U.S. GOVERNMENT PRINTING OFFICE

55–640CC WASHINGTON : 1999

REAUTHORIZATION OF THE FEDERAL

COMMUNICATIONS COMMISSION

HEARING

BEFORE THE

SUBCOMMITTEE ON TELECOMMUNICATIONS,

TRADE, AND CONSUMER PROTECTION

OF THE

COMMITTEE ON COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

MARCH 17, 1999

Serial No. 106–13

Printed for the use of the Committee on Commerce

(

COMMITTEE ON COMMERCE

TOM BLILEY, Virginia, Chairman

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

MICHAEL G. OXLEY, Ohio

MICHAEL BILIRAKIS, Florida

JOE BARTON, Texas

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

Vice Chairman

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

RICHARD BURR, North Carolina

BRIAN P. BILBRAY, California

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

TOM A. COBURN, Oklahoma

RICK LAZIO, New York

BARBARA CUBIN, Wyoming

JAMES E. ROGAN, California

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

ED BRYANT, Tennessee

ROBERT L. EHRLICH, Jr., Maryland

JOHN D. DINGELL, Michigan

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RALPH M. HALL, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

RON KLINK, Pennsylvania

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

THOMAS C. SAWYER, Ohio

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

THOMAS M. BARRETT, Wisconsin

BILL LUTHER, Minnesota

LOIS CAPPS, California

JAMES E. DERDERIAN, Chief of Staff

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON TELECOMMUNICATIONS, TRADE, AND CONSUMER PROTECTION

W.J. ‘‘BILLY’’ TAUZIN, Louisiana, Chairman

MICHAEL G. OXLEY, Ohio,

Vice Chairman

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

BARBARA CUBIN, Wyoming

JAMES E. ROGAN, California

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

ROBERT L. EHRLICH, Jr., Maryland

TOM BLILEY, Virginia,

(Ex Officio)

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

BILL LUTHER, Minnesota

RON KLINK, Pennsylvania

THOMAS C. SAWYER, Ohio

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

2

C O N T E N T S

Page

Testimony of:

Furchtgott-Roth, Hon. Harold W., Commissioner, Federal Communications Commission .......................................................................................... 69

Huber, Peter W., Partner, Kellogg, Huber, Hansen, Todd, and Evans ........ 21

Kennard, Hon. William E., Chairman, Federal Communications Commission ................................................................................................................. 41

Ness, Hon. Susan, Commissioner, Federal Communications Commission .. 64

Powell, Hon. Michael K., Commissioner, Federal Communications Commission ........................................................................................................... 74

Tristani, Hon. Gloria, Commissioner, Federal Communications Commission ................................................................................................................. 80

Material submitted for the record by:

Federal Communications Commission, response for the record ................... 115

(III)

(1)

REAUTHORIZATION OF THE FEDERAL

COMMUNICATIONS COMMISSION

WEDNESDAY, MARCH 17, 1999

HOUSE OF REPRESENTATIVES, COMMITTEE ON COMMERCE, SUBCOMMITTEE ON TELECOMMUNICATIONS, TRADE, AND CONSUMER PROTECTION, Washington, DC.

The subcommittee met, pursuant to notice, at 10:06 a.m., in room

2123, Rayburn House Office Building, Hon. W.J. ‘‘Billy’’ Tauzin

(chairman) presiding.

Members present: Representatives Tauzin, Oxley, Stearns,

Gillmor, Deal, Largent, Cubin, Shimkus, Wilson, Pickering,

Fossella, Blunt, Ehrlich, Markey, Gordon, Rush, Eshoo, Engel,

Wynn, Luther, Sawyer, Green, McCarthy, and Dingell (ex officio).

Staff present: Justin Lilley, majority counsel; Mike O’Reilly, professional staff; Cliff Riccio, legislative clerk; and Andy Levin, minority counsel.

Mr. TAUZIN. Please come to order.

Today, the subcommittee begins a process of re-authorizing and,

hopefully, reforming the Federal Communications Commission. The

Commission has been operating without statutory authority since

1991. It is my hope that this will be the first in a series of public

hearings leading to the introduction of a comprehensive FCC reform legislation later this summer.

When Congress passed the historic, much-publicized Telecommunications Act of 1996, I believe we made a fundamental mistake. We failed to reform an outdated, out-of-touch FCC when we

overhauled the law. As a result, as America prepares to enter the

21st century, we have in effect a horse-and-buggy agency trying to

bridle supersonic technology. And it is simply not working as well

as it should.

Simply put, can the agency created in the 1930’s, instilled with

the regulatory purpose and ingrained with the regulatory mindset,

effectively oversee the deregulatory policies engineered by Congress

for a modern-day marketplace? I believe the answer is no.

And little wonder why. Keep in mind the FCC is based on the

old Interstate Commerce Commission model, dating back to 1888,

a time when telegraphs, not telephones, televisions, satellites or

computers. In today’s marketplace, it is more important for the

FCC, literally, to get out of the way rather than to try to lead the

way.

To better understand the problem. Consider how the Commission

is divided into six operating bureaus: mass media, common carVerDate 22-SEP-99 11:00 Sep 23, 1999 Jkt 010199 PO 00001 Frm 00004 Fmt 6633 Sfmt 6633 X:\HSECOM\55640 txed01 PsN: txed01
2

riers, wireless telecommunications, compliance and information,

international, and cable services.

Twenty years ago, it made sense to have one bureau overseeing

a monopoly like Ma Bell. But what about today? Because of crosspollination in the telecommunications industry, hundreds of companies are involved in telephony, high-speed Internet services, cable

television, satellite-cellular, just to name a few.

Suddenly the one-size fits all mentality simply doesn’t work anymore. So we need to fundamentally restructure the agency and develop a 21st century model that works in a high-tech global economy. But we must change the FCC’s thinking as well. Today, nearly 3 years have passed since we passed the landmark Telecommunications Act. There is still no effective competition in residential telephone markets across America.

We have failed to achieve full competition in the long-distance

loop. Why? Is the law flawed? I don’t think so. In my opinion, it

is the way the law is being interpreted and enforced. Instead of

concentrating its efforts in areas where it can play useful roles and

make a difference to consumers, FCC in recent years has delved

into such controversial areas as free time for politicians, prohibiting liquor advertisement in radio and television, conditioning telecommunications mergers, and, worst of all, the FCC effectively, in

my opinion, levied a $2 billion tax on telephone consumers to establish this so-called E-Rate program.

For the first time I have looked, no where in the Constitution is

the FCC or any other Federal agency given the power to levy,

raise, or collect taxes. While the FCC may call these new charges

fees, I believe they are taxes in disguise.

I have other deeper concerns as well. Concurrently, both the Department of Justice and the Federal Trade Commission possess

statutory authority to review all mergers and acquisitions for anticompetitiveness. It is troubling to me and many of my colleagues

that the FCC has assumed authority to condition mergers based on

certain requirements even when these mergers have already

passed DOG and FTC scrutiny—DOJ and FTC scrutiny.

Based on this troubling track record, the FCC in the future may

find the emerging Internet too tempting to resist, and therefore, I

think it is vitally important for Congress to reform the agency from

top to bottom.

Simply put, FCC regulation of the Internet could have a paralyzing effect on the American economy, and I think the forbearance

exercised by the Commission ought to be codified in law.

Recently, I met with Chairman Bliley and pledged my support to

work with him on a sweeping FCC reform bill. Among other things

we plan to look at: forbearance, whether, indeed, forbearance can

be codified; privatization, whether the FCC activities could or

should be privatized, such as record keeping and information gathering; duplication, what FCC programs duplicate those of Federal

agencies and could be eliminated; devolution, what FCC functions

presently handled in Washington could be handled at the state

level, and organization, what FCC structural changes can be made

to streamline the agency and make it user friendly in today’s competitive, fast-paced marketplace.

3

As we begin these hearings, Chairman Bliley and I have two

major goals in mind. We want to fundamentally restructure the

agency, and second, we want to redefine the FCC’s mission. We are

starting today with a blank piece of paper.

I want to welcome the input of Chairman Kennard and the entire

Commission. Let me thank you all in advance. Your statements,

which are a part of your record when we begin here today, are excellent starting points I think for this discussion.

Astonishingly, there has been no comprehensive Congressional

review of the FCC and its operations since the 1970 Ashe Council

report. Back then, there was only one telephone company, two commercial satellite providers, three television networks, and no one,

not even Bill Gates in his wildest of dreams, had ever heard of a

laptop computer with high-speed Internet access.

Times have changed. Now it is time to change the FCC.

I, of course, did not create the FCC, but I would love to recreate

it in this process beginning today.

I will be happy to yield to my friend, Mr. Markey, for an opening

statement.

Mr. MARKEY. Thank you, Mr. Chairman, very much. And I want

to thank you for calling this hearing today on proposals to reform

the Federal Communications Commission. And I want to thank

Chairman Kennard as well as Commissioners Ness and Powell and

Furchtgott-Roth and Tristani for being with us here today.

The purpose of this hearing is to explore proposals to reform the

Commission. I believe that constructive proposals to help the Commission do its job better and more efficiently are always welcome.

I want to commend Chairman Kennard and the other Commissioners for the work they have already done to reinvent the Commission so that its functions are, in fact, discharged in a very competent and productive manner.

Before we launch into a discussion about the job the Commission

does and any proposals to help the Commission perform its tasks

better, I think it is important to remember that the Commission

has been entrusted with implementing the Telecommunications Act

of 1996, a job that is unparalleled in scope and detail since the enactment of the 1934 act itself.

We must also be cognizant that Americans today have the finest

telecommunications system in the world. We are looking over our

shoulders at No. 2 and three. It is overall, the most competitive,

most diverse, and most innovative telecommunications marketplace

on the planet.

We should be very proud of what this committee has done, and

we should be very proud of what the Federal Communications

Commission has done in our private sector to bring us to this point.

This is an American strategy. This is the blueprint which we laid

out and has so far surpassed anything else that any other country

in the world has even remotely contemplated.

The fact is that this is the case, is, in fact, no small measure due

to the fine work of the Federal Communications Commission and

its staff. And I want to note that.

But the fact also remains that we are not satisfied with the status quo. Most consumers still lack affordable alternatives to cable

TV. Most consumers still lack choices for local phone service.

4

Can we continue to add choices in the marketplace for the American consumer? Can we continue to foster ever-more ruthless competition and create more jobs?

Yes, we can. And we should.

Will there simultaneously be proposals to collapse the existing

choices, either in the name of deregulation, or to concentrate economies of scope and scale?

Yes, there will always be such proposals.

Now that the communications act is finally getting out of its

major rulemaking stages and we can get would-be marketplace

participants out of the courtrooms—and I deeply regret all of the

cases that have been brought by the Bell operating companies

against the Telecommunications Act—we finally, 3 years later,

have most of them out of the way so that the marketplace can

begin to work. I would suggest that reopening the Telecommunications Act or radically restructuring the Commission itself would

be counter-productive.

The last thing we should do right now is reverse the course of

battling to de-monopolize telecommunications markets and jeopardize or delay deregulation.

After all, we are not going to be able to deregulate until we demonopolize and to break up monopoly barriers to competition. The

Commission will need tools and resources, and competitors, both

large and small, will need certainty in the marketplace.

That certainty has finally arrived. I hope that this committee

and the Congress does not create uncertainty by giving a promise

to the monopolizers that they may get relief their need to open up

their markets.

Given the fact that there are literally billions of dollars being invested today, with billions more to come, now that the major legal

challenges have run their course, the relatively small amount of

funding that the FCC represents is pennies on the dollar in terms

of the benefits consumers and workers ultimately derive from implementing the bill properly.

To risk delaying emergence of a truly competitive marketplace

and the arrival of the consumer choices and jobs it creates would

be terribly shortsighted.

I want to applaud the Commission for coming forward today with

some suggestions for how to do its job more efficiently and better

fulfill the numerous tasks and goals that Congress requires it to

achieve.

Common sense, consensus approaches to reform of the FCC are

welcome as they are with any government agency. And I look forward to working with Chairman Tauzin in exploring how we can

make progress together. And I look forward to working with Chairman Bliley and Mr. Dingell and the other members of the committee as we work with the FCC to ensure the full implementation

of the Telecommunications Act so that it successfully works for all

of the American people.

On a final note, I would like to point out that our first witness

today is a brilliant man. I have no doubt that he is one of the most

brilliant men who has ever appeared before the committee. However, there are brilliant people on the other side of all of the issues,

which Mr. Huber represents as well. And I would have preferred

5

that we had two witnesses at least today, rather than one, because

as well as Mr. Huber over the years has represented the Bell operating companies’ perspective before regulatory agencies and in the

courts, there are others who disagree with his perspective in terms

of where we are at this point in time.

And I know that Mr. Huber was invited very late to testify, and

we had some difficulty in having an alternative point of view presented at this time. But I would like to stipulate for the audience

and for the members of our committee that Mr. Huber represents

one perspective, but there is another; there are other perspectives,

but there is at least one other competing philosophical perspective

that is at great odds with Mr. Huber in terms of what needs to be

done to open up this marketplace more fully.

And in the future, I would hope those other voices will be given

a chance to testify as well. And I thank the chairman for allowing

me that extra time.

Mr. TAUZIN. The Chair thanks the gentleman. Let me, before recognizing the vice chairman of the committee, let me point out to

my good friend as we have had in private conversations, Mr. Huber

is but the first of a number of voices we are going to hear. I think

there are more than two perspectives. I think there are quite a few.

And we are going to look for the brightest of minds who can

paint pictures for us of where this incredible world is going so that

all of us can work in a bipartisan and collegial way to find the

right kind of agency for the Federal Government to work cooperatively with communications in our country.

I pledge to my friend my cooperation in that regard, as I did privately. We will have other perspectives today. Mr. Huber I think

will present an extraordinary picture for us. And we will have extraordinary pictures painted by people of, hopefully, equal men of

capacity as Mr. Huber is, as we go forward.

The Chair is now pleased to recognize the gentleman from Ohio,

the vice chairman of the committee, Mr. Oxley, for an opening

statement.

Mr. OXLEY. Thank you, Mr. Chairman. I applaud the decision to

hold this morning’s hearing, and I pledge my support for the committee’s effort to re-authorize and reform the Federal Communications Commission. I believe the restructuring and modernization of

the FCC is perhaps the most important project that we will undertake in this Congress—indeed, an attic to basement review of the

FCC and its structure.

I want to also welcome our witnesses and want to commend the

Commissioners, in particular, for their testimony. From their prepared remarks, it is obvious that they have put serious thought

into their recommendations. This kind of self-analysis isn’t necessarily easy. So I appreciate the fact that we begin this process

with some excellent proposals.

And let me throw a few bouquets to the Commissioners.

Chairman Kennard’s suggestion that the Commission focus on

core functions not addressed by market forces is right on point. Increasing competition means a reduced need for regulation and a

golden opportunity to streamline. Regulatory and statutory inertia

are our enemies here.

6

I would like to quote from the Telecom Reports dated March 15

in which, based on Chairman Kennard’s testimony, they say: ‘‘One

of the difficult issues policymakers must grapple with is whether

the convergence of new technologies requires the FCC to move

away from its current structure, which includes separate bureaus

handling common carrier, wireless, cable TV, mass media, and

international matters. We are going to put that on the table, the

chairman said. We are grappling with this issue of convergence.’’

Although it theoretically may make sense to break the agency

down along functional lines rather than industry sectors, the

Chairman goes on to say the FCC is bound by statute to treat industry segments differently. We need to recognize, the Chairman

says, to recognize that we are dealing with statutes that haven’t

really dealt with convergence.

And that is indeed our obligation as writers of law to make certain that that becomes a reality.

Commissioner Powell’s points on the duplication of the functions

of other governmental agencies within the FCC are, I believe, especially insightful. This is a problem which hasn’t received much

scrutiny, but the implications are quite significant.

Not only is it inefficient to have redundant regulation, but the

replication of other bodies of law in FCC regulations and the creation of mini-regulatory agencies within the Commission invite the

gaming of those rules to realize other means.

Commissioner Powell cites the example of the FCC EEO program

and points out that the telecommunications firms are already subject to the scrutiny of the EEOC as well as other Federal, state and

local civil rights authorities.

Commissioner Ness raises, in my view, one of the most important

points of the day when she discusses the need to strengthen the

FCC’s technical assets and commit more resources to international

representation. We provide a powerful benefit to American communication workers and consumers when the U.S. is well-represented

in trade and standard-setting venues.

Commissioner Furchtgott-Roth articulates the need for the Commission to make greater use of its regulatory forbearance authority

and makes the cased for downsizing the FCC over time. I couldn’t

agree more.

And Commissioner Tristani’s comments on the need for an organizational restructuring that reflects technology and industry convergence are certainly well received, at least from this member.

Let me also take a moment to praise the Commission for a few

of the tasks it has executed quite well of late. I believe that your

handling of disputes pertaining to CALEA has demonstrated great

fairness and an appreciation of the needs of law enforcement.

Congressman Stupak and I wrote the Commission last year on

this topic, as you will recall, and I feel our concerns were heard.

I hope you will continue to recognize the importance of digital wiretap capability to public safety.

Second, I want to praise the international bureau for some outstanding work. The implementation of the market-opening WTO

telecommunications agreement and the Commission’s effort to

bring international settlement rates more in line with costs are

benefiting consumers in the U.S. and around the world.

7

Last, I want to endorse the Commission’s decision not to mandate cable unbundling as a condition of the AT&T-TCI merger or

in other contexts. It is my view that unbundling will happen as

market forces dictate, and that there is no need for Government to

force that issue.

Having said these things, I nonetheless believe that the Commission needs to be refocused. Reorganization of the FCC is an opportunity to make it more efficient and improve its ability to fulfill its

mission. We need to repeal obsolete statutes, eliminate outdated

regulations, and otherwise clear out the underbrush in the law.

It is my view that the FCC modernization is an attainable goal

this Congress, but only, and only, if we stay focused on restructuring and don’t get sidetracked in old fights over telecommunications policy. There is no surer way to kill reform than to reopen

those old disputes.

Mr. Chairman, we need to stay focused on the regulatory framework of the Commission itself. If we can do that, we can remake

the Commission into a model of what an independent agency ought

to be, with long-term benefits for all telecommunications sectors

and all telecommunications consumers.

Again, Mr. Chairman, thank you. And I yield back.

Mr. TAUZIN. Thank you, my friend. The Chair is now pleased to

recognize the ranking minority member of the full committee, the

gentleman from Michigan, Mr. Dingell, who I know has some modest views on this subject.

Mr. Dingell.

Mr. DINGELL. Thank you, Mr. Chairman. I always have moderate

views, as you very well know.

First of all, Mr. Chairman, thank you for recognizing me. I would

like to commend you for holding this hearing and encourage you to

persevere in your efforts, as you have said, to ‘‘re-mission’’ the

FCC. I’m not quite sure what the re-missioning means. As I note,

remission is used where cancer is involved, and it would appear

that in certain parts of the Commission something of that kind is

going on.

So if that is your interpretation, I support it. If you intend also

to give them a better appreciation of what it was the Congress intended when we wrote the Telecommunications Act so that they

may better and more fairly apply that statute and carry out the intentions of the Congress I actively support you in that undertaking,

Mr. Chairman, and commend you.

Just 3 short years ago, many of us trooped back here from the

Library of Congress after the President signed the Telecommunications Act into law. At that time, many of us were optimistic that

we had succeeded in crafting a good law, one that would provide

the telecommunications road map into the 21st century. We were

going to allow everyone to get into everybody else’s businesses. Let

the consumers pick winners and losers through the marketplace.

And we were not going to support any particular part of the marketplace, but we were going to see that competition gave us the

best service that we could possibly get for all the American people.

That was then. I would regretfully observe this is now. And it

would appear that many of us, especially myself, are extremely

8

frustrated with the manner in which the FCC has disregarded Congressional intent and implemented the new law.

I will only give a few examples. And there are legions more of

these.

The Telecom Act required the Commission to issue new regulations to curb slamming of consumers by long-distance companies.

The practice is, of course, one of the principal complaints we hear

from consumers. The Commission postponed implementing this requirement for years until members of this committee finally did

something about it and until we finally got on the Commission

about a period of slothful inactivity on this matter.

The Telecom Act required the Commission to establish a universal service fund to make sure that all Americans would continue

to receive affordable basic telephone service, something of enormous importance to residents of inner cities and of enormous importance to people in rural areas, who, without this, will pay excessive and exorbitant costs for telephone service.

The Commission has repeatedly postponed full implementation of

that requirement as well. Inexcusable.

As a result, we have now found ourselves having continued hidden subsidies in the system. Plus we have the new universal service charges showing up on consumer bills. That too is a source of

many justified consumer complaints, and is of course reason to call

the Commission to account.

The act required the Commission to forbear from anything rather

than from applying statutory and regulatory requirements that

were no longer necessary in light of technological and economic

changes. Essentially, we thought that they were big boys and big

girls and that they would know how to implement the wishes of the

Congress. We are disappointed.

The Commission has ignored this mandate as well.

On the other hand, when you search the law, the legislative history, and all the hearings for any reference to the term operational

support systems, or OSS, you can’t find a single one. The Commission in a remarkable exercise of imagination run wild, has grounded each of its five decisions denying a Bell company authority to

offer long-distance service on the failure of the company to meet

OSS requirements.

I don’t know what these are. I’m not convinced that the Commission does, but the Commission applies them with enormous diligence.

I would note that there is virtually no increase in competition in

long-distance. I would note that there is no competition in service

to residential users. However, the FCC has diligently kept competition out of long-distance and has not done anything to stimulate

competition with regard to service for the individual householder.

A most curious set of circumstances.

I have been regrettably driven to the conclusion that this Commission and the one preceding it have not only disregarded the law

but has thumbed its nose at the Congress. The agency is implementing a law they wished that the Congress had drafted instead

of the black and white version that the President signed into law.

We are talking here about extension of the life of the Commission. It would appear to me that perhaps the re-authorization

9

should be for a period of 1 year or less, certainly not more, because

we are going to need them before us to talk to us again about the

mishandling of the business of the Commission and the derision

that they have shown for the intentions of the Congress.

In our government, everybody is accountable to somebody else for

his or her actions, a very important Constitutional principle. We

here in the Congress are accountable to our constituents. The lower

courts are accountable to the higher courts. And, most curiously,

the FCC thinks that it is not accountable to the Congress.

I intend to have a few fine questions for the members of the

Commission, and I intend an active role as the subcommittee develops its plans for restructuring the agency or, perhaps, remissioning, as you have so wisely observed, Mr. Chairman.

My efforts will be guided by the need for accountability by an

agency that I believe is out of control and is not implementing the

law. The agency has found that it needs more staff and more

money. The agency has, however at the same time, required the filing of thousands and thousands of pages of documents in connection with applications by the Bell companies to enter long-distance.

Nothing, however, has been done on any of these except kind promises from the Chairman that at some distant point in the future

they would, of course, look with kindness on permitting competition

to enter the long-distance service.

I think that we find this whole situation a bit ironic. I would observe that in Monday’s Telecommunications Daily, the Chairman of

the FCC has kindly warned the Congress that we should not turn

these proceedings into a backdoor rewrite of the Telecommunications Act.

There speaks a real expert on the subject of backdoor rewrites

of the Telecom Act.

Writing laws is the business of the Congress. Those to whom the

Congress delegates the implementation of law should refrain from

giving us warnings about what we should or shouldn’t do, or the

job that the people elected us to do.

Almost all of us who have been in here at this desk have been

in public service long before the Chairman of the FCC received a

Presidential appointment. And I would remind him that I think I

was writing laws when he was wearing three-cornered pants.

I find his choice of words particularly distressing when I consider

the Commission’s action in implementing the 1996 act. I am sure

that Chairman Kennard speaks as a real expert on backdoor rewrites. His comments proved to me, at least, that the chairman

knows full well that the Commission’s implementation of the act

has been inconsistent with the intention of the Congress and, indeed, with the clear language of that statute.

He has gotten away with it so far and does not want us to step

in and to spoil his fun. Holding the Commission accountable and

correcting its mistakes may require that we do rewrite portions of

the act, or it may be possible that in prudence we will decide that

we can cut certain portions of his budget so that he no longer needs

to require massive piles of paper, so that he and the bureaucrats

at the FCC may have a great deal of time running their shredders

overtime and acting important by going to meetings to discuss

over-large filings that need not be made under the statute.

10

I see no reason to defer to Mr. Kennard on this point. We should

do whatever is necessary to assure that the prohibitive—that the

prohibited actions that he is taking, the anti-competitive actions

that he is carrying forward, and the deregulatory goals that we

have set are, in fact, achieved in a proper way.

I thank you for recognizing me, Mr. Chairman. I yield back the

balance of time. I may have some more things that will be less kind

to say at a later time in the proceedings.

Thank you.

Mr. TAUZIN. The Chair thanks the gentleman. The gentleman’s

time is slightly expired. I just want to——

My friend, Mr. Markey, pointed out, Mr. Kennard, we were all

wearing three-cornered pants when Mr. Dingell was already legislating.

We deeply respect the dean of the House. The Chair, in order to

recognize punctuality, is—follow our procedure of recognizing the

most senior member when the proceedings opened, and that is Mrs.

Cubin, will be recognized for an opening statement.

Mrs. CUBIN. Thank you, Mr. Chairman. And I gave up complaining for lent. And so what I say is I am not complaining, I am

making a simple observation. And I guess that is what the ranking

was just doing. Next year I am going to give up smoking. I haven’t

smoked in 21 years, and I won’t be an abject failure at that I am

sure.

I do want to thank you for holding this very important hearing

on re-authorization of the FCC. My main focus today will be to engage the Commissioners on issues pertaining to the access of telecommunications and technology. I want to assure all Americans

that they will be able to experience the benefits of telecommunications and the technological advances that are rapidly being deployed across much of the United States.

And when I say much of the United States, I say that for a reason. My constituents in the State of Wyoming are telling me that

they are not experiencing many of the same benefits such as highspeed Internet service, increased telephone competition, and lower

rates that many people in other parts of the country are enjoying.

I am sure that the Commissioners would agree that less regulation in these areas, I hope they would agree, less regulation in

these areas not more will allow rural areas of the country to partake in what truly should be a revolutionary time in our lives.

I am encouraged by Chairman Kennard’s Focus 1999 agenda

that points out that growth in advanced services will strain the existing regulatory structure. Furthermore, the FCC should aggressively pursue ways to give these emerging markets the breathing

room they need to innovate and prosper. Those are encouraging

words to me both for startup businesses and existing telecommunication companies that really are burdened by excessive regulations,

stymied by artificial controls, and hampered by a climate that

seems to reward restraint instead of encourage progress.

Advancements in technology are truly mind-boggling. Keeping up

with these issues in the area of telecommunications, being new on

this committee, is totally mind-boggling as well. And trying to keep

up is like, my husband said, herding cats. It is virtually impossible

to do.

11

My goal for Wyoming is to make it as friendly as possible for outside businesses to locate there and also to maintain a climate that

encourages current businesses to stay in the state. That means, we

must work together to develop an environment for businesses to invest capital in an information infrastructure, create good-paying

jobs, and provide a better way of life for the citizens of Wyoming.

In considering the re-authorizing of the FCC, Congress must look

hard at what is the best for the American people. We must develop

a market-driven solution to the events that are happening in this

past-paced industry.

To believe that the Federal Government can keep up with industry is totally unrealistic. And that is why this regulatory dinosaur

of the 1930’s should be updated not only for the next decade but

for the next century.

None of us, of course, has a crystal ball. We would be foolish to

predict the advancements that are yet to come. We must, however,

look to the future as a guide so that we can recreate an agency that

rewards progress instead of restraint, condones new ways of thinking instead of creating barriers, and moves at the same speed as

the industry that it regulates.

I look forward to hearing from the Commissioners and listening

to their ideas on possible reforms. And, again, thank you, Mr.

Chairman, for holding this hearing.

Mr. TAUZIN. Thank the gentlelady. The gentleman from Ohio,

Mr. Sawyer, is recognized.

Mr. SAWYER. Thank you, Mr. Chairman. Thank you for this hearing. I have a wonderful opening statement. I urge everyone to take

it home and read it for all of its nuance in the evening, where you

will appreciate it. It may move some of you, but I will forgo reading

it at this moment.

[The prepared statement of Hon. Thomas C. Sawyer follows:]

PREPARED STATEMENT OF THOMAS C. SAWYER, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF OHIO

Thank you Mr. Chairman for holding this hearing this morning. I especially want

to thank Chairman Kennard and the four other Commissioners for coming to testify

before us today. I know how difficult it is to get all of them together because of the

growing demands on their schedules. So, I appreciate their taking the time to come

to Capitol Hill.

The jurisdiction of the Federal Communications Commission is quite extensive.

The Commission’s responsibilities range from regulating interstate telephony service

to cable pricing to satellites. Obvious pressures are being placed on the Commission

because of its jurisdiction and responsibilities. However, I strongly believe the Commission needs, and fully deserves, the tools and resources necessary to meet its statutory requirements and to do the job it was created to do. Unfortunately, however,

the last time the FCC had a statutory authorization was in 1991 and for every year

since Congress has had to appropriate funds without an authorization.

Last month commemorated the three-year anniversary of the passage of the Telecommunications Act of 1996. During that debate, many thought that Congress

should have revamped the FCC and provided it with a multi-year reauthorization

package to meet the demands of deregulating the telecommunications industry.

While the reauthorization has not occurred, the Commission has taken on a myriad

of issues while attempting to implement the Act. Moreover, the structure of the FCC

has essentially remained the same.

Although the FCC has come under some criticism for its actions during this period, I am glad to learn that Chairman Kennard will be outlining his proposal for

consolidating bureaus and modernizing the Commission. I believe this is an important step as we move into the next millennium. It is even more important that the

12

FCC receive the proper authorization and direction from Congress so that its work

on the implementation of the Act can properly move forward.

Mr. Chairman, I believe it is important that the dialogue between Congress and

the Commission continues to be honest and open because the work that we both do

in this new era of telecommunication deregulation is important to the American people and to the world. I hope the Commission sees this opportunity to answer questions that have been raised since the last time we held a Reauthorization hearing.

Again, thank you Mr. Chairman. I look forward to hearing from our witnesses

Mr. TAUZIN. I thank the gentleman. The gentlelady from New

Mexico, Mrs. Wilson, is recognized.

Mrs. WILSON. Thank you, Mr. Chairman. You know my problem

on this committee is that the Minority Leader just sugar coats everything, and I can never understand exactly where he is coming

from. I have that trouble all the time.

I appreciate very much your holding this hearing. I kind of have

a little bit different perspective on this and a certain amount of

sympathy for those in the FCC. And the reason is that I formerly

headed a State government agency that we reorganized, and I

know that it is much easier to ask these questions to plan a reorganization than it is to actually reorganize and manage your way

through that. So I have some sympathy for the challenges that you

face in taking that agency to be more effective.

The questions that we are here to ask and begin to answer today

have more to do with how you do your jobs than what you are

doing. It is not about policy. It is about management and responding and asking ourselves the questions of how has the mission

changed, how has the environment changed, and how do you

change your organization in the way in which you do your jobs in

order to more effectively serve the customer and achieve the mission that you have been given.

I will be interested in the answers to several questions that have

been tossed around in my office, including some from my constituents. And I have a very active telecommunications group in Albuquerque, New Mexico, that has both positive things to say about

the FCC and some, I think, very good questions and suggestions

about how it can be made even better.

I yield the balance of my time.

Mr. TAUZIN. The Chair thanks the gentlelady. The gentleman

from Minnesota, Mr. Luther.

Oh, he is gone. The gentleman from Tennessee, Mr. Gordon.

Mr. Gordon, I’m sorry, the gentlelady from California. I think

they said she was next.

Ms. ESHOO. Thank you, Mr. Chairman, and good morning to everyone on the committee and those that are here to testify today.

Over 3 years ago, of course, the Congress passed the Telecommunications Act and we restructured what was almost a century-old, monopolized industry into one based on competition and

open access. I think we have yet to see the full benefits of the 1996

act, and I think that we have to keep looking for new and better

ways to implement and to be moving in the right direction.

But I think that there are some positive things that are happening. Yesterday, for the first time, the Dow, largely driven by the

exploding telecommunications sector of our new economy, climbed

over the 10,000 mark.

13

Soon after the new century, which is just really moments away,

it is likely that the number of people using the Internet will climb

over and past 100 million. If someone were to have said that just

a handful of years ago, would have been laughed out of the room,

probably this room. It is estimated that Americans will spend over $1.5 trillion in

electronic commerce in the next 6 years. So I think that there are

some very exciting things on the horizon. Obviously, the FCC has

to adjust as competition continues to develop and new markets are

created in this telecommunications field.

Today, the Chairman of the FCC will present his plan for building a new FCC, and I think the burden really falls on your shoulders and that of the agency to really demonstrate what the word

‘‘new’’ means. If, in fact, it has some cobwebs around it, I suspect

that there will be more Dingells around this committee.

So it is up to you to present that plan to us and how you are

going to handle the regulatory challenges that confront the telecommunications industry in the 21st century. The plan has to ensure that the explosion of the new technologies really ensure that

each and every citizen in this country has access to what I just described. If that is not the case, then we will have all failed.

And there are many challenges, I think, ahead, obviously, for the

FCC to ensure that this is the case. I think, and I keep hammering

on this, that more work has to be done on improving and expanding our Nation’s 911 emergency phone system so that we can locate

every caller. If this isn’t the case in emergencies, then most of the

citizens are going to throw their hands up and say, well what’s new

and what have you done to make it better for us.

We should be encouraging additional studies of advanced trauma

communications and elevating the public understanding of automatic crash notification systems. We should ensure that every student in every classroom in our country continues to have the opportunity to tap into the wealth of what the Internet really represents. And all of my colleagues know, over $1.6 billion has been sent

to school districts throughout the country as part of the E-Rate

System. Now this system has been criticized by some members of

this committee, but despite that, I think the program is not only

an important one but it is proving to be a success, enabling thousands of students across the country, as well as their teachers, to

access the great learning tool that the Internet represents.

So I am looking forward to hearing, most especially, form the

Chairman of the Commission on some of the specifics of the goals

that you outline in your printed testimony to us.

I thank the chairman for holding this very important hearing.

Hearings I think are really terrific because they are learning sessions for us. And I might that if we come in here with our minds

made up about everything, I really don’t know how much we are

going to learn from those that we call before us to give their testimony.

So I am looking forward to it. Thank you, Mr. Chairman. And

if I have any time back, I yield.

Mr. TAUZIN. And thank the gentlelady and assure here that that

is exactly what these are hearings are designed to do, to teach us.

And we are going to learn a lot today, I hope.

14

The Chair is now pleased to recognize and to reward for his

punctuality the new member of our committee, Mr. Pickering from

Mississippi.

Mr. PICKERING. Thank you, Mr. Chairman. And I commend you

for holding this hearing today. This is an issue of great concern and

interest to me. As many of those know, I spent primarily 3 years

of my life during the 103d and 104th Congress as a Senate staffer,

working on the Telecommunications Act of 1996. It was after that

that I ran for Congress and quickly lost all of my influence.

One of the reasons I did run is that I thought if you could work

out the complexities of this issue with the intense competitive pressures from all of the various industry segments, if we could find

a public policy consensus in this area, then there is no limit to

what we might could do in other areas as well, that people can

come and work together. It was a great model, I think, and example of when Congress comes together and works together.

Now what was our hope when we passed that act? We hoped that

the rules would be in place in 1 year and that competition and the

implementation of the act would be completed in a 2-year period.

Were we overly optimistic? Perhaps.

We are changing 60 years of law and practice and the economy

that it built up in telecommunications since that 1934 act first

passed.

Did we expect the delays that came from litigation and some of

the regulatory delays? We had hoped, maybe over optimistically,

that that would not occur.

But where are we today? Just as spring comes, the sprouts of

competition are beginning to emerge, the certainty of the litigation,

as it is now nearing its end with the Supreme Court decision, the

regulatory framework seems to be almost in place, and we are beginning to see the competition emerging.

And I do want to say that I think that we need to be cautious

and careful not to reopen or introduce uncertainty just as we are

beginning to see the fruits of our labor in the Telecommunications

Act.

Having said that, there are things that can be done better, more

quickly, more efficiently. Streamlining can occur. I am somewhat

concerned about the length of the mergers and acquisitions and the

review that has taken place at the FCC, and see if we can have

a way to put a timetable in that area so that we can introduce

greater certainty in the marketplace and as these investment decisions are being made.

It is with that background and with that context and the hope

that we can find ways to do our job better here and working with

the FCC, that we can see the full fruit of our labor in the Telecommunications Act, that I will be listening and working with the

chairman on this very important act.

Thank you.

Mr. TAUZIN. Thank the gentleman very much. The Chair recognizes the gentleman from Tennessee, Mr. Gordon.

Mr. GORDON. Thank you, Mr. Chairman, for your continuing effort to help us educate ourself on these important and complicated

issues. Let me just quickly say that I think that it is a very legitimate and important function of Congress in the area of oversight

15

of our various agencies, both for our taxpayers and for our constituents. And I think that this is an important hearing.

And I have to say that I share a lot of the frustration that has

been echoed here today about the Telecommunications Act not

reaching its full potential and what we had hoped to see by now.

And there is plenty of fault, I think, to go around, and I don’t

think I need to add additional criticism of the FCC today because

you are going to get plenty of it. You don’t need my help right now.

So let me just say that certainly the FCC could be doing a better

job. Certainly industry could do a better job of trying to compete

rather than just consolidate. And I think that maybe we probably

should have done a better job in the original efforts on this bill.

So there is improvement, I think, to go around. I think now,

though, the time if for the FCC to come forward with a new model

for a structure that, hopefully, will deal with the new times. And

I think we need to talk about this. Hopefully we can come to a consensus and then move forward.

And I think that we in Congress have a responsibility. After we

do find this new model that we adequately fund it. If you look at

the FCC’s funding over the last few years, it’s been flat. Employees

have gone down. At the same time, Congress continues to ask more

and more.

So we’ve to sort of decide, if we are going to ask more we are

going to have to fund you, if we don’t want you to do more, then

that’s fine. But we can’t have it both ways.

So I am glad you are here. Hopefully we can learn about this

new direction.

Mr. TAUZIN. Thank the gentleman. The gentleman from Maryland, Mr. Ehrlich, for an opening statement.

Mr. EHRLICH. Thank you, Mr. Chairman, I intend to submit a

formal statement for the record. And in view of that, I will forgo

an opening statement at this time.

Mr. TAUZIN. The Chair thanks the gentleman. Mr. Green from

Texas is recognized.

Mr. GREEN. Thank you, Mr. Chairman. And I will submit an

opening statement. I just want to raise two concerns.

As a new member on—as a second-term member on the committee, in watching the FCC, and not on the committee in 1996,

I had some concern last year with the potential loss of the benefits

of the E-Rate program, but the FCC salvaged it because of the opposition and the way it was structured originally.

I also have a little concern about the recent ruling on the long

distance charges for Internet use, and hopefully we will hear that

today. But I will submit the whole opening statement.

Compared to Mr. Dingell, it is very mild.

[The prepared statement of Hon. Gene Green follows:]

PREPARED STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF TEXAS

The Federal Communications Commission is an independent agency whose mission is to encourage competition in all communications markets and to protect the

public interest. In response to direction from the Congress, the FCC develops and

implements policy concerning interstate and international communications by radio,

television, wire, satellite, and cable.

That basically is the current mission statement at the FCC. Today we are going

to discuss FCC Reauthorization and FCC reform in light of rapid communications

16

technology achievements, and we will try to figure out how we must reshape and

refocus the FCC for the future.

Communications technology is starting to transform itself at an exponential rate.

Just in the past 5 years alone we have seen an explosive growth in the use and

development of the internet and wireless technology.

The internet is the one innovation that has drastically altered the telecommunications landscape. It has already started to transform the way we communicate

today and the way we will communicate and interact in the future.

While we look at the future of the FCC and how they can deal with the new convergence of technologies, we also must deal with current pending issues at the FCC.

I hope that we can discuss the future of the FCC and the role they want to play,

and I hope that we can get some answers to our questions.

Mr. TAUZIN. Thank the gentleman. The gentleman from Illinois,

Mr. Shimkus, for an opening statement.

Mr. SHIMKUS. Thank you, Mr. Chairman. I think in any discussion of re-authorization I will be looking forward to our first panelist and the chairman to just address a couple of concerns. One

is, what is their mission statement? What are our goals? And what

are our objectives? Then how does the organization help or hinder

those? Are these stated goals and a mission statement; or are they

implied?

I think only then, when we understand where we have evolved

to, and it really just basic problem-solving techniques, once you understand the problem, then you develop the organization to identify

the problem.

The issue with agencies that have existed for over 60 years is

sometimes they don’t reorganize themselves to meet the new problems of today.

And with that, Mr. Chairman, I will yield back my time.

Mr. TAUZIN. Thank the gentleman. The gentleman from Maryland, Mr. Wynn, is recognized.

Mr. WYNN. Thank you, Mr. Chairman. I appreciate you calling

the hearing, but in the interest of time I will defer an opening

statement and submit for the record.

Mr. TAUZIN. Thank the gentleman. The gentleman from Florida,

Mr. Stearns, is recognized.

Mr. STEARNS. Good morning, and thank you, Mr. Chairman, for

holding this hearing on the re-authorization of the FCC. And I

would like to thank Chairman Kennard for coming and all the

other Commissioners.

It has been a number of years since the Commission has be reauthorized, and I know it is the highest priority of our chairman

to pass an authorization bill this year that will restructure the operations of the FCC. So I think it is appropriate that we hear from

the chairman.

In looking back at the Telecommunications Act of 1996, you

know, the idea here was to deregulate, set a blueprint in place. To

me the act, the purpose was threefold. One to begin efforts to bring

competition to those sectors of the communication industry that

were burdened with solitary, dominant companies. Two, foment additional competition in sectors with limited competitive players.

And three, eliminate all unnecessary regulations in those sectors

that have proven to be competitive for the public good.

When you look at those three criteria, I think the FCC has done

a pretty good job on the first two. It has been difficult to bring new

17

competition to uncompetitive sectors, I think the FCC is attempting

and fighting it out.

But in the last area of responsibility, the elimination of unnecessary regulations, frankly, I would say to the chairman, I think the

FCC has failed.

In Title IV of the act, under section 402, titled ‘‘Biennial Review

of Regulations: Regulatory Relief,’’ the FCC was instructed ‘‘in

every even-number years, beginning with the year 1998, the Commission will, one, shall review all regulations issued under this act

in effect at the time of the review that apply to the operation or

activities of any provider of telecommunications service, and, two,

shall determine whether any such regulation is no longer necessary

in the public interest as the result of the meaningful economic competition between providers of such service, and, three, effect of determination, the Commission shall repeal or modify any regulation

it determines to be of no longer necessity in the public interest.’’

Furthermore, Title II of the act specifically instructs the FCC to

review its rules concerning broadcast services and all of its broadcast ownership rules biennially as part of the regulatory review

and ‘‘shall determine whether any such rules are necessary in the

public interest as a result of competition. The Commission shall repeal or modify any regulation it determines to be no longer in the

public interest.’’

You know, I think this review process created in the act was to

rid the free market of burdensome and unwanted FCC regulation.

The FCC, under the act, does not have the statutory power to create social solutions for our Nation. By not fulfilling the mandated

responsibilities of the act, the Commission has failed in its duty to

comply with the law.

Saying that this review of 1998 was piecemeal, I think, is an understatement. The FCC had initiated to my latest information, just

31 proceedings on the literally hundreds upon hundreds of regulations the FCC maintains. And the FCC has issued only four orders

modifying or repealing various rules. Only four.

This is not what I believe this committee had intended. In response to this, my colleagues are aware that I have introduced legislation to remove numerous broadcast ownership regulations, including grandfathering of local market agreements, which the act

specifically instructed the FCC to do. And for some unfathomable

reason, they continue to refuse.

Mr. Chairman, I hope we can move that bill that I have provided

to a hearing and discussion with the committee.

In closing, Mr. Chairman, we do need to improve some areas of

the act, but that should be the responsibility of this committee and

Congress and not the Commission. I discourage the Commission

from attempting to open portions of the act for new regulatory efforts. I think Chairman Kennard and the other Commissioners

would agree that the act should not be reopened on their own.

Thank you, Mr. Chairman.

Mr. TAUZIN. I thank the gentleman. The Chair now recognizes

the gentlelady from the show-me State of Missouri, Ms. McCarthy,

for an opening statement.

