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75–014 PDF 2001

MANAGEMENT PRACTICES AT THE FEDERAL COMMUNICATIONS COMMISSION: THE CHAIRMAN

REPORTS

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

OCTOBER 6, 2000

Serial No. 106–274

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman

JUDY BIGGERT, Illinois

THOMAS M. DAVIS, Virginia

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director and Chief Counsel

EARL PIERCE, Professional Staff Member

BRYAN SISK, Clerk

TREY HENDERSON, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on October 6, 2000 ............................................................................ 1

Statement of:

Feaster, H. Walker, III, Inspector General, Federal Communications

Commission; Adam Thierer, research analyst, Heritage Foundation;

and Jeffrey Eisenach, president, accompanied by Randy May, director

of communication studies and senior fellow, .............................................. 2

Kennard, William E., chairman, Federal Communications Commission;

Ronald S. Stone, chief information officer, Information Technology Center; and Mark Reger, chief financial officer ................................................ 36

Letters, statements, etc., submitted for the record by:

Eisenach, Jeffrey, president, the Progress & Freedom Foundation, prepared statement of ........................................................................................ 24

Feaster, H. Walker, III, Inspector General, Federal Communications

Commission, prepared statement of ............................................................ 6

Kennard, William E., chairman, Federal Communications Commission,

prepared statement of ................................................................................... 38

Thierer, Adam, research analyst, Heritage Foundation, prepared statement of ........................................................................................................... 17

(1)

MANAGEMENT PRACTICES AT THE FEDERAL

COMMUNICATIONS COMMISSION: THE

CHAIRMAN REPORTS

FRIDAY, OCTOBER 6, 2000

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 12:32 p.m., in room

2247, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding.

Present: Representatives Horn, Walden, Turner, and Owens.

Staff present: J. Russell George, staff director and chief counsel;

Earl Pierce, professional staff member; Bonnie Heald, director of

communications; Bryan Sisk, clerk; Elizabeth Seong, staff assistant; George Fraser and Trevor Petigo, interns; Trey Henderson, minority counsel; Jean Gosa, minority clerk; and Earley Green, minority assistant clerk.

Mr. HORN. A quorum being present, the Subcommittee on Government Management, Information, and Technology will come to

order.

Today’s hearing is the subcommittee’s 90th hearing in this Congress during which we’ve covered a wide range of issues. We successfully prodded the executive branch departments and agencies

to prepare their computers for Y2K, we highlighted government

agencies’ inability to balance their books, and we’ve examined the

government’s efforts to protect Federal computers from malicious

attacks.

Today’s hearing touches on all of those areas and more. We will

examine management practices at the Federal Communications

Commission. The Commission was established by the Communications Act of 1934. Since its inception, the FCC has been responsible

for interstate communications systems from the early days of radio,

then television, and now satellite and cable communications.

The Commission oversees the licensing of approximately 3 million companies and station owners. Its five members are nominated

by the President and confirmed by the Senate. To help ensure the

nonpartisan role of this independent commission, no more than

three members can be members of the same political party.

In 1994 the FCC began auctioning off frequency spectrums.

These auctions have brought $15.3 billion to the U.S. Treasury.

Last year alone, the FCC collected more than $1 billion from the

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auctions. But as in most business propositions, the auction process

has not been trouble free.

For example, 5 years ago, NextWave Communications Inc. won a bid gaining rights to the use of a spectrum, agreeing to pay $4.7

billion for the airwave frequency. After making a down payment of

$500 million, the company declared bankruptcy. That case resulted

in a protracted court battle delaying resale of the spectrum, which

is now thought to be worth about $18 billion.

We’re interested in learning more about the extent of this type

of problem. We want to examine the management practices and the

challenges facing the Commission in the increasingly complex

world of communications.

I welcome our witnesses today. I look forward to your testimony.

And I yield now to the gentleman from Texas, the ranking member,

Mr. Turner.

Mr. TURNER. Thank you, Mr. Chairman.

Clearly, the FCC is a very important Federal agency, with very

significant responsibilities that deserve the oversight of the Congress. And in our effort in carrying out our responsibility as a subcommittee to give that oversight, we are here today to hear from

the witnesses before us.

The FCC has as its primary goal, as I understand it, the promotion of competition in communication, protection of consumers,

and to support access for every American to the existing and future

communications services.

The purpose of our hearing today is to be sure that the FCC has

the necessary tools, the resources, and the management practices

in place to accomplish those very important goals.

So we are looking forward to hearing from each of our witnesses.

And I thank the chairman for calling this hearing today so that we

might have the opportunity to carry out the responsibility we have

of oversight of this agency.

Mr. HORN. I thank the gentleman.

And now for the witnesses, if you have not been a presenter before us, this is an investigative committee. We do ask you to be

sworn in. We do have your very fine papers, and if you would like

to summarize, we would appreciate it in, say, 5, 7 minutes. Then

that gives us more time for questions.

So if you will stand and raise your right hands.

[Witnesses sworn.]

Mr. HORN. The clerk will note that the three presenters have affirmed the oath.

And we now begin with the first of them. H. Walker Feaster III,

Inspector General, Federal Communications Commission.

Mr. Feaster.

STATEMENTS OF H. WALKER FEASTER III, INSPECTOR GENERAL, FEDERAL COMMUNICATIONS COMMISSION; ADAM

THIERER, RESEARCH ANALYST, HERITAGE FOUNDATION;

AND JEFFREY EISENACH, PRESIDENT, ACCOMPANIED BY

RANDY MAY, DIRECTOR OF COMMUNICATION STUDIES AND

SENIOR FELLOW, THE PROGRESS & FREEDOM FOUNDATION

Mr. FEASTER. Thank you, Mr. Chairman. Mr. Chairman, Ranking Member, I appreciate the opportunity to appear before you

3

today to discuss the accomplishments of the FCC’s Office of Inspector General and to share with you those activities that have aided

the FCC’s efforts to enhance its efficiency and effectiveness.

It is especially rewarding to Inspectors General when the Congress of the United States takes an interest in our continuing efforts to improve Federal programs and operations.

The FCC’s Office of Inspector General was established in 1989 as

a result of the amendments to the Inspector General Act of 1978.

The office is staffed with nine people and has an annual budget of

approximately $1.1 million.

During my years as IG, my approach has been to focus on major

issues of agency-wide significance. This approach has resulted in

audits, investigations, and related activities in the areas of information technology, procurement and contract administration, financial management and program management. In order to better

familiarize you with our efforts, I will briefly review some of the

very significant activities.

In 1992, the Commission engaged in an agency-wide effort to

modernize its automated systems. By 1994, the FCC had equipped

all of its employees with personal computers and connected these

computers internally via an intranet and to the world via the Internet. This effort served as the backbone of a system that has allowed the Commission to meet the challenges that must be faced

on a day-to-day basis.

The Commission also invested heavily in automated systems that

permit its customers to interact with the Commission using computer technology. In response to this major commitment of resources and as the Commission grew more dependent on automated systems technology, my office commenced work in selected

critical areas. We initially focused on the physical and environmental security of computer systems.

As our reliance on computers grew, our concern about the external security to the network increased. In 1998, my office began

working with individuals from the Information Technology Center

and the Commission’s bureaus and offices to develop a systems development life-cycle model. This will give the Commission a standard model to use as it develops its computer systems in the future.

My office has also done considerable audit work related to Y2K

conversion. We provided the chairman independent assessments of

the Commission’s progress toward the successful conversion to the

year 2000.

In summary, my office has been an active participant in the

Commission’s evolution to technology-based organization. The Commission has made substantial progress in the management and security of its computer systems. However, based upon the findings

in the recently concluded fiscal year 1999 financial statement

audit, additional efforts must be undertaken to bring the Commission into full compliance with the OMB Circular A–130, requirement for a comprehensive security plan. It also needs to accelerate

its efforts to develop and test its computer contingency plans.

Like many other agencies in the Federal Government, the FCC

has expanded its use of contractors to meet its many needs in lieu

of hiring additional staff. Since 1997, my office has been routinely

conducting floor checks, selected voucher reviews, and incurred cost

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audits to monitor the Commission’s administration of contract

funds. It is my belief that the risk in this area has been significantly reduced through extensive efforts by the management and

my office.

In the mid-1990’s, the FCC made a major commitment to improve the financial operations of the Commission. Recognizing this

change, my office began to look at the critical components of the

Commission’s financial system. In 1998, we conducted a special review of the Commission’s existing collection system.

Of major significance is the Commission’s commitment to improve its financial management has been the completion of a financial statement audit for fiscal year 1999. The result of this audit

was the issuance of a qualified opinion on the financial statement.

This qualification involved property, plant, and equipment documentation and unfunded liabilities.

I am quite pleased by the progress that the Commission is making in the area of financial management. While the efforts of my

office have identified a significant number of issues that must be

dealt with in the years and months ahead, it is my view that the

Commission’s commitment to improved operation in this area remains firm. My office will continue to monitor the implementation

of our recommendations from various audits we have completed in

the past. We are currently conducting an audit of the fiscal year

2000 financial statement and related reports to test the policies

and procedures that have been put in place as a result of our recommendations.

One of the statutory functions of my office is to conduct and supervise audits and investigations related to program operations.

During the fiscal year we have increased the scope of our activities

to include selected operating programs that will require additional

oversight. We have currently three projects under way in this area.

The first is a special review of the management of nonpublic information, the second is an audit of the operational effectiveness and

efficiency of the Commission’s national consumer center, and the

third project is an audit of the FCC’s performance as it seeks to

fully address the requirements of the Government Performance and

Results Act.

The results of these activities and audits will be available to the

Congress and FCC management in fiscal year 2001.

Another major responsibility of an Inspector General is to conduct investigations of alleged misconduct on the part of government

employees, contractors or other recipients of government funds.

Over my years as IG, my office has been involved in a wide variety

of allegations. Our caseload runs about 20 to 30 cases a year, and

it has included, for example, employee theft of supplies, misuse of

computer equipment, attorney misconduct in a proceeding, abuse of

authority by senior officials, improper conduct by employees related

to a contract award, and operating a business on government time

and with government equipment.

