"If there are service disruptions, this is going to radiate enormous damage to the American economy," Senator Ron Wyden said at the Commerce, Science and Transportation Committee hearing yesterday (30 July).
Although Powell sees years of pain ahead for telecommunications companies as they come to terms with enormous debt acquired during the years of explosive growth in the late 1990s, he was optimistic about the sector's potential and doesn't foresee service problems.
While the industry is under "extremely fundamental duress," Powell said, "I don't believe it's on the verge of complete failure. I do believe it actually has real prospects for recovery and will recover."
Industry representatives gave similar assurances. "We are not going to have any service disruptions as a result of this bankruptcy to the government or anyone," said John Sidgmore, chief executive of WorldCom.
But Powell also called for some immediate changes to protect businesses and consumers from service disruptions.
The Communications Act of 1934 includes a provision that requires carriers to provide 31 days notice before terminating a service. The FCC also has the power to order continuation of that service beyond the one month warning period.
But that notice period may not cover Internet backbone providers, cable services and other services not imagined when the law was written decades ago. That could be an issue in bankruptcy, said Powell. If a telecommunications company seeks to end a service, it could argue in court that it is not covered under the Communications Act.
"Often the bankruptcy judge, whose interest is in protecting debtors and creditors, wants the service shut down to stop the bleeding," said Powell.
After hearing Powell's call for stronger protections against service disruptions, committee chairman, Senator Ernest Hollings, said he was in agreement and would try to get something done before Congress finishes up for the year.
Most of the questions aimed at Powell and the CEOs who testified were about corporate accounting practices, including the awarding of large bonuses to corporate executives while company finances were sliding.
Testifying with Sidgmore were John Legere, the CEO of Global Crossing, which is also bankrupt; and Afshin Mohebbi, the president and chief operating officer of Qwest Communications International, which has said it will be restating its 2000 and 2001 financial statements.
"There's something bad wrong - I don't know what it is," said Senator Max Cleland. "We now have an implosion in the telecom industry that's not only hurting our economy, it's hurting America."
Powell blamed it on a gold rush mentality in the 1990s that had companies overspending, reaching staggering debt levels that revenue couldn't cover. "The most fundamental crossing of the Rubicon was that some companies under those unrelenting pressures choose to cheat and they choose to cheat in order to keep the party going," said Powell.
Sidgmore said his company's books were checked by internal auditors and it's external auditor, Arthur Andersen, and each time the audit reports came back "totally clean".
"Unfortunately you can't very easily defend against a deliberate change to the books, and that's really what happened," said Sidgmore.