18

Ms. MCCARTHY. I do not have an opening statement, Mr. Chairman, but thank you for recognizing me. And I would like to put it

in the record.

Mr. TAUZIN. Thank the gentlelady. It will be so ordered. The gentleman from New York, Mr. Fossella.

Mr. FOSSELLA. Other than to wish the wanna-be Irishmen like

Ed Markey a happy St. Patrick’s Day, I have nothing to add.

Mr. TAUZIN. Italian-Irish is something, man. Mr. Deal from Georgia is recognized.

The Chair thanks all the members of the subcommittee for their

contributions. And I have just received the statement by the Speaker of the House, Mr. Hastert, which he has asked to be submitted

into the record.

I won’t read it all, but just some highlights, if the committee will

allow me:

‘‘I am a little envious of the subcommittee’s collective role in this

regard because for a few days last December I was looking forward

to working with you and our colleagues to conduct rigorous oversight of the FCC. My short tenure as O&I subcommittee chairmandesignate though gave way to another job, as you know.

‘‘Mr. Chairman Kennard, I say it is good hear that you and the

Commissioners see the need to scrap the outdated top-down regulatory model and are now offering a new FCC structure paradigm.

I know we all appreciate hearing and plan to hold you to your recent statement that ‘as long as I am Chairman of the Federal Communications Commission, this agency will not regulate the Internet.’ ’’

He goes on to mention, of course, that the Internet was mentioned only twice, parenthetically, in the 1996 act. And how rapidly

times are changing. He mentioned his work with former Chairman

Fields in attempting to begin the work on FCC reform.

He said, looking back, when we enacted regulatory reform on the

telecom industries, we should have also enacted regulator reform.

He is indicating his strong support for the work of our subcommittee and our full committee, and his statement, like all the

written statements of the members, without objection, will be admitted into the record at this point.

[The prepared statement of Hon. J. Dennis Hastert follows:]

PREPARED STATEMENT OF HON. J. DENNIS HASTERT, SPEAKER OF THE HOUSE

Mr. Chairman, although I cannot be with you in person today at the start of these

most important hearings on reform of the FCC, I wanted to speak to a few issues

that have concerned me about this 65-year old independent agency. I appreciate

your scheduling these hearings and want to commend you, Chairman Bliley, Ranking Member Dingell and Mr. Markey for your leadership in this important matter

of FCC modernization. I am a little envious of the subcommittee’s collective role in

this regard, because for a few days last December, I was looking forward to working

with you and our colleagues to conduct rigorous oversight of the FCC. My short tenure as O&I Subcommittee Chairman-designate, though, gave way to another job, as

you know.

To Chairman Kennard, I say it is good to hear that you and the Commissioners

see the need to scrap the outdated, ‘‘top-down’’ regulatory model and are now offering a new ‘‘FCC structure’’ paradigm. I know we all appreciated hearing, and plan

to hold you to, your recent statement that, ‘‘as long as I’m chairman of the Federal

Communications Commission this agency will not regulate the Internet.’’ I see the

Internet as an outstanding example of what happens when we do not micromanage,

and instead let market forces design an economic engine of growth—I do not think

19

any politician can claim all the credit for the success of its creation and development.

As you know, since my service began on the House Commerce Committee in 1991,

I have been integrally involved in various aspects of the FCC. Indeed, in the mid

1980’s, I had the opportunity to manage legislation in the Illinois General Assembly

which rewrote the Public Utility Act. I saw firsthand there the interface between

the Illinois Commerce Commission (ICC) and the FCC. In 1995 and 1996, our

former colleague, Chairman Jack Fields, myself and other colleagues worked on a

plan to restructure and reform the FCC. In fact, we visited the FCC on a couple

of occasions to ‘‘kick the tires’’ and see for ourselves, after talking with employees

and observing their work, how best the FCC of the 1990’s could be restructured to

make them relevant in the 21st century.

One thing that I would like to be remembered for during my tenure as Speaker

is that this was a period when we encouraged competition to replace regulation at

every opportunity. Indeed, the FCC is a classic example of an agency that when presented with a choice as whether to regulate or not regulate, the institutional inclination seems to be to choose the former course.

By compiling a comprehensive hearing record on these issues, I am confident we

can possibly remedy the current regulatory situation with a mixture of statutory

changes and internal administrative reforms. We also need to encourage all of those

stakeholders who are regulated by the FCC and to those others indirectly affected

by it to come forward and help all of us in the cause.

Finally, many of us are concerned about opening up the ‘‘Act’’ again after just

barely three years since we passed a massive re-write, known as the Telecommunications Act of 1996. It was a great undertaking by many members of this subcommittee, and although we all agreed that the Act as written was fair and balanced, implementation by the FCC of congressional intent has left many of us less

than satisfied. Looking back, when we enacted regulatory reform on the telecommunications industry, we should have also enacted ‘‘regulator reform.’’

We know that the regulation of the communications industry has been a ‘‘work

in progress’’ over the last 65 years. Title II of the Communications Act of 1934 was

taken almost verbatim from the ‘‘railroad monopoly’’-driven Interstate Commerce

Act of 1887. In 1984, Title VI on cable services was added to the 1934 Act, and in

1993, a cellular and PCS title was added in OBRA to the 1934 Act. In fact, the term

‘‘Internet’’ is mentioned parenthetically only twice in the 1996 Act.

Again, look at what has happened as a result of the growth of this tremendous

network in just the last three years. My point is this: we should be willing to continue to conduct oversight and to consider updates to the laws affecting telecommunications in this nation. We cannot manage lightning-speed advances in technology with ‘‘status quo’’ statutes. The growth of the Internet is a perfect example

of this conundrum.

Mr. Chairman, I look forward to following your hearings and working with you,

Chairman Bliley, and the subcommittee on this critical issue in the future. Thank

you.

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. STEVE LARGENT, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF OKLAHOMA

Mr. Chairman, I want to thank you for holding this important hearing. The FCC

has played, and will continue to play, an essential role in implementing the rules

of competition for the 1996 Telecommunications Act. Over the past three years, the

telecommunications industry has undergone a period of unprecedented growth, resulting in the development of new technologies and services that were unimaginable

just a few years ago. I am, however, disappointed in the amount of litigation that

has ensued since the passage of the Act, as various segments of the telecommunications industry competes for market share.

I am interested to hear each of the Commissioners and Mr. Huber’s thoughts on

what regulatory function the FCC should play in the coming years to accelerate

competition and reduce litigation as we transition to the digital age. In particular,

I want to know what the Commission’s plans are for universal service reform, access

charges, and the deployment of broadband services.

I look forward to hearing from our witnesses.

20

PREPARED STATEMENT OF HON. TOM BLILEY, CHAIRMAN, HOUSE COMMITTEE ON

COMMERCE

I thank the Chairman for yielding me the time.

Today, the Subcommittee meets to consider FCC reauthorization. Today is also St.

Patrick’s Day. You have to wonder if Chairman Kennard needs two reasons to enjoy

a cold pint of ale this afternoon.

In any event, I am pleased that the Subcommittee is holding this hearing. The

reauthorization process is a good opportunity to promote efficiency, reduce redundancy and eliminate functions that are no longer needed.

I anticipate that the Subcommittee will soon turn its attention to NTIA reauthorization as well.

At the outset, let me make clear what I think the FCC reauthorization process

should not be: a means to re-visit issues from the 1996 Telecom Act. Why on earth

would we want to go through yet another multi-year cycle of implementation and

litigation?

It took three years to complete the last cycle, and it’s not clear to me who benefitted from all this litigation... other than the lawyers, of course.

While there is much work to be done, the Telecom Act is working just fine. Consumers are starting to see the benefits of competition, particularly in the area of

broadband services.

And, the incumbent telephone companies appear to now realize that competing is

in their best interest, rather than spending their money on lawyers.

Which leads me to the issue of local competition. In light of the Supreme Court’s

ruling, the FCC has no excuse at this point not to make local exchange competition

its highest of priorities. Your legal authority in this area is now unquestionable. Use

it!

For instance, the Commission can and should push forward with reform of its

physical collocation rules, revise its list of unbundled network elements, and speed

implementation of intra-LATA toll dialing parity.

I therefore hope that the reauthorization process will be a genuine effort to

streamline this important agency. This Committee has a fine record on agency reform, namely FDA reform. I hope we can use that experience to inform us here

today, and into the future.

In that vein, I understand that Chairman Kennard is planning to unveil some recommended changes here today. I look forward to reviewing these changes closely.

Before I conclude, I would like to address another matter. Last year the House

passed, by a margin of 403 to 16, bipartisan satellite reform legislation, cosponsored

by Mr. Markey and I. We plan to legislate on satellite reform again this year.

These intergovernmental satellite organizations should be privatized. And they

should be privatized in a manner that promotes competition by ending their current

cartel-like structure. Our bill will encourage a pro-competitive privatization, and end

COMSAT’s monopoly over access to the INTELSAT system. No one should be permitted to get around the 10 percent outside-ownership cap on COMSAT, in the absence of overall satellite reform legislation.

Some claim that one can ignore this cap under the guise of being an authorized

carrier. Any action by the Commission to facilitate another’s evasion of the cap will

be treated for what it is: an attempt to end-run Congress, and to undermine the

legislative process, as well as unjustified on the merits. I plan to eliminate the language regarding authorized carriers in whatever legislation we introduce in order

to avoid any confusion in this regard. I also think that any devotion of resources

by the Commission to acting on a pending application in this regard will not serve

the public’s interest in comprehensive satellite reform and would add fuel to the fire

of those who argue the Commission has far more employees than it needs.

I look forward to hearing the FCC’s views on this matter. I thank the Chairman,

and yield back my time.

Mr. TAUZIN. The Chair is now pleased to call our first witness

and to recognize him for his contributions in public policy, the senior fellow from Manhattan Institute of Policy Research, a partner

of Kellogg, Huber, Hansen, Todd, and Evans, Mr. Peter Huber.

I want to point out to the committee that as we invited the Commission to come and give us their views on what the FCC might

look like in the future, where the 1996 act is being fully implemented in an open, competitive marketplace full of vibrant competition and less monopolies, as my friend Mr. Markey pointed out,

21

or providing new services to consumers, we thought it would be

very useful to get someone of great reputation in this area to paint

a picture for us of where these amazing technologies are going,

what kind of future communications is likely to see, so that we can

begin thinking of and formulating how we might want to picture

an FCC working in that future.

In that regard, we have invited Mr. Peter Huber because, as Mr.

Markey said, fewer people have come before our committee and

demonstrated more mental capacity in this area than Mr. Huber.

He does have a background. He has worked for Bell companies.

Want to put that on the record. If you see some perspectives in

there that come from that affiliation and regarded as such, we will

be inviting others with different perspectives to come, hopefully, as

qualified and as contributing as Mr. Huber.

But I want to thank you personally, Peter, for undertaking this

effort to paint this picture for us and would invite you to do so at

this time.

STATEMENT OF PETER W. HUBER, PARTNER, KELLOGG,

HUBER, HANSEN, TODD, AND EVANS

Mr. HUBER. Thank you very much, Mr. Chairman.

Just a few days ago, my co-authors and I——

Mr. TAUZIN. Pull the mic close to you, Peter, so we can hear.

Mr. HUBER. Just a few days ago, my co-authors and I completed

our second edition of ‘‘Telecommunications Law’’ and sent it off to

our publisher. I have a copy here. I runs about a thousand pages.

It would try your patience if I started on page 1 and read it into

the record.

Suffice it to say that nobody wishes more passionately than I

that the third edition will be much shorter. This is much longer

than the first edition, I might add.

Let me just try and paint a few facts or a picture of where I

think we are headed that I believe is, in fact, relatively

uncontroversial.

Within the next 5 years, the amount of traffic moving on phone

and cable and broadcast and satellite wireless networks is going to

increase by severalfold at least. Predictions vary, but we are looking, conservative estimates, at a three-to fivefold increase in total

traffic moving over these networks.

And I don’t there is really much dispute about those estimates.

Where is this coming. We are not going to be talking five times

more on our phones. We are not going to be watching five times

as many soaps, or five times as many Superbowls. It is coming

from the rest, from this explosive, remarkably dynamic growth of

the web and all that implies.

Second, a plain engineering fact, which I think is also not widely

disputed, the networks in place today, terrestrial broadcast networks, cellular networks, cable networks, phone networks, cannot

accommodate a fivefold increase in traffic. The existing networks,

based largely on analog technology and yesterday’s technology,

were not built for that kind of growth.

In the next 5 years, the networks that will be in place and operating and serving businesses and residences, 5 years from now, behind the jacks, behind the telephone jacks, behind the antennas,

22

behind the satellite dishes, those networks are going to change almost beyond recognition.

We can argue at length. I have, everybody has too about who

owns the past. I am not prepared to argue about who will own the

future because I don’t know. You don’t either, and the very intelligent and dedicated and skillful people sitting behind me don’t

know either. And I don’t think they claim to know.

The equipment that we will be using 5 years from now hasn’t

been built yet, by and large. Today, already on the phone network,

there is more data traffic than voice traffic. If I had made that prediction even 5 years ago, it would not have been taken seriously.

Within 5 years, I think we can quite confidently predict that on

our cable networks there will be more data traffic than the existing

video traffic volumes. Within 5 years, and this is almost unheard

of to speak of in the broadcast networks, but we are moving into

the HDTV bands now—within 5 years, I think it is quite safe to

predict that most of the traffic on the terrestrial airwaves will not

be conventional fare. It won’t be the stuff—the conventional fare

will still be there. We will still be watching Superbowl and soaps

and so on and so forth, but the lion’s share of the traffic will not

be those things.

Every telecom medium out there is going to experience dramatic

growth. We know—I think it is safe to predict only a few things

about these networks.

They are going digital. They are all going digital. There won’t be

any exceptions to that.

Overwhelmingly they will go to packetized networks. Packet networks are quite different architecture from what we have used in

the past, but they are very much more efficient. They are essentially the architecture of the web, and you boost them up fast

enough and they can carry anything.

And they will be boosted fast. We are talking about very, very

substantial increases in capacity on all of these networks. As I say,

they are all capable of going this way. They all will go this way

because if anyone of those networks, the broadcasters or cable or

telephone, if anyone of them says, Look, we are happy with what

we got. We are sitting still. Their traffic will migrate onto another

network that goes this way.

Just as sure as day that this is coming. We don’t know who will

win. We are talking about a very fundamental restructuring of all

of these networks.

I am, I think, also fairly confident in saying that anybody who

thinks there is one technology that will prevail, or one provider

who will prevail, is surely wrong. Different technologies are going

to be right for Wyoming, where people are spread far apart, or for

New York, where they are packed close together.

Business markets and residential markets are going to be drawing on different technologies. Demand will vary widely across different types of users, business and residential applications.

You can’t guess, I can’t guess, none of us can guess who will win.

And to the extent our Government institutions and our structures,

or this committee, or the FCC attempt to guess, implicitly or explicitly, and attempt to pick winners and losers from this fray, we are

simply going to retard this very important transition.

23

I think it is equally fair to say that we do not know what pricing

structures will emerge from this. We have three or four old paradigms at hand.

We have the local phone pricing paradigm, which is an all-youcan-eat-for-a-flat-fee, we have cable, which is a flat fee plus charges

for special and premium services, we have the broadcast model,

which is advertiser-supported, we have the basic catalog model,

where everything is free because you are buying jellybeans online,

or shopping at Land’s End or something, and the telecom comes to

you free.

All of those models, I think, will their place in this new structure. But again, once again, to think that we can predict which is

best for a market or particular class of consumers is a big mistake.

I think it is fair to say, and this is not a reproach, I think it is

simply a statement of fact, that notwithstanding the 1996 act, the

FCC is still administratively and bureaucratically structured

around yesterday’s models. The basic title structure of the Commission, Title I, Title II, Title III, Title VI, reflects the 1934 act and

accretions that there added with the advent of cable, satellite technology, and so.

The 1996 act attempted to clear away some of these divisions,

but it did not go very far. In many areas, certainly not all, but in

many areas the regulatory presumptions are still the presumptions

of the 1930’s.

It is forbidden until the Commission says it is permitted. And

that often takes awhile.

Does it take longer when people go to court? You get it does. And

when they go to court they quite often win. I have represented

some of them. Sometimes they win. The Commission wins its

share. Other people win their share.

Half the time the courts of appeal and the Supreme Court think

of different reasons for upholding different parties, and the process

goes up and down. And while it does, the markets hesitate and the

markets wait.

I think it is, again, accurate to say, without trying to pick sides,

that overwhelmingly today how I do at the Commission depends on

what I can persuade the Commission to call me. If I can get them

to call me a broadcaster, and trust me, there’s a whole lot of room

in the word broadcast, you can be doing paging and data and other

things—if I can get them to call me a broadcaster, that is one set

of rules.

And if I can get them to call me cable company or a cable service,

that is another set of rules. And if I can get them to call me a PCS

provider, that is another set. And if I am in the satellite DBS band,

that is another set. And if I’m a local phone company, that is another set. But it depends which division or subsidiary I am of that

local phone company, whether I am a separate sub under 272 or

the main incumbent carrier.

The Commission itself has recognized this in their recent analysis of—at least its staff has—in its recent analysis of how cable,

for example, should be regulated. They quite openly and honestly

and correctly, I said, said, look, we can basically make cable, Internet on the cable, anything we like. We can make it a cable service;

we

24

can make it a telecom service; we can make it an information service; we can forbear under section 10.

Well, isn’t that grand. I would like to have that much flexibility

too. The problem is, you don’t know how it is all going to emerge

until it emerges. And the process takes a very, very long time.

However the Commission makes these calls. They are subject to

appeal. And as I say, the courts sometimes have different interpretations of the law than the Commission does.

I could talk in more detail about proposed restructuring and so

on, but I don’t think it is my place, although I will be happy to answer questions.

I will say this. I think it is tremendously tempting to look backward, to say, look, I am still worried about E–911, very important,

or my constituents concern about universal service in poor areas,

or just very cheap telephone service, a very important thing. Of

course we should be concerned about this.

But please, I would implore this committee and the Commission

itself, look forward. We are talking, we are looking at 80 or 100

percent growth in the next year or 2, and another 100 percent after

that, and another 100 percent after that.

Looking forward. Let us please put in place structures that let

this market unfold at high speed with a minimum of advanced

oversight.

Thank you very much.

[The prepared statement of Peter W. Huber follows:]

PREPARED STATEMENT OF PETER W. HUBER, SENIOR FELLOW, MANHATTAN INSTITUTE

FOR POLICY RESEARCH; PARTNER, KELLOGG, HUBER, HANSEN, TODD & EVANS.

Here’s what won’t change. Five years from now, Americans will still make plain

old phone calls on plain old wireline phones. They will still watch movies and the

Superbowl on their television sets. They will still rely, as they do today, on some

mix of wired plugs and wireless antennas to get electronic information in and out

of their homes and businesses.

For the ordinary consumer, the change will really center on ‘‘none of the above.’’

Voice, which until recently occupied close to 100 percent of the telephone network’s

capacity, will occupy under 20 percent, and quite probably a lot less than that. Consumers, in other words, will be using phone lines to support a vast range of other

services beyond voice. Cable jacks will be delivering more content than ever—but

well under half of the traffic will be conventional television fare. TV stations will

be broadcasting as many channels as they do today, or even more—yet conventional

broadcasting will account for a rapidly shrinking fraction of total traffic moving over

terrestrial airwaves in the UHF, VHF, and HDTV bands. We won’t be talking less

on the phone, or watching much less TV. But at home and even moreso at work,

we will be spending an enormous amount of additional time beyond telephone and

television—on the Web—to shop, read, browse, bank, invest, and chat.

The new-generation data and video services will reach consumers over a broad

array of media, and will be offered in a great variety of service packages and prices.

The wired plugs and wireless antennas already in the home today—phone jack,

cable jack, TV antenna, and satellite dish—will look much the same as they do

today—but they will perform very differently. They will all carry digital traffic, not

analog. They will be engineered to handle traffic packetized on the Internet’s TCP/

IP protocol, or more advanced successors to it. And all of these ports and jacks will

be fast—hundreds of times faster than they are today.

As I have noted, these same jacks and antennas will still support the services we

are accustomed to today, the plain old phone calls, the old-fashioned television, the

movies, the Superbowl. From the consumer’s perspective, those old services will not

have changed much at all. But from the provider’s perspective they will have

changed profoundly. No single, old service will account for most of the traffic on any

network. All major networks, phone and cable, wired and wireless, terrestrial and

satellite, will be capable of supporting all major services. We are engaged, here, in

a truly fundamental transformation of the whole of the telecom infrastructure.

25

Digital networks can support encryption and addressing, which make possible

point-to-point messaging: the Internet already permits slightly tinny, two-way, voice

conversations. As bandwidth increases, any digital network can likewise support

one-to-many communication: even on the slow, analog bandwidth of ordinary phone

lines, for example, the Internet already can deliver live radio broadcasts. With digital broadband technology, today’s text-based bulletin boards will support voice and

video—the Internet equivalent of radio and television. E-mail will support voice and

video, too—the Internet equivalent of telephony and video-phones. High-speed data

links on cable networks will offer similar capabilities, spanning everything from

voice telephony to digital television. Digital broadcasters will be able to provide a

limitless range of other digital services in addition to plain old broadcast fare.

Every major company operating a network is scrambling to become a part of this

future. For all of them, it means rebuilding network infrastructure, and at enormous cost. But the opportunity is equally enormous—and, in any event, they have

no choice. Any network that is not upgraded to high-bandwidth digital will simply

lose its traffic to others that are.

Even if nothing else were changing, soaring demand would force an end-to-end rebuilding of existing networks. Demand for digital bandwidth is increasing at annual

rates in the range of 50 to 200 percent. By every plausible projection, it will continue growing at those rates for the foreseeable future. It will increase at least fivefold over the next few years.

If demand is going to grow five-fold—and it is—then network capacities will have

to increase as much. But the existing phone, cable, broadcast, wireless, and satellite

networks still rely, in significant part, on yesterday’s analog technology, and they

are already stretched to capacity. Systems deployed a decade ago cannot begin to

accommodate five-fold increases in traffic. So new networks must be built—networks

that are much more capacious than the ones they overlay. Which means, in turn,

that 80 percent or more of the wires, trunks, cables, transmitters, receivers, switches, and routers that we will be using for digital transport five years from now will

be built and put into commission between now and then. Nobody owns them yet.

Hardware manufacturers have to build them. Phone, cable, broadcast, wireless, and

satellite companies have to deploy them. Fast. And once they’ve built and deployed

them, they have to build and deploy them again. And again, for as long as demand

continues to grow at these explosive rates.

It is impossible to say with any precision who will emerge with what share of the

market for digital bandwidth. A list of likely contenders must surely include both

phone and cable companies, along with both terrestrial and satellite-based wireless

systems, using VHF, UHF, HDTV, cellular, PCS, satellite, and other spectrum

bands. Electric power companies may join the fray, too. The best technology will

vary from market to market. It will likely be different for rural and urban areas,

different for business and residential customers. We cannot predict how things will

shake out across technologies, providers, and markets. Government should not be

trying to. The harder Government tries to guess, and the more it intervenes to back

up its guesses with technology-favoring or competitor-favoring policies, the more it

will get in the way of the healthy evolution of the market.

Nor can we usefully guess or predict what pricing structures will emerge. There

are countless different ways to price these services. They range from the traditional

local telephone model—all you can eat for a flat monthly fee. To per-minute charges,

like those traditionally applied for long-distance calls. To advertiser-supported services, like those traditionally used by broadcasters. To pay-to-play services, like the

premium services traditionally offered by cable. Some providers will give you a free

computer if you’ll watch their advertising. Others will charge you $35 for a twohour, commercial-free streaming video download of Wrestlemania. Service providers

will offer free connections analogous to 800 numbers—the call is free if you shop

the catalogue. Every variation in-between is possible.

We have no clear idea what kind of corporate arrangements or structures will

move us fastest toward the most productive and efficient market. Judging from the

ferment in the computer industry, it is safe to assume that major restructuring will

inevitably occur. Again, this should come as no surprise. Most of the equipment,

most of the service that will be bought five years from now hasn’t yet been deployed,

hasn’t yet been built. New conglomerates, new joint ventures, are going to emerge

to build the new infrastructure.

All we can anticipate with confidence is that demand for digital bandwidth will

continue growing very fast, for many years to come. Digital bandwidth is now the

most important economic commodity in the United States. It is the key to growth

and prosperity. The computer industry’s fortunes depend on it. The productivity of

both labor and capital are, in turn, irrevocably linked to the growth of the digital

infrastructure. Whether you manufacture cars or newspapers, whether you supply

26

electricity or medical services, digital bandwidth will be a key input to your business, and a vital component of your consumption.

The 1996 Act notwithstanding, the regulatory environment has not begun to catch

up with the market now emerging, and the new technological realities. With most

services, over most media, the starting legal and regulatory presumption is still this:

What you want to do is forbidden, unless and until the Commission gets around to

permitting it. And once it’s been permitted, it may get forbidden again. You certainly can’t depart sharply from past practices, or transfer your assets to a new

owner, or fail to build out on the timetable favored by the Commission, or decline

to carry traffic the Commission likes, or insist on carrying traffic it doesn’t, without

putting your licenses, permits, and regulatory favors at risk. The Commission is forever weighing—weighing charges, services, subsidies, interconnection, mergers,

divestitures, cross-ownership, and more. Every major Commission rulemaking is followed by endless appeals. The Commission wins some of those appeals, loses as

many more, and is forever reconsidering orders, reopening dockets, and reviewing

licenses. While the Commission weighs things, and the courts reweigh, the market

waits.

Much of the basic structure of the 1934 Act remains in place, despite the 1996

Act. The 1934 Communications Act was written around the technological paradigms

of its day: broadcasting and common carrier telephony. The Act distinguishes wire

from wireless, carriage from broadcast, broadcast from cable, voice from video, and

both voice and video from data. It draws lines based on the type of content conveyed, the prices charged or not charged for conveying it, the wealth of the conveying company, and the novelty of the service. Although digital broadband services

were beyond imagination at the time the 1934 Act was enacted, they are nevertheless subject to the Act’s taxonomy and the regulations that have emerged thereunder. Broadband services are subject to the entry restrictions of Section 214, and

tariffing requirements and rate regulation under Sections 201-205. They are subject

to the franchise-like regulation that applies, under Title III, to renewals, transfers,

and ‘‘trafficking’’ of wireless licenses.

At this point, telecom law is so convoluted that much of the regulatory battle has

become one of arbitrary legal definition, nothing more. Wireline services can be slotted into Title VI (cable), or Title II (common carriage), or labeled Title I ‘‘information services.’’ Title II services can be treated as basic, legacy telecom services, subject to the full panoply of Section 251 unbundling, or as new services partly deregulated by being placed under the ambit of a Section 272 separate subsidiary. Wireless

services can be slotted into the still quite heavily regulated broadcast model, or the

less regulated DBS model, or the differently regulated PCS model. Each of these

choices entails profoundly different regulatory consequences. The Commission pays

lip service to ‘‘technological neutrality,’’ but it doesn’t deliver it. Judging from its

actions, and its own interpretations of the law, it doesn’t wish to be neutral across

broadband technologies, and doesn’t believe that it lawfully can be.

Consider a recent analysis set out in a paper prepared by the Commission’s own

staff. The paper discusses how the FCC might regulate, or decline to regulate, Internet services over cable. It concludes that under current law the Commission is free

to regulate these services as common carrier services, under Title II, or as cable

service, under Title VI, or view them as common carrier services but forbear from

regulating them under Section 10 or Section 706. Yet another option, with slightly

different regulatory consequences, would be to classify them as ‘‘information services’’ nominally under Title I. Similarly, the Commission has declared it can regulate high-speed data services offered by phone companies under Section 251, or sidestep regulating them by persuading phone companies to set up Section 272 separate

subsidiaries.

So who ends up regulated how under this labyrinth of possibilities? If Congress

does not intervene to streamline things, the answers will emerge over the next five

years, if we are lucky, after the Commission has proposed, and the courts have disposed, and the Commission has proposed anew, and the courts have disposed anew.

Or it might take three rounds rather than two—as the Commission’s ‘‘Computer Inquiries’’ have taken in the past. And while regulatory uncertainty reigns, the market will hesitate and hedge.

For all of its talk to the contrary, the Commission seems quite eager to maintain

and extend the old regulatory paradigms, even in the face of the sweeping changes

set in motion by the 1996 Act. Late last year, for example, the Commission announced it would require phone companies to ‘‘unbundle’’ advanced services—even

though the 1996 Act made clear that unbundling was to be extended only to network elements that were ‘‘necessary’’ to competition, elements without which competitive services would be ‘‘impaired.’’ The Supreme Court recently ruled that the

Commission may not go so far. But it took almost three years to resolve that basic

27

point. Why the Commission should ever have wished to apply the whole panoply of

yesterday’s regulation to highly competitive advanced services remains a mystery.

Perhaps the Commission sincerely believed it was legally obligated to do so by the

1996 Act. The Supreme Court, however, easily concluded that it wasn’t.

The Commission has likewise failed to invoke its authority under Section 706 of

the 1996 Act. That provision plainly offers the Commission flexibility to deregulate

advanced services. The FCC, however, declines to read it that way.

The Commission should be price deregulating the next-generation services across

the board—but it shows no inclination to do so. It should be removing these services

from the unbundling mandates of the 1996 Act—but it has been pushing in the opposite direction. It should be lifting them out of the long-distance restrictions of section 271—but it won’t. It should be putting all providers of high-bandwidth services,

wired and wireline, telephone and cable, on the same, deregulated footing—but it

simply does not want to. The Commission should be preparing its end game, its exit

strategy. There are no signs at all that it is doing so.

The 1996 Act contains many of the right sentiments, and attempted to aim things

in the right direction. But in its workings, as administered by the Commission, the

Act has fallen short. The Commission, it turns out, has shown no real inclination

to deregulate. Its primary instinct is to keep a tight hand on everything, everywhere, the law still leaves it plenty of authority to do so, and it acts accordingly.

It is time for serious change. It is time to get the Commission out of the business

of concocting general solutions ahead of time, and into the business of fixing specific

problems, if and when they arise. It is time to transition the Commission from its

traditional role of general regulator, to a new role of arbiter, adjudicator, and enforcer.

Mr. TAUZIN. Thank you, Mr. Huber. The Chair will recognize

members who would like to engage Mr. Huber before we introduce

the Commission.

Mr. Markey.

Mr. MARKEY. Mr. Huber, in your testimony, you note that every

Commission that rulemaking is followed by endless appeals and

court challenges. Is that the Commission’s fault?

Mr. HUBER. Well, I think the easy answer to that is it depends

whether they win or lose. If they win, of course it is not their fault.

It means they called it right. But if they lose, I suppose it probably

is.

And as a statistician and somebody who writes these up, I can

say that they win some, they lose some. It is by no means their

fault. This is a very opaque law that they are operating under.

Mr. MARKEY. But like the Yankees, they have been winning lately. The Supreme Court has been upholding them on some of the big

ones.

Mr. HUBER. Well, if you are referring to Iowa Utilities, you know,

I have some clients in that, and I got to tell you in all candor, we

count it, at worst, a draw and possibly a win. We have a remand

on necessary and impair. And TELRIC is wide open.

You know, we ain’t begun to find out who won on that one, I am

sorry to say.

Mr. MARKEY. Even if the Commission agreed with you, Mr.

Huber, and your law firm on every single substantive conclusion

which you make about how the act should be interpreted, that still

wouldn’t mean that others wouldn’t sue on different grounds that

you were on.

Mr. HUBER. Of course you are right. Under a set of laws that

gives the Commission the power to decide everything in advance,

that will always be the case. I mean, if we win we will be happy,

and the other side will sue.

That is how laws of this kind operate. I might add, you don’t

have to write laws that are structured that way. If you write laws

28

that say we will let the market proceed and wait for enforcement

action, deliberate intervention in specific ways, which, I might add,

is how the antitrust laws act, how a great deal of other consumer

and commercial legislation operates, you get a quite different

framework. And I might add you spend a whole lot less time in

court.

Mr. MARKEY. There is an ongoing tension between deregulation

and de-monopolization. Many people place deregulation as the

highest goal and stipulate that those who don’t support immediate

deregulation just don’t understand the marketplace.

Let me quote from a wise man: ‘‘The member of Parliament who

supports every proposal for strengthening the monopoly is sure to

acquire not only the reputation of understanding trade but great

popularity and influence with an order of men whose number and

wealth render them of great importance. If he opposes them, on the

contrary, and still more, if he has authority enough to be able to

thwart them, neither the most acknowledged probity nor the highest rank nor the greatest public services can protect him from the

most infamous abuse and detraction, from personal insults, nor

sometimes from real danger arising from the insolent outrage of furious and disappointed monopolists.’’

Now this was written by Adam Smith in 1776. And 200 years

later, whether it is telephone monopolies or cable monopolies taken

on by the Commission, depending upon the issue, I think that

there is inevitably going to be some great grief, which the Commission is going to receive from one former monopolist or recovering

monopolist or another.

But I think at the end of the day it comes with the territory. And

I also believe that the 1996 act, as implemented—and I’m not saying it is perfect, we are going to have to come back and look, you

know, various parts of I—but in general, I think it is working

great, by your own testimony, that there has been this explosion

of investments in capacity, which is out in the marketplace, whether we change a single word in the act or not.

Mr. HUBER. Well, to the best of my knowledge, the FCC funded

none of that investment. I mean, the question is, whether we would

have had double that with or without it. But even putting that

aside, nobody, I am quite confident, that the monopoly of yesterday,

which assuredly did exist. I know that. They were legal monopolies.

They were de jure monopolies. The 1934 act, you were actually a

criminal if you competed in those.

Of course they were monopolies. Who could possibly dispute

that?

I can tell you with absolute confidence there is no monopoly in

this country for 200-kilobit-per-second digital service.

Okay?

Only about a million people in the country can even get the service.

Mr. MARKEY. On the other hand, Mr. Huber, we still don’t have

any local phone companies. And we still don’t have any wire-based

cable competition. So the whole theory is great except for an ordinary citizen trying to get another cable company over the wire or

local phone service over the wire. And they can’t do that.

29

So all the band width in the world doesn’t do them any good if

they can’t find a competitively priced alternative to the two services which ordinary people use, local phone service and cable service.

Mr. HUBER. I agree fully. Now let us take, I mean, let us try and

take those and look at some real history. Okay?

Cable, okay, if you look at its regulatory history, all right, it

started under de jure monopolies, franchise issued locally—just a

second, just a second, because I would like to complete the answer.

What has been the one potent force for competition for cable, and

particularly in states that didn’t even have cable, like Wyoming

and——

Mr. MARKEY. The 1992 act, which repealed local monopolies and

added the programming access provision.

Mr. HUBER. No sir. No sir. There is virtually zero cable overbuilt

today. It has been DBS. And you know how long it took to get a

DBS license out of the Commission?

Mr. MARKEY. Until the 1992 cable—when we passed the program

access.

Mr. HUBER. It was the authorization of DBS licensing, of DBS

spectrum, which took 10 years longer than it should have.

I mean, cellular had a 14-year monopoly, and the PCS spectrum

had been out 6 years—well, a duopoly. If PCS spectrum had been

out 6 years earlier, we would have had more competition.

Mr. MARKEY. Mr. Huber, the bottom line there is the cable industry had locked up all of its programming. Who in the world is going

to subscribe to a satellite service that doesn’t have TNT and CNN

and CNBC. It just isn’t going to happen. It took the Tauzin Amendment in 1992 to make it feasible for people’s business plan to be

able to gather the capital investment to make these dishes.

Mr. HUBER. It took the content, but even before it took the content, it took the spectrum. And nobody got it until the FCC gave

it to them.

Mr. TAUZIN. The gentleman’s time has expired. I thank the gentleman. The Chair now recognizes the vice chairman of the committee, Mr. Oxley, for a round of questions.

Mr. OXLEY. Mr. Huber, welcome back. Based on the exploration

of the re-regulatory scheme and the 1992 act, is there any need for

the FCC to continue the cable bureau within the FCC?

Mr. HUBER. No. We should get on with the business of deregulating cable. We should get on with the business of deregulating

cable in the context of a market that can compete fully and effectively against cable.

Mr. OXLEY. What is your—I noted you kind of skipped over it—

but I want to bring you back in terms of what your vision is relating to FCC reform. If you were to advise this committee as to how

best to deal with that, what would be your major recommendation?

Mr. HUBER. I could distill into two, although I could write a book

too, but No. 1, high-speed digital services, 128.8 above or 200 and

above, whatever the Commission has said 200, and above, carve

them off. Take them out of the advanced regulatory world. Let people provide those services and, if problems arise, get the Commission enforcing something against them.

30

But create more than a presumption of statutory right to provide

those services, any medium, anytime, anyplace, anywhere—there is

no monopoly. The services don’t exist yet.

No. 2, at the very least, let’s avoid this incredible duplication of

function between agencies. I am representing people mergers, and

I will say it first, but I don’t know why I get to represent them

twice.

All right. Once before the Department of Justice and the second

time before the FCC. I could go on with these, but let’s do things

right. Let’s do them once and then get on with life.

Mr. OXLEY. So let me address that, particularly on the merger

issue. So your testimony is basically that the FCC has no function

whatsoever in terms of mergers.

Mr. HUBER. No. At the very least, I would say one agency. I don’t

even want to pick winners and losers among agencies. Okay?

If we are going—I think DOJ will do fine. I actually think they

are better at antitrust enforcers, but if Congress, in its wisdom,

said let’s just do it before the Commission, let’s do it there.

Why we do it twice, I truly do not know.

Mr. HUBER. Some of us had an opportunity to pay a visit to

America Online yesterday and discuss some of the burgeoning

issues with the Internet. And, one of the issues that the officers

raised was the frustration that they have with getting enough band

width to be able to provide all of the Internet services to rural

areas, to under-served areas in cities and the like.

And I raised it—I don’t know whether you saw it or not—the

Time magazine article about the gentleman who had moved out to

Leadville, Colorado, because he liked the lifestyle but found out

that he was unable to conduct his business, which was Internet-related, because the telephone company out there was so devoid of

having the capacity to provide that kind of service.

What are your comments in that regard? And what are your suggestions?

Mr. HUBER. I view it, if I am evading at first, I will get directly

to it, I view it as the paramount objective of this committee and

in telecom, the country, to increase availability of high-speed digital band width.

It is the essential commodity of the next century for business, for

residents, for our civil freedoms—freedom of speech and so on. We

clearly have got to be advancing that. At the moment, we have a

bizarre structure of telephones, telephone companies being told you

are going to have to unbundle what you haven’t even deployed yet.

All right? That sort of process grinding out before the Commission.

Stuff doesn’t even exist yet, and the regulations are already falling

into place.

You have the cable companies desperately jockeying, saying,

please, call this anything but Title II telecom service: cable service,

Title I information service. Call it something else so that we don’t

have to give equal access, don’t have to offer it to AOL, and so on.

You have the wireless PCS providers largely deregulated, but

many other people, broadcasters among them, waiting in the wind,

wondering what is going to hit them next as they begin rolling out

their digital television, and whether they will be, you know, how

31

free they will be to move that into aggressive, high-speed digital

band width.

I would like to tell all of these media providers across the board,

You get up above that speed, you are free until we find a problem.

Then we will go after you.

Mr. OXLEY. Thank you. Thank you, Mr. Chairman.

Mr. TAUZIN. Thank the gentleman. The gentleman from Michigan, Mr. Dingell, is recognized.

Mr. HUBER. I was in three-corner pants too.

Mr. TAUZIN. The gentleman from Michigan, Mr. Dingell, is recognized for a round of questions.

Mr. DINGELL. Mr. Chairman, I thank you for your courtesy. I

have no questions at this time. I will have some fine questions

later.

Mr. TAUZIN. The gentlelady, Mrs. Wilson, for a round of questions.

Mrs. WILSON. Mr. Chairman, I have no questions of this witness.

Mr. TAUZIN. The gentlelady, Ms. Eshoo.

Ms. ESHOO. Thank you, Mr. Chairman. Since today is St. Patrick’s Day and they say that the world is divided between those

that are Irish and those that wish that they were. Something about

this saint, he converted, obviously, an awful lot of people to the

faith. Now you hold a certain faith, and you are talking about converting or conversion at the FCC over to where you are.

In terms of restructuring, and, in your view, where it should go,

I know that Mr. Oxley asked you some questions about that, you

have given at least one manifestation of it. Is that the sum total

of how you view the FCC should be reorganized around where we

are going?

Mr. HUBER. Oh no. I mean I could go on at length. There are a

great number of functions that are obsolete. Okay? And there is a

great amount of price regulation that should be obsolete.

I have fought this battle——

Ms. ESHOO. I didn’t hear——

Mr. HUBER. A great amount of price regulation that——

Ms. ESHOO. All right.

Mr. HUBER. I think as broadcast moves into the digital world and

clearly its content delivery converges with content delivery over the

web, we should free up those spectrum licenses step by step and

give them freedom to use that spectrum as they want.

I could go on.

Ms. ESHOO. Do you want to elaborate? I mean, that is the question I am asking you. These are all considerations for the committee, and I think that it is important to get these out on the

table.

Mr. HUBER. The core structural problems are that this Commission is divided. It is divided by statute and by history and by tradition along lines that track old technologies and old service paradigms. If you are called a broadcaster, that has one set of luggage

that comes with it. You are called a local phone company, another

set. You are called cable, it’s another.

In a high-speed digital world—it is not here today, it is coming

fast, we want it come fast——

32

Ms. ESHOO. Now, would your model fit with the speed we know

that all of these industries under the umbrella of telecommunications are moving?

Mr. HUBER. Well, in so far as my model is saying they are all

going there, and as they get there, and as they try and get into

those markets, let them be. Or at least start with presumptions

they are allowed to provide the services and if problems arise we

will come in regulate them. Sure.

And it cuts across them. We should not be structuring this—I

had the extraordinary experience not long ago of talking informally

somebody I would just as soon not name at the Commission. I said,

how does all this fit along with cable. And I was talking about

some phone company’s problems.

He said: Cable, cable, cable. We don’t do cable. Cable is the other

bureau.

All right. And that sort of answer one just shouldn’t be getting.

It is not the other bureau anymore. And I’ll tell you, if you think

that is the least of the problems, broadcast is coming. In the 1996

act, you have given them additional slabs of spectrum. It is going

to be digital spectrum. Okay?

The satellite people, Teledesic and these, are doing digital spectrum. They have got to be brought under unified and uniform management. To say we have got all these different regulatory models

for people who are going to be in the same industry competing to

provide the same service is a bad mistake.

Ms. ESHOO. Well, I appreciate your observations, and I think

there are several points of what you have presented to us that we

should be paying real close attention to.

Do you think that the criticism is of the FCC really rests more

with the old model that you describe that was designed a long time

ago and has not been changed or their interpretation and reinterpretation of it?

Mr. HUBER. Okay, if I have to—if I am the line judge here or so,

I would say it is sort of 90 percent of the problem is statutory and

10 percent is attitude.

I wish they all had my attitude.

They don’t, but they were appointed by President Clinton and I

wasn’t. Right?

Ms. ESHOO. We always wish the next person has our attitude.

Right?

Mr. HUBER. Yes. Of course we wish that. But I mean—this law

is fantastically opaque. When they say, we can call cable Internet

service anything we like, I think they may well be right. They can

because that is how the law is currently written.

Ms. ESHOO. Well, I think that you have made a very important

point here though for the members of the committee that if in fact

we come to the conclusion that you have, that this is 90 regulatory

and what needs to be cleaned up from the first half of this century,

then maybe that is what we should be doing.

I think it can be great political sport to beat people up because

they don’t agree or don’t take the direction that we would want

them to or thought we laid down for them to do, but I think that

this can be a very important clarifying point in the work of the

33

subcommittee and what we may recommend to the rest of the Congress and the re-authorization.

Thank you very much, and I yield back.

Mr. TAUZIN. Thank the gentlelady. As we move along, and I just

point out, there are now 1,708 radio stations on the Internet. An

amazing development. Just within the last couple of years.

And the question is are they broadcasters or are they something

else? I don’t know. We will find out 1 day.

Who is next? The gentleman from Mississippi, Mr. Pickering,

who has some background in radio, I think.

Mr. PICKERING. Thank you, Mr. Chairman, I have no questions

at this time.

Mr. TAUZIN. On this side. The gentleman from Maryland, Mr.

Wynn, is recognized.

