer can choose from thousands of independent ISPs. But telecom companies argue that the same doesn't have to be true for broadband. AT&T, for instance, could limit cable-modem customers to its own ISP, much as it now decides which cable channels subscribers can watch. Open access is especially relevant to the rollout of interactive television. In the telecom world, the personal computer is seen as a dinosaur, its presence having plateaued at about 50 percent of American households; the future lies in all-in-one boxes that offer both standard TV and Web access. AOL Time Warner, for example, is preparing AOLTV, a $200 set-top box that will be sold primarily to its subscribers, some 20 percent of the nation's cable households. Without an open-access rule, the company could use its device to discriminate, Microsoft-style, against competitors' programs -- by, say, making it easier to view AOL Time Warner's CNN/SI than a regional sports channel, or by offering "bonus" interactive content only for AOL Time Warner shows.

Telecom firms have strenuously argued that the First Amendment prohibits open-access rules. But during the past year, two federal appeals courts have indicated that the FCC does have the power to regulate broadband. Still, the commission -- which has been working on a study of the issue for at least 18 months -- seems disinclined to act. Last June, when asked about open access in interactive television, Powell suggested that he didn't think the agency should get involved. "To me, that's when government is often at its worst -- when it's trying to regulate phantoms, you know, straw men. What might happen as opposed to what's happening."

Industry representatives hope that Powell's hands-off philosophy will also apply to privacy issues. State and federal lawmakers are mulling hundreds of bills that could, for example, force companies to ask consumers' permission before sharing data with third parties, or require Web sites to lock away personal information in ultrasecure databases. Industry studies warn that such rules could wreak havoc for online commerce; one Microsoft-funded report claims that the proposed privacy laws would cost U.S. companies up to $36 billion.

Most privacy matters are the domain of Congress and state legislators, rather than the FCC. But one big issue on the commission's agenda is the controversy over location-based services (LBS), technology that lets companies track the movements of mobile-phone users. Phone manufacturers have developed microchips that can pinpoint a user's position and feed the information back to a central server. The FCC has mandated that all new phones feature such chips after October 1 to help emergency workers locate 911 callers.

But marketers envision more commercial uses for LBS, which, according to most estimates, could generate $6 billion in annual sales by 2005. Walking by a donut store? A corporate server can detect your proximity and immediately zap a "10 percent off!" coupon to your Palm Pilot. Delinquent on your bills? A collector can determine your location and send you a message like "You're in luck! There's a mailbox just around the corner where you can drop off your check!" Companies are also eager to use the technology to control employee behavior; in April, the New York Times reported that one trucking company put LBS in place after hearing that its drivers were visiting strip clubs during work hours.

The FCC is conducting a long-term study to decide whether it should issue privacy rules for location-based services. Consumer groups want the agency to require explicit ("opt-in") permission from customers before location data can be used; industry, meanwhile, is touting the virtues of self-regulation. A group called the Location Privacy Association argued in an April FCC filing that the commission should go ahead and discuss opt-in rules but should not interfere with the technology in the meantime. The otherwise obscure organization -- there is no record of its activities besides that filing -- seeks, according to the mission statement it supplied to the FCC, to educate the public about "the privacy and public safety benefits of... location technologies." As its founders, the association listed two of the nation's leading wireless companies, Airbiquity and Qualcomm.

With its innocent-sounding name and barely concealed pro-industry agenda, the Location Privacy Association is a classic example of an "Astroturf" group, Beltway slang for pseudo-grassroots organizations. Though telecom issues have yet to generate much public debate, companies are sponsoring a variety of groups to suggest that Americans are clamoring for deregulation. One of the most visible is the Alliance for Public Technology, whose board members are frequently quoted in the media as crusaders for the public interest, especially for rural and minority consumers. According to the group's 1989 application for nonprofit status, its mission is to "educate the general public about new technology" and "bridge the gap between technology providers and special-need consumers."

Other filings, however, reveal that the alliance operates out of the offices of Issue Dynamics, a consulting firm often hired by the Bells; in 1999, the group paid Issue Dynamics $140,000 in "management fees." On its Web site the alliance lists four corporate sponsors -- AOL Time Warner, BellSouth, SBC, and the U.S. Telecom Association -- and it regularly provides press statements and congressional testimony in support of its backers' goals. When a broadband deregulation bill co-sponsored by Rep. W.J. "Billy" Tauzin (R-La.) and Rep. John Dingell (D-Mich.) came under fire from consumer advocates, alliance representative Don Vial emerged to praise the measure before the House Commerce Committee: "There can never be enough broadband to serve the increasing needs of our technology-driven economy and society."

To mobilize, or at least imply, real public support, corporations have used massive ad campaigns, often targeted at the Washington media market. The Tauzin-Dingell bill, for example, has spurred a flood of commercials from Keep America Connected, a Bell-funded group that says it represents "older Americans, people with disabilities, rural and inner-city residents, people of color, low-income citizens, labor and local telephone companies." The organization lists a bevy of affiliates, including the American Beekeeping Federation, the Delta Waterfowl Foundation -- and the Alliance for Public Technology. Another Bell lobbying group, Connect usa, has been saturating the D.C. airwaves with ads assuring viewers that Tauzin-Dingell "guarantees high-speed access to inner cities and small towns, making sure that no one is left behind."

