CONGRESS QUESTIONS FCC'S ROLE IN WAKE OF WORLDCOM SCANDAL

Members of Congress have raised questions about FCC responsibilities in wake of WorldCom scandal in flurry of letters late Thurs. and Fri. House Financial Services Chmn. Oxley (R-O.) sent letter Thurs. to FCC Chmn. Powell asking about Communications Act requirement that FCC “inquire into the management” of communication common carriers. Senate Commerce Committee Chmn. Hollings (D-S.C.) wrote letter Fri. similar to one sent by Rep. Markey (D-Mass.) last week questioning whether FCC is prepared to handle potential WorldCom bankruptcy. And Ranking House Telecom Subcommittee Democrat Markey (Mass.) was critical of Powell’s response to his questions about continuity of service, particularly broadband, should WorldCom file for bankruptcy. Markey said in statement late Thurs. that Powell and other FCC commissioners should “rethink the wisdom” of FCC policies.

Oxley cited Sec. 218 of Communications Act, which says Commission should inquire into, and keep itself informed of, business of all carriers subject to Act. He asked what regulations had been issued to satisfy that part of statute and what mechanisms FCC utilized to inquire into management business. Oxley wanted to know what routine and continuing efforts FCC employed to follow common carrier business. He also said: “Inquiries appear to be permissive under the statute, but the law requires that the FCC ‘keep itself informed.’ Has the FCC waived this requirement?” Sec. 219 of Communications Act requires FCC to require annual reports from carriers, he wrote, including information related to financial structure and activity. “Does the FCC enforce this statute with regard to ‘all carriers,’ as the statute envisions, or is the FCC allowed to act selectively?” Oxley asked. He asked for citations to rules that supported that section.

Oxley asked about FCC responsibilities in merger review, citing CWA and AFL-CIO comments in WorldCom’s 1999 acquisition of MCI that contended WorldCom’s finances were questionable, and asked whether agency had acted on those comments. He questioned FCC’s “standard operating procedures” to coordinate activities with SEC, FTC and Justice Dept. (DoJ) and inquired about its interaction with financial self-regulating organizations (SROs). Oxley asked whether FCC Wireline Bureau’s Industry Analysis Division was collecting financial information on carriers and if such information was available to commissioners and their staffs or to public. On Global Crossing, he asked what action Commission had taken, if any, to review collapse, including discussions with SEC, DoJ and SROs. Oxley questioned FCC’s move of Accounting and Audits Div. from former Common Carrier Bureau to Enforcement Bureau. “It seems unusual that in the midst of scandals surrounding ‘creative accounting’ for the FCC to seek to end or at least diminish its own accounting review operation,” Oxley wrote. He asked for rationale for change that was provided to House and Senate Appropriations Committees. Lastly, he asked for summaries of all enforcement actions against WorldCom since 1995, including consent decree in recent slamming case in which WorldCom agreed to pay $3.5 million.

FCC spokesman said SEC had qualifications and jurisdiction over financial practices. He also said Sec. 219 requirement on reports applied to “dominant” long distance carriers, not MCI, which was determined to be a “nondominant.” He also said the FCC’s auditing and accounting authority were used for determining rate issues rather than business practices.

Hollings asked Powell to supply him with FCC contingency plans should WorldCom file for bankruptcy and for information on coordination between Commission and state PUCs to continue service as well as to describe any additional statutory authority needed to address those issues. “The U.S. telecom sector is the world’s finest and it is my expectation that the FCC works to insure that it remains so even during this most difficult period,” Hollings said. He also told Powell that reducing accounting requirements would be “ill-advised": “While the FCC’s accounting requirements do not directly protect shareholders or investors, they do protect some consumers from being overcharged for service. In this environment it is also clear that relying solely on the financial records companies provide Wall Street is an insufficient basis to determine whether consumers are being protected.” Hollings spokesman said committee was preparing to hold hearing on WorldCom and telecom issues week of July 29.

In statement issued late Thurs., Markey questioned Powell’s response to an earlier letter from Markey. Powell had said: “The Commission’s staff has worked with WorldCom executives and conducted its own independent research so that our information regarding the extent of WorldCom’s operations and its customer bases are up to date.” He said WorldCom bankruptcy wouldn’t necessarily result in discontinuation of service and it was possible Commission wouldn’t need to intervene to prevent service discontinuance. He said if discontinuance were likely, “the Commission would act as quickly as possible to protect the integrity of the nation’s telecommunications network and services provided to mission critical government functions.” Powell addressed Northpoint Communications and Excite@Home bankruptcies, about which Markey specifically asked. Northpoint didn’t live up to FCC requirements and provided only 72 hours’ notice before discontinuance of service, depriving Commission of time to act on bankruptcy. Powell said FCC has “incorporated the lessons from this experience into our process.” Excite@Home wasn’t in scope of rules requiring such notice, Powell said.

Markey said it was “curious” that FCC had authority to ensure continuity of service for Northpoint, CLEC providing DSL service, but not Excite@Home, ISP providing it through cable. Markey said they offered same service, just “over different wires.” “It is clear from Chairman Powell’s response that he believes the Commission has no authority to step in to protect broadband telecommunications service customers of cable operators -- such as cable company Adelphia, for example,” Markey said. He said it was unfortunate that the FCC had before it proposals that would “exacerbate this problem.” FCC is poised to take action that would redefine DSL broadband services so they would fall outside scope of law in same way that Powell says Excite@Home does, he said.