Mr. WYNN. Thank you, Mr. Chairman. I believe I heard you indicate that you felt that there was adequate competition in the cable

industry, or competition with cable. John Q. Citizen that speaks to

me basically complains about cable rates and the fact that he

doesn’t believe there is enough competition and his rates keep

going up. What is your view of this problem? Or do you think it

is a problem?

Mr. HUBER. I have watched cable regulation come and go and

come again. In 1984, Congress deregulated it largely. Some members here part of that. In 1992 we re-regulated. Now, under the

1996 act, there is a sunset on it. I think we will get it right when

we recognize that cable alone can’t be treated as cable alone. All

right?

As long as cable alone is under one set of rules and phones companies can’t compete on even terms, my clients are among them,

as long as the airwave people, the over-the-air broadcasters

aren’t——

Mr. WYNN. If I could just jump in for a minute, is that by implication your rationale for why the phone companies or others

haven’t gotten into the cable business?

Mr. HUBER. The way into the cable business today is not to overlay coax and try to do 30 channels of ‘‘Gilligan’s Island.’’ All right?

It is to deploy high-speed networks. All right? Very high broadband networks that can do streaming video, that can deliver radio

stations, that can deliver video. All right? And there are many,

many obstacles to phone companies getting into that business.

For the broadcasters, the way into overlaying cable, not with just

one channel on 6 megahertz sub-spectrum, but with four or eight

channels, multiplexed and digital spectrum, is to move ahead with

that process. They labor under their own quite serious set of regulations and, of course, constantly face new demands soon as they

try and deploy, that how much will be children’s television, what

will be the political rules, and so on and so forth.

The best solution for cable today, as it has been for sometime,

is to let other media truly liberate them to compete head to head

with cable. Until we do that, cable will not be fully competitive. No.

That is correct.

Mr. WYNN. Thank you. That was helpful. I would like to perhaps

pursue that another time.

34

The other thing is, you were saying we can’t look to the past or

our past constructs, we have to look to the future. And you mentioned in the course of that discussion universal service, universal

access. What do you see as the future of this notion of universal

access?

Mr. HUBER. Look, let us be absolutely frank about it. One of the

great triumphs of the old monopoly was that it could spread costs

around, it could spread benefits around. We achieved very rapidly

and very well very high penetration. It was an egalitarian, socially

positive force in this country. All right?

And there was nothing like the old monopoly phone company to

push toward universal service at a flat rate, poor area, rich area,

I mean, they did it.

We have moved away from that model for better or for worse.

Okay?

These markets are open to competition. There is now an initiative to try and make the subsidies portable. I hope that happens

someday.

But, in any event, we are, to the extent we are going to get universal service, it is going to be through a different set of means

now. It is going to be through competitive means, it is going to be

through making subsidies portable, in other words, letting any

company that wants to serve poor areas carry the subsidies with

it. And that is the course we are embarked on.

I hope, in terms of spreading the telecom wealth, it works as well

as the old model. It is a challenge.

Mr. WYNN. So it is possible that, perhaps, the old model in that

respect, in terms of universal service, was a good thing.

Mr. HUBER. There is no questions that regulated monopolies are

egalitarian. They spread the poverty around very uniformly. Okay.

If you want the real abundance, however, you have to have open

markets.

Mr. WYNN. I guess it depends on where you live as to whether

is spreading poverty or spreading access.

Mr. HUBER. Yes.

Mr. WYNN. One kind of follow-up question. Absent the portability

of the subsidies, is there any other way to address this concern of

folks in rural or under-served or other areas like that, that would

not be competitively attractively?

Mr. HUBER. I know, my clients among them, would just be absolutely delighted to have this Commission issue mandates to MFS

and TCG and AT&T and all the people who are serving 1301 K

Street, where my offices are, and say, go over to Anacostia, go into

the poorer areas, run your fiber networks too. They are not doing

it because they are not required to and because that is how the

new law is set up.

You can issue mandates, No. 1; No. 2, you can encourage wireless technologies, which are very non-discriminatory. They are especially important in rural areas as well. We have kept a lot of

wireless technology bottle up over the years. And the more you encourage that, the more egalitarian——

Mr. WYNN. How could you encourage it? What recommendations

would you give to the committee to encourage that?

35

Mr. HUBER. No. 1, I would begin de-zoning wireless. This Congress in 1993 put a bunch of wireless on the same footing. It put

PCS and cellular and other on the same footing. They hadn’t been

before that. It was a tremendous plus. It wasn’t enough. You have

a whole bunch more spectrum in the broadcast bands, the UHF

bands especially, and certainly all the satellite bands. And you

have to let anybody from any band provide any service. And these

all have big footprints, they serve rich and poor equally, and that

the wireless lands, wired networks never have that same automatic

universal footprint.

Mr. WYNN. Thank you.

Mr. TAUZIN. Thank the gentleman. Gentleman from Illinois, Mr.

Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. I have been trying to

search for a good question to address. He is really above my level.

So I am going to defer back and wait for the chairman to appear.

Mr. TAUZIN. I’m not sure what you meant by that. Ms. McCarthy

is recognized. She’s gone. Mr. Largent is recognized.

Mr. LARGENT. Just have one question for Mr. Huber. Mr. Huber,

have you read the testimony submitted by Mr. Kennard?

Mr. HUBER. I shall do shortly, but I confess I was on planes Monday and I just have not received a copy yet.

Mr. LARGENT. Let me read just a couple of his comments from

his first couple of pages. It says:

‘‘Competition should be the organizing principle of our communications law and policy, and should replace micro-management

and monopoly regulation.

‘‘That consumers will receive the benefit of lower prices, greater

choices, and better services.’’

It also says that ‘‘we must expect that in 5 years there can be

fully competitive domestic communications markets with minimal

or no regulation, including total deregulation of all rate regulation

in competitive telephone services.’’

It sounds to me that what Mr. Kennard is suggesting is exactly

what you are suggesting in terms of reorganization of the FCC. Do

you disagree with anything that he said?

Mr. HUBER. No. That sounded very good. I wish I would see it

backed up by clearer and more definite action earlier. At least as

I look at the action, often, it doesn’t appear to me to be advancing

that. I am truly mystified, honestly mystified, notwithstanding the

fact as to why we declared last fall that we were going to unbundle

advanced services that nobody has even yet deployed yet.

How that step and that initiative was consistent with the idea—

perhaps it was compelled by law, although I don’t believe so. But

how that is consistent with the notion that we are going to try and

deregulate things, if you are going to deregulate surely the place

to start is with services that don’t yet exist that nobody is yet providing and that surely nobody has yet monopolized. You can’t have

a monopoly if you are not there yet.

Those objectives are great. We see eye to eye on objectives.

Mr. LARGENT. Thank you, Mr. Huber. Thank you, Mr. Chairman.

Mr. TAUZIN. Thank you, Mr. Largent. Mr. Fossella.

Mr. FOSSELLA. Thank you, Mr. Chairman. I don’t know if I am

asking the same question in a different way, but do you think the

36

FCC should be organized by technology, telephone, cable, broadcast, and wireless?

Mr. HUBER. At least on a going-forward basis, it should be organized around services. High-speed digital services going forward,

all right, should be under a single jurisdictional umbrella with an

absolutely compelling mandate to say open these markets, let people do it. This trumps the other stuff, it trumps the legacy stuff,

if you are up in this domain.

Mr. HUBER. Yes. That should cut across the bureaus completely.

Mr. FOSSELLA. And second, and along those competitive notions,

to what extent is regulation necessary, if at all?

Mr. HUBER. You know, after 65, or 62 years, of statutory monopoly, legally enforced monopoly, it is not unreasonable to say we are

going to have to have a little bit of law to change course and direction. I have written books saying abolish the FCC, but I wrote

them with some care, if you actually read beyond the cover. I think

there is a transitional process.

It is not particularly surprising to me that we are at the highwater mark of regulation. We have a lot of the old models in hand,

and we are also trying to build the future. What is surprising to

me is tenacious the past is, and how much it still controls and limits our movement to the next generation.

Mr. FOSSELLA. I haven’t read your book, but one of these years

I promise to do so. Wherein do you think the regulation should be,

specifically?

Mr. HUBER. A certain amount, and I think Iowa Utilities as interpreted by the Supreme Court is on the mark here: a certain

amount of unbundling of the core residual monopoly areas is appropriate.

That has been in process since 1968 in Carter Phone. We

unbundled the handset; we unbundled long distance; we unbundled

the wireless services. A certain amount of that made sense.

I think it can be pushed to gross excess, and in my view it has

been. But other brilliant people have different views. I am aware

of that.

I think, residual price regulation, lifeline service, services for the

poor, we are going to have that as long as there are single providers of legacy services, all right, but keeping it focused.

There is a going to be a residual subsidy process. I would like

to see it explicit, and I would like to see it done through Congress

rather than through a Commission. But we subsidize lots of things

in this country. It is part of a valuable, necessary social policy.

I don’t think any of us is absolutist about that. I’m certainly not.

Mr. FOSSELLA. I yield back, Mr. Chairman.

Mr. TAUZIN. Thank the gentleman. Before I let you go, Mr.

Huber, the Chair would recognize himself briefly.

Oh, Mr. Stearns has not been recognized. I’m sorry.

Mr. STEARNS. Thank you, Mr. Chairman. You know, Mr. Huber,

your opening statement mentioned that the bill intended to deregulate but the FCC is operating under an old structure that is not

deregulatory. That is basically, I think—is that an accurate sort of

statement of what you said opening?

Mr. HUBER. Yes.

37

Mr. STEARNS. Okay. Let’s say I was client and I came to you and

I wanted you to represent my Internet company, what would you

categorize the Internet company? I mean, would you say I am a

cable, or broadcast, a telecommunicator, I mean, what would you

suggest that I call myself to the FCC.

Mr. HUBER. Well, first, I would have to ask you a little bit more

of what kind of an Internet company are you. Are you like AOL,

in the content layer, that easy. I want you up under Title I. I am

going to call you an information service provider.

If you are going to provide any kind of access, or any kind of actual transport, then it is a much tougher call. Tell me some more.

Which speed are you looking for? And which area of the country?

And maybe we will try to slot you in under cable, if that is the medium you want to use. Maybe we are going to get you under broadcast side band or, you know, FM side band or VBI or something.

I mean, there are—I got a book on it. We will find a home for you.

Mr. STEARNS. Oh. I understand.

Is this just the real world. We can’t change that. In other

words——

Mr. HUBER. You can change it. I can’t.

Mr. STEARNS. Are you suggesting that this committee go ahead

and try and change it so that when I came it would be clear who

I am?

Mr. HUBER. On a going-forward basis for new services for the future that is unfolding, it is readily possible.

Mr. STEARNS. It is possible for us to come up with categories that

everybody would know right away who they are?

Mr. HUBER. On a going-forward basis for the high-speed services

because nobody has them yet. They are just a drop in the bucket.

And that is what you have to clean up. You really do.

Mr. STEARNS. Okay. Mr. Oxley talked about the broad-band

Internet access. If you were a Congressman or Senator, what would

you propose to make sure that broadcasters, long-distance operators, RBDOCS, cable, everybody, could get into this pipe. How

would you structure this thing? What would you do legislatively?

OR just let the market develop?

Mr. HUBER. It is a little bit risky to write legislation on the hoof

here without pen in hand, but you can define a regime of service,

basically by speed, you know, 128.8 and above or 56.6 and above

or 200 and above——

Mr. STEARNS. Let’s say like a T–1 line so that everybody could

videostream into this as well as put in other information topped

onto the videostream.

Mr. HUBER. Roughly speaking, anybody with any medium, wireless, terrestrial or satellite, wireline, cable or phone, okay, forget

the names. That is your service. We are going to start with the presumption, A, you’re allowed to provide it, all of it, not just little

bits, you can do that; B, you can bundle or unbundle or sell and

resell, I mean freedom out there.

Those markets don’t exist yet.

Mr. STEARNS. So how would you assure that maybe if Oxley and

I were in our garage starting an Internet company, we would have

access just like AT&T or Disney or anybody, I mean, how would

assure that any of us could pay the money to get access?

38

Mr. HUBER. Look, the absolute assurance I can’t give. I can only

propose the same assurance that I can give you on your ability to

buy a hamburger, okay, which is that open markets and open entry

and many different media somehow guarantee that if it is not

McDonald’s it will be Burger King. All right?

I mean that is how competitive markets work. But can I guarantee for everybody. It is in the nature of open and competitive

markets that absolute guarantees aren’t given, not by government.

Mr. HUBER. So you don’t think the Federal Government, Congress should step in and try top say we are going to regulate what

this pipe will be to protect everybody. The only effect of doing so

will be have fewer pipes available to fewer people.

We’ve been there, done that. Okay? And it was all at voice-grade

level. We had that for 60 years. Okay, so basically you let the market decide.

Mr. HUBER. Going forward for the new service—I don’t want to

sound ridiculous, all right. I know the legacy services are there. Of

course there is going to be a transitional period, perhaps a long

one, in deregulating those. But we have to look to the future to the

terrible disease in the town, particularly, is always to be solving

yesterday’s problems, and in many industries that makes sense. In

an industry that is doubling in size very 2, 3 years, no, it does not

make sense.

Mr. STEARNS. You know, if we had an FCC for the computer revolution, probably it would not have taken off like it did. Wouldn’t

you agree?

Mr. HUBER. I would.

Mr. STEARNS. Yes. Cause your idea of abolishing the FCC means

just let us roll and see what happens.

You know, in my opening statement, I mentioned that under the

biennial review of 1998, the FCC had initiated to our information,

just 31 proceedings on the literally hundreds upon hundreds of regulations that the FCC maintains, and that the FCC had issued

only four orders modifying or repealing various rules.

Assuming that information is accurate, don’t you think they are

way behind in repealing and trying to initiate——

Mr. HUBER. Yes. They are way behind. I mean, this Commission,

like all Commissions before it, holds onto power and authority. It

holds onto power to control transfers of licenses, whether they are

wireline licenses or broadcast licenses, quite unnecessarily. It holds

onto power to zone content, quite unnecessarily, in my view.

Commissions, agencies tend to do that. Yes.

Mr. STEARNS. Thank you, Mr. Chairman.

Mr. TAUZIN. Thank you, Mr. Stearns. Let me carry Mr. Stearns’

observations a little further, Mr. Huber. In differentiating between

the service and the facilities which provide service, recognizing that

we adopt a policy that says everybody can get into these new services. Go to it. Offer them. But also recognizing that are a limited

number of facilities that can now deliver those services from the

provider to the user.

Should we have classes of facilities which are open and accessed

to providers? And other classes which are closed? Should all of

them be open to all providers for access, bundled or unbundled?

Should they all be on their own to do what they want to do, as

39

some would propose? To use their networks the way they see fit

and to allow access for whom they choose?

Where do we go with this. I mean, the concern I hear expressed

more often than not in the high-speed broad-band area is that if

there are going to limited facilities for people to use, and each facility eventually gets the right to pick and choose who is using those

facilities, that you end up with some problems for users and providers.

If on the other hand, you have a company that has to be open

to all providers because it is called something, it is called the telephone company, as a common carrier as opposed to another company that is doing the same doggone thing, just is called something

else, and doesn’t have to be open, is that the world we want to envision? And what do you see there?

Mr. HUBER. It is absolutely correct to say there are going to be

some finite number of providers, but the smallest finite number is

zero, okay? And that is where we are today for most of these services in most places. You’ve got high-speed digital services in a million, maybe a couple of million, depends whose estimates you take,

but a few million of residential lines. Okay?

We have the old style services for 150 million, a 100 million

homes. So, you know, No. 1 challenge is to get from zero to one or

two or three. All right? And we want that process to happen as

quickly as possible.

I know the fact is today that if I do Internet access on TCPIP

protocols over cable, I am going to call myself anything but a common carrier, and I will get away with it. As of today I will get away

with it.

The dominant, I wouldn’t dare go so far as to call them a monopoly, I do know they are the dominant provider today of high-speed

residential, has got themselves a nice little regulatory niche there.

Phone companies in this category are not the dominant providers. They are dominant providers of slow service, but not the

fast stuff. And they are under a quite different regulatory ambit.

Let us see if we can get up to 10 or 20 or 50 million providers,

and look, if by chance then, we find out, gee, you know the AOL’s

are getting frozen, I don’t for a minute think they will be, I think

there is more money to be made in open systems than closed systems, and I think cable is probably——

Mr. TAUZIN. It’s a healthy debate, but it also relates to how we

restructure the FCC because you make the very valid point that

depending upon what the FCC calls you in this area, you are either

regulated as an open structure or regulated as a closed structure.

Right?

Mr. HUBER. Yes.

Mr. TAUZIN. So being called something is pretty advantageous.

And being regulated by the right bureau is pretty advantageous.

Mr. HUBER. Very.

Mr. TAUZIN. And that is kind of silly in this new world. It is not

very rational, is it?

Mr. HUBER. It is worse than silly, Mr. Chairman.

Mr. TAUZIN. Yes. The second thing I wanted to get to, is the—

because some of the Commissioners will speak to in just a minute,

and I’m very interested in what they have to say about it—the

40

Commission has, on this 1930’s model, regulating monopolies for

consumer protection purposes, universal service purposes, what

have you, is based upon the concept of public-interest standards.

Commissioner Furchtgott-Roth correctly points out public-interest standard means something different to each class of service. It

is either a broader standard or a weaker standard, depending upon

what kind of license you hold.

In a world where all these services are merging, they are becoming the same in a digital world. How can the Commission operate

with so ambiguous a standard? And how do we move from a regulatory paradigm, based upon that standard, to an enforcement organization that might come out of this process?

Mr. HUBER. Well, understand first that the main place the public-interest standard is enforced today, is in license issuing and license transfers. And it is enforced because it is written into the

law. The Commission didn’t make up those words. They are there

in United States Code.

But there is way, way more regulation and oversight of license

issuance and license transfer than there ought to be. I mean, routine license transfers ought to be more than routine. We’ve got the

Department of Justice that will dive in if it doesn’t like the hands

they are ending up in. Or if not DOJ, then the FCC do it, but let’s

not do it twice. Okay? Let’s do it once.

I think the Hart-Scott-Rodino Act gives pretty good review. If you

truly sweep aside the licensing transfer overhead, most of which is

wasted, you will solve a lot on that.

Mr. TAUZIN. Peter, we thank you very much. The Chair wishes

to express his and the committee’s appreciation for your written

presentation and for the excellent presentation this morning. As I

said, we will continue this process. And we have a lot to think

about as a result. We thank you.

Thank you, Mr. Huber. We are now pleased to call up the Commission and to recognize the Chairman of the FCC and the other

Commissioners for their presentations today.

In that regard, Mr. Chairman, let me offer a word of thanks and

appreciation for the fact that you all are willing to engage us in

this discussion, and to offer suggestions as to how we might move

forward in this effort.

And to, indeed, separate the question of our concerns about the

FCC as an agency, as a structure, from the very excellent individuals who serve on the Commission today and who have served it

before. We deeply all of you for the contributions you make to our

country and for the work you do on the Commission.

I want to separate those very clearly in the beginning because,

as you know, I have deep respect for you personally and for the

other members of the Commission. Our comments, our concerns are

how we can build a better agency for the future, and I want to direct as much as I can the work of the committee in that respect.

I am pleased now to introduce and welcome the Chairman of the

Federal Communications Commission, Bill Kennard. Chairman

Kennard, thank you, sir. Again, your written comments are part of

our record if you would like to engage us in conversation, we would

greatly appreciate it.

Mr. Kennard.

41

STATEMENTS OF HON. WILLIAM E. KENNARD, CHAIRMAN; ACCOMPANIED BY HON. SUSAN NESS, COMMISSIONER; HON.

HAROLD W. FURCHTGOTT-ROTH, COMMISSIONER; HON. MICHAEL K. POWELL, COMMISSIONER; AND HON. GLORIA

TRISTANI, COMMISSIONER, FEDERAL COMMUNICATIONS

COMMISSION

Mr. KENNARD. Thank you very much, Mr. Chairman, and I appreciate very much the remarks that you just made. And I also appreciate your convening this hearing. I am looking forward to having a very productive dialog with you and other members of this

committee as we look to the future of the FCC and regulation.

And clearly we are meeting here today at quite an extraordinary

time, a time that is full of promise and unlimited potential, and at

a time when we all are privileged to work in a field that is literally

booming. I mean, all the economic indicators in the communications business are up. Job growth is up. Revenues are up. Investment is up. And we have prepared some charts for you that demonstrate that very graphically.

So I think that it is wise for us to pause for a moment and just

take stock of what is happening in the marketplace. There is a lot

of good things happening out there in the communications marketplace.

Now there is no question that the current economic boom that we

are experiencing in this country, the longest peacetime expansion

in our economy’s history, is being fueled in large measure by advances in the telecommunications business.

Over the past 3 years alone, revenues in the communications sector have grown by over $100 billion, as indicated by these charts

here. The revenue among local service providers, companies that

are providing competition to the incumbent local telephone companies, are way up. Their revenues more than doubled in 1997, and

jumped again in 1998.

And with these profits and growth, this industry has expanded

and over 200,000 jobs have been created in the past 5 years.

The wireless industry is another terrific example where we have

seen a lot of growth. I don’t know if we have our wireless chart

here. Oh, there it is.

In that industry, since 1993, capital investment has more than

tripled for a cumulative total of $50 billion. Service is becoming increasingly more reliable and affordable. Almost 70 million Americans are using wireless phones today in this country. And Americans are paying 40 percent less for wireless service than they were

3 years ago.

And I submit to you, Mr. Chairman, that this didn’t just happen.

It happened because we have in this country what I believe to be

the right statutory and regulatory framework for this growth. And

I believe that Congress got it right in the 1996 act. You established

a blueprint for growth and investment and innovation that is working.

Now, obviously, the FCC needs to change. I think—I know that

every Commissioner before you has indicated that we need to engage in this process of change and re-evaluation. And as I have detailed in the report that I will submit as my written testimony, it’s

42

a report entitled ‘‘A New FCC for the 21st Century,’’ we expect the

FCC to change. It has to change. We have no choice.

I envision an FCC that is much more efficient, more streamlined

and focusing on what I think will be the three core functions of the

agency for the future. One is consumer protection. As these markets become more competitive, there is a dramatic increase in the

demand for the FCC to protect consumers in the marketplace. We

see that with slamming and cramming, and issues about disclosures on telephone bills.

Consumers are confused out there. They need an agency like the

FCC to protect them, to give them the information that they need

to make informed choices in the marketplace.

And universal service is another core function. As we heard Mr.

Huber say, this is a function that will have to be taken over by

Government, and Government will have a continuing role in this

area. Because we know that the market alone is not going to ensure that our poorest Americans and Americans in rural communities and inner cities have service.

And the third area is spectrum management. If we were to do

as some suggest and completely abdicate our responsibility to manage the spectrum, one of our great national resources, there would

be absolute chaos in this country, I am convinced of that.

So this agency has to focus on its continuing spectrum management functions.

But I do believe, as has been suggested by you earlier, that our

mission will change and that the traditional boundaries delineating

the FCC’s current operating bureaus will become increasingly less

relevant over time. And I believe, as I set forth in my written testimony, that the FCC will look very, very different over the next 3

to 5 years.

It will be doing very different things. We are beginning that process already. This change is inevitable, and it is necessary.

But I do want to stress that we want change, we don’t want

chaos. The implementation of the 1996 act was a monumental task

undertaken by the FCC. And we are just now reaching a point

where some of the major jurisdictional issues that arose out of that

act, that were litigated in the courts, are being resolved.

When I talk to business people and people on Wall Street and,

indeed, many of you, what we need is stability. This is the message

that I am hearing. Give us some predictability and stability so that

this framework can come to rest and we can stay the course and

continue the job of bringing competition to these markets.

I am proud of the work that the FCC has done over the last few

years. I think that the FCC has undertaken this monumental task

in a very professional way, and I think we have a lot to be proud

of.

And the other thing that I would stress, and this has really come

home to me as I have had the privilege of meeting with my counterparts from other countries, many of us around the world today

are working hard to bring competition to telecommunications markets. This is not just an issue that we are dealing with in this

country. It is a worldwide movement. And those of us who have

really put our shoulder to the oar and are doing the hard work of

opening up these markets find that this is not a popular job.

43

This doesn’t make you popular to go to incumbent companies and

say, open your markets because we must have competition. But it

is an essential job because we have to get it done.

If we don’t get it done, the alternative is there is going to be an

antitrust suit someday in the future and we are all going to look

back at this period in history, this pivotal time, and say, gee, if

only the FCC had stayed the course, been a little more aggressive

in opening these markets to competition, perhaps we could have

avoided divestiture of some of these facilities.

The report that I have submitted is the first step in developing

a 5-year strategic plan for the agency. I hope to get a lot of your

feedback today and over the coming weeks. I hope that we will

hear from members of industry, consumer, and many, many others

on this plan. This should be a very public process, where we solicit

comment from a lot of people.

The changes that we are proposing in this plan are not trivial

at all. They are substantive, they call for a re-making of the agency. So it is relevant in a rapidly changing industry.

But no matter how it changes, the FCC must remain vigilant in

ensuring that its core functions are done, and that is promoting

competition, fostering the growth of new technology, ensuring that

we have universal service and good, quality spectrum management.

And first and foremost, we’ve got to ensure that all Americans

participate in this revolution. I truly believe that if we do not ensure that all Americans participate in all of this economic growth,

this revolution in communications will have been a failed revolution.

But I know working with you and working with terrific staff of

the FCC that we can change the FCC, and we will change it for

the better.

Thank you, Mr. Chairman.

[The prepared statement of Hon. William E. Kennard follows:]

PREPARED STATEMENT OF WILLIAM E. KENNARD, CHAIRMAN, FEEDERAL

COMMUNICATIONS COMMISSION

I. THE FEDERAL COMMUNICATIONS COMMISSION AND THE CHANGING COMMUNICATIONS

MARKETPLACE

A. Introduction

Congress enacted the Communications Act of 1934 to provide for the widest dissemination of communications services to the public. Section 1 of the Communications Act states that the purpose of the Act is to ‘‘make available . . . to all the people

of the United States, without discrimination . . . a rapid, efficient, Nation-wide, and

world-wide wire and radio communication service . . . at reasonable charges.’’

This goal remains vibrant today. What has changed since 1934 is the means to

get to this goal. With the passage of the Telecommunications Act of 1996 (Telecom

Act), Congress recognized that competition should be the organizing principle of our

communications law and policy and should replace micromanagement and monopoly

regulation. The wisdom of this approach has been proven in the long distance, wireless, and customer premises equipment, where competition took hold and flourished,

and consumers receive the benefit of lower prices, greater choices, and better service.

The imperative to make the transition to fully competitive communications markets to promote the widest deployment of communications services is more important today than ever before. In 1934, electronic communications for most Americans

meant AM radio and a telephone, and sending the occasional Western Union telegram. Today, it means AM and FM radio, broadcast and cable TV, wireline and

wireless telephones, faxes, pagers, satellite technology, and the Internet—services

and technologies that are central to our daily lives. Communications technology is

44

increasingly defining how Americans individually, and collectively as a nation, will

be competitive into the next century. It is increasingly defining the potential of

every American child. So the goal of bringing communications services quickly to all

Americans, without discrimination, at reasonable charges, continues to be of paramount importance. Competition is the best way to achieve this goal, while continuing to preserve and protect universal service and consumer protection goals.

To accomplish this goal, our vision for the future of communications must be a

bold one. We must expect that in five years, there can be fully competitive domestic

communications markets with minimal or no regulation, including total deregulation of all rate regulation in competitive telephone services. In such a vibrant, competitive communications marketplace, the Federal Communications Commission

(FCC) would focus only on those core functions that cannot be accomplished by normal market forces. We believe those core functions would revolve around universal

service, consumer protection and information; enforcement and promotion of procompetition goals domestically and internationally; and spectrum management. As

a result, the traditional boundaries separating the FCC’s current operating bureaus

should no longer be relevant. In five years, the FCC should be dramatically

changed.

We are working to transition the FCC to that model—based on core functions in

a competitive communications market—now. We are writing the blueprint for it, beginning with this report describing the steps we are already taking. After receiving

input from our key stakeholders, we plan to develop this report into a five-year

Strategic Plan which will outline precisely our objectives and timetable year by year

for achieving our restructuring, streamlining, and deregulatory objectives. We must

work with Congress, state and local governments, industry, consumer groups, and

others to ensure that we are on the right track, and that we have the right tools

to achieve our vision of a fully competitive communications marketplace.

B. The State of the Industry

In the Telecom Act, Congress directed the FCC to play a key role in creating and

implementing fair rules for this new era of competition. Over the course of the past

three years, the FCC has worked closely with Congress, the states, industry, and

consumers on numerous proceedings to fulfill the mandates of the Telecom Act.

By many accounts, the Telecom Act is working. Many of the fundamental prerequisites for a fully competitive communications industry are now in place, competitive deployment of advanced broadband services is underway, and the stage is

set for continued deregulation as competition expands.

Furthermore, by many measures, the communications industry is thriving. Since

the passage of the Telecom Act, revenues of the communications sector of our economy have grown by over $100 billion. This growth comes not only from established

providers, but also from new competitors, spurred by the market-opening provisions

of the Telecom Act. (See Appendix A, Charts 1 and 2) This growth has meant new

jobs for thousands of Americans.

In the wireless industry, capital investment has more than tripled since 1993,

with more than $50 billion of cumulative investment through 1998. Mobile phones

are now a common tool for over 60 million people every day, and the wireless industry has generated almost three times as many jobs as in 1993. (See Appendix A,

Chart 3)

Consumers are beginning to benefit from the thriving communications sector

through price reductions not only of wireless calls, but also of long distance and

international calls. (See Appendix A, Charts 4 and 5) Consumers are also beginning

to enjoy more video entertainment choices through direct broadcast satellites, which

are becoming viable alternatives to cable. We are also at the dawn of digital TV,

which offers exciting new benefits for consumers in terms of higher quality pictures

and sound and innovative services. (See Appendix A, Charts 6 and 7) As we enter

this digital age, broadcast TV and radio is still healthy, ubiquitous, and providing

free, local news, entertainment, and information to millions of Americans across the

country.

Beyond the traditional communications industries, the Internet has truly revolutionized all of our lives. According to a recent study, at least 38% of American adults

(79.4 million) already are online and another 18.8 million are expect to go online

in the next year. In 1998, 26% of retailers had a website, over three times the number in 1996, and it is estimated that they generated over $10 billion in sales. Online sales for 1999 are projected to be anywhere from $12 to $18 billion.

Communications markets are also becoming increasingly globalized as the

Telecom Act’s procompetitive policies are being emulated around the world. Other

countries are modeling their new telecommunications authorities after the FCC. As

other countries open their communications markets and increase their productivity,

45

new services and business opportunities are created for U.S. consumers and companies, as well as for consumers and companies worldwide.

C. Communications in the 21st Century

Even more change is expected in the telecommunications marketplace of tomorrow. In the new millennium, millions of consumers and businesses will be able to

choose from a range of services and technologies vastly different from those available today. Packet-switched networks, running on advanced fiber optics and using

open Internet Protocols to support seamless interconnection to transport immense

amounts of information, will be ubiquitous. Millions of homes and businesses will

be linked to this ‘‘network of networks ‘‘ through ‘‘always on’’ broadband connections.

Outside the wired confines of the home or office, ‘‘third generation’’ wireless technologies will provide high-speed access wherever a consumer may be. Satellite technology will increase the ability to transfer data and voice around the world and into

every home.

Electronic commerce will play an even more central role in the economy of the

21st Century. Americans in the next century will be connected throughout the day

and evening, relying on advanced technologies not only to communicate with others,

but also as a vital tool for performing daily tasks (such as shopping or banking),

for interacting with government and other institutions (such as voting, tax filing,

health, and education), and for entertainment (such as video, audio, and interactive

games).

In the marketplace of tomorrow, it is expected that traditional industry structures

will cease to exist. The ‘‘local exchange’’ and ‘‘long distance’’ telephone markets will

no longer be distinct industry segments. Video and audio programming will be delivered by many different transmission media. In a world of ‘‘always on’’ broadband

telecommunications, narrow-band applications—such as our everyday phone calls—

will represent just a tiny fraction of daily traffic. Cable operators, satellite companies, and even broadcast television stations will compete with today’s phone companies in the race to provide consumers a vast array of communications services. In

addition, telephone and utility companies may be offering video and audio programming on a wide-scale basis. As cross-industry mergers, joint ventures, and promotional agreements are formed to meet users’ demand, the traditional distinctions

between these industry segments will blur and erode.

D. Impact of Industry Convergence

Convergence across communications industries is already taking place, and is

likely to accelerate as competition develops further. Thus, in addition to refocusing

our resources on our core functions for a world of fully competitive communications

markets, the FCC must also assess, with the help of Congress and others, how to

streamline and consolidate our policymaking functions for a future where convergence has blurred traditional regulatory definitions and jurisdictional boundaries.

The issues involved in thinking about convergence and consolidation are complex.

Prior to the Telecom Act, the core of the Communications Act was actually three

separate statutes: it incorporated portions of the 1887 Interstate Commerce Act

(governing telephony), the 1927 Federal Radio Act (governing broadcasting), and the

1984 Cable Communications Policy Act (governing cable television). Telephony is

regulated one way, cable a second, terrestrial broadcast a third, satellite broadcast

a fourth. As the historical, technological, and market boundaries distinguishing

these industries blur, the statutory differences make less and less sense. Maintaining them will likely result in inefficient rules that stifle promising innovation and

increase opportunities for regulatory arbitrage.

Some argue for developing regulatory principles that cut across traditional industry boundaries. For example, the policies of interconnection, equal access, and open

architecture have served consumers well in the wireline context, a traditionally regulated industry. Similarly, concepts of connectivity, interoperability, and openness

are the lifeblood of the Internet, an unregulated industry. While these similar principles appear to cut across these different media, it is unclear whether and how the

government should be involved, if at all, in applying these principles in a world

where competition will largely replace regulation.

At the very least, as competition develops across what had been distinct industries, we should level the regulatory playing field by leveling regulation down to the

least burdensome level necessary to protect the public interest. Our guiding principle should be to presume that new entrants and competitors should not be subjected to legacy regulation. This is not to say that different media, with different

technologies, must be regulated identically. Rather, we need to make sure that the

rules for different forms of media delivery, while respecting differences in technology, reflect a coherent and sensible overall approach. To the extent we cannot

46

do that within the confines of the existing statute, we need to work with Congress

and others to reform the statute.

II. THE 21ST CENTURY: A NEW ROLE FOR THE FCC

A. The Transition Period

As history has shown, markets that have been highly monopolistic do not naturally become competitive. Strong incumbents still retain significant power in their

traditional markets and have significant financial incentives to delay the arrival of

competition. Strong and enforceable rules are needed initially so that new entrants

have a chance to compete. At the same time, historical subsidy mechanisms for telecommunications services must be reformed to eliminate arbitrage opportunities by

both incumbents and new entrants.

The technologies needed for the telecommunications marketplace of the future are

still evolving, and developing them fully requires significant time and investment.

Moreover, there is no guarantee that market forces will dictate that these new technologies will be universally deployed. The massive fixed-cost investments required

in some industries will mean that new technologies initially will be targeted primarily at businesses and higher-income households. Even as deployment expands,

the economics of these new networks may favor heavy users over lighter users, and

in some areas of the country deployment may lag behind.

At the same time, consumer preferences will not change overnight. The expansion

of communications choices is already leading to greater consumer confusion. Especially in a world of robust competition, consumers will need clear and accurate information about their choices, guarantees of basic privacy, and swift action if any company cheats rather than competes for their business.

While the opportunities for the United States and the world of a global village

are enormous, they can only be realized if other countries follow our lead in fostering competition in national and world markets. People all over the world benefit

as more countries enter the Information Age and become trading partners. Thus,

as we continue on our own course of bringing competition to former domestic monopoly markets, we must also continue to promote open and competitive markets worldwide.

In sum, although the long-term future of the telecommunications marketplace

looks bright, the length and difficulty of the transition to that future is far from certain. To achieve the goal of fully competitive communications markets in five years,

we must continue to work to ensure that all consumers have a choice of local telephone carriers and broadband service providers, and that companies are effectively

deterred from unscrupulous behavior. We must also continue to promote competition

between different media, promote the transition to digital technology, and continue

to ensure that all Americans have a wide and robust variety of entertainment and

information sources.

B. The FCC’s Role During the Transition to Competition

During the transition to fully competitive communications markets, the FCC,

working in conjunction with the states, Congress, other federal agencies, industry,

and consumer groups, has six critical goals, all derived from the Communications

Act and other applicable statutes:

Promote Competition: Goal number one is to promote competition throughout the

communications industry, particularly in the area of local telephony. The benefits

of competition are well documented in many communications sectors—long distance,

wireless, customer-premises equipment, and information services. The benefits of

local telephone competition are accruing at this time to large and small companies,

but not, for the most part, to residential consumers. We must work to ensure that

all communications markets are open, so that all consumers can enjoy the benefits

of competition.

To meet this goal, we must continue our efforts to clarify the provisions of the

Telecom Act relating to interconnection and unbundled network elements, work

with the Bell Operating Companies (BOCs), their competitors, states and consumer

groups on meeting the requirements of the statute related to BOC entry into the

long distance market, reform access charges, and, as required by Sections 214 and

310(d) of the Communications Act and section 7 of the Clayton Act, continue to review mergers of telecommunications companies that raise significant public interest

issues related to competition and consumers.

In the mass media area, we must continue the pro-competitive deployment of new

technologies, such as digital television and direct broadcast satellites, and the maintenance of robust competition in the marketplace of ideas. To meet these goals, we

must continue rapid deployment of new technologies and services and regular overVerDate 22-SEP-99 11:00 Sep 23, 1999 Jkt 010199 PO 00001 Frm 00049 Fmt 6633 Sfmt 6621 X:\HSECOM\55640 txed01 PsN: txed01
47

sight of the structure of local markets to ensure multiple voices, all the while updating our rules to keep pace with the ever-changing mass media marketplace.

Deregulate: Our second goal is to deregulate as competition develops. Consumers

ultimately pay the cost of unnecessary regulation, and we are committed to aggressively eliminating unnecessarily regulatory burdens or delays. We want to eliminate

reporting and accounting requirements that no longer are necessary to serve the

public interest. Also, where competition is thriving, we intend to increase flexibility

in the pricing of access services. We have already deregulated the domestic, long

distance market as a result of increased competition, and we stand ready to do so

for other communications markets as competition develops. We have also streamlined our rules and privatized some of the functions involved in the certification of

telephones and other equipment. We are currently streamlining and automating our

processes to issue licenses faster, resolve complaints quicker, and be more responsive to competitors and consumers in the marketplace.

Protect Consumers: Our third goal is to empower consumers with the information

they need to make wise choices in a robust and competitive marketplace, and to protect them from unscrupulous competitors. Consumer bills must be truthful, clear,

and understandable. We will have ‘‘zero tolerance’’ for perpetrators of consumer

fraud such as slamming and cramming. We will make it easier for consumers to file

complaints by phone or over the Internet, and reduce by 50 percent the time needed

to process complaints. Further, we will remain vigilant in protecting consumer privacy. We will also continue to carry out our statutory mandates aimed at protecting

the welfare of children, such as the laws governing obscene and indecent programming.

Bring Communications Services and Technology to Every American: Our fourth

goal is to ensure that all Americans—no matter where they live, what they look

like, what their age, or what special needs they have—should have access to new

technologies created by the communications revolution. Toward this end, we must

complete universal service reform to ensure that communications services in highcost areas of the nation are both available and affordable. We must also ensure that

our support mechanisms and other tools to achieve universal service are compatible

and consistent with competition. We must evaluate—and if necessary, improve—our

support mechanisms for low-income consumers, and in particular Native Americans,

whose telephone penetration rates are some of the lowest in the country. We must

make certain that the support mechanisms for schools, libraries, and rural health

care providers operate efficiently and effectively. We must make sure that the 54

million Americans with disabilities have access to communications networks, new

technologies and services, and news and entertainment programming.

Foster Innovation: Our fifth goal is to foster innovation. We will promote the development and deployment of high-speed Internet connections to all Americans.

That means clearing regulatory hurdles so that innovation—and new markets—can

flourish. We must continue to promote the compatibility of digital video technologies

with existing equipment and services. Further, we will continue to encourage the

more efficient use of the radio spectrum so that new and expanding uses can be accommodated within this limited resource. More generally, we will continue to promote competitive alternatives in all communications markets.

Advance Competitive Goals Worldwide: Our sixth goal is to advance global competition in communications markets. The pro-competitive regulatory framework

Congress set forth in the Telecom Act is being emulated around the world through

the World Trade Organization Agreement. We will continue to assist other nations

in establishing conditions for deregulation, competition, and increased private investment in their communications infrastructure so that they can share in the

promise of the Information Age and become our trading partners. We must continue

to intensify competition at home and create growth opportunities for U.S. companies

abroad. We will continue to promote fair spectrum use by all countries.

C. The FCC’s Core Functions in a Competitive Environment

As we accomplish our transition goals, we set the stage for a competitive environment in which communications markets look and function like other competitive industries. At that point, the FCC must refocus our efforts on those functions that

are appropriate for an age of competition and convergence. In particular, we must

refocus our efforts from managing monopolies to addressing issues that will not be

solved by normal market forces. In a competitive environment, the FCC’s core functions would focus on:

Universal Service, Consumer Protection and Information. The FCC will continue

to have a critical responsibility, as dictated by our governing statutes, to support

and promote universal service and other public interest policies. The shared aspirations and values of the American people are not entirely met by market forces.

48

Equal access to opportunity as well as to the public sphere are quintessential American values upon which the communications sector will have an increasingly large

impact. We will be expected to continue to monitor the competitive landscape on behalf of the public interest and implement important policies such as universal service in ways compatible with competition.

In addition, as communications markets become more competitive and take on attributes of other competitive markets, the need for increased information to consumers and strong consumer protection will increase. We must work to ensure that

Americans are provided with clear information so that they can make sense of new

technologies and services and choose the ones best for them. We must also continue

to monitor the marketplace for illegal or questionable market practices.

Enforcement and Promotion of Pro-Competition Communications Goals Domestically and Worldwide. As markets become more competitive, the focus of industry

regulation will shift from protecting buyers of monopoly services to resolving disputes among competitors, whether over interconnection terms and conditions, program access, equipment compatibility, or technical interference. In the fast-paced

world of competition, we must be able to respond swiftly and effectively to such disputes to ensure that companies do not take advantage of other companies or consumers.

The FCC is a model for other countries of a transparent and independent government body establishing and enforcing fair, pro-competitive rules. This model is critical for continuing to foster fair competition domestically as well as to open markets

in other countries, to the benefit of U.S. consumers and firms and consumers and

firms worldwide. There always will be government-to-government relations and the

need to coordinate among nations as communications systems become increasingly

global. As other nations continue to move from government-owned monopolies to

competitive, privately-owned communications firms, they will increasingly look to

the FCC’s experience for guidance.

Spectrum Management. The need for setting ground rules for how people use the

radio spectrum will not disappear. We need to make sure adequate spectrum exists

to accommodate the rapid growth in existing services as well as new applications

of this national and international resource. Even with new technologies such as software-defined radios and ultra-wideband microwave transmission, concerns about interference will continue (and perhaps grow) and the need for defining licensees and

other users’ rights will continue to be a critical function of the government. We will

thus continue to conduct auctions of available spectrum to speed introduction of new

services. In order to protect the safety of life and property, we must also continue

to consider public safety needs as new spectrum-consuming technologies and techniques are deployed.

D. Coordination with State and Local Governments and other Federal Agencies

In order to fulfill our vision of a fully competitive communications marketplace

in five years, we need a national, pro-competitive, pro-consumer communications

policy, supplemented by state and local government involvement aimed at achieving

the same goal. The Telecom Act set the groundwork for this goal, and the Commission is fulfilling its role of establishing the rules for opening communications markets across the country, in partnership with state regulators. The Commission must

continue to work with state and local governments to promote competition and protect consumers. Toward this end, we have instituted a Local and State Government

Advisory Committee to share information and views on many critical communications issues.

The importance of working and coordinating our efforts in the communications

arena with other federal agencies will also continue. We work particularly closely

with the Federal Trade Commission on consumer and enforcement issues, and with

the Department of Justice on competition issues. We also work with other federal

agencies on public safety, disability, Y2K, reliability, and spectrum issues, just to

name a few. We see our role vis-a-vis other federal agencies as cooperative and reinforcing, where appropriate.

