[Senate Hearing 106-861]
[From the U.S. Government Publishing Office]
S. Hrg. 106-861
FEDERAL COMMUNICATIONS COMMISSION OVERSIGHT HEARING
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
MAY 26, 1999
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington JOHN D. ROCKEFELLER IV, West
TRENT LOTT, Mississippi Virginia
KAY BAILEY HUTCHISON, Texas JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan RON WYDEN, Oregon
SAM BROWNBACK, Kansas MAX CLELAND, Georgia
Mark Buse, Staff Director
Martha P. Allbright, General Counsel
Ivan A. Schlager, Democratic Chief Counsel and Staff Director
Kevin D. Kayes, Democratic General Counsel
C O N T E N T S
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Page
Hearing held May 26, 1999........................................ 1
Statement of Senator Brownback................................... 78
Prepared Statement........................................... 81
Statement of Senator Cleland..................................... 103
Statement of Senator Dorgan...................................... 89
Statement of Senator Hollings.................................... 76
Statement of Senator Hutchison................................... 84
Statement of Senator Lott........................................ 71
Prepared Statement........................................... 72
Statement of Senator McCain...................................... 1
Prepared Statement........................................... 2
Statement of Senator Rockefeller................................. 86
Statement of Senator Stevens..................................... 91
Statement of Senator Wyden....................................... 82
Witnesses
Furchtgott-Roth, Hon. Harold W., Commissioner, Federal
Communications Commission...................................... 42
Prepared statement with attachments.......................... 44
Kennard, Hon. William E., Chairman, Federal Communications
Commission..................................................... 3
Prepared statement........................................... 5
Ness, Hon. Susan, Commissioner, Federal Communications Commission 32
Prepared statement with attachment........................... 33
Powell, Hon. Michael K., Commissioner, Federal Communications
Commission..................................................... 59
Prepared statement........................................... 62
Tristani, Hon. Gloria, Commissioner, Federal Communications
Commission..................................................... 38
Prepared statement........................................... 40
Appendix
Burns, Hon. Conrad, U.S. Senator from Montana, prepared statement 111
A New federal Communications Commission for the 21st Century,
prepared statement with Appendices............................. 17
Gorton, Hon. Slade, U.S. Senator from Washington, prepared
statement...................................................... 112
Responses to written questions submitted by Hon. Sam Brownback
to:
William E. Kennard........................................... 120
Susan Ness................................................... 126
Michael K. Powell............................................ 130
Harold W. Furchtgott-Roth.................................... 134
Gloria Tristani.............................................. 123
Responses to written questions submitted by Hon. Conrad Burns to:
William E. Kennard........................................... 112
Susan Ness................................................... 124
Michael K. Powell............................................ 129
Harold W. Furchtgott-Roth.................................... 133
Gloria Tristani.............................................. 122
Responses to written questions submitted by Hon. Trent Lott to:
William E. Kennard........................................... 116
Susan Ness................................................... 123
Michael K. Powell............................................ 126
Harold W. Furchtgott-Roth.................................... 131
Gloria Tristani.............................................. 121
Responses to written questions submitted by Hon. Olympia J. Snowe
to:
William E. Kennard........................................... 120
Susan Ness................................................... 126
Michael K. Powell............................................ 131
Harold W. Furchtgott-Roth.................................... 134
Gloria Tristani.............................................. 123
Nghiem, David, President & CEO, USA Wireless, Inc., letter dated
May 24, 1999, to Hon. John McCain, Chairman.................... 135
FEDERAL COMMUNICATIONS COMMISSION OVERSIGHT HEARING
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WEDNESDAY, MAY 26, 1999
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The committee met, pursuant to notice, at 2:04 p.m. in room
SR-253, Russell Senate Office Building, Hon. John McCain,
chairman of the Committee, presiding.
Staff members assigned to this hearing: Lauren Belvin,
Republican senior counsel; Paula Ford, Democratic senior
counsel; and Al Mottur, Democratic counsel.
OPENING STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
The Chairman. Good morning.
For the first time since 1990, the Commerce Committee meets
today to oversee and reauthorize the activities of the Federal
Communications Commission. I would like to welcome as witnesses
the five members of the FCC: Chairman William Kennard and
Commissioners Susan Ness, Gloria Tristani, Michael Powell and
Harold Furchtgott-Roth and thank them for their attendance
today.
I know the Members of the Committee have many questions to
ask and concerns to express, so I will keep these initial
comments quite brief.
Last year Robert Novak called the Federal Communications
Commission ``the second most powerful bureaucratic entity after
the Federal Reserve Board,'' and he is right. The FCC is
responsible for implementing Congressional policy in regulating
the telecommunications industry, which accounts for over one-
sixth of our country's gross national product and is the
fastest growing sector of our country's economy.
Obviously, the FCC's actions have much to do with the
success that telecommunications companies have in the
marketplace and as prime movers in our overall economic growth.
As big an impact as the FCC's actions have on the industry and
on the economy, however, it is the impact of the FCC's actions
on the consumer that should be our focus today. The five
individuals before us play a crucial role in determining the
availability and affordability of the wired and wireless voice,
video, and data services that are indispensable to everyday
life here and around the world.
For this reason, these five individuals' perspective and
their judgment are matters of preeminent concern to this
Committee and to the Congress. Their perspectives and their
judgment is what we will examine today.
As my questions will no doubt indicate, I find much that I
disagree with vigorously. In my view, a majority of this
Commission places too little confidence in competition and way
too much in regulation. It tends to ignore the demands of
making orderly, efficient and fair decisions on the matters
before it, preferring to pursue issues that are within neither
their expertise nor their jurisdiction. It has shown a
distressing tendency towards inconsistent and ad hoc
decisionmaking and toward picking and choosing which parts of
the law it will choose to follow.
In other words, in my view a majority of this Commission
has shown itself all too susceptible to unpredictable actions,
delayed decisions, flawed reasoning, and apparent inability or
unwillingness to follow the law. As surely as these problems
affect the big industries the FCC regulates, they harm
individual consumers even more.
Ted Turner has an excellent philosophy on decisionmaking
that should apply to the FCC: Lead, follow, or get out of the
way. To the extent the Committee finds that the Commission is
unable to lead or unwilling to follow, it is our responsibility
to make sure it gets out of the way.
I welcome the witnesses. Mr. Kennard, Chairman Kennard, we
will begin with you, and we will have the other five--the other
four Commissioners after you. Please proceed.
[The prepared statement of Senator McCain follows:]
Prepared Statement of Hon. John McCain, U.S. Senator from Arizona
Good morning. For the first time since 1990, the Commerce Committee
meets today to oversee and reauthorize the activities of the Federal
Communications Commission.
I would like to welcome as witnesses the five members of the FCC,
Chairman William Kennard and Commissioners Susan Ness, Gloria Tristani,
Michael Powell and Harold Furchtgott-Roth, and thank them for their
attendance today.
I know the members of this Committee have many questions to ask and
concerns to express, so I will keep these initial comments quite brief.
Last year Robert Novak called the Federal Communications Commission
``the second most powerful bureaucratic entity after the Federal
Reserve Board,'' and he's right. The FCC is responsible for
implementing Congressional policy in regulating the telecommunications
industry, which accounts for over one-sixth of our country's Gross
National Product and is the fastest-growing sector of our country's
economy. Obviously, the FCC's actions have much to do with the success
that telecommunications companies have in the marketplace and as prime
movers in our overall economic growth.
As big an impact as the FCC's actions have on the industry and on
the economy, however, it's the impact of the FCC's actions on the
consumer that should be our focus today. The five individuals before us
play a crucial role in determining the availability and affordability
of the wired and wireless voice, video, and data services that are
indispensable to everyday life here and around the world. For this
reason these five individuals' perspectives, and their judgment, are
matters of preeminent concern to this Committee and to the Congress.
Their perspectives, and their judgment, is what we will examine today.
As my questions will no doubt indicate, I find much that I disagree
with--vigorously. In my view a majority of this Commission places too
little confidence in competition and way too much in regulation. It
tends to ignore the demands of making orderly, efficient, and fair
decisions on the matters before it, preferring to pursue issues that
are within neither their expertise nor their jurisdiction. It has shown
a distressing tendency toward inconsistent and ad hoc decisionmaking,
and toward picking and choosing which parts of the law it will choose
to follow.
In other words, in my view a majority of this Commission has shown
itself all too susceptible to unpredictable actions, delayed decisions,
flawed reasoning, and an apparent inability or unwillingness to follow
the law. As surely as these problems affect the big industries the FCC
regulates, they harm individual consumers even more.
Ted Turner has an excellent philosophy on decisionmaking that
should apply to the FCC--``lead, follow, or get out of the way.'' To
the extent the Committee finds that the Commission is unable to lead or
unwilling to follow, it's our responsibility to make sure it gets out
of the way.
STATEMENT OF HON. WILLIAM E. KENNARD, CHAIRMAN, FEDERAL
COMMUNICATIONS COMMISSION
Mr. Kennard. Thank you very much, Mr. Chairman. I
appreciate the opportunity to appear before you today. I have
submitted my written testimony for the record and I ask that it
be submitted in full.
I wanted to just point out a couple of opening remarks.
First of all, we meet at an extraordinary time. It is a time,
as you point out, filled with promise and unlimited potential.
Technology that was once found only in our science fiction can
now be found in our desktops, our cars, our pockets.
Traditional industry boundaries are rapidly disappearing and
the communications world is converging.
Already we are seeing glimpses of a future in which phone
lines will deliver movies, cable lines will carry phone calls,
and the air waves will carry both.
Now, some have said that Congress got it wrong in 1996 by
not foreseeing all of the convergence that is happening and not
anticipating the medium that undergirds it, the Internet.
Examining the data, however, I believe the opposite is the
case. I think that Congress got it right in the 1996 Telecom
Act. By placing competition at the foundation of our
communications policy, the members of this committee and of
this Congress set the stage for the explosive growth of the
Internet, the digital economy, and the entire communications
industry.
I believe you drafted the blueprint that allowed thousands
of entrepreneurs from across the country to build a
communications industry for the twenty-first century. I also
believe that the technical advances unleashed by these
competitive forces are what is fueling our current economic
boom, the longest peacetime expansion of our economy in
history.
As Federal Reserve Chairman Alan Greenspan noted earlier
this month, the revolution in how we process and send
information has made American businesses more efficient and
responsive to consumer demand, increased productivity without
inflation, and contributed to a surge in competitive trade. To
use Chairman Greenspan's words, ``The United States is now an
oasis of prosperity.''
I believe that the spring at the center of that oasis is
the communications sector of our economy. Over the past 3 years
alone, revenues in the communications sector have grown by $140
billion, climbing to a revenue level of $500 billion in 1998.
With these profits, business has expanded and over 200,000 jobs
have been created over the past 5 years.
Looking at specific industries, the growth picture is even
clearer. In the wireless industry, capital investment has more
than tripled since 1993 for a cumulative total of $50 billion.
Now almost 70 million Americans have a mobile phone and over
the past 5 years 40,000 Americans have gone to work in new jobs
that wireless companies have created.
We have also seen a lot of robust competition in the long
distance marketplace. By the end of 1997 there were over 600
long distance providers competing for customers. We have seen
interstate long distance calls drop dramatically, as well as
international calls. In fact, almost 30 billion more minutes in
long distance international calls were made from 1996 to 1997.
In the local phone sector, this newly-born competition
marketplace is growing. In the first quarter of 1999 alone,
almost a million CLEC access lines were installed and, although
still in its infancy, the competitive local exchange industry
is now a sizable telecommunications force. There are now 20
publicly-traded CLEC's with a total market capitalization of
$33 billion, compared to 6 CLEC's with a market cap of $1.3
billion prior to the passage of the 1996 Act.
It is clear that competition in the marketplace is
flourishing and we are seeing tremendous growth, and this has
not been at the expense of the incumbents. On average, RBOC and
GTE share price was up 45 percent in 1998.
I am happy to report that over the past 18 months the FCC
has been focused on its core mission. We have taken definitive
steps to make sure that this growth continues by hastening the
transition to a competitive telecommunications marketplace and
making sure that we do so in a way that remains true to the
intent of the Act, which is to open markets to competition.
In the wireless industry, the FCC eliminated the original
duopoly structure, we pumped more spectrum into the
marketplace, making the PCS industry possible. Today Americans
are using more wireless services than ever before and they are
making those phone calls at costs 40 percent today than it did
3 years ago.
In the multi-channel video marketplace, we have made it
easier for home satellite companies to compete with cable by
allowing them to take steps to increase their capacity and
deliver more services to consumers. We set a timetable for
making sure that consumers can buy settop boxes from anyone
willing to sell them, not just their cable company, and we
cleared the way for people to affix antennas and satellite
dishes on their homes and apartments.
To promote local phone competition, we have opened the
local loops, we have made it easier for competitors to get into
the incumbents' central offices, and we established rules on
spectrum compatibility so that many competitors can use the
network to send voice and data.
The competition unleashed in these traditional sectors also
brings us closer to another goal of the Act, the deployment of
advanced broadband services to the American people. By making
large blocks of spectrum available, by allowing companies to
use them for any technically feasible service, and by giving
newcomers access to the essential elements of incumbent phone
networks, the FCC is setting the stage for a robust competitive
marketplace within and among sectors of the communications
industry.
With convergence has also come consolidation within and
between industry groups. I fully understand that in a
competitive world many businesses want to take advantage of
efficiencies and economies of scale and acquire properties that
complement their core businesses, and a big part of that
interest is making sure that competition in telecommunications
from local service to broadband is not stifled. It is this
principle that guides me in assessing mergers before the
Commission.
In drafting the Telecom Act, Congress reached back to
values as old as America itself. One of these was choice, the
belief that, given an array of options, individuals can best
decide what is best for them. Another was equality of
opportunity, that every American, no matter where they live in
our vast country, should have a chance to live up to their full
promise. That is why, in addition to fostering competition, we
have worked to bring the Internet into our Nation's schools and
libraries, we have worked to craft universal service that is
fair and enduring, to ensure that basic as well as advanced
telecommunications reach families in rural America from farms
and small towns to Indian reservations.
Finally, as old industry boundaries fade away, the FCC
itself must change. Simply put, the top-down regulatory model
for the FCC is as out of date for the twenty-first century as
the rotary phone. We need a new FCC and to that end the FCC is
preparing a report outlining what we foresee the Commission
doing as competition takes root and flourishes. Last week we
held the first of a series of three public forums to get input
from a number of stakeholders on how the agency can be
reengineered to better serve the American public in the coming
century.
Mr. Chairman, I feel very honored to be entrusted with the
task of remaking the FCC for the twenty-first century, and I
know that the FCC staff, my fellow Commissioners, and the
entire agency are ready for the challenge, and I look forward
to working with you, with your continued guidance, to promote
competition, foster continued growth in new technology, and
bring these opportunities to all Americans.
Thank you.
[The prepared statement of Chairman Kennard follows:]
Prepared Statement of Hon. William E. Kennard, Chairman,
Federal Communications Commission
Mr. Chairman and Members of the Subcommittee, thank you for the
opportunity to review with you today the FCC's performance during the
last eighteen months and how we have fulfilled our statutory
obligations. Much of our work over the last eighteen months has
continued to focus on implementing and enforcing the Telecommunications
Act of 1996. Because so much of that Act was focused on promoting
competition in local telecommunications services, encouraging
deployment of advanced services, and deregulating where possible, I
will focus my remarks today on these subjects.
overview
I am pleased to report that the Act is working: competition is
growing in a wide range of telecommunications markets--we see increased
competition among long distance providers and consumers are beginning
to have competitive choices for many local telecommunications services
for the first time. The competitive deployment of advanced broadband
services is spreading rapidly, and we are removing large amounts of
historical regulation, particularly through the biennial review process
and the forbearance authority granted in the Act.
Today, we see tantalizing glimpses of this competitive. deregulated
future. Many markets, such as wireless and long distance markets are
quite competitive and many--but not all--of the fundamental
prerequisites for fully competitive, deregulated local
telecommunications markets are now in place as the result of
Congressional mandates in the Act, and the rapid implementation of the
Act by the FCC and our colleagues in the State Public Utility
Commissions.
This is not to say that fully competitive markets are inevitable
and that we can now declare victory and simply walk away. Vigorous
enforcement of the fundamental prerequisites for competitive markets
and active, intelligent dispute resolution will remain necessary for
some years to come, particularly if we are to avoid the kind of lengthy
antitrust litigation that plagued the development of long distance
competition. Indeed, today we are at that very delicate ``tipping
point'': with just a little more time--and probably a lot more effort--
we'll be ``over the top'' and competition will gain a firm foothold.
But if we are unable or unwilling to make this effort, the momentum
toward competitive markets will slow, the balance will tip the other
way and just as inevitably send us back to 1996 and even 1990.
The coming year promises to hold breakthroughs in many
telecommunications markets. The market-opening process in the Act has
worked in tandem with the incentives and protections of Section 271 of
the Act. I am encouraged by the progress being made by some of the Bell
Operating Companies toward meeting the checklist requirements of
Section 271. I look forward to the day that I can join my fellow
Commissioners in granting a meritorious application for entry into
interLATA telecommunications markets and seeing that decision withstand
judicial scrutiny in the D.C. Circuit.
I also anticipate substantial developments in the coming year with
respect to the rapid deployment of advanced telecommunications
services, including increased deployment in rural areas. In particular,
broadband services delivered over DSL or cable modems should increase
dramatically in residential markets throughout the country. Wireless
competition also will continue to grow, and it is not unreasonable to
begin looking to the day where wireless telephony services will be
viewed by some consumers as a substitute for wireline services. We
should also see increased progress towards open markets
internationally, and it should be a good year for the development of
exciting new satellite services.
In sum, we are on the right track. Our implementation of the
Congressional framework is working and we will have competitive,
deregulated telecommunications markets in all sectors of the industry,
and in all parts of the country, if we stay on course. It will take
diligence and hard work by the FCC and our partners in the State Public
Utility Commissions before fully competitive local markets are the
norm, but I know that the dedicated women and men at the FCC and the
State Commissions are ready and willing to undertake this hard work. I
hope that all the members of the Commerce Committee, the Senate and the
entire Congress will support us in this effort.
good news: the telecommunications sector is thriving
By every measure, the telecommunications industry is thriving. One-
fourth of our country's recent economic growth has come from the
information technology sector. Since the passage of the
Telecommunications Act, revenues of the communications sector of our
economy have grown by over $140 billion. For 1998, it is estimated that
the communications sector of our economy will have revenues in excess
of $500 billion dollars. The market values of most companies in the
telecommunications sector have increased substantially, indicating that
Wall Street anticipates that the overall growth from competition will
exceed lost market shares. In other words, telecommunications is like a
rapidly enlarging pie that is big enough for many new participants; it
is not a ``zero sum'' game.
This growth has not happened by accident. It is the direct result
of sound Congressional policies that have been implemented and enforced
by the FCC and the states. The old regulatory structure guaranteed that
telecommunications markets would display the attributes of monopoly--
lack of choice, consumer dissatisfaction, delays in deploying new
services, excessive regulation, and slow growth. As we replace this
structure with a framework for competitive, deregulated markets and
begin to change attitudes through vigorous enforcement of the new
framework, we are experiencing a blossoming in telecommunications that
touches the lives of almost every American. Now, a growing number of
American families across this nation have a choice of a vast array of
high-tech communications services, and those services offer far greater
capabilities, with far greater quality, and often at lower prices.
This growth comes not only from established providers but, since
the passage of the Act, we can now clearly see benefits flowing from
the new competitors that are emerging as a result of the implementation
of the Act by the FCC and the states. As barriers to entry have been
removed and the fundamental rights that are necessary for competitive
provision of telecommunications have been established, new firms have
been showing up all over the country to take advantage of the pent-up
demand for choices, new services, and lower prices. For example, the
revenues of new local service providers more than doubled in 1997, and
they increased substantially again in 1998. And this growth has meant
new jobs for thousands of Americans.
In the wireless industry, Congress and the FCC have created the
conditions for substantial growth. The FCC has auctioned off large
amounts of spectrum, making it possible for new firms to enter markets,
and we have worked hard to address some of the fundamental conditions
for vigorous competition, such as interconnection. As a result, annual
capital investment more than tripled between 1993 and 1998, with more
than $50 billion of cumulative investment through 1998. Similarly, the
wireless industry generated almost three times as many jobs last year
as in 1993. The industry did all this while the cost of service to the
consumer dropped. A wireless telephone is no longer a luxury for the
privileged. Instead, with the advances in cellular service, the advent
of PCS and digital services, and most importantly, increased
competition--choices of providers offering comparable service--mobile
telephones are now a common communications tool for over seventy
million people.
Together with Congress and the Executive Branch, we have also
promoted open entry and pro-competitive polices throughout the world,
ranging from FCC policies to reduce international settlement rates to
the adoption of the landmark World Trade Organization (WTO) agreement
on telecommunications services. Together with the growth in our
domestic markets, these policies will help ensure that companies such
as AT&T, BellSouth, MCI Worldcom, Ameritech, Sprint, SBC, Bell Atlantic
and US West have the opportunity to stay among the top twenty
telecommunications companies, by revenue, worldwide. Similarly, GE
Americom, Hughes, Loral and PanAmSat are among the top twenty satellite
service providers, by revenue, worldwide. And US satellite
manufacturers such as Hughes, Lockheed Martin, Loral, Motorola and
Orbital Sciences maintain a strong lead in contracting and
subcontracting satellite systems worldwide.
I can't finish a summary of the sector without mentioning the
Internet. It goes without saying that the Internet is booming, creating
new jobs, new and better means of education and commerce. The Internet
is a testament to a wise regulatory policy: don't regulate unless there
is a clearly demonstrable need to do so. The FCC established a ``hands
off '' policy three decades ago as evidenced by the original Computer
Inquiry, and I can assure you that the FCC will not regulate Internet
services. In fact, I believe that the unregulated, highly competitive
Internet is a useful model for the more traditional telecommunications
sectors. Of course, the basic legal prerequisites for competitive
markets such as property rights and laws governing contractual
relations should be enforced by the appropriate authorities.
These are just a few examples of how the wise policies adopted by
Congress and implemented by the FCC and the states have produced a
telecommunications economy that is thriving, and are doing so in an
increasingly competitive environment.
status of competition
Let me take a few minutes to give you an idea of how competition is
evolving, starting with markets for long distance telecommunications
services. There are now over 600 long distance providers offering
services, some on their own facilities, some entirely by resale and
still others by a combination of owned facilities and resale. The
vibrant competition between these firms has given customers a wide
range of choices of providers and services, which has made an
appreciable difference on the prices most consumers pay for long
distance services. Long distance prices have steadily dropped over the
past few years. The average cost of domestic interstate long distance
dropped from 11.8 cents per minute to 10.3 cents per minute from 1996
to 1997. At the same time, the average rate per minute for an
international call dropped from $0.70 in 1996 to $0.64 in 1997.
Consumers have responded to these rate reductions by increasing their
use of these services. Interstate and international calling increased
to 500 billion minutes in 1998.
The wireless industry is surging. Everything that is supposed to be
up is up, everything that is supposed to be down is down.
Subscribership is up, jobs are up, investment is up, consumer bills are
down, and the wait for a license is down. What is important to remember
is that this surge of the wireless industry followed the elimination of
the original duopoly structure and the introduction of competition by
making more spectrum available to more players. In other words,
Congressional and FCC policies to foster competition have worked for
consumers' benefit and we expect that our local competition policies
will bring similar benefits to wireline services.
The international market is also flourishing. With the adoption and
implementation of the WTO Agreement countries representing 90% of the
$600 billion global market for basic telecommunications have pledged to
open their markets to international competition. We have been
successful in our negotiation of bi-lateral agreements with other
governments to permit provision of satellite service in their
countries, such as Mexico and Argentina. We are also seeing substantial
progress with international settlement rates as a result of the WTO
Agreement and FCC decisions such as the International Settlement Rate
(``Benchmarks'') Order recently affirmed by the D.C. Circuit.
Domestically, local competition is still nascent, but it is making
significant strides. The revenues of local service competitors in 1998
were about $4 billion. It is estimated that new local competitors now
provide, over their own networks or by reselling incumbent company
lines and unbundled loops, service to between four and five million
telephone lines to customers--between two to three percent of the
nation's total telephone lines.
Local competitors are taking an increasing share of nationwide
local service revenues. Local competition is broadening: new
competitors are reselling incumbent company lines in almost every
state--and about 40% of the incumbent lines they resell are connected
to residences; new facilities-based competitors are active in almost
every state. Local competitors continue to attract investment capital
and deploy their networks. Industry sources report that 20 publicly-
traded competitive local exchange carriers (CLECs) have a total market
capitalization of $33 billion-- compared to six such companies with
$1.3 billion of total market capitalization prior to the 1996 Act. And
these new competitors are working faster and working smarter. They
continue to build fiber optic-based networks at a faster rate than
incumbents.
advanced services/broadband deployment
I would like to speak briefly about the progress in the last three
years in the area of ``advanced telecommunications capability,'' or
``broadband'' as it is popularly known.
What is broadband? It is two-way communications of voice, data and
images via any technology and, most importantly, at vastly higher
speeds than most consumers have ever had in their homes. In practical
terms, broadband will make it possible to change web pages as fast as
you can flip through the pages of a book; will make possible two-way
video conferencing in the home so that family members can see each
other instead of just talking; and can make possible the downloading of
feature length movies in minutes.
Broadband can also greatly increase the possibilities of distance
learning and medical treatment at home; and its potential for persons
with disabilities--for increased communications via sign language or
speech reading with the advantage of facial expressions and other
nuances, and the possibility of text-based Internet pages converted
into braille--is enormous.
Section 706 of the 1996 Act, of course, directs the Commission to
encourage the deployment of broadband to all Americans on a reasonable
and timely basis. We released a Report in January on our nation's
progress towards that goal.
Our Report is just a snapshot taken a few seconds after the
starting gun of a very long race--we and the runners in that race have
a long way to go. In our Report, we concluded that advanced
telecommunications capabilities are being rolled out in this country at
a rate that outpaces the rollout of previous breakthrough products and
services in the communications field. So, by this objective measure, we
are ahead of the curve. On a subjective level, however, I am impatient.
I want the Internet to go faster and farther for all Americans, and I
am particularly concerned about deployment in rural areas and inner
cities. We must ensure that a geometric increase in the deployment of
advanced services is not accompanied by a geometric increase in the
urban-rural disparity.
At this early stage, the signs are encouraging. We see two things,
in particular.
First, since the 1996 Act, there has been an enormous amount of
activity in the broadband area. Investment in broadband facilities has
been tens of billions of dollars--large sums even by the standards of
this business. In what is usually the most difficult part of this
business to enter-- the so-called ``last mile'' to the home--many
companies are building last miles, or giving serious study to the idea
Local exchange carriers, both incumbent and competitive,
are deploying new technology that has reinvigorated the ubiquitous and
simple copper telephone loops into effective and low-cost broadband
connections for residential consumers as well as businesses.
Cable television companies are adding two-way broadband
capabilities to their networks which are inherently focused on
residential consumers, including rural and non-urban areas.
Electrical power utilities, wireless cable companies,
mobile and fixed radio companies, and many satellite companies are
building or planning broadband systems--some with revolutionary new
technologies--to serve residential consumers.
Second, in terms of residential subscribers who are paying for the
service, today broadband is on par with, or ahead of, the telephone,
black-and-white and color television, and cellular service at the same
stage in their deployment. And according to the cable and telephone
companies, by the end of this year they will be offering broadband to
millions of residences.
As mentioned above, we at the FCC are committed to the greatest
vigilance in ensuring that broadband services are deployed as rapidly
as possible in rural areas that have been historically bypassed by
competition and technological advances. In this regard, I am pleased to
note that broadband services are being offered to residential consumers
in a number of small towns and rural areas, which indicates that rural
areas do not present intractable problems for broadband deployment.
Rural areas may be targeted especially by satellite companies, which
already have the highest proportion of their customers for Direct
Broadcast Satellite television services in rural areas. I would also
like to thank those Senators who joined with Senators Daschle and
Dorgan in their letter to me last week. They have made recommendations
that hold promise for rural America, and I look forward to working with
them.
The success of broadband so far is the result of many longstanding
FCC policies. For example, the FCC has sought to facilitate new
competition in all phases of the telecommunications business, enforcing
unbundling requirements so that newcomers have fair access to elements
of the incumbent networks, and allocating large blocks of spectrum in
ways that make them useable for any technically feasible service.
Because this is the very early stage in broadband's deployment, the
nature of consumer demand is very unclear. Certainly, at present, it
seems that many companies are entering broadband and offering it at
consumer-friendly prices, and residential consumers are starting to
find out about broadband. The market seems to be working and the best
role for government is to observe, monitor and enforce our long-
standing policies of promoting competition and providing the spectrum
and access rights that are the building blocks for a competitive
market.
telecommunications mergers and acquisitions: reconsolidation or
foundation for the future?
A strong effort to firmly establish competition in local markets
and your support of this goal is all the more necessary since the
telecommunications industry is experiencing a wave of mergers and
acquisitions. As this Committee is aware, smaller companies are
``bulking up'' by merging with each other, and major ``name brand''
telecommunications companies are also merging with one another as well
as acquiring smaller companies.
This activity could portend a reconsolidation of the
telecommunications industry that prevents competition, to the public's
detriment, or it could establish a strong foundation for aggressive
competition and innovation that greatly benefits the public.
With the stakes so high, when formerly monopolized markets are
being opened to competition, it is essential that we do as much as we
can to prevent anything that will retard the development of
competition. This means lowering entry barriers, ensuring efficient
interconnection of facilities, and encouraging the development and
deployment of new technologies. This also means that the Commission
needs to be particularly careful in evaluating mergers during this time
of change and uncertainty, because a merger, once consummated, cannot
easily be broken up. You can't unscramble an egg.
``Good'' mergers can spur competition by creating merged entities
that can compete more aggressively and that can more quickly move into
previously monopolized markets. If this competition develops, it will
make it possible to substantially deregulate the local exchange
markets, just as strong competition justified the substantial
deregulation of the long distance and wireless markets. Similarly, a
vertical merger between two firms that do not appear to be likely
significant competitors in each other's markets may generate public
benefits without imposing anticompetitive costs.
But ``bad'' mergers are likely to slow the development of
competition. Among the anticompetitive harms arising from a ``bad''
merger are: eliminating firms that would have entered markets; raising
barriers to entry; discouraging investment; increasing the ability of
the merged entity to engage In anticompetitive conduct; and making it
more difficult for the Commission and State Public Utility Commissions
to monitor and implement procompetitive policies. What makes evaluation
of telecommunications mergers so difficult is that regulatory barriers
to entry have, until recently, prevented many of these companies from
competing with each other. Accordingly, it is not enough to simply
consider whether existing rivalry between the firms would suffer, which
is the focus of most traditional antitrust merger analysis. Rather, one
must consider whether, but for the merger, the companies would have
entered each other's markets and spurred the development of competition
in formerly monopolized markets.
In this time of great change and uncertainty, the FCC needs to be
particularly vigilant to prevent any developments, including mergers,
to slow the development of competition. That is why the FCC and, in
some cases, State Public Utility Commissions, need to apply their
unique knowledge, expertise and judgment in reviewing proposed mergers
and acquisitions.
In essence, there are three points to be asked regarding mergers:
Do we want a cartel or competition? The Department of Justice
typically evaluates competition that currently exists and, under
existing antitrust precedent, it faces obstacles to challenging mergers
between companies that do not currently compete. In contrast, the FCC
is charged with creating the conditions for competition called for by
the 1996 Act.
Second, a merger, left un-reviewed by FCC, could violate the
Communications Act. The FCC must enforce the telecommunications laws
and ensure compliance with the Communications Act.
Finally, we always use the same standard--the public interest test.
Moreover, we always use an open and transparent process that is fully
consistent with the Administrative Procedure Act. All interested
parties, including the applicants and members of the public. must have
the opportunity to participate and be heard. The FCC also must respond
to the concerns raised in the record and explain its decision in
writing in its order, which may be reviewed by the appellate courts.
barriers to competition remain
Some of the most crucial prerequisites for local competition take a
considerable period of time to put in place, even under the best of
circumstances. Unfortunately, but not surprisingly, the availability of
some of the most important prerequisites have been delayed, sometimes
through litigation, sometimes through the intransigence of parties that
are threatened by competition, and sometimes through the sheer scale
and complexity of the task.
This latter factor--the sheer complexity of the task--cannot be
ignored: the development of local exchange competition is simply an
order of magnitude more complicated, more labor-intensive and more
capital-intensive than was the development of long distance
competition.
While the industry players actually have to do the work, regulators
can play a critical role by getting the players together, insisting
that a solution be found, setting standards and deadlines, and
resolving implementation disputes. For example, by facilitating the
development of the technical solution and establishing a clear
implementation schedule for Local Number Portability, the FCC played a
catalytic role in eliminating one complex technical barrier to
competition.
Although some amount of litigation is inevitable, the Supreme
Court's recent reaffirmation of the FCC's fundamental responsibility to
implement the Act has removed considerable uncertainty that may have
been slowing the development of local competition. Another major
barrier to local competition will fall as soon as the FCC is able to
complete the determination later this year of what network elements
should be unbundled--in accordance with the Supreme Court's remand.
To keep markets open and the competitive momentum going, the FCC
will act as the liaison between the incumbent LECs and the CLECs to
minimize disputes and avoid lengthy proceedings and litigation. Where
the FCC's intervention cannot quickly resolve interconnection problems
informally, we are using our ``rocket docket'' to adjudicate these
disagreements quickly, and to keep the market functioning smoothly.
universal service and access charge reform
Another area that has direct implications for the state of
competition in the local market is our system of universal service
subsidies and our interrelated access charge system. The Commission is
currently engaged in a monumental undertaking which is known as
universal service reform. The efforts Congress undertook to make
universal service a part of the Telecommunications Act of 1996 were
Herculean. We are working to ensure that our reformation of the
universal service mechanisms embrace the vision you had when you passed
legislation codifying universal service. In fact, tomorrow the
Commission will take yet another step toward the reforms we need to
make in order to accomplish the goals you established.
As we move forward with universal service reform, we must be
vigilant to balance caution and ambition. Our goal, like yours, is to
ensure we satisfy the Telecommunications Act's clear policy of ensuring
the availability of affordable phone service to consumers in all
regions of the nation. Overzealousness or inaction could undermine this
very clear policy goal. As you know, the FCC adopted a forward looking
cost model last fall. Tomorrow I will recommend that my colleagues
adopt an order and a further notice on the Federal State Joint Board
recommendations and a further notice on the elements or ``inputs'' to
be used within the model. I will urge my fellow commissioners to adopt
many of the recommendations of the Federal State Joint Board, and put
out for comment those recommendations that require further discussion
among interested parties. I will also recommend that we look for
comment on the actual inputs we will use in the cost model in order to
implement the new universal service mechanism that is specific,
predictable and sufficient. We are working diligently to adopt a final
mechanism for the non-rural companies in September, for implementation
in January 2000.
Recognizing that access to technology is essential for future jobs
and an important step necessary to close the digital divide. I have
also consistently advocated the Congressionally-created universal
service support for service to classrooms and libraries--the so-called
E-rate. Under my tenure, the Commission finalized implementation of the
E-rate and prioritized assistance so that the most needy would receive
the biggest benefit. Moreover, the Commission ensured that strong
program controls were in place. According to one study, 87% of
Americans support the e-rate. This past year, 32,000 school districts,
schools, and libraries from across the nation submitted applications
for E-rate funding. At tomorrow's Commission meeting, I will be
recommending that we fully-fund the E-rate program so that we can meet
this demand and continue the work we've done this past year. With this
funding, we'll be able to connect one-third of public schools
throughout rural America. We look forward to working with you as we
bring your vision of a reformed universal service mechanism to
fruition.
consumer initiatives
Throughout my tenure, I have sought to stress the importance of
promoting competition while making sure it is not at the expense of
consumers. Towards this end, we have taken a number of steps to ensure
that consumers receive the benefits of the communications revolution.
We have adopted Truth in Billing rules, to ensure that
phone bills are clear and easy to read and that no service charges are
``crammed'' onto the bills of consumers who didn't order or understand.
These new rules require that bills be clear and understandable; new
charges be highlighted; all charges have clear explanations about what
they are and who to contact if there is a problem; and the bills state
clearly which charges, if not paid, will result in termination of
service.
We now offer on the FCC's own website a ``Parents, Kids,
and Communications Page.'' This site gives parents easy-to-understand
information on some of the tools available to them when their children
navigate the Internet and other media. We have included information on
a whole range of filtering software, information on how to block 1-900
calls, information on how to get a cable `lock-box' to block out
certain channels, and an explanation of the TV ratings system and the
V-chip.
The FCC recently adopted tough new rules to take the
profit out of slamming altogether. In 1998, the Commission also
assessed or proposed more than $15 million in fines for ``slamming''
violations and now is consistently proposing slamming fines of over $1
million. Unfortunately, once again litigation is inhibiting our ability
to enforce these new rules. In addition, for the first time ever, we
revoked a carrier's license to provide interstate services because of
slamming abuses. We also brokered and endorsed industry-developed
guidelines to stop ``cramming'' that have significantly reduced the
number of cramming complaints and issued rules to protect consumer
privacy concerning the use and disclosure of personal information to
marketers.
At our Commission Agenda meeting just two weeks ago, we
adopted rules that will improve the ability of cellular phone users to
complete wireless 911 calls. This will improve the security and safety
of analog cellular users, especially in rural and suburban areas. The
Commission approved three mechanisms for use by the cellular industry,
any of which will result in more wireless 911 calls being completed
than occurs today. We also took steps to improve consumer choice and
foster competition regarding the commercial availability of navigation
devices (e.g. cable television set-top boxes).
We recently ordered long distance carriers to publicly
post their rates on the Internet, in an easy-to-understand, clear
format, permitting millions of Americans on-line to find out easily
about long-distance rates. Newspapers and consumer groups will be able
to make this information available to those not yet on-line. This
action will make it easier for consumers to obtain information to help
select the long distance plan that best suits their individual needs,
once underlying litigation about our decision to require detariffing is
resolved.
We also are taking steps to ensure that the fifty-four
million people with disabilities are not left out of the communications
revolution. We have also strengthened closed captioning rules so that
persons who are deaf or hard-of-hearing will have access to more
programs on television; proposed new rules for telecommunications relay
services and proposed to require the provision of speech-to-speech
relay service; advocated that industry provide solutions to the problem
of compatibility between digital wireless phones and TTYs; proposed
rules to make telecommunications services and equipment accessible to
persons with disabilities; and are also working with the Architectural
and Transportation Barriers Compliance Board to propose rules on
accessibility requirements for federal agencies when they use or
purchase electronic and information technology.
a new fcc for the twenty-first century
l am submitting as part of my testimony today a report entitled ``A
New Federal Communications Commission for the Twenty-First Century.''
The Report describes the communications marketplace--past, present, and
future--and the implications of those changes for the FCC's structure
and regulatory framework. It is part of a continuing process of self-
assessment that the Commission has been engaging in to transform itself
to meet the challenges of an information-age economy and an ever-
changing communications industry. This process of dramatic evolution at
the FCC is required by the changes wrought in the Telecommunications
Act of 1996, and it is consistent with the approach taken in the Act.
The Act was evolutionary instead of revolutionary: rather than
discarding the old regulatory framework at once, which would have been
highly disruptive and fraught with uncertainty, Congress created a new
``pro-competitive, de-regulatory policy framework'' while explicitly
preserving the existing regulatory framework and directing the FCC to
forbear from the old regulations as competition developed. Nonetheless,
the pace and magnitude of change set in motion by the 1996 Act is truly
breathtaking.
My vision for a ``New FCC'' is a bold one--the FCC should change
dramatically over the next five years. The FCC must undergo truly
significant change to match the rapid evolution in markets set in
motion by the 1996 Act. In a world of fully competitive communications
markets, the FCC should focus only on those core functions that are not
normally addressed by market forces. These core functions should
revolve around: (i) universal service, consumer protection and
information; (ii) enforcement and promotion of pro-competition goals
domestically and worldwide: and (iii) spectrum management.
The steps we are taking to transition to this model include: (1)
Restructuring: We are consolidating currently dispersed enforcement
functions into an Enforcement Bureau, and currently dispersed public
information functions into an Information Bureau. The consolidation of
these two key functions will improve efficiency and enhance the
delivery of these services to the general public and to industry. (2)
Streamlining and Automation: We are investing in new technology to
create a ``paperless FCC'' by processing applications and licenses
faster, cheaper, and in a more consumer friendly way through electronic
filing and universal licensing. (3) Deregulation: We are completing 32
deregulation proceedings covering hundreds of rules as a result of our
1998 Biennial Review of regulations, and intend for the 2000 Biennial
Review to produce even more deregulatory actions. (4) Strategic Plan:
We are conducting three public forums with industry, consumer groups,
state and local governments, and academic experts to solicit input on
what the FCC's role should be in the Twenty-First Century, how we
should be structured, and how we can work more efficiently and
effectively to deliver services to the public. We have also established
an e-mail site, ``[email protected]'' to receive additional input from the
public on the above questions. The result of this effort will be a
draft Strategic Plan covering a five-year period which we will submit
to Congress in July 1999 for its review, and on which we will seek
additional public comment.
conclusion
We have come a long way towards a more competitive market place in
communications, but we have much more work to do. The transition from
monopoly regulation to open markets, from today's technologies to
tomorrow's breakthroughs, is not yet complete. For the coming year our
agenda is clear: promote competition, foster new technologies, protect
consumers, and ensure that all Americans have access to the
communications revolution.
These will be the goals that guide us as we implement the Supreme
Court's instructions on UNEs, as we continue opening local phone
markets, as we work to make communications available to all Americans,
as we review the mergers now before the Commission as well as those we
may receive.
The agenda for this year continues on the foundation laid last
year: competition, community, common sense. We have a lot of work to
do, and we have the will to do it well.
We will promote competition in all sectors of the
marketplace. We will reform access charges, and ensure that proposed
mergers are pro-competitive and benefit consumers.
We will continue to deregulate as competition develops,
eliminating any unnecessary regulatory burdens, reducing reporting
requirements, streamlining rules and our own internal functions.
We will continue to protect consumers from unscrupulous
competitors, and give customers the information they need to make wise
choices in a robust and competitive marketplace. We will continue our
policy of ``zero tolerance'' for those competitors who would rather
cheat than compete.
We will work to ensure that the Act's provisions on RBOC
entry into the long distance marketplace are implemented in a manner
that promotes competition and consumer welfare and is fair to all of
the parties.
We will ensure broad access to communications services and
technologies for all Americans, no matter where they live. We will
complete universal service reforms, continue oversight of the schools
and libraries and rural health care universal service programs,
encourage accessibility of emergency information via closed-captioning
and video description, and ensure that the 54 million Americans with
disabilities can use and have access to the communications network.
We will foster innovation, working to ensure that America
remains the world's leader in innovation. We will continue to promote
the development and deployment of high speed Internet access, promote
compatibility of digital video technologies with existing equipment and
services, and promote competitive alternatives to cable and broadcast
TV.
Finally, we will advance these concepts worldwide, serving
as an example and advocate of telecommunications competition worldwide.
We will work to encourage the development of international standards
for global interconnectivity, work to promote the fair use of spectrum
through the WRC 2000, work on the worldwide adoption of the WTO
Agreement for Basic Telecommunications, and aggressively enforce the
FCC's International Settlement Rate (``Benchmark'') Order to reduce
rates for international calls. We will continue to assist other nations
in establishing conditions for deregulation, competition, and increased
private investment in their telecommunications infrastructure so that
they too, can share in the promise of the Information Age, and become
our trading partners.
This is an important and dynamic time in the history of
telecommunications policy. I look forward to continuing to work with
this Committee and other members of Congress so that the decisions we
make today ensure that all Americans--irrespective of where they live,
their race, their age, or their special needs--can share in the promise
of the Information Age.
Thank You. I look forward to answering any questions you may have.
A New Federal Communications Commission for The 21st Century
i. the federal communications commission and the changing
communications marketplace
A. Introduction
Congress enacted the Communications Act of 1934 to provide for the
widest dissemination of communications services to the public. Section
1 of the Communications Act states that the purpose of the Act is to
``make available * * * to all the people of the United States, without
discrimination * * * a rapid, efficient, Nation-wide, and world-wide
wire and radio communication service * * * at reasonable charges.''
This goal remains vibrant today. What has changed since 1934 is the
means to gel to this goal. With the passage of the Telecommunications
Act of 1996 (Telecom Act), Congress recognized that competition should
be the organizing principle of our communications law and policy and
should replace micromanagement and monopoly regulation. The wisdom of
this approach has been proven in the long distance, wireless, and
customer premises equipment markets, where competition took hold and
flourished, and consumers receive the benefit of lower prices, greater
choices, and better service.
The imperative to make the transition to fully competitive
communications markets to promote the widest deployment of
communications services is more important today than ever before. In
1934, electronic communications for most Americans meant AM radio and a
telephone, and sending the occasional Western Union telegram. Today, it
means AM and FM radio, broadcast and cable TV, wireline and wireless
telephones, faxes, pagers, satellite technology, and the Internet--
services and technologies that are central to our daily lives.
Communications technology is increasingly defining how Americans
individually, and collectively as a nation, will be competitive into
the next century. It is increasingly defining the potential of every
American child. So the goal of bringing communications services quickly
to all Americans, without discrimination, at reasonable charges,
continues to be of paramount importance. Competition is the best way to
achieve this goal, while continuing to preserve and protect universal
service and consumer protection goals.
To accomplish this goal, our vision for the future of
communications must be a bold one. We must expect that in five years,
there can be fully competitive domestic communications markets with
minimal or no regulation, including total deregulation of all rate
regulation in competitive telephone services. In such a vibrant,
competitive communications marketplace, the Federal Communications
Commission (FCC) would focus only on those core functions that cannot
be accomplished by normal market forces. We believe those core
functions would revolve around universal service, consumer protection
and information; enforcement and promotion of pro-competition goals
domestically and internationally; and spectrum management. As a result,
the traditional boundaries separating the FCC's current operating
bureaus should no longer be relevant. In five years, the FCC should be
dramatically changed.
We are working to transition the FCC to that model--based on core
functions in a competitive communications market--now. We are writing
the blueprint for it, beginning with this report describing the steps
we are already taking. After receiving input from our key stakeholders,
we plan to develop this report into a five-year Strategic Plan which
will outline precisely our objectives and timetable year by year for
achieving our restructuring, streamlining, and deregulatory objectives.
We must work with Congress, state and local governments, industry,
consumer groups, and others to ensure that we are on the right track,
and that we have the right tools to achieve our vision of a fully
competitive communications marketplace.
B. The State of the Industry
In the Telecom Act, Congress directed the FCC to play a key role in
creating and implementing fair rules for this new era of competition.
Over the course of the past three years, the FCC has worked closely
with Congress, the states, industry, and consumers on numerous
proceedings to fulfill the mandates of the Telecom Act.
By many accounts, the Telecom Act is working. Many of the
fundamental] prerequisites for a fully competitive communications
industry are now in place, competitive deployment of advanced broadband
services is underway, and the stage is set for continued deregulation
as competition expands.
Furthermore, by many measures, the communications industry is
thriving. Since the passage of the Telecom Act, revenues of the
communications sector of our economy have grown by over $100 billion.
This growth comes not only from established providers, but also from
new competitors, spurred by the market-opening provisions of the
Telecom Act. (See Appendix A, Charts 1 and 2) This growth has meant new
jobs for thousands of Americans.
In the wireless industry, capital investment has more than tripled
since 1993, with more than $50 billion of cumulative investment through
1998. Mobile phones are now a common tool for over 60 million people
every day, and the wireless industry has generated almost three times
as many jobs as in 1993. (See Appendix A, Chart 3)
Consumers are beginning to benefit from the thriving communications
sector through price reductions not only of wireless calls, but also of
long distance and international calls. (See Appendix A, Charts 4 and 5)
Consumers are also beginning to enjoy more video entertainment choices
through direct broadcast satellites, which are becoming viable
alternatives to cable. We are also at the dawn of digital TV, which
offers exciting new benefits for consumers in terms of higher quality
pictures and sound and innovative services. (See Appendix A, Charts 6
and 7) As we enter this digital age, broadcast TV and radio is still
healthy, ubiquitous, and providing free, local news, entertainment, and
information to millions of Americans across the country,
Beyond the traditional communications industries, the Internet has
truly revolutionized all of our lives. According to a recent study, at
least 38% of American adults (79.4 million) already are online and
another 18.8 million are expected to go online in the next year. In
1998, 26% of retailers had a website, over three times the number in
1996, and it is estimated that they generated over $10 billion in
sales. On-line sales for 1999 are projected to be anywhere from $12 to
$18 billion.
Communications markets are also becoming increasingly globalized as
the Telecom Act's procompetitive policies are being emulated around the
world. Other countries are modeling their new telecommunications
authorities after the FCC. As other countries open their communications
markets and increase their productivity, new services and business
opportunities are created for U.S. consumers and companies, as well as
for consumers and companies worldwide.
C. Communications in the 21st Century
Even more change is expected in the telecommunications marketplace
of tomorrow. In the new millennium, millions of consumers and
businesses will be able to choose from a range of services and
technologies vastly different from those available today. Packet-
switched networks, running on advanced fiber optics and using open
Internet Protocols to support seamless interconnection to transport
immense amounts of information, will be ubiquitous. Millions of homes
and businesses will be linked to this ``network of networks'' through
``always on'' broadband connections. Outside the wired confines of the
home or office, ``third generation'' wireless technologies will provide
high-speed access wherever a consumer may be. Satellite technology will
increase the ability to transfer data and voice around the world and
into every home.
Electronic commerce will play an even more central role in the
economy of the 21st Century. Americans in the next century will be
connected throughout the day and evening, relying on advanced
technologies not only to communicate with others, but also as a vital
tool for performing daily tasks (such as shopping or banking), for
interacting with government and other institutions (such as voting, tax
filing, health, and education), and for entertainment (such as video,
audio, and interactive games).
In the marketplace of tomorrow, it is expected that traditional
industry structures will cease to exist. The ``local exchange'' and
``long distance'' telephone markets will no longer be distinct industry
segments. Video and audio programming will be delivered by many
different transmission media. In a world of ``always on'' broadband
telecommunications, narrow-band applications--such as our everyday
phone calls--will represent just a tiny fraction of daily traffic.
Cable operators, satellite companies, and even broadcast television
stations will compete with today's phone companies in the race to
provide consumers a vast array of communications services. In addition,
telephone and utility companies may be offering video and audio
programming on a wide-scale basis. As cross-industry mergers, joint
ventures, and promotional agreements are formed to meet users' demand.
the traditional distinctions between these industry segments will blur
and erode.
