U.S. GOVERNMENT PRINTING OFFICE

61–037CC WASHINGTON : 2000

FEDERAL COMMUNICATIONS COMMISSION

REFORM FOR THE NEW MILLENNIUM

HEARING

BEFORE THE

SUBCOMMITTEE ON TELECOMMUNICATIONS,

TRADE, AND CONSUMER PROTECTION

OF THE

COMMITTEE ON COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

OCTOBER 26, 1999

Serial No. 106–85

Printed for the use of the Committee on Commerce

(

COMMITTEE ON COMMERCE

TOM BLILEY, Virginia, Chairman

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

MICHAEL G. OXLEY, Ohio

MICHAEL BILIRAKIS, Florida

JOE BARTON, Texas

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

Vice Chairman

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

RICHARD BURR, North Carolina

BRIAN P. BILBRAY, California

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

TOM A. COBURN, Oklahoma

RICK LAZIO, New York

BARBARA CUBIN, Wyoming

JAMES E. ROGAN, California

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

ED BRYANT, Tennessee

ROBERT L. EHRLICH, Jr., Maryland

JOHN D. DINGELL, Michigan

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RALPH M. HALL, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

RON KLINK, Pennsylvania

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

THOMAS C. SAWYER, Ohio

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

THOMAS M. BARRETT, Wisconsin

BILL LUTHER, Minnesota

LOIS CAPPS, California

JAMES E. DERDERIAN, Chief of Staff

JAMES D. BARNETTE, General Counsel

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

SUBCOMMITTEE ON TELECOMMUNICATIONS, TRADE, AND CONSUMER PROTECTION

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

MICHAEL G. OXLEY, Ohio,

Vice Chairman

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

BARBARA CUBIN, Wyoming

JAMES E. ROGAN, California

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

ROBERT L. EHRLICH, Jr., Maryland

TOM BLILEY, Virginia,

(Ex Officio)

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

BILL LUTHER, Minnesota

RON KLINK, Pennsylvania

THOMAS C. SAWYER, Ohio

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

JOHN D. DINGELL, Michigan,

(Ex Officio)

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C O N T E N T S

Page

Testimony of:

Kennard, Hon. William E., Chairman, Federal Communications Commission ................................................................................................................. 12

Furchtgott-Roth, Hon. Harold W., Commissioner, Federal Communications Commission .......................................................................................... 24

Ness, Hon. Susan, Commissioner, Federal Communications Commission .. 20

Powell, Hon. Michael K., Commissioner, Federal Communications Commission ........................................................................................................... 26

Tristani, Hon. Gloria, Commissioner, Federal Communications Commission ................................................................................................................. 32

Material submitted for the record by:

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

Letter dated November 5, 1999, to Hon. Edolphus Towns .................... 73

Responses for the record ........................................................................... 74

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(1)

FEDERAL COMMUNICATIONS COMMISSION

REFORM FOR THE NEW MILLENNIUM

TUESDAY, OCTOBER 26, 1999

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

The subcommittee met, pursuant to notice, at 9:36 a.m., in room

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

(chairman) presiding.

Members present: Representatives Tauzin, Oxley, Stearns,

Gillmor, Cox, Cubin, Shimkus, Pickering, Fossella, Ehrlich, Bliley

(ex officio), Markey, Eshoo, Engel, Luther, Sawyer, Green, McCarthy, and Dingell (ex officio).

Staff present: Justin Lilly, majority counsel; Cliff Riccio, legislative clerk; and Andy Levin, minority counsel.

Mr. TAUZIN. The committee will please come to order.

Good morning and welcome to the third hearing on FCC reform.

Today we will hear from the FCC Commission regarding their

views on the proposed FCC reforms put forth by this Commission

and its strategic plan: a new FCC for the 21st century.

I want to welcome Chairman Kennard and all the Commissioners and express my appreciation on behalf of the committee for

your attention to this issue and for your presence here today. As

usual, we deeply appreciate the dialog that we are beginning to

have on this very important subject.

When Congress passed the historic, much-publicized Telecommunications Act of 1996, I believe as I have often said in public, that we made a fundamental mistake. We failed to reform the

outdated structure and the outdated mission of the FCC when we

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

21st century, I believe we have in effect a horse-and-buggy agency

trying to bridle a supersonic technology, and it is simply not working as well as it could and should.

These words, I am sure, are not unfamiliar to you. I have used

them many times. But I am using them over and over in the hopes

that they will ring clear in the minds of those with the authority

to really effect change.

In an attempt to further the reform of this agency, I recently appointed an FCC task force headed by my good friend, Paul Gillmor.

As a result of his efforts and the efforts of the task force membership, I was presented this voluminous binder of recommendations.

It is getting thicker and thicker. And I want to indicate how

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pleased I am that, in fact, they have taken this work so seriously

and are devoting so many hours to it.

As I promised members of the minority, this task force would be

bipartisan. I again ask today that Mr. Dingell consider the appointment of several members from the minority to join with my Republican colleagues in that task force effort so that we might continue

this process as we continue to call for efforts to craft comprehensive

reform that is as much as possible not only bipartisan but hopefully nonpolitical.

Let me say from the outset that I am pleased with the work of

the task force, and I agree with many of the proposals set forth in

the document. Let me also add parenthetically, one of the things

I am very disappointed with is the willingness of the regulated

community to come forward and speak to us about problems they

experienced with the agency. They tell us many things privately,

but won’t go on record. That itself is ringing testimony that there

is something wrong with the process where those who are most affected by it are unprepared or unwilling to go public with their

criticisms.

Where I and many of my colleagues as well as many in the industry agree with the efforts being made by the Commission to examine reform itself, let me indicate at the outset that many of us

disagree on the timing of the proposed reforms by the Commission.

Five years is simply twice as long as we believe is necessary, and

this committee is going to be relentless in seeing that the FCC reforms are completed to a significant degree over the next 21⁄2 years.

Five years, Mr. Chairman. Currently 86 percent of the Internet

delivery capacity in the United States is concentrated in the 20

largest cities in America. Five years, when analysts are projecting

that within the next 3 years there will be a 1200 percent increase

in business-to-business Internet services, generating $1.5 trillion in

revenues. Five years, when 210 of the country’s 346 metropolitan

statistical areas, roughly 61 percent, do not have direct on-ramps

to the Internet. There are only 98 hubs serving towns in non-metropolitan service areas in this country. California alone has 177

hubs. That is more than the combined total of 31 States.

Five years. There are 80 bills pending in Congress seeking to

apply various regulatory or deregulatory provisions to commerce

over and content on or access to the Internet or telecommunications in general. Five years is simply too long, especially in a

world of this fast-changing technology. We need simply to catch up

by creating changes in the processes here in Washington that make

sense in a modern deregulated environment. The time for that is

now.

Again, let me thank Mr. Gillmor and the members of his task

force for all of their hard work. I want to thank the minority in advance for their interest and hopefully their commitment to become

part of this task force. And to members of the Commission, I want

to again thank you not only for appearing today but for, as I said,

taking this seriously and dialoguing with us today on what it takes

to get this really moving and how long it will take to complete it.

Again, let me thank you for your attendance, and the Chair will

now yield to the gentlelady from California, Ms. Eshoo, for an

opening statement.

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Ms. ESHOO. You caught me with coffee and a bagel, Mr. Chairman. Thank you very much.

Mr. TAUZIN. You have 5 years to take care of that.

Ms. ESHOO. Good morning to you, Mr. Chairman, and thank you

for calling this important hearing. It is always a pleasure to see the

Chairman of the FCC, the distinguished Chairman Mr. Kennard,

and each of the Commissioners, and I want to welcome you here

today.

First, let me just say that 7 months ago when you were last before this subcommittee, I brought up the need for further action on

E. 911. Today I want to thank you publicly, each of you, for heeding my call and that of many others to revise the FCC’s rules on

this very important issue. I believe the ruling that the FCC issued

in September will provide consumers with enhanced 911 emergency

services that will promote the public’s safety and competition

among wireless 911 equipment manufacturers as well as the continued improvement in the quality of 911 service. I commend each

one of you for this ruling, which I believe will in the end help to

save countless lives in our Nation. That isn’t any small contribution, and I am very, very sincere in saluting you for what you have

done.

Chairman Kennard has nicknamed the FCC reform plan The

New FCC: fast, flat, and functional. I am pleased that part of this

plan calls for the FCC to be looking to invest in new technologies

to create a paperless FCC so that applications and licenses can be

processed more efficiently. I think the agency has an opportunity

to be a leader in the Federal Government in this respect, and I

think it can start by becoming the first agency to accept and utilize

the electronic signatures on letters of agency and other documents.

I also think the FCC has the opportunity to take a big step in facilitating competition in the building access issue. And I think the

FCC does have the authority to make a ruling on this issue.

In this unprecedented period of increasing competition in the

telecommunications industry, it would be unfortunate if residential

and commercial building tenants were not given the opportunity to

choose between carriers. I think that this is one of the manifestations of the Telecom Act, and I look forward to it being implemented. The FCC should use its authority to offer a fair and reasonable resolution that ensures that tenants have access to the

local competitors of their choice. There is room for improvement on

the length of time the FCC has taken to review mergers, and I am

pleased the agency is in the process of creating an interagency

merger team to streamline and accelerate the merger review process.

So again, Chairman Tauzin, I would like to thank you for calling

this hearing. I look forward to hearing more about the FCC’s reform plan this morning. And again, I welcome you here. It is always good to see you, important to work together. I can’t think of

a more powerful agency in the life of America today, and we have

to work every day to make sure the meaning of that power is felt

by each and every American citizen in our country. After all, it is

the telecommunications.

Thank you, and I yield back.

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Mr. TAUZIN. I thank the gentlelady. The Chair wishes to point

out—I hope the Commission understands that the paucity of members here is not a reflection on either—any disrespect of your presence on the issue. We have got a conference going on of Republican

members. I know there is an O&I hearing that is drawing some of

our members away. They are coming.

So let me now recognize the gentleman from California, Mr. Cox,

for an opening statement.

Mr. COX. Thank you, Mr. Chairman. I want to thank the Commissioners for being here and explain my immediate absence. We

have an O&I hearing exactly on top of this, which sometimes happens. I have read all the written testimony that has been submitted and I thank you for providing it and we will be most interested in reading the proceedings that I am going to miss.

I don’t think there is a more important issue before each of you

and before us as a Congress in our oversight capacity than what

the FCC looks like in the future. And I have to say that I think

Chairman Kennard has laid out in general terms pretty much

where we are headed and what the challenge is.

The objects of regulation are changing so rapidly that if the FCC

were not to rethink from the bottom up its entire reason for existence, we would be overtaken by events. I also think that we need

to notice the difference between promoting markets through regulation and promoting markets. Sometimes we think by adopting a

better, different or wiser regulation, we can get more competition,

whereas in fact we simply end up creating another regulation.

The E-rate program, which may or may not come up in members’

questioning here, continues to trouble me because it is emblematic

of the problems we have had in oversight of the FCC. Congress

passed a law in 1996 and the FCC in many respects, at least in

the view of many of the members of this committee, is doing something other than what the law intended. The E-rate program,

which has been much litigated, represents probably the logical

limit to which law by regulation can be pushed. There wasn’t a provision for these particulars in the 1996 act, and we have ended up

imposing a tax which, however it might be justified and however

it might be litigated, represents an enormous lapse in good judgment, it seems to me, in the appropriate roles of the branches; it

would seem it would be for Congress to pass the taxes and to do

so with a different kind of popular input than the FCC can take

advantage of, and for the FCC not to do those things.

It is for that reason that we had a bipartisan letter signed by the

chairman and ranking Democrats in both the House and in the

Senate, with some rather strong words, I would think, for bipartisan correspondence and for that genre, suggesting that the age of

kings passed with the American Revolution, for example, and that

we ought to impose taxes in this fashion.

It has been called the Gore tax because of the Vice President’s

support for it, but making it the focus of next year’s election is not

anybody’s idea of a good time. I would rather get rid of this tax

now and, more to the point, get rid of the regulatory climate that

permits the FCC to, I think, invade the legislative turf in that fashion.

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We ought to be thinking about ways to shrink regulation and

shrink the FCC itself, not create new fiefdoms and enormous new

jurisdictions with several sustaining their own non-legislative

taxes.

I thank the chairman for the time. I apologize for my absence but

I am enormously interested in this subject and will pay very close

attention to what you say, even when I am not physically present

here. Thanks.

Mr. TAUZIN. Thank you, Mr. Cox. The gentleman from Texas, Mr.

Green, is recognized.

Mr. GREEN. Thank you, Mr. Chairman. Like my colleague from

California, we have a vote, I am told, at 10 o’clock upstairs, on the

Department of Energy, and I too will be leaving shortly. Let me

just follow up on my colleague from California on the E-rate, support of the E-rate, and realizing it was in the 1996 act. And in fact

our Chairman has a bill, and I think originally Congressman Klink

had one that would replace the E-rate with an actual tax, and I

think that is a good mechanism. That is a tax cut on our side of

the aisle, Mr. Chairman, we could probably support as long as it

would be devoted to the E-rate and the success we have seen with

E-rate funding in my own district, at least across the State of

Texas.

We also might want to look at the universal service charge, because I have found a lot of constituents are just upset because of

all the charges on their bill that are broken out now that used to

not be broken out.

I want to thank you for calling the hearing, Mr. Chairman, on

the FCC and the New Millennium and its growing digital age. It

is nearly impossible for regulatory agencies and legislators to keep

up with the explosive growth with the telecom industry. For example, the Internet has successfully cut across all traditional communications boundaries so that a person over the Internet can make

a long distance call or listen to the ball game or watch television

programming. It is really exciting.

In March of this year, Chairman Kennard came to us and laid

out a vision of the FCC. It was enlightening to hear that the FCC

was going to try to keep up with the times and restructure the

Commission to meet with these demands, while sustaining the

main charge of promoting competition and communications, protecting consumers and supporting access to all Americans to the

existing advanced telecommunications.

Like the Chairman, I encourage you to act as expeditiously as

possible on the reforms because the technology changes are so

rapid.

Let me point out the need for resources—and I was noticing in

our booklet today, Mr. Chairman, the 1996 act that was passed,

that year the FCC requested $223.6 million, we appropriated

$185.7 million in each year for the next up until 2000, when the

FCC requested $230.9 million and we appropriated $2.210 million.

Each year it has been anywhere from $10 to $20 million less in appropriations than what the FCC requested. Not that we need to exactly match the dollar, but if you give someone a responsibility to

do a job, then you also need to give them the resources to do it.

6

I know that is not our committee but we may want to point that

out to our folks over at the Appropriations Committee.

I appreciate the opportunity to discuss with the Commissioners

on many issues that are before the FCC. And I, coming from Texas,

I am glad the SBC and the Ameritech issue has been settled and

that is moving along, because I know as soon as that was done,

there is another giant merger that you have to consider. That is,

I guess, the nature of the competitive system we have today.

I do have a particular situation. We have an application from

some folks in Houston for a Spanish-language TV station in the

Blanco, Texas area, north of San Antonio and west of Austin. It

seems like it has gotten caught up in bureaucratic problems over

the FCC. We sent letters, the Texas delegation has. And if you

could look at that, there was a competing ownership and there is

one of the people that applied for it had some, I think, ethical problems in what they were doing; but people who actually are looking

for the station have been caught up in that problem, but they are—

with their competitors—and I would hope that under our, Mr.

Chairman, under our FCC reform bill, even though we want to auction off the spectrum if there is no availability of bidders on certain

areas, then we set some type of minimum amount or some type of

amount that will raise money but also provide for the FCC, where

we can have in some rural areas these opportunities for alternatives other than English-language broadcasting.

With that, Mr. Chairman, again thank you for calling this hearing.

Mr. TAUZIN. I thank the gentleman from Texas.

The chairman of the FCC Reform Task Force, vice chairman of

our committee, Mr. Gillmor, is recognized.

Mr. GILLMOR. Thank you very much, Mr. Chairman. I appreciate

your holding this hearing. I want to thank the five Commissioners

for taking the time and coming up and visiting with us. I look forward to your testimony.

Mr. Chairman, last spring you asked me to serve as the head of

the informal task force, Commerce Committee members, to look at

developing a consensus about issues affecting the reauthorization

of the FCC. I want to commend your leadership in trying to resolve

that issue. In the ensuing weeks the task force had a number of

meetings and discussions with FCC employees. We also polled numerous industry groups for their recommendations, and I think we

have received some remarkably useful feedback. We now have a

solid body of knowledge on which to build in the future.

I also support the notion that the task force should now seek out

additional information from the FCC itself, and I would welcome

the establishment of a working group between the FCC and our

committee so that the common areas of agreement can be established.

I also endorse reaching out on both sides of the aisle in our committee, and I would look forward to recommendations in that respect as well.

To an outsider, reauthorization of a government agency with five

Commissioners and some 2,000 employees would seem like a relatively simple endeavor. But on the contrary, I think this is one of

the greatest challenges we have. The number of legal, of reguVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 E:\HEARINGS\61037 pfrm02 PsN: 61037
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latory, of personnel, organizational and telecommunications issues

are staggering, very complex, and they often do not lend themselves to easy solutions.

We are going to no doubt hear much talk in this hearing about

streamlined bureaucracy, about increased competition, about less

regulation. And I think that the vast majority of us agree with

those goals. And the devil lies in the details, and that is why we

are here today. A change in technology very frequently bypasses a

regulatory structure that we set up. The regulatory structure that

we set up, for example, in the financial services area, where we

have just completed work in conference committee, has resulted in

a major recommendation where we are just trying to meet the

changes regulatorily that have taken place in the marketplace. And

we have the same thing in telecommunications. And what we are

trying to do here is to change our regulatory structure in a way

that it meets what is happening in the marketplace.

So I wanted to again thank the Commissioners for being here

and I yield back the balance of my time.

Mr. TAUZIN. I thank the gentleman. The Chair is now pleased to

recognize the ranking minority member of our committee, still licking his wounds from that awful beating the Yankees put on his favorite team, my friend, Mr. Markey.

Mr. MARKEY. Good morning. I want to thank Chairman Tauzin

for calling this hearing today on proposals to reform the Federal

Communications Commission. And I would like to thank Chairman

Kennard as well as Commissioners Ness and Powell and

Furchtgott-Roth and Tristani for being with us here this morning.

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

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

I want to commend Chairman Kennard and the other Commissioners for the work they have already done to reinvent the Commission so that it functions in a confident and productive way.

Before we launch into a discussion about the job the Commission

does and any proposals to help the Commission perform its task

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

has been entrusted with implementing the Telecommunications

Act, a job that is unparalleled in scope and detail, since the enactment of the 1934 act itself. We must also remain cognizant that

Americans today have the finest telecommunications system in the

world. It is overall the most competitive, the most diverse, the most

innovative telecommunications marketplace on the planet.

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

fine work that the agency and its staff performs. As I stated in our

previous hearings on FCC reform, I believe that radical restructuring of the Commission itself at this time would be counterproductive. The last thing we should do right now is reverse the

course of battling to demonopolize telecommunications markets and

jeopardize or delay deregulation. After all, we are not going to be

able to deregulate until we demonopolize.

To break up monopoly barriers to competition, the Commission

will need tools and resources; and competitors, both large and

small, will need certain commonsense, consensus approaches to reform. The FCC are welcome, as they are in any government agenVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 E:\HEARINGS\61037 pfrm02 PsN: 61037
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cy. I look forward to working with Chairman Tauzin in exploring

how we can make progress together. And I thank you for holding

this hearing, Mr. Chairman. I look forward to the testimony.

Mr. TAUZIN. I thank my friend. The Chair is now pleased to welcome the Chair of the full Commerce Committee, the gentleman

from Richmond, Virginia, Mr. Bliley.

Chairman BLILEY. Thank you, Mr. Chairman. Today the subcommittee resumes its review of proposals to reform the Federal

Communications Commission. I look forward to this discussion as

it continues with its implementation of the 1996 act.

The FCC has been assigned substantial responsibility for ensuring that consumers enjoy the fruits of competition, but with that

added responsibility comes an obligation to ensure that the public

has confidence in the FCC’s decisionmaking; more specifically,

whether the FCC is engaged in open and transparent deliberations.

The FCC is an agency of five unelected officials who, in theory

at least, are independent of the political branches of government.

Some have gone so far as to suggest that the FCC is even unaccountable to the will of the American people. It is therefore critical

that this committee conduct vigorous and exacting oversight of the

FCC. That is why this committee has pending inquiries into a

number of recent key decisions made by the FCC. The FCC is vested with serious responsibilities in this area of competition, deregulation, and consolidation. But I intend to ensure that the FCC remains accountable to this committee.

Let me also take this opportunity to raise my concerns with the

recent ruling by the FCC on subsidies distributed pursuant to the

Universal Service Fund. I noticed that on Thursday of last week,

the Commission took action to actually double the amount of subsidies for the largest telephone companies like the Bell companies

and GTE. This action raises a number of critical questions: Why

are subsidies s for these large incumbents increasing when they

should be withering away as competition develops? By how much

will consumers’ bills increase to pay for these carriers subsidies? If

the American people are being asked to carrier subsidies, how can

they be assured that they, and not the large carriers, will benefit

from them?

These are important questions to which I hope the subcommittee

receives answers today. These subsidies are increasingly difficult to

justify as we transition to a competitive market. The FCC has a

heavy burden of proof when it takes action to actually expand this

subsidy program. Moreover, consumers should know and understand the extent of subsidies that are embedded in their monthly

phone bills. I have been in politics a long time, both as a mayor,

and now as a Member of Congress. And my experience has taught

me that politicians and regulators increasingly look to telephone

services as a source of tax revenue. Whatever one thinks about

telephone taxes and carrier subsidies, we owe it to the American

taxpayers to inform them about these taxes and subsidies.

That is why I, along with Chairman Tauzin, have introduced

H.R. 3011, the Truth in Telephone Billing Act of 1999. This bill

would require carriers to inform consumers about each and every

telephone tax, regardless of whether the tax is a flat fee or assessed on a permanent basis.

9

I urge my colleagues to join us in cosponsoring H.R. 3011. Thank

you, Mr. Chairman, and I yield back the balance of my time.

Mr. TAUZIN. The Chair thanks the chairman of the committee

and yields to the gentleman from Minnesota, Mr. Luther for an

opening statement.

Mr. LUTHER. No, thank you.

Mr. TAUZIN. The gentleman from Ohio, Mr. Sawyer.

Mr. SAWYER. Thank you, Mr. Chairman. Personally I am grateful

to you and the leadership of this subcommittee for having this

hearing today. I am particularly glad to see Chairman Kennard

and his colleagues taking serious steps in developing a reform proposal that will put the Commission into its own digital age and

making it easier for businesses and consumers to deal with the

Commission. The efforts to promote competition in all markets by

eliminating barriers to entry into domestic and international markets is important, as is the enforcement of rules and regulations.

I am convinced consumers can benefit from this if done properly.

I am also glad to see the Commission has given serious consideration to consumers by setting up a Consumer Information Bureau

and a Consumer Advisory Board.

The work that you envision in the reform that you bring before

us is important. I have to tell you that this last week has been

frustrating for me. I keep getting dunned over my cell phone by my

provider for services for which I have not yet been billed, and when

I called them back to try and straighten it out I got put on hold

literally for an hour. It was wonderful. I put it on hold and the

music really filled the office with a lot of joy, but it was an expensive way, I suspect, to provide that kind of service. As my colleague

from California says it is a telephone, not a radio.

In any event, I think there is much that can be done to benefit

consumers. This committee has discussed the issue of modernizing

the FCC for some time. I think probably in many ways it has been

a good thing that the 1996 act has had the opportunity to play

itself out in the real world and we can get some practical experience with the way it is working and then begin to address the

kinds of matters that you bring before us today. In that regard, let

me simply say again in closing, thank you to the chairman and to

our ranking member and to our witnesses today.

Mr. TAUZIN. I thank the gentleman.

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. MICHAEL G. OXLEY, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF OHIO

Mr. Chairman, thank you for calling this morning’s hearing.

I want to welcome the commissioners and commend them for their testimony. I

also want to commend the Commission for the effort put into internal reform of the

FCC since we last met on this subject in March of this year.

At the March hearing I said that I believed that FCC reform was one of the most

important telecommunications issues before the Committee and that I believed comprehensive reform was possible this Congress. While I still believe reform is important, the passage of seven months has not enhanced the viability of the effort.

That is not to suggest that there hasn’t been some good work done in the interim.

Congressman Gillmor’s task force developed a range of excellent proposals for restructuring and refocusing the Commission, including many proposals on which I

believe the Committee could find consensus if it set itself to the task. But if we are

going to take a serious run at even a consensus reform effort, we had better get

10

started. The recommendations of the task force and the commissioners would be an

excellent place to start.

Reorganization of the FCC is an opportunity to make it more efficient and improve its ability to fulfill its mission. We need to repeal obsolete statutes, eliminate

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

If FCC modernization is to be an attainable goal this Congress or even in the next

Congress, we must stay focused on restructuring and not get sidetracked in old

fights over telecommunications policy. There is no surer way to kill reform than to

reopen those disputes.

We need to stay focused on the regulatory framework of the Commission itself.

If we can do that, we can remake the Commission into a model of what an independent agency ought to be, with long-term benefits for all telecommunications sectors and all telecommunications consumers.

Mr. Chairman, I also want to take a moment to praise the Commission for its

hard work on CALEA, the digital wiretap legislation. My thanks to each of the commissioners on behalf of the men and women of law enforcement. The order demonstrated great fairness and an appreciation of the requirements of public safety,

in my opinion, and I hope that the Commission will dedicate itself to its timely implementation.

Finally, Mr. Chairman, I’d like to highlight a few especially noteworthy items

from the testimony I reviewed. I believe Commissioner Powell makes very important

points with respect to the relationship between competition and deregulation, and

the need to presumptively favor deregulation. I also found his thoughts on curtailing

duplication with other government agencies insightful. Any reform effort ought to

begin there.

Commissioner Ness’s emphasis on enhancing the Commission’s technical resources, especially as they pertain to international representation, is well taken.

Such wise investments are sure to benefit U.S. consumers and workers in the long

run.

Finally, I always appreciate Commissioner Furchtgott-Roth’s admonition that the

Commission stick to implementing the law as written. I never get tired of hearing

it, even if some of the other commissioners do.

Thank you again, Mr. Chairman. I yield back.

PREPARED STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF FLORIDA

Mr. Chairman: Thank you for holding this hearing on the Federal Communications Commission’s reform proposal.

