Straight Shooter

It was a packed luncheon at the March 1998 United States Telephone Association (USTA) national conference where Harold Furchtgott-Roth had one of his first opportunities to address the telecom industry as an FCC commissioner. Most of the attendees were from small telco companies, eager to hear his views on universal service. Even so, he was an unusual speaker choice for Mary McDermott, then USTA vice president of legal and regulatory affairs.

"There were some folks in our meetings group who said: 'He's kind of quiet, and he's so new. Do you think that it's fair to ask him to do this?'" recalled McDermott, now PCIA senior vice president & chief of staff for government relations. "He had obviously given so much thought to what he was going to say. As he spoke, it was so obvious that he deeply believed in what he was saying that he got the only standing ovation I ever saw at a USTA event."

Maybe it was the part about hidden taxes leading to higher prices and deterring investment. Maybe it was his reassurance that as long as they met consumers' needs and wants, they would prevail in the market -- no thanks to Washington. Or maybe it was this: "You are being hoodwinked left and right on this universal-service fund, and it's time that you stood up and told the FCC to start following the law, not reinventing it."

Furchtgott-Roth hasn't wavered from those positions since settling in as the FCC's conscience nearly two years ago. A bachelor's degree from MIT and a Ph.D. from Stanford, both in economics, make him the first economist to serve as a commissioner -- and a devout regulatory minimalist. As soft-spoken as he is outspoken, he chooses his words as carefully as another Republican economist, Federal Reserve Board Chairman Alan Greenspan. In a sense, Furchtgott-Roth shoulders a similarly weighty responsibility: His decisions affect industries that account for roughly one-sixth of the U.S. Gross National Product.

That's not a job to be taken lightly, and Furchtgott-Roth doesn't. As chief economist for the House Commerce Committee, he helped write the Telecommunications Act of 1996, which Sen. John McCain and others subsequently have labeled a failure for not increasing competition and deregulating the telecom industry quickly enough. Furchtgott-Roth sees it differently and blames any shortcomings on the FCC's unwillingness to implement the law as written.

"Thousands of businesses, both incumbents and new entrants, are offering products and services that four years ago would have been illegal," he said. "Are all telecommunications markets fully competitive today? Not yet, but four years ago, it would have been illegal even to attempt to make all markets competitive."

One success story is wireless, which, as CTIA likes to put it, already is "what competitive telecommunications will look like tomorrow." Furchtgott-Roth was very pleased with a June 1999 FCC report that found the wireless marketplace highly competitive. The report served as a vindication of sorts for both the Telecom Act and its author, who sees healthy competition and new technology as opportunities to rethink and reduce regulation.

"A lot of regulation was originally written to mimic the marketplace to set up conditions to discipline monopoly or near-monopoly providers," Furchtgott-Roth said. "Once there is competition, a lot of the rationale for certain types of regulation goes away. So I think the report provides a strong basis for the commission to re-examine some of our regulations and figure out if there are areas where we can start getting out of the way."

One possibility is the spectrum cap, which CTIA supports lifting and PCIA wants to remain until PCS carriers have a larger market share. But Furchtgott-Roth approaches the debate from a different perspective: Should the FCC even wield the spectrum cap if its raison d'tre is to prevent monopolies?

"The federal government already has antitrust agencies whose sole responsibility is to make sure that market power is not abused," he said. "They have very potent laws that enable them to prevent abuse of market power, and they exercise those laws with great vigor. Anyone who doubts that can ask Bill Gates what he thinks of the Justice Department's antitrust division.

"It isn't that I think there's some magical market share or some tweaking to make these rules more precise that would give me greater comfort. I'm not sure that it's necessarily the proper role of the commission to try to be an anti-trust agency."

If anything, he argues, the FCC can best serve consumers by giving companies the freedom to innovate and compete. But the FCC hasn't exactly gotten the Nostradamus award for foreseeing how new technologies would upend decades-old business models and outgrow regulations almost overnight. To Furchtgott-Roth, the success stories came not because of the FCC but in spite of it.

"The commission has a very unfortunate history in this as is in many other areas," he said. "I've been told that there were applications submitted in the 1950s and 1960s for wireless services very similar to some of the services we have today. The commission delayed and never granted them. It is incalculable how much consumers have lost out by earlier commissions not allowing new services to get to the market."

