### **TESTIMONY**

**Of**

**MICHAEL K. POWELL**

**Chairman**

**Federal Communications Commission**

### **Before the**

**Subcommittee on Commerce, Justice, State, and the Judiciary**

**of the Committee on Appropriations**

**United States House of Representatives**

### **On the**

**Federal Communications Commission\'s**

**Fiscal Year 2002 Budget Estimates**

**Tuesday, May 22, 2001**

#### SUMMARY OF TESTIMONY OF

#### FCC CHAIRMAN MICHAEL K. POWELL

**BEFORE THE**

##### SUBCOMMITTEE ON COMMERCE, JUSTICE, STATE AND THE JUDICIARY

#### OF THE HOUSE COMMITTEE ON APPROPRIATIONS

**May 22, 2001**

In order to serve the American public, the Federal Communications
Commission, as an institution, must be efficient, effective, and
responsive. The challenges of reaching these goals at the Commission are
complicated by the sweeping, fast-paced changes that characterize the
industries that we regulate. Indeed, the Commission is experiencing a
challenge it has never faced---each industry segment in our portfolio is
in the midst of revolution, and is attempting to adapt to fundamental
economic and technological changes. There are new markets, new
competitors, and new regulatory challenges.

Our Fiscal Year 2002 budget reflects the Commission\'s mission to keep
abreast of industry changes and set rational productivity and regulatory
goals. We are asking you to invest \$248.5 million dollars to ensure
that the FCC has the tools to facilitate its reform efforts, upgrade its
technological capabilities and further enhance its workforce. My goal is
not only to make the Commission an example of efficient management
practices, but to create and maintain an employee friendly
environment---a place where employees can hone their skills and take
pride in their service to the American people, as well as a place where
employees have plenty of time to invest in their families. We can work
together to encourage participation in telecommuting programs, build
internal training programs, and utilize programs designed to lure the
best and the brightest to government service. We can do this by
purchasing and maintaining state of the art technological equipment to
ensure better service to the public as well as a productive workplace.

My request for funding is tied to a specific business plan that I
present here today for your evaluation. We have developed this plan
along four dimensions: (1) a clear substantive policy vision, consistent
with the various communications statutes and rules, that guides our
deliberations; (2) a pointed emphasis on management that builds a strong
team, produces a cohesive and efficient operation, and leads to clear
and timely decisions; (3) an extensive training and development program
to ensure that we possess independent technical and economic expertise;
and (4) organizational restructuring to align our institution with the
realities of a dynamic and converging marketplace.

My goal is to improve the agency on all these levels---and to make many
of these changes within the next year. To that end, I have been seeking
opinions from a wide range of participants, including Members of
Congress and their staffs, the businesses that come before the
Commission, consumer groups, and our own skilled employees.

I cannot predict the future, nor can anyone else at the Commission. When
faced with future challenges that are uncertain, the best approach is to
build a first-class operation, with top talent, that is trained and
disciplined enough to adapt quickly to new and changing situations. I
hope to build, along with my colleagues and the outstanding FCC staff,
just such a unit---one well suited to an uncertain future.

Mr. Chairman, Ranking Minority Member, and Members of the Commerce,
Justice, State Appropriations Subcommittee, thank you for inviting me to
appear before you today to present the Federal Communications
Commission\'s (\"FCC\") Fiscal Year 2002 Budget and discuss our
priorities for the year ahead.

I feel truly privileged to be here today. I believe that a critical part
of my job is to be a leader and steward of the Commission, and I take
this responsibility very seriously. In order to serve the American
public, the FCC as an institution must be efficient, effective, and
responsive. The challenges of reaching these goals are complicated by
the sweeping, fast-paced changes that characterize the industries that
we regulate. Indeed, the Commission is experiencing a challenge it has
never faced---each industry segment in our portfolio is in the midst of
revolution, and is attempting to adapt to the most fundamental changes.
There are new markets, new competitors, and new regulatory challenges.