III. THE 21ST CENTURY: A NEW STRUCTURE FOR THE FCC

A. The FCC’s Evolving Structure

The FCC must change its structure to match the fast-paced world of competition

and to meet our evolving goals and functions, as derived from our authorizing statutes. Our transition goals must be accomplished with minimal regulation or no regulation where appropriate in a competitive marketplace. Moreover, a restructured

and streamlined FCC must be in place once full competition arrives, so that we can

49

focus on providing consumers information and protection, enforcing competition

laws, and spectrum management.

In sum, we must be structured to react quickly to market developments, to work

more efficiently in a competitive environment, and to focus on bottom-line results

for consumers. As competition increases, we must place greater reliance on marketplace solutions, rather than the traditional regulation of entry, exit, and prices; and

on surgical intervention rather than complex rules in the case of marketplace failure. We must encourage private sector solutions and cooperation where appropriate.

But we also must quickly and effectively take necessary enforcement action to prevent abuses by communications companies who would rather cheat than compete for

consumers. Ultimately, throughout the agency, we must be structured to render decisions quickly, predictably, and without imposing unnecessary costs on industry or

consumers.

B. Current Restructuring Efforts

The FCC is currently structured along the technology lines of wire, wireless, satellite, broadcast, and cable communications. As the lines between these industries

merge and blur as a result of technological convergence and the removal of artificial

barriers to entry, the FCC needs to reorganize itself in a way that recognizes these

changes and prepares for the future. A reorganization of the agency, over time,

along functional rather than technology lines will put the FCC in a better position

to carry out its core responsibilities more productively and efficiently.

As the first step in this process, in October 1998, Chairman Kennard announced

plans to consolidate currently dispersed enforcement functions into a new Enforcement Bureau and currently dispersed public information functions into a Public Information Bureau. The consolidation of these two key functions that are now spread

across the agency will improve efficiency and enhance the delivery of these services

to the general public and to industry. The consolidation of these functions will also

encourage and foster cooperation between the two new bureaus, other bureaus and

offices, and state and local governments and law enforcement agencies. The end result will be improvements in performance of both these functions through an improved outreach program, a better educated communications consumer, and a more

efficient, coherent enforcement program.

The new Enforcement Bureau will replace the current Compliance and Information Bureau and, likewise, the new Public Information Bureau will include the current Office of Public Affairs. Therefore, the total number of bureaus and offices at

the Commission will remain the same.

The Commission is also investing in new technology to process applications and

licenses faster, cheaper, and in a more consumer friendly way through electronic filing and universal licensing. Our goal is to move to a ‘‘paperless FCC’’ that will result in improved service to the public. Examples of these efforts include universal

licensing, streamlined application processes, revised and simplified licensing forms,

blanket authorizations, authorization for unlicensed services, and electronic filing of

license applications and certifications.

1. Enforcement Bureau

Since the Telecom Act was passed, telephone-related complaints have increased

by almost 100%. In 1996, the Common Carrier Bureau received over 28,000 complaints; in 1998, that number increased to over 53,000 complaints. With the increase

in competition, we expect even more complaints to be filed as consumers grapple

with changes in both service options and providers. While we have been implementing streamlined, electronic processes to address this burgeoning workload, we

have also determined that the consolidation of the Commission’s currently dispersed

enforcement functions into one Enforcement Bureau is a necessary and important

step to providing better service to the public.

The Commission currently has four organizational units dedicated principally or

significantly to enforcement—the Compliance and Information Bureau, the Mass

Media Bureau Enforcement Division, the Common Carrier Bureau Enforcement Division and the Wireless Telecommunications Bureau Enforcement and Consumer Information Division. Consolidating most enforcement responsibilities of these organizations into a unified Enforcement Bureau will result in more effective and efficient

enforcement. The Enforcement Bureau will coordinate enforcement priorities and efforts in a way that best uses limited Commission resources to ensure compliance

with the important responsibilities assigned to the FCC by Congress.

The consolidation of various FCC enforcement functions also responds to the fact

that the need for effective enforcement of the Communications Act and related requirements is becoming even more important as competition and deregulation increase. As communications markets become increasingly competitive, the pace of deVerDate 22-SEP-99 11:00 Sep 23, 1999 Jkt 010199 PO 00001 Frm 00052 Fmt 6633 Sfmt 6621 X:\HSECOM\55640 txed01 PsN: txed01
50

regulation will intensify. Those statutory and rule provisions that remain in an increasingly competitive, deregulatory environment will be those that Congress and

the Commission have determined remain of central importance to furthering key

statutory goals—e.g., providing a structure for competition to flourish, assisting customers and users of communications services in being able to benefit from competitive communications services, ensuring that spectrum is used in an efficient manner

that does not create harmful interference, and promoting public safety.

As unnecessary regulation is eliminated and the demands of the marketplace increase, the Commission must focus its resources on effective and swift enforcement

of the statutory and regulatory requirements that remain. The consolidation of our

enforcement activities will allow us to do just that in a streamlined, centralized, and

more effective way.

2. Public Information Bureau

Consumer inquiries at the Commission have increased dramatically since 1996.

In 1998, we received over 460,000 phone calls to telephone service representatives,

and over 600,000 calls to our automated response system. There were on average

over 266,000 hits on the FCC’s web site a day, totalling over 97 million in 1998 (up

over 400% from 21 million in 1996). We expect these numbers to increase as more

consumers seek information regarding the ever growing array of services and providers in the communications marketplace.

Currently, consumer inquiries are handled by several different offices and bureaus throughout the Commission and the methods used to handle these inquiries

vary widely. While each office has a small contingent of staff handling inquiries,

they have had varying degrees of success in meeting the ever increasing volume.

Although the Commission established a National Call Center in June 1996, current

processes still require a great number of consumers seeking information to contact

other offices and bureaus directly to get their questions answered.

The creation of the Public Information Bureau allows the Commission to better

serve the public by establishing a single source organization as a ‘‘one-stop’’ shop

or ‘‘FCC General Store’’ for handling all inquiries and the general expression of

views to the Commission, thereby better meeting the public’s information needs.

Merging the resources of the Office of Public Affairs, which includes public service

and inquiry staffs, public notice distribution, and the management of the FCC web

site, with the FCC Call Center will provide a streamlined, more efficient, and consolidated information source for the public. Consumers would only have to contact

one source, whether by telephone (1-888-CALLFCC) or by E-mail or the Internet

(FCCINFO@FCC.GOV). The Public Information Bureau also plans to establish one

source for mailing inquiries to the FCC (for example, P.O. FCC).

The creation of the Public Information Bureau will encourage more public participation in the work of the Commission. The staff of the Public Information Bureau

will conduct consumer forums across the country to inform and solicit feedback from

consumers about the Commission’s policies, goals, and objectives. This feedback will

be shared with other bureaus to help ensure that Commission rules are fair, effective, and sensible, and that they support competition while responding to consumer

concerns. The Public Information Bureau also plans to share its databases with

state and local governments as appropriate, to coordinate our respective abilities to

respond to consumer complaints and track and address industry abuses.

The creation of the Public Information Bureau supports the Commission’s efforts

to foster a pro-competitive, deregulatory, and pro-consumer approach to communications services. The staff of the Public Information Bureau will provide consumers

with information so that consumers can make informed decisions regarding their

communications needs. The staff of the Public Information Bureau will also work

with other bureaus to issue consumer alerts and public service announcements to

give consumers information about their rights and information to protect themselves

from unscrupulous individuals and firms. Finally, the Public Information Bureau

will provide easy public access to FCC information as well as a convenient way for

the public to make its views known, thus supporting the Commission’s efforts to assist communities across America in dealing with complex communications issues

and to provide opportunities for a wide range of voices to be expressed publicly.

3. Streamlining and Automating the FCC Licensing Process

The Commission’s ‘‘authorization of service’’ activities cover the licensing and authorization through certification, and unlicensed approval, of radio stations and devices, telecommunications equipment and radio operators, as well as the authorization of common carrier and other services and facilities. The Commission has already begun automating and reengineering our authorization of service processes

51

across the agency by reengineering and integrating our licensing databases and

through the implementation of electronic filing.

The Universal Licensing System (ULS) project is fundamentally changing the way

the Commission receives and processes wireless applications. ULS will combine all

licensing and spectrum auctions systems into a single, integrated system. It collapses 40 forms into four; allows licensees to modify online only those portions of

the license that need to be modified without resubmitting a new application; and

advises filers when they have filled out an application improperly by providing immediate electronic notification of the error. During the month of February 1999, 75%

of receipts (916 applications) filed under the currently implemented portions of ULS

were processed in one day.

Universal licensing is an example of how we are working to change the relationship between the Commission, spectrum licensees, and the public by increasing the

accessibility of information and speeding the licensing process, and thus competitive

entry, dramatically. Universal licensing is becoming the model for automated licensing for the entire agency.

In the Wireless Telecommunications Bureau, electronic filing has been fully implemented throughout the Land Mobile Radio services, antenna registration, and amateur radio filings. More than 50% of the Wireless Telecommunications Bureau’s filings are now accomplished electronically. Significant service improvements are evidenced by the fact that 99% of Amateur Radio service filings are now processed in

less than five days, with most electronically filed applications being granted overnight. The Wireless Bureau also has an initiative to transfer the knowledge used

by license examiners in manually reviewing applications to computer programs so

that applications can be received, processed, and licenses granted in even less time.

The Mass Media Bureau is implementing a similar electronic filing initiative. In

October, the FCC issued rules that substantially revise the application process in

15 key areas, including sales and license renewals, in order to effectuate mandatory

electronic filing for broadcasters. When fully implemented, the new electronic filing

system will reduce the resources required to process authorizations, accelerate the

grant of authorizations, and improve public access to information about broadcast

licensees.

The Common Carrier Bureau has also implemented electronic filing of tariffs and

associated documents via the Internet. The Electronic Tariff Filing System enables

interested parties to access and download documents over the Internet, and to file

petitions to reject, or suspend and investigate tariff filings electronically. Since July

1, 1998, over 10,000 electronic tariff filings have been received, replacing approximately 750,000 pages of information.

The results of all these streamlining efforts include a more economical use of FCC

personnel resources, improvement in processing times, the ability of our customers

to file via the Internet or through other electronic filing mechanisms, and the ability

to provide our customers with immediate status reports on their applications as well

as real time access to on-line documents. It is estimated that our move toward a

‘‘paperless FCC’’ will save the public approximately 700,000 hours of paperwork in

this fiscal year alone.

4. Budget and Workforce Impact

In anticipation of the expected increased efficiencies our restructuring plans and

other streamlining and automation improvements will produce, the FCC is confronting the issue of how it should look and operate in FY 2000 and beyond. We

expect that our re-engineering and restructuring efforts will yield increased efficiencies and streamlining opportunities, particularly in the area of authorization of

service, due to automation and regulatory changes. However, these efforts will also

result in the potential displacement of staff in certain locations and a need to retrain and reassign other staff.

Buyout authority is a tool that will enhance the Commission’s ability to alter the

skills mix of its workforce to carry out its changing mission more effectively. Targeted buyouts for staff would facilitate our restructuring efforts in a cost-effective

manner. The Commission has requested buyout authority in its budget request for

FY 2000.

The Commission is dedicated to keeping staff informed and involved in our restructuring and streamlining efforts, and to minimizing workplace disruption that

may result from these efforts through staff retraining, reassignment, and other

methods. It is critical, as we consider ways to restructure and streamline Commission operations, that we continue to recognize and respect the hard work of our employees, many of whom have been with the Commission for many years. Change is

always difficult, and it is imperative that our staff understands and supports the

necessary changes that are taking place—and will continue to take place—at the

52

Commission. Accordingly, we are working closely with the National Treasury Employees Union (NTEU) to ensure that staff is involved in all these issues and that

their views are incorporated into the Commission’s planning process.

5. Restructuring Process and Timeline

Planning for the Public Information Bureau began in late November 1998 and for

the Enforcement Bureau in mid-December 1998. A Task Force comprised of both

managers and staff from relevant Bureaus and Offices, as well as NTEU representatives, has been meeting regularly since early January to consider such issues as the

appropriate functions of each of the Bureaus and their organization. Efforts have

also been made on an informal basis both inside and outside the Commission to ensure that a wide range of ideas are considered during the planning process. A proposed reorganization plan should be formally submitted to the Commission for its

consideration in Spring, 1999. Upon approval by the Commission, it will be formally

submitted to the NTEU and appropriate congressional committees.

C. Restructuring to Reflect Industry Convergence

As the traditional lines dividing communications industries blur and eventually

erode, the traditional ways of regulating or monitoring these industries will also

have to change. The FCC must think about the complex issues resulting from converging communications markets from both a policy and structural perspective. How

the FCC should be structured to address issues arising from a more competitive,

converged communications marketplace is inextricably tied up with the policy

choices that will be made on how to address the blurring of regulatory distinctions.

From a structural perspective, as noted in our FY2000 budget submitted to Congress, there are a number of steps we are committed to take. We will continue to

evaluate whether certain regulations are no longer necessary in the public interest

and should be repealed or modified as required by Section 11 of the Communications Act. We will continue to use our forbearance authority where appropriate. We

will continue our efforts to reduce reporting requirements and eliminate unnecessary rules, and to level regulation to the least burdensome possible, consistent with

the public interest. In addition, in our FY 2000 budget, we have committed to reviewing our cable services and mass media functions.

We recognize that much additional analysis is needed to consider the impact of

industry convergence on the FCC’s policies and rules and on our structure. We will

continue to meet with Congress, our state regulatory partners, industry, consumer

groups, and others to solicit input and feedback on our restructuring, streamlining

and policy initiatives and the impact of industry convergence.

IV. SUBSTANTIVE DEREGULATION EFFORTS

As telecommunications markets become more competitive, we must eliminate regulatory requirements that are no longer useful. We are already engaged in an ongoing process of reviewing our entire regulatory framework to see which rules should

be eliminated or streamlined.

A. FCC Biennial Review of Regulations

In November 1997, the Commission initiated a review of the Commission’s regulations, as required by Section 11 of the Telecom Act. Beginning in 1998 and in every

even-numbered year thereafter, the FCC must conduct a review of its regulations

regarding the provision of telecommunications service and the Commission’s broadcast ownership rules. The Telecom Act charges the Commission with determining

whether, because of increased competition, any regulation no longer serves the public interest.

Chairman Kennard announced in November 1997 that the Commission’s 1998 Biennial Review would be even broader than mandated by the Telecom Act. In addition, at the Chairman’s direction, the Commission accelerated the Congressionallymandated biennial review requirement by beginning in 1997 rather than in 1998.

As part of the 1998 Biennial Review, each of the operating bureaus, together with

the Office of General Counsel, hosted a series of public forums and participated in

practice group sessions with the Federal Communications Bar Association to solicit

informal input from the public. The Commission also hosted a web site on the biennial review and asked for additional suggestions via e-mail.

After input from the public, the Commission initiated 32 separate biennial review

rulemaking proceedings, covering multiple rule parts, aimed at deregulating or

streamlining Commission regulations. The Commission devoted substantial attention and resources to the biennial review. Roughly two-thirds of the proceedings involved common carrier deregulation or streamlining. The Commission also instituted a broad review of its broadcast ownership rules. To date, the Commission has

53

adopted orders in ten of the 1998 biennial review proceedings, with others to be

forthcoming. (See Appendix B)

From the outset, the focus of the Biennial Review has been on regulating in a

common sense manner and relying on competition as much as possible. The Chairman and the other Commissioners have worked together to make the biennial review a meaningful force for deregulation and streamlining. The 1998 review was the

Commission’s first biennial review, and was being conducted while the Commission

was still in the process of implementing the Telecom Act. The Chairman and the

Commission intend to build on the 1998 review so that the 2000 review and future

reviews will produce even more deregulatory actions.

B. Continued FCC Deregulation Efforts

As we move toward our goal of fully competitive communications markets, our efforts to streamline and eliminate unnecessary rules must be increased and expanded. Accordingly, the 2000 Biennial Review will be a top priority for the Commission.

As we did with the 1998 review, we plan to start the 2000 review early, by putting a team in place in 1999 to work with the Commissioners and the Bureaus and

Offices on planning and structuring the review. We will also continue to keep our

review broad in focus. The team would evaluate the success of the 1998 review and

consider whether changes are necessary for the 2000 review. The team would also

consider whether any changes are needed in the methodology we have used to review our regulations. The team would again solicit input and recommendations from

state regulators, industry, consumer groups, and others, to ensure that the 2000 review is a major force for deregulation.

In short, we will be guided by one principle: the elimination of rules that impede

competition and innovation and do not promote consumer welfare.

V. STRATEGIC PLANNING EFFORTS

A. Background

The Government Performance and Results Act of 1993 (Results Act) provides a

useful framework for a federal agency to develop a strategic plan. The Results Act

recommends including as part of such a plan: a comprehensive mission statement;

a description of the general goals the agency wants to achieve and how they will

be achieved; a discussion of the means, strategies and resources required to achieve

our goals; a discussion of the external factors that could affect achievement of our

goals; and a discussion of the consultations that took place with customers and

stakeholders in the development of the plan.

The Results Act also recommends that an agency establish measurable objectives

and a timeline to achieve the goals specified in the strategic plan. The agency would

consult with Congress and solicit input from its customers and stakeholders. The

purpose of the Results Act is to bring private sector management techniques to public sector programs.

B. FCC Implementation of the Results Act

When the Results Act was passed, the FCC was already hard at work implementing similar management initiatives. In 1993, we began the work of reinventing

ourselves, streamlining and restructuring the agency to meet the challenges of the

Information Age. In the process we created the Wireless Telecommunications and

the International Bureaus. In 1995, we issued a report—‘‘Creating a Federal Communications Commission for the Information Age’’—that included numerous recommendations for administrative and legislative changes, many of which were subsequently adopted.

Each of our bureaus and offices developed their own mission statement, identified

their customers and surveyed them on their needs. Benchmark customer service

standards were established for each of their policy and rulemaking, authorization

of service, enforcement and public information service activities. These standards

were published on their websites and customers were periodically surveyed to determine whether their service goals were being met.

We also volunteered to participate in Results Act implementation pilot projects,

naming the Wireless Telecommunications Bureau’s Land Mobile radio and the Office of Engineering and Technology’s Equipment Authorization activities as the

agency’s two participants. We organized a Steering Committee with an ambitious

schedule for completing the requirements of the Results Act.

C. Impact of the Telecom Act

Enactment of the Telecom Act in February 1996 had a profound impact on the

FCC. Pursuant to the Telecom Act, the FCC was required to initiate numerous

54

rulemakings, many with statutorily mandated and expedited notice and comment

period. The impact of implementing the Telecom Act affected every aspect of the

FCC—its resource allocations, its schedule for rulemakings, and its very organizational structure—for more than two years.

Enactment of the Telecom Act also changed the scope and level of our Results Act

planning effort. We had to reformulate our mission and performance goals in light

of the Telecom Act. We decided for the first three years after passage of the Telecom

Act to marry the major goal of the Act—to ‘‘promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of telecommunications technologies’’—with the FCC’s four major budget activities of policy and

rulemaking, authorization of service, compliance, and public information services.

This approach worked well during the major period that the FCC was implementing the Telecom Act. Under this approach, however, the performance goals for

each of the individual Bureaus remained a somewhat disconnected patchwork of objectives reflecting a collection of individual Bureaus’ efforts to implement the

Telecom Act. Since passage of the Telecom Act, with the traditional distinctions between over-the-air broadcasting, cable, wireless, wireline and satellite becoming less

distinct, it is becoming clear that the FCC must conceive a new approach to our mission and our structure.

D. New FCC Strategic Plan

The FCC has determined that we need a new regulatory model and a new Strategic Plan that will serve as the Commission’s blueprint as we enter the 21st Century. We need a new Strategic Plan to point the way to where we want to be and

the means and resources by which we will get there.

We are generally structuring our Strategic Plan based on our future core functions: universal service, consumer protection and information; enforcement and promotion of pro-competition communications goals domestically and internationally;

and spectrum management. Our strategic planning efforts are thus tied into the restructuring and streamlining efforts that are already on-going. In addition, as noted

above, we must take a hard look at how to organize ourselves for the New Media

age. The convergence of technologies and industries require that we examine and

change our stovepipe bureau structure, and we plan to address those issues in our

Strategic Plan as well.

Key senior managers will be responsible for developing the strategic objectives

and performance goals for the Strategic Plan. As our work on restructuring proceeds, we will convene strategic objective planning sessions to develop a planning

document for each of our core activities. We will also develop a schedule, based on

fiscal years, on how we will achieve our objectives.

The Strategic Plan will represent the cooperative work of the entire FCC, reflecting input from the Commissioners, Bureau management, agency staff, and others

affected by or interested in the FCC’s activities. In developing our Strategic Plan,

we have already started to seek input from a wide variety of FCC stakeholders and

intend to intensify our efforts in the next few months. These include other Commissioners, Commission staff, Members of Congress and their staff, the Office of Management and Budget (OMB), industry groups, consumer groups, academia and others. Suggestions will be gathered on both the draft Strategic Plan and on the steps

to implement it—including deregulatory actions, restructuring and realignment of

FCC functions and management. In addition, we plan to incorporate comments on

this document, ‘‘A New FCC for the 21st Century,’’ into the draft Strategic Plan.

Our draft Strategic Plan, along with any implementation proposals, will be made

public and we will actively solicit comment. We will issue a Public Notice encouraging the public to comment on our draft plan, which will be displayed on our Internet Home Page by July 1999. We will hold a series of meetings with interested

groups to gain their insight into how we can better serve the public interest. We

will make particular efforts to discuss the draft plan with Congress, the states, industry, and with consumers and small companies affected by our work. We plan to

submit a more final plan to Congress and OMB in September 1999.

VII. CONCLUSION

Just as the communications industry and other sectors of our economy are constantly adapting to change and competition, so must the FCC. A new century and

new economy demand a new FCC. We must plan for the future, while continuing

to work on the challenges we face today to promote competition, foster innovation,

and help bring the benefits of the 21st century to all Americans. We look forward

to working with Congress, industry, consumers, state and local governments, and

55

others on a critical assessment of what the ‘‘New FCC’’ should look like, and how

we can get there.

56

57

58

59

60

61

62

APPENDIX B

1998 BIENNIAL REGULATORY REVIEW

I. PROCEEDINGS INITIATED/COMPLETED—ORDERS ISSUED

TELECOMMUNICATIONS PROVIDERS (COMMON CARRIERS)

Streamline and consolidate rules governing application procedures for wireless

services to facilitate introduction of electronic filing via the Universal Licensing System. 1998 Biennial Regulatory Review—Amendment of Parts 0, 1, 13, 22, 24, 26, 27,

80, 87, 90, 95, 97, and 101 of the Commission’s Rules to Facilitate the Development

and Use of the Universal Licensing System in the Wireless Telecommunications Services, WT Dkt No. 98-20, NPRM, FCC 98-25 (rel. March 19, 1998), R&O, FCC 98-

234 (rel. Oct. 21, 1998).

Streamline the equipment authorization program by implementing the recent mutual recognition agreement with Europe and providing for private equipment certification. 1998 Biennial Regulatory Review—Amendment of Parts 2, 25 and 68 of the

Commission’s Rules to Further Streamline the Equipment Authorization Process for

Radio Frequency Equipment, Modify the Equipment Authorization Process for Telephone Terminal Equipment, Implement Mutual Recognition Agreements and Begin

Implementation of the Global Mobile Personal Communications by Satellite

(GMPCS) Arrangements, GEN Dkt No. 98-68, NPRM, FCC 98-92 (rel. May 18,

1998), R&O, FCC 98-338 (rel. Dec. 23, 1998).

Eliminate rules concerning the provision of telegraph and telephone franks. 1998

Biennial Regulatory Review—Elimination of Part 41 Telegraph and Telephone

Franks, CC Dkt No. 98-119, NPRM, FCC 98-152 (rel. July 21, 1998), R&O, FCC 98-

344 (rel. Feb. 3, 1999).

In addition to addressing issues remanded by the Ninth Circuit, reexamine the

nonstructural safeguards regime governing the provision of enhanced services by the

Bell Operating Companies (BOCs) and eliminate the requirement that BOCs receive

pre-approval from the FCC on their Comparably Efficient Interconnection (CEI)

plans. Computer III Further Remand Proceedings: Bell Operating Company Provision of Enhanced Services; 1998 Biennial Regulatory Review—Review of Computer

III and ONA Safeguards and Requirements, CC Dkt Nos. 95-20 and 98-10, FNPRM,

FCC 98-8 (rel. Jan. 30, 1998), R&O, FCC 99-36 (rel. March 10, 1999).

OTHER

Amend cable and broadcast annual employment report due dates to streamline

and simplify filing. 1998 Biennial Regulatory Review—Amendment of Sections

73.3612 and 76.77 of the Commission’s Rules Concerning Filing Dates for the Commission’s Equal Employment Opportunity Annual Employment Reports, MO&O,

FCC 98-39 (rel. Mar. 16, 1998).

Streamline broadcast filing and licensing procedures. 1998 Biennial Regulatory

Review— Streamlining of Mass Media Applications, Rules and Processes, MM Dkt

No. 98-43, NPRM, FCC 98-57 (rel. Apr. 3, 1998), R&O, FCC 98-281 (rel. Nov. 25,

1998).

Provide for electronic filing for assignment and change of radio and TV call signs.

1998 Biennial Regulatory Review—Amendment of Part 73 and Part 74 Relating to

Call Sign Assignments for Broadcast Stations, MM Dkt No. 98-98, NPRM, FCC 98-

130 (rel. June 30, 1998), R&O, FCC 98-324 (rel. Dec. 16, 1998).

Simplify and unify Part 76 cable pleading and complaint process rules. 1998 Biennial Regulatory Review—Part 76—Cable Television Service Pleading and Complaint

Rules, CS Dkt No. 98-54, NPRM, FCC 98-68 (rel. Apr. 22, 1998), R&O, FCC 98-348

(rel. Jan. 8, 1999).

Modify or eliminate Form 325, annual cable television system report. 1998 Biennial Regulatory Review—‘‘Annual Report of Cable Television System,’’ Form 325,

Filed Pursuant to Section 76.403 of the Commission’s Rules, CS Dkt No. 98-61,

NPRM, FCC 98-79 (rel. Apr. 30, 1998), R&O, FCC 99-12 (rel. , 1999) [Adopted

Feb. 1, 1999].

Streamline and consolidate public file requirements applicable to cable television

systems. 1998 Biennial Regulatory Review—Streamlining of Cable Television Services Part 76 Public File and Notice Requirements, CS Dkt No. 98-132, NPRM, FCC

98-159 (rel. July 20, 1998), R&O, FCC 99-13 (rel. , 1999) [Adopted Feb. 1, 1999].

63

II. PROCEEDINGS INITIATED/PENDING

TELECOMMUNICATIONS PROVIDERS (COMMON CARRIERS)

Deregulate radio frequency (RF) lighting requirements to foster the development

of new, more energy efficient RF lighting technologies. 1998 Biennial Regulatory Review—Amendment of Part 18 of the Commission’s Rules to Update Regulations for

RF Lighting Devices, ET Dkt No. 98-42, NPRM, FCC 98-53 (rel. Apr. 9, 1998).

Removal or reduction of, or forbearance from enforcing, regulatory burdens on carriers filing for technology testing authorization. 1998 Biennial Regulatory Review—

Testing New Technology, CC Dkt No. 98-94, NOI, FCC 98-118 (rel. June 11, 1998).

Modify accounting rules to reduce burdens on carriers. 1998 Biennial Regulatory

Review—Review of Accounting and Cost Allocation Requirements, CC Dkt No. 98-

81, NPRM, FCC 98-108 (rel. June 17, 1998).

In NPRM portion, considering forbearance from additional requirements regarding telephone operator services applicable to commercial mobile radio service providers (CMRS) and, more generally, forbearance from other statutory and regulatory

provisions applicable to CMRS providers. Personal Communications Industry Association’s Broadband Personal Communications Services Alliances’ Petition for Forbearance For Broadband Personal Communications Services; 1998 Biennial Regulatory Review—Elimination or Streamlining of Unnecessary and Obsolete CMRS

Regulations; Forbearance from Applying Provisions of the Communications Act to

Wireless Telecommunications Carriers, WT Dkt No. 98-100, NPRM, FCC 98-134 (rel.

July 2, 1998).

Provide for a blanket section 214 authorization for international service to destinations where the carrier has no affiliate; eliminate prior review of pro forma

transfers of control and assignments of international section 214 authorizations;

streamline and simplify rules applicable to international service authorizations and

submarine cable landing licenses. 1998 Biennial Regulatory Review—Review of

International Common Carrier Regulations, IB Dkt No. 98-118, NPRM, FCC 98-149

(rel. July 14, 1998).

Eliminate duplicative or unnecessary common carrier reporting requirements.

1998 Biennial Regulatory Review—Review of ARMIS Reporting Requirements, CC

Dkt No. 98-117, NPRM, FCC 98-147 (rel. July 17, 1998).

Privatize the administration of international accounting settlements in the maritime mobile and maritime satellite radio services. 1998 Biennial Regulatory Review—Review of Accounts Settlement in the Maritime Mobile and Maritime MobileSatellite Radio Services and Withdrawal of the Commission as an Accounting Authority in the Maritime Mobile and the Maritime Mobile-Satellite Radio Services Except for Distress and Safety Communications, IB Dkt No. 98-96, NPRM, FCC 98-

123 (rel. July 17, 1998).

Simplify Part 61 tariff and price cap rules. Biennial Regulatory Review—Part 61

of the Commission’s Rules and Related Tariffing Requirements, CC Dkt No. 98-131,

NPRM, FCC 98-164 (rel. July 24, 1998).

Deregulate or streamline policies governing settlement of accounts for exchange

of telephone traffic between U.S. and foreign carriers. 1998 Biennial Regulatory Review—Reform of the International Settlements Policy and Associated Filing Requirements, IB Dkt No. 98-148, NPRM, FCC 98-190 (rel. Aug. 6, 1998).

Modify Part 68 rules that limit the power levels at which any device attached to

the network can operate to allow use of 56 Kbps modems. 1998 Biennial Regulatory

Review—Modifications to Signal Power Limitations Contained in Part 68 of the

Commission’s Rules, CC Dkt No. 98-163, NPRM, FCC 98-221 (rel. Sept. 16, 1998).

Streamline and rationalize information and payment collection from contributors

to Telecommunications Relay Service, North American Numbering Plan Administration, Universal Service, and Local Number Portability Administration funds. 1998

Biennial Regulatory Review—Commission Proposes to Streamline Reporting Requirements for Telecommunications Carriers, CC Dkt No. 98-171, NPRM, FCC 98-233

(rel. Sept. 25, 1998).

Modify or eliminate Part 64 restrictions on bundling of telecommunications service with customer premises equipment. 1998 Biennial Regulatory Review—Policy

and Rules Concerning the Interstate, Interexchange Marketplace/implementation of

Section 254(g) of the Communications Act of 1934, as Amended/Review of the Customer Premises Equipment and Enhanced Services Unbundling Rules in the Interexchange, Exchange Access and Local Exchange Markets, CC Dkt Nos. 98-183 and

96-61, NPRM, FCC 98-258 (rel. Oct. 9, 1998).

Eliminate or streamline various rules prescribing depreciation rates for common

carriers. 1998 Biennial Regulatory Review—Review of Depreciation Requirements for

64

Incumbent Local Exchange Carriers, CC Dkt No. 98-137, NPRM, FCC 98-170 (rel.

Oct. 14, 1998).

Repeal Part 62 rules regarding interlocking directorates among carriers. 1998 Biennial Regulatory Review—Repeal of Part 62 of the Commission’s Rules, CC Dkt No.

98-195, NPRM, FCC 98-294 (rel. Nov. 17, 1998).

Seek comment on various deregulatory proposals of SBC Communications, Inc.

not already subject to other biennial review proceedings. 1998 Biennial Regulatory

Review—Petition for Section 11 Biennial Review filed by SBC Communications, Inc.,

Southwestern Bell Telephone Company, Pacific Bell, and Nevada Bell, CC Dkt No.

98-177, NPRM, FCC 98-238 (rel. Nov. 24, 1998).

Consider modifications or alternatives to the 45 MHz CMRS spectrum cap and

other CMRS aggregation limits and cross-ownership rules. 1998 Biennial Regulatory

Review—Review of CMRS Spectrum Cap and Other CMRS Aggregation Limits and

Cross-Ownership Rules, WT Dkt No. 98-205, NPRM, FCC 98-308 (rel. Dec. 18,

1998).

BROADCAST OWNERSHIP

Conduct broad inquiry into broadcast ownership rules not the subject of other

pending proceedings. 1998 Biennial Regulatory Review—Review of the Commission’s

Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the

Telecommunications Act of 1996, MM Dkt No. 98-35, NOI, FCC 98-37 (rel. Mar. 13,

1998).

OTHER

Review current Part 15 and Part 18 power line conducted emissions limits and

consider whether the limits may be relaxed to reduce the cost of compliance for a

wide variety of electronic equipment. 1998 Biennial Regulatory Review—Conducted

Emissions Limits Below 30 MHz for Equipment Regulated Under Parts 15 and 18

of the Commission’s Rules, ET Dkt No. 98-80, NOI, FCC 98-102 (rel. June 8, 1998).

Streamline AM/FM radio technical rules and policies. 1998 Biennial Regulatory

Review—Streamlining of Radio Technical Rules in Parts 73 and 74 of the Commission’s Rules, MM Dkt No. 98-93, NPRM, FCC 98-117 (rel. June 15, 1998).

Streamline application of Part 97 amateur service rules. 1998 Biennial Regulatory

Review—Amendment of Part 97 of the Commission’s Amateur Service Rules, WT Dkt

No. 98-143, NPRM, FCC 98-1831 (rel. Aug. 10, 1998).

Streamline the Gettysburg reference facilities so that electronic filing and electronic access can substitute for the current method of written filings/access. 1998

Biennial Regulatory Review—Amendment of Part 0 of the Commission’s Rules to

Close the Wireless Telecommunications Bureau’s Gettysburg Reference Facility, WT

Dkt No. 98-160, NPRM, FCC 98-217 (rel. Sept.18, 1998).

Streamline Part 90 private land mobile services rules. 1998 Biennial Regulatory

Review—47 C.F.R. Part 90—Private Land Mobile Radio Services, WT Dkt No. 98-

182, NPRM, FCC 98-251 (rel. Oct. 20, 1998).

Mr. TAUZIN. Thank you very much, Mr. Chairman.

Now I am pleased to welcome the honorable Susan Ness, FCC

Commissioner. Susan, again, your written statements are part of

our record. We appreciate your presentation today.

STATEMENT OF HON. SUSAN NESS

Ms. NESS. Thank you very much, Mr. Chairman and members of

the subcommittee. I appreciate the opportunity to be before you

today.

The initial rulemakings required by the Telecom Act have been

completed, and most of the judicial challenges to your law and to

our orders are winding down, mercifully, although plenty of work

remains.

Even when viewed through ‘‘green-colored’’ glasses, there is no

denying that companies are taking advantage of the opportunities

that were created by the act, and consumers are beginning to reap

the benefits.

65

As has been mentioned, as a result of this law and other Congressional and FCC decisions, cable companies are now in fact beginning to offer telephone services in a number of markets. Wireless subscribership is substantially up, and prices are substantially

down. In telephone services, new entrants have raised tens of billions of dollars in capital and are making inroads in local business

and even in residential markets.

Broad-band services are rapidly being rolled out by cable companies, incumbent telcos, and new companies that are sometimes

called PCLECs or DATALECs. Fixed wireless and mobile satellite

services are being launched. And every day, 50,000 more Americans are using the Internet for the first time.

Hundreds of thousands of classrooms are now being connected to

the information superhighway, and communities that never would

have dreamed of being able to afford this service in the past are

now receiving access. Broadcasters and, to some extent, cable companies are moving ahead with deployment of digital television. And

nations abroad are beginning to open their markets to competition,

often establishing independent agencies modeled after the FCC.

In short, we are clearly not there yet, but it is on track, with

good progress. There is a lot of good news, and I think you all deserve a tremendous amount of credit for making these developments possible.

The nature and velocity of the change is stunning, and as the

marketplace changes so too must the FCC. We must continue to

evaluate ways in which we can be more efficient and responsive

and also so that the marketplace can enjoy, for once, regulatory

certainty.

Chairman Kennard’s report provides an excellent foundation for

that discussion, and in my written testimony I have suggested additional areas for consideration. I look forward to working together

with all of you to ensure that the Commission remains efficient and

responsive, and has the resources necessary to fulfill its present

and future statutory obligations.

Thank you very much, Mr. Chairman.

[The prepared statement of Hon. Susan Ness follows:]

PREPARED STATEMENT OF SUSAN NESS, COMMISSIONER, FEDERAL COMMUNICATIONS

COMMISSION

Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity

to appear before you today.

I welcome a dialogue between the Commission and our authorizing subcommittee.

In particular, I am pleased to review with you our actions in implementing the Telecommunications Act of 1996, and to seek your guidance as we proceed on the course

you have set based upon the principles of competition, deregulation, and universal

service.

This interaction between the Commission and our oversight committee is especially valuable now, during a period of monumental change. The telecommunications

and information industries are currently undergoing a transition of epic proportions.

The Internet and IP technology are splintering the regulatory structures of the past.

Convergence is presenting an abundance of new opportunities—and challenges—as

voice, data, and video are delivered over a host of new technologies.

Recognizing an historic transition, Congress passed the Telecommunications Act

of 1996. That law is working. The nature and velocity of the changes that are now

underway are truly breathtaking, and although I would not recommend that the Act

be reopened to a major rewrite, nonetheless a continued reassessment of both law

and regulation is warranted.

66

Surely the most profound development of the past three years has been the rapid

growth of the Internet. The third anniversary of the Telecommunications Act was

not much more than a month ago, and yet in these few weeks approximately two

million Americans have logged on to the Internet for the first time! E-commerce is

exploding and is likely to play a major role in the economy of the 21st Century.

As a result, demand for bandwidth is burgeoning, and a variety of players are racing to be the provider of choice. Telcos are rolling out digital subscriber line services,

and cable companies are offering cable modems, each spurring the other to deploy

faster and more extensively. Meanwhile, fixed and mobile wireless, and soon satellites and even broadcast stations, are planning to expand consumer choices. The

potential for consumer benefits is enormous, but the challenge for traditional regulatory paradigms is also substantial.

MANAGING THE TRANSITION

Congress has established clear goals, and the means to get there. Our overarching

goal is ‘‘to accelerate rapidly private sector deployment of advanced telecommunications and information technologies to all Americans . . . ’’ Our primary tool is competition, which to varying degrees requires both regulation (see, e.g., 47 U.S.C. Sec.

251(c)) and deregulation (see, e.g., 47 U.S.C. Sec. 160).

We are already well along in the development of fully competitive and unregulated markets for long distance service, information services, customer-premises

equipment, and wireless services. In these areas, choice is abundant, innovation is

rampant, and prices are declining.

Consider: just three years ago most residential consumers paid 20 or 25 cents a

minute for a long distance call. Today, 10 cent or even lower rate plans are widely

available, and special offers abound, such as all-you-can-talk pricing for weekends

and free calls on Monday nights.

In commercial mobile radio service, the benefits of competition have been even

more dramatic. A few years ago, a wireless call commonly cost 50 to 75 cents a

minute, and customers paid hefty roaming fees. But when the first PCS providers

challenged the cellular incumbents, rates plummeted 25%. They dropped even further as the 4th, 5th, or even 6th operators joined the fray. And now we have ‘‘onerate’’ pricing, where consumers are offered big buckets of minutes that equate to as

low as 10 cents a minute—and often with regional or national calling and no roaming fees. Increasingly, it is cheaper to make an intrastate toll call by wireless phone

than over the wired telephone system.

Similarly, international call prices have plummeted as countries implement their

World Trade Organization market-opening commitments, and as the FCC’s accounting rate policies take hold.

Competition has been more elusive in the video and local telephone markets, but

even here there are signs of progress. DBS is becoming a more credible competitor

to cable, and competitive local exchange carriers are making inroads against the incumbent local exchange carriers in business markets and in a handful of residential

markets as well.

In these markets, the challenge is to manage a successful transition from regulated monopoly to unregulated competition as we maintain our commitment to universal service.

This transition is complicated. New services and technologies are surfacing that

do not fit neatly into discrete regulatory structures. This leads both to creative tensions, and to anomalies.

We need to remember that the development of full competition takes time. Just

as we saw in the long distance market, and more recently with wireless services,

there is often a gestation period of multiple years between when the key steps needed to promote competition are taken and when robust competition actually emerges.

As we seek to accelerate the transition to competition, we need to be willing to

take risks, as we did several years ago when we denied state petitions to retain

price regulation of commercial mobile radio services. But we also need to be careful

not to undermine basic tenets of the Telecommunications Act. Sometimes, when we

hear ‘‘if only the FCC would eliminate this requirement,’’ the requirement in question is one that Congress carefully chose as a tool to enable competition—and even

told us specifically that the provision was not subject to our forbearance authority

until it had first been fully implemented.

We also need to think with greater care about the layers of regulation that can

flow from different levels of government. An incumbent or a new entrant may need

to deal not only with the requirements of the Communications Act and the FCC,

but also with state and local laws and regulations. Each layer of government has

its own responsibilities, and its own legitimacy, but where possible we need to strive

67

for cooperation and consistency that advance the national goals of competition, universal service, and deregulation. I am pleased to report that we have made considerable progress working with our state and local government colleagues in a renewed

spirit of cooperation.

GUIDING PRINCIPLES

As we move forward with our implementation of the Telecommunications Act, and

with an evolution in the philosophy and structure of the FCC, I am guided by certain principles. First and foremost, of course, I take my direction from the law. It

is not my place to second-guess your judgments, or to be selective in deciding which

provisions of the law will be enforced.

The law, however, leaves us a measure of discretion, and in exercising that discretion our principal goal should be to foster competition whenever and wherever it is

practical to do so. And where competition has advanced, regulation can and should

retreat. Thus, we must place greater reliance on marketplace solutions, rather than

the traditional regulation of entry, exit, and prices; and on surgical intervention

rather than complex rules in the case of marketplace failure. The forbearance authority which you gave us is an excellent tool.

Another principle is reduction of regulatory risk. Capital formation is hampered

when rule changes are pending or are uncertain. Rules and decisions should be as

clear and as consistent as possible. Decisions, whether in resolving rulemakings or

complaints or simply in processing routine applications, need to be prompt, and predictable. Enforcement should be swift and certain, so that regulatory delay is not

a hindrance to market entry, or an impediment to protecting consumers against inappropriate conduct by service providers.

In addition, government often serves best by focusing a spotlight on problems, and

prodding parties to work together to design solutions. Public/private partnerships

can speed the introduction of new technologies and help pave the competitive way

in a global marketplace.

Consumer interests, not those of any industry player, should be paramount. The

Commission should not try to pick winners or losers, either individually or by industry segment. Nor should we be tempted by short-term ‘‘fixes’’ that impede long-term

objectives.

Finally, we should continually review our progress. It is important to evaluate,

regularly and periodically, what is working and what is not.

‘‘REINVENTING’’ THE FCC

As the marketplace changes, so too must the FCC. The FCC must continue to

evaluate ways in which we can be more efficient and responsive.

Chairman Kennard recently shared with all of us a preliminary draft of the report

he filed with his hearing testimony. This report, ‘‘A New Federal Communications

Commission for the 21st Century,’’ provides an excellent contribution to the discussion. Based on my initial review, I believe that the general thrust of the report is

right on target.

The report enumerates the critical functions of the FCC in a competitive marketplace. I generally agree with that assessment, and elaborate below on several of

Chairman Kennard’s points.

Competition and enforcement: As the marketplace becomes competitive, the emphasis increasingly should be on enforcement, rather than rulemaking. Of course,

the Commission has always had enforcement responsibilities in the past, and it is

not likely to abandon all rulemaking functions in the future. But as competition

grows, we are reducing our prescriptive and proscriptive rules, and relying more on

public information and enforcement solutions.

I firmly believe that competitive markets thrive with minimal regulation. I also

agree that competitive markets will still generate disputes, both between service

providers and between service providers and consumers. A separate Enforcement

Bureau will help ensure that enforcement activities have the attention and resources they require.

Consumer protection and information: Consumer protection begins with information. As competition increases, so too does the potential for consumer confusion. I

therefore support the proposed creation of the Public Information Bureau. Full and

clear disclosure of the terms of service offerings is essential. The Commission needs

to coordinate closely with state public utility commissions, state attorneys general,

and the Federal Trade Commission to maximize the effectiveness of our limited resources, to ensure that consumers have the information they need, and to avoid misconduct ‘‘slipping through the cracks.’’