D. Impact of Industry Convergence
Convergence across communications industries is already taking
place, and is likely to accelerate as competition develops further.
Thus, in addition to refocusing our resources on our core functions for
a world of fully competitive communications markets, the FCC must also
assess, with the help of Congress and others, how to streamline and
consolidate our policymaking functions for a future where convergence
has blurred traditional regulatory definitions and jurisdictional
boundaries.
The issues involved in thinking about convergence and consolidation
are complex. Prior to the Telecom Act, the core of the Communications
Act was actually three separate statutes: it incorporated portions of
the 1887 Interstate Commerce Act (governing telephony), the 1927
Federal Radio Act (governing broadcasting), and the 1984 Cable
Communications Policy Act (governing cable television). Telephony is
regulated one way, cable a second, terrestrial broadcast a third,
satellite broadcast a fourth. As the historical, technological, and
market boundaries distinguishing these industries blur, the statutory
differences make less and less sense. Maintaining them will likely
result in inefficient rules that stifle promising innovation and
increase opportunities for regulatory arbitrage.
Some argue for developing regulatory principles that cut across
traditional industry boundaries. For example, the policies of
interconnection, equal access, and open architecture have served
consumers well in the wireline context, a traditionally regulated
industry. Similarly, concepts of connectivity, interoperability, and
openness are the lifeblood of the Internet, an unregulated industry.
While these similar principles appear to cut across these different
media, it is unclear whether and how the government should be involved,
if at all, in applying these principles in a world where competition
will largely replace regulation.
At the very least, as competition develops across what had been
distinct industries, we should level the regulatory playing field by
leveling regulation down to the least burdensome level necessary to
protect the public interest. Our guiding principle should be to presume
that new entrants and competitors should not be subjected to legacy
regulation. This is not to say that different media, with different
technologies, must be regulated identically. Rather, we need to make
sure that the rules for different forms of media delivery, while
respecting differences in technology, reflect a coherent and sensible
overall approach. To the extent we cannot do that within the confines
of the existing statute, we need to work with Congress and others to
reform the statute.
ii. the 21st century: a new role for the fcc
A. The Transition Period
As history has shown, markets that have been highly monopolistic do
not naturally become competitive. Strong incumbents still retain
significant power in their traditional markets and have significant
financial incentives to delay the arrival of competition. Strong and
enforceable rules are needed initially so that new entrants have a
chance to compete. At the same time, historical subsidy mechanisms for
telecommunications services must be reformed to eliminate arbitrage
opportunities by both incumbents and new entrants.
The technologies needed for the telecommunications marketplace of
the future are still evolving, and developing them fully requires
significant time and investment. Moreover, there is no guarantee that
market forces will dictate that these new technologies will be
universally deployed. The massive fixed-cost investments required in
some industries will mean that new technologies initially will be
targeted primarily at businesses and higher-income households. Even as
deployment expands, the economics of these new networks may favor heavy
users over lighter users, and in some areas of the country deployment
may lag behind.
At the same time, consumer preferences will not change overnight.
The expansion of communications choices is already leading to greater
consumer confusion. Especially in a world of robust competition,
consumers will need clear and accurate information about their choices,
guarantees of basic privacy, and swift action if any company cheats
rather than competes for their business.
While the opportunities for the United States and the world of a
global village are enormous, they can only be realized if other
countries follow our lead in fostering competition in national and
world markets. People all over the world benefit as more countries
enter the Information Age and become trading partners. Thus, as we
continue on our own course of bringing competition to former domestic
monopoly markets, we must also continue to promote open and competitive
markets worldwide.
In sum, although the long-term future of the telecommunications
marketplace looks bright, the length and difficulty of the transition
to that future is far from certain. To achieve the goal of fully
competitive communications markets in five years, we must continue to
work to ensure that all consumers have a choice of local telephone
carriers and broadband service providers, and that companies are
effectively deterred from unscrupulous behavior. We must also continue
to promote competition between different media, promote the transition
to digital technology, and continue to ensure that all Americans have a
wide and robust variety of entertainment and information sources.
B. The FCC's Role During the Transition to Competition
During the transition to fully competitive communications markets,
the FCC, working in conjunction with the states, Congress, other
federal agencies, industry, and consumer groups, has six critical
goals, all derived from the Communications Act and other applicable
statutes:
Promote Competition: Goal number one is to promote competition
throughout the communications industry, particularly in the area of
local telephony. The benefits of competition are well documented in
many communications sectors--long distance, wireless, customer-premises
equipment, and information services. The benefits of local telephone
competition are accruing at this time to large and small companies, but
not, for the most part, to residential consumers. We must work to
ensure that all communications markets are open, so that all consumers
can enjoy the benefits of competition.
To meet this goal, we must continue our efforts to clarify the
provisions of the Telecom Act relating to interconnection and unbundled
network elements, work with the Bell Operating Companies (BOCs), their
competitors, states and consumer groups on meeting the requirements of
the statute related to BOC entry into the long distance market, reform
access charges, and, as required by Sections 214 and 310(d) of the
Communications Act and section 7 of the Clayton Act, continue to review
mergers of telecommunications companies that raise significant public
interest issues related to competition and consumers.
In the mass media area, we must continue the pro-competitive
deployment of new technologies, such as digital television and direct
broadcast satellites, and the maintenance of robust competition in the
marketplace of ideas. To meet these goals, we must continue rapid
deployment of new technologies and services and regular oversight of
the structure of local markets to ensure multiple voices, all the while
updating our rules to keep pace with the ever-changing mass media
marketplace.
Deregulate: Our second goal is to deregulate as competition
develops. Consumers ultimately pay the cost of unnecessary regulation,
and we are committed to aggressively eliminating unnecessarily
regulatory burdens or delays. We want to eliminate reporting and
accounting requirements that no longer are necessary to serve the
public interest. Also, where competition is thriving, we intend to
increase flexibility in the pricing of access services. We have already
deregulated the domestic, long distance market as a result of increased
competition, and we stand ready to do so for other communications
markets as competition develops. We have also streamlined our rules and
privatized some of the functions involved in the certification of
telephones and other equipment. We are currently streamlining and
automating our processes to issue licenses faster, resolve complaints
quicker, and be more responsive to competitors and consumers in the
marketplace.
Protect Consumers: Our third goal is to empower consumers with the
information they need to make wise choices in a robust and competitive
marketplace, and to protect them from unscrupulous competitors.
Consumer bills must be truthful, clear, and understandable. We will
have ``zero tolerance'' for perpetrators of consumer fraud such as
slamming and cramming. We will make it easier for consumers to file
complaints by phone or over the Internet, and reduce by 50 percent the
time needed to process complaints. Further, we will remain vigilant in
protecting consumer privacy. We will also continue to carry out our
statutory mandates aimed at protecting the welfare of children, such as
the laws governing obscene and indecent programming.
Bring Communications Services and Technology to Every American: Our
fourth goal is to ensure that all Americans--no matter where they live,
what they look like, what their age, or what special needs they have--
should have access to new technologies created by the communications
revolution. Toward this end, we must complete universal service reform
to ensure that communications services in high-cost areas of the nation
are both available and affordable. We must also ensure that our support
mechanisms and other tools to achieve universal service are compatible
and consistent with competition. We must evaluate--and if necessary,
improve--our support mechanisms for low-income consumers, and in
particular Native Americans, whose telephone penetration rates are some
of the lowest in the country. We must make certain that the support
mechanisms for schools, libraries, and rural health care providers
operate efficiently and effectively. We must make sure that the 54
million Americans with disabilities have access to communications
networks, new technologies and services, and news and entertainment
programming.
Foster Innovation: Our fifth goal is to foster innovation. We will
promote the development and deployment of high-speed Internet
connections to all Americans. That means clearing regulatory hurdles so
that innovation--and new markets--can flourish. We must continue to
promote the compatibility of digital video technologies with existing
equipment and services. Further, we will continue to encourage the more
efficient use of the radio spectrum so that new and expanding uses can
be accommodated within this limited resource. More generally, we will
continue to promote competitive alternatives in all communications
markets.
Advance Competitive Goals Worldwide: Our sixth goal is to advance
global competition in communications markets. The pro-competitive
regulatory framework Congress set forth in the Telecom Act is being
emulated around the world through the World Trade Organization
Agreement. We will continue to assist other nations in establishing
conditions for deregulation, competition, and increased private
investment in their communications infrastructure so that they can
share in the promise of the Information Age and become our trading
partners. We must continue to intensify competition at home and create
growth opportunities for U.S. companies abroad. We will continue to
promote fair spectrum use by all countries.
C. The FCC's Core Functions in a Competitive Environment
As we accomplish our transition goals, we set the stage for a
competitive environment in which communications markets look and
function like other competitive industries. At that point, the FCC must
refocus our efforts on those functions that are appropriate for an age
of competition and convergence. In particular, we must refocus our
efforts from managing monopolies to addressing issues that will not be
solved by normal market forces. In a competitive environment, the FCC's
core functions would focus on:
Universal Service, Consumer Protection and Information. The FCC
will continue to have a critical responsibility, as dictated by our
governing statutes, to support and promote universal service and other
public interest policies. The shared aspirations and values of the
American people are not entirely met by market forces. Equal access to
opportunity as well as to the public sphere are quintessential American
values upon which the communications sector will have an increasingly
large impact. We will be expected to continue to monitor the
competitive landscape on behalf of the public interest and implement
important policies such as universal service in ways compatible with
competition.
In addition, as communications markets become more competitive and
take on attributes of other competitive markets, the need for increased
information to consumers and strong consumer protection will increase.
We must work to ensure that Americans are provided with clear
information so that they can make sense of new technologies and
services and choose the ones best for them. We must also continue to
monitor the marketplace for illegal or questionable market practices.
Enforcement and Promotion of Pro-Competition Communications Goals
Domestically and Worldwide. As markets become more competitive, the
focus of industry regulation will shift from protecting buyers of
monopoly services to resolving disputes among competitors, whether over
interconnection terms and conditions, program access, equipment
compatibility, or technical interference. In the fast-paced world of
competition, we must be able to respond swiftly and effectively to such
disputes to ensure that companies do not take advantage of other
companies or consumers.
The FCC is a model for other countries of a transparent and
independent government body establishing and enforcing fair, pro-
competitive rules. This model is critical for continuing to foster fair
competition domestically as well as to open markets in other countries,
to the benefit of U.S. consumers and firms and consumers and firms
worldwide. There always will be government-to-government relations and
the need to coordinate among nations as communications systems become
increasingly global. As other nations continue to move from government-
owned monopolies to competitive, privately-owned communications firms,
they will increasingly look to the FCC's experience for guidance.
Spectrum Management. The need for setting ground rules for how
people use the radio spectrum will not disappear. We need to make sure
adequate spectrum exists to accommodate the rapid growth in existing
services as well as new applications of this national and international
resource. Even with new technologies such as software-defined radios
and ultra-wideband microwave transmission, concerns about interference
will continue (and perhaps grow) and the need for defining licensees
and other users' rights will continue to be a critical function of the
government. We will thus continue to conduct auctions of available
spectrum to speed introduction of new services. In order to protect the
safety of life and property, we must also continue to consider public
safety needs as new spectrum-consuming technologies and techniques are
deployed.
D. Coordination with State and Local Governments and other Federal
Agencies
In order to fulfill our vision of a fully competitive
communications marketplace in five years, we need a national, pro-
competitive, pro-consumer communications policy, supplemented by state
and local government involvement aimed at achieving the same goal. The
Telecom Act set the groundwork for this goal, and the Commission is
fulfilling its role of establishing the rules for opening
communications markets across the country, in partnership with state
regulators. The Commission must continue to work with state and local
governments to promote competition and protect consumers. Toward this
end, we have instituted a Local and State Government Advisory Committee
to share information and views on many critical communications issues.
The importance of working and coordinating our efforts in the
communications arena with other federal agencies will also continue. We
work particularly closely with the Federal Trade Commission on consumer
and enforcement issues, and with the Department of Justice on
competition issues. We also work with other federal agencies on public
safety, disability, Y2K, reliability, and spectrum issues, just to name
a few. We see our role vis-a-vis other federal agencies as cooperative
and reinforcing, where appropriate.
iii. the 21st century: a new structure for the fcc
A. The FCC's Evolving Structure
The FCC must change its structure to match the fast-paced world of
competition and to meet our evolving goals and functions, as derived
from our authorizing statutes. Our transition goals must be
accomplished with minimal regulation or no regulation where appropriate
in a competitive marketplace. Moreover, a restructured and streamlined
FCC must be in place once full competition arrives, so that we can
focus on providing consumers information and protection, enforcing
competition laws, and spectrum management.
In sum, we must be structured to react quickly to market
developments, to work more efficiently in a competitive environment,
and to focus on bottom-line results for consumers. As competition
increases, we must place greater reliance on marketplace solutions,
rather than the traditional regulation of entry, exit, and prices; and
on surgical intervention rather than complex rules in the case of
marketplace failure. We must encourage private sector solutions and
cooperation where appropriate. But we also must quickly and effectively
take necessary enforcement action to prevent abuses by communications
companies who would rather cheat than compete for consumers.
Ultimately, throughout the agency, we must be structured to render
decisions quickly, predictably, and without imposing unnecessary costs
on industry or consumers.
B. Current Restructuring Efforts
The FCC is currently structured along the technology lines of wire,
wireless satellite, broadcast, and cable communications. As the lines
between these industries merge and blur as a result of technological
convergence and the removal of artificial barriers to entry, the FCC
needs to reorganize itself in a way that recognizes these changes and
prepares for the future. A reorganization of the agency, over time,
along functional rather than technology lines will put the FCC in a
better position to carry out its core responsibilities more
productively and efficiently.
As the first step in this process, in October 1998, Chairman
Kennard announced plans to consolidate currently dispersed enforcement
functions into a new Enforcement Bureau and currently dispersed public
information functions into a Public Information Bureau. The
consolidation of these two key functions that are now spread across the
agency will improve efficiency and enhance the delivery of these
services to the general public and to industry. The consolidation of
these functions will also encourage and foster cooperation between the
two new bureaus, other bureaus and offices, and state and local
governments and law enforcement agencies. The end result will be
improvements in performance of both these functions through an improved
outreach program, a better educated communications consumer, and a more
efficient, coherent enforcement program.
The new Enforcement Bureau will replace the current Compliance and
Information Bureau and, likewise, the new Public Information Bureau
will include the current Office of Public Affairs, except for a small
separate Office of Communications that will be responsible for
interacting with the news media and for managing the agency's Internet
website.
The Commission is also investing in new technology to process
applications, licenses. and consumer complaints faster, cheaper, and in
a more consumer friendly way through electronic filing and universal
licensing. Our goal is to move to a ``paperless FCC'' that will result
in improved service to the public. Examples of these efforts include
universal licensing, streamlined application processes, revised and
simplified licensing forms, blanket authorizations, authorization for
unlicensed services, and electronic filing of license applications and
certifications.
1. Enforcement Bureau
Since the Telecom Act was passed, telephone-related complaints have
increased by almost 100%. In 1996, the Common Carrier Bureau received
over 28,000 complaints; in 1998, that number increased to over 53,000
complaints. With the increase in competition, we expect even more
complaints to be filed as consumers grapple with changes in both
service options and providers. While we have been implementing
streamlined, electronic processes to address this burgeoning workload,
we have also determined that the consolidation of many widely dispersed
enforcement functions into an Enforcement Bureau is an important step
toward a more forward-looking FCC organizational structure that will
emphasize the importance of effective enforcement of the Communications
Act.
The Commission currently has four organizational units dedicated
principally or significantly to enforcement--the Compliance and
Information Bureau, the Mass Media Bureau Enforcement Division, the
Common Carrier Bureau Enforcement Division and the Wireless
Telecommunications Bureau Enforcement and Consumer Information
Division. Consolidating most enforcement responsibilities of these
organizations into a unified Enforcement Bureau will result in more
effective and efficient enforcement. The Enforcement Bureau will
coordinate enforcement priorities and efforts in a way that best uses
limited Commission resources to ensure compliance with the important
responsibilities assigned to the FCC by Congress.
The consolidation of various FCC enforcement functions also
responds to the fact that the need for effective enforcement of the
Communications Act and related requirements is becoming even more
important as competition and deregulation increase. As communications
markets become increasingly competitive, the pace of deregulation will
intensify. Those statutory and rule provisions that remain in an
increasingly competitive, deregulatory environment will be those that
Congress and the Commission have determined remain of central
importance to furthering key statutory goals--e.g., providing a
structure for competition to flourish, assisting customers and users of
communications services in being able to benefit from competitive
communications services, ensuring that spectrum is used in an efficient
manner that does not create harmful interference, and promoting public
safety.
As unnecessary regulation is eliminated and the demands of the
marketplace increase, the Commission must focus its resources on
effective and swift enforcement of the statutory and regulatory
requirements that remain. The consolidation of our enforcement
activities will allow us to do just that in a streamlined, centralized,
and more effective way.
2. Public Information Bureau
Consumer inquiries at the Commission have increased dramatically
since 1996. In 1998, we received over 460,000 phone calls to telephone
service representatives, and over 600,000 calls to our automated
response system. There were on average over 266,000 hits on the FCC's
web site a day, totalling over 97 million in 1998 (up over 400% from 21
million in 1996). We expect these numbers to increase as more consumers
seek information regarding the ever growing array of services and
providers in the communications marketplace.
Currently, consumer inquiries are handled by several different
offices and bureaus throughout the Commission and the methods used to
handle these inquiries vary widely. While each office has a small
contingent of staff handling inquiries, they have had varying degrees
of success in meeting the ever increasing volume. Although the
Commission established a National Call Center in June 1996, current
processes still require a great number of consumers seeking information
to contact other offices and bureaus directly to get their questions
answered.
The creation of the Public Information Bureau allows the Commission
to better serve the public by establishing a single source organization
as a ``one-stop'' shop or ``FCC General Store'' for handling all
inquiries and the general expression of views to the Commission,
thereby better meeting the public's information needs. Merging
resources of the Office of Public Affairs, which includes public
service and inquiry staffs and the Commission's public reference files,
with the FCC Call Center will provide a streamlined, more efficient,
and consolidated information source for the public. Consumers would
only have to contact one source, whether by telephone (1-888-CALLFCC)
or by E-mail or the Internet ([email protected]). The Public Information
Bureau also plans to establish one source for mailing inquiries to the
FCC (for example, P.O. FCC). The Public Information Bureau will also be
responsible for facilitating resolution of informal consumer
complaints, thereby strengthening the mission of the new Bureau to
address most individual consumer needs in one place.
The creation of the Public Information Bureau will encourage more
public participation in the work of the Commission. The staff of the
Public Information Bureau will conduct consumer forums across the
country to inform and solicit feedback from consumers about the
Commission's policies, goals, and objectives. This feedback will be
shared with other bureaus to help ensure that Commission rules are
fair, effective, and sensible, and that they support competition while
responding to consumer concerns. The Public Information Bureau also
plans to share its databases with state and local governments as
appropriate, to coordinate our respective abilities to respond to
consumer complaints and track and address industry abuses.
The creation of the Public Information Bureau supports the
Commission's efforts to foster a pro-competitive, deregulatory, and
pro-consumer approach to communications services. The staff of the
Public Information Bureau will provide consumers with information so
that consumers can make informed decisions regarding their
communications needs. The staff of the Public Information Bureau will
also work with other bureaus to issue consumer alerts and public
service announcements to give consumers information about their rights
and information to protect themselves from unscrupulous individuals and
firms. Finally, the Public Information Bureau will provide easy public
access to FCC information as well as a convenient way for the public to
make its views known, thus supporting the Commission's efforts to
assist communities across America in dealing with complex
communications issues and to provide opportunities for a wide range of
voices to be expressed publicly.
3. Streamling and Automating the FCC Licensing Process
The Commission's ``authorization of service'' activities cover the
licensing and authorization through certification, and unlicensed
approval, of radio stations and devices, telecommunications equipment
and radio operators, as well as the authorization of common carrier and
other services and facilities. The Commission has already begun
automating and reengineering our authorization of service processes
across the agency by reengineering and integrating our licensing
databases and through the implementation of electronic filing.
The Universal Licensing System (ULS) project is fundamentally
changing the way the Commission receives and processes wireless
applications. ULS will combine all licensing and spectrum auctions
systems into a single, integrated system. It collapses 40 forms into
four; allows licensees to modify online only those portions of the
license that need to be modified without resubmitting a new
application; and advises filers when they have filled out an
application improperly by providing immediate electronic notification
of the error. During the month of February 1999, 75% of receipts (916
applications) filed under the currently implemented portions of ULS
were processed in one day.
Universal licensing is an example of how we are working to change
the relationship between the Commission, spectrum licensees, and the
public by increasing the accessibility of information and speeding the
licensing process, and thus competitive entry, dramatically. Universal
licensing is becoming the model for automated licensing for the entire
agency.
In the Wireless Telecommunications Bureau, electronic filing has
been fully implemented throughout the Land Mobile Radio services,
antenna registration, and amateur radio filings. More than 50% of the
Wireless Telecommunications Bureau's filings are now accomplished
electronically. Significant service improvements are evidenced by the
fact that 99% of Amateur Radio service filings are now processed in
less than five days, with most electronically filed applications being
granted overnight. The Wireless Bureau also has an initiative to
transfer the knowledge used by license examiners in manually reviewing
applications to computer programs so that applications can be received,
processed, and licenses granted in even less time.
The Mass Media Bureau is implementing a similar electronic filing
initiative. In October, the FCC issued rules that substantially revise
the application process in 15 key areas, including sales and license
renewals, in order to effectuate mandatory electronic filing for
broadcasters. When fully implemented, the new electronic filing system
will reduce the resources required to process authorizations,
accelerate the grant of authorizations, and improve public access to
information about broadcast licensees.
The Common Carrier Bureau has also implemented electronic filing of
tariffs and associated documents via the Internet. The Electronic
Tariff Filing System enables interested parties to access and download
documents over the Internet, and to file petitions to reject, or
suspend and investigate tariff filings electronically. Since July 1,
1998, over 10,000 electronic tariff filings have been received.
replacing approximately 750,000 pages of information.
The results of all these streamlining efforts include a more
economical use of FCC personnel resources, improvement in processing
times, the ability of our customers to file via the Internet or through
other electronic filing mechanisms, and the ability to provide our
customers with immediate status reports on their applications as well
as real time access to on-line documents. It is estimated that our move
toward a ``paperless FCC'' will save the public approximately 700,000
hours of paperwork in this fiscal year alone.
4. Budget and Workforce Impact
In anticipation of the expected increased efficiencies our
restructuring plans and other streamlining and automation improvements
will produce, the FCC is confronting the issue of how it should look
and operate in FY 2000 and beyond. We expect that our re-engineering
and restructuring efforts will yield increased efficiencies and
streamlining opportunities, particularly in the area of authorization
of service, due to automation and regulatory changes. However, these
efforts will also result in the potential displacement of staff in
certain locations and a need to retrain and reassign other staff.
Buyout authority is a tool that will enhance the Commission's
ability to alter the skills mix of its workforce to carry out its
changing mission more effectively. Targeted buyouts for staff would
facilitate our restructuring efforts in a cost-effective manner. The
Commission has requested buyout authority in its budget request for FY
2000.
The Commission is dedicated to keeping staff informed and involved
in our restructuring and streamlining efforts, and to minimizing
workplace disruption that may result from these efforts through staff
retraining, reassignment, and other methods. It is critical, as we
consider ways to restructure and streamline Commission operations, that
we continue to recognize and respect the hard work of our employees,
many of whom have been with the Commission for many years. Change is
always difficult, and it is imperative that our staff understands and
supports the necessary changes that are taking place--and will continue
to take place--at the Commission. Accordingly, we are working closely
with the National Treasury Employees Union (NTEU) to ensure that staff
is involved in all these issues and that their views are incorporated
into the Commission's planning process.
5. Restructuring Process and Timeline
Planning for the Public Information Bureau began in late November
1998 and for the Enforcement Bureau in mid-December 1998. A Task Force
comprised of both managers and staff from relevant Bureaus and Offices,
as well as NTEU representatives, has been meeting regularly since early
January to consider such issues as the appropriate functions of each of
the Bureaus and their organization. Efforts have also been made on an
informal basis both inside and outside the Commission to ensure that a
wide range of ideas are considered during the planning process. A
proposed reorganization plan should be formally submitted to the
Commission for its consideration in Spring, 1999. Upon approval by the
Commission, it will be formally submitted to the NTEU and appropriate
congressional committees.
C. Restructuring to Reflect Industry Convergence
As the traditional lines dividing communications industries blur
and eventually erode, the traditional ways of regulating or monitoring
these industries will also have to change. The FCC must think about the
complex issues resulting from converging communications markets from
both a policy and structural perspective. How the FCC should be
structured to address issues arising from a more competitive, converged
communications marketplace is inextricably tied up with the policy
choices that will be made on how to address the blurring of regulatory
distinctions.
From a structural perspective, as noted in our FY2000 budget
submitted to Congress, there are a number of steps we are committed to
take. We will continue to evaluate whether certain regulations are no
longer necessary in the public interest and should be repealed or
modified as required by Section 11 of the Communications Act. We will
continue to use our forbearance authority where appropriate. We will
continue our efforts to reduce reporting requirements and eliminate
unnecessary rules, and to level regulation to the least burdensome
possible, consistent with the public interest. In addition, in our FY
2000 budget, we have committed to reviewing our cable services and mass
media functions.
We recognize that much additional analysis is needed to consider
the impact of industry convergence on the FCC's policies and rules and
on our structure. We will continue to meet with Congress, our state
regulatory partners, industry, consumer groups, and others to solicit
input and feedback on our restructuring, streamlining and policy
initiatives and the impact of industry convergence.
iv. substantive deregulation efforts
As telecommunications markets become more competitive, we must
eliminate regulatory requirements that are no longer useful. We are
already engaged in an ongoing process of reviewing our entire
regulatory framework to see which rules should be eliminated or
streamlined.
A. FCC Biennial Review of Regulations
In November 1997, the Commission initiated a review of the
Commission's regulations, as required by Section 11 of the Telecom Act.
Beginning in 1998 and in every even-numbered year thereafter, the FCC
must conduct a review of its regulations regarding the provision of
telecommunications service and the Commission's broadcast ownership
rules. The Telecom Act charges the Commission with determining whether,
because of increased competition, any regulation no longer serves the
public interest.
Chairman Kennard announced in November 1997 that the Commission's
1998 Biennial Review would be even broader than mandated by the Telecom
Act. In addition, at the Chairman's direction, the Commission
accelerated the Congressionally-mandated biennial review requirement by
beginning in 1997 rather than in 1998. As part of the 1998 Biennial
Review, each of the operating bureaus, together with the Office of
General Counsel, hosted a series of public forums and participated in
practice group sessions with the Federal Communications Bar Association
to solicit informal input from the public. The Commission also hosted a
web site on the biennial review and asked for additional suggestions
via e-mail.
After input from the public, the Commission initiated 32 separate
biennial review rulemaking proceedings, covering multiple rule parts,
aimed at deregulating or streamlining Commission regulations. The
Commission devoted substantial attention and resources to the biennial
review. Roughly two-thirds of the proceedings involved common carrier
deregulation or streamlining. The Commission also instituted a broad
review of its broadcast ownership rules. To date, the Commission has
adopted orders in seventeen of the 1998 biennial review proceedings,
with others to be forthcoming. (See Appendix B)
From the outset, the focus of the Biennial Review has been on
regulating in a common sense manner and relying on competition as much
as possible. The Chairman and the other Commissioners have worked
together to make the biennial review a meaningful force for
deregulation and streamlining. The 1998 review was the Commission's
first biennial review, and was being conducted while the Commission was
still in the process of implementing the Telecom Act. The Chairman and
the Commission intend to build on the 1998 review so that the 2000
review and future reviews will produce even more deregulatory actions.
B. Continued FCC Deregulation Efforts
As we move toward our goal of fully competitive communications
markets, our efforts to streamline and eliminate unnecessary rules must
be increased and expanded. Accordingly, the 2000 Biennial Review will
be a top priority for the Commission.
As we did with the 1998 review, we plan to start the 2000 review
early, by putting a team in place in 1999 to work with the
Commissioners and the Bureaus and Offices on planning and structuring
the review. We will also continue to keep our review broad in focus.
The team would evaluate the success of the 1998 review and consider
whether changes are necessary for the 2000 review. The team would also
consider whether any changes are needed in the methodology we have used
to review our regulations. The team would again solicit input and
recommendations from state regulators, industry, consumer groups, and
others, to ensure that the 2000 review is a major force for
deregulation.
In short, we will be guided by one principle: the elimination of
rules that impede competition and innovation and do not promote
consumer welfare.
v. strategic planning efforts
A. Background
The Government Performance and Results Act of 1993 (Results Act)
provides a useful framework for a federal agency to develop a strategic
plan. The Results Act recommends including as part of such a plan: a
comprehensive mission statement; a description of the general goals the
agency wants to achieve and how they will be achieved; a discussion of
the means, strategies and resources required to achieve our goals; a
discussion of the external factors that could affect achievement of our
goals; and a discussion of the consultations that took place with
customers and stakeholders in the development of the plan.
The Results Act also recommends that an agency establish measurable
objectives and a timeline to achieve the goals specified in the
strategic plan. The agency would consult with Congress and solicit
input from its customers and stakeholders. The purpose of the Results
Act is to bring private sector management techniques to public sector
programs.
B. FCC Implementation of the Results Act
When the Results Act was passed, the FCC was already hard at work
implementing similar management initiatives. In 1993, we began the work
of reinventing ourselves, streamlining and restructuring the agency to
meet the challenges of the Information Age. In the process we created
the Wireless Telecommunications and the International Bureaus. In 1995,
we issued a report--``Creating a Federal Communications Commission for
the Information Age''--that included numerous recommendations for
administrative and legislative changes, many of which were subsequently
adopted.
Each of our bureaus and offices developed their own mission
statement, identified their customers and surveyed them on their needs.
Benchmark customer service standards were established for each of their
policy and rulemaking, authorization of service, enforcement and public
information service activities. These standards were published on their
websites and customers were periodically surveyed to determine whether
their service goals were being met.
We also volunteered to participate in Results Act implementation
pilot projects, naming the Wireless Telecommunications Bureau's Land
Mobile radio and the Office of Engineering and Technology's Equipment
Authorization activities as the agency's two participants. We organized
a Steering Committee with an ambitious schedule for completing the
requirements of the Results Act.
C. Impact of the Telecom Act
Enactment of the Telecom Act in February 1996 had a profound impact
on the FCC. Pursuant to the Telecom Act, the FCC was required to
initiate numerous rulemakings, many with statutorily mandated and
expedited notice and comment period. The impact of implementing the
Telecom Act affected every aspect of the FCC--its resource allocations,
its schedule for rulemakings, and its very organizational structure--
for more than two years.
Enactment of the Telecom Act also changed the scope and level of
our Results Act planning effort. We had to reformulate our mission and
performance goals in light of the Telecom Act. We decided for the first
three years after passage of the Telecom Act to marry the major goal of
the Act--to ``promote competition and reduce regulation in order to
secure lower prices and higher quality services for American
telecommunications consumers and encourage the rapid deployment of
telecommunications technologies''--with the FCC's four major budget
activities of policy and rulemaking, authorization of service,
compliance, and public information services.
This approach worked well during the major period that the FCC was
implementing the Telecom Act. Under this approach, however, the
performance goals for each of the individual Bureaus remained a
somewhat disconnected patchwork of objectives reflecting a collection
of individual Bureaus' efforts to implement the Telecom Act. Since
passage of the Telecom Act, with the traditional distinctions between
over-the-air broadcasting, cable, wireless, wireline and satellite
becoming less distinct, it is becoming clear that the FCC must conceive
a new approach to our mission and our structure.
D. New FCC Strategic Plan
The FCC has determined that we need a new regulatory model and a
new Strategic Plan that will serve as the Commission's blueprint as we
enter the 21st Century. We need a new Strategic Plan to point the way
to where we want to be and the means and resources by which we will get
there.
We are generally structuring our Strategic Plan based on our future
core functions: universal service, consumer protection and information;
enforcement and promotion of pro-competition communications goals
domestically and internationally; and spectrum management. Our
strategic planning efforts are thus tied into the restructuring and
streamlining efforts that are already on-going. In addition, as noted
above, we must take a hard look at how to organize ourselves for the
New Media age. The convergence of technologies and industries require
that we examine and change our stovepipe bureau structure, and we plan
to address those issues in our Strategic Plan as well.
Key senior managers will be responsible for developing the
strategic objectives and performance goals for the Strategic Plan. As
our work on restructuring proceeds, we will convene strategic objective
planning sessions to develop a planning document for each of our core
activities. We will also develop a schedule, based on fiscal years, on
how we will achieve our objectives.
The Strategic Plan will represent the cooperative work of the
entire FCC, reflecting input from the Commissioners, Bureau management,
agency staff, and others affected by or interested in the FCC's
activities. In developing our Strategic Plan, we have already started
to seek input from a wide variety of FCC stakeholders and intend to
intensify our efforts in the next few months. These include other
Commissioners, Commission staff, Members of Congress and their staff,
the Office of Management and Budget (OMB), industry groups, consumer
groups, academia and others. Suggestions will be gathered on both the
draft Strategic Plan and on the steps to implement it--including
deregulatory actions, restructuring and realignment of FCC functions
and management. In addition, we plan to incorporate comments on this
document, ``A New FCC for the 21st Century,'' into the draft Strategic
Plan.
Our draft Strategic Plan, along with any implementation proposals,
will be made public and we will actively solicit comment. We will issue
a Public Notice encouraging the public to comment on our draft plan,
which will be displayed on our Internet Home Page by July 1999. We will
hold a series of meetings with interested groups to gain their insight
into how we can better serve the public interest. We will make
particular efforts to discuss the draft plan with Congress, the states,
industry, and with consumers and small companies affected by our work.
We plan to submit a more final plan to Congress and OMB in September
1999.
vii. conclusion
Just as the communications industry and other sectors of our
economy are constantly adapting to change and competition, so must the
FCC. A new century and new economy demand a new FCC. We must plan for
the future, while continuing to work on the challenges we face today to
promote competition, foster innovation, and help bring the benefits of
the 21st century to all Americans. We look forward to working with
Congress, industry, consumers, state and local governments, and others
on a critical assessment of what the ``New FCC'' should look like, and
how we can get there.
Executive Summary--A New Federal Communications Commission for the
21st Century
We are standing at the threshold of a new century, a century that
promises to be as revolutionary in the technology that affects our
daily lives and the future of our country as the inventions and
innovations that so profoundly shaped the past 100 years. Just as the
internal combustion engine, the telephone, and the railroad brought
about our country's transformation from an agricultural to an
industrial society, the microchip, fiber-optic cables, digital
technology, and satellites are fueling our transition from an
industrial to an information-age society. As the marketplace changes,
so must the Federal Communications Commission (FCC). The top-down
regulatory model of the Industrial Age is as out of place in this new
economy as the rotary telephone. As competition and convergence
develop, the FCC must streamline its operations and continue to
eliminate regulatory burdens. Technology is no longer a barrier, but
old ways of thinking are.
Enclosed is a Report entitled ``A New Federal Communications
Commission for the 21st Century.'' This report is part of a continuing
process of self-assessment that the Commission has been engaging in to
transform itself to meet the challenges of an information-age economy
and an ever-changing communications industry. The Report describes the
communications marketplace--past, present, and future--and the
implications of those changes for the FCC's structure and regulatory
framework.
My vision for a ``New FCC'' is a bold one--in five years, the FCC
should be dramatically changed. In a world of fully competitive
comrnunications markets, the FCC should focus only on those core
functions that are not normally addressed by market forces. These core
functions would revolve around: (i) universal service, consumer
protection and information; (ii) enforcement and promotion of pro-
competition goals domestically and worldwide; and (iii) spectrum
management.
The steps we are taking to transition to this model include: (1)
Restructuring: We are consolidating currently dispersed enforcement
functions into an Enforcement Bureau, and currently dispersed public
information functions into a Public Information Bureau. The
consolidation of these two key functions will improve efficiency and
enhance the delivery of these services to the general public and to
industry.
(2) Streamlining and Automation: We are investing in new technology to
create a ``paperless FCC'' by processing applications, licenses, and
consumer complaints faster, cheaper, and in a more consumer-friendly
way through electronic filing and universal licensing. (3)
Deregulation: We are completing 32 deregulation proceedings covering
multiple rule parts as a result of our 1998 Biennial Review of
regulations, and intend for the 2000 Biennial Review to produce even
more deregulatory actions. (4) Strategic Plan: We are preparing a five-
year Strategic Plan that will outline our timetable for restructuring
and streamlining FCC functions and management. As part of this process,
we will work with Congress, state and local governments, industry,
consumer groups, and others on a critical assessment of what the ``New
FCC'' should look like and how we should get there.
fcc 1999 proposed restructuring and streamlining timetable*
March: Submit House Reauthorization Testimony/Initial Report to
Congress
April/May: Conduct preliminary meetings and discussions with
Congress and other Stakeholders on Strategic Plan
May 20, June 2 & 11: Conduct Public Forums with Industry,
Consumers, State and Local Government Representatives, and Academics
and Organizational Experts
May 26: Submit Senate Oversight Testimony
June: Transmit Current Restructuring Plan to Commissioners
(Enforcement Bureau and Public Information Bureau)
July: Transmit Current Restructuring Plan to Congress and National
Treasury Employees Union; Transmit Draft Strategic Plan to Congress,
OMB, and Stakeholders; Organize 2000 Biennial Review Team
September: Transmit Final Strategic Plan to Congress, OMB, and
Stakeholders
October: Establish Enforcement Bureau and Public Information Bureau
November: Begin Outreach on 2000 Biennial Review
FY 2000: Begin Implementing Five-Year Strategic Plan
---------------------------------------------------------------------------
*Note: Many of these dates are subject to change and may need
Commission or Congressional approval.
---------------------------------------------------------------------------
______
Appendix B.--1998 Biennial Regulatory Review
i. proceedings initiated--completed/orders issued
Telecommunications Providers (Common Carriers)
Streamline and consolidate rules governing application procedures
for wireless services to facilitate introduction of electronic filing
via the Universal Licensing System. 1998 Biennial Regulatory Review--
Amendment of Parts 0, 1, 13, 22, 24, 26, 27, 80, 87, 90, 95, 97, and
101 of the Commission's Rules to Facilitate the Development and Use of
the Universal Licensing System in the Wireless Telecommunications
Services, WT Dkt No. 98-20, NPRM, FCC 98-25 (rel. March 19, 1998), R&O,
FCC 98-234 (rel. Oct. 21, 1998).
Streamline the equipment authorization program by implementing the
recent mutual recognition agreement with Europe and providing for
private equipment certification. 1998 Biennial Regulatory Review--
Amendment of Parts 2, 25 and 68 of the Commission's Rules to Further
Streamline the Equipment Authorization Process for Radio Frequency
Equipment, Modify the Equipment Authorization Process for Telephone
Terminal Equipment, Implement Mutual Recognition Agreements and Begin
Implementation of the Global Mobile Personal Communications by
Satellite (GMPCS) Arrangements, GEN Dkt No. 98-68, NPRM, FCC 98-92
(rel. May 18, 1998), R&O, FCC 98-338 (rel. Dec. 23, 1998).
Eliminate rules concerning the provision of telegraph and telephone
franks. 1998 Biennial Regulatory Review--Elimination of Part 41
Telegraph and Telephone Franks, CC Dkt No. 98-119, NPRM, FCC 98-152
(rel. July 21, 1998), R&O, FCC 98-344 (rel. Feb. 3, 1999).
In addition to addressing issues remanded by the Ninth Circuit,
reexamine the nonstructural safeguards regime governing the provision
of enhanced services by the Bell Operating Companies (BOCs) and
consider elimination of requirement that BOCs file Comparably Efficient
Interconnection (CEI) plans. Computer III Further Remand Proceedings:
Bell Operating Company Provision of Enhanced Services; 1998 Biennial
Regulatory Review--Review of Computer III and ONA Safeguards and
Requirements, CC Dkt Nos. 95-20 and 98-10. FNPRM, FCC 98-8 (rel. Jan.
30, 1998), R&O, FCC 99-36 (rel. Mar. 10, 1999).
Provide for a blanket section 214 authorization for international
service to destinations where the carrier has no affiliate; eliminate
prior review of pro forma transfers of control and assignments of
international section 214 authorizations; streamline and simplify rules
applicable to international service authorizations and submarine cable
landing licenses. 1998 Biennial Regulatory Review--Review of
International Common Carrier Regulations, IB Dkt No. 98-118, NPRM, FCC
98-149 (rel. July 14, 1998), R&O, FCC 99-51 (rel. Mar. 23, 1999)
Removal or reduction of, or forbearance from enforcing, regulatory
burdens on carriers filing for technology testing authorization. 1998
Biennial Regulatory Review--Testinq New Technology, CC Dkt No. 98-94,
NOI, FCC 98-118 (rel. June 11, 1998), Policy Statement, FCC 99-53 (rel.
Apr. 2, 1999).
Deregulate or streamline policies governing settlement of accounts
for exchange of telephone traffic between U.S. and foreign carriers.
1998 Biennial Regulatory Review--Reform of the International
Settlements Policy and Associated Filing Requirements, IB Dkt No. 98-
148, NPRM, FCC 98-190 (rel. Aug. 6, 1998), R&O, FCC 99-73 (rel. May 6,
1999).
Modify accounting rules to reduce burdens on carriers. 1998
Biennial Regulatory Review--Review of Accounting and Cost Allocation
Requirements, CC Dkt No. 98-81, NPRM, FCC 98-108 (rel. June 17, 1998),
R&O, FCC 99-106 (adopted May 18, 1999).
Eliminate duplicative or unnecessary common carrier reporting
requirements. 1998 Biennial Regulatory Review--Review of ARMIS
Reporting Requirements, CC Dkt No. 98-117, NPRM, FCC 98-147 (rel. July
17, 1998), R&O, FCC 99-107 (adopted May 18, 1999).
Other
Amend cable and broadcast annual employment report due dates to
streamline and simplify filing. 1998 Biennial Regulatory Review--
Amendment of Sections 73.3612 and 76.77 of the Commission's Rules
Concerning Filing Dates for the Commission's Equal Employment
Opportunity Annual Employment Reports, MO&O, FCC 98-39 (rel. Mar. 16,
1998).
Streamline broadcast filing and licensing procedures. 1998 Biennial
Regulatory Review--Streamlining of Mass Media Applications, Rules and
Processes, MM Dkt No. 98-43, NPRM, FCC 98-57 (rel. Apr. 3, 1998), R&O,
FCC 98-281 (rel. Nov. 25, 1998).
Provide for electronic filing for assignment and change of radio
and TV call signs. 1998 Biennial Regulatory Review--Amendment of Part
73 and Part 74 Relating to Call Sign Assignments for Broadcast
Stations, MM Dkt No. 98-98, NPRM, FCC 98-130 (rel. June 30, 1998), R&O,
FCC 98-324 (rel. Dec. 16, 1998).
Simplify and unify Part 76 cable pleading and complaint process
rules. 1998 Biennial Regulatory Review--Part 76--Cable Television
Service Pleading and Complaint Rules, CS Dkt No. 98-54, NPRM, FCC 98-68
(rel. Apr. 22, 1998), R&O, FCC 98-348 (rel. Jan. 8, 1999).
Streamline the Gettysburg reference facilities so that electronic
filing and electronic access can substitute for the current method of
written filings/access. 1998 Biennial Regulatory Review--Amendment of
Part 0 of the Commission's Rules to Close the Wireless
Telecommunications Bureau's Gettysburg Reference Facility, WT Dkt No.
98-160, NPRM, FCC 98-217 (rel. Sept. 18, 1998), R&O, FCC 99-45 (rel.
Mar. 11, 1999).
Streamline and consolidate public file requirements applicable to
cable television systems. 1998 Biennial Regulatory Review--Streamlining
of Cable Television Services Part 76 Public File and Notice
Requirements, CS Dkt No. 98-132, NPRM, FCC 98-159 (rel. July 20, 1998),
R&O, FCC 99-12 (rel. Mar. 26, 1999).
Streamline AM/FM radio technical rules and policies. 1998 Biennial
Regulatory Review--Streamlining of Radio Technical Rules in Parts 73
and 74 of the Commission's Rules, MM Dkt No. 98-93, NPRM, FCC 98-117
(rel. June 15, 1998), First R&O, FCC 99-55 (rel. Mar. 30, 1999).
Modify or eliminate Form 325, annual cable television system
report. 1998 Biennial Regulatory Review--``Annual Report of Cable
Television System.'' Form 325, Filed Pursuant to Section 76.403 of the
Commission's Rules, CS Dkt No. 98-61, NPRM, FCC 98-79 (rel. Apr. 30,
1998), R&O, FCC 99-13 (rel. Mar. 31, 1999).
ii. proceedings initiated--pending
Telecommunications Providers (Common Carriers)
Deregulate radio frequency (RF) lighting requirements to foster the
development of new, more energy efficient RF lighting technologies.
1998 Biennial Regulatory Review--Amendment of Part 18 of the
Commission's Rules to Update Regulations for RF Lighting Devices, ET
Dkt No. 98-42, NPRM, FCC 98-53 (rel. Apr. 9, 1998).
In NPRM portion, considering forbearance from additional
requirements regarding telephone operator services applicable to
commercial mobile radio service providers (CMRS) and, more generally,
forbearance from other statutory and regulatory provisions applicable
to CMRS providers. Personal Communications Industry Association's
Broadband Personal Communications Services Alliances' Petition for
Forbearance For Broadband Personal Communications Services; 1998
Biennial Regulatory Review--Elimination or Streamlining of Unnecessary
and Obsolete CMRS Regulations: Forbearance from Applying Provisions of
the Communications Act to Wireless Telecommunications Carriers, WT Dkt
No. 98-100, NPRM, FCC 98-134 (rel. July 2, 1998).
Privatize the administration of international accounting
settlements in the maritime mobile and maritime satellite radio
services. 1998 Biennial Regulatory Review--Review of Accounts
Settlement in the Maritime Mobile and Maritime Mobile-Satellite Radio
Services and Withdrawal of the Commission as an Accounting Authority in
the Maritime Mobile and the Maritime Mobile-Satellite Radio Services
Except for Distress and Safety Communications, IB Dkt No. 98-96, NPRM,
FCC 98-123 (rel. July 17, 1998).
Simplify Part 61 tariff and price cap rules. 1998 Biennial
Regulatory Review--Part 61 of the Commission's Rules and Related
Tariffing Requirements, CC Dkt No. 98-131, NPRM, FCC 98-164 (rel. July
24, 1998).
Modify Part 68 rules that limit the power levels at which any
device attached to the network can operate to allow use of 56 Kbps
modems. 1998 Biennial Regulatory Review--Modifications to Signal Power
Limitations Contained in Part 68 of the Commission's Rules, CC Dkt No.
98-163, NPRM, FCC 98-221 (rel. Sept. 16, 1998).
Streamline and rationalize information and payment collection from
contributors to Telecommunications Relay Service, North American
Numbering Plan Administration, Universal Service, and Local Number
Portability Administration funds. 1998 Biennial Regulatory Review--
Commission Proposes to Streamline Reporting Requirements for
Telecommunications Carriers, CC Dkt No. 98-171, NPRM, FCC 98-233 (rel.
Sept. 25, 1998).
Modify or eliminate Part 64 restrictions on bundling of
telecommunications service with customer premises equipment. 1998
Biennial Regulatory Review--Policy and Rules Concerning the Interstate,
Interexchange Marketplace/implementation of Section 254(g) of the
Communications Act of 1934, as Amended/Review of the Customer Premises
Equipment and Enhanced Services Unbundling Rules in the Interexchange,
Exchange Access and Local Exchange Markets. CC Dkt Nos. 98-183 and 96-
61, NPRM, FCC 98-258 (rel. Oct. 9, 1998).
Eliminate or streamline various rules prescribing depreciation
rates for common carriers. 1998 Biennial Regulatory Review--Review of
Depreciation Requirements for Incumbent Local Exchange Carriers, CC Dkt
No. 98-137, NPRM, FCC 98-170 (rel. Oct. 14, 1998).
Repeal Part 62 rules regarding interlocking directorates among
carriers. 1998 Biennial Regulatory Review--Repeal of Part 62 of the
Commission's Rules, CC Dkt No. 98-195, NPRM, FCC 98-294 (rel. Nov. 17,
1998).
Seek comment on various deregulatory proposals of SBC
Communications, Inc. not already subject to other biennial review
proceedings. 1998 Biennial Regulatory Review--Petition for Section 11
Biennial Review filed by SBC Communications, Inc., Southwestern Bell
Telephone Company, Pacific Bell, and Nevada Bell, CC Dkt No. 98-177,
NPRM, FCC 98-238 (rel. Nov. 24, 1998).
Consider modifications or alternatives to the 45 MHz CMRS spectrum
cap and other CMRS aggregation limits and cross-ownership rules. 1998
Biennial Regulatory Review--Review of CMRS Spectrum Cap and Other CMRS
Aggregation Limits and Cross-Ownership Rules, WT Dkt No. 98-205, NPRM,
FCC 98-308 (rel. Dec. 18, 1998).
Broadcast Ownership
Conduct broad inquiry into broadcast ownership rules not the
subject of other pending proceedings. 1998 Biennial Regulatory Review--
Review of the Commission's Broadcast Ownership Rules and Other Rules
Adopted Pursuant to Section 202 of the Telecommunications Act of 1996,
MM Dkt No. 98-35, NOI, FCC 98-37 (rel. Mar. 13, 1998).
Other
Review current Part 15 and Part 18 power line conducted emissions
limits and consider whether the limits may be relaxed to reduce the
cost of compliance for a wide variety of electronic equipment. 1998
Biennial Regulatory Review--Conducted Emissions Limits Below 30 MHz for
Equipment Regulated Under Parts 15 and 18 of the Commission's Rules, ET
Dkt No. 98-80, NOI, FCC 98-102 (rel. June 8, 1998).
Streamline application of Part 97 amateur service rules. 1998
Biennial Regulatory Review--Amendment of Part 97 of the Commission's
Amateur Service Rules, WT Dkt No. 98-143, NPRM, FCC 98-1831 (rel. Aug.
10, 1998).
Streamline Part 90 private land mobile services rules. 1998
Biennial Regulatory Review--47 C.F.R. Part 90--Private Land Mobile
Radio Services, WT Dkt No. 98-182, NPRM, FCC 98-251 (rel. Oct. 20,
1998).
The Chairman. Welcome. Thank you, Mr. Kennard.