It is important to note that in all our inquiries and investigations, the rights of employees are fully protected. When conducting

interviews, employees are given the appropriate legal warnings, depending upon the situation. During the interview, they are permitted to be accompanied by a union official, a private attorney, or

5

an individual of their choice. We also protect the information

gained in the interview process to the fullest extent of the law.

In closing, I’d like to thank you for the opportunity to review the

operations of my office with you. I believe that the Office of Inspector General has had a meaningful impact upon the operations of

the Commission. We have met the challenge that you, the Congress, have set before us in the law that established my office. My

staff and I will work vigorously to build upon this foundation.

I will be glad to answer any questions you might have. Thank

you.

Mr. HORN. Thank you very much.

[The prepared statement of Mr. Feaster follows:]

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Mr. HORN. We now go to the second presenter, Adam Thierer, research analyst, the Heritage Foundation.

It sounds like we have a vote, but let’s proceed for at least 5 minutes, and then we will just have to go and be in recess and vote

and come back.

Mr. THIERER. Mr. Chairman, Ranking Member and members of

the committee, thank you for having me here today to testify on

the urgent need for reform in the Federal Communications Commission.

I have worked on several projects related to FCC reform, both on

my own at Heritage and with other public policy research organizations and academic experts in my 10 years at the Heritage Foundation. But I’ll stress that my remarks here today are mine, and mine

alone, and not those of the Heritage Foundation or any other organization.

Let me begin with a few brief words on why it is absolutely essential that Congress take steps to reform and downsize the Federal Communications Commission. And I’ll begin with what I believe is a shocking paradox, which is that we live in an age of deregulation, but the FCC is larger and more powerful than ever before.

Mr. Chairman, as you know, Congress took important steps

under the Telecommunications Act of 1996 to deregulate this important marketplace. Yet, while companies in this industry have

been forced to begin a demanding transition to a competitive market, nothing has been done to simultaneously ensure that the FCC

reforms itself or downsizes in any serious way. In fact, FCC spending and staffing are at all-time highs.

The FCC has requested total gross budget authority in fiscal year 2001 of almost $280 million and total staffing of 1,971 FTEs.

By comparison, 10 years ago, FCC spending stood at $108 million

and staffing was 1,734 FTEs. In other words, the FCC’s budget has

essentially doubled over the past decade and the agency has hired

roughly an additional 250 bureaucrats over the same period.

I should stress that this is a situation almost without precedent

both domestically and internationally. Domestically, when other

important industries such as airlines and trucking were deregulated, the agencies which oversaw those industries were forced to

downsize and in many cases were eliminated shortly after deregulation was pursued. This has not been the case with FCC as

telecom has been deregulated.

On the international front, other countries pursuing telecom liberalization have tended also to greatly curtail or even end outright

the meddling of their regulatory authorities within the affairs of industry. Again, this has not been the case with the FCC in America.

Frankly, this situation is now becoming somewhat unbearable.

There is simply no development within the telecommunications

marketplace that is not scrutinized under the FCC’s regulatory microscope. No major decision or development in this sector goes forward without the FCC somehow casting judgment on the matter.

I would suggest that this sort of intrusive behavior is inconsistent with the intentions and framework that Congress set forward

in the Telecom Act of 1996, and while many FCC officials will

claim that the bulk of their increased workload is because of the

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deregulatory activities they’ve pursued, one is forced to ask, does

the FCC really need to take any steps to achieve deregulation?

Why can’t they just step aside and stop micromanaging the day-today affairs of this fast-paced sector?

Congress should indeed reject this logic that some FCC officials

seem to put forward that only they can make this marketplace

competitive through their vigilant oversight and constant micromanagement of the affairs of this sector. The logical retort to that

is simple. If FCC oversight is so virtuous, then indeed why is it

that the least regulated sectors, such as cellular phones and Internet services, are the most competitive and fastest growing? Moreover, when Congress downsized and abolished previous regulatory

agencies, they did so because they knew competition, real competition, would not blossom so long as companies could come to Washington and plead their case for special treatment with captured

regulators.

Real competition will develop only when companies stop competing within the Beltway for the allegiance of regulators and start

competing in the marketplace for the allegiance of consumers. This,

more than any other reason, explains why there is such an absolute, essential need for Congress to begin taking steps to reform

and downsize the FCC soon.

So what should Congress do to rectify this situation? A simple

question deserves a simple answer, and I’ll outline for you, in closing, a very reasonable and short and simple strategy to do so. Let’s

call it the ‘‘cut and peel’’ strategy.

First, set the objectives. The ‘‘cut’’ part of this would be maybe

three simple goals or objectives such as, say, first, a 30 percent reduction in funding; second, a 30 percent reduction in staffing; and

third, perhaps the consolidation of the FCC’s 16 existing bureaus

and offices into, say, three streamlined divisions or units.

And, again, you should demand that these goals or objectives be

achieved over the next 3 years. So with this sort of 30/30/3/3 framework in mind, you should then demand that the FCC achieve these

objectives by shedding some of their responsibilities, or redundant

powers, that they currently still enforce. This is the ‘‘peel’’ portion

of the ‘‘cut and peel’’ strategy.

I’ll give you four specifics to close: One, spin off antitrust oversight functions to the Department of Justice or the Federal Trade

Commission, who already has the expertise and authority to do so,

whereas the FCC doesn’t; second, transfer and consolidate all spectrum management authority and responsibilities within the NTIA

within the Department of Commerce; third, transfer international

regulatory responsibilities to the Department of State or Department of Commerce, which are in a better position to deal with global trade and investment issues; and fourth, devolve universal service responsibilities to the State and local level, who are in a better

position to target assistance to those most in need.

Mr. Chairman and members of the committee, to conclude, may

I be so bold as to suggest that is not an unreasonable plan, especially viewed in light of the fact that the FCC has received a fairly

lengthy reprieve from oversight and downsizing in the past 5 to 10

years. I think the time has come to rectify this situation, and this

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sort of simple ‘‘cut and peel’’ strategy, I believe strikes the right

balance.

Thank you, Mr. Chairman and members of the committee for the

opportunity to testify.

Mr. HORN. Well, we thank you.

[The prepared statement of Mr. Thierer follows:]

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Mr. HORN. We now have three members who need go over to the

floor to cast their votes, so we will be in recess for probably around

10, 15 minutes.

[Recess.]

Mr. HORN. We are now out of recess and we have our third presenter, Jeffrey Eisenach, president of the Progress & Freedom

Foundation.

Mr. EISENACH. Mr. Chairman, thank you for having me here

today. Let me begin by noting that while I serve as the president

of the Progress & Freedom Foundation, the views I express are my

own and do not necessarily represent those of the Foundation, its

board or its staff.

I would note that we at the Progress & Freedom Foundation

have dedicated ourselves to studying the digital revolution and its

implications for public policy. Our 7-year history has been spent

studying the telecommunications marketplace, and the Federal

Communications Commission in particular.

Here with me today is our director of communication studies and

senior fellow, Randy May, who is leading a major and comprehensive study of the FCC, looking at its role in deregulation and the

need for continued deregulation and FCC reform.

Now, the FCC oversees what is arguably the most important and

vibrant sector of the American economy. I brought with me today

and made available to the members of the subcommittee something

that we publish every year called ‘‘The Digital Economy Fact

Book,’’ which is just a compendium of statistics. You’ll find, Mr.

Chairman, that one of the things that it shows is that the telecommunications sector is in a state of transformation from a marketplace characterized by scarcity and monopoly to one of abundance and competition.

In passing the Telecommunications Act, the Congress tasked the

FCC with implementing a new policy framework consistent with

that transformation. The vision of the Telecommunications Act was

clear. It aims to replace monopoly with competition and to impose

the discipline of the marketplace in lieu of government regulation.

In short, it says to the Commission: Facilitate the transition to

competition and when you’re done, deregulate.

But deregulation is a task for which this commission, at least,

has turned out to be poorly suited. As Adam Thierer noted, the

Commission is larger than 5 years ago when the act was passed.

It’s also—and I’m going to talk a little bit about the extent to which

it is—vastly more intrusive into the affairs of the marketplace than

it was 5 years ago.

Some examples: In its review of the mergers under its vague

public interest standard, the Commission engages in what is essentially an exercise in ‘‘designer regulation’’ with separate and unequal regulatory regimes imposed on similarly situated firms

through conditions which are supposedly voluntary, but in fact are

necessary if the merger is going to be permitted to go forward

under a very vague set of criteria.

The Commission has refused to forbear from regulating in the

local service marketplace for broadband services, and it’s now

poised to impose common carrier-type regulations on broadband

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Internet offerings by cable service. It is now looking even at extending itself into the arena of digital broadcasters.

Under this Commission, under this administration, and under

the Telecommunications Act, the Commission has now become a social policy agency, something for which I think it’s ill-suited. Administering what its former chairman, Reed Hundt, called the largest national effort for K through 12 education in our Nation’s history, namely the so-called E-Rate program.

This continuing mission creep would be less troubling if the Commission had a better track record of implementation, but its track

record in that regard in fact is poor. As I mentioned, in its review

of mergers under the public interest standard, the Commission is

able to avoid all of the requirements of the Administrative Procedures Act which applies only to industry-wide rulemakings.

The Commission often fails to meet deadlines and is often engaging in creative interpretation of its statute. This leads to not only

Congress but also the courts having to step in and do the agency’s

job in areas as arcane as reciprocal compensation and as central to

the agency’s mission as the implementation of unbundling and resale requirements of the local telephone loop.

And I do need to say, Mr. Chairman, I would hope that all of the

members of this subcommittee would take a moment to read the

book by former Chairman Reed Hundt.

And I gather this book is available free at www.Reedhundt.com.

It is a book that everyone should look at because, as someone who

formerly served as chief of staff in an independent regulatory agency, I believe it contains a series of admissions that suggest that the

Commission has been far more involved and insensitive to political

concerns than is appropriate for an independent regulatory agency;

and I just think that is something the subcommittee should be

aware of.

Now comes the Commission with its 5-year draft strategic plan,

which essentially asks the Congress to sign off on a broad new mission for the agency. It’s not clear exactly what that mission is. The

Commission talks of becoming a ‘‘market facilitator.’’ It is not clear

why in a competitive marketplace this particular market needs its

own facilitator. Many markets seem to behave just fine without

their own industry-specific regulators. But it is the Commission’s

position, I guess, that it does need to have such a function.

