The reluctant planner: FCC Chairman Michael Powell on indecency, innovation, consolidation, and competition.

HIS DECISION TO loosen media ownership rules "insulted your intelligence and wounded democracy," one newspaper columnist declares. He's obsessed with "trying to save America's virtue" writes another. He has presided over "an end to an era of competition," a consumer advocate argues. He's Michael K. Powell, 41, arguably the most controversial chairman in the history of the Federal Communications Commission (FCC), the central planner charged with overseeing the structure and details of telecommunications in America.

As a young man, Powell joined the Army, following in the footsteps of his father, Secretary of State Colin Powell. After a back injury ended his military career, he took up law, graduating from Georgetown University Law Center in 1993. In 1997 the Senate selected him to be one of the two Republican commissioners at the FCC. (The agency has five commissioners, three traditionally picked from the governing party and two from the opposition.) When George W. Bush became president, he tapped Powell for the top job.

There are two ways to look at Powell's performance in office. One is the way Powell portrays himself: as a "Reagan-era child" eager to lighten the government's burden on the communications industries. This Powell has a vision of digital convergence--of a market where cable, telephone, cellular, and satellite companies compete to sell bundles of video, voice, and data packages across Internet-style networks--that is finally gaining traction in the market and in Washington. In this coming world, he argues, government regulation is much less necessary.

That Powell applied the same deregulatory principle to long-established limits on the number of television stations a single company can own. Powell and the other two Republican commissioners approved a modest plan to liberalize those regulations in June 2003, but it was a Pyrrhic victory. Public interest groups denounced the move, and legislators retightened some of the rules. Others were overturned by the U.S. Court of Appeals for the 3rd Circuit.

That's one perspective on Powell. Another view argues that the chairman isn't the deregulator he's reputed to be--that in fact, he's made the government more intrusive. His FCC has pushed an industrial policy-style mandate for digital television (DTV), and last year it forced TV and computer manufacturers to include anti-copying tools in their products. In August the agency took a similar step with Internet telephones, requiring them to install surveillance-friendly wiretap equipment in the name of homeland security.

And while Powell's proposed changes to the media ownership rules were deregulatory in many ways, they would have tightened the caps on how many radio stations a company may own, while grandfathering in most of the acquisitions that predated the rule change. Worse, the chairman seems more interested in letting existing broadcasters merge than in letting new broadcasters emerge: During the Clinton years, he voted against a plan to license new low-power outlets on the FM band, citing the possible "economic impacts" on incumbent stations.

Then, too, politics has forced Powell to eat some of his deregulatory words. Where he once wanted to re-evaluate rules governing "indecency" in broadcasting, he now enforces them with a vengeance. His agency has issued 21 fines--and two consent decrees--for $4.7 million within the last year.

In August--one month prior to issuing the biggest fine of all, a $550,000 slap at OBS owner Viacom for its role in the Super Bowl halftime show featuring Janet Jackson's bared breast--Powell sat down in his office to discuss these issues with reason Editor-in-Chief Nick Gillespie, reason Managing Editor Jesse Waller, and Drew Clark, senior writer for National Journal's Technology Daily.

reason: What would you say of someone who said, "There is nothing unique about the scarcity of radio frequencies.... Rather than continuing to engage in willful denial of reality, the time has come to move forward toward a single standard of First Amendment analysis that recognizes the reality of the media marketplace and respects the intelligence of American consumers."

Michael Powell: It sounds like you're reading a speech of mine.

reason: From 1998.

Powell: I thought it sounded familiar.

I completely agree. Do you think a 12-year-old knows what a broadcast channel is? Do you think that they have any idea what the differences between Channel 4 and Channel 204 are? Do you think that the First Amendment ought to change as the dial changes?

I don't. To suggest that we bend the First Amendment for one industry singularly is to do hazard to our most cherished principle.

reason: What's changed in the six years since you made the speech?

Powell: Nothing's changed, and that's part of the problem.

reason: But you're talking a lot more about indecency now.

