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82–543 PDF 2014

THE BUDGET AND SPENDING OF THE FEDERAL 

COMMUNICATIONS COMMISSION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COMMUNICATIONS AND 

TECHNOLOGY 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

FEBRUARY 16, 2012 

Serial No. 112–117 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

CLIFF STEARNS, Florida 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

Vice Chairman 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

GREG WALDEN, Oregon 

Chairman 

LEE TERRY, Nebraska 

Vice Chairman 

CLIFF STEARNS, Florida 

JOHN SHIMKUS, Illinois 

MARY BONO MACK, California 

MIKE ROGERS, Michigan 

MARSHA BLACKBURN, Tennessee 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

BRETT GUTHRIE, Kentucky 

ADAM KINZINGER, Illinois 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

ANNA G. ESHOO, California 

Ranking Member 

EDWARD J. MARKEY, Massachusetts 

MICHAEL F. DOYLE, Pennsylvania 

DORIS O. MATSUI, California 

JOHN BARROW, Georgia 

DONNA M. CHRISTENSEN, Virgin Islands 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

DIANA DEGETTE, Colorado 

JOHN D. DINGELL, Michigan (ex officio) 

HENRY A. WAXMAN, California (ex officio) 

(II) 

(III) 

C O N T E N T S 

Page 

Hon. Greg Walden, a Representative in Congress from the State of Oregon, 

opening statement ................................................................................................ 1 

Prepared statement .......................................................................................... 3 

Hon. Anna G. Eshoo, a Representative in Congress from the State of California, opening statement .................................................................................... 5 

Hon. Doris O. Matsui, a Representative in Congress from the State of California, opening statement .................................................................................... 6 

Hon. Lee Terry, a Representative in Congress from the State of Nebraska, 

opening statement ................................................................................................ 6 

Hon. Marsha Blackburn, a Representative in Congress from the State of 

Tennessee, opening statement ............................................................................ 7 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

prepared statement .............................................................................................. 83 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, prepared statement ........................................................................... 84 

WITNESSES

Julius Genachowski, Chairman, Federal Communications Commission ............ 7 

Prepared statement .......................................................................................... 11 

Answers to submitted questions ...................................................................... 86 

David L. Hunt, Inspector General, Federal Communications Commission ........ 32 

Prepared statement .......................................................................................... 34 

Answers to submitted questions ...................................................................... 107 

D. Scott Barash, Acting Chief Executive Officer, Universal Service Administrative Company ................................................................................................... 67 

Prepared statement .......................................................................................... 70 

Answers to submitted questions ...................................................................... 111 

(1) 

THE BUDGET AND SPENDING OF THE 

FEDERAL COMMUNICATIONS COMMISSION 

THURSDAY, FEBRUARY 16, 2012 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 9:03 a.m., in room 

2123 of the Rayburn House Office Building, Hon. Greg Walden 

(chairman of the subcommittee) presiding. 

Members present: Representatives Walden, Terry, Shimkus, 

Blackburn, Bilbray, Bass, Scalise, Latta, Upton (ex officio), Eshoo, 

Matsui, Barrow, Dingell, and Waxman (ex officio). 

Staff present: Ray Baum, Senior Policy Advisor/Director of Coalitions; Michael Beckerman, Deputy Staff Director; Nicholas Degani, 

FCC Detailee; Mike Gruber, Senior Policy Advisor; Debbee Keller, 

Press Secretary; Katie Novaria, Legislative Clerk; Roger Sherman, 

Democratic Chief Counsel; Hadass Kogan, Democratic Legal Fellow; and Kara Van Stralen, Democratic Special Assistant. 

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON 

Mr. WALDEN. Good morning, everyone, and welcome to today’s 

hearing on what I am sure will be a riveting subject, especially if 

you are the chairman of the FCC: the budget and spending of the 

Federal Communications Commission. Despite the groans and 

droopy eyelids, some of us were up pretty late last night negotiating on the final spectrum fees and the big fees, and some of you 

were watching pretty intently, this is really important. This is important work that we are doing here today. We have an obligation 

as a subcommittee to review the budgets and spending activities of 

every agency under our jurisdiction, whether they get that money 

from rate payers or users, or from the general taxpayers. And so 

I welcome the Chairman of the FCC, Mr. Genachowski, here today. 

Given the state of our Nation’s finances, I think it is time to call 

all hands on deck. As the committee with jurisdiction over the Federal Communications Commission, it is our responsibility to review 

how the Federal Communications Commission collects and spends 

Federal funds. 

We are the committee that created the FCC; although I don’t 

think any of us was exact—well, maybe some were around when 

that happened. I don’t think so, though. We are the committee that 

created the FCC; we are the committee that authorized it to collect 

regulatory fees; we are the committee that authorized spectrum 

2 

auctions; and we are the committee that enabled the creation of the 

Universal Service Fund. It is high time that we looked clearly and 

deeply at how this Commission spends money outside of the yearly 

appropriations process. 

Three days ago, the administration released its proposed budget 

for fiscal year 2013, and the FCC has in turn submitted its corresponding budget estimates. And I was pleased to see some of 

those numbers. Last year, the FCC was given a budget of $424.8 

million, and the FCC has reported that it can maintain current 

services with a budget of $421.2 million. Although that is less than 

a 1 percent decrease, hey, it is a start, and I appreciate the work 

the FCC is doing to keep costs down. 

But the FCC’s proposal still leaves some open questions about its 

budget. What are the concrete results that taxpayers and 

regulatees can expect if Congress funds the FCC’s requested new 

programs? If it consolidates its data centers, as proposed, what will 

that produce in terms of savings and will those savings be rolled 

into a lower base budget next year? And what is it doing to redirect 

its existing resources to address and resolve its backlogs and respond to changes in the marketplace? 

Similarly, I want to explore a bit about the sources of the FCC’s 

funding. For example, it withholds up to $85 million each year to 

cover the costs of spectrum auctions. Is that sufficient? Does it actually need all of that money to conduct auctions? The rest of the 

FCC’s own funding comes from regulatory fees, which are supposed 

to be assessed on the communications industry in proportion to the 

benefits that industry receives from the Commission. Given the 

swiftly converging communications marketplace, I am interested in 

how the Commission has reevaluated and reapportioned regulatory 

fees to ensure that all are paying their fair share. 

Finally, I want to better understand how the FCC’s watchdogs, 

the Inspector General and the Universal Service Administrative 

Company, are funded and what they are doing to combat waste, 

fraud, and abuse. Although the Universal Service Fund isn’t paid 

for with taxpayer funds, it does come out of the pocketbooks of taxpayers in the form of consumers, and the American people deserve 

to know that that money is being well spent. What is USAC doing 

to streamline the universal service funding process so that funded 

companies can focus on serving their constituents and not on filling 

out paperwork? Conversely, what are USAC and the Inspector General doing to make sure that universal service funds are not wasted 

or fraudulently obtained? What is the bang for the buck that we 

are getting from these watchdogs, and are additional resources 

needed to equip their oversight efforts? 

I thank today’s witnesses, Chairman Genachowski, Inspector 

General Hunt, and Mr. Barash, for attending today’s hearing and 

helping us sort through these important budgetary issues. With 

your help, we will have a better handle on what Congress can do 

to reduce the costs of government and improve its efficiency and accountability. 

[The prepared statement of Mr. Walden follows:] 

3 


82543.001

Statement of the Honorable Greg Walden 

Chairman, Subcommittee on Communications and Technology 

Hearing on "The Budget and Spending of the Federal 

Communications Commission" 

February 16, 2012 

(As Prepared for Delivery) 

Welcome to today's hearing on what I am sure will be a riveting subject: the budget and 

spending of the Federal Communications Commission. Despite the groans and droopy 

eyelids I'm observing from the audience, budgeting isn't just a subject for accountants and 

paper pushers. Budgeting is in many ways the heart of what Congress does-it's the power 

of the purse. 

Now, some may argue that the annual appropriations process is enough to track the 

Commission's budget and spending. I certainly agree that the Appropriations Committee 

should scour the Commission's budget. After all, it's the Appropriations Committee that sets 

the actual funding level of the Commission's budget each year. 

But given the state of our nation's finances, I think it's time to call all hands on deck. As the 

committee with jurisdiction over the Federal Communications Commission, it's our 

responsibility to review how the FCC collects and spends federal funds. We are the 

committee that created the FCC; we are the committee that authorized it to collect 

regulatory fees; we are the committee that authorized spectrum auctions; and we are the 

committee that enabled the creation of the Universal Service Fund. It is high time that 

someone looked at how the Commission spends money outside of the yearly appropriations 

process. We are that "someone." 

Three days ago, the administration released its proposed budget for Fiscal Year 2013, and 

the FCC has in turn submitted its corresponding budget estimates. And I was pleased to see 

some of those numbers. Last year, the FCC was given a budget of $424.8 million, and the 

FCC has reported that it can maintain current services with a budget of $421.2 million. 

Although that's less than a one percent decrease, it's a start, and I appreciate the work of 

the FCC to keep costs down. 

But the FCC's proposal still leaves some open questions about its budget. What are the 

concrete results that taxpayers and regulatees can expect if Congress funds the FCC's 

requested new programs? If it consolidates its data centers, as proposed, will that produce 

savings and will those savings be rolled into a lower base budget next year? And what is it 

doing to redirect its existing resources to resolve its backlogs and respond to changes in the 

marketplace? 

Similarly, I want to explore a bit the sources of the FCC's funding. For example, it withholds 

up to $85 million each year to cover the costs of spectrum auctions. Is that sufficient? Does 

it actually need all of that money to conduct auctions? The rest of the FCC's own funding 

comes from regulatory fees, which are supposed to be assessed on the communications 

industry in proportion to the benefits that industry receives from the Commission. Given the 

swiftly converging communications marketplace, I am interested in how the Commission 

has reevaluated and reapportioned regulatory fees to ensure that all are paying their fair 

share, 

Finally, I want to better understand how the FCC's watchdogs-the Inspector General and 

the Universal Service Administrative Company-are funded and what they are doing to 
4 


82543.002

combat waste, fraud, and abuse. Although the Universal Service Fund isn't paid for with 

taxpayer funds, it does come out of the pocketbooks of consumers, and the American 

people deserve to know that that money is being well spent. What is USAC doing to 

streamline the universal service funding process so that funded companies can focus on 

serving their constituents and not on filling out paperwork? Conversely, what are USAC and 

the Inspector General doing to make sure that universal service funds are not wasted or 

fraudulently obtained? What's the bang for the buck that we're getting from these 

watchdogs, and are additional resources needed to equip their oversight efforts? 

I thank today's witnesses-Chairman Genachowski, Inspector General Hunt, and Mr. 

Barash-for attending today's hearing and helping us sort through these important 

budgetary issues. With your help, we will have a better handle on what Congress can do to 

reduce the costs of government in the best way possible. 

### 

2 
5 

Mr. WALDEN. With that, I would welcome my colleague from 

California, Ms. Eshoo, and turn over the time to her for an opening 

statement. 

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. ESHOO. Thank you, Mr. Chairman, and good morning to everyone. Welcome, Chairman Genachowski. 

The last time this committee authorized appropriations for the 

FCC was in 1990, before I came to Congress, and it was when my 

friend, Ed Markey, chaired what was then known as the Telecommunications and Finance Subcommittee. At that time, Congress authorized 109.83 and $119.83 million for fiscal years 1990 

and 1991 for spending on what now seems like a technological— 

technology stone age. Today, we are examining the proposed fiscal 

year 2013 budget of $346.78 million for the Commission and its operations over a complex, advanced telecommunications sector. 

The FCC is charged with a portfolio of technological challenges. 

These include making broadband available to all Americans, finding new sources of spectrum, upgrading and reforming universal 

service, fostering public safety interoperability, E–911 dependability and availability, and reforming the internal mechanisms of 

an agency that has been in continuous operation since 1934. These 

are not easy tasks, but they are essential to the economic wellbeing of our country. 

In reviewing the Commission’s budget, I am sure we want to 

know, first and foremost, that the Commission has made very effort to streamline its budget while ensuring that it has the financial resources to perform its mission. In my view, we have to balance budget costs with smart investments. Our Nation’s advanced 

communications are increasingly essential for new opportunities in 

almost every sector, including small businesses, education, health 

care, and the government. Money spent wisely at the Commission 

can give us a good bang for our buck. Enhancements in the Agency’s cloud security and upgrades to the technical equipment used 

in the FCC’s laboratory are two such examples. 

I can see from the FCC’s budget that the Commission has a 10- 

year low in Federal employees, that the contracting staff has been 

cut nearly in half during the past year. I wish that were the case 

in the Intelligence community. The Commission is currently operating under a budget that is lower than it was in 2009, with a 2 

percent increase over the previous year’s spending level. This 

doesn’t sound exactly like empire building to me. 

Chairman Genachowski, I look forward to hearing about where 

the FCC stands today, and where you envision the agency to be in 

the future. I also look forward to hearing from the FCC’s Inspector 

General Hunt. Inspector Generals are, in my book, a group of the 

most important people in the Federal Government. And Scott 

Barash—I hope I have pronounced your name correctly, the CEO 

of the Universal Service Administrative Company, USAC, on how 

their work and budgets compliment the mandate of the Communications Act. 

6 

So thank you, Mr. Chairman, for holding this very important 

hearing. It has been a long time since we have had one on this subject matter, and I will yield the balance of my time to Congresswoman Matsui. 

OPENING STATEMENT OF HON. DORIS O. MATSUI, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. MATSUI. Thank you, Ranking Member Eshoo, for yielding me 

time. I also thank Chairman Genachowski for being with us here 

today. 

The FCC, under the Chairman’s leadership, has been dealing 

with important issues, head on, many of which were difficult to address. The FCC’s funding is essentially flat, and has had limited 

staff movement since 2008, yet the FCC has moved major policy reforms forward. Just over the past few months, for instance, some 

of the important reviews to the Universal Service Fund. While not 

perfect, the reforms that the FCC put forth to both the high cost 

fund and to low income fund are both attempts to bring the USF 

into the 21st century. 

The FCC maintains its commitment to restrain any uncontrolled 

growth within the Universal Service Fund. I also support USF reforms aimed at addressing duplication and abuse within these programs. These reforms will likely require additional, yet effective, 

resources to properly certify households and enforce necessary requirements. The FCC’s Lifeline proposal to develop a pilot program 

to extend lifeline for broadband will enable Americans living in 

both rural and urban areas to access affordable broadband services. 

After a viable pilot is conducted, it is my hope that the program 

becomes permanent and available to millions of Americans. 

Lastly, I look forward to your continued leadership, as Congress 

seems poised to provide the FCC authority to conduct incentive 

auctions and supporting the continued use of unlicensed spectrum 

for American innovation. 

Thank you, Mr. Chairman, for holding today’s hearing, and I 

yield back the balance of my time. 

Mr. WALDEN. The Chair recognizes—thank you. The Chair recognizes the gentleman from Nebraska. 

OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA 

Mr. TERRY. Thank you, Mr. Chairman, and I thank our witness, 

Mr. Genachowski, for being here today, and we have had a good 

working relationship, and I really appreciate that. 

The FCC, this last year, has tackled many of the toughest issues, 

particularly high cost USF, and while I think maybe the screws 

were ratcheted a little too tightly and we may have to review that 

order, that is not the subject of why we are here today. It is to review the budget, see where you see the FCC going forward. Like 

all of Congress and committees and our individual offices who have 

received 12 percent cuts and cutting staff and really focusing to be 

lean and financially lean. We are seeing where you see the FCC 

doing the same thing, and that is what we want to hear. 

7 

On issues of USF overall, while you were able to get some controls in place on the high cost, we see lack of controls and explosion 

in other areas of USF, particularly in Link Up and Lifeline, and 

want to see how you are going to control that, what your plans are 

in that area. 

So I look forward to your testimony, and with that, I will yield 

to the gentlelady from Tennessee. 

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE 

Mrs. BLACKBURN. I thank the gentleman, and Mr. Chairman, we 

welcome you. We appreciate that you are here and you are going 

to give us the opportunity to talk with you about this budget. You 

know, at a time when the Defense Department is taking a $32 billion cut and looking at that right on the table, we are kind of curious as to why the FCC would say we need a 2 percent bump. And 

we want to make certain that we review that with you. As others 

have said, you know, part of this focus is on your agenda. Some of 

us think that you have supported or have moved toward an agenda 

that is restricting free markets and innovation, and that sometimes 

you are getting into issues that we don’t—places where we don’t 

think you should be going. And you do it because you say you can. 

Section 706, your interpretation on that, the same language that 

you used for net neutrality regulations, data roaming mandates, 

things of that nature, you and I have discussed that and so maybe 

this is a time for us to see some regulatory humility and restraint 

and pull those issues, and say is that the proper use of your time? 

And so I appreciate the chairman of the subcommittee allowing 

us to work with you and have the time to review this purpose that 

you have in your budget, and then the means that you go through 

in using the dollars that are given to you. 

I yield back. 

Mr. WALDEN. Do any of our other members want to—Mr. Scalise, 

Mr. Latta, do you want to use any of the remaining time, or should 

we get on with the hearing? OK. 

Mr. Dingell, would you like to offer an opening statement? 

Mr. DINGELL. Mr. Chairman, defer just briefly, if you please. 

Mr. WALDEN. I don’t believe we have any other speakers on our 

side, or I would. 

Mr. DINGELL. Then at your suggestion, I will proceed. 

I don’t have an opening statement, so I will defer on that. 

Mr. WALDEN. All right, thank you. 

Then I don’t see any other members who have not had a chance 

to say something, so Mr. Genachowski, the microphone is yours for 

a limited duration. We will take it back later, but we do appreciate 

your being here and we look forward to your testimony. Welcome. 

STATEMENT OF JULIUS GENACHOWSKI, CHAIRMAN, FEDERAL 

COMMUNICATIONS COMMISSION 

Mr. GENACHOWSKI. Thank you, Chairman Walden and Ranking 

Member Eshoo, the other members who are here, for the opportunity to appear today. Before taking your questions, I would like 

to make two overarching points about the FCC’s budget. 

8 

First, the FCC creates tremendous value for our economy and 

the American people. Indeed, few, if any, Federal agencies deliver 

a high return on investment than the FCC. Spectrum auctions 

have raised more than $50 billion for the U.S. Treasury, and economists regard the economic value created by FCC auctions as being 

about 10 times that number, $500 billion. The U.S. has long led the 

world in developing policies to unleash spectrum for mobile investment and invasion. The FCC was the first agency to develop spectrum auctions, and also the first to free up so-called junk bands for 

unlicensed use, such as Bluetooth, cordless phones, and Wi-Fi. As 

Wi-Fi plays an increasingly important role in the spectrum ecosystem, the economic benefit created by unlicensed spectrum is estimated at up to $37 billion a year. 

Because of the work of this committee and the Senate Commerce 

Committee, the voluntary incentive auctions proposed in the FCC’s 

National Broadband Plan could become the next big value creating 

breakthrough in spectrum policy, leading to very substantial new 

auctions of spectrum and freeing up unlicensed spectrum for white 

spaces and other higher-powered unlicensed use holds tremendous 

promise to become another value-creating breakthrough on the 

order of magnitude of Wi-Fi. 

Spectrum policy is just part of the FCC’s overall efforts to create 

value by promoting private investment, innovation, competition, 

and job creation. Through our Broadband Acceleration Initiative, 

the FCC has removed barriers to broadband deployment and accelerated broadband buildout. For example, we have adopted orders 

to ease access to utility poles and established a shot clock to speed 

cell tower and antenna siting. 

As the FCC does its work under the Communications Act, more 

than 95 percent of our decisions have been bipartisan and our policies are working. Investment, job creation, and innovation are up 

across the information and communications technology sector, the 

broadband economy. These metrics are up both when looking at 

broadband absent services and when looking at broadband providers and networks. In 2011, the U.S. tech sector grew three times 

faster than the overall economy. Broadband is helping create new 

jobs all across the country, and not just for engineers, but also for 

construction workers, salespeople, and small business owners who 

are increasingly using the internet to increase sales and lower 

costs. The apps economy, which barely existed in 2009, has already 

created almost 500,000 new jobs, according to expert estimates. 

The U.S. has regained global leadership in mobile innovation. We 

are also now ahead of the world in deploying 4G mobile broadband 

at scale. These next generation 4G networks are projected to add 

$151 billion in GDP growth over the next 4 years, creating a 

project 770,000 new American jobs. 

Broadband providers invested tens of billions of dollars in wired 

and wireless networks in the first three quarters of 2011, a double 

digit increase over the same period in 2010. Internet startups attracted 7 billion in venture capital in 2011, almost double 2009 levels, and the most investment since 2001. 

The value contributions I have identified would be enhanced 

even further by closing broadband gaps, and so the agency is focused on bringing universal service into the broadband era. Today, 

9 

approximately 18 million rural Americans live in areas with no 

broadband infrastructure. Our plan adopted in October to modernize the Universal Service Fund will spur wired and wireless 

broadband buildout to hundreds of thousands of rural homes in the 

near term, and put us on a path to universal broadband by the end 

of the decade without increasing the size of the fund. The major 

overhaul of USF and intercarrier compensation was done on a 

unanimous basis at the Commission, and with bipartisan support 

by this committee, and I thank you for that. 

In addition to the broadband deployment gap, we are making 

strides on the broadband adoption gap. Nearly a third of Americans, 100 million people, haven’t adopted broadband. Our Connect 

to Compete Initiative enlists government, nonprofit, and private 

sector leaders to tackle the barriers to adoption, one of several public private partnerships driven by the Commission to promote solutions to major challenges. 

We have adopted smart reforms to the successful E–Rate program, helping schools and libraries, and working with this committee, the FCC is also implementing the recently enacted legislation, such as the Communications and Video Accessibility Act, and 

the Local Community Radio Act. 

The agency is working to harness the power of communications 

to make our public safer. We granted waivers authorizing more 

than 20 jurisdictions to begin development of an interoperable public safety broadband network, and we support bipartisan congressional efforts to fund such a network. We are working with multiple stakeholders to advance next generation 911, an issue that 

Ranking Member Eshoo and Congressman Shimkus have championed, along with others on the committee. And we accelerated the 

launch of PLAN, a reverse 911 alert system that allows local, 

State, and Federal authorities to send targeted alerts to mobile devices during an emergency. 

The FCC also provides value by protecting and empowering consumers, as we have done with our bill shock, text alert initiative, 

and our small business cyber planner, as well as our enforcement 

activities. 

The FCC provides value to our economy and the American people 

in many ways. That is point one. Point two is that the FCC is committed to smart, responsible government, and we have taken significant steps to modernize our programs and ensure that they are 

efficient and fiscally responsible, saving billions of dollars. 

Our work to modernize USF and Intercarrier Compensation will 

not only spur broadband buildout, it also eliminates billions of dollars in hidden subsidies on consumers’ phone bills. Our work to reform the Lifeline program is expected to save up to $2 billion over 

the next 3 years, and includes an elimination of link up. Even before the order was adopted, we made changes that eliminated 

270,000 duplicate subscriptions, saving $33 million in 2011. We 

have reformed our Video Relay Service Program, which provides 

vital communications for people who are deaf or hard of hearing, 

saving about $250 million without reducing availability of service. 

In addition to our programmatic changes, we have also reviewed 

the agency’s rules and processes, asking tough questions to make 

sure the agency is operating efficiently and effectively. In connecVerDate Aug 31 2005 08:21 Feb 27, 2014 Jkt 037690 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 F:\112-11~1\112-11~1 WAYNE
10 

tion with this review, we have already eliminated more than 200 

outdated rules and five unnecessary data collections. We have identified two dozen more data collections for elimination, including 

seven voted on at yesterday’s Commission meeting. We have significantly reduced backlogs, including, for example, a 52 percent reduction in satellite licensing applications, and increased the inclusion of proposed rules in NPRMs from 38 percent to 86 percent. We 

have made it a priority to move information and processes online, 

for example, revising our rules to the filing of all tariffs electronically, decreasing burdens on carriers and the Commission. We estimate that internal reforms like consolidated IT maintenance and 

new financial system have already saved the agency $8 million. 

And we have been able to do everything I have listed and more 

with the lowest number of full-time employees in 10 years. 

Harnessing 21st century communications technology to deliver 

value to the American people, and doing so in a smart and fiscally 

responsible way, that is the FCC’s record the past 3 years and that 

is our plan for the year and years ahead as reflected in our fiscal 

year 2013 requested budget. 

Because we are funded by fees, the budget is deficit neutral. 

Though of course, we are sensitive to those regulatory fees. The 

budget reflects a 2 percent increase in spending. It is flat on dollars 

adjusting for inflation. We plan to be flat on the number of fulltime employees. The budget includes a few new initiatives, primarily technology investment designed to save money, and public 

safety investments aimed at saving lives. The budget includes proposals to reauthorize the Commission’s auction authority, which expires in September 2012, and to provide incentive auction authority, which I hope Congress will grant, in a way that enables the 

FCC to maximize the amount and benefit of recovered spectrum for 

our economy. The budget lays out strategic goals for the FCC, such 

as promoting innovation, investment, and America’s global competitiveness. This will keep the agency focused on policies that will 

yield a substantial return on investment for our economy and the 

American people. 

I look forward to continuing to work with this committee. We 

have incorporated many of your suggestions over the last 3 years. 

I look forward to continuing constructive engagement with each of 

you. 

[The prepared statement of Mr. Genachowski follows:] 

11 


82543.003

PREPARED STATEMENT OF 

FCC CHAIRMAN JULIUS GENACHOWSKI 

ON 

"THE BUDGET AND SPENDING OF THE FEDERAL 

COMMUNICATIONS COMMISSION" 

BEFORE THE 

COMMITTEE ON ENERGY AND COMMERCE 

SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY 

U.S. HOUSE OF REPRESENTATIVES 

WASHINGTON, D.C. 

FEBRUAHY 16,2012 
12 


82543.004

Chairman Walden, Ranking Member Eshoo, members of the subcommittee, 

thank you for this opportunity to appear today. 

Before taking your questions, I'd like to make two overarching points in 

connection with the FCC's fiscal 2013 budget request. 

First, the FCC creates tremendous value for our economy and the American 

people. Indeed, few, if any, federal agencies deliver a higher return on 

investment than the FCC. 

Spectrum auctions have raised more than $50 billion for the U.S. Treasury, 

and economists regard the economic value created by FCC auctions as being 

about 10 times that number, or $500 billion in value. 

The U.S. has led the world in developing policies to unleash spectrum for 

mobile investment and innovation. The FCC was the tirst agency to develop 

spectrum auctions, and also the first to free up so-called "junk bands" for 

unlicensed usc such as Bluetooth, cordless phones, and Wi-Fi. As Wi-Fi 

plays an increasingly important role in the spectrum ecosystem, the 

economic benefit created by unlicensed spectrum is estimated at up to $37 

billion a year. 

Spectrum policy is just part of the FCC's overall et10rts to create value by 

advancing policies that promote private investment, innovation, competition, 

and job creation. 

Through our Broadband Acceleration Initiative, the FCC has removed 

barriers to broadband deployment and accelerated broadband buildout. For 

example, we've adopted orders to case access to utility poles and established 

a shot clock to speed cell tower and antenna siting. 

As the FCC does its work under the Communications Act, more than 95 

percent of our decisions have been bi-partisan, and our policies are working. 

Investment, job creation, and innovation are up across the Information and 

Communications Technology sector the Broadband Economy. These 

metrics arc up both when looking at broadband apps and services, and when 

looking at broadband providers and networks. 
13 


82543.005

In 2011, the U.S. tech sector grew three times faster than the overall 

economy. Broadband is helping create new jobs all across the country - and 

not just for engineers, but also for salespeople, construction workers, and 

small business owners increasingly using the Internet to increase sales and 

lower costs. 

The apps economy, which barely existed in early 2009, has already created 

almost 500,000 new jobs, according to expert estimates. 

And similar reports estimate that over the past several years wireless 

innovation and investment are responsible for more than 1.5 million new 

jobs. 

The U.S. has regained global leadership in mobile innovation. We are also 

now ahead of the world in deploying 4G mobile broadband at scale. And 

these next-generation networks are projected to add $151 billion in GDP 

growth over the next four years, creating a projected 770,000 new American 

jobs. 