Serving as Chairman of the FCC at this juncture in history gives me a
unique opportunity to take stock and assess our regulatory framework,
and to develop guiding principles that will encourage economic growth in
the communications sector. Our Fiscal Year 2002 Budget request
represents a critical part of our efforts to make the Commission more
cost-effective and results-oriented. Today, I will provide you with a
summary of our Fiscal Year 2002 Budget Estimates and discuss our plans
for using these funds to enhance the Commission\'s productivity, and
ensuring that we are capable of meeting the future needs of both
consumers and the communications industry.

## **A Fresh Start**

I am pleased to note Mr. Chairman that you and I begin this process of
reviewing the Commission\'s budget unencumbered by past concerns and
agendas. We have the opportunity to forge a new working relationship
focused on the future. I want to state my commitment to working with the
Members of this Subcommittee, as well as our authorizers, to develop and
maintain a common perspective of the Commission\'s core mission.
Although the Commission is an independent regulatory agency, the
assessment, development and implementation of communications policy is a
team-effort, with shared responsibilities between the various branches
of government. It is my primary responsibility to ensure that the FCC
follows its statutory mandates in enforcing communications laws. Indeed,
one of my principal objectives is to make the Commission a place of
transparent, consistent, and decisive action. This process will
necessarily involve reform and restructuring, and I will turn to the
other members of the government, as well as outside parties, to carry
out our objectives.

Like most of you, I am a parent first and a public servant second. I
worry about the impact of my decisions on my two small children, both as
an ordinary parent and a federal regulator. What we, at the FCC, do
today could affect their quality of life tomorrow. I want it to be a
positive impact, not a negative one. When I leave my post, I want the
Commission to be an example of how a federal regulatory agency should
operate. I intend to leave the Commission better than it was when I got
here, to improve its ability to function today, tomorrow and in the next
century. Let us take advantage of our fresh start, our new relationship,
to implement real change at the Commission.

# **[New Beginnings for an Old Commission]{.underline}**

In order to understand our budget request, it is important to assess
where we are now, and how we plan to use our resources in the future.
The Federal Communications Commission received its initial statutory
authorization when Congress passed the Communications Act of 1934. It
was a time of severe economic depression---but also of technological
change necessitating regulation of the cacophony of voices on the
nation\'s airwaves. The Commission became part of Washington\'s alphabet
soup, and developed a culture and structure designed to handle the
licensing of radio stations. When change came in the beginning, it was
slow and gradual, from the hardwiring of American homes for telephones,
even in rural areas, to the advent of television, and the introduction
of cable---these are the issues that the Commission had to deal with in
the middle part of the twentieth century. The Commission divvied up the
airwaves according to what was seen as the highest and best use of the
spectrum and often decided who would receive the spectrum based on the
subjective evaluation of the character of the applicants. As valuable as
the spectrum was, it was free, with no benefit for its use going to the
American people.

The Commission\'s processes and mission have evolved during the past 70
years. While it is true that we still spend a great deal of time on
spectrum management, the number of potential users and uses increases
dramatically each year. Instead of primarily focusing on broadcasters
and hardwired phones, we concentrate on expanding the spectrum to
accommodate new technologies like third-generation wireless and
ultra-wideband. Our goals and regulatory mission are defined in a host
of adjustments to the Communications Act of 1934, including the
Telecommunications Act of 1996. Our responsibility to auction the
spectrum is a creation of the budget and appropriations process, and it
currently represents both a mechanism for encouraging competition and a
valuable source of revenue for the U.S. Treasury. Today, the
Commission\'s primary mission is to promote a fully competitive
marketplace as well as access for all Americans to communications
services. We achieve our mission with a combination of manpower and
technology---from electronic auctions, to automated licensing, and
innovative spectrum management techniques.

No one in 1934, or even 1964, could have foreseen the revolution in
communications that we have experienced in the last decade alone. We
know that communications developments are not finite and that they will
no longer come slowly. The winds of profound and dynamic change,
unleashed in part by the 1996 Act, have buffeted the Commission and
blown it into a position where its decisions have far-reaching impact on
the future of communications, not only in the United States, but also
throughout the world. We have come a long way from an agency where the
principal focus was the assignment of radio licenses, and its principal
activity was conducting lengthy comparative hearings to assign those
licenses. This new environment is no longer linear, but chaotic and
dynamic. During the next part of this decade, we expect the
communications markets to expand exponentially, and develop in a
competitive environment that will reduce the need for regulatory
intervention and oversight.