Ms. Ness, Commissioner Ness.
STATEMENT OF HON. SUSAN NESS, COMMISSIONER,
FEDERAL COMMUNICATIONS COMMISSION
Ms. Ness. Thank you, Mr. Chairman. Mr. Chairman and members
of the committee, I appreciate the opportunity to appear before
you today. I welcome the dialogue between the Commission and
our authorizing committee. You have entrusted us with
significant responsibilities. We are accountable to you as the
elected officials of the people for our performance.
I want you to know that my colleagues and I have done our
best to carry out the statutory obligations under the
Telecommunications Act of 1996 and other laws. These are tough
issues and complex times and I welcome the challenges ahead.
We are likely to hear a number of criticisms today. I
expect I will agree with some and respectfully disagree with
others. But I again look forward to working with you, hearing
your criticisms, your views, your thoughts, and taking that
into account as we work on these very difficult issues.
It is truly an exceptional time in the evolution of
communications and information markets. There is good news and
there is unfinished business. We are beginning to reap the
harvest of the seeds that have been planted in years past and
starting to see the promise of seeds planted more recently. The
prices for some long distance services are at an all-time low.
The same is true for international calling rates and for
wireless services as well. Meanwhile, DBS has climbed past the
10 million subscriber mark. Some 75 commercial and
noncommercial television stations have begun digital
broadcasting, and changes are under way in what have
traditionally been monopoly sectors of the business, cable and
telephone services.
Most notably, incumbent telephone companies and cable
operators are both spurring each other to deploy broadband
services at a rapid rate. Satellite and wireless companies are
not far behind. Competitive carriers have raised vast amounts
of capital and are expanding their coverages from large
businesses to smaller businesses and in some limited instances
residential consumers. The Internet, which we do not regulate
and have no intention of regulating, is still growing at an
astounding rate.
Our challenge is to keep this progress moving forward and
to ensure that no sector of our society is left behind.
Universal service has been a cornerstone of our
telecommunications policy for decades and it remains so today.
We therefore need to make sure that all Americans can enjoy the
benefits that have resulted from new technology and
competition, and in particular we need to ensure that rural
Americans and those with limited incomes and our children
continue to have affordable access.
High quality telephone services are available today
throughout the Nation at affordable prices. But we need to make
sure that as more competition and a deregulated market develop,
access to these services remains affordable and that advanced
technology is deployed on a timely basis.
So there is plenty of unfinished work. We welcome your
guidance on the decisions that lie ahead. But we should take
some pride in the very considerable benefits that are resulting
already from decisions that you and we have made that bring us
where we are today.
Thank you very much, Mr. Chairman.
[The prepared statement of Commissioner Ness follows:]
Prepared Statement of Hon. Susan Ness, Commissioner,
Federal Communications Commission
Mr. Chairman and Members of the Committee, I appreciate the
opportunity to appear before you today.
I welcome a dialogue between the Commission and our authorizing
Committee. In particular, I am pleased to review with you our
performance over the past 18 months and our efforts to fulfill our
statutory obligations under the Telecommunications Act of 1996 and
other laws. I also welcome your guidance on the issues that are pending
before us, on our efforts to promote competition, deregulation, and
universal service, and on how we can best meet the challenges ahead.
This interaction between the Commission and our Oversight Committee
is especially valuable now, during a period of monumental change. The
telecommunications and information industries are undergoing a
transition of epic proportions. Digitization and Internet technology
are splintering the regulatory structures of the past. Convergence is
presenting an abundance of new opportunities--and challenges--as voice,
data, audio and video are delivered over a host of new technologies.
Ten years ago, data represented less than five percent of all
telecommunications traffic. Today, data is surpassing voice traffic and
in the near future will represent the lion's share of traffic on our
nation's telecommunications network. The Internet is moving at an
astonishing clip to become integrated into the daily life of consumers,
in ways that will profoundly change commerce in the 21st Century.
Demand for bandwidth is burgeoning, and a variety of players,
embracing different technologies, are racing to be the provider of
choice. Telephone companies are rolling out digital subscriber line
services, and cable companies are offering cable modems, each spurring
the other to deploy broadband faster and more extensively. Meanwhile,
fixed and mobile wireless, satellites and even broadcast stations, are
investing to expand consumer choices. The potential for consumer
benefits is enormous, but the challenge for traditional regulatory
paradigms is also substantial.
managing the transition
The changes that are underway are attributable as much to
technology as to law and regulation. They are also a product of the
availability of capital, management skill, and entrepreneurship. But
law is still a critical part of the equation. The right legal framework
can stimulate investment, risk-taking, and competition; the wrong
framework can delay and distort marketplace activity.
Recognizing an historic opportunity, and desiring to spur increased
competition and innovation, Congress passed the Telecommunications Act
of 1996. The full consequences of that law and of the FCC's efforts to
implement it can be measured only over a longer sweep of time than
three years. And any given individual's assessment, at any point in
time, will necessarily find both strengths and weaknesses in the
various judgments that have been made. Still, I believe that the law
generally is working successfully, especially now that most of the
judicial challenges have been resolved. The nature and velocity of the
marketplace developments that are now underway are unprecedented, and I
believe that the vast majority of consumers will reap substantial
benefits. Further, these benefits will increase as remaining market-
opening difficulties are overcome, and competition expands its reach.
Congress has established clear goals, and the means to get there.
The overarching goal is ``to accelerate rapidly private sector
deployment of advanced telecommunications and information technologies
to all Americans . . .'' The primary tool is competition, which to
varying degrees requires both regulation (see, e.g., 47 U.S.C.
Sec. 251(c) (obligations of incumbent local exchange carriers) and
deregulation (see, e.g., 47 U.S.C. Sec. 160) (forbearance)).
Thanks to decisions that predate the Telecommunications Act, we are
already well along in the development of fully competitive and
unregulated markets for long distance service, information services,
customer-premises equipment, and wireless services. In these areas,
choice is abundant, innovation is rampant, and prices are declining.
Much of this progress has occurred fairly recently.
Consider: just three years ago most residential consumers paid 20
or 25 cents a minute for a long distance call. Today, 10-cent-a-minute
(or even lower) rate plans are widely available, and special offers
abound, such as all-you can-talk pricing for weekends and free calls on
Monday nights. (To be sure, not all consumers are reaping the benefits
of lower prices. Some low-volume long distance consumers have been
bombarded with additional charges and fees that exceed the savings in
per-minute rates, which should be explored.)
In commercial mobile radio service, the benefits of competition
have been even more dramatic. A few years ago, a wireless call commonly
cost 50 to 75 cents a minute, and customers paid hefty roaming fees.
But when the first PCS providers challenged the cellular incumbents,
rates plummeted 25 percent. They dropped even further as the 4th, 5th,
or even 6th operators joined the fray. And now we have ``one-rate''
pricing, where consumers are offered big ``buckets'' of minutes that
equate to as low as 10 cents a minute--and often with regional or
national calling and no roaming fees. Now, it is often cheaper to make
an intrastate toll call by wireless phone than over the wired telephone
system.
Similarly, many international call prices have plunged as countries
implement their World Trade Organization market-opening commitments,
and as the FCC enforces its accounting rate policies. Virtually
everyone who makes a significant volume of international calls has seen
a significant drop in rates.
Competition has been more elusive in the video and local telephone
markets, but even here there are signs of progress. With more than 10
million subscribers, DBS is becoming a more credible competitor to
cable, and competitive local exchange carriers are making inroads
against incumbent local exchange carriers in business markets and in a
small, but growing number of residential markets as well.
In these markets, the challenge is to manage a successful
transition from regulated monopoly to unregulated competition as we
maintain our commitment to universal service.
This transition is complicated. New services and technologies are
surfacing that do not fit neatly into discrete regulatory structures.
This leads both to creative tensions, and to certain anomalies.
We need to remember that the development of full competition takes
time. Just as we saw in the long distance market, and more recently
with wireless services, there is often a gestation period of multiple
years between the time when key steps are taken to promote competition
and when robust competition actually emerges. This is particularly true
when unnecessary litigation prolongs uncertainty, and deters
investment.
As we seek to accelerate the transition to competition, we need to
be willing to trust the market to work, as we did when we denied state
petitions to retain price regulation of commercial mobile radio
services. But we also need to be careful not to undermine basic tenets
of the Telecommunications Act. Sometimes, when we hear pleas to
restrict or eliminate a particular requirement, the provision in
question is one that Congress carefully chose as a tool to enable
competition (see, e.g., 47 U.S.C. Sec. Sec. 251(c)(obligations of
incumbent local exchange carriers) 271 (Bell entry into long distance),
628 (program access)). It may even be a provision that Congress
specifically told us not to use our forbearance authority to circumvent
(47 U.S.C. Sec. 160(d) (referencing Sec. Sec. 251(c) and 271)).
We also need to think with greater care about the layers of
regulation that can flow from different levels of government. An
incumbent or a new entrant may need to deal not only with the
requirements of the Communications Act and the FCC, but also with state
and local laws and regulations. Each layer of government has its own
responsibilities, and its own legitimacy, but where possible we need to
strive for cooperation, consistency and efficiency, to advance the
national goals of competition, universal service, and deregulation.
We have made considerable progress working with our state and local
government colleagues in a renewed spirit of cooperation. Our
partnership with the state commissioners, in particular, is vastly
stronger than it was when I joined the Commission in 1994. Our local
and state government advisory committee has also made significant
progress by identifying practical solutions to thorny issues such as
wireless antenna siting.
guiding principles
As we move forward with our implementation of the
Telecommunications Act, and with an evolution in the philosophy and
structure of the FCC, I am guided by certain principles:
First and foremost, of course, I take my direction from the law. It
is not my place to second-guess the judgments of Congress, or to be
selective in deciding which provisions of the law will be enforced.
The law, however, leaves us a measure of discretion, and in
exercising that discretion our principal goal should be to foster
competition whenever and wherever possible. And as competition
advances, regulation can and should retreat. Thus, we must more boldly
rely on marketplace solutions, rather than the traditional regulation
of entry, exit, and prices; and on surgical intervention rather than
complex rules in the case of marketplace failure. The forbearance
authority which you gave us is an excellent tool, sunset provisions are
another, as is the biennial review process.
Another principle is that we should minimize regulatory risk.
Capital formation is hampered when rule changes are pending or are
uncertain. Rules and decisions should be as clear and as consistent as
possible. Decisions--whether in resolving rulemakings or complaints or
simply in processing routine applications--need to be prompt and
predictable. Enforcement should be swift and certain, so that
regulatory delay is not a strategy of choice, a hindrance to market
entry or an impediment to protecting consumers against inappropriate
conduct by service providers.
In addition, government often serves best by focusing a spotlight
on problems and prodding parties to work together to design solutions.
Sometimes government can be a useful catalyst for private sector
solutions that serve better than regulatory prescription to resolve
competing needs and speed the introduction of new technologies.
Another basic tenet is that consumer interests should be paramount.
It is the public, not any particular competitor or group of
competitors, that we must serve. The Commission should not try to pick
winners or losers, either individually or by industry sector. Nor
should we be tempted by short-term ``fixes'' that impede long-term
objectives.
Finally, we should continually review our progress. It is important
to evaluate, regularly and periodically, what is working and what is
not--especially in such a rapidly changing environment--and then take
steps to fix it. I do not advocate another major rewrite of the
Communications Act at this time, for such a reopening of the statute
would reintroduce uncertainty and deter investment.
With this as backdrop, I want to elaborate on Commission activity
over the past 18 months in five areas.
Digital Television
Effectuating a successful transition to digital television for the
benefit of consumers is an important Commission goal. Notwithstanding
the growth of other media delivery systems, such as cable, DBS and the
Internet, free, over-the-air television remains unparalleled in its
pervasiveness and influence. Local broadcasters have been given the
opportunity to participate in the digital revolution that is affecting
every other segment of the communications and information industries.
By the same token, consumers should have the opportunity to enjoy the
numerous benefits--HDTV, multi-channel standard definition TV, and a
host of ancillary and supplemental services--that DTV broadcasting can
bring.
The transition to digital is no simple matter, and no one should
expect an overnight success. While I am encouraged by the progress that
has been made to date, much remains to be done.
The good news is that 75 stations are already on the air, which is
ahead of the FCC-prescribed implementation schedule. But many
problems--both technical and regulatory-- remain which are hindering a
successful transition for industry and for consumers. We still need a
greater quantity of innovative programming that will attract DTV
viewers, and more affordable DTV receivers to attract more DTV
programming (the ``chicken-and-the-egg problem''). We need the industry
to resolve its knotty digital copyright issues so that compelling
programming can be shown. We need better compatibility between digital
cable service and DTV receivers. And we need even greater accommodation
between cable operators and television broadcasters.
My strong preference is for market-driven solutions to these
problems, whenever possible. The Commission's role is primarily to
highlight obstacles, facilitate dialogue among the stakeholders, and to
guide, prod, shepherd, cajole, jawbone, and otherwise stimulate the
development of solutions. Regulation is the tool of last resort, and
any prescriptive (or proscriptive) intervention should be carefully
thought through and proportionate to the circumstances.
Universal Service
Another high priority is universal service. Again there is good
news, and again there is much unfinished business.
The Telecommunications Act of 1996 strengthened our nation's
commitment to an inclusive vision in which communications services are
available to all Americans. The new law reaffirmed long-standing
policies of assisting low-income consumers, and those in high-cost
areas, in obtaining access to high-quality, affordable telephone
service. The new law also extended the concept of universal service by
providing for targeted assistance to elementary and secondary schools,
libraries, and rural health care providers. I am deeply committed to
all of our universal service goals.
The good news here is that the low-income support mechanism has
been maintained and expanded, that consumers in high-cost areas are
continuing to obtain high-quality services at affordable rates, and
that we have launched the schools and libraries and rural health care
support mechanisms. Each of these elements of universal service is
important; all of them, collectively, will help to build stronger
communities, a stronger economy, and a brighter future for our nation.
The high-cost issues are extraordinarily complex and require
special care. The Telecommunications Act is clear that we should not
disrupt the ability of rural telephone companies--some 1300 strong--to
serve their communities. We have followed that guidance and largely
left rural telcos ``off the table'' for purposes of pending
proceedings. In addition, the Federal-State Joint Board on Universal
Service has appointed a Rural Task Force that is studying these issues.
But as you know, we are proceeding with caution, consistent with your
guidance.
Even with the larger telephone companies, where more of the
subsidies that keep rural rates affordable are implicit and therefore
potentially vulnerable to erosion by competition, we are moving ahead
with care. The risk of introducing unintended consequences is great.
The challenge is to reform high-cost support mechanisms in a way that
ensures that consumers will continue to have access to affordable,
quality telecommunications services while being economically efficient,
compatible with competition, and fair to both high-cost and low-cost
states.
We want to avoid unnecessary complexity or artificiality. We want
to target support to the areas where costs are truly high. We want to
avoid treading on the toes of state regulators, who (in the case of the
larger telephone companies) are the ones that manage most of the
implicit subsidies that keep rural phone rates affordable today. We
want to avoid locking in legacy systems or hindering the emergence of
new technologies and new competition. We want to avoid creating both
the reality and the appearance of rate increases.
And candidly, it is not clear how best to effectuate all of these
goals simultaneously. Provided that consumers in high cost areas are
continuing to enjoy access to telecommunications services at affordable
and reasonably comparable rates, we can and should incrementally make
explicit the implicit subsidies between carriers.
Obviously, high cost mechanisms will continue to require a great
deal of time and effort within the Commission, working closely with the
Joint Board. But in the meantime, it is important for you to know that
we are not reducing the support that is currently provided by the
interstate jurisdiction; indeed, we are actively exploring ways to
target additional federal support where it is needed. Further, the
Joint Board has found that preexisting sources of implicit subsidy are
not at this time being eroded. It helps a great deal that
communications is a declining cost business and that demand for
communications services is soaring, so despite some inroads made by
competitors, the incumbents are continuing to grow and prosper.
Broadband Deployment
I am personally committed to enabling all Americans to benefit in
the communications revolution. As advanced services are rolled out, I
want to ensure that rural America is included.
Broadband services are more than just a means of enabling people to
communicate more productively. They may provide the means by which to
stem the tide of migration from the farms to the cities. They may
enable entrepreneurs to remain in rural areas and develop prosperous
businesses, boosting local economies. To this end, it is important that
existing wireline carriers, cable companies, and new wireless and
satellite ventures alike have the opportunity to bring new services,
new choices, and new life to rural communities.
We are still at an early stage in the rollout of broadband
services, but early indications are that investment and innovation are
strong, and that rural areas are not being neglected. We will, of
course, keep a close eye as events continue to unfold.
International Issues
Over the past eighteen months, the FCC has played a major role in
expanding access to global communications at affordable rates. We have
achieved some real successes in our efforts to drive international
accounting rates closer to costs (and in winning a major judicial
victory on this issue), and in opening global markets to competition
under the WTO framework. Many countries have emulated the U.S. model by
establishing independent regulators patterned after the FCC.
Unfinished work includes continued enforcement of our accounting
rate policies as we press for an acceptable multilateral resolution of
this issue. We must also continue to be proactive with our trading
partners to achieve full WTO compliance where U.S. companies are
encountering market-access difficulties. And we must deploy the
resources necessary both to complete WRC 2000 preparation process and
to engage in meaningful and frequent negotiations with our trading
partners sufficiently in advance of the Conference on the full range of
spectrum issues that will be addressed. I am encouraged that regional
bodies charged with developing spectrum management policies are opening
up their processes. More regular bilateral discussions with our trading
partners on spectrum management issues could serve to facilitate
cooperative and timely resolutions of many of these issues.
Spectrum Management
Surging demand for commercial use of the finite spectrum resource,
both internationally and in the U.S., coupled with the technical
complexities inherent in sharing spectrum, are propelling us to take a
fresh look at our spectrum management policies. As global
communications systems and terrestrial wireless networks proliferate,
they often are competing for use of the same spectrum. Where feasible,
there may be value in harmonizing spectrum allocation and assignment
policies with our trading partners, particularly to implement global
systems.
As the demand for spectrum grows, the supply of useable spectrum
shrinks. Consequently, we need to review our spectrum management
policies to ensure that they provide incentives for private sector
development of efficient spectrum use technologies. I am intrigued by
the discussion at our recent en banc on spectrum management of
software-defined radios as one way to increase both flexibility and
efficiency of use.
``reinventing'' the fcc
As the marketplace changes, so too must the FCC. The Commission
must continue to evaluate ways in which we can be more efficient and
responsive. A process to do that is currently underway, and a dialogue
with our authorizing Committees is obviously vital to the decisions
that must be made.
Two months ago, Chairman Kennard released his draft report, ``A New
Federal Communications Commission for the 21st Century.'' This report
provides an excellent starting point for any discussion of FCC
organization and mission. The Chairman has also sought public
discussion by arranging three forums (the first of which was held on
May 20). Each of my colleagues has proffered thoughtful suggestions for
streamlining and improving FCC performance.
In the meantime, we must not permit ourselves to be diverted from
the matters at hand. We do have unfinished business, and many market
participants need to have timely resolution of issues that are pending
before us. In this context, I am most grateful for the recent
statements of the Majority Leader that ``Congress should start
empowering the FCC rather than criticizing its individual decisions''
and of my colleague, Commissioner Michael Powell, who accurately
observed, ``The agency cannot right its ship if stakeholders spend most
of their time rocking the boat.''
conclusion
Consumers are already reaping many benefits from competition
fostered by past decisions of Congress and the FCC. The
Telecommunications Act and its implementation by the FCC and the state
commissions are expanding the realm of competition, and expanding the
potential for consumer benefits. Yet the pace of change in
communications markets is still accelerating, and care must be taken to
ensure that national goals remain in focus.
The FCC's main challenges during this historic transition are to
know when to intervene and when not; to use creatively and judiciously
the wide assortment of tools available as we move from monopoly to
competition; and, at all times, to keep the interest of consumers
paramount. Only then will we be fulfilling Congress' vision of
competition and deregulation for the benefit of all Americans.
Thank you very much for inviting me to testify before you today. I
am happy to answer your questions.
The Chairman. Thank you very much.
Commissioner Tristani.
STATEMENT OF HON. GLORIA TRISTANI, COMMISSIONER, FEDERAL
COMMUNICATIONS COMMISSION
Ms. Tristani. Thank you, Mr. Chairman. You caught me a
little bit unawares. Not our usual order of speaking here.
I am delighted to be here to discuss the role of the FCC as
we continue to work toward the goals set forth in the
Telecommunications Act of 1996 and in the Communications Act.
First and foremost in my mind is universal service. We are
working to ensure that universal service support does not erode
as competition develops. I believe the Commission will take
important steps at tomorrow's agenda meeting to resolve key
issues relating to high-cost support for non-rural carriers.
Both at the Commission and as a member of the Federal-State
Joint Board on Universal Service, I have been pleased to
observe the increasingly cooperative relationship between
Federal and State commissioners in fulfilling Congress' goals
for universal service reform.
Second, I would like to express my continuing support for
the
E-rate program. I plan to cast my vote at tomorrow's agenda
meeting to fully fund the E-rate program at $2.25 billion for
the upcoming school year. I appreciate the support that many in
Congress have expressed for the program, which I believe is a
crucial step toward improving education in this country and
preparing the United States to compete in the new global
economy.
Another way in which we can provide all Americans access to
telecommunications is to fully and meaningfully implement
section 255's mandate that telecommunications services be
accessible to and usable by individuals with disabilities if
readily achievable. In fulfilling this requirement, we must
recognize that telecommunications plays a foundational role in
our society. The ability to use telecommunications is now a
prerequisite for many jobs, making access to such services
vital to those 54 million Americans with disabilities.
Our commitment to access should be ongoing. Future rule-
makings should routinely examine the effect of the proposed
action on people with disabilities.
Another of my priorities is effective implementation of our
enhanced 911 rules for wireless providers. In our mobile
society, wireless phones play a vital public safety role. We
recently adopted new requirements for improved 911 call
completion and I am eager to proceed with resolution of
remaining implementation issues.
An area of increasing importance to all Americans is
broadband deployment. Access to broadband capacity is critical
for our citizens to compete in the information economy of the
twenty-first century. This year we issued our first section 706
report, which was guardedly optimistic about the state of
broadband deployment while recognizing that it is still too
early in the process to declare victory.
Indeed, with respect to rural and other hard to serve
areas, I remain more guarded than optimistic. I am not yet
convinced that these Americans will have access to advanced
services on a reasonable and timely basis. I look forward to
working with Members of Congress to ensure that rural consumers
will not be left behind as advanced services become a
marketplace reality in many other areas of the country.
On the broadcast side, one of the things that we have been
working on to broaden opportunities for all Americans are new
equal employment opportunity rules. There are those who
question whether we can craft new EEO rules that will withstand
judicial review. I do not doubt that any rules we adopt will be
challenged in court and I have no illusions that some will not
argue that even the most modest EEO rules require the strictest
judicial scrutiny.
But if the burden of proof is high, so are the stakes. I
believe we must make every effort to develop a meaningful EEO
program that can and will be sustained.
Although much of the Commission's work addresses the broad
structure of the telecommunications industry, the actions I
have drawn the most satisfaction from are those that directly
improve the daily lives of average Americans. That is why I
strongly supported the rules that we adopted last December to
combat slamming, and I am profoundly disappointed that the D.C.
Circuit Court stayed a significant portion of those rules last
week just as they were about to become effective.
In the wake of the stay, I continue to support the
Commission's aggressive enforcement efforts against slammers,
which I hope and expect will reduce the frequency with which
consumers are slammed until we have new rules in place.
Another consumer issue which I have been intensely
interested in is the V-chip. This is the year that the V-chip
will become a reality. I was honored to have been appointed by
Chairman Kennard to head an FCC task force to ensure that the
impending rollout of the V-chip is a success. I commend you,
Mr. Chairman, and other Members of this Committee for your
early and vigorous leadership on this issue.
Again, I thank you for the opportunity to be here. I have a
longer statement that I would appreciate being included in the
record, and I look forward to answering any questions you may
have.
[The prepared statement of Commissioner Tristani follows:]
Prepared Statement of Hon. Gloria Tristani, Commissioner, Federal
Communications Commission
Good morning Mr. Chairman and Members of the Committee. I am
pleased to be here today to discuss the role of the FCC as we continue
to work toward the goal set forth in the Telecommunications Act of 1996
of opening telecommunications markets to competition for the benefit of
all Americans. I'm also pleased to report that we have made some
progress in the past year. I wanted to update the Committee on some
things we have accomplished and where we might go from here.
First and foremost is universal service. In rural states like my
home state of New Mexico, universal service permits average Americans
to have phone service who otherwise would not be able to afford it.
Right now, we are working to ensure that universal service support does
not erode as competition develops. I believe the Commission will take
important steps at tomorrow's Agenda meeting to resolve key issues
relating to high-cost support for non-rural carriers. The Commission
not only will address the recommendations that the Federal-State Joint
Board on Universal Service submitted for its consideration last
November but also will take additional steps toward implementing the
economic model that will ultimately be used to determine support
amounts. Both at the Commission and as a member of the Joint Board, I
have been pleased to observe the increasingly cooperative relationship
between federal and state commissioners in fulfilling Congress' goals
for universal service reform.
One aspect of universal service that is particularly important to
me is connecting unserved areas. In enacting Section 254, Congress told
us not only to ``preserve'' but to ``advance'' universal service. I see
no more worthy means of advancing universal service than to devise
creative solutions to problem of unserved areas. In many of these
areas, customers remain unserved because the alternative is to pay the
local phone company thousands of dollars to have a line extended to
their home. This is unacceptable. I believe the federal government, in
the interest of advancing universal service, must take a more active
role in connecting all Americans.
I would note that many unserved areas are on Indian lands, and that
Indians are among the poorest groups of Americans. Chairman Kennard has
recognized this problem, and I commend his leadership on this issue.
Earlier this year, the Chairman and I held a field hearing in New
Mexico where we took testimony and visited Indian reservations to learn
firsthand about the causes of this problem and some possible solutions.
Subsequently, Commissioner Ness and Commissioner Furchtgott-Roth joined
Chairman Kennard for similar field hearings in Arizona. Those hearings
marked the beginning of a real commitment in the area of
telecommunications to better fulfill the federal government's trust
obligation with respect to Indians living on reservations.
In addition, I would like to express my continuing support for the
e-rate program. I plan to cast my vote at tomorrow's Agenda meeting to
fully fund the e-rate program at $2.25 billion for the upcoming school
year. I appreciate the support that many in Congress have expressed for
our implementation of this program, which I believe is a crucial step
toward improving education in this country and preparing the United
States to compete in the new global economy. The goals of the program
are sound and I am convinced that the e-rate funds that have recently
been committed to schools and libraries around the country will
generate enormous social and economic benefits for the nation in the
years ahead.
Another way in which we can provide all Americans access to
telecommunications is to fully and meaningfully implement Section 255's
mandate that telecommunications services be ``accessible to and usable
by individuals with disabilities, if readily achievable.'' In
implementing this requirement, we must recognize not only that the
telecommunications sector is one of the largest and fastest growing in
our economy, but also that it plays a crucial foundational role in our
society. The ability to use telecommunications is now a prerequisite
for many jobs, making access to such services vital to those 54 million
Americans with disabilities. While I look forward to completing our
Section 255 rulemaking soon, we must not stop there. Our commitment to
access should be ongoing. Future rulemakings should routinely examine
the effect of the proposed action on people with disabilities.
Another of my priorities is effective implementation of our
enhanced 911 rules for wireless providers. In our mobile society,
wireless phones play a vital public safety role. We recently adopted
new requirements for improved 911 call completion, and I am eager to
proceed with resolution of remaining implementation issues such as
technology choice, cost-recovery and liability limitations. I also
applaud the initiatives pending in Congress on liability and
designating 911 as a national emergency number.
An area of increasing importance to all Americans is broadband
deployment. Access to broadband capacity will be a crucial tool for our
citizens to compete in the information economy of the 21st century. In
Section 706 of the 1996 Act, Congress directed the Commission to
monitor the roll-out of advanced telecommunications capability, and, if
necessary, take steps to ensure that all Americans have access to such
capability on a reasonable and timely basis. This year, we issued our
first Section 706 Report, which was guardedly optimistic about the
state of broadband deployment while recognizing that it is still too
early in the process to declare victory. Indeed, with respect to rural
and other hard-to-serve areas, I remain more guarded than optimistic. I
am not yet convinced that these Americans will have access to advanced
services on a reasonable and timely basis. This is an area I will
continue to pursue aggressively, consistent with Congress' intent.
Indeed, in the past week we received a letter from ten Senators setting
forth several specific and thoughtful suggestions on how we could
encourage the deployment of advanced services to rural areas. I look
forward to working with members of Congress to ensure that rural
consumers will not be left behind as advanced telecommunications
services become a marketplace reality in many areas of the country.
I believe there are two ways to accelerate the rollout of advanced
services. The first is to ensure that competitors have access to the
basic building blocks of advanced services that are controlled by
incumbent LECs. That includes things like conditioned local loops and
collocation space. Competitors can then combine those inputs with their
own advanced services equipment to offer high speed connections to end
users. The Commission recently strengthened its collocation rules and
in the near future the Commission will, I hope, formally reinstate the
requirement that conditioned loops be made available to competitors.
The second way to spur advanced services is to make sure we're not
overregulating the provision of those services by incumbent LECs. I
recognize that there may be markets where, unlike the market for basic
local telephone service, incumbents do not have a hundred-year head
start. We need to think carefully before applying rules that may be
ill-suited for such emerging markets. If we proceed thoughtfully in
this area, I am optimistic that the FCC's policies will provide the
right incentives for both new entrants and incumbents to furnish the
bandwidth that millions of consumers are asking for.
On the broadcast side, one of the things that we have been working
on to broaden opportunities for all Americans are new rules on Equal
Employment Opportunity. As the Committee is aware, this past year a
panel of the U.S. Court of Appeals for the District of Columbia Circuit
struck down the outreach portions of our previous EEO rules because it
believed (wrongly, I think) that our rules effectively required hiring
decisions based on race. We are working on new rules that will address
the court's concerns while ensuring that all segments of the community
have the opportunity to participate in, own, and see themselves
reflected in, the media that has such a pervasive impact on our
nation's cultural and political life.
There are those who question whether we can craft new EEO rules
that will withstand judicial review. I do not doubt that any rules we
adopt will be challenged in court, and I have no illusions that some
will argue that even the most modest EEO rules require the strictest
judicial scrutiny. But if the burden of proof is high, so are the
stakes. I believe we must make every effort to develop a meaningful EEO
program that can and will be sustained.
Although much of the Commission's work addresses the broad
structure of the telecommunications industry, the actions I've drawn
the most satisfaction from are those that directly improve the daily
lives of average Americans. That is why I strongly supported the rules
we adopted last December to combat slamming. I am profoundly
disappointed that the D.C. Circuit stayed a significant portion of
those rules last week, just as they were about to become effective. In
the wake of the stay, I continue to support the Commission's aggressive
enforcement efforts against slammers, which I hope and expect will
reduce the frequency with which consumers are slammed until we have new
rules in place.
Another consumer issue in which I've been intensely interested is
the V-chip. This is the year that the V-chip will finally become a
reality in the lives of average Americans. By July 1, half of the new
television models with screens thirteen inches or larger must have a V-
chip installed. By January 1, 2000, all such sets must have a V-chip.
This will empower parents to protect their children from material that
they deem unsuitable for their children. I commend you, Mr. Chairman,
and other members of this Committee for your early and vigorous
leadership on this issue.
I was honored to have been appointed by Chairman Kennard to head an
FCC Task Force to ensure that the impending roll-out of the V-chip is a
success. One of the most important objectives of the Task Force is to
ensure that all parts of the blocking system are in place and working,
so that a parent who buys a TV set can be assured that the blocking
function will work. We also will be working with various industry,
consumer and other groups to educate parents about the V-chip and how
it can be used in their daily lives.
Once again, I appreciate the opportunity to testify before you
today.
The Chairman. Thank you very much.
Commissioner Furchtgott-Roth.
STATEMENT OF HON. HAROLD W. FURCHTGOTT-ROTH, COMMISSIONER,
FEDERAL COMMUNICATIONS COMMISSION
Mr. Furchtgott-Roth. Thank you, Mr. Chairman, members of
the committee. I am deeply humbled and honored to appear before
you today. I cannot think of this room without thinking of the
1996 Act and the importance of the Commission following the law
as it is written.
Four years ago I sat in this room, probably sat around this
very table, as a House staffer, perhaps a little wet behind the
ears, negotiating language on the Telecommunications Act for
the House. The staff debates on language were intense and
lengthy. We on the House side championed competition plain and
simple. I believed then and I believe now that the greatest
friend of the consumer is not a complicated Federal program
that takes an army of Washington lawyers to decipher. The
greatest friend of the consumer today is a new competitor
offering better services and lower prices, and then tomorrow an
even better friend comes along offering yet better services and
even lower prices.
I argued on behalf of the House that competition needed to
be complete, that barriers to entry needed to be removed, and
that competition needed to be unencumbered by complex
regulation.
The Senate side also championed competition, but with grave
concerns about the future of telecommunications in rural
America, and that is how the 1996 Act came to be. It is about
competition. It is also about some special considerations for
rural America.
Competition has come about because the law now allows it,
because consumers demand it, and technology will not be
stopped. Competition has not come about because we have fancy
computer cost models. In competitive markets prices are set by
supply and demand, not by computer models.
The Commission has made enormous progress in many areas in
the past year, including E-911 services, access for the
disabled, and several deregulatory efforts. I commend Chairman
Kennard for his many successes.
We have not made as much progress, however, in one area and
that is securing a permanent solution to universal service, and
I would like to spend a few moments on that topic. Rural
America has been protected as a vestige of preexisting
programs, not because we have done anything new or novel at the
Commission.
Today at the FCC--today the FCC looks at rural high- cost
universal service support and some look at it through the lens
of a very complicated computer cost model. Over the last decade
the economies of the Soviet Union and communist regimes around
the world have crumbled. They have collapsed in part because
their governments tried to set all prices centrally. To most
Americans and believers in free markets, centralized pricing
was doomed to failure.
But at the Commission we are told that they had perhaps the
right concept, only the wrong computer model. To these
observers of economic regulation, the Soviet Union might have
been saved if only Bill Gates or Steven Jobs had been born in
Russia.
It takes more than a week to run the FCC's high-cost model.
I suspect that the Soviet pricing models of the late 1980's
could run faster. As an economist who has worked much of my
career with economic cost models, I have little confidence in
the results of models that take more than a few hours, that
take even an hour to run, much less hundreds of hours.
The FCC model spews out one set of numbers one month, a
substantially different set of numbers the next month. I do not
have any confidence that I know where high-cost money would
come from or go to if we fully implemented the cost model
today, and I would certainly not know where the money would
flow when the model changes next month, the month after, 6
months from now, or 10 years from now.
This model is being proposed just for large carriers. Who
knows what mechanism will be applied to small rural carriers if
we ever manage to get to them, certainly not in this century.
Today we hear concerns that perhaps OMB and CBO will start
applying going-forward rules, pay as you go rules, on universal
service. So we do not really know what will happen to universal
service in the future.
Computer models that can change at whim will change at
whim. Is there anyone on this Committee who can say that he or
she knows where and how much Federal high-cost support would go
to his or her State? Has anyone been briefed on this topic by
the Commission? Is there anyone who would like to explain this
situation to a constituent? Keep in mind, the answer for large
carriers is contained in a computer cost model that takes more
than 100 hours to run, and the answer for small carriers--well,
we will get to that later.
The problem for the FCC is not that we do not have the
right computer cost model. We simply are headed in the wrong
direction on rural high-cost support--wrong priorities, wrong
concepts. The statute neither mentions nor contemplates any
form of cost model for universal service, but the Commission
has decided that these extremely cumbersome models must be used
to distribute high-cost universal service funds, regardless of
how long it takes for the Commission to try to finalize them.
It is with great disappointment that I must conclude that
in my opinion the Commission has made very little progress on
these universal service issues in the last year. I discussed
these in my testimony last year to this Committee. Once again,
it appears that the Commission is poised to proceed with only
one aspect of universal service at the same time that it delays
higher priorities.
Thank you, Mr. Chairman and members of the committee. I
look forward to guidance from this committee on how the
Commission should proceed.
[The prepared statement of Commissioner Furchtgott-Roth
follows:]
Prepared Statement of Hon. Harold W. Furchtgott-Roth, Commissioner,
Federal Communications Commission
introduction
Mr. Chairman, Senators, I am honored today to appear before this
Committee.
The Commission has enormous responsibilities under the
Communications Act. You see before you five Commissioners who have
worked hard and always with the best of intentions of implementing the
Act. We have, from time to time, disagreed on specific Commission
decisions, but we have also made great progress in many areas
including, to name just a few: implementation of Section 255 for access
to telecommunications service for persons with disabilities, E911
services, enforcement of anti-piracy regulations, and the initial
implementation of Section 11 on regulatory reform.
Perhaps no single issue has received more attention than universal
service, one of the cornerstones of the Telecommunications Act of 1996,
embodied in Section 254 of the Act. To date, the Commission has not
fully implemented all parts of this section. On previous occasions, I
have raised several concerns about this fractured implementation and
about the Commission's promulgation of rules that appear to be
inconsistent with the statute. As for the Commission's implementation
of universal service, however, I must regretfully inform the Committee
that the Commission has made little progress in the last year. Another
year goes by, and the result is another billion dollars for the e-rate
program and another deferral for the high-cost program. Next year at
this time, the Commission may well be here explaining why it must raise
the e-rate tax again and why the cost models are almost ready and can
be implemented if we can just extend the high-cost deadline by another
six months.
As I stated on several occasions last year: priorities matter.\1\ I
remain convinced that rural, high-cost universal service is not just
one of many objectives of Section 254; it should be the highest
priority. The federal government has had universal service programs for
rural, high-cost areas and for low-income Americans for many years.
Section 254 embodied these ideals and set forth goals that emphasize
rural, high-cost support as well as low-income support and other
objectives.
---------------------------------------------------------------------------
\1\ See, e.g., Dissenting Statement of Commissioner Harold
Furchtgott-Roth Regarding the Report to Congress in Response to Senate
Bill 1768 and Conference Report on H.R. 3579, rel. May 8, 1998.
---------------------------------------------------------------------------
universal service
Almost one year ago, June 10, 1998, the Commission appeared before
the Subcommittee on Communications of this Committee. At that time, the
Commission's implementation of Section 254 and universal service was a
prominent issue. And at that time I expressed my view that, in addition
to numerous legal errors, the Commission had failed to implement
Section 254 of the Telecommunications Act in a manner that reflected
the priorities of Congress in general or of this Committee in
particular.
It is with great disappointment that I must inform you that, in my
opinion, the Commission has made very little progress on these
universal service issues in the last year. Indeed, almost all of the
issues that I raised in my testimony of one year ago are still relevant
today. While I have attached last year's testimony for your
convenience, I would like to take a moment and review some of the
issues I raised at that time and their current relevance.\2\
---------------------------------------------------------------------------
\2\ Testimony of Harold W. Furchtgott-Roth, before the Subcommittee
on Communications of the Senate Committee on Commerce, science, and
Transportation, June 10, 1998 (Attachment I).
---------------------------------------------------------------------------
commerce committee priorities left unattended
Last year, I voiced my concern with this agency's responsiveness to
Congressional intent in its implementation of Section 254. I noted that
the Senate Commerce Committee had particular concerns that rural
America not be left behind.
The views of what was affectionately known as the Senate
Commerce Committee Farm Team were unmistakable: Section 254 on
universal service was of the People, by the People, and for the
People of high-cost, rural America. There were, to be sure,
other important components of universal service: low-income,
telemedicine, and schools and libraries. But these other
elements were dwarfed in both the language and the intent of
Section 254.
Indeed, at this time last year, Congressional leaders sent the
Commission a letter reiterating that ``our nation's core universal
service program--i.e., support for high-cost and rural America--goes
unattended by the Commission.'' At the time of the hearing, however,
the Commission was already intending to delay the January 1, 1999
implantation of high-cost Issues.
In contrast, I also noted that, while perhaps not fully vetted,
quick answers had been found for other components of universal
service--namely the schools and libraries program. The Commission has
repeatedly proceeded with some universal service programs while at the
same time delaying higher priority issues.
Once again, it now appears that the Commission is poised to proceed
with only one aspect of universal service and at the same time delay
higher priorities.
Last year, I concluded that rural, high-cost issues should not be
deferred while other aspects of universal service move forward.
Rurals high-cost universal service issues should not be
resolved and implemented in some dim and distant future after
all other universal service issues have been resolved; rural,
high-cost universal service issues should be resolved and
implemented first. Rural, high-cost universal service should
not be viewed as the residual after enormous amounts for other
federal universal service obligations have been promised;
rural, high-cost universal service should receive the lion's
share of any increase in the federal universal service fund.
While I recall the Commission providing numerous assurances that
high-cost would not get left behind, here we are one year later and
where is the Commission? Again seeking to raise the schools and
libraries program by another billion dollars. And what about high-cost?
The Commission is about to announce the second extension of time in the
last year until at least January 1, 2000 for large-carrier high-cost
implementation.
And what about small company high-cost support? It will be
addressed in some dim and distant future. It would appear to be the
Commission's lowest priority.
high-cost universal service and complicated cost models
Nor do I believe that the Commission is converging on a solution to
the high-cost universal service issues. While the Commission has
continued to move forward with some of its universal service projects,
it has ignored other statutory mandates.
Almost one year ago, the Chairman and ranking members of the Senate
and House Commerce Committees demanded that the FCC' ``suspend further
collection of funding for its schools and libraries program, and
proceed with a rulemaking that implements all universal service
programs in a manner that reflects the priorities established by
Congress in the Telecommunications Act of 1996.'' \3\ But the
Commission continues to proceed with selected universal service
programs, while at the same time delaying these higher priority issues.
---------------------------------------------------------------------------
\3\ See, e.g., Letter from The Honorable John McCain, Chairman,
Senate Committee on Commerce; The Honorable Ernest F. Hollings, Ranking
Minority Member, Senate Committee on Commerce; The Honorable Tom
Bliley, Chairman, House Committee on Commerce; The Honorable John D.
Dingell, Ranking Minority Member, House Committee on Commerce; to The
Honorable William Kennard, Chairman, Federal Communications Commission,
June 4, 1998.
---------------------------------------------------------------------------
And what could be the reason that the Commission has failed to act
on high-cost universal service issues? I believe it is, at least in
part, because the Commission has decided to use extremely complicated,
complex, economic, computer, cost models. The statute neither mentions
nor contemplates any form of cost model for universal service, but the
Commission has decided that these extremely cumbersome models should be
used to distribute high-cost universal service funds. How complicated
are these models? It takes more than 180 computer hours to run the cost
model program from start to finish. As an economist who has worked with
economic models for much of my professional career, I have little
confidence in the results of models that take hours to run--much less
hundred of hours.
Moreover, I have concerns about the results that could be produced
by this model. Thus, I provide some illustrative results from model
runs, by both wire center and study area, as attachments.\4\
---------------------------------------------------------------------------
\4\ See Attachments II and III. The Joint Board recommended that
the Commission use a cost-based benchmark with a range of 115% to 150%
of the national weighted average. Second Recommended Decision, 13 FCC
Rcd at 24761. The Joint Board also considered establishing a state's
responsibility based on a percentage of intrastate telecommunications
revenues somewhere between 3% and 6%. Second Recommended Decision, 13
FCC Rcd at 24762. For illustrative purposes, my attachments assume a
benchmark of approximately 135% and roughly a 6% contribution.
---------------------------------------------------------------------------
universal service should not burden consumers
One year ago I also voiced my concern that rates for many Americans
would soon rise, ironically, all in the name of universal service. Once
again, ``the Commission may soon vote to increase rates to support
funds for certain universal service programs.''
I continue to oppose using such access charge reductions to fund
the e-rate program. The American consumer, not federal bureaucrats,
should choose how to spend any reductions in access charges. Moreover,
even if access charges are reduced, not all of the e-rate contributors
benefit from such reductions. For example, there will be no offsetting
reduction in access charges whatsoever for wireless customers who will
simply have to pay higher rates. Similarly, there is no assurance that
the consumers who benefit from access charge reductions will be the
same consumers who wll bear the new universal service burden. For
example, business consumers could disproportionaelty benefit from the
access charge reduction while residential consumers pay for new
universal service fees.
In addition, unlike last year, there may not be any offsetting
reductions in access charges for any consumers. Last Friday, the D.C.
Circuit reversed and remanded the Commission's 1997 decision regarding
the decrease in access charges that is scheduled to take place on July
1, 1999. Under the Court's Order, the Commission must reconsider those
reductions or at lease provide further explanation before the scheduled
reductions can occur.
Some at the Commission had argued that this scheduled decrease in
access charges would offset the increase in the schools and libraries
program that the Chairman has been urging. But the Court has delayed
these reductions. Even if the Commission seeks to stay the Court's
opinion while it reconsiders the productivity factor, it is unlikely
that the Commission will be able to guarantee what reductions will take
place prior to the Commission's vote this Thursday to increase the
schools and libraries contribution.
Thus, on Thursday, the net result to consumers will be an increase
of $1 billion dollars in e-rate fees without a corresponding decrease
in long distance charges.
universal service should benefit rural america
The rural, high-cost universal service program was not just one of
many objectives of Section 254 of the Telecommunications Act; it was
its highest priority. There are other goals of Section 254, but it is
difficult to read Section 254 in its entirety and understand how a
federal universal service fund program could have as its primary
emphasis anything other than rural support. It is hard to dispute that
the universal service section of the Telecommunications Act of 1996 was
primarily intended to aid rural America.
With that goal in mind, let us examine what has taken place over
the last year. Federal universal service support has nearly doubled in
size since passage of the Act. But amazingly, most of that growth has
not benefited rural states. Instead, growth of universal service has
been for other programs that largely flow to other areas of the
country. Indeed, the schools and libraries program estimates that rural
schools have received only 22% of that programs dollars committed in
the first year.\5\ For the Committee's convenience, I have attached a
state-by-state breakdown of the schools and libraries program
receipts.\6\
---------------------------------------------------------------------------
\5\ See National Rural/Urban Statistical Analysis (as of 2/27/99)
found on the Schools and Libraries Division Website.
\6\ See Attachment IV.
---------------------------------------------------------------------------
telecommunications merger review
The Commission has pending before it numerous license transfers, of
which a select few have been singled out by the Commission for stricter
scrutiny. I testified regarding the concerns that I have with the
process the Commission has established for this purpose yesterday
before the Subcommittee on Commercial and Administrative Law of the
Committee on the Judiciary of he House of Representatives. I have
attached a copy of that testimony for the convenience of this
Committee.\7\
---------------------------------------------------------------------------
\7\ See Attachment V.
---------------------------------------------------------------------------
__________
ATTACHMENT I
Prepared Statement of Harold W. Furchtgott-Roth, Commissioner, Federal
Communications Commission, at a hearing before the Subcommittee on
Communications of the Senate Committee on Commerce, Science, and
Transportation, June 10, 1998
Mr. Chairman, Senators. I am honored today to appear before this
Committee.
Less than seven months ago, I was a nominee before this Committee;
today I am a Commissioner of the Federal Communications Commission. I
thank you for that honor and privilege.
The Commission has enormous responsibilities under the
Communications Act. You see before you five Commissioners who have
worked hard and always with the best of intentions of implementing the
Act. We have, from time to time, disagreed on specific Commission
decisions. But I believe that we share a commitment to implementing the
Act faithfully as written, to implement all of its parts and not just a
selective few, and not to go beyond the letter of Act.
commission successes
Under Chairman Kennard's brief tenure, we have made great progress
in many areas including, to name just a few: implementation of the
World Trade Organization agreement, the transition to digital
television, the implementation of Section 255 for access to
telecommunications service for persons with disabilities, E911
services, enforcement of anti-piracy and anti-slamming regulations, and
the initial implementation of Section 11 on regulatory reform.
This list is not exhaustive. Nor have these issues been easy. But
we have worked together as a Commission, resolved to find the best
answer under the law and in the consumer interest. Perhaps we have
issues resolved better than others. I am confident that the Commission
has the openness to improve our decisions and regulations when better
answers are found.
For all of the accomplishments of the past six months, much remains
to be done at the Commission. It is a busy place. We have numerous
petitions from companies and private parties to take specific actions.
We have countless complaints and comments from the public on specific
issues.
universal service
Perhaps no single issue has received more attention than universal
service, one of the cornerstones of the Telecommunications Act of 1996,
embodied in Section 254 of the Act. The implementation of Section 254
has not been easy for the Commission. A great deal of effort by many
well-intentioned people have been absorbed by the implementation of
Section 254. Sadly, we appear to be far away from final implementation.
One of the difficulties of implementation has been the language of
Section 254 itself. It is demanding and exacting in many respects. The
language of the Section is narrow in many areas; in those areas, the
Commission has little flexibility in interpretation. The Commission can
and must implement all aspects of universal service, including
discounts to schools and libraries for telecommunications services as
provided by statute.
To date, the Commission has not fully implemented all parts of this
section. I raised several concerns about this fractured implementation
and about the Commission's promulgation of rules that appear to be
inconsistent with the statute in some of my recent comments on
Commission reports to Congress regarding universal service.\1\
---------------------------------------------------------------------------
\1\ Dissenting Statement of Commissioner Harold Furchtgott-Roth
Regarding the Federal-State Joint Board Report to Congress, rel. April
10, 1998; Dissenting Statement of Commissioner Harold Furchtgott-Roth
Regarding the Report to Congress in Response to Senate Bill 1768 and
Conference Report on H.R. 3579, rel. May 8, 1998.
---------------------------------------------------------------------------
commerce committee priorities
Another difficulty in the implementation of Section 254 has been
the Commission's responsiveness to Congressional intent. It is in the
realm of priorities, of Congressional intent, that I particularly seek
guidance from this Committee.
Nearly three years ago, I sat in this room for endless hours, and
days, and weeks, and months as a Congressional staffer during the
Conference on the Telecommunications Act of 1996. I learned a lot in
conference, not just about the specific details of the law, but also
about the Senate, about this Committee, about how it works, and about
its priorities.
As a House staffer, I had instructions to make sure that the law
was good for consumers: lower prices, more innovation, greater choice
through competition. The Senate Commerce Committee, however, had
additional concerns, and in particular concerns that rural America not
be left behind.
The views of what was affectionately known as the Senate Commerce
Committee Farm Team were unmistakable: Section 254 on universal service
was of the People, by the People, and for the People of high-cost,
rural America. There were, to be sure, other important components of
universal service: low-income, telemedicine, and schools and libraries.