Broadband providers invested tens of billions of dollars in wired and 

wireless networks in the first three quarters of 20 II, a double-digit increase 

over the same period in 20 I O. 

Internet start-ups attracted $7 billion in venture capital in 20 I I, almost 

double the 2009 level and the most investment since 2001. 

The value contributions I've identified would be enhanced even further by 

closing broadband gaps, and so the agency has focused on bringing universal 

service into the broadband era. 

Today, approximately 18 million rural Americans live in areas with no 

broadband infrastructure. Our plan, adopted in October, to modernize the 

Universal Service Fund will spur wired and wireless broadband buildout to 

hundreds of thousands of rural homes in the near ternl, and puts us on the 

path to universal broadband by the end of the decade without increasing 

the size of tile Fund. 

The major overhaul ofUSF and intercarrier compensation was done on a 

unanimous basis at the Commission, and with bipartisan support by this 

Committee. I thank you for that. 
14 


82543.006

In addition to the broadband deployment gap, we are making strides on the 

broadband adoption gap 

Nearly one-third of Americans - 100 million people - haven't adopted 

broadband. Our Connect to Compete Initiative enlists government, 

nonprofit, and private sector leaders to tackle the barriers to adoption - one 

of several public-private partnerships driven by the Commission to promote 

solutions to major challenges. 

The FCC's successful E-Rate program has already helped connect vittually 

every library and classroom in America, and in 2010 we adopted several 

important modernizations of the program, including removing barriers to 

wireless usc, and removing barriers to schools opening their computer labs 

as hot spots for community Internet use when students aren't in school. 

Working with this Committee, the FCC is also implementing recently 

enacted legislation such as the Communications and Video Accessbility Act 

and the Local Community Radio Act. 

Public safety is a core mission of the FCC, and the agency is working to 

harness the power or communications to make our communities sarer. 

We've granted waivers authorizing more than twenty jurisdictions to begin 

development of an interoperable public safety broadband network, and we 

support bipartisan Congressional eftolts to fund such a network. 

We are working with multiple stakeholders to advance next-generation 9-1-

I, an issue that Ranking Member Eshoo and Congressman Shimkus have 

championed. And we accelerated the launch of PLAN, a reverse 9-1-1 alert 

system that allows local, state and federal authorities to send targeted alerts 

to mobile devices during an emergency. 

The FCC also provides value by protecting and empowering consumers. 
15 


82543.007

Working with wireless providers, we found a common-sense solution to bill 

shock, a problem that has cost millions of consumers tens, hundreds, and 

sometimes thousands of dollars in unexpected charges. 

Working with government, private-sector, and nonprot1t partners, we 

developed a Small Business Cyber Planner to help small businesses guard 

against cyber attacks, which are estimated to cost targeted small businesses 

an average of $200,000 in damages. 

The FCC provides value to our economy and the American people in many 

ways that's point one. 

Point two is that the FCC is committed to smart, responsible government, 

and we have taken significant steps to modernize our programs and ensure 

that they are efficient and fiscally responsible -- saving billions of dollars. 

Our work to modernize USF and Intercarrier Compensation will not only 

spur broadband buildout, it also eliminates billions of dollars in hidden 

subsidies on consumers' phone bills. 

Our work to reform the Lifeline program is expected to save up to $2 billion 

over the next three years. Even before this order was adopted, we made 

changes that eliminated 270,000 duplicate subscriptions, saving $33 million 

in 201 L 

We reformed our Video Relay Service Program, which provides vital 

communications for people who are deaf or hard-of·hearing, saving $250 

million per year without reducing availability of service. 

In addition to our programmatic changes, we have also reviewed the 

agency's rules and processes asking tough questions to make sure the 

agency is operating efficiently and effectively. 

In connection with this review, we've already eliminated more than 200 

outdated rules and five unnecessary data collections. We have identitled 

two dozen morc data collections for elimination, including seven voted on at 

yesterday'S Commission meeting. 
16 


82543.008

We've significantly reduced backlogs, including, for example, a 52% 

reduction in satellite licensing applications, and increased the inclusion of 

proposed rules in NPRMs from 38% to 86%. 

We are using technology to improve engagement with outside stakeholders, 

improving both the inf{wmation we provide to and receive from the public. 

We've made it a priority to move int'OI111ation and processes online - for 

example, revising our rules for the filing of all tarin'S electronically, 

decreasing burdens on carriers and the Commission. 

We estimate that internal ref'Orms like consolidated IT maintenance and new 

financial system have already saved the agency almost $8 million. 

And we've been able to do everything I've listed and more with the lowest 

number of full-time employees in 10 years. 

Harnesing 21 st ccntury communications technology to deliver value to the 

American people, and doing so in a smart and responsible way. That's the 

FCC's record the past three years, and that's our plan f'Or the year and years 

ahead, as rellected in Ollr fiscal 2013 requested budget. 

The budget retlects a 2% increase in spending. It is nat on dollars adjusting 

t'Or int1ation. We plan to be nat on the number of full-time employees. 

The budget includes a few new initiatives - primarily technology 

investments designed to save money, and public saIety investments aimed at 

saving lives. 

The budget includes proposals to reauthorize the Commission's auction 

authority, which expires in September 2012, and to provide incentive 

auction authority. 

The budget lays out strategic goals /()[ the FCC, sllch as promoting 

innovation, investment, and America's global competitiveness, which will 

keep the agency focused on policies that will yield a substantial return on 

investment f'Or our economy and the American people. 

1 look forward to continuing to work with this Committee on all of these 

important issues. 
17 

Mr. WALDEN. Chairman, thank you. I can’t help myself. We had 

been here until one o’clock in the morning negotiating some of 

these things. Part of your testimony is so like 10:38 p.m., you 

know, others like—thank you for being here. 

I want to ask you about the Universal Service Fund. Obviously 

there is a lot of discussion about that and Jerry and others have 

spent a lot of their life trying to help improve this system, and I 

am sure you will hear more from them. But the contribution factor 

at 17.9 percent this quarter projected to stay above 17 percent so 

it is coming right off the phone bill. When will the Commission 

take a hard look at contributions reform? 

Mr. GENACHOWSKI. We will be doing that in the near future. Our 

strategy was to first tackle the spend in the programs, get those 

under control, direct them to where they should be directed. Having done that, the next step is to look at the contribution base and 

get that in a healthy place. We thought it made sense to sequence 

them, and the next step in sequence is contributions. 

Mr. WALDEN. So are you thinking 6 months, 3 months, next 

week, a year? 

Mr. GENACHOWSKI. I would say starting the process certainly 

within the next 6 months. 

Mr. WALDEN. OK. I noticed in the Commission’s budget there is 

a proposal for $1.1 million for eight new vehicles along with equipment that can be used to detect sources of radio interference. Can 

you explain to us how these eight vehicles end up costing $1.1 million? I know that is pretty specific and granular, but it does stand 

out. 

Mr. GENACHOWSKI. These are vehicles that are used to detect 

and prevent interference across the spectrum, so to speak, from 

aviation interference to pirate radio. It does require sophisticated 

equipment. They are also used in times of disaster to help with 

early assessment and recovery efforts. We certainly insisted that 

the professional staff at the agency responsible for this keep those 

numbers as low as possible. In many cases, they are replacing 

equipment that objectively should have been replaced 10 years ago. 

Mr. WALDEN. All right. We may follow up a little bit on that. 

The Commission’s budget proposal is half a million dollars for a 

study on the link between the identity of broadcast—a broadcast 

station owner and that station’s ‘‘service, including important content to all Americans.’’ Do you know what is about and what the 

link is? Is that to something regarding ongoing media ownership? 

Mr. GENACHOWSKI. There are several statutory provisions that in 

order for us to implement we need data, and this is agreed upon 

by everyone at the Commission. There is Section 257, which requires us to understand what is going on with small businesses, 

there are the ownership provisions and there are the EEO provisions. We are also under a directive from the Third Circuit to improve our data in this area. As you know, we are starting small 

with an initial essentially study of studies so that we can make 

sure that what we do in this area, what we need to do under the 

Communications Act is done as efficiently as possible. 

Mr. WALDEN. It just seems like $500,000 is a lot of money for a 

study of studies. 

18 

Mr. GENACHOWSKI. No, well the study of studies will cost much 

less than that, under 100,000. The 500,000 is a budget amount for 

what would be the next step. I will tell you that the prior studies 

of the sort have cost closer to a million dollars, and in the spirit 

of fiscal responsibility, what we have said to our team at the agency is we are just going to have to figure out a way to do it for a 

lot less. 

Mr. WALDEN. So this is a link between media ownership and content, or what? What are you really looking at? 

Mr. GENACHOWSKI. The media ownership provisions in the statute are one area where the studies will help us exercise our responsibilities. They are not the only area, small businesses and EEO. 

So this will—it is part of what we need to do to have the data that 

we need to be able to take whatever steps are appropriate. 

Mr. WALDEN. The Commission opened a docket to consider reclassifying broadband as a Title II service, as you all know, back 

in ’09. That docket remains open today. How many employees are 

currently working on that docket and why is it still open? 

Mr. GENACHOWSKI. I am not aware that any employees are working on the docket now. 

Mr. WALDEN. Well, why not close it? 

Mr. GENACHOWSKI. I am sorry? 

Mr. WALDEN. Why not close it, then, if nobody is working on it? 

It has been open since ’09. 

Mr. GENACHOWSKI. It is something that we will consider. It is 

not—we have been focused on—— 

Mr. WALDEN. Well, you are here. We could consider it now, you 

know. 

Mr. GENACHOWSKI. It is something I will discuss with our staff 

and colleagues. 

Mr. WALDEN. All right. Finally on my questions, you note in your 

written statement the Commission is allowed 20 jurisdictions to 

start deploying interoperable communications in the 700 MHz public safety spectrum. My understanding is that 30 more applications 

are waiting in the wings, but that the review process has stalled. 

If States are ready to go, including—we have heard from Oklahoma—and already have the funding to deploy their own networks 

at their own costs, why is the Commission holding them back? 

Mr. GENACHOWSKI. Well, I will say that assuming Congress in 

the next—in the near term adopts the legislation before including 

funding in the Public Safety Broadband Network, that will make 

it very easy for us to complete this very quickly. We have had a 

certain amount of humility and caution here because we don’t want 

to start things going that then will be different from what Congress 

instructs us to do. So I think we are at a point where I understand 

the frustration, and at some point we have to go ahead and do the 

waivers, even if Congress doesn’t act. But I am hoping that Congress is on a path to make this easy. Certainly if Congress does 

pass the legislation we will move forward very, very quickly because it is very important. 

Mr. WALDEN. All right, thank you. My time is expired. I turn to 

the gentlelady from California. 

Ms. ESHOO. Thank you, Mr. Chairman. 

19 

I think that you raised the point about the $85 million in auction 

proceeds in your—I think you did in your opening statement, but 

I would like Chairman Genachowski to elaborate on how the FCC 

uses the 85 million. 

Mr. GENACHOWSKI. Sure. In many different ways, you know. 

Auction is a constant activity at the FCC, preparing for auctions, 

licensing post auction, and we conduct many more auctions than 

people realize, because many auctions are not high profile auctions. 

We conducted—— 

Ms. ESHOO. How long do they usually take? What is the average 

length of time for an auction? 

Mr. GENACHOWSKI. Weeks would be the average, but the work 

that goes into all the auctions and the work that comes in implementing auctions is really very significant. The—we receive as an 

agency internally requests each year to spend to what would 

amount to more than the $85 million figure, because we do think 

that there is more and more work we could do that would generate 

a positive return on investment, but we work within the $85 million cap and there are things that we say no to because they hit 

the cap. 

Ms. ESHOO. Under the 2013 budget request submitted to Congress earlier this week, the agency requested $2.5 million to consolidate agency data centers. It is not a huge amount of money, but 

do you have an estimate on the agency’s long-term savings from 

the decision? 

Mr. GENACHOWSKI. Yes, for the various data initiatives that we 

have included, we have run ROI analyses for the data center consolidation. Our analysis shows that we would save a little over a 

million dollars a year, about $1.1 million a year once it is completed. So it is a $2.5 million investment to save a million a year 

on an ongoing basis, so it should pay for itself in 2 years. We expect that to be complete in the next 12 to 18 months. 

Similarly on the actual cloud updates, we expect that to yield a 

savings of about almost $1.5 million a year, so again, it pays for 

itself in the first year or two, and then on an ongoing basis we expect it to save 1.4 over time. 

And these are both the kinds of things that private companies 

are doing and they know that they need to do to save money. 

Ms. ESHOO. Right. It is my understanding that there are increasing bottlenecks in the FCC’s laboratory in terms of reviewing new 

advanced hand-held devices, like smartphones and tablets that use 

LTE technology. What is the FCC doing to expedite the device approval process, and does this require additional engineering staff? 

Mr. GENACHOWSKI. Well this is something that I am concerned 

about, and your question is right on target. We have had an unbelievable proliferation of devices in the last few years, and each device has more antennas inside of it than it used to. And so the 

work of—to certify devices has gotten a lot greater, and that process is under pressure. We launched an internal review of this a few 

months ago. This is handled out of our Office of Engineering and 

Technology, and they are working on recommendations on how we 

can meet this new world where the volume of devices that have to 

be certified is going way up. 

20 

Ms. ESHOO. Do you have any outstanding issues relative to the 

IG that have not yet been fully implemented by the FCC? 

Mr. GENACHOWSKI. Not that I am aware of. We take the role of 

the IG very seriously. He has independence and a track record of 

savings prosecutions over the last few years has been very significant. 

Ms. ESHOO. Thank you. I will yield back. 

Mr. WALDEN. Gentlelady yields back her time. Chairman recognizes the vice chairman of the subcommittee, Mr. Terry. 

Mr. TERRY. Thank you, Mr. Walden. 

I want to thank you again for coming to Nebraska and coming 

to a couple of our great cities like Liberty and Diller, towns of 

what, 50 people or something like that, and 290, so it was a great 

event and hopefully everyone learned a little bit. 

Speaking of high cost fund, though, as Greg mentioned—asked a 

question about the contribution side and the bill that Rick Boucher 

and I did paired the two, and on the contribution side there was 

always a thought that you needed legislative support for that area. 

Do you feel that you need legislative support to be able to change 

or adopt different ways to bring new revenue in, or not new revenue, but make everyone that does primarily voice pay into the 

Universal Service Fund as it was intended? Do you need us? 

Mr. GENACHOWSKI. I am not sure yet. Our general counsel’s office has looked at this. This will be something that we look at in 

the proceeding. Certainly we come to you and ask for help if we 

need it, and we will work together to make sure that we understand the authority that is there. 

Mr. TERRY. All right. Well, I appreciate the work that has been 

done so far, but keep us up to date. 

The second part is on the other part as I mentioned in my opening statement of Link Up and Lifeline. You mentioned that Link 

Up is going to be phased out. I would like you to comment further 

on that, time, are you just going to merge the two into Lifeline? 

And then how do we control the exploding costs in Lifeline, specifically, is there a plan set out and—well, go ahead and answer that. 

Mr. GENACHOWSKI. So we took this reform very seriously, and we 

reviewed all aspects of the program. We eliminated Link Up completely. It wasn’t eliminated over here and put in over there because we thought that the mechanism of providing, I believe it was 

a $30 bounty for every Lifeline customer that was signed up, created incentives for waste, fraud, and abuse, and as the market 

changes it simply couldn’t be justified. And there were some people 

who came to us and said why don’t you just reduce the amount? 

We looked at it and said we can’t justify that part of the program 

at all and we eliminated it, and I think—as a sign of our seriousness. With respect to the rest of the program, we tackled in a systematic way the problems that we saw. There were problems with 

duplicates, people receiving Lifeline support twice when they 

shouldn’t. We have taken steps on that, including moving toward 

a database that will make it much, much easier for States and 

companies to enforce or to prevent duplicates. We tackled—we 

identified and tackled other unscrupulous practices. 

It is an important program. We have a history in this country 

of making sure that the lowest income among us have access to 

21 

basic communication services, so we wanted to make sure that the 

program is on a strong foundation, and we were highly motivated 

to make sure that anything in the program we couldn’t defend, we 

got rid of. 

Mr. TERRY. I appreciate that. 

You mentioned 2 billion over 3 years. I want you to get into that 

a little more granular. Where is that 2 billion coming from? 

Mr. GENACHOWSKI. It is the status quo increases that we inherited if we had done nothing. We are on a curve. I think both Chairman Walden and you mentioned it. That curve was going up at a 

rate that was very hard to defend. Now in a bad economy, it is not 

surprising that this particular program goes up because low income 

people are eligible for it. In a bad economy there are more people 

who qualify, so it is not surprising that this program would go up 

in bad times, and it should go down in good times. Also, communications services are becoming more essential. But it was going up 

too fast and our goal was to remove from the, you know, the up 

all of the wasteful, inefficient, unjustified spending. And so what 

we believe we did is turn this line into this line, and over the next 

2 or 3 years, that is a $2 billion difference in the program. 

Mr. TERRY. My next question will take more than 25 seconds to 

answer, so I will just submit it in writing. 

Mr. GENACHOWSKI. Thank you, and thank you for inviting me to 

Nebraska. That trip was very valuable and informed in a positive 

way our reform only the things that you liked. The other things we 

got from other States. 

Mr. WALDEN. Wow, and you said that under oath, right? 

The Chair now recognizes the gentleman from California, Mr. 

Waxman. 

Mr. WAXMAN. Thank you, Mr. Chairman. 

Since the 20 years that Congress last reauthorized the FCC, this 

subcommittee has held oversight hearings to look at your budget 

and to also review how the agency is functioning. I want to say 

that by all accounts, the FCC under your leadership is well-managed and it operates in a transparent and open manner. Since you 

became chairman, the agency has reformed the way dockets are 

managed. The number of notices in proposed rulemaking that contain the full text of rules has increased from 38 percent to 85 percent. The amount of time between a vote on a Commission decision 

and the release of the full text of the decision has decreased from 

14 calendar days to 3 calendar days, with a majority of actions released in 1 calendar day. The ex parte rules underwent significant 

reform. The FCC has closed 999 dormant dockets, which represents 

approximately 1/3 of the agency’s open proceedings, while reducing 

the number of pending broadcast applications by 30 percent and 

the number of pending satellite applications by 89 percent. In addition, the FCC has removed or streamlined unnecessary requirements. One hundred and ninety obsolete regulations have been removed since November 2011, and the Commission is working to 

eliminate unnecessary data collections and exempting small businesses from certain reporting requirements. 

The FCC has also made great efforts under your leadership to 

work on a bipartisan basis. Ninety-five percent of agency actions 

over the past 2 years have been bipartisan. And finally, staff moVerDate Aug 31 2005 08:21 Feb 27, 2014 Jkt 037690 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 F:\112-11~1\112-11~1 WAYNE
22 

rale has improved so much that the FCC was named the most improved Federal agency. This was accomplished despite a flat budget 

and flat staffing levels. 

On the issues, FCC has been greatly ambitious. The Commission 

has tackled difficult topics from universal service and intercarrier 

compensation reform, open Internet protections, and numerous 

measures to promote broadband deployment. These efforts require 

a tremendous amount of time and dedication from the FCC staff, 

as well as agency resources. Based on my experiences over the past 

few years working closely with the agency, I am convinced that the 

FCC employs a disproportionate number of the most talented, experienced, and dedicated public servants in government. 

Now while you deserve a great deal of credit for all these accomplishments, I am confident that these accomplishments would not 

happen unless you realize you have to come before this subcommittee and answer our questions. But I do want to pay tribute 

to the work that you have been doing. 

Since this is an opportunity to ask you a question and the hearing is on the FCC’s budget, you are going to be overseeing one of 

the most innovative and complex spectrum auctions ever. I want to 

know from you what sense of expertise is going to be required to 

administer this process, and could you provide us with a sense of 

what skills the Commission’s staff requires to do the work that 

they do overseeing the communications marketplace? You have talented people with a great deal of expertise. You have got to be able 

to pay them adequately, give them a sense of job satisfaction, and 

as we look at the budget for the FCC, we have to recognize your 

needs. So if you could give us some sense of this? 

Mr. GENACHOWSKI. Well first of all, thank you for those very generous comments, and I particularly appreciate the comments about 

the staff. It is a great staff. They work very hard every day to deliver value to the American public. And as you know, in addition 

to honoring the staff, the career staff that was there, we focused 

on bringing in new people representing the full range of skills that 

the agency needs. And so lawyers obviously, but not just lawyers. 

We need very strong economists. We need very strong engineers. 

We need very strong business analysts. We need to understand the 

landscape in a very sophisticated way. I do spend a lot of my time 

on talent. I think we have recruited terrific people to the agency. 

It has to be an ongoing job, and you are right that implementing 

the auctions will require the very best of the agency, and may well 

require us to add to our expert resources to make sure that we get 

it right. 

Mr. WAXMAN. Well, I think the FCC is government at its best, 

and I commend you and your staff for doing the excellent work that 

you have been doing. That is why we are going to give you more 

work to do. 

Mr. GENACHOWSKI. Thank you. 

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

Mr. WALDEN. Thank the gentleman. 

The Chair recognizes the gentlelady from Tennessee, Ms. 

Blackburn. 

Mrs. BLACKBURN. Thank you, Mr. Chairman. 

23 

Chairman Genachowski, as we are talking about budget and I 

was getting ready for the hearing, I saw some data from the IRS 

that suggests that there is a growing trend with regard to FCC employees failing to pay their Federal taxes. Were you aware of this? 

Mr. GENACHOWSKI. No. 

Mrs. BLACKBURN. You were not, OK. Well it seems that with the 

majority of your employees making over $125,000 a year, and with 

there being a growing percentage of them not paying their taxes, 

I would think that since the President has as one of his goals for 

people to pay their fair share that we would appreciate if this is 

an issue that could be addressed. I would like to have your commitment and maybe something in writing that you are going to address this and that we are going to get in behind it and get it 

cleaned up. 

Mr. GENACHOWSKI. I haven’t heard that. We will certainly look 

into it. 

Mrs. BLACKBURN. And will you respond back to me on that? 

Mr. GENACHOWSKI. Yes. 

Mrs. BLACKBURN. Thank you. I appreciate that. 

Looking at regulations that we have got out there, did—have you 

paid attention to the Canadian radio and TV service, and they have 

just gone through a process where they are eliminating and 

streamlining 60 percent of their rules. And I think that that is certainly something that—it caught my eye. I hope it is catching the 

eye of you and your employees. Now, you are going to ask for 140 

new employees, is that correct? 

Mr. GENACHOWSKI. That is not correct. I would be happy to explain. 

Mrs. BLACKBURN. OK, what is the number of new employees that 

you are requesting? 

Mr. GENACHOWSKI. The number of employees that we expect to 

have next year based on the appropriations we are requesting is 

flat to this year. There is a higher number that appears that is essentially a ceiling for flexibility, but our appropriations are targeted and in fact, the budget says that we are planning on being 

flat for the next year. 

Mrs. BLACKBURN. OK, so you have got the flexibility in case you 

need to add people? 

Mr. GENACHOWSKI. In the circumstances where that could theoretically arise, because it doesn’t change our appropriations. If, for 

example, we determine that we could save money by in sourcing 

contractors—we have reduced contractors by about 50 percent over 

the last year, so conceivably we might say we might save money 

if we took contractors, made them FTEs, so under our budget we 

could do that because—— 

Mrs. BLACKBURN. OK, well let me ask you this. In your budget, 

you had stated a top priority was to, and I am quoting, ‘‘conduct 

a review of rules and regulations within each FCC bureau and office with the goal of eliminating or revising requirements that are 

outdated.’’ With what the Canadian radio and television agency has 

done, I hope that that is going to be a top priority. 

My question and my curiosity was if you were going to bring in 

people to make that stated objective a deliverable and an outcome 

that a year from now, we can say the FCC has indeed done this? 

24 

So my question is what is the degree of priority that you are going 

to—budgets are about priorities, and we would like to see removing 

outdated rules and regulations a priority. 

Mr. GENACHOWSKI. So if I may, this has been a priority from day 

1. One of the first hires that I made was a special counsel for government reform and she was tasked with exactly this. We have 

someone again who is in that role now who is accountable for ongoing review, ongoing elimination of rules. I would be happy to look 

at the Canada situation. I know that other agencies around the 

world have looked at our reforms. But I agree with you that one, 

it is a priority, and two, that if—that one has to organize for it and 

set goals in order to achieve them. 

Mrs. BLACKBURN. Well, and there is a lot of outdated things we 

would like to get off the books. 

One more question. I understand that Section 9 of the Communications Act requires regulatory fees to be apportioned among industries based on full-time equivalent employees. Here is what I 

don’t understand. Your budget proposal suggests that the wireless 

bureau and the media bureau each have more employees than the 

wire line bureau, and wire line providers pay more in regulatory 

fees than their competitors, so how do you reconcile this with the 

Act? 

Mr. GENACHOWSKI. I would like to get back to you on the specifics. In general, I do think it is possible that a—I don’t know if 

rebalancing is the right word, but looking at the way we do the fees 

to make sure that they are fair as the markets change is an appropriate goal and that is something that we are looking at. 

Mrs. BLACKBURN. OK. I think that, as you know, one of the 

things we would love to see is for the reach and the scope to come 

down, your costs to come down, see you go through the type of reduction we have done in Congress. We have cut our budget 11 percent. We would like for you to do the same. 

I yield back. 

Mr. WALDEN. Chair recognizes the gentleman from Michigan, 

Mr. Dingell. 

Mr. DINGELL. Mr. Chairman, I thank you. 

I have some questions, Mr. Chairman Genachowski. I ask that 

the questions be responded to by yes or no. 

I note your fiscal year 2013 budget requests cuts in the wire line 

bureau’s funding by 9 percent, while increasing the budget of your 

office and that of the other commissioners. Now am I correct in assuming that the wire line bureau is heavily involved in the implementation of the Universal Service and Intercarrier Compensation 

Order? Yes or no? 

Mr. GENACHOWSKI. Yes. 

Mr. DINGELL. Mr. Chairman, does the 9 percent increase in the 

wire line budget mean that the Commission will complete by the 

end of this fiscal year all work associated with the USF and ICC 

Order, as well as the necessary follow on reforms of the USF contribution system? Yes or no? 

Mr. GENACHOWSKI. Yes, that is our goal, I believe. 

Mr. DINGELL. I am sorry? 

Mr. GENACHOWSKI. I believe that is our goal. We have a time 

table for the implementation. 

25 

Mr. DINGELL. So it is a yes, or hopefully yes? 

Mr. GENACHOWSKI. Hopefully yes. 

Mr. DINGELL. Hopefully. Is that—is the cut that you are making 

in the budget there going to expedite or retard the completion of 

that responsibility? 

Mr. GENACHOWSKI. We sought to—neither. We sought to make 

sure that we have the resources we need to move efficiently. 

Mr. DINGELL. Now, Mr. Chairman, I would like to discuss Executive Order 13589 issued by President Obama November 15, 2011. 

The order seeks to promote fiscal responsibility amongst the sundry executive agencies. Now this strikes me as imminently sensible; however, Section 8(c) of the order requests independent agencies to adhere to it. Does the Commission intend to adhere to Executive Order 13589? Yes or no? 

Mr. GENACHOWSKI. Yes, and we have announced that previously. 

Mr. DINGELL. Now, Mr. Chairman, Section 2 of the order instructs agencies to reduce their travel, technology printing, and 

certain other costs by 20 percent, compared to 2010, 11. I commend 

you for reducing yours and the other Commissioners travel budget 

by 10.6 percent. Will similar cuts agency-wise help achieve the order’s 20 percent reduction goal? Yes or no? 

Mr. GENACHOWSKI. I am not sure I completely understand the 

question, but we are focused on operating efficiently, meeting our 

obligations with respect to international treaties like the WARC, 

but reducing travel budget is something that we are certainly looking at. 

Mr. DINGELL. I will ask, Mr. Chairman, that you provide documentation for the record to confirm this. You will have a chance 

to look at it and give it perhaps to your purposes a more satisfactory response. 

Mr. GENACHOWSKI. Thank you. 

Mr. DINGELL. Now, Mr. Chairman, Section 3 of the order encourages agencies to devise strategic alternatives to government travel, 

including local technological alternatives such as teleconferencing 

and video conferencing. Has the Commission begun any analysis on 

this particular matter and compliance here? 