I also would like to thank Congressman Gillmor, chairman of task force responsible for undertaking the daunting task of reforming the FCC for the work he has

done.

Since the FCC was last reauthorized in 1991, I find this hearing to be much needed and timely, particularly during an era in which segments in the telecommunications sector often change in the blink of an eye. As Commissioner Powell put it,

Commissioners ‘‘have to read the paper every day to know what we all will be doing

in the next 24 hours.’’

I would also like to thank Chairman Kennard, Commissioners Ness, Powell,

Furchtgott-Roth, and Tristani for appearing before the subcommittee today.

Mr. Chairman, the FCC has started the journey down the long road of reform.

My concern is that it takes the off-ramp before reaching its final destination.

The commission has taken some little steps in the right direction toward reform.

Last August, the FCC adopted several provisions from my legislation removing onerous restricts on broadcasters. The commission relaxed its local TV and radio ownership rules, its attribution rules, and national TV cap calculations.

However, it continues to hold on to vestiges of protective-regulation from a time

passed, by not increasing the broadcast ownership cap, or allowing for cross-ownership by broadcasters and cable and newspapers.

I have read Chairman Kennard’s ‘‘strategic plan’’ for reorganizing the FCC for the

21st century. The Chairman’s own proposal is indication of much needed reforms.

The question remains, can the FCC be left to manage its changes by itself.

I am left to answer no. The results of the FCC’s attempt at streamlining and competition are less than deregulatory. Just look at how it has initiated its 1998 biennial regulatory review as mandated by congress in the Telecommunications Act of

1996.

Section 11 of the Communications Act requires the commission to review all of

its regulations to determine whether the regulations are necessary, and whether

11

such regulations should be repealed or modified in the public interest as a result

of meaningful economic competition. To date, the FCC has under taken less than

35 proceedings as part of its biennial regulatory review.

For example, though the commission relaxed its television duopoly and one-to-amarket rules, it failed to repeal or deregulate its daily newspaper/radio cross-ownership rule, which generally prohibits the common ownership of a daily newspaper

and radio station in the same community. The FCC decided not to consider newspapers as a voice in its duopoly rule. It did however, count daily newspapers with

more than 5% circulation as a voice in the new one-to-a-market rule. If newspapers

are either so insignificant so as not to count at all, or only counted if their circulation exceeds an arbitrary percentage, why should they be subject to a total ‘‘shut

out,’’ in the broadcast license marketplace?

In fact, the FCC has increased, rather than decreased, its regulatory intervention.

And I fear that unless checked, it will be the FCC controlling and shaping the marketplace, rather than competition and consumers’’ desires. According to the heritage

foundations calculations based on data provided by the General Accounting Office,

‘‘from March 1997 until March 1999, the FCC promulgated 497 rules. This is almost

exactly the total number of rules promulgated by the Department of Defense, Veterans Administration, Department of State, Department of Justice, and the Department of Education combined during the same period. Incredibly, in fiscal year 1998,

no other Federal agency produced as many major rules as had the FCC,’’ which published more than a quarter of all Federal agency major rules. And this is after Congress passed the Telecommunications Act of 1996 to deregulate the telecommunications industry. Is this deregulation?

I agree with Chairman Kennard that reorganizing and restructuring the FCC for

the 21st century is a formidable task, akin to Chairman Kennard’s description of

‘‘trying to build a 747 while in flight.’’)

But Mr. Chairman, after reading the FCC Chairman’s proposal, I am left wondering whether these proposals are meaningful acts of deregulation and streamlining, or just an act of repackaging, with a new name, new title, ready to regulate

in the 21st century.

What will the need for the FCC be in the 21st century? Chairman Kennard has

a good idea. But is that what we need? According to estimates, the telecommunications industry now accounts for one-sixth of the U.S. economy. There are many

examples of rampant competition all around us. Just look at the rate consumers

now pay for long-distance. In many areas, consumers now have more than one

choice in their local phone provider.

Mr. Chairman, the monopolies of the past that the FCC was trusted to regulate,

no longer pose a threat. I believe with substantive congressional reform of the FCC,

the FCC in the near future will have a hard time justifying its existence.

Much like how the Civil Aeronautics Board was disbanded after airline deregulation in the 70’s. I foresee the day when the FCC will be nothing more than a footnote in text-books.

Mr. Chairman, let me close by saying that I look forward to working with you

and the congressional FCC reform task force to ensure that the ‘‘FCC-747-airplane’’

Chairman Kennard speaks of, has its seats removed, engines stripped, and is rebuilt

into a hang glider. Then can we truly say that we have a reformed and streamlined

Federal Communications Commission.

PREPARED STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF WYOMING

Thank you, Mr. Chairman, for holding this very important series of hearings on

FCC reform.

During the Subcommittee’s hearing in March we heard from FCC Chairman

Kennard, who had just released his strategic plan for restructuring and streamlining the Commission’s functions and management.

Commissioner Powell, in his testimony at the time, built on Chairman Kennard’s

plan by proposing additional ways in which the FCC could become more efficient

and meet the demands of its customers.

There were several points to Commissioner Powell’s testimony that struck me as

being necessary before the FCC could move full force into the next millennium.

Specifically, Commissioner Powell highlighted the need for the FCC to limit the

rules it administers. Congress stressed the need—in the 1996 Telecommunications

Act—to deregulate, when necessary, the telecommunications industry.

Furthermore, Congress provided appropriate tools for the FCC to use to move toward deregulating this vibrant industry.

12

The telecommunication’s industry is moving and evolving at breakneck speed. To

be effective, the FCC must evolve and move with the same speed as the industry

it regulates.

One avenue that I believe the FCC should utilize more is their forbearance authority under Section 10 of the Act.

I commend Commissioner Powell’s foresight on the issue of forbearance and quote

from his March 17 statement before this subcommittee, ‘‘. . . the FCC must become

a dramatically more efficient place. A decision that comes too late, might as well

not have been made at all.’’

Commissioner Powell’s quote provides for a great transition to the next issue I

would like to address: the FCC’s role in approving mergers.

There is no lack of controversy surrounding the FCC’s role in reviewing telecommunication mergers.

When FCC reform legislation is before us, this subcommittee must address the

Commission’s propensity to duplicate the role other federal agencies already play

when considering mergers.

Any role the FCC plays, whether it be in advocating the public interest or otherwise, must not duplicate the role of the Department of Justice or the Federal Trade

Commission.

Duplication of roles is time-consuming and unnecessary. Telecommunication companies are unduly burdened by these delays and it causes them and their customers

valuable time and money.

There are several more issues that I would like to address, but in the interest

of time and to ensure that we hear from our distinguished panel in a timely manner, I will ask a few questions during my 5 minutes and submit several more for

the record.

Again, thank you Mr. Chairman for holding this important hearing. I also want

to thank Chairman Kennard and the Commissioners for taking time out of their

busy day to be here.

I yield back the balance of my time.

Mr. TAUZIN. Seeing no other members requesting time, let me

now turn to the important work of this hearing, and this is to hear

from the Chairman of the Commission and the other Commissioners on this important topic. Before I introduce you, Mr.

Kennard, let me thank you publicly for representing the Commission so admirably before the High-Technology Conference in Louisiana. When was it, a week and a half? Time passes so strangely

lately. But to all of you, the Chairman did an extraordinary job

representing the Commission at a conference attended by almost

1,400 citizens, and deeply concerned about this fast-moving pace of

technology changes in their lives. I want to thank you for that.

I always want to thank each of you for the submittals you personally made and the communications you have made and the assistance you have given Paul in the efforts he has undertaken on

behalf of the task force; and finally, to engage my friends on the

other side of the aisle and encourage you to literally think about

forming a comparable task force that we might link the two together. We are not going to get this thing done unless we are all

cooperating across not only party lines, but across the agency’s

structures.

Let me now welcome the Chairman of the Federal Communications Commission, Bill Kennard, for an opening statement. Bill?

STATEMENTS OF HON. WILLIAM E. KENNARD, CHAIRMAN;

HON. SUSAN NESS, COMMISSIONER; HON. HAROLD W.

FURCHTGOTT-ROTH, COMMISSIONER; HON. MICHAEL K.

POWELL, COMMISSIONER; AND HON. GLORIA TRISTANI,

COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION

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

for those kind words. It is a pleasure to be here, to appear again

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before the subcommittee. As always, I look forward to working with

all the members of the subcommittee. In particular, I look forward

to having a discussion with you, Congressman Sawyer, to learn

more about that problem you are having with your cellular telephone provider. We will try to get that straightened out for you if

we can.

I have submitted written testimony for the record, which I will

summarize briefly. As Chairman Tauzin pointed out in his opening

statement, we are clearly living in extraordinary times in the telecommunications industry today. We are seeing glimpses of a very

exciting future where the telephone companies will deliver movies,

and cable television operators will carry phone calls, and hopefully

we will get both over the airwaves.

I would like to take this opportunity to briefly update you on

some of the data that we have been compiling at the FCC on the

unbelievable economic growth that we are seeing in the telecommunications industry. Economic indicators are up across the

board. Over the past 3 years alone, revenues in the communications sector have grown by $140 billion, climbing to a revenue level

of $500 billion in 1998. That represents an increase of 160,000 jobs

in this sector.

And if you look at specific industries, we just see phenomenal

growth. In the wireless industry in particular, capital investment

has quadrupled since 1993 for a cumulative total of $60 billion

through 1998. Now over 80 million Americans have a mobile phone

compared to only 16 million just 5 years ago.

In the long distance marketplace, by the end of 1997, there were

over 600 long distance carriers in America. We have seen prices for

interstate long distance continue to drop dramatically by approximately 35 percent since 1992. Prices for international calls have

fallen by around 50 percent. In fact, over 50 billion more minutes

in long distance and international calls were made in 1998 than

1996.

In the local phone sector, we are starting to see the fruits of our

procompetitive policies. There are now at least 20 publicly traded

competitive local exchange carriers or CLECs with a total market

capitalization of $33 billion. That compares with only 6 CLECs

with a market capitalization of $1.3 billion at the time of the passage of the 1996 act. In the first quarter of 1999 alone, almost a

million CLEC access lines were installed.

In the cable sector, operators have invested nearly $8 billion per

year since 1996, constantly upgrading their systems. By the end of

the year we anticipate that 65 percent of homes passed by cable

will have been upgraded, bringing more channels, enabling additional services, and in particular, high-speed Internet access.

The cable television industry is getting into the broadband world.

It is starting to drive competition for high-speed Internet access.

We hope that by the end of this year, there will be at least 11⁄2 million cable modem subscribers in the United States.

So obviously the entire telecommunications industry is strong, it

is vibrant, it is moving at breakneck speed. As I think we all recognize, we must also have an FCC that changes along with the industry and remains relevant to changes in the marketplace.

14

The 1996 act established a blueprint for restructuring the industry, reorganizing the industry along competitive lines. The FCC’s

Strategic Plan is the work plan for carrying out the blueprint that

you wrote in the 1996 act.

We have put a lot of work into this Strategic Plan. It is not a

unilateral proposal. We reached out to lots of our stakeholders. We

reached out to industry, consumer groups, the academic community, State and local governments, organizational experts.

And I was interested, Mr. Chairman, to hear that you were concerned that the industry was not being forthright with you in coming forward with recommendations. It has been my experience as

Chairman of the FCC that the telecommunications industry for the

most part is not a shy or retiring lot. They are not shy about communicating their concerns to us. They certainly did that in our forums. They communicate, I know, to you and to the press oftentimes. But I would just reiterate the importance that you stress of

complete candor and openness in dealing with the industry, because we really need to hear from them as we move ahead with

this plan.

We have held a number of forums seeking input and much of the

input we received focused on how the FCC should be restructured

because of really three principal developments in the industry:

competition, convergence, and globalization.

There is a great deal of consensus among our stakeholders that

the FCC should focus on what its core missions should be in the

future, and these are, (1), universal service and consumer protection and information, one category; (2), enforcement and promotion

of competitive markets both domestically and internationally; and

(3) spectrum management.

And so the Strategic Plan we presented to you really focuses on

how the FCC should be organized to further those three principal

core missions.

After we presented our Strategic Plan to you in August, we convened another forum and brought all our stakeholders together

again. I would say that they were generally complimentary about

the plan. I think that the one thing that we heard almost universally is the need for the FCC to move ahead quickly on implementation, something that you mentioned in your opening, Mr. Chairman. Last week, we held an FCC senior management meeting to

plan the next steps and keep the momentum going.

Now some have told us, including you, Mr. Chairman, that 5

years is too long. I wanted to comment on that. First of all, the reason why we picked 5 years for our Strategic Plan is because that

is consistent with the requirements of the Government Performance and Results Act. That act, as you know, requires government

agencies to set forth a 5-year blueprint or strategic plan for reinventing themselves. So we selected 5 years. But I don’t want anyone to think that 5 years is the end point; that is, that we have

to wait for 5 years to get all the benefits of this plan.

We are rolling this plan out as we speak. In fact, today I am very

pleased to announce that we are setting up the Enforcement Bureau and the Consumer Information Bureau, which I know you all

heard about, to become effective on November 8, and we are very

proud that we have done the work to get those two new bureaus

15

in place. And I thank the members of this committee for supporting

us in that effort.

In thinking about our Strategic Plan, Mr. Chairman, I was reminded of one of the first meetings that you and I had when I first

became Chairman of the FCC. We talked about this issue, how we

would reform the FCC for the next millennium, and I remember at

that time we talked about reorganizing the FCC along functional

lines, and that was an idea that you were talking about then. And

if you look at our Strategic Plan, it calls for a reorganization of the

agency along functional lines, as we talked about when we first

met a few years ago.

I also wanted to take this opportunity to publicly thank my colleagues at the Commission for their support and work not only in

helping to develop this plan but also their support in a number of

key areas. Commissioner Ness has been doing outstanding work on

international issues and with regard to digital television. Commissioner Furchtgott-Roth has provided some excellent suggestions to

us on the Biennial Review, constantly pushing us to be more aggressive in our Biennial Review responsibilities. Commissioner

Powell has shown tremendous leadership in handling the Y2K

issue for the Commission and for the country and for providing

very good analysis on our competition issues. And, of course, Commissioner Tristani has been a true leader in the V-chip area and

has shown really unwavering commitment and courage in fighting

for consumer issues.

So I feel very honored to chair this important agency at this

time, with a group of such stellar colleagues, and I would be remiss

if I didn’t mention how blessed all of us are to be able to work with

an extraordinary staff at the FCC. We can write strategic plans

until the cows come home, but if we do not have a staff that is

dedicated and professional and hardworking, it is just so much

paper. We have a lot of work ahead, but I am confident that if we

continue to work together as an agency, as colleagues, and also

with the fine FCC staff, we will be able to create an FCC for the

digital age that will make us all very proud. Thank you.

[The prepared statement of Hon. William E. Kennard follows:]

PREPARED STATEMENT OF HON. WILLIAM E. KENNARD, CHAIRMAN, FEDERAL

COMMUNICATIONS COMMISSION

Thank you, Chairman Tauzin, Ranking Member Markey, and Members of the

Subcommittee for the opportunity to appear before you today to discuss the new

FCC for the 21st Century.

This hearing presents a welcome opportunity to further the dialogue that we

began last March when my colleagues and I testified before this same Subcommittee

on the future of the Federal Communications Commission (FCC).

In March, I told the Subcommittee the era of convergence—an era in which phone

lines will deliver movies, cable lines will carry phone calls, and the airwaves will

carry both—necessitates a radically restructured FCC. I told you that in a world

where old industry boundaries are no longer and competition is king, we need a

New FCC.

I am proud to report we have taken important steps towards restructuring the

Commission. As you know, this past August, I submitted my five-year draft strategic plan to Congress which I intend to serve as our blueprint for change. This plan

builds upon the conceptual framework that I proposed in March.

FIVE-YEAR VISION

In five years, we expect United States communications markets to be characterized predominantly by vigorous competition that will greatly reduce the need for diVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 E:\HEARINGS\61037 pfrm02 PsN: 61037
16

rect regulation. We also expect that the advent of Internet-based and other new

technology-driven communications services will erode the traditional regulatory distinctions between different sectors of the communications industry. The FCC’s primary goals of promoting competition in communications, protecting consumers, and

supporting access for every American to existing and advanced communications

services will remain paramount. What will change are the means and mix of resources necessary to achieve these goals in an environment marked by greater competition and convergence of technology and industry sectors.

In this new environment, the FCC must focus on sustaining competitive communications markets and protecting the public interest where markets fail to do so. As

I said in March, our core functions will include: i) universal service, consumer protection and information; ii) enforcement and promotion of competitive markets domestically and worldwide; and iii) spectrum management.

As a result, a number of the FCC’s current functions and regulatory structures

no longer will be necessary. The FCC as we know it today will be very different both

in structure and mission. Increased automation and efficiency will enable the FCC

to streamline its licensing activities, accelerate the decisionmaking process, and

allow the public faster and easier access to information. The FCC will be a ‘‘onestop, digital shop’’ where form-filing and document-location will be easy and instantaneous.

Over the next five years, the FCC must wisely manage the transition from an industry regulator to a market facilitator. The enactment of the Telecommunications

Act of 1996—and the establishment of a new pro-competitive, deregulatory model

for communications policy—necessitates a reassessment of our core policy functions,

structure, and processes. New competitors and technological innovation are currently transforming communications markets, but history has shown that markets

that have been highly monopolistic often do not naturally become fully competitive.

History has also shown that domestic markets that have been protected from foreign

competition do not naturally open to global competition.

Therefore, during this crucial period of transition, the overall strategic objective

of the FCC must be to continue to promote competition, open markets, and technological innovation, while also continuing to protect and empower consumers as they

navigate the new world of communications. At the same time, the Commission must

significantly revamp its functions, processes, and structure to meet the challenges

of a rapidly progressing global information-age economy and an evolving global communications market.

Today, we see tantalizing glimpses of the competitive, deregulated telecommunications marketplace that Congress had in mind. Many markets, such as mobile

wireless and wireline long distance markets, are already quite competitive, and

many—but by no means all—of the fundamental prerequisites for fully competitive,

deregulated local telecommunications markets are now in place. In many markets,

consumers are receiving the benefits of competition through lower prices, greater

choices, and better quality service.

This is not to say, however, that fully competitive markets are inevitable. Vigorous enforcement of the fundamental prerequisites for competitive markets and expeditious dispute resolution will remain necessary for some years to come. Consumers must also become familiar with the myriad new communications options and

providers available, as well as the new demands which emerge from the advent of

increased competition. Consumers do not yet have the benefit of experience in addressing the challenges of a communications marketplace that looks and functions

like other competitive industries. We must continue to ensure, therefore, that the

momentum toward competitive markets moves forward on a technology-neutral

basis, that we continue to cultivate public support for this change, and that all

Americans benefit from the communications revolution.

DEVELOPMENT OF THE STRATEGIC PLAN

The March report served as the conceptual framework for the Commission’s senior

managers to meet and discuss the implications of the changing communications

marketplace for the FCC and for the American people. From these discussions, we

developed the framework of this Strategic Plan, including our draft vision statement, goals and major objectives. Next, senior executives from each of our Bureaus

and Offices were asked to review their organization’s functions, determine if they

were still essential to the agency’s key missions as determined by senior management, and provide specific policy initiatives and performance measurements for the

next five years.

We gathered extensive input from our stakeholders to help us develop this strategic plan. We held forums seeking the views of general industry, consumer, state

17

and local government representatives, academic and organizational experts, and our

employees on the FCC’s role in the 21st century. Much of the input we received

from our stakeholders focused on how competition, convergence, globalization, and

the Internet are currently affecting the communications marketplace, and will continue to do so in the future. Interestingly, there was a good deal of consensus from

our stakeholders about the FCC’s proposed core functions, as set forth in our March

1999 report.

THE STRATEGIC PLAN

The underlying premise of the plan is that the FCC must significantly restructure

and streamline its functions, processes, and organizational structure to better serve

the American people in the new millennium. Competition and convergence of technologies and industries require that we comprehensively transform our functions,

processes, and structure to become a faster, more functional, and flexible agency.

As a result of our discussions and forums, we identified four critical goals to carry

out our core mission. For each of these goals, we established specific objectives and

policy initiatives that need to be implemented to achieve these goals fully. To assess

whether we are on track in achieving these goals, we then established specific performance measurements to be achieved within five years on key dimensions such

as industry outcomes, consumer benefits, and Commission output. These five-year

overall performance measures will serve as the primary indicia of progress toward

the Commission’s long-term vision of fully competitive communications markets and

our transformation into a model agency for the Digital Age. Finally, we are also taking various actions in the short term. For while our blueprint for change is for five

years, we are taking immediate steps in all areas to facilitate the eventual achievement of our four major goals.

(1) Create A Model Agency For The Digital Age.

Our first goal is to create a model agency for the digital age. This means that

as we promulgate policies conducive to advances in the information age, we must

lead the way in electronic government. Across the agency, we must invest in new

technology that will allow us to be as responsive to the public as possible. Specifically, we must continue to automate our processes and to make more information

available to the public electronically and on an interactive basis.

A comment that we heard over and over at our forums was that we need to find

ways to get the FCC’s work done faster and reduce the levels of review in the agency. We need to be a faster, flatter, and more functional agency in order to promote

industry progress rather than impede its momentum.

Some sectors of the telecommunications market move so fast that by the time a

public notice on a proposed rule is issued, and comments are gathered, the market

has bypassed the conditions that gave rise to the proposed rule in the first place.

The regulatory process is incremental. The market process is not. The regulatory

process, by definition and by law, has to be linear and methodical, to provide due

process. The market process, by contrast, is chaotic and nonlinear, and, because of

that, very often unpredictable.

The historic model for a regulator, is top-down, command-and-control, with chiefs,

bureaus and support staff. The model for a market facilitator, the model we are

moving to, is a flatter and more fluid organization. Its work units are smaller and

more responsive. This is possible because much of the governance—the microdecision-making—is passing from the FCC to the market. More governance from the

marketplace means less government from the FCC.

The FCC is currently structured along the traditional technology lines of wire,

wireless, satellite, broadcast, and cable communications. As the lines between these

industries merge and blur as a result of technological convergence and the removal

of artificial barriers to entry, the FCC needs to reorganize itself in a way that recognizes these changes and prepares for the future. A reorganization of the agency

along functional rather than technology lines will put the FCC in a better position

to carry out its core responsibilities more productively and efficiently. There was

consensus in each of the public forums and in many of the other comments we have

received that a reorganization along these lines would not only be more efficient,

but is a necessary prerequisite to competition and convergence. This is not an easy

task and I look forward to detailed discussions with you and our other stakeholders

on the best way to move forward on this reorganization. We took a huge step forward with Congress’s recent approval of our new Enforcement and Consumer Information Bureaus.

As we move toward a faster, flatter, more functional agency, we must also invest

in our employees and capitalize on their integrity and wealth of expertise. It is the

employees who have made the Commission a unique and vital organization and who

18

will be at the forefront of defining how the FCC of the future responds to the dynamic changes in today’s communications industry. Moreover, we must minimize

workplace disruption that may result from restructuring efforts through staff retraining, reassignment, and other methods. We must ensure that we have a critical

mass of trained personnel and that we empower our staff to embark upon strategic

thinking with clear policy direction.

(2) Promote Competition In All Communications Markets.

Our second goal is to promote competition in all communications markets. Entry

barriers (legal, economic, or operational) in communications markets are antithetical

to the development of robust competition. Elimination or reduction of such barriers

enables new competitors to enter communications markets easily and enhance consumer choice. We must also focus on the international marketplace and seek additional market opening commitments from other countries.

As competition becomes a reality, deregulation must occur. Eliminating outdated

rules will play an important role in accelerating the transition to fully competitive

markets. Consumers ultimately pay the cost of unnecessary regulation. Thus, one

of our primary objectives must be to deregulate as competition develops and to substitute market-based approaches for direct regulation. This will be a central tenet

of our 2000 Biennial Review. In addition, we must resist imposing legacy regulations on new technologies. Our goal should be to deregulate the old instead of regulating the new.

An undesirable by-product of the rise of competition in various telecommunications markets has been an increase in fraudulent practices by certain providers

of telecommunications services. In the fast-paced, newly developing world of communications competition, we must be able to respond swiftly and effectively to complaints that companies are taking advantage of other companies or consumers. Effective use of the Commission’s enforcement resources is critical to ensure full implementation of the Communications Act and the Commission’s rules designed to

open communications markets to competition, and enhance choice for consumers. Effective enforcement is also essential to maintain public support for deregulation.

Competitive markets work only when consumers have the information required to

make informed choices. The creation of the new Consumer Information Bureau will

provide consumers a one-stop shop for obtaining the information they need to make

wise choices in a robust and competitive marketplace.

(3) Promote Opportunities For All Americans To Benefit From The Communications

Revolution.

Our third goal is to promote opportunities for all Americans to benefit from the

communications revolution.

Congress has long recognized the importance of this goal and codified it in Section

1 of the Communications Act of 1934. The statute states that the purpose of the

Act is to ‘‘make available to all the people of the United States, without discrimination . . . a rapid, efficient, Nationwide, and worldwide wire and radio communication

service . . . at reasonable charges.’’ Where competition cannot ensure such access, the

FCC will continue to take action to support and promote universal service and other

public interest policies.

As the nation’s communications sector continues to undergo unprecedented

growth, we must ensure that Americans of all backgrounds have the opportunity to

benefit, not only as consumers of communications services, but also as employees

or owners of communications businesses. In particular, we need to open the doors

of opportunity to women, minorities, and small-scale entrepreneurs across all communications industries. This goal is critical to preserving diversity of viewpoints and

a vibrant democracy, and to ensuring that all Americans are able to take advantage

of the dynamic telecommunications market.

(4) Manage The Electromagnetic Spectrum (The Nation’s Airwaves) In The Public Interest.

Our fourth and final major policy goal is to manage the use of the electromagnetic

spectrum, the Nation’s airwaves, in the public interest for all non-Federal government users, including private sector, and state and local government users. Fundamental to this mandate is the difficult task of advancing the pro-competitive goals

of the Communications Act, while at the same time ensuring that other public interest goals are met. Competing demands and changing technologies make spectrum

management a unique challenge. Since spectrum is a finite public resource, it is important that it be allocated and assigned efficiently to provide the greatest possible

benefit to the American public. It is also important to encourage the development

and deployment of technology that will increase the amount of information that can

be transmitted in a given amount of bandwidth. To meet these challenges, the ComVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 E:\HEARINGS\61037 pfrm02 PsN: 61037
19

mission must constantly strive to improve the way it both allocates and assigns

spectrum. As part of this effort, the Commission must privatize functions where possible and promote an active secondary market to ensure that spectrum is being used

for the highest value end use.

