The new Administration portends a fundamental shift in the regulation of the communications industry. Not only has the Executive Branch changed parties for the first time in eight years, there are new leaders in Congress and at the FCC. The new guard bring with them very different ways to examine and address communications issues. How policy makers, lawmakers and regulators govern the marketplace will have a significant effect on the success or failure of the component parts of the broadband industry.

The Executive Branch

President Bush does not have a track record in federal communications policy, and his approach to communications issues is expected to be "light-handed," to quote one Congressional leader. His budget blueprint, unveiled following the State of the Union address, proposed to modify earlier projections on the receipt of auction funds for the 700 MHz service. This proposal surprised Congress, which was apparently not aware of the President's plans, as well as the broadcasters that occupy the spectrum and the wireless companies that would like to clear the spectrum for advanced services. As currently understood, President Bush's proposal would delay the 700 MHz auction until 2004, in order to clear the 700 MHz band to make it more valuable at auction. The plan also may incent broadcasters (by means of lease fees) to vacate the spectrum prior to the 2006 date presently envisioned.

Congress

In Congress, Louisiana Rep. W.J. "Billy" Tauzin has assumed the chairmanship of the House Commerce Committee, increasing his already powerful status on Capitol Hill. In published reports, Rep. Tauzin has articulated a desire to reform the FCC by, in part, limiting the timing and scope of the merger review process. He also seems inclined to permit the remaining Bell companies - Verizon, SBC, BellSouth and Qwest - to enter the long-distance data business. In the Senate, Communications Subcommittee Chairman Conrad Burns of Montana has said he will emphasize Internet and wireless issues. As a long-standing supporter of rural interests, he also can be expected to favor tax incentives for rural broadband providers and may seek legislation that will permit LPTV stations to provide high-speed, two-way data services beyond the trial stage.

Several bills already are attracting attention in the early days of the Congressional term. West Virginia Senator Jay Rockefeller has introduced a bill, now co-sponsored by almost half of the Senate, that would encourage broadband providers to serve rural and underserved areas of the country. Providers of current generation high-speed services (1.5 Mbps downstream, 200 kbps upstream) in underserved areas would receive a 10 percent tax credit. Providers of next generation high-speed services (22 Mbps downstream, 5 Mbps upstream) in underserved areas would receive a 20 percent tax credit. The tax credits would be available to all operators serving 10 percent or more of their markets. While there is general support for the bill among competitive broadband interests, some question whether the benchmark speeds and penetration level go far enough to encourage broadband deployment in rural areas.

Another significant issue concerns the Internet tax moratorium, scheduled to sunset October 31, 2001. Odds are that the moratorium will be extended for at least five years. What is not clear is whether and under what conditions States can collect "business activity" taxes (i.e., business, franchise and sales taxes) on Internet transactions. States would like the ability to collect these taxes, but Congress may not be so disposed.

The FCC

During President Clinton's first term, FCC Chairman Reed Hundt embraced the concept of the FCC as the Federal Cash Commission, raising billions of dollars through competitive bidding and expanding the Commission's investigation and involvement of mergers under the broad "public interest" standard. Following President Clinton's re-election, Chairman Hundt stepped aside and William Kennard, formerly the FCC's general counsel, was appointed to the chairmanship.

Under Chairman Kennard's leadership, the Commission endeavored to expand opportunities for entrepreneurs and minorities. Chief among these initiatives was the creation of the Low Power FM service, which was designed to allow for several hundred new non-commercial radio stations nationwide. Chairman Kennard also spearheaded efforts to decrease long-distance costs for consumers, facilitate competition in the local exchange business, increase access to communications services on tribal lands and expand the e-rate program. Perhaps most significantly, the Commission further expanded the scope of its merger review. In approving the merger of AOL and Time Warner, Chairman Kennard successfully persuaded two other Commissioners to impose conditions requiring AOL to permit ISPs to access its advanced instant messaging service, a future service that had not been found to be anti-competitive.

If the Kennard FCC was focused on activism and imposing market conditions on new, advanced industries, the FCC led by new Chairman Michael Powell is expected to be considering less activist and trained on permitting market forces to regulate the business environment. As evidence of his philosophy, then-Commissioner Powell sharply criticized the AOL Time Warner conditions that mandated interoperability for future advanced services. Chairman Powell also appears to favor wireless spectrum ownership caps as well as cable and broadcast ownership limits. He also appears to be dedicated to making the Commission a more efficient agency, and it would not be surprising to see the FCC migrate from a service-based organizational structure to one based on function in which, for instance, licensing in all services is conducted by a single bureau.