Mr. GENACHOWSKI. Yes, we have begun to implement that and 

we would like to implement—we would like to take advantage of 

it more. It will require resources to be able to conduct effective teleconferences. 

Mr. DINGELL. Thank you, Mr. Chairman. Would you please provide a copy of the preliminary results for the record? 

Mr. Chairman, I note Section 3 of the order directs agencies to 

designate a senior level official to be responsible for the development and implementing policies and controls related to travel 

costs. Has the Commission complied with that mandate? 

Mr. GENACHOWSKI. I believe we have. 

Mr. DINGELL. Would you tell us the name of the senior level official, if you could insert that for the record who will have that responsibility? 

Mr. Chairman, if so, which official has been—well, I have asked 

that question already. Now on a different topic, Mr. Chairman, are 

you familiar with the voluntary incentive auction legislation this 

committee approved last year? And I assume you are, are you not? 

26 

Mr. GENACHOWSKI. Yes. 

Mr. DINGELL. Mr. Chairman, do you recognize the strong possibility of interference in border areas of this country with Canadian 

and Mexican television stations which might be associated with repacking the markets along border areas? Yes or no? 

Mr. GENACHOWSKI. We recognize that that is an issue. 

Mr. DINGELL. Now, Mr. Secretary, this is a matter of very special 

concern to me and a number of other members from border States. 

Can you assure me that as a result of the repacking process, none 

of my constituents in Michigan will lose access to over the air television signals? Yes or no? 

Mr. GENACHOWSKI. That is the goal and of course, we will faithfully implement the provisions of the law that is adopted. 

Mr. DINGELL. Now, Mr. Secretary, can you give me and my colleagues on this committee the same insurance—assurances, namely 

that none of their constituents will lose access to an over the air 

television signal? Yes or no? 

Mr. GENACHOWSKI. Again, that is the goal and we will be guided 

by the act that is adopted. 

Mr. DINGELL. Now, Mr. Chairman, you understand that there 

are two problems that plague us all. One here is that we will have 

loss of access to over the air television signals, but the other is that 

there will be the creation of significant interference, which will 

cause trouble to all manner of services if that is not addressed. Are 

we going to have the service continuing but somewhat defaced by 

interference? Yes or no? 

Mr. GENACHOWSKI. I think yes. I didn’t hear the last part of the 

question, but I—— 

Mr. DINGELL. Well, let us find what that yes means. The yes 

means that we are going to have the service, but we are also going 

to have interference. Is that right? 

Mr. GENACHOWSKI. Well, the yes means that we are aware of 

these concerns and an important part of our work will be to address them consistent with the provisions in the statute. 

Mr. WALDEN. And Mr. Chairman—— 

Mr. DINGELL. I have used more time than I am entitled to. For 

your courtesy, Mr. Chairman, I thank you. 

Mr. WALDEN. Thank you. And we are going to go now to Mr. 

Scalise. You are up next. 

Mr. SCALISE. Thank you, Mr. Chairman, and thank you, Chairman Genachowski for coming before us to talk about your budget. 

I want to follow up on some questions Mr. Terry was asking on 

the free cell phone program, as I know a lot of my constituents 

refer to it. What is the actual amount of the tax that people pay 

to provide that service? 

Mr. GENACHOWSKI. Well as the Chairman mentioned, there is an 

overall contribution rate that funds several things, high cost fund 

for rural areas, schools, libraries—— 

Mr. SCALISE. Right. Do you have any kind of a breakdown, 

though? Is it just as it relates to the free cell phone program, because that—we have seen a mushrooming, a 1,000 percent increase 

in that program over the last 15 years, and it just seems like that 

specific program has been rife with waste, fraud, and abuse. I know 

you said you are looking into it and hope to achieve $2 billion in 

27 

savings. I mean, the fact that over a 3-year period you feel you can 

get 2 billion in savings says there is tremendous waste, fraud, and 

abuse, and you know, especially in tough economic times you have 

got people that are struggling, they are maybe working two jobs, 

and they are struggling to pay their cell phone bill, and yet they 

are paying an increased tax to provide somebody else with a free 

cell phone. In some cases, you might have a family with four or five 

free cell phones in the household that they are paying for. A lot of 

people find that real offensive, and it just seems like can we quantify how much in taxes are people paying for that particular program that has mushroomed over the last 15 years. 

Mr. GENACHOWSKI. So a couple of points. I completely agree with 

your point that in looking at these programs, we both have to look 

at the recipients and the consumers who are paying into it. And 

that has been a core part of our work and it is why we have been 

so serious about removing any waste or inefficiencies from the program. 

Mr. SCALISE. Can you get me or the full committee the actual 

costs to consumers, how much people are paying for that—— 

Mr. GENACHOWSKI. Yes. 

Mr. SCALISE (continuing). That component, and you know, of 

course we can see if we can break it down for how much an individual would pay, but definitely the broad costs or what the total 

cost of the program is. And then if you were to achieve that $2 billion in savings by rooting out the waste, fraud, and abuse, which 

unfortunately should have been done years ago, but if it is done tomorrow or over the next 3 years, would your Commission actually 

reduce the amount of taxes people are paying under that program 

to accommodate for the $2 billion in savings? 

Mr. GENACHOWSKI. Yes, we don’t—the contribution rate is set by 

the payouts, and so these savings will translate into lower contributions that otherwise we would have—— 

Mr. SCALISE. Is that automatic, because it seems like an openended entitlement as the program has mushroomed by 1,000 percent increase, basically just forces an increased tax on what folks 

were paying. 

Mr. GENACHOWSKI. The savings are—and the reflection of contribution rate are automatic. We can’t control things—— 

Mr. SCALISE. So it is not at the discretion of the Commission? If 

the usage goes down by $2 billion, the tax will go down by 2 billion, 

or does your Commission have to actually do something to lower 

it? 

Mr. GENACHOWSKI. My understanding is that the answer is yes. 

Whether or not technically the Commission has to do something, 

I don’t know, but there is a direct—— 

Mr. SCALISE. And we will take a look, because clearly if it is not 

automatic, I surely would like to see us bring legislation forward 

that would ensure that the taxpayers would get that 2 billion in 

savings, it wouldn’t just be spent in other places. 

Looking at your budget, you have 12 full-time employees requested in the wire line bureau under the goal to maximize the 

benefits of spectrum. That seems like a duplication of—between 

wire line and wireless. Is there any reason why that request is 

28 

there to do something that looks like it is duplicated somewhere 

else? 

Mr. GENACHOWSKI. I would like to get back to you on that. In 

general, we see more and more overlap between what happens, for 

example, for a healthy and successful wireless infrastructure. The 

wire line back haul is very important, because of course the signals 

go into a tower and then they go into the wires. So that could explain what you are pointing to, but we will get you a specific explanation. 

Mr. SCALISE. I appreciate that. 

Switching gears, I want to talk a little bit about video regulation. 

I would just like to get your take on the marketplace when you 

have got MVPDs negotiating between broadcasters. Would you consider the current relationship a true free market, or is there some 

government intervention there? 

Mr. GENACHOWSKI. Well as you know, we have exercised humility, regulatory humility in the area of retransmission consent negotiations. Certainly some have argued that there isn’t a true free 

market there, that there are advantages that one side has over the 

other. We have opened a proceeding to monitor it. We haven’t yet 

seen a strong enough case for government intervention. 

Mr. SCALISE. But there is—I mean, there are rules right now for 

channel placement, basic to your must carry. Those are government 

mandates that interfere with a pure free market. I don’t know if 

you would agree with that or not. 

Mr. GENACHOWSKI. I think there is certainly the argument is 

that provisions like that distort the market when it comes to retransmission consent negotiations. That is the subject of an open 

proceeding that we have right now. 

Mr. SCALISE. And a final question. I know this is something that 

Congress would have to decide, but if Congress were to repeal compulsory copyright license and retransmission and go to kind of a 

broader free market, in that relationship between—with the satellite and the cable carriers and the broadcasters, wouldn’t there 

still need to be a negotiation over a copyright license? If we were 

to repeal those laws, would the carriers just be able to get it for 

free or would they have to have still some negotiated agreement to 

carry that signal from a broadcaster? 

Mr. GENACHOWSKI. I presume there would have to be an arm’s 

length negotiation in any situation. 

Mr. SCALISE. Yes, because there would still be traditional copyright laws that would be in effect, wouldn’t that be the case? 

All right, I appreciate it. I yield back the balance of my time. 

Mr. WALDEN. The gentleman yields back, and I am sure he 

doesn’t know anybody that has a bill that would do any of those 

things, but we—— 

Mr. SCALISE. We could sure get one out there and have a hearing 

on it, if you would be so gracious, Mr. Chairman. 

Mr. WALDEN. We now go to the gentleman from Illinois, Mr. 

Shimkus, for 5 minutes. 

Mr. SHIMKUS. Thank you, Mr. Chairman. Thank you, Chairman, 

for coming here. I was talking to some colleagues before I was moseying over, and I just told them, you know, you were going to be 

appearing before us. I said a lot can be learned about friendliness, 

29 

returning phone calls, gracious smile. I mean, even though I am 

public policy, there is always fights. You handle yourself with great 

decorum, and I just—I appreciate that and I think that helps us 

in the bipartisan nature in trying to deal with some of this stuff, 

so—— 

Mr. GENACHOWSKI. Thank you. 

Mr. SHIMKUS. This is—Congresswoman Blackburn and actually 

Congressman Scalise kind of hit on this, and you answered a little 

bit about the employees in the landline, as I would use the vocabulary, and how, you know, everything is moving to cellular technology. And of course, you know, my interest in broadband applications to rural America. You did mention how there is a backbone 

so there is still a need, but is there—I guess in looking through the 

budget, seeing the number of full-time employees that are dealing 

in the wire line, is there a plan to be able to shift full-time equivalent positions while keeping what you need for the backbone, but 

also there is still more of an explosion in the area of broadband and 

wireless technology. 

So I guess that is the question is how many—not exactly, but 

this shifting of that, is that a possibility in what you have got 

planned? 

Mr. GENACHOWSKI. Well these are exactly the kinds of issues we 

talk about in the budgeting process, and we run it as a company 

would run it, and different bureaus make their case for what they 

need, and we regard our job as doing capital allocation as against 

overall targets. So it is—I would say that, you know, no one—none 

of our specific areas are completely satisfied with their budget, but 

we also think at the end of the day they have what they need to 

get their work done. 

Mr. SHIMKUS. And again, obviously the turf fights that are involved in government and also in private sector, trying to—we 

would hope to see that move and that a new technology area maintaining enough to maintain, like we talked about, they need a 

backbone, but we want to make sure that we have the people on 

the ground. And of course, we are not in a growing government 

mode, as everyone agrees, so that—the shifting would be a better 

aspect of being able to do that. 

Following up on last July, the Commission promised to open a 

further rulemaking on rebalancing the regulatory fees before the 

end of 2011. Can you give us a status report on where that is at? 

Mr. GENACHOWSKI. I asked about this, and the status report that 

I got is it is being actively worked on. We recognize that it is something that we should move forward on, and I have asked the team 

to accelerate that. 

Mr. SHIMKUS. And the final question I have is really the fees 

used to manage the spectrum auctions. Obviously based upon what 

may happen pretty soon, that is going to be really important. We 

have seen some years where there is a big need, and some years 

may not be as big. But you can correct me if I am wrong, but there 

seems to be a consistent $85 million per year every year. And the 

concern is, is that really an evaluation of the costs needed to do the 

spectrum auction, ramping up or ramping down, some years that 

may not be enough. We may be coming to one. Some years it may 

30 

be way too much, so can you give me some analysis on that pot of 

money and the whole spectrum debate? 

Mr. GENACHOWSKI. Yes, of course, a few thoughts. One is the 

auction work is very active all the time, even when it is not in the 

newspapers. For example, we held several auctions last year. They 

were not super high value auctions, but they require the machinery, they require the expertise, and they require them to be professionally handled. And then the auction teams are always getting 

ready for the next auction and licensing and implementing the last 

auction. 

We do find that almost every year the requests from the auction team for funding are higher than the $85 million cap, and I have 

mixed feelings about it because on one hand, auctions have proven 

to be such a high return on investment for the country. If we could 

put more resources into it, could we move faster on auctioning 

spectrum? Possible, although given fiscal constraints, we are working within the cap that is there, and yes, we will have a challenge 

next year assuming incentive auction legislation passes to do what 

we need to do, but we will burn all the candles, the midnight oil, 

whatever it is that one has to burn to get it done. 

Mr. SHIMKUS. So you are basically saying the 85 is really a ceiling that really is accounted for every year, regardless of what the 

perception maybe is the real value of an auction? You are saying 

that that is a pretty good baseline for what you need every year? 

Mr. GENACHOWSKI. Yes, and we have internal processes to make 

sure that it is appropriate, yes. And we didn’t go back and look at 

what the value would be if we increased that by 10 or 20, you 

know, in this fiscal climate we think our obligation is to work with 

what we have to be efficient everywhere. Because we are working 

through assuming the legislation is passed. We are working 

through it. If issues come up, you can be sure I will be back and 

we will work on it together. 

Mr. SHIMKUS. Thank you. Thank you, Mr. Chairman. 

Mr. WALDEN. I now recognize the gentleman from Ohio, Mr. 

Latta. 

Mr. LATTA. Well thank you, Mr. Chairman, and thank you, Mr. 

Chairman, for being with us today. I appreciate it, and also to hear 

your testimony. 

There has been a lot of discussion, first, with the USF and I 

might change gears just a little bit here and might get back to it, 

but I find in your testimony it is kind of interesting. You were talking about the small business cyber planner, and to ward off cyber 

tax. I served on the Republican Cyber Security Task Force not too 

long ago. It is an ongoing problem. 

I guess a couple of the questions are how are you getting that 

information out to businesses, that they know they should be contacting, who they can contact? Who—is it someone specifically at 

the Commission that is in charge of it? Are you working with other 

departments and agencies so you are not—once again, like sometimes we do in government, reinvent the wheel each time someone 

touches it, then somebody else does it, instead of having it all put 

together? 

Mr. GENACHOWSKI. It is a great point, and I feel very strongly 

about this. In the cyber planner, we did that together with the 

31 

Small Business Administration, the Chamber of Commerce, the 

National Urban League, some other companies. We wanted to start 

with a base of people who said listen, here is one piece of paper. 

You don’t have to look at a lot of different pieces of paper. Since 

then, we have been working to extend the distribution. We just met 

2 days ago and I asked my team for a game plan to take distribution to the next level. What agencies, can we work with members 

of Congress and ask you to distribute it in your communities? What 

else can we do? We did something similar with FEMA and emergency communication tips, where I approached Craig Fugate at 

FEMA and said let us work on this together. We put out a joint 

tip sheet to help consumers prepare for disasters, and we are now 

putting in a place—a plan in place to get other agencies, Federal, 

State, and local to look at those, work on having a common set of 

advice for consumers, and then use all our collective distribution 

capacities to get it out. And I very much enjoy working with you 

on this. 

Mr. LATTA. Well, that is important, because I know the more 

that I have talked with a lot of my constituents there is just little— 

you know, they are not really aware of it. They—it happens to 

somebody else, it never happens to me, or they don’t even know it 

happened to them, you know. They are hit by someone from another country and we just had hearings in this committee last 

week, a week ago Wednesday it was, and how fast these cyber attacks occur. I think it is really important that we make sure that 

these small businesses—but also I think that we always talk in 

some cases about the small businesses. I think some of the larger 

businesses out there don’t realize what risk they are at. So I think 

it is incumbent on us also to make sure we get that information 

out to everybody out there to make sure they understand that 

there is a real problem. 

But I am sorry, did you say that you do have somebody at the 

Commission that is designated as the point person so you will be 

all coordinating and working together like with Homeland Security 

or whoever else? 

Mr. GENACHOWSKI. Yes—— 

Mr. LATTA. OK, thank you. 

And going back to the gentlelady from Tennessee and her line of 

questions and talking to you had mentioned your testimony about 

that you eliminated more than 200 outdated rules and five unnecessary data collection. Now this is going in the reverse way whatever we were just talking about. 

We hear from a lot of different businesses, and again, small and 

large, that there is a lot—one of the things that really costs them 

a lot of money and a lot of time is they have six agencies or departments that they have got to comply with. Is that something that 

you all are looking at within the Commission to make sure all of 

a sudden that, you know, there are other agencies and departments 

out there that are trying to do the exact same thing that are incurring more costs on these individuals out there, small businesses, to 

prevent them from going out and making a profit? 

Mr. GENACHOWSKI. Yes, I will give you a bit of what we did yesterday. We found that—yesterday—the way that the landscape 

32 

works—different circles. So in doing now what was yesterday—essentially the same over what they did—— 

Mr. LATTA. Mr. chairman, I see my time is expired, and I yield 

back. 

Mr. WALDEN. Gentleman yields back his time. 

Mr. Chairman, thank you for being here today. We look forward 

to continuing our good work together, and if all comes to fruition 

on the spectrum bill as part of the overall agreement. I have no 

reason to doubt it won’t. We will be spending a lot of time, because 

I don’t think anybody has ever done an incentive auction before 

and we want to make sure we are in partnership with you to get 

it right, so thank you very much. 

Mr. GENACHOWSKI. Thank you. 

Mr. WALDEN. We will call up our second and final panel of witnesses, the Inspector General for the Federal Communications 

Commission, Mr. David L. Hunt, and the Chief Executive Officer 

of the Universal Service Administrative Company, Scott Barash. 

I will just give you the microphone guidance here. The closer you 

can get to them, the better they work, and the light needs to be 

on, so then we will be able to hear you. You really have to get close 

to these microphones. 

Mr. Hunt, thank you for being—well, thank you both for being 

here. Mr. Hunt, thank you and we will start with your testimony 

today, sir. I am not sure that microphone is on. Push the button 

there. No. 

Mr. HUNT. Is that OK? 

Mr. WALDEN. That is much better, thank you. 

Mr. HUNT. Oh, the light was on before. 

STATEMENTS OF DAVID L. HUNT, INSPECTOR GENERAL, FEDERAL COMMUNICATIONS COMMISSION; AND D. SCOTT 

BARASH, ACTING CHIEF EXECUTIVE OFFICER, UNIVERSAL 

SERVICE ADMINISTRATIVE COMPANY 

STATEMENT OF DAVID L. HUNT 

Mr. HUNT. Mr. Chairman and members of the subcommittee, I 

appreciate the opportunity to come before you today to discuss the 

activities and budget of the Office of Inspector General for the Federal Communications Commission. I have been the Inspector General at the FCC since June of 2009, first in an acting capacity and 

then a permanent role since January 2011. 

Somebody mentioned to me when I first walked in, I understand 

you are a veteran of these and I am not. This is my first time at 

a hearing, and I really appreciate the opportunity. I have a very 

well-written speech by my staff, but as a former trial attorney I am 

better just going off my notes and that is what I am going to do. 

The silent groan you hear behind me is my staff who wrote my 

speech. 

What I would like to talk about primarily because I think I may 

have given you more information than you may have wanted in my 

written statement, just about my staff and their dedication. It ties 

to the fact that we have a very small staff looking over a very large 

amount of money. In the past 2 years alone, I have had an auditor 

who—we had a filing that was due at midnight, a mandatory filing. 

33 

She had suddenly gotten sick, was sent to the hospital. She, on her 

own accord, ripped the IVs out of her arm and came back to work 

to make sure everything was filed on time. I have an auditor who 

has worked on E–Rate for over a decade. He has spent, on average, 

6 to 9 months of his life on the road, tracking down fraud, waste, 

and abuse in schools and libraries. I have an attorney who dictated 

an affidavit from a hospital bed with the nurse taking notes, running faxes to and from a judge in Texas, because he required the 

affidavit before he made a filing on a motion in court. I had sent 

half of my staff to Texas to support the Department of Justice in 

another USF investigation because of the number of staff that we 

had left, I had to send interns with them. These attorneys and 

auditors, including just regular staff people, had to crawl under 

wireless equipment, had to crawl under buildings, had to pull wires 

and just check everything. You would be surprised how many times 

you go to a school and see all the lights on, and you go behind it 

and there’s nothing plugged in except a—somebody wrote a program to make the lights go on and off. I have had an attorney who 

had to do a conference call, and had to do the conference call in 

the emergency room while the nurse was placing nitroglycerin 

under his tongue. Our staff works very, very hard with what assets 

we have. 

You are asking for actually very few people to oversee billions 

and billions of dollars. Any other IG office out there would have 

several people, if not dozens of people, working on the stuff that we 

rely on one or two people to do. 

Anyway, I just want you to know that we really appreciate the 

chance to come here. We work very closely with the Department of 

Justice, the Department of Education, Department of Interior. We 

are trying to save money all the time. We are trying to run as efficiently as humanly possible. Financially-wise we can’t do anything 

less, because like I said, we are operating on such a tight budget. 

But I want to let you know that the staff you have at the FCC Office of Inspector General are as dedicated a staff as you will ever 

see in the Federal Government, and we appreciate this chance to 

talk. I look forward to coming back and talking again, if I have the 

opportunity. 

Thank you very much. 

[The prepared statement of Mr. Hunt follows:] 

34 


82543.009

Written Statement of 

DA VTD L. HUNT 

INSPECTOR GENERAL 

FEDERAL COMMUNICATIONS COMMISSION 

Before the 

SUBCOMMITTEE ON COMMUNICA TIONS AND TECHNOLOGY 

of the 

COMMITTEE ON ENERGY AND COMMERCE 

UNITED STATES HOUSE OF REPRESENTATIVES 

On 

THE BUDGET AND SPENDING OF THE FEDERAL COMMUNICATIONS COMMISSION 

February 16, 2012 
35 


82543.010

SUMMARY 

Over the years, the Commission has taken on what, in dfect, are significant grant making 

responsibilities, including the USF and TRS programs. I have been asked to ferret out waste, 

fraud and abuse in programs involving annual disbursements of ovcr $9.3 billion ($8.73 billion 

for USF and over $ 600 million for TRS). With very limited staff, OIG has demonstrated that it 

can make significant strides in protecting the USF and TRS Funds and those who fund them. 

The VRS investigation is, perhaps, the best example ofOIG's capabilities. Using no more than 

two full-time attorney investigators, and with significant assistance from the FBI and Department 

of Justice, we were able to bring indictments against 26 individuals and one corporate entity and 

caused VRS claims against the interstate TRS Fund to fall 18% (over $130 million) in the 2009-

2010 rate year alone and the exponential growth the Funds experienced from 2003 to 2009 was 

stemmed. Those savings were repeated in the 20 I 0-2011 rate year and should continue as long 

as the Commission and OIG remain vigilant. 

While I don't want to over promise and while I acknowledge that in High Cost USF it's more 

difficult to establish a false claim or fraud, with the right people and the right tools, I believe 

OIG can apply the lessons learned from VRS to the Commission's USF programs and greatly 

improve the effort to detect and deter waste fraud and abuse in the USF programs. Indeed, with 

the temporary employees Congress has authorized us to hire, we have already begun to do so. 

We are working today with the DO] and with AUSAs across the country on both civil and 

criminal false claims cases involving the all USF programs. Most of these investigations are 

highly confidential and cannot be discussed publicly. All take time to develop and require boots 

on the ground. 

We (the Commission, USAC and OIG) need auditors and investigators in the field doing on site 

work, at schools, libraries, and service provider locations across the country and abroad. This is 

particularly the case in E-rate, Low Income and the TRS programs. Some TRS providers have 

operations outside the continental United States. Thus, we need travel money to do site work, 

for example, in the Philippines. 

We also need improved data mining and computer forensic computer capabilities. We are 

dealing with hundreds of thousands, if not millions of transactions and massive amounts of data. 

As the Commission has done in its Low Income fraud prevention program, we all need to 

improve our ability to develop computer programs to examine the data associated with myriad 

transactions and USF and TRS payments associated with them to identify outliers and potential 

fraud. 

Finally, we believe the Commission needs to develop a more robust suspension and debarment 

regime that allows it to stop waste, fraud and abuse as quickly as possible. We need a process 

that extends beyond E-rate and includes all USF programs and TRS. We need a program that 

does not, as the E-rate suspension and debarment regime currently does, rely on criminal 

convictions to debar those who defraud Commission programs. 

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82543.011

Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to come before 

you today to discuss the activities and budget of the Office of Inspector General for the Federal 

Communications Commission (FCC, or Commission). I have been the Inspector General at the 

FCC since June 2009, first in an acting capacity and in a permanent role since January 2011. I 

will discuss our oversight and investigative activities for the FCC's major program areas, and 

then I will discuss the budget for OIG and some of the challenges we face in providing efficient 

and effective oversight of the Commission. 

Video Relay Serviees 

Background 

Title IV of the Americans with Disabilities Act of 1990 (ADA), codified as Section 225 of the 

Telecommunications Act, requires the FCC to ensure that interstate and intrastate 

telecommunications relay service (TRS) are available, to the extent possible and in the most 

efficient manner, to persons with hearing and speech disabilities in the United States. Rules 

promulgated under Section 225 require all common carriers providing voice telecommunications 

services to provide TRS in the areas in which they provide telephone service. The rules, adopted 

in 1993, were designed to provide access to the telephone system as it existed at the time - that is 

when telephone calls were made using a I O-digit phone number, identified with a physical 

location, and more often than not, an identified customer. The ADA provides that -just as a 

wheel chair-bound individual cannot be charged the costs of a wheel chair ramp at a restaurant -

deaf, hard-of-hearing or speech impaired callers cannot be charged for the costs ofTRS. Rather, 

the costs of providing interstate TRS are to be paid by all users of interstate telecommunications 

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through the TRS Fund. Local TRS calls were (and are) paid for by the states, and long distance 

TRS calls are paid for by the FCC's Interstate TRS Fund. 

With the advent of the Internet and the availability of broadband communications, the FCC 

approved funding for Video Relay Service (VRS) in 2001. VRS is a form of and encompassed 

within TRS and enables persons with hearing disabilities who use sign language to communicate 

with voice telephone users through video equipment, rather than through the older method of 

typed text. VRS receives about 75% ofTRS funds disbursed because of increased costs of 

providing same. TRS Fund disbursement data is provided in the table below. 

TRS Funding 

Rate Year TRS Fund VRS Payments IP Relay Payments 

2007-2008 $636.7 million $504.4 million $94.5 million 

2008-2009 $805.5 million $622.5 million $84.1 million 

2009-2010 $891 million $612.5 million $ 71.8 million 

2010-2011 $683 million $559 million $69.8 million 

7/2011-1212011 $343.6 million $277.7 million $26.3 million 

For the 2005 and 2006 TRS rates years, VRS providers were compensated $6.64 per minute for 

minutes billed. Tiered VRS compensation rates were implemented in the 2007 rate year and the 

highest tiered rate was reduced to $6.24 per minute. Nonetheless, the cost of an hour-long phone 

call is greater than $374. Interestingly, the TRS Fund administrator completed a study in 2010 

that found that TRS rates could be cut in half and not impair service. 

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Other types ofTRS include Internet Protocol (lP) Relay Services (included in the table above), a 

service in which an individual with a hearing or speech disability uses the Internet or a webenabled mobile device to type a message to a Communications Assistant (CA). The CA then 

calls a hearing person and relays the text message by voice and vice versa. 

Criminal Investigations 

Having received allegations of fraud in the provision ofVRS, OIG commenced an investigation 

in August, 2008. An overarching tenet in the provision ofTRS is the notion that in order to 

provide functionally equivalent service, CAs, who interpret relayed conversations for 

individuals with a hearing or speech disability are required to act as "transparent conduits." Thus 

CAs are prohibited from disclosing the content of any relayed conversation and from keeping 

records of the content of any such conversation beyond the duration of a call. 

By December, 2008, the investigation revealed evidence sufficient to justify referring the matter 

to the Fraud Section of the Criminal Division of the Department of Justice (DOJ). The case was 

formally accepted by DOJ in January, 2009, whereupon, in addition to attorneys in the Criminal 

Division, four special agents of the FBI and an agent of the U.S. Postal Inspection Service, were 

assigned to work on the investigation. OIG investigators maintained a constant and active role in 

the VRS investigation. 