The past few years have seen tremendous growth in information technology, particularly in the wireless industry. As markets become more competitive and new

services are introduced, demand for spectrum will increase. The Commission must

seek new methods to make spectrum available and ensure that it is put to its highest value use. Increasing the supply of spectrum will decrease the cost of using spectrum and thereby expand the output and lower the price of spectrum-based services.

It will also create new opportunities for competitive technologies and services for the

American public.

EXTERNAL FACTORS

A number of external factors will affect our ability to achieve our vision of fully

competitive communications markets in five years. The fortitude with which the

FCC and the states enforce the pro-competition mandates of the 1996 Act will continue to be a significant factor. Whether or not litigation delays the introduction or

implementation of key FCC and state decisions is another factor. Our success will

depend on whether previously monopolized communications markets are successfully opened up so that new entrants can compete in those markets.

Nonetheless, a range of additional external factors—some of which can be influenced by FCC actions, and others which largely cannot—may affect the continued

development of competition in communications markets. For example, convergencedriven competition depends heavily on investments in new technology by incumbent

and new communications providers. The breadth and depth of long-run consumer

demand for new services remain unknown and therefore may also impact the development of competition.

The prospects for competitive communications markets are significantly affected

not only by national developments, but also by developments in world markets. The

opportunities for United States telecommunications companies can be more fully realized if other countries join us in fostering competition in their communications

marketplaces. Market access restrictions in foreign counties significantly impede

U.S. companies’ ability to compete on a global scale.

Finally, the Commission’s ability to carry out its vision is largely dependent on

adequate resources from Congress to carry out critical activities. In many cases, the

FCC will need to redeploy existing budget and staff resources to address changing

priorities. In addition, many of the initiatives listed in the plan to reinvent ourselves

as a model agency for the digital age may require Congressional approval and continued adequate funding. Additional resources also may be required for new initiatives, for example in the areas of universal service, enforcement of disability access

provisions, enforcement of slamming/cramming rules, electronic government, alternative dispute resolution, and spectrum management, all of which ultimately will

result in a more effective and efficient organization. Our success is tied directly to

our ability to maintain critical staffing levels and fund ongoing and new initiatives.

NEXT STEPS

We look forward to working with Congress, industry, consumers, and all our

stakeholders to refine our Draft Strategic Plan. It is a work in progress and we are

committed to ongoing discussions and additional input. Our goal is a blueprint for

change that we can all be proud of and commit to as we enter the new millennium.

We plan to conduct ongoing reviews of our goals and objectives to ensure that

they accurately represent our highest priorities, even as the communications marketplace continues to evolve. In addition, we will conduct ongoing reviews of our policy initiatives and programs to ensure their effectiveness, and we will continuously

assess our progress toward achieving the performance measures proposed in this

plan.

CONCLUSION

Congress provided the blueprint for competition by passing the Telecommunications Act of 1996. This strategic plan is intended to provide a roadmap to guide

the FCC’s transition from an industry regulator to a market facilitator.

The FCC was created to serve the public, and now it has recommitted itself to

serve the public in a new century, in a new fashion.

We have a lot of critical work in front of us: local competition rules, universal

service reform, access reform, BOC entry into long distance, promoting the deployment of high-speed Internet access, consumer protection measures such as truth-inVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00022 Fmt 6633 Sfmt 6621 E:\HEARINGS\61037 pfrm02 PsN: 61037
20

billing, and opening up more spectrum for new services.—to name just a few. I am

committed—and the FCC’s staff are committed—to taking on all of these challenges

as well as reinventing the FCC. For, in the end, both will better serve our customers—the American people.

The changes that we propose are not trivial. The FCC, in five years, will be unrecognizable to those of us who know it today. It will be re-made for a new century

and for a rapidly changing industry. But no matter how much it changes, the FCC

will remain committed to promoting competition, fostering the growth of new technology, and bringing the opportunities inherent in the telecommunications revolution to all Americans.

And I mean all Americans. As I have reiterated time and time again, this Information Age must be the age of inclusion. No one should be left behind.

Thank you for your time. I’d be pleased to answer any questions.

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

Let me make one correction for the record. My comments regarding the industry was not that they were not forthcoming with ideas

and suggestions. They have been. They have been very candid

about that. My concern is when they talk about problems they have

with the rate, they don’t want to go public. They do it all off the

record, confidentially, because they are concerned about consequences. That is not a good comment. That is what I meant. We

need to examine them more thoroughly and find out why that is

so.

I thank the Chairman for his comments.

Mr. TAUZIN. Let me now welcome Commissioner Susan Ness to

the hearing and ask Ms. Ness if she has comments.

STATEMENT OF HON. SUSAN NESS

Ms. NESS. Thank you, Mr. Chairman. I welcome the opportunity

to appear before you today to hear your thoughts on FCC reform

and to proffer my views on Chairman Kennard’s excellent proposal,

A New FCC for the 21st Century. As you said, Mr. Chairman, and

as Mr. Kennard elaborated, the marketplace is literally changing

before our eyes. Commercial deployment of the Internet and deployment of IP protocol technology have fundamentally and irreversibly transformed markets. Technological advances have

spawned a stunning array of innovative products and services.

Competitors are beginning to offer bundles of voice, video and data

services at enticing prices. Reforms embodied in the 1996 Telecommunications Act and in the WTO Telecom Agreement have

spurred global competition, resulting in plummeting prices for

wired and wireless intrastate and international telecommunications.

The FCC has embraced these revolutionary changes, and the

blueprint for FCC reform outlines a vision of a structurally and directionally reordered and streamlined FCC. I commend the Chairman and the FCC staff for their excellent work. I support the principal goals of the plan. I won’t repeat them; they were already discussed by the Chairman. But I did want to comment on a few specific proposals.

First, I support the notion of reorganizing the Commission along

functional lines. The Commission’s current structure invites industry-specific analysis which runs counter to our desire to achieve

cross-industry competition. Use of multibureau task forces to work

on items and our Spectrum Coordinating Committee helped to alleviate some of that problem. Nonetheless, reorganization along

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functional lines should facilitate a cross-pollinization of policy

ideas. I recognize however, that we are still implementing an act

which is organized along industry lines.

Second, wireless technology is going to be a major component of

future services, and I strongly support the exploration of innovative

spectrum allocation and assignment mechanisms to promote efficient spectrum use, including where appropriate private band plan

managers. Also, flexibility is key to ensure that licensees can respond quickly to consumer demands. And new technologies such as

software-defined radio and ultra-wideband have tremendous potential; and we need to be able to explore those possibilities in a new

spectrum environment. I therefore especially applaud proposals to

strengthen the technical and spectrum-planning expertise of the

Commission. It takes very seasoned engineers to be able to understand what is happening as we try to have spectrum sharing to facilitate efficient use.

Therefore, the addition of technologists at the Commission is

going to be extremely helpful. This is particularly true in the international arena where we are working with our regulatory partners

abroad to promote spectrum efficiency and global competition.

Finally, I enthusiastically support the establishment of a consumer advisory panel and the consumer information bureau. These

will help inform our thinking as we endeavor to serve the public

interest. All too often we see that consumers are absent from the

mix of folks that come before us. They are a critical component that

I would like to see involved on a day-to-day basis.

While the proposed Strategic Plan is an excellent road map, the

true road test will come as we address each matter before us. We

must ask ourselves whether intervention truly is necessary or

whether we can avoid regulation; how we can narrowly tailor our

regulations when we do intervene; and how we can creatively use

our tools for the allocation and assignment of spectrum. Ultimately

it is our successful answers to these questions that will determine

how rapidly Congress’s vision of a competitive and deregulatory

communications marketplace is fulfilled, and it is only then that

the American public will truly reap the benefits of the proliferation

of new services and convergence that will characterize the new millennium.

Thank you very much, Mr. Chairman.

[The prepared statement of Hon. Susan Ness follows:]

PREPARED STATEMENT OF HON. SUSAN NESS, COMMISSIONER, FEDERAL

COMMUNICATIONS COMMISSION

Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity

to appear before you today.

I welcome this opportunity to address proposed reforms to the Federal Communications Commission as we greet the new Millennium. In particular, I am pleased

to discuss with you my views on FCC Chairman Kennard’s strategic plan—‘‘A New

FCC for the 21st Century.’’ This ongoing dialogue between our authorizing subcommittee and the FCC is especially important as we proceed to reform our agency

based upon the growing competition and convergence in the communications industries.

THE CHANGING MARKETPLACE

The marketplace is literally changing before our eyes. Advances in technology

have produced enormous benefits to consumers. Services that did not exist ten, five

or even two years ago now permit instantaneous contact between co-workers, family,

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and friends. These same services provide for immediate receipt of news and information anywhere in the world, and ready access to extensive data files wherever they

are stored.

Cable companies now are launching telephone service and Internet access; telephone companies are deploying high-speed lines for the delivery of video services

and data; satellites are blanketing the country with video, voice and data services;

palm sized devices are providing two way wireless delivery of voice and data, including connections to the Internet; and broadcasters are exploring ways to enhance the

airways with interactive information services.

Wireline, wireless, cable and satellite service providers are offering—or are contemplating offering—bundles of voice, video, and data services. Mergers and joint

ventures are forming—and dissolving—at a dizzying pace, as companies hedge their

bets and struggle to find a competitive niche in a rough and tumble marketplace.

Prices for many services have plummeted as competition takes hold. Where wireless calls recently cost 30 to 50 cents a minute with hefty roaming fees, the development of competitive nationwide cellular and PCS networks has prompted the offering of buckets of wireless minutes with nationwide rates as low as 10 cents per

minute. Long distance calls that cost 25 cents per minute in 1996 have been replaced with campaigns by competing carriers touting five cents per minute. Sports

and movies that recently were found only on broadcast networks and cable systems

now are delivered to our homes by direct broadcast satellites and power companies.

The Telecommunications Act of 1996 and the World Trade Organization Basic

Telecommunications Agreement (whose core principles reflect concepts embodied in

the Act) have spurred many of these changes. Another big driver of change has been

the commercial deployment of the Internet—coupled with the development of Internet protocol technology—which has revolutionized the dissemination of information

and literally transformed commerce, creating a new and thriving marketplace that

defies geographic boundaries and traditional market structures.

The implications of the Internet and Information revolution for telecommunications policy are profound. At the FCC, we are anticipating and responding to

these tumultuous changes. Chairman Kennard’s strategic plan outlines a vision of

a structurally and directionally reordered and streamlined Commission for the 21st

Century. I commend the Chairman and the staff for their fine efforts in developing

a comprehensive and responsive plan.

THE GENERAL GOALS OF THE STRATEGIC PLAN

Pursuit of the Strategic Plan’s four principal goals should ensure that new services at lower prices reach the market as expeditiously as possible.

1. FCC Reform

First, I agree that we must reform the agency to act faster and more responsively

to requests from licensees and the public. Licenses must be issued in timely fashion

with less paperwork; actions on requests to provide service must be taken without

undue delay. Lengthy processing times and cumbersome procedures hamper innovation and competition. Reorganization along functional lines—bringing together FCC

policy experts from each of the industry sectors—will enable us to comprehend better marketplace trends and be more responsive.

2. Promote Competition

Second, it is critical that we continue to promote competition and swiftly eliminate rules that intrude in competitive markets and that do not provide tangible benefits to consumers. As a general matter, new services should not need new authorization; and we should remove any rate regulations, service restrictions, and recordkeeping and filing requirements that no longer serve the public interest. Our forbearance authority and biennial reviews are excellent tools.

Where service providers violate our rules, we must take swift and deterrent action. Speedy enforcement is critical, especially where violations are aimed at

disadvantaging competitors or defrauding the public, including practices like slamming or cramming.

3. Access to Affordable Telecommunications by All Americans

Third, I agree that we must continue our efforts to ensure that all Americans—

including those living in rural and high cost areas, those with low incomes, those

with disabilities, and those living on Indian Reservations—have access to quality

basic and advanced telecommunications services at affordable rates. In the last few

years we have taken steps to enable consumers with low incomes or who live in

high-cost rural areas to receive telephone service at affordable prices. We have acted

to extend telecommunications services to classrooms, libraries and non-profit rural

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healthcare facilities. As we move into the new millennium, we must continue these

efforts to implement your vision as embodied in the law.

4. Efficient Management of the Spectrum in the Public Interest

Finally, and perhaps crucial to the three goals just discussed, we must develop

new ways to manage Spectrum. Spectrum planning must create opportunities for

multiple service providers, including new entrants, as mandated by the Act. We

must seek ways to manage the nation’s airwaves more efficiently, as an increasing

number of innovative and competitive services make their way to the marketplace.

And as the Commission’s representative to the World Radio Conferences in 1995

and 1997, I am acutely aware that, through early high-level government participation in the international planning and negotiation process, we can make a significant difference in the opportunities that are available both for U.S. industry abroad

and American consumers at home.

SPECIFIC PROPOSALS IN THE STRATEGIC PLAN

I would now like to highlight some of the specific proposals in the Strategic Plan

that are designed to implement these four principal goals:

1. Increasing Technical Expertise

First, I strongly support those aspects of the plan that are aimed at strengthening

the technical and spectrum planning expertise of the Commission. Some of the Commission’s most productive actions in the recent past have included the authorization

of newer and more efficient spread spectrum technologies and the establishment of

allocations for shared spectrum.

The FCC’s ability to assess technology and efficiently manage the non Federal

government use of the spectrum will be increasingly important in the new millennium, and will be enhanced by the proposals in the plan. These proposals emphasize

recruitment of high-quality staff knowledgeable about the communications marketplace. Chairman Kennard has proposed to strengthen the technical capabilities of

the Commission by hiring more engineers and technologists, and to re-establish an

entry-level engineering training program, a proposal I welcomed in my testimony

before you last March.

2. Innovative Spectrum Policies

Second, I strongly support the proposed exploration of innovative spectrum assignment mechanisms to promote efficient use of the spectrum. The use of more flexible

allocations and relaxed service rules will enable competitors to respond more rapidly

to changes in the marketplace and will create value for consumers and other users.

Further development of the auction process will continue to increase the effective

and orderly licensing of services. Facilitating the ability of licensees to aggregate

and disaggregate frequency by fostering a secondary market for spectrum is an innovative approach, worthy of consideration. I am also interested in exploring our

ability to combine auctions and the use of private band managers and coordinators

in an effort to privatize as much as possible the site specific licensing that is desirable in many services and in congested channel bands. Finally, we must examine

technological breakthroughs, including software defined radio, ultra-wideband, and

other spectrum-efficient methodologies, which could fundamentally change the way

in which we allocate spectrum nationally and globally.

3. Enhancing Global Competition

Third, I applaud the Chairman’s proposal to work with regulators from other

countries to promote full implementation of existing WTO commitments and to resolve outstanding spectrum issues at the upcoming World Radiocommunications

Conference. U.S. consumers will benefit greatly from the further reduction of entry

barriers in foreign communications markets and the development of global standards that encourage competition and innovation in wireless and satellite services.

I have long been concerned about the adequacy of resources for our international

representation in spectrum planning and negotiation, as well as our ability to encourage opening of foreign telecommunications markets. I am pleased that the

Chairman has made a priority of adequately identifying, coordinating, and advocating our international interests, and I hope that the other U.S. agencies as well

as Congress will support this effort.

4. Streamlining the FCC

Fourth, I support the Chairman’s efforts to find ways to speed up the Commission’s adjudication and rulemaking processes. Consumers and carriers alike will

benefit from faster Commission actions made possible by expeditious treatment of

petitions seeking reconsideration or review of decisions, greater use of alternative

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dispute resolution mechanisms and the accelerated docket, as well as generally improving the staff’s ability to resolve complaints against carriers.

As I noted previously, I support the proposal to organize the Commission along

more functional lines. Indeed, we have already headed down that path, with the establishment of the Enforcement and Consumer Information Bureaus.

As part of this effort, it is my hope that we can explore new techniques to build

industry consensus on issues that come before the Commission. Industry-driven solutions to problems generally expedite the resolution of issues pending before the

Commission—provided that consumer interests are also represented at the table.

5. Ensuring the Public Interest is Served

In that context, I am pleased to see the proposed establishment of a consumer

advisory committee. Commission actions have a profound effect on the public. Unfortunately, the public generally is woefully underrepresented in our proceedings. I

hope that this modest proposal, coupled with efforts to beef up consumer information, will help us better to assess what is in the public interest.

CONCLUSION

The proposed Strategic Plan is an excellent blueprint for the FCC as we enter the

new millennium. The real challenge, however, in reforming the Agency remains. As

we address each decision before us, we must ask ourselves: When should we intervene and when should we avoid regulation? How can we narrowly tailor our regulations when we do intervene, and then reduce their burden, as markets grow more

competitive? How do we creatively use our tools for the allocation and assignment

of spectrum? How can we most expeditiously meet the needs of our consumers?

Ultimately, it is our successful answers to these questions in each instance that

will determine how well and how rapidly Congress’ vision of a competitive and deregulatory communications marketplace is fulfilled. And it is only then that the public will truly reap the benefits of the proliferation of new services and convergence

that will characterize the new millennium.

Thank you for the opportunity to testify before you today. I am happy to answer

your questions.

Mr. TAUZIN. Thank you very much, Ms. Ness.

The Chair is now pleased to welcome the Honorable Howard

Furchtgott-Roth for an opening statement.

STATEMENT OF HON. HAROLD W. FURCHTGOTT-ROTH

Mr. FURCHTGOTT-ROTH. Thank you, Mr. Chairman. It is good to

be home. It is good to be back in this chamber where I spent many

a day and many fond memories of this place.

I have a prepared statement that I would like to submit for the

record, AND I would just like to make a few other comments.

Mr. TAUZIN. Without objection, all written statements are part of

the record.

Mr. FURCHTGOTT-ROTH. Thank you, Mr. Chairman.

This room is part of the Commerce Committee and it is part of

Congress. This meeting here today, this hearing, it is about Congress, it is about congressional oversight far more than it is about

the FCC. I recall that Congress has hearings that you can put in

two general categories: oversight and legislative. We have these

oversight hearings in part for Congress to learn from the agencies,

but in large part also for the agencies to learn from Congress. I am

very much looking forward to learning from you all today.

The Commission has enormous responsibilities. We do some

things well, we do some things maybe not quite so well. We have

heard about a few of them today. I am sure we are going to hear

about more as we go forward.

Much has been made about the organizational structure of the

FCC. I must say there are scores of Federal agencies around Washington. I doubt there is anyone who can describe in any detail how

25

each of these is organized. They are all organized in different ways,

and I don’t think there is anyone who could say that how well each

of these agencies performs its duties that is related in any predictable way to how well it is organized.

Organizational structure matters, but what matters more is having the Commission follow the law as it is written. If there are

problems in how the Commission is executing the law, they will not

be cured by organizational changes. If the Commission is doing

something well, that performance will not be substantially degraded by organizational changes.

Chairman Kennard and the FCC staff have invested a lot of time

and have come up with a very fine and well-thought-out product

and a Strategic Plan. It has not yet come before the Commission

for a vote. It is an interesting plan, one that I think has a lot of

merit, one that I don’t know that I would agree with everything in

it, but I certainly recognize the very fine quality of it, and one that

frankly the Commission under section 5(b) of the act could implement on its own, but as a Commission as a whole.

Finally, I would like to note that I share many of the committee’s

concerns this morning, particularly those of Chairman Bliley, on

transparency process, and I welcome the oversight of this committee. Thank you, Mr. Chairman. I look forward to the remainder

of the hearing.

[The prepared statement of Hon. Harold W. Furchtgott-Roth follows:]

PREPARED STATEMENT OF HON. HAROLD W. FURCHTGOTT-ROTH, COMMISSIONER,

FEDERAL COMMUNICATIONS COMMISSION

Chairman Tauzin, Congressman Markey, distinguished Members of this Subcommittee, thank you for the invitation to testify on ‘‘Federal Communications Commission Reform for the New Millennium.’’

Chairman Kennard, the Bureau chiefs, and representatives of the Office of Plans

& Policy have, I am sure, worked hard on this Chairman’s Draft Strategic Plan.

Parts of this document have real merit. I am equally sure, however, that if I were

asked to cast a formal vote to adopt this Plan as that of the Commission’s, I would

have real issues with the document as written. A brief review of the Plan reveals

that it includes as ‘‘key policy initiatives’’ some matters that are controversial and

about which Members of this Committee have expressed serious concern.

At this point, however, allow me to make a more general point about FCC reform

and the direction in which it should be headed: plans for internal agency restructuring are well and good. Under section 5(b) of the Communications Act, ‘‘the Commission’’ as a whole can reorganize the agency in order to promote its proper functioning. I am skeptical, however, that organizational restructuring alone can do

much to improve the efficiency—much less the policy positions—of the Commission.

The federal government consists of scores of agencies, no two of which have identical organizations, and each of which changes organizational structure from time

to time. No review of these federal agencies—or of private business organizations,

for that matter—would show that organizational structure is the primary criterion

that distinguishes efficient from inefficient agencies, or that separates those agencies that adhere closely to the law and Congressional intent from those that do not.

When a member of Congress objects to the processes or decisions of a government

agency, organizational structure is rarely the primary target of his or her frustration.

The most important ‘‘reform’’ that could occur at the agency—i.e., the one that

would go the furthest toward curing the institutional deficiencies for which it is

sometimes criticized—would be for the Commission to simply follow the law as Congress has written it. If we concentrated on executing the tasks clearly assigned to

us by Congress, and in doing so followed the guidance provided by the statute—as

opposed to initiating our own regulatory schemes without statutory direction to

channel them—we would do better by all involved.

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It is my firm belief that Congress—not the Federal Communications Commission—makes the basic decisions about federal telecommunications policy. Indeed, if

Congress did not make those fundamental policy choices, we would be faced with

an unconstitutional delegation of authority. These legislative choices are spelled out

in the Telecommunications Act of 1996 and in the Commission’s enabling statute,

the Communications Act of 1934. Taken together, these statutes establish the limits

of the Commission’s power in implementing Congressional mandates and define the

substance of those mandates.

The Telecommunications Act of 1996 gave the Commission the great responsibility

of implementing the dramatic changes effected by the Act. The role of the Commission was, in many respects, fundamentally altered by the Telecommunications Act

of 1996.

Those changes have been largely for the better. Four years ago, regulation at the

federal, state, and local levels was based on a framework that placed businesses in

discrete regulatory categories. Businesses were pigeonholed by their operations, and

limitations on their activities by line of business, by territory, and by customer class

were defined by those identities. A broadcaster was a broadcaster, and nothing else.

A local exchange carrier was a local exchange carrier, and nothing else. And so on.

Regulation meant that competition was, at best, managed by government agencies

and, at worst, illegal. Consumers paid a high price for this form of regulation: higher prices than necessary; lower quality than necessary; fewer choices than necessary; and less innovation than necessary.

Advances in technology and changes in the law, however, have worked to the advantage of consumers in the past few years. It would be wrong to attribute all of

the benefits of lower prices, new services, new innovations, and improved service

quality to changes brought on by the Telecommunications Act of 1996. But it would

be equally wrong to assert that the increased competition made possible by that Act

has meant nothing.

I have not always agreed with the Commission’s interpretation of specific sections

of the Act. Commission rules and interpretations have, in my opinion, been at times

much broader than the relevant statute, and thus in excess of statutory authority

and unlawful under the Administrative Procedure Act. In some instances, the Commission has simply failed to implement the law. But where the Commission has

acted in accordance with the directives and limits of the statute, I believe the American public has been well served. And where we have not implemented the law as

written, consumers could have been better off.

There are those who say that the Telecommunications Act of 1996 has failed. I

disagree. There are those who say that simply restructuring the FCC will remedy

any possible shortcomings of the Act. I disagree.

I think that we need to finish the job that we have started but have yet to complete. We should implement faithfully the 1996 Act by its terms, and neither reinvent, embellish, nor nullify it.

The Act describes itself as both ‘‘deregulatory’’ and ‘‘pro-competitive.’’ I believe

that it can and must be both. Indeed, the theory of the Act, as evidenced by its various provisions, is that deregulation—not more regulation—is the best way to promote competition. I believe that we have yet to implement the Act in a way that

achieves these twin goals. If we did that—and only that—Congress could spend less

time on oversight and reform of the FCC.

This Committee and its Members have invested much in this Act. I hope that you

will continue to insist on its full and proper implementation. Such implementation—

more than anything else—will bring the agency’s processes in better line with Congressional intent and thus ultimately with the democratic process.

Mr. TAUZIN. Thank you.

The Chair is now pleased to welcome the Honorable Michael

Powell, Commissioner for the FCC.

STATEMENT OF HON. MICHAEL K. POWELL

Mr. POWELL. Thank you, Mr. Chairman, and to the members. I,

too, want to commend Chairman Kennard’s leadership in developing his Strategic Plan. Its vision is laudable and consistent with

the goals of the 1996 act. And I generally support the goals of the

plan to make the agency faster, flatter, and more functional, for

such actions are critically important to meeting the challenges of

a vigorous, innovation-driven marketplace. I am pleased that many

27

of the areas discussed in our testimony last March are considered

in the draft plan, but I believe that the plan alone will not completely obviate the need for Congress to consider the parameters of

the Commission in a period of rapid change in the industry.

In the first instance, as we know, Congress sets the Commission’s mission. It is our duty to implement specific statutory direction before any discretionary authority. This simple priority principle to me should stand at the summit of any Commission plan.

As to the general goals of the draft plan, I would like to note two

particular areas of my role as Defense Commissioner that I believe

should be featured as well, flowing from section 1 of the act. In addition to those core functions, we must include protecting public

safety and the national security. These statutory objectives continue to be important as the FCC confronts a variety of challenges

relating to reconciling commercial and governmental interests

which are becoming increasingly difficult in a world of digitalization.

In addition, I would like to express my limited concern that the

plan takes a fairly long-term view of our mission and priorities

over a 5-year period. What form the communications market will

have taken by then is anyone’s guess, and one must be a bit skeptical that any restructuring along that time horizon will unfold as

planned. While a long-range Strategic Plan has merit and some

value in setting our proximate course, it is perhaps going to be

more important to work on specific priorities calibrated to shorter

timeframes.

