FCC Opens Phone Market Further to Foreign Buyers

The Federal Communications Commission voted Tuesday to open the nation’s $200-billion telecommunications market to greater foreign competition and in a separate action proposed that all new radio and TV licenses be sold to the highest bidder.

The two decisions together represent a further embrace of market competition by the federal agency and will likely spur additional consolidation in the booming telecommunications industry.

But the once-diverse pool of local and regional telecommunications owners is quickly being displaced by well-heeled media conglomerates as a result of sweeping deregulation under the Telecommunications Act of 1996.

Some watchdog groups say the broadcast license plan is a setback for small and minority entrepreneurs who previously could compete for licenses based on FCC rules that judged applicants’ ability to serve the public interest.

Critics also questioned whether the FCC should have required foreign nations to allow U.S. telephone firms the same access to their markets that the agency was granting to the U.S. market.

But FCC and foreign officials expressed confidence that Tuesday’s action would spur other nations to open their own markets to greater foreign investment.

Our decision “will introduce new sources of competition in the telecom and satellite markets [and] . . . also assist the U.S. telecommunications and satellite industries in their efforts to expand beyond our borders,” said FCC Chairman William E. Kennard.

“The decision is definitely a step in the right direction,” said Andreas Tegge, managing director of the Washington office of Deutsche Telekom, Germany’s telephone company. “The Europeans have already embraced this [concept].”

Success or failure now, he said, “depends on how it is enforced.”

Most experts agreed that the FCC action will eventually spur lower prices and greater choices for consumers. But they warned that businesses are likely to benefit long before residential users, because they make a higher volume of toll calls and therefore can negotiate deeper discounts.

“Long term, this is a good deal for consumers and business customers. But in the short term, business customers will see the biggest benefit,” said Jeffrey Kagan, a telecommunications consultant in Atlanta.

Major U.S. carriers complained that the FCC should have continued to force foreign carriers to open their home markets before being allowed to invest in the lucrative U.S. market.

“The commission should have moved further today toward creating more substantial and robust competition in the international calling market by requiring foreign carriers that enter the U.S. market . . . to reduce [telephone] rates . . . as a condition of entry,” said Rick Bailey, vice president of federal government affairs at AT&T; Corp.

Tuesday’s action follows a historic vote in February by members of the World Trade Organization to open up their communications markets to greater foreign investment. The pact, by 69 countries representing more than 90% of the worldwide $670-billion telecommunications market, is scheduled to go into effect Jan. 1.

Until now, federal law limited foreign firms to a 25% ownership share of U.S. telephone firms and required overseas carriers to demonstrate that their home markets are open to U.S. companies. Only Britain, Sweden and New Zealand have managed to meet that test.

Under the new rules, WTO member nations will be free to own up to 49% of a U.S. telephone firm without having to first undergo extensive federal regulatory scrutiny or to demonstrate that their home phone markets are open.

The effort to embrace competition was also evident in the FCC’s proposal to auction new radio and TV licenses rather than award them through an administrative proceeding that subjectively judges competing applicants on their ability to serve the public interest.

The vote is the first step toward resolving a 1993 federal court decision that threw out FCC rules for evaluating applicants. Licenses for about 300 broadcast stations--virtually all in small markets--have been in limbo since the court case. The rules enacted Tuesday will not affect renewals of existing licenses.

“Minority ownership is going down, not up, and I am deeply concerned about it,” FCC Commissioner Gloria Tristani said before voting for the auction proposal.