In the summer of2009, search warrants were executed and raids were conducted at the offices of 

Viable Communications, Inc. (Viable) an uncertified provider ofVRS billing the interstate TRS 

Fund through CAC, a certified VRS provider, and at the offices of several of Viable's affiliates. 

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The raids were conducted by 001, with over 40 Federal Bureau of Investigation agents and the 

FCC oro present to support same. Additional wide-ranging investigations across the country 

led to six indictments and the arrest of26 individuals from nine states in November, 2009. All 

but one of the indictments dealt with schemes involving Viable. The other dealt with paid callers 

billing through an unidentified certified TRS provider based in New York City that provided 

VRS through home-based Video Interpreters (Vis) throughout the country. 

The individuals (and one corporation) charged in connection with the operations were alleged to 

have participated in schemes to steal tens of millions of dollars from the TRS Fund. In one 

allegation, owners and employees of Viable were alleged to have paid individuals, including 

Viable's own employees, to make calls through Viable for no purpose other than to generate 

revenue. These calls took various forms, such as computer-generated calls in which no VI was 

present, nor was any communication taking place. It was, essentially one computer hooked up to 

another to give the impression of a connected call. These were, in actuality, "run calls" in which 

paid callers placed calls to podcasts, conference calls, books on tape, etc., for the sole purpose of 

running up fraudulent minutes. Callers often did not even pay attention to the vr interacting 

with the call participants. Often the VI would stop interpreting completely without receiving a 

complaint from the caller. Use of double privacy screens was another method whereby 

fraudulent calls were being made. In these calls, a deaf caller and the VI would put up privacy 

screens, so that neither the VI nor the caller could see each other resulting in zero 

communication. In other instances, callers would admit they were being paid to make calls, and 

in some, callers would instruct VIs not to bother interpreting their call. 

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In June, 20 I 0, one defendant at trial was found guilty on all but one count. The 25 remaining 

defendants (with one exception of an individual who was given probation) as well as the sole 

indicted corporation, pleaded guilty to having defrauded the TRS Fund. While the majority of 

the defendants are still awaiting sentencing, the principals of Viable, John and Joseph Yeh were 

sentenced in late November to nine years and four years seven months of jail time, respectively. 

The Yeh brothers were significant individuals within the VRS world. At the sentencing, the 

government offered evidence establishing that the money derived from the fraudulent schemes 

was paid out of the $55 million received by Viable from the TRS Fund. OlG's Assistant IG for 

Investigations was the sole government witness at sentencing, and presented the victim's loss 

statement. Both Yehs were ordered to pay, jointly and severally, $20 million in restitution. 

While the Viable ease is largely behind us, we know that several individuals and entities 

formally associated with Viable's operations remain active in the VRS industry. In fact, Viable 

acted as sort of a "training institute" for future wrongdoers. 

On December, 14,2011, an additional indictment was unsealed naming two defendants working 

with yet another certified VRS entity, alleging VRS fraud perpetrated through fraudulent 

marketing and outreach schemes. 

The investigations into VRS fraud are continuing. The effects of these criminal enforcement 

efforts have been palpable. The TRS Fund increased from approximately $64 million for the 

2002-2003 Fund year (the first year VRS was widely offered), to just over $890 million in the 

2009-2010 Fund year (the year in which the initial arrests and the VRS investigation became 

public). The fund administrator projected TRS payments for the July 1,2009 through June 30, 

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2010 rate year would be $891 million. Implicit in this projection were estimated claims of 

$712.8 million for VRS, because in recent years, clajms for VRS had comprised 80% of all 

claims from the Fund. However, the fund administrator reported that VRS reported minutes of 

use fell over 18% after the initial arrests were made, and the investigation became known. This 

resulted in approximately $138.3 million loss prevention/savings to the Fund in the 09-10 rate 

year alonc. The only logical cxplanation for this precipitous decline is that usage slowed 

(dramatically over the years) because of fear that those individuals perpetrating the fraud would 

be prosecuted. Subsequently, based on information obtained in the course of the investigations, 

the Comm iss ion has adopted several declaratory orders and has implemented rules directly 

addressing VRS fraud. The exponential growth experienced by the Fund from 2002-2009 likely 

would have continued but for the deterrent effect of the criminal indictments and the ensuing 

Commision actions. And this at a time when deaf individuals are very much increasingly taking 

advantage of phone texting messaging to communicate. Rather, the size of the Fund has 

remained relatively stable. The actual VRS payments made in the 2010-20 II rate year were 

approximately $556 million. Further, the projected savings as a result ofOIG's VRS 

investigation are in perpetuity, saving taxpayers money year after year - in actuality and in the 

future potentially hundreds of millions of dollars every year. 

Civil Investigations 

In its continuing efforts to investigate VRS-related fraud, OIG referred three cases to the Civil 

Division ofDOJ in late 2010 involving three different providers ofVRS service for possible 

prosecution under the Civil False Claims Act. All three involve varying schemes to manufacture 

additional minutes for compensation from the VRS. 

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82543.017

Lastly, OIG is assisting OOJ in resolving a pending qui tam case in which the relator alleges 

improper handling of IP Relay calls. This case could potentially result in a payback to the United 

States Treasury of tens of millions of dollars in damages, and result in the restructuring of the IP 

relay program that, to date, has paid providers approximately $750,000,000 in TRS 

reimbursements. This is, of course, by the very monies alone at issue, a tremendously significant 

invcstigation for OIG. 

Audits of the VRS 

In 2010 the OIG initiated audits of all tcn VRS providers to determine whether three years' 

worth ofrequircd cost information submitted to support reimbursements claimed from the fund 

were accurate and in compliance with regulations, memos and orders. This cost information is 

critical because it is used in developing the reimbursement rates. These audits were completcd a 

month ago and determined that none of the providers were in compliance with reporting 

requircmcnts. 

We concluded that the cost reports certified and submitted to the TRS Fund Administrator by the 

VRS providers under audit did not fully comply with the instructions provided by TRS Fund 

Administrator, FCC Rules and Orders, and other applicable regulations. Based on our audit test 

results, the total dollar value of the exceptions noted is $9.2 million. These reports have been 

submitted to the FCC for appropriate action. 

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82543.018

In 2011, we initiated five more audits ofVRS providers increasing the scope of the audits. 

Instead of auditing cost information submitted to the TRS Fund Administrator by the VRS 

providers, we revised the scope of our audits to address the use ofVRS revenue received by the 

provider to determine whether funds were spent on activities and cost objectives that were 

related to the VRS program. The preliminary results of one of our reviews shows that at least 

one provider might have been overpaid by $384 million over a two-year period for providing 

VRS services. 

Summary 

The overarching lesson learned from the criminal investigations is that the TRS program, as it 

exists today, remains too casy to defraud. Effective oversight is hampered by: (1) call detail 

records that only identify obviously suspicious calls (unusually long calls, many calls from or to 

the same number, calls to recorded messages) and that, because calls are susceptible to spoofing 

(misleading information) and caller ID blocking, may, according to the TRS Administrator, be of 

questionable validity; and (2) the simple fact that millions of calls are made monthly from call 

centers all over the country. 

It clearly appears that the Commision has engaged in efforts to revise all aspects of the TRS 

program- both efforts to detect and reduce fraud, and efforts to restructure the program more 

broadly. However, much remains to be done and these activities are on-going. 

The FCC has been very supportive of the 010 in their VRS reform efforts. 010 has offered 

many suggestions to help stop the fraudulent activity, and looks forward to continuing the effort, 

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to eliminate waste, fraud and abuse in the TRS program and to returning the program to that 

which Congress intended. 

UNIVERSAL SERVICE FUND 

Background 

The Assistant Inspector General for Universal Service Fund Oversight (AIGUSF) has principal 

responsibility for providing oversight of the Universal Service Fund (USF) programs except for 

investigative matters, which fall under the purview of the Assistant Inspector General for 

Investigations. 

In addition to the four USF programs (High Cost, Schools and Libraries, Low Income and Rural 

Health Care), OIG also has oversight responsibility for the required contributions to the fund by 

entities that provide telecommunications services. Under FCC rules those contributors include 

all telecommunications carriers providing international and interstate telecommunications 

services, providers of interstate telecommunications that offer interstate telecommunications for 

a fee on a non-common carrier basis, interconnected Voice Over Internet Protocol (VOW) 

providers, and payphone providers that are aggregators. 

Additional information on our oversight of the USF, by program is, described below: 

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82543.020

High Cost Program 

010 accepted responsibility to conduct eight High Cost (HC) audits as part of the Commission's 

improper payments process due to conflicts with Universal Service Administrative Company's 

(USAC) external auditors. As a Competitive Eligible Telecommunications Carrier (CETC), each 

of these entities is entitled to receive USF support based on the number of eligible lines it serves 

in a particular service area which in turn is based on the support the Incumbent Local Exchange 

Carrier (ILEC) would receive for each such line. Therefore each audit focused on the method by 

which eligible lines were counted and reported in each ILEC service area served. Payments from 

the USF to the eight entities under audit for the period 711107 to 6/30108 totaled $46,263,300. 

Audit findings included duplicate and non-eligible lines included in USF claims. The auditees 

have indicated that new procedures have been implemented to address these findings. Final 

reports have been issued. 

We initiated a project to develop statistically based tools to review and analyze cost submissions 

submitted by companies for the High Cost Loop Support (HCLS) and Local Switching Support 

(LSS) components of the High Cost Program. We planned the model to identify high risk 

accounts and potential audit targets - identifying specific accounts with the highest monetary 

significance and risk of fraud, waste, and abuse. Disbursements to cost companies are 

approximately $935 million in HCLS and $250 million in LSS annually. 

Initial testing included a visit to an ILEC identified as one of the Top 10 receivers ofUSF HC 

disbursements on a per line basis. These analytic tools were being developed and tested by the 

12 
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82543.021

OIG statistician and the OIG HC team and were intended to assist in mid and long term riskbased audit planning to aid in the efficient use of limited resources. This was to be the first of a 

series of analytical, data mining tools that could also be applied to other HC support 

mechanisms; an effort that, despite its strong potential for increasing the efficiency and size of 

recoveries, has had to be delayed. 

We need to restart oversight efforts of the HC program, including analytical, data mining 

projects, and monitoring the significant changes to the HC programs with the addition of new 

staff. 

Schools and Libraries Program 

Beneficiary audits conducted have provided on-the-job training opportunities and familiarity 

with the Schools and Libraries (SL) program. 

As an example, an OIG audit report (completed as part of the Commission improper payments 

process) found that a school district that received $7,780,000 in Fiscal Year 2008 was materially 

compliant with FCC rules and regulations and orders except that: (I) the District certified 

receipt of cabling based on estimates instead of actual charges resulting in an improper payment 

of $432,423 for cabling costs; 2) the District's service provider did not remove ineligible items 

from invoices and as a result an improper payment of $31 ,805 was paid from USF; and 3) the 

District received $6,318 of free goods and services from the service provider and did not pay 

their share of the cost of ineligible items. 

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82543.022

In another example, a soon to be issued final report finds the school district did not comply with 

program rules regarding: (1) application matters; (2) procurement and service provider selection 

matters; (3) asset and inventory records; and (4) receipt of services and reimbursement matters 

For the internal connections application, the District failed to submit a signed and approved 

contract prior to the submission of its FCC Form (Form) 471 (Services Ordered and Certification 

Form). We could not determine if the district evaluated the eost effectiveness of the single bid it 

accepted for internal connections. The district failed to maintain adequate asset and inventory 

records to locate E·Rate equipment and ensure it was received and installed prior to USF 

disbursements. We found that the district certified receipt of equipment and USF payments 

were made without verifying the amount of cabling received resulting in service provider overcharges for cabling costs. We intend to recommend recovery of the total disbursement to the 

district of approximately $2.1 million. 

Another soon to be issued draft report will find that the charter school in question did not comply 

with program rules related to: (1) assets and inventory records, (2) reimbursement matters, and 

(3) record retention. The school violated state law by failing to have E·Rate services approved 

by its Board as required by FCC rules that require adherence to state and local law. 

The team also monitors USAC Internal Audit Division (lAD) SL audit reports; Commission 

activity related to appeal of SL related audit findings and recommendations; and reform efforts 

impacting the SL program. 

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82543.023

Low Income Program 

On July 28, 2009, OIG decided to withdraw the USF 100% erroneous payment determination for 

the Low Income (Ll) program from a December 12, 2008 report. The basis for the original 

determination of a 100% erroneous payment level in the low income program was that it had 

been concluded that the source documentation could not be provided as needed to permit 

verification of the calculations of the program amounts disbursed. After reviewing USAC's 

response to the OIG report and additional information, and considering that OIG did not conduct 

an audit or other structured examination of the disbursement system, it was decided to withdraw 

the 100% erroneous payment level for the low income program. 

We have completed fieldwork and will soon issue a report on the Ll disbursement system. The 

purpose of the audit was to determine whether the disbursement system was in accordance with 

applicable law, and met the goals of eliminating fraud, waste, and abuse in the federal universal 

service program. The current version of our draft report contains one significant 

recommendation consistent with an action already initiated by FCC - revising the disbursement 

system from a projection based system to a system disbursing funds based on actual data. We 

anticipate issuing our draft report shortly. 

An OIG-initiated audit of a company that received Ll program support found that it materially 

complied with the FCC's rules, regulations and orders related to information reported by the 

company on the FCC Form 497. The report did note, however, three weaknesses in internal 

controls. The company: (I) charged each subscriber a monthly Federal USF charge but could 

not document or explain how it was computed; (2) did not have adequate policies and procedures 

15 
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82543.024

to ensure compliance with the FCC's low income program rules; and (3) did not consistently 

follow its own procedures for documenting proof of subscriber eligibility (however it did comply 

with minimum procedures required by FCC rules). Our final report included three 

recommendations which the company had already implemented. 

The team monitored the identification of the root cause and corrective measures taken to address 

a serious situation; specifically USAC discovered it made an error in its entire monthly 

disbursement of Ll program funds. As a result, USAC was required to collect overpayments 

from 178 participants totaling nearly $37 million. 

Currently, we are conducting audit surveys of fourteen carriers participating in the Ll program. 

We have received the requested data and are in the process of completing survey audit steps. 

Following this process, a go/no go decision will be made as to whether we will expand the 

survey to a full performance audit. 

Rural Health Care Program 

We have conducted no audits in this area. Note that this program is by far the smallest of the 

USF funding programs. 

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82543.025

Contributors 

FCC rules require telecommunications providers of international and interstate 

telecommunications services to contribute to the USF. This includes providers that offer 

interstate telecommunications for a fee on a non-common carrier basis and interconnected VOIP 

providers. 010 has completed twelve contributor audits. 

Typical examination findings include failing to include all appropriate revenue in the 

contribution calculation (thereby reducing the contribution amount) and errors and inaccurate 

certifications in submitting required forms and documentation. For the twelve completed audits, 

we identified approximately $ I 8 million in under-reported revenues. 

Coordination with USAC lAD 

In \998, USAC was designated as the permanent Administrator to administer the four universal 

service programs: high cost, low income, rural health care, and schools and libraries. The USAC 

Internal Audit Division (lAD) provides audit services for the USF programs as well as the 

internal operations of the administration of the Universal Service Fund. 

In February 20 I 0, the FCC directed USAC to establish a comprehensive universal service 

beneficiary and contributor compliance audit program, known as the Beneficiary Compliance 

Audit Program (BCAP). The primary objective of BCA P is to evaluate universal service 

beneficiary and contributor compliance with FCC rules. The audit plan developed covers 343 

17 
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82543.026

audits across the support mechanisms and contributors. Consistent with the approach of the OIG 

universal service audit program for obtaining audit resources, USAC proposed conducting the 

initial round of 343 BCAP audits almost exclusively with external audit firms. In an attempt to 

become more cost efficient and to avoid delay in implementing the audit program, USAC 

management, with USAC Board of Directors approval, implemented a plan to move from a fully 

outsourced staffing model to a partially in-sourced staffing model. 

lAD's authorized strength was increased by 23 to 51 positions to: (I) conduct targeted audits; (2) 

increase the capacity to conduct approximately 125 first-round BCAP audits, and (3) manage the 

remaining 200+ audits outsourced to the audit firms. 

The AIGUSF meets on a regular basis with the lAD Vice President to share and discuss audit 

plans, status, and current issues. 

Support to Investigations 

The AIGUSF team provides assistance to OIG Investigations on an as-requested basis. Typical 

audit support includes providing assistance on site visits, preparation and analysis of 

spreadsheets and memoranda, and assisting with preparation of material for DO) presentation. 

18 
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82543.027

National Exchange Carrier Association, Inc. Review 

OIG prepared a report in response to a Congressional mandate directing the OIG to report 

whether, and to what extent, the National Exchange Carrier Association, Inc., (NECA) was 

acting in compliance with the Communications Act of 1934, as amended (the Act), and 

associated regulations, and whether, and to what extent the FCC has delegated authority to 

NECA consistent with the Act. 

The report provided a history, membership information, and infonnation on the various NECA 

activities. Briefly, OIG found no mention ofNECA in the Act or in any amendment subsequent 

to NECA's establishment pursuant to the Commission order adopted in 1983. Also, that the 

Commission has not delegated final decision-making authority to NECA. There is no express 

Congressional intent that the FCC delegate decision-making authority to NECA, an outside 

entity, nor did the OIG find any evidence that the FCC has attempted to do so. The Commission 

has also clearly and consistently stated that it retained ultimate decision-making authority when 

it has assigned functions to NECA. OIG is finalizing a very brief update to the report to keep 

Congress as up-to-date on matters as possible. 

Future USF Oversight 

USF reform, including Broadband expansion, will require review and redirection of our 

oversight efforts. Nonetheless, we will not have adequate resources to conduct the number of 

beneficiary or contributor audits necessary to have an impact on the programs. Looking ahead, 

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82543.028

we anticipate a need to reevaluate our oversight plans. With the ongoing and significant USF 

refonn and program changes, opportunities to provide oversight must continue to be efficient and 

strategic. 

We are currently preparing to contract for audits of all programs using available funding. 

A risk-based approach will be used to determine which audits are to be conducted by 

independent public accountants. A disadvantage to having such audits conducted by outside 

contract auditors is that it serves as a substitute for ensuring that the 010 has the experienced 

audit staff necessary to ensure an efficient ongoing expertise and institutional memory for the 

oversight of this complex program. We continue to search for the best way to be an agent of 

positive change, striving for continuous improvement in FCC's management and program 

operations. 

USF Investigations 

An increasing number of investigations related to the E-rate program arise pursuant to the False 

Claims Act (FCA, known as "qui tam" lawsuits). The FCA provides for liability for anyone who 

knowingly submits or causes the submission of a false or fraudulent claim to the United States. 

A provision of the FCA allows a private party (known as the relator) with evidence of fraud is 

able to sue the person(s) engaged in the fraud, on behalf of the government. The FCC oro 

assists DOJ in investigating qui tam allegations that relate to FCC programs or operations, 

including the E-rate program. 

20 
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82543.029

In the past three years there have been five settlements of civil lawsuits arising from such qui 

tams that included payments of $19.6 million to the government and parties agreeing to 

relinquish more than $185 million in requests for federal funds in connection with the E-Rate 

program. 

In June 2009, the Dallas Independent School District (DISD) agreed to settle claims that the 

school district violated the False Claims Act in connection with the E-Rate program. Under the 

terms of the settlement, DISD relinquished more than $150 million in requests for federal funds, 

and paid the United States $750,000. In addition to allegations that DISD provided false 

information to the government by engaging in non-competitive bidding practices, the 

government contended that school district officials improperly received gratuities from 

technology vendors, including trips, meals, golfing and the free use of a yacht. The school 

district's former chief technology officer, Ruben B. Bohuchot, was convicted in July 2008 on 

bribery charges stemming from his role in these allegations, and was sentenced to 132 months in 

prison and ordered to pay $979,221 in restitution. 

In July 2009, Computer Assets Inc. and its principals, Abraham Salazar and Damon Salazar, 

agreed to pay $350,000 and surrender up to $35 million in pending funding applications to settle 

allegations the company violated the FCA in connection with the E-Rate program. The 

government contended the company violated the competitive bidding rules of the E-Rate 

program in its dealings with the Kayenta Unified School District in Kayenta, Arizona. 

Additionally, the United States alleged that Computer Assets billed for installing excess and 

unnecessary networking cable, and in some instances billed twice for the same work. 

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82543.030

In October 2009, a unit of AT&T, AT&T Missouri (formerly known as Southwestern Bell 

Telephone LP.), agreed to pay the United States $1.4 million as part of a civil settlement 

alleging that the company violated the FCA in connection with the E-Rate program. The United 

States contended that AT&T Missouri provided false information to E-Rate administrators and 

otherwise violated the program's requirements by engaging in non-competitive bidding practices 

for E-Rate contracts. The United States further alleged that AT&T Missouri employees colluded 

with officials in the Kansas City, Missouri School District to award contracts to the company, 

extended contracts in violation of E-Rate rules, and provided meals and other inducements to 

school district employees. The United States previously filed suit against and settled with the 

school district. 

In March 2010, the Houston Independent School District (HISD) agreed to relinquish over $100 

million in requests for E-Rate funds and paid $850,000 to settle a civil suit alleging the school 

district filed false claims in connection with the E-Rate program. Resolution of this case resulted 

from a collaborative federal investigation involving DOl's Civil Division and the U.S. 

Attorney's Office for the Northern District of Texas. The United States contended that HISD 

provided false information in order to obtain E-Rate funds and otherwise engaged in noncompetitive bidding practices for contracts to be funded with E-Rate money. The government 

further alleged that school district officials received gratuities from technology vendors, 

including trips, meals, and loans. 

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82543.031

In November 20 I 0, the United States settled two qui tam whistleblower lawsuits with the 

Hewlett-Packard Company (HP). The suits alleged HP violated the competitive bidding rules of 

the E-Rate program and the company agreed to pay the government $16.25 million, most of 

which is to be returned to the E-Rate program. Following tips from the whistleblowers, the FCC 

010 and DOJ investigated allegations that contractors working with HP and other companies 

lavished gifts on the DISD and HISD personnel in order to obtain contracts that included some 

$17 million in HP equipment. The United States also intervened in those same lawsuits against 

HP's former business partners, Micro Systems Engineering and Analytical Computer Services, 

as well as against Ruben Bohuchot. DISD's former chief technology officer and Frankie Wong, 

the former chief executive officer of Micro Systems Engineering. Like Bohuchot, Wong was 

convicted in July 2008 on bribery charges stemming from his role in these allegations and was 

sentenced to 120 months in prison. 

Criminal prosecutions have also increased over the past three years and reflect the FCC OlO's 

continuing joint and coordinated investigation and prosecution efforts with the DOJ Antitrust 

Division and its field offices and with various U.S. Attorney Offices across the country. In eight 

separate criminal cases since June 2009, 13 individuals have entered guilty pleas and have been 

sentenced to 264 months in prison, fined $22,000, and ordered to pay restitution of almost $1 

million. 

One of the convicted individuals worked as an E-Rate consultant who acted on behalf of various 

school districts across the country. Signed letter of agency agreements by school officials gave 

permission to Jonathan M. Slaughter and his company, E-Rate Consulting Services, LLC (ERC), 

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82543.032

to act on their behalf in all dealings with the E-Rate program. Slaughter admitted he violated the 

trust of the school district officials when he converted money intended for the school districts for 

his personal use. In September 20 II, Slaughter pleaded guilty in United States District Court for 

the Middle District of Alabama to one count of mail fraud stemming from his theft of nearly 

$900,000 from the E-rate program, money intended for 20 school districts or private schools in 

13 states through the program's Billed Entity Reimbursement (BEAR) process. The process 

permits a school or library to pay the full amount for eligible services and then receive 

reimbursement from its telecommunications service provider once the related universal service 

discount subsidies are approved and paid to the provider. Slaughter'S company would receive 

checks from the E-Rate program that were payable to ERe's clients. ERC was obligated to 

forward the checks to its clients, but Slaughter deposited the checks into an ERC bank account 

and kept the money, which he used largely for personal expenses. In January 2012 he was 

sentenced to 51 months in prison; an order for restitution to the victims is pending. 

The most recent criminal action took place last week when Gloria Harper was sentenced in 

United States District Court in New Orleans to 30 months in prison for her role in a conspiracy to 

defraud the E-Rate program by providing bribes and kickbacks to school officials across the 

nation. In addition to Harper, Tyrone Pipkin and Barrett White have pleaded guilty to 

participating in the conspiracy and each was sentenced to one year in prison in March 2011. 

According to the Pipkin and Harper plea agreements, the co-owners of Global Networking 

Technologies (GNT), along with White and Harper's company, Computer Training and 

Associates (CT A), obtained contracts funded by the E-Rate program by obstructing the 

competitive bid processes at schools and school districts located in Arkansas, Illinois, Louisiana, 

24 
58 


82543.033

Texas, Florida and North Dakota. In return for bribes and kickbacks, school employees gave the 

co-conspirators control of their competitive bidding process and ensured that their companies 

obtained E-Rate funded contracts at those schools. As a result of their fraudulent actions, CT A 

and GNT unlawfully obtained approximately $4.16 million from the E-Rate program. 

There have been 51 individuals and 23 companies involved in 31 different investigations and 

prosecutions of alleged fraud involving the E-Rate funds since the beginning of the program. 

Disposition of those include 10 charges dismissed, one individual arrested in Pakistan, 13 civil 

settlements, 45 guilty pleas and five guilty verdicts in four separate courtroom trials. Sentences 

for 50 individuals total 192 months of probation, 22 months of home confinement, and 1,186 

months of incarceration in prison. In addition, almost $100 million has been ordered by the 

courts or agreed to by the parties in fines, settlements, and restitution to the E-Rate program, and 

almost $300 million in claims have been relinquished by the parties. 

A common element of these prosecutions is the alleged violation ofthe E-Rate programs 

competitive bidding processes, procedures, rules and regulations. As such, the OIG is continuing 

its oversight in this area to deter individuals and companies who may be engaging in activities 

that defraud the E-Rate program. 

OIG has investigations involving other USF programs, including the High Cost and the Low 

Income programs, which exceed well in excess of$150 million in at-risk dollars. The 

investigations involved allegations of criminal wrong doing and civil false claims; most involve 

DO) attorneys or Assistant U.S. Attorneys; and most cannot be discussed in public. Suffice it to 

25 
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82543.034

say that OIG is working diligently, albeit with limited resources, with law enforcement and 

others, including USAC, to eliminate waste, fraud and abuse in all the USF programs. 

Conclusion 

Our oversight of the USF has evolved from conducting audits of the E-rate program in 2002 to a 

wide-ranging and varied program of audits and investigations. Given the amount of money this 

fund represents to the public and the vital services being provided by the fund, it is critical that 

we continue to provide this oversight, and expand our activities. 

In 2008, OIG was provided $21.48 million from the universal service fund to fund oversight of 

the fund. With these funds we hired 19 limited term employees, and funded training and travel 

related to their roles. Thirteen of these limited term employees remain with the Office, and we 

have $11.3 million remaining of the original allocation from the USF at the beginning of FY 

2012. However, dcspite this seemingly sufficiency of funds, we have concerns about our ability 

to continue to provide the kind of oversight we believe that Congress wants for this program. 

Other Oversight Areas 

The Assistant Inspector General for Audit (AlGA) has principal responsibility for providing 

oversight of FCC programs and operations to include VRS (discussed previously in this 

statement) and except for the USF and investigative matters which fall under the purview of the 

Assistant Inspector General for Investigations. 

26 
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82543.035

Financial Statement Audits 

Financial statement audits are mandatory and provide reasonable assurance as to whether the 

agency's financial statements are presented fairly in all material respects. Other objectives of 

financial statement audits are to provide an assessment of the internal controls over transaction 

processing for accurate financial reporting and an assessment of compliance with applicable laws 

and regulations. We have audited FCC's financial statements since FY 1999, and the agency has 

attained "clean" opinions (the highest rating available) on its statements since FY 2006. 

Information Technology and Security 

Our information technology (IT) and security program includes annual reviews required by the 

Federal Information Security Management Act (FISMA). Additionally, in recent years we have 

conducted policy compliance reviews and assisted the agency in mitigating data breeches and 

access issues. 