68

Universal service: Universal service is a major continuing responsibility of the

Commission. Congress has made it clear that all Americans should reap the benefits

of the communications and information revolution. In an economy that is increasingly dependent on communications and information, it is critical that society take

steps to reduce the ‘‘digital divide.’’

We all benefit when everyone has access to telecommunications. That’s why it is

so important that we maintain traditional support for low-income consumers (Lifeline and Link-Up) and for consumers in high-cost areas, and that we enhance access

on the part of schools, libraries, and rural health care providers.

In these endeavors, we must not inadvertently hamper the deployment of advanced telecommunications technologies. We should maintain competitive (and technological) neutrality, so that we do not preclude solutions based on wireless, satellite, or other technologies.

We also must work closely with our partners, the state commissions. Most of the

subsidies that keep residential phone service affordable are in their domain, not

ours. And even when dealing with those parts of the equation that are amenable

to a federal solution, we need to be mindful of the need to accommodate the legitimate—but quite differing—interests of the high- and low-cost states.

Spectrum management: Management of the radio spectrum is and will continue

to be another critical agency function. We must ensure that spectrum—a national

resource—is used efficiently. Licenses must be distributed fairly and swiftly. Spectrum planning needs to create opportunities for multiple providers, including new

entrants, as the Act envisions.

With the interests of the consumer in mind, we also need to work with the broadcast, cable, consumer electronics, computer, and content industries, to provide a

smooth and consumer-friendly rollout of digital television. The marketplace—not

government—will determine its ultimate success.

We also need to ensure that U.S. interests are advanced in international spectrum

planning bodies. As the Commission’s lead representative at the World Radio Conferences in 1995 and 1997, I have seen first-hand how spectrum decisions affect billions of dollars worth of economic opportunities for U.S. industry. We must continue

to improve the planning process for international radio conferences through early

high-level government participation and frequent and well-timed meetings with our

trading partners to resolve differences in advance of the WRC.

Global competition: Market-opening measures are underway around the globe,

spurred to a great extent by advocacy from the U.S. Greater global competition

translates directly into improved communications infrastructure for citizens of many

countries, but it also creates export opportunities for U.S. business. Meanwhile, U.S.

consumers reap the benefits of increased foreign investment at home. The FCC has

become a role model for countries establishing independent regulatory regimes to

convert from monopoly to competitive communications markets abroad.

Many of the forces that are changing our markets are global in nature. Accordingly, we need not only to continue our advocacy in multilateral and bilateral negotiations but also to continue to seek lessons abroad that can profitably be applied

at home.

SPECIFIC SUGGESTIONS

Subcommittee Chairman Tauzin’s letter of invitation specifically requested suggestions for structural or organizational changes to the FCC. I appreciate the opportunity to participate in this discussion.

1. I strongly support Chairman Kennard’s plan to seek a dialogue with all stakeholders—particularly members of Congress—before decisions are made on any structural changes beyond the creation of the Enforcement Bureau and the Public Information Bureau.

I am interested in exploring the public’s views on structuring the Commission

along functional lines, rather than by traditional industry segments. With service

convergence, a functional structure could help stimulate innovative thinking and

possibly reduce regulatory anomalies. I recognize, however, that the Communications Act provides for different treatment of these mechanisms: telephone (Title II),

broadcasting and wireless services (Title III), and cable (Title VI). To avoid the pitfalls associated with thinking along industry lines, the Commission increasingly has

assigned multi-bureau task forces to address major issues.

2. I believe the Commission needs to strengthen its technical resources. For many

years, the Commission conducted an engineering training program. It no longer does

so, and therefore is diminishing our expertise precisely as technical issues are becoming more complex. I believe we should consider reviving this program so that

69

we will have the expertise we need to evaluate spectrum sharing, equipment authorization, and other issues.

3. I am also concerned about the adequacy of resources for international representation. As noted above, billions of dollars worth of economic opportunity are at

stake, and it is important that we continue to make the resources available to ensure that U.S. interests are adequately identified, coordinated, and advocated.

4. I further believe that we should evaluate new methods of building industry consensus. Time and again I have seen the value of parties coming together, under

Commission auspices, to develop industry-driven solutions to problems. I believe it

could be useful to work on ways in which such approaches might be encouraged,

without the costs and delays of a full-blown APA rulemaking, the formality of an

Advisory Committee, or all the due process trappings of a Negotiated Rulemaking.

5. I recommend that Congress consider legislating to reduce the prospects for

forum-shopping in appeals. Too often we see industry players delay market-opening

measures by challenging an FCC decision, or even a provision of the Act itself, in

first one court and then another. I believe it may be more efficient, as well as more

predictable, to provide that all petitions for review under 47 U.S.C. Sec. 402(a) must

be filed with the U.S. Court of Appeals for the District of Columbia Circuit, as is

already required for appeals filed under 47 U.S.C. Sec. 402(b).

I would welcome the opportunity to consider any other measures that might be

suggested for ways in which to curtail the ability of parties to hinder or delay compliance with those orders that are intended to promote competition or protect consumers.

6. Finally, the Commission is blessed with an extraordinarily fine career staff.

The Commission’s ability to perform its mission is highly dependent on the expertise

and diligence of hundreds of professionals. Whatever we do to streamline and

refocus the Commission’s activities should take into account the working conditions

and esprit de corps that are necessary to attract and retain high-caliber employees.

CONCLUSION

Consumers are already reaping many benefits from competition resulting from

past decisions by Congress and by the FCC. Yet the pace of change in communications markets is still accelerating, and care must be taken to ensure that our actions

promote the goals established by Congress.

Our main challenges during this historic transition are to know when to intervene

and when not; to use creatively and judiciously the wide assortment of tools available as we move from monopoly to competition; and, at all times, to keep the interest of consumers paramount. Only then will we be fulfilling Congress’ vision of competition and deregulation for the benefit of all Americans.

Thank you very much for inviting me to testify before you today. I am happy to

answer your questions.

Mr. TAUZIN. Thank you very much, Madam Commissioner.

And next we are pleased to welcome the honorable Harold

Furchtgott-Roth, the FCC Commissioner. I think I have the order

of seniority right here. Proceed, sir.

STATEMENT OF HON. HAROLD W. FURCHTGOTT-ROTH

Mr. FURCHTGOTT-ROTH. Thank you very much, Mr. Chairman. I

want to thank you for holding this hearing. Particularly want to

thank you for convincing Mr. Markey to allow this hearing to be

held on such an important day of the year. It was very good of you,

Mr. Markey, forbear from objecting to this date.

Mr. MARKEY. Will the gentleman yield?

Mr. FURCHTGOTT-ROTH. Yes.

Mr. MARKEY. Thank you. See, here’s the thing with the Irish. We

were very big in the agricultural era. Then we skipped the entire

industrial age.

But, in the information age, where you can make a living just

talking or communicating with words, the Irish are back. Okay?

So we celebrate today, you know, this convergence of our culture

with the new technologies.

70

Mr. FURCHTGOTT-ROTH. Well, Mr. Markey and Chairman Tauzin,

it is very good to be here. It is very good to be home, home to this

committee, to this committee room that I have been in many, many

times. I have a great deal of reverence for this room, a great deal

of respect for this committee. I am humbled to be here.

This committee was created when communications at best meant

newspapers and at worst meant shouting. It is good to know in

America we still have both of those fine institutions.

This committee was created long before there was an FCC. I am

hopeful that this committee will endure, that it will endure forever,

and it may yet out-endure the FCC.

But the FCC has a long and proud future ahead of it as well, but

it is this committee and the Constitution that it serves that is truly

timeless. This committee is about interstate commerce, is about the

vision of James Madison.

Originally, interstate commerce was the exception in America.

Today, it is the norm.

Mere citizens have many views on what good laws and bad laws

are. Everyone has their favorite stop sign that they wish the government would change. But we don’t go around asking policemen

to change the law. And you have everyday before you lobbyists who

come through these halls, many of them my very best and closest

friends, who will tell you what the good laws and what the bad

laws are.

And I hope you listen to them because they are lobbyists, they

are folks who are answering a very high call about trying to come

up with a better America. But those individuals who are paid to

lobby this committee and do it in a very fine form are not responsible for implementing the laws that this committee writes.

We before you today have the burden, the responsibility of implementing the laws that this committee drafted, that this Congress

passed into law, and that the President signed.

I am humbled to be here, and I am very humbled to answer any

questions you may have about how we have been implementing the

law.

But I am not here, and I will never be here, to ask you to change

the law. That is for people who have the luxury of being able to

express their views and not have to respond to individuals in

America who ask them enforce the law. I, for one, cannot do that.

I cannot, at the same time, enforce the law and, at the same time,

ask to have that same law changed.

I have only one request of that committee, of this committee, and

that is that you be vigilant for all of the agencies that you oversee,

and that you ask us simply and forcefully to follow the law as it

is written.

Frankly, almost everything that has been mentioned this morning are things if this Commission could do within in the construct

of the Communications Act. And I hope that you will use this authorization process—this re-authorization process—to instruct us,

to advise us, to guide us in the proper implementation of the law.

Help us to interpret the law that we have. Go beyond that if you

will, but do not expect me to raise my voice one way or another

in that debate.

71

Please make sure that we stay clearly within the law that we

have. Most of the times we do that, but in my many statements

over the past year I have from time to time noted instances where

I am not sure that we have stayed simply within the law.

This committee is timeless. It will be here long after all of us are

gone, and I hope that the reverence that I have for this committee

is shared by all and that this committee will give us the proper instruction that the Commission needs.

Thank you, Mr. Chairman.

[The prepared statement of Hon. Harold W. Furchtgott-Roth follows:]

PREPARED STATEMENT OF HAROLD W. FURCHTGOTT-ROTH, COMMISSIONER, FEDERAL

COMMUNICATIONS COMMISSION

Introduction

It is a great honor for me to testify before this Committee. It is a homecoming

for me, and I see many friends among the Members and staff of this Committee.

I know this committee room well. It is a grand and stately room befitting a noble

committee. Long before this room was built, this Committee was born. This Committee has seen Congresses and Administrations come and go; it has seen government agencies develop, evolve, and occasionally cease operations; it has seen the history of this Nation march before it.

In many ways, this is the Committee of Madison, the Committee of interstate

commerce, the Committee that takes its charge directly from the Constitution, the

Committee that addresses that which holds this Nation together.

Various causes have ebbed and flowed in the course of American history. One concept that has consistently grown, however, is the centrality of interstate commerce

to American life. Two centuries ago, interstate commerce was the exception rather

than the rule; today, interstate commerce rules. With it comes substantial federal

jurisdiction for regulation.

Regulation of interstate commerce is a weighty responsibility, one that this Committee oversees daily. Interstate commerce can be regulated clearly under federal

statutes in open commercial markets in which property rights and contracts are enforced, and in which the market forces of supply and demand are allowed to blossom

for the benefit of the American consumer. Alternatively, interstate commerce can be

over-regulated to the detriment of all Americans by failing to enforce contract and

property rights, by creating disincentives for investment, and by allowing the development of markets that are dictated by a few individuals who happen to be government regulators rather than by all individuals who happen to participate in a market.

I come before you as a Commissioner of an independent agency, the Federal Communications Commission. Most of the authority that the Commission exercises is to

regulate interstate commerce, in this instance, communications. The regulation of

interstate commerce is, of course, exclusively Congressional authority under the

Constitution. It is this Committee, the Committee on Commerce, that has primary

jurisdiction over the FCC.

The FCC is not an explicit part of the Constitution. We should exercise with great

caution the limited authority that Congress has bestowed upon us. Three generations ago, there was no FCC. The future of the FCC is at the mercy and discretion

of Congress. Perhaps future generations will know us directly; or perhaps we will

be consigned to footnotes in history. Congress in general, and this Committee in

particular, hold the keys to that future.

We at the FCC cannot control our ultimate institutional destiny, but we can control our fate one day at a time. If in all of our daily actions at the Commission, we

are faithful to the Communications Act and other statutes and interpret them narrowly as written, we will bring honor to this agency, honor to the Committee that

drafted communications legislation, honor to the Congress that passed that legislation, honor to the Presidents that signed the pieces of legislation into laws, and

honor to the American public. If we stray from the Act, if we exceed our authority

in some areas, and if we fail to fulfill our obligations in others, we bring shame to

ourselves and to others.

72

An Independent Agency

The FCC is known as independent agency. The word ‘‘independent’’ refers to its

independence from the executive branch. Some observers particularly note the inability of the President to remove a Commissioner at will. I think, more importantly, that the independence stems from the inability of Congress to delegate to

the executive branch Congressional powers, in this case the power to regulate interstate commerce.

This Committee and this Congress make federal policy about interstate commerce

and about telecommunications. The Executive Branch cannot and does not. The

FCC cannot and does not.

For these reasons, it is important for this agency to look to Congress, and to this

Committee in particular, for guidance: guidance on how to interpret the statutes

drafted and championed by this Committee; guidance on how to regulate interstate

commerce in a manner consistent with federal statutes.

Importance of Authorization Legislation

The Commerce Committee oversees and directs the FCC in many manners. There

is correspondence from Members to the Commission. The Committee may seek information or reports from the Commission. The Committee holds oversight hearings as

it is doing today. The Committee marks up legislation affecting this agency, including the landmark Telecommunications Act of 1996. The Committee may write annual authorization legislation providing more detailed guidance to the Commission.

We at the FCC look to this Committee for guidance in each of these areas. Congress has only infrequently exercised its authority to pass annual authorization legislation for the FCC. Should this Committee and this Congress decide to pass such

legislation this year, we at the FCC look forward to your direction, and we will follow it.

FCC Should Not Lobby Congress for Statutory Changes

Congress has vested in the FCC an extraordinary concentration of power. We

draft and promulgate rules; we determine and levy fees; we administer and interpret our rules; we enforce our rules; and we adjudicate certain disputes involving

our rules. We exercise this extraordinary array of powers all within the framework

of our statutory authority.

As I have explained in various statements at the FCC, I do not believe that, absent an express request from Congress, making recommendations about how the law

should be changed is an appropriate function for the Federal Communications Commission. The Commission is bound to take the law as Congress makes it and to implement the law objectively; yet when we criticize extant statutes, enacted by Congress and signed into law by the President, we draw that objectivity into doubt.

Moreover, as a creature of Congress’ delegated authority, the Commission takes it

direction from that body, not the other way around.

Need for FCC to Follow the Law

It is a popular exercise in Washington to suggest what the FCC should be doing,

as if our mission is some great mystery to be solved. I always have maintained,

however, that the Commission simply should follow the law narrowly as written by

Congress. The FCC does not make federal telecommunications policy; Congress

does.

More specifically, the FCC should not rely exclusively on broad, vague statutory

grants of authority that contravene specific statutory mandates. If, for example, we

wish to participate in an antitrust review of proposed mergers, we should do so pursuant to our clear statutory authority under the Clayton Act. We should not review

mergers based merely on our broad authority to grant license transfers in the public

interest. In addition, we should use our specific authority under Sections 10 and 11

of the Communications Act to help meet Congress’s twin goals ‘‘to promote competition and reduce regulation.’’ Unfortunately, we have been both slow and reluctant

to forebear from law and regulation pursuant to Section 10, and only timidly have

exercised our duty to review and reduce our regulations pursuant to Section 11.

The Telecommunications Act

Both Section 10 and Section 11 came from the Telecommunications Act of 1996.

This Committee played a pivotal role in creating that statute which, notwithstanding the FCC’s not infrequent failures to implement it faithfully, has been successful.

Indeed, in 1995, consumers and telecommunications companies were hobbled by

excessive regulation at the federal, state, and local levels. Regulation pigeon-holed

companies into narrow lines of business and pigeon-holed consumers into narrow geographic markets. Regulators, not consumers, decided which companies could serve

73

which consumers with certain services in a giant game of ‘‘Mother May I?’’ The answer all too often was ‘‘No’’ or ‘‘Maybe in a few years.’’

Today, in 1999, consumers and business are less hobbled than before, thanks in

large measure to the Telecommunications Act of 1996. The FCC has had an enormous task in implementing the Telecommunications Act of 1996. It has implemented many parts of the Act quite well, and—as I noted before and described in

my public statements over the past 16 months—other parts not so well.

A Smaller FCC Over Time

If the Commission does its job properly in implementing Act, there will be less

and less regulation over time. Indeed, it is almost inevitable that the FCC will

shrink over time. Our largest and most pressing responsibilities under the Act have

ended. The necessarily rigid deadlines for initial rulemakings have ended, and the

Commission met all of those deadlines. Surely, the Commission does not need nearly

as large a staff in the year 2000 as it did in 1996 and 1997.

Even if our staffing requirements were not decreasing, however, our likely funding resources for staffing certainly are decreasing. The FCC’s staff is in the process

of moving to a grand new headquarters building in Southwest Washington, DC. It

is a beautiful building—but very expensive. Our leasing expenses are growing by

more than 50 percent, and the cost of the move itself will be $8.7 million for each

of the next 9 years. The net result is that our office expenses have increased by

more than $20 million annually.

Regulatory fees levied by the FCC pursuant to Section 9 of the Communications

Act can be assessed only ‘‘to cover the costs’’ of the services rendered by the agency.

Accordingly, I believe it would be preposterously unfair to force entities regulated

by the FCC and, thereby, American telecommunications users, to pay even a nickel

more for this new office expense in the form of higher user fees. It simply would

be impossible to show that any telecommunications user is receiving a higher quality of service as a result of the move. Consequently, the additional $20 million per

year in office expenses must be borne by American taxpayers. The net result is that,

unless Congress actively decides to change the law and increase the Commission

budget substantially, the Commission can only afford to retain fewer employees.

No Need for Intermediary

The FCC does not need any intermediaries to communicate with Congress. The

Administration, however, recently sent budget proposals under the name of the FCC

to Congress. They were in fact not the submission of the FCC, but rather the sanitized, highly edited, and augmented version submitted to Congress by the Administration’s Office of Management and Budget. Although it is the Administration’s prerogative to submit a unified budget for all agencies, I do not believe that the Administration can speak directly on behalf of this agency.

The FCC submitted recommendations to OMB in a secret process. I dissented

from those recommendations for a variety of reasons, but the recommendations proposed by the FCC were not nearly as bad as what the Administration subsequently

proposed and delivered to Congress. For example, the Administration’s proposal to

impose spectrum taxes was simply irresponsible.

Open and Public Process

Whether it be votes on FCC budget recommendations or the Commission’s internal voting procedures more generally, I do not believe this agency should keep the

American people in the dark. Indeed, I believe there is an urgent need for this agency to conduct its business in public. That is the principle that underlies both the

Administrative Procedure Act and the Sunshine Act. Currently, however, the FCC’s

internal processes are known by but a few high-priced Washington lobbyists. Why

shouldn’t everyone know how we conduct our business?

Reorganization

Finally, Chairman Kennard today unveils some new plans for the FCC. He is an

extraordinarily bright and talented leader. I enjoy serving on the Commission with

him, and I look forward to reviewing his plans.

Ultimately, the fundamental responsibility of the FCC is to follow the law narrowly as written by Congress. If the Commission fails to follow the law narrowly,

no reorganization plans—no matter how well-meaning—will solve the agency’s problems. If the FCC succeeds, it is not because the agency has invented a new organizational structure but, rather, because we have committed to following the law.

Mr. TAUZIN. Thank you very much, Mr. Commissioner.

And now we are pleased to welcome the honorable Michael Powell, Commissioner of the Federal Communications Commission.

74

Mike, again, your statement is a public record and we appreciate

your coming before us.

STATEMENT OF HON. MICHAEL K. POWELL

Mr. POWELL. Thank you, Mr. Chairman, and good afternoon,

Congressman Markey, and other distinguished members of the subcommittee. It is a pleasure to be here at your invitation to help the

subcommittee in its consideration of FCC re-authorization. Apparently, the FCC has been an unauthorized agency since 1991, and

I agree wholeheartedly that it is not wise to be driving without a

license.

Although I must admit that it did not stop me when I was 15.

Nonetheless, I feel a little about re-authorization like a sinner

who has arrived at the Pearly Gates and is frantically trying to

convince St. Peter that I have met the 271 checklist for entry.

Before beginning any exercise to fix something, or to use Chairman Tauzin’s word, to ‘‘remission’’ it, I think it is important to

start with an examination of what we think is broken, or at least

what our perception is about what is not working.

I would first like to endorse the strategic plan offered by the FCC

Chairman because I think in its tone and direction it is exactly on

the mark. But in response to the subcommittee’s invitation, I would

like to offer specific areas for exploration that I think should guide,

or would be helpful in guiding your deliberations.

First, I believe the Commission needs to more clearly set out its

priorities and its direction. This is a common complaint from the

outside, that it is very difficult to understand what our priorities

are, what direction we are heading, and often we are criticized for

changing course abruptly.

I believe one vehicle for consideration, on your part, is to require

the Commission, under section 4(k) of the Communications Act of

1934 in which it submits its annual report, to also set out its annual list of priorities that could be developed as an outgrowth of

a year-long formal, strategic process at the Commission.

The next large area that I often hear criticism of, is the FCC is

not efficient enough to meet the demands of its consumers. Clearly

this is true. Mr. Huber talked about the incredible pace, the intense pace of change in this industry. I heard a telecom executive

describe it the other day as ‘‘it’s Moore’s Law on Viagra.’’ I suppose

that captures it better than anything else.

But one important way in which you can improve the efficiency

of any organization is, of course, have less to administer. And I believe that Congress properly provided two very powerful tools for

doing that that have not been employed as fully as they might be.

The first of course, under section 11, is our authority under the

biennial review to root out and eliminate regulations that are no

longer necessary. Others have said much about that. I would also

say for the record that forbearance under section 10 is a very powerful vehicle. It is well noted in my writings that I have been somewhat critical of the Commission’s employment of that vehicle. And

I want to point out that is less the substance or the merits of those

forbearance decisions as it is the standard employed by the Commission and its exercise.

75

I do believe that this subcommittee and this Congress expected

us to accept a much greater responsibility for ourselves validating

or re-authorizing regulations in the context of a healthy, competitive market than I believe the FCC has been willing to take on

thus far.

I have some specific suggestions as how the FCC ought to employ

a proper burden-shifting mechanism along the lines of those used

in civil rights cases, which is in my full testimony.

A second subset under operating more efficiently, which as been

referred to and is referred to in the chairman’s statements, the

shift to enforcement. And I fully support the enforcement bureau

efforts as well as our ‘‘rocket docket.’’

But I just want to point out that a shift to enforcement has to

be more than a consolidated bureau. It has to be a change in the

state of mind. It has to be a vehicle that you employ to deal with

the kind of speculatory fears that are easy to conjure up in the context of a request to deregulate. I think the more we rely on enforcement, the more we can move past our speculative fears.

Fourth, many have pointed out that we are not structurally

aligned to meet the market trends. Certainly we could consider

functional consolidation, but I would point out, in my own view,

that that may not be as productive as one might assume because

of, as people have pointed out previously, the statute itself is

aligned along many of these structural lines, as are the rules that

we must implement. And thus we are creating consolidated bureaus that merely then have subdivisions that mimic the original

bureaus. I don’t know whether that won’t be form over substance.

Nevertheless, it is in that context that I would guide your attention to the possible consolidation of cable, mass media, and DBS

functions under a multi-channel video competition bureau, as well

as possible consideration of some functions being merged between

the common carrier and wireless bureaus.

As well as needing to realign our resources to where our priorities lie, I believe fervently that more of our resources need to be

shifted to the common carrier functions. If I had a list of 10 things

I think we need to be doing, nine of them would be the areas of

common carrier and telephone regulation.

Finally, I think—second to last—I think we need to focus on duplicative functions. There are a number of areas in which the Commission engages in functions under its broad public-interest standard, as well as others, that are shared in part or whole by other

regulatory agencies. There may be value to two agencies doing two

things, but those roles should be complementary and supplementary rather than simply duplicative. And I think that it would

be a useful function for this Commission to examine some of those

functions to make a conscious decision about where those overlaps

are warranted and where they are not.

And in my testimony I have some specific examples that might

guide you in that regard.

Finally, there is the issue of the breadth of the agency’s quasilegislative authority. Too many disputes at the Federal Communications Commission and in the courts are over our jurisdiction,

whether we are being excessively aggressive or too cautious in interpretation of statutory law.

76

I would point out, I believe this is a continuing tension between

the 1927 act and 1934 act models and the 1996 act model. Under

the 1934 model it was assumed that we would be a commission of

enlightened wise men with a broad public-interest standard, free to

reach wise decisions in an ever-technically changing world. It is the

broadcast model.

The 1996 act tries to lay out a blueprint with highly specific provisions, detailed provisions that we are expected to implement and

not question. There is a constant tension between these two models, both at the Commission and by outside parties.

I think that you have to recognize that as long as there are public-interest standards and there is that tension, it will empower

regulators to self-initiate a broad range of government action without specific Congressional direction.

I do not call for the elimination of the public-interest standard

by any means, but I do believe there are many fruitful areas to

consider, limiting principles on that standard, which I have also

written about.

Finally, to conclude, Mr. Chairman, I would just add a word of

caution about an effort to hollow the agency. You have the power

to cut employees, you have the power to eliminate Commissioners.

I can find another job, but I will tell you what, at the end of the

day you will still have applicants under this statute who will need

a 271 application approved, you will still have schools and libraries

that have to file for their applications for universal service funding,

you will still have consumers who need redress from complaints.

I don’t know that a severely diminished agency will be able to

serve those more efficiently than it does now.

I thank you and welcome your questions.

[The prepared statement of Hon. Michael K. Powell follows:]

PREPARED STATEMENT OF MICHAEL K. POWELL, COMMISSIONER, FEDERAL

COMMUNICATIONS COMMISSION

Good morning, Mr. Chairman and other distinguished members of the House Subcommittee on Telecommunications, Trade and Consumer Protection. Thank you for

inviting me here to assist you as the Subcommittee deliberates the statutory reauthorization of the Federal Communications Commission (FCC).

Initially, let me state that I support Chairman Kennard’s effort to develop a strategic plan for restructuring and streamlining FCC functions and management. I am

hopeful that we will be able to move forward quickly under this plan to make needed changes. In my testimony however, as the Subcommittee’s invitation letter suggests, I will attempt to provide some specific suggestions for consideration during

your deliberation on FCC reauthorization.

Before beginning any exercise to fix (or to use Chairman Tauzin’s phrase ‘‘re-mission’’) the Agency, I think it prudent to first consider what we think is broken or

is not working particularly well at the FCC. I would submit five areas for exploration: (1) the need to more clearly define the Commission’s annual priorities and

focus; (2) the need to operate efficiently enough to meet the demands of an innovation driven market; (3) how to structure the Agency to better align with market

trends and demands; (4) whether to continue the administration of functions that

are largely duplicated elsewhere in government; and (5) the breadth of the Commission’s quasi-legislative authority.

I. THE COMMISSION NEEDS TO MORE CLEARLY DEFINE ITS ANNUAL PRIORITIES

I believe that the key to any well-run organization is the enumeration of a clearly

understood and widely communicated set of priorities. A common complaint I often

hear is that outside parties have no solid sense of the Commission’s priorities or direction. The Chairman often does share his view of the coming year in speeches,

press releases and in daily conversation, as do other Commissioners, but there is

77

no structured process by which the Commission formally develops and publicly reports its priorities.

One way to address this problem would be the development of an annual, full

Commission statement of priorities. Congress could require the Commission to set

out a list of its priorities in the annual report it currently files pursuant to section

4(k) of the Communications Act of 1934. 47 U.S.C. § 154(k) (West 1998). Such a compilation of priorities would help focus the work of the Commission and create greater regulatory certainty.

II. THE FCC IS NOT EFFICIENT ENOUGH TO MEET THE DEMANDS OF ITS CUSTOMERS

The extent and pace of change in the telecommunications industry is mind-boggling. It is driven by exponential advancements in microprocessing power, digitalization, Internet protocol-based network models and bandwidth. As Royce Holland,

Chairman and Chief Executive Officer of Allegiance Telecom, Inc. recently remarked, the pace of change in the industry is like Moore’s Law on Viagra. Market

opportunities in this environment are lucrative but fleeting. As in the days of old,

however, the Agency still labors endlessly for many months and even years on policy

issues and ultimately implements its judgments in the form of newly-minted rules

and regulations. The relevancy of the new rules fades rapidly with time. Some are

out right obsolete the very moment they are passed. In this environment, the FCC

must become a dramatically more efficient place. A decision that comes too late,

might as well not have been made at all.

A. Deregulation

The most obvious way to improve efficiency at the Agency is to have fewer rules

to administer. This highlights the importance of deregulation where the cost of a

rule is not justified by its benefits. There are a number of vehicles Congress has

provided for deregulating and I believe that they must be employed with greater

rigor than they have to date. Congress wisely commanded the FCC to conduct a biennial review of its regulations and to shed those that it determines are no longer

necessary. While we have made some progress in this area, I believe we can be

much more aggressive.

A second vehicle that I believe has been under-utilized is our forbearance authority under Section 10 of the Communications Act. 47 U.S.C. § 160 (West 1998). I have

criticized many of our recent decisions in which the Commission declined to forbear

from our rules. The merits of those forbearance petitions have been less my concern,

for reasonable minds can differ. My dissatisfaction is with the standard we apply

and our analysis, which seems to place the entire burden of forbearance on the moving party. I believe Congress expected the Commission to accept more responsibility

for demonstrating a continued need for regulation in the presence of a healthy, competitive market. Indeed, I believe the Commission ought to employ a burden-shifting

device similar to that employed in civil rights cases.

In operation, once a petitioner demonstrates that the market in which it operates

is competitive (i.e., no competitive firm or entity enjoys market power, price trends

are checked or downward, innovation is occurring) the burden would shift to the

FCC to demonstrate why regulation is still necessary. And, in making that judgment, the Commission should not be able to simply rest on the grounds that the

rule served a public purpose and petitioners have failed to prove that purpose is no

longer worthy. The question should be whether the rule at issue is in fact superior

to competition for serving that purpose. We should have to undertake a substantive

and factual examination of the rule and its effects to determine if its purpose truly

must be achieved through regulation instead of market forces. This approach presumes that healthy competition will normally maximize consumer welfare. Congress

could explicitly adopt such a burden-shifting approach to forbearance.

B. Shift To Enforcement

A second way for the Commission to become more efficient is by shifting away

from pre-approval, ‘‘by-the-grace of us’’ regulation and toward enforcement. Telecommunications regulation has traditionally developed along the lines of the broadcast model. That is, parties need advance approval for initial operation, changes and

deployment of new innovations. This has become a real impediment to timely decisions. A regime in which there are more presumptions of good faith on the part of

competitors, backed up with strong enforcement by the Agency, would greatly enhance our efficiency.

In this regard, I applaud the Chairman’s initiative to assemble under one bureau

the Commission’s enforcement functions. Similarly, the initiative to create an expedited complaint resolution process, dubbed ‘‘the rocket docket,’’ is a positive step in

this direction. The shift to enforcement, however, needs to be more than a consoliVerDate 22-SEP-99 11:00 Sep 23, 1999 Jkt 010199 PO 00001 Frm 00080 Fmt 6633 Sfmt 6621 X:\HSECOM\55640 txed01 PsN: txed01
78

dated bureau. It needs to be a shift in thinking as well. The FCC, as a whole, must

become more comfortable with enforcement as a means of regulation and must address our speculative fears about deregulation through enforcement, rather than let

those fears paralyze our willingness to deregulate.

C. Need For Better Internal Process

The Commission structure is inherently inefficient. Because it is a deliberative

body with independent Commissioners who each have a vote, it is very difficult to

keep things moving along at a pace demanded by the market. In contrast, organizations that are more hierarchical generally have better success with moving more

quickly. Nonetheless, for the Commission to keep pace, it needs the benefit of management professionals dedicated to managing our agenda and keeping our substantive items on track.

I would urge the Congress to consider creating a professional management directorate to accomplish this purpose. There are examples of similar activities in other

government institutions. The court system has long employed a clerk’s office that

keeps the caseload moving, rather than leave this responsibility to the sitting

Judges. Similarly, many divisions of the Department of Justice (such as the Antitrust Division) have a Directorate of Operations, headed by a substantive professional who helps keep the pipeline to the decision-makers flowing. These functions

at the FCC are presently managed by the Chairman’s personal office.

III. THE FCC IS NOT ALIGNED STRUCTURALLY WITH MARKET TRENDS

It is regularly observed that the Commission is organized around industry segments that increasingly are less relevant as convergence strains and eliminates

their unique technical distinctions. Many commentators have urged that Congress

consider consolidating bureaus along competitive lines. I agree that it would be useful to consider such structural changes, though I believe there are limits to how

much can be gained by such an effort.

The balkanized structure of the Commission makes it difficult to re-deploy employees to address urgent tasks. Attorneys currently analyzing policy issues for the

Mass Media Bureau, for example, cannot easily be moved to work on issues in other

bureaus, even though the subject area may be similar. Thus, even though there is

a need for attorneys in the Cable Services Bureau, separation of these bureaus prevents ready reassignment of personnel. Within larger bureaus, the Commission

would have the opportunity to maximize its use of employees. It could, for example,

cross-train the workforce through rotations and training. In this way, the Commission could maximize employee flexibility and enhance its ability to reallocate resources to match priorities.

Though I do not take a strong position on any particular proposal, I would recommend considering consolidation in a few areas. The first would be the formation

of a multi-channel competition bureau. Such a bureau would administer our rules

with regard to what are currently the mass media, cable television and direct broadcast satellite (DBS) industries. Regulation of each of these mediums presently rests

in a separate bureau. A single leadership structure overseeing these fields would

allow for greater harmonization of rules and decisions in furtherance of a merged

and increasingly competitive industry segment. With the elimination of some cable

rate regulation at the end of this month, and increased attention being given to the

inter-relationship between broadcast and DBS, the time may be ripe for considering

such a proposal.

A second area worthy of some thought is complete or partial consolidation of the

Common Carrier and Wireless Telecommunications bureaus. There has been a great

deal of discussion about wireless technologies competing with and serving as a substitute for traditional wireline service. Indeed, some have suggested that over time

most voice communications will be carried by wireless carriers, while the wireline

infrastructure will be used more for data. These trends may argue for a single bureau dedicated to these currently separate industries.

I do note, however, that there is a limit to the value of this functional realignment. Because the statute is organized along industry lines our rules necessarily do

as well and functional consolidation may be more form than substance. Additionally,

many industries support industry organization because they enjoy having a ‘‘champion’’ to tussle over policy.

IV. ADMINISTRATION OF DUPLICATIVE FUNCTIONS

A fifth area on which Congress may choose to focus is where Commission authority overlaps with that of other government agencies. Because communications is so

fundamental to virtually all human activity, there is almost always some connection

79

to FCC authority (no matter how tangential). Yet, the core expertise of the FCC

should truly be considered in assigning to it, rather than some other agency, a central role on a given issue. While such governmental overlaps may be desirable, they

at least should be complementary (or supplementary) rather than simply duplicative. A few suggested areas of inquiry are outlined below.

A. Merger Review

The debate over the value of FCC merger review in addition to review by one of

the antitrust agencies is well-worn. Clearly, as the keepers of the Communications

Act and its policies, the FCC has some unique expertise that it can bring to telecommunications merger review that probably advances the public interest.

Our review, however, is not generally limited to those areas in which we can

claim primary expertise. Very often, we undertake a classic antitrust analysis, applying the same principles, precedents and guidelines as those employed by the antitrust authorities and rarely does it produce different results. Such reviews can be

quite burdensome on the parties. For example, the FCC often requires voluminous

filings that are duplicative of those made to the Department of Justice or the Federal Trade Commission. They often must incur the expense of outside counsel to

prove their case to both agencies. I have come to doubt whether the marginal value

of full blown merger review by the Commission is justified by its cost in time and

resources. Moreover, with all due respect to our hard working staff, we do not really

possess enough personnel schooled in antitrust and competitive economics to do the

job well consistently. The antitrust authorities do.

I believe that there is room to preserve a complementary role for the FCC in the

review of mergers, while limiting it to its areas of expertise. Perhaps, consideration

of the legislation recently introduced by Senators DeWine and Kohl would be a good

place to start.

The Commission engaging in simultaneous review with the antitrust authorities

could improve efficiency. Under such a scheme, the parties would be required to file

most documents only once and to one agency. The Commission would consider

issues such as whether the merger would violate an express provision of the Act,

or would otherwise undermine the congressional scheme. Furthermore, it would consider the merger’s impact on other communications policies such as media diversity

and universal service that are not appropriately considered by antitrust authorities.

But the Commission would defer (either substantially or completely) to the antitrust

authority’s competitive analysis.

B. Consumer Affairs

An important function of any branch of government is to safeguard consumers.

Undoubtedly, because of our regulatory authority over certain industries and our intimate understanding of the industry, we are uniquely positioned to administer certain consumer affairs. Nonetheless, there are other agencies that have similar authority and some judgment might be made as to which is best positioned to administer certain issues. For example, the FCC has occasionally jumped into issues that

relate to advertising under its public interest authority. The Federal Trade Commission, however, has specific authority in these areas. The same is true of other issues

such as consumer fraud (e.g., ‘‘cramming’’ and ‘‘slamming.’’) Congress should evaluate the benefits of such overlapping jurisdiction.

C. Equal Employment Opportunity

I personally support narrowly tailored Equal Employment Opportunity (EEO)

rules. The Commission has administered its own EEO program in certain industries

for some time. Yet, in most other industries there is not an EEO authority separate

from the Equal Employment Opportunity Commission and the federal, state and

local civil rights authorities. I believe that there is some advantage to having the

FCC involved because of its unique relationship with certain industries, particularly

those that operate pursuant to a government-conferred license. However, I would be

remiss if I did not point out there is some overlap that should be examined to ensure that the respective roles are complementary and not duplicative. By eliminating duplication, such an examination, in my view, would bolster support for the

government’s role in promoting opportunity in communications.

D. Political Rules

Finally, I would point out that the FCC has historically administered a number

of rules that are designed to affect the quality of elections. These rules are focused

on the obligations of the licensee and not the candidates, but they undoubtedly are

intended to shape the quality and tenor of elections. Greater involvement in this

area would require a more comprehensive understanding of campaigns and existing

election laws than I believe this Agency possesses. Furthermore, any extension of

80

such authority should be weighed against the role of the Federal Election Commission. I am uncomfortable, personally, as an un-elected regulator initiating policies

and rules that affect the electoral process without specific congressional direction to

do so.

V. THE BREADTH OF THE FCC’S QUASI-LEGISLATIVE AUTHORITY

A phenomenal amount of time is consumed in this industry in fights over the

FCC’s jurisdiction. One major source of this ongoing battle is the tension between

the statutory regime that reigned under the 1927 and 1934 Acts and that predominantly adopted by Congress in the 1996 Act. The former’s hallmark is that it conferred sweeping authority in the Commission to act to ensure ‘‘the public interest,

convenience and necessity.’’ The 1996 Act, however, attempted to craft, in many respects, a detailed blueprint for the industry and the Agency. In many places, it provides highly detailed statutory provisions and instructions. There is a real tension

between these two regimes, elements of which are scattered throughout the Act.

The venerable public interest standard has much to commend it. It provides a

great deal of flexibility and punctuates a consumer focus. However, this standard

does allow the Agency to self-initiate a broad range of government action without

specific statutory direction. That is, it serves as a basis for quasi-legislative action

by the Commission.

The quasi-legislative authority of the Commission has its merits, but if read too

broadly, it serves to invite industry, consumer groups and special interest to seek

both redress and advantage from the Agency, rather than Congress. This can lead

to the Agency initiating action that Congress subsequently disapproves of, or believes conflicts with a more specific mandate in the statute.

I am not suggesting elimination of the public interest standard. I do believe, however, that Congress might consider certain limiting principles with respect to its employment as a jurisdictional basis in certain areas.

VI. CONCLUSION

I would like to conclude with one caution. As long as the 1996 Act is the basis

for telecommunications law, Congress would be ill-advised to hollow or unduly

wound the Commission. There are undoubtedly areas in which we tinker where we

should not. There are certainly ways to improve our processes and our decisions.

But, even controlling for all that, the FCC will remain a very important institution

for dealing with the telecommunications sector and its transition to competition and

its transformation in response to innovation.

Congress has the power to cut employees and even Commissioners if it chooses.

But if not done carefully, rather than harm the Agency, the industry and consumers

will be harmed. It is the industry that will still have to come to the Commission

to get its licenses approved or have a section 271 application approved. It will still

be states and local schools that have to file for universal service. Consumers will

still need somewhere to have their complaints acted upon. Such redress will not be

enhanced by a diminished Agency.

I look forward to continuing to work with Members of Congress and with my colleagues on the many challenges, and tremendous opportunities, that await us in implementing the 1996 Act. I trust that, by working collaboratively and by having

faith in free markets, we will bring the benefits of competition, choice, and service

to American consumers.

Thank you for your attention.

Mr. TAUZIN. Thank you very much, Commissioner Powell.

The Chair is now pleased to recognize the newest member of the

Commission, Ms. Gloria Tristani, for your testimony. Ms. Tristani.

STATEMENT OF HON. GLORIA TRISTANI

Ms. TRISTANI. Thank you, Mr. Chairman. And before I begin, I’m

glad you are back, Mr. Markey, because I thought I would let you

know that I claim being Irish by association. I am married to an

Irish man. My son’s middle name is Patrick, and he has decided

he may be just Patrick from now on. And I wanted to wish you a

happy St. Patrick’s Day.

Mr. MARKEY. Thank you. Mr. Chairman, just 1 minute. If Vito

Fossella would be able to explain his political lineage, could you,

81

for the committee for a second? I think it would be a little bit—

I think it would be surprising to the——

Mr. TAUZIN. I’m not sure we want to hear it, but go ahead.

Mr. FOSSELLA. I’m sure everyone is on the edge of their seat

waiting for—well, Mr. Markey, you may know that my great-grandfather, James Aloysius O’Leary was a Democratic Congressman

who served this body in the 1930’s and the 1940’s. So, believe it

or not, Vito is an O’Leary as well.

Ms. TRISTANI. Mr. Chairman, members of the committee, thank

you for this opportunity to be here today. I am pleased to report

on the progress in carrying out Congress’ vision that all Americans

have the opportunity to share in the benefits of the telecommunications revolution. I would like to highlight a couple of areas.

Universal service. As a member of the Federal-State joint board

on universal service, I supported the principal recommendations

that the board made to the FCC on high-cost funding. If these recommendations are adopted, I believe consumers will benefit because local rates will be kept at affordable levels and competition

will be able to take root in residential areas.

Another aspect of universal service that is particularly important

to me is connecting unserved areas. I know we have talked about

having wonderful connectivity in this country, but there are still

areas of this country, and I can talk about Indian reservations

where 30 to 50 percent of homes do not have basic telephone or any

kind of communication service. I believe the Federal Government,

in the interest of advancing universal service, must take a more active role in connecting all Americans.

E-Rate. I am the first to admit that the implementation of this

program has not always been perfect, but the goals of the program

are sound. And I am convinced that the E-Rate funds that have

been recently committed to schools around the country will generate enormous social and economic benefits for the Nation in years

ahead.

Broad-band deployment. Our first report on the state of broadbrand deployment under section 706 was guardedly optimistic

while recognizing that it is still too early in the process. Indeed,

with respect to rural and other hard-to-serve areas, I remain more

guarded than optimistic. I am not yet convinced that these Americans will have access to advanced services on a reasonable and

timely basis.

I believe there are two ways we can accelerate the deployment

of advanced services. One is to ensure that competitors have access

to the basic building blocks of advanced services that are controlled

by incumbent LECs, and two is to ensure that we are not over-regulating the provision of advanced services by incumbent LECs.

Slamming. I strongly supported the rules we recently adopted to

fight slamming. The highlight of our new rules is that a customer

who is slammed need not pay the slammer.

Equal employment opportunity. We have proposed new broadcast

EEO rules that we believe address the concerns raised by the DC

Circuit in striking down the outreach portions of our previous EEO

rules.

82

Finally, on FCC restructuring, and Mr. Chairman, I am glad and

welcome that you have brought this to the table, and I look forward

to a continuing dialog on this.

First, we need to become more enforcement oriented. Second, we

need to continue restructuring the agency to reflect the continued

convergence of technology across traditional industry lines. And

third, we should initiate a top-to-bottom review to ensure that our

staff is deployed in a way that reflects the agency’s current priorities.

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

I look forward to answering any questions you may have.