As the broadband controversy shows, corporations aren't shy about asking Congress to get involved in FCC matters. Big Media's influence on Capitol Hill is legendary -- the National Association of Broadcasters once moved Newt Gingrich to declare, "The practical fact is, nobody's going to take on the broadcasters." Along with the standard millions in campaign spoils, the communications industry offers some of Washington's most enticing perks, including events that a House telecom aide who has attended one of them describes as "professional bribery sessions.... You go down to Palm Springs where [an industry group] is having a convention, or SBC takes you to the Gulf of Mexico. They wine and dine you. It's ridiculous. Everyone goes."

The industry also wields what Jeff Chester of the Center for Digital Democracy, a telecommunications watchdog, calls "a silent campaign contribution" -- access to the media. "Congressmen perceive that if one takes on these concerns in a meaningful way, they may no longer be invited to be interviewed on the local TV station, or the kind of coverage they get online will no longer be the same." Regardless of whether such retribution ever occurs, Chester argues, the prospect alone helps keep lawmakers in line.

When industry feels threatened by the FCC, senators and representatives are all too happy to remind the commission that it's a "creature of Congress" dependent on lawmakers for its budget. In 1998, then-FCC Chairman William Kennard proposed a study of whether the networks could provide free airtime to political candidates. Members of the Senate Appropriations Committee killed the idea by ordering that no FCC funds be spent on the effort, to the relief of broadcasters who were apoplectic over the potential loss of revenue from political advertising.

Individual members also frequently intercede in FCC matters of interest to their contributors. When the agency announced plans to give the AT&T-MediaOne union "very careful scrutiny," Senator John McCain -- then chair of the Senate Commerce Committee, which reviews FCC nominations -- threatened to revoke its authority over such mergers. He also publicly criticized the commission's go-slow attitude, scolding the panel as "unable to lead or unwilling to follow." According to the Center for Public Integrity, McCain's presidential campaign received $10,000 from AT&T two weeks later. AT&T has been McCain's third most generous donor over the course of his career, just ahead of Viacom.

An even more dependable friend to the industry has been Tauzin, chairman of the House Commerce Committee and the chief sponsor of Powell's elevation to the FCC chairmanship. Tauzin is a regular beneficiary of telecom firms' largesse. At last year's gop Convention, he was feted with a $400,000 Mardi Gras-themed bash underwritten by SBC, BellSouth, and Comsat. The previous December, Tauzin and his wife took a seven-day, $19,000 trip to Paris, courtesy of Time Warner and the online brokerage Instinet. His son, Billy III, is a BellSouth lobbyist; his daughter, Kimberly, is a former government-relations official with the National Association of Broadcasters.

Tauzin frequently attacks the FCC for heel-dragging. In December, the congressman blamed the commission for causing last year's meltdown of telecom stocks with its "stupid micromanagement and insid-ious inclination to hold things up." One of his top legislative priorities is the Tauzin-Dingell bill, which would lift a requirement that phone companies relinquish their local monopolies before gaining access to the national broadband market.

Another telecom ally is Senate Minority Leader Trent Lott (R-Miss.), a key player in convincing the FCC to go along with what critics call the biggest corporate welfare scheme in American history -- the spectrum giveaway. In 1995, broadcasters began contending that digital television was the wave of the future and that they required additional transmission licenses to broadcast the new clearer signals. And they wanted the spectrum for free, despite its estimated $70-billion value on the open market.

Bob Dole, then Senate majority leader, vehemently opposed the giveaway, which was nonetheless written into the Telecommunications Act of 1996. He convinced then-FCC Chairman Hundt to withhold the gift, at least until the Senate had a chance to look into auctioning off the spectrum instead. But when Dole abruptly left the Senate to pursue his bid for the presidency, congressional leaders including Lott (who was a college roommate of National Association of Broadcasters president Eddie Fritts) asked Hundt to "proceed with bringing this exciting new technology to the American people without further delay."

The FCC complied and issued the licenses, with only one condition: that the broadcasters give back their old analog spectrum once digital TV reaches 85 percent of the national market. At the current rate of deploy-ment (less than 1 percent of the country has all-digital TV), that could take decades.

In the meantime, the broadcasters have come up with another idea. The boom in demand for mobile phones, Palm Pilots, and the like has made the airwaves a truly precious commodity, and the value of the new spectrum has ballooned to $180 billion, more than all the nation's TV stations combined. To cash in on the appreciation, some companies are offering to switch to digital now -- if the FCC will let them sell their analog spectrum, technically a public asset on loan, to the highest bidder. Broadcasters claim that, aside from enriching station owners, such a move would benefit consumers anxious for digital TV. Now it's up to the FCC to determine whether corporate profit equals public good.

"Based on four years of experience, I would say the public interest is not the same thing as private interests," says Hundt. "You know, roughly speaking, it's just the opposite. If [the FCC] looks at the opposite direction from where the private interests are pointing, it'll probably see the public interest." Which, of course, is its job.

Additional reporting by Michael Scherer