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



 
   FEDERAL COMMUNICATIONS COMMISSION REFORM: THE STATES' PERSPECTIVE

=======================================================================

                                HEARING

                               before the

                  SUBCOMMITTEE ON TELECOMMUNICATIONS,
                     TRADE, AND CONSUMER PROTECTION

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 20, 1999

                               __________

                           Serial No. 106-23

                               __________

            Printed for the use of the Committee on Commerce


                                


                      U.S. GOVERNMENT PRINTING OFFICE
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                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland

                   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,              EDWARD J. MARKEY, Massachusetts
  Vice Chairman                      RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio                BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California          ANNA G. ESHOO, California
NATHAN DEAL, Georgia                 ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma              ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming               BILL LUTHER, Minnesota
JAMES E. ROGAN, California           RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois               THOMAS C. SAWYER, Ohio
HEATHER WILSON, New Mexico           GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
Mississippi                          JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York                (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)



                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Dixon, Irma Muse, Commissioner, District 3, Louisiana Public 
      Service Commission.........................................    14
    Gillis, William R., Commissioner, Washington Utilities and 
      Transportation Commission..................................    18
    Lafferty, Wayne, Vice President, Regulatory and Government 
      Affairs, Citizens Communication, on behalf of the United 
      States Telephone Association...............................    28
    Rolka, David W., Commissioner, Pennsylvania Public Utility 
      Commission.................................................    22
    Rowe, Bob, Commissioner, Montana Public Service Commission, 
      on behalf of National Association of Regulatory Utility 
      Commissioners..............................................     4

                                 (iii)



   FEDERAL COMMUNICATIONS COMMISSION REFORM: THE STATES' PERSPECTIVE

                              ----------                              


                         THURSDAY, MAY 20, 1999

              House of Representatives,    
                         Committee on Commerce,    
                    Subcommittee on Telecommunications,    
                            Trade, and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:22 p.m., in 
room 2322, Rayburn House Office Building. Hon. W.J. ``Billy'' 
Tauzin (chairman) presiding.
    Members present: Representatives Tauzin, Oxley, Stearns, 
Gillmor, Shimkus, Wilson, Fossella, Ehrlich, Markey, Engel, 
Luther, and McCarthy.
    Staff present: Ed Hearst, majority counsel; Justin Lilley, 
majority counsel; Mike O'Rielly, professional staff member; 
Cliff Riccio, legislative clerk, and Andy Levin, minority 
counsel.
    Mr. Tauzin. The committee will please come to order.
    Good afternoon. I would like to welcome you all to the 
second in a series of hearings this year on the issue before 
us, the Federal Communications Commission commissioned by this 
subcommittee.
    I would also like to welcome our witnesses and thank you 
for agreeing to come and testify today. I particularly would 
like to extend a special welcome on behalf of Irma Dixon, from 
my home State of Louisiana. Irma is testifying on behalf of the 
Louisiana Public Service Commission. She is busy right now 
checking in with home, I assume. Have you got all those 
instructions, Irma?
    On March 17 of this year, I held a hearing on the 
reauthorization of the FCC. Testifying at that hearing were all 
five FCC Commissioners, including its Chairman, Bill Kennard, 
and Peter Huber, communications visionary. At that hearing I 
pledged to work on a sweeping FCC reform bill, among other 
things, and outlined several key areas for review.
    The first is forbearance--whether the FCC activities are 
simply unnecessary now, or will be unneeded as communications 
markets become more and more competitive.
    Privatization: whether FCC activities could or should be 
privatized, such as recordkeeping and information gathering, as 
examples.
    Duplication: What FCC programs duplicate those of other 
Federal agencies and could be eliminated?
    Most importantly for our witnesses today, devolution: What 
FCC functions presently handled in Washington would be better 
handled at the State level.
    And, finally, organization: What FCC structural changes can 
be made to streamline the agency and make it more user-friendly 
in today's fast-paced marketplace.
    Given that the authority over telecommunications is divided 
between the Federal Government and the States, with significant 
areas of overlapping jurisdiction, it is fitting that we hear 
another perspective today, and let me explain.
    The FCC's jurisdiction is broad. It covers both interstate 
and international communications, and it is the States that 
generally regulate telecommunications through their State 
public utility commissions. Thus, reform of the FCC and the 
nature of those reforms are very important to the States.
    Four of our witnesses today serve on such commissions. With 
us we have Irma Muse Dixon of Louisiana, William Gillis of 
Washington Utilities and Transportation Commission, David Rolka 
of Pennsylvania Public Utility Commission, and Bob Rowe, 
Montana Public Service Commission. Additionally, we will hear 
testimony from F. Wayne Lafferty, Vice President of the 
Regulatory and Government Affairs at Citizens Communications.
    Clearly, the States have an important role in working with 
the FCC in implementing telecommunications policy. With this in 
mind, we look forward to your views on FCC reform.
    I would like to add, parenthetically, that we have already 
appointed on the Republican side a task force to examine the 
nature of the current operations of the FCC in much greater 
detail, and to explore with folks such as yourselves and 
industry representatives and citizens' groups what, in fact, a 
new FCC should look like in a competitive marketplace. That 
task force has already begun its work, its assigned 
responsibilities, and we are beginning to hear and receive a 
great deal of input from citizens and institutions and 
organizations and other government agencies such as yourself.
    In addition, Mr. Dingell and I have had a number of 
conversations. I have encouraged him to do a similar review on 
the Democratic side, so that we might combine our efforts at 
some point and come to some bipartisan understanding of where 
we want to go.
    Our goal, ladies and gentlemen, is to try to have something 
available in the formal legislation by the end of June and into 
July. So with that time table in mind, we welcome your 
appearance today, your testimony. We will keep the record open, 
and as you hear discussion today and continue to read about the 
work of the task force and the committee, I would deeply 
appreciate it if you would continue to communicate with us up 
until the time we are beginning to formulate that legislation 
for the consideration by the Congress.
    Again, thank you for coming.
    [Additional statements submitted for the record follow:]
    Prepared Statement of Hon. Paul E. Gillmor, a Representative in 
                    Congress from the State of Ohio
    Mr. Chairman, I am delighted that we are having this hearing today 
to hear the States perspective on telecommunications reform. I look 
forward to the testimony of our panelists.
    As has been indicated, Chairman Tauzin has asked that I head up a 
Task Force to oversee re-authorization of the Federal Communications 
Commission. It will be a challenging task and I am under no 
misapprehensions about the success of our mission. But I did want to 
make it clear to the witnesses today and to members of the audience 
that I would be interested in receiving further feedback from you. The 
Task Force is entering into this exercise with no foredrawn 
conclusions, nor do we have any bias. But in order for us to come up 
with a viable package, we need to hear from those individuals and 
telecommunications entities who deal with the FCC on a regular basis 
and who have views about meaningful reform.
    If you have an idea to streamline or consolidate FCC functions, the 
Task Force would like to hear from you. If you have a suggestion to 
eliminate an FCC function, the Task Force would like to hear from you. 
And if there is an FCC function which you feel could be automated, that 
would be extraordinarily welcome.
    Mr. Chairman, I yield back the balance of my time.
                                 ______
                                 
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress 
                       from the State of Florida
    Mr. Chairman: Thank you for calling this hearing to further pursue 
our understanding of how, when, where, and why the Federal 
Communications Commission should be reformed to reflect the 
communications realities of today and the future.
    As my colleagues know, I continue to believe that our own 
individual States and localities should play the paramount role in the 
regulation of telecommunications, with the federal government and 
federal regulators playing a complementary role.
    However, Congress and the FCC must lead when barriers to 
competition are evident and where national telecommunications policy 
needs to be addressed.
    This is what drove us to action to create the Telecommunications 
Act of 1996. Our nation was in need of federal policy to deliver 
competition at the local level across a wide array of services.
    The spirit of the Telecom Act compels us in Congress to seek ways 
to remove barriers to competition wherever those barriers exist. The 
building access hearing held last week is an example of the 
difficulties separating the need for State and federal regulation.
    I would hope that the issue of building access, for instance, could 
be settled at the State level rather than here in Congress or at the 
FCC.
    But as in the case of my home State of Florida, where a widely 
supported compromise bill was blocked for political consideration, true 
competition through unencumbered access to multi-tenant buildings has 
been stifled.
    These difficulties at the State level to remove such barriers 
increases pressure on Congress and federal regulators to create 
solutions.
    The division between federal regulation and State regulation 
continues to be challenged at all levels. It has most recently come to 
a head with a decision by the Arizona Corporation Commission on a 2-1 
vote a week ago on Tuesday to abolish LATA boundaries within the State 
and, in so doing, challenges federal authority in regulating voice and 
data traffic over common carrier lines.
    I would like the witnesses today to address the Arizona decision 
and address whether a State has the power to directly challenge federal 
authority in such a direct manner.
    My colleagues are aware that LATA lines were created with the 
break-up of AT&T in order to disallow Regional Bell Operating Companies 
or RBOCs from providing long distance service.
    Preventing the incumbent local provider from offering long distance 
services was done to allow new competitors to enter into this business.
    The 1996 Telecom Act opened up the long distance market to 
incumbent providers once that provider met a competitive 14-point 
checklist.
    The Arizona decision presents a difficult dilemma. On one hand, if 
the Arizona decision is allowed to stand, the 14-point checklist will 
be meaningless and these provisions in the Telecom Act to open the 
local market would be equally worthless.
    It seems to me that by allowing the incumbent provider to skirt the 
checklist by eliminating LATA boundaries will remove the incentive to 
open their local markets to competitors.
    On the other hand, maybe our States should have the power to 
eliminate such distinctions because they should have the ability to 
regulate services in their State. There is an argument to be made that 
the checklist has become a Leviathan rather than a blueprint to reach 
the goal of providing long distance voice.
    There is also an argument that can be made that the lucrative 
business market is open to competition and if the local incumbents are 
kept from offering long distance to these business customers, there 
will not be many opportunities for the incumbent to remain economically 
viable in the rapidly evolving communications marketplace.
    What is primarily most disappointing in the Arizona decision is 
that this will now launch a new round of legal challenges. In 12 months 
from now or 18, or even longer, we will have this latest legal 
challenge resolved.
    So instead of the American people being a step closer to achieving 
full-fledged competition for their local telephone service, they will 
continue not to see actual competition for their local service.
    I look forward to the response of the witnesses to these questions.
    Thank you Mr. Chairman.

    Mr. Tauzin. We will start today with Ms. Irma Dixon, my 
dear friend from Louisiana. And, Irma, thanks again for 
traveling here to Washington, DC, and for being with us. We 
will appreciate your testimony.
    Written testimony, by the way, is made a part of the 
record. So if you will just summarize and have a conversation 
with us on your testimony?
    Irma Dixon.

   STATEMENTS OF IRMA MUSE DIXON, COMMISSIONER, DISTRICT 3, 
 LOUISIANA PUBLIC SERVICE COMMISSION; BOB ROWE, COMMISSIONER, 
   MONTANA PUBLIC SERVICE COMMISSION, ON BEHALF OF NATIONAL 
  ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS; WILLIAM R. 
 GILLIS, COMMISSIONER, WASHINGTON UTILITIES AND TRANSPORTATION 
 COMMISSION; DAVID W. ROLKA, COMMISSIONER, PENNSYLVANIA PUBLIC 
    UTILITY COMMISSION; AND WAYNE LAFFERTY, VICE PRESIDENT, 
 REGULATORY AND GOVERNMENT AFFAIRS, CITIZENS COMMUNICATION, ON 
       BEHALF OF THE UNITED STATES TELEPHONE ASSOCIATION

    Ms. Dixon. Thank you so much, Congressman. It is a 
privilege and an honor to be here in front of you today. We 
have had many, many years of discussions as relates to this act 
and the FCC.
    We talked a little bit earlier in coming in, and if you 
don't mind, we would like to adjust a little bit. As a 
courtesy, we have the Chair of the NARUC Telecommunications 
Committee here, which is Chairman Bob Rowe, and I would like to 
start with him, because my component of the testimony is mainly 
recommendations in the overhauling. But I think Mr. Rowe will 
set the pace and let you know NARUC is, if you don't mind.
    Mr. Tauzin. Mr. Rowe, I have been with Irma a long time, 
and she has never let me go first. That is remarkable.
    Mr. Rowe.
    Ms. Dixon. But I am being courteous. Since the Chair is 
from my State, we want to be hospitable in Washington. Thank 
you so much.

                      STATEMENT OF BOB ROWE

    Mr. Rowe. Mr. Chairman, thank you. I have been good friends 
with Irma for quite a few years, and I always think of her as 
the shortest distance between two points.
    My name is Bob Rowe. I am Chair of the Telecommunications 
Committee of NARUC, National Association of Regulatory Utility 
Commissioners, and a first vice president of NARUC.
    Members of this committee, your colleagues have focused 
just extraordinary and very constructive attention on 
implementation of the act. You have worked very closely, 
obviously, with the FCC, but from our point of view, just as 
closely with the State commissions, to check up on progress we 
are making; what kind of roadblocks you see.
    My written testimony will cover in some detail the NARUC 
Telecommunications Committee's work, State utility commission 
restructuring, which I think in some sense does serve as a 
model for what you are considering, and FCC/State commission 
cooperation. My colleagues will cover a number of specific 
areas, including issues concerning numbering, section 271, and 
consumer protection issues.
    First, very briefly, let me describe the NARUC 
Telecommunications Committee. You in the act very, wisely, 
adopted a cooperative Federalist approach to telecommunications 
policy. You gave both the FCC and the States very specific 
direction and authority in quite a range of areas. The act, I 
think, mentioned State commissioners over 100 times.
    The Telecommunications Committee is the focal point for 
much of our work, sharing information, developing policies, 
interacting with the Congress, with the FCC, and the 
administration. My approach as chairman, wherever possible, is 
to try to identify ways to move forward within the framework 
that you have created. Typically, we adopt about 30 
telecommunications resolutions a year. We work on research 
projects through the committee and through our research arm, 
NRRI, located at Ohio State. I like to produce deliverable 
products that really do help advance both the public and the 
industry agenda. I describe those in my testimony.
    One good example that we are quite proud of month, issued 
last month, is best practices implementing the 
Telecommunications Act. A number of your staff have copies of 
that. There we summarized nearly 50 suggestions from all kinds 
of industry and consumer groups to move things forward, take a 
problem-solving approach.
    Second, State commission restructuring: As you know, State 
commissions have been moving toward local telephone competition 
since the 1980's, and right now in very many States are 
actually taking the lead opening up retail competition in both 
electricity and natural gas. Well, that external restructuring 
of the industries has required an internal restructuring of 
State regulations, and there again, NARUC and our research 
organization, NRRI, have convened commissioner-only summits and 
have published an extensive series of reports that, again, are 
listed in an attachment to my written testimony.
    Retail rate-setting does still matter at the State level 
because many local markets are not yet fully competitive. 
Obviously, local rates, I know you get complaints about local 
rates from your constituents. However, in general, State 
commissions are moving more toward a focus on wholesale-level 
issues: rates, service, things like that. I think of it as 
moving away from a traditional focus on ratepayer versus 
shareholder, which was a tough enough balance; now moving 
toward a focus on shareholder versus shareholder, for the 
benefit of the retail customer.
    We are also really gearing up our efforts on customer 
education and consumer protection. There I think of the 
challenge as converting the traditional passive ratepayer to an 
active shopper for utility services. At least over the near 
term, our complaints about service quality have actually 
increased. This is surprising, but given the complexity of what 
we are undertaking, maybe it shouldn't have been surprising. We 
are doing more work on service quality now than we have 
previously.
    We are also working to preserve the benefits of the 
traditional legal or economic monopolies, if you will, 
particularly universal service on the phone side. We have 
adopted really a new emphasis on economic development, 
supporting infrastructure, investment in technology, that I 
think is very much consistent with section 706, where, again, 
you did speak both to the FCC and to the State commission.
    We are using new tools, such as alternative dispute 
resolution, collaboration. We are using regional coordination. 
Recently, I proposed regional cooperation among the States on 
the third-party OSS testing, which seems to be one vehicle to 
move that 271 process along to get to the right result for 
everybody--not raising or lowering the bar, but moving it 
forward efficiently.
    In my written testimony I describe the experience of the 
Montana commission. We have 32 staff members other than the 
commissioners. I describe our work on restructuring and our new 
emphasis on consumer protection.
    The final area of my oral comments is just to emphasize, as 
you know very well, the FCC/State cooperation. Call it 
devolution; call it cooperative federalism, but to make your 
design work, we have to play in the same sandbox.
    You are all familiar with AT&T v. Iowa Utilities Board, the 
Supreme Court's decision. The FCC won; we lost. But they have 
been gracious winners.
    Our first action after the Supreme Court decision was to 
adopt a resolution noting that most all State commissions have 
used some form of wholesale, forward-looking pricing and asking 
for FCC cooperation on a couple of key implementation issues. 
So far, the FCC has responded favorably to those requests and 
has moved forward.
    Our second action was actually to finalize what we call the 
FCC/State commission magna carta, with which we are working 
with Chairman Kennard for about a year. I have attached what we 
call the Statement of Participation from that. Really, this is 
an attempt to say that, within the Federalist system, we have 
complementary strengths; there is real benefit to the diversity 
and the experimentation of the Federalist system. It's messy, 
but it gets the job done. It is what James Madison had in mind, 
and tries to outline a number of approaches to move that 
forward.
    Commissioner Gillis is going to describe his work with the 
FCC on consumer issues. Recently, I suggested that there may be 
room to move a lot more of the direct customer contact in the 
slamming area back down to the State commissions, which are 
doing a lot of the frontline work.
    We also recently called for a joint FCC/State commission 
conference to promote access to advance technologies under 
section 706. The Alliance for Public Technology was very 
involved in helping to promote that idea, and I strongly urge 
you, as you think about ways to promote access to advanced 
services, to consider the State commissions as really first-
line tools to move that effort forward.
    In my written comments I do offer some more initial 
reactions to the FCC reorganization plan. I think as you very 
correctly said at the first hearing, which I thought was an 
outstanding hearing, some of the right elements are on the 
table there. There are some things we can work with, some 
things that look like what States are trying to do. I very much 
appreciate your attention to our efforts, and I look forward to 
your questions. Thank you.
    [The prepared statement of Bob Rowe follows:]
 Prepared Statement of Bob Rowe, Commissioner, Montana Public Service 
Commission on Behalf of the National Association of Regulatory Utility 
                             Commissioners
    Mr. Chairman and Members of the Committee: My name is Bob Rowe. I 
am Chairman of the Telecommunications Committee of the National 
Association of Regulatory Utility Commissioners (NARUC), First Vice 
President of NARUC, and a Commissioner on the Montana Public Service 
Commission. NARUC is the national organization that represents state 
public service commissions from all fifty states, the District of 
Columbia and the United States Territories. Since passage of the 
Telecommunications Act of 1996, NARUC's member states have been 
immersed in implementation efforts nationally and in their own states. 
We pledge to continue to work constructively with the Congress, the 
Federal Communications Commission and other federal agencies to 
maintain a fair balance between various industry and consumer 
interests. Members of the House Commerce Committee have focused 
extraordinary and constructive attention on FCC and state actions to 
implement the 1996 Act. Many of this Committee's members have worked 
closely with utility commissioners from their own state and with NARUC.
    My testimony will cover the following areas: 1. The NARUC 
Telecommunications Committee's work; 2. State utility commission 
restructuring, which in some respects may serve as a model for FCC 
efforts; 3. FCC-state commission cooperation; and 4. Initial comments 
on the FCC reorganization plan previously presented to you.
    In addition, Commissioner Bill Gillis of Washington State will 
discuss state-FCC work on consumer protection and education. 
Commissioner Irma Muse Dixon of Louisiana will suggest ways the FCC 
might increase hands-on cooperation with state commissions. 
Commissioner David Rolka of Pennsylvania will discuss the process of 
federal-state ``jurisdictional separations,'' numbering issues, and 
will offer several observations based on his experience in 
Pennsylvania.
     i. the naruc telecommunications committee works to implement 
                         congressional intent.
    Congress wisely adopted a ``cooperative federalist'' approach in 
the Telecommunications Act of 1996. You gave the FCC and the state 
commissions specific direction and authority in areas including terms 
and conditions for carrier-to-carrier arrangements, universal service, 
deployment of advanced technology, and consumer protection. In 
addition, you reserved to the states authority over intrastate rates 
and service.
    The NARUC Telecommunications Committee is the focal point for state 
implementation of the Telecommunications Act. It is a forum for sharing 
information, and takes the lead on much interaction with the Congress, 
the FCC, and the Administration.
    My approach is to identify ways to move forward within the policy 
framework developed by you in the Telecommunications Act and by state 
legislatures in companion statutes across the country. NARUC adopts 
about thirty telecommunications resolutions each year, and also 
sponsors a range of research projects, working closely with the 
National Regulatory Research Institute (NRRI), located at The Ohio 
State University. Most of our work concerns competition, universal 
service, technology, or consumer protection.
    I like to produce ``deliverable products'' which help advance both 
agency and industry implementation of Congressional intent. Several 
examples, of many, are:

1. Policies on Pricing and Universal Service for Internet Traffic on 
        the Public Switched Network (NRRI, 1998). This report 
        identified many of the technology and policy issues associated 
        with developing a robust Internet.
2. Section 271 Template (July 1998). States play a crucial role in 
        developing the record upon which Department of Justice 
        recommendations and FCC decisions concerning Bell Operating 
        Company in-region long distance are based. The Template brought 
        together all the specific factors DOJ and the FCC had 
        identified to-date as relevant, allowing state commissions to 
        develop the best possible record, and potentially giving the 
        industry a useful roadmap for their applications.
3. Consumer Education Templates (www.naruc.org); Compendium of 
        Resources on Consumer Education (NRRI, July 1998); No Surprises 
        White Paper (July 1998), and other consumer materials. These 
        are valuable resources for states developing consumer education 
        and protection programs in emerging-competitive markets.
4. Year 2000 Template (www.naruc.org). The Template is a standardized 
        way to track and encourage utility Y2K efforts, ensuring states 
        develop the information they need, and minimizing burdensome or 
        conflicting reporting requirements on industry.
5. Best Practices Implementing the Telecommunications Act (NRRI, April 
        1999). We solicited and received nearly fifty suggestions from 
        industry and consumer groups concerning ways to carry out 
        Congressional intent under the Act. Suggestions concerned 
        alternative dispute resolution, customer service, universal 
        service, advanced technology, interconnection and market entry, 
        numbering, and collocation.
    These ``deliverable products'' represent constructive, problem-
solving approaches to implementing telecommunications competition, 
producing consensus, and moving forward on Telecommunications Act 
implementation.
     ii. state commission restructuring is driven by changes in the 
               telecommunications and energy industries.
    Several states began moving toward local telephone competition in 
the 1980s. Currently, many states are also opening up natural gas and 
electric markets to retail competition. While many issues are 
different, both energy and telecommunications competition require 
internal reorganization by state commissions. There may be lessons as 
federal agencies begin similar efforts.
    Since 1995 NARUC and the National Regulatory Research Institute 
have actively supported state restructuring efforts. We have convened 
two commissioners-only restructuring meetings. NRRI has published an 
extensive series of agency change studies which are listed in 
Attachment 1.
    Generally, state commissions are emphasizing wholesale-level 
issues: rates, terms, and enforcement of agreements. Much intrastate 
service, especially local service, is not yet competitive. Therefore, 
state commissions do still set retail rates and require information 
concerning utility expenses, so-called ``accounting information.'' Over 
time, however, the focus is gradually shifting from ``shareholder 
versus ratepayer'' to ``shareholder versus shareholder'' for the 
benefit of retail customers. Regulation is moving from being a 
substitute for competition to being a support for competition.
    Customer education and protection have become critical areas. The 
challenge is to help passive ratepayers become active shoppers for 
utility service. Most state commissions have increased their customer-
protection staff and have experimented with new ways of providing 
customer service. Many state legislatures have increased state 
commission authority to redress slamming, cramming and other abusive 
practices.
    At least over the near-term, service quality has become an 
increased concern. In response to customer complaints, many state 
commissions have undertaken aggressive programs intended to correct 
service quality problems. The FCC's ARMIS 1 reporting system 
is an important resource to states monitoring service quality.
---------------------------------------------------------------------------
    \1\ ARMIS is the Automated Reporting Management Information System, 
which has traditionally provided information regarding the application 
of accounting, joint cost, jurisdictional separations and access charge 
rules for Tier One local exchange carriers; and also provides 
information regarding service quality and infrastructure for price cap 
local exchange carriers.
---------------------------------------------------------------------------
    States have also worked to develop ways to preserve the benefits of 
the previous legal and economic monopoly system. In telephony this 
includes a range of state universal service initiatives.2 In 
natural gas and electricity it includes various low-income assistance 
and weatherization programs. Similarly, states have adopted a new 
emphasis on economic development and promoting technology access, 
consistent with Section 706 of the Telecommunications Act.
---------------------------------------------------------------------------
    \2\ Edwin Rosenberg, Ph.D., State Universal Service Funding and 
Policy: An Overview and Survey (NRRI, September 1998).
---------------------------------------------------------------------------
    State commissions have embraced new strategies to achieve new 
purposes. These include greater use of: 1. Market-oriented economic 
analysis; 2. Alternative dispute resolution, structured negotiation, 
regulatory flexibility and forbearance; 3. Collaboratives, workshops, 
and outreach to new stakeholders; and, 4. Regional coordination, as for 
example through the Regional Oversight Committee for U S WEST (ROC). 
Recently, I suggested regional coordination on third party testing of 
the technical systems necessary to support local competition as a way 
to improve the Section 271 review process.3
---------------------------------------------------------------------------
    \3\ Rowe, ``Let's Work Together to Resolve Bell Operating Company 
Long-Distance Entry,'' See ``Regionwide OSS Test Proposed for U S 
WEST,'' Telecommunications Reports April 26, 1999, p. 19 (text 
available at www.tr.com).
---------------------------------------------------------------------------
    Obstacles to commission reorganization include resource 
constraints, resistance to change, and legal requirements associated 
with due process and administrative procedure. Resource constraints are 
especially pronounced for small states where the same staff must work 
with many major issues or even multiple industries. Resistance to 
change is both an internal and an external factor. For example, it is 
sometimes difficult to secure industry participation in collaboratives 
and other alternative fora. Legal requirements such as limitations on 
ex parte communication can also impede beneficial commissioner 
participation in some meetings, and at the end of any innovative 
process awaits the possibility of a court appeal. NARUC, state 
commissions, and others have developed materials on alternative dispute 
resolution which may help reduce the prospect of 
litigation.4 Commissioner Rolka will describe Pennsylvania's 
experience with alternative dispute resolution and with administrative 
law constraints.
---------------------------------------------------------------------------
    \4\ An early example is the NARUC Model Settlement Guidelines (May, 
1989). See, Center for Public Resources, Negotiated Settlement of 
Utility Regulatory Proceedings--Recommended Practices (New York: 1993). 
See also the alternative dispute resolution proposals by the New York 
Public Service Commission and others in Best Practices to Implement the 
Telecommunications Act (NRRI, April 1999).
---------------------------------------------------------------------------
    Every state commission has faced multiple appeals of its decisions 
implementing the Telecommunications Act. State commissions have 
defended in federal and state court well over one hundred decisions 
implementing the competition provisions of the Telecommunications Act.
    The Montana Public Service Commission is probably typical of small 
state commissions. It is in the middle of opening electric and natural 
gas markets to retail competition, as well as implementing the federal 
and Montana telecommunications competition statutes. It has thirty-two 
employees, exclusive of commissioners. While reducing in size overall, 
it has increased its customer service staff from 1 to 5\1/2\. It has 
received increased consumer-protection authority from the Montana 
Legislature, and has undertaken various consumer education and outreach 
programs. One staff person is assigned full-time to work on universal 
service issues, including outreach on technology access for rural 
health care providers, libraries, and schools. Interdisciplinary 
commissioner and staff teams work on telecommunications competition, 
natural gas restructuring, and electric restructuring.
    Telecom carriers (and gas and electric suppliers) register 
electronically on the Montana PSC's web page. The web and list-serves 
keep the industry and interested parties informed. One attorney handles 
almost all telecommunications proceedings at the Commission 
(rulemakings, contested cases, and other matters), including 
simultaneous state and federal court appeals of Commission decisions 
concerning its wholesale arbitration, intraLATA presubscription, and 
Section 271 proceeding. Attachment 2 reports the increase in Montana 
PSC consumer complaints in recent years, charts the number of calls to 
the Montana Commission's toll free consumer complaint line, and 
summarizes the types of telecommunications complaints received.
         iii. fcc-state commission cooperation is essential to 
                 telecommunications act implementation.
    Congress gave the FCC and the states clear authority concerning 
respective elements of Telecommunications Act implementation. The 
primary area of dispute was whether the FCC had authority to require 
that state commissions follow particular rules when setting wholesale 
pricing in arbitrations under Section 252, and whether those rules 
interfered with state authority over retail pricing under Section 
152(b). They won. We lost. They have been gracious winners.
    NARUC's first action after the Supreme Court's AT&T v. Iowa 
Utilities Board 5 decision was to pass a resolution noting 
that most all states have adopted some form of forward looking 
wholesale pricing, and requesting FCC cooperation on several key 
implementation issues. The FCC has complied with NARUC's requests and 
has worked very productively with the states implementing the Supreme 
Court's decision.
---------------------------------------------------------------------------
    \5\ 119 S. Ct. 721 (1999).
---------------------------------------------------------------------------
    NARUC's second action was to finalize an FCC-state commission 
``Magna Carta'' which Chairman Kennard proposed shortly after taking 
office, and which we jointly developed. Attachment 3 is the ``statement 
of participation'' from that document. The agreement emphasizes that 
the FCC and the state commissions have complementary strengths, that 
there is great benefit in the diversity of the federalist system, and 
that a variety of approaches exist for the states and the FCC to work 
together. These include federal-state joint boards, joint conferences, 
identification of ``best practices,'' and cooperative development of 
models or standards.
    Among the things the FCC does well are data collection, analysis, 
development of models and standards, coordination among interested 
parties, and convening of national fora. State commissions often look 
to the FCC in these various areas. Among the state commissions' 
strengths are dispute resolution, consumer protection and education, 
infrastructure development and local market analysis. Commissioner 
Gillis will describe efforts at FCC-state commission coordination on 
consumer protection which are now underway. We need to work together to 
take advantage of one another's strengths. Streamlining the process 
will benefit both industry and consumers. I recently suggested 
voluntary FCC-state commission agreements to move more anti-slamming 
enforcement to the state commissions. 6 I hope the FCC will 
view this proposal favorably.
---------------------------------------------------------------------------
    \6\ Letter to Chairman Kennard, April 20 1999.
---------------------------------------------------------------------------
    NARUC also called for a federal-state joint conference to promote 
access to advanced telecommunications technologies under Section 706. 
7 This proposal has been endorsed by the Alliance for Public 
Technology, among others. A joint conference could help advance hands-
on work on this important matter.
---------------------------------------------------------------------------
    \7\ That resolution states in part:
    WHEREAS, Partnerships between telecommunications service providers 
and community, regional and State organizations serving target 
populations could develop applications for advanced telecommunications 
capabilities that combine their resources and authority with federal 
and State resources and authority to address the critical needs of 
their constituents which in turn would stimulate demand for and 
deployment of such advanced telecommunications services; now therefore 
be it
    RESOLVED, The Board of Directors of the National Association of 
Regulatory Utility Commissioners (NARUC), convened at its 1999 Winter 
Meetings in Washington, D.C., urges the FCC to call a joint conference 
or other official advisory body involving the FCC and all States, 
Territories, and the District of Columbia, which will consult with 
industry service providers, the NTIA, the RUS and other potential 
federal, State, regional, local partners to address the complexities of 
promoting deployment of advanced telecommunications capabilities under 
the Act; and be it further
    RESOLVED, That the joint conference be chartered to facilitate the 
cooperative development of mechanisms, policies and resource 
allocations necessary to promote the maximum level of competition while 
encouraging, on a reasonable and timely basis, the deployment of 
advanced telecommunications capabilities to all Americans; and be it 
further
    RESOLVED, The joint conference should develop a set of best 
practices and program proposals, and monitor results of such practices 
and proposals to measure the degree to which they increase the 
deployment of and subscription levels for advanced telecommunications 
capabilities.
---------------------------------------------------------------------------
   iv. the fcc's initial reorganization plan is consistent with many 
              elements of state commission restructuring.
    I was especially impressed with the hearing this Subcommittee 
conducted concerning FCC reauthorization on March 17, 1999. I was 
struck by the similarities between several elements of the FCC's 
initial reorganization plan and the state commission restructuring I 
have described.
    The FCC is correctly emphasizing universal service, consumer 
protection and information, competition and enforcement. The FCC needs 
to do much less retail rate regulation in its markets than do state 
commissions, and is correctly moving away from this function. It does 
require reporting of various kinds of information related to functions 
such as universal service and interstate access rates. Some of the 
information it collects is also especially useful to state commissions.
    The FCC has identified many of the proper tools as well, including 
streamlined procedures, automation, and greater forbearance from 
regulation. State commissions must work with the FCC to identify how we 
can coordinate reporting and other requirements, and to identify which 
reports and functions we find most valuable and which can be reduced or 
eliminated, either in the near-term or long-term.
    The FCC faces a major challenge, reorganizing within the structure 
imposed by its existing statute. At what point does reorganization 
begin to look like rewriting the Act? How can the agency recognize 
industry convergence within the structure of separate titles of the 
Communications Act? With Congressional guidance, the FCC is beginning 
to address these questions.8 Without ``reopening the Act'' 
initial steps include consolidation of functions which are now 
performed separately within the agency, including for example various 
enforcement functions and public information programs. As competition 
advances in each sector it should be possible to reduce the level of 
regulation in that sector, achieving consistency in the direction of 
regulation.
---------------------------------------------------------------------------
    \8\ OPP Working Paper 29, Digital Tornado: The Internet and 
Telecommunications Policy (March 1997), was an early identification of 
issues and policy goals associated with the Internet. OPP Working Paper 
30, Internet Over Cable: Defining the Future in Terms of the Past 
(August 1998) squarely raises the question of Internet convergence 
between various media which are regulated in different categories under 
the Communications Act.
---------------------------------------------------------------------------
    The draft restructuring plan identifies six goals derived from the 
Telecommunications Act.9 It will be important for the FCC to 
consult with state commissions (as is their intent) concerning these 
goals and their implementation.
---------------------------------------------------------------------------
    \9\ Promoting competition, deregulating, protecting consumers, 
bringing technology to every American, fostering innovation, and 
advancing competitive goals worldwide.
---------------------------------------------------------------------------
    Finally, the FCC's ability to restructure will be constrained by 
due process and administrative procedure requirements, which is the 
same issue faced by the states. Litigation awaits at the end of many 
important agency proceedings. However, Congress has strengthened the 
FCC's ability to reorganize by providing clear policy direction, strong 
forbearance authority, and sustained attention to Telecommunications 
Act implementation issues.
                             v. conclusion.
    Telecommunications and information investment and innovation are 
among the engines driving our economic and societal development. 
Consequently, few public policy tasks are more critical than successful 
implementation of the 1996 Telecommunications Act. NARUC and the states 
appreciate this Committee's close attention to implementation issues 
and its interest in the experience of state commissions.
                              ATTACHMENT 1
       The National Regulatory Research Institute Organizational 
                         Transformation Program
Reports:
    A Cramming Resource Guide (Columbus, Ohio: NRRI, to be published 
early in 1999). Francine Sevel, editor and contributor).
    Compendium of Resources on Consumer Education (Columbus, Ohio: 
NRRI, October 1998). Francine Sevel, editor and contributor.
    Determining the Structure of an Optimal Personnel Profile for a 
Transformed Commission (Occasional Paper #24) (Columbus, Ohio: NRRI, 
1998). Robert J. Graniere.
    The Structure of State Utility Commissions and Protection of the 
Captive Ratepayer: Is There a Connection (Occasional Paper #23) 
(Columbus, Ohio: NRRI, 1998). Nancy N. Zearfoss.
    Proceedings of the Second NARUC/NRRI Commissioners Summit: Ensuring 
the Relevance of Commissions at 2003 (Columbus, Ohio: NRRI 1998). NRRI 
Staff.
    Staffing the Consumer Education Function: Organizational 
Innovation, Necessary Skills, and Recommendations for Commissions 
(Columbus, Ohio: NRRI, 1998). Raymond Lawton, Francine Sevel, and David 
Wirick.
    Ensuring the Relevance of Public Utility Commissions (Columbus, 
Ohio: NRRI, 1998). David Wirick, Robert Burns, Vivian Davis, Douglas 
Jones, and Francine Sevel.
    Transforming Public Utility Commissions in the New Regulatory 
Environment: Some Issues and Ideas for Managing Change (Columbus, Ohio: 
NRRI, 1996). David Wirick, Vivian Witkind Davis, Robert Burns, and 
Douglas Jones.
    Information Risk in Emerging Utility Markets: The Role of 
Commission-Sponsored Audits (Columbus, Ohio: NRRI, 1996). David Wirick, 
Ray Lawton, Robert Burns, and Sangjin Lee.
    Missions, Strategies, and Implementation Steps for State Public 
Utility Commissions in the Year 2000: Proceedings of the NARUC/NRRI 
Commissioners Summit (Columbus, Ohio: NRRI, 1995). NRRI Staff.
    The Use of Information Systems to Transform Utilities and 
Regulatory Commissions: The Application of Geographic Information 
Systems (Columbus, Ohio: NRRI, 1995). David Wirick, Glenn E. 
Montgomery, David C. Wagman, and James Spiers. Excerpted in Electrical 
World as ``Benefitting from IT--A Guide for Utilities and Public 
Utility Commissions,'' January 1996, Volume 210, No. 1.
    State Public Utility Commission Operations and Management: A Manual 
Prepared by the NARUC Staff Subcommittee of Executive Directors 
(Columbus, Ohio: NRRI, 1992). David Wirick, project leader and editor.
Articles:
    ``Report to the Alaska Public Utilities Commission'' (Columbus, 
Ohio: NRRI, 1998). Vivian Witkind Davis, Douglas N. Jones, David 
Wirick.
    ``Report to the Maryland Public Service Commission'' (Columbus, 
Ohio: NRRI, 1998). David Wirick and Vivian Witkind Davis.
    ``Analysis of Aspects of the Organization and Operation of the 
Nevada Public Service Commission'' (Columbus, Ohio: NRRI 1997). David 
Wirick, Kerry Stroup, Robert Burns, Vivian Witkind Davis, Raymond 
Lawton.
    ``Commission Transformation and the Legislative Model of 
Regulation'' NRRI Quarterly Bulletin, Fall, 1998. Robert Graniere.
    ``Designing Effective Consumer Education Materials,'' NRRI 
Quarterly Bulletin, Winter 1997-1998. Francine Sevel.
    ``Educating the Public: Where Do We Begin,'' NRRI Quarterly 
Bulletin, Spring 1997. Francine Sevel.
    ``Risk Mitigation by Public Utility Commissions: New Tools for an 
Old Role,'' NRRI Quarterly Bulletin, Spring 1997. David Wirick.
    ``Commissions as Information Organizations: Meeting the Information 
Needs of an Electronic Society,'' NRRI Quarterly Bulletin, Spring 1997. 
Francine Sevel.
    ``Commissions as Educating Organizations: How to Educate the Public 
Regarding the Mission of the Public Utilities Commission in the New 
Regulatory Environment,'' NRRI Quarterly Bulletin, Winter 1996-1997. 
Francine Sevel.
    ``Strategic Planning for Web Site Managers: Designing Effective 
Commission-Sponsored Internet Sites'' NRRI Quarterly Bulletin, Fall 
1996. Francine Sevel.
    ``Report to the Public Service Commission of Nevada (PSCN)'' 
(Columbus, Ohio: NRRI, 1996). David Wirick and Vivian Witkind Davis.
    ``The Regulatory Battleground: A Briefing for Commanders,'' NRRI 
Quarterly Bulletin, Fall 1995. David Wirick.
                              ATTACHMENT 2
         Montana Public Service Commission Customer Complaints