But these other elements were dwarfed in both the language and the
intent of Section 254.
It seems that time and time again, the importance of high-cost,
rural America to this Congress and this Committee is reinforced. Just
last week Congressional leaders sent me a letter stating: ``our
nation's core universal service program--i.e. support for high-cost and
rural America--goes unattended by the Commission.''
priorities matter
As I stated only a month ago in this Commission's last report to
Congress: priorities matter.\2\ I remain convinced that rural, high-
cost universal service is not just one of many objectives of Section
254; it should be the highest priority. The federal government has had
universal service programs for rural, high-cost areas and for low-
income Americans for many years. Section 254 embodied these ideals and
set forth goals that emphasize rural, high-cost support as well as low-
income support and other objectives.
---------------------------------------------------------------------------
\2\ Dissenting Statement of Commissioner Harold Furchtgott-Roth
Regarding the Report to Congress in Response to Senate Bill 1768 and
Conference Report on H.R. 3579, rel. May 8, 1998.
---------------------------------------------------------------------------
I was very disturbed that, at yesterday's en banc meeting, the
Commission suggested referring some aspects of the high-cost program
back to the joint board, precipitating a need to miss the January 1,
1999 implementation date, while at the same time advocating full steam
ahead on other new universal service programs. Make no mistake: the
Commission is not converging on a solution to the high-cost universal
service issue, and we should not rush to judgment to find a quick
solution to a complicated problem just because promises about timing
have been made to an important constituency. I fully support referral
to the States who alone may be in a position to find the best answers
to the high-cost issues.
Yet quick, although perhaps not fully vetted, answers have been
found for other components of universal service. Indeed, despite
repeated Congressional requests to suspend further collections and
``proceed with a rulemaking that implements all universal service
programs in a manner that reflects the priorities established by
Congress . . .,'' the Commission seems poised to proceed with some
universal service programs while at the same time delaying higher
priority issues.
Rural, high-cost universal service issues should not be resolved
and implemented in some dim and distant future after all other
universal service issues have been resolved; rural, high-cost universal
service issues should be resolved and implemented first. Rural, high-
cost universal service should not be viewed as the residual after
enormous amounts for other federal universal service obligations have
been promised; rural, high-cost universal service should receive the
lion's share of any increase in the federal universal service fund.
universal service should not burden consumers
I am also concerned that rates for many Americans may soon rise,
ironically, all in the name of universal service. The Commission may
soon vote to increase rates to support funds for certain universal
service programs. To be sure, there will be some offsetting reductions
in access charges for some consumers, but not for all. And there will
be no offsetting reduction in access charges whatsoever for wireless
customers who will simply have to pay higher rates. I am willing to
defend rate increases that are necessary to meet statutory requirements
and Congressional priorities; I am not willing to defend rate increases
that are necessary for neither.
a future for universal service
Universal service is a difficult issue. That is precisely why
Congress placed it in statute rather than continuing to rely on chance
outcomes of regulations. I am committed to having the Commission follow
the Communications Act as it is written. I believe that, if faithfully
followed, Section 254 can meet all of its goals of universal service
for all Americans. If we do not follow the statutory language, we are
hopelessly lost. It is a difficult challenge, but one which this
Commission is capable of meeting.
I am sure that I speak for all of us in saying that we look forward
to guidance from this Committee.
ATTACHMENT II
ATTACHMENT III
ATTACHMENT IV
ATTACHMENT V
Testimony of Harold W. Furchtgott-Roth, Commissioner, Federal
Communications Commission, before the U.S. House of Representatives
Committee on the Judiciary, Subcommittee on Commercial and
Administrative Law Oversight Hearing, May 25, 1999
novel procedures in fcc license transfer proceedings
Thank you for the opportunity to appear before your distinguished
Subcommittee on Commercial and Administrative Law. The topic for
today's hearing is ``Novel Procedures in FCC License Transfer
Proceedings.''
At the outset, I would like to emphasize that debates about process
are not trivial debates. To the contrary, regularity and fairness of
process are central to a governmental system based on the rule of law.
As the law recognizes in many different areas, the denial of a
procedural right can result in the abridgment of a substantive right.
Not the least of these areas is administrative law, the jurisdiction of
this Subcommittee. The Administrative Procedure Act (APA) is grounded
in the notions that fair processes result in better regulations, and
that participatory processes result in regulations that people can
accept, even if they disagree with them. Indeed, procedural fairness is
so fundamental a principle in our legal system that the Framers
expressly guaranteed it in the Constitution. See U.S. Const. Amdmt. V
(``No person shall . . . be deprived of life, liberty, or property,
without due process of law. . . .'').
It is no secret that I have been, and remain, deeply concerned
about the novel procedures currently being employed by the FCC in
license transfer proceedings. My concerns arise out of the legal
problems with the processes and standards--or more precisely, the lack
thereof--that the Commission uses to evaluate applications for the
transfer of licenses. The aggregate effect of these problems, described
in detail below, is to create an administrative scheme that undermines
the principles of fundamental fairness and procedural due process, the
hallmarks of the APA.
The FCC Lacks ``Merger'' Review Authority Under the Communications Act
As a threshold matter, I would like to correct a common
misperception about the scope of the Commission's authority when
reviewing license transactions involving merging parties. Contrary to
its frequent assertions, the Commission does not possess statutory
authority under the Communications Act to review, writ large, the
mergers or acquisitions of communications companies. Rather, that Act
charges the Commission with a much narrower task: review of the
proposed transfer of radio station licenses from one party to another
and review of the proposed transfer of interstate operational
authorizations for common carriers. Nothing in the Communications Act
speaks of jurisdiction to approve or disapprove the mergers that may
occasion a transferor's desire to pass licenses on to a transferee.\1\
Under that Act, the Commission is, at most, required to determine
whether the transfer of licenses serves the public interest,
convenience and necessity.\2\
---------------------------------------------------------------------------
\1\ 47 U.S.C. section 310(d) provides: ``No . . . station license .
. . shall be transferred . . . to any person except upon application to
Commission and upon finding by the Commission that the public interest,
convenience, and necessity will be served thereby,'' i.e., by the
license transfer. Section 214(a) states: ``No carrier shall undertake
the construction of a new line or of an extension of any line, or shall
acquire or operate any lines, or extension thereof, or shall engage in
transmission over or by means of such additional or extended lines,
unless and until there shall first have been obtained from the
Commission a certificate that the present or future public convenience
and necessity require or will require the construction, or operation,
or construction and operation, of such additional or extended line.''
Notably, section 214(a) contains no ``public interest'' language at n1)
\2\ The Commission does possess authority under the Clayton Act,
which prohibits combinations in restraint of trade, to review mergers
per se. See 15 U.S.C. section 21 (granting FCC authority to enforce
Clayton Act where applicable to common carriers engaged in wire or
radio communication or radio transmission of energy). That power is
rarely invoked by the commission, however. If the Commission intends to
exercise authority over mergers and acquisitions as such, it ought to
do so pursuant to the Clayton Act, not the licensing provisions of the
Communications Act.
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To be sure, the transfer of radio licenses and common carrier
authorizations is an important part of any merger. But it is simply not
the same thing. A merger is a much larger and more complicated set of
events than the transfer of FCC permits. It includes, to name but a few
things, the passage of legal title for many assets other than radio
licenses, corporate restructuring, stock swaps or purchases, and the
consolidation of corporate headquarters and personnel.
Clearly, then, asking whether the particularized transaction of a
license transfer would serve the public interest, convenience, and
necessity entails a significantly more limited focus than contemplating
the industry-wide effects of a merger between the transferee and
transferor. For instance, in considering the transfer of licenses, one
might ask whether there is any reason to think that the proposed
transferee would not put the relevant spectrum to efficient use or
comply with applicable Commission regulations; one would not, by
contrast, consider how the combination of the two companies might
affect other competitors in the industry. One might also consider the
benefits of the transfer, but not of the merger generally. And one
might consider the transferee's proposed use and disposition of the
actual licenses, but one would not venture into an examination of
services provided by the transferee that do not even involve the use of
those licenses, as the Commission often does.
By using the license transfer provisions of the Communications Act
to assert jurisdiction over the entire merger of two companies that
happen to be the transferee and transferor of licenses, the Commission
greatly expands its organic authority. Certainly, in the context of a
merger, license transfers occur as a result of the merger, but the
Commission should not use this causative fact to bootstrap itself into
jurisdiction over the merger. If control of licenses were to be
transferred ``as a result of '' a licensee's bankruptcy, would the
Commission assert jurisdiction to review the legal propriety of the
declaration of bankruptcy? That would be preposterous, as that is a job
for a bankruptcy court. Review of the merger of two communications
companies which, just like the bankruptcy in my hypothetical, is an
underlying cause of the transfer in question, is a job for the
Department of Justice. Expanding our review of license transfers to a
review of the event that precipitates the transfers-- whether that
event is a merger a bankruptcy, or any other event that might lead a
licensee to cede control of a license--is off the statutory mark.
Despite the Commission's effort to exercise power over ``mergers''
under sections 914 and 310 of the Communications Act, it must be
remembered that, in the end, the Commission can only refuse to permit
the transfer of the relevant licenses. While such action would no doubt
threaten consummation of a proposed merger, the Commission cannot--
despite its threats to do so in licensing orders \3\--directly forbid
the stockholders of one company from selling their shares to the other.
---------------------------------------------------------------------------
\3\ See, e.g, In the Matter of Applications for Consent to the
Transfer of Control of Licenses and Section 214 Authorizations from
Tele-Communications, Inc., Transferor, AT&T Corp., Transferee, CS
Docket No. 98-178 (released Feb. 18, 1999), at para. 112 (purporting to
prohibit the applicants from ``consummat[ing] the merger'').
---------------------------------------------------------------------------
Put simply, the scope of FCC review ought to accord with the scope
of our remedies: that is, it ought to be limited to considering (i)
whether the public would suffer harm if radio licenses are transferred
from Party A to Party B3, and (ii) whether the public convenience and
necessity would be served by allowing Party A to convey authorizations
to operate carrier lines to Party B. The fact that most orders
involving mergers do not even identify the radio licenses or section
214 authorizations at issue or discuss the consequences of their
conveyance, but instead move directly to a discussion of the merger,
reflects how far the Commission has strayed from the provisions of the
Act.
The exercise of power not authorized in the Communications Act is
not just an independent strong: it also creates a violation of the
Administrative Procedure Act. As the members of this Subcommittee well
know, the APA requires a reviewing court to ``hold unlawful and set
aside agency action'' that is ``in excess of statutory jurisdiction,
authority, or limitations.'' 5 U.S.C. section 706(2)(C). This critical
provision of the APA provides enforcement of the statutory limits on
agency action and recourse for their transgression. Should the
Commission ever purport to prohibit a ``merger''--as opposed to the
simple transfer of licenses--I believe that action would violate this
linchpin of the APA.
Moreover, if the Commission stuck closely to its statutory
authority, the adverse affects of the procedural practices that you
have asked me to testify about today, while still legally problematic,
would be greatly mitigated as a practical matter.
Potentially Arbitrary Review: Choice of Transfers for Full-Scale
Review, Procedures to be Employed, and Substantive Standards To
Be Applied
Beyond the threshold question of statutory authority to regulate
mergers, I have grave concerns about the process employed in FCC merger
reviews, the subject of today's hearings. The Commission annually
approves tens of thousands of license transfers without any scrutiny or
comment, while others receive minimal review, and a few are subjected
to intense regulatory scrutiny. For example, mergers of companies like
Mobil and Exxon involve the transfer of a substantial number of radio
licenses, many of the same kind of licenses as those at issue in other
high-profile proceedings, such as AT&T/TCI, and yet we take no
Commission level action on those transfer applications. I do not
advocate extensive review of all license transfer applications, but
mean only to illustrate that we apply highly disparate levels of review
to applications that arise under identical statutory provisions.
Unfortunately, there is no established Commission standard for
distinguishing between the license transfers that trigger extensive
analysis by the full Commission and those that do not. Nor do any of
the Commission's orders in ``merger'' reviews elucidate the standard.
Unfortunately, the orders tend to conclusorily assert that some mergers
warrant heavy review and others do not.\4\ This is not a very helpful
explanation. Regulated entities and even their often sophisticated
counsel are left to wonder: Is the question whether the merging firms
are large, successful corporations? (That is one of the obvious
differences between the mergers that receive heavy attention from the
Commission and those that do not.) Does the level of review depend on
the type of services offered by the merging companies, i.e. a
telephone/cable merger (such as AT&T/TCI) gets one sort of review,
while a telephone/telephone merger (such as SBC/Ameritech) gets
another? In short, merging parties have no clear notice as to the
threshold showing for determining the scale of FCC license transfer
review.
---------------------------------------------------------------------------
\4\ See, e.g, Applications for Consent to the Transfer of Control,
supra n. 3, at para. 16 (stating, without elaboration, that ``the face
of some merger applications may reveal that the merger could not
frustrate or undermine our policies'').
---------------------------------------------------------------------------
If the answer is, as some have suggested, that the Commission
reviews extensively only a subclass of license transfer applications--
those occasioned by mergers with the potential to affect the
telecommunications industry--that response is incomplete. Whatever the
soundness of this theory for distinguishing among transfer
applications, it is not written anywhere, whether in agency rules,
regulations, policy statements, or even internal agency guidelines.
While the Communications Act does allow the Commission to make
reasonable classifications of applications, see 47 U.S.C. section
309(g), the Commission has in no way done so, much less in a way that
puts the public on notice as to what those classifications are. Agency
decisions regarding which license transfers to review, even as among
license transfers occasioned by mergers, are entirely ad hoc and thus
run a high risk of being made arbitrarily.
Nor does the Commission have any established procedures for the
handling of applications for license transfers. Any particular
application on any particular day could be: adopted at a Commission
meeting; voted by the Commission on circulation; processed with or
without a formal hearing; processed with or without so-called ``public
fora'': handled with or without additional private ``talks'' between
the companies, interested parties, Commission staff, and individual,
especially interested members of the Commission; granted with or
without conditions; finalized after 90 days or 90 weeks, etc. The list
goes on almost indefinitely.
Section 1.1 of the Practice and Procedure subpart of the
Commission's rules, entitled ``Proceedings before the Commission.''
does nothing to remedy the open-ended nature of Commission processes.
It states that ``[t]he Commission may on its own motion or petition of
any interested party hold such proceedings as it may deem necessary
from time to time'' and ``[p]rocedures to be followed by the Commission
shall . . . be such as in the opinion of the Commission will best serve
the purposes of such proceedings.'' 47 C.F.R. section 1.1. This rule,
written by the Commission, establishes only that the Commission can do
essentially whatever it wants. There is nothing constraining or useful
about this section.
Moreover, this rule--the only general one about procedures on the
Commission's books--is routinely flouted. Section 1.1. allows ``the
Commission'' to decide on appropriate procedures. Under the
Communications Act, ``the Commission'' is defined as being ``composed
of five Commissioners appointed by the President, by and with the
advice of the Senate, one of whom the President shall designate as
chairman.'' 47 U.S.C. section 4(a). During my tenure, however,
important procedural issues have not been decided upon by the full
Commission, as section 1.1. requires; rather the Chairman seems to
believe that he can set procedural rules on his own. This is contrary,
however, to the little that section 1.1 actually does require--namely,
full Commission action.
The extraordinary process to which SBC and Ameritech are now being
subjected--which includes ``discussions'' between the companies and
Common Carrier Bureau staff unauthorized by the full Commission, with
Chairman-set ``ground rules'' that are wholly unenforceable and thus
subject to change at his personal whim--is illustrative of what happens
when there are no limits on Commission discretion with respect to
procedures.\5\
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\5\I express, of course, no view on the merits of this application.
My exclusive focus here is on the process that employed to evaluate it.
Accordingly, nothing in my testimony should be taken as reflective of
any opinion on the question whether SBC and Ameritech are in compliance
with Commission rules.
---------------------------------------------------------------------------
Since there are no rules governing procedures (I do not think
section 1.1 can fairly be said to be a rule of anything except
unfettered discretion), the Commission (or even just the Chairman?) is
free to change the procedural rules of the road from transaction to
transaction, and even in the midst of a single transaction. Individual
companies can be dragged through long and expensive proceedings, with
full-fledged Commission action, while others have their applications
promptly granted by the staff, with no rationale for the grossly
disparate treatment--except for perhaps the cynical one that the
Commission is favoring certain industries or companies. And individual
companies can be subjected to this unprecedented processes at the
direction, apparently, of the Chairman himself, without consultation or
agreement by the full Commission. This is simply not the right way to
run a licensing agency or to deal with the licensees who pay the
regulatory fees that fund this agency.
Finally, if the Commission did establish a threshold test for
determining which license transfer applications should receive strict
scrutiny, and what kinds of process it should utilize, the Commission
would still need to set out the substantive tests for the differing
scrutiny levels. As a general matter, our decisional precedents provide
little concrete guidance on the substantive standard for approval of
Title II or Title III license transfers: the proposition that a merger
is in the ``public interest'' if it is not anti-competitive (or if it
is also pro-competitive) is too generalized to be of any real help.
Moreover, there is clearly a different ``public interest'' test being
applied, sub silentio, in different cases under the same statutory
provisions usually sections 310 and 214. The cases that undergo
extensive inquiry exhaustively discuss all kinds of service areas and
issues ancillary to the use of the actual radio licenses, and the
decisions that are granted at the Bureau level are relatively
perfunctory in their public interest analysis. We should, after
identifying the threshold test for license transfers that warrant
thorough inquiry, articulate clearer substantive criteria to guide the
Commission's inquiry.
The long and short of it is this: regulated entities have little
basis for knowing, ex ante, how their applications will be treated,
either procedurally or substantively. The license transfer process at
the Commission is lacking in any transparent, fixed and meaningful
standards. A person--even a well-trained lawyer--who wished to prepare
for this process could find scant guidance in public sources of law,
such as the Code of Federal Regulations or the Commission's
adjudicatory orders. Rather, one would have to be trained in the
unwritten ways of this Commission to know what to expect, and those
expectations unfortunately would have little relation to federal
administrative law.
While obviously troublesome on an intuitive level, such a license
transfer process suffers from at least four particular flaws under the
APA. First, the wholly ad hoc nature of this process makes it all too
easy for decisionmakers to discriminate among industries and even
companies--in other words, to engage in arbitrary and capricious
review. Protecting against such decisionsmaking is, of course, a core
function of the Administrative Procedure Act. See 5 U.S.C. section
706(2)(A) (reviewing court must ``'aside agency action . . . found to
be arbitrary [and] capricious'').
Second, and relatedly, by failing to state clearly the principles
that it uses to judge license transfers, the Commission decreases the
viability of meaningful judicial review. The net result is to undermine
the statutory right of aggrieved parties to judicial review. See id.
section 702 (``A person suffering legal wrong because of agency action,
or adversely affected or aggrieved by agency action within the meaning
of a relevant statute, is entitled to judicial review thereof.''). That
right of review is an interested party's primary defense against
arbitrary agency decisions.
Third, the nonascertainable nature of the license transfer process
means that interested parties have no fair notice as to the regulatory
constraints on their conduct. Notice of what the law requires--i.e.,
which behavior is prohibited and which is permissible--is a bedrock
element of fairness in our legal system, derivative of the Due Process
Clause. No person should be penalized for violating a rule that is
either so vague as to give no clear indication of the prescribed
conduct, or entirely unpublished and thus unavailable to the public,
residing only in the minds of regulators. The notice and comment
procedures of the APA are designed to safeguard against lack of fair
notice. They require notification, and an opportunity to participate in
the making, of the standards that govern interested parties. See id
section 553(b)-(c). Indeed. the whole rulemaking system of the APA is
based on the assumption that governing standards will be published and
public before they go into effect, allowing regulated parties a certain
amount of time to conform their conduct to the new federal standards.
See id section 553(d) (``The required publication or service of a
substantive rule shall be made not less than 30 days before its
effective date. . . .'').
Finally, as Senator McCain recently pointed out in a letter to
Chairman Kennard to concerning the pending SBC/Ameritech applications,
the unpredictability of the Commission's procedures cast a pall on the
Commission's impartiality. Specifically, when the Commission subjects
parties to a novel, extended, and unwieldy process to which it has not
subjected similarly situated applicants, a reasonable person might
think that the decisionmakers possessed a bias--a bias manifesting
itself in the especially high and numerous procedural hoops through
which the decisionmakers were forcing the companies to jump.
Unfortunately, the manipulation of procedural rules can be a cover for
discrimination on the merits. The appearance of partiality created by
the use of such highly unusual procedures contravenes the core
principle of the APA (again based on the constitutional concerns of
procedural due process) that decisionmakers be neutral. See 2 Davis &
Pierce, Administrative Law Treatise at page 67 (3d ed. 1994) (``Due
process requires a neutral, or unbiased, adjudicatory decisionmaker.
Scholars and judges consistently characterize provision of a neutral
decisionmaker as one of the three or four core requirements of a system
of fair adjudicatory decisionmaking.'').
To quote Senator McCain:
A proceeding of . . . importance and potential consequences
must be attended, not only with every element of fairness, but
with the very appearance of complete fairness. That is the only
way its conduct will meet the basic requirement of due process.
Amos Treat and Co., Inc v. SEC, 306 F.2d 260 (D.C.Cir. 1962).
The Commission's objectivity and impartiality are unavoidably
opened to challenge by the adoption of procedures from which a
disinterested observer may conclude that it has in some measure
adjudged the facts as well as the law a case in advance of
fully hearing it. See e.g., Gilligan, Will & Co. v. SEC, 267
F.2d 461 (D.C.Cir. 1959).
Letter from Sen. John McCain to Chairman William E. Kennard, May
12, 1999.
For the above reasons, it seems to me that the Commission's lack of
guidelines regarding the process and substance of license transfer
proceedings is in serious tension with the principles that undergird
the APA.
Potential Constitutional Problems With A Boundless ``Public Interest''
Test
The statutory test to be applied to license transfers is, of
course, the ``public interest'' standard. As noted above, the
Commission has failed to place any outer limits whatsoever on this
concept, freely reinterpreting the standard in each new case. Not only
does the Commission's lack of clear guidelines with respect to
standards governing license applications present issues of arbitrary
decisionmaking and of fair notice, as discussed above, it may also
create constitutional issues with respect to the non-delegation
doctrine.
This month, the United States Court of Appeals for the D.C. Circuit
ruled in American Trucking Ass'n v. EPA, 1999 WL300618 (May 14, 1999)
that the EPA's failure to adopt ``intelligible principles'' for
implementing its statutory mandate to regulate air pollution effected
an unconstitutional delegation of legislative power. The Court
explained that ``[w]here . . . statutory language and an existing
agency interpretation involve an unconstitutional delegation of power,
but an interpretation without the constitutional weakness is or may be
available, our response is not to strike down the statute but to give
the agency an opportunity to extract a determinate standard on its
town.'' Id at *6. According to this case and its precedential
forebears, see International Union, UAW v. OSHA, 938 F.2d 1310 (D.C.
Cir. 1991), this agency has a constitutional duty to choose
interpretations of statutory language that avoid, rather than create,
non-delegation doctrine problems.
I believe that the FCC has not satisfied its obligation under
American Trucking to adopt ``determinate, binding standards,'' 1999 WL
300618 at *6, in order to channel its discretion under the ``public
interest'' provisions. Putting aside the question of the breadth of the
statutory standard itself, the Commission has not articulated any clear
principles about what that standard means in the context of merger
review; how it applies to different entities; and what justifies a
departure from standard practice, to name just a few of the major
outposts on the license transfer trail. In short, there are no self-
defined limits--at either end of the spectrum--on the Commission's
consideration of whether to grant or deny a license transfer when
mergers are involved, or otherwise. To my mind, this is arguably the
kind of ``free-wheeling authority [that] might well violate the
nondelegation doctrine.'' International Union, UAW v. OSHA. 938 F.3d at
371.
I have always thought that it was incumbent on the Commission to
fashion some guidelines to place limits on its discretion as a matter
of simple fairness. Under American Trucking and International Union, it
would appear that the Commission also has a constitutional duty to do
so. This duty it has not even attempted to carry out.
``Conditional'' Approval of License Transfer Applications
Finally, I express some general apprehension about the
``conditioning'' of grants for license transfer applications and
section 214 authorizations. I think it is entirely appropriate, under
the Commission's organic statute, for the Commission to condition
license transfer and line extension applications on compliance with
existing FCC rules or statutory provisions. See 47 U.S.C. section
303(r) (``Commission shall . . . prescribe such . . . conditions, not
inconsistent with law, as may be necessary to carry out the provisions
of this Act''); id. section 214(c) (Commission ``may attach to the
issuance of [214] certificate such terms and conditions as in its
judgment the public convenience and necessity may require'').
All too often, however, this Commission places conditions on
license transfers that have no basis in the text of the Communications
Act. That is, the Commission requires companies to do certain things--
things that it could not for lack of statutory authority require
outright in a rulemaking--as a quo for the quid of receiving a license.
Again this represents a transgression of the Commission's statutory
limits and thus a violation of the APA. See 5 U.S.C. section 706(2)(C).
It could also constitute an evasion of the notice and comment
provisions of the APA, if the Commission (assuming it follows its own
decisional precedent) uses its licensing orders to create standards
that logically apply industry-wide, See id section 553.
I am also concerned about situations in which this agency becomes
an enforcer of the rules and regulations of other governmental
agencies. We have no jurisdiction to enforce rules not promulgated
under the Communications Act see id. section 303(r) (referring to
conditions needed to ``carry out the provisions of this Act''), and we
cannot and should not do the enforcement work of others. This is not to
say that we should not take official notice, in the course of making
licensing decisions, of findings by another agency that an applicant
has violated a regulation in its bailiwick. We should certainly
consider such findings in determining whether to grant or deny a
license application. But we should not condition such a decision on
compliance with another agency's regulation, thus putting ourselves in
the position of potential enforcer of non-FCC rules should the
transferee fail to conform to that regulation. For instance, if the
Department of Justice enters into an antitrust agreement with a party,
we have no business attempting to enforce the obligations created
thereunder in our licensing orders.
I am doubly concerned about conditional FCC approval when the rule
at issue is not just that of another agency, but when that agency has
made no formal, final, and material findings of a violation. That is, I
do not think we should take official notice of alleged violations,
including manners under investigation or in litigation, or of informal
concerns that an agency is not yet ready or willing to pursue through
their own established procedures. When we give formal weight to
anything short of formal, final findings by other agencies, we create a
situation that is rife with incentives for inter-agency gaming of the
system, e.g., registering an objection with an agency about a matter
that the complaining agency is not prepared to pursue itself, and
requires the Commission to do extensive reviews in areas where it
simply has no experience or authority.
In sum, at the intersection of two areas--non-FCC rules and no
final determination of a violation by a responsible entity--our
authority to impose conditions on a license or 214 authorization
transfer is at its weakest. Where non-FCC rules are at issue but there
is a final, record finding of a material infraction thereof, there is a
middle ground: we should take notice of that fact in deciding upon the
application but not condition approval upon compliance. Finally, where
extant FCC rules are involved, our power to condition a proposed
transfer upon compliance with those rules and to enforce compliance, if
necessary, is at its apex. We should never, however, impose conditions
that have no basis in the text of the Communications Act, thus using
our license transfer authority to impose new substantive obligations
that Congress never contemplated.
conclusion
For the reasons discussed above, I believe that the Commission's
failure to establish, pursuant to notice and comment, public and
intelligible principles to channel the exercise of authority delegated
by Congress raises serious questions under the APA and the
Constitution. In particular, the use of extraordinary processes in
individual, high-profile cases threatens to undermine both the
procedural and substantive rights of regulated entities. I further
believe that the Commission's practice of attaching ``conditions'' to
license transfers that lack a basis in the Communications Act or extant
Commission rules, or that purport to enforce the judgments of other
federal agencies, is also legally troublesome.
As an ``independent'' agency, composed of unelected officials who
have no direct accountability to the American public, I believe that we
should proceed with heightened reserve when exercising discretionary
functions If we so proceeded, we could better stay within the bounds of
our statutory authority, mitigate the potential for arbitrary
decisionmaking, safeguard the rights of judicial review, provide
regulated entities with fair notice of the procedural and substantive
rules governing their applications, avoid the appearance of
impartiality, and steer clear of the non-delegation doctrine. In short,
we could better serve the rule of law.
The Chairman. Commissioner Powell.
STATEMENT OF HON. MICHAEL K. POWELL, COMMISSIONER, FEDERAL
COMMUNICATIONS COMMISSION
Mr. Powell. Thank you. Good afternoon, Mr. Chairman and
members of the committee. It is always a pleasure to appear
before you.
I certainly have much to applaud as a result of this
Commission's efforts over the last year and share in my
colleagues' assessments of some of those. But in your letter of
invitation you specifically asked that we consider some of the
more central and specific statutory mandates in the statute and
address our progress with regard to them. And so I have chosen
to direct my remarks to those things that remain yet undone and
still lay before us, that are nonetheless critical to the
implementation of the vision that is codified and articulated
in the 1996 Act.
I would first direct my comments to the question of
universal service, which has already been raised. It, of
course, would be unfair to suggest that the Commission has not
spent time on universal service. The hours have been endless.
However, I believe we have deferred for a bit too long the most
difficult and complex issues that would better rationalize
universal service in a manner that might actually facilitate
competition and bring its benefits to rural and high-cost
customers, such as access reform and pricing flexibility.
While competitive developments continue to put pressure on
high-cost subscribers and rates, competitors are first pursuing
business and low-cost customers to the exclusion of other
customers. Concurrently, the Government does continue to
increase rate pressures through actions that demand more and
more money from the system. The result is that competition does
languish and the distorted aspects of universal service are
partially to blame.
I firmly believe that if we do not confront those problems
and turn them around, rates may stay low but the levy of
subsidy fees on consumers could skyrocket and the benefits of
competition be lost. This would be a profound failure to meet
the goals of the Act.
Let me also briefly say something about section 271
applications. I do continue to appreciate the complaints of
Bell Operating Companies and others about the heavy burdens
imposed by our interpretations of the competitive checklist and
the failure of our procedures to provide timely and complete
guidance on how to satisfy those burdens, and I appreciate
these concerns.
But I would be remiss if I also did not point out that
Congress provided us only one vehicle by which we can address
and tackle complex issues related to interLATA relief and that
is in the adjudicatory context of a filed 271 application. To
listen to the noise and the complaints, one would believe we
rejected 20 to 30 applications. We have rejected five and have
not seen one in almost a year. We have to have the opportunity
to succeed in order to remedy or address many of the questions
that have been raised in that context.
I believe our more collaborative process, however, has
permitted continued dialogue with the companies to gain a
better understanding of what is expected. Some companies have
faithfully participated fully in this process and, though
perhaps not completely satisfied, have added immeasurably to
the effort.
But I think the development you should pay most attention
to is the fact that many State commissions have adopted
collaborative processes in their States. Such efforts seem
likely to produce a number of strong presentations on the 271
front later this year, and in that context the FCC will have
another meaningful opportunity to advance Congress's section
271 objectives of promoting competition in both local and long
distance telephone markets.
The topic of the day is advanced services. Convergence,
digitalization, the rise of IP-based networks, and strategic
mergers are dramatically changing what we now loosely call the
industry. As a result, all competitors in these fiercely
contested markets will attempt to bend the regulatory and
governmental process to their own commercial will. But as
Senator McCain noted, our duty is to the public and our first
instinct must be to stay committed to competition as the
vehicle for disciplining anti-competitive behavior and the
engine for driving innovation and as the tool for maximizing
consumer welfare.
I still believe that regulation must be the exception in
this incredibly fast-paced technology-driven environment. The
regulators' heartfelt rush to lend a helping hand at the first
sign of anxiety has proven, to my mind, so often to be more
disruptive and counterproductive than the converse. I believe
that anyone advocating the extension or intrusion of regulation
into such a vibrant market bears a heavy burden of proving that
the public is the one that will be harmed absent doing so.
Proffered arguments should be eyed skeptically and
critically. Before regulating in new areas, such as advanced
services, we should first attempt to make sure we have
unshackled the full flurry and potential of all competitors.
Next, a word about regulatory forbearance. I believe one of
the most valuable tools that Congress trusted us with was
section 10 and its forbearance authority under the
Communications Act. I have had some dissatisfaction with the
Commission's use of this vehicle, but generally with the
standard that we apply in our analysis more than the outcomes,
which seems to place the entire burden of forbearance on the
moving party.
I believe Congress expected the Commission to accept more
full responsibility for demonstrating a continued need for
regulation in the presence of a healthy competitive market or
where forbearance would promote competition. Indeed, I believe
the Commission ought to employ a burden-shifting device in
forbearance cases. We should also undertake substantive and
factual examination of the rule and its effects to determine if
the purposes truly must be achieved through regulation instead
of market forces.
Finally, or second to last, a word about mergers. I have
kept an open mind, but I have come to doubt whether the
marginal value of full-blown merger review by the Federal
Communications Commission is justified by its costs in time and
resources. Moreover, with all due respect to our hardworking
staff, I really do not believe we possess enough personnel
schooled in the complexities of antitrust and competitive
economics to do the job well consistently.
The antitrust authorities do. I believe that there is some
room to preserve a complementary role for the Federal
Communications in the review of mergers, but limiting it to its
areas of expertise. The FCC certainly could consider the
merger's impact on certain communications policies, such as
media diversity and universal service, but the Commission would
defer to the antitrust authority's competitive analysis.
Finally, I share the concern that the Commission has not
yet fully examined its broadcast ownership rules, as directed
by the Act. Congress realized that many of the assumptions
underlying these rules were formed decades ago when the media
landscape was quite different. For my part, I have serious
doubt that these rules could be defended on the same bases and
justifications given when they were first adopted.
Nonetheless, I believe that continued anxiety about the
effects of greater liberalization of the rules on diversity of
ownership, voices, and programming is the single greatest
impediment to reaching a consensus and moving this proceeding
forward. I urge this Committee to take up the ownership
diversity question and contribute to developing a sustainable
consensus so that we might move forward on ownership rules, and
I applaud Chairman McCain's stated commitment to exploring
ownership diversity and his willingness to possibly lead a
legislative effort that promotes our cherished national
commitment to meaningful opportunity in our most robust and
critical industry.
I stand ready to assist the Committee and Congress in
formulating a sound, principle-based diversity initiative that
will allow us to move forward.
I thank you for your attention and look forward to your
questions.
[The prepared statement of Commissioner Powell follows:]
Prepared Statement of Hon. Michael K. Powell, Commissioner,
Federal Communications Commission
introduction
Mr. Chairman, distinguished members of the Senate Committee on
Commerce, Science and Transportation, good morning.
Thank you for inviting my colleagues and I here today for this
important oversight hearing. I am pleased to offer my views on the
Commission's efforts to fulfill the specific statutory responsibilities
delegated to it by Congress, which I believe should be our first and
highest priorities. I will focus my remarks on our progress with
respect to a few of the most important mandates of the 1996
Telecommunications Act. They are:
Section 254's Universal Service Provisions
Section 271 Applications for RBOC entry into Long Distance
Section 706 and Advanced Services
Section 10's Regulatory Forbearance Mandate
I will also briefly address the Commission's merger review efforts,
its continued delay in re-examining the broadcast ownership rules and
the question of restructuring the agency.
universal service
Perhaps, the most celebrated aspect of the monopoly phone system
that existed before the 1996 Act was the degree to which it fostered
ubiquitous and affordable phone service. In moving away from state-
sanctioned monopoly to a competitive model, Congress was careful to
ensure that ``universal service'' be ``preserved and advanced.'' In
other words (chosen by Congress), Commission policies should promote
access to telecommunications and information services that are
``reasonably comparable'' to those available in urban areas at
``reasonably comparable'' rates.
Yet, Congress also well understood that if the benefits of
competition were to be realized, the subsidy mechanisms of universal
service would have to change. Closed monopolies could no longer be
allowed to subsidize high cost or residential customers implicitly
through higher rates on low volume and business customers. The reason
was simple: new competitors would not enter high cost markets, where
the incumbent alone could subsidize its rates and would instead enter
business and low cost markets where the margins were much higher. Such
a condition would deny residential rural and high cost customers the
promised rewards of competition. To address this distortion, Congress
commanded that universal service mechanisms be ``specific,''
``predictable'' and ``explicit.'' By having the subsidy known and
portable, competing carriers would have an incentive to compete for
high cost customers, too, because they could win the subsidy along with
the customer.
In addition to the exercise of making implicit subsidies explicit,
Congress required a number of other measures that would necessarily add
costs to serving customers. Some were mechanisms designed to facilitate
competition and its hoped-for benefits, such as local number
portability, and levying the universal service contribution on a
broader class of customers, such as wireless carriers. The Schools and
Libraries program, though its purpose is worthy, required substantial
increases in money to fund the program, with no direct benefit to
competition.
Congress tasked the Commission, thus, to develop a universal
service system that was ``explicit'' and that would produce a
``sufficient'' amount of money to ``preserve and advance'' ``reasonably
comparable'' rates and access to both rural and urban customers.
Congress understood the importance of doing this quickly, for it set
relatively tight implementation requirements on the agency.
Regrettably, I must report that the core of Congress' mandate in
this regard has not yet been achieved. While most would agree that the
remnants of the implicit system continue to provide ``reasonably
comparable'' rates to our citizens, the competitive distortions of the
implicit system remain, leaving little doubt why CLECs have chosen to
enter high volume, low cost business markets (where the rates are
inflated relative to costs) rather than residential markets.
I am disturbed by this failing. It would be unfair to suggest that
the Commission has not spent time on universal service--the hours are
endless. However, I believe we have continued to set aside or bump the
difficult and complex issues that would rationalize universal service
in a manner that might actually facilitate competition and its benefits
to rural and high cost customers, such as access reform and pricing
flexibility. Yet, at the same time, we have given high priority to
other programs, such as schools, libraries, and rural health care, that
require substantial new funds. We dole out these funds much as Congress
might distribute the benefits of a new federal program. Talk about
access charge reform and cost reductions and rationalization is too
often thrown out, not as part of a sound economic public policy
exercise, but as a political offset to controversial spending programs.
There is a grave danger here. Competitive pressures that were
unleashed by the Act and the Commission continue to put pressures on
high cost subscribers and rates. Competitors, despite their
protestations to the contrary, continue to pursue business and low cost
customers to the exclusion of other customers. And, the government
continues to increase rate pressures through actions that demand more
and more money from the system. (Proposed increases in the schools and
libraries program and some proposals for high cost assistance to
intrastate common line costs require literally billions of dollars of
new money.)
The result is that competition languishes, and the distorted, as
yet un-reformed universal service system is partially to blame. If this
situation is not turned around, I fear that rates may stay low, but the
levy of subsidy fees on customers could sky rocket and the benefits of
competition could be lost. It will not be long before policymakers
openly suggest greater rate regulation to keep these pressures (that
they helped create) in check. This would be a profound failure to meet
the goals of the Act.
section 271 applications
Another central provision of the Act, is section 271, which was
designed as the vehicle by which a BOC would win authorization to enter
interLATA markets, while opening their local market to competition. No
one seems particularly satisfied with the progress on this front,
except perhaps those competitors that benefit from BOCs being barred
from lucrative long distance and interLATA data markets.
I continue to appreciate the complaints of the BOCs about the heavy
burdens imposed by our interpretation of the checklist, as well as the
failure of our procedures to provide timely and complete guidance on
how to satisfy these burdens. Some of these complaints have merit, but
some of them are merely strategic. I cannot, for example, give too much
credence to a BOC that complains mightily about our 271 approach, yet
has never filed a section 271 application with the Commission.
This Commission has only one viable vehicle for concretely and
definitely addressing section 271 policy questions and that is in the
context of a duly-filed application. Congress determined that such a
proceeding would be adjudicatory in nature and that we would have only
90 days in which to issue a decision. The only way we really have to
address the concerns raised by some companies is to get a viable
application before us. Yet, we have not received a 271 application of
any sort since July 1998. In fact, the noise level might lead one to
believe we have rejected 20 or 30 applications, not just five. The only
way for the Commission to successfully implement Congress' will is if
the process is given a chance.
That said, I believe that much progress has been made in terms of
developing and providing general guidance on section 271 issues. As I,
and others, urged, the Commission adopted a collaborative process that
permitted continued dialogue with companies to gain a better
understanding of what was expected. Some companies have faithfully
participated in that process, and though not completely satisfied, have
added immeasurably to the effort. Perhaps, more importantly, state
commissions have adopted collaborative processes in their states.
Working extensively in this manner with the companies has been
extremely productive. Indeed, their good efforts will likely lead to a
number of strong presentations to the FCC later this year. In that
context, the FCC will have another meaningful opportunity to advance
the Congress' section 271 objectives of promoting competition in both
the local and long distance telephone markets.
advanced services
Recognizing the advent of great technological achievement in
communications, Congress minted section 706, which charged the
Commission with encouraging the deployment of advanced services by
removing regulatory barriers to such deployment. Our initial set of
proposals to implement Section 706 from the 1996 Act are still pending,
though our preliminary reports indicate that broadband deployment while
progressing, is lagging behind innovative applications that depend upon
it, and consumers' demand for those services. This is, in part, due to
the heretofore unseen pace of innovation and change. We have watched a
technological eternity go by since Congress passed the Telecom Act in
1996. Convergence, digitalization, the rise of IP-based networks, and
strategic mergers have all metamorphosed what we now loosely call ``the
industry.'' The potential benefits that lay on the horizon for
consumers have grown exponentially from the simple vision of choice in
basic telephone service. So, too, have the risks that we may stay so
focused on local residential voice markets, or short-sighted
priorities, that we fail to unleash the power of competition for
advanced services, as section 706 contemplates.
I believe that the FCC and Congress must work diligently, if not
urgently, to understand the developments in this area. All competitors
in this fiercely contested market will attempt to bend the regulatory
and governmental process to their own commercial will. But our duty is
to the public. Our first instinct, therefore, must be to stay committed
to markets and competition, rather than regulation, as the vehicle for
disciplining anticompetitive behavior, as the engine for driving
innovation, and as the tool for maximizing consumer welfare. It is the
only system ever devised that has proven up to the task of giving
consumers what they want, allowing private firms to prosper and
spurring innovation, especially at a time of rampant change. Our
historical commitment to this system has fostered a nation where
entrepreneurship and private enterprise thrives.
Regulation from our ``Commanding Heights'' has its time and place,
but it must be the exception in this incredibly fast-paced, technology-
driven environment. The regulators' rush to lend a helping hand at the
first sign of anxiety has proven, so often, to be more disruptive and
counter-productive than the converse. I am of the view that anyone
advocating the extension or intrusion of regulation into such a vibrant
market bears a heavy burden of proving that the public, as opposed to
firms with a particular business plan, will likely be harmed, absent
doing so. Proffered arguments should be eyed skeptically and
critically. Speculation of future anticompetitive behavior should be
viewed with suspicion, especially in nascent markets where supposed
would-be monopolists in fact lack market power. We must have enough
courage to test and cross-examine rhetorical appeals. ``Digital
divide,'' ``light touch,'' etc., are great sound bites, but are they
truly meritorious arguments, or just clever window dressing for new
regulation or purely short-term political or economic self-interests?
Before regulating in new areas such as advanced services (including
the pursuit of social objectives), we should first attempt to unshackle
the full flurry of all potential competitors. I do believe, for
example, that potentially important gladiators in the broadband battle
are the LECs, who have yet to fully join the data-driven fight due to
government regulations targeted at a different set of issues. But, they
are not the only ones. Electric utilities hold a lot of promise.
Wireless carriers do not intend to sit out this battle. Satellite
providers are charging headlong into the fray. One need only read the
daily headlines reporting the latest strategic partnerships. A
positive, un-regulatory, national policy for advanced services (as
embodied in Section 706 and other statutory provisions, if implemented
correctly) will push to get these forces into the battle and save us
the consequence of a futile regulatory, industrial policy.
regulatory forbearance
Speaking of un-regulating, an important tool that I believe has
been under-
utilized so far is the FCC's forbearance authority under Section 10 of
the Communications Act. I have criticized some of our recent decisions
in which the Commission declined to forbear from our rules or certain
statutory provisions. The merits of those forbearance petitions have
been less my concern, for reasonable minds can differ. My
dissatisfaction has been generally with the standard we apply and our
analysis, which seems to place the entire burden of forbearance on the
moving party. I believe Congress expected the Commission to accept more
responsibility for demonstrating a continued need for regulation in the
presence of a healthy, competitive market or where forbearance would
promote competition.
Indeed, I believe the Commission ought to employ a burden-shifting
device in forbearance cases. In operation, once a petitioner
demonstrates that the market in which it operates is competitive (i.e.,
no competitive firm or entity enjoys market power, price trends are
checked or downward, innovation is occurring) the burden would shift to
the FCC and the opponents of forbearance to demonstrate why regulation
is still necessary. And, in making that judgment, the Commission should
not be able to simply rest on the grounds that the rule served a public
purpose and petitioners have failed to prove that purpose is no longer
worthy. The question should be whether the rule at issue is in fact
superior to competition for serving that purpose.
We should undertake a substantive and factual examination of the
rule and its effects to determine if its purpose truly must be achieved
through regulation instead of market forces. This approach presumes
that healthy competition will normally maximize consumer welfare better
than any regulation would, a presumption that we all must embrace to
even get out of the starting block. Where competition has not quite
``arrived'' to a market, we need to develop a greater faith that the
deregulation embodied in Section 10 can serve to promote competition in
most instances. We need to carefully analyze and understand what other
mechanisms (competition, other types of less burdensome regulation,
other regulatory bodies such as the States) make a certain regulation
unnecessary so that we can chip away the layer upon layer of regulatory
requirements as we transition to a competitive marketplace.
mergers
The debate over the value of FCC merger review in addition to
review by one of the antitrust agencies is well-worn. Clearly, as the
keepers of the Communications Act and its policies, the FCC has some
unique expertise that it can bring to telecommunications merger review
that probably advances the public interest. Our review, however, is not
generally limited to those areas in which we can claim primary
expertise. Very often, we undertake a classic antitrust analysis,
applying the same principles, precedents and guidelines as those
employed by the antitrust authorities and rarely, if ever, does it
produce different results.
Such reviews can be quite burdensome on the parties and time
consuming. For example, the FCC often requires voluminous filings that
are duplicative of those made to the Department of Justice or the
Federal Trade Commission. They often must incur the expense of outside
counsel to prove their case to both agencies. I have come to doubt
whether the marginal value of full-blown merger review by the
Commission is justified by its cost in time and resources. Moreover,
with all due respect to our hard working staff, we do not really
possess enough personnel schooled in antitrust and competitive
economics to do the job well consistently. The antitrust authorities
do. I believe that there is room to preserve a more limited,
complementary role for the FCC in the review of mergers, while limiting
its involvement to its areas of expertise.
If the Commission engaged in a simultaneous review with the
antitrust authorities, this could improve efficiency. Under such a
scheme, the parties would be required to file most documents only once
and to one agency. The Commission would weigh in on issues such as
whether the merger would violate an express provision of the
Communications Act, or would otherwise undermine the congressional
scheme. Furthermore, the FCC would consider the merger's impact on
other communications policies such as media diversity and universal
service that are not appropriately considered by antitrust authorities.
But the Commission would defer to the antitrust authority's competitive
analysis.
broadcast ownership
Section 202 of the 1996 Telecom Act directed the FCC to make a
number of specific changes to its broadcast ownership rules. Where the
Act gave specific direction, the Commission has changed its rules as
directed. Section 202 also more generally directed the Commission to
``conduct a rulemaking proceeding to determine whether to retain,
modify, or eliminate its imitations on the number of television
stations that a person or entity may own, operate, or control, or have
a cognizable interest in, within the same television market.'' This is
the so-called ``TV-Duopoly'' rule.
While technically the Commission is in compliance with the statute,
since it initiated a rulemaking in November 1996, there is reason to be
concerned about its slow progress. The Commission has a backlog of
cases that it has been unable to resolve, pending the rulemaking's
completion. The lack of closure is impeding business operations and
complicating business planning.
Another provision of Section 202, the biennial review provision,
directs the Commission to ``review its rules adopted pursuant to the
section and all of its ownership rules biennially as part of its
regulatory reform under section 11 [of the Communications Act].'' The
Commission issued a Notice of Inquiry in March 1998, yet nothing
further has been done on this matter.
I share the concern that the Commission has not fully examined its
broadcast ownership rules as directed in the 1996 Telecom Act. Congress
realized that many of the assumptions underlying these rules were
formed decades ago, when the media landscape was quite different. For
my part, I have serious doubt that these rules can be defended on the
basis of the justifications given when they were adopted. These rules
rest on antiquated moorings devised at a time when the broadcast
industry looked very different than it does today. They deserve
rigorous examination. Such examination should take into account the
full competitive environment in which broadcasting operates--we should
look at the impact of competition from cable, satellite and Internet
services, for example.
The Commission does need to assess the dynamic changes in
technology and media markets to determine what limited rules are
necessary to promote our public objectives, and sections 11 and 202
afford us the opportunity.
Part of the difficulty of reaching consensus on new ownership
rules, is that they are infected with myriad goals and objectives that
may not always be reconcilable. The competitive benefits of looser
rules, may undermine (to some) our diversity goals. Indeed, I believe
that continued anxiety about the effects of greater liberalization of
ownership rules on diversity of ownership, voices and programming is
the single greatest impediment to reaching a consensus on these
structural rules.
The Commission has struggled to develop a clear consensus on
acceptable diversity principles that not only promote the public good,
but that can withstand strict judicial scrutiny. This struggle, as much
as anything, has contributed to the lack of progress on these rules.
For this reason, I urge this Committee to take up the ownership
diversity question and contribute to developing a sustainable
consensus, so that we might move forward on ownership rules. I applaud
Chairman McCain's stated commitment to exploring ownership diversity
and his willingness to lead a legislative effort that promotes our
cherished national commitment to meaningful opportunity in our most
robust and critical industry. I stand ready to assist the Committee and
Congress in formulating a sound, principle-based diversity initiative
that will allow us to move forward.
fcc reauthorization
With all of the crucial substantive tasks on our plate, we must
still be able to step back and take a look at this agency and assess
its structure and operation so that we can do the highest quality job
that this Congress commands. I support Chairman Kennard's effort to
develop a strategic plan for restructuring and streamlining FCC
functions and management. I am hopeful that we will be able to move
forward quickly under this plan to make needed changes. In my testimony
at a House reauthorization hearing in March (which is attached), I
offered some specific suggestions for consideration during the FCC
reauthorization process.