Powell: Yeah. It's quite consistent, actually. The indecency laws, first of all, are statutes. The people of the United States, through legislation, have made indecent speech between the hours of 6 a.m. and 11 p.m. over only one medium, broadcasting, unlawful. They have invested in this commission authority to enforce that law. The commission does it in response to the complaints from the public. Many people have tried to argue that we should be like the FBI on indecency and be affirmative, that we should go out and listen to television and radio. We don't do that. We wait for the American people to complain, and then we act on complaints. What has happened in the period you've identified is indecency complaints have skyrocketed.

reason: So you can take complaints. But why do you actually need to levy fines against someone who uses, say, an expletive in a passing phrase, as Bono did at the Golden Globes?

Powell: The statute says two things. It makes indecency unlawful, and it makes profanity unlawful. How do you say it's not profane? It's in the criminal code, which means John Ashcroft could theoretically go try to slap handcuffs on you. Now, nobody expects that, but there's nothing about that statute that says otherwise. If the f-word's not profane, then I don't have any idea what profanity is in America. Presented squarely with a case like that, it became very difficult to say it's not profane, even though I think you could debate whether it's indecent.

reason: But this was the first case where you've used a profanity standard.

Powell: In the past there are some profanity cases linked to blasphemy. But I don't see anything in [the definition of] profanity that says "f-you" is OK but "f-God" is the only thing we care about.

reason: Do you think it's appropriate that radio broadcasters have to meet a different standard than, say, a filmmaker when it comes to indecency or profanity?

Powell: This goes back to, do I think that the First Amendment should be less protective of broadcasting than it should be of cable? I don't particularly.

I can make an argument that radio is free. I can make the argument the Supreme Court has made: It's the one medium that uses a public asset and resource, as opposed to being purely private. The airwaves belong to the United States government and you license use. They're the public's airwaves.

reason: Should the airwaves belong to the United States government?

Powell: That battle was over in 1920. You could've argued that there should have been a private property model of spectrum, and many people have written brilliant articles about how you could have done that. Ronald Coase won the Nobel Prize for arguing that. But I can't live in every century. Nearly too years ago, Herbert Hoover as secretary of commerce decided the airwaves belong to the public.

reason: But things have changed, in part because of the Coase article. The philosophy of auctions took off in the '90s, and one can grant de facto property rights without de jure property rights. Wouldn't you say we're moving more toward that system?

Powell: Clearly. Most of the property right-esqe things you're talking about in public spectrum are our initiatives. This is a commission that has promoted secondary leasing, secondary markets. This is a commission that eliminated arbitrary spectrum caps [on cellular companies' holdings]. It is a commission that creates more flexibility in licenses. Those are all de facto property rights. How many speeches have I given where I say, "Let's move from command-and-control spectrum models to more market-based spectrum models"?

But let's be candid: Broadcasting will always have a different set of dynamics associated with it. Why? Because it is content, and because it's very, very political.

reason: Let's move to the very political issue of the media ownership rules.

Powell: We're not talking about media ownership. We're talking about broadcast ownership. I'm troubled by the continued approach in which media that are extremely competitive with each other media that compete for news, information, resources--are nonetheless cut up and categorized differently and then get entirely different regulatory regimes.

reason: Can you give a quick example?

Powell: One of the biggest firestorms was over this national cap [on what percentage of the national television audience a single owner can reach], whether it was 35 percent [the former cap], 45 percent as we suggested, or 39 percent, which Congress picked. Going to 45 percent means maybe one to two more stations per network in the United States. That's all that means. So a broadcast network is only allowed to reach with its product 45 percent of America.

But why can cable reach zoo percent? Satellite television can reach too percent. The Internet reaches zoo-plus, if you want to go outside the U.S.

reason: So why 45 percent? Why not 46 percent? Why not 100 percent?

Powell: This is where it's not just an academic argument. If Congress wants, as the 535 representatives of the American public, to say we're going to draw a limit, they can draw a limit. They can delegate that authority to an institution like this one, whose duty it is to follow the limit. And no matter what my personal view is, I'm not going to debate whether there should be a limit.

reason: If Clear Channel suddenly owns six, seven, or, under a different regime, a dozen radio stations within the same market, is that something people should worry about?

Powell: Yeah, absolutely. It's something the commission worried about. It's rarely reported, but we tightened the radio rules. I hate when people describe my views as laissez faire, because I don't think there's any such thing. Capitalism would not work without the rule of law, and it would not work without certain understandings about rules and limitations.

I'm an antitrust lawyer. I completely accept that concentration at some measurable level becomes anticompetitive and harmful to the American consumer.

reason: Can you give an example of that?