[GRAPHIC] [TIFF OMITTED] T7445.001

[GRAPHIC] [TIFF OMITTED] T7445.002

                              ATTACHMENT 3
   ``Magna Carta'' for State and U.S. Territory Commissions and the 
                   Federal Communications Commission
                       statement of participation
    State and U.S. territory commissions and the FCC possess 
complementary strengths. We will work together to take full advantage 
of these, in the spirit of cooperative federalism.
    Cooperation between the federal and State and U.S. territory 
decisionmakers takes advantage of the strengths of each. The federal, 
State and U.S. territory proceedings are fact-based and the commissions 
are able to analyze and act on complex records. States and U.S. 
territories are close to local markets and have developed methods for 
evaluating the structure of those markets.
    States and the U.S. territories also benefit from experience with 
other industry restructurings, including natural gas and electricity. 
The FCC possesses not only a national, but also a global perspective. 
Moreover, it is expert in dealing with all forms of communications. 
Together, the FCC, the States and the U.S. territories can accomplish 
much in addressing customer concerns, the linchpin of the regulatory 
process.
    FCC actions affecting States and U.S. territories should be 
undertaken in a manner that is consistent with its statutory 
obligations, while mindful of States' and U.S. territories' unique 
knowledge of local conditions and experience in regulating the local 
market. In areas where national standards are appropriate, the FCC will 
strive to implement them in a way that encourages State and U.S. 
territory input to the fullest extent possible. The parties recognize 
the value of diversity and of experimentation in many circumstances. 
The States and the U.S. territories will support the FCC in its efforts 
to meet the challenges presented by the implementation of the Act to 
the fullest extent possible.
    Generally, certain practices can help federal, State and U.S. 
territory regulators achieve their goal of mutual cooperation. Such 
practices may include encouraging State participation in FCC 
proceedings, as well as FCC participation in crucial State and U.S. 
territory proceedings. Encouraging hands-on consultation among State, 
U.S. territory and federal policy-makers and developing and using 
``best practices'' guidelines will contribute to the collaborative 
process. Cooperative development of substantive models or standards, 
which may be considered by States and U.S. territories in formulation 
of State/U.S. territory-specific policies, will aid in achieving the 
common goals.

    Mr. Tauzin. Thank you very much, Mr. Rowe.
    Let me turn back now to Ms. Irma Dixon.

                  STATEMENT OF IRMA MUSE DIXON

    Ms. Dixon. Now thank you, Mr. Rowe, and thank you, Mr. 
Tauzin.
    Please know that it is an honor, again, to be in front of 
you, my own Congressman, who is chairing this wonderful 
subcommittee and who is, I hope, going to do some action to 
really bring some relief to some of the people, especially in 
our State, but in other States.
    I am grateful to this FCC. It seems like it is a little bit 
more eager to work with us, and they actually expressed the 
intent--they have been to the States to some degree--to see 
demonstrations and to actually be working with the State 
commissioners.
    I am proud of my own State and the work that we have done. 
I must tell you, in Louisiana, you can take credit for a lot of 
landmark things. We have been very creative--linking libraries 
and hospitals, bringing about the educational discounts that 
are now being used and utilized throughout these United States, 
and actually was an accident when we started it, but it is 
working now. We have managed to even locate two commissioners 
in the UNO Technology Center, which will bring about a lot of 
changes, I think, as it relates to what we are doing in the 
South.
    But, for the FCC itself, and based on one of the things Mr. 
Rowe said, we are working regionally, and we have to because 
the RBOCs are located regionally; transmission is regional. So 
we have realized, as commissioners, that we need to be more 
regional in our aspects. As the commissioner from the 
southeastern region, we have offered ourselves to actually be a 
demonstration project, to show the other States within the 
United States that regional cooperation can and will work.
    The first concern we have as it relates to some sort of 
overhauling of the FCC has to do with the development of a 
master plan. It is very difficult to figure out where the 
States are going to be and where we need to be without the 
vision. Without vision, people perish. We need to have a master 
plan so we can know what we need to be like by the year 2010, 
2020, whatever. As new technologies develop and as it unfolds, 
you have to direct this. If you don't direct it in a creative 
way, it will turn to corruption, which we have now in slamming, 
cramming, jamming, banging, bamming; you name it, we have got 
it, and we are trying to get rid of it.
    After we develop the master plan, I think that the 
Governors' association, that the legislation association, that 
the mayors, everybody can come together and see what needs to 
be done for these United States, and based on that, all the 
States can unfold and deal with their technology.
    Part of the other component of this--and Bob kind of 
mentioned it in the pricing and wholesale costs as the States 
were developing, and as the States were actually developing to 
bring Bell into the long distance business and open the local 
loop in other areas, we are one State that actually sent two 
applications up. We actually are elected commissioners in the 
State of Louisiana. We are actually constitutionally provided 
for, which means our legislature does not do rules and overrun 
us; they have to go to court as well. But there is a body 
called the FCC who's appointed by the President, who actually 
rejected the application that we sent up, and for whatever 
reason, we don't know. We had the Chairman down. We did 
demonstrations; we showed connections. our attitude was spurn 
competition and making things happen.
    We watched the availability of something called by bypass, 
and before that happened, we caught ourselves trying to hold 
that gap. We lost that battle. The gap is still open and we 
have no competition.
    Now the recommendation over there, I am not sure. All I 
would say is, maybe come down to the States a little bit more; 
maybe look at more demonstrations; maybe work a little bit 
closer with the State commissions. I like the idea of 
conferences, but it needs to be more than just one conference 
once a year--maybe quarterly conference. Maybe the Governors' 
associations should be included; the legislators have to be 
inclined. You pass a law here. It goes to the States. Unlike 
Louisiana, in all the States the legislatures are actually 
developing the rules. They don't even listen to the PSCs. And 
we have what today? No competition and almost disaster. We have 
to work a little bit more smarter. We have to join hands and 
pull it all together.
    The other thing is you have a lot of local governments who 
actually operate utilities. We have not allowed for an avenue 
of them to even enter competition. We have to work on that, 
bringing in the mayors' association and the Governors; I think 
they can give us ideas, along with the commissioners, to 
actually put them in the realm.
    The good thing about this is people want to switch. If they 
do bad service, they will get unelected, which is even more 
important, if you ask me. People will be able to choose, and 
people will be able to get good services. There is nothing 
wrong with actually putting the local municipally owned and 
operated utilities in.
    The other thing we looked at is establishing joint boards 
more than just with NARUC, but with NCSL as well, since those 
are the people who are making laws as well. We thought that it 
would be critical as well for more FCC and FERC Commissioners 
to attend what we call NARUC bootcamp. I met Bob Rowe at a 
NARUC bootcamp some years ago, and we have been great ever 
since. We have worked well together. That is where we do our 
actual--we dissect things; we do demonstrations; we do 
implementations. You put projects down and model things, and 
you can see how it is going to work right there before you 
actually unleash it on the public. Bootcamp is important to 
everybody, and we still go sometimes once a year.
    Having hearings at the local level will help tremendously. 
It is all right for me to have a hearing in Louisiana, but FCC 
needs to come down and have hearings, so that you can hear the 
voice of the people as to what their concerns and problems are, 
and you can react. People do have some creative solutions to 
some of the problems as well.
    One last thing: We have something called LATA boundaries. 
You have to get rid of LATA boundaries if you are going to 
actually spur competition. You can't implement an act and say 
we are going to do something, and then you turn around and we 
have all these things to tie our hands. LATA boundaries are 
Local Access Transport Areas, where people pay a little bit 
more so they don't have to be charged long distance every time 
you call to the right or to the left of your community. Get rid 
of the LATA boundaries; we will be able to put competition in. 
The FCC needs to be concentrating on that quite a bit right 
now.
    As this new technology is unfolding, we are not sure what 
we are doing with the SMART concept. We need to figure that 
out.
    The other little thing is, I am not sure if you knew that 
we knew that everybody was going to be in everybody's business. 
We knew that energy or electric companies were going to do 
tele, water, cable, cell phones. We didn't know it would be 
this quick.
    I just thought I would bring you something to show. This is 
one. I have one for Cox; I have one for Bell. Everybody is 
doing everything in everybody's business. We don't have one new 
or one more staff person to be able to monitor this. I don't 
know what you did for the FCC, but there is no policing; there 
is no monitoring. The public is at our mercy.
    All I say is, let us join with the FCC; let's hold hands--
and Congress--and try to fix this little problem. Mr. Chairman, 
I invite you to our NARUC summer meeting. I invite you to our 
CRUC meeting. I invite you to our NARUC winter meeting. As a 
matter of fact, you have a standing invitation and reservation 
to come as much as you want to, and any of the members of the 
staff, committee members, staff of the committee; we want you 
there. We want to work with you hand in hand, because that is 
the only way we are going to fix this little, what I call, a 
milestone that we have. Thank you so much.
    [The prepared statement of Irma Muse Dixon follows:]
 Prepared Statement of Irma Muse Dixon, Commissioner, Louisiana Public 
                          Service Commissione
    My gratitude for this FCC, which has been reasonable and eager to 
work with the States. I would also express my respect and appreciation 
for the work of the FCC Commissioners and their staff. The FCC is a 
regulatory body with impressive expertise that is valued greatly by us 
in the states. We are also very proud of our own staff at the Louisiana 
Public Service Commission; even though our resources are presently 
limited. I come here today with specific suggestions for reform or 
change of the FCC. Further, I am here to give some personal experiences 
that may be of interest or assist this committee in their re-
structuring efforts. Since I have served as a member of the 
Communications Committee of NARUC, and since much of the recent 
national legislation has centered on the technical and competitive 
convergence of local and long distance telecommunications with cable TV 
and other alternatives, I will confine my comments specifically to the 
actions over the past years by the FCC.
    My major concern for overhauling the FCC is initiated by 
implementation of the 1996 Tele-communications Act. There was and still 
is no master plan or total vision as to what and how we allow the 
telephony direction and convergence to take place in these United 
States. Competition is a concept of impact pricing and improve 
services. However, there are no time lines or direction to allow all 
new technology to unfold systematically or guidance away from 
corruption by new entrants. Therefore, citizens are slammed, crammed, 
jammed and deceived. The FCC should provide public service 
announcements and educational workshops for citizens and industry. 
There must be a holistic industry approach in development whenever 
major legislation changes our world as we know it today. Input must be 
provided by those impacted--Governors, Utility Commissions, Mayors, 
Education Facilities, Industry Representatives, State Representatives, 
Consumer Organizations and Minority Businesses to develop a major plan 
for the implementation of such technology.
    The State's role and role of the FCC in any acts or new 
implementation must be clearly defined. Coming from a state that has 
twice approved the Bell application for long distance under Section 271 
of the Telecommunications Act of 1996 . . . only to have it twice 
rejected by the FCC. As an elected Commissioner of a Public Service 
Commission with constitutional provisions, I find it difficult to have 
federal appointed officials reviewing and over reviewing actions and 
disposing issues voted on by LPSC. The LPSC was intended to have 
considerable authority over pricing of telecommunications services and 
elements, and we were to have a significant role in deciding when the 
conditions for entry into long distance had been met by the Bell 
Company. I think this role is logical. Who better than the Louisiana 
Public Service Commission can assess the status of our own markets and 
consider the impact of expanded competition on our consumers? I think 
we know far more about our markets and consumers than anyone in 
Washington, D.C. And let's be clear about one thing. Neither I nor the 
other Commissioners in Louisiana chose between the Bell company and the 
long distance companies in making our decisions on the 271 application. 
We were in it for our consumers. And we made decisions which we felt 
benefitted our consumers.
    Let me give you an example. In Louisiana, sixteen of our parishes 
(some of you may call these counties) are bisected by the LATA 
boundaries. As you are aware, as a result of divestiture, the United 
States is divided into Local Access and Transport Areas (LATAs) within 
which a local telephone company may offer telecommunications services. 
This means that significant consumer benefits such as discounted 
parish-wide calling or state education discounts were unavailable to 
many of our Louisiana citizens. When we approved the Bell long distance 
application, one of our reasons was to bring these benefits to all our 
consumers. I believe that Congressman Tauzin is familiar with at least 
one of the parishes that is deprived of full benefit of these state 
calling plans: his own St. Mary's Parish. While Congressman Tauzin has 
been instrumental in offsetting this loss to some extent, many other 
people in Louisiana are being deprived of benefits intended by the 
Louisiana Public Service Commission because of artificial boundaries 
that can't be seen or explained. These problems were outlined in a 
recent letter from Dale Sittig, Chairman of the Louisiana Public 
Service Commission to the FCC.
    We take our 271 responsibilities very seriously. Prior to approving 
the Bell application for the first time, we gathered thousand of pages 
of evidence and testimony and conducted numerous hearings and technical 
demonstrations. Let me report to this body today that we in Louisiana 
have a very comprehensive set of competitive rules that will ensure 
that fair play continues after Bell's entry into long distance. In 
short, as a constitutionally empowered body in Louisiana, we are well 
equipped and well prepared to protect our markets and consumers.
    Our final item of frustration . . . While we have labored seriously 
over our responsibilities under the1996 Telecommunications Act, others 
have apparently decided to bypass the process all together. I am 
referring to the mergers between long distance companies and others to 
expand their markets while continuing to deprive our citizens of the 
benefits of long competition. While some of these companies have 
pursued their marketing strategies through acquisitions and mergers, 
they have continued to delay our state proceedings by pretending to be 
interested in unbundled network elements and other aspects of the 
Telecommunications Act.
    In summary, I believe the Louisiana Public Service Commission, 
other state commissions, the National Association of Regulatory Utility 
Commissioners and the National Conferences of Governors, State 
Legislators, and Mayors have valuable input into the process of 
expanding local, long distance and cable TV competition. For the 
reasons previously set forth, I would recommend that the FCC and these 
entities establish additional joint board efforts in deliberating and 
deciding rules. I also believe that it would be beneficial to both 
NARUC and the FCC if the FCC would actively participate in the NARUC 
Action Committees. Lastly, the FCC should hold hearings on critical new 
changes as technology unfolds, thereby allowing citizen input in the 
implementation and distribution of these new technical services. It is 
my belief that such hearings should be held in the region that will be 
most affected by the FCC's decisions.
    Thank you for your attention. It has been my pleasure discussing 
how the FCC can increase its hands-on cooperation with state 
commissions through reorganization.

