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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

  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

                  U.S. GOVERNMENT PRINTING OFFICE
75-014                     WASHINGTON : 2001

____________________________________________________________________________
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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
HELEN CHENOWETH-HAGE, Idaho              (Independent)
DAVID VITTER, Louisiana

                      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               JIM TURNER, Texas
THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon                  MAJOR R. OWENS, New York
DOUG OSE, California                 PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin                 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

                            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

 
  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 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 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 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 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 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-to-day 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 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 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 standard 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 off-loading 
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.
    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. $13\1/2\ 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?
    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 policy-like 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 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 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. 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 e-rate 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.
    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.

      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 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.
    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 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 immediately 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.
    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.
    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 e-rate 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.
    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 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.
    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.
    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.
    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 
women-owned 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.
    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 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?
    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.
    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 member; 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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