how does this law protect the innocent bystanders?By making drivers a bit more paranoid.
Massively increase police presence on all roads
Not needed. Police manage to enforce seatbelt laws quite effectively without any special technology or vast budget increases. It's pretty easy to see when someone is using a cellphone; I notice it all the time without having any special training whatsoever. You could also use evidence of a phone/text conversation as evidence in accident lawsuits, leading to increased damages or charges of criminal negligence where it can be shown that the driver was operating a phone at the time of the accident. This would probably provide an even larger disincentive than issuing tickets: where the action is unlawful, then liability for an accident involving that activity is much easier to prove and win damages for, so the cost of causing an accident becomes much higher and insurers start looking for ways to discourage drivers from engaging in cellphone use too, such as refusing to provide coverage where it is shown that the driver was on the phone. Emergency use would still be available as an affirmative defense.
So really, what is this Fed law going to stop?
It's not a fed law, it's an encouragement to the state governments to pass laws against cellphone use (and similar). If you read the NTSB report (executive summary: http://www.ntsb.gov/news/events/2011/gray_summit_mo/index.ht...) you'll see that they've anticipated many of the issues you raise and considered the problem in context. Personally, I think the NTSB is one of the best government agencies, along with NIST and a few others which have a strong engineering focus.