The more significant challenge is to transform the vision so well

articulated in the plan into daily operations. For example, I continue to believe that the Commission would be well served to enumerate, clearly and widely communicated, a set of priorities on an

annual basis. This would help focus the Commission’s work for the

coming year and create greater regulatory certainty for the marketplace.

I also believe the FCC needs to make quicker, more timely decisions. While automated tools are appropriate for the bulk of the

routine non-controversial work that we do, we also need to endeavor to find ways to accelerate decisions involving complex transactions and important policy questions. I am interested in the proposal to consolidate the agency’s various functions. However, in

light of the current structure of the organic statute itself along

technical lines, I do caution us not to expect revolutionary changes

in analysis or outcomes of our decision by that simple structure

change.

The regulatory objectives of the draft plan, to my mind, fall a bit

short. The draft repeatedly remarks that we deregulate as competition develops. Undoubtedly that is true in some quarters, but I also

have to express my strong belief that significant deregulation is a

prerequisite ingredient for developing competition in many areas

and not always just a reward to industry after the government determines competition has emerged to its satisfaction.

I believe that the plan’s deregulatory component could be and

should be strengthened to more presumptively favor deregulation

and place greater burdens on the Commission to justify retaining

certain rules.

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For the most part, Chairman Kennard’s draft Strategic Plan can

be executed by the Commission and its most highly regarded staff

without congressional intervention. However, the list of modest legislative recommendations attached to the plan could help facilitate

its implementation, and I would urge some consideration of them.

Thank you for having me today. It is always an honor and a

pleasure and I look forward to your questions.

[The prepared statement of Hon. Michael K. Powell follows:]

PREPARED STATEMENT OF HON. MICHAEL K. POWELL, COMMISSIONER, FEDERAL

COMMUNICATIONS COMMISSION

Good morning, Mr. Chairman and other distinguished members of the House Subcommittee on Telecommunications, Trade and Consumer Protection. Thank you for

inviting me here to discuss ‘‘Federal Communications Commission Reform for the

New Millennium’’ and Chairman Kennard’s draft ‘‘strategic plan.’’

I will start by stating that I wholeheartedly support Chairman Kennard’s efforts

and commend his leadership in developing this draft strategic plan. The ‘‘vision’’

that the draft plan has of ‘‘vigorous competition that will greatly reduce the need

for direct regulation’’ is laudable and consistent with Congress’ intent in drafting

the 1996 Act. I, therefore, generally support the goals of the plan and its commitment to make the agency ‘‘faster, flatter and more functional.’’

In my testimony this morning, I would like to highlight for the Subcommittee

some of the elements of the draft plan, and, of course, talk briefly about the few

areas that may need further consideration by both the Commission and Congress.

In March, when we were last here to testify on FCC reauthorization, I submitted

five areas for exploration: (1) the need to more clearly define the Commission’s annual priorities and focus; (2) the need to operate efficiently enough to meet the demands of an innovation driven market; (3) how to better align the agency with market trends and demands; (4) whether to continue the administration of functions

that are largely duplicated elsewhere in government; and (5) the breadth of the

Commission’s quasi-legislative authority. I am pleased that many of these areas are

considered in the Chairman’s draft plan, but I believe that it alone will not completely obviate the need for Congress to monitor and perhaps modify the agency in

response to rapid change in the industry and to ensure that Congress’ pro-competitive, deregulatory vision, embodied in the 1996 Act, is realized.

I. THE COMMISSION’S MISSION, GOALS AND OBJECTIVES

A must-do for any organization—from the smallest to the largest—is to establish

goals and objectives that are measurable and achievable. Congress sets the Commission’s mission and goals in the first instance. In my mind, it is our duty to implement specific statutory direction, before, or concomitant with, any discretionary authority. This simple priority principle should stand foursquare at the summit of any

Commission plan.

I believe, generally, that the draft strategic plan covers the broad areas that

should guide our work in coming years. However, I would point out two areas that

I believe are important and derive from Section 1 of the Act, but are omitted in the

present draft: (1) the promotion of safety of life and property and (2) the national

defense.

As the ‘‘Defense Commissioner’’ responsible for the FCC’s emergency preparedness, security and national defense matters, I have asked the Chairman to include

up-front in the plan these important statutory goals. These issues are becoming

more acute and more challenging as competition and deregulation drive greater

commercial activity. While I intensely encourage new entry and applaud innovative

business models, these interests do not always coincide with governmental interests

in law enforcement and national security. I would alert the Congress to the growing

challenge of reconciling these competing interests. Some of these challenges include

fulfilling the spectrum needs of federal, state and local public safety entities; ensuring that law enforcement continues to have the necessary tools at its disposal in the

digital age; balancing the competing demands for spectrum by governmental and

non-governmental institutions, particularly in international forums; and safeguarding critical national security and defense assets.

With an expansive and complex statute it is difficult to compress into one sentence and four enumerated goals the purpose of the FCC ‘‘for the 21st Century.’’ I

congratulate Chairman Kennard for his attempt to do so. Such an endeavor, however, necessarily produces a document of lofty generalities. The more significant

29

challenge is to translate this strategic vision into an operational plan, detailing the

means for reaching the objectives and the resources for doing so. My only caution

here is that it is always more difficult to execute a plan than to craft one, and I

have some concerns that the goals in this strategic plan are overly optimistic and

some of its numeric targets potentially unhelpful.

I think the Chairman’s draft strategic plan includes some appropriate implementation steps and ways to measure our results. He has also put in place a top-notch

team of FCC managers and professionals to implement these steps. My limited concern, however, is that the plan takes a fairly long-term view of our mission and priorities (5 years). What form the communications market will have taken by then is

anyone’s guess, and one must be a bit skeptical that any restructuring along that

time horizon will unfold as planned. While a long-range strategic plan has some

value in setting an approximate course, it is perhaps more important to work on

specific priorities calibrated to shorter timeframes.

For example, as I testified in March, I continue to believe that it would be useful

for the Commission to enumerate clearly and widely communicate a set of annual

priorities. I would favor a more structured process by which the Commission formally develops and publicly reports its priorities for the upcoming year to help focus

the work of the Commission and create greater regulatory certainty. To assist in

this and other managerial challenges, I would consider creating a professional management position in the Commission, dedicated to operational matters.

Let me now offer a few observations regarding specific subjects covered in the

draft plan.

II. SOME HIGHLIGHTS OF THE DRAFT STRATEGIC PLAN

A. Internal Procedures

In the effort to improve internal procedures, we should be centrally focused on

drastically improving efficiency. In a market guided by ‘‘Internet’’ time, the FCC

needs to make quicker, more timely decisions. This is why I fully support our current and future efforts to modernize and automate many of our functions. The FCC

is focused, rightly, on becoming a ‘‘model agency for the digital age.’’ I have been

very impressed by the various automation efforts, including the spectrum auction

bidding system and the Wireless Bureau’s ‘‘ULS’’ project. Automated tools are appropriate for the bulk of the routine and non-controversial work. At the same time,

however, we need to find ways to accelerate decisions involving complex transactions and important policy questions. Here, more than any other area, a decision

that comes too late, might as well not have been made at all.

Therefore, I am encouraged by the draft plan’s proposals to eliminate multiple levels of review, making the agency faster, flatter and functional. We must be structured to render decisions quickly, predictably, and without imposing needless costs

on industry or consumers through unnecessary delay. In this regard, while I agree

with the proposal to act on certain petitions for reconsideration within 60 days of

the record closing, I would suggest the same expedited treatment of applications for

review of actions taken on delegated authority, as well.

Finally, I am very pleased to see that the Chairman will restructure the Office

of the Secretary to facilitate management of Commission proceedings and to ensure

Commissioners adhere to timetables and voting procedures. I also anticipate that

the Secretary will be instrumental in facilitating the Bureaus’ disposal and release

of pending matters.

B. Structural Changes

The Chairman’s draft plan clearly recognizes (as almost everyone has) that the

Commission is currently organized around industry segments that increasingly are

less relevant as convergence strains and eliminates their unique technical distinctions. I generally concur with the Chairman’s proposals to reorganize the agency

along functional rather than technological lines. I supported the consolidation of dispersed functions into the new Enforcement and Consumer Information Bureaus and

I look forward to these new bureaus getting started soon.

I am very intrigued (but not yet sold) by the second phase proposal to consolidate

the FCC’s policy/rulemaking and authorization of service/licensing functions. A single policy/rulemaking bureau may have some merit. For one, it will increase the

field of view of management, hopefully in a way that harmonizes our decisions

across industry segments. However, given the depth and breadth of our policy/rulemaking responsibilities, a single bureau overseeing these functions could prove too

large and unwieldy. Moreover, because the Communications Act continues to categorize industries based on technology, a consolidated bureau, while appearing functional, may in fact collapse into a ‘‘mini FCC’’ with separate divisions charged with

30

particular sections of the Act. This subject requires the fullest consideration, but I

caution one not to expect revolutionary changes in the analysis or outcomes of our

decisions as a consequence of this type of organizational change.

C. Deregulatory Initiatives

I regret that the deregulatory objectives of the draft plan fall short of my expectations. It seems that one of the core principles articulated in the plan is that we ‘‘deregulate as competition develops.’’ As I have written several times, I am of the view

that in many instances, deregulation is a necessary pre-requisite to competition developing. I have often observed a hesitancy to deregulate, under the belief that competition has not yet fully developed or matured. The assumption is that regulation

is removed only when it has been rendered superfluous because of competition. In

some areas, this may be true. But, this approach fails to recognize the interrelationship between regulations and the development of competitive markets. Regulations

often distort market incentives or inhibit efficient entry and competition. Deregulation, then, is not just desert, served after competition comes out of the oven. It is

a necessary ingredient to the competition dish.

Although I will not get into the details of the dispute over these core beliefs, I

generally see deregulation (whether in the form of forbearance, streamlining or a

biennial review) more as a means of facilitating competition through the elimination

of burdensome regulatory requirements. It is not a reward to hold out to industry,

after the government determines that there is enough competition to grant relief.

I would suggest that the plan’s deregulatory component be beefed up to shift our

paradigm for handling forbearance requests and the next biennial review toward a

presumption in favor of deregulation and an obligation to re-justify regulations that

are retained, with the burden to do so resting with the Commission.

1. Forbearance—The draft plan says that the Commission will ‘‘consider additional areas that may be appropriate for forbearance,’’ claiming that we have already engaged in substantial forbearance. I cannot concur with this favorable view

of our forbearance record. The true tale is not in the numbers (no matter how well

massaged), but how meekly we have wielded the powerful forbearance tool. Yes, we

have swatted a few gnats, but very few dragons. I think Congress expected us to

be much more aggressive. Indeed, I believe Congress intended that when we are

faced with a petition to forbear that we should have to fully justify a decision that

leaves the rules on the books. If we cannot, the rule should fall. The burden rests

with us.

2. Biennial Review—The Biennial Review requirement of Section 11 of the Act,

like Section 10, is a very important provision enacted in 1996. I share some of Commissioner Furchtgott-Roth’s concerns about the Commission’s first biennial review

and, as I recall, Chairman Kennard responded favorably to Commissioner

Furchtgott-Roth’s ideas for the Year 2000 review. I am also very pleased that Chairman Kennard’s draft plan calls for ‘‘an aggressive’’ biennial review next year, citing

wireless as an area where competition has clearly emerged and where most regulation has become unnecessary. I can only add to the thoughts of my colleagues on

this score by emphasizing that I expect that we will take on the burden of justifying

the rules that we keep and to grapple head on with the statutory public interest

test of ‘‘meaningful economic competition.’’

D. Duplicative Functions

As I testified in March, it is very important to address areas where Commission

authority and activities overlap with those of other government agencies. While

such governmental overlaps may be desirable, they should at least be complementary (or supplementary) rather than simply duplicative. I am glad that the draft

plan provides that we will continue efforts to coordinate with other federal agencies

(and with state and local governments) and, especially, to improve coordination with

the Federal Trade Commission and the Departments of Justice, Commerce and

State to ensure that our respective functions are more complementary. However,

some of the FCC’s functions must be thoroughly evaluated in the context of the

overlapping duties of other federal agencies and state and local jurisdictions.

1. Merger Review—For example, merger review is the topic of several pending

bills and of much interest lately as we see a pace of strategic consolidation in telecommunications and media markets like we have never seen before. The FCC’s review of major transactions should be generally limited to those areas in which we

can claim primary expertise. While I believe that there is room to preserve a complementary role for the FCC in the review of mergers, we need to have some disciplined procedures and limiting principles to ensure the rapid processing of such

transactions, to preserve the rights of the parties and to avoid duplication with

other authorities. I have articulated in more detail some of these limiting principles

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and have criticized our current process in recent public statements, which I would

be pleased to pass on to the Subcommittee.

Chairman Kennard’s plan (which is not yet part of the strategic plan) to set up

an intra-agency transactions team in the Office of General Counsel may be a promising proposal. I fully support efforts to make the FCC’s merger review process more

predictable and transparent. But we need more than a new box on the organizational chart. We need much more significant consideration of two areas for revision:

(1) we must institute a clearly articulated review process replete with timing benchmarks, and (2) Congress and the Commission need to reevaluate the applicable

merger standards to limit duplication and guard against extraneous conditions. I

look forward to considering a proposal along these lines.

2. Other Areas—Let me briefly address other areas that overlap with other governmental institutions: consumer protection, equal employment opportunities (EEO)

and political campaigns. First, one focus of the draft plan is rightly on consumer

protection. For, as we have seen in the slamming area, competition tends to bring

out of the woodwork those that try to cheat consumers for a fast buck. We must,

within our authority, be vigilant in keeping the cheaters at bay. At the same time,

we must recognize that there are other agencies and jurisdictions that have similar

authority and some judgment might be made as to which is best positioned to administer certain issues.

We must also examine whether all aspects of the Commission’s EEO program

should remain separate from the Equal Employment Opportunity Commission and

the federal, state and local civil rights authorities. Although there is some advantage to having the FCC involved because of its unique relationship with certain industries, in times of tight resources and many other priorities at the FCC, we must

ensure that the FCC’s and EEOC’s respective roles remain complementary and not

duplicative. By deferring some aspects of this program to the expert civil rights

agency (as the Commission has done in certain respects under memoranda of understanding with the EEOC), we are in better position to justify the government’s role

in promoting employment opportunities in the dynamic and growing communications industry.

Finally, with an election year soon upon us, the FCC will be facing more pressure

to enforce and even expand the political obligations of broadcast licensees. There are

unquestionably problems in our electoral system, but I shiver at the suggestion that

the Communications Commission ought to play a central role in such matters without comprehensive direction from Congress. Unbridled discretion to affect campaigns by three of five unelected regulators is unwise. Moreover, the FCC lacks the

knowledge or expertise to properly balance electoral interests or to weigh the effects

on existing election law. I would leave that to the Federal Election Commission, if

anyone.

IV. LEGISLATIVE RECOMMENDATIONS

Many of the concerns I have raised, in addition to many other significant issues

such as broadband access and inter-LATA data relief, may demand Congress’ attention over the coming months. However, I recognize the difficulty of enacting major

FCC reform initiatives so soon after passage of the 1996 Act. In the near term, less

controversial legislative tweaks that support the Commission’s efforts to reform

itself and become more efficient may be beneficial.

For the most part, Chairman Kennard’s draft strategic plan can be executed by

the Commission and its most highly regarded staff without congressional intervention. However, the list of modest legislative recommendations attached to the plan

will surely help facilitate its implementation. I generally support them and I will

briefly commend the Subcommittee’s attention to a couple.

First, the proposal to exempt the Commission from the Government in the Sunshine Act should be considered. I recognize that at first blush, it seems fantastic

to support less openness. But the fact is that the Sunshine Act not only has failed

in its purpose, it may have had the opposite effect. The notion that substantive decisions are debated by Commissioners in public meetings and voted after such deliberation is fiction. The press of business requires that most items be voted on circulation. Moreover, even the votes at open meetings are ceremonial, the decision having

been debated and determined in advance. The Sunshine Act, in fact, impedes efficient decision-making. Because three Commissioners may not discuss a substantive

matter (except at a public forum), questions are filtered through and among layers

of Commission staff and then are communicated back and forth to the Commissioners. This produces a lengthy and often chaotic decision-making process. Our decisions certainly should not be cloaked in the shadows, but they are presently being

scorched by sunshine.

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Second, the Chairman’s legislative proposals that would provide flexibility to restructure our operations also deserve attention. For example, ‘‘voluntary separation

incentives’’ or employee ‘‘buyouts’’ would facilitate further staff downsizing and redeployment, to be more responsive to the ongoing industry convergence and more conducive to a functional organizational structure. Additional flexibility to hire outside

experts and consultants would allow the Commission to attract talented experts to

augment our current staff’s expertise.

Third, I favor the Chairman’s proposals to strengthen our enforcement assets, including those that toughen penalties for violation of the Communications Act and

FCC rules and that provide for speedier judicial review of Commission forfeiture orders.

V. CONCLUSION

I look forward to continuing to work with Members of Congress and with my colleagues on the many challenges ahead. I trust that, by working collaboratively and

by having faith in free markets, we will bring the benefits of competition, choice,

and service to American consumers as envisioned by the 1996 Act.

Thank you for your attention.

Mr. TAUZIN. Thank you commissioner Powell.

Finally, but certainly not least, Commissioner Gloria Tristani for

an opening statement.

STATEMENT OF HON. GLORIA TRISTANI

Ms. TRISTANI. Thank you, Mr. Chairman. I am delighted to be

here.

I generally support the draft Strategic Plan released by Chairman Kennard last August. It is a thoughtful and forward-looking

proposal that provides a good road map for preparing the FCC for

the new millennium.

I won’t repeat the specific points made in the Chairman’s report,

but I would emphasize one particular issue and make a couple of

points of my own.

First, I completely agree with the Chairman that consumer protection should remain one of the Commission’s core functions. In

particular, I agree that we should have a zero-tolerance policy for

perpetrators of consumer fraud such as slamming. The problem of

slamming is rampant and it is the FCC’s job to stop it.

I would also like to join the comments of my fellow commissioner,

Susan Ness, in saying that we need to have more consumer input

in our decisions. Consumer voices are very rarely heard at the

Commission.

Second, while I fully support the goals and key policy initiatives

set forth in the chairman’s report, I am not convinced that some

of the 5-year goals described in the report are achievable. For instance, I am not convinced that despite our best efforts we will be

able to increase market penetration for basic telephony service in

rural and underserved areas to 94 percent in 5 years, or that in

that timeframe advanced services will be available to 90 percent of

American homes.

Finally, as we move into the new millennium, I would emphasize

the Commission’s continuing statutory role in ensuring that the

public airwaves are used in the public interest. For far too long, the

FCC has permitted the public interest standard to lapse into a

vague, undefined, and therefore unenforced, standard. I believe it

is time for the Commission to rectify that by defining and enforcing

meaningful public interest obligations. Again I am delighted to be

here and I look forward to your questions.

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[The prepared statement of Hon. Gloria Tristani follows:]

PREPARED STATEMENT OF HON. GLORIA TRISTANI, COMMISSIONER, FEDERAL

COMMUNICATIONS COMMISSION

I’m pleased to be here today to discuss the structure and mission of the Federal

Communications Commission as we move into the 21st century.

I generally support the Draft Strategic Plan released by Chairman William

Kennard last August. It is a thoughtful and forward-looking proposal that provides

a good road map for preparing the FCC for the new Millennium. As Chairman

Kennard’s Report proposes, the FCC can and should: (1) create a model agency for

the digital age; (2) promote competition in all communications markets; (3) promote

opportunities for all Americans to benefit from the communications revolution; and

(4) manage the electromagnetic spectrum (the nation’s airwaves) in the public interest.

I won’t repeat the specific points made in the Chairman’s Report. But I would emphasize one particular issue and make a couple points of my own.

First, I completely agree with the Chairman that consumer protection should remain one of the Commission’s core functions. In particular, I agree that we should

have a zero tolerance policy for perpetrators of consumer fraud, such as slamming.

The problem of slamming is rampant, and it is the FCC’s job to stop it. Last December, we promulgated new anti- slamming rules that, in concert with our aggressive

enforcement actions against slammers, would drastically reduce the frequency of

slamming. Unfortunately, the FCC’s anti-slamming rules have been stayed by the

courts. The sooner meaningful anti-slamming rules become effective, the sooner we

can begin moving toward the Chairman’s aggressive goals for reducing slamming

complaints over the next five years.

Second, while I fully support the goals and key policy initiatives set forth in the

Chairman’s Report, I am not convinced that some of the five-year goals described

in the Report are achievable. For instance, I agree that we must increase market

penetration rates for basic telephony service in rural and under-served areas (currently under 50 percent). But I am not convinced that, despite our best efforts, we

will be able to bring those numbers up to the national average of 94 percent in five

years. In my opinion, a more realistic number would be something on the order of

75 percent. Similarly, given the current pace of deployment, I am not convinced that

advanced services will be available to 90 percent of American homes in five years.

I am especially concerned about the current pace of deployment in rural and other

hard-to-serve areas.

Finally, as we move into the new Millennium, I would emphasize the Commission’s continuing statutory role in ensuring that the public airwaves are used in the

public interest. I do not believe that this is simply a question of whether the airwaves are being used efficiently, but whether they are being used in a manner that

benefits the public. For too long, the FCC has permitted the public interest standard

to lapse into a vague, undefined—and therefore unenforced—standard. I believe it

is time for the Commission to rectify that. We ought to define and enforce specific,

meaningful obligations that licensees must meet, especially as we move into the digital world. Or if such obligations do not exist, we should say so. Licensees deserve

to know the standards to which they will be held accountable, and the American

public deserves to know the benefits it is entitled to expect for the use of its spectrum.

Mr. TAUZIN. Thank you very much, Ms. Tristani.

Let me recognize members now for a round of questions, and the

Chair would start by recognizing himself.

First of all, Mr. Chairman, you all mentioned speed matters. The

technology that the FCC oversees is moving at an incredible pace,

and yet what we see at the FCC is if you are given 180 days to

do something you take 180 days.

Mr. Powell, you mentioned the concern for that. I want to hit on

that a little harder. If there is a time limit provided in the statutes,

the FCC takes it all. If there is no time limit in the statute, there

is even greater concern about how long it takes to process matters.

For example, there is no time limit at all on license transfers, and

therefore merger reviews under the Commission are timeless. They

could go on forever.

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One of the big concerns we have is that if speed matters in this

world of high technology, what is the Commission going to do in

its plans to shorten the time for all these reviews and considerations of applications that come before the Commission?

Mr. KENNARD. It is a very good question. As I stated earlier,

when we convene all our stakeholders, this is an issue that continually comes up. In the plan there are a number of ways that we

seek to address it. One is we are imposing some deadlines on ourselves for petitions for reconsideration, applications for review,

some of the more routine pleadings that come before us. One of the

things, however, that we have to be cognizant of is the due process

rights of people who come before us. We are subject to the Administrative Procedure Act and we have to make sure that everybody

has an opportunity to be heard.

Mr. TAUZIN. Can I jump in here for a second? One of the things

that has been pointed out to me that kind of surprised me, I didn’t

realize it was true, that only two of you can talk to each other at

a time.

Mr. KENNARD. Yes.

Mr. TAUZIN. The law prohibits you to communicate as we communicate with each other in the legislative process, to seek counsel

of one another and to come to a consensus. You are unable to do

that so you have to rely upon staff to go through all this stuff and

to bring your recommendation. By the time you get it, it is pretty

well cooked, isn’t it?

Mr. KENNARD. That is exactly right. That is because, of course,

the Government in the Sunshine Act. It was a very well-intentioned piece of legislation; but unfortunately, the unintended consequence is that we have difficulty communicating, and it makes

for a game of telephone at the FCC when we are

communicating——

Mr. TAUZIN. One to one.

Mr. KENNARD. Exactly.

Mr. TAUZIN. Another good example is I have been fascinated recently, I have even talked to one of the inventors of the ultra-wideband technology. One of your colleagues has called for a rulemaking. It has been 9 years that the Commission has been considering regulatory approval also of different applications of this technology. And it is amazing. If it is real, it is amazing in terms of

its ability to see persons, buildings, to provide rescue, earthquakes,

land mine protection, safety at airports. I can go on and on and on

about all the incredible benefits of that technology if it is real, and

yet it is 9 years and we haven’t had a rulemaking on it. I think

you get my gist.

It is pretty frustrating when that is a result of maybe the inhibitions of the agency’s capacity to talk to one another and to collaborate and maybe move some of these things forward. If speed matters in this technology, it could be critically important in solving

many of the last-mile problems of broadband communications. For

example, why would we not want to have a rulemaking on it and

get moving on it and literally short-circuit a 9-year process? Mr.

Kennard?

Mr. KENNARD. I couldn’t agree with you more. One of the things

that we have to recognize is that the FCC is an under-resourced,

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overworked agency. Ultra-wideband is a good example. We have

just a limited number of quality engineers that we can throw at a

problem like that.

Mr. TAUZIN. Let me see if I can save you some time then. What

did the repeal of section 221(a) of the 1934 act mean to you guys

and gals? Section 221(a) was the authority route to review mergers.

In 1996 Congress repealed, specifically repealed, the legislative authority to review mergers. A lot of your time is spent reviewing

mergers. What did that repeal mean to you, and did it mean nothing?

Mr. KENNARD. I would like to address that question specifically

and the overall question of mergers. One is, Congress didn’t repeal

the responsibility of the agency to ensure that license transfers are

only granted if they serve the public interest. We have experienced

in the last 31⁄2 years since the act was passed an unprecedented

wave of mergers and consolidation in this industry. We have never

seen anything like it in every single sector of the communications

industry. So you can imagine the kind of strain it puts on the agency.

Now, notwithstanding that strain, I am proud to say that we

have been able to grant most of these license transfers and assignments in very quick fashion. In fact, the overwhelming majority of

license transfers that come before the FCC are handled in less than

6 months.

Mr. TAUZIN. My time is expired. I will let you comment a lot

more on it and perhaps submit something in writing. But before I

yield, let me just ask you if any one of you want to respond to the

question I asked. What was the meaning at the Commission in the

way you viewed what we do, how I talked about the relationship

of Congress and the agency created by Congress to carry out our

policy, what was the meaning of Congress repealing the specific authority that allowed you to review mergers? If it had no meaning,

tell me that. If you think it had some meaning, what was it? Anyone?