Performance Audits 

Performance audits are systematic examinations that are conducted to assess the performance of 

a government program, activity, or function so that corrective action can be taken, if appropriate. 

Performance audits include audits of government contracts and grants with private sector 

organizations, as well as government and non-profit organizations that determine compliance 

with contractual terms, Federal Acquisition Regulations (FAR), and internal contractual 

administration. In the past two years, OIG has completed audits and inspections of such 

functions as travel and purchase cards, financial management and property systems, and 

American Recovery and Reinvestment Act activities. 

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82543.036

Recommendations made in audit reports have generally been accepted and implemented by the 

FCC on a consistent basis. 

Mandatory Review of FCC Improper Payments Requirements 

We have contracted with an independent public accounting firm for the first mandatory review of 

FCC compliance with the Improper Payments Information Act of2002 (TPIA)! Improper 

Payments Elimination and Recovery Act of2010 (IPERA) requirements. In order to assess its 

agency's compliance, each agency IG is required to review the method and results of its agency's 

improper payment reporting in the agency's annual Performance Accountability Reports or 

Annual Financial Reports, and accompanying materials. IG's are to begin reviewing these 

materials for FY 2011 annual reporting and continue to do so in subsequent years. An IG must 

complete its review and compliance determination within 120 days of their publication. Each 

fiscal year, the agency lG should determine whether the agency is in compliance with IPIA. 

Internal Investigations 

OIG has a team of three investigators that deals with allegations involving internal Commission 

operations. The group also handles the initial intake of allegations received via the OIG 

telephone and e-mail Hotlines. The team looks into allegations of waste, fraud and abuse, 

including, but not limited (0, into allegations of (1) ethical violations; (2) improper hiring 

practices - the subject of a report in a recent OIG Semiannual Report to Congress; (3) lime and 

attendance abuse; (4) misuse of computer property, including misuse of Commission computers; 

and (5) failures in the contracting process. Matters requiring additional attention can be referred 

to OIG's audit group or to DOJ or the Office of Government Ethics. More often than not, 

28 
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82543.037

personnel-related and management-related findings are referred to management for appropriate 

action. 

The IG Reform Act of2008 and IG Independence 

The Inspector General Reform Act of 2008 (IG Reform Act of 2008) was enacted to enhance the 

independence of the Inspectors General throughout the government. To that end, the Act 

strengthened the independence of Inspectors General through changes in Inspectors General 

compensation, access to independent legal counsel, and other measures. In addition, the DoddFrank Wall Street Reform and Consumer Protection Act sought to add another measure of 

independence by changing the definition of to whom certain Inspectors Gencral report - from the 

individual head of an agency to the full commission or board of that agency - and by requiring 

concurrence of two-thirds majority of a commission or board to remove such commission or 

board's Inspector General from office. [ believe that thcse statutory provisions have improved 

my office's indcpendencc and ability to effectively carry out our mission to help prevent and 

detect fraud, waste, abuse, and mismanagement and promote economy, efficiency, and 

effectiveness. 

The IG Reform Act of2008 also mandated that Inspectors General have or obtain independent 

legal advice from their own counsel, the counsel of another Inspector General office or the 

Council of the Inspectors General on Integrity and Efficiency. I have appointed my own legal 

counsel and have within my office several highly-skilled attorneys who provide support to Jay in 

his role as legal counsel. 

29 
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82543.038

Consistent with the IG Reform Act of 2008, I transmitted my budget request to the FCC on July 

6,2011 for Fiscal Year 2013, and the FCC included that request in its proposed budget. I will 

discuss my budget further later in this statement, however I will state that we have found the 

Commission to be very responsive to our budgetary needs and has freely provided assistance to 

our Office. I would note that the Congress could ensure additional independence if it provided 

for me and other Inspectors General to request budgets separate and apart from our respective 

agencies and departments. 

Finally, I note that, although the primary focus of the IG Reform Act of2008 was strengthening 

the independence of Inspectors General, it also sought to provide greater public access to 

Inspectors General. Consistent with these requirements, the public may access information about 

the FCC's Office of Inspector General by way of a direct link on the FCC's website. In addition, 

any individual may report fraud, waste, and abuse by way of a direct link to our hotline email 

address or by calling our toll-free hotline number listed on my office's page on the FCC's 

website. 

Budget Concerns and Future OIG Plans 

The budgetary process within the FCC works satisfactorily for our Office. orG has funding 

concerns that I believe impedes the Office's ability to provide more effective oversight of the 

many programs and functions of the FCC. 

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82543.039

In our FY 2012 budget request, OIG requested additional positions to replace the limited term 

employees acquired with the transfer of$21.48 million for the USF in FY 2008. The limited 

terms were to expire in FY 2012; however, the Office of Personnel Management recently granted 

a one year extension for these terms, extending most of them to early FY 2013. Our capabilities 

would be improved if we had permanent employees in lieu of temporary ones. The continuing 

lack of permanence impacts both the Office's ability to effectively plan and execute work for the 

long term. Since we hired the original 19 term employees, six of them have left the Office for 

permanent positions inside and outside the FCC. 

Our requested FY 2012 budget included an increase of$2.3 million for additional contract funds 

and $3.2 million for 19 new permanent employees. In response to our FY 2012 budget request, 

Congress provided us with an authorized budget of $9.75 million. This amount, while a 

substantial increase over our FY 2011 budget, does not provide for the $3.2 million we would 

need to replace the term employees with permanent ones. OIG repeated its request for the 

funding of 19 permanent employees in our FY 2013 budget request. 

Currently, the AIGUSF team includes two Audit Directors, one permanent auditor and three 

temporary staff auditors. On an as-needed basis, the team is assisted by the USF Special Counsel 

and staff investigative attorneys assigned to the Assistant Inspector for Investigations. However, 

we have been authorized to hire two auditors and we are currently interviewing candidates. 

These new auditors are to replace the complete loss of staff on the HC team, who left OIG for 

permanent positions within the FCC. 

31 
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82543.040

On the AlGA's team, we have one Audit Director, who performs all oversight and management 

of contracted auditors performing our VRS audits and one Audit Director performing and 

overseeing the FISMA evaluations and other IT projects. We currently have only one auditor 

who oversees the financial statement audits that are performed by contract auditors. The one 

additional Audit Director on the AlGA team covers all remaining audit activities of FCC 

operations, such as compliance and reporting requirements. 

Additional permanent staff would enable OIG to expand our efforts to combat fraud and to 

enhance our oversight of such areas as agency operations and programmatic areas such as 

improper payments and VRS. In particular, OIG needs more auditors and both criminal and 

noncriminal investigators. We would expand our forensic and data-mining capabilities for use in 

investigations and USF oversight. Further, additional administrative staff would better equip us 

to effectively manage our budget, procurement activities and external reporting requirements. 

We have the ability to contract for audit resources and we could request authority to obtain 

additional term limited employees, but it would be more effective and efficient ifOIG had 

permanent staff so that we can develop the skill sets needed to ensure the funds entrusted to and 

on behalf of the FCC are spent wisely and protected from waste, fraud and abuse. 

CONCLUSION 

The real and potential savings noted herein are well in excess of$1 billion. These amounts do 

not include the total magnitude of dollars we have examined or where the money cannot yet be 

estimated. FCC OIG is dedicated to the principles of the IG Act and to ensuring that we perform 

the work necessary to meet the goals of our mission. We are determined to meet the needs of 

32 
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82543.041

Congress; and we believe we have done so to date. We believe we have accomplished a lot with 

our current staff, but think that there is much left to do and we could do much more if provided 

the resources. Your mandates, and the taxpayers' need for efficient and cost-effective 

government, require nothing less than the very best effort we can make. 

Thank you for the opportunity to address these important matters with the Subcommittee. I will 

be happy to answer any of your questions. 

33 
67 

Mr. WALDEN. Thank you, Mr. Hunt. That is very moving testimony. We appreciate and applaud the work that you and your people do at the agency. 

Mr. HUNT. Thank you. 

Mr. WALDEN. We might want to have some guidance here about 

pulling out IVs and things, but—— 

Mr. HUNT. It wasn’t easy, apparently. One of our staff drove her 

to the hospital, Mr. Chairman, and just waited there with her. In 

fact, the hospital had called wondering where she was. She was 

back in her office. But thank you very much. 

Mr. WALDEN. Thank you, Mr. Hunt. 

Sir, is it Barash or Barash. 

Mr. BARASH. Barash. 

Mr. WALDEN. Barash, I am sorry. Mr. Barash, thank you for 

being here. We look forward to learning more about USAC and we 

appreciate your testimony. 

STATEMENT OF D. SCOTT BARASH 

Mr. BARASH. Good morning, Mr. Chairman, and good morning, 

Ranking Member Eshoo. My name is Scott Barash and I am the 

acting Chief Executive Officer of the Universal Service Administrative Company, or USAC. USAC is the independent, not-for-profit 

corporation created in 1997 to administer the universal service support mechanisms. USAC is governed by a Board of Directors selected by the Chairman of the FCC from nominations by universal 

service stakeholder groups. USAC’s mission is to collect FCC-mandated contributions from telecommunications carriers and distribute these funds to beneficiaries in the four universal service 

support programs—High Cost, Low Income, Rural Health Care, 

and Schools and Libraries—in accordance with FCC rules, orders, 

and directives. As a neutral administrator, USAC does not establish policy and may not advocate for policy positions. In order to 

accomplish our mission, we work very closely with the FCC, which 

oversees our operations. In 2011, USAC collected $8.4 billion in contributions from telecommunications carriers and disbursed approximately $8.1 billion 

to beneficiaries. USAC spent $106.9 million to collect and distribute these funds, generating an administrative expense rate of 

1.34 percent. In other words, 98.66 percent of contributions from 

telecommunications carriers went to universal service program 

beneficiaries. This percentage compares favorably to the rate at 

which other Federal assistance programs and non-profit organizations deliver funds to their beneficiaries. 

I will now briefly describe the four universal service programs, 

what USAC does to administer those programs, and how much we 

spent in 2011 to do so. 

The High Cost Program provides support to ensure that telecommunications rates and services available to customers who live 

in rural or hard-to-serve areas are reasonably comparable to rates 

and services available in urban areas. In calendar year 2011, the 

High Cost Program disbursed $4 billion to 1,903 companies in support of 110 million lines. To provide program support, every month 

USAC gathers data from companies, performs extensive calculations to derive the support they are eligible for, and makes disVerDate Aug 31 2005 08:21 Feb 27, 2014 Jkt 037690 PO 00000 Frm 00071 Fmt 6633 Sfmt 6633 F:\112-11~1\112-11~1 WAYNE
68 

bursements to them. To administer the High Cost Program in 

2011, USAC spent $16.9 million. 

The Low Income Program provides support to make voice telephony affordable to eligible low-income consumers. USAC’s role is to 

disburse to telecommunications carriers a defined dollar amount 

each month for each eligible consumer to whom they provide discounted service. Administering the Low Income Program is similar 

to the High Cost Program: we gather data from companies every 

month, performs calculations on that data, and then makes monthly disbursements. In 2011, the Low Income Program disbursed $1.7 

billion to 2,025 companies. To administer the Low Income Program 

in 2011, we spent $5.4 million. 

The Rural Health Care Program provides reduced rates to eligible health care providers for telecommunications and Internet services necessary for the provision of health care. Eligible participants 

must be a rural public or non-profit health care provider. 

USAC is responsible for processing applications for support, confirming eligibility pursuant to FCC rules, and reimbursing service 

providers for discounts delivered to rural health care providers. We 

review applications, invoices, and other program information to ensure that applicants and service providers follow FCC rules and 

support FCC efforts to prevent and detect waste, fraud and abuse. 

In 2011, the Rural Health Care Program disbursed $81.5 million 

to 472 companies representing 3,088 eligible health care providers, 

and another $54.3 million to beneficiaries of the Rural Health Care 

Program. To administer this program, we spent $12.7 million. 

The Schools and Libraries Program, commonly known as E–Rate, 

provides discounts of up to 90 percent to assist most schools and 

libraries in the United States in obtaining affordable telecommunications and Internet access services. Program funds are disbursed 

to companies providing services to eligible beneficiaries, in this 

case public and most non-profit K through 12 schools, and all public and many private libraries. Administration of the Schools and 

Libraries Program is much like it is in the Rural Health Care: we 

process applications for support, confirm eligibility, and reimburse 

telecommunications companies and Internet access providers for 

discounts delivered to beneficiaries. In 2011, the program reviewed 

44,651 applications and disbursed $2.2 billion to 4,165 companies 

providing services to tens of thousands of schools and libraries in 

all States and territories of the United States. To administer the 

program, we spent $71.9 million. 

Universal service contributions, which we spoke of in the prior 

panel, come from telecommunications carriers earning revenues 

from providing interstate and international calling services. These 

companies file revenue data with USAC, which we aggregate and 

submit to the FCC. In 2011, to bill and collect the $8.4 billion in 

universal service contributions, we spent approximately $3 million. 

An important responsibility of USAC is to support FCC efforts to 

protect the integrity of the fund. We do this in many ways, from 

reviewing information submitted by contributors and beneficiaries 

to assessing details about individual payments to full-scale audits 

of contributors and beneficiaries. These measures are designed to 

verify the accuracy of data used in calculating collections and disbursements, the eligibility of supported goods and services, and 

69 

participants’ compliance with program requirements. A Memorandum of Understanding between the FCC and USAC defines the 

roles and responsibilities, and contains detailed operational and reporting requirements. 

Once we disburse money to beneficiaries, we want to validate 

that the payments were properly made. To this end, working with 

the FCC and OMB, we launched in 2010 a Payment Quality Assurance, or PQA, Program. PQA is designed to provide estimates of 

improper payments in all four programs, as required by the Improper Payments Elimination and Recovery Act, or IPERA. Based 

on these assessments, an independent statistician calculates estimates of improper payment rates for each program and reports this 

information to the FCC. 

We also use these results as a basis to improve internal procedures associated with improper payments and provide outreach to 

beneficiaries. Results for 2011, based on 1,600 assessments, show 

improper payment rates in the High Cost Program of 0.11 percent, 

the Low Income Program of 0.23 percent, the Rural Health Care 

Program of 1.7 percent, and the Schools and Libraries Program of 

0.94 percent. We spent $1.3 million on this activity in 2011. 

We have also done audits of beneficiaries and contributors. 

Shortly after the PQA launch in 2010, again in close consultation 

with the FCC and OMB, we launched the Beneficiary and Contributor Audit Program, or BCAP. Under BCAP in 2011, we completed 

79 audits examining $1.7 billion in universal service funding. When 

fully implemented, BCAP will give USAC the capacity to conduct 

up to 343 audits each year. As with PQA, results will shape corrective actions for both auditees and USAC. 

Outside auditors have consistently delivered clean opinions on 

USAC’s finances and procedures. In the last 4 years, USAC has 

significantly revised and upgraded its internal controls review program, in compliance with the principles of OMB Circular A–123. 

Program staff members have incorporated these controls into operational activities to enhance the security and accuracy of procedures that define how we handle the information we gather and 

the funds we collect and distribute. 

The GAO has recommended that USAC and the FCC conduct robust risk assessments in the Schools and Libraries Program and 

the Low Income Program. We are working with the FCC to identify 

independent contractors to carry out these risk assessments and we 

expect to use these results as a basis for efforts to strengthen further the internal controls already in place. 

Thank you for the opportunity to appear before you today. I 

would be happy to respond to any questions. 

[The prepared statement of Mr. Barash follows:] 

70 


82543.042

Summary of Testimony by D. Scott Barash, USAC Acting Chief Execntive Officer 

House Subcommittee on Communications and Technology 

February 16,2012 

USAC's administrative function: 

• Independent, not-for-profit corporation created in 1997 to administer the universal 

service support mechanisms. 

• Collecting FCC-mandated contributions from telecommunications carriers and 

distributing these funds to beneficiaries in the four universal service programs: High 

Cost, Low Income, Rural Health Care, and Schools and Libraries. 

o In 2011, USAC collected $8.4 billion in contributions from telecommunications 

carriers and disbursed $8.1 billion to beneficiaries. 

o Spent $106.9 million to collect and distribute these funds, generating an 

administrative expense rate of 1.34%. 

Calendar year 20 II disbursements and beneficiaries: 

• High Cost Program: $4.0 billion to 1,903 companies in support of ItO million lines. 

• Low Income Program: $1.7 billion to 2,025 companies providing discounted telephone 

service to 13.7 million households eligible for support. 

• Rural Health Care Program: $81.5 million to 472 companies serving 3,088 eligible health 

care providers; $54.3 million to beneficiaries of the Rural Health Care Pilot Program. 

• Schools and Libraries Program: $2.2 billion to 4,165 companies providing services to 

tens of thousands of schools and libraries in all states and territories of the U.S. 

Measures to protect the integrity of universal service funds: 

• Payment Quality Assurance Program generates estimates of improper payment rates: 

o High Cost Program, 0.11 %; Low Income Program, 0.23%; Rural Health Care 

Program, 1.7%; Schools and Libraries Program, 0.94%. 

• Beneficiary and Contributor Audit Program helps ensure compliance with program rules: 

o In2011, USAC completed 79 audits examining $1.7 billion in universal service 

funding. including $1.68 billion in contributions and $20 million in 

disbursements. 

• Audits of USAC's finances and procedures. including both financial operations and 

programmatic activities. 

o Consistently clean results from outside auditors. 

Extensive internal controls review program, in compliance with the principles ofOMB 

Circular A-123. 

o In 20 II, the USAC assessed 15 financial and operational business processes and 

tested 90 key controls, with no material weaknesses identified. 

Memorandum of Understanding between the FCC and USAC defines operational and 

reporting requirements. 
71 


82543.043

Testimony ofD. Scott Barash 

Acting Chief Executive Officer 

Uuiversal Service Administrative Company 

Before the 

Energy and Commerce Committee 

Subcommittee on Communications and Technology 

United States House of Representatives 

February 16,2012 

Good morning. My name is Scott Barash, and I am the Acting Chief Executive Officer 

of the Universal Service Administrative Company, or USAC. USAC is the independent, not-forprofit corporation created in 1997 to administer the universal service support mechanisms. 

USAC is governed by a Board of Directors selected by the Chairman of the Federal 

Communications Commission (FCC) from nominations by universal service stakeholder groups. 

USAC's mission is to collect FCC-mandated contributions from telecommunications carriers and 

distribute these funds to beneficiaries in the four universal service programs - High Cost, Low 

Income, Rural Health Care, and Schools and Libraries - in accordance with FCC rules, orders, 

and directives. As a neutral administrator, USAC does not establish policy and may not 

advocate policy positions. Tn order to accomplish our mission, we work closely with the FCC, 

which oversees our operations. 

I will be providing information today about how USAC administers the universal service 

programs and collects universal service contributions. In 2011, USAC collected $8.4 billion in 

contributions from telecommunications carriers and disbursed $8.1 billion to beneficiaries. 

USAC spent $106.9 million to collect and distribute these funds, generating an administrative 

expense rate of 1.34%. In other words, 98.66% of contributions from telecommunications 

carriers went to universal service program beneficiaries. This percentage compares favorably to 

the rate at which other federal assistance programs and non-profit organizations deliver funds to 
72 


82543.044

their beneficiaries. USAC strives every day to minimize administrative costs, which are part of 

universal service collections. For example, last year we worked with the FCC to streamline 

Schools and Libraries Program procedures, resulting in a $4 million savings. 

I will now briefly describe the four universal service programs, what USAC does to 

administer those programs, and how mucb USAC spent in 2011 to do so. 

High Cost Program 

The High Cost Program provides support to ensure that telecommunications rates and 

services available to customers who live in rural or hard-to-serve areas are reasonably 

comparable to rates and services available in urban areas. 

In calendar year 2011, the High Cost Program disbursed $4.0 billion to 1,903 companies 

in support of 110 million lines. To provide program support, every month USAC gathers 

significant amounts of data from companies, performs extensive calculations to derive the 

support they are eligible for, and then makes disbursements to them. To administer the High 

Cost Program in 20 II, USAC spent $16.9 million. As with USAC's expenses in the other 

programs, this figure includes the people and information technology costs associated with 

collecting and analyzing data, determining support for eligible beneficiaries, disbursing funds, 

and conducting on-going audit and quality assurance programs to prevent and detect waste, fraud 

and abuse. 

Low Income Program 

The Low Income Program provides support to make voice telephony affordable to 

eligible low-income consumers. USAC's role is to disburse to telecommunications carriers a 

defined dollar amount each month for each eligible consumer to whom they provide discounted 

2 
73 


82543.045

service. Administering the Low Income Program is similar to the High Cost Program: USAC 

gathers data from companies every month, performs extensive calculations to derive support, and 

then makes monthly disbursemcnts. In 2011, the Low Income Program disbursed $1.7 billion to 

2,025 companies providing discounted telephone service to 13.7 million households eligible for 

support. To administer the Low Income Program in 20 II, USAC spent $5.4 million. 

Rural Health Care Program 

The Rural Health Care Program provides reduced rates to eligible health care providers 

for telecommunications and Internet services necessary for the provision of health care. USAC 

disburses payments to companies providing telecommunications services to health care providers 

so that thcsc services end up costing about what they would cost in urban areas. Eligible 

participants must be a rural public or non-profit health care provider. 

USAC is responsiblc for processing applications for support, confirming eligibility 

pursuant to FCC rules, and reimbursing service providers for discounts delivered to rural health 

care providers. USAC reviews applications, invoices, and other program information to ensure 

that applicants and service providers follow FCC program rules and to support FCC efforts to 

prevent and detect waste, fraud and abuse. In2011, the Rural Health Care Program disbursed 

$81.5 million to 472 companies serving 3,088 eligible health care providers, and another $54.3 

million to beneficiaries of the Rural Health Care Pilot Program. To administer the Rural Health 

Care Program in2011, USAC spcnt $12.7 million. 

Schools and Libraries Program 

The Schools and Libraries Program, commonly known as "E-Rate," provides discounts 

of up to 90% to assist most schools and libraries in the United States in obtaining affordable 

3 
74 


82543.046

telecommunications services and Internet access. As in the Rural Health Care Program, program 

funds are disbursed to companies providing services to eligible beneficiaries, in this case public 

and most non-profit K-12 schools, and all public and many private libraries. 

Administration of the Schools and Libraries Program is much like it is in the Rural 

Health Care Program: USAC processes applications for support, confirms eligibility, and 

reimburses telecommunications companies and Internet access providers for discounts delivered 

to beneficiaries. USAC reviews applications, invoices, and other program information to ensure 

that applicants and service providers follow FCC program rules and to support FCC efforts to 

prevent and detect waste, fraud and abuse. In 2011, the Schools and Libraries Program reviewed 

44,651 applications and disbursed $2.2 billion to 4,165 companies providing services to tens of 

thousands of schools and libraries in all states and territories of the U.S. To administer the 

Schools and Libraries Program in 20 II, USAC spent $71.9 million. 

Universal Service Contributions 

Universal service contributions come from telecommunications carriers earning revenues 

from providing interstate and international calling services. These companies file revenue data 

with USAC, which USAC aggregates and submits to the FCC. In 20 II, to bill and collect the 

$8.4 billion in universal service contributions, USAC spent approximately $3.0 million. 

USAC's Administration of Universal Service Funds 

An important responsibility of USAC is to support FCC efforts to protect the integrity of 

universal service funds. We work hard to make sure we collect correct amounts from carriers 

and disburse correct amounts to eligible beneficiaries for allowable purposes. We do this in 

many ways, from reviewing information submitted by contributors and beneficiaries to assessing 

4 
75 


82543.047

details about individual payments to full-scale audits of contributors and beneficiaries. These 

measures are designed to verify the accuracy of data used in calculating collections and 

disbursements, the eligibility of supported goods and services, and participants' compliance with 

all program requirements. A Memorandum of Understanding between the FCC and USAC 

defines the roles and responsibilities of each party in overseeing and carrying out universal 

service administration, and it contains detailed operational and reporting requirements. 

Once USAC disburses money to beneficiaries, we want to validate that the payments 

were properly made. To this end, working with the FCC and OMB, we launched in 2010 a 

Payment Quality Assurance (PQA) Program. PQA is designed to provide estimates of improper 

payment rates in all four programs, as required by the Improper Payments Elimination and 

Recovery Act (lPERA). Under this program, USAC assesses a statistically valid sample of 

individual payments made to beneficiaries to determine if these payments were made in 

accordance with FCC rules. Based on these assessments, an independent statistician calculates 

estimates of improper payment rates for whole programs and reports this information to the FCC. 

USAC also uses the results as a basis, when appropriate, to improve internal procedures 

associated with improper payments and provide outreach support to beneficiaries. Results for 

2011, based on 1,600 assessments, show improper payment rates in the High Cost Program of 

0.11 %, the Low Income Program of 0.23%, the Rural Health Care Program of 1.7%, and the 

Schools and Libraries Program of 0.94%. USAC spent $1.3 million on this activity in 2011. 

Since USAC started operations, we have conducted audits of beneficiaries and 

contributors. Shortly after the 20 I 0 PQA launch, again in close consultation with the FCC, we 

implemented our current audit program, the Beneficiary and Contributor Audit Program 

(BCAP). Under BCAP in 2011, USAC completed 79 audits examining $1.7 billion in universal 

5 
76 


82543.048

service funding, including $1.68 billion in contributions and $20 million in disbursements. 

When fully implemented, BCAP will give USAC the capacity to conduct up to 343 audits each 

year. As with PQA, results will shape corrective actions for both auditees and USAC. 

Measures to Assess Expenses and Operations 

Outside auditors have consistently delivered clean opinions on USAC's finances and 

procedures, including both financial operations and programmatic activities. Over the last three 

years, USAC's internal audit team has performed audits ofUSAC operations in many areas. In 

all cases, the audits concluded that sufficient controls were in place. 

In the last four years, USAC has significantly revised and upgraded its internal controls 

review program, in compliance with the principles orOMB Circular A-I23. Program staff 

members have incorporated these controls into operational activities to enhance the security and 

accuracy of procedures that de fine how we handle the information we gather and the funds we 

collect and distribute. In 2011, the USAC internal controls team assessed the risks associated 

with 15 financial and operational business processes and tested 90 key controls. No material 

weaknesses were identified as a result of the testing. 

The Government Accountability Office (GAO) has recommended that USAC and the 

FCC conduct robust assessments of risks in the Schools and Libraries Program and the Low 

Income Program. USAC is working with the FCC to identify independent contractors to carry 

out these risk assessments and expects to use the results as a basis for efforts to strengthen 

further the internal controls already in place. 

Thank you for the opportunity to appear before you today. I would be happy to respond 

to any questions you may have. 

6 
77 


82543.049

Summary of Testimony by D. Scott Barash, USAC Acting Chief Executive Officer 

House Subcommittee on Communications and Technology 

February 16,2012 

USAC's administrative function: 

• Independent, not-for-profit corporation created in 1997 to administer the universal 

service support mechanisms. 

• Collecting FCC-mandated contributions from telecommunications carriers and 

distributing these funds to beneficiaries in the four universal service programs: High 

Cost, Low Income, Rural Health Care, and Schools and Libraries. 

o In 2011, USAC collected $8.4 billion in contributions from telecommunications 

carriers and disbursed $8.1 billion to beneficiaries. 

o Spent $106.9 million to collect and distribute these funds, generating an 

administrative expense rate of 1.34%. 

Calendar year 2011 disbursements and beneficiaries: 

• High Cost Program: $4.0 billion to 1,903 companies in support of 110 million lines. 

• Low Income Program: $1.7 billion to 2,025 companies providing discounted telephone 

service to 13.7 million households eligible for support. 

• Rural Health Care Program: $81.5 million to 472 companies serving 3,088 eligible health 

care providers; $54.3 million to beneficiaries of the Rural Health Care Pilot Program. 

• Schools and Libraries Program: $2.2 billion to 4,165 companies providing services to 

tens of thousands of schools and libraries in all states and territories ofthe U.S. 

Measures to protect the integrity of universal service funds: 

• Payment Qua lity Assurance Program generates estimates of improper payment rates: 

o High Cost Program, 0.1 1%; Low Income Program, 0.23%; Rural Health Care 

Program, 1.7%; Schools and Libraries Program, 0.94%. 