This is not your father\'s FCC, nor should it be. And in thirty years,
the Commission will not be our FCC, but our children\'s FCC. To
facilitate progress and not stand in its way, we must review our mission
and goals within the confines of Congress\' mandate and develop an
internal mechanism for improving our ability to foster competition in an
ever-changing marketplace. For this agency to fulfill its congressional
charge, indeed to remain relevant at all, it must put together a new
business model and build the type of team that can execute it
effectively. And with your help, that is precisely what we intend to do.

**[An Investment in the Future: The FCC\'s 2002 Budget]{.underline}**

Reform takes productivity enhancement, management review and retraining,
as well as technological upgrades to integrate all of these facets into
a productive work environment. Today, I ask you to invest in achieving
these objectives. Our Fiscal Year 2002 Budget requests that you commit
\$248,545,000 to the future of communications policy. Our total budget
request is \$18.5 million over last year\'s appropriation, representing
slightly more than an eight-percent increase. This increase is critical
to financing programmatic and mandatory costs. The budget also
represents a staff ceiling of 1,975 full-time equivalent (\"FTEs\").
This level includes FTEs funded from both appropriations and auctions
resources.

Much of the increase---41 percent---covers uncontrollable cost increases
to fund proposed government-wide pay raises, rent increases and other
inflationary increases. Specifically, our request includes \$6 million
for mandatory salary and benefit increases and \$1.6 million for
Consumer Price Index adjustments in contract services. The remaining
portion of our budget---and, by far the most critical---comprises
programmatic increases to accomplish the Commission\'s comprehensive
information technology strategic plan initiatives. We are requesting
\$10,997,000 for these information technology (\"IT\") enhancements.
This amount includes funding for equipment originally scheduled (but not
funded) for replacement in FY2000 and FY2001.

We intend to use our requested funding to build upon past improvements.
In the past few years, we have streamlined our licensing procedures and
implemented electronic filing capability in 78 applications---that is 72
percent of all major information systems. At the end of Fiscal Year
2000, approximately 62 percent of all applications were filed
electronically. And, 93 percent of all applicants were acted on within
our processing goals. The use of information technology has led to
improved processing time as well as a significant decrease in the number
of backlogged applications. The failure to invest in our information
technology systems, either in the form of lifecycle replacement or
technological upgrades, could lead to backsliding in our backlog
elimination operations, and undermine our efforts to reform the
Commission. It is important, however, that we do not automate what may
be a flawed process. I intend to initiate a strategic review of our
processes to ensure that they are accomplishing their intended goals.

I am cognizant of the fact that the funds I request here today belong to
the taxpayer and not the Commission. For that reason, we ask only what
is necessary to maintain and improve the Commission\'s services and
resources. It is important to note, however, that since 1987, the
Commission has worked to reduce the cost of government operations by
implementing the congressionally-mandated user fee cost recovery
programs. The first program, the \"Application Processing Fee Program,\"
was designed to recover a substantial portion of the costs of the
Commission\'s application processing functions, which account for the
majority of the licensing activity costs.

In 1994, we implemented the \"Regulatory Fees Cost Recovery Program.\"
Since that time, we have collected fees to recover the costs
attributable to the Commission\'s competition, enforcement and public
information services. Unlike the Application Processing Fee Program,
these fees can be retained by the Commission and applied to obligations
incurred during the current fiscal year, thereby reducing the amount of
appropriated funds required from the General Fund of the Treasury. Since
FY 1994, the fee offset to our appropriation has increased by 37 percent
to approximately 87 percent in FY 2000. I plan to maintain that level
and even increase it slightly to 88 percent during FY 2002. The actual
amount requested by the Commission for the next fiscal year represents
\$29,788,000 in net direct budget authority since we intend to collect
\$218,757,000 in offsetting collections from regulatory fees. I am proud
of our work in reducing our direct appropriation, and I believe that
given the appropriate tools, we will improve on this record.