Mr. KENNARD. Again, I would just reiterate that we have a statutory obligation to review license transfers to make sure they serve

the public interest.

Mr. TAUZIN. I heard that. I am asking you what do you think

Congress meant when they repealed that section? Did it have no

meaning at all? Were you ignoring it because you thought you had

authority in other areas to review mergers? Did it have no meaning? Was there no message in that repeal? Why did we do it if it

was meaningless is what I am asking. Why would you think it

meant nothing, if you are the agency commissioned by Congress to

carry out legislative policy?

Mr. KENNARD. Perhaps from your perspective, it didn’t go far

enough.

Mr. TAUZIN. It didn’t go past this diocese, apparently, is what I

am concerned about. Nobody heard it. Nobody read it as meaningful.

Ms. NESS. My recollection—and I may be thinking of a different

change in the statute—but my recollection was that this eliminated

the preclusive effect of the Commission electing to exercise its

merger authority; under the old law, the Commission’s action preVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 E:\HEARINGS\61037 pfrm02 PsN: 61037
36

cluded DOJ or the FTC from exercising its authority to review

mergers involving Bell operating companies. Again, I may be

wrong, I may be focused on a different section—but I believe that

is what the change in the statute did.

Mr. TAUZIN. My information is specifically repeal the authority

to review mergers. I would love if you—I need to pass it over—if

you would give it some thought and come back to us in writing as

to what at all that repeal meant to you, and that will give us an

idea of how we legislate and how you receive our legislation for the

future as we go through this reform effort.

[The following was received for the record:]

THE EFFECT OF THE REPEAL OF SECTION 221(A)

Section 221(a) of the Communications Act provided for Commission hearings

when telephone companies sought permission to consolidate, acquire, or transfer

control over their properties. If the Commission determined that the proposed transaction was in the public interest, antitrust scrutiny was precluded.

In the Telecommunications Act of 1996, Congress eliminated section 221(a) as

part of an ‘‘antitrust savings clause’’ for the express purpose of permitting antitrust

review of telephone company mergers.

The Congress, however, did not eliminate or modify Commission review of telephone company mergers under the Communications Act. To the contrary, the Conference Report on the Telecommunications Act of 1996 expressly noted that:

‘‘[This] repeal would not affect the Commission’s ability to conduct any

review of a merger for Communications Act purposes, e.g., transfer of

licenses. Rather, it would simply end the Commission’s ability to confer

antitrust immunity.’’ Conference Report, at 201. (Emphasis added.)

Mr. TAUZIN. Let me yield to the gentlelady from California, Ms.

Eshoo.

Ms. ESHOO. Thank you, Mr. Chairman. I am glad you took some

extra time because it is always instructive to hear you press your

questions, so I look forward to the answer from the Commission.

I have two questions, the first of Chairman Kennard, and the

area of any of the Commissioners. And I want to get the questions

out because usually if you do them one at a time, you only get an

answer to the first question and run out of time on the second.

Chairman Kennard, in your statement you mentioned that the

FCC needs to recognize itself along a functional rather than technological basis. I think you are saying that the current FCC bureau’s cable common carrier, may not apply to the emerging telecommunications field, especially with cable operators who are now

offering telephone services and telephone companies who are offering cable services and all of them offering Internet service.

What structure do you envision for the FCC and what sign posts

will you employ to guide you in making these structural changes?

Maybe to rephrase my question, when will you know the time is

right to overhaul the current regulatory structure at the FCC? So

that is my question of you.

Let me get this other one in for any of the Commissioners. Many

of us have heard from a number of the new entrants in the telecommunications field about the many intercarrier disputes they

continue to have. Chairman Kennard mentioned that the new Enforcement Bureau will be functional in November. Do you believe

that a definite timeframe for FCC review of these disputes should

be implemented? We will start with Chairman Kennard.

37

Mr. KENNARD. Thank you. You raised an issue that really goes

to the heart of our Strategic Plan for the future. That is, it is really

being thrust upon us because of the convergence in the industries

with which we deal. What we have attempted to do is lay out a

blueprint for reorganizing the FCC along functional lines, because

we are finding that the traditional bureau structure has severe limitations.

That being said, though, we have to recognize that the act itself

is still organized for the most part along industry lines. You have

title II dealing with the telephone industry; title VI, cable; title III,

broadcast. And so we are in effect trying to reorganize in some

senses ahead of our statutory authority. Commissioner Powell has

made some interesting observations about that in the past.

Nevertheless, I think we have to charge ahead, because the industry is changing. Convergence is happening. We have laid out a

plan for reorganizing along functional lines here in our Strategic

Plan. We took the first major steps with the inauguration of these

two new functional bureaus, Enforcement and Consumer Information. The plan calls for completing our reorganization over a period

of time so that by, I believe, January 2003, we hope to have completed this functional reorganization.

I think it is important, though, to address the concerns of some

who have asked why is it going to take you so long to make this

happen? I think we all need to be aware of the cost of restructuring

an agency like the FCC, a small, under-resourced agency, when we

are being bombarded every day with mergers and petitions and

court appeals. We have to have sensitivity to our employees.

If we were to reorganize the agency completely structurally overnight, I am afraid that the place would grind to a dead halt. So

I think that what we have here is a Strategic Plan that is reasonable and that lays out this restructuring over time.

Ms. ESHOO. Do you have timeframes around the functions?

Mr. KENNARD. Yes. They are outlined—in the plan. We indicate

when we are going to take the next steps. The next step will be

to preview the creation of a Video Competition Bureau which would

merge our Mass Media Bureau with our Cable Bureau.

Ms. ESHOO. Great. Thank you.

My second question, to any of the Commissioners?

Mr. FURCHTGOTT-ROTH. Ms. Eshoo, I will be happy to respond to

your second question. Many CLECs do have many disputes with incumbent local exchange carriers. Most of those disputes take place

under section 252 and State jurisdiction. They are not necessarily

FCC jurisdiction.

There are some disputes under section 251, and I think one thing

that Chairman Kennard’s leadership has brought us very well is

the ‘‘rocket docket’’ to provide for expedited review of certain disputes. This was an experiment that we started, oh, goodness, 9, 10

months ago, and I think it has been fairly successful so far.

Ms. ESHOO. I am not so sure I understand your answer.

I know I don’t understand your answer. What I was asking was,

given what I described, do any of the Commissioners believe that

there is a definite timeframe for FCC review of the disputes, if that

should be implemented, a definite timeframe around the disputes?

38

And I don’t think that was addressed in your answer. If it was, I

missed it.

Mr. FURCHTGOTT-ROTH. Ms. Eshoo.

Ms. ESHOO. Maybe it just can’t be answered. Maybe you don’t

know yet. If that is the case, then maybe that is what should be

said.

Mr. FURCHTGOTT-ROTH. Ms. Eshoo, I am happy to try again.

Ms. ESHOO. Good.

Mr. FURCHTGOTT-ROTH. The point I was making is that most of

the disputes between CLECs and incumbent local exchange carriers are not under Federal jurisdiction. They are under State jurisdiction.

Ms. ESHOO. And the others, what about the others?

Mr. FURCHTGOTT-ROTH. We have implemented something that is

popularly referred to as the ‘‘rocket docket,’’ that is an expedited

review process for these types of complaints.

Ms. ESHOO. So there is—you are saying that there is a good

timeframe around it because they are expedited expeditiously?

Mr. FURCHTGOTT-ROTH. For some of the disputes, it requires the

agreement of the parties. I won’t say that they are all being handled that way, and I am sure there are some that are probably taking a lot longer than they should.

Ms. ESHOO. Thank you. Anyone want to add anything to that?

No? Thank you, Mr. Chairman.

Mr. TAUZIN. I thank the gentlewoman.

The Chair recognizes the vice chairman of the committee, Mr.

Oxley. With the indulgence of members, Mr. Oxley has to sub for

the chairman of the O&I hearing, and with your concurrence, Mr.

Oxley is recognized.

Mr. OXLEY. I thank you, Mr. Chairman.

Let me begin by asking about this Satellite Home Viewer Act. All

of you know this is in conference and we are getting close, hopefully, to an agreement.

One of the issues that remains to be resolved is whether Congress should direct the FCC to modernize the signal reception

standard, which has been in effect since 1952, and at least in my

estimation doesn’t meet consumers’ expectations today as to what

is really an effective picture. I also recognize that Congress must

be careful not to jeopardize free, over-the-air broadcasting.

Mr. Chairman, if Congress were to authorize the FCC to modernize its signal reception standard, are you confident you could devise a standard that satisfies consumers’ expectations while also

ensuring that localism will continue?

Mr. KENNARD. I think we could. I think that the FCC took a stab

at this before Congress passed legislation when we tried to update

our definition of the grade B signal contour for television stations,

to try to deal with this very difficult problem that consumers face

with the advent of the satellite industry.

Obviously, if you pass legislation and direct us to take another

stab at it in the context of a new and updated Satellite Home Viewer Act, we will do the best we can. I am not an engineer so I can’t

definitively say what the outcomes would be, but I commend you

for taking on this issue legislatively, and we will certainly do everything we can to make it successful.

39

Mr. OXLEY. I appreciate it. Surely, the technology has got to be

better today than it was in 1952 in virtually every area, and I

would think that that would be most helpful.

Let me turn my next attention to the WorldCom/MCI merger,

which was approved in September 1998. And I supported that

merger, and I think many members of the committee did as well,

and the Commission found that it was not likely to lead to anticompetitive effects.

Was part of the assumption of approving that merger, at least

the public interest aspect that you had jurisdiction over, was that

based on the fact that the Bell companies would soon enter the

long distance market and compete in the long distance area?

Mr. KENNARD. We certainly looked at that issue. I don’t think

that that was dispositive of our decision in that case. When we

evaluated the MCI/WorldCom transaction, we looked at the various

markets that those companies were engaged in, consumer long distance, the Internet backbone, and evaluated each of those market

segments to see whether that particular transaction would serve

the public interest, and we were able to conclude that it would.

Mr. OXLEY. Do any of the other Commissioners have any comments on that?

Mr. FURCHTGOTT-ROTH. Mr. Oxley, if I might.

Mr. OXLEY. Yes.

Mr. FURCHTGOTT-ROTH. I think some of this goes to Chairman

Tauzin’s question about the merger review itself. The issue involved in the WorldCom/MCI before the Commission was not a review of a merger. It was simply the transfer of licenses, and my

personal view of that is that it in no way implicated issues outside

the license transfer and therefore it in no way implicated other

matters before the Commission, such as you just described.

Mr. OXLEY. So the issue of future competition really was probably a role for the Justice Department as opposed to the FCC; is

that correct?

Mr. FURCHTGOTT-ROTH. The specific question you raised about

whether RBOC entry into long distance—it certainly did not affect

my judgment on that particular set of license transfers.

Mr. OXLEY. Thank you.

Commissioner Powell, in the recent proceeding on cable ownership limits, the Commission provided some relief on attribution

rules but failed to raise the ownership limit above 30 percent for

video subscribers. I am perplexed. Given the trend toward convergence, it makes no sense to have a 30 percent cap for cable, 35 percent for broadcasters and none whatsoever for telcom. Shouldn’t

these caps be harmonized or, better yet, abolished in favor of simple reliance on the antitrust laws?

Mr. POWELL. I personally absolutely agree that there is a severe

need for government to try to harmonize its perspectives on structural caps and competitive policy, but what gets complicated is that

the caps or the structural limitations like that derive from different

provisions with different objectives.

When one reads the statutory history and the text from which

the cable horizontal structure limitation applies, you are struck by

the degree to which the legislative history emphasizes not competitive structural principles but principles such as diversity and proVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00042 Fmt 6633 Sfmt 6602 E:\HEARINGS\61037 pfrm02 PsN: 61037
40

gram access markets, which arguably can be limits substantially

lower than antitrust or competitive policy would suggest.

The numbers—the amount of concentration that results at that

level in a number of markets is relatively modest or minor from a

competitive structural perspective; but when you introduce additional notions which are more visceral and vague, like a congressional interest in diversity, which may be valuable, and want a prophylactic bright line number to be associated with it, it tends to

drive the structural cap lower than it otherwise might be. In other

contexts, we are not necessarily constrained by those additional

legislative considerations and there tend to be compromises that result in different caps.

Do I think it is defensible? On a going-forward basis, it is going

to be very difficult to maintain because you are biasing particular

business models and technologies. You are saying that if you use

this service, this type of technology for convergent services, and you

happen to have a little of this, you are more constrained than another competitor who is using a different infrastructure and different model, and I think that we will have a great deal of difficulty with that on a going-forward basis.

Mr. OXLEY. Thank you.

Thank you, Mr. Chairman.

Mr. TAUZIN. I thank the gentleman.

The gentleman from Ohio, Mr. Sawyer, is recognized.

Mr. SAWYER. Thank you, Mr. Chairman.

Let me return to the question that our chairman had posed to

the Commission chairman regarding merger reviews. Am I correct

in understanding the line of response that you had begun to go

down was that while you understood the difference between what

was suggested in the 1996 act in terms of merger review, that the

whole business of license transfer remains an active part of your

responsibility. And, although it may look like a merger review because it is inherently a part of the activity that is in itself a merger, that you are nonetheless not discharged from that responsibility

to oversee questions of license transfer which are an inherent part

of that? Is that correct? Am I correct in saying that?

Mr. KENNARD. Yes, that is very well said. We have an obligation

to make sure that every one of these license transfers serves the

public interest. It would be foolish, in my view, when you have an

industry that is completely restructuring, that we would completely

ignore the public interest impact of these transactions on consumers, the rates that they pay, their ability to get access to competing programming sources. I mean, that is a bedrock, fundamental responsibility under the Communications Act. It always has

been since 1934.

That did not change in 1996. We still have that obligation. When

I travel around the country and talk to consumers, they are concerned about consolidation in these markets. They want to know

what the FCC is doing. So we have invoked our public interest authority under the act to make sure that they are protected in the

context of these mergers.

Mr. SAWYER. In your original answer you began to go in a direction that was not the focus that the chairman wanted to put on his

particular question but it was of interest to me, and that was with

41

regard to the typical time lines that license transfer reviews entail.

You were starting to say that typically it takes 6 months or less.

Could you talk a little further about the direction you were beginning to go and then talk about the exceptions to that and the reasons for those exceptional cases?

Mr. KENNARD. Certainly.

Mr. SAWYER. Mr. Chairman, let me mention also that I don’t

think my light was turned on when I began my questioning. Thank

you.

Mr. TAUZIN. The gentlemen is correct. The Chair is adjusting accordingly.

Mr. SAWYER. I appreciate it. Thank you.

Mr. KENNARD. Thank you, Congressman.

In the overwhelming number of cases, these transactions are approved or disposed of by the FCC within 6 months. We take longer

when we have a merger involving very complex issues of market

structure. We have to recognize that in the wake of the 1996 act,

we are being presented with transactions that were not possible before, and they are involving a complete restructuring of this industry, and they are presenting novel questions of first impression at

the agency. That requires oftentimes that we take more time.

Now, one of the things that we are attempting to do is, as we

get more experience with these large transactions, to give the public a better sense of certainty about timing. That is why I announced about a month ago that we are going to charge our General Counsel’s Office with coming up with a merger review team

which will coordinate the efforts of the various bureaus.

Mr. SAWYER. I assume you mean the license transfer team?

Mr. KENNARD. Yes, a license transfer team, correct.

And the General Counsel will be charged with coordinating these

license transfer reviews to make sure that the public has some

sense of certainty about the timing and about when they can expect

a decision and what the role of public input will be.

Mr. SAWYER. Let me ask you just one further question. In a time

of continuing convergence, can you talk just briefly about how you

intend to define functional distinctions?

Mr. KENNARD. Well, we are, of course, guided first and foremost

by the act, and the 1996 act went a long way in providing the Commission specific statutory definitions for various services. And we

are finding that as the market charges on and as technology

changes, some of those definitions are being challenged.

Mr. SAWYER. Yes.

Mr. KENNARD. And so we are continually trying to fit new services into various definitions and that is really the challenge of convergence, particularly when you have different services regulated

in a different way because of the definitions under the act. We hope

that a more functional approach at the FCC will at least ensure

that people in the agency are communicating better and the public

has a better sense of what to expect.

Mr. SAWYER. Mr. Chairman, I suspect I have used my 5 minutes

and appreciate your flexibility with that regard. Thank you.

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

the gentleman, Mr. Gillmor, for a round of questions.

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

42

Commissioner Ness mentioned, so I guess I would direct this to

her as well as the Chairman, about working with regulatory agencies in other countries. And my question is, from your experience,

are there any other countries you think might be worth emulating

that are doing things better or right?

Ms. NESS. There are a number of countries that have engaged in

innovative approaches based on their own regulatory structures.

For example, we have had very recent meetings with OFTEL, regulatory commission of the United Kingdom, and have found some of

the solutions that they have been grappling with to be particularly

helpful.

Many other countries are looking to us for our experience with

unbundling. For example, the European Union is trying to work

with its member States to encourage greater competition within

the member States, and one of the issues that it has been addressing is the unbundling issue. We tend to approach things a little bit

differently.

We are looking at instituting ‘‘calling party pays’’ here in the

United States. That is something that has been generally implemented in Europe, and is the basis for the wireless system in Europe. It seems to be working pretty well there and in South America. So we are talking with our colleagues to get their ideas and

to share our experiences with them.

Mr. GILLMOR. But there is nobody where we would look at them

and say, hey, they are doing it right, we ought to try to do it that

way, in your opinion?

Ms. NESS. There were——

Mr. GILLMOR. Or maybe they are over there looking and saying,

boy, we ought to do it. The FCC does it.

Ms. NESS. Often they look to the U.S. as a model. It depends on

how complex a system they want. For example, we have the fortune of having oversight authority over not just telecommunications but also broadcasting, and a number of countries are examining that structure because of convergence issues. So we tend to

be a little bit further along than many of the other countries, who

are first grappling with privatizing a telecommunications company

that was government-owned. But there are some new ideas; different approaches where we may very well share ideas and benefit

from their experience.

New Zealand is one country that has adopted a much more deregulatory structure. It is certainly a much smaller country, a lot

less complex, and it has found that it keeps having to threaten to

regulate in order to achieve some of the reforms that it was hoping

to achieve.

Mr. GILLMOR. Has my time expired, Mr. Chairman, or did you

forget to push the button?

Mr. TAUZIN. The gentleman’s time has almost expired. The gentleman may proceed.

Mr. GILLMOR. All right. Let me just ask you a quick question. It

has been reported that Office of Personnel Management rules preclude effective utilization of staff. Has that realistically been a

problem?

Mr. KENNARD. What rules? I am sorry, Congressman Gillmor. I

didn’t get the question.

43

Mr. GILLMOR. Office of Personnel Management rules, that that

has caused a problem in the effective utilization of employees. Has

that been a problem?

Mr. KENNARD. Well, I think that anyone managing a government

agency doesn’t have the tools that people in the private sector have,

and that is a function of OPM and the Civil Service rules. We can’t

give the same incentives. We can’t pay people the same amount.

We can’t fire people as easily. So, sure, it is a constraint.

I mean, one thing that would be very helpful is if we could get

buyout authority from Congress, because one of the things that we

are attempting to do in order to implement this plan is to redeploy

our resources so they are more relevant to what is happening in

the marketplace. It would be very, very helpful if Congress would

give us authority to be able to buy out some employees that don’t

have necessarily the skills that we need to facilitate competition in

this new environment.

Mr. GILLMOR. Thank you.

Thank you, Mr. Chairman.

Mr. TAUZIN. The Chair thanks the gentleman and the Chair now

recognizes the gentlewoman, Ms. Cubin, for a round of questions.

Mrs. CUBIN. Thank you, Mr. Chairman.

The first question I want to ask is of Chairman Kennard. I have

not seen the text of last week’s order on universal service, but I understand that Wyoming will receive an incremental $3 million in

high-cost support. I wondered what specific requirements will be

included in the Commission’s order to ensure that this incremental

support flows to Wyoming’s ratepayers.

Mr. KENNARD. Well, the order that we adopted last week, does

provide authority for the State regulators to certify how that additional support is going to be used, and we insist that any additional

support must be used to serve universal service needs of the State.

So we will rely in the first instance on our colleagues at the Wyoming State level to make sure that that money is used appropriately.

Mrs. CUBIN. Thank you.

Commissioner Furchtgott-Roth, the FCC voted 4-to-1 to approve

this new way of determining universal service subsidies for largeand medium-sized phone companies, and you voted against the

plan so obviously you don’t believe it is the best way to determine

subsidies. I just wondered why not, and what do you think would

be the best way?

Mr. FURCHTGOTT-ROTH. Mrs. Cubin, I have spoken about this

often. I have written quite a bit about it. The Commission has

adopted an extraordinarily complex cost model to allocate funds for

universal service. My background is as an economist. I have

worked with cost models during much of my professional career.

This is one of the most complicated, if not the most complicated,

cost model I have seen used in government. It is built—it has

taken some time to build and it is supposed to be reflecting a technology that is changing far more rapidly than our capacity to imitate.

I am troubled by the complexity. It is a model that changes very

quickly. It is something that is not transparent and obvious to consumers. It is very difficult to explain to the people of Wyoming exVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00046 Fmt 6633 Sfmt 6602 E:\HEARINGS\61037 pfrm02 PsN: 61037
44

actly why they are getting this amount of money as opposed to

some other amount of money.

I would have preferred a much simpler approach; rough justice,

if you will. But I think it is better to be approximately right than

exactly wrong, and I think that this model is exactly wrong.

Mrs. CUBIN. Thank you.

This question or statement, or whatever, I would like anyone

who feels like they would like to respond to it to respond to it. The

recent explosion of mergers in the telecommunications industry obviously has had a major impact on competition and economic development, not only in Wyoming but all across the Nation. I am a cosponsor of Chip Pickering’s legislation which has been introduced

to establish time limits for FCC review of mergers and acquisitions,

because, you know, we all are very concerned about the timeframe

in approving these.

And here is something that happens that I would like you to respond to, because you as a Commission hold up approving mergers

based on, quote/unquote, an agreement with the companies that

are merging, and that might be—you have to increase your prices.

In the case of television, it hasn’t been increasing the programs.

But I guess the point I am trying to make is that you leverage certain policies based on approving mergers. And so what gives you

the authority to do that?

I mean, shouldn’t Congress be the one that makes that decision,

or those policy decisions? I mean, they might be very good policies

or they might not be good, depending on how you look at the issue,

but nonetheless shouldn’t those sort of things be up to the Congress?

Mr. KENNARD. They absolutely should be up to the Congress, and

when we look at these transactions I believe it is our responsibility

to fulfill our mandate from Congress to ensure that they serve the

public interest. Now, that means ensuring that no merger can be

approved if it would undermine the fundamental goals of the 1996

act.

So most of the inquiries that we undertake when we look at

these transactions have to do with ensuring that this consolidation

is not going to undermine your fundamental goals to bring competition to the marketplace.

Mrs. CUBIN. Well, it seems to me that the FCC is using your authority over the mergers and license transfers in a way that

achieves your own policy objectives. Like another chairman might

choose to use as leverage for different objectives, like I said, the example of increasing the payments. I know you are saying it is for

the public good, but when it comes to a policy question like that,

that is your opinion of the public good and the Congress should be

setting that policy.

Mr. KENNARD. Well, what we typically do, Mrs. Cubin, is make

sure that when we evaluate these transactions they are not undermining what we believe are the goals of the 1996 act. In delegating

to the Commission authority to review these transactions, we have

to use our best judgment as to how they would further the congressional goals, and we typically do this consistent with the act and

the Administrative Procedure Act, which requires that we develop

a record. We certainly don’t do this in a vacuum. We often hold

45

public hearings. We develop records. We hear from everyone who

has an interest in these particular transactions, and we hear oftentimes from many, many Members of Congress.

So I really view our role as one of pulling together all of this information and making our best judgment as to how the public interest will be served.

Mrs. CUBIN. Well, I knew that is what you would say but I think

we need to just talk about it. I will give you a call.

Mr. KENNARD. Love to.

Mrs. CUBIN. Thank you.

Mr. TAUZIN. The Chair thanks the gentlewoman.

The gentleman, Mr. Stearns, is recognized for a round of questions.

Mr. STEARNS. Thank you, Mr. Chairman. I just ask unanimous

consent to make my opening statement a part of the record. I didn’t

get it in.

Chairman Kennard, welcome. The question I have is under your

‘‘Promote Opportunities for Americans to Benefit from the Communications Revolution,’’ you state that the 5-year performance measure goal is to have 100 percent of our schools and libraries connected to the Internet. And I guess my question is, is it fair to assume that once 100 percent of the schools and libraries are wired

to the Internet and the E-rate program has fulfilled the objectives

of providing universal service under the section, will it be

sunsetted then?

Mr. KENNARD. I think the funding requirements will certainly

change. The E-rate is administered pursuant to Section 254 of the

1996 act. So we would not have unilateral authority to sunset it,

but we certainly are setting the funding levels for that program to

accord with demand. So I would expect that once we get the schools

and libraries wired, then the funding requirements would change.

There would be, for example, many fewer requirements for money

for internal connections to wire the schools. There would be some

residual needs to maintain the system and also to provide the capacity, because that is funded from the discount matrix, but I think

the funding requirements would certainly change.

Mr. STEARNS. Commissioner Furchtgott-Roth, your comments. I

think the question is many Members of Congress would just like

to see if this thing is going to be sunsetted or is this going to ultimately just continue on and on?

Mr. FURCHTGOTT-ROTH. Mr. Stearns, as you know, I have written

about this extensively. I have grave doubts about the legal

underpinnings of the program as it is currently constituted. I think

the chairman is quite right that the demand might change once

there is 100 percent. But let me point out that a teeny, tiny, insignificant portion of the funding right now goes for what could conceivably be called really internal wiring. Most of the money right

now goes for very complicated, sophisticated computer equipment,

and I don’t know whether the demand for that will ever go away.

Mr. STEARNS. Is this complicated computer equipment at the libraries, or where is it?

Mr. FURCHTGOTT-ROTH. Oh, anywhere you can put it, Mr.

Stearns.

46

Mr. STEARNS. I think what you are saying is this money is not

going for the library and schools but it is going for more sophisticated equipment elsewhere?

Mr. FURCHTGOTT-ROTH. Well, the computer equipment, let me be

clear, probably is physically located in the libraries and the schools,

but the point is that even once there is 100 percent connectivity to

the Internet——

Mr. STEARNS. You will still need this?