And at the same time, the Commission comes forward with no

proposals, at least no substantial proposals, for limiting its authority or reducing its activities.

I respectfully submit, the Commission could and should take a

different tack. In my opinion, the advent of competition in the communications marketplace should result not in a larger and more

powerful regulatory agency, but in a scaling back of both the cost

of the agency and its intrusion into decisions better made in the

private sector. In the report we release in December, we will

present some comprehensive recommendations for how to do that.

In summary, it seems to me there are four suggestions that I

would offer for this subcommittee’s consideration, for the consideration of Congress in general: First of all, the Commission should

be required to make explicit the criteria it uses to judge the public

interest, starting with its application of the public interest standVerDate 11-MAY-2000 11:17 Nov 15, 2001 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 C:\DOCS\75014.TXT HGOVREF1 PsN: HGOVREF1
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ard to the license transfers involved in mergers. If the Commission

is reviewing license transfers as such, then it should limit its deliberations to the direct implications of those transfers. Conversely, if

it is going to engage in a broader antitrust-like merger review, it

ought to do so using its authority under the Clayton Act.

Second, the Commission should get out of the social policy arena,

and that includes transferring the functions of the E-Rate program

over to the Department of Education, which would be in a better

position to run them.

Third, Congress should undertake a comprehensive examination

of the Commission’s structure. Proposals have been made to reorganize the Commission along less stovepipe, industry-specific lines to

reflect convergence. That’s something the Commission should do,

and Congress should assist in and insist on. Also, I think Congress

should consider additional approaches to streamlining the agency

and would agree with what Mr. Thierer said with respect to offloading some of its functions to other kinds of agencies and looking

at alternative structures.

Fourth, and keeping in mind that the strategic plan presented by

Chairman Kennard, at least all of the versions I’ve seen to date are

still labeled ‘‘draft,’’ Congress should insist on a draft 2. Rather

than focusing on creating new missions and expanded responsibilities, draft 2 ought to point the way to the smaller and less expensive and less powerful FCC that one would think would be the natural consequence of telecommunications competition and deregulation.

Mr. Chairman, thank you very much.

[The prepared statement of Mr. Eisenach follows:]

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Mr. HORN. Well, we thank you. That’s very helpful, all three of

you.

We are now going to go to questions for this panel. And we are

going to have 5 minutes per person, alternating between the majority and the minority.

Let me start in with Inspector General Feaster if I might. What’s

your view of the FCC’s initiatives to improve its financial management operations and accounting systems?

Mr. FEASTER. I believe since they made the commitment several

years ago to improve the systems, they’ve gone a long way, as we

pointed out in our fiscal 1999 financial statement audit. They’ve

been successful in improving conditions to date. But they do have

some areas that need improvement. The statement was qualified

on the basis of getting ahold of the property and plant and equipment accounts in a more accurate manner, and implementing procedures to do that.

There are a lot of things that they need to do, but it is a

multiyear solution to the problems we have identified in that audit.

We are currently conducting a fiscal year 2000 financial statement

audit in which we will review their progress toward these goals.

Mr. HORN. Chairman Kennard’s testimony notes that the year

2000 failure caused difficulties with an electronic complaint processing system. What was the magnitude of that failure?

Mr. FEASTER. I—I’m not familiar—my guess——

Mr. HORN. The Y2K bit.

Mr. FEASTER. They basically went through the Y2K without any

major failures that I know about. We looked at the critical systems

and they made the process.

The only thing I can think of is perhaps the Oscar system

which——

Mr. HORN. Well, the chairman will be here, of course, but this

is from his formal statement on page 6, the beginning paragraph,

where he says ‘‘Because of difficulties caused by an electronic complaint processing system that was not Year 2000 compliant and

lack of staff resources, the inventory of informal complaints at one

point grew to 154,000 pending cases.’’

I just wondered if you as Inspector General have looked in on

that or you have made a contract with a consulting firm to try and

sort it all out.

Mr. FEASTER. That was the Oscar system, sir, which is the system that would process these complaints. I was recently briefed by

the acting chief of the Consumer Information Bureau, and I believe

the chairman can testify that significant progress has been made

in reducing those complaints to a number of about 36,000 to 39,000

complaints that are currently pending. So in the past 6 months, the

complaints have been reduced.

Mr. HORN. Let me move on. If you have any comments on these

questions, all of you, we would welcome your thoughts. How many

companies still have not paid for their spectrum auction bids and

how much is outstanding? Inspector General, what’s your view of

the situation?

Mr. FEASTER. We did a nontax delinquent debt study that I think

you had a great interest in seeing done on a governmentwide basis.

30

Mr. HORN. That’s right, because there’s billions of dollars that

the taxpayers are losing.

Mr. FEASTER. $13 billion or—lots of billions.

Mr. HORN. $131⁄2 just for Medicare. It gets up to several hundred

billion.

Mr. FEASTER. What is the old saying, as soon as it starts adding

up? Something like that.

Mr. HORN. Senator Dirksen’s famous words, ‘‘Pretty soon it’s real

money.’’ Now we’re into the trillion age. Poor Senator Dirksen, he

wouldn’t——

Mr. FEASTER. It boggles my mind the number of zeros. But I

think there are one or two companies that own a significant

amount of the debt of that $13 million, or whatever the actual

number is involved in that, and one of them is in litigation and I

think trying to get some legislation passed. I think the chairman

could address that a lot better than I could. I don’t know where

they stand right at the present moment.

Mr. HORN. Well, if you have some thoughts on it when you get

back to the office, we will reserve a letter or something and put it

in the record at this point.

Mr. FEASTER. Yes, sir.

Mr. HORN. Have you discovered any case of fraud or abuse of the

spectrum auctions?

Mr. FEASTER. We had some tangential issues related to the conduct of contractors that were providing support to the spectrum

auctions group. We did not—and one of the contractors ended up

going to jail for 18 months and was fined a significant amount—

well, $40,000, a significant amount of money to me, anyhow. But

we found nothing in the spectrum auctions process that was a

problem.

Mr. HORN. Well, if again you change your mind on that, we’ll

have a letter at this point in the record.

I’ve used my 5 minutes. I now turn to Mr. Turner for his 5 minutes.

Mr. TURNER. Thank you, Mr. Chairman. Mr. Feaster, you heard

both of our other witnesses offer certain suggestions, recommendations for streamlining of the agency. What’s your views on the suggestions that they made?

Mr. FEASTER. That’s a hard one. One of the ways an Inspector

General gets into trouble is to make comments on stuff he has not

studied, and I haven’t looked at that issue. I believe it is more of

a discussion between—within and between members of the public

groups like this and the Congress.

I’ve been at the Commission since 1974, not in this capacity, and

I’ve seen the Commission grow in both size and responsibility. New

programs have come in. Spectrum auctions is one of those programs where a substantial amount of effort is put into collecting

and dealing with the actual auctioning of spectrum. So I think my

official position is I have no comment on that since I haven’t done

extensive work in that area.

Mr. TURNER. Well, from your vantage point as Inspector General,

do you see any areas within the agency that you think could be

pared down or they could operate more cost effectively?

31

Mr. FEASTER. I guess two comments I’d have on that. One, I

think the move toward a functionally oriented commission is the

right move. In the past in my other positions I’ve advocated that

type of structure and the Commission has taken steps to do that

in the enforcement area and in the consumer information area.

I think that helps meet the rising demand. The public keeps

wanting information and services from the Commission. I think we

average a million hits a day on our Web sites. There’s a constant

demand for information and services from the Commission by the

public. So I don’t see the workload decreasing. What the Commission has tried to do is use computers to meet that workload. We

have a substantial investment in the computer area and we are

constantly involved with the Chief Information Officer to review

the use of computers and the security of computers, an area that

I know that the chairman and the committee are interested in.

So I can’t come up with any areas that are really, as you suggested, may be bloated. I think the demands of the Commission are

ever growing.

Mr. TURNER. Thank you. One of the comments that you made,

Mr. Eisenach, was the recommendation that you said the Commission should get out of the social policy arena as expeditiously as

possible. And what you cited in that regard were Federal education

programs should not be run by the FCC but by the Department of

Education and that universal service programs should be further

targeted, not further expanded.

I’d like for you to expand on your thoughts there. I know those

are important programs and have a lot of benefits, particularly in

areas of the country like I represent. Why do you feel so strongly

about transferring that function?

Mr. EISENACH. Well, two really separate issues, both related in

the sense that they are both related to social policy or social policylike programs. With respect to the e-rate, you have a program

which is intrinsically and inherently an educational program. Its

purpose and design is to facilitate the use of computers, the availability of computers in America’s schools.

The focus in that program of course is on the hardware. One of

the things that I think happens by having it at the Federal Communications Commission, as opposed to some place like the Department of Education with a broader view, is that the program has

not been easily integrated, for example, with programs for training

teachers, which is an essential part of bringing technology in a

more useful way into the classroom.

I think that an agency like the Department of Education which

has the ability to integrate and balance the use of technology in the

classroom would be in a better position to manage that well.

The separate issue goes to the funding of that program and

whether it is best funded by imposing what are essentially taxes

on telecommunications services as opposed to a broader funding

source like the general revenues of the Federal Government. I

think we would all agree that there is some role for the government in that, and I’m not getting into the question of whether

we’re spending too much or too little. It may be too little for all I

know. But with respect to the source of funds, telecommunications

32

taxes, are extremely regressive and extremely harmful to people’s

ability to get on the Internet because they affect Internet access.

On the universal service issue, this is obviously a very controversial and an extraordinarily complex set of programs. But the long

and short of it I would say is the need to focus that assistance on

people most in need and not to be subsidizing the rural rich, if you

will, the Ted Turners in Wyoming or Aspen, CO, who are benefiting from those subsidies as much as your constituents who may

need them much more.

Mr. HORN. We now turn to Mr. Walden for 5 minutes for questioning.

Mr. WALDEN. Thank you, Mr. Chairman. I don’t know that I will

use the full 5 minutes but I do appreciate the opportunity to be

here today and address the panel.