His outspoken preference for regulation that's more carrot than stick often provokes everything from ire to laughter among his fellow commissioners. During a meeting on universal service, his comparison of its cost models to central planning under Stalin reportedly prompted the other commissioners to begin calling one another Vladimir. If it's any consolation, he gets a warmer reception from the companies he regulates.

"In general, we feel very warm toward him as a commissioner because he comes at it from an economist point-of-view," said Andrew Sukawaty, Sprint PCS president. "He has a general set of philosophies, which are 'let's get to a situation where businesses can regulate themselves (and) not force regulation on them.' Therefore, we are very favorable toward him."

"IT'S A GAMBLING CASINO"Furchtgott-Roth has complained loudly and often about what he sees as the ad-hoc nature of the FCC's merger reviews. Although he acknowledges that the Communications Act does give the FCC authority to review transfers of licenses and certificates of common carriage, he argues that the FCC continually oversteps that authority.

"We do have the authority to review certain mergers under the Clayton Act, which is the same statute that the Justice Department uses," he said. "But we refuse to use that. The commission has convinced the public that somehow we have the authority to review mergers under a public-interest standard, (and) by golly, if the public and media don't believe it."

The overall lack of clarity also rankles him. The FCC receives tens of thousands of license-transfer applications every year, but predicting which ones will go under the microscope amounts to a crapshoot.

"The vast majority get no scrutiny," he said. "Some get a low level of scrutiny. A lucky few are held up to extraordinary scrutiny. I don't think we have any consistent rules about which licenses are going to fall into which category. It's as if they come to the FCC, and it's a gambling casino: They have no idea how it's going to turn out."

He isn't alone in his concern. At least two pending bills would limit the FCC's merger-review authority and force it to defer to the Justice Department and Federal Trade Commission. Furchtgott-Roth is mum on what he thinks of the bills, but he isn't coy about his belief that reviews should look only at whether the merger would violate existing laws and commission rules, such as spectrum caps.

"We make up the rules as we go along," he said. "After several months of secret, behind-the-door negotiations on (the) SBC/Ameritech (merger), the commission came out with some very complicated proposals. Absolutely no precedent either for the process or for the conditions that were proposed. It's just a very ad-hoc process. I find that very troubling."

Less troubling is the possibility that if the FCC doesn't have a legal leg to stand on, sooner or later it will face a court challenge for overstepping its authority.

"I certainly am not concerned," he said. "Indeed, I look forward to that day."

DR. NO OR DR. KNOW?If Furchtgott-Roth feels secure in his position, it might be because he's done his homework. One wall of his spacious office is chest-high with intimidating-looking tomes, and visitors quickly get the sense that he probably could quote chapter and verse from any of them. Indeed, lobbyists say that when they discuss an issue with him, they find that he's read not only relevant sections of the Telecom Act but also court opinions and other legal precedents.

"He is always well-prepared," said PCIA's McDermott. "We file a heck of a lot over there, and we're working lots of issues. It's sometimes overwhelming for them to keep track. But he must be a voracious reader or quick on the pick-up because he always is prepared."

That intellectual prowess is tempered by politesse and self-deprecating humor, qualities that can come in handy when he's advancing positions that aren't always held by his fellow commissioners.

"He gets fired up in some commission meetings, but I've always found him to be a gentleman," said Bob Blau, BellSouth vice president for executive & regulatory affairs. "He has opinions, but that's what he's being paid to do. He is a genuinely nice guy and a decent human being. He thinks about what he's doing, and that's why he gets as animated at these meetings as he does."

Between his frequent dissents and a well-publicized bout with FCC Chairman William Kennard over alleged restrictions on access to information, it's easy to get the impression that he's constantly at odds with his colleagues. Not so, Furchtgott-Roth argues.

"Most items are voted by a 5-0 margin," he said. "I don't believe that I get much (criticism). Besides, my job as commissioner is not to 'go with the flow' but to follow the commission's statutory obligations."

For lobbyists, that's a welcome change of pace from the hubris and hucksterism of Washington.

"He's a straight-shooter," said Brian Fontes, CTIA senior vice president for policy and administration and a former FCC chief of staff. "You may not always agree with him, but you know where he's coming from."