• Beneficiary and Contributor Audit Program helps ensure compliance with program rules: 

o In 2011, USAC completed 79 audits examining $1.7 billion in universal service 

funding, including $1.68 billion in contributions and $20 million in 

disbursements. 

• Audits of USAC's finances and procedures, including both financial operations and 

programmatic activities. 

o Consistently clean results from outside auditors. 

Extensive internal controls review program, in compliance with the principles ofOMB 

Circular A-123. 

o In 2011, the USAC assessed 15 financial and operational business processes and 

tested 90 key controls, with no material weaknesses identified. 

Memorandum of Understanding between the FCC and USAC defines operational and 

reporting requirements. 
78 

Mr. WALDEN. Thank you for your testimony. I appreciate your 

testimony and the work you that you are doing to try and continue 

to improve and reduce fraud and deal with all that. 

I was made aware a year or two ago about a situation in my district, and I won’t get into the specifics of it, but they had overlapping people that were on sort of both sides of some of the USAC 

funding. I think it was in the E–Rate program. And the problem, 

I think they may not have followed all the rules, I don’t know. That 

is something for all of you to figure out, but we got these really isolated, remote communities. I am talking one person for every 8 

miles of power line. Counties with fewer than 2,000 people and 

thousands of miles, and there is very, very few people, like the 

main town, the county hub is 399 people, I think. And so when 

they go to try and take advantage of these programs, there isn’t a 

giant pool of people who can be—you know, you are on the school 

board, you are also the guy running the—now having said that, I 

have also served on the Oversight Committee where we did a lot 

of looking at the waste, fraud, abuse and all of that. We can’t tolerate that. 

But I hope there is some way to find a balance here for these 

really remote communities where there are only—they are very— 

there is only a handful of people that do everything, and not because of collusion or anything else, there just ain’t anybody else 

around, you know? And so I hope maybe we can have some general 

discussion about somewhere down the road, because I think it is 

a problem that is unique to sort of the rural West, perhaps, where 

literally you have a hospital in three of these counties. I mean, it 

is just remote. No stop light for probably 3 hours, you know what 

I mean? This is high desert remote, and so I—and yet, they are trying to figure out how to serve their communities, and so I just 

throw that out for your consideration. 

Mr. BARASH. Well, we are very sensitive to the needs of our customers, and—— 

Mr. WALDEN. Is your mic on? 

Mr. BARASH. Yes, I will get closer. 

Mr. WALDEN. There you go. 

Mr. BARASH. We are very sensitive to the needs of our customers, 

particularly the small rural customers, both in—for schools and libraries and rural health care, as well as high cost, and what we 

have tried to do in recent years is to really expand our outreach 

and that includes training sessions around the country, that includes our webinar presence, that includes going out to stakeholder 

groups, whether it is schools, whether it is health care providers 

or telecom groups. So we have really tried to focus on that, because 

you are correct that one of the problems is that you might have the 

same person who is doing everything. 

Mr. WALDEN. And they are, and they do that in everything in 

these small towns. 

Mr. BARASH. And then in addition, there is often turnover, so the 

person who knows everything and who had the files leaves, and 

then someone else inherits this and they may not understand what 

the—— 

79 

Mr. WALDEN. Or they may also be on the school board and at the 

phone company, and by the way, the county judge who drives the 

snow plow truck. I mean, it literally happens that way. 

Mr. BARASH. I think you are absolutely right. 

Mr. WALDEN. And they are just trying to figure out how to get 

broadband or whatever out to their schools and their communities 

and connect them, and then lo and behold, they realize they have 

stumbled across some line that said oh, you can’t be on both of 

these. And then they get penalized—the community gets penalized 

because it is like well, you don’t get any more money and by the 

way, we are going to take back what you have, et cetera, and they 

are just going oh, all I was trying to do here—and yet I have seen 

the other side of this coin where people manipulated the system 

and had warehouses full of computers they never intended to deploy and ripped off the fund. And so—— 

Mr. BARASH. It is a balance that we try to strike every day in 

administering the program. We try to do as much up front review 

as possible, and to prevent having to go back. That is the worst of 

all worlds. So we are very focused on the average piece and also 

on the up front review piece. 

Mr. WALDEN. Yes, so anyway, this group is in the middle of that 

and trying to dig its way out, and it is not good. 

Mr. Hunt, in your written testimony you highlighted single company that was able to defraud the FCC’s telecommunications relay 

service of $55 million, and you also suggest that the work of the 

IG ultimately led to 26 indictments in that case. What happened 

there? 

Mr. HUNT. Mr. Chairman, thank you. It was a program that we 

have been aware of for a while. It is something where you don’t 

know how bad it is until you get into it, and we were surprised, 

too. I mean, the entire FCC Inspector General Office hasn’t had 26 

indictments and non-USF cases ever in the over a decade it has operated. The more we dug, the worse it got, and again, not to be crying or bemoan my staffing situation, two people sitting behind you 

who pretty much did it was apart from the rest of our staff, but 

when we did the—that one raid, we had 40 FBI agents going with 

us. We had to go in nine different States. You are looking at a program that just wasn’t looked at that much, and 26 indictments was 

amazing for us. We had no idea, but it is so easy on that program 

to defraud the government. I could go in my home, get a computer, 

light it up and I could defraud the government, frankly. 

Mr. WALDEN. I appreciate that, and maybe you can help us identify more areas we need to spend more time digging into as well, 

and be helpful in that respect. 

Mr. HUNT. Yes, Mr. Chairman, we have been working with Congress as much as we can. We have been working with the chairman’s office, we have made many recommendations, as had DOJ, 

on how to stop this fraud and stop it from occurring. We are working both ends, stop it on the front end with the chairman’s help, 

and get it from the back. 

Mr. WALDEN. And then maybe your people won’t have to pull out 

their IVs to go stop if we can get it stopped first. 

So—and those recommendations, I am sure you have made those 

available to us in past reports and all, but if there are some speVerDate Aug 31 2005 08:21 Feb 27, 2014 Jkt 037690 PO 00000 Frm 00083 Fmt 6633 Sfmt 6633 F:\112-11~1\112-11~1 WAYNE
80 

cifics you think we should dig down into more and kind of look at 

the policy and help shine the light on, we would be happy to do 

that. 

Mr. HUNT. Absolutely. 

Mr. WALDEN. I thank you. 

I turn to my friend from California, Ms. Eshoo. 

Ms. ESHOO. Thank you, Mr. Chairman, and I want to concur 

with you that—on this last item that how we can help support and 

advance the work that you are doing. We are eager to do that. 

I want to thank you, not only for doing what you do, but with 

the—really a high level of integrity and commitment and dedication. We are going through an era, I think, where because of all 

the challenges in the country, so many people are angry. They feel 

let down. You could go on and on. I was at a telephone town hall 

meeting last night where 9,000 people participated. Obviously I 

didn’t get to answer 9,000 questions, but if there was a common 

thread that went through it, it was how people—how concerned 

they are about our country. I wish every TV station in the country 

could have carried your opening statement today, because it is a reflection of really professional, good, solid people working to make 

the country better and the government more accountable, so I really salute you. I don’t know if—I don’t think my words are adequate 

to describe all that I am sensing, but bravo to you and to your 

team, and thank you. 

Mr. HUNT. Thank you very much. 

Ms. ESHOO. You have really restored a great deal of faith in all 

of us, and as I said in my opening statement, I think the IGs are 

just—if you want to know what is going on in the government and 

you want a clear, unbiased, nonpartisan, hard look at what is going 

on in every agency, just go to the IG inspectors and the work and 

the reports that they issue. So thank you again. 

Your most recent semi-annual report indicated that the proposed 

reforms of the Universal Service Fund ‘‘will have a significant impact on OIG planning and conduct and oversight activities.’’ Can 

you explain exactly what that means? What will be the change 

under the reforms? Is that what you are referring to, what you are 

going to have to do to track the new program? 

Mr. HUNT. Yes, Congresswoman. Whenever any change is made, 

we sometimes have to tack to left or tack to the right. We study 

everything. You know, I have a separate person who studies—he 

is dedicated to working on Hill matters. He studies everything that 

comes out, looks at everything from USAC. We work with USAC 

quite a bit. But every time a rule or regulation changes, it may 

change one of our cases, even civilly or criminally. And so it is 

something we have to track pretty much constantly. 

A large part of what we do is—— 

Ms. ESHOO. Do you have the resources to do this, what you are 

describing? 

Mr. HUNT. Well, let me just say—— 

Ms. ESHOO. Well is not a good answer. I don’t mean that in a 

personal way. You sound skeptical. 

Mr. HUNT. No, Congresswoman, I am not skeptical. We don’t, but 

I just want to let the Congresswoman know, we have been working 

very closely with the chairman’s office to try to get additional staff, 

81 

and Congress was kind enough to give us additional monies for 

2012, fiscal year 2012. We spend those monies, if not on personnel, 

on contracts to do further auditing work. But I thought about it 

several times, where is the cap? I mean, how many people would 

you have to add to the IG shop before it is not worth adding people, 

and a number could be—I mean, you could give me 50 people tomorrow and I could put them all to work, so I don’t know how else 

to explain it. 

Ms. ESHOO. What my sense is is that you don’t think you have 

enough to do what needs to be done, but do you think you are going 

to be able to fulfill your oversight responsibilities? 

Mr. HUNT. Well, Congresswoman, the staff we have is very good, 

and any program this big always needs additional oversight, could 

always use it. I know USAC has added additional people to their 

staff to help do audits, but like I said, you are trying to track about 

$10 billion with 30 people, and when the economy goes south, the 

crime rate, at least in our field, goes up so white collar crime is 

booming, and on one case alone we have a single person tracing 

down $110 million with no FBI support and no other support from 

DOJ. So they have had to cut back as well. So as they cut back, 

all of a sudden we find ourselves having to do depositions and 

interviews, when normally the FBI would do those for us. Now 

there are not enough FBI agents around to help us accomplish 

that. 

Ms. ESHOO. Well, we want to be of all assistance to you, because 

your work is so important. 

Mr. Barash, I am sorry, I don’t have time to ask you the great 

questions I was going to ask you, but I will submit them to you in 

writing. 

Thank you, Mr. Chairman, and thank you both for your very important work, and to your entire team. 

Mr. HUNT. Thank you, Congresswoman. 

Mr. WALDEN. Thank you. Gentleman from Ohio, Mr. Latta, is 

now recognized. 

Mr. LATTA. Thank you, Mr. Chairman. 

Mr. Hunt and Mr. Barash, thanks very much for being with us 

today. I appreciate your testimony. 

If I could just start off with this question maybe to both of you 

that State commissions have also been out there detecting duplication and other waste within the Commission’s Lifeline program, 

and what efforts have your respective offices made to reach out to 

the State commissions to also address these and related concerns? 

Mr. HUNT. Thank you, Congressman, for that question. Actually, 

Congressman, another one of my IGs behind me is coordinating an 

effort within our office and has contacted, literally, all 50 States. 

We are actively coordinating with, I believe at last count, eight or 

nine, so we work very closely with the States on low income and 

Lifeline issues. Primarily what we do is basically ask for their support, because they can offer us the most help at the local level than 

we can offer from Washington, DC. But we are very much interacting with local governments and do so frankly all the time. 

Mr. LATTA. OK. Let me ask this. Going back to the chairman’s 

testimony I am sure you heard a little bit earlier, and you all know 

that in the Lifeline program, the whole idea is in the next 3 years 

82 

to be able to save up to $2 billion that is going to be out there, and 

also in 2011 alone saving $33 million and eliminating 270,000 duplicate subscriptions. 

Could you go through the procedures of how you find these folks, 

and what happens when you do, and do you recoup payment or 

what happens? 

Mr. BARASH. Yes, I would be happy to do that. What we do is 

we collect data from the companies, collect subscriber data from the 

companies. We then bump that data up against each other in a system that we built last year to do this job. We then identify potential duplicates. We reach back out to the companies and say are 

these, in fact, duplicates. They get back to us. We then have a final 

list of duplicates. We then allocate the duplicates to one of the 

other companies randomly, and then instruct the other company to 

de-enroll the subscriber. 

So it is a relatively cumbersome process at this point. 

Mr. LATTA. Pardon me for interrupting. How long does that—you 

know, from point A to point B, how long does that take? 

Mr. BARASH. A couple months by the time the back and forth occurs. So it is a relatively cumbersome process at the moment. It is 

one that we initiated in very close consultation with the FCC last 

year. What we are moving toward, and this is in the recent order 

that was approved by the Commission, is a national Lifeline accountability database that we are now working on that we hope to 

have up in early 2013 that will allow companies on a real-time 

basis to determine whether someone is already receiving Lifeline 

service or not. 

So right now we are in an interim phase where we are identifying duplicates and saving money, but then in the future we will 

be doing this up front and preventing this problem from occurring 

in the first place. 

Mr. LATTA. OK, and then going back to my one question, after 

you do identify that individual, let us just say that they might have 

had three or four that might have happened. Is there recoupment 

or what happens at that stage? 

Mr. BARASH. At this stage there is not recoupment. They are cut 

off. If they have more than one they are cut off from all of them. 

We have seen an instance or two where there are—someone might 

be getting three and they would be cut off from two of those. 

Mr. LATTA. OK. Thank you very much, and Mr. Chairman, I 

yield back. 

Mr. WALDEN. Gentleman yields back. Mr. Guthrie has no questions. 

We appreciate the incredible work you all do, and we look forward to working with you to improve transparency, efficiency, and 

accountability in the work that is done by the agency. So thank you 

for being here, and with that, we will have the usual and customary opportunity for members to submit statements and questions. We look forward to your responses, and thanks again. 

Mr. BARASH. Thank you very much. 

Mr. WALDEN. This hearing is adjourned. 

[Whereupon, at 10:47 a.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

83 


82543.050

Statement of the Honorable Fred Upton 

Chairman, Energy and Commerce Committee 

Subcommittee on Communications and Technology Hearing on 

The Budget and Spending of the Federal Communications Commission 

February 16,2011 

American families are taking a hard look at their budgets these days, trying to spend less 

and save more as they struggle in this stagnant economy, Meanwhile, American businesses have 

been forced to cut investments as the slow recovery leaves them behind and the ever-growing 

regulatory state threatens to increase their costs, 

The House of Representatives has cut its own budget, tightening our belts just like our 

constituents are doing, It's time for federal agencies to do the same, An important part of 

congressional oversight is to examine how regulatory agencies are spending Americans' hardearned tax dollars, That's what today's hearing is all about. 

We need to live within our means and cut back where we can, while still producing 

results for the American people, At the same time, we should also make sure that the federal 

dollars we do spend are getting the biggest bang for the buck. 

For example, the Federal Communications Commission is charged with overseeing the 

$8 billion Universal Service Fund, and the American ratepayer deserves to know that money 

spent on that program is actually doing what it's supposed to do and not being diverted to 

fraudulent ends, This may mean increased oversight and investigations to cut off waste, fraud, 

and abuse at the head, 

Our oversight of federal agencies is about the dollars they spend, but it's also about how 

they do the people's business, We want to make sure they operate in a faif and transparent 

manner, We want to make sure the policies they enforce are in the best interest of the American 

people, In the next couple of days, Congress will enact legislation to provide the FCC with 

incentive auction authority, This authority will facilitate the auction of a significant portion of 

the broadcast television band, I expect the FCC to follow the new law to permit all qualified 

entities to participate in this auction, This spectrum is critical to ensuring that all mobile 

providers can address the spectrum crunch and keep pace with the explosive demand for 

spectrum caused by the increased use of smartphones and tablets, Otherwise, millions of U,S, 

mobile consumers will experience slower speeds and less innovation, I look forward to working 

together with the FCC to ensure a fair and smooth process for taxpayers, participants, and 

consumers, 
84 


82543.051

UPI fy'!JCH1C)i-\1\! HE.NRY A WAXMAN, CALIFORNIA 

CrlA1HMAN RANK1NC i\ilE'V18EH 

ONE HUNDRED TWELFTH CONGRESS 

CiCongres5 of tfJe Wniteb ~tate5 

li)ousc of i'\cprrsrlltiltlucS 

COMMITTEE ON ENERGY ANO COMMERCE 

2125 RAYBURN HOUSE OFFICE BUILDING 

WASHINGTON, DC 20515-6115 

Opening Statement of Rep. Henry A. Waxman 

Ranking Member, Committee on Energy and Commerce 

Hearing on "The Budget and Spending of the 

Federal Communications Commission" 

Subcommittee on Communications and Technology 

February 16,2012 

It has been over twenty years since Congress last reauthorized the FCC. Although this 

Subcommittee has always played an important oversight role with regard to FCC activities, I 

think it is fitting that we not only review the FCC's policy actions, but also learn more about how 

the agency functions from a budgetary perspective. 

By all accounts, the Genachowski FCC is well managed and operates in a transparent and 

open manner. Since he became Chairman, the agency has refonned the way dockets are 

managed. The number of Notices of Proposed Rulemakings that contain the full text of rules has 

increased from 38% to 85%. 

The amount of time between a vote on a Commission decision and the release of the full 

text of the decision has decreased from 14 calendar days to three calendar days, with a majority 

of actions released in one calendar day. And the ex parte rules underwent significant reform. 

The FCC has closed 999 dormant dockets, which represents approximately one-third of 

the agency's open proceedings, while reducing the number of pending broadcast applications by 

30% and the number of pending satellite applications by 89%. 

In addition, the FCC has removed or streamlined unnccessary requirements. One 

hundred and ninety obsoletc regulations have been removed since November 20 II. And the 

Commission is working to eliminate unnecessary data collections and exempting small 

businesses from certain reporting requirements. 

The Genachowski FCC has also made great efforts to work on a bipartisan basis. Ninetyfive percent of agency action over the past two years has been bipartisan. 

Finally, staff morale has improved so much that the FCC was named the most improved 

federal agency. This was accomplished despite a flat budget and flat staffing levels. 
85 


82543.052

On the issues, the FCC has also been ambitious. The Commission has tackled difficult 

topics like universal service and inter-carrier compensation reform, open Internet protections, 

and numerous measures to promote broadband deployment. 

All of these efforts require a tremendous amount of time and dedication from the FCC 

staff, as well as agency resources. Based on my experiences over the past few years working 

closely with the agency, I am convinced that the FCC employs a disproportionate number of the 

most talented, experienced, and dedicated public servants in government. ' 

In order to address these management challenges, I am pleased that the Chairman also is 

focused on modernizing the agency itself, making it more responsive to consumer needs and 

industry challenges. 

Chairman Genachowski, I look forward to hearing how you plan to capitalize and build 

upon this success. 

Thank you, Mr. Chairman. 

2 
86 


82543.053

FRED UPTON, MICHIGAN 

CHAIRMAN 

ONE HUNDRED TWELFTH CONGRESS 

HENRY A. WAXMAN, CALIFORNIA 

RANKING MEMBER 

<!Congre%~ of tbe Wntteb ~tate% 

1!,lou%e of laepre%cntatlbc% 

COMMITIEE ON ENERGY AND COMMERCE 

2125 RAYBURN HOUSE OFFICE BUILDING 

WASHINGTON, DC 20515-6115 

The Honorable Julius Genachowski 

Chainnan 

Federal Communications Commission 

445 12th Street, S.W. 

Washington, D.C. 20554 

Dear Chainnan Genachowski, 

Majority (202) 225-2927 

Minority (202) 225-3641 

AprilS,2012 

Thank you for appearing before the Subcommittee on Communications and Technology on 

February 16, 2012, to testify at the hearing entitled "The Budget and Spending of the Federal 

Communications Commission." 

Pursuant to the Rules of the Committee on Energy and Commerce, the hearing record remains 

open for 10 business days to penn it Members to submit additional questions to witnesses, which are 

attached. The fonnat of your responses to these questions should be as follows: (I) the name of the 

Member whose question you are addressing, (2) the complete text of the question you are addressing in 

bold, and then (3) your answer to that question in plain text. 

To facilitate the printing of the hearing record, please e-mail your responses in Word or PDF 

fonnat, to katie.novaria@mail.house.govbythecloseofbusiness on Thursday, April 19,2012. 

Thank you again for your time and effort preparing and delivering testimony before the 

Subcommittee. 

~in~erelY, 

~ '017- ?f W-.QL.., 

Greg Walden 

Chainnan 

Subcommittee on Communications and Technology 

cc: The Honorable Anna Eshoo, Ranking Member, 

Subcommittee on Communications and Technology 

Attachment 
87 


82543.054

The Budget and Spending of the Federal Communications Commission 

February 16,2012 

Questions for the Record 

House Energy and Commerce Committee 

Subcommittee on Communications and Technology 

The Honorable Greg Walden 

Question. What was the FCC's IT spending for FY2011 and FY2012 (estimated)? Please 

detail the amounts spent on federal employees, contractors, and service as those amounts 

relate to the Commission's various IT programs (including, for example, the electronic 

Comment Filing System, the Universal Licensing System, etc ... ). 

Answer. Please see the chart below, which provides the information requested in your 

question. 

FY 2011 and FY 2012 IT Cost 

Estimated FY 

FY 2011 2012 

FTEs $5,147,705 $5,386,803 

Contract Services: 

--Licensing Systems 21,429,215 22,454,937 

--Business Systems 4,724,083 4,950,204 

--Infrastructure Support 19,605,235 20,543,650 

--Cyber Security Initiative 0 4,500,000 

$45,758,533 $52,448,791 

Software & Hardware 

Maintenance 8,623,668 7,660,253 

fTC Hardware 1,711,248 1,919,663 

-- Cyber Security Initiative 0 5,500,000 

ITC Software 1,528,270 282,188 
88 


82543.055

Telecommunications 4,847,834 5,223,441 

ITC Other Cost 122,556 60,653 

$67,739,814 $78,481,792 

Question. The Commission has requested $6.1 million in its FY2013 budget for 

commission-wide IT initiatives, including the consolidation of redundant data centers and 

the use of hosted online services. Your testimony indicates that previous IT 

consolidations have saved the agency almost $8 million. Will these initiatives lower the 

expected IT spending of the FCC in the future? Ifso, by how much and in what fiscal 

years? 

Answer. The new initiatives will save money through increased efficiencies projected to 

begin in the next fiscal year when the data center consolidation is complete and when 

Agile Cloud Provisioning is complete. The charts below detail the savings: 

Data Cent. 

Energy Cost Savings 

Staff Productivity 

Operational Efficiencies 

Energy Cost Savings 

Staff Productivity 

Operational Efficiencies 

Annual Savings 

$ 

$ 

$ 

189,433 

459,200 

515,200 

$ 1,163,833 

Annual Savings 

$ 

$ 

$ 

236,791 

574,000 

644,000 

$ 1,454,791 

Question. The FCC's recently redesigned website has received mixed reviews from 

stakeholders. How much did the FCC spend on that redesign? How have the costs of 

maintaining the FCC website changed as a result of that redesign? 

Answer. After the creation of its original website in 1995, the FCC underinvested in 

maintaining and updating it - dedicating only approximately $300,000 for maintenance 

2 
89 


82543.056

and upgrades during the next fifteen years. The FCC's website failed to keep pace with 

changing technologies and user expectations. In 2010, the FCC redesigned its website 

with an initial cost of $1 ,330,470 and became the first federal agency to use the cloud to 

host its public-facing website. Since its launch in May 2011, support for the new 

website, combined with cloud-hosting and the development of new tools and 

technologies, has resulted in additional costs. Over time and in combination with the 

other IT initiatives described above, however, we expect the FCC will save money from 

the website overhaul as a result of increased efficiencies. 

Question. At our hearing, you noted that you were not aware of any employees working 

on GN Docket No.10-I27, Framework for Broadband Internet Service, and you promised 

to discuss with your staff and colleagues whether that docket should be closed. Have you 

spoken with your staff and Commissioners McDowell and Clyburn about closing that 

docket? Is the Commission planning further action in that docket? If so, when? And if 

not, when will the Commission close the docket? 

Answer. The Commission routinely leaves notice of inquiry proceedings open so that 

the public can continue to comment as appropriate. After discussion with staff, I 

concluded that this continues to be the right approach. The Commission is not planning 

further action in this docket at this time. 

Question. Your testimony noted that the agency is at a ten-year staffing low and that the 

FCC has reduced the number of contractors by 50 percent in the past year. To provide the 

Committee with a fuller understanding of the FCC's staffing, please detail the total 

number of full-time equivalent employees, contractors, and special counsels each bureau 

and office had or will likely have each year for FY2009, FY201 0, FY20 II, FY20 12, and 

Y2013. 

Answer. Please find bclow in the first chart a list of FCC staff by bureau and office. The 

second chart below is a list of contractors by bureau and office. We do not have 

information for FY2009 contractors by bureau and office. "Special Counsels" are not a 

separate category of employment within the Commission. 

3 
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82543.057

Federal Communications Commission 

Full-Time Equivalents (FTEs) History 

At End of Each Fiscal Year 

AC~~~~ I F~ctual Actual 

Bureaus/Offices FY2 2010 FY 2011 

Office of the Commissioners 231 27 3( 

Consumer & Governmental Affairs Bureau 193 183 18C 

Enforcement Bureau 301 286 27 

Intemational Bureau 124 122 12 

Media Bureau 218 215 19 

Public Safety & Homeland Security Bureau 110 109 11 

Wireless Telecommunications Bureau 215 217 21 

Wircline Compctition Bureau 148 148 15 

Office of Administrative Law Judges 3 3 3 

Office of Communications Business Opportunities 14 13 I 

Office of Eng;ncering & Technology 84 81 8 

Office of the General Counsel 73 73 7 

Office of Inspector General 42 45 4 

Office of Legislative Affairs 10 13 14 

Office of Managing Director 210 216 213 

Office of Media Relations 15 15 14 

Office of Strategic Planning & Policy Analysis 23 25 3C 

Office of Work']llace Diversiy 4 4 E 

Total FTE by Fiscal Year 1,810 1,795 1,776 

Federal Communications Commission 

Contractor History 

At End of Each Fiscal Year 

Actual Actual Actual 

Bureaus/Offices FY2009 FY 2010 FY 2011 

Office of the Commissioners 0 0 C 

Consumer & Governmental Affairs Bureau 0 36 25 

Enforcement Bureau 0 

~ I 

International Bureau 0 

Media Bureau 0 C 

Public Safety & Homeland Security Bureau 0 6 2 

Wireless Telecommunications Bureau 0 0 C 

Wireline Competition Bureau 0 14 I 

Office of Administrative Law Judges 0 0 C 

Office of Communications Business Opportunities 0 0 C 

Office of Engineering & Technology =* 3 I 

Ollice of the General Counsel 0 0 

Office oflnspector General 18 15 

Office of Legislative Affairs 25 0 

Office of Managing Director 0 689 493 

Omce of Media Relations 0 0 0 

Office of Strategic Planning & Policy Analvsis 0 15 0 

Office of Workplace Diversity_ 0 0 0 

Total Contractors by Fiscal Year 959 813 551 

4 

Estimated Estimated 

FY 2012 FY2013 

3C 

I 180 

2 276 

I 124 

19 19~ 

II 112 

21 223 

15 157 

3 

I I 

8 85 

7 72 

4 41 

I 14 

21 218 

I 14 

3( 30 

6 

1,781 1,795 

Estimated Estimated 

FY2012 FY 2013 

( 0 

25 25 

I I 

( 0 

2 

( 

I I 

( 

( 

I 

( 

I 15 

0 

49 493 

011 ( 

011 ( 

Oil 0 

55111 551 
91 


82543.058

Question. To provide the Committee with a fuller understanding of the FCC's 

engineering staff, please detail the total number of full-time equivalent engineers 

employed by each bureau and office for FY2009, FY20 I 0, FY20 II, FY20 12, and 

FY20 13. Similarly, what resources is the FCC devoting to its Certification Laboratory to 

make sure it does not become an innovation bottleneck? 

Answer. Please see the chart below of FCC Engineers for each year requested. We do 

not expect the FY 2013 numbers to be any different from the FY 2012 numbers. 

FCC Engineers as of End of FY 

FY12 

Bureau FY09 FY10 FY11 (5/5/12) 

EB 82 85 86 82 

IB 34 35 34 31 

MB 49 48 46 46 

OET 49 47 50 49 

PSHSB 21 21 19 21 

WeB 4 4 3 3 

WTB 30 30 30 30 

Total 269 270 268 262 

***The FCC has requested $500,000 for Fiscal Year 2013 to upgrade the OET's 

Columbia Laboratory facility as part of the plan to ensure that authorizations and 

certifications are timely. 