    Mr. Tauzin. Thank you, Irma. I assure you we can, and 
should, take you up on that offer, particularly with the task 
force. Perhaps we can work out the right venue for that to 
happen. Thank you very much.
    And now Bill Gillis, the commissioner from Washington State 
since 1994. Bill, I understand you are going to focus a little 
bit on the consumer in this new, competitive marketplace world 
of the local utilities. Mr. Gillis.

                 STATEMENT OF WILLIAM R. GILLIS

    Mr. Gillis. That is right, Mr. Chairman. I really 
appreciate this opportunity. In addition to being on the 
Telecommunications Committee, I chair a NARUC consumer 
committee, and I am also Chair of a rural task force, which is 
to make recommendations to the FCC on universal service issues 
for the small, rural companies. FCC is important to our work as 
a commission to NARUC and these responsibilities as well.
    I am an optimist. I believe the act can create an 
environment where we can have lower prices, better service 
quality, innovation. But for consumers that I hear from back 
home, it is a mixed blessing. When I go home and talk to my 
friends and neighbors, and we hold hearings, what they talk 
about is the phone calls at dinner, services appearing on their 
bill they didn't order or line items that they don't 
understand, or just simply the complexity of it all.
    At our commission the No. 1 source of complaints are 
service quality, but the fastest-growing complaints are over 
slamming, since over a 2-year period the number of slamming 
complaints in my State has doubled, and it is a major concern. 
That is true of States overall. Overall complaints in States on 
telecomm issues increased about 91 percent over about a 4- or 
5-year period. So they are growing, and largely as a result of 
the changes----
    Mr. Tauzin. Yes, but, you know, the chairman of our full 
committee was personally slammed.
    Mr. Gillis. Is that right?
    Mr. Tauzin. So was this chairman's mother. So we have some 
experience with it.
    Mr. Gillis. Yes, it is a significant problem. It is a major 
concern to the States and the utility commissioners.
    With that, we believe strongly that there is State 
commissions and the FCC both must take a stronger role in 
consumer education and consumer protection. We have to accept 
that responsibility and expand our roles in that.
    One of the maybe overlooked aspects is in forms of 
education. One of my reference points is my parents, as 
parochial as that may be, but they are rural; they are elderly; 
they are small users. Those are the type of customers that are 
often left behind in these kinds of changes and the ones that I 
worry about as a State utility commissioner. They today still 
have the same long distance phone company they had in 1960. 
Part of the reason is that they are afraid to make a choice; 
they are afraid something bad is going to happen. One of the 
things we can do to help your vision of making the marketplace 
work is to provide education to consumers like my parents and 
help them understand their choices and how to make those 
choices, and provide the environment where that makes sense.
    Beyond that simple education, there is an important role 
for protection on issues like slamming. There is fraudulent 
activity that occurs in the marketplace, and we need to deal 
with that.
    Overall, our view is that the consumer protection/consumer 
education issues are a joint responsibility of the States and 
the FCC. It makes sense for the Federal Government to set a 
floor for consumer protection standards for the Nation, but at 
the same time it is very important to States to have the 
flexibility to do it in the way that makes sense in our local 
circumstances. We are close to the consumers. We have staff and 
ourselves who interact directly with the consumers. A one-size-
fits-all approach doesn't necessarily work. So we are actively 
involved in trying to promote that cooperation.
    Some advantages of that cooperation: One is just to simply 
reduce customer confusion. If a customer gets a notice from the 
FCC and they get a notice from the State commission and they 
are inconsistent, that is a huge problem. So we need to reduce 
that kind of thing.
    It is more effective enforcement if we work together, the 
States and the FCC. We are able to put together more effective 
enforcement activities. We can reduce administrative costs for 
all of us because we are sharing resources, and there is a 
consistency for the industry. The industries often work 
nationwide, and to the extent that States and the FCC work 
closely together on consumer education and consumer protection, 
that is helpful for them as well.
    Some examples of progress we have made, and we have made 
some good progress in the last year or 2: One is NARUC has 
established a set of principles that we believe are important 
for consumer education/consumer protection that apply equally 
to States and the FCC. One of those principles is just to 
simply recognize that consumer education/consumer protection 
are a part of our mission as regulatory bodies, and to expand 
that mission. Second, to promote the use of understandable 
language. If the message that the consumers receive from the 
regulatory community are in legalese or they are not able to 
understand them, that doesn't help them. To protect consumers 
from deceptive practices, and to help consumers understand 
their rights and responsibilities, where they can go if they 
have a problem.
    NARUC has solidified those principles in a white paper 
which I have attached to my written testimony. The FCC has also 
adopted many of those principles in their recent truth-in-
billing docket. So I think we are very much kind of on the same 
wave length, important at the principle level.
    Another thing we have done to establish cooperation is that 
we have begun weekly dialog--or not weekly, but regular--phone 
conference dialogs between the staff of the State commissions 
and staff of the FCC to help identify and address areas where 
cooperation makes sense. That dialog is known as SNAP, the 
State/National Action Plan Strike Force. It has just begun, but 
it has begun to produce results.
    We started pilot projects. In the State of Washington we 
have a cooperative project with the FCC on producing some 
factsheets that address the issue of the new surcharges 
appearing on consumers' long distance bills. The factsheet has 
the Washington State UTC logos at the bottom; it has the FCC 
logos at the bottom, and it is a cooperative venture. That kind 
of thing can be helpful.
    Developing a shared data base for enforcement is something 
that is being explored, to help FCC enforcement by States 
sharing their information on bad actors or problems; that helps 
them to build cases and take advantage of their jurisdiction, 
and it helps us. As well, we are pursuing media strategies to 
do national marketing of consumer education efforts.
    Finally, we are involved with developing relationships and 
dialogs with a broad group of stakeholders on consumer issues.
    But, in summary, the end point that I want to leave with 
you is that both States and the FCC have to restructure our 
efforts in the area of consumer education and consumer 
protection. It is necessary if we are going to have an 
effective marketplace. It is necessary if we are going to 
protect consumers from potential harm.
    We advocate a cooperative approach from State to Federal 
levels that we have made some progress on. But as we think 
about restructuring for the FCC, one area that I would urge you 
to pay close attention to is to make sure that the budget is 
adequate and allocated to consumer education and consumer 
protection, because that is a very important area; and to 
support States in doing this cooperative role with the FCC and 
having the flexibility to address unique State circumstances.
    [The prepared statement of William R. Gillis follows:]
 Prepared Statement of Bill Gillis, Commissioner, Washington Utilities 
                     and Transportation Commission
    Chairman Tauzin, members of the Committee, I thank you for the 
invitation to appear today. My name is Bill Gillis and I have been a 
public utility commissioner in Washington State since 1994. I am a 
member of the NARUC Communications Committee and Chair of the NARUC Ad 
Hoc Consumer Affairs Committee. My perspective is that of a state 
regulator challenged by the task of implementing the 96 Federal 
Telecommunications Act. I believe expanded consumer education and 
protection efforts by both state and federal regulators is absolutely 
essential to our success in meeting this challenge.
The Emerging Consumer Challenge
    Without a doubt, a successful transition from a telecommunications 
industry formed of regulated monopolies to one relying primarily on 
competitive market forces has the potential to create tremendous 
consumer benefits including lower prices, expanded consumer choice, 
more rapid innovation and improved service quality. However, from the 
perspective of many consumers there is a trade-off. Along with greater 
consumer choice come new consumer burdens. Some which are real and some 
which are simply perceived as new burdens. Some which take the form of 
unwanted hassle and others which expose consumers to new and unwanted 
financial risks.
    From public hearings and letters received by my commission, I hear 
repeatedly from customers concerned about marketing phone calls at 
dinner, services appearing on their bill for which they did not 
subscribe and simply the complexity of sorting through the diverse 
array of telecommunications choices. One indicator of how competition 
is affecting consumers and responsibilities of regulators is growth in 
consumer complaints. A survey conducted by the NARUC staff subcommittee 
on Consumer Affairs, including responses from 28 states, found that 
between 1993 and 1997, complaints about telephone service increased 91 
percent. In 1996, the Washington State Commission received 186 
complaints about ``slamming''. In 1997, we received 228 consumer 
complaints on ``slamming'', and in 1998, we received close to 450. The 
FCC reports they receive 50,000 consumer calls a month and 75,000 
written complaints on all types of consumer issues each year.
Preparing Consumer for Change
    For some time, state regulators have recognized the growing 
importance of consumer protection and education. The consumer policy 
committee is one of the more active policy subgroups of the NARUC 
Communications Committee. In 1996, NARUC established a special Ad Hoc 
Committee on Consumer Affairs and is considering the establishment of 
this committee as a full standing committee within NARUC.
    The NARUC adopted a set of principles promoting consumer awareness 
and protection at its summer conference in Seattle. These policy 
principles developed jointly by the Communications Committee and the Ad 
Hoc Committee on Consumer Affairs are:

 the promotion of consumer education and information is an 
        important part of consumer affairs policies,
 the use of plain, understandable language is key for consumers 
        to make the most of a competitive marketplace,
 protection of consumers from deceptive practices is an 
        integral part of consumer protection, and
 consumers should understand both their rights and their 
        responsibilities when entering into an agreement to purchase 
        telecommunications services.
    These principles are further explored then in a ``No Surprise 
Package'' white paper which sets forth a draft course of action in 
developing templates for consumer education packages (attached to this 
testimony). The NARUC website now contains some new templates for just 
this purpose as well, providing policy makers with a ready-made set of 
material useful for educating consumers about their choices in the long 
distance market. Consumers need to know what is happening, why, and 
what their personal choices are.
A Critical Role For the FCC
    Addressing the need for effective consumer education and protection 
measures requires close cooperation between state and federal 
regulatory authorities. While policies must be flexible enough to allow 
for unique state circumstances, federal consumer protection standards 
providing a ``floor'' of basic regulatory enforcement methods 
advantages consumers and supports the development efficient competitive 
telecommunications markets. States are in an effective position to 
address consumer complaints and initiate necessary enforcement of rules 
because of our local experience in dealing with these significant 
problems. However, as the fast-moving telecommunications industry 
continues to evolve, we believe that nation is best served by a 
coordinated state and federal effort in consumer education and 
protection.
    I believe the FCC has recognized and takes seriously its role as a 
cooperative partner with states on consumer education and protection 
matters. For example, the recent FCC ``Truth in Billing'' initiative 
reflects many of the same principles outlined by NARUC's ``No 
Surprises'' white paper. This reflects the parallel challenge faced by 
both jurisdictions. It also reflects a close dialog on consumer issues 
between State and Federal regulatory commissions. State Commissions and 
the FCC recently organized and implemented a new joint strategic 
initiative know as the State-National Action Plan Strike Force (SNAP). 
The purpose of this new initiative is to foster a partnership between 
the FCC and state commissions for the purpose of strengthening consumer 
protections in the telecommunications marketplace. Specific focus areas 
include:

 develop joint public information strategies to increase 
        awareness and education on telecommunications issues affecting 
        consumers,
 coordinate enforcement actions to protect consumers against 
        abuses that occur in the telecommunications marketplace, and
 establish a network between the FCC and state commissions to 
        coordinate regulatory initiatives.
    A designated team of state and federal commission staff meet by 
regularly scheduled conference call to implement these initiatives. 
This team already reports early successes in enhancing state and 
federal cooperation on consumer education and protection measures. For 
example, the Washington State Commission and the FCC are producing 
joint fact sheets to help consumers in my state understand the new 
federal access fee and universal service fee appearing on their long-
distance bills. Joint cooperation of this type efficiently uses the 
resources available from each of our agencies and also ensures 
consumers are not confused by possible conflicting information 
published separately by state and federal authorities. Members of the 
SNAP team are exploring a variety of joint federal and state consumer 
education initiatives.
    The team also plans to identify specific actions to coordinate 
enforcement activities. For example, they plan to develop a shared 
database that would allow states and the FCC to enter statistics about 
complaints, beginning with slamming and cramming. This will allow the 
FCC and states to look at national statistics about problems issues 
and/or problem companies. By collecting and sharing data in a common 
format, both state and federal enforcement efforts will be enhanced.
    A specific contact at the FCC has recently been designated to act 
as a liaison for state commissions' consumer affairs departments and to 
communicate with states on a regular basis. Our state staff report this 
step alone has been very beneficial in improving communication and 
coordination between state and federal commissions on matters of 
consumer education and protection.
Conclusion
    State and federal regulatory commissions face similar challenges in 
restructuring our agencies to accomplish new roles and responsibilities 
in a dynamic industry increasingly characterized by a competitive 
marketplace. The development and implementation of effective consumer 
education and protection approaches is one of the most essential of our 
new roles. It is fundamentally a joint responsibility of state 
commissions and the FCC and is best achieved through coordinated 
actions. I believe the FCC has in fact taken some very important steps 
forward in meeting this restructuring challenge. These include small 
steps such as establishing a contact person as a liaison to improve 
communications with state commissions and larger steps including 
launching a major initiative around ``Truth and Billing'' issues and 
expanding staff resources in the area of consumer education and 
enforcement. As a state commissioner, I appreciate these efforts and 
look forward to continuing joint efforts to ensure consumers benefit to 
the greatest extent possible as we transition to competitive 
telecommunications markets.