# **[Keeping Our Part of the Bargain]{.underline}**

Almost two months ago, I testified before the House Subcommittee on
Telecommunications and the Internet concerning FCC reauthorization and
reform. I gave my commitment to following through on the philosophical
and practical side of the reform process and asked our authorizers to
join me in this effort. Although the financial needs outlined here are
an important component of our reform efforts, we already have
implemented a management review designed to make the Commission a model
agency. I pledge to you that I will use the taxpayers\' funds
constructively as a way to improve our services---and I provide you with
a four point business plan below so that you can evaluate the financial
worth of our efforts. Let me emphasize that we are not \"reinventing\"
the Commission, because that would be Congress\' prerogative, and until
legislation provides us with the ability to reprioritize some of our
functions, we will work within the statutory limits set by Congress. My
plan is designed to use our requested funding in a constructive
fashion---to improve the management and employment environment in a way
that benefits the American people.

## **FCC Reform: The New Business Plan**

I conceive of FCC reform as a comprehensive retooling and redirection of
the Commission\'s entire mission. Our approach is to write and execute a
new business plan built along four dimensions: (1) a clear substantive
policy vision, consistent with the various communications statutes and
rules, that guides our deliberations; (2) a pointed emphasis on
management that builds a strong team, produces a cohesive and efficient
operation, and leads to clear and timely decisions; (3) an extensive
training and development program to ensure that we possess independent
technical and economic expertise; and (4) organizational restructuring
to align our institution with the realities of a dynamic and converging
marketplace.

1.  [Substantive Vision]{.underline}

The United States has a proud legacy in the area of communications
services. This nation built the finest voice communication system in the
world, as well as top-notch mass media delivery systems in the form of
radio, television, and cable. These systems have reached maturity
though---we understand the basic technology and architecture; we largely
understand the cost characteristics; and, we understand what the
consumer wants and what the product is. And, government regulation and
policy had coalesced around these understandings, principally in the
form of regulated monopoly and oligopoly.

We are now only beginning to appreciate and deploy the new advanced
architectures and technologies of services like broadband. The cost
characteristics may differ substantially from those of traditional
networks to which we are accustomed. Broadband Internet products are
still being developed and we all wait to see what service offerings
consumers will and will not embrace. It is a world of dynamic and
chaotic experimentation and unpredictable change.

I believe government policy needs to migrate steadily toward the digital
broadband future, but recognize that we will be unable to anticipate
every change before it happens. I submit that this digital broadband
migration should be built around incubation, innovation and investment.
At the Commission, our policy direction will focus on this migration and
will have several directional guideposts:

-   Facilitate the timely and efficient deployment of broadband
    infrastructure. Endeavor to promote the growth of a wide variety of
    technologies that can compete with each other for the delivery of
    content and will strive not to favor---or uniquely burden---any
    particular one.

-   Pursue the universal service goals of ubiquity and affordability as
    new networks are deployed, and do so in creative fashion.

-   Redirect our focus onto innovation and investment. The conditions
    for experimentation and change and the flow of money to support new
    ventures have often been misunderstood or neglected. If the
    infrastructure is never invented, is never deployed, or lacks
    economic viability we will not see even a glimmer of the bright
    future we envision.

-   Harness competition and market forces. Drive efficient change and
    resist the temptation, as regulators, to meld markets in our image
    or the image of any particular industry player.

-   Rationalize and harmonize regulations across industry segments
    wherever we can and wherever the statute will allow.

-   Validate regulations that constrain market activity that are
    necessary to protect consumers, or we will eliminate them.

-   Be skeptical of regulatory intervention absent evidence of
    persistent trends or clear abuse, but we will be vigilant in
    monitoring the evolution of these nascent markets.

-   Shift from constantly expanding the bevy of permissive regulations
    to strong and effective enforcement of truly necessary ones. Request
    Congress\' help to put real teeth into our enforcement efforts.

2.  [Operations and Management]{.underline}

All the vision in the world is useless if you do not build and manage an
institution that can execute it. We intend to actively manage the
agency. Indecision and avoidance are not legitimate policies and, thus,
we will strive to reduce backlogs and put systems in place that will
prevent these problems. Managers will be measured, in part, on this
basis.

The Commission will develop an annual strategic planning process that
will be integrated with the federal budget cycle and the review of our
performance as an institution and as individuals. We are working to
establish uniform measures of productivity across the agency to
facilitate this activity.