Question. The Middle Class Tax Relief and Job Creation Act of2012 authorized the 

Commission to conduct several spectrum auctions over the next ten years, including 

voluntary incentive auctions of broadcaster spectrum. You testified that given the Fiscal 

environment, your auctions team was planning to work within the current $85 million per 

year cap. Please delineate the FCC's expected schedule for auctioning spectrum through 

FY2022. 

Answer. Based on the hearing transcripts and my recollection, I testified that (1) the 

auctions cap was a ceiling that prevented additional expenditures; (2) we were working 

within current fiscal restraints; (3) we could possibly work faster with additional funding; 

and (4) we would have significant challenges during the next fiscal year to ensure that the 

incentive auctions process is funded under the $85 million cap. 

At this stage, the House and Senate Financial Services Appropriations 

Subcommittees have granted the FCC permission to reprogram $2.1 million of FY I 2 

auctions spending toward implementation of The Middle Class Tax Relief and Job 

Creation Act of2012. The Commission has asked for an increase in the $85 million cap 

of $13 million during the next fiscal year, in order to purchase and contract for necessary 

IT cquipment and workforce adjustments, as well as other administrative costs. These 

costs were anticipated in section 6403 of the Act and will represent a temporary increase 

in funding related to implementation. 

5 
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82543.059

The Commission is working to implement several spectrum auctions within the 

timeframe required by the law. This includes auctioning 65 megahertz of specified 

frequencies within three years, as well as an incentive auction of broadcast TV spectrum. 

We are aiming for Notices of Proposed Rulemaking implementing the incentive auction 

provisions of the new law by the fall of this year. The Commission intends to meet 

statutory deadlines and move expeditiously to meet the growing demand for wireless 

spectrum. I anticipate a positive return on investment from the auctions process. 

Question. Current policy would keep the FCC's budget for auctions at $850 million 

through FY2022, with the FCC receiving $85 million each year no matter what auctions 

(if any) were conducted that year. If the FCC could reallocate $850 million through FY 

022 to maximize the speed and efficiency of spectrum auctions, how would it do so? 

Under that reallocated budget, what would be the FCC's expected schedule for auctioning 

spectrum through FY2022? 

Answer. As noted above, the FCC has already requested and received reprogramming 

authority for the current fiscal year and is requesting additional, temporary funds above 

the cap level. The Commission does not have a schedule for the process through 

FY2022, but I will keep this committee and the Appropriations Committee apprised of 

our progress. 

Question. Section 9 of the Communications Act requires regulatory fees to be 

apportioned among industries based on full-time equivalent employees, but there seems 

to be a continuing mismatch between employment in the bureaus and the assessment of 

regulatory fees. For example, the Wireless Bureau and the Media Bureau each have more 

employees than the Wireline Bureau, and yet wire line providers pay almost three times 

as much in regulatory fees as wireless providers and cable providers. Last July the 

Commission promised to open a further rulemaking on rebalancing regulatory fees before 

the end of 20 II. What is the status of that rulemaking? Do you believe the current 

assessment of regulatory fees accurately reflects the changing .eommunications 

marketplace? 

Answer. The Commission's Office of Managing Director has now circulated for 

consideration a Regulatory Fee Notice of Proposed Rulemaking to provide a complete 

review of the process and ensure the proper balancing of regulatory fees. Regulatory fee 

reform and rebalancing is complex, and it is likely that we will receive a high volume of 

comments in the proceeding. (anticipate that the rebalancing of regulatory fees will be 

implemented in FY 20 I 3. 

Question. The FCC's FY2013 budget notes that the agency as collected $66 million in 

excess regulatory fees in the last few years. Are those excess fees available to the 

Commission to spend? Is there any reason, legal or otherwise, those excess fees should 

not be transferred to the Department of Treasury to reduce the deficit? 

Answer. The allocation and use of these funds are within the purview of Congress. The 

Commission does not control the distribution of these funds or their use. 

6 
93 


82543.060

Question. The administration of the Universal Service Fund is an important part of the 

Commission's work. Ratepayers deserve to know that their funds are being spent 

efficiently and that Commission rules minimize the potential for waste, fraud, and abuse. 

Although current rules may serve these ends, that bureaucratic process means that 

applicants must navigate reams of paperwork to qualify for USF funding. For thousands 

of schools, libraries, health care providers, and rural carriers, the administrative burden 

can be daunting. What steps has the Commission taken to identify needless paperwork 

and strike red tape from the funding process? Conversely, what steps has the Commission 

taken to prevent waste, fraud, and abuse? How do the remedies differ for honest or 

technical mistakes and malicious actions? 

Answer. Please sec responses to each of your questions: 

Reducing Regulatory Burdens 

During my tenure, the Commission has taken a broad range of actions to eliminate 

unnecessary and burdensome regulations. These include unanimously adopted USF 

program reforms that have streamlined and otherwise improved processes for schools, 

libraries, rural health care providers and rural carriers, including: 

• Simplification of the E-rate application process, which includes removal of the E-rate 

program technology plan requirement for priority one (telecommunications services 

and Internet access) services. 

• Transition to an electronic support disbursement process for all USF programs. 

• Elimination of some existing high-cost reporting requirements for rural carriers and 

implementation of narrowly tailored, uniform high-cost reporting requirements to 

demonstrate compliance with statutory requirements and Commission rules. 

• Reduction of paperwork in the Lifeline program by allowing eligible 

telecommunications carriers (ETCs) and state agencies to capture a qualifying 

consumer's signature electronically at sign-up, including through the use of 

interactive voice response systems and via text message in compliance with the 

requirements of the E-Sign Act and the Government Paperwork Elimination Act. 

• USAC's recent implementation of a streamlincd online interface ("My Portal") to help 

simplify the process for applicants in the rural health care telecommunications and 

Internet access programs (the "Primary Program"). USAC has also expanded its 

training programs for Primary Program applicants and conducts intensive training 

sessions in approximately 10 cities each fall. FCC participated in each applicant 

training session last year. 

• USAC conducts training around the country each year focused on providing 

assistance to service providers participating in the E-rate program. In addition, 

USAC also conducts Helping Applicants to Succeed (HATS) consultations with 

individual schools and school districts to help applicants with their participation in the 

E-rate program. 

7 
94 


82543.061

Preventing Waste, Fraud and Abuse 

The FCC is focused on eliminating waste, fraud and abuse from all program we 

administer, including USF. Based on reforms adopted over the past three years, the 

Commission has saved or will save billions of dollars for consumers who pay into these 

programs. For example, in establishing the Connect America Fund, the Commission, for 

the first time put high-cost universal support on a budget and made a commitment to 

eliminating wasteful and duplicative support. 

Through targeted efforts to eliminate waste, fraud and abuse in the Lifeline 

program, the Commission expects to save at least $200 million this year and up to $2 

billion over the next three years comparcd to the pre-reform status quo path. Additional 

examples of actions that will eliminate waste, fraud and abuse across the USF programs 

include but are not limited to: 

Lifeline: 

Development of a comprehensive subscriber database that, when launched in 2013, 

will safeguard against duplicate Lifeline subscriptions. 

Audits in a number of states to indentify and eliminate duplicative support. 

• Release of periodic reports made to each FCC Commissioner providing information 

on whether the Lifeline reforms are succeeding in meeting the first-year $200 million 

savings targct. 

• Creation of clear goals and performance metrics to measure program performance 

and effectiveness. 

High-Cost: 

• Improved accountability, including regular financial and performance reporting, from 

companies receiving support to ensure that public investments are used wisely to 

deliver intended results. 

• Benchmarks for reasonable spending by rate-of-return carriers in the high cost 

program, based on comparisons to similarly situated companies, to ensure carriers are 

not receiving excessive support. 

E-Rate: 

Strengthened rules regarding gifts between applicants and service providers. 

Rural Health Care: 

USAC site visits to participants in the Commission's Rural Health Care "Pilot 

Program," at the Commission's direction, to guard against waste, fraud, and abuse, 

through records checks to ensure compliance with Commission rules and procedures. 

Technical Errors and Malicious Activity 

Pursuant to the Commission waiver and application review process, petitioners 

are afforded an opportunity to demonstrate why application of a rule should be waived or 

a funding decision should be reversed. Factors considered include technical mistakes for 

funding denials in the decision-making process. 

8 
95 


82543.062

Question. In his written testimony, Inspector General Hunt stated that the FCC "needs to 

develop a more robust suspension and debarment regime" that extends beyond the E-Rate 

program. Please describe the current suspension and debarment procedures of the FCC 

for all of the programs funded by the Interstate TRS Fund and the Universal Service 

Fund, as well as the plans of the FCC to broaden and invigorate these procedures to 

ensure a robust oversight regime. 

Answer. Suspensions and debarments under 47 C.F.R. Section 54.8 are an important 

part of overall efforts by the Commission to combat waste, fraud, and abuse related to the 

Universal Service Fund support mechanisms. Since 2003, the Enforcement Bureau has 

taken 40 suspension and debarment actions for criminal and civil violations related to the 

Universal Service Fund, primarily the E-Rate program. Suspension and proposed 

debarment actions generally are initiated within 45 days of notification that a person has 

been convicted or found civilly liable for committing or attempting to commit a wrongful 

act against one of the Universal Service Fund programs. 

A person may contest the suspension, scope of the suspension, proposed 

debarment or scope of the debarment within 30 days of notification or publication of the 

notice in the Federal Register. In the absence of extraordinary circumstances, the 

Enforccment Bureau will notify the person of its decision to debar within 90 days of 

receiving any information submitted by the respondent. 

In addition to these procedures, the FCC has broadened and invigorated its 

oversight in other ways. For instance, with regard to Lifeline, the FCC has taken 

significant steps to cut waste, fraud and abuse, projected to save up to $2 billion over 

three years compared to the program's status quo path: 

• Adopted a savings target of $200 million in 2012 

• Eliminated duplicate subscriptions through a National Lifeline Accountability 

Database 

• Imposed verifiable eligibility standards with biannual audits 

With respect to interstate telecommunications relay services (TRS), section 

64.604 of the Commission's rules permits the TRS Fund Administrator or the 

Commission to suspend or withhold payments from TRS providers if they fail to comply 

with the Commission's mandatory minimum standards, including technical and 

functional standards. All providers of Internet-based TRS (such as video relay service 

(VRS) and IP Relay), are required to be certified by the Commission in order to receive 

compensation from the interstate TRS fund. The Commission can revoke that 

certification if, after notice and opportunity for hearing, the Commission determines that 

such certification is no longer warranted. In addition, the Commission can grant 

certifications on a conditional basis, and if it denies permanent certification, the 

conditional certification automatically terminates after 35 days 

The FCC's April 2011 Fraud Order succeeded in weeding out approximately 50 

VRS providers that had been engaged in questionable and potentially illegitimate 

practices. Several of these "white label" companies as they came to be called, were at 

9 
96 


82543.063

varying levels involved in schemes designed to pump minutes to obtain reimbursement 

from the TRS Fund for illegitimate relay calls. The result was a number of indictments, 

which in turn resulted in multiple guilty pleas and two convictions. The Commission has 

been working closely with law enforcement authorities, most notably the Department of 

Justice, to investigate and prosecute actions pertaining to illicit TRS claims. 

Specific examples of successful cost-saving Commission actions include a 

consent order with the Publix Companies revoking its certification to operate as a carrier 

- and also as a TRS provider - based on its fraudulent receipt of TRS funds. The 

Commission also entered an agreement with Purple Communications that provided for 

the recovery of more than $18 million for the TRS fund. 

The Commission has takcn several additional steps to reduce fraud, waste, abuse 

and improper payments from the TRS Fund: 

• Awarded a contract to a new TRS Fund Administrator, Rolka Loube Saltzer and 

Associates (RLSA). This contract allows for greater oversight ofTRS payments. 

• Developing an audit program with the new Administrator that will target all recipients 

ofTRS Fund money. 

• Initiated a rulemaking to reform the structure and compensation of VRS. 

The Honorable Lee Terry 

Question. Pay phones, which are deployed and serviced by all businesses, are the only 

form of telephone service for low income Americans that currently do not receive lifeline 

subsidies. Between $500 million and a billion calls a year are made over pay phones. 

Pay phone providers argue that accelerated deployment of subsidized cellphones are 

effectively putting them out of business, and that many low income Americans will lose 

access to the public tclephone network as a result. Has the commission performed an 

analysis of the impact of its policies on pay phones and whether the extinction of 

payphones serves the public interest? While circumstances have certainly changed, I note 

that Section 276 of the 96 Act does give the commission specific responsibility for 

oversight of payphones. 

Answer. The Commission addressed this issue in its January 31, 2012 Lifeline Order in 

response to a petition filed by the American Public Communications Council (APCC), 

which represents pay phone providers. APCC asked the Commission to redefine 

"qualifying low-income consumers" to include pay phone service providers. The 

Commission concluded that Lifeline support should not be redirected in this manner. The 

Order also found that APCC's request was inconsistent with our longstanding 

commitment to ensure that low-income consumers have access to phone service in their 

homes. 

Question. I am concerned about the new eligibility requirements. The FCC is expanding 

its current eligibility from "one Lifeline discount per residential address" as noted in 

paragraph 70, to one Lifeline discount per "separate ecohomic unit" where more than one 

10 
97 


82543.064

"economic unit" can reside at one physical address. Won't this significantly expand 

eligibility and hence the overall size of the Fund? I would like data on how the new 

eligibility requirements will impact the overall size of the Fund. 

Answer. Before the Commission comprehensively and unanimously reformed Lifeline 

in January of this year, some eligible telecommunications carriers (ETCs) argued and 

presumed for many years that Lifeline did not have an enforceable one-per-household 

limitation, while others argued that it was unclear whether the program permitted more 

than one benefit per household. As a result, Lifeline may have been providing funding 

for multiple benefits in many households, but the Commission does not have data on the 

extent of such practices. 

In the January 31,2012 Lifeline Order, the Commission unanimously took the 

necessary step of further defining the one-per-household limitation in the Lifeline 

program. The Commission determined that a one-per-household rule, limiting Lifeline 

support to one supported line in an economic unit, is a "reasonable way to ensure that 

voice and broadband service are available to low-income consumers while minimizing 

the contribution burden on consumers." 

The Commission deemed it an appropriate balance between ensuring that support 

is available for low-income families and that universal service funds are spent in a 

fiscally prudent way. 

The Honorable Cliff Stearns 

Question. I appreciate the responsiveness you demonstrated when Congresswoman 

Eshoo and I wrote to you back in November and asked you to provide direct access from 

the Commission's homepage to data about the agency's budget and performance. One 

element that we asked you to include, however, has not been added to the Budget and 

Performance Reports tab, and that is the number of full-time equivalents employed at the 

FCC. Other agencies, such as the Federal Trade Commission, make this information 

accessible. Will you commit to add this data to the FCC's Budget and Performance page? 

Answer. Although information about FTEs and funding levels is routinely included in 

the FCC's budget submission, which is located on that page, I have instructed the Office 

of Managing Director to place a quarterly tally ofFTEs on that page going forward. The 

actual current number of employees on staff as of this submission is 1723. 

Question. At the FCC Budget Hearing, Rep. Waxman pointed out a number of 

housekeeping efforts you have made as Chairman, for example, eliminating 190 rules. 

Congratulations on that achievement. Can you describe which, if any, of the rules that 

were eliminated were economically significant and whether their elimination has helped 

improve the climate in a way that will lead to both preserving existing jobs and creating 

new ones? 

II 
98 


82543.065

Answer. The Commission thus far has eliminated 219 obsolete regulations and modified 

others to reduce regulatory burdens and to spur economic growth. In addition to 

eliminating outdated rules such as the Fairness Doctrine, we removed rules to eliminate 

unnecessary programs, such as Link Up for non-tribal consumers, simplified and 

streamlined the E-rate program and amended rules to make USF more fiscally 

responsible. We also eliminated paper filings for tariffs and eliminated regulatory 

barriers to efficient use of spectrum for wireless backhaul, wireless broadband services 

and satellite services. In our effort to eliminate unnecessary rules, we have been mindful 

of the need to foster a climate in which companies can preserve existing jobs and create 

new ones, for example, by pursuing new spectrum opportunities. 

Below is a list of the eliminatcd rules, many of which are economically significant: 

Eliminated rules for International Fixed Public Radio Communication Services. 

Part 23 

Eliminated restrictions on mobile repeater stations for the business radio frequency 

users. 

90.247(b), 90.247(c), 90.267(e)(3) 

Eliminated restrictions on WCS servicc. 

27.53(a)(6), 27.53 (a)(9) 

Removed rules in order to simplify and streamline the E-rate program. 

54.506,54.517,54.522 

Revised the Amateur Radio Service rules to clarify the rules with respect to amateur 

service vanity call signs, eliminating licensee confusion. 

0.19 J (0), 0.392(g) 

Eliminated restrictions on Amateur Radio Service: Eliminated the automatic power 

control provision in order to reduce implementation costs, and encourage amateur 

stations to experiment with spread spectrum communications technologies. 

97.311 (d), 97.5(b)(4) 

Eliminated outdated and unnecessary reporting requirements related to international 

telecommunications traffic. 

43.53,43.61 (b), 43.61 (c), 63.23 (e) 

Rule revisions enabling all tariff filers to file tariffs electronically over the Internet. 

61.21,61.22,61.23,61.32,61.33, 61.15], 61.152, 61.153, 61.52(a) 

Eliminated Fairness Doctrine, Personal Attack & Political Editorial Rules. 

73.1910,76.209,76.1612,76.1613 

Eliminated Broadcast Flag. 

73.8000, 73.9000-9009 

12 
99 


82543.066

Eliminated Cable Programming Service Tier Complaints. 

76.950-951,76.953-957,76.960-961,76.1402,76.1605-1606 

Eliminated Part I, Subpart D Broadcast Applications & Proceedings (duplicative of rules 

in Part 73). 

I.S02-6IS 

Eliminated rules requiring Commission to review the Interstate Cost Recovery Plan (the 

TRS Fund) and the TRS Fund administrator's performance after two years (i.e., in 1995). 

Removed note that certain provisions of the rule are not effective until OMB approval. 

OMB approval received August 2000. 

64.604(c)(S)(iii)(J),64.2401 

Eliminated rule describing the Commission's former "protest" process, which does not 

apply to applications filed on or after December 12, 1960. 

1.120 

Eliminated rules pertaining to comparative hearings for broadcast license renewal 

applications. The enactment of scction 309(k) of the Communications Act eliminated 

comparative broadcast hearings for license renewal applicants. 

1.227 (b)(6), 1.229(b)(2) 

Eliminated rules pertaining to comparative hearings involving applicants for new 

commercial broadcast facilities and calling for the production of a Standardized 

Integration Statement and other information pertaining to the Commission's former 

integration standard and other broadcast comparative hearing criteria. Under §309(j), the 

Commission no longer has authority to conduct comparative hearings for new 

commercial broadcast facilities and instead awards licenses for new broadcast service 

using competitive bidding. 

1.32S(c) 

Eliminated rules requiring common carriers to file reports regarding pensions and 

benefits, and compliance with a regulation in Part 43 of the rules that the Commission has 

eliminated. 

1.788 

Eliminated rules requiring common carriers engaged in public radio service operations to 

file reports in conformance with Part 23, which the Commission has eliminated. 

1.80S 

Eliminated rules requiring that carriers engaged in domestic public radio services report 

and file documents in accordance with Part 21, which has been eliminated. 

1.811 

13 
100 


82543.067

Eliminated rules that had set forth random selection procedures for Multichannel 

Multipoint Distribution Service (MMDS). The Commission no longer has authority to 

use random selection for MMDS or its successor service, Broadband Radio Service. 

1.821, 1.822, 1.824 

Eliminated duplicative rule (Anti Drug Abuse Certification). 

1.2003 

Eliminated rules implementing PUHCA 1935, which was repealed and replaced with 

Public Utility Holding Company Act of2005. 

1.5000, 1.5000, 1.5002, 1.5003, 1.5004, 1.5005, 1.5006, 1.5007 

Eliminated provisions regarding complaints filed by television stations alleging that a 

satell ite carrier has retransmitted their signals in violation of Section 325(b)( I) of the 

Communications Act. No new complaints may be filed after December 31, 200 I, and no 

complaints filed on or before that date are pending. 

1.6000,1.6001,1.6002,1.6003,1.6004,1.6005,1.6006, 1.6007, \.6008, 1.6009, 1.6010, 

1.6011,1.6012 

Eliminated backup power requircments for communications providers. This rule never 

took effect. 

12.2 

Eliminated rule providing that UHF television translators on Channels 70 to 83 must 

operate on a secondary basis to land mobile operations in the 800 MHz band and will not 

be protected from such operations. There are no UHF television translators operating on 

Channels 70 to 83, and the Commission has eliminated the TV allocation from these 

channels. 

90.621 (d) 

Eliminated allocation of specified channcls for Basic Exchange Telecommunication 

Radio Service (BETRS). FCC removed the allocation in 2005. 

90.621 (h) 

Eliminated rule provisions that provided a framework for the relocation of incumbent 

site-based licensees in the upper 200 channels of the 800 MHz Band by incoming 

geographically based (EA) licensees. These provisions were a component of the 1995 

reconfiguration of the 800 MHz band from site-based to geographic-based service that 

has since been completed. 

90.699 (a), (b),(c), (e), (t) 

Question. After paying close attention to the FCC's process this Congress, I am 

concerned that the elimination of old rules is often offset by the imposition of new rules. 

How many new proceedings have been opened during your tenure and how many new 

rules have resulted from those proceedings? 

14 
101 


82543.068

Answer. During my tenure, the Commission has initiated proceedings in response to 

new laws passed by Congress, such as the CV AA, which has expanded access to 21 sl 

century technology for persons with disabilities. We also initiated proceedings to update 

programs that were no longer functioning efficiently, such as the Universal Service Fund 

and the Video Relay Service fund, resulting in savings of hundreds of millions of dollars 

annually. Accordingly, the Commission published 99 new rules in the Federal Register 

from October I, 2009 to April 30, 2012, including 34 new rules required by statutory 

provisions such as the CVAA, and 37 new rules as part of the USF reform effort. 

Consistent with administrative law practice, the Commission publishes all new 

rules in the Federal Register, which publishes a quarterly update that is publicly available 

online. 

Question. I think the FCC would save significant amount of resources if it focused on 

actual, rather than theoretical, problems. For example, I understand you appear to be 

replacing the 2007 "enhanced disclosure" rules with new disclosure obligations that will 

require TV stations to post their public inspection files, including political advertising 

records, online. This could cost an average of $ J 20,000 -J 40,000 per station per year, 

ultimately diverting resources for local programming. And it appears you are working to 

wrap up this proceeding as soon as possible. So, Mr. Chairman, what's the rush here? 

Wouldn't it be wiser if we got a better idea of what this is really going to cost, what the 

competitive implications are, and how burdens me this will be for broadcasters? 

Answer. On April 27, the Commission adopted an order to move broadcasters' public 

files from paper to online. The Commission voted unanimously with respect to the nonpolitical component of the public file, including hosting those components in an online 

database on the Commission's website. 

The final order provided an extensive analysis of the cost and benefits of 

converting from paper to online files, based on the substantial record developed in the 

proceeding. The analysis shows substantial long-term cost savings from the conversion. 

As with all paper-to-paperless conversions, the broadcasters will experience some onetime upfront costs. Based on the record, the Commission has estimated these costs at an 

average of $80 -- $400 per station, spread over a six month period. 

After the conversion, however, broadcasters will realize cost savings and 

efficiencies. Moving the file online will minimize disruptions in the daily operation of a 

station, and reduce the burdens placed on station staff that currently field phone calls and 

chaperone in-person requests to inspect files. In order to assist smaller stations in 

preparing for any additional costs, the conversion to electronic files will be completed in 

phases. Stations in the top 50 DMAs, approximately 200 stations out of approximately 

2000 stations nationwide, must post new public file materials online when the rules 

become effective, with the rest of the industry complying by July 2014. 

In 2007 when the Commission last considered this issue, broadcasters claimed 

that the greatest cost would be for them to individually host the information on their 

15 
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82543.069

websites. To reduce that cost, the Commission will host the information on the FCC's 

website to save the broadcasters this potential cost. 

Question. Earlier this week, the FCC released a public notice about removing 

LightSquared's authority to build a terrestrial network within 24 hours of receiving a 

recommendation from NTIA. Have you examined the basis for the NTIA 

recommendation 'independently? How could you have possibly acted so quickly, before 

even asking for any sort of input on the NTIA letter? 

Answcr. The Public Notice you refer to seeks public input on the NTIA 

recommendation, as well as on other related issues. Commission staff is currently 

rcvicwing the record developed in response to that Public Notice. 

The Honorablc Anna Eshoo 

Qncstioll. How do your programmatic initiatives on IT benefit both industry and 

consumers? 

Answer. The Commission's programmatic IT initiatives are designed to save costs over 

the long term and to improve thc Commission's ability to serve the public and industry. 

For cxamplc, as detailed in the charts below, we expect to reap significant cost saving 

efficiencies from a number of IT improvements while improving performance. The 

Agile Cloud Provisioning and Management initiative will save $1.45 million annually 

and improve transparency, promoting greater access for consumer and industry. The 

Data Center consolidation follows OMB directives on consolidation and virtualization 

and will eliminate redundancies between Gettysburg and DC sites, while ultimately 

saving $1.1 million annually . 

. Data 

Energy Cost Savings 

Staff Productivity 

Operational Efficiencies 

16 

Annual Savings 

$ 

$ 

$ 

189,433 

459,200 

515,200 

$ 1,163,833 
103 


82543.070

Sec~rijy: 

Energy Cost Savings 

Staff Productivity 

Operational Efficiencies 

$ 

$ 

$ 

$ 

The Honorable Henry Waxman 

236,791 

574,000 

644,000 

1,454,791 

Question. Under your chairmanship, the FCC has eliminated 2 I 0 obsolete regulations 

and identified 25 data collections for elimination. How have the collective experiences 

of the agency's FTEs played a role in making the Commission more effIcient? Explain 

how any further reduction of the number of FTEs \vould impaet the Commission's 

ability to carry oul its responsibilities'? 

Answer. Lowering expected personnel costs would result in fewer employees and 

reduced levels of service to the public, with adverse consequences for the Commission's 

ongoing efforts to auction spectrum, reform the Universal Service Fund, protect 

consumers, enforce the Communications Act and the Commission's rules, and proteet 

public safety. 

The FCC's engineering operations are particularly essential to unleashing 

spectrum and facilitating product development activities that spur economic growth. For 

instance, last year a senior Apple executive advocated additional staftlng for the FCC's 

OET. Apple's executivc wrote, "lfOET can complete its work eftlciently, companies 

building innovative devices can get those new products to customers quickly. But if 

applications for innovative devices are delayed because OET staiTis overtaxed, 

consumers are the losers." 

Moreover, the Middle Class Tax Relief and Job Creation Act of 2012 places 

additional human resource demands on the Commission, and any reductions at this 

juncture would have a negative impact on important congressionally mandated tasks. 

The Honorable John Dingeli 

Question. Do you believe that eligibility rules for bidders in voluntary incentive auctions 

of spectrum \vill increase or decrease revenues gotten from such auctions by the 

Commission'? Please explain your response. 

17 
104 


82543.071

Answer. The incentive auction authority provided to the FCC by Congress will lead to 

substantial economic value beyond the one-time revenues raised through the auction. 

Under Title III of the Communications Act, there are a number of factors the 

Commission must consider as it makes spectrum available through auctions, including 

factors related to bidder eligibility. As we address these and other important issues 

involved in the unprecedented task of developing incentive auctions, please be assured 

that our process will be open, inclusive, fact-based, and guided by economics and 

engineering. 

Question. Has the Commission issued guidance to device manufacturers and carriers 

about how to comply with regulations promulgated pursuant to the 2 I st Centry 

Communications and Video Accessibility Act (Pub. L. No. I I I -260)? If so, please submit 

a copy of such guidance with your response. If not when will the Commission issue such 

guidance? 