That forthrightness is his way of practicing what he preaches: The FCC should play it straight with companies. Perhaps the last time Furchtgott-Roth was close to being a wild card was during his nomination -- a surprise to some because he isn't a lawyer.

"I think that by and large people around town thought that (his nomination) made sense because the major effort of the commission for the foreseeable future is the faithful implementation of the act," McDermott said. "People thought that his economic training would be very helpful to him in working through the process of going from essentially a monopoly situation to deregulation."

Being a member of the Congressional staff also made him a somewhat atypical choice, but his having worked closely with members of Congress during the Telecom Act's birth should provide insights into the key players' intent. That comes in handy when debating issues such as whether wireless carriers should contribute to the universal-service fund. So far, Furchtgott-Roth's response has been that Congress sets federal telecommunications policy, so if wireless wants relief, it should pursue a legislative rather than regulatory remedy.

But that puts him in an unenviable position: Like the Internal Revenue Service, the FCC frequently and sometimes wrongly takes the heat simply for following Congressional policy. Relief won't come until June 2000, when his term ends, and he said he hasn't even considered what he'll do then. Anything is possible, especially considering the unexpected turn of events that took him to the FCC in the first place.

"Like most children in America, I had never heard of the FCC," he said. "Even if I had heard of the FCC and had known what a commissioner does, like most children, I still would have dreamed of becoming a policeman, a fireman or an astronaut. But I am very honored to be a commissioner."

Although his term ends in June 2000, FCC Commissioner Harold Furchtgott-Roth will have plenty of chances to leave his mark on the wireless marketplace. Here's a quick look at where he stands on some of the hottest issues:

* CALEA. Furchtgott-Roth has long argued for "sensible regulation," where benefits clearly exceed costs. But that first requires a clear cost assessment, and in his mind, the wireless industry hasn't provided a complete price tag for complying with CALEA.

"The Justice Department and other law-enforcement agencies have been urging the commission to impose some fairly tough and costly standards on the wireless industry," he said. "I've been urging the industry to come forward with estimates of what the cost of compliance would be. (Law enforcement) has come forward with fairly compelling stories about why they need these new technologies. At the same time, no one has really come forward with a clear description of what the costs will be."

* 3G and Wireless Local Loop (WLL). Both are opportunities to apply his philosophy that new technologies are opportunities to streamline regulations.

"On 3G, I think it's very important for regulators both here and abroad not to try to set technological standards," he said. "I know there is a great longing for standards from some parts of the industry, but in general I think the market is far better suited to make those decisions than regulators are. WLL offers a lot of potential to provide services in new ways, and I just hope we don't regulate it to death."

* Calling Party Pays (CPP). The FCC's long-awaited decision in June to create a national standard for CPP was dampened somewhat by concerns that the FCC might consider rate regulation to prevent price gouging.

"I haven't discussed it with my colleagues, so I don't know what the mood is among the other commissioners," he said. "Personally, I am adamantly opposed to looking at rate regulationin the context of CPP."

It's no surprise that FCC Commissioner Harold Furchtgott-Roth admits to being a big fan of auctions as a means of distributing scarce resources. Even the C-block debacle, he argues, is an opportunity for the FCC to learn from its mistakes -- in particular, the installment-payment program -- and do right by those that played by the rules.

One example is SouthEast Telephone, a C-block licensee that unsuccessfully sought a limited waiver of the deadline for resumption of installment payments. Commissioner Gloria Tristani joined Furchtgott-Roth in a dissent, arguing that the FCC's inflexibility with its self-imposed deadline cut off service to customers in an underserved area of rural Kentucky.

"SouthEast is a very sad example where the commission didn't get it right in terms of treating some of the C-block licensees in an equitable manner," Furchtgott-Roth said. "They were a little behind on a payment, and the commission granted no flexibility and in essence put this company out of business in a market where, unlike most markets, there weren't a lot of other providers."

His objection is an extension of his philosophy that the FCC should have clear rules that are applied fairly and equally.

"It's not just that SouthEast has a compelling story," he said. "It's that anyone who has gone through the C-block process had a set of expectations, and because the commission was dealing with new things, they weren't always consistent, and a lot of reasonable expectations simply weren't met."