Specifically, I believe that before beginning any exercise to fix
or restructure the Agency, I think it prudent to first consider what we
think is broken or is not working particularly well at the FCC. I would
submit five areas for exploration: (1) the need to more clearly define
the Commission's annual priorities and focus; (2) the need to operate
efficiently enough to meet the demands of an innovation-driven market;
(3) how to structure the Agency to better align with market trends and
demands; (4) whether to continue the administration of functions that
are largely duplicated elsewhere in government; and (5) the breadth of
the Commission's quasi-legislative authority. I explore these issues
more fully in my attached testimony before the House Subcommittee.
conclusion
Let me close by saying that I look forward to continuing to work
with members of this Committee, other members of Congress, and with my
colleagues on the many challenges that await us in implementing our
statutory mandates. Thank you for your attention and I look forward to
your questions.
______
ATTACHMENT
Prepared Statement of Hon. Michael K. Powell, Commissioner, Federal
Communications Commission, before the Subcommittee on
Telecommunications, Trade and Consumer Protection of the House
Committee on Commerce, March 17, 1999
Good morning, Mr. Chairman and other distinguished members of the
House Subcommittee on Telecommunications, Trade and Consumer
Protection. Thank you for inviting me here to assist you as the
Subcommittee deliberates the statutory reauthorization of the Federal
Communications Commission (FCC).
Initially, let me state that I support Chairman Kennard's effort to
develop a strategic plan for restructuring and streamlining FCC
functions and management. I am hopeful that we will be able to move
forward quickly under this plan to make needed changes. In my testimony
however, as the Subcommittee's invitation letter suggests, I will
attempt to provide some specific suggestions for consideration during
your deliberation on FCC reauthorization.
Before beginning any exercise to fix (or to use Chairman Tauzin's
phrase ``remission'') the Agency, I think it prudent to first consider
what we think is broken or is not working particularly well at the FCC.
I would submit five areas for exploration: (1) the need to more clearly
define the Commission's annual priorities and focus; (2) the need to
operate efficiently enough to meet the demands of an innovation driven
market; (3) how to structure the Agency to better align with market
trends and demands; (4) whether to continue the administration of
functions that are largely duplicated elsewhere in government: and (5)
the breadth of the Commission's quasi-legislative authority.
i. the commission needs to more clearly define its annual priorities
I believe that the key to any well-run organization is the
enumeration of a clearly understood and widely communicated set of
priorities. A common complaint I often hear is that outside parties
have no solid sense of the Commission's priorities or direction. The
Chairman often does share his view of the coming year in speeches,
press releases and in daily conversation, as do other Commissioners,
but there is no structured process by which the Commission formally
develops and publicly reports its priorities.
One way to address this problem would be the development of an
annual, full Commission statement of priorities. Congress could require
the Commission to set out a list of its priorities in the annual report
it currently files pursuant to section 4(k) of the Communications Act
of 1934. 47 U.S.C. Sec. 154(k) (West 1998). Such a compilation of
priorities would help focus the work of the Commission and create
greater regulatory certainty.
ii. the fcc is not efficient enough to meet the demands of its
customers
The extent and pace of change in the telecommunications industry is
mind-
boggling. It is driven by exponential advancements in microprocessing
power, digitalization, Internet protocol-based network models and
bandwidth. As Royce Holland, Chairman and Chief Executive Officer of
Allegiance Telecom, Inc. recently remarked, ``The pace of change in the
industry is like Moore's Law on Viagra.'' Market opportunities in this
environment are lucrative but fleeting. As in the days of old, however,
the Agency still labors endlessly for many months and even years on
policy issues and ultimately implements its judgments in the form of
newly-minted rules and regulations. The relevancy of the new rules
fades rapidly with time. Some are out right obsolete the very moment
they are passed. In this environment, the FCC must become a
dramatically more efficient place. A decision that comes too late,
might as well not have been made at all.
A. Deregulation
The most obvious way to improve efficiency at the Agency is to
have fewer rules to administer. This highlights the importance of
deregulation where the cost of a rule is not justified by its benefits.
There are a number of vehicles Congress has provided for deregulating
and I believe that they must be employed with greater rigor than they
have to date. Congress wisely commanded the FCC to conduct a biennial
review of its regulations and to shed those that it determines are no
longer necessary. While we have made some progress in this area, I
believe we can be much more aggressive.
A second vehicle that I believe has been under-utilized is our
forbearance authority under Section 10 of the Communications Act. 47
U.S.C. Sec. 160 (West 1998). I have criticized many of our recent
decisions in which the Commission declined to forbear from our rules.
The merits of those forbearance petitions have been less my concern,
for reasonable minds can differ. My dissatisfaction is with the
standard we apply and our analysis, which seems to place the entire
burden of forbearance on the moving party. I believe Congress expected
the Commission to accept more responsibility for demonstrating a
continued need for regulation in the presence of a healthy, competitive
market. Indeed, I believe the Commission ought to employ a burden-
shifting device similar to that employed in civil rights cases.
In operation, once a petitioner demonstrates that the market in
which it operates is competitive (i.e., no competitive firm or entity
enjoys market power, price trends are checked or downward, innovation
is occurring) the burden would shift to the FCC to demonstrate why
regulation is still necessary. And, in making that judgment, the
Commission should not be able to simply rest on the grounds that the
rule served a public purpose and petitioners have failed to prove that
purpose is no longer worthy. The question should be whether the rule at
issue is in fact superior to competition for serving that purpose. We
should have to undertake a substantive and factual examination of the
rule and its effects to determine if its purpose truly must be achieved
through regulation instead of market forces. This approach presumes
that healthy competition will normally maximize consumer welfare.
Congress could explicitly adopt such a burden-shifting approach to
forbearance.
B. Shift To Enforcement
A second way for the Commission to become more efficient is by
shifting away from pre-approval, ``by-the-grace of us'' regulation and
toward enforcement. Telecommunications regulation has traditionally
developed along the lines of the broadcast model. That is, parties need
advance approval for initial operation, changes and deployment of new
innovations. This has become a real impediment to timely decisions. A
regime in which there are more presumptions of good faith on the part
of competitors, backed up with strong enforcement by the Agency, would
greatly enhance our efficiency.
In this regard, I applaud the Chairman's initiative to assemble
under one bureau the Commission's enforcement functions. Similarly, the
initiative to create an expedited complaint resolution process, dubbed
``the rocket docket,'' is a positive step in this direction. The shift
to enforcement, however, needs to be more than a consolidated bureau.
It needs to be a shift in thinking as well. The FCC, as a whole, must
become more comfortable with enforcement as a means of regulation and
must address our speculative fears about deregulation through
enforcement, rather than let those fears paralyze our willingness to
deregulate.
C. Need For Better Internal Process
The Commission structure is inherently inefficient. Because it is
a deliberative body with independent Commissioners who each have a
vote, it is very difficult to keep things moving along at a pace
demanded by the market. In contrast, organizations that are more
hierarchical generally have better success with moving more quickly.
Nonetheless, for the Commission to keep pace, it needs the benefit of
management professionals dedicated to managing our agenda and keeping
our substantive items on track.
I would urge the Congress to consider creating a professional
management directorate to accomplish this purpose. There are examples
of similar activities in other government institutions. The court
system has long employed a clerk's office that keeps the caseload
moving, rather than leave this responsibility to the sitting Judges.
Similarly, many divisions of the Department of Justice (such as the
Antitrust Division) have a Directorate of Operations, headed by a
substantive professional who helps keep the pipeline to the decision-
makers flowing. These functions at the FCC are presently managed by the
Chairman's personal office.
iii. the fcc is not aligned structurally with market trends
It is regularly observed that the Commission is organized around
industry segments that increasingly are less relevant as convergence
strains and eliminates their unique technical distinctions. Many
commentators have urged that Congress consider consolidating bureaus
along competitive lines. I agree that it would be useful to consider
such structural changes, though I believe there are limits to how much
can be gained by such an effort.
The balkanized structure of the Commission makes it difficult to
re-deploy employees to address urgent tasks. Attorneys currently
analyzing policy issues for the Mass Media Bureau, for example, cannot
easily be moved to work on issues in other bureaus, even though the
subject area may be similar. Thus, even though there is a need for
attorneys in the Cable Services Bureau, separation of these bureaus
prevents ready reassignment of personnel. Within larger bureaus, the
Commission would have the opportunity to maximize its use of employees.
It could, for example, cross-train the workforce through rotations and
training. In this way, the Commission could maximize employee
flexibility and enhance its ability to reallocate resources to match
priorities.
Though I do not take a strong position on any particular proposal,
I would recommend considering consolidation in a few areas. The first
would be the formation of a multi-channel competition bureau. Such a
bureau would administer our rules with regard to what are currently the
mass media, cable television and direct broadcast satellite (DBS)
industries. Regulation of each of these mediums presently rests in a
separate bureau. A single leadership structure overseeing these fields
would allow for greater harmonization of rules and decisions in
furtherance of a merged and increasingly competitive industry segment.
With the elimination of some cable rate regulation at the end of this
month, and increased attention being given to the inter-relationship
between broadcast and DBS, the time may be ripe for considering such a
proposal.
A second area worthy of some thought is complete or partial
consolidation of the Common Carrier and Wireless Telecommunications
bureaus. There has been a great deal of discussion about wireless
technologies competing with and serving as a substitute for traditional
wireline service. Indeed, some have suggested that over time most voice
communications will be carried by wireless carriers, while the wireline
infrastructure will be used more for data. These trends may argue for a
single bureau dedicated to these currently separate industries.
I do note, however, that there is a limit to the value of this
functional realignment. Because the statute is organized along industry
lines our rules necessarily do as well and functional consolidation may
be more form than substance. Additionally many industries support
industry organization because they enjoy having a ``champion'' to
tussle over policy.
iv. administration of duplicative functions
A fifth area on which Congress may choose to focus is where
Commission authority overlaps with that of other government agencies.
Because communications is so fundamental to virtually all human
activity, there is almost always some connection to FCC authority (no
matter how tangential). Yet, the core expertise of the FCC should truly
be considered in assigning to it, rather than some other agency, a
central role on a given issue. While such governmental overlaps may be
desirable, they at least should be complementary (or supplementary)
rather than simply duplicative. A few suggested areas of inquiry are
outlined below.
A. Merger Review
The debate over the value of FCC merger review in addition to
review by one of the antitrust agencies is well-worn. Clearly, as the
keepers of the Communications Act and its policies, the FCC has some
unique expertise that it can bring to telecommunications merger review
that probably advances the public interest.
Our review, however, is not generally limited to those areas in
which we can claim primary expertise. Very often, we undertake a
classic antitrust analysis, applying the same principles, precedents
and guidelines as those employed by the antitrust authorities and
rarely does it produce different results. Such reviews can be quite
burdensome on the parties. For example, the FCC often requires
voluminous filings that are duplicative of those made to the Department
of Justice or the Federal Trade Commission. They often must incur the
expense of outside counsel to prove their case to both agencies. I have
come to doubt whether the marginal value of full blown merger review by
the Commission is justified by its cost in time and resources.
Moreover, with all due respect to our hard working staff, we do not
really possess enough personnel schooled in antitrust and competitive
economics to do the job well consistently. The antitrust authorities
do.
I believe that there is room to preserve a complementary role for
the FCC in the review of mergers, while limiting it to its areas of
expertise. Perhaps, consideration of the legislation recently
introduced by Senators DeWine and Kohl would be a good place to start
The Commission engaging in simultaneous review with the antitrust
authorities could improve efficiency. Under such a scheme, the parties
would be required to file most documents only once and to one agency.
The Commission would consider issues such as whether the merger would
violate an express provision of the Act, or would otherwise undermine
the congressional scheme. Furthermore, it would consider the merger's
impact on other communications policies such as media diversity and
universal service that are not appropriately considered by antitrust
authorities. But the Commission would defer (either substantially or
completely) to the antitrust authority's competitive analysis.
B. Consumer Affairs
An important function of any branch of government is to safeguard
consumers. Undoubtedly, because of our regulatory authority over
certain industries and our intimate understanding of the industry, we
are uniquely positioned to administer certain consumer affairs.
Nonetheless, there are other agencies that have similar authority and
some judgment might be made as to which is best positioned to
administer certain issues. For example, the FCC has occasionally jumped
into issues that relate to advertising under its public interest
authority. The Federal Trade Commission, however, has specific
authority in these areas. The same is true of other issues such as
consumer fraud (e.g., ``cramming'' and ``slamming.'') Congress should
evaluate the benefits of such overlapping jurisdiction.I77C. Equal
Employment Opportunity
I personally support narrowly-tailored Equal Employment Opportunity
(EEO) rules. The Commission has administered its own EEO program in
certain industries for some time. Yet, in most other industries there
is not an EEO authority separate from the Equal Employment Opportunity
Commission and the federal, state and local civil rights authorities. I
believe that there is some advantage to having the FCC involved because
of its unique relationship with certain industries particularly those
that operate pursuant to a government-conferred license. However, I
would be remiss if I did not point out there is some overlap that
should be examined to ensure that the respective roles are
complementary and not duplicative. By eliminating duplication, such an
examination, in my view, would bolster support for the government's
role in promoting opportunity in communications.
D. Political Rules
Finally, I would point out that the FCC has historically
administered a number of rules that are designed to affect the quality
of elections. These rules are focused on the obligations of the
licensee and not the candidates, but they undoubtedly are intended to
shape the quality and tenor of elections. Greater involvement in this
area would require a more comprehensive understanding of campaigns and
existing election laws than I believe this Agency possesses.
Furthermore, any extension of such authority should be weighed against
the role of the Federal Election Commission. I am uncomfortable,
personally, as an un-elected regulator initiating policies and rules
that affect the electoral process without specific congressional
direction to do so.
v. the breadth of the fcc's quasi-legislative authority
A phenomenal amount of time is consumed in this industry in fights
over the FCC's jurisdiction. One major source of this ongoing battle is
the tension between the statutory regime that reigned under the 1927
and 1934 Acts and that predominantly adopted by Congress in the 1996
Act. The former's hallmark is that it conferred sweeping authority in
the Commission to act to ensure ``the public interest, convenience and
necessity.'' The 1996 Act, however, attempted to craft, in many
respects, a detailed blueprint for the industry and the Agency. In many
places, it provides highly detailed statutory provisions and
instructions. There is a real tension between these two regimes,
elements of which are scattered throughout the Act.
The venerable public interest standard has much to commend it. It
provides a great deal of flexibility and punctuates a consumer focus.
However, this standard does allow the Agency to self-initiate a broad
range of government action without specific statutory direction. That
is, it serves as a basis for quasi-legislative action by the
Commission.
The quasi-legislative authority of the Commission has its merits,
but if read too broadly, it serves to invite industry, consumer groups
and special interest to seek both redress and advantage from the
Agency, rather than Congress. This can lead to the Agency initiating
action that Congress subsequently disapproves of, or believes conflicts
with a more specific mandate in the statute.
I am not suggesting elimination of the public interest standard. I
do believe, however, that Congress might consider certain limiting
principles with respect to its employment as a jurisdictional basis in
certain areas.
vi. conclusion
I would like to conclude with one caution. As long as the 1996 Act
is the basis for telecommunications law, Congress would be ill-advised
to hollow or unduly wound the Commission. There are undoubtedly areas
in which we tinker where we should not. There are certainly ways to
improve our processes and our decisions. But, even controlling for all
that, the FCC will remain a very important institution for dealing with
the telecommunications sector and its transition to competition and its
transformation in response to innovation.
Congress has the power to cut employees and even Commissioners if
it chooses. But if not done carefully, rather than harm the Agency the
industry and consumers will be harmed. It is the industry that will
still have to come to the Commission to get its licenses approved or
have a section 271 application approved. It will still be states and
local schools that have to file for universal service. Consumers will
still need somewhere to have their complaints acted upon. Such redress
will not be enhanced by a diminished Agency.
I look forward to continuing to work with Members of Congress and
with my colleagues on the many challenges, and tremendous
opportunities, that await us in implementing the 1996 Act. I trust
that, by working collaboratively and by having faith in free markets,
we will bring the benefits of competition, choice, and service to
American consumers.
Thank you for your attention.
The Chairman. Thank you, and I thank all the Commissioners.
I note that the majority leader is here. With the agreement
of the other members of the Committee, if you would like to go
ahead, please proceed.
STATEMENT OF HON. TRENT LOTT,
U.S. SENATOR FROM MISSISSIPPI
Senator Lott. Thank you, Mr. Chairman. I appreciate you
doing that because I do need to get back to the floor. But this
committee has a lot of very important jurisdiction, but I do
not believe any area is more important or more exciting right
now than the one we are hearing about today from these
Commissioners.
So I want to thank you, Mr. Chairman, for having the
hearing in this first step of reauthorizing the Federal
Communications Commission. I want to recognize and thank
Chairman Kennard and all the Commissioners for your dedicated
service and your work. I know that we gave you a monumental
task with the bill we passed just 3 years ago, and I know that
it has taken time and will continue to take time to fully carry
it out. But I think you have been working diligently at that
and I want to express my appreciation to all the Commission.
What is happening in the telecommunications area is one of
the most exciting that I have seen. Watching what is happening,
it is kind of like dog years. You know, ordinarily something
that would take 7 years is happening in 1 year, and it is going
to continue that way.
But since it is such a dynamic field and because the
technologies are converging like never before, it makes your
job even more important and our oversight responsibility even
more important.
I know there are areas of concern, like the section 271,
but I think the problems do not mean that this section is not
working. It means it will still take time and we will have to
work on that to come up with the right solution.
I basically just want to urge you to work with us in making
sure that the FCC is as responsive, efficient, and effective as
it possibly can be. The American consumer deserves an FCC with
a structure and mission which enables our telecommunications
market to continue to prosper, and we need to work together
through some of the problems.
I want to thank Commissioner Powell for his last comments.
I think clearly there are some things we can do to help with
that diversity, and it is such a vibrant field and we want to
support that.
I thank Senator McCain for his leadership in that
particular area. But basically I just wanted to be here because
I appreciate the work you are doing. I wanted to hear your
comments and, even though I may have to leave, I look forward
to hearing your responses to questions I am sure you will
receive from the committee.
Thank you, Mr. Chairman.
[The prepared statement of Senator Lott follows:]
Prepared Statement of Hon. Trent Lott, U.S. Senator from Mississippi
Thank you Chairman McCain for holding this hearing. This is the
first step in reauthorizing the Federal Communications Commission.
I also want to recognize and thank Chairman Kennard and all of the
Commissioners for their dedication and service. I know we gave you a
monumental task with the bill that we passed, the 1996
Telecommunications Act, and I appreciate the challenges you face.
America is experiencing its greatest explosion in
telecommunications history, certainly that I've ever seen. It's like
dog years, where 1 year in the telecommunications world equals 7 years
in other sectors.
Telecommunications represents a significant portion of America's
economic growth, providing thousands of jobs & billions of investment
dollars.
Both Congress and the FCC have a duty--and an opportunity--to
examine and guide this dynamic area of industry.
Today, technologies are converging like never before. A telephone
company is no longer just a telephone company. This is the '96 Act at
work.
Congress made its mark on this new world 3 years ago, a short 3
years ago, and it in effect spurred this new world.
I believe the Act is working. What was a dream to Congress,
entrepreneurs and industry leaders have made reality. I firmly believe
the Act's goals of local competition and consumer choices will be
fulfilled and America will be better off.
Nobody here or in the Congress wants to turn back the hand of time.
New technologies, new companies and new choices are coming our way, and
we need to keep the momentum going, the lines of communication open,
and the investment flowing.
I know there is concern about the absence of a Section 271 approval
for an incumbent phone company, but this doesn't mean the Section is
not working. We all knew it would take time. There have been
roadblocks, but I'm encouraged and confident that progress will be
made. We need to work together through some of the problems.
Having said that, all of the mergers and acquisitions and
convergence taking place not only affect the lives of Americans, but
will also require changes in how government approaches this new
competitive market to ensure that it thrives.
During this transition period, it will be important for Congress to
make sure that the FCC is properly structured. That it has the right
tools to foster and further the ongoing evolution. I like Chairman
Kennard's analogy that old regulatory models are like the old black
rotary phones--it rings true.
The FCC must indeed change as it works on many priority items--from
universal service and access charge reform to merger reviews,
enforcement efforts and dealing with the surge of spectrum demand.
There are a variety of ideas on both sides of the aisle and in both
Houses of Congress about how the FCC should be revamped to deal with
today's new market conditions. I will take a look at these proposals
and, as Congress moves forward, I will also personally solicit input
from the FCC Commissioners.
America's fast-paced telecommunications market demands an FCC that
is responsive, efficient and effective. More importantly, the American
consumer deserves an FCC with a structure and mission which enables our
telecommunications market to continue to prosper.
I'm confident Congress will do the right thing for the FCC & for
America.
The Chairman. Thank you, Senator Lott.
Senator Hollings, would you like to make an opening
statement before I ask questions?
Senator Hollings. No, thank you. I will wait my turn. Thank
you.
The Chairman. Mr. Kennard, all of us have a lot of
questions. I will be brief.
When you say and the other Commissioners say that the Act
is working well, let me point out consumers are now paying more
than $3 billion each year on their telephone bills in the form
of PIXI's, universal service connectivity charges, and number
portability charges. The long distance price index has gone up
8 percent during the last several years. The intrastate long
distance price index has gone up 10 percent. And although the
FCC has reduced interstate access charges by over $2.5 billion,
the Bureau of Labor Statistics price index for long distance
service has stayed at the same level.
Long distance carriers like ATT and MCI have begun having
to charge their customers a minimum monthly fee for the first
time. Of course, the pro-competitive multi-channel video
policies and its stringent rate regulation rules have boosted
cable rates 24 percent since 1996.
That does not look to me like the Act and the
implementation of it has been a great success.
Mr. Kennard, in a speech recently you stated, on May 17,
you stated:
The public interest standard requires the FCC to review
mergers so the Commission can perform its unique duty to
articulate to the American public what are the benefits of this
merger to average Americans.
However, in a separate speech 2 days later, Assistant
Attorney General Joel Klein, who heads the Justice Department
merger review team, said that:
Most people--apparently including the FCC--do not realize
everything we do in antitrust is consumer-driven. We are a
unique Federal agency. Our interest is to protect what the
economists call consumer welfare, and there is one simple truth
that animates everything we do, and that is competition. The
more people chasing after the consumer to serve him or her, the
better to get lower prices, to get new innovations, to create
new opportunities. The more of that juice that goes through the
system, the better.
I think Mr. Klein articulated pretty well what reviews are
supposed to do, and they seem to be exactly the same consumer
benefits that you say the FCC pursues when the FCC reviews
mergers under the ``public interest standard.'' If that is
true, what does separate FCC reviews of proposed mergers add to
the process other than needless cost and delay?
I will be glad to listen to all of the Commissioners'
points on that, starting with you, Chairman Kennard.
Mr. Kennard. Certainly. I appreciate the opportunity to
answer that question, Mr. Chairman. First of all, there is a
lot of confusion about the respective roles of the FCC and the
Department of Justice Antitrust Division these days. First of
all, the FCC does not conduct an antitrust review of mergers
that is cloaked in public interest rhetoric. It is a very
different analysis. There is a different burden of proof, it is
a different statutory requirement that we have to look at.
The Chairman. What statutory requirement is that? I am
sorry to interrupt.
Mr. Kennard. The Antitrust Division is charged with
enforcing the antitrust laws, the Clayton Act, the Sherman Act.
The FCC, as you know, is charged with ensuring that mergers
serve the public interest. Traditionally, the FCC in making
that analysis has determined whether a particular merger has
been demonstrated to serve the public interest by furthering
the goals of the Communications Act.
Now, one need only look at recent mergers to see how this
different standard plays out in practice. In the Bell Atlantic-
Nynex merger, for example, the Antitrust Division looked at
that merger. They found that it did not lessen competition, as
is their requirement under the antitrust laws. The FCC's
analysis was different. The FCC looked to see whether that
merger would enhance the pro-competitive goals of the
Communications Act and ended up imposing some conditions, some
market-opening conditions, on that merger which the Justice
Department would not have imposed because their function is not
to regulate. They are a law enforcement organization that
enforces the antitrust laws.
So there is--I am concerned that there seems to be a common
misunderstanding that we have overlapping jurisdictions and are
duplicating the effort of DOJ. That is not the case, Mr.
Chairman.
The Chairman. Ms. Ness.
Ms. Ness. The FCC and the DOJ do have to some extent
overlapping responsibilities, but also they are complementary.
As Chairman Kennard elaborated, the standard that is imposed
for the Department of Justice is a different standard under the
Clayton Act. If we were to exercise our Clayton Act
jurisdiction, which we generally decline to do--we would be
conducting a very similar review of the mergers, looking at
whether or not there is a diminution of competition.
But as Chairman Kennard noted, our review is looking at
whether or not a merger is in the public interest. The review
is conducted in a public proceeding. It is reviewable by a
court. Should the Department of Justice in its limited review
as to whether or not there is a diminution of competition
decide not to proceed, there is no judicial review. That is the
end of the matter.
Our review, as we have noted in our past decisions, looks
at whether or not the merger serves the public interest, and
particularly with respect to market-opening issues. That is
what we did in a number of cases, for example the MCI-WorldCom
merger, where four of us determined that it was, in fact, in
the public interest; in Bell Atlantic-Nynex, where we did
determine as a Commission that had the merger as proposed gone
forward we would have denied the merger as not being in the
public interest, but with the conditions imposed the balance
had shifted and it was indeed in the public interest.
These are important benefits for the American consumer.
The Chairman. Commissioner Tristani.
Ms. Tristani. Mr. Chairman, I would agree with what my
colleagues Chairman Kennard and Commissioner Ness have said. I
would also add that another difference in the reviews is that
the burden of proof is quite different. In the Commission
review, the proponents of the merger have to demonstrate, they
carry the burden that the merger is in the public interest.
The Chairman. Yes, right.
Ms. Tristani. That is in the law, Mr. Chairman, and we are
following the law as written.
The Chairman. Thank you.
Commissioner Furchtgott-Roth.
Mr. Furchtgott-Roth. Thank you, Mr. Chairman. I would
concur with my colleagues to the extent of saying that the FCC
and the Department of Justice do not have overlapping
jurisdiction except to the limited degree that we have shared
jurisdiction of the Clayton Act.
I must respectfully disagree with my colleagues in the
interpretation of our statutory authority under the
Communications Act to review mergers. I believe if one does a
word search of the Communications Act one will not find
references to mergers or acquisitions. Our review is entirely
under section 310 of license transfers and section 214 of
licenses to operate. These are much narrower license transfers
and those are the only points at which there is a public
interest review.
I had the--well, I was starting to say the pleasure; I do
not know if it is pleasure or not, but I certainly testified on
this very topic yesterday before the House Judiciary
Subcommittee on Administrative Procedures. I have attached my
testimony on that matter, and I guess I do not believe that you
will find in the Communications Act a specific statutory
authority for the Commission to review mergers.
The Chairman. Commissioner Powell.
Mr. Powell. Thank you, Senator.
I would have to concede that one can articulate that there
are different standards than those employed under the Sherman
Antitrust Act, but that does not really mean the analysis is
different. As someone who has been in the Antitrust Division, I
can tell you that, while I think that things like the MCI-
WorldCom review were done correctly, they are awful similar and
nearly identical to the same sort of review we would have
conducted at the Antitrust Division.
Our FCC staff employs and makes great use of the Antitrust
Division horizontal merger guidelines, which guide and
construct our analysis. The consideration of anticompetitive
effects, horizontal and vertical, are virtually identical.
As a matter of theory, there is a reservoir of additional
authority one could lay claim to at the Commission. The
question is whether it is ever employed in a way meaningfully
enough to justify the costs of the additional impositions and
time of the review. I have become skeptical about that. We
could have a debate about whether you want the Commission doing
that or not, but I think that the value that it is adding, at
least as I have seen it demonstrated, is not that significant
from the review that is already conducted.
Second, I think that one would have to concede that the
public interest standard is awful wide-open and many of the
standards and the principles that the others have articulated
are a matter of Congressional--I mean, Commission construct.
That is, over the years the Commission has interpreted that
mandate in placing burdens of proof, has interpreted that
mandate in a way that sets out the conditions and principles.
We certainly have had Commission precedent that could be
used to justify actions the Commission has taken that have been
approved in court. But at the end of the day it is a fairly
wide-open mandate that the Commission has had and a great deal
of discretion in constructing it the way it chose.
Third, I would say that, with respect to conditions and
market opening, I do not dispute that if there is an
appropriate role for the Commission one could justify a
different role for us in that regard. But I have to tell you I
am skeptical of that in the sense that it is a form of
industrial policy in which you have confidence that the five of
us are capable of looking out into markets and making somewhat
personal and subjective judgments about what will advance the
public good in that regard, and I just have less confidence in
at least my ability to do that well consistently as others
might.
So that is my view of it.
The Chairman. Mr. Kennard, do you know any other industry
that is subject to multiple reviews?
Mr. Kennard. None immediately come to mind. I would have to
think that through and get back to you on that.
The Chairman. Thank you.
Senator Hollings. You have got the election industry. You
have got to go through a Republican primary before you get to
the general election. [Laughter.]
The Chairman. There is a lot of money in that one.
Senator Hollings. Yes.
The Chairman. Senator Hollings.
STATEMENT OF HON. ERNEST F. HOLLINGS,
U.S. SENATOR FROM SOUTH CAROLINA
Senator Hollings. Mr. Chairman, thank you very much.
I commend the Commission for sticking by its guns on 271.
There is not any question that that is the kidney ailment that
communications competition has at the moment. We need to pass
that kidney stone and get the Bell companies to comply with the
checklist and enter the competition. That is what they all
begged, and I was there all 4 years that we worked on it, and,
oh, they wanted to compete, compete, compete. And all they have
done is combine, combine, and combine.
I pick up my USA Today and the president of Bell South made
last year $54.9 million. I ran for the wrong job. I think I
could have gotten the votes to chair Bell South and I might do
that yet.
But the truth of the matter is that they are squatting
right on their monopoly. Now, the task for us in order to get
fair competition is to open them up in a studied,
compassionate, considerate way, namely considerate of the best
telecommunications that any country has ever had. So we did not
want to get in and barrel in and mess up. So we asked them and
over the year's period their attorneys wrote that checklist.
There is nothing wrong with it.
Now, we had the USWest's chairman up before this Committee
recently. He had never applied. He complained and said that
there was so much bureaucracy over there and you folks had
misinterpreted the checklist and added onto it and enlarged it
and everything else of that kind, that there was not any chance
for compliance. He has, while he has not applied to you folks,
applied to various state commissions and he has been turned
down. And the whole time he was begging for some kind of relief
in order to serve the rural areas, he was selling off his rural
facilities as fast as he could. So there is quite an act going
on.
Mr. Kennard, can we not just go ahead and have a drop-dead
date by, say, January 1, 2001, and they have to comply with the
checklist or thereafter in any State where they have not
complied get a $50,000 a day fine? They have had 3\1/2\ years
and they have got all the lines in, what we are talking on and
everything else, is 98 percent controlled by Bell Atlantic. We
are in their region, and that is the monopoly that has held up
the real dynamism of the Telecommunications Act of 1996.
Mr. Kennard. Well, Senator, the goal of section 271, as you
know, is to require the Bell companies to open their markets to
competitors before they can get into long distance. I think
that that created an incentive structure that is working. I
think, unfortunately----
Senator Hollings. You think it is working?
Mr. Kennard. I think the incentive structure is working. We
saw a lot of foot-dragging initially. A lot of companies
decided as soon as that Act was passed that they would go into
denial and they would rather litigate and oppose it, as opposed
to comply.
It was only earlier this year that the U.S. Supreme Court
reaffirmed the FCC's authority to enforce many of the market-
opening rules that were passed under that statute. I think that
some of the Bell companies are now coming to the table and
recognizing that there is a lot of work to do to open up these
markets, and I think that that process has to continue, because
if we were to establish just a drop-dead date that these
markets would automatically be thrown open I fear that----
Senator Hollings. They would go right on down to the wire.
After you gave them a year and a half more, they still would
not comply and sit there and wait like some of them are on Y2K.
I mean, they have had 30 years to comply with Y2K and they are
still waiting on special laws and special consideration.
If General Motors came up and said, ``On January 1, I am
going to have a new model but it is going to have some glitches
in it, and what I want to do is talk to anybody that gets a
glitch and let us argue with them and, by the way, do away with
200 years of State law,'' you would look at them and laugh. I
mean, come on. But that is what we have got going on.
Specifically in communications, we have waited, 3\1/2\
years, and you say it is working. Now, I understand Bell
Atlantic might start in New York later this year, but that is
the only movement I see. I try to keep a running survey here of
what is going on and I do not see any incentive.
Rather than 12 percent guaranteed, they are making 24 and
30 percent. It is wonderful. So if I was running the business
and there was not any requirement to comply, I think I would
continue making the 24 to 30 percent, and paying the lawyers.
When you say it goes up 8 percent, and the distinguished
Chairman cited an 8 percent increase, it could have gone up 18
percent. That is market fores, market forces, deregulation.
But go ahead. Can we not do that? Therein is the E-rate. We
contemplated you not raising taxes--it is a good thing you do
not run for office.
Mr. Kennard. It is a good thing, Senator.
Senator Hollings. You have got in the morning paper that
that is what we intended. Not at all. They had a 40-percent
access charge, cushion, pork, whatever you want to call it,
that the long distance companies had to pay, but once they got
into the competition that would relieve that 40 percent some
and we could deal that around to get into the schools.
But now you are going to raise taxes. You seem to move
right quickly there, not on access charges, not on universal
service, but on something that was not intended.
Mr. Kennard. Well, Senator, let me assure you that we are
moving on all those fronts. When I said that we implemented
that provision the way its authors intended, I meant the people
who actually wrote the provision, Senator Rockefeller, Senator
Kerry, and Senator Snowe. I have had conversations with and
talked to them about what their intent was.
Senator Hollings. Well, I was also sponsoring that and I
was in the conference, and I can tell you what the intent was.
That is exactly what we had in mind all the time. I do not
believe I have ever heard Senator Rockefeller say we are going
to raise taxes and raise the prices in order to comply with the
E-rate. We knew that the money was there.
Let me ask one last question if you do not mind, Mr.
Chairman. I understand Commissioner Powell is more or less a
defense Commissioner. Now, with these complaints going to the
bureau and going to the staff, can we not make another one a
complaint Commissioner so we can facilitate and accelerate? He
is doing a good job with defending as a Commissioner. Why do
you not get--Ms. Ness is smiling; she looks like she is
volunteering for the job. [Laughter.]
Senator Hollings. Get up on the staff so we can get some of
these things moving.
Mr. Kennard. Well, that is a good suggestion, Senator. I
think Commissioner Ness would make a fine enforcement czar at
the FCC. But we do have plans under way to create an
enforcement bureau.
I share your concern. I think that the whole enforcement
culture at the FCC needs to change. We need to be much more
proactive. We need to devote more resources to enforcement,
because now that we have written these rules on competition it
is important that they be enforced. We are in the process of
creating a bureau to do that. It will be given new resources,
and we hope to re-invigorate the whole enforcement philosophy
at the agency.
Senator Hollings. Thank you, Mr. Chairman.
The Chairman. Senator Brownback.
STATEMENT OF HON. SAM BROWNBACK,
U.S. SENATOR FROM KANSAS
Senator Brownback. Thank you very much, Mr. Chairman, and
thanks for holding the hearing and thank you to the
Commissioners for coming.
I want to pick up on something a couple of Commissioners
cited to, and that was on the universal service and the support
for the universal service. It strikes me that the high-cost
portion of universal service we should have had completed by
the statutory deadline of May 8, 1997. We are 2 years later and
we still do not have this in place. I do not think the Congress
thought we would be taking this amount of time to get that in
place.
This is particularly important to rural States like mine,
like are represented by a number of the people here on the
dais, and it is not in place. It seems like you are putting
other things out there and you are not dealing with the tough
one that could put upward price pressure on rural residents in
phone service.
This is a very important issue to a number of us. So I
would like to specifically ask each of you: The Commission has
committed to adopting a hold-harmless principle to explicit
Federal universal service support, meaning that no State shall
receive less explicit support after the FCC completes the high-
cost proceedings than that State currently receives. Now, a
substantial portion of Federal access charges currently
represent implicit Federal support for universal service.
I would like to ask each of the Commissioners the
following: Are you willing to commit to this Committee right
now that, as you unanimously agreed to do so in the so-called
Stevens report, you will apply the hold-harmless principle to
all of the current implicit support that exists in access
charges? Would you be willing to commit to that now so we can
start making some pricing in rural States as to what sort of
support and help and what sort of charges our rural resident
customers are going to have?
Mr. Kennard. I would be happy to address your question,
Senator I would like to go to the earlier comments about
universal service. First of all, let me assure you that the
Commission is devoting a lot of resources to universal service.
It is a top priority of the Commission since I arrived there as
chairman and it will continue to be.
I assure you that, as you point out, these are tough
questions. I think it was H.L. Mencken who said that there is--
for every complex problem there is a simple solution and it is
almost always wrong. Since I have been chairman, a lot of
people have come to my office and they have offered quick fixes
for universal service. You know, just throw money here or throw
money there and it will be fine.
What we are working on is a permanent, enduring,
sustainable solution to universal service. That is why we are
working so hard on these cost models, to make sure that we have
a platform to put universal service on a steady footing as we
move into the next century.
Now, all that being said, in the meantime we have also
assured that we have held the States harmless. Support has been
flowing. It will continue to flow. In fact, over the past 3
years since the Act was passed we have spent far more on
universal service than any E-rate program by many multiples,
and that will continue to be the case.
Now to your specific question: I will absolutely commit to
a hold-harmless. I have said this repeatedly in my public
statements and speeches.
Senator Brownback. On explicit and implicit charges?
Mr. Kennard. Well, we are--certainly on the explicit fund.
We will adopt tomorrow an order, hopefully, which will invoke a
hold-harmless provision for all of universal service, so that
those high-cost States will not be subject to risk as we
proceed to a more permanent solution.
But I also say this. I have been encouraged by efforts
among the industry in recent months to address this implicit
subsidy problem in universal service support. I was encouraged
just hearing this week, in fact, that the industry seems to be
coalescing around some solutions that they are going to present
to us that I am very encouraged and looking forward to see.
Senator Brownback. Chairman Ness--Commissioner Ness.
Ms. Ness. Senator, we are very committed to ensuring that
universal service is available at affordable rates that are
reasonably comparable, both urban and rural. Indeed that has
been one of the things I have been most concerned about in my
tenure on the Commission.
Senator Brownback. Could I just really cut to the chase on
this, because my time is going to run out. Will you support
hold-harmless on explicit and implicit costs on universal
service support?
Ms. Ness. I am committed to ensuring that we have
reasonably affordable rates that are comparable. I cannot say
that I would hold harmless on implicit subsidies because I do
not know that anybody can tell you specifically what the
implicit costs are. It depends on how much you want to fund,
and that is why you have to look at what is reasonably
comparable and affordable and to ensure that it remains so as
competition comes into the marketplace. That is what we are
certainly committed to doing, to have a system that addresses
that and addresses it in a meaningful way.
Senator Brownback. Commissioner Tristani.
Ms. Tristani. Like Commissioner Ness, I am committed to the
hold-harmless principle, but not ready to say all the way until
we know more. I would like, and because I know you are short on
time, but I am very committed to universal service reform and
if it is taking time it is because we want to make sure it is
done correctly and right.
Senator Brownback. Commissioner Furchtgott-Roth.
Mr. Furchtgott-Roth. Senator, I believe I am on the record
as supporting hold-harmless in both explicit and implicit to
the extent that current programs would be on an ongoing basis,
some of which are scheduled to be reduced.
I cannot help but note, Senator, if I may, H.L. Mencken may
have said that it takes some sort of complex solution to a
complex problem, but I am a firm believer that it is better to
be approximately right than exactly wrong. I am absolutely,
absolutely convinced that the computer models that the
Commission is working on are going to give us exactly the wrong
answer, and it is going to take hundreds of hours to get there.
Senator Brownback. What I have seen thus far is that way.
Commissioner Powell.
Mr. Powell. Senator, I think that there is absolutely room
for hold-harmless in the context of explicit. I think implicit
is very difficult to commit to you because the proceeding has
not gone far enough for us to understand responsibly what is
nested in that hornet's nest that we call implicit subsidies. I
certainly would like to know a lot more about it before I would
commit publicly to a particular mechanism that might prove
distorting in itself.
Senator Brownback. Chairman Kennard, I would note that you
testified June 10, 1998, before this Committee that: ``I will
not allow Federal support for rural America to be reduced.'' I
would suggest that includes both explicit and implicit within
this.
Nobody passed this Act thinking that we were going to raise
rural rates. So I really would push you to say we are not going
to raise rural rates, and that covers both explicit and
implicit.
Thank you, Mr. Chairman.
[The prepared statement of Senator Brownback follows:]
Prepared Statement of Hon. Sam Brownback, U.S. Senator from Kansas
Mr. Chairman, thank you for holding this important hearing today.
This committee's oversight responsibility for the FCC is arguably the
Commerce Committee's most important function.
Well, here we go again. More than two years after the date that the
FCC was statutorily required to finish all rules related to Universal
Service Reform, we are being told that a final decision on the rules is
being delayed once again from July until September, with implementation
not occurring until the year 2000. It astounds me that, the day before
the FCC is set to vote on the second year of funding of the E-rate
program, the FCC is pushing back the reform of the high-cost portion of
Universal Service even further into the future in clear violation of
the Telecommunications Act.
And this is occurring despite assurances from the Commission to the
contrary. On June 10, 1998, the last time all five FCC Commissioners
appeared before this Committee, Chairman Kennard stated ``I think I can
comfortably speak for all of my colleagues here in saying that we all
are committed to reforming Universal Service and doing it in a way that
is consistent with the statute, and doing it on a timetable that is
expeditious.'' Last July, Chairman Kennard stated that ``[B]y the end
of April 1999, I expect the Commission to have calculated the
appropriate revenue benchmark, and to have acted on the recommendations
of the Joint Board.'' He also stated that ``I am confident that this
schedule will allow non-rural LECS to take the further steps necessary
to ensure that the transition to the new high cost mechanism is
completed by July 1, 1999.''
Well, that was almost a year ago, and we are still at least more
than six months away from achieving the reform of the high-cost portion
of Universal Service. And in addition to the length of this process
being beyond the statutory pale, I have no confidence that this process
will produce a system that accurately reflects the cost of providing
phone service in rural areas and that does not put upward pressure on
rural residential phone rates.
The Commission has spent almost as much time as I have been in the
Senate trying to come up with a forward-looking cost model that
accurately reflects the sunk costs associated with building the Copper
Phone network that serves almost 100% of this Nation. I can think of
nothing more contradictory than assessing the costs of building and
maintaining an actual network using futuristic, hypothetical
assumptions about such costs.
Nothing has confirmed my suspicions about the use of a model than
the process undertaken by the Commission to adopt one. The algorithms
and the inputs have produced wildly variant results, none of which to
date seem to even approach reality. In addition, if the costs are
evaluated on a study-area rather than a wire-
center basis, the model will grossly understate the cost of providing
service to certain wire centers, which would force many of the large
telephone companies serving those areas to continue to cross-subsidize
among consumers throughout a State.
I must also take exception with the Commission's plan to adopt
principles on Thursday espoused by the Joint board. Two months ago,
seventeen of my colleagues and I sent a letter to the Commission
expressing our concerns about several of the Joint Board's
recommendations. We have yet to receive a written response. I am
disappointed that the Commission has chosen to move ahead on adopting
the principles embraced by the Joint Board before addressing our
concerns.
Mr. Chairman, the high-cost portion of Universal Service Reform
should have been completed by the statutory deadline of May 8, 1997. I
am extremely disappointed with the manner in which the Commission has
handled the high-cost proceeding, and I do not believe that the
Congress in general, and this Committee in particular, has been
properly consulted, nor has its advice been properly heeded.
Congress did not pass the Telecommunications Act of 1996 to
increase rural residential phone rates. The manner in which the
Commission handles the high-cost portion of Universal Service Reform
will have a direct impact on rural residential rates. The Commission
has an obligation to prevent such rate increases and, as a result, not
to reduce the current level of explicit and implicit universal service
support. I hope that we have the opportunity to address these important
issues, as well as other issues affecting the Telecommunications
Industry, during this hearing.
Senator Hollings [presiding]. The Chairman said Senator
Wyden is next.
STATEMENT OF HON. RON WYDEN,
U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Senator Hollings.
I would like to pick up first on this issue of merger
policy raised by Chairman McCain. I happen to believe that
consumers are getting shellacked by some of these big mergers
while we have got three agencies--the FCC, the FTC, and
Justice--sort of tossing the ball back and forth. Now, I want
to see us deal with private markets through private means on
these major issues, like getting advanced telecommunications
services to rural areas and high speed Internet access.
But I think we are going to need some merger accountability
with these three agencies, and I would like to hear first your
thoughts on how we get it, and not just have three agencies
tossing the ball back and forth. Mr. Powell, I know you have
had some thoughts on it.
Mr. Powell. It is a good question. Just to correct one
misconception, it is either the FTC or the Antitrust Division.
They never review the same merger.
Senator Wyden. I understand that, but potentially three. We
have three agencies that are in this debate.
Mr. Powell. Agreed. I do not know that I would accept the
premise that the ball is tossed. Each of them do conduct their
full-blown merger reviews to the best of their judgments and
they may not have reached conclusions that I would agree with
or you would agree with, but they nonetheless are executing the
conditions and laws that they are empowered to. I am not so
sure we defer or have passed off, one way or the other, the
responsibilities.
I do think that you raise a very, very important question
about the effectiveness of antitrust regimes as tested by the
new developments in this kind of high tech, innovation-driven
economy. I think the issues that are being pursued at the
Antitrust Division in the context of Microsoft and other cases
are teeing up whether we as a Nation believe that those are
viable vehicles for that. I suspect if they are not that the
Congress will have a need or a responsibility to reevaluate the
underlying regimes that we tender if they are not happy with
the results that are produced.
I also continue, just as one trained in antitrust a bit,
that I do not always accept just on its face that big equals
bad. I also think that there have been some extraordinary
benefits that have accrued the consumers as a result of some
consolidations. But I would not be so naive as to suggest that
I think that anyone should be able to combine who wants to and
as long as they are making money it is good for the economy.
Senator Wyden. No one I know is suggesting that big is
always bad. It is just that when we hear so often from some of
the big players in communications that they do not have the
money for communications services in rural areas and then we
hear about a big merger, it seems to me we ought to at least
have a sensible policy to ensure some accountability.
As I see it, we do have three agencies in this debate and
we have got a lot of folks falling between the cracks. For
those of us who want to see private markets work, it seems to
me that government has got to get its act together on merger
policy and it ought to do it sooner rather than later.
Mr. Kennard, I want to ask you about one question that I am
going to raise when we mark up the telecommunications--excuse
me, the Communications Act reauthorization. I have felt for a
long time that negative politics is doing more to disgust and
alienate citizens from the political process than just about
anything else. These TV commercials where people paint their
opponent as sinister and unsavory and often unshaven kind of
sorts just turn people off.
I think there is something we can do about it and I want to
ask your opinion. Under the Act, broadcasters are required to
sell commercial air time to candidates for Federal office at
the lowest available price. It is known as the lowest unit
broadcast rate. I have introduced legislation that would say
that to take advantage of this subsidy the candidate, if they
are going to say things about their opponent, should do it
themselves. They should be personally accountable. They could
say anything they wanted in their campaign, but in order to get
the subsidy that is offered under the Act that we are
reauthorizing they would have to actually make the comments
about their opponent themselves, a sort of stand by your ad
kind of policy, rather than just have some anonymous announcer
do it.
What would be your reaction to that?
Mr. Kennard. Well, I think it is a very interesting
proposal. I certainly share your concern and the concerns of
Chairman McCain that we can do a lot better in this country in
reforming our campaign finance laws. One of the things I
learned early on in this job, though, is that reforming those
laws is certainly the prerogative of the U.S. Congress.
So I would certainly endorse your efforts in this area and
would look forward to helping in any way I can.
Senator Wyden. I would be interested if any of the other
Commissioners have an opinion on it. There is a First Amendment
right to free speech, but I do not know of any constitutional
right to discounted time in the media. I think that this may
well be a way that we could jump-start this campaign finance
reform effort and do it in a way that responds to what I think
most alienates people from the political process, and that is
negative ads.
Do any of you other Commissioners want to add a comment to
it?
[No response.]
Senator Wyden. All right. We appreciate your endorsement,
Mr. Chairman. We look forward to working with you.
Thank you, Mr. Chairman.
The Chairman [presiding]. Senator Wyden, only the yellow
light is on. It is the first time in the history of your
participation in this committee. [Laughter.]
Senator Hutchison.
STATEMENT OF HON. KAY BAILEY HUTCHISON,
U.S. SENATOR FROM TEXAS
Senator Hutchison. Thank you, Mr. Chairman.
I want to go back to the E-rate issue because I think that
is the key part of our oversight responsibility here. I am
still getting angry letters and phone calls from constituents
about how this program was implemented: the increased phone
bills with no appreciable enhancement in service.
Now I am understanding that you are going to nearly double
the amount that you have been spending on the universal access,
nearly a billion dollar increase from this year, all of which
leaves still unresolved Congress' mandate to have better
universal service issues and support for the rural and high-
cost programs to be fairly distributed. These funds will be
raised by boosting subsidies paid by local, long distance, and
wireless phone companies, and of course they are yet to decide
how much they are going to pass to consumers, but you can bet
that their altruism will have limits.
I want to say that some of the estimates are that these
charges could be as much as 20 percent of a phone bill. I do
not doubt that there is a benefit to wiring our classrooms and
libraries today. It is clear that we must afford our children
throughout our country the opportunity to become computer
proficient. But to require captive consumers to pay the full
cost does not pass the fairness test.
If it is our goal to make computer and Internet access an
educational goal, it should be viewed as an education issue,
not as a telecommunications entitlement paid for by taxes
crafted by the FCC. At the very least, I do not think these
fees should be increased until we have had a chance to look at
how the money that has been assessed so far has been spent and
what are the benefits, whether there are better alternatives,
and if you have looked into better alternatives than just
reaching into the customers' pocketbook for this program.
For instance, what private sector incentives could be
created to expand Internet access for schools? What about
States' educational responsibilities? It is my understanding
that you are now going into capital expenditures that could be
more of the State responsibility.
What would happen if there were no Federal program? Many
commentators have said that markets themselves will bring about
more affordable products and services, making subsidies
unnecessary. Has that been also discussed?
My question is, it seems like you are taxing first and
providing service requirements later, and I want to know if you
are going beyond your authority, which I think you are, but
what is your opinion of that, and if you have looked at other
avenues to pay for these costs instead of letting the customer
that is captive pay them completely?
Thank you.