I would at the outset of my questions, just for full public disclosure and disclaimer, say that I am a licensee of the FCC. We have

owned and operated radio stations in Oregon since 1986 and my

family before that dating back to 1967, and actually in Oregon

broadcasting to 1934, I think is when my dad got his ham license.

So we have been in the business a long time. So it is with some

concern that I come here and discuss some of this. But it is also

with hands-on understanding of being on the receiving end of the

FCC, both the good and areas where I think there might be some

room for improvement.

Mr. Feaster, I have a question for you. Your testimony talks

about the civil monetary penalty program. Do you think that small

businesses suffer more from those penalties compared to large corporations? I don’t know if you have that schedule in front of you,

but as I recall, the penalty for literally having something out of

order in the file for the public file can be a $5,000 penalty. I don’t

know if all of our committee files are kept in exact order, but I

doubt the penalty would be $5,000 if they weren’t.

Mr. FEASTER. The civil monetary penalty study we did we were

looking more into the processes and procedures of recording the

fines and more the financial aspects of it and really did not do any

work in terms of the potential impact on small business type operations. I can’t make that judgment.

Mr. WALDEN. How does this finding, set of civil forfeitures, civil

monetary penalties for the types of things that are being dealt

with, how do they stack up against other agencies? Can you speak

to that at all? I know you are probably specific to this one.

Mr. FEASTER. I really can’t—I haven’t done any comparison. I do

know that the base schedule as set by statute—by congressional

statute and from that a subschedule was developed as it breaks

down to various offenses. I haven’t had any complaints by broadcasters, for instance, about the unfairness of their—the enforcement actions taken against them. But I’m not sure that they would

use my office as a vehicle.

Mr. WALDEN. I was going to suggest they may not even know to

go to an IG, for example.

Mr. FEASTER. People tend to find us when they have a problem.

We get a lot of complaints about telephone type bills which we

don’t really handle. But they tend to find us. A lot of times we are

33

the first contact they have, other than our information center in

Gettysburg, and we refer them to the proper people to talk to.

Mr. WALDEN. I’d like to commend the Commission and its staff

for the work they’re doing in improving and developing the Web

site. I think that is and can be a very useful tool. I think there are

some areas where there is room for improvement. I myself have obviously used it and it may just be my Explorer. I don’t know, I

sometimes have been frustrated with things that haven’t been updated and I think that is probably a problem for all of us with our

Web sites, but I know some of the information did not seem to be

updated as regularly. Weren’t they in a transition period?

Mr. FEASTER. Yes, sir, and they made significant progress in that

area. In fact the CIO is sitting back in the back row right now

about the oversight of that.

Two things, the Web site was rated very highly in a study recently done. We also have just completed work in checking on the

accessibility of the Web site to disabled individuals and although

we haven’t released the report yet, in draft it looked very good. So

I think in those two areas, they are improving in overall access and

specialized access.

Mr. WALDEN. Let me ask anybody on the panel that may want

to respond, does the FCC have statutory authority to regulate content on private Web sites, to regulate what is on there and what

is not?

Mr. THIERER. I do not believe they do without some sort of clear

congressional statutory approval to do so. There may be some general authority they could try to construe under the mass media responsibilities, but I doubt that would wash with a court. I do not

think it would work, no, because Web sites are not licensed and

that’s the difference.

Mr. FEASTER. I don’t think so. I’m not a lawyer.

Mr. WALDEN. That’s two of us.

Mr. EISENACH. I would just say briefly, one of the things I touch

on in my testimony is the existence of this very vague and undefined public interest authority at the Commission, which is ultimately the authority that the Commission relies on in many and

to some extent in all of its activities. That authority is as broad as

three FCC commissioners find the public interest to be on a given

day.

Mr. WALDEN. I have expended my time. Thank you very much,

gentlemen. Thank you, Mr. Chairman.

Mr. HORN. We now turn to the gentleman from New York, Major

Owens, for 5 minutes and that will be the last round. The other

questions will be submitted to all of you and if you don’t mind, fill

them in and we will put them at this point in the record. And then

we will have a chance to have the chairman, Mr. Kennard, who is

here. Major Owens, all yours for 5 minutes.

Mr. OWENS. One quick question to the Inspector General. Recent

audits have indicated improvements need to be made in the FCC’s

collection system. Would you say we have made some strides toward making those improvements? Many Federal agencies like the

Department of Agriculture have a history of allowing corporations

and private interests to get away with murder with respect to paying their debts. Decades go by and they don’t pay large amounts.

34

Corporations and the corporate culture in general might have

begun to see government in this way in general and not want to

pay their debts or fees, etc. What is the situation with collection?

Mr. FEASTER. A couple of points. One, the collection system itself,

there will be a new collection system I am told by January 2001.

We did an audit of the old system and found problems. They’ve

made minor changes to that to address the problems, but they will

have a new collection system the beginning of the calendar year.

Also, the chief financial officer is conducting an aggressive program of following up on past years’ nonpayments of regulatory fees

to make sure that nobody has the ability to skip paying a required

fee to the government.

Mr. OWENS. This rides herd on the auction payments as well?

Mr. FEASTER. Both the auction payments and on regulatory fees

also. And we have continuing discussions almost on a weekly basis

about regulatory fee collection and auction payment fees, so this is

part of the—we will be reviewing this portion of the financial statement in our 2000 audit of the financial statement. So we will be

looking at those areas specifically.

Mr. OWENS. Do you have any concrete recommendations about

what other steps might be taken?

Mr. FEASTER. I think we’ve had this discussion in the past with

them and they have basically implemented a very aggressive program. They have two approaches. One, the new collection system

will more accurately record fees, and two, there is a system called

CORES, which will be making sure we have very tight links between our licensees and the financial transactions that they do

make to make sure that everybody is paying their fair amount and

required amount.

Mr. OWENS. Thank you. Mr. Eisenach, you mentioned the e-rate,

and I would like for you to expand a little on that. I am reminded

of the picture on the front page of the New York Times today of

the folks in Yugoslavia rebelling, people rising up and seizing their

own destiny and their own government. If we tamper with the erate at this point, we will have the teachers and the students and

a whole lot of people out there rising up against any efforts, I assure you, to lessen the impact of e-rate or make it weaker. And it

seems to me a proposal to move the administration of it to the Department of Education would certainly weaken the effort because

what you have—we have gone through a stormy set of skirmishes

with the big corporations in the telecommunications industry, some

have even gone to court and we have had Members of Congress

who have threatened the agency and all kinds of things have happened as we pursue the implementation of the e-rate, and we finally came out and it has been implemented now and you can’t

take it away from the people.

It seems to me that it is mainly a communications matter for

one, and not education. But for two, there is a need for some power

in terms of making the giants who resisted having e-rate implemented in the first place, making them to continue to stay in line

and saving the e-rate from any counterattacks that might develop

out there.

35

You know, I admire the Department of Education. I think it is

one of the most important functions of government. But it is one

of the weakest agencies in terms of its clout right now.

Could you elaborate on your proposal to move the e-rate to the

Department of Education?

Mr. EISENACH. I’ve recently had the opportunity to listen to FTC

Commissioner Orson Swindle speak on unrelated matters. He said

that all government programs have three things in common, a beginning, a middle, and no end.

I think what you just said, Mr. Owens, suggests why. I think it

is very difficult to reform or modify programs once they are put in

place, and I think even those with the best of intentions are subject

to that problem.

Mr. OWENS. Sometimes that is good. We don’t want the e-rate

and Social Security to come to an end.

Mr. EISENACH. I understand that. I think from a larger perspective—and I would not want the perfect to be the enemy of the

good—there is a general consensus that there is a role for the Federal Government in helping to see to the implementation of Internet availability in our Nation’s schools. But at the same time, I

think that there are good government reasons for moving that program where it could be integrated with the programs of the Department of Education.

Mr. HORN. Time is up on this, and we are sorry about that. We’ll

probably ask the chairman the same thing. But I want to thank all

three of you for coming here and giving us a perspective which

raised some very interesting questions, and we will be in touch

with you in terms of some of these questions to put them in the

book and in the record. So thank you very much for coming.

We’ll now ask the chairman of the Federal Communications

Commission to come forward.

We welcome you. This is the first time he’s testified before this

subcommittee. Chairman Kennard, I understand you had some

scheduling conflicts and I appreciate your effort to join us today,

and I think you know, since this is an investigating committee, we

will swear you in and your aides too. Anybody that will talk and

get on the record. It doesn’t matter how deep. I have seen the Pentagon come in here with 15 people.

[Witnesses sworn.]

Mr. HORN. Mr. Chairman, did you take the oath?

Mr. KENNARD. Yes, I said ‘‘I do.’’

Mr. HORN. The clerk will note that the chairman and his aides

have accepted the oath. And please proceed any way you would

like. We prefer not to hear what we have already read, but we

would like a summary. If you want to emphasize a particular paragraph, but this way there will be a chance for the members of the

panel on both sides to ask questions and we won’t be here forever.

Thank you.

36

STATEMENT OF WILLIAM E. KENNARD, CHAIRMAN, FEDERAL

COMMUNICATIONS COMMISSION; RONALD S. STONE, CHIEF

INFORMATION OFFICER, INFORMATION TECHNOLOGY CENTER; AND MARK REGER, CHIEF FINANCIAL OFFICER

Mr. KENNARD. Thank you very much, Mr. Chairman, thank you

for the opportunity to appear before this subcommittee today. With

me I have two very important members of the senior management

at the FCC. To my left is Mr. Ron Stone, who is our Chief Information Officer; to my right is Mark Reger, who is our Chief Financial

Officer. Both of these gentlemen are responsible for areas that are

within the jurisdiction of this committee, and I know that they will

be able to provide a number of the details that you’re seeking.

I’m pleased to present testimony concerning the management of

information technology and financial operation activities of the

Federal Communications Commission. The FCC is an independent

regulatory agency with regulatory responsibilities for interstate

communications activities of the wireless, wireline, satellite and

radio and television broadcast industries. We have a total agency

staff of 1,975 full time equivalents and a fiscal year budget of $210

million.

Principally, our mission is guided by the Communications Act of

1934. Its mission is to promote competition, protect consumers and

provide access for every American to existing and advanced communications services.