    Mr. Tauzin. Thank you very much, Mr. Gillis.
    Next we will have Mr. Rolka, the Pennsylvania commission. 
Commissioner Rolka, welcome, sir. We will appreciate your 
testimony.

                   STATEMENT OF DAVID W. ROLKA

    Mr. Rolka. Thank you, Mr. Chairman. It is a privilege to be 
here today. It is not very often I get a chance to come down to 
Washington and appear in front of a congressional committee. 
Thank you for the invitation.
    Mr. Tauzin. It is not that far; it is just a little hop, 
skip, and jump for you.
    Mr. Rolka. Just a hundred miles up the street.
    But thank you, and members of the committee and staff 
members.
    As I was preparing for this, I was reminded of a lesson 
that I learned long ago when I was in school, and I haven't had 
a chance to forget, and that is that nothing in this world ever 
stays the same for more than about 2 minutes. From the time I 
sat down in this chair until the time I started talking, my 
thoughts even about what I was going to say have changed a 
little bit.
    Mr. Tauzin. It is less than that now.
    Mr. Rolka. Less than that.
    Mr. Tauzin. Less than 2 minutes.
    Mr. Rolka. I am sure it comes as no surprise, and you are 
all very well aware, that the architecture of the network, the 
telephone network, and the services that are provided over that 
architecture in no way resemble the network and the services 
and such that were contemplated a long time ago, when a piece 
of the process that I am involved in was instigated, and that 
is the separations process. I just want to speak a little bit 
about that for a second.
    For anyone who is not particularly familiar with it, each 
of us has a piece of responsibility for the cost that each of 
the companies incurs to provide services to us. If the line was 
fuzzy between the State regulators and the Federal regulators, 
it would, indeed, be difficult for companies to make sure that 
they got as much money as they were supposed to; or, in the 
alternative, it might create the opportunity that they could 
get a little bit more than they were entitled to.
    The separations process is responsible for making sure that 
we understand where that line is pretty clearly, so that our 
friends at the FCC can't say, ``Well, that is your problem up 
there in Pennsylvania, and you have to make sure that the rates 
are high enough to cover that.'' And we up there in 
Pennsylvania don't have the opportunity to say to you down 
there in Washington have to deal with that problem. In a 
nutshell, that is what separation is about.
    The system that we use today was created at about the time 
they did the breakup, and it hasn't had a significant overhaul 
since them, although we are in the middle of doing a 
comprehensive examination. The results of that so far, I have 
to tell you, I think suggest very strongly that we can simplify 
the system. It is a pretty complicated system. It is a pretty 
hairy system. It depends a lot on being able to track minutes 
and to being able to know what color they are, whether they are 
interstate purple or intrastate green, and to know whether they 
are an analog minute or if they are digital minute. Right now I 
don't think we know how to figure out the answer to all those 
rainbow colors, which leads me directly to the next topic I 
wanted to touch with you briefly.
    That is this topic related to the Internet and reciprocal 
compensation. We very strongly support the sentiment that was 
expressed in a letter, Mr. Chairman, that admonished that we 
should keep regulators out of the business of regulating the 
Internet. We should try to avoid very strongly, and as best we 
can, trying to develop the urge to put usage-based charges on 
the Internet. We don't need any per-minute charges on the 
Internet. We encourage you to continue to oppose us getting too 
heavily involved in the regulation of the Internet or the 
permanent charges. Those are very important pieces.
    Back in December 1998, the FCC issued an order on 
reciprocal compensation. It declared an order and started a 
notice. That order is not a solution to the problem. It is not 
a solution to the problem. In fact, it transfers the problem 
from down here to 100 miles up the street to me and down south 
to your home State and to my other colleagues up here. It moves 
the problem to us. I am very glad to see that you are anxious 
to work with all of us to try to find ways to avoid those 
usage-based charges moving over to the State jurisdiction, and 
to find some constructive solutions to the way we deal with the 
Internet.
    With respect to the implementation of the Telecomm Act, I 
have some anecdotal stories to share with you. Sustainable 
competition takes time, and it takes an awful lot of work. It 
can't happen as a result of either regulatory or legislative 
fiat. It just cannot happen that way.
    The chairman of my commission and I, back in the fall, 
issued an invitation to our 200 closest friends at the utility 
bar up in Pennsylvania. We invited all the members of all the 
interested telephone industries to come in and try to negotiate 
a solution, a comprehensive solution. Because after years of 
litigation and trips back and forth to the courthouse and back 
and forth to the FCC, we came to realize that the only way we 
are going to make this work is if we could kind of sit down, 
and instead of solving these problems one by one, sit down and 
try to put together a comprehensive solution, involve a 
reasonable resolution of access charges and a reasonable 
resolution of universal services, and a reasonable set of 
unbundled network element prices and provisioning--and the list 
goes on. There is about two dozen really hot topics that can 
easily be flashed to in that regard.
    After 6 months of intensive discussions with the chairman 
of my commission and myself, who typically sit at opposite ends 
of the bench and opposite ends of the spectrum with respect to 
the resolution of these issues, the two of us came up and 
offered three separate, comprehensive proposals, the answers to 
the 24 hottest questions in those negotiations of the parties, 
recognizing that all we needed to do was find somebody that 
stood between the two of us on the spectrum, and we would have 
a majority on the commission. After 6 months of hard work and 
efforts to do that, we walked away without a resolution. The 
parties could not resolve their differences, and demanded, 
essentially, that the commission go up on the bench and sit 
there and rule and resolve those matters after some period of 
litigation.
    About a month after we ran out of time or we called an end 
to that process, the two major warring factions each came in 
with petitions on how they thought the thing should be settled. 
Remarkably, both of those petitions resembled the term sheets 
that the chairman and I had offered--remarkably; in fact, in 
some places were verbatim identical to each other. Yet, when we 
held the prehearing conference and asked the parties to 
stipulate, so that we could narrow the focus of the thing that 
we had to sit there on the bench and hear, and we could narrow 
the depth of the record, because we already had 18 different 
cases consolidated here, we reached zero stipulations--none; 
absolutely none. The parties would agree to nothing, and 
demanded, essentially, that the commission sit on the bench and 
rule on every issue that is involved in those cases, to dispose 
of them.
    The parties jealously are guarding their rights. We have a 
very complicated law. We have a lot of implementation issues. 
None of them are going to abandon their fiduciary 
responsibilities to their shareholders. They want a regulator 
to tell them what has to be done, and we are trying mightily to 
get to that answer. Hopefully, by the end of this year, we will 
join the ranks of our colleagues that have given the FCC advice 
on how to solve the 271 and all the other related issues that 
go with it.
    The next thing I just wanted to mention to you briefly 
about--and that process I just described to you is unique. Our 
colleagues in a number of other States are all trying to come 
up with creative ways to deal with this problem. As far as I 
know, we are the only ones that have basically tried to the 
papal approach, where we have locked everybody in a room and 
said, ``We are not letting you out until you settle this.'' We 
are kind of there again.
    But the next thing I wanted to talk with you briefly about 
was about area codes. Area codes for a long time has been kind 
of a sleeper in terms of its role in the ability to create a 
competitive telecomm market. The way the statute is structured 
right now, the FCC holds all the cards. They have all the 
authority and all the responsibility, and the States are left 
pretty much in a ``Mother, may I?'' posture in terms of trying 
to do anything other than a few very simple things.
    When we run out of telephone numbers, the States, absent 
express, specific dispensation from the FCC, are limited to 
either move a boundary, decide that we are going to do an area 
code overlay, which means put one on top of the other one, or 
we are going to take the area and we are going to figure out 
how we are going to gerrymander it or we are going to split it 
into two different places and give them two new area codes. 
That is all we can do without special dispensation from the 
FCC.
    The system that causes so much problems today is the fact 
that, under the monopoly scheme, we have dispensed telephone 
numbers 10,000 at a time. Every new entrant that wants to get 
into business has to go get a code in the place where it wants 
to do business, and that code brings with it 10,000 whole 
numbers. We need--yesterday, a month ago, 6 months ago--the 
authority for all of us here at the State level to be able to 
do things like mandatory 1,000-number dispensations. You can 
work with 1,000 telephone numbers when you are a new entrant, 
unless you are doing a wholesale, massive entry into the 
business.
    Recently, in Pittsburgh, we had a situation where in the 
course of 2 days we gave out--in Pittsburgh, you know, an 
urban, metropolitan area with a population a little bit better 
than half a million people--we gave out 130 NNXes, 1.3 million 
telephone numbers in a day. Now none of them, to the best of my 
knowledge, has been put to use yet, but we give them out 10,000 
at a time, and we can't do anything about it yet.
    We recently got a setback, at least from my perspective, on 
that front, because the wireless carriers, who consistently 
argue that they are efficient users of telephone numbers, have 
made a case to the FCC and explained to them that they are 
really not in the position to implement local number 
portability, which is the technological underpinning of being 
able to do 1,000 numbers. They can't do that, and they have got 
a dispensation from the FCC to delay implementation of a 1,000 
number.
    But, by the same token, reaching back to what I described 
to you before, for us to go forward with 1,000 numbers without 
them puts them at a competitive disadvantage, they have 
consistently argued. Therefore, we can't do anything that 
depends on LNP until they catch up with the rest of the 
process. So we have a real conundrum here, and I hope that you 
would help us to encourage the FCC that the fact that they have 
gotten a waiver, because they really can't get there from here 
yet, of the requirement to implement LNP would constitute a 
waiver of their right to stand in the way of us other rational 
conservation measures that weren't too detrimental to their 
interests.
    I am almost finished. I just have two other minor points 
that I would mention to you.
    Obviously, a lot of other countries around the world have 
been looking at the way we do it and have been jealously 
examining the systems that we have in this country, and have 
been trying to figure out how we got here. The obvious lesson I 
think we should take from that is we should look at what they 
do when they go back home, because they are trying to develop a 
market and they are generally trying to develop competitive 
ones. If we take a quick look-see at what they decide they 
think will work to develop a competitive marketplace there, we 
might learn some lessons from them about what they think the 
minimum requirements are to actually make that system work. 
Even though they are coming to study us, we might learn by 
watching what they take away.
    Last, from an administrative perspective, I have had the 
Chinese curse of being the chairman of my agency in the past. I 
have been with my agency for over 20 years. The biggest 
organizational issue that we have had to deal with over those 
years is something that we call back home Lyness, which is the 
State Supreme Court decision that says I can't both prosecute--
I can't both bring a complaint against somebody and then sit 
there and listen to, and decide whether or not my complaint 
should be sustained and held against them or not. Reorganizing 
ourselves in a way to deal with that and protect people's 
rights actually creates some bureaucratic overhead.
    Thank you, Mr. Chairman.
    [The prepared statement of David W. Rolka follows:]
 Prepared Statement of David Rolka, Commissioner, Pennsylvania Public 
                           Utility Commission
    Chairman Tauzin and Members of the Committee thank you for the 
opportunity to offer my comments on how Congress should proceed with 
FCC restructuring. My name is David W. Rolka, and I have been a member 
of the Pennsylvania Public Utility Commission since December 1989. I 
was Chairman of the Pennsylvania Commission for three of those years, 
during which time we conducted a thorough re-evaluation of our mission 
and objectives. I also serve in several capacities as a representative 
of State Regulators on Federal Joint Boards as well as the North 
American Numbering Council. Before my commission I was an assistant to 
a Commissioner for 8 years and the Executive Director of the Pa. Office 
of Consumer Advocate for 5 years.
    I would be remiss if I did not recognize the contemporary efforts 
of State and Federal regulators to link arms and cooperate in the 
implementation of the provisions of the Telecom Act of 1996. That 
relationship, although sometimes strained, is a long standing and 
productive one. I had an opportunity to read the testimony that 
Commissioner Gillis prepared for you today and I associate myself with 
his comments.
    Chairman and Members of the subcommittee, I commend you for your 
hard work and interest in this matter. Your continuing interest and 
oversight will undoubtedly be instrumental to the process already begun 
by the Commission.
    Like many of its contemporaries in the regulatory community, the 
FCC is being challenged with new issues and policy-making requests 
resulting from major changes in technology, legislation and industry 
reorganization. Declining regulatory constraints on regulated 
industries have been more than offset by the public's increasing 
concern over such issues as the treatment of captive customers, safety, 
and service quality. At the same time there has been an increasing 
variety of service, pricing, and corporate arrangements that have 
emerged that do not fit the traditional criteria and rules around which 
regulatory agencies have been structured.
    In December, 1998 the State members of the ``Separations Joint 
Board'' reported that significant statutory, technological, and market 
changes in the telecommunications industry make today's network 
architecture and service offerings vastly different from the network 
and services contemplated in the current separations rules. The current 
rules evolved during a time when it was presumed that intrastate and 
interstate telecommunications services would be provided through a 
regulated monopoly. This is no longer the case.
    Within the state jurisdiction, utility commissions attempt to set 
intrastate rates that, in the aggregate, allow ILECs to earn revenues 
equal to their intrastate costs, plus a reasonable profit on their 
property. Federal regulators engage in a parallel process for 
interstate costs and property. A constitutional prohibition on 
``Confiscation'' underlies both state and federal rate-making.
    Numerous parties have suggested that changes to regulatory methods 
may make it possible to abolish separations in the near future. We 
concluded that under the present system of dual regulation of 
telecommunications property, some form of separations will continue to 
be needed for at least the next few years, even in the transition to a 
new competitive environment for ILECs.
    The continuing need for some form of separations, however, does not 
conclude that any particular form of separations is required. The basic 
legal principle is that neither the state nor the federal jurisdiction 
can set rates in a way that would preclude the utility from recovering 
a fair return on the totality of its property essential to its 
jurisdiction. We concluded that so long as the split of costs can be 
accomplished in a reasonably consistent and quantifiable manner, it was 
impossible to simplify the process.
    I support the sentiments expressed in a letter sent on March 18th 
from several House and Senate leaders urging the FCC to keep the 
internet free from regulation, and oppose any additional per minute 
access charges for internet use. The FCC's recent Declaratory Ruling 
and Notice of Proposed Rule Making regarding reciprocal compensation 
for calls to ISP's does not resolve the problem. Pending resolution of 
its proposed carrier to carrier compensation rules, local reciprocal 
compensation procedures for interstate services are inconsistent with 
jurisdictional cost allocations. This decision transfers the 
responsibility to maintain the freedom from additional per minute 
charges from the FCC to the states. State commissions are concerned 
that they may be left with the costs associated with Internet access 
traffic on the telephone network without adequate revenues.
    Congress should work with the FCC and the state commissions to 
abandon the notion of per-minute charges for internet service. States 
are committed to working with Congress and the FCC to achieve this 
goal. We ask that you consider our joint responsibilities under the 
Telecommunications Act to foster the deployment of the Internet and 
advanced services.
    Much has been written and said about the pace of implementation of 
competition since the passage of TA-96. My experience confirms the 
comments of Commissioner Gillis that the development of sustainable 
competition will take time. Not so long ago, in September 1998, 
Chairman Quain and I embarked on a bold and aggressive agenda to 
resolve pending telecommunications dockets and promote fair and 
meaningful competition throughout Pennsylvania. Our assumption was that 
the pending cases begged for a comprehensive integrated solution that 
could only be achieved through negotiations. After six months of 
intensive negotiation with our direct participation the negotiations 
ended without result. The issues are complex and some involve property 
rights that cannot easily be negotiated away. The scope of the 
negotiations included: fundamental access charge reform; Unbundled 
Network Element identification pricing and access to combinations; 
collocation alternatives, provisioning, and pricing; Universal service; 
rate rebalancing and rate caps; performance measures, standards and 
enforcement remedies; the designation of competitive services; Section 
271 procedures standards and other issues.
    Currently our Commission is considering dueling petitions for 
partial settlement of up to eighteen distinct proceedings. Both 
petitions purport to comprehensively promote fair and meaningful local 
competition and fair toll competition on fair terms and conditions for 
all market participants, as well as continued protections for 
Pennsylvania consumers. Despite the marked similarity between the terms 
of the two petitions, a prehearing conference conducted to narrow the 
scope of testimony and hearings resulted in absolutely no stipulations 
among the parties for the resolution of any issues in the petitions. 
Despite Congress' concerted effort to craft a mechanism to quickly 
transition to a competitive local telecommunications environment the 
transition will not come fast and each participants rights have been 
jealously guarded and litigated.
    The FCC's Opinion and Order of September 28, 1998 made it clear 
that the states had very limited tools to use to solve area code 
problems. Unfortunately, state commissions are empowered to implement 
only those traditional forms of area code relief, geographic split, 
overlay or boundary revision, before they can mandate any type of 
number conservation measures. Although the FCC has authorized states to 
adopt and implement voluntary pooling trials, many states such as New 
York, Massachusetts, Maine, and Florida, pursuant to paragraph 31 of 
the September 28, 1998 Order have petitioned the FCC requesting 
additional authority to implement various numbering relief/conservation 
measures.
    Each of these states asked the FCC to grant them the authority to 
implement mandatory 1000-block number pooling. The FCC has not yet 
indicated that 1000-block pooling will soon be an available option for 
the states, and has not acted on the various states petitions. The 
option of 1000-block number pooling is currently before the NANC, and 
should be before the FCC in three to four months. The FCC will likely 
then request comments from interested parties. Since the FCC has 
recently granted a request for forbearance from the CMRS Number 
Portability Requirements I do not foresee the FCC ruling on 1000-block 
number pooling as an alternative for number conservation for the states 
before the end of 1999.
    It is appropriate to review the Commission's current approach and 
develop strategies that improve its long term efficiency. Several 
Nations are experimenting with regulatory regimes where virtually none 
had existed before. Those countries have been examining the successes 
we have enjoyed with the hope that they will craft mechanisms that will 
produce similar results for themselves. Perhaps it will be useful to 
examine what they have taken away from their examination of our systems 
as they craft environments designed from the ground up to encourage 
competition as a tool over regulation.
    One of the most difficult issues we face is due process, 
particularly when it comes to our enforcement responsibilities. Since 
1992 our organizational structure and procedures have been dramatically 
reshaped by due process principles as the result of a decision by our 
State Supreme Court. In Lyness v. State Board of Medicine, 529 Pa. 535, 
605 A2d 1204 (1992), the Pennsylvania Supreme Court held that when an 
agency both determines that a prosecution should be initiated and then 
acts as the ultimate arbiter, the due process law in Pennsylvania has 
been violated. It was ruled that the commingling of prosecutory and 
adjudicatory functions creates ``an appearance of bias'' in the agency 
decision makers.
    Recognizing that many state regulatory agencies fulfill both 
prosecutory and adjudicatory functions, the court stated that this 
alone does not violate due process so long as the functions are 
``separated adequately'' and handled by distinct administrative 
entities, but that ``if more than one function is reposed in a single 
administrative entity, walls of division must be constructed which 
eliminate the threat or appearance of bias.'' Lyness at 546, 605 A.2d 
at 1209. In order to abide by the Pennsylvania Supreme Court's holding 
in Lyness and comply with our state's due process requirements, we 
determined that the authority to initiate proceedings which are 
prosecutions in nature should be delegated to various bureaus within 
the Commission. I believe that our experience validates the priority 
that the FCC has placed on reorganizing its enforcement functions to 
ensure effective enforcement of remaining statutory and regulatory 
requirements.
    Thank you, for the opportunity to offer these comments.