Answer. On March 15,2012, the FCC released the Small Entity Compliance Guide, 

prepared in accordance with the requirements of Section 212 of the Small Business 

Regulatory Enforcement Fairness Act of 1996. The Guide is intended to help small 

entities - small businesses, small organizations (non-profits), and small governmental 

jurisdictions - comply with the new rules adopted in this matter. The Commission's 

Consumer Bureau also is working with the business community to provide outreach 

programs and additional assistance. 

The Small Entity Compliance Guide is available on the FCC's website: 

http://www.fcc.gov/document/twenty-first-century-communications-and-videoaccessibility-act-20 I 0 

The Honorable Frank Pallone 

Question. Can you talk briefly about the work the FCC is doing in the health space, for 

example telemedicine as well as the health care related initiatives in the National 

Broadband Plan, and what progress the FCC has made on growing this space? 

Question. Can you talk briefly about the work the FCC is doing in the health space, for 

example telemedicine as well as the health care related initiatives in the National 

Broadband Plan, and what progress the FCC has made on growing this space? 

Answer. The National Broadband Plan identified health care as an area of 

enormous promise for broadband-enabled innovation. The FCC is working to help 

implement the Plan's broadband and health recommendations, many of which relate to 

other federal agencies. The FCC is particularly focused on promoting connectivity, 

18 
105 


82543.072

ensuring that wireless spectrum is optimally allocated and managed, and facilitating the 

development of wireless medical devices. 

To help accomplish these tasks, the FCC entered into an unprecedented 

partnership with the Food and Drug Administration to ensure that communicationsrelated medical innovations can swiftly and safely be brought to market and also easing 

testing restrictions on anchor institutions like universities and research organizations. 

And late last year, the Commission adopted an order to dedicate spectrum for Medical 

Micopower Networks, which have the potential - literally - to enable paraplegics to stand. 

We have taken significant steps to spur broadband connectivity for rural health 

care providers through reforms to the Universal Service Fund (US F). In establishing the 

Connect America Fund, the Commission established a specific goal to ensure universal 

availability of modern networks capable of providing voice and broadband service to 

homes, businesses, and community anchor institutions, including medical and healthcare 

providers. The Commission has made clear that it expects recipients of USF support to 

engage with community anchor institutions in the network planning stages with respect to 

the deployment ofCAF-supported networks, and required carriers to identify and report 

on the community anchor institutions that gain access to broadband as a result of CAF 

support. These requirements build on the Commission's rural healthcare program, 

including several pilot projects that have deployed state of the art telemedicine 

capabilities, creating new opportunities and cost savings for consumers and health care 

providers alike. 

On May 25, 2012, the Commission took the next step forward on our health 

communication agenda with new rules to allow greater use of spectrum for Medical Body 

Area Network, or MBAN, devices. This technology has tremendous potential to untether 

patients from tubes and wires, and improve the quality of health care and ensure better 

outcomes for patients. These rules will help maximize the potential ofMBAN 

technology by providing access to relatively quiet spectrum where this technology can 

develop and flourish. 

With this order, the U.S. becomes the first country in the world to dedicate 

spectrum for Medical Body Area Networks in hospitals, clinics, doctors' offices, as well 

as in homes. Previously, this spectrum was used almost exclusively by commercial test 

pilots. This order represents a multi-industry effort to foster innovation in this spectrum 

band by allowing distinct but compatible users to share airwaves. These rules are a great 

example of how parties working together and with the FCC can achieve win-win 

outcomes for various industries and for the America people. 

Question. Next, would you be able to tell me whether your agency has any current 

working groups or Task Forces set up to work with the health agencies, specifically those 

under HHS? 

Answer. The FCC collaborates with HHS, FDA, NIH and other health agencies on 

communications-related health issues, and that coordination is increasingly vital. 

Collaboration between the FCC and these agencies can help unleash innovations and 

19 
106 


82543.073

breakthroughs in how care is delivered - from improvements in remote diagnostics and 

treatment, to new devices that can save lives while helping contain rising health care 

costs. The FCC also is an active member of "FedTel," a new cross-federal workgroup 

dedicated to coordination and promotion oftelehealth across all sectors of the federal 

government. 

As part of the Rural Health rulemaking, the FCC is currently reviewing the 

implementation and use of regional health broadband networks that are part of the rural 

health care "pilot" program and coordinating with HHS staff to ensure program reforms 

are aligned with broader health care policy objectives. 

As I noted in the previous question, the FCC also entered into an unprecedented 

partnership with the Food and Drug Administration to help ensure that communicationsrelated medical innovations can swiftly and safely be brought to market. The MOU we 

signed explicitly recognized the significant benefits of providing more certainty and 

clarity to the innovators and investors who will develop and launch the next generation of 

health-related communications technologies. I look forward to continuing our work with 

the FDA and other health agencies to achieve this goal. 

20 
107 


82543.074

OFFICE OF INSPECTOR GENERAL 

Washington, D.C. 20554 

Apri119,2012 

The Honorable Greg Walden 

Chainnan 

Subcommittee on Communications and Technology 

Committee on Energy and Commerce 

U.S. House of Representatives 

2125 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Congressman Walden: 

This is in response to your letter dated AprilS, 2012, in which you requested additional 

infonnation related to my testimony at the hearing entitled "The Budget and Spending of 

the Federal Communications Commission (FCC)." 

The Honorable Greg Walden 

1. Your testimony highlighted the importance of oversight in curtailing waste, 

fraud, and abuse in the Universal Service Fund and the Interstate 

Telecommunications Relay Service Fund. Your testimony also highlighted 

your office's lack of resources. Please summarize your office's financial and 

staffing situation. 

Office ofInspector General (OIG. or Office) Response 

The enacted Fiscal Year (FY) 2012 budget for the I G office is $9.75 million in 

appropriated funds. In addition to the appropriated funds, there is available to my Office 

$805 thousand in FCC auctions funds and $233 thousand in Credit Reform funds. 

Further, we have budgeted to use $ 3.4 million of Universal Service Fund (US F) monies 

in FY 2012. The USF monies were provided to my Office for use in USF oversight in 

FY 2008. The monies are "no year" funds to be used at our discretion, and at the end of 

FY 2012 we will have $7.95 of these monies remaining for use in future years, until 
108 


82543.075

expended. Note these funds can only be expended to support USF oversight and there is 

currently no replacement for these funds being contemplated when these funds run out. 

Therefore, 010 has budgeted funds of$14.2 million at the beginning of FY 2012. These 

funds support 26.5 regular employees (full-time equivalents, or FTEs), 13 term 

employees (NTEs) and one student intern, as well as contracted services, travel, training 

and other miscellaneous expenses. The staffing by position is summarized in the table 

below: 

Position FTE NTE/lntern Total 

Administrative 3 3 6 

Auditors 11 3 141 

Attorneys 8.5 8 16.5 

Other (includes IG) 4 - 4 

Total 26.5 14 40.5 

The FCC has recently authorized OIG to hire six new FTEs. We intend to use these slots 

to hire two auditors, two criminal investigators, a computer forensics examiner and an 

administrative person. Earlier in the year the FCC provided two other FTE slots to OIG, 

and we are in progress on filling those slots with two auditors. These staffing increases 

will be of great assistance to OIG in meeting our mission; however, they fall far short of 

the 19 new FTEs we have requested in our FY 2012 and FY 2013 budget requests. 

2. If your office were to increase its budget by 50 percent, bow many additional 

staff would tbat support? How would you use that additional funding and 

those staff to oversee the Universal Service Fund and the Interstate 

Telecommunications Relay Service Fund? 

OIG Response 

An overall 50 percent budget increase applied entirely to personnel and other directly 

related costs would allow us to add approximately 40 full-time equivalent (FTE) staff. 

This new staff would be comprised of audit, investigative and support personnel. 

However, it is likely that we would also use some of the increased budget in the area of 

contracted audit services. We have found that contracting for audit services is a very 

good way to leverage funding into increased oversight. In any event managing and 

implementing a budget increase of nearly $5 million (which would be the equivalent 

effect of a 50 percent increase) would require a significant increase in administrative and 

direct support. 

Additional audit and investigative staff would contribute significantly to expanded 

oversight of both USF and the TRS fund. Audits and other oversight projects have been 

hampered by staff shortages and critical investigations are being conducted by 

investigative attorneys working under term appointments. These investigations (35 

active at the present time), all of which have the potential for funding recoveries and 

criminal charges, will be a challenging workload if we are unable to replace our current 
109 


82543.076

temporary staff with permanent personnel. The USF programs account for over $16B 

annually (including contributors) and the TRS program accounts for several hundred 

million per year. Between efforts to reform and expand the USF mission and the 

occurrence offraud in the TRS program, the need for additional oversight cannot be 

overstated. 

3. The oversight of the Universal Service Fund is an important part of the 

Inspector General's work. Ratepayers deserve to know that their funds are 

being spent efficiently aod that your office's oversight prevents waste, fraud, 

and abuse. Although current rules may serve those ends, that bureaucratic 

process means that applicant must navigate reams of paperwork if they are 

to qualify for USF funding. For thousands of schools, libraries, healthcare 

providers, and rural carriers, this process creates opportunities for honest or 

technical mistakes. How does your office differ in its treatment of honest or 

technical mistakes and malicious actions? 

OIG Response 

During audits of beneficiaries or program participants, we look for compliance with laws, 

rules, and regulations and an effective system of internal controls. When discrepancies 

and weaknesses are found, it frequently does not rise to the level of "malicious actions." 

Findings rising to this level are referred to DIG Investigations for further evaluation. 

Honest and technical mistakes are routinely disclosed in audit reports. It is important and 

nece~sary to determine the reason for the mistake. If the mistake represents a weakness 

in the auditee's system of internal controls, recommendations are made to improve those 

controls to prevent similar errors in the future. Perhaps the mistake is due to an unclear 

form or instruction if so, a recommendation is made to clarify the particular form or 

instruction contributing to the error. Professional judgment is used to determine the 

appropriate recommendation when an error is found. 

From the investigative perspective, DIG's pursuit ofUSF abuse cases focuses on the facts 

and the law associated with civil and criminal fraud. For example, under the federal 

civil False Claims Act, liability requires the knowing submission of a false or fraudulent 

claim. Knowing is defined to include actual knowledge of the fraud or falsity, deliberate 

ignorance of the truth or falsity of the information, or reckless disregard of the truth or 

falsity of the information. OlG applies these tests to the facts and where there is 

substantive evidence of a civil False Claim, refers the matter to the Department of Justice 

or the appropriate U.S. Attorney. Where the facts provide reasonable grounds to believe 

there has been a violation of Federal criminal law, the Inspector General Act of 1978, as 

amended, directs us to report the apparent violation to the Attorney General. 

Tbe Honorable Anna Esbon 

1. Your testimony inditates that you will not have "adequate resourtes to 

condud the number of beneficiary or contributor audits necessary to have an 

impatt on the (USF] programs:' Can you describe how this will impact your 

offite's ability to fulfill its oversight responsibilities? 
110 


82543.077

orG Response 

USF oversight is a growing challenge as program reforms and expanded missions are 

contemplated. Including fund contributions, the program now represents an annual 

budget exceeding $16 billion. Our audit effort in the USF program has been constrained 

in the past few years, by both a shortage in staff and the loss of qualified staff. The USF 

funds enabled us to expand our audit coverage of the USF; however these funds are 

finite. We need permanent funding to hire staff and contract for audit services to 

continue to expand our coverage ofthe USF. 

In addition, our on-going active USF investigations - 11 Low Income, 16 E-rate and 8 

High Cost - involve potential criminal charges and require the services of seasoned 

investigators. However, our investigations are being conducted by investigative attorneys 

working under term appointments. Several of the current cases are before grand juries, 

several are qui tams, and most involve DOJ/AUSA trial attorneys. Effectively seeing 

these investigations to successful conclusions will be a challenging workload if we are 

unable to replace our current temporary staff with permanent personnel. 

In our TRS oversight efforts, both audit and investigations indicate a continuing need for 

more effort, including such issues as: 

• The last three rounds of audits of VRS providers' rate filing information show no 

improvement in compliance with those reporting requirements. 

• No audits of the providers are being performed by the Fund Administrator. 

• There is continuing fraud and abuse ofthe TRS program. 

• There does appear to be a deterrent effect for not engaging in criminal conduct as 

long as providers understand that the IG's office continues to audit. 

At present, we are only able to devote one FTE to manage contracted auditors in 

performing audits ofTRS. We plan to add one more FTE to oversight of the TRS before 

the end of this fiscal year. However, in light of the problems we have seen with this 

program, our oversight effort for the TRS should be in our opinion much more robust. 

I would be happy to discuss these ma~ers ~rt er 

UL.Hunt 

Inspector General 

cc: 

The Honorable Anna Eshoo, Ranking Member 

Subcommittee on Communications and Technology 
111 


82543.078

FRED UPTON, MICHIGAN 

CHAIRMAN 

HENRY A. WAXMAN, CALIFORNIA 

RANKING MEMBER 

Mr. Scott Barash 

CEO 

ONE HUNDRED TWELFTH CONGRESS 

~ongrt5'5' of tUt mntttb ~tatt5' 

J!}ou£ie of )L\epre£ientatibe£i 

COMMITTEE ON ENERGY AND COMMERCE 

2125 RAYBURN HOUSE OFFICE BUILDING 

WASHINGTON, DC 20515-tl115 

Majority (202) 225-2927 

Minority (202) 225-3B41 

April 5, 2012 

Universal Service Administrative Company 

2000 L Street, N.W., Suite 200 

Washington, D.C. 20036 

Dear Mr. Barash, 

Thank you for appearing before the Subcommittee on Communications and Technology on 

February 16, 2012, to testiJY at the hearing entitled "The Budget and Spending ofthe Federal 

Communications Commission." 

Pursuant to the Rules of the Committee on Energy and Commerce, the hearing record remains 

open for 10 business days to permit Members to submit additional questions to witnesses, which are 

attached. The format of your responses to these questions should be as follows: (1) the name of the 

Member whose question you are addressing, (2) the complete text of the question you are addressing in 

bold, and then (3) your answer to that question in plain text. 

To facilitate the printing of the hearing record, please e-mail your responses in Word or PDF 

format, to katie.novaria@mail.house.gov by the close of business on Thursday, April 19, 2012. 

Thank you again for your time and effort preparing and delivering testimony before the 

Subcommittee. 

Sincerely, 

~W~ Greg Walden 

Chairman 

Subcommittee on Communications and Technology 

cc: The Honorable Anna Eshoo, Ranking Member, 

Subcommittee on Communications and Techn~logy 

Attachment 
112 


82543.079

USAC Responses to Questious for the Record 

Energy and Commerce Committee 

Subcommittee on Communications and Technology 

United States Honse of Representatives 

"The Budget and Spending of the Federal Communications Commission" 

February 16, 2012 

I. Representative Greg Walden. The E-Rate Program distributes about $2.25 billion each 

year to schools and libraries, and yet USAC reports that it has almost $5 billiou iu cash 

in the E-Rate account at the end of 2011. In contrast, the larger high-cost fund had only 

about $500 million. Please detail how that $5 billion in the E-Rate account is allocated. 

How much is unobligated? How much is obligated for the current funding year? How 

much is obligated for earlier funding years? 

As of March 31,2012, the E-Rate Program has approximately $4.9 billion in cash and U.S. 

Treasury securities. Also as of March 31, 2012, $2.9 billion of this amount is currently 

obligated, of which $1.6 billion is obligated through funding commitments for the current 

2011 funding year. Approximately $2 billion of the $4.9 billion amount is unobligated. 

E-Rate Program applicants' requests for funding that have not yet resulted in funding 

commitments total approximately $1.7 billion, mostly from the 2011 fund year. Support for 

these requests will come from this $2 billion of unobligated funding, leaving a total of 

approximately $300 million unobligated of the $4.9 billion amount. This $300 million of 

unobligated funds is considered eligible for rollover to subsequent E-Rate Program funding 

years pursuant to 47 C.F.R. § 54.507. The Federal Communications Commission determines 

the amount of funds eligible for rollover each year. 

When considering whether to roll over all or part of these funds, the FCC determines the 

amount of cash the E-Rate Program must have to cover near-term and future obligations, 

granted appeals, and requests for payments for previous years' commitments which have 

been deobligated. 

2. Representative Greg Walden. For obligated funding from funding years 2010 and earlier, 

how much is awaiting action by USAC before it can be paid or released? How much is 

awaiting action by the applicant? By the FCC? By a third party? How many applicants 

fall into each of these categories for each of the funding years? 

The table below shows obligated funding from funding years 2010 and earlier broken out 

into categories defined by which party must take an action to trigger a payment: USAC, 

applicants, or the FCC. In no cases was a third party responsible for taking actions to trigger 

payments. 

101'6 
113 


82543.080

In the category of funding awaiting action by applicants, please note that applicants receiving 

invoice deadline extensions can and do invoice USAC for projects that might have been 

delayed for various reasons. The money left over from these unspent funding commitments is 

rolled forward at FCC direction into future funding years to provide support for later funding 

requests. It is also important to note that in many cases, applicants do not invoice USAC for 

the entire amount of the funding commitment they receive. Applicants often decide to install 

only part of the project for which they receive support, or in some instances, they do not even 

begin the project. In other cases, they substitute items that end up costing less than what they 

originally expected, also reducing the amount of support required below that of the original 

funding commitment. 

USAC Applicants FCC 

Fund Number Number Number 

of Amount of Amount of Amount Year applicants applicants applicants 

1998 0 $0 0 $0 0 $0 

1999 0 0 0 0 0 0 

2000 1 120 0 0 0 0 

2001 0 0 1 20,329,126 0 0 

2002 4 3,170,757 0 0 2 4,226,785 

2003 2 605,463 0 0 2 32,832,965 

2004 7 6,724,196 1 4,496,235 1 3,390,591 

2005 17 2,358,133 6 1,867,270 5 6,588,633 

2006 25 4,907,872 9 12,786,292 6 3,119,739 

2007 42 29,140,048 5 3,044,725 4 11,266,952 

2008 50 29,786,129 1 21,960 4 52,385,723 

2009 66 53,415,023 6,414 213,099,360 19 96,049,670 

2010 225 146,229,307 7,782 623,486,124 32 144,996,813 

Total 439 $276,337,048 14,219 $879,131,092 75 $354,857,871 

3. Representative Greg Walden. Please describe USAC's procedures for obligating or 

reserving E-Rate funding. For example, does USAC reserve funding for each 

application submitted? Does USAC ever commit to funding an application before 

USAC has collected the funds necessary to pay that commitment? When does USAC 

release reserved funding? What happens to funds USAC has released from its reserves? 

USAC obligates/commits funding following an application review for compliance with FCC 

E-Rate Program rules. E-Rate Program funding commitments are a component of total 

universal service program funding requirements (also including funding requirements for the 

universal service High Cost, Low Income and Rural Health Care Programs) used hy the FCC 

in determining the universal service quarterly contribution amount that USAC collects from 

telecommunications companies required to contribute to universal service pursuant to 47 

U.S.C. § 254 and 47 C.F.R. § 54.706. 

2of6 
114 


82543.081

Although universal service funds are exempt through calendar year 2013 from the AntiDeficiency Act, USAC does not issue a funding decision until USAC has collected the 

appropriate funds for that decision. With the money collected, USAC sends a Funding 

Commitment Decision Letter to the applicant and service provider, informing them of the 

funding decision and providing notice that they can begin to invoice USAC for services 

rendered to the applicant by service providers selected by the applicant through a competitive 

bidding process. 

USAC decommits previously obligated (reserved) funds, ultimately not used by the 

applicants upon FCC directive. These decommitted funds comprise the rollover funds, which 

are used to increase the dollars available to fund applications in current and future funding 

years. 

4. Representative Greg Walden. About half of USAC's budget is spent on administering the 

E-Rate Program. Why are administrative eosts so high for that program? What is 

USAC doing to reduce those costs? 

The E-Rate Program costs more to administer than other universal service programs because 

of the large number of schools, libraries and service providers participating in the program. 

Annually, applicants submit over 40,000 applications for E-Rate Program benefits. Each 

application must be processed and reviewed for support, requiring individual review to check 

compliance with FCC E-Rate Program rules. These applications represent requests for 

funding eventually reaching tens of thousands of individual school or library beneficiaries. 

By comparison, approximately 2,000 companies participate in the High Cost and Low 

Income Programs, and just over 3,000 health care providers participate in the Rural Health 

Care Program. 

Furthermore, the E-Rate program operates more as a retail operation, compared to the 

wholesale operations of the High Cost and Low Income Programs. The 40,000 applications 

for support come accompanied by nearly 80,000 contacts with applicants and service 

providers seeking help with or information about their participation in the program. In 

addition, in 20 II, we received over 150,000 invoices from more than 4,000 service 

providers, each of which had to be processed and reviewed for compliance with E-Rate 

Program rules. 

USAC works with the FCC on an ongoing basis to identify and implement opportunities for 

cost reduction through streamlining the application process, including using more online 

functions, and reducing contractor costs by in-sourcing various functions. In 2011, for 

example, USAC worked with the FCC to identify $4 million in reductions to costs associated 

with reviewing applications. 

5. Representative Greg Walden. Please describe the work USAC has done and is planning to 

do to implement the FCC's recent reform of the low-income program. 

30f6 
115 


82543.082

USAC is working closely with the Wireline Competition Bureau to implement the 2012 

Lifeline and Link Up Reform and Modernization Order (FCC 12-11), which includes a 

number of deliverables to be completed by USAC. To date, USAC has met and expects to 

continue to meet each del iverable date. 

Working with the FCC, USAC has created a new form to accommodate changes to the Low 

Income Program mandated in the FCC order, such as the $9.25 flat rate per subscriber per 

month for Lifeline, eliminating Link Up except on Tribal lands where an Eligible 

Telecommunications Carrier (ETC) is receiving High Cost Support, and phasing out Toll 

Limitation Support with a $3.00 per subscriber cap for 2012, $2.00 cap per subscriber for 

2013, and no support for 2014 and thereafter. In addition, USAC has made the system 

modifications required to begin paying Lifeline support on actual support claims in 3rd 

Quarter 2012 rather than the current method of including a projected payment in each 

disbursement calcu lation. 

To educate beneficiaries on the changes to the Low Income Program, USAC has developed 

web and training materials. For example, USAC has developed print and web materials, 

including an interactive website to educate consumers about the Low Income Program's oneline-per-household rule. In addition, USAC has developed training material for 

telecommunications carriers on the types of documentation that may be presented by 

consumers to demonstrate program and income-based eligibility. 

As required by the FCC order, USAC is preparing to conduct a competitive procurement for 

contractor assistance in developing the National Lifeline Accountability Database. 

6. Representative Greg Walden. Your annual report shows that more than half of all USF 

contributors were delinquent in 2011, and yet less than half of delinquent contributors 

were assessed any late fees or penalties. Why is that? What steps is USAC planning to 

take this year to reduce the number of delinquent contributors? 

The number of delinquent universal service contributors includes companies that are 

currently delinquent in their monthly contribution obligations as well as those that have older 

delinquent amounts. USAC pursues collection of older delinquent amounts through referring 

delinquent debt to the FCC (which refers the debt to the U.S. Treasury) under the Debt 

Collection Improvement Act (31 U .S.c. § 3716), through an FCC-approved installment 

payment plan, or in cases where the company has filed for bankruptcy, through the 

bankruptcy court. The FCC recently directed USAC to, as of May 1,2012, begin referring 

companies that are delinquent in their universal service contributions directly to the U.S. 

Treasury for collection. 

When a delinquency involves a company that has gone out of business, USAC continues to 

show a delinquent amount for that company, whether due to an open bankruptcy case or 

continued attempts to collect by the U.S. Treasury. 

40f6 
116 


82543.083

When a company is more than 30 days latc in paying its universal service contribution 

invoice, USAC puts the company under "Red Light" status. In these instances, USAC denies 

applications for support and/or stops paying out previously authorized support until the 

delinquency is cured. When the debt is over 30 days late, FCC rules require USAC to assess 

interest on the unpaid debt. USAC issues collection letters monthly to remind companies of 

the amount that is outstanding. USAC also reaches out to companies that have habitually 

paid late to work with them on installment payment plans. 

7. Representative Greg Walden. USAC's mission is to administer the Universal Service 

Fund. Ratepayers deserve to know that their funds are being spent efficiently and that 

Commission rules minimize the potential for waste, fraud, and abuse. Although current 

rules may serve these ends, that bureaucratic process means that applicants must 

navigate reams of paperwork to qualify for USF funding. For thousands of schools, 

libraries, healthcare providers, and rural carriers, the administrative burden can be 

daunting. What steps has USAC taken to identify needless paperwork and strike red 

tape from the funding process? Conversely, what steps has USAC taken to prevent 

waste, fraud, and abuse? What does USAC do to assist applicants that have made 

honest or tcchnical mistakes? And what docs USAC do if it identifies malicious actions? 

USAC has worked since its inception in 1997 to make a beneficiary's experience with 

universal service programs as efficient as possible, while also ensuring that our review 

process has the tools necessary to prevent and detect waste, fraud, and abuse. (Universal 

service terminology considers an applicant to be an entity that has applied for benefits from a 

universal service program and a beneficiary to be an applicant that has received benefits.) To 

ease the burdens of providing information, USAC has developed online versions of forms for 

applicants and service providers in all four programs to use in requesting support. In the ERate Program, for example, over 98% of applications are submitted electronically, up from 

none in 1998. USAC continues to enhance the functionality of these systems, including the 

recent launch of a new Rural Health Care Program applicant portal. USAC makes all 

payments electronically to applicants and service providers, whieh provides for greater 

accuracy, speed, and tracking in payments. 

USAC works to prevent waste, fraud, and abuse in many ways. In the last five years, USAC 

has performed over 1,800 audits of universal service contributors and beneficiaries and 

service providers in all four programs. USAC conducts extensive administrative reviews of 

requests for support that are designed to identify and prevent improper payments (i.e., 

payments not in compliance with universal service program rules). A whistleblower hotline 

allows people to provide USAC with information in any area of universal service activities 

that might indicate illegal or improper activities. When USAC is informed that illegal 

conduct might have occurred, USAC refer matters to the FCC Office of Inspector General or 

the FCC Enforcement Bureau for investigation. 

50f6 
117 

Æ 


82543.084

Understanding that program requirements can be challenging, USAC conducts extensive 

outreach activities. In 2011, over 3,500 representatives of program applicants, beneficiaries, 

service providers and universal service contributors participated in group training activities 

held around the country or online via webinars; about 1,800 received individualized 

assistance; and over 100,000 received electronic newsletters or other communications. In 

addition, in 2011 USAC's customer service team handled over 162,000 inquiries. Much of 

this outreach is directed towards program applicants, beneficiaries, and service providers 

who have made correctable mistakes, missed deadlines, or seem to be at risk for other 

program difficulties. In the E-Rate Program, for example, the FCC has identified numerous 

errors as "ministerial and clerical" and therefore fix-able after an application has been 

submitted. Outreach in these areas has prevented interruptions or problems in funding for 

many applicants and significantly reduced the number of applicant and beneficiary appeals. 

8. Representative Anna Eshoo. In your testimony, you noted that USAC launched a 

"Payment Quality Assurance Program" to determine the improper payment rate for 

each of the USF programs. How does USAC use this information to improve operations 

and distribution mechanisms? 

We analyze the results of Payment Quality Assurance Program assessments to determine 

common findings and causes for program participants' inadvertent failure to comply with 

program rules as well as intentional waste, fraud, and abuse. USAC uses that information as 

a basis for developing training curriculums and other outreach communications materials, 

and when necessary recovering payments that the program participant would not have 

received if it had complied with program rules. 

9. Representative Anna Eshoo. Can you describe how USAC works with the FCC's 

Inspector General to implement auditing measures? 

USAC works with the FCC Office of Inspector General (OIG) by discussing program 

beneficiaries and contributors who might require an audit as identified by our internal review 

procedures and referrals made through our whistleblower hotline or by USAC program 

management. Also, the USAC Internal Audit Division meets regularly with FCC OIG staff 

to discuss ongoing and planned audits. Weekly, the FCC OIG receives from USAC a status 

report of ongoing audit efforts. 

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