As you know, Mr. Chairman, the last few years have been a time

of momentous change in the telecommunications industries here

and around the world. And so they have been a time of change in

the administration and management of the FCC. We have continued to work hard to keep up with the pace of change by expanding

and enhancing our information technology program, both internally

and in the electronic filing systems available to the public. We’ve

also made many improvements to the agency’s financial management systems to oversee the wide range of congressionally authorized revenue generating programs now within the agency’s purview.

In the area of financial management, the Commission completed

its first ever audited financial statement for fiscal year 1999. We

are very proud of that financial audit. We did it on a voluntary

basis. It’s not required of our agency to do so, but we felt that it

was important, given the many revenue generating activities that

we are now in, including auctions and our extensive fee program,

that we have a high degree of fiscal discipline at the agency.

I have a pretty extensive oral statement here, but in the interest

of time and as a concession to the shortness of life, I will not read

my entire statement. But I will sum up what I think are the principal challenges that are facing the agency today.

These markets are transitioning from an era of monopoly regulation to competition. This is not just something that’s happening in

the United States, it is in fact a worldwide movement. We have

been charged by the Congress with introducing competition in

these markets. The competition is now the organizing principle of

our law and policy in this area and the entire world is watching

what we are doing at the FCC. It makes it a profoundly important

37

time for us, because the world is now waking up to the power of

the Internet and e-commerce.

As Congressman Owens well knows the importance of technology

in uplifting our people, educating our children, improving health

care, and we know that the best way to get these benefits to the

public is through an open competitive telecommunications marketplace. We have been charged at the agency with making that happen. And we have been quite successful, I believe, in intervening

with a strong regulatory hand where necessary to pry open historic

monopoly markets and force incumbents to deal with new entrants,

new competitors, but at the same time easing off the hand of regulation in areas where we see the markets becoming more competitive.

So you can see we have attempted to create a careful balance:

intervening where there are blocked arteries or bottlenecks, but

easing off where we see competition developing, like in the long

distance marketplace or in the wireless marketplace.

At the same time, we have been very reluctant to regulate in

areas that are new and innovative and dynamic, like the Internet.

We have been very forceful in articulating that the Internet has

been an area of fertile innovation and it has grown precisely because there has not been a lot of government micromanagement

and regulation.

On our management side, the things that we are most proud of

is the successful implementation of our auction program, our Web

site, which has recently been rated very highly. The Taubman Public Policy Center rated over 1,800 government Web sites around the

country. We were No. 4. And we get about 1 million hits a day. As

I travel around the country, I am finding that because we have

converted a lot of our processes to electronic filing and because we

have a very high quality Web site, people are able to interact with

the agency around the country and, indeed, around the world without having to have a presence in Washington. That is very, very

important.

Congressman Walden, you talked about your family background

in broadcasting. As I am sure you know, now broadcasters around

the country can file applications with us electronically, communicate via e-mail with our staff, and it has been a very, very satisfying thing to see.

With that, Mr. Chairman, I will conclude my prepared opening

remarks, and I would be happy to answer any questions that the

subcommittee may have. Thank you.

[The prepared statement of Mr. Kennard follows:]

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Mr. WALDEN [presiding]. Thank you, Chairman Kennard. I am

going to fill in for Chairman Horn while he goes to vote and then

we will trade places. I have a couple of questions I wanted to ask

and then I will turn to my colleagues, who may have questions as

well.

One, I just want to draw your attention to something I hope that

you will work on, and I guess I am drawing on my background,

which I guess is what makes a legislative body a good thing to

have people of different background, because some of us are actually on the ground, on the receiving end, and that is not necessarily

the cost, the regulatory fees, but just the process you have to go

through to fill out the forms and apply.

I remember calling my Senator when I did not think I was going

to be in this process certainly a couple of years ago, after spending

many hours going through the notice and all of the forms, trying

to figure out which code I needed to put in which box at which

point and then being referred to something I couldn’t find, and this

was probably predating some of your Internet improvements on

your Web site.

The thing that has always struck me is you have 9 days to get

it in. You cannot pay your bill before September 11th, I think, this

year and it had to be there before September 20th. I cannot imagine in my business telling my clients, you have a 9-day window and

I am going to fine you 25 percent if you are late in your payment,

and expect to have anybody do business with me. Now, I do not

have a choice. I need your license, so I am your humble servant.

I guess I always wanted to ask that question. I always wanted

to be in that position where I could, and so I am here. I am curious,

why that closed window? Why not let people file it ahead of time?

Why that 9-day window to have every broadcaster in America to

pay their bill.

Mr. KENNARD. The mandatory fee program, as you know, is mandated by the Congress, and every year we have to go through a

process of establishing what the regulatory fees are going to be for

the year. What we try to do is give people as much notice as we

can early in the year of what we think the fee structure will be so

that they can prepare to make these payments, and then once the

fee structure is established, usually in the fall of the year, we go

through a process of having to collect the money in fairly short

order.

It is an issue that I am glad you brought to our attention and

it is something that I will focus on and see if there is a way that

we can make it easier on our licensees.

Mr. WALDEN. Because this does come out August 2nd this year.

But I have just never seen an agency that would not accept your

money earlier. You know what I mean? So anyway, I throw that

out there. I know you have made a lot of improvements and I commend you on the Web site. The ability to download a lot of forms

and do a lot of this work is a tremendous asset. I mean I shudder

sometimes at the thought of 24-hour government and what it can

really mean, but I also appreciate the fact that in the middle of the

night I can pull up all kinds of information, technical and otherwise, and be able to continue to move on in terms of business.

52

Let me turn to some other policy issues. Does your agency have

plans to introduce new regulations or guidance affecting religious

broadcasters between now and the end of the year? Because that

has obviously been one I have gotten a lot of mail on, a lot of interest in.

Mr. KENNARD. First of all, in response to your earlier issue, my

Chief Financial Officer has just informed me that we would be

happy to accept your money earlier if you would like to send it in

before the September deadline.

Mr. WALDEN. Well, and I appreciate that, but your own rules say

I can’t.

Mr. REGER. No, actually, it sets up a fee window by when you

can pay, but you may pay that any day after the public notice is

released. You wouldn’t know the amount until the public notice is

released each year in the congressional review.

Mr. WALDEN. Really. Well, you are going to cost Federal Express

a lot of money then, because—— Mr. REGER. May I also tell you, sir, that there were 2 new Web

sites available to you this year that allow you to pay electronically

and both of those were up to try to help people not send their

payment—— Mr. WALDEN. Right. Because this says the fee payments must be

received by the Commission during the period beginning September

11 and ending September 20.

Mr. REGER. Yes. But this year for the first time you could send

it in any day after the public notice and we were set up to accept

and take your payment.

Mr. WALDEN. OK. It is interesting, because that is the one from

August 2. Good to know.

Back to religious broadcasting policy. Any plans to do anything

new between now and the end of the year?

Mr. KENNARD. Not at this time. We addressed this issue earlier

in the year, the very controversial clarification of our policies in

this area, so I don’t anticipate that we will be addressing it again.

Mr. WALDEN. OK. I think we will need to recess, because I need

to go vote, being the only one left not to. So I will put the committee in recess and we will return. Thank you.

[Recess.]

Mr. HORN [presiding]. Mr. Chairman, where are we, with us having to get over there to vote, where are you on your statement?

Mr. KENNARD. I have given my opening statement, Mr. Chairman, and I received some initial questioning from Mr. Walden.

Mr. HORN. I see. OK. Sorry about that. We have had a series of

votes, but that has to be done around here.

Mr. KENNARD. Quite all right.

Mr. HORN. And of course, if you have this jurisdiction, I suspect,

over little beepers, if you could sort of neutralize the ones on Capitol Hill, we could hold more hearings.

Mr. KENNARD. I think we could help you with that.

Mr. HORN. That is democracy.

Was Mr. Walden doing the questioning?

Mr. KENNARD. Yes, sir.

Mr. HORN. OK. Well, I might intervene a little bit with that. We

have a few questions in general. There was an article in the folder

53

you had. How has the Commission prepared itself to prevent another NextWave debacle in its spectrum auction program? That is

one of our concerns, so we would appreciate your comments.

Mr. KENNARD. Certainly. When Congress authorized the FCC to

conduct spectrum auctions in 1993, the statute specifically directed

the FCC to experiment with different auction methodologies. One

of those methodologies was allowing small businesses to get installment payments in order to ease the financial burden that they

would encounter in these auctions. It was a very well-intentioned

effort to ensure that when we went to the auction regime, we

would not inadvertently create an environment where small businesses could not participate.

So, in one of our first major auctions for what we call the C-block

PCS auction, we extended credit in effect to small businesses. Some

of them overbid, got overextended, and that is the problem we ran

into.

Since that time, we have not extended installment payments. We

have come up with other methodologies to create incentives for

small businesses like bidding credits. So I don’t anticipate that particular problem will reoccur.

Mr. HORN. You heard, I think, some testimony on the e-rate business in terms of, should it be in the Department of Education,

should it stay in the Federal Communications Commission? What

are your feelings on that?

Mr. KENNARD. Well, I strongly disagree with the notion that the

e-rate program should be moved to the Department of Education.

Here is why.

The e-rate program is a part of our universal service policies,

which the FCC has administered for decades. Those policies are

largely responsible for the fact that in our country, we have the

highest telephone penetration of any country in the world. On average, 94 percent of Americans have access to a phone. That is because the FCC, over time, has administered policies, known as universal service, to ensure that people in rural areas get phone service, as well as low-income people and people in inner city areas.

The e-rate is an extension of that policy. It was an extension that

was mandated by the Telecommunications Act of 1996. So it is

really part of the core of the Commission’s responsibilities to ensure that the phone network reaches all people.

Now, of course, the phone network is not just delivering voice telephony, it is delivering voice on the Internet. So our responsibility

appropriately is to ensure that those networks reach all people.

Mr. HORN. You know, I believe that this subcommittee has a

great interest in making sure the loans that have been made to

various agencies come true and are fulfilled and put the money

back into the Treasury to help the next generation. So I am curious

how much money is owed to the FCC from its spectrum auctions

and what is being done to collect those amounts?