    Mr. Tauzin. Thank you, Mr. Rolka.
    And, finally, Mr. Wayne Lafferty, Vice President of 
Regulatory and Government Affairs, Citizens Communications, on 
behalf of the United States Association. Mr. Lafferty.

                   STATEMENT OF WAYNE LAFFERTY

    Mr. Lafferty. Mr. Chairman, members of the committee, thank 
you very much for the opportunity to appear before you today on 
some subjects which are very critical to the customers of our 
company.
    I must admit I do find it a little bit strange, though, to 
be sitting here at the table with four State regulators. I have 
spent the last several years of my career trying to get away 
from regulation, and I am as close to it as I have ever been.
    I appreciate hearing the four issues that you outlined at 
the beginning of the hearing today because I think that most, 
if not all, of these issues are the crux of some of the things 
that I would like to speak to you all about today.
    Let me just start by saying that I believe the Telecomm Act 
of 1996 was a good thing. It can work, but I think some of the 
implementation of it needs to be tweaked a little bit as we 
move forward. I would like to speak about four main concepts 
today.
    First of all, let's look looking forward, developing 
partnerships. Some of the State commissioners sitting at the 
table today have talked about forging better relationships with 
the FCC. I would like to make the industry a part of that also, 
and see that the industry, the FCC, and the States work closer 
together.
    Our customers are demanding that we innovate faster, that 
we move surfaces to market faster; we provide faster speeds, 
higher bandwidth, et cetera. I would like to see the regulatory 
environment keep pace with the rapid change that technology is 
making in making services available to our customers. I think 
that a partnership philosophy, a partnership characteristic, is 
important in making that happen.
    Second, I would like to talk briefly about overlap of State 
and Federal regulation. The best example I can think of--and 
some of the commissioners here have alluded to it already--is 
in the area of monitoring service quality. Our company will 
spend over $1 million over the next 12 to 18 months to comply 
with the FCC's 43.05 report, which is their Service Quality 
Monitoring Report. That is over $1 per customer for our 
company. I don't think there is a State out there that doesn't 
have regulatory rules in place or have the authority to monitor 
service quality. It is a clear indication of an area where the 
customers are well taken care of by the State, and the FCC 
could reduce the burden on the industry, and the States could 
continue to play that role quite well.
    Another area I mention briefly in my testimony is the area 
of regulatory lag, as I call it. The FCC has recently taken a 
couple initiatives to make the decision. Just this week they 
ruled on a forbearance petition under section 10 of the act for 
some of the mid-sized companies. Though they didn't forbear all 
the issues that the companies are asking for, they did provide 
some limited relief.
    However, the statute gave the FCC 1 year to act on 
forbearance petitions and an extension period of 90 days. They 
used 1 year, 90 days, plus 1 day, to make their decision.
    Also, the FCC has recently asked the various associations 
that represent companies serving rural areas to get together 
and come forward with constructive comments, concepts, and 
ideas and recommendations to streamline regulation. We see that 
as a positive step. Hopefully, it will not take too long.
    Also, the act requires the FCC to conduct what we call a 
biennial review, every 2 years, to take a look at the 
regulations that it has and to see what changes are possible to 
streamline the processes as this industry and this marketplace 
becomes competitive. Nineteen ninety-eight was the first year 
of the biennial review, and the FCC is now starting to make 
some progress. However, it is May 1999. We hope that as the 
next biennial review period comes around, which there is some 
experience now, we hope that will move forward in a progressive 
and positive way for the regulatory agencies, both State and 
Federal and the industry.
    The third and last area I briefly mention in my testimony 
is what we call the regulatory burdens. The Telecommunications 
Act of 1996 was a deregulatory act. However, many burdens 
remain on our companies. In some cases the implementation may 
have produced more, not less, regulation.
    Our company spends over $23 per customer to comply with 
State and Federal regulation. We serve a rural area. In some 
cases that could be up to 2 months of our customer service's 
local residential rates that are used to comply with 
regulation. I believe that our customers would much rather 
spend at least some of that money, if not all of it, to 
introduce new services, better services, higher bandwidth, et 
cetera.
    In front of me on the table here I have four piles of paper 
that were provided by AmeriTech, one of the USTA members. It 
represents reports that they file with the SEC, Securities and 
Exchange Commission, the FCC, and the State of Wisconsin. I 
would suggest that there is some overlap here that could be 
eliminated if the States and the FCC will work together. The 
fourth pile, by the way, are the FCC's rules for completing 
their pile of reports.
    Again, lots of opportunity for the State and the FCC and 
the industry to work together to eliminate unnecessary burden 
and allow the companies, the telecommunications providers, to 
spend our resources on serving customers and providing new 
services.
    Let me provide eight recommendations that are in my 
testimony, just in summary, that I think that this committee 
and the agencies should consider.
    No. 1, let's put a deadline, a 90-day deadline without 
extensions, for the FCC to act on petitions, reconsiderations, 
and applications. Let's require a supermajority vote for any 
new regulations--with emphasis on ``new.''
    Let's look at elimination of regulation of services as they 
become competitive. We are starting to see the States taking 
very positive moves in that direction, both from a legislative 
and a regulatory standpoint. This committee, under the 
leadership of Mr. Boucher and Oxley, had an amendment in the 
Telecommunications Act that allowed some of those things. 
Unfortunately, in conference that did not make the final 
legislation. Let's revisit that issue, and we are willing to 
work with you to do that.
    Fourth, let's eliminate the separate subsidiary 
requirements that are not specifically spelled out in the act. 
All those do is limit the abilities for competition and add 
resource burdens to our companies that distract us from serving 
customers.
    Fifth, let's prohibit regulation of the Internet in any way 
at all. The Internet is making amazing changes in the way that 
we do business, the way we communicate. Let's not get in its 
way.
    Sixth, let's limit merger review, if there is to be any at 
all--and we would suggest that there should be very limited at 
all by the FCC--but if so, let's limit it to 90 days. The 
Department of Justice and other agencies are well equipped to 
handle that issue.
    Seventh, let's compel regulators to move to gap accounting, 
so that we don't have three piles of reports sitting on the 
table, three sets of books, three sets of accountants working 
for our company.
    And, last, as Chairman Kennard outlined in his testimony 
before this committee back in March, let's restructure the FCC 
to a more functionally based organization. The very aspects of 
this industry--long distance, local service, CLEC, wireless, 
you name it, cable--are converging. Let's have the regulatory 
agencies organize in such a way to deal with that convergence, 
and organize in a way to keep that in mind.
    I appreciate the opportunity to be here today and to sit 
with these distinguished gentlemen and lady from the State 
commissions, and look forward to working with this committee, 
as well as the State and Federal regulators, to move 
competition forward.
    [The prepared statement of Wayne Lafferty follows:]
 Prepared Statement of Wayne Lafferty, Vice President, Regulatory and 
  Government Affairs, Citizens Communications on Behalf of the United 
                      States Telephone Association
    Thank you, Mr. Chairman, for extending me the opportunity to 
testify on the question of the regulation of the telecommunications 
industry. When I speak of regulation, I refer to both federal and state 
regulation, even though as a result of the recent Supreme court case, 
the role of the Federal Communications Commission in regulating local 
exchange carriers is at its highest level in the history of telephony. 
We still have a system of dual common carrier regulation, but what used 
to be a bold bright line between what is intrastate and thus subject to 
the exclusive jurisdiction of the states and what is interstate and 
thus subject to the FCC's jurisdiction has been made opaque by the 
Supreme Court's interpretation of the provisions of Part II of Title II 
of the 1996 Act. In an era of competitive telecommunications, incumbent 
local exchange carriers (ILECs) are now thus faced with pervasive 
regulation at both the federal and state level. For instance, the FCC 
requires our large and midsize companies to file extensive financial 
and operating data under its ARMIS reporting requirements, but the 
states also ask these companies to file similar data with them. We need 
state and federal authority to construct facilities and provide 
services. Additionally, both the states and the FCC requires extensive 
service quality monitoring and infrastructure data. Both the states and 
the FCC give us different criteria in slamming/cramming directives and 
both the states and the FCC regulate capital recovery for our large and 
midsize companies.
    USTA suggests that rather than the Congress making still another 
attempt to sort out where this state/federal jurisdictional line should 
be placed, we believe that a large dose of regulatory reform and 
deregulation are in order. After three years of litigation over who has 
regulatory jurisdiction, we also recommend a state/federal partnership 
to achieve the regulatory balance required for a competitive era where 
prompt regulatory action is an absolute necessity.
                           regulatory reform
    Regulatory Lag--Let me give you three classic examples of 
regulatory lag: reciprocal compensation, universal service and the case 
of the Roseville Communications Company. First, reciprocal compensation 
is the amount paid by one carrier to another for the transport and 
termination of telecommunications. The 1996 Act in Section 251(b)(5) 
made reciprocal compensation the duty of every local exchange carrier 
because in an era of competition, we need to exchange traffic. The 
question of whether traffic being sent to the Internet is intrastate or 
interstate has been before the FCC since 1996. The issue is not, in May 
1999, fully resolved yet because despite the fact that the FCC has 
determined this traffic to be interstate in nature, now we have an 
ongoing FCC rulemaking to determine what is to be done about it in the 
future given that it is interstate. There is no telling when this issue 
will ever be resolved. The 1996 Act instructed the FCC to eliminate 
implicit subsidies in order to facilitate competition and to provide a 
level playing field. The FCC's seeming inability or unwillingness to 
address this issue is creating a new implicit subsidy which is growing 
day-by-day.
    Second, the Congress recognized that the competitive marketplace 
that was being ushered in by the 1996 Act would require universal 
service reform because the old system of implicit subsidies cannot 
survive in an era of full competition. The FCC was required by the 1996 
Act to replace this system of implicit subsidies. This was required to 
be accomplished by May 8, 1997. It has not been accomplished yet. This 
failure also leads to dual federal and state universal service 
regulation which is often confusing as a consequence. The states must 
move into this area more so than before because of the FCC's failure to 
act.
    Third, one of our small telephone companies is Roseville 
Communications Company (RCC). RCC has 117,000 lines covering just an 83 
square mile area in and around the city of Roseville, California. In 
early 1997, RCC wanted to acquire a cable system serving just 16,000 
subscribers from Jones Intercable. On February 26, 1998, RCC gave up 
because after 15 months of effort, RCC had yet to receive FCC approval 
for the acquisition.
    RCC had numerous meetings with the FCC staff during the 15-month 
period. RCC answered every question presented to them. In order to 
acquire the cable system, RCC needed a FCC waiver under Section 
652(d)(6) as the cut-off for such acquisitions without a waiver was 
12,000 subscribers. The local franchising authority approved the 
waiver.
    The FCC staff indicated that the acquisition waiver would have to 
be subjected to ``conditions.'' At, first it was suggested to RCC that 
the conditions made applicable to the Bell Atlantic/NYNEX merger would 
be appropriate here. RCC tried without success to work out with the FCC 
more appropriate conditions. Lacking the resources of Bell Atlantic, 
RCC just gave up.
    USTA would submit to you that unless there are mandatory statutory 
deadlines for completion of regulatory proceedings (e.g., applications, 
petitions) that the FCC cannot be counted upon to act quickly, even in 
cases that cry out for attention such a reciprocal compensation. 
Second, whatever the statutory deadline is the FCC will use the maximum 
allotted time, this point has been proven as some of our mid-size and 
small companies petitioned the FCC for forbearance under Section 10 of 
the 1996 Act on February 17, 1998. The Act requires the FCC to act upon 
such petitions within a year unless it extends the time period for an 
additional 90 days. Of course, the FCC has extended the time period. 
The FCC announced a decision in this case on Tuesday (5/18/99) of this 
week. Third, even with a statutory deadline unless the statute makes 
clear that there are consequences flowing from the failure to meet the 
statutory deadline, the statutory deadline is worthless. The best 
example that I can think of to prove this point is the FCC's failure to 
complete action on universal service despite a clear statutory 
deadline. The Congress required the FCC to complete action on universal 
service by May 8, 1997. They have still not completed action, but there 
are no consequences resulting from this failure to comply. The FCC does 
not suffer when it fails to meet a statutory deadline only the 
regulated and the public.
    So, we recommend that legislation be enacted requiring the FCC to 
complete action on any petition, application or reconsideration within 
90 days. If the FCC does not act within the 90-day period, the 
petition/application shall be deemed approved.
Make Additional Regulation Harder
    The Conference Report for the 1996 Act said that the new law unlike 
the 1934 Act was supposed to be ``deregulatory.'' Incumbent local 
exchange carriers are more regulated today than they were on February 
7, 1996. The bill, for instance, was intended to give Bell operating 
companies interLATA relief if they provided the service through a 
separate affiliate. The BOCs still have no interLATA relief and the 
separate affiliate requirement intended only for BOCs has been visited 
on other non-BOC ILECs by FCC rule with respect to their provision of 
long distance service and other competitive services. We have vast 
unbundling requirements, collocation requirements, interconnection 
requirements and resale requirements unheard of prior to the FCC's 
implementation of the 1996 Act. Further, there are new things coming up 
all of the time, such as slamming and cramming. The FCC makes the ILECs 
the arbiter of these disputes.
    The House bill (H.R. 1555) had an excellent deregulatory provision 
as a result of the Committee's adoption of the Boucher/Oxley amendment. 
Boucher/Oxley would have significantly eliminated common carrier 
regulation (e.g., tariffing, price, and depreciation) when a 
telecommunications service was subject to competition. The Conferees 
did not choose to include this provision on the 1996 Act. What a 
mistake that was. Instead, they gave the FCC the authority to forbear 
when the FCC saw fit. Now we have competition with no deregulation. The 
FCC was given the authority to forbear from regulation, but it does not 
forbear. USTA believes that regulators will regulate if given the 
opportunity. Deregulation is not how they view the world.
    We are also concerned that the proposed FCC solutions to problems, 
while well intended, are excessively costly and lack adequate means to 
recover the costs incurred. Let me cite 4 examples:

 Local Number Portability--Timing of recovery does not match 
        expenditures or assure adequate recovery.
 Customer Proprietary Network Information--FCC went well beyond 
        the requirements of the Act.
 Truth in Billing--Created significant financial burdens.
 Provisions of OSS ruling--Financial burdens far outweigh 
        potential benefits in rural areas where competitors have shown 
        little or no interest in utilizing the incumbent's OSS.
    We propose that Congress statutorily require a super-majority (4 
votes) at the FCC before the FCC can adopt any new regulatory 
requirements. The super-majority requirement would not apply to 
deregulation measures nor to mergers. Second, the FCC should be 
prohibited from imposing upon any carrier any separate affiliate 
requirements not specifically mandated by the Act. Incongruous as it 
may sound, the cost of regulation is rising in a competitive market, 
and this trend must be reversed.
Relief In Competitive Markets
    Competition was emerging for business customers prior to the 
passage of the 1996 Act. The 1996 Act accelerated that trend. We still 
do not have very many competitors interested in residential or rural 
customers, and I doubt that any will be interested at least until the 
universal service issues have been resolved. In the meantime, incumbent 
LECs are pervasively regulated whereas our competitors are virtually 
unregulated. They have total pricing flexibility--we do not as once 
again the Conferees for the 1996 Act did not accept the price 
flexibility provisions of both the House and Senate passed bills. 
Again, relying on the FCC to forbear instead of statutorily mandatory 
pricing flexibility.
    So, we suggest that FCC price regulation of competitive services be 
statutorily eliminated.
Parity of Regulation
    A service that can squeeze itself into the definition of a cable 
service will not be subject to common carrier regulation even though it 
is a service that is functionally equivalent to a telecommunications 
service. The FCC has not addressed this problem saying they cannot 
because the 1996 Act establishes this disparity as a matter of law.
Advanced Services
    The 1996 Act was a two-way voice oriented bill reflecting the fact 
that the astounding growth of the Internet had not yet occurred by 
February 8, 1996. The 1996 Act mentions the Internet in only two places 
in Section 271(g)(2) with respect to Internet access to schools and in 
Section 230. I dare say that if this legislation were being considered 
today that it would be replete with references to the Internet. The 
Internet must not be made subject to regulation, but the FCC is heading 
in that direction requiring ILEC to resell and provide unbundled access 
to its services, facilities, and equipment used to provide Internet 
services.
    Section 706 did contemplate the necessity for relaxed regulation to 
encourage advanced service deployment, but the FCC has determined that 
its ability to deregulate under Section 706 is severely constrained by 
other provisions of the 1996 Act.
    The FCC and the states should be prohibited from regulation of the 
provision of advanced services. There is vibrant competition in this 
aspect of the industry. No telephone company has a dominant share of 
the advanced services market, yet regulation continues. If you want to 
encourage broadband service and facility deployment, there should be no 
regulation of it.
Merger Review
    This is still another area where the FCC takes too long to act. 
Mergers should be considered by the FCC, if at all, for only 90 days. 
For small and midsize companies, the review should be limited to 
spectrum management issues.
Accounting
    Telephone companies must keep two sets of books--one for the FCC, 
and the states and for the IRS and Securities Exchange Commission. The 
FCC and the states do not use generally accepted accounting principles. 
The FCC and the states requires that you use their accounting 
principles. The FCC and the states should be compelled to use generally 
accepted accounting principles.
Structure of the FCC
    We at USTA believe that the FCC should be significantly 
restructured. Instead of the existing bureaus, such as common carriers 
and cable; we believe that the FCC should be structured on more modern 
lines to recognize convergence. The FCC should be restructuring into 
non-service based bureaus: legal, policy, engineering, licensing and 
enforcement.
    In a competitive era speed matters: speed to market, speed to 
innovation, speed to new services, and speed to lower prices. We need a 
second partnership between the regulator and regulated where these 
urgent matters can be dealt with urgently. The regulators need to be 
our partners. As a part of this reform, we believe that the FCC should 
change its main focus to enforcement rather than the establishment of 
highly detailed rules governing even the most minuscule of matters.