Mr. FURCHTGOTT-ROTH. [continuing] people may still want to upgrade.

I have asked, I am not sure whether I have gotten a clear answer, whether schools that receive a lot of money for routers and

servers in the first year, whether or not some of the funding in the

second year is for similar equipment. I don’t know at this point.

Mr. STEARNS. Are you saying that you think that not only would

it not be sunsetted but this clearly could—the money, it would just

be an ongoing government spending program and we see another,

what people call entitlement, which I generally like to use as government spending?

I mean, from what you are saying, it seems like this will be an

ongoing government spending program. Is that your honest appraisal of what we have here?

Mr. FURCHTGOTT-ROTH. That is one possible outcome.

Mr. STEARNS. Okay.

Mr. KENNARD. Would you allow me to clarify the record on one

point?

Mr. STEARNS. Sure. Yes, sir.

Mr. KENNARD. I just wanted to make clear that E-rate funding

does not go for certain hardware in schools. It doesn’t go to pay for

actual PCs or software, the computer hardware. The computer

equipment that I believe Commissioner Furchtgott-Roth was referring to were the routers and servers.

Mr. STEARNS. The servers and routers, I understand.

Mr. KENNARD. That equipment.

Mr. STEARNS. But after you do that, it should be done. It

shouldn’t be continuing to go on and on, because you can make the

argument that, well, these routers and servers are obsolete after 5

years or 2 years, and we have to get new ones, and pretty soon this

little program, well intended, is going to cost more and more and

go on indefinitely. I think the FCC should try and make a commitment to sunset this program somehow because you are taking taxpayers’ money to do it.

Mr. KENNARD. Well, again, we don’t have unilateral authority to

sunset it. A lot of the expenses that are being incurred today do

go for the inside wiring piece of the program. It is not an insignificant amount of money. As I recall, it is 40 or 50 percent of the

funding requirements.

Mr. STEARNS. Commissioner Furchtgott-Roth, would you like to

comment on that?

Mr. FURCHTGOTT-ROTH. Mr. Chairman, with all due respect, I believe that the categories that the Commission has adopted make it

appear that it is for internal connections, but if you go and look behind what is actually under internal connections it is primarily

computer equipment such as routers and servers.

47

If you look at the amount that is actually for, say, coaxial cable

or fiber within the schools, I think that is a very small portion of

what is being called internal connections, or at least that is what

I have been told.

Mr. STEARNS. Do you think that the authority under section 254

of the 1996 act didn’t allow the FCC to sunset this program? I

mean, do you have the authority to sunset this program, in your

opinion?

Mr. FURCHTGOTT-ROTH. Mr. Chairman, I think that section 254

is quite clear, that the Commission is to establish discounts for the

provision of telecommunications services to schools and libraries.

No, sir, I do not believe we have the authority to sunset those discounts.

Mr. STEARNS. So not——

Mr. FURCHTGOTT-ROTH. That is for what I would consider to be

the discounts on telecommunications services and advanced services, which clearly would include services; but whether that includes the purchase of very sophisticated computer equipment, that

is what I have substantial doubts about.

Mr. STEARNS. Okay. Thank you, Mr. Chairman.

Mr. TAUZIN. I thank the gentleman.

The Chair is now pleased to recognize the ranking minority

member, Mr. Markey, for a round of questions.

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

Mr. TAUZIN. Mr. Markey, let me extend your time just a second

and ask unanimous consent to submit questions from our colleague,

Congressman Ed Towns, for the Commissioners to respond to in

writing. Without objection, it is so ordered.

The Chair will ask general consent that any members who may

wish to submit questions in writing might do so and we will ask

the Commission to respond within the next 30 days. Is there any

objection? Without objection, it is so ordered.

The Chair now recognizes my friend, Mr. Markey.

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

As Mr. Bliley mentioned earlier last week, the Commission

adopted new universal support mechanisms for America’s largest

local phone companies. The result of the FCC’s action is that subsidies will increase. What is happening that prompts an increase?

The subsidies aren’t for small, rural companies. They are destined for some of the largest companies in America, in a booming

economy, in an industry that was supposedly becoming ever more

efficient. Universal service issues are always complex. They are

frustrating, but it is a little counterintuitive to hear that universal

service reform means a subsidy increase.

It makes me a little fearful of what reform might bring to accesscharge reform, or to high-cost rural funding.

Now, Chairman Bliley and Chairman Tauzin have introduced a

Truth in Billing Act that requires all taxes and fees to be clearly

stated on consumers’ bills. I have introduced what I have titled The

Rest of the Truth in Billing Act, which would require that not only

the fees be listed but also the subsidies.

My question to all of you is, where do you think we are heading

generally with universal service, and whether we will ever be able

to list subsidy levels or make the subsidy portable to other competiVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00050 Fmt 6633 Sfmt 6602 E:\HEARINGS\61037 pfrm02 PsN: 61037
48

tors without accurate information on the economic costs of providing service and the subsidy needed to ensure universal service?

Competition helps in some areas, without question, but will it

help us everywhere? Can we get—here is my question: Can we get

a State-by-State breakdown of subsidizers and recipient States, for

the record, of last week’s decision?

Mr. KENNARD. We can certainly provide that information for you,

Mr. Markey, on the interstate side of the ledger. The Federal jurisdiction is responsible for only about 25 percent of the universal

service funding obligations, so we have all that data and we could

provide that.

[The following was received for the record:]

On October 21, 1999, the Commission adopted a new forward-looking support

mechanism to provide high-cost universal service support to non-rural carriers. At

that time, the Commission also made it clear that current support levels would remain unchanged for some time under a ‘‘hold harmless’’ provision. Specifically,

under this provision, non-rural carriers will not receive less support from the new

mechanism than they would have received from the current mechanism.

This new forward-looking mechanism provides support to non-rural carriers in

certain high-cost states. The Commission announced in October 1999 that the states

in which non-rural carriers are expected to receive forward-looking universal service

support included Alabama, Kentucky, Maine, Mississippi, Vermont, West Virginia,

and Wyoming.

On November 2, 1999, the Commission’s Common Carrier Bureau released the attached Public Notice and spreadsheet listing the estimated annual support amounts

to be provided to both rural and non-rural carriers in each of the 50 states, the District of Columbia, and Puerto Rico. The support amounts shown in the spreadsheet

are estimates based on procedures and data available at the time of release. It

should be noted that the reform of high-cost universal service support is an ongoing

process, and support amounts are subject to review and revision.

49

50

51

Mr. KENNARD. We are not privy to all the State information. To

get to the other aspects of your question, though, universal service

and access charge reform are part of a big puzzle that we have

been grappling with, as you know, since the 1996 act was passed.

It is somewhat of an evolutionary process. We have been implementing reform of both access changes and universal service in

stages. Last week, we took a cut at it for the nonrural companies.

It was significant for our competition policies because it put universal service funding for the nonrural companies on a forwardlooking cost basis, which is important for competition.

It takes another step toward making universal service more explicit so it can become portable, as you recognize.

I think the next stage of universal service must be to make sure

that it is technology neutral. You point out in your remarks that

competition in technology is changing this marketplace, and I think

that there are providers out there who can provide our universal

service needs more efficiently than the wire line carriers. We have

got to have a system to make sure that the most efficient providers,

be it a wireless carrier or satellite carrier, has access to that subsidy money, because that will be best for consumers.

Mr. MARKEY. Could I continue a couple of seconds, Mr. Chairman?

Mr. TAUZIN. The Chair will grant the gentleman additional time.

Without objection, so ordered.

Mr. MARKEY. So just up in my own region, we might subsidize

an area of Maine, for example, which used to be part of Massachusetts until the Compromise of 1820 and they broke it off to let Missouri in as a State, the Missouri Compromise, based upon cost

models of what it might cost a traditional local phone company like

Bell Atlantic to serve that area, yet Bell Atlantic Mobile with cellular service might serve the same area for a fraction of the cost.

What is the service that we are subsidizing?

Mr. KENNARD. Well, the Commission defines, pursuant to your

directive, what the baseline universal service needs are, and that

particular service is subsidized. My own view is that historically

there has been somewhat of a bias toward subsidizing the traditional wire line carriers. But as wireless becomes much more useful

to consumers, as many consumers start to look to wireless for a

substitute for wire line services, you get all the digital bells and

whistles on your wireless phone, and wireless can be used more efficiently, particularly in rural areas. I think then we ought to start

shifting our focus and make sure that the wireless carriers are part

of the subsidy approach.

Mr. MARKEY. I was in Framingham, Massachusetts, in my district yesterday morning, in the poorest part of this community. We

have had 5,000 or 6,000 Brazilians move in in the last 10 years,

and it qualifies for the full E-rate subsidy, and the community has

decided that they would build a brand-new school in this community, incented in part by the E-rate, knowing that much of the service and the equipment could, in fact, be installed to help these children gain access to the skill set they are going to need.

Every corridor, each poster is in Portuguese and in English, and

as they teach using these computer technologies, they help to bring

these kids along.

52

As we know, 50 percent of all of the children in the United

States are going to be minorities by the year 2030. That is only

from 1969 to today, not that long, I think, from most of our perspectives. We don’t think of that as a long time ago.

So it is important that we continue, I think, to emphasize how

important it is to make sure that every kid gets access to these

skills, because clearly we are going to depend upon these younger

people to pay for the Social Security and Medicare Trust Fund for

all of us when we are in our old age, and they have got to get access to it.

Mr. TAUZIN. What do you mean?

Mr. MARKEY. It is a good program.

And I think it is also important for people to understand, because a lot of people in rural America, I think, get a little bit ticked

off about the E-rate program fee when they see it on their bill. And

I think it might help them a lot if they could also see on their bill,

perhaps my father could see on his bill, that he is subsidizing to

the tune of 20 bucks or 200 bucks some rural consumer’s ability to

really get phone service at all.

And I think as long as everyone understands the slosh that goes

on as part of this telecommunications policy, they could easily see

that perhaps the rural Americans are the greatest beneficiaries of

this universal service program, and that just adding in a little bit

here that helps the poorest children get access to a skill set that

is indispensable to our Nation’s ability to be able to democratize access to information and ultimately to capital in our society is working today.

It is demonstrable, this great happiness I find in most communities, all communities in my district, in terms of kids’ ability to

get it. I personally want to congratulate the FCC on implementation of the E-rate program.

I know definitively that there is no sunset authority in the legislation and that will just have to be a battle we have here in Congress if anyone wants to wage it, but it necessarily invokes, then,

all the subsidies that go to rural America to give them low-cost

phones. If we do believe in free market economics, then we might

as well go for it all the way. If we are going to stop subsidizing

poor children, we might as well subsidizing wealthy farmers as

well, because that is exactly what our program in America today

makes possible.

I thank you, Mr. Chairman.

Mr. TAUZIN. I thank the gentleman.

The Chair will ask the indulgence of the committee. The Chair

will have to leave in just a minute and leave the committee in Mr.

Gillmor’s hands.

With the indulgence of the committee, I would like to put two

questions on the record, without objection.

The first, Mr. Chairman, regards the freeze that has been issued

on the issuance of licenses commonly known as MAS, M-A-S, the

multiple address systems. It is the licensing of the capacity of utility networks to monitor their utility and railroad networks.

My understanding is that public safety radio services are exempt

from auctions, but the Commission has put a freeze on these liVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 E:\HEARINGS\61037 pfrm02 PsN: 61037
53

censes because you are considering whether the agency should auction these licenses in the future.

I have sent you communications on it, but it is a public safety

issue that I would appreciate very much if you all would focus on

it and respond to the committee, because we are getting some concerns expressed from public utility groups about the safety of their

systems without these capacities.

The second thing is something we have all been kind of kicking

around here, that I wanted to also put in the record and get your

response to.

Chairman Kennard, you announced indeed that the agency has

received congressional approval to create the new enforcement and

consumer information bureaus. As we are looking at the law, I

think it is 5B, it indicates, generally speaking, that from time to

time as the Commission may find necessary, the Commission shall

organize its staff into integrated bureaus to function on the basis

of the Commission’s principal workload operation.

There seems to be very clear authority in the law for you to create new bureaus, dismantle old ones, reconfigure your bureaus according to workload, and it goes on to further give you the right,

as you deem necessary, to provide legal, engineering, accounting,

administrative, et cetera, services to those bureaus.

Why in your plan do you refer to congressional approval in the

creation of bureaus? Do you need congressional approval? And if so,

when?

Mr. KENNARD. Yes. It is my understanding that we have to get

approval from our appropriators whenever we reappropriate funds

to establish a new bureau or a large organizational unit, and so we

always talk to both the Appropriations Committee and also the

Commerce Committee so that everyone is informed. That is what

we did in this instance.

Mr. TAUZIN. So you have authorized authority?

Mr. KENNARD. Yes.

Mr. TAUZIN. You are simply concerned that the appropriators

have some language in the appropriations bill that makes you go

back to them?

Mr. KENNARD. Yes. It is required by statute, section 605 of the

Appropriations Act.

Mr. TAUZIN. You are tougher than we are.

The Chair will now put Mr. Gillmor in the chair and yield to the

gentleman, Mr. Shimkus, for a round of questions.

Mr. SHIMKUS. Thank you, Mr. Chairman.

Chairman Kennard, I would like to follow up just on that last

point. Would the appropriation requirement for the growth of new

bureaus necessitate a larger piece of the appropriation pie, or is

that just for reorganization within the current budgetary boundaries?

Mr. KENNARD. As I understand, it is the latter. Whenever we reprogram funds to fund a new bureau or a large organizational unit,

we have to get approval from our appropriators.

Mr. SHIMKUS. Thank you. I have been around long enough now,

you know my consternation with the E-rate and the billing, and

really I kind of agree with my colleague from Massachusetts that

we ought to have truth in billing and shine the light of day and

54

let the public understand. That would help our discourse here in

the public forum as people understand what the universal service

fund is, and breaking it out.

You know, I can go back to my poor rural farmers, based upon

commodity prices this year, and debate that.

I think he brings up a good point that I would be receptive in

addressing and shining the light of day on the universal service

fund to debate what the E-rate is, what the assistance to rural

America is.

I would love to hear the Portuguese being spoken with a Massachusetts accent. I am sure he is probably taking language studies

now for all of those new Portuguese, or actually Brazilians who

speak Portuguese. Excuse me.

Mr. MARKEY. Will the gentleman yield?

Mr. SHIMKUS. I will.

Mr. MARKUS. Every time the gentleman hears Theresa Heinz,

who is Portuguese, married to Senator John Kerry, you are hearing

a Boston accent with a Portuguese twist to it.

Mr. SHIMKUS. Well, I haven’t run in those circles yet but I look

forward to it.

Mr. MARKEY. Me neither. Me neither.

Mr. SHIMKUS. Let me just ask, going back to the Telecom Act,

and of course we use that to establish your valid position that the

E-rate has been established based upon the Telecom Act and section 254. I wanted to use that to segue into broadband, where

broadband is not addressed. And I wish the chairman could have

stayed because I am trying to get your position on the chairman’s

broadband bill because I am of the position that what consumers

really need, we need multiple pipes with multiple choices. I think

that is what the chairman brings to the table with his legislation,

and I would ask the chairman to respond first and then if anyone

else would like to chime in after that, that will be my question to

the dias.

Mr. KENNARD. Certainly. Well, I know there are a number of

bills that are pending that address this area, and we as a Commission have not taken a position formally on any of the legislation.

We typically serve in our role as the expert agency to provide information and expertise to assist all of the proponents of the bills. As

a general matter, it has been the policy of the Commission to try

to promote as many incentives as we can for broadband deployment.

I personally believe that we should create a little oasis for

broadband, where any company that wants to deploy broadband

should be able to do it in an unregulated environment or a significantly deregulated environment, because I believe that the American public need these broadband services. It is important for electronic commerce. It is important for our country to maintain its

dominance as the world leader in the Internet.

So I encourage this policy debate about broadband and we will

certainly commit to do everything we can to help from our end.

Mr. SHIMKUS. But it is your impression—and obviously this was

not addressed in the 1996 act so we really need to talk about it legislatively in the forum, is that correct?

55

Mr. KENNARD. I think that people make arguments that it is or

it isn’t covered by the 1996 act. I think it is fair to say that the

explosion of broadband wasn’t expressly contemplated in the act,

but a lot of technologies aren’t contemplated in the act and we have

to interpret the act in a way that accommodates them. We have

done that historically.

Mr. SHIMKUS. Do any of the other Commissioners want to add to

this? If not, then, Mr. Chairman, I yield back my time. That is the

only question I had.

Mr. GILLMOR [presiding]. The gentleman yields back. The gentleman from New York, Mr. Engel.

Mr. ENGEL. Thank you, Mr. Chairman.

Mr. Kennard, about 2 years ago, I think it was, you and I, and

Mr. Powell was there as well, attended a hearing in committee that

Jesse Jackson had put forth to talk about minority ownership, I believe it was of radio stations at the time, and the conclusion that

was come to at that time was that there had been slippage.

I am wondering if you can enlighten us as to the ensuing 2 years,

has there been a stoppage of that slippage or are we still on the

same path?

Mr. KENNARD. I think, unfortunately, we still are on the same

path. With the consolidation that we are seeing in the radio industry, it is harder for new entrants, small businesses, including minority and women-owned companies, to get a foothold in that marketplace.

So I would encourage you and your colleagues to do everything

you can to address that issue. There are some encouraging efforts

underway. There is legislation that has been offered in the Senate

by Senator John McCain to reinstitute the tax certificate policy. My

colleague, Michael Powell, had a lot to do with that.

We have encouraged the large group owners in the radio business to reach out a helping hand to small and minority businesses,

and some of them have been receptive to that. But there is a lot

more that needs to be done to try to at least get a little bit of a

counter current going against this tide.

Mr. ENGEL. The media obviously has tremendous influence in our

day-to-day lives, and I believe the impact on this Information Age

influence needs to be examined but it doesn’t always promote accurate images. I introduced the Ethnic and Minority Bias Clearinghouse Act of 1999 to address this issue. Essentially what this legislation does, it would shed a good deal of sunshine on our media.

It does not attempt to place any mandates upon broadcasters, but

the legislation instructs the FCC to begin compiling data on complaints, grievances and opinions regarding radio and TV broadcasts

in their depiction of ethnic and minority groups.

So I would be interested in hearing the FCC’s current capability

to compile such relevant data, and I am wondering if any of the

Commissioners would like to comment on the legislation.

Mr. KENNARD. I think that you put your finger on a very important issue for our society, and that is the way that minorities and

women are portrayed in the mass media. From time to time we

hear of incidents of literally racial, in my view, hate crimes perpetrated against minorities over the airwaves. We saw one recently

56

in the Don and Mike Show involving just an outrageous attack on

Hispanic Americans over the airwaves.

We collectively as a society need to be monitoring this and we

need to know what is happening on our airwaves. That is not to

say that we are going to censor or we are going to intrude on anyone’s First Amendment rights, but I believe that what you are

doing is right, to try to get a handle on who is doing this and at

least shed some light on these practices.

Mr. ENGEL. Well, thank you. I just want to say for the record

that I just received a letter from our former colleague Kweisi

Mfume, who is now head of the NAACP, putting the full force of

the organization behind this legislation, in support of it. I am really

hoping that we can move it because I think it is very, very important. And I thank you for your sensitivity on the legislation.

The FCC earlier this year released a study and conducted a

forum on the impact of advertising practices on minority-owned

and minority-formatted broadcast stations. I am wondering if you

could elaborate on this study and what will happen now as a result

of this study on this important issue.

Mr. KENNARD. We did issue a study in January which evaluated

certain practices in the advertising industry affecting minorityowned stations and stations that serve minority audiences that appeared to be systematically undervaluing minority consumers.

These stations were not getting their fair share of advertising dollars. This was sort of a preliminary study in nature.

There is a lot more work to be done but it was my effort to try

to shine light on a subject of great importance to minority consumers, and I am pleased to say that many in the advertising industry were listening and some advertising agencies stepped forward and wanted to know more about some of the practices we uncovered, and we will continue to shed light on this every chance we

get.

Mr. ENGEL. Obviously I need not tell you, but obviously—because

you are obviously doing it, but sometimes just holding the hearings

and shedding light helps prompt people to move. It may not be

done with legislation, but legislation is always, obviously, a possibility down the line if we don’t see enough movement in that direction.

Mr. KENNARD. Thank you.

Mr. ENGEL. If I may, I have just one final question, not on what

I have been asking, but I would like to ask Commissioner Tristani.

You mentioned before about the public interest standard with regard to the conversion to digital and you mentioned that the FCC

should work to define it. I am wondering if you had—if you could

share with us an opinion you would have on a definition of it?

Ms. TRISTANI. It has something that certainly we should examine

and, at the very least, I think we could talk about, when requiring

broadcasters to produce local programming, some kind of local programming oriented to community issues. That certainly would be

a good starting point. That is what broadcasting is supposed to be

about, serving a local community.

Mr. Engel, if I could add to one of your previous questions. I

think the ethnic clearinghouse bill is an excellent idea. The Chairman, Chairman Kennard, alluded to a Don and Mike Show that

57

ran August 8 in Albuquerque and I think 59 other cities. It was

a 12-minute segment that I heard where an Hispanic woman was

treated in a manner that no American should be treated. It was the

most racist, bigoted offensive and demeaning piece of radio that I

have ever heard. And certainly we can’t censor that, but we ought

to be talking about how much of that is going on in America. It is

just not right.

Mr. ENGEL. We thank you and thank you for the comments. And,

Commissioner Kennard, thank you as well. I think it is so important to focus on this and shed light, again, not to censure anything,

but I think we need to understand what is going on, and, hopefully,

people of goodwill can throw some cold water on that kind of thing.

Before I yield back, Mr. Chairman——

Mr. GILLMOR. The gentleman’s time has expired. I would ask the

gentleman to wrap it up.

Mr. ENGEL. I am wrapping it up. I just wanted to make a comment that Mr. Markey was talking about his district. I just want

to remind Mr. Markey that he lost his bet to me on the Yankees

and the Boston Red Sox, and Mr. Lewis is going to lose his bet to

me on Atlanta and the New York Yankees.

Thank you, Mr. Chairman. I forget what we bet by the way, but

you lost.

Mr. GILLMOR. That was worth the extra time.

The gentleman from Mississippi, Mr. Pickering.

Mr. PICKERING. Thank you, Mr. Chairman. I also want to commend you on the work that you have done on FCC reform.

I am sorry that the gentleman from Louisiana left. Just as I felt

the pain from Mr. Markey with the loss after a controversial call

of the Boston Red Sox, I felt the pain for the gentleman from Louisiana as the LSU football program has struggled this year and recently lost to Mississippi State University after a controversial call.

They are beginning to say in Louisiana that LSU is a drinking institution with a football problem.

But to the subject at hand, Mr. Chairman, you talk in your testimony of being faster, flatter, more functional. You talk about radically restructuring the FCC as we move to competition and convergence. And so what I want to focus on in my questioning is how

and when you get to the flatter, faster, and to the radical restructuring. You have a 5-year plan. When in your vision or in your

view, when does that restructuring occur? Over what period of

time? What triggers it?

Mr. KENNARD. It is ongoing, Congressman. We established 5

years because that is the requirement that is imposed on all agencies by the Government Performance and Results Act of 1993 that

we come up with a 5-year blueprint. However, we are not waiting

5 years to implement our plan.

We announced today the creation of two new bureaus which are

an effort to eliminate duplication of efforts in our enforcement and

consumer outreach areas. We are, in addition, continuing to

streamline many of our functions within the agency. At the same

time, we are trying to deal with all the myriad transactions and

petitions and court cases that we have to deal with. So I really see

this as an evolutionary process, but I share the sense of urgency

58

of this committee that things are changing fast and we need to

change fast with it.

Mr. PICKERING. Let me ask you your views on a possible benchmark that could trigger restructuring. As I understand it, the New

York Public Service Commission has endorsed or recommended the

approval of the 271 of Bell Atlantic. I assume that has been or will

be submitted to the FCC in the near future. Could you see approval

of 271s as a trigger to restructure, whether it is regionally or nationally, in some form? Because that really is the indication of competition and convergence, is it not? And once that has been implemented—I assume you are trying to balance two objectives: certainty and stability and the transition in the full implementation

of the act where, as quickly as possible, one set has occurred restructuring to reflect the realities of the marketplace so you can be

more appropriately structured and more responsive to the needs of

those who are participating in the marketplace. Would an implementation of 271 be an appropriate trigger for further restructuring?

Mr. KENNARD. I think if the Commission were to approve a 271

application, that would be an important benchmark. Certainly, it

could indicate that in at least one State we have open markets and

that the act is working to incentivize the opening of those markets.

I don’t know, however, if that would be the trigger that would signify a broad-scale reorganization of the Commission, because we

have already committed to doing that and in fact, are rolling that

out.

I think that the 271 process is one that is showing some encouraging signs that the competitive vision that you outlined in the act

seems to be working in some parts of the country as companies

really do the hard work of opening up these markets. But I don’t

think the grant of one 271 application is going to be symbolic of

anything beyond what I have said.

Mr. PICKERING. If you had a 271 for an entire region or for, say,

two or three regions, would that then signify sufficient competition

and convergence that it would then trigger a restructuring based

on a competitive model of regulation versus the old. You talk about

the new FCC, is it at that point that we should have the new structure, the new order, the new FCC?

Mr. KENNARD. I think that you have to look at this from the eyes

of consumers. I think it would be wonderful if we were able to

grant a regionwide 271 application, and that is something that we

have been encouraging the industry to do, to look at this not just

as a State-by-State process but as a region-wide process. But we

have a fundamental obligation to protect consumers, and as long as

some consumers are not enjoying the benefits of competition and

choice, then we have got to make sure that we are doing everything

we can to bring that to them. So I think it is an evolutionary process, and it is hard to say that at any given point we have reached

nationwide competition. I think we have got to use our authority

carefully to make sure that we are implementing such competition

for all consumers.

Mr. PICKERING. Mr. Chairman, is my time up?

59

Mr. GILLMOR. The gentleman’s time has expired, but we are

winding down. If the gentleman wants to extend very briefly, he

may.

Mr. PICKERING. Thank you, Mr. Chairman.

Just one other question. You also said on page 7 of your testimony, more governance for the marketplace means less government from the FCC. You have your biennial review coming up in

2000. Can you give any examples of current regulations that you

would propose or recommend to do away with, clean away the unnecessary, to use the forbearance authority granted to you? Can

you give any examples of that?