[The prepared statement of Hon. Gloria Tristani follows:]

PREPARED STATEMENT OF GLORIA TRISTANI, COMMISSIONER, FEDERAL

COMMUNICATIONS COMMISSION

Good morning Mr. Chairman and Members of the Subcommittee. I am pleased to

be here today to discuss the role of the FCC as we continue to work toward the goal

set forth in the Telecommunications Act of 1996 of opening telecommunications markets to competition for the benefit of all Americans.

Last year, I came before this Committee and talked about my commitment to carrying out Congress’ vision that all Americans—rural and urban, rich and poor, minority and nonminority—have the opportunity to share in the benefits of the telecommunications revolution. I’m pleased to report that we have made some progress

in the past year. I wanted to update the Committee on a couple of things we have

accomplished and where we might go from here.

First and foremost is universal service. In rural states like my home state of New

Mexico, universal service permits average Americans to have phone service who otherwise would not be able to afford it. Right now, we are working to ensure that universal service support does not erode as competition develops. Last summer, the

FCC referred key issues involving high cost funding to the Federal-State Joint

Board on Universal Service. As a member of the Joint Board, I was pleased to support the principal recommendations that the Joint Board made to the FCC last November. Among the recommendations were to move away from a strict limit of 25

percent federal funding of universal service. Instead, the Joint Board recommended

that the FCC provide more than 25 percent of the support needed in cases where

a state cannot reasonably bear 75 percent of the cost of universal service. If this

recommendation is adopted by the FCC, I believe consumers will benefit because

local rates will be kept at affordable levels, and competition will be able to take root

in residential areas. I also believe that the recent work of the Universal Service

Joint Board, under the leadership of my colleague Commissioner Susan Ness and

Florida Commissioner Julia Johnson, demonstrates the increasingly cooperative relationship between federal and state commissioners in fulfilling Congress’ goals for

universal service reform.

One aspect of universal service that is particularly important to me is connecting

unserved areas. In enacting section 254, Congress told us not only to ‘‘preserve’’ but

to ‘‘advance’’ universal service. I see no more worthy means of advancing universal

service than to devise creative solutions to problem of unserved areas. In many of

these areas, customers remain unserved because the alternative is to pay the local

phone company thousands of dollars to have a line extended to their home. This is

unacceptable. I believe the federal government, in the interest of advancing universal service, must take a more active role in connecting all Americans.

I would note that many unserved areas are on Indian lands, and that Indians are

among the poorest groups of Americans. Chairman Kennard has recognized this

problem, and I commend his leadership on this issue. Recently, the Chairman and

I held a field hearing in New Mexico where we were joined by Congresswoman

Heather Wilson, a fellow New Mexican. We took testimony and visited Indian reservations to learn firsthand about the causes of this problem and some possible solutions. That field hearing marked the beginning of a real commitment in the area

of telecommunications to better fulfill the federal government’s trust obligation with

respect to Indians living on reservations.

In addition, I would like to express my continuing support for the e-rate program.

I am the first to admit that the implementation of this program has not been perfect. But the goals of the program are sound and I am convinced that the e-rate

83

funds that have recently been committed to schools around the country will generate enormous social and economic benefits for the nation in the years ahead.

Another area of increasing importance to all Americans is broadband deployment.

Access to broadband capacity will be a crucial tool for our citizens to compete in the

information economy of the 21st century. In Section 706 of the 1996 Act, Congress

directed the Commission to monitor the roll-out of advanced telecommunications capability, and, if necessary, take steps to ensure that all Americans have access to

such capability on a reasonable and timely basis. We recently issued our first Section 706 Report, which was guardedly optimistic about the state of broadband deployment while recognizing that it is still too early in the process to declare victory.

Indeed, with respect to rural and other hard-to-serve areas, I remain more guarded

than optimistic. I am not yet convinced that these Americans will have access to

advanced services on a reasonable and timely basis. The next several years will be

critical. As advanced services begin to become a marketplace reality in many areas

of the country, we need to improve our data collection and assessment efforts to ensure that all Americans have reasonable and timely access to these services.

I believe there are two ways to accelerate the rollout of advanced services. The

first is to ensure that competitors have access to the basic building blocks of advanced services that are controlled by incumbent LECs. That includes things like

conditioned local loops and collocation space. Competitors can then combine those

inputs with their own advanced services equipment to offer high speed connections

to end users. I believe the Commission will strengthen the collocation rules at tomorrow’s Agenda meeting, and in the near future the Commission will, I hope, formally reinstate the requirement that conditioned loops be made available to competitors.

The second way to spur advanced services is to make sure we’re not overregulating the provision of those services by incumbent LECs. I recognize that there may

be markets where, unlike the market for basic local telephone service, incumbents

do not have a hundred-year head start. We need to think carefully before applying

rules that may be ill-suited for such emerging markets. If we proceed thoughtfully

in this area, I am optimistic that the FCC’s policies will provide the right incentives

for both new entrants and incumbents to furnish the bandwidth that millions of consumers are asking for.

On the broadcast side, Equal Employment Opportunity is one of the things that

we have been working on to broaden opportunities for all Americans. As the Committee is aware, this past year a panel of the U.S. Court of Appeals for the District

of Columbia Circuit struck down the outreach portions of our previous EEO rules

because it believed (wrongly, I think) that our rules essentially required hiring decisions based on race. We have proposed new rules to eliminate any confusion on this

point and to clarify that all that the new rules would require is outreach to women

and minorities, not hiring preferences. Outreach requirements simply expand the

pool of candidates for consideration. They do not exclude anyone based on race or

gender. Reaching out to all parts of the community would help ensure true equal

opportunity—giving everyone the opportunity to participate in, own, and see themselves reflected in, the media that has such a pervasive impact on our nation’s cultural and political life.

There are those who question whether we can craft new EEO rules that will withstand judicial review. I do not doubt that any rules we adopt will be challenged in

court, and I have no illusions that some will argue that even simple outreach requirements require the strictest judicial scrutiny. But if the burden of proof is high,

so are the stakes. I believe we must make every effort to develop a meaningful EEO

program that can and will be sustained.

Although much of the Commission’s work addresses the broad structure of the

telecommunications industry, the actions I’ve drawn the most satisfaction from are

those that directly improve the dally lives of average Americans. That is why I

strongly supported the rules we adopted last December to combat slamming. The

highlight of our new rules is that a customer who is slammed need not pay the

slammer. This is good public policy for two reasons. First, allowing consumers to

withhold payment from the slammer takes the profit out of slamming. That should

substantially reduce the frequency of slamming. Second, allowing a slammed customer to withhold payment compensates the slamming victim for the trouble and

aggravation of being slammed. I hope and expect that these new rules, combined

with our aggressive enforcement efforts against slammers, will dramatically reduce

the frequency with which consumers are slammed.

Another consumer issue that I’ve been intensely interested in is the V-chip. This

is the year that the V-chip will finally become a reality in the lives of average Americans. By July I of this year, half of the new television models with screens thirteen

inches or larger must have a V-chip installed. By January 1, 2000, all such sets

84

must have a V-chip. This will empower parents to protect their children from material that they deem harmful to their children. I commend you, Mr. Chairman, for

helping to forge a consensus on a useful ratings system, as well as Congressman

Markey, for his long-time leadership in this area. You have given parents an important tool to help them raise their children even when they cannot monitor what

their children are watching.

Now, I’d like to turn to the specific issue you asked us to address, Mr. Chairman—the restructuring of the FCC. I applaud your efforts, Mr. Chairman, to take

a fresh look at the FCC from the ground up. We should not fear such a review; if

we are doing our job, we should welcome it. We are fortunate at the Commission

to have a tremendously talented and dedicated staff. We owe it to them, we owe

it to you, and, most importantly, we owe it to the American people, to create an FCC

that is as smart and efficient as possible. I do not pretend to have all of the answers

as I sit here today, but I do have a few thoughts that I’d like to share.

First, I agree with those who say that we need to become more enforcement-oriented. That is, we need to impose fewer rules that burden all regulatees up front—

the good actors and the bad actors alike—and develop the restraint to step in only

when a problem emerges. Under Chairman Kennard’s leadership, I’m pleased that

we have already been moving in that direction. In the mass media area, for instance, we are substantially reducing the amount of paper that broadcasters must

file, and instead are relying on the wider use of compliance certifications and a program of random audits to deter abuse. To make this system work, we need to ensure

that bad actors, when they are identified, are subject to swift, certain and consistent

punishment.

Second, we need to rethink the way the agency is structured. As the industries

we regulate continue to advance and converge, we have to continually ask ourselves

whether our organizational structure still makes sense. Chairman Kennard has

taken some steps in this regard with the planned consolidation of currently dispersed functions into new Enforcement and Public Information Bureaus. I fully support those efforts and hope to see similar efforts to restructure the Commission in

other areas that cut across traditional jurisdictional lines.

Third, given that the mix of expertise needed by the Commission changes over

time, we need to make certain that our staff is deployed in a manner that reflects

the agency’s current priorities. If there are subgroups within the agency that were

formed to address a particular need that may have dissipated, we should reassign

that personnel to the many areas within the Commission that are understaffed.

There is no rule that says that an agency subgroup, once created, can never be disbanded. I do not have any particular subgroups in mind, but I believe that now is

a good time for a top-to-bottom review. Our staff is too valuable to allocate them

in a way that fails to maximize their ability to contribute to the agency’s mission.

Once again, I appreciate the opportunity to testify before you today.

Mr. TAUZIN. Thank you very much, Commissioner Tristani.

The Chair now recognizes himself and will recognize members in

order.

First of all, Mr. Kennard, I am pleased that you accepted our invitation to literally describe an FCC for this future that Mr. Huber

and others have been predicting for us.

You mentioned three missions of the agency as you see it going

forward, consumer protection, the provision of universal service,

and spectrum management. I noticed you did not mention, although your statement talks about incentivizing competition.

Where does that lie in your areas of priority?

Mr. KENNARD. Well, I think it should be all-pervasive. I think

that the act that you wrote in 1996 clearly made competition the

organizing principle of our law and policy. And in everything we

do, we should always promote competition first and foremost. I

think that this is fundamental and paramount.

Mr. TAUZIN. Obviously, this gets into the issue of whether the

agency remains a regulatory agency or moves successfully into an

enforcement-agency role, the question of how fast and how efficiently we can build competitive markets. But I guess the question

is, how long do you think that takes? Is this a 5-year plan, a 10-

85

year effort? When do we reach a stage where, in your opinion—I

realize everyone has their own crystal ball on this—where the

agency can be less relied upon regulatory initiatives and more reliant upon simply its enforcement authority to police against bad behavior in a competitive marketplace.

Mr. KENNARD. Well, I think it has already happened in some

areas. You see it in the wireless area, for example, where we have

had marked competition in wireless communication in this country.

The Commission been able to deregulate in some fairly significant

ways.

Forbearance from local number portability is a good recent example of that. In the long-distance marketplace, for example, as we

saw more and more competition over the last decade or so, the FCC

has consistently deregulated, de-tariffed in that area. In the international satellite area, we have a record of having eased off of regulation as we have seen more competition.

The real crux of the matter is making sure that we are focusing

our attention on what are the remaining bottleneck facilities that

need to be opened up to competition, and that is the prerequisite

to deregulation.

Mr. TAUZIN. I want you comment directly upon Mr. Huber’s concern. It is one I hear a lot, and one we think is worthy of our consideration as we move forward, and that is that the Commission

has the power under the law to define a set of regulatory rulemaking to a class of service just depending upon what you call that

provider. How do you react to that concern?

Mr. KENNARD. You know, with all respect to Mr. Huber, I think

the point was a little bit overstated because——

Mr. TAUZIN. Well, give me your take on it.

Mr. KENNARD. Okay. If you look in Title I of the act for example,

the Congress set forth pretty clearly some of the definitions defining telecommunications service providers, information services. We

are bound by those definitions. And so, clearly, there are some

areas in the act where we don’t have freedom to just define what

is, what service fits within what particular definition.

But that being said, I think that Mr. Huber’s point is well taken

that our overarching goal should be to promote more competition

and eliminate barriers where we have regulatory authority to do it.

Mr. TAUZIN. But, Bill, doesn’t the mere fact that we are moving

into a digital age, where communications, they are all going to look

the same—visual, telephony, and data, and—it’s all going to be in

the same screen. Doesn’t that itself lead to the conclusion that, depending upon what you call the facility, it is subject to different

regulatory authorities and different regulations. Isn’t that the crux

of the problem here?

Mr. KENNARD. My point is, is that some of that is in the statute.

I mean some of these companies——

Mr. TAUZIN. So we may have to change the statute.

Mr. KENNARD. I mean, some of these companies are providing

these services coming from different regulatory heritages.

Mr. TAUZIN. Yes.

Mr. KENNARD. From cable under Title VI and telephone is under

Title II. But the one point that I would have to take issue with Mr.

Huber on is that on advanced services. He made the point that

86

what we should be doing is completely deregulating the provision

of broad-band services. And I think that certainly should be the

goal, but we also have to recognize that in many cases the provision of those services do require the use of central facilities: the

copper wire into the home. And the act that you wrote very clearly

addressed that issue and that is why we are working hard to open

up that copper wire to competition.

Mr. TAUZIN. With the indulgence of the committee, and this will

be my last question, I would each of you to quickly respond. The

chairman has outlined his three missions for a new FCC. I just recited them for you. And, Harold, I know you don’t like to give us

advice until we ask you, so I am asking you now: If each of you

could give me your top three, four missions of an FCC in a world

of competitive marketplace as opposed to the 1930’s world of monopoly, regulated marketplaces, starting with Commissioner Ness.

Ms. NESS. Thank you, Mr. Chairman. Certainly one set of priorities involves ensuring that competition does, in fact, take place

and that abuses of market power are addressed where there are

complaints that are filed. That’s the enforcement side.

Ensuring that universal service is afforded to all consumers

throughout this country, is another extraordinarily important goal

of the act and one that we should continue to work on.

Spectrum management is also critical. We need to make sure

that the commercial uses of the band are in fact taken care of expeditiously, that we work with our colleagues abroad to make sure

that all of the services are able to see the light of day. So that is

a very important mission.

Ensuring that there is no interference, or that interference is

minimized, in the spectrum is extremely important as well.

So I see all of those pieces and then——

Mr. TAUZIN. So you basically endorse Chairman Kennard?

Ms. NESS. Yes, I do.

Mr. TAUZIN. Commissioner Furchtgott-Roth, again, put on your

thinking cap. You are not a member of the committee or Commission. You are just that good citizen out there. What should he Commission be doing in the future?

Mr. FURCHTGOTT-ROTH. Mr. Chairman, I believe under section 5

of the act the Commission has the authority to organize its staff

in any manner that it sees fit. I have not yet finished reviewing

the chairman’s proposals, but I think that there are any number

of ways that the Commission could be organized that would make

sense.

If you look around, the hundreds of Federal agencies, there is no

single way in which they are organized. They each have different

organizational structures, organizational structures that change periodically. In some cases, the organizational structure is statutory

and in some cases it is not. In the case of the FCC, it is not statutory.

And I think if you look at the different agencies around Washington, the ones that are successful, that you may consider to be

successful, I’m not sure you could attribute its success to organizational structure. And the ones that are not successful I’m not sure

that you could attribute that to organizational structure.

87

I believe organizational structure is an internal matter for the

Commission. I look forward to working with Chairman Kennard

and reviewing his plan, and to the extent it makes sense, I will be

very happy to——

Mr. TAUZIN. Assuming it’s reorganized, what’s the new mission

of the agency?

Mr. FURCHTGOTT-ROTH. The mission of the agency is very simple.

It is to follow the laws as written. You know, I don’t think we can

distill that into any set of principles, into anything beyond saying

we implement the law. We cannot give added weight to some section of the act and lesser weight to other sections, Mr. Chairman.

I have a very simple mind about this. And you know, it’s a good

thing I’m not a lawyer.

Mr. TAUZIN. Commissioner Powell, what’s the new mission of the

new FCC?

Mr. POWELL. Mr. Chairman, I think first and foremost, the Commission has to continue to serve out its role set forth in the 1996

act, of transitioning the legacies that we inherit out of its current

regulatory structure and all of the assumptions that go with that:

the technological assumptions, the regulatory assumptions, the

tools and devices we use to regulate them.

A perfect example would be data information which doesn’t lend

itself as much to the per-minute kind of pricing vehicles we have

used historically.

I think, first and foremost, we are in the messy business of

transitioning the legacies out. Where we get focused on competition

though is as we get those things out the door, we have to hesitate

as those things create newer realities and new environments and

the temptation to want to tinker in their migration.

I believe competition is not something you manage, or that you

‘‘master chef’’ for the public, it’s a replacement for us as the decisionmaker. It will make the decisions about the highest and best

uses as dialog between consumers and private firms. But I would

point out that I think we need to become increasingly focused on

what I would call innovation policy. Innovation is what is driving

these markets, more than our classic, tired versions of price and

choice regulation. And I think deregulation has to be the central

vehicle in innovation because I think competition has proven to be

the superior vehicle for innovative economies.

Second, I would agree with the Chairman and Commissioner

Ness, as long as it is the policy of the United States that spectrum

is a resource that is owned by the Government, there will be a role

for someone, us or someone else, in the management and issuance

of the spectrum.

But I will point out that shouldn’t be the end of the question.

There are many advances in thinking about what you can do with

spectrum that are more consistent with market dynamics. And I

think that is what Mr. Huber was attempting to suggest, that some

versions of pricing, spectrum flexibility that allow quicker and

more timely, more efficient uses of spectrum rather than coming in

to get permission could be that.

And finally, I think, as everybody would allude to, there is always a residual of consumer protection and affairs that government

would never want to abdicate. If we thought mobile phones were

88

frying your brain, I think everyone, no matter the truest free-marketer, would want somebody to do something about that.

But I think there is a spectrum of consumer protection that can

quickly cross over from core protection of our consumers’ health,

safety, and welfare into things that are the micro-managements of

markets, and I think we have to be careful of where that line is.

I personally believe that the high water mark in the middle is antitrust enforcement for anti-competitive effects.

But when you start heading on the other side of the spectrum

toward the right price, the right quality, the right et cetera, et

cetera, you are in another world I think.

Mr. TAUZIN. Thank you very much. And finally, Commissioner

Tristani.

Ms. TRISTANI. I’m going to agree with something my fellow Commissioner, Furchtgott-Roth, said. And I believe the new mission is

to implement the 1996 act as you wrote it, competition and universal service.

And Mr. Markey reminded us at the beginning of this hearing

that we do have the finest communications in the world, and still

envied by everybody else. And we need to make sure that it continues to be the finest and is accessible as it has been to most

Americans.

Mr. TAUZIN. Thank you very much. Mr. Markey.

Mr. MARKEY. Thank you. My district is half Irish and half

Italian, and my greatest fear is that I would ever have to run

against someone who could appeal to someone whose name started

with O and ended with O.

And it is all combined in Vito Fossella over there.

Mr. TAUZIN. Would the gentleman yield?

Mr. MARKEY. You bet.

Mr. TAUZIN. Is the new phrase ‘‘Oh forget about it’’?

Mr. FOSSELLA. Just for today, Mr. Chairman.

Mr. MARKEY. You know, the irony of the cellular industry—if

someone could put the wireless chart back up over here—was that

when this committee back in 1993 moved 200 megahertz over for

the PCS revolution, one of the things that I wanted and that ultimately the FCC put on the books as a rule was that neither of the

two incumbents, cause as you remember we gave away the first

two licenses back in the early 1980’s, neither of the two incumbents

would be able to bid for the third, fourth, fifth, and sixth licenses

in their marketplace.

And so because of Federal regulation, Federal law, we created

this very competitive marketplace with five and six competitors in

each marketplace with rapid technological change, geometric plummeting of pricing, that had not happened from 1981 all the way up

to 1993 and 1994. It was only when the Government created a policy which wouldn’t allow the incumbents to consolidate. And so it

is ironic now that the industry, many in the industry, are now arguing that there should be consolidation which should be allowed,

that there should be a lifting of the caps in terms of what would

be permitted, in terms of any individual marketplace.

And I have, without question, great concerns about that because

that is a success story. And that is what we should be looking for

in every other marketplace.

89

I would like to discuss, if I could, with the Commission how to

make wireless more fungible as a service to and competitive to the

local loop.

And I would like you, Mr. Chairman, and the other Commissioners to give me your views on when it might be possible for us

to move to, to deal with the issue of calling-party-pays or with

number portability so that we can add that additional revolution

to this wireless phenomenon so people can keep their cell phone on

all day long with a number which is fungible.

Mr. KENNARD. Certainly. I think we are—I am very encouraged

by what is happening in the wireless industry because we are seeing the price points in wireless declining to a point where we may

well see some people turning off their wireline phones and picking

up the wireless phones. Some of the flat-rate pricing plans that we

are seeing are very encouraging.

Calling-party-pays, I think, may also hold a lot of promise in expediting competition in wireless. This is on the, certainly on the

front burner of the Commission’s agenda. I believe that it is time

for the FCC to take up the issue of calling-party-pays. We have to

work through a lot of the difficult policy issues to implement calling-party-pays in the country, but it is time to do it. And I am fully

supportive of moving ahead with that.

Mr. MARKEY. Any other Commissioners wish to deal with that

calling-party-pays issue, especially?

Ms. TRISTANI. I would agree with the chairman.

Mr. MARKEY. Now here’s another irony, which would be that the

industry, that is the cable industry, fought the DBS revolution.

They fought the program access provision. Now, of course, they

turn and use the DBS revolution as the argument that there

should be complete deregulation of their industry.

But, if this committee hadn’t acted, they wouldn’t have that as

an opportunity. That is, that there would be no competition, which

could have emerged absent the Congress and the FCC having

acted. And again, I just want to continue to point out that a lot of

what we are saying, and Mr. Huber documented it quite well, this

rapid expansion of technology choices for consumers is as a result

of what has happened on this committee.

And I have one final question, if I can. One of the complaints

that new competitors are bringing to us is that they are thwarted

in providing competing services in multiple-dwelling units, such as

apartment buildings, where a consumer may want video or other

telecommunications services because they can’t get sufficient access.

Obviously, with cable rates being deregulated, we want consumers to get the chance to choose alternatives if they can and

want to.

How can the Commission help us with this bottleneck?

Mr. KENNARD. I think you put your finger on a very important

challenge in promoting competition, particularly at the residential

service level. I look forward to working with you, Mr. Markey, and

you, Chairman Tauzin, on your efforts to revisit the law in so far

as you would like to move more aggressively on the inside wiring

front. I think that that is, like the last mile, that is one of the—

it is really the last few feet of competition. And it is a very imporVerDate 22-SEP-99 11:00 Sep 23, 1999 Jkt 010199 PO 00001 Frm 00092 Fmt 6633 Sfmt 6602 X:\HSECOM\55640 txed01 PsN: txed01
90

tant few feet. And I think your efforts to look at statutory approaches to changing that is very productive, and I offer any assistance that we at the Commission could do.

Mr. MARKEY. And I would like, Mr. Chairman if I can briefly,

there is an interview with the CEO of Bell South in USA Today

on March 1st, and a question to him is, ‘‘Do you detect a change

in attitude at the FCC?’’ And his answer was, ‘‘The working environment is as good as I have seen it over the last 3 years. There

has been a great deal of changeover in staff, the FCC seems to be

working much harder under Chairman William Kennard’s leadership to define specifically what the requirements are for the local

Bell companies to enter the long-distance market.’’

I want to congratulate you, Mr. Chairman, and the rest of the

Commissioners for creating an environment that would elicit a

comment of that nature from the chairman of Bell South.

Thank you very much.

Mr. TAUZIN. They are still trying to get a permit approved. I

don’t blame him for saying that.

I thank the gentleman. Let me point out for all of you that we

have already scheduled in April a hearing on the inside wiring

issue. And I want to thank you, Mr. Kennard, for your offer of assistance. We are going to need all your advices, including you Harold, on how to make some good policy. And we welcome your comments as we move forward.

The Chair is pleased to welcome the vice chairman of the committee, Mr. Oxley, for a question.

Mr. OXLEY. Thank you, Mr. Chairman. Let me follow up if I can

on my opening statement and in particular on some responses that

you have had. As you know, Chairman Kennard, I quoted you to

say that we need to recognize that we are dealing with statutes

that really haven’t dealt with convergence. I think that is obviously

a true statement and even reflects on the 1996 act, even though

I think we have made some progress in that regard. And you also

talked about how the FCC would look different in 5 years. And I

think all of us would applaud that.

The real question is, how do we get from here to there? And can

we do it—let me just ask you this: Could you do it without legislation?

Mr. KENNARD. I think we must proceed to do all we can without

legislation, but certainly we look forward to working with you on

changes that might even advance competition more and help the

agency work even better.

Mr. OXLEY. Well, you are in many respects bound by statutes

that don’t recognize the changes that have taken place in the marketplace.

Mr. KENNARD. Well, that is right. And I guess the point I am trying to make is that we would certainly welcome you to address this

issue of convergence, legislatively, because the total solution will

have to come legislatively. But I want you to understand that we

are not going to wait. We will do everything we can in the interim

to advance a pro-competitive agenda.

Mr. OXLEY. Do any other Commissioners have a comment in that

regard?

91

Let me, then, move on. The term universal service has been used

quite a bit. Ms. Ness and others spoke of universal service. Will the

definition of universal service change as technologies and the markets change? If, in fact, universal service changes, is it going to be

changed by the FCC? Is it going to be changed by the Congress?

Is it is going to be changed by the marketplace? Will what we consider the standard of POTS, plain old telephone service, essentially

being universal service, will that change? How rapidly will it

change? And how do we adjust as policymakers to that potential

inevitability?

Mr. KENNARD. Well, Mr. Oxley, I think that some of these issues

were clearly contemplated in the act. In section 254 of the 1996 act,

I believe Congress clearly contemplated that universal service

would be an evolving concept and that we would continue to update

it as technology changes. And we certainly will follow the statue in

that regard.

But I think that one thing that we could certainly do immediately is to do everything we can to ensure that wireless providers

are part of the universal service dynamic because we do know that

in many rural, high-cost, low-density areas, wireless is providing

solutions to the universal service conundrum. And we ought to be

doing everything we can to promote universal service support to

wireless companies and satellite companies if they can provide

services most efficiently in those remote areas.

Mr. OXLEY. Well that then raises the question of how you pay for

it and who pays for it and how you structure or, restructure essentially, the universal service fund. How soon is that coming? How

soon does it have to come?

And, let me back up a little bit, in the 1996 act, there was a lot

of debate, there were some folks on this committee that wanted to

define universal service. We, I think, thankfully, avoided that conundrum and left, essentially, that section relatively amorphous. I

don’t think we really nailed it down, nor should we have. But

where are we then? And what’s going to happen? Universal service

is a big deal.

Mr. KENNARD. It is.

Mr. OXLEY. It is a big deal for us. It is a big deal for the carriers.

It is a big deal for the consumer. I’d like to just ask each one of

you where you see this process going in your best judgment.

Mr. KENNARD. We are working very hard on universal service

issues at the FCC. The FCC in 1997, spring of 1997, issued the

first major order implementing the universal service provisions of

the act. This Commission then turned its attention to completing

that task.

We learned very early on that we need really extensive engagement and input from our colleagues in the States to come up a

comprehensive reform of universal service.

So we convened a joint board of Federal and State Commissioners under the leadership of Commissioner Ness, which provided

us some very useful recommendations which the Commission is

considering now. We hope to complete our review of universal service this summer.

Mr. OXLEY. Other comments from any of the Commissioners? Ms.

Ness.

92

Ms. NESS. Thank you. Universal service has a number of component parts to it. And we are trying to work through these. But I

want to assure this committee that all pieces of universal service

are in place as provided under the act. What we are trying to do

now is carry through the changes that need to take place as competition comes into the marketplace.

In other words, today there is a high-cost fund that is providing

for subsidies in the high-cost areas. Low-income consumers are getting the benefit of modifications that we made to those programs.

Schools and libraries funding is in place, and with rural health

care we are working through some start up issues but there’s a

program there.

The issues are very complicated, and as Chairman Kennard mentioned, they involve a partnership with the States. Most of the implicit subsidies that support universal service are at the State level

and are controlled by the State Commissions. So we need to work

with our State colleagues to ensure that there is adequate funding

in the high-cost areas that can come from the Federal side, but

there is a limit to the amount the Federal side can handle. We

need to work through a whole host of issues, including revision of

access charges or access reform, to make this into a composite

that’s going to work for all consumers so that we also do not see

any rates going up for consumers. It is a very important piece of

this puzzle.

Mr. OXLEY. Thank you, Mr. Chairman.

Mr. TAUZIN. Thank you, Mr. Oxley. The Chair recognizes the

gentleman from Michigan, Mr. Dingell, for a round of questions.

Mr. DINGELL. My questions of the Chair——

Mr. TAUZIN. What we plan to do is, if the gentleman will complete his round, if the Commission—I’m sorry——

Mr. DINGELL. What were the wishes of the Chair? Mr. Chairman,

I will go now if it be your wish or do later.

Mr. TAUZIN. I would hope that the gentleman would proceed

now.

Mr. DINGELL. Then I shall do so.

Mr. TAUZIN. And then, but let me make an announcement, if it

is acceptable to the witnesses and to the committee. Perhaps after

Mr. Dingell completes his round that we can take a 40-, 45-minute

break. That is why I am asking your thoughts on it. I suspect this

may go on a little while, and, Mr. Powell, we have been here before

where we kept you sitting here a long, long time.

Mr. POWELL. Got to let me go to the bathroom.

Mr. TAUZIN. That’s what my point is.

I remember the last time we did this, it went on a long time.

With your indulgence, I would like to proceed with maybe a 40-

minute break. Would that be acceptable to everyone?

Mr. KENNARD. It would be fine with me, Mr. Chairman.

Mr. TAUZIN. All right, let’s do that. Mr. Dingell, you are recognized at this time.

Mr. DINGELL. Mr. Chairman, thank you. Chairman Kennard,

under section 254 of the Telecom Act, the FCC was required to establish within 15 months of the date of enactment a specific timetable for fully implementing a universal service fund. That was to

be done by May 8, 1997. Is that correct?

93

Mr. KENNARD. Yes.

Mr. DINGELL. And it has not been done. Is that correct?

Mr. KENNARD. By that date, Mr. Dingell, we did issue a universal service order which established a timetable for completing

the universal service reform. Yes.

Mr. DINGELL. You were supposed, however, to implement a universal service fund. That is not laying out a timetable. That is implementation. So you have not done it. Very well.

Now, initially, the December 1997 date was postponed until December 1998, which was in turn postponed to July 1, 1999. I believe the reason for this is that the FCC cannot agree on a model

to quantify how much support is needed for this high-cost fund. Is

that correct?

Mr. KENNARD. It is not exactly correct, Mr. Dingell.

Mr. DINGELL. What is correct?

Mr. KENNARD. On the timetable, what we did is, we came up

with the universal service order in May 1997. It would not have

been prudent for us to have completed all of universal service reform at that time without the kind of extensive input and engagement that we needed with our colleagues in the States.

And, as I would reiterate what Commissioner Ness said, it is important to recognize that we do have a sufficient universal service

support system in place. This is a question of updating it for a

more competitive marketplace for the future.

Mr. DINGELL. Well, I think this brings it down to the point that

you have not yet constructed the model of what the universal service fund is supposed to do, how much money will be coming in, how

much money will be going out as of this moment. Have you?

Mr. KENNARD. That process is ongoing as we speak. Yes.

Mr. DINGELL. But it is not done?

Mr. KENNARD. Correct.

Mr. DINGELL. And yet, it is fair to note that you are now allowing

long-distance companies to proceed, to move forward, to decide

whether they are going to pocket the lower access charges, whether

they are going to move them back to consumers, or whether they

are going to dissipate them in other ways. Is that not so?

Mr. KENNARD. Well, I am not quite sure what you mean by that,

Mr. Dingell.

Mr. DINGELL. I mean that you have done nothing to assure that

the long-distance companies address either the problem of providing enough service at low-enough cost or whether there is

enough money in the access fund to assure that there are low-cost

services afforded to the needy categories of users that the Congress

intended would be served by that. The result of this is that there

is a strong possibility that the fund will be dissipated by being

transferred out of the fund into the pockets and the hands of the

long-distance carriers.

The practical result of this will be that those moneys will be dissipated and, at the end of which time, there may be no money in

that particular fund to address the needs and concerns of the residential users, the local service users, who are supposed to be the

beneficiaries of that fund.

Now deny that if you please.

Mr. KENNARD. I will. That has not happened, Mr. Dingell.

94

Mr. DINGELL. But you don’t know whether it will or will not happen, do you? You have completed neither modeling nor have you

written any orders on this matter.

Mr. KENNARD. The reason why we are proceeding in a very deliberate way in working closely with our colleagues in the States is

that we want to prevent that very thing from happening so that

we can protect consumers.

Mr. DINGELL. Now are you able to sit there and tell me that this

will not happen?

Mr. KENNARD. No. I am telling you that it will not happen.

Mr. DINGELL. So you cannot tell me that. You are then in the position of sitting idly by, allowing these moneys to be returned to

the long-distance carriers with a fairly assurance that you don’t

know what is happening. So you cannot sit there and tell me, with

any degree assurance, that these moneys are not going to be turned

over to the long-distance carriers with the result that the local

service, particularly the residential users and others, will find at

the appropriate time there is no money to meet the claims that the

Congress wants them to have on that fund in terms of assuring

low-cost service being readily available to all of the inner-city users

and the rural users, who were supposed to be the beneficiaries of

that fund.

Mr. KENNARD. Actually, the access charge revenue is flowing not

to the long-distance companies, it is flowing to the local companies

for the purposes of—some of which is being used to provide universal service.

Mr. DINGELL. There is a subsidy in access charges, is there not?

Mr. KENNARD. Yes. And we are determining the precise amount

of that subsidy that goes to universal service support.

Mr. DINGELL. And that is currently supposed to be used to provide universal service at affordable costs to inner-city users, residential users, and to high-cost users in rural areas. Is that not so?

Mr. KENNARD. Well, some portion of it. Therein lies the debate.

Mr. DINGELL. But unfortunately you sit there in sublime ignorance of what that amount might be. You don’t have any idea, and

you don’t have any way of telling us what is the amount of that

subsidy, what should be the amount of that subsidy, how the

changes that are going on with regard to the use of that subsidy

will impact either the inner-city residential users or the high-cost

rural users.

Mr. KENNARD. Well, Mr. Dingell, it would be irresponsible for me

to make up a number and tell you that that is what it is because

it is an important number. And we have to make sure that it is

developed in a deliberate and comprehensive way, working with

our State colleagues.

Mr. DINGELL. So you don’t know the amount but you propose—

you are not contemplating doing automatic reductions in July?

Mr. KENNARD. No.

Mr. DINGELL. It has been widely reported that you intend to do

that.

Mr. KENNARD. Well, we are——

Mr. DINGELL. That you intend to do that not just this July, but

annually.

Mr. KENNARD. Well, you are going back to the access——

95

Mr. DINGELL. And to do so in blithe ignorance of what the impact

of that is or what the amounts of money involved might be or who

and how they will be impacted.

Mr. KENNARD. Mr. Dingell, nobody in this room, in fact, nobody

in the country to my knowledge, knows exactly what amount of access is devoted to universal service. It is a complex question. That’s

why we are working hard to develop the models which will answer

that question.

Mr. DINGELL. Well, explain to me, since you don’t know the

amount of the subsidies and the access charges and the impact of

this action, why should you be proceeding now toward reducing

these access charges and helping the long-distance carriers who

have no responsibility to subsidize the people that it was the Congress’ intent would be subsidized?

Mr. KENNARD. I am certainly not interested in proceeding with

access reform to help the long-distance industry.

Mr. DINGELL. That will be the practical effect, however.

Mr. KENNARD. Not necessarily. No, no, not necessarily. Access reduction should flow to consumers.

Mr. DINGELL. It is going to be the practical effect because you

can’t tell us how this money is going to flow, how much money

there is, or what the impact is going to be on the different persons

who have claims on that fund.

So you are proceeding blithely toward dissipating this money not

knowing what is going to be the impact on the inner-city residential user or the high-cost rural user.

Mr. KENNARD. I don’t believe I am, Mr. Dingell. And frankly, I

don’t think my Commissioners would support a vote if we didn’t determine what those numbers were in a responsible way.

Mr. DINGELL. Well, if you don’t know by July, are you going to

proceed to move forward, to do the annual reduction?

Mr. KENNARD. I am going to work on the access restructuring in

tandem with the universal service proceedings and how they are

coordinated.

Mr. DINGELL. That does not answer the question. Are you going

to proceed if you don’t have the answers to the questions I have

been asking about how this change will impact the inner-city residential user and the high-cost rural user?

Mr. KENNARD. Well, we hope to have these answers by the summer, and we will proceed when we have the answers.

Mr. DINGELL. Will you have the answers by the summer?

Mr. KENNARD. We hope to have the answers by the summer.

Mr. DINGELL. If you do not have these answers, will you proceed?

Mr. KENNARD. It would be difficult to proceed if we didn’t have

the answers.

Mr. DINGELL. I think you should anticipate being held to that

statement at some future time.

Mr. TAUZIN. The Chair would interrupt. What was the answer?

Are you proceeding or not? This may be difficult, but you didn’t say

whether you would or not. I think this committee would like an answer.

Mr. DINGELL. The answer is he doesn’t know.

Mr. TAUZIN. Do you know?

96

Mr. KENNARD. It is a complicated question. The X factor does

kick in in July based on the productivity of the local exchange carriers. That is correct. But universal service reform is proceeding in

tandem, we are working hard to develop the actual numbers, the

actual amount of universal service support which is embedded in

access, and we will work on that number and come up with an access reform plan that works in tandem with that.

Mr. DINGELL. Mr. Chairman, would you permit—this is a wonderful answer, and I am enjoying. And if I had more time I would

probably enjoy it more. The fact of the matter is that it is not responsive.

Mr. TAUZIN. The Chair has extended the gentleman’s time, and,

without objection, the Chair will extend it for another minute or 2.

Mr. DINGELL. The X factor kicks in July, does it not?

Mr. KENNARD. Yes.

Mr. DINGELL. So aren’t we well served to get an answer to the

questions now before we proceed? Then get the X factor just as

soon as we can. Then decide what it is we ought to do about this

matter. So that you know that you are not dissipating funds. May

very well be that you are not, but you can’t sit here and tell me

you are not. So why are we not waiting until we have the answers

to the question before we proceed?

Mr. KENNARD. What we don’t want to do, is do anything that will

jeopardize universal service support.

Mr. DINGELL. That is precisely the point I make. Yet you are

blindly continuing without the vaguest idea of whether or not you

are going to impair this fund or not.

Mr. KENNARD. That will not happen, Mr. Dingell. We will not impair universal service.

Mr. DINGELL. I have dealt with folks for years who have sat in

the well and told me, trust me. And way back when I was young

and dumb and green, I did. But I have gotten smarter.

Reed Hunt moved exactly the opposite direction. Did he not? He

increased the X factor. And he didn’t even know whether it was in

the subsidy or not. Did he?

Mr. KENNARD. I can’t answer that question now.

Mr. DINGELL. Are you going to repeat, replicate his error? I wonder if the other Commissioners have a comment that they would

like to make——

Mr. TAUZIN. The Chair will ask, yes, if any of the other Commissioners wish to respond. Any of the other Commissioners want to

jump in here?

Mr. Kennard, any final statements?

Mr. KENNARD. Yes. I just wanted to point out in response to Mr.

Dingell’s question. I don’t know whether he will find this responsive or not. But, interstate access usage is going up in this country,

and so we can offer—we can take some comfort in the fact that universal service is not going to be jeopardized while we proceed with

this restructuring, which we are working very hard to do with our

colleagues in the States and, really, all of the affect industries.

Mr. DINGELL. The answer is you don’t know.

Mr. KENNARD. Nobody knows, Mr. Dingell.

Mr. DINGELL. When will you know? And when you know, what

will you do?

97

Mr. KENNARD. As soon as I know, you will be the first to know,

I assure you.

Mr. TAUZIN. With that behind us, the gentleman’s time has expired. We have beaten this X factor horse to death.

Mr. KENNARD. I beg your pardon.

Mr. TAUZIN. I think we beat this X factor to death. I think we’d

better move on. Let’s take about a 40-minute break. Let’s get back

at about 1:40. That will give everybody time to have lunch. The

committee will stand in recess.

[Brief recess.]

Mr. TAUZIN. The committee will please come back to order. While

members are returning, let me do an exercise that might be useful.

Let me list a couple of—you know, one of the things, Mr. Chairman, I have asked members of the industry to begin doing, both

the regulated industry and the unregulated side of the communications, is to begin putting together ideas and suggestions for us as

to what direction reform ought to take, some ideas.

I want to list a number of things, and before the day is over I

would like you to think about this and maybe comment on each

one.

I’m going to list, in fact, a list of 8, 10 approaches that have been

widely, broadly suggested to us. One is that ending the FCC’s

role—somebody called it the Department of Redundancy—that is,

doing the same things other agencies are required to do. Some of

you mentioned that.

Some kind of a process that would, I know Mr. Huber talked

about it, level the playing field for different players in a time of

convergence. How do you get to a more level playing field for all

the players in a time of convergence consistent with deregulatory

approaches?

A third one we hear a lot about is ending the let’s-make-a-deal

philosophy. That is, that when people come to the Commission for

licenses or merger approvals or something that all too often they

find the process held up in sort of let’s make a deal, what can you

do for us that we would like you to attitude. We hear a lot of that.

And I would like some of your comments about why you think that

is either appropriate or inappropriate for a regulatory Commission

to be doing, particularly a Commission that is migrating over to an

enforcement type agency.

The question of whether or not there ought to be a presumption

in favor of forbearance over regulation—Mr. Huber mentioned

that—as opposed to a presumption that you have to get permission

to do something as a part of the re-missioning of the agency.

Mr. Dingell has talked about ending the uncertainties in the implementation of universal service. What can we do in terms of reform that would help get us to that point sooner. I realize that may

be limited, but what if anything we can do.

The using the biennial review to eliminate outdated and outmoded regulation. That is, actually requiring the FCC to use that

biennial review process to do that.

You have all mentioned the modern, forward-looking agency

structure. Mr. Powell, you particularly expressed concerns about

whether or not it would really get anywhere. We would end up

with multiple variations of the same structure under new headings.

98

If you can all comment to us on what kinds of new structures

would be worthwhile pursuing, and which would not.

Another I think some have alluded to, defining a framework for

the worldwide web. That is, making some rules that would apply

to it now, some general rules that would apply to all the systems

that might come into play.

Deadlines for deliberations, instead of the open-ended deliberations. Some outside time limit to get something done, particularly

when an applicant is before the agency. We hear that a lot from

people who are complaining to us about current procedures, that if

they only knew at some point there would be a decision, that there

would be some, perhaps, more certainty in the marketplace.

Sunsetting. Whether or not any forms of sunsetting of FCC rules,

absent an affirmative finding, that the requirement is necessary to

serve the public interest. That is a common element used in reform

in many legislative areas. I know that was a very popular sort of

tool used in reforming executive and legislative branches as I was

coming up. You sunset unless you can affirmatively say that this

is worth doing again, and for this new reason.

Those are all concepts that perhaps if you would think about and

as we further explore this, either now or later, if you could comment to us on them.

Mr. Pickering is recognized from Mississippi.

Mr. PICKERING. Thank you, Mr. Chairman.

Mr. Chairman, I have a few questions. First, the core mission of

the Telecommunications Act of 1996 was basically to open up all

markets and remove all barriers, but the critical mission was to

open local and then have the subsequent entry of the regional Bells

and telephone companies into long distance. As we talked about

earlier, we are seeing emerging competition, and are seeing, I

think, good developments in the marketplace in technology and alliances and partnerships. I believe that we are poised to have this

year as the breakthrough year.

We talked about earlier, we hoped for it to be sooner, but as we

go into the third-year anniversary, my question for you is where do

we stand on any 271 agreement, a breakthrough that would set a

blueprint and, hopefully, would be a catalyst to expedite competition across the country in local and long and in the convergence

that we hope follows from that?

Mr. KENNARD. Well, as we have talked before, Congressman, we

don’t have a 271 application pending before us, but we anticipate

that we will have applications later this year. I am very encouraged by the progress that we are seeing in some of the States that

have 271 proceedings ongoing, like in Texas and in Georgia, New

York, California. And I think we went through a process, which

you alluded to during the first few years after the passage of the

act where a lot of companies were hedging with the litigation. They

had, sort of, one eye on the courts and the other eye on the FCC.