Mr. KENNARD. Well, if memory serves, we have collected about $15 billion in the auction program and about $5 billion is outstanding. Most of it owed by one company: NextWave. We have worked

very, very hard to advocate that the U.S. Congress change the statute so that it is clear that if someone defaults in the payment of

moneys owed us in a spectrum auction, that the FCC can immeVerDate 11-MAY-2000 11:17 Nov 15, 2001 Jkt 000000 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 C:\DOCS\75014.TXT HGOVREF1 PsN: HGOVREF1
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diately reauction the license. We had planned to reauction the

NextWave spectrum, if you will, December 12th, and we are—unfortunately, it has taken some time, because the statute was not

entirely clear and there has been litigation in the bankruptcy

courts and the appellate courts. But that clarification would be

very, very helpful in ensuring that the American public get the

value of the spectrum.

Mr. HORN. Have you sent a recommendation from your office

through the Office of Management and Budget which would clear

it on behalf of the President to the Congress so that the relevant

committees can act on that?

Mr. KENNARD. Yes, in fact, we have. Beginning I believe in 1997,

we have sent up language that would fix this problem every year

since then, and we have worked with OMB and the relevant committees, the Commerce Committee and the Budget Committee in

the Senate.

Mr. HORN. And it has not gotten anywhere?

Mr. KENNARD. No. It is always very controversial. In fact, it is

controversial as we speak. There are efforts to try to address this

issue through our appropriations bill at this time.

Mr. HORN. Well, I see I have 30 seconds on the 5, so I will maintain that later. I now yield to my colleague, the gentleman from

Texas, Mr. Turner, the ranking member on the subcommittee.

Mr. TURNER. Chairman, welcome to our committee.

Mr. KENNARD. Thank you.

Mr. TURNER. We appreciate you being here.

I come from an area in rural east Texas that by and large has

found itself on the wrong side of the digital divide, and I was curious as to what the FCC is doing to address the gap between those

who have access to the information highway and those of us who

do not. I do not want to be in a position to have to look back and

think that the information highway passed us by and that all we

have is a dirt onramp that we cannot use too well. So what hope

do we have in rural areas of the country to be sure that we can

have the same access that everyone else has?

Mr. KENNARD. There is a lot that is being done. The FCC is very,

very focused on this issue. We have a very, very aggressive program. I will highlight some of the things that we have been doing.

One is we are reevaluating our universal service programs on an

ongoing basis to find ways to ensure that the phone network

reaches all people. Every year we send a report to Congress on advanced services to make sure that as the network improves and

starts rolling out such things as broadband access that people in

rural areas are not on the wrong end of the digital divide. We are

also focusing on populations and areas that are particularly at risk.

Just last week, we had the first ever conference here. We pulled

together over 100 leaders of tribal governments to assist them in

finding ways to ensure that people living on tribal lands and Indian reservations are not left behind.

This is the most at-risk population. I mentioned before that 94

percent of Americans have a phone, but if you look in some tribal

lands, the percentage on average drops to 50 percent. And on some

reservations, like the Navajos, for example, it is below 20 percent.

We just have to rectify that situation.

55

We are also aggressively promoting wireless technology, satellite

and terrestrial wireless as ways to extend access into rural and remote areas, because those technologies are often more efficient in

delivering phone service in remote areas.

So it is a huge agenda for us at the FCC and there are a number

of policy things that we have adopted or have ongoing.

Mr. TURNER. Are some of the European countries ahead of us in

developing the wireless Internet?

Mr. KENNARD. This is a raging debate. We have taken a different

approach in the United States. The Europeans have sort of, a philosophical difference. They imposed a uniform standard early on.

They have a more coordinated government industry policy. We

went a different way.

I tend to believe that our approach ultimately is the best approach, because we put our faith in the marketplace and ultimately

we have more innovation in our marketplace. I think that the benefits of that will be seen as the next generation of wireless services

come on board, what we call third generation wireless.

Mr. TURNER. One other issue that I wanted to briefly ask you

about. This issue probably generated more mail in my office over

the last year or so than any other one subject, and that is being

in a rural area where it is hard to receive a television signal by

an antenna. We have a lot of very unhappy constituents who have

been upset with the fact that they are not able to receive a signal

and that, of course, the law we passed, the Satellite Home Viewers

Improvement Act, mandated the FCC to develop a new signal

strength model for determining whether satellite owners are eligible to receive distant broadcast networks from their satellite provider.

But I want to know how the FCC is making progress toward developing that new model, because I still hear some complaints from

satellite owners that they are not being provided access through

some of the signals they think they should be and, in many cases,

have been turned down when they make application to receive

those signals.

Mr. KENNARD. Well, as you know, Congressman, the statute, the

Satellite Home Viewer Improvement Act, established some pretty

tight statutory deadlines for the FCC to implement that law. We

are in the process of doing that. The precise issue that you reference, the redefinition of the so-called grade B contour, that proceeding is under way, and I am confident we will meet our statutory deadline on it. We have sought comment on it. I believe the

deadline is toward the end of this year, and we will meet it.

Mr. TURNER. Do you think that is going to resolve the issue once

you do that?

Mr. KENNARD. It is hard for me to say at this point whether it

will have 100 percent resolution. I think the more difficult problem

is, as oftentimes in our area, we deal with some very litigious parties, and there are lots of rumblings that the Satellite Home Viewer Act is going to be challenged in court and that could hold us up.

But I think fundamentally Congress was very wise in passing that

act, because this whole area of the law was antiquated and really

needed to be updated, and it is my hope that we will have a solution.

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Mr. TURNER. Thank you.

Thank you, Mr. Chairman.

Mr. HORN. Thank you. The gentleman from New York, Mr.

Owens, 5 minutes for questioning.

Mr. OWENS. Mr. Secretary, I first want to salute you, congratulate you, and thank you and your predecessor, Reed Hundt, and

the Clinton-Gore administration for operating with policies and initiatives that let the American people know that the airwaves belong to all of us. For too long, it appeared that the airwaves were

the property of an elite group that got there first and they ran

things pretty much as they saw fit.

In the process of making certain that the airwaves serve all the

people, you have taken some steps that have been quite controversial and have met quite a bit of opposition. Two of those steps are

the establishment of the e-rate and the implementation of e-rate,

and the second is the latest edition of low power radio stations.

Could you bring us up to date as to where the opposition to the erate is now in terms of court cases that are still being pursued out

there and what kind of impediments are you experiencing, and do

the same in the case of the low power radio.

Mr. KENNARD. Certainly. First of all, Congressman, I want to

thank you for what you just said about our efforts at the FCC. But

I think it also should be noted for the record that we were not

alone in those efforts, and you, sir, in particular, were instrumental

in making the e-rate happen. You were one of the early supporters

of the program. I recall you came to the FCC and were the first

Member of Congress to testify in support of the e-rate program. So

I think that is an accomplishment that we should both share.

The e-rate program itself, as you pointed out earlier, has really

been recognized around the country as being very, very important

to the next generation of Americans. It has literally touched the

lives of about 40 million American schoolchildren, will wire 1 million classrooms to the Internet by the end of this year, and people

are recognizing that. We were successful in beating back the major

constitutional and statutorial challenges to the e-rate. Our main

challenge now is to continue to operate the program in a well-managed way and we are working very hard on that.

Mr. OWENS. There are no lawsuits still in process?

Mr. KENNARD. No. No major challenges. The most major challenge was an attack on the e-rate in the 5th Circuit and we prevailed.

Low power FM is a newer program. It was an initiative that I

championed to try to allow community-based organizations an opportunity to use the public’s airwaves to speak to their communities, churches, schools, nonprofit groups, in an effort to give a little piece of the airwaves back to the people. We adopted rules implementing low power FM in January and opened opportunities for

these groups to file applications. We have received I believe about

1,200 applications.

There is an effort to kill the program legislatively. Congress

passed legislation in the House earlier in the year that would, in

effect, kill low power FM. Similar legislation has been offered in

the Senate. There is also an effort to try to kill the program

through the appropriations process.

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I think it would be very, very unfortunate, because there are literally thousands and thousands of churches and schools and nonprofit community-based organizations that need an outlet to use

the public’s airwaves to speak to their communities and low power

FM will do that. It will do it in a time when there is increasing

consolidation in the airwaves and fewer opportunities for mom and

pop radio stations and small church stations. So it is a very, very

important program for the Nation.

Mr. OWENS. I think before you cited Indian reservations as one

example of a special situation that would be helped by low power

stations. Is it possible that we can get some special consideration

for certain foreign languages—groups that do not speak English,

but have large populations say in places like Brooklyn, NY, that

has a large Haitian American population? The older people speak

Creole and I even have a Pakistani population. For those kinds of

groups, is it possible to get some kind of special consideration in

the allocation of low power stations?

Mr. KENNARD. Well, the program is designed for just those types

of populations. The unfortunate thing is that in some of our larger

metropolitan areas, the airwaves are already so congested that

there are not that many opportunities to squeeze in new low power

licenses. But around the country I have talked to many, many foreign language groups, I have talked to Creole-speaking Haitians in

the south Florida area and Spanish speaking populations in the

Southwest, and some of our tribal leaders who want to get low

power FM stations to broadcast in foreign languages. So it is a

very, very important population that this service could serve.

Mr. HORN. Thank you.

We now yield 5 minutes to the gentleman from Oregon, Mr. Walden.

Mr. WALDEN. Thank you, Mr. Chairman. I want to followup on

both LPFM and LPTV. Can you tell me what your views are on

LPTV and what the Commission’s plans are now and for the rest

of this year and early next year, if you are going to take any regulatory initiatives in this area or if you have undertaken any already or considered any?

Mr. KENNARD. Certainly. It is very interesting that you raise low

power television, because I have studied the history of the creation

of that service in the early 1980’s, and all of the same arguments

that are being used to try to kill low power FM were used against

low power TV, that we didn’t need it, that it would—that the stations couldn’t survive financially if they got these licenses; that it

would create interference problems for the incumbents. Fortunately, the FCC prevailed and created a low power television service for the country, and that service today is still alive and thriving. It is a wonderful little microcosm of diverse programming on

the airwaves. It covers, as you know, local high school football and

basketball games, local news, foreign language programs.