Powell: There's Standard Oil.

reason: Most of the revisionist histories of Standard Oil show that by the time it had its maximum market penetration, it was actually charging less for oil.

Powell: You may know more about the specifics of Standard Oil than I. But I do believe in the cases and the theories that show that at a certain level of monopolistic control people can extract monopoly rents and affect output in a way that harms the American consumer.

I think the United States, more than any other nation in the world, has got antitrust right. The presumption is business is OK. The presumption is mergers are not in and of themselves bad. People forget that monopoly isn't even illegal. The only thing we're looking for is whether the monopoly actually causes anticompetitive effects that are measurable on consumers. I've worked at the antitrust division. I've seen cases where we believed unequivocally that it did. You can find them. You could find the price increases, you can find the data that would demonstrate that and that you needed to do something about it.

But in media, it's less than that. If all we were doing is measuring concentration in the traditional way, we all know how to do that. I could decide whether Clear Channel is too big on concentration and anti-competitive grounds, but the argument in the country is not that. Something far short of that should be a "no" on diversity grounds, which is a compelling objective.

reason: Do you think there's any principled way to determine the right levels of diversity and localism?

Powell: At the end of the day you have to do something that you're comfortable with, but you have to accept a big margin of error. What are you trying to achieve with localism? Issues relevant to their community and not just issues relevant to the nation and the world are part and parcel of what's covered by properties that are licensed in the public interest.

I can pull public records and look at programming choices and what percentage of local news is on vs. five years ago, and I can measure it. We did all of this in the media ownership proceeding, and the reason I am a little saddened by what happened is that the work in there is phenomenal. We had data that never existed before. We found things to measure that aren't antitrust mathematical but are indicative of a good story, and things that were indicative of a bad story.

reason: What do you think accounted for the firestorm over the ownership rules?

Powell: It's because this is an extraordinarily media-intense culture. Getting your voice heard is a source of both pleasure and aggravation.

The debate is more of a stalking horse for a general anxiety about media's role in our daily lives than it is about the rules. It became symbolic in an era where there was deep anxiety about globalization, a deep anxiety about corporate America. And the rise of things like Fox, which is the first network with a more conservative element in it. There's a whole 'nother constituency that thinks that's the problem.

reason: If you had to do it over again, what would you have done differently?

Powell: There are a lot of tactical things I would do differently. We got hit with a perfect storm. Look at some of the groups who are most effectively mobilized against us. We've never heard of them here at the FCC. I don't know who Code Pink and MoveOn.org are. In many ways, the anti-war movement suddenly came to the FCC. And that was a hard thing to have seen in advance.

I'm not so sure I would have put everything together, which I think is the right answer from a legal, technical approach. We created this enormous gravitational pull because all the broadcast rules were together, as opposed to past commissions that did a rule here and next year did a rule there. Maybe that's the better way to do it.

reason: When low-power FM came up for vote in 2000, you dissented in part, rejecting the arguments that the FCC does not "pick winners and losers" and pointing out that "we regularly consider the economic impacts of our actions on licensees." Do you think the FCC should be picking winners and losers?

Powell: No. Not at all.

reason: Well, you voted against the proposal.

Powell: The short answer is, "No, of course we shouldn't, and nobody will say we should." There's no question that every day here I have lobbyists that come in this room paid lots of money to make me pick a winner. They make an argument about the public policy benefit of doing it their way, but at the end of the day, sometimes it's just, "We want you to be on our side"

A public policy official needs to know how to be disciplined and objective about the choices they are making, but I pick winners and losers by coincidence, not by consciousness.

reason: You've done more than any other chairman to increase the number of megahertz devoted to unlicensed spectrum. Why?

Powell: The commission made an interesting error many years ago and issued the unlicensed band because they thought the spectrum was junk. We didn't invent WiFi [wireless fidelity] or anything. The only thing I think we should be credited for is that we started to observe that very positive things were happening in that space, not just baby monitors and microwave ovens. Suddenly people were bringing very interesting products to consumers at very low cost.