And I think that as these legal issues get resolved, I am seeing

a change in attitude among some companies that they really want

to roll up their sleeves, do the hard work of opening these markets,

and making the 271 process work. So, even though we don’t have

an application pending before us, I do believe that progress is being

made and will be made this year.

99

Mr. PICKERING. Let me just encourage and emphasize. I think to

a certain degree, our credibility, Congressional credibility in the

passage of the act, and the expectations that we would see greater

progress, faster progress than we have seen to date, the FCC’s

credibility is, I think, at stake in this year, the third year, to see

progress and a breakthrough on a 271.

And so I encourage you and all the Commissioners in the FCC

to work closely with the States and all competitors and participants

to see a 271 agreement hammered out. And I hope it can be done

in this year.

And I hope that we see the blueprint that will then be established for the rest of the country and the market forces that would

hopefully replicate, or cause replication, quickly.

Do you think that can be done this year? Do you predict a 271

breakthrough this year?

Mr. KENNARD. Well, it is hard to predict, although, I’ll say again,

I think that we are seeing some encouraging progress. Folks are

really focusing on it in some States. But I think it is important to

note that the, at least in my view, the end in itself should not be

to grant a 271. The end, and I’m sure you share this concern because we have talked about it, is to open the markets. That should

be the goal because that is how the public is ultimately served.

Mr. PICKERING. I agree. But I do hope that everyone has the certainty of what is required and that we do see, in those states that

you mentioned, possible breakthroughs this year.

Let me move on to the FCC merger review process, review and

approval process, with first, Bell Atlantic-Nynex, MCI-Worldcom,

now with Ameritech. What is the average time for those approvals

in the merger process?

Mr. KENNARD. Well, Congressman, as you know, the FCC approves many, many mergers in the ordinary course. And, in fact,

since the act was passed, we have literally approved hundreds of

transactions, where companies have come together and combined

and needed our approval. The time varies depending on the complexity of the transaction.

In an unopposed, routine situation, we approve—broadcast transactions often go through in 2 months, unopposed. Some of the

international deals go through that quickly.

The average time is about 6 months. In the extraordinary case,

where you have a hotly contested merger, where you have a huge

record, like the Big Bell mergers, it takes much longer because you

have important market structure issues to deal with and you have

just a very voluminous record. So those can take longer than 6

months.

Mr. PICKERING. As you know, in the Telecommunications Act, we

repealed 221 (A), and we tried to separate—we foresaw the merger

of some of the cable, telco issues, and we wanted to give Justice

Department the antitrust review. Now we maintained public trust

standard review for mergers as they went forward. And this goes

back to the same question of stability, predictability, and certainty

for markets and investment.

And if we come to a merger process, and it is long and it is

drawn out, then that can have a negative effect as we position ourselves to have the companies partner-ally, deploy networks, and

100

the uncertainty of what is the standard at the FCC. What is the

time?

I think it does a disservice. And we need to find a way of possibly

to have a certain timetable. All through the bill, we set timetables

for the 271, for the regulatory process, for the rulemaking process.

Would you support a 180-day, a 120-day requirement for all merger

review at the FCC?

Mr. KENNARD. I think we would have to look at—the short answer is yes, but. And I think the but is an important one because

I think we would have to look at lots of factors that play into the

merger-review process, like the timing of the Justice Department

review, the timing of other regulatory approvals, not only State approvals but also, increasingly, approvals from other jurisdictions

outside the United States. And what we have tried to do is coordinate with these other entities so that that we can make the process

work not only well for us at the FCC, but also work well for the

companies and the parties involved.

I definitely share your concern that we could, we need to make

this process work better so that it is not duplicative of other Government agencies. And I would love to work with you on that.

Mr. PICKERING. Mr. Chairman, I know my time is up, could I ask

just two quick questions?

Mr. TAUZIN. Without objection.

Mr. PICKERING. And just to follow up to Commissioner Powell, do

you have any thoughts, you mentioned in your testimony a possible

streamlining of that process, or clearly delineating the responsibilities of the Justice Department and the FCC, do you have any

thoughts on the merger-review?

Mr. POWELL. Well, Congressman, I would certainly love to work

with you in more detail to flesh out proposals, but I will give you

a few thoughts.

I think it starts with determining what you believe to be the

unique expertise of the respective agencies that are currently playing a role in merger review. The case is often eloquently made that

the Federal Communications Commission has some unique expertise that add value to the merger considerations when a telecommunication company is at issue.

And I suspect you wouldn’t argue with that. Also, there are particular policy functions that cannot be considered appropriately

under the antitrust laws. For example, the impact on diversity in

the context of a broadcast merger, for example, would never be considered in an antitrust analysis, or universal service, or whether it

is a circumvention of section 271.

But often if you look in detail, a substantial portion of the merger review, in fact, is a duplication of classic horizontal or vertical

merger analysis, applying the same precedents, principles, and

guidelines applied by the antitrust division. I personally have come

to believe that a great deal of the marginal value of that full-blown

analysis is not justified by the costs imposed. That is two sets of

documents often being filed at two different agencies, two separate

arguments.

I think that there is room to work to tailor the value of our role

to the value that we do bring and nothing more, and try to limit

those areas of duplicating competitive analysis for which we, in my

101

opinion, are not particularly trained or uniquely skilled to do, certainly as compared to the antitrust authorities.

I also, with respect to your question about timeframes, I would

actually take a slightly different tack than the chairman, maybe to

your surprise, and say, ‘‘no but.’’ I think that what you might consider playing with two variables, time and permission to continue—

it’s not unlike the Hart-Scott-Rodino process in antitrust. I could

imagine a proceeding that I know is partly contemplated in the

Kohl-Dewine legislation in the Senate on this issue, in which after

a short period of time, a quick look, it would require the vote of

the full Commission to continue the investigation.

You might have additional milestones further out. I do get nervous in antitrust analysis, having previously been an antitrust lawyer, of setting some prophylactic ‘‘It’s over’’ at 6 months no matter

where you are because I think you potentially have dangerous or

anti-competitive mergers that only by virtue of time you begin to

gamed by the companies because they know you are running out

of clock. And I think that if you trust at all, you should allow some

majority of Commissioners to be able to say we think there are

enough serious issues to continue the evaluation.

But I think the idea of Hart-Scott-Rodino-like milestones of

which after 30 or 45 days, you would be required, the bureaus

would be required, to submit to the Commission a recommendation

on continuing this investigation and require us to take responsibility for its continuance.

Mr. PICKERING. Basically, I take it that we can work on both the

time and the scope and look forward to working with the chairman

on this issue. Just one small editorial comment in the spirit of Hershey, which is this weekend, and in the principles that are outlined

in the Telecommunications Act of open and non-discriminatory access. I would hope that with all of your Commissioners, Mr. Chairman, that you would give open, equal access, non-discriminatory

access, to all information, to all of your Commissioners.

And with that, that is my only editorial comments.

Mr. TAUZIN. Well said. The Chair will now recognize the gentleman from Chicago, Mr. Rush.

Mr. RUSH. Thank you, Mr. Chairman. To the Commissioners, I

want to, again, join with my other colleagues in expressing my sincere appreciation for your coming over here to engage us in this dialog that we have been involved with for most of the morning and

into this afternoon. I really appreciate all that you are doing, and,

I tell you, some might not share this opinion, but, in my humble

opinion, this is one of the best Commissions that we have had. I

think that you all are doing a fantastic job under some really difficult and trying circumstances.

And I want you to know this is one Member of Congress who appreciate all that you do because I can see progress. My constituents

in my district, the First District in Illinois, they see progress. And

I just want you to know I would just ask you to keep up the good

work. You are doing a fantastic job.

Problems have not been solved. There are still problems. But

from all indications from my perspective, I see some real, sincere

efforts to solve the problems, to re-focus the FCC on the issues that

102

face the American public. And I again want to say thank you so

very, very much for the work that you are doing.

I read the chairman’s testimony and I think that it is a significant step in the right direction. And in my estimation, it puts a

balanced framework before the Congress, before the American people, and for the stakeholders. It will allow us all to have a role in

determining what the FCC will look like once this reorganization

takes place.

I have one question, and that is, at relates to the telecommunications areas and concerns in my district, which is an urban district. In 1996, the Telecommunications Act was supposed to deliver

certain capacities to us and certain capability to low-and moderate

income urban areas, and I see a problem because the results have

been somewhat disjointed. Of course, with the universal services

and also with the E-Rate, there is some significant attempts to

equalize and provide some equity in terms of access to the Internet.

I am somewhat frightened and somewhat concerned about the

latest developments in terms of the telecommunications industry in

terms of this advanced telecommunications capability. And in too

many of our neighborhoods and communities throughout this Nation, we don’t have the basic access to telecommunications, to the

technology. And now there is a part of this Nation, the other America, is moving toward high-speed Internet access.

They are moving—they are light years ahead of some places in

my district, and I’m just, Mr. Chairman I want to ask you, what

methods and what approaches are we, are you engaged in to try

to bring all of America up to par, bring it up to standard, one

standard for all America as it relates to telecommunications technology? What are you, how are you working to correct this inequality? And what else needs to be done in terms of correcting this inequality?

Mr. KENNARD. Mr. Rush, I think you have just stated very eloquently what I believe to be one of the greatest challenges that confronts all of us as we move into the information age, making sure

that all Americans are a part of it. And there is lots that we can

do. We can, first and foremost, do what we are doing to promote

competition because we know that competition does serve consumers best, it lowers cost, it promotes innovation, and it allows

more Americans to get services faster.

But we also know that competition alone won’t solve this problem. That is why we have to have a universal-service subsidy

mechanism in place that works. That is the role of government.

That is why I believe that is one of our core functions.

And I also believe we have to work with industry. In fact, when

AT&T and TCI first proposed their merger, and they came in to see

me to talk about it, one of the things I asked them is, what are

you doing to make sure that these advanced services that you are

promising the country reach all of the country, particularly our

lower-income areas. And they actually brought in maps, including

a map of Chicago, and they committed to me that they had upgraded the cable systems in the city of Chicago for the rollout of

advanced services and that this will happen in all of Chicago.

103

That was a commitment they made to me, and I am hoping that

we can work together to make sure that they fulfill that commitment.

Mr. RUSH. Mr. Chairman, I have no additional questions.

Mr. TAUZIN. Thank my friend. Also want to point out that at

least in lots of parts of the Chicago area there are competitive

wires offering cable service now which has your part of the world

ahead of a lot of our parts of the world, Bobby. I hope—yes, you

are doing pretty good in that regard.

The Chair recognizes the gentleman from Florida, Mr. Stearns.

Mr. STEARNS. Thank you, Mr. Chairman. Mr. Kennard, Chairman Kennard, the Commission continues to work on deciding the

technical standard for CALEA, compliance. Can you or the committee provide us any kind of update? When will the standard decision will be announced?

Mr. KENNARD. Certainly. We have been working hard on that.

We put a notice out, I believe it was late last year, a notice of the

proposed CALEA standards, and we scheduled to have a decision

this spring.

Mr. STEARNS. Okay. When we gave you the Telecommunications

Act, the Commission itself—I don’t mean you personally—and then

we gave you the budget agreement in 1997, within all of these were

stipulations about the LMA’s. In fact, in subsection G of section

202 of the Telecommunications Act report language, Congress specifically instructed the FCC to grandfather LMA’s currently in existence upon enactment of this legislation.

I guess the question is, why hasn’t the Commission, why have

you refused to act based upon direct orders from Congress, and I

think this goes to several pieces of legislation, which included that

language. And we are just puzzled by why you still don’t seem to

act, and in fact you are in direct opposite to what we requested.

Mr. KENNARD. Well this proceeding is teed up for action. Indeed,

we were poised to move late last year. There was some concern

about some of the proposals, and we felt we needed to do more outreach with the industry and with Chairman Tauzin and other

members of this committee. That proceeding is still teed up and we

anticipate this spring as well on that.

Mr. TAUZIN. If the gentleman will yield?

Mr. STEARNS. Sure.

Mr. TAUZIN. I think what the gentleman is asking, though, is

both the budget act and the Telecom Act both included specific language that the LMA’s should be grandfathered.

If the gentleman will let me ask the question?

Mr. STEARNS. Yes.

Mr. TAUZIN. Is the Commission going to follow the instructions

of Congress? And if not, why not?

Mr. KENNARD. Well, Mr. Chairman, we may have a disagreement

about precisely what that language means on grandfathering, although I——

Mr. STEARNS. Reclaiming my time. I think you mentioned to Sen.

McCain regarding local marketing agreements—you told Sen.

McCain last year you had a different definition of grandfathering.

So maybe the key problem here is—you tell me, what is your definition of grandfathering is?

104

Mr. KENNARD. Well you know, the precise statutory language,

the directive in the 1996 act, I think the plain reading of that statute gives the Commission discretion. Now the report language is

different, and I’m not saying that we are going to exercise that discretion, but I will say that on the legal-technical point, we may

have a difference of opinion on that.

Mr. STEARNS. We have a difference of opinion on what

grandfathering is?

Mr. KENNARD. No. On what the——

Mr. STEARNS. Yes.

Mr. KENNARD. There seems to be a conflict between the statutory

language and the 1997 budget act legislative history.

Mr. TAUZIN. Would the gentleman yield?

Mr. STEARNS. Sure.

Mr. TAUZIN. Is there any ambiguity in the report language of

both the budget act and the 1996 act that says the Commission

shall grandfather LMA’s?

Mr. KENNARD. There is no ambiguity in the budget act legislative

history, and there is no ambiguity in the statute, but they don’t say

the same things, precisely the same things.

In fact the Commission addressed this——

Mr. STEARNS. Why don’t you take the language in the Telecom

Act and act? In other words, why don’t you take the language in

the Telecommunications Act, I mean, basically you are just an exemption based upon what circumstances that pre-exist. So exempt

them all.

We have had to come back and do this again and again.

Mr. KENNARD. That is clearly one of the things we are considering doing, and we will be acting on that soon.

Mr. STEARNS. Okay. I urge you because it has been 31⁄2 years or

so and seems as though——

Mr. TAUZIN. The Chair will be generous, will the gentleman yield

again?

Mr. STEARNS. Sure. Go ahead.

Mr. TAUZIN. Let me try to make this case. If there is any ambiguity in the statute, there are pretty clear instructions as to what

Congress meant in the language of the report. Why are you

lawyering us to death on this thing? Are you hearing anything

other than what the report says from Congress, as to what we

meant when we wrote the act? Has anyone written you? Have you

gotten a lot of calls from Congress saying don’t grandfather LMA’s?

Mr. KENNARD. There is not unanimity of opinion on this particular provision in the statute among all Members of Congress.

Mr. STEARNS. Well, if Congress passes a bill and we send it to

the President and he signs it, that seems pretty unanimous in our

decision. And we do it twice. I don’t see how you could come here

and say there doesn’t seem to a unanimous opinion on this. Doesn’t

Congress have the right to act by majority vote, pass legislation,

the President sign it, give it to—aren’t you under orders to enforce

it?

Mr. KENNARD. I guess, Congressman, that is not exactly what I

am saying. What I am saying is that there is a discrepancy between the legislative history of the budget act and the statutory

language of the 1996 act.

105

Look, I don’t want to lawyer this to death. And I don’t want to

get into a detailed exposition of statutory interpretation. I will say,

though, that I think we need to preserve the point that there is a

discrepancy between that language. As a lawyer, it is an occupational hazard. I have to point that out.

But we understand your point of view on this particular provision, and we will be moving ahead on it this spring.

Mr. TAUZIN. Would the gentleman yield again?

Mr. STEARNS. It is a broader problem, Mr. Chairman. And let me

try to state it. The broader problem is—I think Mr. Huber spoke

about it, some of you spoke about it in terms of re-authorizing and

reforming the FCC, the FCC too often finds reasons not to follow

the will of Congress. And granted you may find that there is some

wiggle room in there, but the will of Congress, and particularly

those who wrote the statute, pretty well expressed in the report

language. There is a unanimity of expression from the folks who

wrote that language as to what they meant.

They meant for these LMA’s to be grandfathered. Pretty clear. I

mean, yes, you can find some wiggle room if you want to, but the

broader question is why does the FCC do that? Do we need to

change some laws so the FCC doesn’t have this authority to go out

and make policy that is directly contrary to what is clearly the intent of the folks who write the law and send it to you to enforce

it?

I mean Harold made a great statement about not wanting to tell

us how to write the law, that his job is just to enforce it. That is

pretty nice. Why isn’t that the rule at the Commission, particularly

in a case where it is so very clear what the authors of the legislation mean when they spell it out twice in two statutes in the report

language? I mean, why are we having this legal argument over

this?

Mr. KENNARD. Well, I take your point, Mr. Chairman. I guess

the—whenever the Commission addresses issues of statutory interpretation, it is not that we are just doing this to frustrate your will,

it is because if we don’t raise these issues and think them through

carefully, people will raise them in court. And that is where we get

into trouble in the Judicial Branch. So——

Mr. TAUZIN. Will the gentleman yield again? I will be generous

if the gentleman wants to proceed.

But if you say you have discretion, and that is your legal conclusion, and if there is language in the report language from Congress

saying do this. Who are on earth is going to win a battle in court

against you that you used your discretion and did what Congress

asked you to do here? Who on earth is going to win that legal battle?

Why would any lawyer advising you say, watch out, you are

going to get sued on this one?

I mean, that is hard to follow, Bill.

Mr. KENNARD. I take your point on that.

Mr. TAUZIN. The gentleman may proceed.

Mr. STEARNS. Let me just finish up here, Mr. Chairman.

Chairman Kennard, the D.C. Circuit Court recently invalidated

the FCC’s affirmative action rules as a violation of the Constitution’s equal protection clause. Yet, I recently read that the FCC is

106

considering adopting new affirmative action rules, notwithstanding

the court’s Constitutional ruling. And I understood that one of your

legal bases for doing this is you are relying upon language in a conference report accompanying the 1992 cable act.

And I guess the question is, is that true?

Mr. KENNARD. Well, certainly in the 1992 cable act Congress did

pass legislation codifying EEO rules in the statute. I don’t know

what you are quoting from and what we are relying on, but I will

tell you what we are doing with the EEO rules.

Mr. STEARNS. Sure.

Mr. KENNARD. The U.S. Court of Appeals did invalidate the Commissions rules as applied to broadcasting. The Commission revisited those rules in the wake of that court decision and put out a

proposal to modify the rules to address the concerns of the court.

It was a view of the majority of the Commission that the rules

are important and that the Commission should try to restructure

the rules to address the concerns of the court. And that is what we

are doing.

Mr. STEARNS. I was just trying to show how you are using accompanying language in a Congressional report to invalidate a D.C.

Circuit Court. I think what I am suggesting, and the chairman and

I are on the same track here, we are trying to show you how you

go to Congress when you want to go ahead to invalidate a District

Court ruling, you will use language from the report, and then when

we instruct you twice dealing with LMA’s, you are sort of saying,

‘‘Oh, we can’t go forward because there seems to be confusion between the budget act and the Telecommunications Act.

It is not necessarily asking for an answer, but I am just saying

that the feeling we have here is that you folks are grasping for

anything you can to push a different agenda than from which Congress is trying to instruct you.

And so we submit that the case that Chairman Tauzin and I

have brought forward dealing with the grandfathering of LMA’s is

clear example where you are not doing what Congress is asking

you to do, understanding grandfathering. The definition is very

simple.

And now you say you are going to do something in spring, but

we have brought this before and there just seems to be waiting and

waiting on this issue.

So, Mr. Chairman, is there anything you want to add certainly.

I think——

Mr. TAUZIN. I think you covered it. Thank you.

Mr. STEARNS. Okay. And I thank the chairman.

Mr. TAUZIN. Thank the gentleman. The Chair recognizes the gentleman from Illinois, Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. This has been very—

a good hearing and very educational. Mr. Chairman, I will yield to

the opposite side.

Mr. TAUZIN. I don’t think the gentleman has gone yet at all on

the first round? That’s right.

Mr. SHIMKUS. Correct.

Mr. TAUZIN. On the first round. That’s right. So we joined

through the first round. I’m sorry.

107

No, I understand. I was answering the gentlelady’s request. We

are still on the first round. If the gentlelady will allow me, Mr.

Shimkus is recognized on his own time.

Mr. SHIMKUS. This has been a good hearing. I know it is kind

of like the Bataan death march for many of us, but we are learning

and we are getting some good issues out on the table. I am glad

that my colleague from Florida went first because I am pretty sympathetic. I want to keep my focus on the future restructuring of the

FCC, but I just want to associate myself with the comments of the

chairman and my colleague from Florida. I used to teach government and politics in high school, and this is a very simple case

study of why we have to return time and time again and continue

to rewrite laws based upon the Executive branch reinterpreting

Congressional intent.

I don’t think there is a clearer example than what the gentleman

from Florida brought up. Pretty clear, straightforward, a non-lawyer can understand it, 95 percent of the American public can understand it. We ought to just fix it, and we ought to comply. But

I appreciate my colleague bring this up. It has fired me up, and I

didn’t want to be fired this late in the day.

I do want to focus on a kind of macro issue and a micro issue.

Macro is going back to the future of the FCC, going back to your

three categories, consumer protection, universal services, spectrum

management. Mr. Huber in his comments talked about an area of

high-speed digital system. And really, I think, from the layman’s

terms of taking all the analog systems of broadcast, telephone, and

looking at the high-speed digital system, which I would think

would be another sub-category, if you were to accept his model—

I guess the question is, does that position make sense in a future

of the FCC?

Mr. KENNARD. I think it does in this respect. I agree with Mr.

Huber that the world is changing, the world is changing very fast.

The FCC has got to change with it. We talked earlier about some

of the statutory constraints. And I look forward to working with

this committee on addressing some of those. And there are also regulatory constraints.

I guess I would reiterate something that Commissioner Powell

said a little earlier. And that is that, to paraphrase, we shouldn’t

reform just to reform. We ought to have a clear sense of what our

mission is. I get a little bit concerned when I hear people talk

about creating these sort of super bureaus at the FCC because I

don’t know if that is going to solve the problem, because a lot of

these issues sort of go beyond structure.

So I am not sure if that directly answers your question, if

not——

Mr. SHIMKUS. Well, what I also have—I talked to Congressman

Oxley earlier in this day because I now serve on his subcommittee

on the financial services, and I think the debate—I shared it with

him to make sure that I was, that my thought process made a little

bit of sense. And the process is, if you look at—the debate we are

having is, where is the future role of your agency? And is it a regulatory agency? Or will it be an enforcement? And how do we move

there?

108

And I think we have a great example of the SEC, who is really

more enforcement oriented. And that is where I see the future

being, especially as you address the issues of competition, as being

really another category that you thought was critically important.

So I would—is that a proper analysis of the future: more of enforcement than regulatory?

Mr. KENNARD. Absolutely. Absolutely. One of the things that I

did last year is, in consultation with my colleagues, announced our

plans to create an enforcement bureau. And this is more than symbolic. We really do want to change the enforcement ethic at the

FCC. It is my view that as these markets become more competitive,

we have to have an enforcement mechanism that makes more

sense and that allows us to get out of the business of being the

gatekeeper, deciding who gets in which market and who can compete where, but rather to write the rules of competition to make

sure that the real fundamental, pro-competitive rules are in place

and then enforce them aggressively and swiftly.

So I do agree with you. The philosophy should shift toward enforcement.

Mr. SHIMKUS. Mr. Chairman, if I may?

Mr. TAUZIN. The gentleman may proceed.

Mr. SHIMKUS. On the competition side, and not just with the

merger analysis, but also on all your proceedings, I think it would

be helpful in the competitive aspect of something that you support

is that there be—I mean we are in March Madness time—that

there be a shot clock of some sort so that everybody on board

knows, especially in proceedings, how long they can expect to wait

or not to wait so that the investors can get lined up, the process

can move forward.

I am a former Army officer. You know, when you make no decision, that is a decision. If you delay a decision, that is a decision.

And it throws the future in peril by delay. I think—I believe that

our committee would clearly be, a large percent of us would want

to encourage you to move proceedings along at a much greater

pace. And that is a comment on my part.

The last point I will make is, micro, the E-Rate. You have heard

my complaints about it before. You put us in a terrible bind. Those

of who are tax cutters and want to address the E-Rate, we are in

a bind between being a tax-cutter and against schools, or for

schools and for tax increases.

I want to publically state my support for my chairman’s position,

which he will formally take, I hear, in a week to address this problem that we have with the E-Rate and do it in a proper way when

he releases his bill. I would like to have your comments on that position.

Mr. KENNARD. Glad to.

Mr. SHIMKUS. I yield back.

Mr. TAUZIN. Thank the gentleman very much. The Chair recognizes the gentleman from Texas, Mr. Green, now.

Mr. GREEN. Thank you, Mr. Chairman. I am glad my colleague

from Illinois brought that up because the E-Rate, the way it was

originally handled, and thank you for correcting it, but before I

came to the Commerce Committee, I served on the Education Committee, and obviously the E-Rate and the uses of those funds are

109

important to my schools in Houston, Texas, getting an urban district.

But Mr. Shimkus, one of our colleagues, Congressman Klink

from Pennsylvania, has a bill that would eliminate the E-Rate and

cut the Federal excise tax. So our rate-payers would actually save

money then. And that is a bill—I know I am a co-sponsor of—and

so it is something we might want to consider in this committee.

But let me go to some of the other questions because I think you

have heard about the E-Rate, and I am glad it has been corrected

because it is awfully important to urban areas, and even rural

areas, particularly in urban areas that do not have the resources

to wire schools, even though we work with our local phone companies.

A few weeks ago, the Commission ruled on ISP traffic in reciprocal compensation agreements. And in the ruling, you said that

ISP traffic on the whole is interstate in nature, and that set off lots

of letter-writing campaigns, but not that many, mainly an e-mail

campaign.

Mr. KENNARD. That’s right.

Mr. GREEN. And saying that we are going to make ISP calls long

distance. And in my opening remarks, I mentioned it. And if you

could give me your assurance, one, that the FCC will not take

those steps to make ISP calls a long distance call, and does your

ruling open the door to assessing an ISP call as a long-distance call

because if it is, and if the provider has to pay it, then you and I

know that the ultimate Internet user will have to do it.

And I know if we have been bombarded on this committee, I can

imagine you have too. And so if you could address that.

Mr. KENNARD. In the wake of that decision, Congressman, I

started getting about 500 or 600 e-mails a day. So I am very familiar with this particular issue. And the message that we conveyed

back to those folks who sent us e-mails is that, rest assured, we

are not interested in changing the way that people use the Internet. One of the reasons why the Internet is growing so fast is because people can use the Internet for a flat rate, it is treated as

a local call. Nothing that we did in our decision recently is going

to change that.

And I know that there is a unanimous commitment from this

Commission not to impose any sort of permanent charges on the

use of the Internet.

Mr. GREEN. For long-distance calls?

Mr. KENNARD. Yes.

Mr. GREEN. That is the fear.

Mr. KENNARD. Yes. That is what I mean, long-distance charging.

Mr. GREEN. And I also, you know, I know the 1996 act that I

wasn’t on the committee for, also, I understand the language in

there, made sure that that is not happening.

But as my colleague, my ranking member Dingell, sometimes the

statutes may not be interpreted the same way at the Commission

as they are here. Let me go to my next question. I appreciate that,

and believe me, we will follow up with our constituents, who have

been concerned about it.

The FCC released the property record audit of the Bell operating

companies which said that these companies could not locate over

110

$5 billion worth of equipment. And I know Chairman Tauzin and

my ranking member Dingell sent you a letter requesting answers

to a series of questions about the audit process, and I don’t know

if you have responded to the letter, and if you have, if we could get

a copy of the response. Again the concern I have, at least it is being

played out in the newspapers and the media, that the property

record audit, the Bell operating companies did not have the opportunity to actually show that they have these assets, and if you

could just address that.

Mr. KENNARD. Sure. First of all, we did respond to the letter that

was sent to us by Chairman Tauzin and Mr. Dingell. And I would

be happy to get you that response.

Second, the Bell operating companies did have lots of opportunities to work with the FCC in the many months leading up to the

FCC’s decision to release the audit. In fact, for approximately a

year, the FCC staff worked closely with auditors from the Bell company so that they could understand what we are doing and we

could respond to their concerns. But they will have even more

chances because the release, when the FCC voted to release this

report, we did so without drawing any conclusions about what the

report means. In other words, we didn’t take enforcement action,

we didn’t indicate what the implications of this would be for ratepayers.

And so we hope to have yet another opportunity, not only for the

Bell companies, but for other people in the marketplace, and particularly the State regulators who are very interested in this data.

In fact, the National Association of Regulatory Utility Commissioners passed a resolution asking the FCC to release this report

so that they could have the benefit of the information in it.

And so there will be opportunities for lots of people to comment

on it further.

Mr. GREEN. And so the FCC—did you consult with the independent public accounting firms that do the annual audits for the

Bell operating companies?

Mr. KENNARD. Did we what? Did we meet with them?

Mr. GREEN. Was there the opportunity to consult with the independent accounting firms that perform the financial audits for the

Bell companies?

Mr. KENNARD. I believe so, although I wasn’t involved in those

meetings. So I am not exactly sure. But I know that I directed the

staff to meet with the Bell companies and their auditors to get

their perspective on this audit report. Whether they were independent auditors or in-house auditors, frankly, I don’t know, but I

could certainly find out.

Mr. GREEN. Okay.

And, also, you mentioned that the local—like in Texas we have

the Public Utility Commission—the continuing property records I

am sure will have an effect on the consumer rates and also the access charges that may be set in local jurisdictions, and I guess

even—so that has an impact.

Mr. KENNARD. Well, that is an issue that will have to be vetted

in the public record. Again, we haven’t drawn any conclusions as

to how this affects access charges or rates, or compliance with our

rules. We just wanted the information out there so that the Bell

111

companies could have yet another opportunity to review the information and that members of the public, consumer groups, State

regulators, competitors, will have access to that report.

Mr. GREEN. Okay. Thank you, Mr. Chairman. I know we have a

vote on.

Mr. TAUZIN. Thank you very much, sir. The Chair recognizes

himself. We are going to go a little while longer, take a break for

these votes, and come back. The problem is, we have a 5-, a 15-

minute, and a 5-. So we may need to come back at 3:30.

Let me quickly ask you a couple questions, Mr. Chairman. And

I wanted to follow up on something Mr. Pickering was doing regarding these mergers, time limits on them.

Ms. ESHOO. Mr. Chairman, I hate to do this, but I have been

here since 10:07 this morning. Can I just submit my questions to

the chairman to be responded to in writing so that I don’t have to

stay any more? I mean, it has been instructive, but this has really

been a long haul. With your permission, I would like to do that.

Mr. TAUZIN. Let me ask the gentlelady, has she had a round yet

with the Commission?

Ms. ESHOO. No. I haven’t.

Mr. TAUZIN. Well, my apologies. The gentlelady is recognized

right now. Proceed.

Ms. ESHOO. At this point, I would just like to submit them in

writing and ask for permission to do that, and ask that the chairman respond. Thank you.

Mr. KENNARD. Gladly.

Mr. TAUZIN. I thank the gentlelady.

What do you want to do? We are going to go another 5 minutes.

We will come back at 3:30

In regard to what Mr. Pickering was moving on, the question of

mergers and holding mergers up. We repealed and got rid of comparative license renewal and went to auctions for licenses, trying

to get away from a process where there was a lot of green-mailing

going on. A lot of people were filing objections to licenses, greenmailing individuals, shaking them down, as close to blackmail as

I have ever seen.

And one of the reasons we moved to get rid of that process, to

go to some objective process of re-licensing was to eliminate that

opportunity. I want to ask you, is the process by which the Commission holds up merger applications, holds up acquisition applications for licenses, is it leading to the same problem? People are filing objections to these mergers. People are delaying the Commission’s work in these areas. Do you sense, do you find, do you feel

that there is a chance that people are doing this in order to greenmail or legally blackmail applicants before the Commission?

Is this another opportunity for the same problems to express

themselves as they did in the old licensing broadcasters situation?

Mr. KENNARD. I really don’t think so. The Commission addressed

this issue in the broadcast context a number of years ago, when the

Commission reformed its rules to make sure that people couldn’t do

exactly you described. They would file a petition and then hold up

a licensee for money or for some other considerations. So we scrutinize those petitions pretty carefully, and, in fact, under our rules

112

they have to come in and disclose what consideration was received

in exchange for any dismissal of a petition or anything like that.

I think that, you know, a lot of the—in the current mergers on

the telcom side, what we are seeing now are competitors coming

and raising a lot of, you know, fairly complex issues about market

structure.

Mr. TAUZIN. I am aware of those. I am more concerned about

these acquisition applications where—there are two concerns. Mr.

Pickering has raised the one about where it is open-ended, where

there are no time limits for adjudication, raised the concern to

make sure that there was adequate sharing of information among

Commissioners regarding those situations.

I am raising the concern that it may open the door, these openended processes, may open the door to people finding it convenient

to hold somebody up for an illegitimate purpose. And I am suggesting that reform in that area may cure that possibility, as it did

in the comparative license renewal situations.

Second, I am deeply concerned with the notion that people who

are entitled to relief in an application before the Commission may

be held up because the Commission may decide that we want to

hold you up pending a decision as to whether we are going to

change our rules and regulations, say on an ownership issue.

Is it fair to an applicant who is trying to purchase a license or

acquire a license and merge to have their rights withheld them because the Commission may want to change the rules in the future

when they are entitled to their remedy today under the current

rules of the Commission?

Any one of you. Would you like to respond?

I see Mr. Powell shaking his head. Would you like to respond,

Michael?

Mr. POWELL. I will say this, having worked at the antitrust division of the U.S. Department of Justice, there is the opportunity for

what you describe. And I would probably agree with the chairman

that we are seeing rampant uses of this at the moment, but I

wouldn’t be honest if I didn’t say I have seen attempted uses of it,

modest, but quite frequently.

Part of the problem is that merger review in an administrative

agency’s structure, is open to the Administrative Procedures Act

and the kinds of processes and requirements that we have to go

through that the antitrust division does not. The antitrust division

insulates itself from this by insisting it is a law enforcement agency.

And I assure you, the DOJ halls are not being walked by every

opponent of every possible merger review getting audiences with

Joel Klein. At the FCC, every time someone files an ex-parte, every

time someone attempts to come in and meet on a merger, we generally, our staffs, are required to respond to any considerations

raised in these contexts or they would be accused on review of having not adequately addressed the record, et cetera.

There is an enormous amount of opportunity within that structure to abuse and use it for reasons that are, arguably, not really

merger-specific or are, in fact, an attempt to delay or impose predatory conditions on a future competitor. And I think that that hapVerDate 22-SEP-99 11:00 Sep 23, 1999 Jkt 010199 PO 00001 Frm 00115 Fmt 6633 Sfmt 6602 X:\HSECOM\55640 txed01 PsN: txed01
113

pens a bit. I think there is potential for it to happen a lot. Right

now——

Mr. TAUZIN. I understand. I would hope you would be watching

that all the time. And I am assured you would. I am concerned that

the opportunity is there.

Second, do any of you believe you have the right as a Commission to deny someone an application because you may change your

rules later on? Any of you believe you have that right? Are applications being held up because you may change your ownership rules

in the future, to be specific?

Mr. KENNARD. What? I am confident that the Commission

wouldn’t deny an application because of——

Mr. TAUZIN. But you might not take action on it, just waiting to

see if you are going to change the rules.

Mr. KENNARD. No. Actually, what happens is usually the reverse.

Mr. TAUZIN. How do you mean?

Mr. KENNARD. Companies come in and they file an application

asking for a transaction to be conditioned on the outcome of some

future rulemaking. And frankly, that has created problems at the

FCC, particularly in the broadcast area.

Mr. TAUZIN. Yes.

Mr. KENNARD. And that is an area we are trying to get away

from.

Mr. TAUZIN. I just want to raise an issue, because I think as we

address the issue of how mergers and applications are handled by

the Commission, those are concerns I would like you to be thinking

about and interacting with us on.

Finally, I think Mr. Dingell did want to do another round, but

I think I am going to let you go, with his indulgence. I think we

are just going to wrap it up here.

Let me just ask one more thing, Mr. Kennard. My understanding

is the President’s budget includes a provision that, if enacted,

would permit the Commission to strip bankruptcy licensees of their

licenses even if they were under the protection of the bankruptcy

court.

You and I know what this is all about.

Mr. KENNARD. Yes. Of course.

Mr. TAUZIN. This is snuck in appropriations. This is being done

outside the authorizing committee. And, No. 1, I would hope that

the Commission is not part and parcel of an attempt to avoid the

authorizing committee in this area. And, No. 2, I would ask you

why should the Commission receive more favorable treatment than

any other creditor, including equipment manufacturers, such as

Lucent, in these cases? Why should the Government, the Commission, get more favorable treatment in a bankruptcy?

And more importantly, why would anyone seek to handle this

issue in an appropriations level instead of through the committee

that I hope you respect as much as we try to respect your authority.

Mr. KENNARD. Well, of course, as you know, Chairman Tauzin,

we have talked about this issue many times. And I have always

sought your input on this particular issue, and will continue to do

so. But my view is that it is important that the FCC have the ability to take licenses, to circumvent the bankruptcy process when we

114

have optioned licenses and become, in effect, the creditor for the licensee because for the auction process, in my view, to work best,

we have to have confidence that if somebody bids in our process,

gets an installment payment plan, and then gets into trouble and

can’t pay, that we will be able to re-option that spectrum because,

after all, it belongs to the public. And we have to ensure that it

is put to good use for the public——

Mr. TAUZIN. You and I know we disagree on that?

Mr. KENNARD. Yes.

Mr. TAUZIN. But why would—I hope you are not part of it. Why

would you be part of it? I hope you tell me you are not. Of an attempt to do this in a rider on an appropriations bill instead of settling this before the authorizing committee?

Mr. KENNARD. well, I don’t know what the genesis of this particular rider is——

Mr. TAUZIN. Just snuck in there?

Mr. KENNARD. Yes. I don’t know how it got in there.

Mr. TAUZIN. Did the Commission ask for it?

Mr. KENNARD. I don’t know. I will find that out for you though.

Mr. TAUZIN. I would appreciate a direct response on that.

Mr. KENNARD. Certainly.

Mr. TAUZIN. I have to go make the vote. And I think Mr. Dingell

will understand. I think he does. The hour is late and we very

much appreciate all of you being here, we will continue this process, of course.

I deeply appreciate, again, your patience, your time. And again

want to reiterate how important I think this issue is and how much

I appreciate the fact that you are taking it seriously because we

certainly are. Thank you very much, sir.

Mr. KENNARD. Thank you, Mr. Chairman.

Mr. TAUZIN. The committee stands adjourned.

[Whereupon, at 2:52 p.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:]

RESPONSES OF THE FEDERAL COMMUNICATIONS COMMISSION TO FOLLOW UP

QUESTIONS FOR THE RECORD

QUESTION FOR THE RECORD FROM REPRESENTATIVE STEARNS

Question: Chairman Kennard, the 1996 Telecom Act directs the FCC to liberalize

its ‘‘one to a market’’ radio/television cross ownership rule in the top 50 markets.

Since 1993, the FCC has granted 36 permanent one to a market waivers, and of

those, nine have been waivers encompassing one television station, two FM and two

AM stations. So for 6 years, it has been the FCC’s policy to grant permanent waivers authorizing one tv and four radio station combinations.

It has been widely reported that the FCC’s staff proposal on one to a market last

November was to allow the one tv/two FM two AM combination. But that strikes

me as somewhat disingenuous. The ’96 Act clearly directs the FCC to liberalize the

rule. But if all you do is adopt current practice dating to 1993, doesn’t that fall far

short of what Congress intended in the ’96 Act?

Answer: The Commission has adopted a ‘‘presumptive’’ waiver policy under which

it will look favorably on granting a waiver to allow the common ownership of one

TV station, one FM station, and one AM station in the top 25 television markets

if at least 30 independently owned broadcast voices remain after the merger. See

47 C.F.R. § 73.3555, Note 7(1). Section 202(d) of the Telecommunications Act of 1996

directed the Commission to extend this waiver policy to any of the top 50 television

markets ‘‘consistent with the public interest, convenience, and necessity.’’ In a Second Further Notice of Proposed Rule Making, 11 FCC Rcd 21655, 21685 (1996), the

Commission stated that, ‘‘[c]onsistent with Section 202(d) of the 1996 Act, we proVerDate 22-SEP-99 11:00 Sep 23, 1999 Jkt 010199 PO 00001 Frm 00117 Fmt 6633 Sfmt 6621 X:\HSECOM\55640 txed01 PsN: txed01
115

pose, at a minimum, to extend the Top 25 market/30 voice waiver policy to the Top

50 markets.’’

It is also true that the Commission has permitted permanent television-radio combinations consisting of up to one television station and two FM and two AM stations

in the same market, where the applicant had made specific factual showings satisfying a stated five-factor waiver standard. In the Second Further Notice, the Commission invited comment on a variety of possible changes relaxing the one-to-a-market rule beyond that specifically contemplated by section 202(d) of the Act.

We have received a wide range of comments regarding these proposals. Some parties have urged the Commission to relax the one-to-a-market rule, but a number of

others oppose modifying the rule given their concerns about the impact this would

have on competition and diversity. I am studying all the options raised by these proposals. In deciding these issues, I will of course be guided by section 202(d) of the

1996 Act as well as section 202(h) of the Act which requires the Commission to review its ownership rules biennially and ‘‘determine whether any of such rules are

necessary in the public interest as the result of competition.’’ In doing so, I will

‘‘take into account the increased competition and the need for diversity in today’s

radio marketplace,’’ as is stated in the Conference Report on the 1996 Act.

QUESTIONS FOR THE RECORD FROM REPRESENTATIVE LARGENT

Question: The Telecommunications Act of 1996 required the FCC to reform universal service in order to make universal service competitively neutral while ensuring the delivery of service in high cost areas. If universal service subsidies are limited to incumbent carriers, won’t competitors find it difficult to provide service in

high cost areas? What is the status of universal service reform and when can we

expect universal service to be complete?

Answer: I agree that limiting universal service support to incumbent carriers

would limit competitors’ ability to enter the market. Historically, universal service

support for serving rural and high cost areas was only available to incumbent carriers. In the First Report & Order implementing section 254 of the Act, however,

the Commission made universal service support ‘‘portable’’ to any carrier that wins

the customer. This change took effect January 1, 1998.

I, and my colleagues on the Commission, are working diligently to reform the universal service mechanism for large carriers serving rural and high cost areas in an

effort to make the program more consistent with the development of competition.

As required by section 254, we convened the Federal-State Joint Board on Universal

Service and received their initial recommendations in November 1996. In May 1997,

the Commission adopted a comprehensive plan for high cost universal service reform. The Commission determined that support should be portable, as noted above,

and that it should be based on the forward-looking cost of providing the supported

services, which is the basis of economic decision making in a competitive market.

The reform process was bifurcated, and small, rural carriers were guaranteed that

there would be no potential decreases in the support available to them until at least

2001. For large carriers, the Commission set about refining and selecting a cost

model for estimating forward-looking costs.

In November 1998, the Commission received further recommendations from the

Federal-State Joint Board on Universal Service as to how support amounts should

be determined in light of forward-looking costs, particularly with respect to support

for maintaining reasonably comparable intrastate rates. The Commission is currently considering an Order and Further Notice of Proposed Rule Making acting on

the Joint Board’s recommendations in May 1999. Commission staff are working to

refine the cost model and we are striving for implementation of a universal service

support mechanism for large carriers serving high cost areas in January 2000.

In reforming universal service support for rural and high cost areas, I believe the

Commission must ensure that support—for the carrier that wins the local customer—will not be eroded as the Act’s competitive environment emerges, while acknowledging that high cost universal service support is an existing program on

which many carriers depend. I am striving to strike a balance between ambition and

caution as we move forward. Of necessity, therefore, the process is and has been

an incremental one.

Question: One of the major goals of the ’96 Act was to bring competition in the

local telecommunications marketplace. We have heard a lot about competitors seeking entry into the business marketplace, but we hear less about competitors seeking

to enter the residential market. What is the status of competition for residential

service? Is competition for residential service emerging anywhere? What ingredients

appear to be necessary for successful residential local competition?