Congress recognized in the last Congress the value of low power

television and it specifically granted some of those stations what

we call class A status, which basically gives them a stay of execution as we convert to digital television. So that has been a very important service. It is sort of ironic that at the same time Congress

was preserving and protecting low power TV, there were efforts to

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kill low power FM, which is an effort to basically do the same thing

for the country, but on the radio side.

Mr. WALDEN. My question was, does the Commission have any

plans to do anything additional with LPTV?

Mr. KENNARD. No, not other than implementing the legislation to

give LPTV stations class A status. That is the major proceeding.

There may be other smaller waivers or proceedings.

Mr. WALDEN. No new initiatives on LPTV?

Mr. HORN. No major initiatives, no.

Mr. WALDEN. I just have a question on LPFM, because I know

the struggle the Commission has gone through since 1995 when the

rules were put in place, or thrown out by the courts in terms of

how you decided among competing applications for broadcast licenses, and that led to the whole process of Congress saying, you

know, you have to do it by auction. So really, it was a financial

entry fee that would make the decision.

I am just curious on a couple of things on LPFM, how you are

going to select among competing applications, what criteria you

will use and how that will meet a constitutional test when the criteria that the Commission used to decide among competing commercial licenses couldn’t meet that test. Second, will LPFM, and I

have not read your rules on this, but will they have the same requirements for public file candidate access, community issues, all

of those that other broadcast licensees have in the community, and

do you have the staff to monitor that?

Mr. KENNARD. I believe we do. To answer your question, this is

a noncommercial service, so it is a very different licensing procedure than we use for the commercial side. The commercial side, as

you know, Congress changed this statute in 1997. So we have to

auction those licenses.

Mr. WALDEN. Right.

Mr. KENNARD. We don’t like to auction noncommercial stations.

So we have established criteria to make sure that we have a way

of deciding from between competing applicants. Essentially, we

look to ensure that those are local community-based organizations,

that they will operate on a noncommercial basis, and I am confident, given our experience with the decades of history with our

noncommercial licensing procedures, that is a lawful and constitutional way of selecting.

Mr. WALDEN. So you will have the ability to do that?

Mr. KENNARD. Yes.

Mr. WALDEN. OK. Will they have to meet the same requirements? I mean it is the public’s airwaves that we are dealing with

here. Will they have the same requirements for candidate access,

people who want to access the public, like other broadcasters do,

even public broadcasters?

Mr. KENNARD. The requirements are modified in recognition of

the fact that these are noncommercial stations, so their mission is

to provide a noncommercial service. So we don’t have the same tensions as you do on the commercial side where we are always struggling to make sure that the profit mode does not interfere with the

licensee’s ability and performance in serving the public interest.

So to answer your question, the public interest requirements are

different because it is a noncommercial service.

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Mr. WALDEN. And are those specific requirements spelled out in

your regulations?

Mr. KENNARD. Yes, they are. If you want additional detail, I

would have to provide the rules for you.

Mr. WALDEN. I understand. It is just an issue that I run into as

I talk to fellow broadcasters; it is just a lot of change coming.

Mr. HORN. You have 30 seconds coming from me that I did not

use last time, so go ahead.

Mr. WALDEN. Well, I think that really covered—no new rules

planned on LPTV between now and the end of the year, and I want

to make sure I understood on the religious broadcasting issue that

was just an issue earlier this year, and you are not planning on

doing anything between now and the end of the year.

Mr. KENNARD. No, not on the programming issue, no.

Mr. WALDEN. OK. I think that covers it, Mr. Chairman. Thank

you.

Mr. HORN. I will now yield myself 5 minutes.

Mr. Chairman, in your testimony, you noted you had reduced the

backlog of complaints from 154,000 to 39,000. What procedures

does the FCC have in general for handling complaints? How does

it work?

Mr. KENNARD. It varies somewhat, depending on the nature of

the complaint. The backlog that you mentioned, this 154,000 backlog is basically what we call informal consumer complaints. This is

somebody that has a problem with the phone company, a consumer,

and they write the FCC a letter, and this backlog piled up over

many, many years. This is the first time that we have basically reduced that backlog. We have really in effect eliminated it since

1987. Even though there is still a pending backlog of 39,000, of

that number, 30,000 have been referred to the carriers. So we are

waiting for their response.

So this is a really significant accomplishment for the agency in

eliminating that backlog. We have backlog reduction plans

throughout the agency. It is hard for me to answer your question,

because the procedures sort of vary, depending on the type of complaint that is filed.

Mr. HORN. What is the role of the commissioners in deciding

some of these complaints? Is this strictly a staff effort, or are there

certain things that are really tremendously important that are left

to the commissioners?

Mr. KENNARD. Most of these complaints are handled on delegated

authority, unless a complaint raises a new and novel question of

law, in which case the Commission would have to deal with it. But

I can’t even remember in my tenure as chairman and previously

as general counsel where an informal consumer complaint was

kicked up to the Commission to deal with.

Mr. HORN. And what do they do then? Do they follow various

policies that the general counsel’s office has, or is it Commission

policies?

Mr. KENNARD. It is Commission policy.

Mr. HORN. OK. What is your view on the recent initiatives to

outlaw the use of cellular phones in automobiles? That is popping

up all over America.

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Mr. KENNARD. Well, I really don’t have a view that I can express

on these various State law efforts. I do know that at the FCC we

do have standards to protect the public health. There are standards

that are incorporated in our rules. We do testing to make sure that

manufacturers comply. It is an area we have devoted a lot of time

to recently, and we have put some new testing equipment in place.

But I am really not prepared at this time to give you a view on

the various State law efforts.

Mr. HORN. Do you have a cellular phone in your car?

Mr. KENNARD. Yes. I have two in my car, as a matter of fact.

Mr. HORN. You have two in your car. Well, there was an old joke

around here about how Senator Dirksen finally got a cellular phone

of the age and he said, let’s see what Senator Johnson is doing, and

of course Johnson was a very powerful majority leader, and so he

got the Johnson car and the driver said, oh, I am sorry, he is on

the other line. So when you get all of these lines in the car, I just

wonder if we could get it so the people could again get their hands

on the steering wheel and not doing this. I saw one joker the other

day which was putting the hand over here and going. I don’t know,

maybe he has a tin ear or something. But it just seems to me you

ought to get the speaker phone or something in the car and not

have to hold it.

Mr. KENNARD. It is always a good idea.

Mr. HORN. Just so you don’t have to keep your hand all over it,

or get, as we have in computers, just press a button and the whole

thing is done. But I think they are real, without question, a real

nuisance. Now, if you are in bumper to bumper traffic on the San

Diego freeway, which I will be on in a few hours, that also is a

problem. You just see people looking around every which way, not

that that will stop them, but they seem to be a real nuisance. But

they are necessary when you need them for getting a tow truck.

The Federal Communications Commission has seen a lot of disparities in minority and women ownership. Have we really looked

at that to the degree to which you get minority and women ownership in the FCC licensing process? And if so, what are you doing

to get women and minorities with licenses?

Mr. KENNARD. It is a very good question and something that I

have devoted a lot of time and resources of the agency in addressing during my tenure. The main challenges we face is that this is

an era of consolidation, and it is harder for new competitors of

whatever color or gender to get a foothold in many of these markets. They are consolidating.

We have worked very hard, both in our licensing process historically and also in some of the things that we are preparing to do,

to try to remedy this issue.

A number of the things that we have done is basically help small

and minority companies to get information about how to get into

these businesses. We have an Office of Communications Business

Opportunities that reaches out to small businesses to help provide

them information. I am always working with industry leaders——

Mr. HORN. Excuse me. On that point, is there any relationship

to the Small Business Administration? Because that would provide

some money.

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Mr. KENNARD. Well, we are not a grantmaking organization. We

do coordinate with the SBA and they participate in our conferences. In fact, at the end of this month, we are having a presentation by the SBA to all of our senior managers on how to sensitize

the agency to becoming more attuned to small business issues,

which has been a problem in the past.

Later this month, or in November, we plan to roll out a major

set of studies on market entry barriers for minority and womenowned businesses in the communications arena, and I think that

is going to be a very, very significant look across the board at some

of the unique barriers that minority companies face when they are

trying to get into these businesses.

Mr. HORN. I now yield 5 minutes to the gentleman from New

York, Mr. Owens.

Mr. OWENS. I have no further questions.

Mr. HORN. OK. I thank the gentleman.

Let me go back to a few rather technical ones.

You heard part of the testimony of the previous panel. What was

your reaction to the call for an FCC reorganization?

Mr. KENNARD. Well, I think it is a good call. In fact, we are in

the process of reorganizing the FCC as we speak. A year ago, I submitted a strategic plan to the Congress. It was a 5-year strategic

plan that basically calls for a very significant overhaul of the FCC

to reorganize the agency along functional lines, come up with new

and innovative ways to eliminate backlogs, convert to a paperless

agency. We have proceeded to implement that. I have created two

new bureaus, a consumer information bureau and an enforcement

bureau, which are the first steps in implementing that plan. Today,

in fact, we are having a senior management retreat where we are

taking stock of where we are in our progress toward implementing

that plan.

So as I said in my opening statement, the agency has got to

change. The markets that we deal with are changing dramatically

with convergence and other issues, and we are trying to keep up.

Mr. HORN. In books on public administration, they talk about

whether it should be a single agency with an administrator or a

commission with a variety of viewpoints. How do you feel about

that, being chairman of the situation? Would you like to just be the

single administrator and get rid of all your colleagues?

Mr. KENNARD. Some days I do. But actually, if you look around

the world, some of the countries that have used a single administrator find that sometimes that approach does not work that well.

In the United Kingdom, for example, our counterpart agency there,

OFTEL, has had a single administrator for years and they are

moving toward a more multi-member commission.

The fact is that multi-member agencies often are more cumbersome almost by definition because you have to coordinate the

views of more people, but I have found as chairman that the interchange and dialog between the other commissioners really is helpful, and I think overall we come up with better policies by working

with one another to try to come up with a consensus view.

Mr. HORN. Well said. Your colleagues will be smiling tomorrow.

Mr. KENNARD. Very politic answer, don’t you think?

Mr. HORN. That is right.

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The FCC’s decision to allocate spectrum suitable for high definition television was made with the expectation that television stations would use the spectrum in a timely fashion that would serve

the American people.

Now, the transition to high definition television has been extraordinarily slow. What is the consequence of this action to the American people?