We jumped on that and said this is something the government should reinforce rather than try to stamp out. Because the history of the FCC is, when something happens that it doesn't understand, kill it. We tried to kill cable. We tried to kill long-distance. When [MCI founder] Bill McGowan starting stringing out microwave towers that threatened AT&T, the FCC tried to stop him. The FCC tried to kill cable because it was going to threaten broadcasting. I don't want to make those mistakes. The philosophy of my commission is when we see something that's disruptive but powerful, stop talking about killing it. Talk about empowering it.

So we jumped on WiFi and said, "Let's see how far this can go." It's gone way farther than I would have imagined. I don't think 1 could do unlicensed for all the spectrum in the United States and not melt down the universe, but can we pick selective bands under certain parameters and do that? Yeah. And it's teaching us a lot about how much more we might be able to do with it.

reason: What about unlicensed broadcasting? Why not let pirate stations operate if they're not interfering with other stations nearby?

Powell: You just put in an enormous caveat: if they don't interfere. The way we manage interference is through licensing. I could say, "Why don't we just let everybody buy a car and get on the road and as long as they don't run into anybody, it's OK?" Well, because somebody who buys the car might be up to something that they shouldn't be. Or maybe there's no way to have a record-keeping function so that when the car wrecks I know who did the wrecking. You won't be very happy if the interference is with the LAX tower as a plane's landing and we find out--which has happened--that a pirate radio station was responsible for that and we didn't even know who they were. Licenses are a way of knowing in advance who's authorized to operate and that they have been given clear understanding about what the operating parameters are and that they're legally obligated to follow them.

reason: In a world where there is competition between cable and wireless and telephone for video and voice and data, what is the role of the FCC? Couldn't we just eliminate it, shut its doors, hire a spectrum court, and pass antitrust enforcement over to Justice?

Powell: If you want to. So let's engage in a hypothetical about putting yourself out of business. The communications system, let's be blunt, is littered with social and political policies that have been embraced by the country and codified by the Congress, and it's created an institution to administer them. Don't ask me to defend it. I'm administrating it. The universal service program is a commitment by the United States to provide ubiquitous and affordable phone service. You can let the market do it and you can pay $300 a month for phone service in Montana.

reason: You think that's what you'd pay? You can get cellular service for $40 a month.

Powell: Yes. We have places in the United States where the cost of a basic land line would be $200 to $300.

You said things in your statement that are important, but don't trivialize them and say, just set up a court for spectrum, we are that court. You can put it in something else you want to call a court, but that's who we are, and we've been doing it for 70-something years and we're probably the best in the world at it.

Universal service is not an economic policy; it's a social policy. Public interest obligations on broadcasters, as much as you may want to disagree with them and as much I might want to disagree--they're just social and political policy.

reason: But clearly you are doing more than just implementing the will of Congress and being a spectrum court. You are implementing industrial policies like digital television, which will require all Americans to swap out televisions receiving broadcasts for newer models. [Once that's completed, every broadcast station will give back the second television channel it was loaned for free in 1997, and cease analog broadcasting.] When did you decide this was worthy of embracing and pushing?

Powell: When I decided that Congress had made a legal judgment that that's what they wanted to do and asked this agency to make it happen. When I realized that this country was wasting way too much spectrum in broadcasting, and it needed to get it back, and the only way to get it back is to get the transition over. When I realized that if somebody doesn't help drive this transition forward, hundreds of megahertz of spectrum that could be deployed for other creative uses or for public safety or for homeland security were laying unused. I am not free to be nothing but an academic about the way I think about the world. I am duty-bound to try to administer the policies that are in place and make them work, no matter what my personal preferences are.

I didn't write the industrial policy of DTV, and I've been on record criticizing why we did it in the first place. But it's done. Sitting around whining about it at conferences is not the same as getting it done.

When I set out to get it done, I also didn't do what some people would've done. The Powell plan was a voluntary plan.

reason: Except for the requirement that televisions include digital tuners.

Powell: Absolutely, except for the tuners. There's a good reason to do tuners. Sometimes you play hardball. The consumer electronics industry wasn't going to play with the Powell plan. I can count every TV from now on against the transition, which means I can get the spectrum back for the country to use sooner. Am I super comfortable with it on my own philosophical bent? No. Does it mean sometimes you use your authority to make the greater good happen? Yes. I'm not going to run away from that.

reason: When do you think the broadcasters are going to give up those channels?

