OPENING STATEMENT

of

MICHAEL K. POWELL

Commissioner

Federal Communications Commission

Before the

Subcommittee on Telecommunications, Trade

and Consumer Protection of the House Committee on Commerce

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## 2123 Rayburn House Office Building

Washington, D.C.

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
"re-mission") 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. § 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]{.underline}**

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. § 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.

### 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.

#### 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.

III. **[Administration Of Duplicative Functions]{.underline}**

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.

### 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.

### 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.

### 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.

### 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.

IV. **[The Breadth Of The FCC's Quasi-Legislative
    Authority]{.underline}**

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.

V.  **[Conclusion]{.underline}**

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.