Mr. Kennard. Thank you, Senator. First of all to your point
about telephone rates, the average American in this country is
paying less on their phone bill today than 2 years ago. Those
figures are documented in my written statement. They differ
somewhat with the figures that I heard from Senator McCain and
I am very interested in studying the figures that he presented
today.
But from everything that we have gathered, phone bills are
going down. Interstate long distance bills are plummeting. For
the most part, local phone bills are remaining steady, thanks
to the vigilance of our colleagues at the State commissions.
In the interstate jurisdiction, we have decreased the costs
of long distance companies by over $3 billion in the last 2
years. The
E-rate is very affordable, given that scenario. I do not know
where you got the 20 percent figure. It differs somewhat from
the figures that we have. We believe that the worst case
scenario is that a consumer in America today would pay on
average no more than 33 cents for the E-rate program, which is
quite affordable, particularly given the public benefits.
You talked about private sector initiatives. There are some
wonderful private sector initiatives out there. We have seen
Net Days spring up around the country. There are wonderful
programs, and we have seen some good participation by the
private sector. But it is my view that we cannot rely on those
alone, because if we do a lot of kids are going to fall through
the safety net.
One of the great things about the E-rate program is that
the money is targeted to our poorest schools, our most rural
schools. Of the $1.7 billion spent last year, 80 percent of
that money went to the poorest schools in America, kids who are
struggling just to be able to buy a school lunch. Thanks to
this program, now many of those kids have technology in their
classrooms.
So my belief is that the program works, that it is
efficient and affordable, and it is consistent with the law.
Senator Hutchison. Well, Mr. Chairman, I would just say
that if we lower the rates and increase taxes--and if you look
at the State taxes and the various other Federal taxes that are
on a phone bill, if we continue to increase those I think the
benefits that are coming from deregulation or more competition
are going to be diminished.
I also believe that a stealth tax that cannot really be
pinned on anyone is always the easiest kind of tax to put
forward, but it nevertheless is a tax. I think we have got to
be fair and I think there needs to be a real sound study about
what of these responsibilities are Federal and what should be
borne by telephone consumers and what are State
responsibilities. If you are going to have lower prices, should
not that benefit actually be given to the consumers?
So I just, I am very concerned about the creeping taxes,
and people have noticed it. I see that number of taxes on my
phone bill increase it seems like every month. That is an
exaggeration, I am sure, but I certainly have seen a number of
increases in both Federal and State taxes that are beginning to
encroach on the ``savings'' from deregulation.
Would any of the other Commissioners wish to respond to the
impending increase of the tax that appears to be in the offing?
Mr. Furchtgott-Roth?
Mr. Furchtgott-Roth. Senator, one of the issues that you
raise is our legal authority. I think the Commission does have
legal authority for telecommunications services and even
advanced telecommunications services. Those represent, I
believe, a minority of the funds that have been committed. The
majority of the funds are for capital equipment, which I think
is difficult to read into the statute.
I testified on this matter before the House Ways and Means
Committee last year.
Senator Hutchison. Well, I would just say that I think in
the past where you have had pennies on a phone bill take up the
slack for rural service it is something that we have all agreed
is a good thing. But I think that we are going another step
with the E-rate and I am not sure that it is a fair allocation
of responsibility on the consumer and that it is a fair
allocation of the money when it comes from the Federal level as
opposed to the State level.
Yes, Ms. Ness.
Ms. Ness. Senator, I would add that these are discounts for
services. That means that the schools and the libraries have to
contribute based on their ability to do so towards the cost of
the service.
In addition, this goes to libraries, which have benefited
the entire community. In many rural areas the library is the
place where the community gathers, and this has provided an
enormous benefit to those jurisdictions. It has provided an
enormous benefit to be able to have distance learning. Where
schools have not been able to provide courses for their
students, now they can do so by aggregating the students
together through distance learning.
Each school must provide a technology plan in order to be
able to get funding for the service. Those are approved by the
States. The States are very engaged in determining whether or
not this is for an academic purpose.
We have tried to instill competition into the marketplace,
again by having discounts, by putting the bids up on the
Internet, so that many players can compete to provide the
lowest cost to provide those services.
Senator Hutchison. I do not disagree--my time is up. I do
not disagree that it is a worthy cause. I just would ask the
two questions to be considered by the FCC: Is it a fair burden
for the telephone consumer to pay the full cost; and have you
looked at other ways to provide this service that does not fall
just on the consumer?
But my time is up. Thank you, Mr. Chairman.
The Chairman. Senator Rockefeller.
STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
Senator Rockefeller. Thank you, Mr. Chairman.
I do not have a lot of questions. I think it is important--
and Commissioner Kennard knows this; I have often said this to
him--I think he has one of the three most interesting jobs in
Washington, and I think the Commissioners have one of the three
most difficult jobs in Washington, because we passed the
Telecommunications Act in 1996. Of course as soon as we passed
the Telecommunications Act there was the assumption that it was
going to start working by 3 p.m. the next day, and there was
this little matter of cost models, which are incredibly
important for actually determining how universal service is
going to work in the future, and you want to get it right and
that takes time.
There is the small and incidental factor that a whole lot
of local companies or RBOC's sued. That does not exactly speed
up your timetables insofar as I am aware. GTE still is, but a
number of the others have dropped out. They have stopped suing,
and I think that could be helpful.
But I frankly am impressed by the progress that you have
made on a whole series of fronts, and I think that the E-rate
obviously is one subject and something I feel very strongly
about. But on the other hand, I think you are also moving
carefully and deliberately toward developing the right kinds of
policies that reach out to all Americans, and that is a very
hard thing to do.
It has been raised by some that the universal service
concept, which predates Social Security in fact, is a tax. Of
course it is not a tax. It is simply an obligation. It is like,
as I have said often in this committee room before, West
Virginia has no oceans that I am aware of within its borders,
but we do pay taxes for the Coast Guard, and that is because it
is in the national interest. West Virginia is not a big State,
but our interstates are four lanes like they are in
Pennsylvania and Ohio. They are not two lanes based upon the
size of the State.
So in other words, we have an obligation in this country.
The concept of universal service is actually very well named
because that is what it is, is to make sure that all children,
starting with the poorest, and that all areas, whether it is
broadband or technology or whatever it is, that they are
eventually going to get a fair and comparable service at the
same rates that everybody else gets. That is what universal is
all about.
So I have never really understood that universal service is
a tax. And particularly I have never understood it--and maybe,
Chairman Kennard, you could repeat once again what you said
before--that it is going up. In fact, it is going down, as you
indicated, because of the local access charges. I think that is
terribly important to repeat and to repeat and to repeat until
people really do hear it, that the cost of all of this is going
down for Americans, not up but down, and that is because of the
local access charge.
Could you explain that? Then I have one more question.
Mr. Kennard. Certainly. The FCC through a series of actions
over the last few years has consistently reduced the access
charges, the charges that the long distance companies pay to
connect and terminate calls on the local network. Over the past
couple of years those charges have decreased by about $3
billion, of course far in excess of the amount of the E-rate.
But even putting that aside, this is a declining cost
industry. Costs are continuing to go down for carriers. So
again, this is a very affordable program. Worst case scenario,
it is about the cost of a postage stamp a month for the average
American. I believe that is a small price to pay in order to
ensure that our next generation of kids have access to the
technology they need to compete in a global information age
economy.
Senator Rockefeller. You indicated in your statement that
the telecommunications industry has grown by about $140
billion, and I forget what timetable you put on it, but it is
exponential. I think very shortly or perhaps right now, if you
take the health care industry and the telecommunications
industry and combine them you have one quarter of the entire
gross domestic product. I mean, it is a gigantic industry,
growing faster and faster and faster.
Does this not have some consequence upon a
telecommunications company being able to do right, therefore,
by something called universal service?
Mr. Kennard. I absolutely agree, and I think that that
includes not only the E-rate program but all of universal
service. One of the reasons why we have a telecommunications
system in America which is the envy of the rest of the world is
because of universal service. It has worked and it has worked
well in our country.
It is going to work better, because as the economy
expands--and actually about a quarter of our economic expansion
is attributed to communications and information about a half
trillion dollars in revenue a year and growing. As that pie
expands, as people find more efficient ways to provide service
to rural America, universal service will thrive and be even
more affordable as we move into the next century.
Senator Rockefeller. Let me just say one more thing. We
were here last year battling and battling and battling, and it
was not a particularly pleasant hearing. But one of the things
that I thought was very good that came out of that hearing was
that feelings and thoughts were put out on the table.
Chairman McCain, I think very rightly, called for a GAO
study and a report, in other words, on what was going on and if
there was waste, fraud or abuse, and what about asbestos and
all kinds of other things. The results were very clear and the
answers were very clear, and it seems to me that we cleared up
a lot of the problems that were confronting us as Commerce
Committee Members last year because they were put to bed not so
much by us, but by third party observers with real neutrality
and credentials, for example the GAO.
Therefore, I think there has been a lot of progress. My
feeling about the FCC Commissioners, all five of you, is that I
do not know how you put up with the pressure that is on you. I
do not know how you master the details for what it is you have
to do. I do not know how you construct your economic models.
But it seems to me that your direction is forward and proper
and strong, and essentially that the deal that was made in the
Telecommunications Deregulation Act was that, yes, we will do
deregulation and yes, you are going to do right by universal
service to provide certain services to all Americans at
comparable prices, is in fact now beginning to work.
I thank the--
Senator Dorgan. Thank me. [Laughter.]
Senator Rockefeller [presiding]. Senator Dorgan.
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. I am the only one left to thank. The
Chairman is on his way back. We have a vote occurring. But let
me ask my questions and then I will go vote, and I am sure he
will return by the time I am ready to leave.
Let me just in shorthand try to get to this point that the
Senator from Texas was making. She was making the point that
there was an increased tax somewhere. In fact, as I see it you
have moved for access charge reductions that actually exceed
the additional charges that occur, explicit charges on bills.
So there is no new net imposed charge here.
To the extent that those who received access charge
reductions are, and should be, moving those cost reductions
through to the customers and to the extent that others are then
increasing a charge to the customers. The net effect should be
not a new tax at all, but in fact probably a slightly lower
telecommunications bill. Is that accurate, Mr. Kennard?
Mr. Kennard. Yes, it is.
Senator Dorgan. I just want to make that point, because
some people just take one piece and say, ``Gee, look at this
piece.'' But you cannot look at just that piece. You have got
to look at the access charge reductions that you enforced.
Let me just talk for a couple minutes about two things--No.
1, advanced telecommunications services. Before I do that, let
me say that the issue of universal service is critically
important to me. Senator Brownback and others made the point,
those of us in rural America must rely on you to make the right
choices and the right decisions. Some wrong decisions were made
in many instances by the board that preceded you. You have done
some U-turns, for which I am most appreciative.
Four of the five of you are fairly new to this board. You
inherited a huge set of responsibilities. I am not one who is
critical. I think you have a tough job. I want to help you
through that to get to the right choices on universal service.
I am especially concerned about broadband and advanced
telecommunications services. You have put out an interim report
saying you by and large think things are going fine. I would
say that I think unless there is some intervention, unless you
connect advanced telecommunications services buildout to
universal service, we will have a Nation of haves and have-nots
with respect to broadband capabilities and advanced services.
Can I ask whoever would like to respond to that, because a
group of us have just written you a letter about that
expressing our concern and expressing our hope to work with you
to make sure the right thing happens with advanced services
buildout.
Mr. Kennard. Certainly. First of all, Senator, let me thank
you for your guidance and your leadership on all of the
universal service issues. You have really been a great help to
the Commission, as evidenced by your recent letter that you
sent us along with Senator Daschle and other Members of the
Committee. You have provided us with some very good suggestions
on how we can ensure that rural America enjoys the advanced
services we want all America to have.
When we issued the report to Congress under section 706
which deals with advanced services, I did not mean to suggest
that everything is going swimmingly. What I meant to suggest
when I voted for that report is that it is a little too early
to tell. We have seen in some rural communities some of the
rural telcos in particular have been rolling out advanced
services at a good clip and some very small communities in
America are enjoying them. Others are not.
But we are very early on in this very nascent advanced
services rollout and it is a little too soon to say it is a
failure. It is certainly too soon to say that it is a success.
We will monitor it closely. We will certainly adopt many of the
recommendations that you have proffered in your letter, and I
hope that moving forward this problem will not be a problem
that we are concerned about.
Senator Dorgan. Does anyone else wish to respond to that?
Yes, Commissioner Ness.
Ms. Ness. If I may add to the Chairman's statement, you
mention in your letter as well the opportunities that might be
available to us from satellite and wireless telecommunications
to provide broadband services to rural areas. These are
particularly attractive, given the cost structures of those
industries. So we are doing what we can to ensure that all
avenues, that all competitive carriers, can provide access, and
in particular focusing on the specific needs of rural areas.
That is an area of concern.
I particularly am interested in ensuring that rural areas
have access to broadband because this is a great boost to the
rural economy. This provides the opportunity for people to
remain in their communities, to provide robust services, to
provide for new industries. I see this as a great opportunity.
I think it is an achievable opportunity, but, as the Chairman
said, it is at the very beginning stages of the development of
broadband. But we would like to do what we can to ensure that
there are no impediments, and specifically focusing on the
needs of rural areas.
Senator Dorgan. I have other things to query, but I am told
there are only 2 minutes on the vote and I am aging. So I am
going to have to move quickly.
One very brief question.
Senator Stevens [presiding]. You are what?
Senator Dorgan. I am aging, so I do not get to the floor
quite as fast as I used to to make these votes.
I will be quick. Commissioner Kennard, I sent you a note. A
constituent of mine complained saying that they were driving
down the road one day with a young son or daughter in the car
and they heard language on broadcast radio they thought was
inappropriate. I have had the same experience as a parent. So I
wrote you a note asking, what are the standards these days? I
guess, what are the words you cannot say on radio, is probably
a better way of asking.
Mr. Kennard. I am not sure it would be appropriate for me
to say that here. Senator, I would be happy to meet with you
privately and talk about that.
Senator Dorgan. I am not sure I am prepared to--I am not
sure I am prepared to hear it. But I do not mean to ask it in
an amusing way.
I think a lot of people are concerned, what are the
standards, how are they set, how are they enforced. Because I
cannot miss this vote, let me leave it at that, but just having
raised it on behalf of some constituents, and perhaps--I note
Mr. Furchtgott-Roth is nodding as well. It is an issue of some
importance and a difficult one.
Thank you very much.
Mr. Chairman, thank you very much.
The Chairman [presiding]. Thank you very much, Senator
Dorgan.
Senator Stevens.
STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
Senator Stevens. Commissioner Ness, what you said about
having new industries is a dream that I had for the rural areas
of Alaska, to become involved in a lot of things because of the
universal service requirements of the Act. But just let me read
to you all section 254[a][2]. I am sure you are familiar with
it, so everyone will be reminded:
The Commission shall initiate a single proceeding to
implement the recommendations from the joint board required by
paragraph 1 and shall complete such proceeding within 15 months
after the date of the enactment of the Telecommunications Act
of 1996. The rules established by such proceeding shall include
a definition of the services that are supported by Federal
universal service support mechanisms and a specific timetable
for implementation. Thereafter, the Commission shall complete
any proceeding to implement subsequent recommendations from any
joint board on universal service within 1 year after receiving
such recommendations.
Now, have you all complied with that law?
Mr. Kennard. I believe we have, Senator. We timely
initiated a proceeding in May 1997. We convened a Joint Board
in order to make specific recommendations to the Commission.
That Joint Board under the leadership of Commissioner Ness has
come up with a number of very excellent recommendations, a
number of which we will be considering at the Commission
meeting tomorrow.
The Chairman. You had a single proceeding and you completed
it within 15 months?
Mr. Kennard. No, clearly not all aspects of that proceeding
were set forth, were completed. But we did set--we did complete
a specific timetable for implementation, which is also the
language.
Senator Stevens. But you implemented schools and libraries
and the concept of the E-rate just overnight. You have done
that part of the other section, which I think you have not
quite complied with it either, and that is the provisions of
[h][1][B][i] with regard to the carriers having an option to
offset the obligation of contributions to universal service or
reimburse for utilizing the mechanism.
But I do not see where you have complied with the law, and
the trouble is that it just seems to me that pet political
projects have preceded and gone forward and you have not
complied with the basic concept that brought about the
enactment of the 1996 Act. It would not have been enacted
without the universal service. Everybody knows that. It is
still dangling out there, and I am very fearful that we are now
in Alaska going to enter the twenty-first century still having
a portion of the nineteenth century in terms of our
communications concepts if you do not finish your job.
How are we going to be assured that rural America is going
to have the support and the high-cost areas are going to have
the support unless you complete that proceeding that we urged
you to have, a single proceeding reaching the conclusion and
protecting universal service? Now, when are you going to do
that?
Mr. Kennard. Senator, I certainly understand your
impatience and sense of urgency about this. I share it. But we
have, I think properly, resisted the urge to come up with a
simple solution to universal service that just will not work.
In the meantime we have ensured that funding for all rural
areas, including the State of Alaska, is secure.
It would be foolhardy for us to adopt some sort of a flash
cut and try to restructure a program like universal service
that is so important to the Nation and going to be even more
important into the next century by adopting some sort of a
simple solution that will not work. That is why we have
convened the Joint Board, worked very closely with our State
colleagues, convened a Rural Task Force, because we want to
make sure that when we get an ultimate solution it is going to
be one that is sustainable and that will work.
Senator Stevens. Well, your predecessor had the theory, I
believe it is correct to say, that access charge reductions
would pay for the schools and libraries. Now, that has
obviously not happened. Would you not agree with that?
Mr. Kennard. Not exactly, Senator, because clearly there
have been access reductions that far exceed the amount of the
E-rate program. The question is have the long distance carriers
passed those savings through to those consumers? Well, we know
consumers are enjoying lower long distance rates, so they are
enjoying lower rates.
But we also know that some long distance carriers chose to
put line items on their bill. That does not mean that bills are
going up. All that means is that consumers are seeing charges
for universal service that did not appear before.
Senator Stevens. Well, I was the one that asked the GAO to
look into the action of your predecessor in creating three
corporations which were entirely outside of the province of the
FCC, and that was abandoned. But now it seems to me that what
we have done is, what the Commission has done, is concentrated
exclusively almost on the concept of the schools and libraries.
I do not deny that that was a goal, but there was no time frame
on that, but you did it within a year.
But you did not do what we asked you to do within 15
months. Now, it does seem to me that we are getting to the
point now where many people in the rural areas are fearful that
we are going to lose universal service and the support that is
needed, because now you are proceeding again to get another
increase, but that increase is going to be dedicated to more
schools and libraries.
Let me tell you about one contract awarded in my State.
That contract was awarded at a cost of $630,000 over the lowest
bid, over the lowest bid. When we inquired, they said cost was
not a factor. As a matter of fact, the statement was: Cost,
especially costs that are subsidized by 90 percent, should not
be the sole or even primary factor in the consideration of what
we are doing in the schools and libraries.
Now, can you justify that statement to me when it is coming
out of the universal service fund?
Mr. Kennard. I am not familiar with the facts of that case.
I do know, Senator, that the program was designed carefully to
make sure that we would give deference to the State procurement
process, so that the FCC would not become a procurement agency
for these funds.
We also ensured that, in order to ensure that the money is
spent efficiently, that the money be put out for competitive
bid based on a technology plan approved by a third party, and
with the understanding that the lowest bid is not necessarily
going to create the best technology for the schools. So the
fact that the lowest bid was not selected does not mean that
anything was necessarily wrong.
Senator Stevens. My time has expired. Let me just make one
comment if I can.
A visually impaired constituent of mine wrote to me that he
is concerned because he gets directory assistance charges every
time he needs a number because he cannot read the phone book.
What have you done about that?
Mr. Kennard. I certainly share your concern about this. In
fact, when I heard you were concerned about this I asked my
staff to provide you a report on how we can solve this problem.
I hope you have had an opportunity to receive that. But in any
event, we are certainly working closely with you and your staff
to address that issue.
Senator Stevens. Well, I think it is a universal, not just
my staff and Alaska. That is a problem for all unsighted
people.
Mr. Kennard. Oh, of course.
Senator Stevens. My father was blind, so I am very
interested in that subject.
Thank you very much.
The Chairman. In the interest of--Senator Stevens, perhaps
the other Commissioners would like to comment. You raised a
very important issue and, with the indulgence of my colleagues,
I would like to allow the other Commissioners to comment on
your questions that you have asked, beginning with you,
Commissioner Ness. Do you have any additional comments to make
concerning the line of questions that Senator Stevens has just
inaugurated?
Ms. Ness. Senator Stevens has focused in on the importance
of Universal Service and the importance of completing our
Universal Service proceeding in a timely fashion. And I share
your frustration, Senator. It has been one of the more complex
issues that we have had to grapple with. We want to ensure that
the dollars that go into Universal Service are applied
judiciously, and that high-cost areas continue to have
affordable, sufficient and reasonably comparable rates. I
believe we are doing so as we speak.
There has not been a reduction in the level of funding that
has gone into Universal Service for high-cost areas. We are
working closely with the States to come up with a regime that
will continue to ensure that it is affordable. Most of the
implicit subsidies that take place within the
telecommunications system are at the State level. So we want to
make sure that funds are targeted to the high-cost areas. Where
feasible, using access charge reform, which we are hoping to
complete this fall, we will directly target those amounts,
identify them, and make them explicit.
These are difficult issues. We do not want to waste the
funding, but we do want to make sure that high cost areas
continue to receive adequate funding. And we will do that.
Senator Stevens. My assistant, Ms. Rhodes, tells me that
the Universal Service Fund remains at 1.7, but the high-cost
fund is going up to 2.25 tomorrow. I mean the Schools and
Libraries Fund is going up to 2.25.
Ms. Ness. The $1.7 billion, that is for the rural carriers.
What we have done is to continue to provide for the rural
carriers separately. They are not subject to access----
Senator Stevens. It is a flat rate, but you are going up in
the others. You are going up on the newest program before you
have assured Universal Service.
Ms. Ness. There is no reduction of funding for the high-
cost areas. Particularly, the small rural carriers are doing
very well. Their funding sources are continuing. Indeed, they
are prospering. At least as far as our information goes, there
is no reduction in
either funding or revenues for small carriers.
What we did not want to do was precipitate a regime that
would be inappropriate for the smaller carriers. We want to
make sure that any regime that we apply to them works. We
recognize that they have very different cost structures, very
different needs. We want to make sure that they are
sustainable. That is why we have said we are not going to touch
them for quite some time, and there will not be anything done
unless and until we are assured that it will work for the rural
carriers.
So that is the reason why we have not proceeded as
aggressively as you would like, as I would like. But we are
trying to put together a regime that is sustainable.
The Chairman. Or in compliance with the law.
It is not a matter of ``like,'' Commissioner Ness, it is a
matter of compliance with the law that Senator Stevens and I
are trying to get at here.
Commissioner Tristani.
Ms. Tristani. Mr. Chairman, as my colleagues have stated,
this is an extraordinarily difficult proceeding, the high-cost
proceeding. And as I stated earlier, I do want to make sure we
get it right.
I come from a State that has high-cost areas. I come from
New Mexico. It has a lot of rural carriers. It has a lot of the
carriers that we will not be addressing until later. I would
not proceed to fully support the E-Rate if I had any kind of
misgiving that it would imperil in any way the high-cost
funding or the levels of funding that they are receiving.
The Chairman. Mr. Furchtgott-Roth.
Mr. Furchtgott-Roth. Thank you, Mr. Chairman and Senator
Stevens.
Approximately a year ago, I sent a letter to the Schools
and Libraries Corporation, with a set of questions. One of
those questions, Senator Stevens, was: How much of the funding
for schools and libraries is going to fund programs that were
not the low-cost bid? How much is going to support programs
that were the low-cost bid?
I received a response, to my dismay, that they have no
information on this question, which is precisely the question
you just asked, about a specific case in Alaska. Simply told,
we do not know. No one knows. Because no one has wanted to find
out.
We also have a situation, Senator, where we are proceeding
with doubling the size of a program. We have received, it is
true, $2.25 billion, approximately, in demand. I have asked the
question: To which States have we received this demand? I have
gotten back the answer: We do not know.
We are funding a program; we cannot even tabulate where the
demand is going. And I am extraordinarily interested to
discover today the statistic that, at most, this will cost
consumers 33 cents a most.
Now, I am just a poor boy from South Carolina, but let me
tell you a little bit of arithmetic that I learned, which is
there are about 100 million households in America. Every
billion dollars is $10 per household per year; $2.25 billion is
over $20 per household per year. Now, 33 cents a month--if we
can fund schools and libraries for 33 cents a month per
household, I think we ought to fund the entire Federal budget
through this program, because that is the most amazing piece of
accounting I have ever heard. It is great. [Laughter.]
Senator Stevens. As the chairman of the appropriations
committee, I would like to find that economist. [Laughter.]
Senator Stevens. That leads me to comment, and I am glad
you will let me continue. You all are funding demands. We
prioritize demands and fund those we can afford. You are not
doing that at all. I have heard tales about one school that was
completely rewired, totally rewired, in order that it could be
hooked up to the E-Rate. That was not what was in that law at
all. You are supposed to make available the services to them
and the local school district should have rewired the building.
We would have done that, in handling the budget.
If we provide Federal funds, the States and local people
must match something. But this is a free ride. The trouble is
we are going downhill now, and it is picking up momentum, and
it is taking so much money out of this fund that we think it
will kill the Universal Service Fund before we are through. You
are taxing the users and you are allocating the money that is
coming in without any idea of prioritizing the demand that is
coming to you.
Now, I do not know who is running that School Foundation,
or Corporation, or whatever you want to call it. But we did not
create it. I understand you are going to try to federalize this
system now, to the point that you are legislating tomorrow. I
am going to watch that very carefully. I have watched the GAO
to watch it very carefully. I do not want to see you again
assume authority that you do not have.
Mr. Chairman, this is something that we must control. I
support the concept of these schools and libraries and health
facilities being hooked up. But when you go in and pay costs
that the local district and local school area should pay in
order to justify the services available under the
Telecommunications Act, I think it is a waste of money of the
users, of the ratepayers, of the system.
The Chairman. Well, as you know, Senator Stevens, an empire
was set up once before that the GAO declared illegal, which we
are paying people $250,000 a year to serve on some board that
was created. So I would argue that it certainly does bear
watching.
Mr. Furchtgott-Roth, are you finished with your statement?
Mr. Furchtgott-Roth. Yes, sir.
The Chairman. Commissioner Powell.
Mr. Powell. Senator, first of all, to give just a direct
answer to Senator Stevens' question. From my interpretation,
no, I do not think we met that stated statutory requirement. I
do not think that we conducted a single proceeding, and we
certainly did not finish it in 15 months.
The Chairman. You say you have not conducted a single
proceeding?
Mr. Powell. We have conducted proceedings, but I would
suggest that, as I interpret the law, I do not think we did
what it envisioned.
What I would say is I would focus also intensely on that
first phrase, ``a single proceeding.'' I will describe to
Congress an understanding of how critical I think that was.
Universal Service is a complex--everyone has alluded to it--a
complex, comprehensive, very difficult to manage program, with
a whole lot of money sloshing around into it. There are many
difficult judgments and tradeoffs and complexities in
allocating and making determinations as to how it should be
collected and distributed.
I think that if this program does not work out well, part
of the blame will be a number of single, separated proceedings
that make separate and distinct judgments that are difficult to
sort of calibrate at the end of the day. There is an
incongruence between how much progress there has been in the
S&L and the other accounts. I will not be one of those who
contribute to what the explanations of those are, and I
certainly support the program. But what worries me is Congress
did something, first and foremost, in the 1996 Act, in which it
said: ``Preserve and advance, but make sure you do the things
that will facilitate competition--competition for your
constituents as well as those in the city of New York.''
The part of that exercise that is most critical lays in
front of us and not behind us. I am always astonished when
people say: ``Where is competition?'' I do not find it to be
that complex where it is. We continue to have distortions in
the system that we have yet to correct. Until we do, I think it
continues to be naive to suggest that the grandest part of the
Act will be achieved in a manner that preserves and protects
the concerns that you have.
The complexity of doing it at bites of the apple and not
comprehensively, I think, are part of what makes it cacophonous
and virtually impossible at some level to do. Each stage is a
little more money. Another billion for schools and libraries.
When we do high-cost, there will be more money. Then we will
get to the parts that I think are most critical--access reform.
At what point will political will--our will or citizens' will
to bear the price of rationalization expire?
I hope it does not expire before we get to the part that I
believe is absolutely essential to any of the other goals of
the Act being achieved. I think that is the central criticism I
have.
The Chairman. What needs to be done?
Mr. Powell. What needs to be done, we are on track to do,
though it is late in coming. I think the central, most
important proceeding in this whole exercise is an integrated
high-cost access reform regime. The high-cost part, in order to
guarantee the concerns that Senator Stevens raises, and the
access reform part because the incentives are distorted.
I also want to make sure that the citizens of Alaska get a
competitive, fighting chance. I know that will not happen
unless we rationalize the cost relationships among consumers in
this regard. It has to be done very soon. We have publicly
stated we are going to commit to doing it by September. I only
hope to God we do. But we are going to get to a point where a
lot of what we had hoped for will not be achievable if we do
not.
I cannot go back and change the course that brought us
here, though.
Senator Stevens. Thank you. I am glad you are where you
are, because I certainly agree with you. But my greatest worry
is that by the time we get this decision, the bulk of the
service will be provided by people who do not contribute to the
fund at all.
Thank you.
The Chairman. Senator Stevens, there is nothing anyone
likes better than the sound of their own voice. On May 1, 1997,
Senator Burns and I wrote a letter to the FCC:
We have previously cautioned you that any attempt by the
Commission to implement one portion of Universal Service
funding without coherently and comprehensively implementing all
parts of it will not be economically rational. It will
unavoidably discriminate against some companies and subscribers
and will therefore fail to comply with the clear and
unmistakable terms of the statute.
That was a letter sent to Commissioner Hundt. I guess it
shows the utility of sending letters in this business.
Chairman Kennard, if you did have some response, I think it
would be fair to let you make that.
Mr. Kennard. Yes, I appreciate that, Mr. Chairman.
First of all, I would like to introduce a note of optimism
into this discussion. Because I think that we are--as I sat
here and listened to the discussion, I was thinking, what would
we be talking about today if the Commission had decided to rush
ahead with Universal Service, discarding the cost models,
rushing past our State colleagues who were very, very concerned
about ensuring that they had input into this process, if we had
literally blown them off, not convened a Joint Board, not done
the things that are necessary in order to form a national
consensus around these important issues of Universal Service
and access reform.
We would be having a different discussion, but I think it
would be every bit as difficult and negative. Because we would
have rushed into a Universal Service access reform plan before
we were ready to do it. We would have tried to come up with
simple, easy solutions, which would have been time bombs in the
future. None of us would be sitting here today, if we had done
the alternative, with any degree of confidence that we had put
Universal Service on a firm footing for the next century.
So, I am not here to apologize for the fact that we have
tried to move cautiously and in a way that develops a
comprehensive record, reached out to a lot of people in the
industry and in the States, in order to do what I think is most
prudent in order to solve this problem. In the meantime, I
think it is really important to note that the companies that
are receiving Universal Service support are doing very, very
well today in this country. Their rates or return are higher
than they have ever been. They are continuing to provide
Universal Service subsidy support to consumers in rural areas.
The Lifeline Program is healthy and it is better than it has
ever been.
So, yes, we have not come up with a consolidated solution
on access charge and Universal Service reform. We will. We are
on track to do it. We are doing it in a way that will, in my
view, build a broad consensus for an ultimate solution we can
all be proud of.
The Chairman. Senator Breaux.
Senator Breaux. I want to make sure the Chairman has
finished his line of questioning. I do not want to step on your
toes at this critical point in our legislative process. I do
not have much in there; I want to keep what I got, just a
little bit. [Laughter.]
Senator Stevens. This all started back when we started a
rate integration resolution in the seventies, to require the
integration of Alaska and Hawaii into the overall interstate
rate pool. Literally, everything started flowing from that. But
I have a deep and abiding involvement here, and I do thank you
for your courtesy.
Senator Breaux. Thank you.
I am going to change the subject for just a moment. I
guess, Mr. Chairman, maybe I will direct this to you, and
anybody else can chime in. I want to talk about advanced
telecommunications capability data transmission in particular.
I remember when we were debating the 1995-96 Act that we did
not get into a lot of discussion on the regulation or
deregulation of data transmission--for instance, advanced
capability communication ability. We did have a section 706,
which you all are very familiar with, that was in the statute.
That said we should be encouraging the deployment of advanced
telecommunications capability. We said that the Commission
shall make some inquiries to basically determine whether the
advanced telecommunications capability is being deployed in a
reasonable and timely fashion and, if not, take immediate steps
to try and encourage it.
It seems to me that in the process of making some of those
determinations in the section 706 proceedings that the question
of whether there is a monopoly out there in data transmission
or not was considered by the Commission. It seems that what you
all have said in this area is that you believe--and I am
quoting now from the proceedings--that it is premature to
conclude that there will not be competition in the consumer
market for broadband. The preconditions for monopoly appear
absent. Today, no competitors have a large, embedded base of
paying residential consumers, and the record does not indicate
that a consumer market is inherently a natural monopoly.
Now, the question that I need some discussion on: If we
conclude that data transmission, for instance, is not in a
monopolistic situation in this country, it would seem to me
that in the absence of specific authority to regulate cross-
boundary transmission of data is not present in the Act.
Therefore, my question, I guess, Mr. Chairman, is this: Is it
free and open to provide data services across borders now,
across the LATA's? If it is not, that would infer to me that it
is being regulated. If in fact it is being regulated, what is
the authority? I find none in the statute.
I know that we do not take the position that if it is not
prohibited, then we regulate it. You have to have some
authority to regulate something, I think, before we regulate
it. But just do not regulate something if there is no authority
to do so in the absence of a monopoly, which apparently has
been concluded by the Commission. So, you understand what I am
trying to get to. Can you comment on that?
Mr. Kennard. Yes, I believe I understand the question. I
think you have to parse carefully what the Commission
determined in that 706 order. You have to make a distinction
between the services, the advanced services, themselves and the
facilities over which they are provided. Clearly, advanced
services today in America are being provided over, for the most
part, essential facilities that are still controlled by
providers who have monopoly power, the last mile into the home.
That is still a monopoly service--only one provider, only one
wire into the home, providing advanced services, at least on
the telco side.
So the Commission has been careful, I believe, in its
orders----
Senator Breaux. Just on that point, how does that statement
jibe, if you will, with the statement that the record does not
indicate that the consumer market is inherently a natural
monopoly? Is that not contradictory to what you just said?
Mr. Kennard. Well, today, in advanced services, it is a
very nascent market. There are less than a million DSL
subscribers, less than a million cable modem subscribers in the
country. Nobody has a monopoly in the provision of those
services. But people do have a monopoly in the facilities over
which they are provided. That is the distinction that I am
trying to draw. So we certainly have authority to control
access to that essential facility, that copper wire.
We have not regulated the service itself. I think that we
have been careful to say very clearly that we are not
interested in regulating the provision of the service, but only
at the whole level, the way people access the essential
facility to provide it.
Senator Breaux. Well, can the RBOC's provide data across
the LATA's or not?
Mr. Kennard. No. Except in very narrow circumstances.
Senator Breaux. What is the authority in the Act that
prohibits them from doing that? I do not think we discussed
this in the Act, to tell you the truth. We talked about voice
transmissions. The only thing I can find that we did on
advanced communication capability data transmission is to tell
the FCC to take a look at it.
Mr. Kennard. The FCC did take a look at the issue you
raised, whether we could, in effect, give broad-scale inter-
LATA relief to RBOC's for data alone. Almost a year ago, in
August of last year, the Commission determined unanimously that
the statute did not give us authority to, in effect, deregulate
the provision of inter-LATA advanced services. And that was
based on our best reading of section 271 of the Act.
Senator Breaux. Well, it would seem to me that you did not
have authority to deregulate it, but you never had the
authority to regulate it in the first place. Do the judicial
decisions regulate data transmission?
Mr. Kennard. Well, in many cases--I would say in virtually
all cases--these are offered on an integrated basis. Now, we
have proposed a pathway for the Regional Bell Operating
Companies to provide these services, essentially in a
deregulated fashion, if they are willing to put those data
services in a separate subsidiary. Then they could, and should
be, deregulated. But as long as they want to offer it on an
integrated basis, they are subject to section 271 of the Act.
Senator Breaux. My concern is I do not know how we proceed
to deregulate something without the authority to regulate it in
the first place. You talk about we have not deregulated, but I
do not know where the authority to regulate it comes from in
the first place. It seems to me that the court decision did not
talk about data transmission, and nothing in the Act talks
about deregulating it or regulating it. I just do not know how
we have the authority to say you cannot do that, because we
never addressed that issue.
Mr. Kennard. Well, we looked at the Act when this question
arose, and it was fairly clear to us that the definition of
telecom services under the Act encompasses both voice and data.
Absent an explicit congressional directive to the contrary, we
have to enforce the Act as it is written.
Senator Breaux. What else does it include that we did not
spell out? Are there a whole bunch of other services out there
that probably can be lumped into that, too, that we never
talked about?
Mr. Kennard. I do not think it is a long list, but I would
be happy to talk to you about that at some point.
Senator Breaux. Any other commissioners have anything to
add to my question?
[No response.]
Senator Breaux. Everybody is in agreement with the Chairman
on that?
[No response.]
Senator Breaux. I take it by your absence of saying
something is regulated, we can assume the answer is yes?
Mr. Furchtgott-Roth. Senator, if I may just simply confess
my ignorance. I am not quite sure I follow the question.
Senator Breaux. Maybe it is the ignorance of the
questioner.
Mr. Furchtgott-Roth. No, no, no. It is a complicated
question. But I think the Chairman did raise a good point, that
section 271 addresses telecom services, and we are sort of
bound by the language of the Act.
Senator Breaux. OK.
Thank you, Mr. Chairman.
The Chairman. Senator Snowe.
Senator Snowe. Thank you, Mr. Chairman.
I want to welcome the chairman and the members of the
Commission.
First, I would like to ask a question that has had a
particular impact in my State, and perhaps other States as
well. It is the issue of the area code. I think, as you know,
Mr. Chairman, and members of the Commission, that the State's
Public Utilities Commission has asked to have delegation
authority to undertake the determination on how to use the
existing area code as opposed to dividing up the State and
having another area code. As you know, they have been ordered
to do so, although we did understand today that the North
American Numbering Plan Administrator has pushed off the date
from July 1999 to the year 2001.
But, nevertheless, I think that it is important for the
State's Public Utilities Commission to be able to have the
ability and the authority to administer their own plan with
respect to the area code. I think it is totally unnecessary to
divide the State up into another area code. It is a rural
State. The fact is, they still have enough under the existing
area code that represents five times Maine's population. So I
think it is unnecessary in terms of the economic costs, the
social implications, to require a new area code in the State of
Maine.
When could the State's PUC expect a decision from the
Commission with respect to having this additional authority?
Mr. Kennard. We have received a petition from the State of
Maine. In actuality, before the petition was filed, I met with
the chairman of the Maine Public Utility Commission, Tom Welsh,
who, by the way, is an extraordinarily talented man. You are
lucky to have him. We discussed how we could give the State
more flexibility to address this issue. I anticipate that that
decision will come out in a matter of probably a couple of
months.
Now, in the meantime, at tomorrow's meeting of the full
Commission, we intend to address this problem. The fundamental
problem is, as a country, we are running out of numbers. We
will hopefully address this problem at tomorrow's meeting by
coming up with new ways to allocate numbers so that we can
conserve them.
Senator Snowe. Are other States facing a similar problem? I
think it is important for States to have the flexibility,
because it does have an impact. I think on smaller States most
especially, because of the cost to small businesses and also
the social impact. I think that Maine's PUC certainly has
demonstrated that it would fulfill its obligations in
developing a conservation plan. But also I think there is the
ability to continue to use the existing area code without
imposing this whole new system and another area code in the
State.
Mr. Kennard. We are seeing this problem crop up in States
around the country. My own personal view on this, and I have
conveyed it to my colleagues in the States, is that these
matters are intensely local. They tend to be intensely
emotional. We at the Federal level should be delegating as much
authority to the local State commissions to deal with this,
because they are more familiar with the issues locally than we
are, provided that none of the solutions frustrate our Federal
goals of administering our Act and promoting competition. And
we will continue to do that.
Senator Snowe. Have other States made similar requests?
Mr. Kennard. Yes. We have had discussions and requests from
the State of Pennsylvania. I think California has a request in.
It is a problem in a number of States.
Senator Snowe. Well, I would urge the Commission to
consider the flexibility involved. I would hope that that would
be possible.
On the other issue of the E-rate, and I know it has already
been mentioned--first of all, I want to commend you, Mr.
Chairman, for urging full funding of the E-Rate. I hope the
full Commission--I know you will be considering that issue
tomorrow--will support it. I always find it a little bit
amazing and somewhat ironic that the E-Rate is challenged,
given the global economy that we live in today, that 6 out of
10 jobs require technological proficiency, and even more so in
the future.
I think about last year's overwhelming support in Congress
for an increase in the number of H-1B visas that would be made
available to bring high-tech workers into this country because
there are 190,000 jobs that are not able to be filled by
companies across the country because we do not have the skills
necessary in our workers for technology. So I cannot think of
anything more important than ensuring that our school systems
and libraries all across the country have access to the
Internet, that they are wired, that individual classrooms are
wired.
Only 51 percent of individual classrooms in public schools
are actually connected to the Internet in this high-tech age.
And so I see the need ever more. As I go through schools in my
State and as I was visiting with a technical college in Maine
recently, I can only tell you one thing--it is learning the
skills that are necessary to fill the jobs that are going to be
out there.
In fact, we had a hearing yesterday on the small business
committee, talking about the number of unfilled jobs because
the workers do not have the technology skills. So I see the E-
Rate as becoming increasingly important to the future of this
country and to the future of the workforce.
Mr. Kennard, can you tell us, from your perspective--and
any members of the Commission--about the impact that the E-Rate
has had from what you can see, in terms of the applications?
Mr. Kennard. It has been tremendously positive. I know that
not only from the statistics that I have seen, but also
anecdotally. I have visited many schools in the country--inner-
city schools rural schools--where literally you see kids' lives
changed by their ability to get access to technology. I have
seen this happen.
In the year that this program has been in effect, we have
been able to improve the lives of about 38 million children,
80,000 schools and libraries around the country, and wired over
600,000 classrooms. Those are very tangible benefits. And those
benefits will pay dividends for years and years to come in our
country. So I agree with you.
Senator Snowe. Is it true that 65 percent of rural schools
and libraries that applied for E-Rate funding for this year are
in the 70-percent discount level? In other words, that is
demonstrating a tremendous need?
Mr. Kennard. I cannot confirm that percentage, Senator, but
I do know that one of the reasons why full funding is important
is to reach the large proportion of rural schools that tend to
be in that 70-percent band.
Senator Snowe. So the $2.25 billion is not only necessary
to meet the existing demand for the program, but also the long-
term needs of our Nation?
Mr. Kennard. Absolutely.
Senator Snowe. How many applications can we expect for this
coming year?
Mr. Kennard. Well, we have received this year about 30,000
applications, requesting $2.4 billion in funding. We do not
fund to demand. I wanted to just correct the record on that.
There is a cap of $2.25 billion. So this year, even at full
funding, we will have to turn away a lot of applicants and a
lot of schools.
Senator Snowe. What kinds of requests are they making?
Mr. Kennard. Requests for a range of services; primarily
the ability to wire the classrooms to the Internet. That is the
particular need of the poorest schools. Internet access. Basic
telecommunications services. All manner of E-mail applications.
Senator Snowe. I would hope that the full funding is
provided. I see it as a tremendous need in this country.
Technological illiteracy is having an impact on companies in
filling their positions. We need that. When you think about
Internet access among lower-income, high-minority schools, it
is even worse. Only 39 percent of the classrooms in low-income
schools have this access, and only 37 percent of classrooms
with minority populations of 50 percent or more.
So I would hope that we could get support for the full
funding, and recognize that wiring classrooms and making sure
that our classrooms have the necessary technology to meet the
needs of the future--not only for themselves personally and
professionally, but for this country.
So I thank you for your leadership on this issue.
Mr. Kennard. Thank you.
Senator Snowe. Thank you, Mr. Chairman.
The Chairman. Senator Cleland.
STATEMENT OF HON. MAX CLELAND,
U.S. SENATOR FROM GEORGIA
Senator Cleland. Thank you, Mr. Chairman.
I just want to echo the wonderful sentiments and statement
of Senator Snowe. I want to thank Senator Snowe and Senator
Rockefeller and the leadership of this Committee for putting
together such an innovative program. I was not here on the
Committee when the 1996 Telecommunications Act was passed--
thank God. [Laughter.]
Senator Cleland. But I do get the opportunity to interpret
what in the world happened. I will say to you that I think this
is one of the most far-reaching aspects of it. I say that, and
applaud you, Mr. Chairman, for pressing on in your effort to
have the education rate, the E-Rate, funded, so that our
libraries and schools throughout our country can be connected.
I was speaking to a young, bright software developer who has
become a billionaire, as so many of these Internet and cybernet
companies have become very wealthy. And he said, the worst
thing you can do is to be out of the Net. If you are out of the
Net, you are out of business in many ways, and you are out of
the education business certainly.
In my State, Mr. Chairman and members of the Commission,
this E-Rate alone has meant some $77 million to schools and
libraries in my State. They are in the Net, and we thank you
for that.
As a matter of fact, I have sent a letter to every school
superintendent in my State, emphasizing the importance of being
part of the new global cybernetics economy and taking advantage
of the E-Rate opportunity.
Well, thank you for that.
I would just like to say that I have BellSouth based in
Georgia. I like it. It is a wonderful company. I think it is
going to be a leader in terms of fulfilling the intent of the
1996 Telecommunications Act. As a matter of fact, BellSouth is
applying to the Georgia Public Service Commission, and has an
application there underway, with a third party review. If they
get approved by the PSC in Georgia in September or October, I
think they might be the first Regional Bell Operating Company
to get State permission, and they will be coming then to the
FCC for your concurrence, so they can participate as the Act
envisioned.
So I am proud of BellSouth and its efforts to comply with
the law and be a leader and step forward. They are doing that
at this moment in Georgia. You can be looking forward to an
application coming to the FCC from BellSouth. It does look like
they will have good results with the Georgia Public Service
Commission, dated sometime in September or October. I just
commend that application to you for prompt acceptance, because
I think it will help set a tone for the Regional Bell Operating
Companies that we need set very badly.
I would say to you also that I am concerned about the fast
pace of, shall we say, mergers. There are so many things
happening in the world of telecommunications today that are
fast paced, it is almost difficult for regulators and
government officials and legislation to keep up with it, to
keep apace of what is fair and just. But I noticed that SBC and
Ameritech are currently waiting for a decision on their
proposed merger.
I just wonder where the FCC really comes in this whole
merger business. I am new to the Committee. I know the
antitrust people in Justice have a role. But educate just a
little bit about your understanding maybe, Mr. Chairman, and
any members of the Commission that want to chime in. Where do
you see yourself in this fast-paced, fast-moving merger,
buyout, long-lines, AT&T connecting up with cable, and others
connecting up with other operations? It is a fast-paced
business. Where do you all fit in, in commenting or making an
observation about how this impacts on the world of
telecommunications and competition particularly?
Mr. Kennard. Well, Senator, we try to look at these issues
through the eyes of the consumer, because we are pledged to
protect the public interest. The best way to do that is to do
all of our decisions through the prism of the public. So what I
try to do in my decisionmaking is to determine how best to
serve the public, consumers.
In the context of mergers, our review is quite different
from the review of the Department of Justice and the Federal
Trade Commission. We, alone among those agencies, have an
obligation, given to us by statute, to make sure that the
public interest is served in those decisions. That is why we
have ensured that--and I feel very strongly about this--that
when we make these decisions involving large mergers, that will
affect the structure of this industry for years to come, that
we ensure public participation.
So we have reached out to States Attorneys General and
consumer groups and labor unions and competitors, although they
are always there anyway, to make sure that their voices are
heard in these debates. Because if we close our eyes or close
our ears to the issues that they are going to raise, I do not
see how we can advance the public interest.
Senator Cleland. Thank you very much.
Does your staff or do you all have to file or want to file
an amicus curiae brief, or friend of the court brief, with the
Justice Department, and say, ``We have looked at it from the
consumer point of view and we think that this merger here might
create an unfair advantage, a monopoly, and be unfair
competition.'' Do you all wade into those kind of issues? Do
you file those kind of briefs with the Department of Justice?
Mr. Kennard. We typically do not. The Department of Justice
does not have--it is not an Administrative Procedures Act
agency, so it does not have the same open public processes that
we do. Typically it goes the other way. The Justice Department
will comment in our proceedings occasionally. But we do
coordinate with them. We endeavor to ease the regulatory
burdens on parties that have to get approvals from both the
Justice Department and the FCC.
Senator Cleland. Mr. Chairman, may I have one more
question? I know my time is up.
The Chairman. Yes.
Senator Cleland. In 1985, the Fairness Doctrine,
unfortunately in my opinion, was eliminated in terms of
political campaigns and issues discussed on the public
airwaves. Senator Wyden pointed out that the status of American
campaigning today is atrocious at best. I just wondered if
there is any sympathy among the Commission for bringing the
Fairness Doctrine back in order to establish some kind of more
level playing field for discussion of political issues today
and political campaigns?
Mr. Kennard. Well, I would just note on that subject that
there are two rules that are related to the Fairness Doctrine
that are still in force at the FCC--the Personal Attack Rule
and the Political Editorializing Rule--that are being subject
to court challenge right now. But we do not have a pending
docket on the Fairness Doctrine today, no.
Senator Cleland. Thank you very much, Mr. Chairman.
The Chairman. Thank you very much.
Mr. Kennard, of those referenced in an earlier question,
those 1 million subscribers to advanced broadband services, do
not over 700,000 of them subscribe to cable?
Mr. Kennard. The last figure that I looked at----
The Chairman. Roughly.
Mr. Kennard [continuing]. Roughly--about 700,000 cable
modem subscribers and about half a million DSL subscribers.
The Chairman. Is not cable a local monopoly?
Mr. Kennard. It is. Certainly, in most parts of the country
it has a monopoly on the provision of those services, yes,
cable services.
The Chairman. Well, why should not cable be forced to open
its monopoly facilities for data like the telecos have to for
voice?
Mr. Kennard. It is a tough question, Senator, and one that
we have been doing a lot of thinking on recently at the FCC. A
lot of people came to the agency, first, I guess, in the
context of the 706 report, and then, later, in the context of
the AT&T-TCI merger, and urged those of us at the Commission to
require that the cable plant be opened.