Powell: Even with them in good conscience steadily clunking along, this could be 30 more years. And why do I come up with a number like that? Because if all we're doing is waiting for consumer adoption of an expensive product, we have to reach 85 percent before we can get it [under current law]. So when did the VCR reach 85 percent penetration? It took almost 30-40 years before it did so. We're looking at how to accelerate the transition and perhaps administer a date certain.

reason: So what do you think the date will be?

Powell: It can be whatever we make it be, but what we've talked openly about is 2009.

reason: The plan includes a hard date for the transition.

Powell: The word bard means because we say so. So Congress can say, legally, tomorrow. It's talked about 2006 or 2007.

reason: Would you prefer that it's 2006 rather than 2009? Powell: I'm a little guarded because I think the only people who should not have to pay a price for transition are consumers. They weren't at the industry policy table. They're not the ones doing the deal, and I think you've got to be very careful that the transition is at least not an abrupt one for them--"go buy a $3,000 television tomorrow so we can be finished."

reason: What about the price consumers are bearing by having government regulation of electronic equipment, like the broadcast flag for Hollywood?

Powell: Specifically what?

reason: The price of innovation being reduced by someone having to come and beg your agency for approval to implement a new consumer-friendly device like TiVo.

Powell: I think the premise of your question is false. The notion that a complete laissez-faire deployment of equipment always will produce a quicker and more optimal, more innovative solution is not accurate. You wouldn't have a personal computer if there weren't a standard. You wouldn't have the production of content if there weren't protections for the creators of content.

reason: Do you think the current copyright extensions are legitimate?

Powell: I'm not a copyright expert. I have no interest in becoming a place to resolve digital copyright issues more broadly.

Now, the broadcast flag is about a very specific problem associated with the transition to digital television. To me that has a greater good associated with it, which is recouping $70 billion of [spectrum] assets to deploy at a higher and better use.

reason: Are you going to be able to stop digital piracy of copyrighted materials?

Powell: You'll never stop free downloading, but can iTunes be compelling enough to restrict the bleeding enough to create a rough balance? The copying machine lets you copy a book, but there are certain transaction costs and barriers. I still think the vast majority of people want to do things legally, and if it's cheap and compelling enough, they'll do it legally. Millions of consumers still buy DVDs quite happily, so I don't think the answer is you've got to stop everything. I think the answer is you have to deter the most egregious abuses so that the producers will continue to produce.

reason: Let's turn that around. Can you have enough piracy to get big content promoters to give people the things they want?

Powell: Well, I think the music industry is a beautiful case in point. They might kill me for saying so, but I think [Napster inventor] Shawn Fanning did America a service. If Napster hadn't woken them up, I don't think you would have had MP3 players. I don't think you would've had iTunes. I don't think you would've had the iPod. I don't think you would've had the idea of the single-song transaction.

There's a long tradition of that in communication technology. If you didn't have Bill McGowan breaking the law, you would've never had MCI. You would've never had a competitive long-distance industry. If you didn't have [Dish Network founder] Charlie Ergen, who dared to say "I'm going to pop up a few satellites and challenge broadcasters in a different way...."

What's bright about this future is there's so much more power in radical innovators and their work that there'll be constant new challenges to innovate or die.

reason: Two weeks ago the FCC approved the FBI request to permit wiretapping of voice-over-Internet calls, even though the law clearly exempts the Internet.

Powell: Tentatively concluded. An important distinction.

reason: What was the rationale for that, if the Internet is exempted?

Powell: The question presented to us was, could something be a telecommunications service under the provisions of digital wiretap law even if ultimately it became an information service under the Telecom Act--two different statutes? The tentative conclusion was it could be.

reason: Everyone's saying you've bent over backward because you want the Department of Justice to support your appeal on the Brand X Internet Services decision, which would have permitted regulation of cable modems. Is that what's going on here?

Powell: I think that's too cynical, but parts of it are true. The Brand X decision is the scariest and worst decision that exists on the books today for the future of the Internet. I think it's been underobserved and under-appreciated how dangerous it is. It says that every Internet transport provider just became a telephone company. That means broadband over power line, that means WiFi, that means ultrawideband, third generation wireless. The costs to consumers in the cable industry alone are breathtaking.

reason: What do you think you're going to be remembered for at the FCC?