Mr. KENNARD. It is one of the major challenges we face, which

is how do we ensure that the American public gets high quality

digital television service. It is a very complicated issue involving a

lot of different issues. But fundamentally, I believe the problem is

that the broadcast industry has not really coalesced around a business plan for digital television, so the market is not driving this

conversion. If the business model was clear, I don’t think that we

would have a transitional problem.

Nevertheless, we are doing whatever we can on the public policy

side to expedite the transition by coming up with interoperability

standards; for example, goading the industry along, trying to facilitate the development of these standards. But it may be necessary

for Congress to address this issue again in the future, because this

transition is important for the American public and I, for one, am

very impatient that it has not happened.

Mr. HORN. I am going to yield to Mr. Walden, who has to leave.

The gentleman from Oregon.

Mr. WALDEN. Thank you very much, Mr. Chairman. I just wanted to make one other comment, or maybe two.

One is, I know many times when we are dealing with constituents and in these hearings, one of the issues that comes up is overzealous enforcement activities. I would just like to commend the

Commission that I think in the many years I have been around

this industry, it is a group of people with the field staff who are

generally more helpful than they are punitive. They do come in and

try and be helpful, and I commend you for that, because I think

that is to your credit as an agency. Not all agencies follow that

same process.

Mr. KENNARD. Thank you.

Mr. WALDEN. I want to go back to your comment about women

and minority-owned entry, or minority access into the broadcast industry, because it is difficult, and financing clearly has to be one

of the big issues. Because most of these sales on the small side, the

small communities, you end up having to carry a contract when

you go to sell. Congress has passed some legislation recently that

does not help in that respect in terms of the tax policy.

But under your old rules that were I think thrown out by the

courts, it gave a preference to women and minority participation as

applicants. Those were thrown out. Is there anything you can do,

aside from LPFM, to give advantage to minority populations and

women?

Mr. KENNARD. Absolutely. I think that the most significant policy

mechanism that we have ever had to create really powerful incentives for the sale of broadcast stations to minorities has been the

tax certificate program. This is a program that allowed the sellers

of broadcast stations to defer capital gains on the sale of the station if it was sold to a minority-owned company. The program was

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initiated in 1978. Unfortunately, it was repealed by Congress in

1995. But during that period of time, the overwhelming majority of

minority-owned stations were made possible through the benefit of

the tax certificate policy.

Now, there have been efforts to bring that policy back, and indeed expand it to some of the other technology areas like wireless,

for example. John McCain has been a very vocal proponent of

bringing back the tax certificate in the Senate, as has Charlie Rangel in the House. I have been very encouraging of these efforts, because I think that if we really want to remedy this severe underrepresentation of minority-owned stations in this field and indeed,

not just broadcast stations, but in the whole emerging telecom marketplace, we need to work on creative tax incentives, to create incentives for this to happen.

Mr. WALDEN. Mr. Chairman, I have to depart to another meeting

on a bill that is very important to my district, so thank you for

your courtesy and I thank the chairman for his testimony.

Mr. HORN. You are quite welcome.

Mr. KENNARD. Thank you.

Mr. HORN. Mr. Chairman, most Federal departments or agencies

are required to include a cost-benefit assessment and rulemaking

with an economic impact of more than $100 million. The FCC is

noteworthy because it does not regularly do so. There is no doubt

that many FCC regulations cause consumer and provider impacts

exceeding $100 million. Why aren’t economic studies conducted and

published as part of the explanations supporting most agency rulings?

Mr. KENNARD. Well, actually, we do do a similar analysis. We

comply with the Regulatory Flexibility Act where we—and also the

Paperwork Reduction Act where we assess the impact of all of our

actions on small businesses. We do comply with the Contract with

America Act that requires that any of our rulemakings which have

an aggregate impact of I think over $100 million have to be reviewed by Congress, or at least there is a period for congressional

review.

Mr. HORN. What is the process for reviewing rules that have

been in effect for 5 years with the Commission? Does the Federal

Communications Commission formally review whether the rules

are appropriate, given the rapid change in consumer and information technology in the marketplace?

Mr. KENNARD. Well, in some cases, we commit to reviewing rules

after a set period of time. Some of our rules are sunset. I think

generally we should do more of that. We should either sunset more

rules or at least commit to reevaluating them.

We have one important tool. In the 1996 act, Congress mandated

that every 2 years we review all of our rules involving the common

carrier side of our actions. When I became chairman, I expanded

that, and I commenced a review process of all of our rules that we

undertake every 2 years. We are in the process of doing that now.

It is called our biennial review. Every 2 years, we review all of our

rules.

Mr. HORN. Can you name any major regulation where the FCC

has imposed a sunset date?

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Mr. KENNARD. Yes. I believe that one major rule is the spectrum

cap, which I believe would sunset after 5 years. We also sunset

rules, and it is really not a sunset, but a modification of our rules

in the area of set top box compliance. I am sure there are more.

If you would like a more exhaustive list, I am sure I could provide

it.

Mr. HORN. I just wanted to get a feel for how often that is utilized. It does help us up here when we have to sunset something

and face up to renewing it. Hopefully we take a look at it, the legislation, and make a more effective document than we did 5 years

before.

I have two more questions, and if you don’t mind, we are going

to have a few to send you so that you can at your leisure respond

to at this point in the record.

Mr. KENNARD. Of course.

Mr. HORN. So let me just ask my last two.

Considering the slow progress that some broadcasters have

shown in adopting the spectrum to actual consumer use, did the

FCC perform an economic cost-benefit analysis of alternate uses for

that spectrum before making the allocation, and when will the FCC

review that decision and analyze the public cost-benefit of leaving

the allocation as it is?

Mr. KENNARD. Well, if you are referring to the digital spectrum,

which I believe you are, this was basically a decision by the U.S.

Congress in the 1996 act when Congress gave to each commercial

broadcaster, and noncommercial broadcaster and television licensee

an additional 6 megahertz of spectrum to convert to digital, subject

to a requirement that it be given back to the government in 2006.

Congress came back in 1997 and created what is, in effect, a loophole in that requirement by saying that broadcasters don’t have to

return the spectrum until there is a certain level of penetration of

digital sets in the marketplace.

So this area is pretty much governed by statute and the FCC

doesn’t have a whole lot of discretion in this area.

Mr. HORN. When I was heading a large university and we had

disaster exercises, let’s say in Los Angeles County, where there are

10 million people, 83 cities in it, there was a real problem in getting communication. Now, we had heard there was a lot of the

bands in the East Coast and we didn’t have them on the West

Coast. Has that problem been solved for emergency vehicles and all

that needs to be done to communicate with the police department?

It looks like everything is just going to be jammed up if you try

to get through. What is the FCC doing about it?

Mr. KENNARD. It is still a problem, but we have been making

some pretty significant strides. The most significant thing that we

have done is made more spectrum available for public safety uses.

Thanks to the Congress, we were able to reclaim some spectrum

and relicense it for public safety uses. We also have established an

advisory committee, which includes representatives of the various

public safety users around the country, to try to come up with ways

to more efficiently use the spectrum and ensure that it is interoperable, so that State, Federal and local law enforcement and public

safety officials can use it to communicate with one another. So we

are on top of that issue.

65

Mr. HORN. I am going to throw you a softball for the last question. What do you envision as the role of the Commission in the

21st century?

Mr. KENNARD. That is a hard question, but one that we

answered—— Mr. OWENS. One minute or less.

Mr. KENNARD. One that we answered in our strategic plan which

we submitted to the Congress a year ago and that we are continuing to update and work on.

Essentially, the challenge is to make sure that we are facilitating

a competitive marketplace at the same time we are protecting consumers and making sure that the benefits of information technology reaches all Americans. We have made a lot of progress in

that regard. There is a lot more work to be done. But it is really

exciting, because we are seeing so much investment pouring into

these industries and Americans waking up every day to new uses

of technology.

Mr. HORN. On your strategic plan, did you sit down with the

powers that be in the Commerce Committee to go over it with

them, or did they care?

Mr. KENNARD. Oh, they certainly care. Yes, we did talk with a

lot of the key members of the Commerce Committee. But in addition, we reached out to all of the key stakeholders. We had public

roundtables where we brought in groups of academics, and then we

brought in consumer advocates and advocates from the disability

community and minority entrepreneurs and we also reached out to

industry. It was really a very useful and dynamic process. We even

had forums where we had all of the FCC employees come together

and give us advice on how we should change the agency for the future. It is very much a living, breathing document that we are

working on literally as we speak.

Mr. HORN. The reason I ask is that this subcommittee has basic

jurisdiction on how the processes occur here between the executive

branch and the legislative branch, and when a strategic plan is developed or a financial plan is developed, what we would like to see

is the political appointees such as the chair and the commissioners

who have been confirmed by the Senate deal with the elected employees in the legislative branch. Too often it is just our staff or

Commerce’s staff and your staff, and I think it would be great if

we could get the people that have to go back to the people in one

case, and who are the wards of the President, who is duly elected

by all of the people, and I just think that we need to get away from

simple staff-staff contact, as bright as they all are on both ends of

the avenue. I just would like to see the Commissioners sit around

the table and sit down and say, hey, do we agree on this as what

we ought to be doing under the law. Because sometimes silly

things, as you know, are in the law, or they are so broad that an

agency does not know what it is supposed to do.

Mr. KENNARD. That is, I think, a very good suggestion.

Mr. HORN. Well, I have enjoyed this, and I thank you for coming,

and we will send you a few questions. You are still under oath.

Thank you very much.

I would like to thank the following people: J. Russell George,

staff director and chief counsel; Earl Pierce, professional staff memVerDate 11-MAY-2000 11:17 Nov 15, 2001 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6633 C:\DOCS\75014.TXT HGOVREF1 PsN: HGOVREF1
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ber; Bonnie Heald, director of communications; Bryan Sisk, our

clerk; Elizabeth Seong, staff assistant; George Fraser and Trevor

Petigo, interns. On the minority side, Trey Henderson, counsel; and

Jean Gosa, minority clerk; and our court reporters, Joe Strickland

and Julie Bryan.

This hearing is adjourned.

[Whereupon, at 2:45 p.m., the subcommittee was adjourned.]

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