Powell Gives Up on Rule Revamp

Federal Communications Commission Chairman Michael K. Powell has abandoned his push to deregulate the telephone industry quickly as the agency prepares to revise key rules governing competition, sources said Tuesday.

But Powell is taking the unusual, defiant step of writing a dissent in the hope that history -- or the courts -- will vindicate him.

Powell’s reluctant surrender clears the way for an FCC vote Thursday on new rules spelling out what parts, if any, of the local phone networks owned by the regional Bell companies must be leased to competitors at regulated rates.

Three of the FCC’s five commissioners believe that the leases are necessary to encourage competition in the local phone market, putting them at odds with Powell’s position that companies such as AT&T; Corp. and WorldCom Inc. should install their own equipment.

On such key rules, the FCC historically has preferred to take a unanimous position.

“It’s always possible that people will blink at the last second, that some agreement will be reached, but there’s no indication that is going to happen in this case,” said Bruce Fein, a former FCC general counsel.

One top commission staff member still held out hope for an eleventh-hour compromise, but another speculated that the two sides are too far apart on rules governing voice communications to reconcile.

Powell, however, probably will agree with the majority’s view on removing restrictions on the Bells’ plans to use newer and faster cables to offer advanced services.

FCC officials would not comment Tuesday. The commissioners are in a quiet period leading up to Thursday’s meeting.

Industry experts said nearly any rule that the FCC adopted would be appealed to the federal courts, which have struck down some key provisions of the agency’s regulations three times in the last few years. Powell’s dissent probably would provide the Bells with a roadmap for appeal, one industry lobbyist said.

The commissioners had hoped that the yearlong review of competition rules would result in a 5-0 vote.

But philosophical differences arose over whether enough competition exists to warrant yanking regulations this year and whether the states should have a meaningful role in making such decisions.

The Bells -- including the dominant local phone service provider in California, SBC Communications Inc. -- have long complained that they are forced to lease their equipment below their cost. But competitors counter that they need the low rates to build market share before they can justify installing their own gear.

Several weeks ago, Powell proposed a plan that would have sharply limited the role of state regulators in setting lease rates.

Republican Commissioner Kevin J. Martin, though, wants to preserve a continuing role for state oversight of the local phone business and wants to require the Bells to continue sharing their networks with rivals until competition is ensured. He formed a majority with Democrats Michael J. Copps and Jonathan S. Adelstein.

Powell countered Friday with a plan that adopted much of the majority’s framework. But this plan also would have presumed that sufficient competition exists in markets where competitors have installed three switches, which make connections and provide features such as call waiting and caller ID.

Under that threshold, 80% to 90% of the residential phone market would have been removed from regulation. It also would have left the states out of the decision-making process.

Powell’s expected dissent confounded some staff members of the FCC, who note that in April 1999, before he became chairman, Powell spoke up for states’ rights by saying that they should determine what elements of the network should be available to rivals at discount rates.

“We are very optimistic that a role for the states will be preserved and that fledgling competition will be allowed to flourish” in the local phone market, said Stan Wise, a Georgia Public Utility Commission member.