Powell: I always hate legacy questions. We set out with a simple vision. If you go to the first major speech I ever gave on the eve of becoming chairman, we called it digital migration. We said the communication industry is turning completely over to a new paradigm, and that paradigm is enormously positive for the American economy and the American consumers. The goal of the commission is to completely turn it from an institution looking backward at disputes over the past, to keep it focused on the future and the broadband platforms and the services that are going to run over them. The vision is to get this country to migrate from its essentially 100-year-old analog infrastructure to one that is like the Internet: an infrastructure that's digital, bit-capable, Internet Protocol-based.

reason: How does increased content regulation play into that?

Powell: I think it will be increasingly difficult to argue for content-premised legislation for broadcasters only. reason: Does that mean Congress is going to extend content regulation further into cable or other traditionally nonregulated areas, or does it mean they give up trying to regulate broadcasting?

Powell: Well, what Congress chooses to do is anyone's guess. But I would say this: There's an enormous sledgehammer on the other side: the First Amendment and the way the courts view it. Every day the Internet becomes an increasingly effective tool for democracy and political organization. The irony is we're most attacked on broadcasting by organizations who use the Internet to make themselves effective.

reason: So you're saying a group like MoveOn--

Powell: --dot org--

reason: --wants the FCC to regulate broadcasts more even as the platform for their power is unregulated?

Powell: Well, I think that's a factual truth. I think it's interesting. We've seen John Kerry raise his millions over the weekend using the Internet. We've seen the phenomenon of Howard Dean. We see targeted advertising. The tools that I have embraced, and were the core of the choices we made in the media ownership proceeding, are being utilized in this election, which is the most critical moment of democracy. Maybe we were right but were too soon. I have no doubt that my children are going to be in a world that's much more about Internet distribution than broadcast television.

This is the same Supreme Court that struck down all the communication decency attempts on the Internet. This is the same Court that wouldn't let you regulate cable. You're getting this divided regime that ultimately is going to become arbitrary and indefensible. If my TV has a broadband pipe to it and has two-way interactivity and I'm picking NetFlix programs and downloading to my TiVo, is it a TV or is it the Internet? I think it's going to look a lot more like the Internet than it's ever going to look like a television. So one day some court is going to say, "This doesn't work" If Congress gets there first, I would admire them for their foresight, but if they don't, I think that the day will come where, as a constitutional matter, such divisions are not sustainable.

reason: How would you define your politics?

Powell: I consider myself moderate, slightly right of center. It depends on the issue. I'm a big believer in individual entrepreneurship and innovation. I think American capitalism is the finest economic system ever invented. It has crushed--not beaten, crushed--every alternative deployed in the history of the world, and we should be proud of it instead of embarrassed by it.

The market has delivered more value to poor Americans and raised standards of living around the world more than any system I know, and I just wish we would stop having to reargue the value of the American marketplace. I wish we could stop having to convince people every Io years that enterprise and opportunity and innovation are not bad things.

I'm a Reagan-era child. When I was in college, Reagan was the reinvigorating force in American life.

reason: Do you feel that George Bush has an appreciation for the future of technology and for its role in communications and in society?

Powell: Yes, I do. But I also have a healthy respect that presidents are human beings. What keeps that man up at night, the focus of his greatest attention, is Iraq and the war on terrorism. He's not going to micromanage everything.

reason: So you get to micromanage it?

Powell: I hope not, but you have to do what you're supposed to do.

I'm increasingly excited that I can actually talk to you about your TiVo and what that means for convergence. I can talk about your WiFi network at home. I can talk to my son about a cell phone, and he knows what I'm talking about. For the first time, I actually have neighbors who know what it means that digital transition gets spectrum back. Because they never had a reason to think about spectrum. That was the mystery world of broadcasting, and no one really paid attention to it. But now they do, because they can actually imagine that spectrum belongs to people in their own homes. What I love about WiFi is it's a way of saying you, not some institution, own the spectrum in your home.

reason: If John Kerry were to win, what would happen to what you've tried to do here at the commission?

Powell: I think a lot of it is secure. Certainly, any chairman is powerful and can change course. We changed course from the previous administrations. That's what elections are for. But I do think we did something that is unique and lasting, which is we tried to build the policy around impenetrable technology trends. You can have a different vision if you want to, but you're not going to stop Voice over Internet Protocol. You are not going to stop the continued march of WiFi.