Mr. KENNARD. Certainly I think we have received 19 forbearance

petitions. We have either granted in whole or part 14 of them. We

will continue to encourage the industry to file forbearance petitions

so we can use our forbearance authority which is significant. I

think, to be fair, there are some disagreements among the Commissioners about whether we have been aggressive enough in using

our forbearance authority, and we will continue to work through

those issues.

Mr. PICKERING. Would any of the other Commissioners like to respond to either of my questions, one on the trigger toward restructuring or the time to restructure and the forbearance?

Mr. POWELL. Congressman Pickering, I would just add, with respect to your 271 question, whether it is a trigger or not, it is certainly a watershed. A significant amount of time-consuming effort

at the Commission is dedicated to either issues deeply interrelated

with the 271 prohibitions, awaiting 271 relief, and when we reach

that day in which those prohibitions have been lifted, there is a

fairly substantial volume of questions and issues that will largely

be mitigated or transformed. It will certainly be a moment of reflection for something. Whether it will be to execute a plan similar to

this strategic vision or not, it certainly should substantially alter

the pressures, particularly in the common carrier converged areas

that the 271 prohibitions currently generate a lot of issues over.

Mr. PICKERING. Thank you.

Mr. FURCHTGOTT-ROTH. Mr. Pickering, if I may just add on your

second question about biennial review. That is coming up in 2000.

The Commission has an obligation to review all—and I emphasize

all—telecommunications regulations at that time. And I hope that

this will be a comprehensive review.

Mr. PICKERING. Thank you, Mr. Chairman.

Mr. GILLMOR. The gentleman’s time has expired.

I am about to recognize the distinguished ranking member of the

full committee, but I will have to leave, and I will be turning the

chair over to Mr. Fossella, but before I do, I just want to follow up

with one thing from my opening statement on behalf of both myself

and Chairman Tauzin.

I talked about the possibility of putting together a working group

of our committee and the FCC—and, regrettably, the Chairman

has stepped out temporarily—but is that an agreeable approach for

the Commission or should I wait till the Chairman gets back to ask

that? I think 4 of 5 is good enough.

Ms. NESS. I would suspect that we would all be in agreement on

that.

60

Mr. GILLMOR. Thank you very much.

The gentleman from Michigan.

Mr. DINGELL. Mr. Chairman, I have a number of questions I

wish to direct to the Chairman of the Commission. In his absence,

I am going to be somewhat incapable of directing the questions to

him.

Mr. GILLMOR. I would suggest that we take a very brief break

until he returns, because it is my understanding he will be back

momentarily, and you can start at that point.

Mr. DINGELL. I have a number of questions I know he wants to

answer here.

Mr. SAWYER. If I could, I had just a couple of observations I was

going to ask about in a second round. I might fill the time, if you

would be willing to undertake that.

Mr. GILLMOR. I think that would be very appropriate.

Mr. SAWYER. Except for the fact that the Chairman is back.

Mr. GILLMOR. Very good. We have just recognized the distinguished ranking member, the gentleman from Michigan.

Mr. DINGELL. Thank you, Mr. Chairman.

Mr. Kennard, members of the Commission, welcome to the committee.

Mr. KENNARD. Thank you.

Mr. DINGELL. Last month, the Commission issued its UNE remand order. Of particular note is that the FCC did not require telephone companies to unbundle network facilities used to provide

high-speed Internet or broadband services to consumers. Congratulations on that decision. I infer from the decision that you believe

that these advanced network facilities do not meet the necessary

standards contained in the Communications Act as instructed by

the Supreme Court. Is that true? Yes or no?

Mr. KENNARD. Yes.

Mr. DINGELL. It is. Very well. Members of the Commission, do

you agree with that statement?

Ms. NESS. Yes.

Mr. DINGELL. We don’t have a nod button so you have got to say

yes or no. Mr. Powell?

Mr. POWELL. Yes.

Mr. FURCHTGOTT-ROTH. Yes.

Ms. TRISTANI. Yes.

Mr. DINGELL. Mr. Kennard, from a competitive standpoint, is

there any relevant difference in the market for high-speed Internet

service whether it is provided through telephone line or cable wire

or any other mechanism?

Mr. KENNARD. There are differences, yes.

Mr. DINGELL. What are those differences?

Mr. KENNARD. It is a difference in technology. It is a difference

in regulatory structure.

Mr. DINGELL. But the guy who picks up the line, does he know

any difference?

Mr. KENNARD. Are you talking about broadband?

Mr. DINGELL. I’m calling Chairman Kennard on broadband. Do

I know any difference when I use one mechanism or another?

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Mr. KENNARD. Most people who are using broadband are not

picking up the phone. They are usually accessing a computer for

Internet access or data services.

Mr. DINGELL. Whatever mechanism I use, do I know the difference?

Mr. KENNARD. You probably won’t. There are some minor differences in the way that broadband is delivered, for example, over

coaxial cable as opposed to ‘‘digital subscriber line’’ service or DSL.

Mr. DINGELL. But those are minor differences?

Mr. KENNARD. Yes.

Mr. DINGELL. From a competitive standpoint, are those differences major or minor?

Mr. KENNARD. I would say that they are minor differences in

functionality. They are major differences, though, in regulatory

structure that applies to the providers of those two services.

Mr. DINGELL. What you are saying is there are major differences

to the bureaucrat but minor differences to the user; is that right?

Mr. KENNARD. Not necessarily to the bureaucrat, Mr. Dingell.

They are pretty major differences in law in the 1996 act. A provider of——

Mr. DINGELL. What the user sends and receives is pretty much

the same, though, isn’t it?

Mr. KENNARD. Correct.

Mr. DINGELL. Now, what is the argument—is there a strong argument treating the companies differently when they are providing

essentially the same service?

Mr. KENNARD. There is clearly a disparity in the way these two

industries are being treated as a regulatory matter. There is no

question about that. It is a problem of convergence.

Mr. DINGELL. Cable is not regulated and the rest of them are; is

that right?

Mr. KENNARD. Cable is regulated, but it is regulated differently.

Mr. DINGELL. Regulated differently. Now, does regulation of either type company seem wise and what would be the argument for

one getting one kind of regulation and the other getting a different

kind of regulation?

Mr. KENNARD. Well, I think the goal, to try to put this in context,

is we have two industries that are rolling out, as you point out,

functionally equivalent services, but they are regulated differently

as a function of history.

Mr. DINGELL. Why should they be regulated differently when

they are giving functionally equivalent service?

Mr. KENNARD. They shouldn’t, but the question is, how do we get

them both on an even keel?

Mr. DINGELL. Let’s address that in a moment here.

Now, in 1979, on September 17, you said, and I quote, basically

we told the Bell companies we want you to get into broadband. We

want you to deploy and compete. I envision a broadband oasis

where anybody who wants to compete in this broadband marketplace and make the investment to deploy should be able to do so

in an unregulated environment or a significantly deregulated environment. Is that a correct quote?

Mr. KENNARD. Yes. In fact, I reiterated it today.

Mr. DINGELL. Those have still been your sentiments?

62

Mr. KENNARD. Yes.

Mr. DINGELL. Now, this appears to be an area in which you and

I can agree. I would note, Mr. Tauzin and I have a bill which would

deregulate broadband services from the consumers’ home to the

central office for both telephone and cable companies alike.

Can I assume then from your statement that you think that we

should treat the deliverers of those two different services—of those

two services identical in character by a different medium in the

same fashion or not?

Mr. KENNARD. There is one very important complicating factor

and that is the fact that those copper wires that are transmitting

broadband over the telephone lines are also being used to transmit

voice telephony, and that makes it quite difficult because the goal

of the Telecommunications Act of 1996, as I read it, is to make sure

that there is competition not only in broadband but also in voice.

And so we have been charged with ensuring that people who want

to access those copper lines, those telephone lines for voice get access to them. If the telephone companies are providing broadband

DSL over those same lines, it makes for a very complicated and difficult situation to put the two industries on an even keel. Ultimately, I think we should try to.

Mr. DINGELL. Why don’t you just allow the marketplace to do

that?

Mr. KENNARD. Well, that is one reason why I have advocated deregulation for both of these pipes, but I only think we can achieve

that if we can get to a world of multiple broadband pipes. I think

that the goal here should not be to try to impose new regulation

on anyone but rather to try to develop ways to get out of this regulatory system for everyone. The only way we do that is to create

incentives for more deployment not only on cable and DSL but also

terrestrial broadcast and wireless telephony.

Mr. DINGELL. Can’t you deregulate DSL and cable modem service

without upsetting regulation of dial tone service?

Mr. KENNARD. I think it would be difficult because we have——

Mr. DINGELL. Why would it be difficult?

Mr. KENNARD. Because it is difficult to separate the copper wire

use for voice and the copper wire use for DSL.

Mr. DINGELL. Let’s look at this matter. Sprint, MCI, Worldcom

and AT&T control about 75 percent of Internet traffic; isn’t that

right?

Mr. KENNARD. I can’t quote you the exact figure.

Mr. DINGELL. Is that close?

Mr. KENNARD. I really don’t know.

Mr. DINGELL. Does anybody know?

Mr. POWELL. It is close on backbone transport.

Mr. DINGELL. Close on backbone.

Mr. FOSSELLA [presiding]. The gentleman’s time has expired.

Mr. DINGELL. If I were to say on backbone, would you——

Mr. FOSSELLA. The gentleman’s time has expired.

Mr. KENNARD. That would be approximately correct, yes.

Mr. DINGELL. I do need some more time, Mr. Chairman.

Mr. FOSSELLA. You seek unanimous consent for more time?

Mr. DINGELL. I do.

Mr. FOSSELLA. Without objection.

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Mr. DINGELL. Thank you, Mr. Chairman.

Now, there is another part of the bill that Mr. Tauzin and I sponsored that allows the Bells to compete in Internet backbone traffic.

Last summer, Mr. Chairman, you accused incumbent telephone

companies of wanting interlateral relief because they want, and I

quote, to throw out section 271 of the Telecom Act. I take it from

that statement you believe that the Bells would have little incentive to meet the section 271 checklist if they were granted interlateral data relief before then; is that correct?

Mr. KENNARD. I do believe that, yes.

Mr. DINGELL. Now, do you know how much revenue is derived

from just long distance voice traffic in comparison to data?

Mr. KENNARD. I know that today in America the data traffic is

increasing at a far greater rate than voice today.

Mr. DINGELL. What is it now?

Mr. KENNARD. Well, it varies carrier to carrier. Some carriers are

moving about half of their traffic on their networks in the data

area versus voice now.

Mr. DINGELL. Let’s take MCI Worldcom and Sprint. Last year, in 1998, these two companies had combined revenues of $47 billion.

Seventy-three percent or nearly $35 billion of this amount came

from voice or long distance. Only 12 percent came from data. Now,

Mr. Chairman, with nearly $35 billion then up for grabs, I remind

you that you have not even counted AT&T’s voice revenue in this

example. Do you still think that AT&T, the Bell companies have

no incentive to get their 271 applications approved? There is $35

billion out there. Is that not a measurable incentive?

Mr. KENNARD. At the same time, you have to look at what is

happening in the long distance marketplace. Prices are plummeting

as a result of competition, which is a good thing, but it does diminish to some extent the incentives for people to want to enter that

business.

But I think the fundamental point here, Mr. Dingell, is that it

is important that the 271 job get done. That is, it is important that

the vision that you had in the act to open these markets to competition, that that job get completed. And we have to create an environment that ensures that the Bell companies do the hard work

of opening up these markets.

Mr. DINGELL. Let’s look at this and assume your premise is correct. Once permitted to carry interlateral data traffic, the Bell companies have no incentive to comply with local marketing open requirements of the act. Now, doesn’t the Commission have strict enforcement mechanisms at hand to ensure that section 251 of the

act is complied with?

Mr. KENNARD. Yes, of course.

Mr. DINGELL. Do the other members of the Commission agree

with that?

Mr. POWELL. Yes.

Mr. FURCHTGOTT-ROTH. Mr. Dingell, I would qualify that by saying that much of the implementation of section 251 is done through

the State commissions in the section 252 process. They bear the

primary responsibility also for enforcement of section 252, and disputes under that go to Federal court.

Mr. FOSSELLA. The gentleman’s time has expired.

64

Mr. DINGELL. Could I just ask one more question, Mr. Chairman?

Why doesn’t the agency then pursue the means that it has at hand

to enforce the compliance with section 251 of the act?

Mr. KENNARD. But we have enforcement actions ongoing to enforce those provisions of the act. I think the——

Mr. DINGELL. What specifically are those?

Mr. KENNARD. Well, we have received complaints about violations of obligations under interconnection agreements. As Commissioner Furchtgott-Roth mentioned, though, and he is exactly right,

a lot of this enforcement authority is in the hands of the States.

Mr. DINGELL. You have it, don’t you, too?

Mr. KENNARD. We have some enforcement authority.

Mr. DINGELL. You already indicated you have broad authority.

Mr. KENNARD. We do.

Mr. DINGELL. You can’t have broad authority and not much authority. You either have broad authority or you don’t have authority. Why haven’t you used it? You haven’t told me what authority

you have used or not used.

Mr. KENNARD. Well, we want to use more of our enforcement authority. That is why we are creating an enforcement division—an

Enforcement Bureau rather—to consolidate our enforcement efforts. We get a lot of complaints from——

Mr. DINGELL. Mr. Chairman, remember I asked you to enumerate what you were doing in this area. So far you have said you

are getting complaints. I understand that you are probably getting

complaints, but you have not told me what——

I ask unanimous consent to receive 3 additional minutes, Mr.

Chairman.

Mr. FOSSELLA. If there is no objection from the gentleman on my

left—I take that as a no. Without objection.

Mr. DINGELL. What enforcement actions have you taken?

Mr. KENNARD. Well, we have taken all manner of enforcement

actions.

Mr. DINGELL. Obviously, with this number, you can tell me what

they are. What are they?

Mr. KENNARD. We have received complaints under 253 of the act

to preempt State and local authority.

Mr. DINGELL. I am asking about 251. That is the market opening

requirements. What actions have you taken under 251? 253 is interesting, but I have a limited amount of time.

Mr. KENNARD. I can’t enumerate every enforcement proceeding.

I would be happy to provide you a list of any enforcement proceedings we have ongoing.

[The following was received for the record:]

This responds to your request concerning the Commission’s enforcement activities

related to section 251 and the interconnection, local exchange market-opening requirements of the 1996 Telecommunications Act.

As a preliminary matter, I note that Commission staff through the use of the

FCC’s Accelerated Docket process has assisted in the informal resolution of numerous local competition-related grievances between carriers prior to the initiation of

a formal complaint. To date, 16 grievances related to the market-opening requirements of the 1996 Act were informally resolved using this process. The Accelerated

Docket focuses on obtaining practical solutions to practical problems by requiring

that the parties meet with Commission staff for supervised settlement discussions

prior to the filing of a complaint. Staff focuses the parties on the issues truly in dispute and tables those matters of lesser importance. Commission staff then analyzes

65

the relative strengths and weaknesses of the parties’ arguments and communicates

this analysis to the parties. It is often after this critical assessment that the parties

move toward settlement. While it is somewhat difficult to quantify the number of

successes in this area, Commission staff have been instrumental in resolving many

of the disputes brought to it through these mediation processes. For example, as the

attached press release illustrates, GST Telecommunications recently credited the

Accelerated Docket process with resolving a Local Number Portability dispute with

U S West Communications.

The Commission staff also encourages settlement of formal complaints. In this regard, during the past year, parties settled the following formal complaints where an

incumbent Local Exchange Carrier allegedly had failed to comply with the Sec. 251,

interconnection, local market-opening provisions of the Act:

1) ACN v. PacBell and North County v. PacBell—ACN and North County alleged

that PacBell refused to make available the terms of an interconnection agreement that PacBell had with another carrier.

2) American Network v. U S West—American Network alleged that U S West violated sections 201(a), 201(b), and 251 by requiring special construction fees for

coin trunk lines.

3) US Long Distance v. Southwest Bell Telephone—USLD alleged that SWBT failed

to provide resold services equal to that SWBT provided to itself in violation of

section 251.

4) Airtouch v. GTE—Airtouch contended that GTE failed to provide new facilities

in a non-discriminatory fashion as compared with services GTE provided to

itself.

5) Airtouch v. GTE Southwest—Airtouch asserted that GTE SW violated sections

201, 202, and 251 by not providing certain services and by engaging in wrongful

billing practices.

6) RCN v. Bell Atlantic (several cases in multiple jurisdictions)—RCN asserted that

Bell Atlantic’s refusal to provide voice mail service for resale at any price violated sections 251(c)(4)(A) and (B).

7) RCN v. NYNEX—RCN alleged that Bell Atlantic’s refusal to provide voice mail

service for resale at any price violated sections 251(c)(4)(A) and (B).

The following matters relating to an incumbent Local Exchange Carrier’s failure

to comply with the local market-opening provisions of the Act are pending before

the Commission:

1) MCI v. Ameritech—MCI alleges that Ameritech has violated the ‘‘opt in’’ provision of section 252(i), which allows CLECs to opt into various provisions contained in previously approved ILEC interconnection agreements.

2) MCI v. Bell Atlantic—MCI alleges that Bell Atlantic has violated sections 202(a)

and 201(b) of the Act by not allowing MCI to combine access service and local

transport, an unbundled network element.

3) Enhanced Telemanagement, Inc. v. U S West—ETI alleges that U S West has

violated section 251(c)(4) of the Act, which requires ILECs to resell retail services to CLECs, by refusing to provide Centrex services for resale.

4) AT&T v. NYNEX—AT&T alleges that NYNEX improperly branded calls from

NYNEX’s payphones in violation of sections 201, 251, and 271 of the Act.

5) ACSI v. BellSouth—ACSI alleges that BellSouth’s failure to provide unbundled

loops is in violation of section 251 of the Act and their interconnection agreements.

6) MCI v. Pacific Bell—MCI alleges that Pacific Bell’s ‘‘winback’’ retention calls to

customers who requested a change in their local service is in violation of sections 201 and 251 of the Act.

7) MCI v. Pacific Bell—MCI alleges that Pacific Bell’s requirement that a customer

provide a letter of authorization prior to releasing customer network configuration violates sections 201(b) and 251(c)(4) of the Act.

8) Paging Network v. BellSouth—Paging Network alleges that BellSouth is unlawfully charging for the delivery of LEC originated local traffic in violation of sections 201(b), 202(a), and 251(b)(5) of the Act.

9) AT&T v. Bell Atlantic, MCI v. Bell Atlantic—Plaintiffs allege that Bell Atlantic

failed to abide by the Commission’s Bell Atlantic/NYNEX merger order in the

setting of prices for unbundled network elements.

10) MCI v. Bell Atlantic—MCI contends that Bell Atlantic failed to negotiate performance measures for interconnection services in good faith in violation of the

Commission’s Bell Atlantic/NYNEX merger order.

Finally, I would note that the Commission has not yet exercised its discretionary

authority under section 503(b) to issue monetary penalties against an incumbent

66

Local Exchange Carrier for conduct allegedly in violation of the section 251, local

market-opening provisions of the Act.

News Release

FOR IMMEDIATE RELEASE—NOVEMBER 30, 1999

GST TELECOMMUNICATIONS REACHES SETTLEMENT WITH US WEST REGARDING

LOCAL NUMBER PORTABILITY COMPLAINT

(VANCOUVER, Wash.) GST Telecommunications, Inc. (Nasdaq: GSTX), a leading

Integrated Communications Provider (ICP) in California and the western United

States, today announced it has reached a settlement with US West Communications

regarding a complaint GST filed against the carrier earlier this year for its failure

to implement Local Number Portability (LNP) in accordance with federal rules.

Terms of the settlement are confidential.

In June, GST filed a request with the Federal Communications Commission (FCC)

to resolve the complaint on an expedited basis utilizing the ‘‘Rocket Docket’’ procedures adopted by the FCC to address cases or complaints which have an immediate

bearing on telecommunications competition. By utilizing the Rocket Docket procedures, GST was able to expedite a settlement with US West. As a result, GST will

suspend further pursuit of the formal complaint.

‘‘We applaud the efforts of the Accelerated Complaint Resolution Branch of the

FCC,’’ stated Brian Thomas, vice president of external affairs of GST. ‘‘The FCC established the Rocket Docket procedures to expeditiously solve carrier problems

emerging as a result of a more competitive carrier environment. From GST’s perspective the process worked the way it was intended, and further enhances the company’s ability to compete effectively moving forward.’’

Local Number Portability allows customers to retain their existing phone numbers

when changing to another local telephone service provider. LNP was mandated by

Congress as part of the Telecom Act of 1996 in order to level the playing field between the Incumbent Local Exchange Carriers, such as US West, and competitive

exchange carriers, such as GST.

GST Telecommunications, Inc., an Integrated Communications Provider (ICP)

headquartered in Vancouver, Wash., provides a broad range of integrated telecommunications products and services including enhanced data and Internet services and comprehensive voice services throughout the United States, with a robust

presence in California and the West. Facilities-based GST continues to focus on its

western regional strategy by anchoring its next generation networks in local markets and connecting them via long haul fiber networks. Visit GST’s Web site at

www.gstcorp.com.

For more information, please contact: GST Telecommunications, Lisa Miles (800)

667-4366

Mr. DINGELL. Have you laid in place any fines or penalties

against the Bell companies?

Mr. KENNARD. Not that I am aware of.

Mr. DINGELL. That would be evidence that you were engaged in

enforcement actions, would it not?

Mr. KENNARD. Yes.

Mr. DINGELL. If you have not initiated that kind of process, I just

assume there is no market opening problem. If you have got a market opening problem, broad authorities that you could use on the

Bell companies, you have not laid in place any fines or penalties

on the Bell companies, I just assume that you have either no violations or that you are uninterested in that matter. Is that an incorrect assumption on my part?

Mr. KENNARD. I think you have to put this in context, Mr. Dingell.

Mr. DINGELL. No, no. You have got this broad authority. You

have not used it. You are constraining the Bells in entering other

areas, engaging in other competition, but you have not done anything to use your authority under 251. I must, therefore, assume

67

either you are uninterested in it or that you have—or that you

have not had any violations.

I have asked you if you have had violations. You have not told

me you were aware of any violations. I am therefore of the conclusion that you are either uninterested in the matter or that you

have no violations.

Mr. KENNARD. Your assumptions are incorrect.

Mr. DINGELL. Why are they incorrect?

Mr. KENNARD. They are incorrect because it wasn’t until January

of this year that the FCC’s authority to promulgate specific pricing

rules in this area, for example, were upheld by the United States

Supreme Court. These rules were in limbo for almost 3 years.

Mr. DINGELL. My $40 Cassio watch tells me that this is October

26. That is 10 months into the year. So I just assume that if you

had diligent interest in this matter, you would, by October 26,

1999, after having been freed in January, have used those 10

months to either find some abuse or to, in fact, lay in place your

authority of fines and penalties. You have not done so.

My time is expired. I am left regrettably without time and without any evidence that you have either shown diligence or interest

in this matter.

Thank you, Mr. Chairman.

Mr. KENNARD. May I respond?

Mr. FOSSELLA. By all means.

Mr. KENNARD. First of all, Mr. Dingell, I will provide you—I am

sorry that I don’t have an enumeration of all our ongoing enforcement actions. I will provide them to you in writing so that you will

have some confidence that we are enforcing section 251 of the act.

Second, I would like you to know——

Mr. DINGELL. Remember, Mr. Kennard, we are talking about section 251. Not 253 or any of the other sections.

Mr. KENNARD. That is fine. We will give you information on 251.

Second, I want you to know——

Mr. DINGELL. Could that also include fines and penalties?

Mr. KENNARD. Yes, absolutely.

Mr. DINGELL. I assume that is the best evidence of diligence, is

it not?

Mr. KENNARD. I would also like you to know——

Mr. FOSSELLA. Perhaps we could bring this outside somewhere.

Mr. KENNARD. I would also like you to know, Mr. Dingell, we are

creating an enforcement bureau at the FCC. I have charged that

bureau with enforcing section 251 as its top priority, and so we will

be bringing to you many, many enforcement actions in the near

term.

Mr. FOSSELLA. The gentleman’s day has expired.

The Chair recognizes himself for just a few minutes.

For the Chairman or the Honorable Commissioners, it parallels

I guess with what many have indicated today. That is, with the

emerging competitive market speed, the regulatory process still in

some people’s mind grinding at precompetition speed, what would

be wrong in your opinion with the statutory requirement mandating of the FCC to act on petitions, request for waivers, and applications within 90 days?

68

And, second, if the Congress requires that a certain FCC action

shall be completed within a certain time period, what happens if

the FCC fails to act in a prescribed time period? Should there be

sanctions, penalties, or consequences resulting from this failure?

I welcome answers from any of the Commissioners.

Mr. KENNARD. I think you touched on an important issue and

that is how are we going to get this agency to act faster on more

matters. I think that putting a time limit on every agency action

would not be a very productive solution because we are so inundated with petitions and requests and transactions, we have to

prioritize, and that means that we have to address the issues of the

greatest importance, be it enforcement or transactions or whatever

first. That means that some things are going to get put at the bottom of the pile. It is the only way to manage any organization.

I think that what we should do is have expected time lines on

most categories of proceedings and work diligently to meet them.

But I think that if we were to put a statutory time limit on everything the agency does, you would really elevate form over substance, and it would be a disaster.

Mr. FOSSELLA. Do any of the Commissioners have any difference

of opinion?

Mr. POWELL. Not really difference of opinion. I actually believe

that any honest managerial process needs the ability to shift priorities and resources for which a time constraint can limit. You also

have the problem of reconciling different time limits that are adopted for different purposes but nonetheless rely on the same resources.

The one thing that I also think everyone should consider as a

caution is time limits can also produce bad decisions. I have observed in government just as often, under the pressure of the gun,

silliness manifest itself rather than efficiency; and you can get an

eleventh hour decision that must be done by tomorrow that gets

done in a way that is counterproductive to the industry, markets

and consumers. And so one should think long and carefully about

where to appropriately introduce those timelines and where they

might nonetheless produce not better decisions but actually a worse

one.

Mr. FOSSELLA. Thank you.

Ms. Ness?

Ms. NESS. To the extent there are timelines, they should also reflect the need for the Commission to receive complete and accurate

information from applicants or from the licensees. Consequently, if

someone wanted to play it out until the end of the game, so to

speak, by holding the ball and not providing the information, that

should not work against the ability of the Commission to complete

its review appropriately and in a timely manner.