Broadband policy will, by necessity, be a touchstone of the FCC in the coming year. Complicating matters is the status of the current Commission which, with Chairman Powell's ascension and former Chairman Kennard's departure, is comprised of two Republicans and two Democrats. Commissioners Harold Furchtgott-Roth, a Republican, and Susan Ness, a Democrat, have already announced that they will leave the Commission as soon as replacements can be appointed. It is widely believed Commissioner Gloria Tristani, a Democrat, will depart by the end of the year. Prior to the appointment of a fifth Commissioner, the FCC could face deadlocks rooted in political affiliation. Once the new Commissioners are appointed and Republicans achieve the 3-2 advantage, the direction of broadband policy will begin to take shape.

In the meantime, the FCC's broadband agenda includes several important proceedings that likely will be decided this year. Last September, the Commission initiated a Notice of Inquiry on whether to require cable operators to open their facilities to competitors. Proponents of open access contend that, absent mandatory access requirements, the cable industry will monopolize the broadband market and, with its significant access to capital, will be able to thwart facilities-based competition. They further contend that, without mandatory access, they do not have the necessary leverage to negotiate access arrangements with the MSOs that dominate the cable industry. Cable operators, of course, built the broadband platforms, and assert that they should be allowed to benefit from the financial risk they took. They also argue that requiring access would dissuade them from investing in upgraded cable plant. Cable operators also note the emergence of DSL, MMDS and satellite services as viable competitors. It is expected that the FCC will issue a report by the end of the year.

In January, the FCC initiated a formal rule making proceeding to allocate spectrum for advanced wireless services, known as "Third Generation" or "3G." Mobile wireless carriers want access to additional frequencies to roll out high-speed mobile multimedia platforms with global roaming capability. In order to satisfy these desires, the Commission must re-allocate spectrum already used by others. One spectrum band - 1710-1885 MHz - is used by the Department of Defense for satellite communications. Another frequency band - 2500-2690 MHz - is used by MMDS and ITFS operators to provide high-speed broadband services under rules adopted in 1999. MMDS operators like Sprint and WorldCom have invested substantial funds to acquire spectrum and purchase equipment, and ITFS users have shown a strong interest in using frequencies to advance educational causes. They also note the unavailability of suitable replacement spectrum. Mobile wireless interests note that the U.S. could be left behind in the global marketplace if spectrum harmonized with spectrum in Europe and Asia is not quickly allocated. Based on initial comments filed in February, the mobile wireless community by and large prefers the 1710-1885 MHz band, and Congressional leaders have informally acknowledged that the government may need to share its spectrum or relocate its existing users. The 3G proceeding is on a fast track, with final rules expected in June and auctions anticipated for September, 2002. Recently the Senate Budget Committee dramatically raised its estimate of auction fees for 3G services to $28 billion by the end of 2007.

The Commission also has proposed to liberalize its restrictions on leasing spectrum. In its so-called "secondary markets" rule making proceeding, the Commission is proposing to make spectrum more valuable to licensees by allowing them to lease, disaggregate and partition licensed spectrum without running afoul of policies requiring licensees to retain "control" over their licensed facilities. There is very little opposition to the Commission's proposal, and new rules are expected by the end of the year.

In addition to the new broadband rules the FCC is considering, the Commission also must resolve disputes concerning the approval of spread spectrum equipment. In September of 2000, Wi-LAN asked the full Commission to review a staff decision that denied Wi-LAN's request to certify its OFDM transmitter in the 2.4 GHz unlicensed band, a spectrum segment currently used for broadband access in primarily rural areas. The staff had turned down Wi-LAN's application because it did not meet the "intent" of Commission rules, stating that the transmitter minimizes occupied bandwidth and does not rely on high-speed spreading code and information data streams to modulate the RF signal. In October of 2000, Cisco and other equipment manufacturers asked the FCC to clarify its rules to permit adaptive hopping techniques in the 2.4 GHz band to minimize interference. It may very well be that current FCC rules are antiquated and unavailing to companies that are developing a new generation of spread spectrum technology that will ease interference in the 2.4 GHz band.

All of these issues and proceedings bear careful watch during the next year, and all will affect the ability of wireless companies to compete in the broadband marketplace.

About the Author
Stephen Coran is an attorney at the Washington, D.C. communications law firm of Rini, Coran & Lancellotta, P.C. Mr. Coran represents clients in the MMDS, satellite and emerging technologies industries. The author may be reached with questions or comments at scoran@rclpc.com