116

Answer: Thanks to the 1996 Act, competition has begun in the local telecommunications marketplace. Today there are ten times the number of competing local carriers (nearly 150) as there were prior to the 1996 Act. There are also over 20 publicly-traded competitive local exchange carriers (CLECs) with a combined market

value of $33 billion versus just 6 with a combined value of $1.3 billion prior to the

1996 Act. The Commission has worked hard to eliminate barriers to entry into the

local markets. One means the Commission uses to determine whether incumbent

LECs are taking the necessary steps to open their local markets to competition is

the section 271 review process. Another means is through dialogues that the Commission has had with Bell Operating Companies (BOCs), competing carriers, and

other interested parties. Information gathered using both these means shows that

no BOC provides nondiscriminatory access to its respective operations support systems (OSS) functions consistent with the 1996 Act’s nondiscrimination requirement.

Review of the BOCs’ deployment of OSS functions under the section 271 process,

at both the state and federal levels, will assist in opening the local exchange market

to competitive entry as envisioned by the 1996 Act.

Nondiscriminatory access to interconnection and collocation is also crucial to the

development of local exchange competition. Through the review of section 271 applications, and other information, the Commission has been unable to conclude that

any regional BOC provides nondiscriminatory access to interconnection and collocation. As part of its Advanced Services proceeding, the Commission has recently released new rules on collocation. With these efforts, the Commission hopes to eliminate certain interconnection and collocation practices that pose barriers to entry.

Further, in accordance with the 1996 Act, the Commission promulgated rules requiring incumbent LECs to combine unbundled network elements (UNEs) for requesting carriers so that requesting carriers could provide local exchange service entirely through the use of UNEs. Access to combinations of UNEs allows new entrants to provide local exchange service to end users on the same cost basis as the

incumbent LEC. The Commission’s rules in this area were vacated by the Eighth

Circuit Court of Appeals. The U.S. Supreme Court reversed much of the Eighth Circuit’s decision, but also remanded, in part, the Commission’s implementation of the

network unbundling obligations as set forth in the 1996 Act. The Commission recently released a Further Notice of Proposed Rule Making in this proceeding and

hopes to act on this issue as soon as possible. In the meantime, the Commission

will continue to review BOC section 271 applications to ensure that new entrants

are able to combine network elements in a non-discriminatory manner.

Competition in the residential market is developing, but not as quickly as we had

hoped. A number of cable television companies are providing competing wireline

local exchange service to residential customers in their serving areas and this type

of residential competition is expected to grow rapidly in the next few years. For example, in the context of the AT&T/TCI merger, AT&T described its plans to upgrade

TCI’s cable systems in order to provide competing telephony services and assured

the Commission that it intends to use these upgraded systems to provide residential

local exchange service in the foreseeable future. Certain industry members claim

that there may be insufficient profit margins associated with serving residential customers within certain markets that make it difficult for competitors to compete with

the incumbent LECs in serving these customers. Costs incurred by competitors to

utilize elements of incumbent LECs’ networks such as loops and for collocation can

make it economically difficult to provide competitive service in some markets. A serious barrier to ‘‘mass market’’ competition is deficient interconnection between the

incumbent LECs and the competitive LEC’s operations support systems. Without

seamless electronic interconnection between these systems, manual intervention is

required. Such manual efforts are capable of handling only a very small volume of

high revenue (i.e., business) customers. We are seeing progress in these areas, as

incumbents improve their operations and as this Commission and our state colleagues step up enforcement activities. In addition, by bundling local telephone service with other services, such as long distance, Internet access, and video, some competitors are able to create a viable package of offerings. I also note that utility companies, either on their own, or through joint ventures, have begun offering local telephone service to residential customers. A number of competitive LECs are offering

residential services to apartment complexes where the density of customers makes

it economically feasible to build competitive facilities. The development of local competition, particularly in the residential markets, takes time. The Commission, nonetheless, is optimistic that residential consumers will soon reap its rewards.

Question: Recently, I have heard a great deal from my constituents on the issue

of number portability charges on their phone bills. Would any of you care to comment?

117

Answer: (Chairman Kennard) In the 1996 Act, Congress mandated that all local

telephone companies provide local number portability in accordance with requirements to be established by the Commission. The number portability charge that appears on your constituents’ telephone bills is the result of the Commission’s implementation of the number portability provisions of sections 251(b) and 251(e) of the

Telecommunications Act of 1996.

Long-term telephone number portability provides residential and business telephone customers with the ability to retain, at the same location, their existing local

telephone numbers when switching from one local telephone service provider to another. Congress recognized that consumers are less likely to switch local phone companies if required to change phone numbers in the process, and that implementation

of number portability would lower barriers to entry and promote competition in the

local exchange marketplace. Although telecommunications carriers must incur costs

to implement number portability, and some part of those costs may be passed on

to consumers, the long-term benefits will give consumers more competitive options,

lower local telephone prices and, consequently, stimulate demand for telecommunications services and increase economic growth. For example, after the Commission

required number portability in 800 numbers, enabling customers to keep their 800

number when changing long distance carriers, demand for toll free service increased

dramatically. Although the savings that have accrued to consumers are not easily

quantified, since price is a significant component of demand for this service, it is

reasonable to conclude that consumers are benefitting from lower prices and greater

choice.

In the 1996 Act, Congress also mandated that the costs of establishing number

portability should be borne by all carriers on a competitively neutral basis. In May

1998, the Commission released the Third Report and Order, reaffirming its previously adopted competitively neutral standard and establishing the cost recovery

standards for long-term number portability. To enable local exchange carriers to recover number portability costs on a competitively neutral basis, the Commission permits, but does not require, incumbent local exchange carriers to recover some of

their costs of implementing number portability through a federal charge assessed

on end-users and through a query service charge assessed on other telecommunications carriers. Recognizing consumers’ sensitivity to end-user charges and that

many of the network upgrades made by carriers to implement number portability

also will provide other services or features, the Commission narrowly defined the

costs it would permit carriers to recover through federal charges. The Commission

determined that only costs directly related to number portability are to be recovered

through number portability end-user and query services charges. These are costs

that: (1) would not have been incurred ‘‘but for’’ number portability; and (2) must

be incurred ‘‘for the provision of’’ number portability.

Under the Commission’s rules, local exchange carriers cannot begin to charge

their end-users for the costs of local number portability until local number portability is available in their area, can begin to charge consumers in areas where

number portability is available no earlier than February 1, 1999, and must end consumer charges after 5 years. Moreover, not all costs are passed directly through to

consumers. For example, query service charges other carriers pay for using the local

exchange carrier’s querying capabilities help lower the charges local exchange carriers assess their end-users.

By carefully scrutinizing the local number portability tariffs filed by local exchange carriers, the Commission is acting to ensure that end-user and query services rates for long-term number portability are reasonable and as low as possible.

Following an investigation of these tariffs, which must be concluded within 5

months of the effective date of the tariff, rates found to be unreasonable may be

rejected. The Commission then may prescribe a just and reasonable rate and order

refunds of overcharges, if any.

As noted above, the Commission understands consumers’ sensitivity to additional

charges on their telephone bills. In the long term, consistent with Congress’ intent,

the Commission expects the implementation of local number portability to benefit

consumers by lowering prices, making a wider variety of telecommunications services available, encouraging more advanced telecommunications services, and improving the quality of telecommunications services as new local telephone companies

compete for business.

Answer: (Commissioner Ness) I agree with the Chairman that long-term number

portability is crucial for competition, because it enables consumers to change service

providers without being forced to change their phone number. Number portability

is a statutory requirement, and it imposes costs on all carriers which they are entitled to recover. Nonetheless, as I noted at the time of the Commission’s decision,

I was troubled by the prospect that a single class of carriers—the incumbent

118

LECs—would recover their costs from consumers who do not yet have a choice of

local exchange carrier. I would have preferred that residential consumers be shielded from such number portability charges until they actually experience the benefits

of competition. But, in the give and take that led to the consensus order, I ultimately agreed to a regime under which incumbent LECs are allowed to recover

number portability costs only in areas where number portability capability has actually been deployed. In such areas, consumers at least have a greater potential—but

not the certainty—of having a choice of local carrier.

Answer: (Commissioner Furchtgott-Roth did not respond to this question.)

Answer: (Commissioner Powell) I generally subscribe to the views expressed by

Chairman Kennard in his response to this question. One of the most difficult challenges of implementing the Telecommunications Act of 1996 concerns the need to

require changes in the telephone network, which was designed primarily for use by

monopoly providers, in order to allow multiple, competing carriers to provide service

using parts of that network. Implementation of the Act’s local number portability

requirements involves one of these changes to the network. The network modifications necessary to provide number portability are analogous to steps taken more

than a decade ago to provide long distance companies with ‘‘equal access’’ to the

local telephone network following the divestiture of AT&T. Equal access has led to

an increasingly competitive long distance market. Similarly, I believe that changes

in the network relating to local number portability will make it easier for firms to

compete with incumbent local telephone companies and hopefully thereby bring the

benefits of competition to consumers. Although I am sensitive to the public’s concern

about the appearance of local number portability charges on customer bills, I also

believe that carriers should have some reasonable and fair opportunity to recover

their costs of complying with the statutory requirements. That said, I firmly support

taking effective steps to scrutinize the manner in which carriers are allowed to recover these costs.

Answer: (Commissioner Tristani) Since the 1996 Act became law, carriers have

added a number of new charges to the bill, and the occasionally inadequate or misleading descriptions of the charges only add to consumer frustrations. So I well understand consumers’ unhappiness with the new charge for number portability that

has recently appeared on some local telephone bills.

The 1996 Act mandated that carriers deploy number portability. Since the carriers were forced to spend significant sums of money to comply with this legal requirement, I believe carriers should be allowed to recover that cost in some reasonable manner. They are doing so through the number portability charges on local

telephone bills. I note that the Commission is currently investigating the number

portability charges of several carriers that were submitted in tariff filings to insure

that they are reasonable. It is also worth noting that carriers are free not to impose

number portability charges on their customers. The FCC did not mandate that carriers impose number portability charges; it only permitted this method of cost recovery. In the end, I am optimistic that number portability will accelerate competition

in the residential telephone market and will lower prices and improve service. Those

benefits, I believe, will outweigh the charges now being paid by some telephone customers.

Question: I understand that the FCC is about to let the U.S. registration of the

60° orbital slot lapse. Aren’t satellite orbital locations an increasingly scarce resource? Isn’t this one of the particularly valuable slots because it covers both North

and South America? Why would the FCC voluntarily give this up?

Answer: The FCC has acted aggressively to preserve the 60° W.L. orbital location

for use by a U.S. satellite operator, and is continuing to contest the expiration of

the U.S. filing at 60° W.L. at the International Telecommunication Union (ITU). The

FCC believes that there is significant ambiguity within the ITU process relating to

the determination of the expiration date. Under our interpretation of ITU rules and

related ITU actions, the deadline for a timely U.S. filing at 60° W.L. was April 25,

1999. As explained below, the U.S. sought to meet that deadline.

In September 1998—well in advance of the expiration of the nine-year limit under

our interpretation of the rules—we notified potential U.S. operators of the impending expiration date in a concerted effort to preserve the U.S. filing at 60° W.L. At

the same time, we also initiated correspondence with the ITU, seeking to clarify the

expiration date and to extend the life of the filing at 60° W.L. to the full extent possible.

In the meantime, on February 5, 1999, PanAmSat Corporation (PanAmSat) filed

a request for Special Temporary Authority (STA) to relocate an in-orbit satellite to

60° W.L. It was aware of the uncertainty of the filing status at the ITU at that time.

On April 1, 1999, the FCC granted PanAmSat’s request to locate at 60° W.L. for

sixty days. The satellite, which was moved from another orbital location, reached

119

60° W.L. on April 12, 1999. Thereafter, PanAmSat filed a request for STA to operate

from 60° W.L. for a period of 180 days. On April 13, 1999, the FCC put that STA

on Public Notice. On April 21, 1999, we granted PanAmSat interim temporary authority to operate from the 60° W.L. location for 60 days. In order to preserve the

right of the U.S. to use 60° W.L., on April 21, 1999, the FCC submitted the requisite

information to the ITU in order to complete the satellite notification process at 60° W.L. prior to the April 25, 1999 date.

At the same time, we have pursued procedural remedies within the ITU to clarify

the status of the 60° W.L. location. On March 12, 1999, the ITU notified the United

States by letter that the nine-year period lapsed in June of 1998, and that the U.S.

filing would be cancelled. The FCC appealed the decision on March 22, 1999. That

appeal was denied. The FCC appealed again to a higher level of the ITU on April

1, 1999. That appeal also was denied. We are continuing to explore further possible

appeals so as to preserve this orbital location for a U.S. operator.

Question: Much of what we are talking about today is how to revamp the FCC

for the 21st Century. We are all looking for ways to get out of the way of electronic

commerce or enhance it where we can. With that in mind, I understand the FCC

has asked for input on whether or not companies should be allowed to sign up customers for long-distance service over the Internet. Assuming there is personally

identifiable information given voluntarily by a consumer (such as a credit card number), shouldn’t the FCC take this opportunity to enhance E-commerce by recognizing

a change in service request obtained over the Internet? I would like to hear from

each Commissioner on this point.

Answer: (Chairman Kennard) The Commission’s recently adopted slamming rules

require that all carrier changes be verified in accordance with one of three methods:

written Letter of Agency (LOA), electronic authorization, or independent third-party

verification. These requirements were adopted by the Commission, pursuant to Congress’ directive in section 258 of the Telecommunications Act of 1996, in order to

ensure that all changes in consumers’ preferred local and long distance carriers

have been knowingly authorized by the customer.

The Commission recognized in that Order that many carriers recently have begun

to utilize the Internet as a marketing tool to gain new subscribers and that such

solicitation can be an effective and efficient method of making these services available to the public. The Commission expressed concern, however, as to whether carriers using the Internet to sign up new customers were complying with the Commission’s verification requirements so as to ensure consumers utilizing this method are

afforded the protections from slamming intended by the Act and Commission rules.

For example, the Order noted that, absent adequate verification procedures, a consumer surfing the Internet could inadvertently sign up for a switch in long distance

service or could be misled into signing up for a contest that actually results in a

long distance carrier switch.

Accordingly, the Commission sought comment on whether further modifications to

the existing verification rules were necessary in order to encourage the efficient use

of the Internet to request carrier switches, while still protecting consumers from

fraudulent practices such as slamming. In particular, the Commission sought comment on its tentative conclusion that electronic signatures used in Internet submissions of carrier changes would not comply with the signature requirement for LOAs

required under existing rules because they fail to identify the signer as the actual

individual whose name has been signed on the Internet form and they fail to ensure

that individual is the person actually authorized to make the decision to change carriers. Unlike a signed LOA or recorded third-party verification, an electronic LOA,

without additional personally identifiable information, does not appear to provide

tangible evidence of authorization that can be challenged by the consumer.

Therefore, in order to enhance the ability of companies to use electronic commerce

for this purpose, the Commission specifically sought comments from the industry

and consumer groups as to what additional information provided by the customer

during such transactions would be sufficient to verify that the consumer had authorized a carrier switch, as mandated by section 258 of the Act. For example, we asked

whether obtaining a subscriber’s credit card number, social security number or

mother’s maiden name would provide sufficient proof of a valid verification without

jeopardizing the subscriber’s privacy. the comment period on this Further Notice has

closed, and the Commission expects to act soon to take whatever further action is

deemed necessary to facilitate the use of Internet commerce in this area.

Answer: (Commissioner Ness) I agree that we should be looking for ways to enhance electronic commerce, and that the Internet can be a valuable tool for making

telecommunications services available to the public. Allowing carriers to sign up

customers over the Internet, however, raises some concerns. Congress and the Commission both have been inundated with complaints about slamming, that is, the unVerDate 22-SEP-99 11:00 Sep 23, 1999 Jkt 010199 PO 00001 Frm 00122 Fmt 6633 Sfmt 6621 X:\HSECOM\55640 txed01 PsN: txed01
120

authorized change of a customer’s choice of carrier. We need to ensure that changes

in service providers occur only when they are requested by a person who is authorized to make the request. The challenge is to make it easy for appropriate changes

in service providers, while making it difficult for unauthorized changes to be made.

Given all of the fraud and confusion that we have seen lately, I believe that we

should proceed with caution—and cannot assume that every carrier change requested via Internet is an authorized change.

Answer: (Commissioner Furchtgott-Roth) I support the Commission’s decision to

ask industry and consumer groups what additional information provided by a customer should be sufficient to verify that a consumer has authorized a carrier switch,

as mandated by section 258 of the Act, thereby enhancing the ability of companies

to utilize electronic commerce.

Answer: ( Commissioner Powell) I generally subscribe to the views expressed by

Chairman Kennard in his response to this question. As part of the Commission’s

recently-adopted ‘‘slamming’’ rules, we have already sought and received comment

on whether modifications of our verification requirements for carrier changes were

necessary to encourage the efficient use by consumers of the Internet to select new

providers, while still protecting consumers from being switched to a new carrier

without their consent. I look forward to working closely with my colleagues to address the concerns raised in these comments and thereby enhance consumers’ ability

to use electronic commerce to request changes in telephone service.

Answer: (Commissioner Tristani) I fully support efforts to enhance the availability

of the Internet as a viable, effective means of commerce. Indeed, the Commission’s

recent inquiry into the use of the Internet by carriers to sign up new customers is

intended to examine whether the Commission needs to make modifications to its

carrier switch rules in order to allow for this type of e-commerce, while continuing

to ensure that consumers are adequately protected from slamming and other frauds.

The Commission’s recently adopted slamming rules require that all carrier

changes be verified in accordance with one of three methods: written Letter of Agency (LOA), electronic authorization, or independent third-party verification. These requirements were adopted pursuant to Congress’ directive in section 258 of the Telecommunications Act of 1996, which mandates that no carrier may submit a request

to switch a customer’s local or long distance presubscribed carrier without first

verifying the consumer’s authorization in a manner prescribed by the Commission.

In the Further Notice section of the Slamming Order, the Commission noted that

many carriers recently have begun to utilize the Internet as a marketing tool to

gain new subscribers and that such solicitation can be an effective and efficient

method of making competitive telecommunications services available to the public.

The Order raised questions, however, as to whether carriers using the Internet to

sign up new customers were fully complying with the Commission’s verification requirements so as to ensure that consumers utilizing this method are afforded the

protections from slamming intended by the Act and Commission rules. The Order

expressed particular concern as to whether the electronic signatures used in Internet submissions of carrier changes comply with the signature requirement for written LOAs. Unlike a signed LOA or recorded third-party verification, an electronic

LOA, without additional personally identifiable information, does not appear to provide tangible evidence of authorization that can be challenged by the consumer.

The Commission sought comment on whether further modifications to the Commission’s verification rules are necessary in order to encourage the efficient use of

the Internet to request carrier switches, while still protecting consumers from fraudulent practices such as slamming. The Commission specifically sought comments

from the industry and consumer groups as to what additional information provided

by the customer during such transactions would be sufficient to verify that the consumer had authorized a carrier switch, as mandated by section 258 of the Act. The

comment period on this Further Notice has closed, and I expect the Commission to

act soon to take whatever further action is deemed necessary to facilitate the use

of Internet commerce in this area.

Question: Why would an electronic LOA (letter of agency or registration for service) be any less reliable than a signature sent on a piece of paper or a recording

of a consumer’s voice claiming to want the service? People can misrepresent a signature or record a voice that is not that of the customer. Isn’t an electronic LOA with

personally identifiable information actually more secure?

Answer: (See answers to above question.)

QUESTIONS FOR THE RECORD FROM REPRESENTATIVE SHIMKUS

Question: The Commission recently voted to move ahead with a proposed rulemaking on low-power FM. I have some concerns that in doing so, the FCC is seemVerDate 22-SEP-99 11:00 Sep 23, 1999 Jkt 010199 PO 00001 Frm 00123 Fmt 6633 Sfmt 6621 X:\HSECOM\55640 txed01 PsN: txed01
121

ingly willing to ignore the potential impact such a new service would have on the

quality of the existing FM band.

What technical evidence does the FCC have to show that adding hundreds or

thousands of these mini-stations won’t erode the quality of the FM band? What

studies have you conducted? Aren’t we putting the cart before the horse here?

Answer: The Commission has issued a Notice of Proposed Rule Making concerning

a possible low-power radio service, but it has not yet reached any conclusions in this

matter. In reviewing the record in this proceeding, of course, the Commission will

consider very carefully the potential impact of a new low-power radio service on the

reception of existing radio service. This is a threshold issue of the rulemaking proceeding which we will examine closely.

I and every one of my colleagues on the Commission have firmly and repeatedly

stated our individual and collective belief that one of the Commission’s primary

mandates is to guard the technical integrity of the spectrum, not to degrade it, and

that before any one will conclude that a new service is feasible, we must be satisfied

that the technical issues have been adequately addressed.

At the same time, it is our duty to see that the great natural resource that the

radio spectrum represents is fully exploited for the benefit of the public, and to examine ways in which it can be more efficiently utilized. We are currently conducting

testing to ascertain whether certain station-locating principles we have used for fullpower stations may be unnecessarily preclusive for low-power stations. We also expect to receive the results of testing and analysis from other interested parties and

qualified experts as a result of our rulemaking Notice.

Question: Isn’t it true that in your own proposal and your table of stations, you

admit that the only way to create any new stations in major metropolitan areas is

by changing the 2nd and 3rd channel interference protections currently in place?

How can the Commission support a proposal that would diminish the audio quality

of the current FM service?

Answer: The successful implementation of a low-power radio service may depend

in significant part on whether the Commission can modify certain of its station separation requirements in the context of low-power stations. The Commission has successfully employed modified station separation standards in limited instances in the

past to permit improvements to some existing full-power stations without degrading

audio quality. We intend to study and test whether these principles can be safely

applied to a low-power radio service.

Question: What about the impact on in-band, on-channel digital radio? My understanding is that the digital channel will be added on the sides of the main analog

channel, and therefore will be more easily disrupted by interference from adjacent

channels if this proposal goes forward. Why are we willing to throw out the potential of digital radio just to license some more people to have radio stations? And why

was the microradio issue taken up before the digital audio broadcasting rulemaking

now awaiting action was resolved?

Answer: The Commission will take care to preserve the opportunity for terrestrial

digital audio radio service in the event it establishes a low-power radio service. The

Commission has yet to determine the best method for transitioning to terrestrial

digital radio, and an in-band on-channel (IBOC) methodology is a significant possibility. Multiple IBOC and terrestrial digital radio systems at varying stages of development are still being worked on, analyzed, tested and refined by the industry,

and the technical architecture of any system will ultimately be a function of the

radio environment in which it will operate.

The Commission has made a firm commitment to developing terrestrial digital

radio service, and we intend to do so as promptly as possible. We have issued several experimental authorizations to IBOC proponents to test their technology and

develop their systems. We have already received comments on a petition filed by one

of the IBOC proponents, and Commission staff is consulting with industry groups

as part of the process of beginning a rulemaking proceeding. However, while we intend to open a rulemaking proceeding as soon as is practicable, it is possible that

the rulemaking process, particularly with competing undeveloped technologies at

present, could take some time to complete.

If we can reliably establish parameters that will preserve necessary flexibility for

terrestrial digital audio, we should not unnecessarily delay the introduction of lowpower service for the public. We have specifically asked in the low-power rule making for comment and expert input on what measures are appropriate to maintain

appropriate flexibility for a transition to digital, including potential IBOC systems,

and have recently extended the lengthy original comment deadlines in the lowpower radio proceeding to provide opportunity for additional input on this issue.

Question: Aren’t there frequencies now in smaller markets that people can apply

for? What happens to those people already awaiting processing for full-power staVerDate 22-SEP-99 11:00 Sep 23, 1999 Jkt 010199 PO 00001 Frm 00124 Fmt 6633 Sfmt 6621 X:\HSECOM\55640 txed01 PsN: txed01
122

tions—why is it fair to leapfrog those folks who’ve been waiting patiently for stations and suddenly create a whole new class of service out from under them?

Answer: There are a limited number of FM stations available in certain small

markets, but this is not universally so. Many small communities with any proximity

to a larger metropolis do not have full-power frequencies available. Even where fullpower frequencies are available, full-power facilities can be unnecessarily and even

prohibitively expensive to build, and may not be supportable by the local market.

The Commission expects to resolve the issues that have prevented the processing

of certain new FM applications and begin that processing by this fall. This will be

long before any low-power applications would even be filed, if such a service is authorized. Our ability to resolve these applications is unrelated to the low-power proceeding. Moreover, for applicants seeking to provide a full-power service, low-power

facilities would be a far less desirable or even unacceptable alternative.

Question: Mr. Furchtgott-Roth, you were the only commissioner to oppose this proposal. Can you explain to this subcommittee why you had concerns about it?

Answer: (from Commissioner Furchtgott-Roth) I write in response to your followup question regarding my decision to dissent from the Commission’s recent Notice

of Proposed Rule Making on low-power radio stations. Below, I set forth my reasons

for taking this position.

As an initial matter, I am not opposed to the creation of a low-power radio service.

Whatever new service can be provided within the range of existing interference regulations would be something worth considering. I do not believe that the Commission should create new stations at the expense of current interference protection

standards, however.

As the appendix attached to the Commission’s Notice of Proposed Rule Making

itself showed, under existing interference rules the Commission can authorize so few

new stations that the results would hardly warrant the effort. In order to create any

substantial amount of new service, protection standards have to be loosened so far

as to eliminate third and even second adjacent channel safeguards. This is a severe

incursion on the rights of current license holders, as well as on the value of their

licenses, which will be drastically undercut in the market if these proposals are

adopted.

This proposal also potentially impairs the ability of current licensees to serve

their listeners, who must not be forgotten; while new people may be able to broadcast, others may lose their ability to receive and listen to existing stations due to

interference. It especially troubles me that the Commission has made no effort to

assess, much less quantify, the effect on existing stations of eliminating these safeguards.

Even if the second and third adjacent channel protections were wholly eliminated,

however, very little new service would be created in the major urban markets at

which this proposal is supposedly aimed. For instance, in New York City, there

would be no LP1000 stations and no LP100 stations, and in Los Angeles there will

be only one LP1000 station, no LP100 stations with translator protections and six

LP100 stations with unprotected translators. In addition to their small number,

these services will be relatively unavailable to mobile audiences due to their low

wattage.

Furthermore, while many proponents of this rule making see it as a means of increasing broadcast ownership by minorities and women, there is in all likelihood no

constitutionally sound way to assure such a result. There is simply no way that the

Commission can say that, if a first-come, first-served rule is adopted, these licenses

will not be awarded to whoever applies for them first or that, in the case of mutually exclusive applications, these licenses will not go to the highest bidder.

Also, the creation of low-power radio by elimination or modification of current interference rules may also have an adverse effect on the FM radio band itself by hindering the development of new, advanced services such as in-band, on-channel digital radio.

Plans for the delivery of this service have been based on current interference

standards, and it is unclear whether these plans can be successfully modified should

those standards change. While the rest of broadcasting (indeed the entire communications industry) moves toward the advantages of digital technology, this contemplated FCC policy may make it harder for the FM radio band to keep up.

Moreover, communicating with one’s community or expressing a point of view—

the posited aim of low-power advocates—can be achieved through a variety of ways

other than the creation of microradio. People can communicate with others by obtaining extant commercial or noncommercial licenses, the purchase of air time on

broadcast properties, leased access and/or PEG cable schemes, amateur radio, email, Internet home pages, bulletins and flyers, and even plain old-fashioned speech.

The notion that a message must be broadcast over radio spectrum before its speaker

123

has a ‘‘voice’’ overlooks the realities of modern life. Indeed, as time goes on, broadcasting has faced increasing competition, becoming less and less powerful a medium.

It is no secret that the television broadcast networks are attempting to find innovative ways to deal with decreasing viewership in the face of cable, DBS, and other

video delivery and entertainment systems that compete for the public’s attention.

And, of course, Commission enforcement of rules and regulations applicable to the

new stations will be an administrative drain and involve the Commission in micromanagement of the smallest of operations. Thus, the low power proposal does not

do much to advance its supposed goals. What minimal furtherance of those goals

it would achieve comes at great cost to current license holders and listeners. Good—

arguably better, even—alternatives for the dissemination of messages in America

certainly exist. And the administrative burdens on the Commission will likely be

great. Accordingly, I do not think this proposal represents an efficient use of radio

spectrum. In addition, I do not view concern about the effects of consolidation in the

radio industry as the result of the 1996 Telecommunications Act as an appropriate

motivation for this Commission to create low-power radio stations. These are, at bottom, arguments against consolidation. Congress, however, made the clear policy

choice to lift national ownership limits. Whatever the results of that choice, they are

the function of Congress’ elected course, and this Commission must follow it.

In sum, given the potential harmful effects on current licensees and their listeners; the limited benefits of creating a low-power radio service; the burdensome

regulations placed on the new stations; the new enforcement duties for the Commission; and the availability of alternatives for communication, I do not believe that

the pursuit of this proposal comports with the Commission’s statutory duty to ‘‘make

available . . . a rapid, efficient, Nation-wide and world-wide wire and radio communication service.’’ 47 USC section 151 (emphasis added). Please do not hesitate to

contact me if I can be of further assistance.

Question: The idea behind this microradio proposal is to give people the chance

to get into the radio business that couldn’t afford to buy an existing station. How

can the FCC predict who will get these licenses? And is there any evidence that

even with low-power FM licenses, the pirate problem will go away?

Answer: The Commission has received thousands of inquires regarding low-power

radio stations prior to and since the publication of its Notice of Proposed Rule Making. Schools of all types, various kinds of community groups, churches, music associations, a wide variety of individuals, political activists and others have made inquiries, expressed a strong interest, and are participating in the rule making. We

believe it is reasonable to infer from this that such entities would participate in lowpower radio, if it is authorized. While some illegal activity may persist from those

who simply must defy authority, we fully expect that the availability of legal facilities will remove a primary incentive for illegal radio operations. In any event, the

Commission will continue to vigorously enforce the prohibition against operating a

broadcast station without a license.

Question: How will the FCC have the resources to oversee this new group of stations, most of whom will not have run a radio station before or care about operating

under regulations?

Answer: One of the significant technical issues raised in the Notice is the type

of equipment to require for low-power radio licensees. Certified equipment, with

strict technical specifications should reduce the likelihood of signals that ‘‘wander’’,

cause interference, or cause unwanted signals on other frequencies. Also, because

we maintain data on licensees such as frequency, power, and location, the Commission can quickly contact a licensee if technical problems occur. Additionally, the likely reduction in illegal operations if low-power radio is authorized should ease that

demand on our resources.

We must expect that low-power licensees, as any others, will be conscientious

about learning and performing their responsibilities. Nonetheless, enforcement begins with making sure that licensees are informed of their responsibilities. For licensees that are new to any service, the Commission already provides multiple avenues for licensees to learn their responsibilities. We also will consider how to develop a pro-active means of effectively informing licensees of their responsibilities.

The Office of Communication Business Opportunities (OCBO) provides information

to small businesses, especially those that are new to the communications industry.

Information is also available on the Commission’s Internet site and from the National Call Center, as well as from the Mass Media Bureau. The Commission can

also provide assistance as it does with its other broadcast licensees through its current Alternative Broadcast Inspection Program (ABIP). The Commission’s Compliance and Information Bureau also provides checklists on its home page on the Commission’s website, www.fcc.gov, that a licensee can use to conduct self-inspections.

In addition, based on our experience in the rulemaking proceeding and our knowlVerDate 22-SEP-99 11:00 Sep 23, 1999 Jkt 010199 PO 00001 Frm 00126 Fmt 6633 Sfmt 6621 X:\HSECOM\55640 txed01 PsN: txed01
124

edge of illegal operations, we expect that there will be quite a network of information exchange on the Internet within the low-power community. As stated above, we

will also search for effective means of educating licensees as part of the application

or licensing process.

QUESTIONS FOR THE RECORD FROM REPRESENTATIVE BLUNT

Question: On July 8, 1998, the Missouri Municipal League, the Missouri Association of Municipal Utilities, City Utilities of Springfield, City of Columbia Water and

Light, and the City of Sikeston Board of Utilities filed a petition for preemption with

the FCC, seeking preemption of section 392.410(7) R.S.Mo. (CCPol Docket No. 98-

122). Responses have been made by all interested parties and the parties are waiting for a decision by the FCC. Is there a time frame for making this decision by

the FCC, and when can the parties expect a decision?

Answer: I would like the Commission to issue a decision in the Missouri Preemption proceeding early this Fall if at all possible. Regardless of other competing priorities, I expect the Commission to take action in this proceeding before the end of

1999.

Question: It is my understanding that you have concerns about the limitations

that states have placed on municipal electric utilities in telecommunications. A Missouri law, section 392.410(7), is an example of such a limitation. A copy of this law

is attached for your information. Would it be fair to say that this is the type of state

law that concerns you?

Answer: I am concerned about the enactment of state statutes prohibiting the provision of competitive telecommunications services or facilities by municipalities or

municipal utilities. I believe that enactment of such statutes by the states is generally undesirable as a matter of public policy because they eliminate a strong potential competitor from the market. This can have a particularly undesirable effect

on rural areas where municipal utilities may be the most likely source of facilitiesbased competition. At the same time, I believe that the Commission must tread very

carefully in considering requests for preemption of such statutes under section 253

of the Communications Act.

Question: You have been quoted as saying that there have been some problems

in the courts that haven’t allowed some of these municipal utilities to provide telecommunications services. Has the FCC made any decisions that would preempt a

limiting state law and would allow a municipal utility to provide telecommunications services?

Answer: To date, the Commission has not preempted state laws restricting the

provision of telecommunications services by municipal utilities. In the Texas Preemption proceeding, the Commission declined to exercise its section 253 authority

to preempt a Texas statute generally prohibiting municipalities from providing telecommunications services or facilities. The Commission concluded that it was not

clear that Congress intended the Commission to intrude into the relationship between the State of Texas and its municipalities. This decision was upheld by the

U.S. Court of Appeals for the D.C. Circuit. The Commission’s decision in the Texas

Preemption proceeding, however, specifically reserved the question of restrictions on

municipal utility entry for future consideration. This question is now before the

Commission in the Missouri Preemption proceeding.

Question: You have been quoted as testifying before the Senate Judiciary Subcommittee on Antitrust, Business Rights and Competition, that you ‘‘think that we

ought to continue to work hard to open up every competitive avenue, if we can.’’

Is this an accurate statement of your testimony, and if so, do you believe that the

FCC should continue to work hard to open up competition in telecommunications

services?

Answer: I strongly support the competitive provision of telecommunications services, and believe that the Commission must continue to work hard to remove barriers to competition. It is my experience that competition benefits consumers by increasing the choices available to them, fostering the deployment of new technology,

and bringing downward pressure to bear on prices.

Question: Do you share the belief stated by others that letting electric utilities

compete in telecommunications was a key part of the Telecommunications Act of

1996?

Answer: I agree with this statement and envision electric utilities as becoming

formidable competitors in the provision of telecommunications services.

Question: Do you understand that the legislative history of the Telecommunications Act of 1996 evidences the fact that there was an intent by Congress to let

municipal utilities compete in telecommunications?

125

Answer: Our staff is considering the legislative history of the 1996 Act as part

of its review of the public record we have developed in the Missouri Preemption proceeding. I am reluctant to address this issue while that matter is pending, but I will

be glad to respond to this question fully at the appropriate time.

Question: Section 253(a) of the Telecommunications Act of 1996 is clear that state

and local laws cannot ‘‘prohibit... any entity’’ from providing telecommunications

services. Does a publically-owned electric utility fit within the definition of ‘‘any entity?’’

Answer: In the Texas Preemption proceeding, the Commission declined to exercise

its section 253 authority to preempt a Texas statute generally prohibiting municipalities from providing telecommunications services or facilities. The Commission

concluded that Texas municipalities were not entities separate and apart from the

State of Texas for purposes of section 253 of the Communications Act. The Commission also found it was not clear that Congress intended the Commission to intrude

into the relationship between the State of Texas and its municipalities. This decision was upheld by the U.S. Court of Appeals for the D.C. Circuit. The Commission’s

decision in the Texas Preemption proceeding, however, specifically reserved the

question of restrictions on municipal utility entry for future consideration. This

question is now before the Commission in the Missouri Preemption proceeding. I am

reluctant to address this issue while that matter is pending, but I will be glad to

respond to this question fully at the appropriate time.

Question: What is your view of the obligation which the FCC has under section

253 of the Telecommunications Act to preempt state or local laws or regulations

which serve as barriers to entry?

Answer: Commission preemption of state and local laws and regulations that violate section 253 is mandatory, assuming compliance with the substantive and procedural requirements of that section. I believe that the Commission’s authority under

section 253 to preempt state and local requirements that prevent competitive entry

is a vital element in ensuring realization of Congress’ vision of local exchange competition. At the same time, I believe that the Commission must use preemption of

state and local actions cautiously as a last resort. I note, for instance, that Congress

specifically preserved certain authority for state and local governments in the areas

of universal service, public safety and welfare, quality of service, consumer rights,

and management of rights-of-way, to the extent such authority is exercised in a

competitively neutral and nondiscriminatory manner. Further, Congress authorized

FCC preemption of state and local requirements that violate section 253 only ‘‘to

the extent necessary to correct the violation . . .’’ I believe the Commission has implemented section 253 consistent with these criteria and must continue to do so in

order to further the pro-competitive goals of the 1996 Act.

QUESTIONS FOR THE RECORD FROM REPRESENTATIVE ESHOO

Question: Chairman Kennard, you mention in your testimony that your fourth

goal during the transition to competition is to bring consumer services and technology to every American. With over 60 million people using wireless phones today,

the FCC has a role to play with industry and other government agencies, to ensure

that our nation’s Emergency 911 service is reliable 100 percent of the time. Where

does E-911 fit within your view of the 21st Century FCC?

Answer: I agree with you that there is an important role for the Commission to

play in ensuring that all Americans have access to reliable and efficient wireless 911

services as we move into the 21st Century.

A core obligation given to the Commission by the Congress in the Communications Act of 1934 is to promote the safety of life and property through the use of

telecommunications services. Fulfilling this obligation is a cornerstone in the transition to a more competitive telecommunications marketplace. For these reasons, it

is critically important that the Commission continue its efforts to work with the

public safety community, emergency service providers, consumer groups, other Federal agencies with an interest in public safety issues, and the wireless industry in

order to forge an alliance dedicated to working for improvements in the availability

and dependability of wireless 911 service.

As you know, in the wireless E911 rulemaking proceeding, CC Docket 94-102, the

Commission has developed rules that require wireless carriers to improve 911 service. As a basic 911 requirement, wireless carriers are now required to forward all

911 calls they receive to a Public Safety Answering Point, without delays for validation or the blocking of calls from non-subscribers. At the Commission’s Agenda

Meeting on May 13, 1999, the Commission adopted rules to improve the ability of

analog cellular telephone users to successfully complete 911 calls. One of the important issues in the wireless E911 proceeding concerned proposals to help improve the

126

1For example, WinStar has requested that we apply section 224 of the Communications Act,

governing regulation of pole attachments, to require public utilities to make rooftop facilities

and related riser conduit owned or controlled by the utility available to competing providers of

communications services. Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 96-98, WinStar Communications, Inc., Petition for

Clarification or Reconsideration (filed Sept. 30, 1996). See also Inside Wiring Report & Order

& Second Further NPRM, 13 FCC Rcd at 3778-82. 2See Deployment of Wireline Services Offering Advanced Telecommunications Capability, CC

Docket No. 98-147, Memorandum Opinion & Order & Notice of Proposed Rulemaking FCC 98-

188, released Aug. 7, 1998, available at 1998 WL 458500. 3See, e.g., Implementation of section 304 of the Telecommunications Act of 1996, Commercial

Availability of Navigation Devices, Report & Order, 13 FCC Rcd 14775 (1998).

transmission of 911 calls, especially in geographic locations where a wireless caller

attempts to make a 911 call but the cellular system to which the caller subscribes

has a ‘‘blank spot’’—an area where the system’s radio signal is weak or non-existent.

The Commission on May 13, 1999 adopted a requirement that new analog cellularcapable handsets manufactured starting in February 2000 be able to complete 911

calls to the other cellular carrier in those situations. The purpose of this new rule

is to improve 911 reliability, increase the probability that 911 calls will be efficiently

and successfully transmitted to public safety agencies, and help ensure that wireless

service will be maintained for the duration of the 911 call.

The Commission bears a continuing responsibility to ensure that we harness the

benefits of emerging technologies for wireless 911 service. To take one example, our

rules require carriers, beginning in October 2001, to provide location information for

wireless 911 calls, with accuracy within 125 meters. Our challenge is to foster the

development and application of wireless technologies that can improve upon this

level of accuracy, and can also provide information about the precise location of callers in multi-story buildings.

As we move into the 21st Century, we should continue our active involvement in

working toward achievement of our fundamental goals for wireless 911—increased

levels of call completions, reliable and dependable service quality, and pinpoint accuracy in locating wireless 911 callers.

I appreciate your active involvement in this proceeding and assure you that the

Commission will continue its commitment to promote public safety.

Question: Chairman Kennard, please cite specific examples that fit your fifth goal

of fostering innovation. Do you have any specifics to tell us about relative to development and deployment of high-speed Internet connections to all Americans?

Answer: High-speed Internet connections are one form of—and so far the most

popular form of—what we call ‘‘broadband’’ or, in the words of section 706 of the

1996 Act, ‘‘advanced telecommunications capability.’’ Recently, the Commission

issued a Report finding that the deployment of broadband to all Americans appears,

at this initial stage, to be proceeding in a reasonable and timely manner.

The single most important thing the Commission has done to get such connections

built and used by Americans is to adopt a policy of open entry into all forms of local

and long distance communications. As a result, in the past few years tens of billions

of dollars have been invested in broadband facilities by incumbent and competitive

local exchange carriers (LECs), long distance companies, satellite companies, cable

television providers, public utilities, and all kinds of wireless licensees (fixed and

mobile, land-based and satellite, licensees of longstanding and recent winners of

auctions of newly allocated spectrum).

The history of this business over the last thirty years has shown that competition

leads to widespread, low-priced, high-quality, and technically innovative service

faster than monopoly or oligopoly. Especially in a market where different technologies may serve different areas and different customer needs best, the Commission wants to avoid picking one technology and one set of companies as its chosen

instrument.

The Commission is taking targeted action to facilitate high-speed Internet connections, and broadband in general, in many specific proceedings. For example, we are

considering the issue of access to the ‘‘last hundred feet’’ in multiple dwelling units

(MDUs) such as apartment buildings in several proceedings.1 We are moving ahead

with proceedings that promote the deployment of wireline broadband services 2 and

the commercial availability of ‘‘set top box’’ navigation devices.3

In addition, we are pursuing initiatives to ensure that wireless services, both fixed

and mobile, are true competitors in the consumer market for broadband. We will

continue to allocate, auction, and license more spectrum for uses that include

127

4See, e.g., Amendment of the Commission’s Rules with Regard to the 3650-3700 MHz Government Transfer Band, ET Docket No. 98-237, Notice of Proposed Rulemaking & Order FCC 98-

337 at ¶¶ 1, 6, released Dec. 18, 1998. 5See 1998 Biennial Regulatory Review—Spectrum Aggregation Limits for Wireless Telecommunications Carriers, WT Docket 98-205, Notice of Proposed Rulemaking FCC 98-308, released Dec. 10, 1998. 6For example, the Commission is now in the second licensing round for Ka-band satellites and

will rule on 18 requests for licenses and modifications or amendments to existing Ka-band licenses. 7See, e.g., Allocation & Designation of Spectrum for Fixed-Satellite Services in the 37.5-38.5

GHz, 40.5-41.5 GHz, & 48.2-50.2 GHz Frequency Bands, IB Docket No. 97-95, Report & Order

FCC 98-336, released Dec. 23, 1998.

broadband, especially facilities that serve the last mile and last hundred feet.4 We

are also encouraging the next generation of mobile services and are re-examining

our 45 MHz CMRS spectrum cap.5 We are working for efficient international harmonization of spectrum allocations, product certifications, and technical standards for

interfaces. Moreover, we will promptly grant licenses so that broadband facilities

can be built promptly.6 We will continue authorizing broadband capacity for traditional geostationary C- and Ku-Band frequencies. We also expect to license new, innovative systems in the Ka- and millimeter wave Bands.7

Lastly, the Commission is monitoring on a continual basis the appearance of

chronic shortages of high-speed Internet connections and other forms of broadband

in rural areas, low-income inner city neighborhoods, for the disabled and for educational and health-care facilities.

I am strongly committed to bringing high-speed Internet access to all Americans

and will do all that I can as Chairman of this Commission to make that goal a reality.