The Commission is developing a set of internal procedures that will
allow it to function more smoothly. These procedures will cover subjects
such as Commission deliberation, voting procedures and internal document
security.

The Commission should continue to modernize its information technology
infrastructure to ensure productivity gains. We must strive to be a
virtual agency---one in which someone in Connecticut is able to access
us as easily and readily as someone on Connecticut Avenue. We are
working to make this goal a reality through increased electronic access
capability. We are engaged in a time-consuming and expensive project,
but one that is critical to our ability to remain relevant in this new
millennium. We must continue with due speed to use the advances of
technology to our advantage.

We have 18 major information technology systems that incorporate
electronic filing or offer public access to data. The industry can file
most license requests, equipment authorizations, and comments
electronically. A 72 percent electronic filing capability is not
enough---we will do better. We administered well over three million
licenses last year, so it is critical that we are efficient in this
area. It is also important that citizens all over the United States have
the ability to contact us easily and from anywhere---whether by
computer, phone or letter. Last year, we received well over one million
inquiries from consumers. The public must be an active voice in the
communications transformation, for they are the ultimate beneficiaries
of the abundant choices resulting from full and fierce competition.

Better management and a wider application of technology initiatives
leads to enhanced productivity and an improved quality of life for
employees. The Commission should be a place to work, not live. Employees
should have a fair opportunity to work from home, providing greater
flexibility to meet the demands of modern family life. That is why the
Commission undertook an ambitious rollout plan for telecommuting last
year. We intend to overlay our virtual agency concept to the benefit of
FCC staff through an expansive telecommuting program, which is open to
nearly 100 percent of the Commission\'s employees. Approximately 400 of
our eligible employees, about 20 percent, have chosen to telecommute on
either a regular or *ad hoc* basis. We began the telecommuting program
to increase productivity, improve morale, improve job satisfaction and
reduce absenteeism. I am pleased to say that other agencies look to us
as a model.

3.  [Technical and Economic Expertise]{.underline}

Since advances in technology are driving the communications revolution,
the Commission must have a strong fluency in the language of technology.
We cannot depend on those we regulate for on-the-job tutorials while we
make decisions. Over the last six years, our engineering staff has
decreased by more than 20 percent. Within the next four years, 40
percent of our engineering staff will be eligible to retire. Conversely,
we are not replenishing the coffers at the other end by bringing in new
employees. Like other governmental departments and agencies, we are
competing for this talent in a tight labor market and are challenged to
convince talent to enter government service. This has been most apparent
trying to recruit entry level engineers at the GS-5 and GS-7 levels.

To address this situation the Commission is developing an agency-wide
\"Excellence in Engineering\" program. We will examine creative ways to
gain greater personnel and pay flexibility to attract technical talent.
Increased salaries alone, however, will not do the trick, nor is it the
sole motivator for anyone entering government service. While government
service in and of itself should elicit a sense of pride, we will
increase our technical employees\' worth by ensuring that they are able
to continue to develop in their field, through strong training and
development programs and job rotation. Our laboratory facilities in
Columbia, Maryland, need to be upgraded to provide engineers with the
tools to engage in critical and challenging work.

It also is vital that we train our non-engineering staff in the areas of
engineering and advanced technology. We already have begun to develop an
FCC \"university\" of sorts using our own staff and guest lecturers, and
taking advantage of various programs currently available through the
government and local academic institutions. We can use this Washington,
D.C. location to our advantage and tap into industry and academia. We
can use local scholars and have them participate in an educational
curriculum, to provide lectures, to provide classroom instruction, to
provide counsel and advice.

I am putting similar emphasis on economics and market analysis. These
tools are essential to our agency\'s mission. We have the opportunity to
take advantage of both internal resources, visiting experts, and outside
educational programs to help not only our economists improve their
skills but to help all the FCC\'s employees understand better the impact
of our rules on technological innovations, and competitive markets. It
is critical that we look to a plethora of information sources in
gathering opinions and forming our policy.