Speaking for myself, my view is that that marketplace is
still in its infancy and one that really no one presented a
credible proposal on how the FCC should get involved. At the
end of the day, I decided that we should closely monitor the
deployment of these services, but that ultimately our goal
should be to encourage multiple broadband pipes into the home
as opposed to trying to regulate up, as I call it--put cable on
the same regulatory platform as the telecos. Because as I know
you know, the goal of our law is to introduce competition and
deregulate as quickly as we can.
The Chairman. Well, as I understand the facts, the
competition is not there. There are two controllers now of
broadband access, one of whom is AT&T and the other is the
cable industry. I would be very interested in how we can get
that competition in there.
I would like to talk about forbearance for a minute. How
many forbearance petitions has the FCC granted since the 1996
Telecommunications Act was passed?
Mr. Kennard. Of the forbearance petitions that have been
filed, if memory serves, we have received nine petitions, and
granted, either in whole or in part, six of those. I should
say, we have received 23, we have considered 9--taken them to
decision, that is.
The Chairman. On the 14-point checklist, you wrote, on May
10, you disagreed with an assessment that we made that there
was actually more than 14 points on the checklist. What is your
specific numerical answer to the following question: If a
Regional Bell Operating Company were to apply for section 271
authorization tomorrow, how many individual requirements would
that company have to satisfy?
Mr. Kennard. Well, the statute establishes a 14-point
checklist. The number of requirements on the checklist will not
change unless you decide to change the law. Now, the way the
checklist works is the FCC determines whether a Regional Bell
Operating Company has complied with various requirements of the
Commission, which are incorporated, by reference, in the
checklist. So there are a number of requirements that have to
be met.
The checklist itself, Mr. Chairman, incorporates, by
reference, compliance with a number of FCC rules that are
adopted, for the most part, under sections 251 and 252. So I
have never made a specific count. The requirements vary from
company to company, depending on their unique circumstances.
The Chairman. Would any of the other commissioners like to
comment on those previous two questions concerning broadband
access and the checklist?
Commissioner Ness.
Ms. Ness. Is your question with respect to broadband
access, the question that Senator Breaux raised earlier?
The Chairman. No. Concerning the fact that cable controls a
significant--go ahead.
Ms. Ness. On the cable access issue, we believe that it is
still in a nascent stage, that the cable infrastructure and
cable regulation came up through a very different regime than
did the common carrier regime. We are monitoring the situation.
I care very much about openness. I care very much about access.
I care very much about interoperability. Nor have we concluded
at this time that there is no jurisdiction. But I do believe
that the competitive factors are in play right now and that no
action is needed at this time.
The Chairman. Commissioner Tristani, do you have any
comment?
Ms. Tristani. I would agree with Commissioner Ness on that.
The Chairman. Commissioner Furchtgott-Roth----
Mr. Furchtgott-Roth. Mr. Chairman----
The Chairman. Both questions, the checklist as well as the
broadband access.
Ms. Tristani. On the checklist, I agree with Commissioner
Kennard.
I wanted to add something on the opening up of the cable.
Cable is where broadband is really being deployed at a rapid
rate. My concerns, aside from some jurisdictional ones because
I am not sure whether we have got the right framework, are that
if we start regulating when the market seems to be working very
well we might stifle the little bit of broadband deployment
that is going on.
Mr. Furchtgott-Roth. Mr. Chairman, on your first question
about unbundling of cable, in my review of the statute I find
absolutely no basis for the Commission to make that requirement
of cable operators. I have a longstanding position that the
Commission should stay clearly and narrowly within the law as
it is written, and I find no basis for us to impose that
requirement on cable operators.
On your second question, about the 14-point checklist, I
think that the Commission must review each application in the
context of the statute as it is written. I have addressed this
issue in more detail in the second Bell South Louisiana
application, which you may find of interest.
The Chairman. Yes.
Ms. Ness. If I may respond to your second question, on the
checklist. I believe that we have appropriately interpreted the
statute. It does refer back to 251 and 252 and we have applied
those sections appropriately and have been so far upheld by the
courts in our interpretation of 271.
The Chairman. Well, of course the congressional
interpretation of the law was that within a year to a year and
a half everybody would be competing with everybody else. That
was the expectation. Now we are nearly 4 years later and that
obviously has not happened, so something went awry between the
time the legislation was deliberated on and passed and what has
happened since.
Commissioner Powell.
Mr. Powell. Senator, on the cable access question, I think
you actually put your finger on the most difficult part of the
public policy question over time, which will be: Is there
justification for treating them different? But I would defend
the proposition that, because of their legacies and the way
they come to us, they do have differences that are difficult to
resolve.
I would also submit that, my sound bite for this is that it
is like an algebraic equation that still has too many variables
to solve. It is easy to talk about the potential importance of
doing something like that or doing it, but as I dig into this
deeper and deeper there are an intense number of unknowns, even
technically, about how the service works or whether it will
work.
I would submit, by the way, that I am far from convinced
that it has already arrived and is the successful, essential
facility for broadband, as some suggest it is. Indeed, many
companies that have deployed these bundled cable offerings have
had catastrophic failings. Others have been more successful.
I also guess I believe that I think that the thorniness of
the interconnection regime in the phone context should be
avoided, if possible, at all costs. I think it is expensive, it
does not work all that well. I see in the marketplace
competitors fighting aggressively to find alternatives to that
cable possibility and driving innovation in order to produce a
world in which there may be two, three, four, or five other
alternatives to the home, and I think that there is energy
there and we should be a little bit careful in too prematurely
stifling those possibilities.
Turning to the question of the checklist, clearly there are
14 points. That said, there are a lot of subtleties that
require other considerations, as my colleagues have outlined.
But I cannot emphasize enough that I have some of the same
concerns about the proliferation of items, but feel quite
frustrated that I cannot have the vehicle to address some of
them in the absence of a duly constituted presented
application.
Since July of last year, we have not had such an
opportunity. They will say rightly that they are not
comfortable with what all the requirements are. But the truth
be told, a lot of the problems are what it takes to satisfy and
get the approval of the State commissions, which we have had
not that much direct involvement in.
The Chairman. Thank you. Our vote has started and I want
Senator Rockefeller to be able to ask his questions and we do
not want to keep you to go back and forth.
I already talked to Chairman Kennard over the phone about a
statement that was made by one of his senior staff people on an
important decision on the Ameritech--SBC merger. I pointed out
that there was $4 billion in market capitalization that was
lost as a result of his statement. Whether or not a penny was
lost, we constitute you Commissioners to make these decisions,
not the staff people.
My staff do not make decisions for me, nor do they voice
what my decision will be. It is unacceptable, it is
unacceptable for a person who is a staff person, who is
unaccountable to Congress, as you are, to make statements that
disturb markets and distort a process that you are supposed to
be going through and making the final decision on.
I am very disturbed about it. A lot of us are very
disturbed about it, because we vest and place responsibility in
you to make those decisions, not staffers who we have no
control over and has no accountability to us.
We may disagree on decisions and we may disagree on
policies, but at least there is an accountability and there is
a dialogue. I do not even know who this guy was, but it is not
acceptable and it is a practice that should cease immediately,
as my letter indicated that it should. The accountability rests
on the Commissioners, who are confirmed--are nominated by the
President of the United States and confirmed in their positions
by the Senate of the United States. We take that responsibility
very seriously.
Senator Rockefeller.
Senator Rockefeller [presiding]. Thank you, Mr. Chairman
I guess this will be the last statement or question. Just
looking at the question of the E-rate, it strikes me that this
has been really an all-inclusive process. It has not been
entirely a happy one, but it has been a very good one. I think
that both Senator Stevens and Senator McCain have played a very
large part in it.
I really go back to the debate we had in this Committee and
then the debate that we had on the floor. It was a bipartisan
deal that was struck on the E-rate on the floor.
It was retained in the conference committee. In the law
there are three separate designations of classrooms. In the
conference report there were two more, three more.
So again, it came about from the very beginning as a
bipartisan vote and a bipartisan effort. But then it went on
from that, because it then went to the joint board. The joint
board was not the Federal Communications Commission, but the
joint board was a special thing and that involved the States. I
can remember making phone calls to various people that I never
heard of in States that I had heard of. But it was a very
inclusive process.
They made--they contributed to setting what the funding for
the E-rate level might be. Then the FCC came back and there was
the Stevens report in 1998 and the FCC responded to that and
made a number of adjustments because of that. In fact, you
restructured the administration in some ways, Chairman Kennard,
of that. You set new funding priorities.
They are very carefully laid out--telecommunications,
Internet access, only internal connections to get to the
classrooms. The things that are not allowed, are allowed, and
those that are allowed are very clearly delineated. Poorer
schools first, which you have talked about.
Then Chairman McCain, I think, made an enormous
contribution when he called for the GAO report when there were
questions being raised about that, the whole schools and
libraries effort. Then you responded in fact to all of the GAO
requirements and suggestions, so that in turn responded to the
Chairman of the Commerce Committee.
So I look at the E-rate and I look at my State and I look
at the 60 percent of jobs in this country that require
computing skills and the 22 percent that have it. I look at the
82 percent, whatever it is, 80-plus percent of the American
people, that want the E-rate, that think it is a really good
thing. I try to contemplate the future of my State and my
country without the E-rate, and I shudder with fear. The E-rate
in a sense is probably the principal vehicle to allow us to be
competitive in the world that confronts us.
So I think all in all this has been a pretty good process.
It has not been without controversy. Nothing involving the FCC
is without controversy. As you say, you are sued on everything,
and if you are not sued then somebody puts litigation up
against somebody else and you are blocked from doing things.
But I think it has been a fairly inclusive process.
I would just end on this note, that I remember back a
couple of years ago there was a lot of controversy when
California, Silicon Valley, imported 50,000 French IT workers.
There was a huge hullaballoo across the country and in this
body: Why could we not get our own? Well, the reason we could
not get our own is we did not have them. I think the figures on
California 2 or 3 years ago was, only 15 percent of their
classrooms were wired up, and it struck me there just might be
a connection between those two things.
So the E-rate I think is an enormously positive factor for
our country, perhaps one of the most fundamentally important
things for our country to do. It has been a participatory,
bipartisan process from the beginning, not without some
controversy, but what of importance is without controversy.
So now, for the first time as Chairman of the Commerce
Committee----[Laughter.]
Senator Rockefeller [continuing]. I want to thank the
Commissioners, not just for being here for 3 hours today, but
for having really I think the hardest jobs in Washington. Also,
as I have told Chairman Kennard, if I were his age, yours would
be the job I would want.
Hearing adjourned.
[Whereupon, at 4:49 p.m., the Committee was adjourned.]
A P P E N D I X
Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana
Thank you, Mr. Chairman. As we move into an era where human thought
can be transmitted across the globe at the speed of light, it becomes
increasingly important that regulatory hurdles not impede the dramatic
potential of new technologies.
Unfortunately, the Commission has consistently failed to act on
issues critical to the future of this country's information
infrastructure, even when it has been clearly told to do so by
Congress. As the author of Section 706 of the Telecommunications Act, I
am particularly concerned at the Commission's incredible decision that
broadband deployment throughout the country is ``reasonable and
timely.'' Section 706 directs the FCC to engage in deregulatory action
to make these technologies available to ``all Americans.'' Simple
common sense dictates that the current level of broadband deployment in
U.S. households--less than two percent--does not equal ``all
Americans.'' I will not allow Montana and rural America to be left
behind in this critical area because of bureaucratic inaction.
Universal service has been another prime example of the
Commission's continuing inaction on a crucial matter. The Committee has
been assured time and again that comprehensive universal service reform
would be completed in rapid order. First it was delayed from May of
1997 until January 1999, in order to focus on the erate program. Then
came a further delay until July 1999. I was assured at that time, as
were several other members of the Committee, that this additional time
would allow for universal service to be completed in the right way. Now
we hear that an additional delay might take place and that no action
will occur until September 1999. I have to say that, frankly, the
timeline of the universal service order is beginning to resemble that
of the construction schedule of the Denver International Airport.
While it has not acted on universal service, the Commission has
instead decided to dramatically expand the erate program by $1 billion
a year. The fact of the matter is that it is impossible to get
something for nothing. If the cost of the erate is raised $1 billion,
that cost will be borne directly by consumers.
I want to make it clear, however, that I have always supported the
goal of connecting all of our schools to the Internet, as well as the
provision of advanced telecommunications services to rural health care
centers. I just felt that it was wrong to fund these programs on the
backs of American consumers. It is with this in mind that Chairman
Tauzin and I have proposed using one-third of an outdated 3% excise tax
on telephones to fund the schools and libraries and rural health care
programs. Currently, none of the money collected by the tax goes to
fund telephone service for Americans.
This proposal is a win/win solution. It's a win for consumers,
since it would eliminate the need for new charges on telephone service.
It's a win for taxpayers, who would see billions of dollars in current
taxes eliminated. It's a win for our schools, libraries and rural
health care centers, who would see their programs fully funded without
threatening universal service.
I would now like to turn my attention to the obvious need for
structural reform at the Commission. The current structure of the FCC
has impeded rather than fostered the movement toward deregulation. In
previous oversight hearings, I have expressed my concern that
significant overlap exists between the Bureaus, particularly in the
case of mass media regulation. In addition, the volume of new FCC rules
and regulations has increased tremendously, as has the sheer volume of
court appeals. Clearly more must be done to foster the move towards
deregulation and open markets. We must streamline the Commission's
structure to create a regulatory framework that encourages innovative
technologies and consumer choice.
I look forward to the testimony of the witnesses on these issues
that are so vital to our nation's future
Thank you, Mr. Chairman.
Prepared Statement of Hon. Slade Gorton, U.S. Senator from Washington
I look forward to hearing from the FCC Commissioners. Your jobs are
among the most fascinating imaginable. The evolution of communications
technology within the last few years has been extraordinary, and
promises to revolutionize not only how we communicate, but how we
transact business, how we assess taxes, how we reconcile conflicting
domestic and international laws for mediums that know no boundaries, to
revolutionize, in essence, the way we live.
While your jobs are fascinating, I wouldn't want them. The
challenges you face are daunting. My limited exposure to some of the
contentious issues facing you has increased my respect and compassion
for you all.
On the subject of Universal Service in particular, I appreciate how
hard your task is. But I agree with Commissioner Furchtgott-Roth that
the schools and libraries fund appears to have received far more
attention and promotion from the Commission than the much more critical
issue of how to reform the enormous subsidy system for rural and high
cost areas to ensure competition while guaranteeing affordable service.
In part because the Commission is set to vote tomorrow on increasing
significantly the size of the schools and libraries fund, however, I
would like to address three issues regarding that program.
The first is the size of the e-rate program. I understand that you
will vote tomorrow on a proposal to expand the size of the fund to
$2.25 billion per year. Those who advocate a larger fund assert that
the requests from schools and libraries for grants and subsidies exceed
the current fund. One would hope so--who wouldn't ask for ``free''
money? The problem, of course, is that the money is not ``free.'' The
schools and libraries program is paid for by every telephone user in
the country, and the tax now shows up on everyone's bill.
Before the current e-rate program was adopted by the FCC, the
Commission told us that the new subsidy program would not cost anyone
anything,. This curious assertion, cloaked in a Rube Goldberg-like
explanation of access charge reductions and increased usage rates, was
eagerly accepted by many. But it proved to be untrue. Now, we are again
told by the Commission that the fund can be significantly increased at
no cost to anyone because customers' increased payments to the schools
and libraries fund would be offset by lower long distance charges. The
long distance charge reduction, the FCC says, will come from lower
access charges, that is, payments from long distance companies to local
companies. Doesn't this mean that the local companies, if they don't
pass the charges on to consumers, end up paying for the increase in the
schools and libraries fund? I would like each of the Commissioners to
explain why the fund can be increased at no cost to anyone.
My reservations about the size of the schools and libraries funds
and who really will pay for it do not prevent me from wanting to ensure
that Washington state gets its fair share of the existing pie, and that
my state's policies are not undermined by the federal government. The
other two issues regarding the schools and libraries fund are peculiar
to Washington state, and are ones about which I have written to each of
the Commissioners on a number of occasions.
Before the FCC adopted regulations implementing the schools and
libraries program, Washington state had adopted its own programs to
facilitate deployment of advanced and low-cost telecommunications
services to schools. Unfortunately, the FCC's rules undermined the
Washington state efforts in two ways, both of which are the subject of
petitions to the FCC that I fully support. The first problem is that
Washington state intended to include private colleges in its advanced
services network, but the FCC rules would cut subsidies for all schools
that are part of the network if private colleges are included. The
second problem is that telecommunications services that are provided to
schools directly by Washington state, as opposed to being provided by
carriers, are not eligible for subsidies. This effectively penalizes
Washington state for having taken the initiative in providing access to
telecommunications services for all students--my constituents in
Washington state pay into the federal program, but, because of the
current FCC rules, don't get their fair share of the benefits. I
strongly encourage you to grant the Washington state petitions on these
issues.
__________
Response to Written Questions Submitted by Hon. Conrad Burns to
William E. Kennard
Question 1. Chairman Kennard, Senator McCain and I have sent you
letters recently regarding the pending broadcast ownership proceeding
involving duopoly, LMAs, and one-to-a-market. As you know, in those
letters we were very clear that the intent of the 1996 Act was to
liberalize these rules. Can you tell me what the status of the
proceeding is and when you plan to act?
Response. On August 5, 1999, the Commission concluded its
attribution, local TV ownership, and national TV ownership proceedings
by adopting new rules. The rules we adopted reflect a careful balancing
of our goals of protecting diversity, localism, and competition with
the need to update the ownership rules to reflect changes in the
telecommunications marketplace.
We relaxed both our TV duopoly and our radio-television cross-
ownership rules. With respect to the TV duopoly rule, we will allow
common ownership of TV stations in separate DMAs regardless of contour
overlap. We will also allow common ownership of two television stations
in the same DMA if there is no Grade B overlap between the two stations
or if, after the merger, eight full-power television stations
(including both commercial and noncommercial stations) remain in the
DMA, and at least one of the two merging television stations is not
among the top four-ranked stations in the DMA. We have also established
standards for waiver of the TV duopoly rule, involving failed, failing,
or unbuilt stations.
With respect to the radio-television cross-ownership rule
(previously referred to as the one-to-a-market rule), the new rule
would allow common ownership of up to two television stations and six
radio stations (or one television and seven radio stations if the TV
duopoly rule could also be met) in the same market if twenty voices
will remain in the market post-merger, up to two television stations
and four radio stations if ten voices will remain in the market, and up
to two television stations and one radio station in any market. We
provide for waiver of the rule with respect to radio stations if the
transaction involves a failed station. Voices include TV and radio
stations, as well as newspapers and cable.
The new rules attribute TV LMAs where they involve time brokerage
of another television station in the same market for more than 15% of
the brokered station's broadcast hours per week. TV LMAs entered into
before November 5, 1996, the date of adoption of the Further Notice of
Proposed Rule Making in the local ownership proceeding, will be
grandfathered until the 2004 biennial review proceeding, at which time
their status will be assessed. TV LMAs entered into on or after
November 5, 1996 will not be grandfathered, but will be given two years
to come into compliance with the new rules or terminate. Thus, all
existing LMAs will be afforded some relief. We estimate that about 60%
of existing LMAs meet the new going forward TV duopoly rules and will
therefore be able to be converted into permanent duopolies.
Question 2. In your estimation, what data speeds constitute
broadband access? Can you be specific vith reward to both upstream and
downstream speeds?
Response. In the Commission's Report on the deployment of broadband
capability to all Americans, released on February 2, 1999 the
Commission defined ``advanced telecommunications capability'' or
broadband. (The Report is FCC 99-5 in Docket CC No. 98-146 and is
available on the Commission's web page at http://www.
fcc.gov/Bureaus/Common__Carrier/Reports/fcc99005.txt.)
In a Section beginning at paragraph 20, the Report defined
broadband:
``as having the capability of supporting, in both the
provider-to-consumer (downstream) and the consumer-to-provider
(upstream) directions, a speed (in technical terms,
`bandwidth') in excess of 200 kilobits per second (kbps) in the
last mile. . . . We have initially chosen 200 kbps because it
is enough to provide the most popular forms of broadband--to
change web pages as fast as one can flip through the pages of a
book and to transmit full-motion video.'' [Footnote omitted.]
The Report also recognized that:
``as technologies evolve, the concept of broadband will
evolve with it: we may consider today's `broadband' to be
narrowband when tomorrow's technologies are deployed and
consumer demand for higher bandwidth appears on a large scale.
For example, we may find in future reports that evolution in
technologies, retail offerings, and demand among consumers have
raised the minimum speed for broadband from 200 kbps to, for
example, a certain number of megabits per second (Mbps).''
[Footnote omitted.]
Question 3. Mr. Chairman and Commissioners, I know that
implementation of E911 location technology has been a high priority of
yours and I want to commend you for your efforts and the establishment
of the October 1, 2001 implementation deadline. E911 location
technology will enable our emergency service providers to save lives
and it is imperative that we ensure that technology [is] available to
the public as soon as possible. Can you comment on any recent progress
made at the Commission in this critical area?
Response. The Commission has been active in a number of areas
related to implementation of wireless Enhanced 911 (E911) services. At
the outset, we would like to assure you that the Commission remains
fully committed to moving forward on these critical issues
expeditiously, consistent with the Commission's mission of protecting
the public safety through the use of wire and radio communications. A
brief summary of recent progress on these matters follows:
phase ii wireless e911 ali requirements
The Commission's rules governing wireless enhanced 911 (E911)
services currently require that covered wireless carriers provide
automatic location information (ALI) as part of E911 service beginning
October 1, 2001, provided that two conditions have been met. First, the
local Public Safety Answering Point (PSAP) must have requested ALI from
the carriers and must be ready to use ALI, and, second, there must be a
cost recovery mechanism in place by which carriers can recover the
costs of implementing ALI. At the time the original rules were adopted
in 1996, the Commission and parties to the proceeding expected that ALI
would be implemented by upgrading wireless carriers' networks, which
would allow the carriers to provide ALI for all wireless E911 calls.
Noting promising new developments in handset-based location
technologies, the Commission is now considering issues related to the
possible use of handset-based ALI technologies.
Over the course of the past several months, the Commission has
sought and received informed views and specific proposals on issues
relating to the provision of ALI from many interested parties,
including ALI technology manufacturers, wireless carriers, and network
and handset manufacturers, as well as representatives of the public
safety community. For instance, Commission staff held a public
Technology Roundtable in late June with all these groups represented.
The Roundtable revealed, among other things, that further development
work needs to be completed on all the competing ALI technologies. This
is not surprising in light of the variety of technical protocols used
by wireless carriers. It also has become apparent that public safety
representatives are not, at this point, of one mind on these important
but difficult public safety issues, such as the timetable for
deployment of both handset and network-based solutions, accuracy
standards, and penetration levels. As the Commission considers the
various arguments of the commenters, it will remain mindful of the
importance of the wireless E911 rules to public safety and the need to
avoid delaying the provision of ALI on wireless E911 service. The
Commission's overriding goal is to have ALI available on as many
wireless E911 calls as quickly as possible.
The Commission is actively considering these wireless E911 issues
and expects to act soon. The Commission hopes that its actions will
bring additional certainty regarding the ALI requirements for E911 so
that wireless carriers will begin deploying ALI technologies
expeditiously.
strongest signal--second report and order
One of the important issues in the Commission's 1996 E911 Second
Notice of Proposed Rulemaking concerned proposals to help improve the
transmission of 911 calls, specifically in geographic locations where a
wireless caller attempts to make a 911 call but the wireless system to
which the caller subscribes has a blank spot--an area where the
system's radio signal is weak or non-existent. To help address this
problem, the Commission adopted rules in December 1997 which, among
other things, required that cellular carriers complete all 911 calls,
not just those of their subscribers. In addition, in May 1999, the
Commission adopted rules to improve call completion rates. The
Commission approved three call completion methods, any of which will
result in the completion of more wireless 911 calls than occurred
previously. The actions taken by the Commission are expected to improve
the security and safety of analog cellular users, especially in rural
and suburban areas.
wireless e911 report on phase i
In response to a recent Commission Public Notice, industry and
public safety organizations filed a report on August 9, 1999, on issues
relating to the implementation of Phase I wireless E911 services. The
Commission's Phase I E911 rules require covered wireless carriers to
provide enhanced 911 capabilities, including the provision of callback
and location information to Public Safety Answering Points (PSAPs),
according to a phased-in approach. The report to the Commission
addressed the issues of cost recovery mechanisms and choice of
transmission technologies. The Wireless Telecommunications Bureau has
invited public comment on the report and the Commission expects to take
action on these issues this fall.
Question 4. The FCC was required by the 1996 Telecommunications Act
to complete its reformation of the federal universal service support
system, replacing implicit subsidies with explicit subsidies, by May 8,
1997. It is now over two years past that deadline--and over three years
since passage of the Act--and the Commission still has not completed
such action. In fact, it has missed even its own, self-imposed deadline
of January 1999 and is possibly in danger of missing its July 1999
deadline. When will the reform of universal service finally be
completed?
Response. The Commission plans to release an order defining final
model inputs and support methodology variables for the reformed
universal service system for large carriers (those not meeting the
statute's definition of a ``rural telephone company'') this fall, for
implementation on January 1, 2000. As the Fifth Circuit Court of
Appeals recently affirmed, the 1996 Act requires the Commission to
adopt, by May 8, 1997, a definition of the services supported by
universal service mechanisms, and a specific timeline for
implementation. The Commission did so on that date. The implementation
timeline that the Commission adopted establishes separate schedules for
reforming universal service for rural telephone companies and for non-
rural carriers.
The Commission determined that non-rural carriers should make the
transition to a support mechanism based on forward-looking costs. The
Commission has established January 1, 2000, as the date for this
transition, and is on schedule to have a forward-looking mechanism in
place at that time. The Commission and its staff have worked extremely
hard over the last three years to ensure that the process for selecting
and completing a forward-looking model is as open as possible. We have
received thousands of pages of comments from industry representatives,
state commissions, and other stakeholders, and held numerous public
forums, en banc hearings, and provided other opportunities for public
input. This process has allowed us to develop a forward-looking cost
model that is vastly more accurate than the industry-proposed models
first submitted to us in 1996. The most recent result of this process
was our release, in May 1999, of orders defining proposed cost model
variables and establishing the outlines of a support methodology, based
on the Joint Board's November 1998 recommendations. We intend to
release final orders this fall establishing implementation details so
that the revised mechanism for non-rural carriers will be in place on
January 1, 2000.
Although larger-scale reforms of high-cost support mechanisms are
contemplated for non-rural carriers beginning on January 1, 2000, the
Commission also made significant changes to the existing support
mechanisms that were effective on January 1, 1998. The existing support
amounts were removed from interstate access charges and now flow
through an explicit support mechanism, consistent with the statutory
mandate. The support amounts available from the existing mechanism were
also made portable, so that they are available to competitors that win
customers from the incumbent.
The Federal-State Joint Board on Universal Service also appointed a
Rural Task Force to study what universal service reforms are necessary
for rural telephone companies. The Rural Task Force is to submit a
report with recommendations to the Joint Board by September 2000. The
Joint Board will then make its recommendations to the Commission, based
on the Rural Task Force's report. The Commission intends to act
expeditiously to implement the Joint Board's recommendations as soon as
we receive them, but no earlier than January 1, 2001.
Also, as a part of its elforts to extend the full range of modern
telecommunications services to all Americans, the Commission recently
adopted a Notice of Proposed Rule Making seeking comment on how to
promote universal service in unserved and underserved areas, including
tribal lands and other insular areas. Consistent with the 1996 Act's
goal of ensuring that consumers in all regions of the nation should
have access to telecommunications and information services at
affordable rates, the Commission has taken steps to address impediments
to deployment and subscri-
bership in unserved and underserved areas of the Nation. In the Notice,
the Commission invites comment on a range of possible modifications to
its high-cost, low-income and rural health care support mechanisms that
are designed to promote deployment and subscribership in these areas.
The Commission is committed to ensuring that consumers have access to
and can afford the services supported by federal universal service
mechanisms.
Question 5. NARUC has proposed FCC-state commission cooperation on
Section 706, promoting access to advanced technologies. What is your
reaction?
Response. I endorse the idea of FCC-state cooperation under Section
706 and have already begun a long-term and mutually fruitful
cooperative process with the states. Indeed, Section 706(a) envisions
such cooperation when it says ``The Commission and each State
commission with regulatory jurisdiction over telecommunications
services shall encourage the deployment. . . .''
We are currently in discussions about how to best accomplish our
mutual goals.
Question 6. How do you see the FCC-state commission relationship
developing over the comings months and years?
Response. I see this relationship developing fully and productively
over the coming months and years. Of course, at this initial stage, it
is impossible to foresee all future developments. At this time, there
appears to be much room for the Commission and states to explore
various cooperative avenues. These may include: developing ``best
practices'' to speed the deployment of broadband by encouraging private
investment; deregulating, in ways that will give companies that are now
regulated incentives to deploy broadband; encouraging new entry,
especially by public utilities and the deployers of new wireless ``last
miles''; granting access to ``essential facilities'' for broadband;
learning about the precise nature of consumer demand for broadband; and
exploring creative ways to assure the broadband is deployed in areas
that the market will not serve, including funding in appropriate
circumstances.
Question 7. What is the status of the Rural Task Force, which will
be making recommendations concerning universal service for rural
telecom providers?
Response. Because of the important service that rural telephone
companies provide to many of the highest-cost customers in the country,
and because of the unique cost structures of these small companies, the
Commission took early steps to ensure that the universal service reform
process would not threaten rural companies. In order to ensure that
rural companies were not harmed by the transition to high cost support
mechanisms based on forward-looking costs, or by the uncertainty
associated with such a transition, the Commission declared very early
in the universal service proceeding that there would be no reduction in
the support available for serving customers in rural carriers' serving
areas. As noted above in response to Senator Burns' Question #3, on
September 17, 1997, the Federal-State Joint Board on Universal Service
created a Rural Task Force to study what universal service reforms are
necessary for rural telephone companies. The Rural Task Force is due to
submit a report with recommendations to the Joint Board by September
2000. The Joint Board will then make its recommendations to the
Commission, based on the Rural Task Force's report. The Commission
intends to act expeditiously to implement the Joint Board's
recommendations as soon as we receive them, but no earlier than January
1, 2001.
__________
Response to Written Questions Submitted by Hon. Trent Lott to
William E. Kennard
Question 1. Last December the FCC issued an order to address
unauthorized changes of carrier selection, more commonly known as
slamming. This order contained a complex set of rules for providing
credits to consumers who have been victimized by slamming and for
compensating a slammed customer's original carrier. Recognizing the
complexity of this issue, your order also invited industry to put
forward alternative proposals for addressing slamming that would still
achieve the Commission's goals. In March, a coalition of long distance
providers, after working closely with the Commission staff, presented
the Commission with a proposal for an industry-funded neutral third-
party administrator that would remove much of the complexity for
industry and consumers alike. My understanding is that this concept has
support from many parties, including the National Association of
Attorneys General, and that some groups--among them the larger consumer
interest groups--believe that the industry plan is a superior approach
to fight slamming. To me, an industry solution that in fact simplifies
the process, makes the consumer whole and takes the profit out of
slamming makes more sense than imposing a set of government regulations
that may not be workable in practice.
Last week the Commission's own slamming rules were stayed by the
court indefinitely. A legislative remedy will take a long time to work
its way through the Hill, if it does at all, and it will take some time
to craft the rules to implement such legislation. The industry
proposal, which is still before the Commission, seems to me to be the
most rapid way to bring relief to consumers. Is the Commission giving
the industry proposal serious consideration? How quickly can we expect
the Commission to act on this proposal?
Response. Because of the potential advantages of utilizing an
industry-funded neutral third-party administrator to address slamming,
the Commission has studied seriously this proposal with input from
industry, the states, and consumer interest groups. During the course
of evaluation, the Commission has been made aware of opposition to the
proposal from the National Association of State Utility Regulators
(NARUC) and a number of large consumer groups. Indeed, NARUC has
offered alternative suggestions to the Commission for the
administration of our slamming regulations, which would involve state
participation. Certain members of the U.S. Senate also have expressed
reservations about the effectiveness of an industry-funded slamming
proposal, raising bias concerns. At the same time, the Commission has
evidence that slamming complaints appeared to be declining prior to the
effective date (since stayed by the court) of the Commission's new
rules relating to consumer liability. This downward trend in complaints
suggests that the impending rules governing consumer liability would
have the desired effect of curtailing slamming. Therefore, the
Commission is moving quickly to resolve the MCI petition proposing a
third party administrator to handle slamming complaints and to resolve
the outstanding issues raised by various parties in petitions for
reconsideration as well as to consider the proposals submitted by NARUC
and various states. Once these outstanding issues have been addressed,
the Commission can return to the Court of Appeals to request a lift of
the stay of the Commission's slamming rules and obtain the desired
relief for consumers.
Question 2. Many people believe that there are billions of dollars
in excess earnings in local company access charges (that is, earnings
above what is needed for any legitimate subsidy of local service). The
FCC has an extensive record on this issue pending before it. Yet access
reform may be further delayed. When does the FCC plan to act on access
reform, and is there anything that the FCC can do, effective this July,
to give the American people a downpayment on the reductions that are
due them?
Response. The Commission's price cap regulation system
significantly reduces access charges on an annual basis, without
limiting the level of local exchange carriers' (LECs') earnings. This
encourages LECs to become more efficient and reduce their costs. The
LECs' most recent tariff filing, effective this past July, reduced per-
minute annual access charges by approximately $1.5 billion compared to
the previous year's rate levels. There will be another significant
reduction next July. FCC-mandated access reductions have triggered
decreases in per-minute long distance rates charged by long distance
carriers.
Beyond the operation of the price cap formula, the FCC's current
policy allows competition to encourage additional reductions in
interstate access charges. For example, the Commission's recently-
adopted Access Charge Reform Fifth Report and Order gives the nation's
largest LECs progressively greater flexibility in setting interstate
access rates as competition develops, gradually replacing regulation
with competition as the primary means of setting prices.
In addition to this market-based approach to access reform, the
Commission is continuing to examine possible changes to interstate
access rate structure to ensure that it better replicates the operation
of a competitive market. In the Access Charge Reform Fifth Report and
Order, the FCC invited parties to comment on proposed revisions to the
rate structure for local switching charges, which would further reduce
interstate access rates. The FCC also will continue to monitor the
interstate access market carefully and may consider a more prescriptive
approach to access charge reform, if necessary.
Question 3. The FCC recently released its report of audits of
certain incumbent local company records that indicate a significant
amount of equipment is unaccounted for. If you couple that with reports
that access charges are, and have been, significantly above cost, what
steps is the FCC taking to address these specific concerns?
Response. The Commission has issued a Notice of Inquiry seeking
public comment on issues related to the auditors' findings.
Specifically, due to the discrepancies between the auditors findings
and the statements made by the companies, we found it necessary to seek
public comment and review of the audit documents to help us assess what
further action the Commission should take. This public review is now
taking place. Public comments are due September 13, 1999; replies are
due 30 days thereafter.
The companies have raised concerns about the audit methodology
including the procedures and practices of the auditors. After reviewing
comments, if we determine that proceeding with an enforcement action is
appropriate, we would then assess the rate impact of the auditors'
findings. Such an assessment may result in some further reduction in
the access charges paid by long distance carriers.
In addition, as described above, FCC-mandated reductions in access
charges have triggered reductions in per-inute rates long distance
companies charge to their customers. For example, effective this past
July, the FCC reduced the local telephone companies per-minute annual
access charges by approximately $1.5 billion compared to the previous
year's rate levels. AT&T and MCI have recently recognized that the
FCC's efforts to reduce the access charges that long distance companies
pay to the local telephone companies have made possible the recent per-
minute long distance rate reductions. Access rates should continue to
fall.
Question 4. I understand that the Commission has opened a
proceeding to implement the spectrum provisions of the 1997 Balanced
Budget Act. When Congress expanded the FCC's authority to use auctions
in the 1997 Balanced Budget Act, we specifically provided that certain
private radio services are exempt from auctions because licensees in
these radio services use their radio systems to protect the safety of
life, health or property. It was further noted in the Conference
Committee Report that these exempt services include private, internal
radio systems used by utilities, pipelines, state and local government
agencies, emergency road services, and others. However, I understand
that aside from state and local government agencies and tow truck
operators, the Commission has not proposed in this proceeding to exempt
utilities, pipelines, railroads, or any of the other radio services
identified in the Conference Report. Could you please confirm whether
it is the Commission's intent to follow Congress' directions, as
explained in the Conference Report, or whether the agency is proposing
to unilaterally narrow the exemption language?
Response. The Commission recently adopted a Notice of Proposed Rule
Making (``Notice''), WT Docket No. 99-87, FCC 99-52 (released March 25,
1999) to seek comment on the revisions to its auction authority made by
the Balanced Budget Act of 1997. The Notice seeks comment on the scope
of the Balanced Budget Act's exemption from competitive biding for
public safety radio services and the regulatory provisions that could
be established to ensure that frequencies assigned without auctions
meet the statutory requirements for exemption. The Commission intends
to implement that statutory exemption in a manner that reflects
Congress' intent, as explained in the Conference Report.
The Notice specifically acknowledges that certain non-governmental
entities are eligible for licensing in auction-exempt public safety
radio services. The Notice highlights the Conference Report language
stating that the exemption is broader than the definition of ``public
safety services'' included in Section 337(f)(1) of the Communications
Act, and includes private internal radio services used by utilities,
railroads, metropolitan transit systems, pipelines, private ambulances,
volunteer fire departments. Based on the express statutory language and
legislative history of the public safety radio services exemption, the
Commission tentatively concluded that certain spectrum already
allocated to the Public Safety Radio Pool, or which the Commission has
previously set aside for public safety uses, should be included in the
definition of ``public safety radio services.'' However, these
tentative conclusions are not meant to preclude the Commission from
including other private internal radio services within that definition,
and the Notice specifically seeks comment on the other private radio
services or frequency bands within services that should be designated
as ``public safety radio services.''
It is because the Commission recognizes that various types of
entities other than state and local governments are eligible for
licensing in public safety radio services that it seeks comment on
whether it should establish criteria to ensure that public safety radio
services spectrum licensed without auction to non-government entities
is used to protect the safety of life, health, or property and not made
commercially available to the public, as mandated in Section
309(j)(2)(A). Similarly, because the Commission recognizes that various
entities in addition to state and local governments are eligible to use
auction-exempt public safety radio service frequencies, it seeks
comment in the Notice on whether it should establish categories or
frequency pools for the various types of users and allocate specific
frequencies within the public safety radio services to each category or
pool. The creation of new frequency pools would be consistent with a
proposal submitted by UTC, the American Petroleum Institute, and the
Association of American Railroads, and on which the Notice also seeks
comment.
Question 5. Despite Congress' direction that the FCC use
engineering solutions, frequency coordination, and other means to avoid
application conflicts and hence the need for auctions, I understand
that as part of this same proceeding the FCC is proposing to change its
licensing rules for private radio services so that such application
conflicts are likely.
Congress would like to know why the FCC is trying to create
application conflicts and thereby force private radio users into
competing at auction, instead of following Congress' direction in the
Act that auctions are to be used only where such conflicts cannot be
avoided.
Response. The Commission's Notice of Proposed Rule Making in WT
Docket No. 99-87 also seeks comment on how the Balanced Budget Act's
revisions to its auction authority affect the categories of services
that previously were determined to be nonauctionable by the Commission.
In considering how to implement its expanded auction authority, the
Commission is mindful of the emphasis Congress placed on its obligation
in the public interest, under Section 309(j)(6)(E), to continue to use
engineering solutions and other means to avoid mutual exclusivity among
applicants for initial licenses. In the NPRM, the Commission notes that
the Balanced Budget Act has not altered the criteria in Section
309(j)(3) that the Commission is required to use to determine that a
particular licensing scheme is in the public interest. The Commission
has previously interpreted Section 309(j)(6)(E) to impose an obligation
to avoid mutual exclusivity in defining licensing schemes for
commercial services only when it would further the public interest
goals of Section 309(j)(3). Accordingly, in the Notice, the Commission
seeks comment on how it should apply the public interest factors in
Section 309(j)(3) in establishing licensing schemes or methodologies
for both new and existing, commercial and private services under the
Balanced Budget Act. Specifically, the Commission notes that the
Balanced Budget Act expressly incorporated the Section 309(j)(6)(E)
obligations in the Section 309(j)(1) general grant of auction
authority. The NPRM seeks comment on whether that express reference
changes the scope or content of that obligation, or the prior
interpretation of Section 309(j)(6)(E), in light of the public interest
factors in Section 309(j)(3).
The services deemed nonauctionable under the authority provided by
the 1993 Budget Act were largely private and noncommercial radio
services. In the Notice, the Commission does not propose changes to the
licensing rules for specific private radio services, but rather seeks
comment on the basic statutory framework that should be applied to the
Commission's determinations of which wireless services are potentially
auctionable and what processes should be used in licensing new and
existing services. The Notice also seeks comment on the licensing
schemes that might be used for private services and considers whether
auctions are an appropriate tool for managing the efficient assignment
of this spectrum. No conclusions have been reached about the approach
we will take. The Commission's goal is to gather a record in light of
the changed statute and evalual;e whether our licensing processes
should change, if at all, in the interests of sound spectrum
management. For example, with respect to Private Land Mobile Radio
Services frequencies below 470 MHz that are licensed on a shared basis,
the Commission specifically asks whether the Commission should retain
the current licensing scheme in light of the extensive modifications
the Commission has already made to its regulatory framework to maximize
spectrum efficiency in these bands through engineering solutions.
Additionally, the Commission seeks comment on whether it should
establish a new class of licensee for private radio services called a
Band Manager. As considered in the Notice, the Band Manager would apply
for a private radio license, with mutually exclusive applications
subject to resolution through competitive bidding, and sublicense
portions of its license to specific eligible users through private
contractual arrangements. The record in this docket closes on September
16, 1999.
Question 6. I understand the FCC has proposed to auction licenses
in the 900 MHz band for ``multiple address systems,'' that are used by
utilities, pipelines, and railroads to remotely monitor and control
their utility or rail networks. An allocation of one megahertz of
bandwidth for MAS was made more than 10 years ago, but because of
Commission inaction and now a new rulemaking to force auctions on these
channels, no licenses have been granted on these channels. Congress is
also disturbed to hear that the agency may delay this matter even
further because of its proceeding to implement the auction provisions
of the 1997 Budget Act. Could you please provide Congress with a
timetable for completing action in the multiple address system docket,
and explain why utilities, pipelines, and railroads, which are exempt
from auctions, must wait any longer to begin using these much-needed
channels?
Response. There are three spectrum bands allocated for Multiple
Address System (MAS) use: 932/941 MHz, 928/959 MHz, and 928/952/956
MHz. The 932/941 MHz band was allocated for both Federal Government and
non-Government point-to-multipoint use in 1989. In 1992, the Commission
opened filing windows regarding applications for these frequencies. In
response to these filing windows, the Commission received over 50,000
applications, most of which proposed to provide commercial (subscriber-
based) service and were mutually exclusive with at least one other
application. The other bands have been available since the early 1980s
and are heavily used in many major metropolitan areas. The 928/959 MHz
band is used primarily for control of wide-area paging systems. The
928/952/956 MHz band is used primarily for private, internal systems,
especially by the power, petroleum, and security industries. In
February 1997, the Commission proposed to license the first two bands
by geographic area and resolve mutually exclusive initial applications
by competitive bidding, because the Communications Act then provided
that mutually exclusive applications to provide subscriber-based
services were auctionable. It also proposed to allocate the 928/952/956
MHz band exclusively for private, internal svstems.
Before that rule making proceeding was completed, the Balanced
Budget Act of 1997 was enacted. Among other things, the Balanced Budget
Act eliminated the Commission's authority to use lotteries to select
among mutually exclusive applications for initial licenses.
Accordingly, the 50,000 pending applications for the 932/941 MHz band
were dismissed. The Balanced Budget Act also required the Commission to
award all mutually exclusive licenses, with certain exceptions, by
using competitive bidding procedures. One of those exceptions is for
``public safety radio services,'' which, as you point out, includes
radio services used by utilities, pipelines, and railroads. Because the
Balanced Budget Act altered the criteria for determining whether or not
applications for a particular service or class of frequencies are
subject to competitive bidding, and the fact that the three MAS bands
are available to both ``public safety'' and non-public safety entities,
the Cornmission in July 1999 released a Further Notice of Proposed Rule
Making to build a sufficient record to decide, inter alia, whether the
928/952/956 MHz band comes within that exception. Comment was sought on
such issues as the current level of representation of ``public safety
radio services'' in the band, whether the band should be allocated for
such services only, and, if so, whether the frequencies should be
licensed geographically or site-by-site. The deadlines for comments and
reply comments are September 17 and October 18, respectively. We intend
to resolve these issues, and implement appropriate licensing procedures
for MAS spectrum, in an efficient and expeditious manner following the
close of the public comment period.
__________
Response to Written Question Submitted by Hon. Sam Brownback to
William E. Kennard
Question. For several years, the Commission has been working on an
economic model to calculate the cost of providing universal telephone
service to rural, insular, and other high-cost areas. The model and the
inputs used in the model have gone through many changes. The Commission
has already violated its statutory obligation to finish the universal
service proceeding by May 8, 1997. If no model, including the inputs
used in the model, is actually being used by the Commission one year
from now to determine the cost of universal service support to non-
rural telecommunications carriers, what should the Commission do?
Should it scrap the use of a model completely?
Response. The Commission is currently on schedule to implement a
revised high-cost support mechanism for non-rural carriers based on
forvvard-looking costs, as estimated by a cost model, on January 1,
2000. As I noted above in response to Senator Burns' Question #3, as
the Fifth Circuit Court of Appeals recently affirmed, the 1996 Act
requires the Commission to adopt, by May 8, 1997, a definition of the
services supported by universal service mechanisms, and a specific
timeline for implementation. The Commission did so on that date. The
Commission took significant steps towards timely implementation of
revised support mechanisms for non-rural carriers by adopting the fixed
algorithms and assumptions for the model in October 1998, and by
adopting proposed input values and the framework for a support
methodology in May 1999. We plan to release orders this fall
establishing final model input values and the details of the support
methodology so that the revised mechanism can be in place on January 1,
2000.
Given the enormous progress that we have made thus far towards
implementing a new methodology based on forward-looking costs for non-
rural carriers, we have every confidence that we will have a forward-
looking mechanism in place on January 1, 2000. If some unforeseen
circumstance should prevent this, however, we believe the Commission
should consider alternatives to forward-looking cost models at that
time if such alternatives would permit more expeditious implementation
of high-cost support that is consistent with section 254.
__________
Response to Written Question Submitted by Hon. Olympia J. Snowe to
William E. Kennard
Question. It is my understanding that WMTW, Channel 8 in Maine,
has an application pending before the Commission to construct a digital
TV tower in Baldwin, Maine. As with most tower construction proposals,
this one has not been without controversy, and I know that letters were
received by the FCC that strongly opposed the WMTW application. While I
take no position on the application itself--neither supporting nor
opposing it--and am seeking no special treatment for the application in
terms of its processing, I have received inquiries from constituents on
this matter and the timing of the FCC decision.
Accordingly, what is the status of this application, and how soon
should the citizens of Baldwin and WMTW expect a final decision from
the Commission?
Response. Station WMTW-TV, Portland, Maine, has filed an
application to construct a new broadcast tower in Baldwin, Maine. The
Commission has received numerous objections to the proposed
construction, primarily opposing zoning approval and location of the
tower. While I cannot discuss the merits of the objections, I can say
that the Commission generally defers to the decision of appropriate
local governmental bodies with respect to the location of broadcast
towers. It is the Commission's belief that zoning questions should be
left to local authorities who are more familiar with such matters and
who possess the particular expertise required to rule on these
questions. We note that Station WMTW-TV has obtained local zoning
approval for the tower site. Further, the staff has completed its
review of the application and finds that the proposal meets all of the
interference requirements of the Commission's rule. However, the
proposed tower relocation would result in coverage losses to some
existing areas, meaning that some residents could lose the broadcast
signal. Therefore, on August 19, 1999, staff of the Mass Media Bureau
wrote the station to request it provide the FCC certain information
with respect to the loss areas. As soon as this information is
submitted by the applicant and reviewed by the staff, the processing of
the pending application will be completed promptly. Also, I would like
to assure you that all information in the record, including your
constituents' comments, will be considered in reaching a final decision
in this matter.
__________
Response to Written Questions Submitted by Hon. Trent Lott to
Gloria Tristani
Question 1. Last December the FCC issued an order to address
unauthorized changes of carrier selection, more commonly known as
slamming. This order contained a complex set of rules for providing
credits to consumers who have been victimized by slamming and for
compensating a slammed customer's original carrier. Recognizing the
complexity of this issue, your order also invited industry to put
forward alternative proposals for addressing slamming that would still
achieve the Commission's goals. In March, a coalition of long distance
providers, after working closely with the Commission staff, presented
the Commission with a proposal for an industry-funded neutral third-
party administrator that would remove much of the complexity for
industry and consumers alike. My understanding is that this concept has
support from many parties, including the National Association of
Attorneys General, and that some groups--among them the larger consumer
interest groups--believe that the industry plan is a superior approach
to fight slamming. To me, an industry solution that in fact simplifies
the process, makes the consumer whole and takes the profit out of
slamming makes more sense than imposing a set of government regulations
that may not be workable in practice.
Last week the Commission's own slamming rules were stayed by the
court indefinitely. A legislative remedy will take a long time to work
its way through the Hill, if it does at all, and it will take some time
to craft the rules to implement such legislation. The industry
proposal, which is still before the Commission, seems to me to be the
most rapid way to bring relief to consumers. Is the Commission giving
the industry proposal serious consideration? How quickly can we expect
the Commission to act on this proposal?
Response. I concur with Chairman Kennard's response to this
question.
Question 2. Many people believe that there are billions of dollars
in excess earnings in local company access charges (that is, earnings
above what is needed for any legitimate subsidy of local service). The
FCC has an extensive record on this issue pending before it. Yet access
reform may be further delayed. When does the FCC plan to act on access
reform, and is there anything that the FCC can do, effective this July,
to give the American people a downpayment on the reductions that are
due them?
Response. I concur with Chairman Kennard's response to this
question.
Question 3. The FCC recently released its report of audits of
certain incumbent local company records that indicate a significant
amount of equipment is unaccounted for. If you couple that with reports
that access charges are, and have been, significantly above cost, what
steps is the FCC taking to address these specific concerns?