Mr. FOSSELLA. Please.

Mr. FURCHTGOTT-ROTH. Mr. Fossella, the Commission has had in

the past many statutory deadlines. There are many in the 1996 act.

I recall at the time there was skepticism about whether the Commission could meet some very ambitious timelines. I think the

Commission did. I am not sure that it resulted in bad decisions.

There is also, and I don’t have my handy copy of the act right

in front of me, but I believe it is in either section 7 or 8 of the act,

69

a reference to public meetings and public meetings in part having

as an objective to clear out issues that have been around for some

period of time. And it may very well be 90 days already in statute.

That is a lofty goal, an ambitious goal that the Commission often

doesn’t meet, but I think that the duty of an agency is to follow

the law. And if Congress decides in its wisdom to impose deadlines

upon the FCC, that we can and we will meet those deadlines.

Mr. FOSSELLA. Thank you.

Mr. Sawyer has been waiting patiently. I will come back after

Mr. Sawyer finishes to follow up on the other question that I had

asked. The gentleman is recognized.

Mr. SAWYER. Mr. Chairman, I appreciate your indulgence. I will

take less than a minute. I just have three very brief observations.

With regard to the matter that a number of the members of the

Commission referred to that Mr. Engel brought up, an inadvertent

mispronunciation suggested to me that there really is something

that we can do. We may not be in a position to censor that kind

of use of the air waves but we are all in a position to censure it,

and I hope that we all will.

Second, in the coming days the Commission will receive a letter

from me and a number of colleagues asking you to look at the question of the so-called 211 universal hotline for community service. I

believe it has enormous merit, not only for its own sake but in relieving inappropriate pressures on 911 hotlines in ways that will

benefit communities broadly in accessing services quickly that are

most important in people’s lives.

And, third, with regard to the E-rate, there’s been a great deal

that has been said about E-rate, but the notion of building internal

connections within schools has one additional application beyond

connecting teachers and students with the outside world. It can be

the single most important security device that we can put into a

school, far more important than any metal detectors or guards that

are put into schools. It connects teachers with one another and

with the office in a way that all too often is sadly lacking in our

schools. It is an expenditure, an investment for which there is virtually no cost if the interconnections are put into the school in the

first place for learning purposes. I hope you will encourage that

broadly as you counsel with schools with regard to the use of Erate funds.

I thank you, Mr. Chairman. I yield back whatever time I have.

Mr. FOSSELLA. The gentleman yields back.

As a follow-up, the chairman recognizes himself for just a few

more minutes, and then we will call this to an end.

Just to follow up to the responses, if I am not mistaken the Department of Justice imposes certain statutory timelines on its decisionmaking. I have got a sense that perhaps statutory timeline results sometimes in bad decisions, in haste or just for the fact that

you are up against this deadline. I am just curious as to whether,

Mr. Powell, or the Chairman, if you have any thoughts on the Department of Justice—as to whether there are parallels that can be

drawn between the two?

Mr. POWELL. There are parallels. The distinction is an important

one because one I would favor and one I would caution. ProphyVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 E:\HEARINGS\61037 pfrm02 PsN: 61037
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lactic timelines that have no ability to be extended or have no ability to be benchmarked are a different thing.

What the Department of Justice has, as it has under the HartScott-Rodino Act, a number of mandatory periods in which certain

things have to happen for the continuance of the investigation.

Those kind of benchmarks I would wholeheartedly support.

Many of the merger proposals coming out of both the Senate and

this body, including Congressman Pickering’s bill, recognize the notion of, for example, saying that in the first 45 days of a petition

for review, the Commission would be required to authorize further

investigation. It would be the equivalent of the Department of Justice’s Hart-Scott process. That is, it is a quick look and if in that

period you don’t find things that warrant a deeper investigation,

the investigation is over, and the case is closed.

If the bureau believes that issues merit continued consideration,

it should have to get the vote of the Commission to do so. But if

five responsible individuals were to vote that there are serious public interest issues necessitating a continuation of an investigation,

I think that would have merit. What’s missing in our process is

that kind of guided limitation on a temporal scale which I think we

need and I think are the right course for you to consider.

Mr. FOSSELLA. Which leads to the second part of the question I

asked before. If certain actions are not completed within a certain

time period as prescribed by law, is there any consequence that

should result from that given the amount of capital and the speed

at which these mergers are taking place and its implications in the

capital marketplace and shareholders and ultimately consumers?

Mr. KENNARD. We do have timeframes on some of our decisionmaking in the tariffing area, for example, and for some formal complaints. We have statutory timelines where you have directed us to

act within a certain period of time. And for some types of proceedings, that can be helpful.

I think that what has happened in the last year is the agency

has been inundated with these mergers. Most of them are being

handled quite quickly. Some of them are very, very complex and

difficult, and we are taking more time. And I think in many cases

that is appropriate because, unlike the Department of Justice,

when we issue a decision in a transaction, we have to write an

order, we have to make sure that we have addressed the arguments of all the parties who come before us. We have to make sure

that that order is comprehensive and will withstand judicial scrutiny. So that makes our review very, very different from the Department of Justice. And in very complex cases, it takes longer,

and that is a fact of life. And, ultimately, I don’t think that we

should put consumers at risk in the interest of what might be an

artificial time limitation.

Mr. FOSSELLA. I guess where my question is—asking unanimous

consent for 3 additional minutes. Hearing no objection——

If there is a prescribed time period as we often impose upon the

private sector and folks in the private sector don’t meet it, there

is often a penalty to enforce that time period. I am just curious as

to what, if any, penalties should be imposed upon something—an

entity like the FCC if they do not comply with prescribed time periods?

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Mr. KENNARD. Well, unlike the private sector, our mandate is to

protect the public. And so if you are penalizing the FCC, for example, by forcing the transaction through when it hasn’t been fully reviewed or there might be public interest ramifications, the only

people that get hurt are consumers that we are trying to protect

in our review.

I think the answer here is to provide the Commission the resources it needs to make sure that we can deal with these marketrestructuring issues and for the Commission to impose its own internal timelines in consultation, of course, with Members of Congress on what is reasonable. And that is a dialog for us to have

that I would like to continue.

Mr. FOSSELLA. Ms. Ness?

Ms. NESS. If I could add, I am the one surviving Commissioner

who actually lived through all the implementation of the Telecom

Act of 1996. We made great effort to comply with each and every

deadline, we met every single deadline that was imposed upon us

under the act. We continue to meet the deadlines that are imposed

upon us. The intentions of the Commission I think are pure in attempting to meet those deadlines.

Mr. FOSSELLA. Thank you.

Last question is, if I heard the Chairman correctly, you spoke to

the process in the merger review. Some would suggest the repeal

of section 221(a) was an ability—congressional signal to limit the

review process or possibly to really leave it up to the Department

of Justice or the FCC. Therefore, I would be curious to know the

substantive aspects that the FCC performs in a merger review and

what does it add or what does it look for specifically that the Department of Justice does not?

Mr. KENNARD. Well, it is a very difficult legal standard. The Department of Justice and Commissioner Powell can speak to this because he was chief of staff over there for a time.

The Department of Justice operates with a different statutory obligation. It has the burden of proof to demonstrate that a merger

would lessen competition.

The FCC’s mandate is different. The parties come before the

FCC. They bear the burden of demonstrating that a transaction

serves the public interest. So the burden is different. The legal

standard is different.

Because we have ongoing regulatory oversight, we are to make

sure that no transaction will undermine our ability to regulate the

industry and promote the pro-competitive thrust of the 1996 act. So

we look at these transactions differently. That is not to say that

there aren’t some overlapping issues but fundamentally our thrust

is very different from DOJ’s.

Mr. FOSSELLA. Are there any other thoughts on that matter? Mr.

Powell?

Mr. POWELL. I would just conclude by saying the Chairman is

correct that the standards are different and there are different considerations. I am not so sure the Justice Department review is easier because they don’t have to comply with the Administrative Procedures Act. They have to bring a lawsuit in Federal court and

bear the burden of convincing an impartial judge of the merits of

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their case when they are posed, and that is a relatively significant

exercise.

The other thing I would say, in all candor, we shouldn’t let the

standards of the details overstate the significance and substantiality of the duplication. I know what horizontal merger analysis

looks like. I know what vertical integrated merger analysis looks

like. And I have worked on four or five of these at the Commission.

The standards may be different but, in substantial measure, they

are antitrust analyses, and they can come out differently because

of the standard. They can choose or be directed to different kinds

of conditions. But I just won’t accept that the overwhelming majority of the analysis is not fundamentally different than the merger

horizontal guidelines that are employed in other agencies.

Mr. FOSSELLA. So a lot of the work is duplicative?

Mr. POWELL. Sure. The same sort of analysis. Whether that duplication is a warranted governmental act is a question for you.

Mr. FURCHTGOTT-ROTH. Mr. Fossella, the Commission receives

petitions to transfer tens of thousands of licenses every year, tens

of thousands of which only a small percentage receive some degree

of close scrutiny. We have no consistent set of written rules about

how we pull out some for close scrutiny and let the tens of thousands of others go through, some of which involve, frankly, mergers

of enormous corporations. Moreover, once we have pulled a few license transfers out which are in every way identical to the tens of

thousands which are unchallenged, we have no standards, no written standards, no written rules about how we will review them. It

is a process that is made up as we go along.

Very often, the standards that we use look all too familiar to

being the market analysis review that is already done at the Department of Justice or at the Federal Trade Commission.

I think it is correct that the Commission has an obligation to find

license transfers that are in the public interest, but we do not have

a consistent set of rules about how we reach that determination.

I can’t see any clear way that anyone on the outside applying for

a license transfer at the Commission would know how their application is going to be treated, whether it is going to be treated the

same as the tens of thousands that go through unscathed or whether they are going to be pulled aside, held up for months.

Mr. KENNARD. If I might respond, frankly, I don’t think there is

a lot of mystery here. We are charged with a public interest review

that requires a public process. We seek comment, and to some extent the extent of our review is informed by the input that we get

from the public. That being said, I think Commissioner FurchtgottRoth has raised some valid concerns about our merger review process which we are attempting to address internally by trying to

come up with some consistency of review in the General Counsel’s

Office, and at least have some overall coordination.

But I think that if you were to consult with people who appear

before the FCC and ask them if they have any expectation about

when their transactions are going to be approved and how they are

going to be handled, I think that there is a fairly high level of certainty about what to expect. Many of these licenses are routine,

and they go through quite quickly. It is only the large transactions

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that involve novel issues of market structure that draw more public

input that we need to address.

Mr. FOSSELLA. Ms. Ness, please.

Ms. NESS. I would also add that it would be informative if you

would look at the record of the mergers that we have approved.

Why do I say that? Because so often parties on the outside have

asked us to take this action or that action in conjunction with a

merger. We have not gone in those directions. We have narrowly

approached these mergers to ensure that we really were applying

the public interest standard to effectuate the goals of the act but

not go off in other directions. And so I think if you look at the

record you will see that our efforts have been to open markets

where further concentration might hinder competition.

And then, finally, we should move faster. There is no question

about it. Some of the proposals that you have heard put on the

table today are ones that we ought to be working with, and I am

sure collectively we will be able to do that.

Mr. FOSSELLA. I would just close and suggest that perhaps the

Chairman and the Commissioners look at ways in which to facilitate the process. I would imagine you could create a system whereby you almost sign off on the Department of Justice criteria if you

believe that they are satisfactory, which presumably they are, rather than have some of these applicants do the same exact work for

just a different entity. After all, you all fall under the same leader,

last time I checked.

Ms. NESS. There is one problem with that, and that is our record

is fully public. Department of Justice records are not made available to the public, and there are some issues involving privacy.

Mr. FOSSELLA. Perhaps there is a somewhere in between whereby the two could come together.

If there is nothing else, this meeting is adjourned. Thank you

very much for your patience.

This subcommittee stands adjourned until 10 a.m. Thursday,

when it will meet to conduct an oversight hearing on the 1-year anniversary of the Digital Millennium Copyright Act. Thank you very

much for your patience.

[Whereupon, at 12:36 p.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:

FEDERAL COMMUNICATIONS COMMISSION

OFFICE OF THE CHAIRMAN

November 5, 1999

The Honorable EDOLPHUS TOWNS

U.S. House of Representatives

2232 Rayburn House Office Building

Washington, D.C. 20515

DEAR CONGRESSMAN TOWNS: This is in response to your letter of October 22, 1999

regarding the Telecommunications Development Fund (TDF).

I share your commitment to TDF and your desire to ensure that the Fund is able

to provide assistance to small telecommunications businesses to the maximum extent possible. In this regard, the Commission fully supports the legislative proposal

submitted by TDF to amend the Telecommunications Act of 1996 so that TDF may

be funded from interest earned on downpayments by auction winners as well as

from interest on upfront payments by all auction participants.

Current agency estimates indicate that over the past three years, at least $73 million in interest could have been generated from these spectrum auction accounts if

the TDF amendment were enacted into law. Enactment of this amendment will help

ensure that the TDF more fully meets its intended goals to ‘‘promote access to capVerDate 20-MAR-2000 09:26 Mar 28, 2000 Jkt 010199 PO 00000 Frm 00076 Fmt 6633 Sfmt 6621 E:\HEARINGS\61037 pfrm02 PsN: 61037
74

ital for small businesses in order to enhance competition in the telecommunications

industry; stimulate new technology development, and promote employment and

training; and support universal service and promote delivery of telecommunications

services to underserved rural and urban areas.’’

In my legal opinion, which was formed while I was General Counsel of the Commission, the proposed TDF amendment is necessary for the following reason. The

current statute provides that: ‘‘[a]ny deposits the Commission may require for the

qualification of any person to bid in a system of competitive bidding pursuant to this

subsection shall be deposited in an interest bearing account . . .’’ with the interest

thereafter directed to TDF. 47 U.S.C. 309(j)(8)(C). Pursuant to Commission regulations and auctions rules, the only deposits an applicant must make to become a

qualified bidder are upfront payments. Downpayments are not required, or even calculated, until after the auction is completed and winners have been determined. Because the current statutory language is clear on this point, I do not believe that the

Commission can adopt any other interpretation without an amendment to the legislation.

I am glad to know that you are working to develop such an amendment. Please

let me know if I can be of any further assistance in this highly worthwhile effort.

Sincerely,

WILLIAM E. KENNARD

Chairman

RESPONSES FOR THE RECORD OF HON. WILLIAM E. KENNARD, TO QUESTIONS OF HON.

BARBARA CUBIN

Question: In a January letter I asked the Commission to look into an issue regarding WyoMedia Corporation which filed an application for authority to construct a

new television station on Channel 16 in Scottsbluff, Nebraska. Yesterday, my office

received a reply from you (Chairman Kennard) telling me that you anticipate that

the Commission will open the window very shortly for all ‘‘freeze’’ waiver applicants

to amend their applications. Could you tell me specifically when that will happen?

You may remember from my letter to you that WyoMedia filed its application in

1996. To me 3 years seems to be a unreasonably long time for an application review.

Answer: On November 22, 1999, the Commission’s Mass Media Bureau issued a

Public Notice, DA 99-2605, ‘‘Mass Media Bureau Announces Window Filing Opportunity for Certain Pending Applications and Allotment Petitions for New Analog TV

Stations.’’ The Public Notice announced a window filing opportunity through March

17, 2000 to allow persons with certain pending requests for new analog (NTSC) television stations to modify their requests, if possible, to eliminate technical conflicts

with digital television (DTV) stations and to move from channels 60 through 69.

This window is available for WyoMedia Corporation since its pending application

seeks a new full-service NTSC television station on channels 2-59 at a location inside of the so-called ‘‘TV Freeze Area.’’

Question: The recent explosion of mergers in the telecommunications industry

have a major impact on competition and economic development not only in my home

state of Wyoming but throughout the Nation. Recently, my colleague, Chip Pickering, introduced a measure to establish time limits for FCC review of mergers and

acquisitions, and because I have long been concerned about the treatment of mergers in the telecomm industry, I am pleased to be a co-sponsor of the legislation.

I am interested in the fundamental principle of fairness and timeliness in reviewing and approving mergers and avoiding extraordinary delays. I am interested to

know, Mr. Chairman, from your perspective, how do you intend to remedy the concern that we all have on Capitol Hill with respect to the time consuming merger

review process by the FCC? Is legislation necessary?

Answer: I do not believe legislation is necessary to address the FCC’s merger review process. Instead, I have asked the Commission’s General Counsel, Christopher

Wright, to organize an intra-agency merger transaction team that will be in place

by January 3, 2000. This will streamline and accelerate the transaction review process.

The new intra-agency transaction review team will establish deadlines for rapid

processing of transfers of control associated with transactions. The goal will be to

complete even the most difficult transactions within 180 days after the parties have

filed all of the necessary information and public notice of the petitions have been

issued. Finally, the new team will also work to make the transaction review process

even more predictable and transparent, so that applicants know what is expected

of them, what will happen when, and the current status of their application. This

75

is also consistent with the Commission’s current restructuring focus to transform

the FCC into a more functional, faster and flatter organizational entity.

Question: As a follow-up to the last question: with respect to my home state,

Qwest Communications and US WEST filed joint applications for approval of their

planned merger with the FCC and state commissions, including Wyoming, over two

months ago. The companies also filed notifications of their transactions with the US

Department of Justice and the Federal Trade Commission and received clearance

to proceed with the merger in just three weeks.

The timely replies of the DOJ and FTC show that this process can work quickly.

When do you anticipate that the FCC will review this pending application? Can you

assure me that the FCC will not prolong the process of this particular merger?

Answer: Pursuant to the Communications Act, the Commission has an obligation

to determine whether a proposed merger is in the public interest. In determining

whether a merger is in the public interest, the Commission considers not only the

competitive effects of the proposed merger, but also takes into account various factors including the effects of the merger on Congress’ goals as stated in the Telecommunications Act of 1996. In other words, the standard used by the Commission

differs from those used by the FTC and the Department of Justice. Under the Act,

the Commission must determine whether the merger applicants have demonstrated

that the proposed transaction, on balance, serves the public interest, considering

both its competitive effects and other public interest benefits and harms. If our analysis reveals that the public interest harms of a proposed merger will outweigh its

public interests benefits, the Commission may require the merging parties to comply

with the conditions designed to ensure that the competitive promise of the merger

is met. Further, the Department of Justice and the FTC review process allows a ‘‘no

action’’ decision that requires no explanation (and no comment from interested parties.) By contrast, the Administrative Procedure Act and the Communications Act

require full due process, including the right of interested parties to receive notice

and file comment and the right of dissatisfied parties to seek judicial review.

As you know, on August 19, 1999, Qwest and US WEST filed applications with

the Commission requesting Commission approval for the transfer of control of licenses and authorizations held by subsidiaries of the two companies to merge with

and into Qwest. The applications were placed on public notice on September 1, 1999;

and many parties filed comments. In their reply comments, the applicants outlined

a divestiture plan that they claimed would bring them into compliance with section

271. As you know, section 271 prohibits a Bell Operating Company from providing

in-region, interLATA services before opening its local markets to competition. Given

the importance of section 271 and its pro-competitive goals, on October 19, 1999, the

divestiture plan also was placed on public notice. The pleading cycle is now complete.

Accordingly, the Commission will carefully and expeditiously review the application filed by Qwest and US WEST. We hope to have a final decision on this merger

during the first quarter of 2000.

Question: You have stated for the record that the high speed data market is not

an inherently monopolistic market. Would you say that this statement applies in

rural areas like Wyoming?

You have also stated that one of your highest priorities is to ensure that rural

America has access to the same telecommunications services available to the large

urban areas. We share that goal. Is there a legislative or regulatory solution that

you see that would immediately address the ‘‘digital divide’’?

Answer: I believe that, even in our most rural areas, we can not yet conclude that

there is a natural monopoly in broadband services. Competition in all areas of telecommunications is still emerging and will continue to grow. There is facilities-based

competition in the western part of Wyoming in areas served by US WEST and Silver Star Communications and there is resale of residential and business telephone

service throughout the state. PCS wireless service has also been launched. In addition, Wyoming has infrastructure important to the development of competitive

broadband services. Every community except two is served by digital switching

equipment located in each respective central office and cable television is also available to 82 % of the homes in Wyoming. Satellite services are available throughout

Wyoming, especially in thinly populated areas (and the cost of satellite-based services, unlike wire-based ones, is insensitive to distance). All these technologies are

platforms for broadband.

Of course, I share your concern about rural area access to advanced services. We

are just beginning the second of our regular inquiries into the deployment of

broadband to all Americans, and are giving particular attention to the question of

how soon and whether competition will bring broadband services to rural areas.

76

Early in the new year, we will issue a Notice of Inquiry on this issue and welcome

your and your constituents input.

It should also be noted that we are not required to rely entirely on market forces

to bring broadband services to rural areas. Section 706 of the 1996 Act provides that

if broadband is not being deployed in a reasonable and timely fashion to all Americans, we and state regulators should use a variety of deregulatory and competitionpromoting techniques.

Finally, I assure you of my commitment to ensuring that rural Americans share

in the benefits of technological advancements in telecommunications services. To

that end, I have asked the universal service Joint Board to speed up its review of

the services that are eligible for universal service support, so that they may consider

whether broadband services should be included. In addition, at the recommendation

of NARUC, the FCC has created a Joint Conference with the states to facilitate the

dialogue among state and federal regulators about how to bring advanced services

to all Americans.

RESPONSES FOR THE RECORD OF HON. WILLIAM E. KENNARD, TO QUESTIONS OF HON.

MICHAEL OXLEY

Question: I wrote the Commission last month outlining our concern that the FCC

has not acted on Internet LOAs, or letters of agency, to allow consumers to change

pre-subscribed telecom carriers over the Internet. Twelve of my colleagues signed

onto that letter. I understand the issue is linked to the slamming order, but our

point was that Internet LOAs should be non-controversial and should be separated

out and acted on promptly. Any chance of that?

Answer: I share your interest in resolving the issue of Internet LOAs. As indicated, however, in my response to your recent letter regarding LOAs, we received

comments from many interested parties on this issue but there is not unanimous

agreement on whether Internet LOAs should be permitted. Several commenting parties expressed concern that submitting a carrier change using the Internet would

not, by itself, provide sufficient consumer protection if it were not accompanied by

additional verification. For example, most PUCs express concern with the security

of Internet transactions and urge the Commission to use any safeguards possible,

e.g., getting alternate forms of identification and verifying changes through three

prescribed methods. Some suggest that Internet LOAs are fertile ground for slamming. Others suggest downloading LOAs from the Internet and sending hard copies

to carriers. One consumer group is against Internet LOAs altogether. By contrast,

others strongly support the use of the Internet to facilitate the submission of carrier

changes. Because of the importance of this issue, and in light of the strong and varied sentiments in the comments, we intend to move as quickly as possible to evaluate and resolve the issue of Internet LOAs.

Question: (for Commissioner Furchtgott-Roth) Congressman Stearns and I have

written the Commission twice to voice concern over the FCC’s proposed low power

radio service. Our biggest concern is over the impact on current interference standards. Can the Commission assure the Committee that if it goes forward with the

proposal there will be no weakening of current interference standards and no increase in interference with existing license holders?

Answer: I share your concern over the FCC’s proposed low power radio service.

As I said when I dissented from the adoption of the proposed notice of rulemaking,

the Commission can authorize extremely few new stations under existing interference rules. In order to create any real amount of new service, protection standards must be loosened so far as to eliminate third and even second adjacent channel

safeguards.

Accordingly, I regret that I do not think it is possible to say that there will be

no weakening of current interference standards and no increase in interference with

existing license holders. I fear that these license holders, as well as their listeners,

will bear the brunt of the effects of this proposal. Moreover, any new low power stations would themselves likely receive interference from full power stations, potentially making the promise of their service illusory. In sum, this proposal is likely

to create more harm than good on all sides, that is, for current broadcasters, their

listeners, and even new low power stations.

RESPONSES FOR THE RECORD OF HON. WILLIAM E. KENNARD, TO QUESTIONS OF HON.

PAUL GILLMOR

Question: Private land mobile users have informed the Commission for years that

their spectrum needs are not being met. What plans do you have to ensure their

access to needed spectrum?

77

Answer: Private land mobile users’ communications requirements can be satisfied

in a number of ways. One is through the reallocation of spectrum from other uses.

The Commission is currently considering an industry proposal that includes a request for allocation of 6 MHz of the 746-806 MHz spectrum to be licensed to Band

Managers. These Band Managers could coordinate spectrum for private use. This

spectrum is being recovered from TV channels 60-69 as a result of digital television

implementation. Also, in the Spectrum Policy Statement of November 22, 1999, the

Commission said that it would consider establishing a new Land Mobile Communications Service in 10 megahertz of spectrum in the 1390-1435 MHz bands. While

these bands are not contiguous, they are sufficiently close together to allow manufacturers to design cost-effective equipment. This band was also identified last year

by the Land Mobile Communications Council as possibly being appropriate for limited allocation to private land mobile users.

The use of new and more efficient technologies will also increase the amount of

spectrum available for private land mobile users. For example, due to the Commission’s ‘‘refarming’’ proceeding, the use of narrower channels has been interjected

into spectrum designated for private services. Consequently, we are seeing an increasing capability to accommodate many more private licensees and users.

Finally, the use of cellular and PCS systems is another way to meet some private

land mobile users’ wireless spectrum needs. New procedures and protocols are being

developed for and incorporated into commercial systems that will benefit the private

land mobile user.

Question: In 1997, the Congress designated 24 MHz for public use in the 746-806

MHz band. There is presently a proceeding underway with respect to the auction

of 36 MHz of commercial spectrum in the same band. What efforts will you undertake to ensure that both federal and municipal police, fire, and rescue services will

be protected from harmful radio interference?

Answer: In developing a band plan for this 36 MHz of spectrum, a primary goal

of the Commission is to ensure that activation of services in these bands will not

impair public safety operations through harmful interference. The Commission has

under consideration several proposed band plans, including proposals to establish

‘‘guard bands’’, i.e., slices of spectrum adjacent to the public safety spectrum, that

would be licensed to Band Managers who would be responsible for assigning frequencies and coordinating frequency use to avoid interference. Additionally, the

Commission is also considering other proposals to license such guard bands for low

power commercial uses.

Whatever band plan is ultimately adopted by the Commission, let me assure you

that my fellow Commissioners and I recognize the critically important role that public safety plays, and will protect public safety operations from harmful interference.

I expect a decision on the aforementioned band plans to be adopted within the

next few weeks.