> 4\. [Restructuring]{.underline}

Communications policy has been written in carefully confined buckets
premised on certain types of technology. The FCC\'s organizational
structure largely mirrors that premise. But the convergence of
technology tears down those traditional distinctions and makes it
evermore difficult to apply those labels to modern communications
providers. In the same way, it makes it more important than ever for us
to examine whether those organizational buckets still hold water.

About a year ago, we began breaking down the technology-based divisions
with the creation of the Enforcement Bureau and the Consumer Information
Bureau. With those reorganizations, we created two bureaus aligned along
functional responsibility. We created the Enforcement Bureau to improve
the effectiveness of our enforcement activities in an increasingly
competitive and converging market. We created the Consumer Information
Bureau to enhance consumers\' ability to obtain quick, clear and
consistent information about communications regulations and programs.
These changes have proven to be quite beneficial. As the industry moves
toward fuller competition, the missions of these bureaus become even
more critical. For consumers to take full advantage of the choices that
competition brings, it is important that they have access to information
that allows them to make an informed choice. Their ability to easily and
quickly convey to us instances where the markets are not providing
useful information to consumers in a particular circumstance or with a
particular business is our early warning system for market failure or
malfeasance on the part of industry players. While the consolidation of
these functions is almost complete, there are some additional functions
that are transferable into or out of those two bureaus.

We have undertaken a structural reorganization project that builds on
some of the initial efforts of my predecessor, Chairman William E.
Kennard. Our efforts will be guided by a few key objectives: (1) a
functional organization designed along market lines, rather than
technical ones; (2) a flatter substantive bureau structure; and (3)
greater consolidation of key support functions.

Our program will proceed in phases. We have begun by systematically
taking account of the agency\'s activities and functions to see what is
working well and what is not. From that review we will produce a Phase
I, short term, restructuring plan and a Phase II, longer range plan. The
Phase II plan will consider what wholesale change is necessary and
whether it is timely to move away even more from technology-based
buckets. We will be looking at what economic or marketplace triggers are
indicative of the need for further restructuring. The question has been
asked whether the Commission should be aligned along functional
lines---e.g., enforcement, consumer information, spectrum management,
licensing and competition---given increased convergence in the industry.
This question deserves to be asked and answered. But first, we must seek
additional and substantial information, and be completely satisfied that
it is the right thing to do, before we move to rearrange substantially
the organizational structure of the agency.

My goal is to improve the agency on all these fronts. An informed
decision, however, is better than one based merely on supposition. We
are seeking the opinions and thoughts from a wide range of participants
as we proceed down the path of reform. I also look forward to working
closely with this Subcommittee and other Members of Congress and their
staffs on this matter. It is our goal to fully complete many of these
changes this year.

With regard to the organizational restructuring that is likely to be
necessary, I hope you will concur in those changes. We need to have the
staff and other resources to provide those services efficiently,
knowledgeably and decisively.

## **Conclusion**

The primary impetus for my reform program is to ensure that the
Commission develops an enhanced ability to carry out its core mission:
promoting communications competition in a cost-effective, efficient, and
transparent regulatory environment. We are not here to find a solution
to every problem related to communications. We cannot handle everyone\'s
telephone bill, review every cellular tower siting, or ensure that
everyone in the United States has access to the most expensive equipment
in his or her home. We can promote an atmosphere of competition where we
step into the picture to ensure fairness of process, to stop predatory
and anti-competitive behavior, and to make certain that the airwaves are
free from clutter and pirates. We can and should make certain that the
public interest and public safety are protected, while recognizing that
we must work within the four-corners of our statutory mandate.

I cannot predict the future, nor can anyone else at the Commission. When
faced with future challenges that are uncertain, the best approach is to
build a first-class operation, with top talent, that is trained and
disciplined enough to adapt quickly to new and changing situations. No
army, for example, can know in advance what it will find when it engages
on the battlefield. The fog and terror of war never afford the luxury of
predictability. The key to success is to have a force that is
well-trained in tactics, strategy and the weapons it will need. A force
that is disciplined and able to adjust quickly and adapt to fluid
conditions---threats and opportunities both will present themselves
through the haze. I hope to build, along with my colleagues and the
outstanding FCC staff, just such a unit---one well suited to an
uncertain future.

Thank you. I would be happy to answer any questions this Subcommittee
may have.