Response. I am particularly concerned by the results of the audit
reports and implications of misstated regulatory accounts on other
parties, including consumers, purchasers of access service, state
commissions, and competitors. As I stated when we released the reports,
I encourage the Commission to move swiftly toward initiating any
enforcement action that may be necessary.
Question 4. I understand that the Commission has opened a
proceeding to implement the spectrum provisions of the 1997 Balanced
Budget Act. When Congress expanded the FCC's authority to use auctions
in the 1997 Balanced Budget Act, we specifically provided that certain
private radio services are exempt from auctions because licensees in
these radio services use their radio systems to protect the safety of
life, health or property. It was further noted in the Conference
Committee Report that these exempt services include private, internal
radio systems used by utilities, pipelines, state and local government
agencies, emergency road services, and others. However, I understand
that aside from state and local government agencies and tow truck
operators, the Commission has not proposed in this proceeding to exempt
utilities, pipelines, railroads, or any of the other radio services
identified in the Conference Report. Could you please confirm whether
it is the Commission's intent to follow Congress' directions, as
explained in the Conference Report, or whether the agency is proposing
to unilaterally narrow the exemption language?
Response. I concur with Chairman Kennard's response to this
question.
Question 5. Despite Congress' direction that the FCC use
engineering solutions, frequency coordination, and other means to avoid
application conflicts and hence the need for auctions, I understand
that as part of this same proceeding the FCC is proposing to change its
licensing rules for private radio services so that such application
conflicts are likely.
Congress would like to know why the FCC is trying to create
application conflicts and thereby force private radio users into
competing at auction, instead of following Congress' direction in the
Act that auctions are to be used only where such conflicts cannot be
avoided.
Response. I concur with Chairman Kennard's response to this
question.
Question 6. I understand the FCC has proposed to auction licenses
in the 900 MHz band for ``multiple address systems,'' that are used by
utilities, pipelines, and railroads to remotely monitor and control
their utility or rail networks. An allocation of one megahertz of
bandwidth for MAS was made more than 10 years ago, but because of
Commission inaction and now a new rulemaking to force auctions on these
channels, no licenses have been granted on these channels. Congress is
also disturbed to hear that the agency may delay this matter even
further because of its proceeding to implement the auction provisions
of the 1997 Budget Act. Could you please provide Congress with a
timetable for completing action in the multiple address system docket,
and explain why utilities, pipelines, and railroads, which are exempt
from auctions, must wait any longer to begin using these much-needed
channels?
Response. I concur with Chairman Kennard's response to this
question.
__________
Response to Written Questions submitted by Hon. Conrad Burns to
Gloria Tristani
Question 1. In your estimation, what data speeds constitute
broadband access? Can you be specific vith reward to both upstream and
downstream speeds?
Response. I concur with Chairman Kennard's response to this
question.
Question 2. Mr. Chairman and Commissioners, I know that
implementation of E911 location technology has been a high priority of
yours and I want to commend you for your efforts and the establishment
of the October 1, 2001 implementation deadline. E911 location
technology will enable our emergency service providers to save lives
and it is imperative that we ensure that technology [is] available to
the public as soon as possible. Can you comment on any recent progress
made at the Commission in this critical area?
Response. I concur with Chairman Kennard's response to this
question.
Question 3. The FCC was required by the 1996 Telecommunications Act
to complete its reformation of the federal universal service support
system, replacing implicit subsidies with explicit subsidies, by May 8,
1997. It is now over two years past that deadline--and over three years
since passage of the Act--and the Commission still has not completed
such action. In fact, it has missed even its own, self-imposed deadline
of January 1999 and is possibly in danger of missing its July 1999
deadline. When will the reform of universal service finally be
completed?
Response. I concur with Chairman Kennard's response to this
question.
Question 4. NARUC has proposed FCC-state commission cooperation on
Section 706, promoting access to advanced technologies. What is your
reaction?
Response. I am excited by NARUC's recent proposal that the FCC
establish a Federal-State Joint Conference to speed deployment of
advanced services to underserved areas under Section 706 of the Act. In
particular, I believe that such a Joint Conference could prove
invaluable in collecting data on advanced services deployment and
coordinating initiatives by various government and private groups. I am
likewise interested in exploring the proposal that the Conference could
select certain communities for special attention by naming them ``706
zones.''
Question 5. How do you see the FCC-state commission relationship
developing over the comings months and years?
Response. I concur with Chairman Kennard's response to this
question. Moreover, as a former state commissioner, I am particularly
sensitive to the need for the Commission to understand state
perspectives and experiences in formulating national telecommunications
policy.
Question 6. What is the status of the Rural Task Force, which will
be making recommendations concerning universal service for rural
telecom providers?
Response. I concur with Chairman Kennard's response to this
question.
__________
Response to Written Question Submitted by Hon. Sam Brownback to
Gloria Tristani
Question. For several years, the Commission has been working on an
economic model to calculate the cost of providing universal telephone
service to rural, insular, and other high-cost areas. The model and the
inputs used in the model have gone through many changes. The Commission
has already violated its statutory obligation to finish the universal
service proceeding by May 8, 1997. If no model, including the inputs
used in the model, is actually being used by the Commission one year
from now to determine the cost of universal service support to non-
rural telecommunications carriers, what should the Commission do?
Should it scrap the use of a model completely?
Response. I concur with Chairman Kennard's response to this
question.
__________
Response to Written Question Submitted by Hon. Olympia J. Snowe to
Gloria Tristani
Question. It is my understanding that WMTW, Channel 8 in Maine,
has an application pending before the Commission to construct a digital
TV tower in Baldwin, Maine. As with most tower construction proposals,
this one has not been without controversy, and I know that letters were
received by the FCC that strongly opposed the WMTW application. While I
take no position on the application itself--neither supporting nor
opposing it--and am seeking no special treatment for the application in
terms of its processing, I have received inquiries from constituents on
this matter and the timing of the FCC decision.
Accordingly, what is the status of this application, and how soon
should the citizens of Baldwin and WMTW expect a final decision from
the Commission?
Response. I concur with Chairman Kennard's response to this
question.
__________
Response to Written Questions Submitted by Hon. Trent Lott to
Susan Ness
Question 1. Last December the FCC issued an order to address
unauthorized changes of carrier selection, more commonly known as
slamming. This order contained a complex set of rules for providing
credits to consumers who have been victimized by slamming and for
compensating a slammed customer's original carrier. Recognizing the
complexity of this issue, your order also invited industry to put
forward alternative proposals for addressing slamming that would still
achieve the Commission's goals. In March, a coalition of long distance
providers, after working closely with the Commission staff, presented
the Commission with a proposal for an industry-funded neutral third-
party administrator that would remove much of the complexity for
industry and consumers alike. My understanding is that this concept has
support from many parties, including the National Association of
Attorneys General, and that some groups--among them the larger consumer
interest groups--believe that the industry plan is a superior approach
to fight slamming. To me, an industry solution that in fact simplifies
the process, makes the consumer whole and takes the profit out of
slamming makes more sense than imposing a set of government regulations
that may not be workable in practice.
Last week the Commission's own slamming rules were stayed by the
court indefinitely. A legislative remedy will take a long time to work
its way through the Hill, if it does at all, and it will take some time
to craft the rules to implement such legislation. The industry
proposal, which is still before the Commission, seems to me to be the
most rapid way to bring relief to consumers. Is the Commission giving
the industry proposal serious consideration? How quickly can we expect
the Commission to act on this proposal?
Response. I concur with the Chairman's answer. For consumers,
slamming is a pernicious act, for which prompt and fair resolution is
essential. To be workable, any process we adopt must have the support
of consumers, the industry, and the states.
Question 2. Many people believe that there are billions of dollars
in excess earnings in local company access charges (that is, earnings
above what is needed for any legitimate subsidy of local service). The
FCC has an extensive record on this issue pending before it. Yet access
reform may be further delayed. When does the FCC plan to act on access
reform, and is there anything that the FCC can do, effective this July,
to give the American people a downpayment on the reductions that are
due them?
Response. I agree with the Chairman and continue to be a strong
proponent of access reform.
Question 3. The FCC recently released its report of audits of
certain incumbent local company records that indicate a significant
amount of equipment is unaccounted for. If you couple that with reports
that access charges are, and have been, significantly above cost, what
steps is the FCC taking to address these specific concerns?
Response. I concur with the Chairman's answer.
Question 4. I understand that the Commission has opened a
proceeding to implement the spectrum provisions of the 1997 Balanced
Budget Act. When Congress expanded the FCC's authority to use auctions
in the 1997 Balanced Budget Act, we specifically provided that certain
private radio services are exempt from auctions because licensees in
these radio services use their radio systems to protect the safety of
life, health or property. It was further noted in the Conference
Committee Report that these exempt services include private, internal
radio systems used by utilities, pipelines, state and local government
agencies, emergency road services, and others. However, I understand
that aside from state and local government agencies and tow truck
operators, the Commission has not proposed in this proceeding to exempt
utilities, pipelines, railroads, or any of the other radio services
identified in the Conference Report. Could you please confirm whether
it is the Commission's intent to follow Congress' directions, as
explained in the Conference Report, or whether the agency is proposing
to unilaterally narrow the exemption language?
Response. I concur with the Chairman's answer. Private radio is an
important component of our spectrum management policy.
Question 5. Despite Congress' direction that the FCC use
engineering solutions, frequency coordination, and other means to avoid
application conflicts and hence the need for auctions, I understand
that as part of this same proceeding the FCC is proposing to change its
licensing rules for private radio services so that such application
conflicts are likely.
Congress would like to know why the FCC is trying to create
application conflicts and thereby force private radio users into
competing at auction, instead of following Congress' direction in the
Act that auctions are to be used only where such conflicts cannot be
avoided.
Response. I concur with the Chairman's answer.
Question 6. I understand the FCC has proposed to auction licenses
in the 900 MHz band for ``multiple address systems,'' that are used by
utilities, pipelines, and railroads to remotely monitor and control
their utility or rail networks. An allocation of one megahertz of
bandwidth for MAS was made more than 10 years ago, but because of
Commission inaction and now a new rulemaking to force auctions on these
channels, no licenses have been granted on these channels. Congress is
also disturbed to hear that the agency may delay this matter even
further because of its proceeding to implement the auction provisions
of the 1997 Budget Act. Could you please provide Congress with a
timetable for completing action in the multiple address system docket,
and explain why utilities, pipelines, and railroads, which are exempt
from auctions, must wait any longer to begin using these much-needed
channels?
Response. I concur with the Chairman's answer. In addition, I would
support concurrent Commission action on the MAS Further Notice and the
Balanced Budget Act Notice, if this will expedite the licensing of MAS
spectrum.
__________
Response to Written Questions Submitted by Hon. Conrad Burns to
Susan Ness
Question 1. In your estimation, what data speeds constitute
broadband access? Can you be specific with regard to both upstream and
downstream speeds?
Response. I agree with the Chairman and support our conclusion in
the 706 Report last February that 200 kilobits per second in both
directions was sufficient to provide the most popular broadband
services. In the future greater speed may be needed to make creative
use of color, graphics, and streaming video--all of which require fast
bitstreams. When we issued our 706 report, I underscored the need for
broadband to be available not only in our cities, but across rural
America, and pledged to work to eliminate any barriers to competition
that might arise as this nascent industry develops. As I noted last
February, I plan to monitor closely developments in rural deployment of
broadband capability.
Question 2. Mr. Chairman and Commissioners, I know that
implementation of E911 location technology has been a high priority of
yours and I want to commend you for your efforts and the establishment
of the October 1, 2001 implementation deadline. E911 location
technology will enable our emergency service provides to save lives and
it is imperative that we ensure that technology [is] available to the
public as soon as possible. Can you comment on any recent progress made
at the Commission in this critical area?
Response. The Chairman's answer provided a comprehensive summary of
the Commission's implementation of E911 services, and I fully support
the Commission's efforts to continue the implementation of E911 Phase I
and II as well as Congressional legislation mandating a nationwide 911
emergency numbering scheme.
I would only add that the rules adopted in the Commission's E911
Second Notice of Proposed Rulemaking to address the ``blank spot''
problem apply to cellular licensees providing analog service. These new
rules will improve the transmission of 911 calls for users of analog
mobile phones, or digital mobile phones with an analog mode in
geographic areas with a blank spot in a licensee's cellular coverage.
Some mobile phones, however, are digital only. For digital only mobile
phones, currently there is no solution to the ``blank spot'' problem.
As the mobile phone market migrates away from analog to digital
services, this will represent an increasingly significant public safety
gap in 911 coverage for digital only mobile phones unless a solution
can be found.
Question 3. The FCC was required by the 1996 Telecommunications Act
to complete its reformation of the federal universal service support
system, replacing implicit subsidies with explicit subsidies, by May 8,
1997. It is now over two years past that deadline--and over three years
since passage of the Act--and the Commission still has not completed
such action. In fact, it has missed even its own, self-imposed deadline
of January 1999 and is possibly in danger of missing its July 1999
deadline. When will the reform of universal service finally be
completed?
Response. I concur with the Chairman's response. I also share your
frustration regarding the time it has taken to complete universal
service reform. As Chair of the Universal Service Joint Board, I have
spent many hours working through complex issues with my counterparts on
the state public utility commissions, as well as with my colleagues at
the FCC to achieve a workable solution. Universal service reforms must
be sustainable and any mechanism we adopt must have achieved a level of
accuracy, predictability, and openness that garners widespread
acceptance. I believe that we are on the right track.
While I would have preferred to have completed this process early,
one result of the lag in the development of local competition is that
implicit subsidies have not eroded as rapidly as feared, and the
revenues and cash flows of carriers that serve rural areas remain
healthy.
Question 4. NARUC has proposed FCC-state commission cooperation on
Section 706, promoting access to advanced technologies. What is your
reaction?
Response. I agree with the Chairman. FCC-state cooperation is
essential in facilitating access to advanced technologies. States have
valuable insights regarding their service areas and obstacles involved.
I look forward to continuing to work with our state colleagues to find
creative solutions to deployment of advanced services in the rural
areas of the country.
Question 5. How do you see the FCC-state commission relationship
developing over the coming months and years?
Response. I agree with the Chairman's answer. We have worked hard
to develop a productive relationship with the states to better serve
the American public. In deed, the roots of many of our best ideas can
be traced back to best practices adopted by the states. As competition
evolves, the need for monopoly regulation recedes. We are working
closely with the states, for example, to coordinate reporting
requirements to remove unnecessarily cumbersome or duplicative rules.
As a member of the NARUC Communications Committee, I welcome the
opportunity to explore other areas for further coordination.
Question 6. What is the status of the Rural Task Force, which will
be making recommendations concerning universal service for rural
telecom providers?
Response. I concur with the Chairman's response. I was very
impressed with the members of the Rural Task Force when I met with them
recently to discuss their progress on universal service issues for
rural carriers. We need to ensure that rural telephone companies--some
1300 strong--continue to be able to serve their communities. Their
issues are unique and require special consideration. I look forward to
receiving the Task Force recommendations.
__________
Response to Written Question Submitted by Hon. Sam Brownback to
Susan Ness
Question. For several years, the Commission has been working on an
economic model to calculate the cost of providing universal telephone
service to rural, insular and other high-cost areas. The model and the
inputs used in the model have gone through many changes. The Commission
has already violated its statutory obligation to finish the universal
service proceeding by May 8, 1997. If no model, including the inputs
used in the model, is actually being used by the Commission one year
from now to determine the cost of universal service support to non-
rural telecommunications carriers, what should the Commission do?
Should it scrap the use of a model completely?
Response. I concur with the Chairman's answer and also express my
optimism that the forward-looking cost model will be a valuable tool.
If, however, the model fails to achieve widespread acceptance for
providing an accurate prediction of relative cost, I am open to other
alternatives.
__________
Response to Written Question Submitted by Hon. Olympia J. Snowe to
Susan Ness
Question. It is my understanding that WMTW, Channel 8 in Maine,
has an application pending before the Commission to construct a digital
TV tower in Baldwin, Maine. As with most tower construction proposals,
this one has not been without controversy, and I know that letters were
received by the FCC that strongly opposed the WMTW application. While I
take no position on the application itself--neither supporting nor
opposing it--and am seeking no special treatment for the application in
terms of its processing, I have received inquiries from constituents on
this matter and the timing of the FCC decision.
Accordingly, what is the status of this application, and how soon
should the citizens of Baldwin and WMTW expect a final decision from
the Commission?
Response. I concur with the Chairman's answer.
__________
Response to Written Questions Submitted by Hon. Trent Lott to
Michael K. Powell
Question 1. Last December the FCC issued an order to address
unauthorized changes of carrier selection. More commonly known as
slamming. This order contained a complex set of rules for providing
credits to consumers who have been victimized by slamming and for
compensating a slammed consumer's original carrier. Recognizing the
complexity of this issue, your order also invited industry to put
forward alternative proposals for addressing slamming that would still
achieve the Commission's goals. In March, a coalition of long distance
providers, after working closely with the Commission staff, presented
the Commission with a proposal for an industry-funded neutral third-
party administrator that would remove much of the complexity for
industry and consumers alike. My understanding is that this concept has
support from many parties, including the National Association of
Attorneys General, and that some groups--among them the larger consumer
interest groups--
believe that the industry plan is a superior approach to fight
slamming. To me, an industry solution that in fact simplifies the
process, makes the consumer whole and takes the profit out of slamming
makes more sense than imposing a set of government regulations that may
not be workable in practice.
Last week the Commission's own slamming rules were stayed by the
court indefinitely. A legislative remedy will take a long time to work
its way through the Hill, if it does at all, and it will take some time
to craft the rules to implement such legislation. The industry
proposal, which is still before the Commission, seems to me to be the
most rapid way to bring relief to consumers. Is the Commission giving
the industry proposal serious consideration? How quickly can we expect
the Commission to act on this proposal?
Response. I generally subscribe to the views expressed in Chairman
Kennard's response to this question to the extent he welcomes the
industry proposal and commits the Commission to moving quickly to
resolve these issues. I think there are potential advantages to
consumers of utilizing an industry-funded neutral third-party
administrator. We must weigh these advantages against the concerns of
some state commissions, members of Congress and others who oppose the
proposal. I hope the Commission can conclude its review of this
proposal in the fall, assuming continued industry cooperation and an
ongoing dialogue with interested parties.
As I have stated on other occasions, I firmly support the
Commission taking steps, pursuant to Section 258 of the 1996 Act, to
establish policies and rules designed to combat unauthorized changes of
consumers' long distance carriers (``slamming''). The Act mandates that
we turn the ship of federal telecommunications regulation smartly in
the direction of competitive markets, and away from the traditional
central planning model. It is critical to the functioning of
competitive markets that consumers make effective choices in the
marketplace, as these choices tell self-interested firms what to sell,
how much and where. Slamming robs consumers of choices they have made,
and thus I am more than pleased to support its prevention and vigorous
prosecution.
Question 2. Many people believe that there are billions of dollars
in excess earnings in local company access charges (that is, earnings
above what is needed for any legitimate subsidy of local service). The
FCC has an extensive record on this issue pending before it. Yet access
reform may be further delayed. When does the FCC plan to act on access
reform, and is there anything that the FCC can do, effectively this
July, to give the American people a down payment on the reductions that
are due them?
Response. I believe there is an urgent need to complete our work to
reform access charges. I hope the Commission can make additional
headway in our ongoing access reform efforts over the next 3-6 months.
As the Chairman's response indicates, the most recent access tariff
filings by local exchange carriers (``LECs'') in July 1999 would
substantially reduce annual access charges, and there is likely to be
another reduction next July. Nothing necessarily compels inter-exchange
carriers to pass these savings onto consumers, but I would expect that
competitive market forces in the long-distance market will result in
substantial consumer savings (as the recent news of long-distance price
wars demonstrate).
The Commission's reform of access charges is closely tied to our
task of reforming universal service subsidies to make them more
explicit and portable. Universal service reform will encourage new
entrants to compete more vigorously for many consumers by undermining
the advantage incumbent LECs have traditionally enjoyed by virtue of
their exclusive access to implicit universal service subsidies.
Similarly, access charge reform will create incentives for economically
efficient entry by competing exchange access providers by enabling
these charges to more properly reflect the manner in which access costs
are incurred. Thus, costs that increase the longer one is on the phone
might properly be recovered through per-minute pricing. Moreover, costs
that remain about the same, regardless of how many calls one makes, or
how long any one call is, should be recovered by flat charges. These
charges would be dictated by market forces, not regulatory
intervention.
As the Commission has noted, however, the artificially high per-
minute long distance rates that result from implicit access charge
subsidies flowing from high volume to low volume consumers have
distorted competitive entry. Competitors realized that high volume
consumers and businesses were paying rates well above cost and thus
seized on the opportunity to serve them, and thereby maximize profits.
Conversely, competitors have been slow to embrace low volume
residential customers under the old system, because these firms are
less likely to be able to recoup the costs of serving those customers,
relative to high volume customers. High per-minute long distance rates
also have discouraged all consumers from using this valuable service.
Access charge reform seeks to correct these problems by ensuring
that flat costs are recovered through flat fees and per-minute costs
through per-minute fees. Thus, such reform is necessary to promote
competition because it removes policies that have tended to make some
customers, particularly low volume customers, unattractive prospects
for new entrants. The Commission's current policy is to allow
competitive forces, rather than additional regulation, to determine the
extent of any additional reductions to interstate access charges. We
are, however, considering other approaches. Without these reforms, all
consumers. including low volume consumers, would be much less likely to
receive the benefits of competition. Thus, I am personally committed to
pushing forward with access reform as expeditiously as the enormous
complexity of this issue allows.
Question 3. The FCC recently released its report of audits of
certain incumbent local company records that indicate a significant
amount of equipment is unaccounted for. If you couple that with reports
that access charges are, and have been, significantly above cost, what
steps is the FCC taking to address these specific concerns?
Response. I refer to Chairman Kennard's report on the status of our
access charge reform and Continuing Property Record (``CPR'') Audit
proceedings. The Commission has initiated an Inquiry into the CPR Audit
Reports wherein we will gather and analyze information concerning the
validity and implications of the Reports. At present, we are seeking
public comment and review of various documents to help us evaluate
differences between the auditors' findings and statements by the
companies audited, and to help us determine what further action, if
any, the Commission should take. As for the cost of exchange access, it
is my understanding that this is an issue staff is considering as part
of our ongoing access reform proceeding.
I fully agree that the information contained in the Audit Reports
should have been released in some manner, primarily to ensure its
factual accuracy, methodological validity and to determine whether, if
the Reports' conclusions are valid, there has been a detrimental impact
on ratepayers. Such an impact, if proven, would be serious, and I would
willingly support addressing that impact right now were I persuaded
that we have enough information to prove it. As our initiation of the
Inquiry into the Audit Reports suggests, however, we simply do not have
enough information to endorse fully and take action on the Reports'
conclusions at this time. Specifically, the intention to start a future
proceeding reflects the fact that we lack sufficient confidence in the
Reports to proceed to enforcement without first subjecting their facts
and analysis to public scrutiny. I fully recognize the potential for at
least some adverse impact on consumers if such scrutiny indicates that
the Audit Reports' conclusions are appropriate. Moreover, I do not
doubt the integrity of our Common Carrier Bureau auditors' work or even
necessarily the validity of their preliminary analyses and conclusions.
I am simply unprepared to take action on these analyses and conclusions
before they are tested in the fire of vigorous debate by other
interested parties. Thus, I look forward to working with my colleagues
to develop and analyze the record in the Inquiry as expeditiously as
possible. Likewise, in the access charge reform proceeding, I look
forward to considering, with the help of interested parties, whether
access charges are above cost and what remedial actions might be
necessary.
Question 4. I understand that the Commission has opened a
proceeding to implement the spectrum provisions of the 1997 Balanced
Budget Act. When Congress expanded the FCC's authority to use auctions
in the 1997 Balanced Budget Act, we specifically provided that certain
private radio services are exempt from auctions because licensees in
these radio services use their radio systems to protect the safety of
life, health or property. It was further noted in the Conference
Committee Report that these exempt services include private, internal
radio systems used by utilities, pipelines, state and local government
agencies, emergency road services, and others. However, I understand
that aside from state and local government agencies and tow truck
operators, the Commission has not proposed in this proceeding to exempt
utilities, pipelines, railroads, or any of the other radio services
identified in the Conference Report. Could you please confirm whether
it is the Commission's intent to follow Congress' directions, as
explained in the Conference Report, or whether the agency is proposing
to unilaterally narrow the exemption language?
Response. I generally subscribe to the response to this question
provided by Chairman Kennard. Although auctions have proven to be a
superior licensing tool, Congress and the Commission have recognized
that it may not be a suitable mechanism for all radio services,
especially those used in connection with public safety. I would add
also that the congressional intent behind the auction exemption for
``critical infrastructure'' and other public safety services is clear.
There is no intent on my part to narrow this exemption language or to
impose irrational regulatory requirements that micromanage the non-
commercial use of frequencies licensed, pursuant to law, by means other
than auctions.
Question 5. Despite Congress' direction that the FCC use
engineering solutions, frequency coordination, and other means to avoid
application conflicts and hence the need for auctions, I understand
that as part of this same proceeding the FCC is proposing to change its
licensing rules for private radio services so that such application
conflicts are likely. Congress would like to know why the FCC is trying
to create application conflicts and thereby force private radio users
into competing at auction, instead of following Congress' direction in
the Act that auctions are to be used only where such conflicts cannot
be avoided.
Response. I generally agree with the response to this question
provided by Chairman Kennard. I believe that we should evaluate our
licensing schemes on a regular basis to see if they continue to make
sense. In WT Docket No. 99-87, I firmly believe we have begun this
process for private radio services in a neutral fashion, without
prejudging questions of mutual exclusivity and auctionability. Before
getting to these questions, we must (and I believe we will) faithfully
analyze the current process to determine, as Section 309(j)(6)(E)
requires, whether it is in the ``public interest to continue'' to
employ techniques that avoid mutual exclusivity. In sum, if it is
broken, we should fix it; if it is working fine in the public interest,
we should ``continue'' its use.
Question 6. I understand the FCC has proposed to auction licenses
in the 900 MHz band for ``multiple address systems,'' that are used by
utilities, pipelines, and railroads to remotely monitor and control
their utility or rail networks. An allocation of one megahertz of
bandwidth for MAS was made more than 10 years ago, but because of
Commission inaction and now a new rulemaking to force auctions on these
channels, no licenses have been granted on these channels. Congress is
also disturbed to hear that the agency may delay this matter even
further because of it proceeding to implement the auction provisions of
the 1997 Budget Act. Could you please provide Congress with a timetable
for completing action in the multiple address system docket, and
explain why utilities, pipelines, and railroads, which are exempt from
auctions, must wait any longer to begin using these much-needed
channels?
Response. I concur generally with the response of Chairman Kennard.
I agree that licensing rules for both commercial and public safety use
of the MAS bands has been delayed for much too long. Once the comment
cycle is closed in the current ongoing proceeding, I will urge my
colleagues to expedite final action and licensing of these frequencies.
__________
Response to Written Questions Submitted by Hon. Conrad Burns to
Michael K. Powell
Question 1. In your estimation, what data speeds constitute
broadband access? Can you be specific with regard to both upstream and
downstream speeds?
Response. I generally agree with Chairman Kennard to the extent he
reiterates, in his response to this question, the Commission's
estimates in our February 2, 1999 Report to Congress of what data
speeds constitute broadband access. I should emphasize, however, that
such estimates are not static, but rather will evolve as the
capabilities and primary uses of technology developed over time.
Question 2. Mr. Chairman and Commissioners, I know that
implementation of E911 location technology has been a high priority of
yours and I want to commend you for your efforts and the establishment
of the October 1, 2001 implementation deadline. E911 location
technology will enable our emergency service providers to save lives
and it is imperative that we ensure that technology available to the
public as soon as possible. Can you comment on any recent progress made
at the Commission in this critical area?
Response. I generally subscribe to the Chairman's response to this
question and I hope that you find helpful the brief report on recent
progress in this area. Personally, I believe we have no higher calling
than that of facilitating and promoting the public's safety. Wireless
E911 is a very important component of this objective and I believe it
should be implemented by carriers at the earliest practicable date.
Lives are at stake. I am committed to resolving all outstanding issues
before the Commission on an expedited basis so that the industry is
provided certainty and timely deployment may continue.
Question 3. The FCC was required by the 1996 Telecommunications Act
to complete its reformation of the federal universal service support
system, replacing implicit subsidies with explicit subsidies, May 8,
1997. It is now over two years past that deadline--and over three years
since passage of the Act--and the Commission has still not completed
such action. In fact, it has missed even its own, self-imposed deadline
of January 1999 and is possibly in danger of missing its July 1999
deadline. When will the reform of universal service finally be
completed?
Response. I share many of your concerns regarding delays in
completion of our reforms in this important area. It is my
understanding and my fervent hope that this fall the Commission will
address, with respect to non-rural telephone companies, the universal
service issues you have identified.
On numerous occasions, I have made clear my support for the
universal service programs that it is this Commission's duty to
implement under the Telecommunications Act of 1996. The Act requires
that the services designated for universal service support be
``available at just, reasonable and affordable rates'' in ``all regions
of the Nation, including low-income consumers and those in rural,
insular and high cost areas.'' 47 U.S.C. Sec. Sec. 254(b)(1),
254(b)(3). I wholeheartedly endorse the overall goal of the statute,
and I know that the public interest will be well-served if we remain
faithful to the intent of these and other provisions in implementing
universal service programs.
One of the fundamental objectives of universal service reform for
non-rural carriers is that we make traditional implicit subsidies
explicit and portable. This will encourage new entrants to compete more
vigorously for many consumers by undermining the advantage incumbent
LECs have traditionally enjoyed by virtue of their exclusive access to
implicit universal service subsidies. Thus, universal service reform is
critical to the development of competition in addition to the provision
of supported services at reasonable and affordable rates. As such, I
agree that universal service reform should be completed as quickly as
practicable.
Question 4. NARUC has proposed FCC-state commission cooperation on
Section 706, promoting access to advanced technologies. What is your
reaction?
Response. I concur in Chairman Kennard's response to this question
to the extent that he underscores his commitment to working
cooperatively with state commissions on issues for which the two
jurisdictions have important roles to play. The need for such
cooperation is especially critical in areas, such as the promotion of
advanced services, that depend heavily on interconnection arrangements.
Because of their central role in reviewing, arbitrating and approving
such arrangements generally, state commissions may have valuable
perspectives and expertise on how best to promote the development of
advanced services. To this, the Commission can bring additional,
valuable expertise as well as a national perspective and consistency.
The combination of these resources can, I believe, promote advanced
services deployment. Thus, I foresee continued cooperation between the
Commission and state commissions in the advanced services context
Question 5. How do you see that FCC-state commission relationship
developing over the coming months and years?
Response. This relationship must continue to develop and to develop
in its current positive direction. In addition to issues related to
advanced services, as noted in the above response, we must have a
greater cooperative effort in all areas of shared and common
jurisdiction. The recent Fifth Circuit remand of the Universal Service
funding issues emphasizes the need for the Commission to cooperate and
negotiate with state regulatory authorities, instead of dictating our
desired outcome.
Question 6. What is the status of the Rural Task Force, which will
be making recommendations concerning universal service for rural
telecom providers?
Response. It is my understanding that the status of our universal
service reform efforts for rural companies is as Chairman Kennard
describes in his response to this question. Upon receiving the Rural
Task Force's report next fall regarding which reforms may be necessary
for rural telephone companies, it is my understanding that the
Commission will act on those recommendations quickly, so as to
implement any necessary reforms by January 1, 2001.
__________
Response to Written Question Submitted by Hon. Sam Brownback to
Michael K. Powell
Question. For several years, the Commission has been working on an
economic model to calculate the cost of providing universal telephone
service to rural, insular, and other high-cost areas. The model and the
inputs used in the model have gone through many changes. The Commission
has already violated its statutory obligation to finish the universal
service proceeding by May 8, 1997. How much longer are you prepared to
wait before the Commission implements a model? If no model, including
the inputs used in the model, is actually being used by the Commission
one year from now to determine the cost of universal service support to
non-rural telecommunications carriers, what should the Commission do?
Should it scrap the use of a model completely?
Response. Chairman Kennard's description of the status of the
technical development of our universal service cost model generally
comports with my understanding. As I have stated on other occasions,
one of the most daunting challenges of our universal service reforms
for non-rural carriers is making traditional implicit subsidies
explicit and portable. The model could provide one option to assist us
in tackling this challenge by helping us to introduce some notion of
cost into what traditionally has been a non-cost-based rate structure.
Introducing some notion of cost, in turn, holds out the prospect of
making these rate structures more consistent with competitive markets
and deregulation. Thus, I think it remains a worthy objective to
capitalize on the enormous time and resources that our staff, the
industry and state commissions have invested in developing the model.
At the same time, I share many of your concerns regarding delays in
completion of our reforms in this important area. Universal service
reform, along with access reform, is critical to achievement of the
Act's goals of promoting competition, deregulation and innovation.
Thus, I remain open to any method of making rate structures more
compatible with competitive markets that can help us achieve these
goals effectively and in a manner that promotes competition in both the
short and long terms.
__________
Response to Written Question Submitted by Hon. Olympia J. Snowe to
Michael K. Powell
Question. It is my understanding that WMTW Channel 8 in Maine has
an application pending before the Commission to construct a digital TV
tower in Baldwin, Maine. As with most tower construction proposals,
this one has not been without controversy, and I know that letters were
received by the FCC that strongly opposed the WMTW application. While I
take no position on the application itself--neither supporting nor
opposing it--and am seeking no special treatment for the application in
terms of its proceeding, I have received inquiries from constituents on
this matter and the timing of the FCC decision.
Accordingly, what is the status of this application, and how soon
should the citizens of Baldwin and WMTW expect a final decision from
the Commission?
Response. The Commission's staff is actively considering the
application pending for WMTW-Channel 8 (Baldwin, Maine). As noted in
the Chairman's response, the staff has asked the applicant for
additional information on what, if any, coverage losses may exist as a
result of the tower's location. This information is required to be
filed to facilitate the modification application process. As soon as
this information is submitted, the Commission staff will complete
processing of the application in a timely manner.
__________
Response to Written Questions Submitted by Hon. Trent Lott to
Harold W. Furchtgott-Roth
Question 1. Last December the FCC issued an order to address
unauthorized changes of carrier selection, more commonly known as
slamming. This order contained a complex set of rules for providing
credits to consumers who have been victimized by slamming and for
compensating a slammed consumer's original carrier. Recognizing the
complexity of this issue, your order also invited industry to put
forward alternative proposals for addressing slamming that would still
achieve the Commission's goals. In March, a coalition of long distance
providers, after working closely with the Commission staff, presented
the Commission with a proposal for an industry-funded neutral third-
party administrator that would remove much of the complexity for
industry and consumers alike. My understanding is that this concept has
support from many parties, including the National Association of
Attorneys General, and that some groups--among them the larger consumer
interest groups--believe that the industry plan is a superior approach
to fight slamming. To me, an industry solution that in fact simplifies
the process, makes the consumer whole and takes the profit out of
slamming makes more sense than imposing a set of government regulations
that may not be workable in practice.
Last week the Commission's own slamming rules were stayed by the
court indefinitely. A legislative remedy will take a long time to work
its way through the Hill, if it does at all, and it will take some time
to craft the rules to implement such legislation. The industry
proposal, which is still before the Commission, seems to me to be the
most rapid way to bring relief to consumers. Is the Commission giving
the industry proposal serious consideration? How quickly can we expect
the Commission to act on this proposal?
Response. I believe that everyone at the Commission shares the same
goal--significantly reducing and eventually eliminating slamming. In
that regard, I have expressed my firm support for the Commission,
pursuant to section 258 of the 1996 Act, to enact rules and regulations
designed to eliminate these unauthorized changes. I share your concern,
however, that the rules adopted by the Commission last December were
overly complex, and as I expressed at that time, inconsistent with the
safeguards and incentives established in the Act. Specifically, I
believe that the consumer absolution scheme created in that order would
lessen the incentives of the party most able to take appropriate action
to combat slamming--i.e the authorized carrier--and may also
inadvertently lead to an increase in fraudulent claims of slamming.
Given these reservations, I am prepared to give serious consideration
to any proposal that is more consistent with section 258. With respect
to specific timing, I defer to the Chairman.
Question 2. Many people believe that there are billions of dollars
in excess earnings in local company access charges (that is, earnings
above what is needed for any legitimate subsidy of local service). The
FCC has an extensive record on this issue pending before it. Yet access
reform may be further delayed. When.does the FCC plan to act on access
reform, and is there anything the FCC can do, effective this July, to
give the American people a downpayment on the reductions that are due
them?
Response. I remain committed to acting on any proceeding designed
to eliminate implicit subsidies in access charges, which I believe have
a disruptive effect on competition. I agree that, when access charges
are reduced, the American consumer, not federal bureaucrats, should
choose how to spend those reductions. Unfortunately, the Commission
denied consumers the full benefit of the most recent access charge
reductions in July. By choosing to increase the e-rate tax by $1
billion, the Commission intercepted the benefit of the July reductions
in access charges, and applied them to its excessive schools and
libraries program. I will continue to support responsible access charge
reform and Commission action that ensures that the American consumers
are the ultimate beneficiaries of this reform.
Question 3. The FCC recently released its report of audits of
certain incumbent local company records that indicate a significant
amount of equipment is unaccounted for. If you couple that with reports
that access charges are, and have been, significantly above cost, what
steps is the FCC taking to address these specific concerns?
Response. I have asked my staff to keep me abreast of proposals
related to these concerns.
Question 4. I understand that the Commission has opened a
proceeding to implement the spectrum provisions of the 1997 Balanced
Budget Act. When Congress expanded the FCC's authority to use auctions
in the 1997 Balanced Budget Act, we specifically provided that certain
private radio services are exempt from auctions because licensees in
these radio services use their radio systems to protect the safety of
life, health or property. It was further noted in the Conference
Committee Report that these exempt services include private, internal
radio systems used by utilities, pipelines, state and local government
agencies, emergency road services. and others. However, I understand
that aside from state and local government agencies and tow truck
operators, the Commission has not proposed in this proceeding to exempt
utilities, pipelines, railroads, or any of the other radio services
identified in the Conference Report. Could you please confirm whether
it is the Commission's intent to follow Congress' directions, as
explained in the Conference Report, or whether the agency is proposing
to unilaterally narrow the exemption language?
Response. As the Commission studies comments we have received in
response to the Notice with an eye toward crafting final rules, I
believe the entire Commission shares the belief that we should here, as
in all proceedings, act in a manner consistent with Congressional
intent.
Question 5. Despite Congress' direction that the FCC use
engineering solutions, frequency coordination, and other means to avoid
application conflicts and hence the need for auctions, I understand
that as part of this same proceeding the FCC is proposing to change its
licensing rules for private radio services so that such application
conflicts are likely. Congress would like to know why the FCC is trying
to create application conflicts and thereby force private radio users
into competing at auction, instead of following Congress' direction in
the Act that auctions are to be used only where such conflicts cannot
be avoided.
Response. The Commission's Notice specifically noted that the
Balanced Budget Act requires the Commission to use engineering
solutions and other techniques to avoid mutual exclusivity, consistent
with the public interest. As we move forward in this proceeding, I can
assure you that we will be vigilant in ensuring that we remain faithful
to the statute.
Question 6. I understand the FCC has proposed to auction licenses
in the 900 MHz band for ``multiple address systems,'' that are used by
utilities, pipelines, and railroads to remotely monitor and control
their utility or rail networks. An allocation of one megahertz of
bandwidth for MAS was made more than 10 years ago, but because of
Commission inaction and now a new rulemaking to force auctions on these
channels, no licenses have been granted on these channels. Congress is
also disturbed to hear that the agency may delay this matter even
further because of its proceeding to implement the auction provisions
of the 1997 Budget Act. Could you please provide Congress with a
timetable for completing action in the multiple address system docket,
and explain why utilities, pipelines, and railroads, which are exempt
from auctions, must wait any longer to begin using these much-needed
channels?
Response. I understand that the Commission is committed to
resolving the matters raised in the MAS proceeding in an expeditious
manner after close of the comment period in this proceeding early this
fall. As the Commission builds a record in this proceeding to deal with
a host of difficult issues raised by the fact that the MAS bands are
allocated for both ``public safety'' and ``non-public safety''
services, we will of course remain mindful of the fact that public
safety exception applies to utilities, pipelines and railroads. We will
endeavor to issue rules quickly so that these industries can begin
using these critical channels.
__________
Response to Written Questions Submitted by Hon. Conrad Burns to
Harold W. Furchtgott-Roth
Question 1. In your estimation, what data speeds constitute
broadband access? Can you be specific with regard to both upstream and
downstream speeds?
Response. I refer to the statements of the Commission in its Report
on the deployment of broadband capability to all Americans, released on
February 2, 1999. I recognize that, as technologies evolve, this
determination may, after proper notice and comment from the public,
need to change as well.
Question 2. Mr. Chairman and Commissioners, I know that
implementation of E911 location technology has been a high priority of
yours and I want to commend you for your efforts and the establishment
of the October 1, 2001 implementation deadline. E911 location
technology will enable our emergency service providers to save lives
and it is imperative that we ensure that technology available to the
public as soon as possible. Can you comment on any recent progress made
at the Commission in this critical area.
Response. The Chairman's response to this question lists the
efforts we have made this year in the area of E911 implementation. I
would simply add that the Commission is poised to take action this
month on our E911 Phase 2 rules, which specify requirements for covered
carriers providing automatic location information to public safety
agencies. I remain committed, as I have said in the past, to making
sure that our rules ensure that the benefits of this life saving
technology reach all Americans as quickly as possible.
Question 3. The FCC was required by the 1996 Telecommunications Act
to complete its reformation of the federal universal service support
system, replacing implicit subsidies with explicit subsidies, by May 8,
1997. It is now over two years past that deadline--and over three years
since passage of the Act--and the Commission still has not completed
such action. In fact, it has missed even its own, self-imposed deadline
of January l999 and is possibly in danger of missing its July 1999
deadline. When will the reform of universal service finally be
completed?
Response. I share your concern that reformation of the federal
universal service support system has not yet been completed. I am
concerned that the Commission has distorted the priorities of section
254 of the Act. I remain committed to acting on this measure once it is
presented to the full Commission.
Question 4. NARUC has proposed FCC-state commission cooperation on
Section 706, promoting access to advanced technologies. What is your
reaction?
Response. I fervently support and encourage the participation of
the States in all regulatory matters, including matters regarding
Section 706. With respect to the proposed establishment of a Joint
Conference under Section 410 (b) of the Communications Act, I will
support Commission action to the extent that it is consistent with the
terms of section 410.
Question 5. How do you see the FCC-state commission relationship
developing over the coming months and years?
Response. I encourage the Commission to consult early and often
with the States in regulatory matters of common interest. Over the past
several years, I have learned much from State commissioners. I believe
that governmental decisions should be made, consistent with the law, at
the levels of government closest to the people. I value my many friends
at State Commissions, and I look forward to working with them in the
future.
Question 6. What is the status of the Rural Task Force, which will
be making recommendations concerning universal service for rural
telecom providers?
Response. As stated by Chairman Kennard, the Federal-State Joint
Board on Universal Service created a Rural Task Force on September 17,
1997 to study what universal service reforms are necessary for rural
telephone companies, and is due to submit a report with recommendations
to the Joint Board by September 2000. The Joint Board will then make
its recommendations to the Commission, based on the Rural Task Force's
report.
Anecdotally, I have heard that the Rural Task Force has been
encouraged by Commission staff to address how to apply the FCC's cost
model for universal service in rural America, particularly small
carriers. The FCC's cost model is ill-suited for the purposes of
universal service for either large carriers or small. I trust that the
Rural Task Force will reflect the concerns of rural America and not be
bullied into advising the Commission on an ill-considered agenda. I
believe that universal service for small carriers should be the
Commission's first priority in implementing section 254 of the Act. I
am deeply troubled by the present plan of delaying action on this
priority until January 1, 2001.
__________
Response to Written Question Submitted by Hon. Sam Brownback to
Harold W. Furchtgott-Roth
Question. For several years, the Commission has been working on an
economic model to calculate the cost of providing universal telephone
service to rural, insular, and other high-cost areas. The model and the
inputs used in the model have gone through many changes. The Commission
has already violated its statutory obligation to finish the universal
service proceeding by May 8, 1997. How much longer are you prepared to
wait before the Commission implements a model? If no model, including
the inputs used in the model, is actually being used by the Commission
one year from now to determine the cost of universal service support to
non-rural telecommunications carriers, what should the Commission do?
Should it scrap the use of the model completely?
Response. I have previously voiced my concern with this agency's
responsiveness to Congressional intent in its implementation of Section
254. Rural, high-cost universal service is not just one of many
objectives of Section 254; it should be the highest priority. I believe
the delay in high-cost implementation has been caused, at least in
part, by the Commission's decision to use extremely complicated,
complex, economic, computer, cost models. The statute neither mentions
nor contemplates any form of cost model for universal service, but the
Commission has decided that these extremely cumbersome models should be
used to distribute high-cost universal service funds. I support
scrapping the use of the model immediately.
__________
Response to Written Question Submitted by Hon. Olympia J. Snowe to
Harold W. Furchtgott-Roth
Question. It is my understanding that WMTW Channel 8 in Maine has
an application pending before the commission to construct a digital TV
tower in Baldwin, Maine. As with most tower construction proposals,
this one has not been without controversy, and I know that letters were
received by the FCC that strongly opposed the WMTW application. While I
take no position on the application itself-- neither supporting nor
opposing it--and am seeking no special treatment for the application in
terms of its processing, I have received inquiries from constituents on
this matter and the timing of the FCC decision.
Accordingly, what is the status of this application, and how soon
should the citizens of Baldwin and WMTW expect a final decision from
the Commission?
Response. According to the Mass Media Bureau, the commission
received objections to the proposed construction of WMTW's new tower.
These objections are based primarily on zoning and tower location
concerns. While I cannot discuss the merits of this particular
application, it is true that the Commission's traditional policy--and
one with which I agree--is generally to defer to the decisions of local
governmental bodies with respect to tower siting. I understand,
however, that WMTW has indeed obtained local zoning approval for the
proposed construction, and that the Bureau has concluded its initial
review. Apparently, the Bureau has sought further information from the
station regarding possible signal coverage losses caused by the
proposal. I hope that the Bureau will move quickly to resolve this
application once that information is received. I will certainly do all
that I can to see to it that this matter is handled, as all matters
should be, expeditiously. Please do not hesitate to contact me if you
have further questions about the status of this application.
__________
USA Wireless, Inc.,
Houston, TX, May 24, 1999.
Hon. John McCain, Chairman,
Committee on Commerce, Science, and Transportation,
U.S. Senate,
Washington, DC
Dear Senator McCain: Thank you for giving us the opportunity to
present our concerns to your committee for the FCC's oversight hearing.
USA Wireless, Inc., a telecommunications company, has previously
contacted your office regarding our difficulty in receiving effective
responses to questions on cellular-phone radiation safety issues and
cellular-phone interference issues. We feel that the FCC has not
responded to our specific questions; therefore, we suggest that an
action must be taken to define the FCC's responsibilities to the
telecommunications industry and to the public.
USA Wireless feels that the FCC staff, specifically the Office of
Engineering and Technology (OET), have not taken our concerns seriously
or addressed our questions with objectivity and professionalism.
Questions regarding the cellular phone's interference measurement
procedures and standards--a topic for which the FCC is solely
responsible--have not been responded to directly. Since the FCC is the
regulating and responsible party for interference issues, we do not
understand why they have failed to provide straight answers to our
questions. USA Wireless has also not received straight answers to
questions and concerns regarding the FCC's adopted cellular-phone
radiation safety guidelines. The FCC has simply referred us to the
government health agencies, such as the FDA and EPA, who recommended or
commented on the proposed guidelines before the FCC adopted the
guidelines. Although the FCC only adopted the radiation safety
guidelines, does that mean that the FCC can divorce themselves of
responsibility from questions that arise concerning the guidelines? We
contacted the health agencies, however, they referred us back to the
FCC, which placed us in an endless loop that never supplied definite
answers. Whom is responsible for health issues related to cellular
phone radiation? Whose responsibility is it to protect the public? The
ineffective manner in which the FCC has handled these issues have made
us question the goals and responsibilities of the FCC. Overall, their
responses were surprising due to their lack of detail and explanations.
Even more surprising, was the response by OET to your office on January
19, 1999, which withheld information and did not give a clear picture
of the issues presented by USA Wireless to the FCC.
As a telecommunications company, we expect the FCC to respond to
our concerns and further investigate the issues we presented. We feel
that the consequences and implications of not responding to our company
are too negative. How would the public respond in knowing that USA
Wireless, a telecommunications company, provided information to the FCC
that was disregarded and not given an adequate explanation? Since
responsibility for radiation safety issues is easily passed from one
agency to another, we would like to focus specifically on the
interference issues since there is no question that they are the FCC's
responsibility. Since the FCC's major concern is with interference,
they should respond to these issues and make sure that we understand
the interference requirements and measurement procedures for the
cellular phone. We feel that they have been ineffective in their
responses, which could have serious implications in the public's and
industry's opinion. We do not understand why the FCC would choose not
to respond, if sharing information could lead to a solution. After all,
we questioned the FCC with the goal of helping them arrive to a
resolution that would satisfy both the public and the industry.
Since our initial contacts with the FCC, we have encouraged the FCC
to work with the industry towards making cellular phones safer and much
more efficient. We are now suggesting for the FCC to take adequate
responsibility for interference issues and to define their
responsibilities in radiation safety issues. We feel we have asked
reasonable questions and have provided enough information for us to
receive an equally as reasonable and professional response. Despite our
disappointment in the FCC's responses, we feel that the industry and
the government owe the public clear answers and practical solutions. We
still feel that if the industry and government agencies work together,
the resolution would benefit the industry and, more importantly, the
public. Recently, USA Wireless sent your office a video tape containing
two live television interviews that explain the goals and philosophy of
our company. We feel that the information in the interviews is evidence
of our efforts to bring solutions to the public and the industry. We
feel that any new information, especially from an industry member who
is willing to share information, should not be ignored.
We hope that the Committee on Commerce, Science, and Transportation
will evaluate these issues carefully and urge an immediate improvement
in the FCC's responsiveness and effectiveness. We hope you are able to
investigate why we have been treated in this manner and why the FCC has
not been able to give clear answers to our company, to your office, and
to the public. Again, thank you for the opportunity to express our
concerns to your committee. Please contact us if you would like more
information or if you have any questions.
Sincerely,
David Nghiem, Ph.D.,
President & CEO, USA Wireless, Inc.