    Mr. Tauzin. Thank you, Mr. Lafferty. I am glad you ended 
with the concept of convergence and the need for a structure of 
the FCC itself to reflect the converging.
    Let me mention three quick things and get your thoughts on 
this. All of you, you talked to me about LATA lines, separate 
one customer/one company from another, and you talked about 
monitoring service quality. You talked about pricing. You 
talked about the rules of interconnection and unbundling, et 
cetera, as being extraordinarily complex functions, 
particularly as it relates to 271 relief sought by the 
companies.
    But we are about to face a world, if I can look over that 
horizon, where all these services are migrating rapidly to 
Internet delivery. There is a bumper sticker out; it says, 
``Relax, it's just 1's and 0's.''
    Everything is converging into a single stream of 
information that can mean anything we want it to mean--audio, 
video, data, complex data.
    I am reminded of that movie with John Candy, ``Planes, 
Trains, and Automobiles''--many different systems delivering 
it: some coming from satellites, some from terrestrial towers, 
others from various wires, including maybe the electric line. 
You pointed out with energy several companies now experimenting 
with the possibility of moving broadband in or around the 
electric cable.
    Here's the question: Mr. Rowe, I have looked at some of the 
State commission restructuring. New York, for example, just 
went through it. I think one of the new bureaus they created 
was a competitive bureau, in fact, to look at the 
competitiveness of the marketplace that they regulate and to 
see how much they need to regulate it, and it becomes 
competitive.
    Here's the question: When you get to this new world, as you 
look over that horizon, where information is delivered in 1's 
and 0's over all these streams, in a competitive mix where 
customers can choose from among them, properly educated as to 
what all of it means in their lives, where distance is 
irrelevant--a very big point here: where distance is irrelevant 
in communication of information; when information travels at 
the speed of light over fiber optics and satellite and other 
systems; where, as on the Internet, you are not charged by how 
far you live from one another, but the duration and time you 
actually use a service; where, in fact, all of the companies 
you regulate, is it an electric utility or is it telephone 
utility or as with cable--I mean, all of them would be the 
same, delivering all of these services in a combination. What 
is going to be the role of local commissions, and what is going 
to be the role of the Federal Commission when, in fact, we have 
distance-irrelevant, common-stream informational services 
flowing in all these various channels to consumers who are 
making choices out there? What role is left for you? And what 
role is left for us? Give me your best shot at it.
    Mr. Rowe. This is Alfonse and Gastone: ``After you.''
    Mr. Lafferty. I think that what you are suggesting is, I 
guess, really the end game. I think we are in a period now 
where both the States and the FCC need to recognize that we 
need to get there; we need a plan to get there. I don't want to 
sound repetitive, but I think the partnership approach is the 
way to go.
    But I think what you are really talking about is a 
transition period. It is somewhat complicated because----
    Mr. Tauzin. Let me stop you there. I agree with you. I 
think we would have a transition period, and commissions and 
the FCC is going to look different in what they do during the 
transition--certainly partnerships, perhaps some tinkering with 
maybe even the law, just to get us there quickly, particularly 
on the deregulation of phone competition before there is no 
such thing as phone competition because everything is on the 
Internet.
    But I am saying we have gotten there. We have 
partnershipped; we have done it; 271's are gone; 706 really--
all that is gone now. Now we have this incredible world of 
complex systems of delivery of common, integrated streams of 
information. What is there left for you to do? And what is 
there left for us to do at the FCC level?
    Mr. Lafferty. Well, I mean, the obvious answer is probably 
not a whole lot as we get there. The marketplace, just like it 
does if you are selling hamburgers or ketchup, for that matter, 
will police pricing, will police entry, will police 
availability. There will probably still be some need to have 
agencies, maybe mainly at the State level, to make sure that 
service availability is there, because there are parts of the 
country that are hard----
    Mr. Tauzin. As a matter of fact, there is competition 
everywhere. The consumers do have choice.
    Mr. Lafferty. There is competition. Exactly.
    Mr. Tauzin. Give me your take on it as commissioners.
    Mr. Rowe. Mr. Chairman, at the committee we tried to do two 
things. First, keep one eye focused on the present: How can we 
implement----
    Mr. Tauzin. Yes, obviously.
    Mr. Rowe. [continuing] Congressional intent. At the same, 
we tried to keep the other eye looking down the road 20 years. 
We started a discussion actually this winter called ``Future 
Public Policy Structures.'' We are inviting in two speakers at 
every one of our meetings. They present papers. The papers are 
going to be published. We have entered the first set of that. 
We had a couple of very thoughtful and visionary presentations 
by two economists looking down the road. I think what they 
would say is that some things go away. A lot of the retail 
focus we have now goes away; a lot of the command and control, 
the ability to actually tell Mr. Lafferty what he is going to 
do probably goes a way. We are actually fairly eager to get rid 
of that.
    What remains is particularly universal service. I think 
that in some way will always be with us, but it is going to 
look different, and there will be new ways to get there. 
Consumer protection, as you have heard about, and if you think 
about other markets that are more competitive, there is usually 
a pretty robust consumer protection entity involved making sure 
that everybody is playing by the rules, and that the customers 
have the confidence----
    Mr. Tauzin. You become more like an FTC, an enforcement 
agency----
    Mr. Rowe. That is exactly what I see----
    Mr. Tauzin. [continuing] educating and watching against 
fraudulent, bad behavior, assuring that no dominant player is 
taking advantage of a market and the consumers. Don't you 
mutate into that on the State level, as we are going to have to 
mutate on the Federal level?
    Mr. Rowe. That I think is going to be an important part of 
the function. I do think there will still be----
    Mr. Tauzin. In the meantime--I want to ask you quickly 
because I have to give everybody a chance. I will let you, I 
promise.
    Mr. Rowe. I would like to jump onto something that Mr. 
Lafferty said, too, about new ways to do things. Citizens 
bought a territory in Montana, really in bad shape, rural, 
mountainous area. My primary regulatory responsibility is 
bringing the Citizens up to these communities, this 
mountainous, remote area, about once every 6 months for 
community meetings. What we are doing is really using an 
economic development/community development approach to moving 
forward industry investment in that community.
    Mr. Tauzin. It makes sense.
    Mr. Rowe. And it is exciting. I think Citizens enjoys what 
they are doing with the community up there. I enjoy it a lot 
more than the Dave Rolka kind of a nightmare.
    I think there is going to be a real need for people who are 
close to the local level to go out and do that kind of hands-on 
work. I think that kind of emphasis is going to continue to be 
there.
    Mr. Tauzin. Let me go to Mr. Rolka. Mr. Rolka, last year 
Mr. Dingell and I, and others, introduced a bill that would 
have given more power to the States to decide the long distance 
entries question. We would have allowed you to settle it 
completely intra-State, intra-LATA, for example. We are 
examining that again this year.
    Our concept was that you were closest to the markets and to 
the consumers, could maybe make a better judgment as to whether 
or not there was competition and whether or not consumers would 
benefit from deciding those issues. Do you think that approach 
is good? You seemed to tell me that, even with the authority to 
do it, you found it very hard to get cooperation of all the 
players. Everybody's trying to protect their little domain.
    Mr. Rolka. Mr. Chairman, I think the question wasn't the 
cooperation of the parties. The parties were willing to 
cooperate, but the real issue there was that none of them were 
willing to negotiate a settlement, concede any of their 
rights----
    Mr. Tauzin. That they may not have to concede----
    Mr. Rolka. Right.
    Mr. Tauzin. [continuing] in a judgment by the commission?
    Mr. Rolka. They wanted somebody to spell out the actual 
answers to all the questions at least once----
    Mr. Tauzin. We are going through that up here. The first 
thing we found was that the 271 process was stymied by the fact 
that the Bell companies didn't want to do anything they weren't 
required to do. So they have been looking for somebody to tell 
them what the minimum was. Nobody told them.
    Mr. Rolka. Mr. Chairman, I would say that if all the States 
were as well-situated as New York, California, Pennsylvania in 
their ability to handle this question, I think that that will 
be a fair assessment of the process. However, on the taxicab 
ride over here I had a conversation with my colleague that I 
realized, as an individual commissioner in my State, there are 
540 people that work in my regulatory agency and a significant 
number of them do work on telephones, and I have got lots of 
lawyers and engineers and analysts. But if I go visit some of 
my colleagues, I almost have to stay in a hotel to have a 
meeting with them because there aren't enough people, I mean, 
you talk about some of the other States; they have 20 people in 
the entire regulatory community; they just can't do it. It is 
that simple. Some of us could, and some of us couldn't.
    Mr. Tauzin. Some could; some couldn't.
    One final thought and I will give it to Mr. Markey. We are 
going to probably have to reintroduce our slamming bill. As you 
know, the Court has stayed the FCC slamming rule. I understand 
they have been reintroduced in the Senate side, Mr. Markey. We 
will probably get our bill together here again.
    Our bill contained a section that read as follows: 
``Nothing in this section of the regulations described shall 
preempt any State law that imposes requirements, regulation, 
damages, cost, penalties,''--et cetera--``that are less 
restrictive than those imposed under this section. In other 
words, we allowed you to do anything less restrictive you 
thought might work, and second, not inconsistent with those 
imposed in this section, and were enacted prior to the date of 
the enactment of the Telecommunications Competition and 
Consumer Protection Act. So either they had to be less 
restrictive or they had to be noninconsistent and passed before 
the act.
    Do you have any problems with this preemption language? 
Yes, sir, Mr. Rowe?
    Mr. Rowe. Mr. Chairman, with all respect, this is an area 
where I think the better solution for the customer would be a 
Federal floor with a State ceiling. We worked on a number of 
different bills that were introduced last session, and 
unfortunately, were not able to support the bill in its form 
for that reason. I think the list of States that actually had 
greater protections than what were provided for by the final 
bill that came out of the House side was probably like 10 or 
11. So I think a Federal floor which States can exceed, and 
there is always the qualification of section 253 prohibition on 
barriers to entry that is a backstop against anything too 
terribly Draconian.
    But, here again, I think consumers at the local level are 
looking for certainty and for protection. Typically, they will 
look first to their State commission. For example, in Montana, 
where we handled nearly 600 formal slamming complaints, the FCC 
handled about less than 100 from Montana, we can do a better 
job for those customers with the authority that our legislation 
has given us.
    Mr. Tauzin. You know the concern we have is that a company 
acting across many State boundaries is going to have to follow 
50 different rules, and that is a real concern. But we will 
discuss that with you as we go.
    Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman, and I thank you, Mr. 
Rolka, for making that point. I was going to try to raise it--
that many of the States have 30 or fewer employees with issues 
that now span across State boundaries. So it obviously is very 
difficult. One of the issues--maybe, Mr. Rowe, I think you are 
in that situation in Montana--one of the questions that we have 
to ask is, given your limited staffing, how important is it for 
us to be careful in terms of anything we do at the FCC that 
limits their ability to get you the information, and for them 
to be able to do the things that would be very difficult you to 
be able to deal with, given your limited staffing.
    Mr. Rowe. Mr. Chairman, Mr. Markey, that is an important 
consideration. Exclusive of commissioners, we have 32 staff 
members in Montana, and we are actually one of the States 
outfront on electric and gas restructuring. So we set up 
industry-level teams to do that work.
    Mr. Markey. You are doing electric, gas, and telephone all 
in one commission?
    Mr. Rowe. That is correct, and among the low-cost States, 
we are outfront on electric and gas restructuring. We do look 
to the FCC for analysis, for data collection, for that kind of 
support. We also look to our colleagues in the other States. In 
the 14 U.S. West States we have a regional oversight committee, 
and that group, in fact, has been following up on my suggestion 
for regional work on 271 issues.
    Mr. Lafferty's point about duplication I think is a fair 
point. It is a legitimate one, and I think that the States and 
the FCC and industry should be able to work together to 
streamline how reporting occurs, and to avoid duplication. But 
it is very much the case that States to look to the FCC for 
various kinds of data collection. That is what they hopefully 
do.
    Mr. Markey. Thank you, Mr. Rowe.
    Mr. Lafferty, the FCC this week granted significant relief 
to mid-sized local phone companies. They relaxed accounting 
requirements. They streamlined RMAS reporting requirements. 
They eliminated part 69 waiver requirements. They eliminated 
separation requirements for long distance resale, and some 
other items.
    Will these deregulatory efforts increase the likelihood 
that we will see some more telco versus telco competition or 
telco versus cable competition?
    Mr. Lafferty. i think any time that the FCC, or the States 
for that matter, forbear or relieve companies, regardless of 
what part of the industry there are in, from competition, that 
that will allow resources to be spent on implementing 
competition outside of the service territories.
    Mr. Markey. Do you think it will help a lot?
    Mr. Lafferty. I think it can help. I applaud the FCC for 
taking this first step in that process, and we hope to work 
with them to take many more such as that.
    Mr. Markey. We removed the cable telephone restrictions in 
1996 to help companies like yours get into telco. We were told 
that it was a major restriction that impeded your ability to 
get into that business. Is your company in that business now?
    Mr. Lafferty. Our company has several small cable 
operations out in the western States, in southern California, 
currently. Other mid-sized companies do have businesses in 
cable.
    Mr. Markey. How many telephone customers does your company 
have and how many cable customers?
    Mr. Lafferty. Well, we serve almost a million telephone 
customers, and I do not have with me the number of cable 
customers. I apologize.
    Mr. Markey. Are you thinking about half a million or----
    Mr. Lafferty. No, it would be less than that. It would be 
probably closer to 20,000 or 30,000.
    Mr. Markey. Twenty-five thousand. Do you plan on ramping up 
to having a million telephone customers getting cable service? 
Are you going to compete in that market?
    Mr. Lafferty. Speaking specifically for our company, our 
company, it is no secret, is looking to acquire other 
operations, and we are not restricting ourselves to looking at 
just telecommunications operations.
    Mr. Markey. No, I am saying in the communities in which you 
have telephone operations you can't buy the local cable 
company. So I am saying, in those areas, are you going to 
compete with the local cable company? What is your company's 
plan after we have lifted the restriction?
    Mr. Lafferty. Our company has not precluded anything from 
its set of opportunities.
    Mr. Markey. Have you announced any?
    Mr. Lafferty. We have not announced any cable operations, 
but we have not precluded that from the planning process.
    Mr. Markey. Because, obviously, one of the great 
discoveries of this committee was, after years of testimony by 
USTA, that the restriction barring entry into cable had 
prevented them from building the synergy in individual 
communities. But we come back and we can't find anything but 
scant evidence that, after all those years of complaints, that 
telcos actually move into that industry.
    Mr. Lafferty. Well, I apologize. Your questions I thought 
were directed specifically at our company.
    Mr. Markey. Oh, they were, but what I am saying to you is 
that we are trying our--I am just giving you my frustration, 
that we heard great complaints about the restriction, and the 
promise that really by the year 2000, if we lifted the 
restriction, that telcos across the country would be rushing 
into the cable business.
    Mr. Lafferty. Well, I believe that as the various aspects 
of the industry continue to converge, the telephone companies 
will move into the cable business.
    Mr. Markey. You don't think the video and the voice 
converts enough for telephone companies to get into video? We 
were told in the early 1970's--actually late 1980's, early 
1990's rather--for 10 years, before the committee we were told 
that if they lifted the restriction, they would get in.
    Mr. Lafferty. I mean, the convergence is underway. 
Actually, UST just recently sent a request up to the Chairman 
of the FCC to begin a proceeding to look at the convergence of 
the industry. As it continues, the cable companies will move 
more into the telephone service, and telephone companies, the 
traditional telephone companies----
    Mr. Markey. And I know that AmeriTech and Bell South and 
you have made some movement in that direction, but it is just 
not--it doesn't make me feel good, now 3 years later, that it 
is such a limited movement on the part of the telephone 
industry into an area that we were promised in the testimony 
that they would go into.
    Can I just ask one other clarifying question? When you say, 
no regulation of the Internet, you don't mean that we shouldn't 
pass laws on pornography or fraud or other areas----
    Mr. Lafferty. Yes.
    Mr. Markey. [continuing] like that, do you?
    Mr. Lafferty. Yes, I was not referring to that. I was 
referring to access charges on the Internet, connection fees, 
things like that. But, certainly, as I mentioned, and as Mr. 
Rowe mentioned, I believe, in response to the chairman's 
question about the future role of regulators, I think one of 
the areas that regulators will continue to serve the public 
down the road, as the transition is completed, is consumer 
protection, and those sorts of things would fall in that 
category.
    Mr. Markey. And what about set-top box regulation? Do you 
believe that that set-top box should be open? Do you think the 
regulation should guarantee equal access for all software, you 
know, industry competitors, to reach the consumers of the 
United States?
    Mr. Lafferty. I think that, under the requirements in the 
act, the local telephone company networks are being opened and 
are being made available. And given that there are some very 
powerful players with access to most of the homes in the United 
States for cable, that that should be open also, so that 
companies that want to compete have that option also. So I 
think there is a role for the Federal Government there. I think 
there is a role for the Federal Government to establish the 
mechanisms to open those up, but I do think that as time 
passes, and as the industry converges, that the role of the 
Federal Government and the FCC, it will not be needed to manage 
that, because as the customers have more and more choice, then 
it won't be needed as much.
    Mr. Markey. At the point at which that has happened, where 
it is actually open and there is complete access?
    Mr. Lafferty. Correct.
    Mr. Markey. Yes, I agree with that.
    Thank you, Mr. Chairman.
    Mr. Tauzin. Thank you, Mr. Markey. The vice chairman of the 
committee, Mr. Oxley, for a round of questions.
    Mr. Oxley. Thank you, Mr. Chairman.
    Just to follow up on what my friend from Massachusetts had 
raised in terms of the telcos getting into cable, I was 
recently home and visited a small town telephone company which 
is Wapakoneta, Ohio, that now has full and robust cable 
competition in that community against the incumbent cable 
operator, and is now expanding into other communities in that 
area. They provide 70 channels at about $26 a month with state-
of-the-art equipment. It is quite impressive.
    As Mr. Markey said also, Ameritech is providing cable 
competition in Columbus and some other communities in Ohio. So 
I think it is starting to happen. Indeed, as Mr. Lafferty said, 
as convergence takes place, we will fully expect that that will 
continue to be the case.
    In the case of cable, I know in Long Island the incumbent 
cable company there is already beginning to provide telco 
service, and you are starting to see more and more of that. I 
think we are really perhaps a bit impatient, but, indeed, I 
think the fact is that, with the technology and the changing 
marketplace and consumer demand, clearly, we can look forward 
to more, and not less, of that.
    I want to ask Mr. Rowe, in your testimony you talk about 
the National Regulatory Research Institute at Ohio State, and 
that this group works closely with NARUC on a number of 
telecommunications policy issues. Can you tell us a little bit 
more about how that works and what kind of services they 
provide?
    Mr. Rowe. Sure. NARUC established the National Regulatory 
Research Institute about 26 years ago to support our efforts to 
provide high-quality service both to the industry and to the 
customers. They do research in all of the utility areas. I am 
on the board of directors. In the telecommunications area, they 
have a very active, long-term research agenda, as well as 
working on particular short-term projects.
    For example, the question that Chairman Tauzin asked about 
future regulatory public policy regimes is at the top of their 
research agenda right now. So they are a key part of the work 
that NARUC does to add value to the work of our members.
    Mr. Oxley. So are they essentially a think tank for NARUC?
    Mr. Rowe. That is how we like to think of them, yes.
    Mr. Oxley. Now they are not exclusively, though, with 
NARUC? Or are they?
    Mr. Rowe. NARUC is its primary funding source. Most of 
their work, special projects, the long-term work is for the 
State members. They do also, however, contract to do projects, 
for example, for State legislatures on electric restructuring; 
I think things like that.
    Mr. Oxley. Thank you.
    Ms. Dixon, I am sorry I wasn't here for your testimony, but 
I was noticing your summary of major points, and you say, the 
second point, ``The role of States and the FCC in the 
implementation of the Telecomm Act must be more clearly 
defined. The FCC, with cooperation of State commissions, should 
develop a master plan for the purpose of defining the roles of 
each entity.''
    So are you saying to the Congress we should, in fact, make 
those definitions? Or could that be done through joint 
cooperation between the FCC and the State regulatory bodies?
    Ms. Dixon. In the haste of putting the summary together--we 
were kind of called at the last minute--I think my staff kind 
of converged all the things together. The first thing was there 
should be a master plan. There was no master plan when we 
actually implemented the act. We are not sure exactly, as we 
unfold, what the intent was and what you all were thinking. We 
realize that the roles were not clearly defined. I think that 
is why we ended up in court a couple of times.
    My State commission is a constitutional body. We are 
elected. If you want to challenge us, you take us to court. The 
problem is we send things to the FCC, and they just deny them, 
and that is a bit of a problem. We are closest to the people at 
the State level. We feel economically, and otherwise, we kind 
of know a little bit more about what they need. That is what we 
were talking about. We want to work hand in hand with the FCC. 
We didn't think anybody should kind of be over and under 
anybody else.
    Mr. Oxley. But do you want to put us in the position of 
being the referee or----
    Ms. Dixon. No, I want you to develop a master plan. I want 
all of the entities to come together at a table and develop a 
plan, so we can know what the United States will be like in 
2010, 2020, as we unfold all this new technology, because much 
more is coming. If you think we can't manage what we have now, 
and every day it is being developed--we don't always know what 
is coming; sometimes we know what is coming. But we don't have 
the kind of relation with the FCC to guard against and protect 
the public, get out there and educate it. We just pointed out 
that some commissions are small. Mr. Tauzin, we are one of the 
smallest commissions in the United States, and we have one of 
the biggest jobs to do. And, yes, we do----
    Mr. Tauzin. You produced Governors already. You have got a 
pretty good record.
    Ms. Dixon. Well, we still have a big job, but we do 
electric; we do water; we do tel. We do everything, the same 
commission. We do it all.
    Mr. Markey. Which is the toughest?
    Ms. Dixon. Right now, electric, and we haven't even gotten 
there yet. But just based on telecomm, we know what it is going 
to be like.
    Mr. Oxley. Well, what----
    Ms. Dixon. Okay, I'm sorry.
    Mr. Oxley. No, I would just ask if the other commissioners 
would agree with her statement, particularly as it related to 
telco and trying to further define the roles of the State 
commission vis-a-vis the FCC. And if, indeed, you do agree, we 
ought to be doing that. If we didn't do it in the act, should 
we redo it in the act or should it be done in a cooperative 
fashion, as she pointed out?
    Mr. Rolka. Mr. Representative, I am Dave Rolka from 
Pennsylvania. I serve on one of these formal joint boards with 
the FCC. I would respectfully suggest that there is a joint 
role, that some of these problems should be worked out 
together. Perhaps the joint board itself is not the most 
productive way to do that. As Commissioner Rowe has suggested, 
we have sponsored the idea of a conference, a joint conference 
between regulators and legislators, to try to clarify some of 
those things. I think we do need a forum, but if the forum were 
as formalistic as the joint board on which I serve, I am not 
real optimistic that we would actually get where we needed to 
go.
    Mr. Oxley. Thank you. Thank you, Mr. Chairman.
    Mr. Tauzin. Thank you, Mr. Oxley. The gentleman from New 
York, Mr. Engel, for a round of questions.
    Mr. Engel. Thank you, Mr. Chairman.
    Mr. Rolka, you had mentioned--I was interested in your 
testimony--about the FCC mandates distributing new phone 
numbers in blocks of 10,000, talking about 1,000. I get a lot 
of complaints from constituents and others about the whole 
issue, when an area code needs change, whether there ought to 
be an overlay of area codes or split geographical area. I was 
wondering if you, or any of the other commissioners, had 
thoughts on that. It is a minor thing. It is very annoying to a 
lot of people. I just would like to hear your views on it.
    Mr. Rolka. About the only thing I would disagree with what 
you said, sir, is it is not a minor thing.
    The decision to affect our constituents, your constituents, 
with a new code, regardless of whether it is an overlay or a 
split or a boundary revision, is a major economic decision and 
it has far-reaching consequences on a lot of the economy, a lot 
of business entities in particular, the alarms industries--just 
the list goes on and on when you try to figure out the details 
of actually implementing one of those things.
    The way it is structured right now, and the way the 
Telecomm Act specifies, is that all the power and authority 
with respect to those decisions is vested with the FCC. They 
get to make the decision. The States have the dubious 
distinction of deciding amongst the lesser of several evils, 
and the only power that is generically delegated to us is to do 
one of the three things that I just suggested: Move the 
boundary, split, or overlay. Once we have made that 
distinction, then we gain a little bit of authority with 
respect to the implementation, about how the implementation is 
carried out, but not much more than that.
    What I have suggested is that that authority be brought 
down to a little lower level, and that we be vested with some 
more authority, certainly it is necessary that FCC have 
overriding guidelines on how we operate, because you don't want 
to put the numbering system into pandemonium, but we do need 
the authority to do things like 1,000-number pooling, the 
breakdown----
    Mr. Engel. I am sorry, can you say that----
    Mr. Rolka. One-thousand-number pooling. Right now the 
telephone numbers are given out at the rate of 10,000 at a 
time.
    Mr. Engel. And many go to waste?
    Mr. Rolka. Very many go to waste. I made the example 
earlier in my testimony, in response to a question, that in 
Pittsburgh we gave out--Pittsburgh, western Pennsylvania--in 1 
day we gave out 130 of those 10,000 blocks, 1.3 million 
numbers, for an area that has a third that many people in it. 
And already everybody pretty much has a telephone. We have 97 
percent saturation. We need to be able to handle those numbers 
a little bit more efficiently, and we need to be able to do it 
at the local level.
    Mr. Engel. And you right now cannot do that, because the 
FCC must approve?
    Mr. Rolka. Correct.
    Mr. Engel. I am wondering if any of the other commissioners 
would comment on their views about the area codes, in terms of 
an overlay or geographic split, or what is least disruptive?
    Mr. Gillis. We have gone with a geographical split. In the 
State of Washington we have an urbanized region in the Seattle 
metropolitan area. I think we were one of the early States to 
make that split. It was a difficult venture for us, partly 
because of the fact that it imposes a fair burden, particularly 
on small businesses that have to change their letterhead and 
change their numbers. There is a balancing act of making sure 
that there are an adequate amount of numbers available, so that 
the competitive provisions of the act can be fulfilled. We 
don't want to shortchange the amount of numbers that are 
available, but at the same time I generally agree with the need 
to more efficiently manage.
    Mr. Engel. I know the bell has rung, Mr. Chairman, but I 
would just ask one more question.
    Mr. Tauzin. Yes.
    Mr. Engel. Why would there be a need, if the decision is 
made to go to 10 numbers, or an overlay, for someone with the 
same area code to have to dial 10 numbers, not just 7?
    Ms. Dixon. We went with the geographic split in Louisiana. 
Quite frankly, when we did hearings, people did not want to 
dial 10-digit numbers. They were very up in arms. Now it may 
not make much sense, but they didn't want it.
    Mr. Engel. No, I know that.
    Ms. Dixon. And I don't know what the problem is. We tried 
to tell them, you are dialing 10 digits anyway if you are 
dialing a long distance number. They didn't care. Most of the 
impact came from AARP and the seniors. I don't know; I think it 
is a memory thing. They don't like the thought of having to 
dial all of that.
    I know you are punching buttons now, and you are not doing 
the rotary. They don't like it. They don't like change. It is a 
hell of an effort just to get them to a computer.
    Mr. Engel. But why do 10 digits if it is the same--this is 
what I am trying to understand--why do 10 digits----
    Ms. Dixon. Because it is more to remember.
    Mr. Engel. No, I understand that. I am asking the opposite 
question.
    Ms. Dixon. Okay.
    Mr. Engel. In other words, if you are calling someone 
across the street that has the same area code as yours, even 
though there is now a new area code in the system, cannot a 
system be devised where you would still dial seven digits if 
you are calling the same area code?
    Ms. Dixon. Oh, you are asking a technical question. The 
gentleman at the end might be able to help you.
    We don't work for telephone companies. We regulate them.
    Mr. Rolka. The answer is that you reuse the numbers. You 
reuse the basic telephone number when you do an overlay, and 
you need the 10 digits so you can distinguish the fact that I 
have ``7-6-1'' and four other numbers, in fact, but use ``7-6-
1'' again when you lay another area code over the top of it. 
That is why you need 10. Otherwise, you will have two people 
with my number.
    Ms. Dixon. The same number, and that doesn't make sense.
    But, you know, that is a good question. You ought to ask 
industry to try to manipulate that and work on that a little 
bit.
    Mr. Rolka. If we could do less than 10,000 numbers, you 
could preserve the life of seven digits.
    Ms. Dixon. Absolutely.
    Mr. Engel. Right. Let my colleague--maybe he is asking it 
clearer than I am asking it. He understands what I am trying to 
say.
    Mr. Tauzin. If you will yield quick, because I want to 
give--have you got it.
    Mr. Engel. Go ahead. I yield back my time.
    Mr. Tauzin. I remember the seniors told me why they didn't 
like it, but I can't remember.
    Any other member with a question on this side? Mr. Vito 
Fossella of New York.
    Mr. Fossella. Just a quick question--thank you, Mr. 
Chairman--for Mr. Lafferty. Your testimony indicates that RMAS 
reports that you file with the FCC are duplicative with reports 
you provide for the States. Do you have any estimate of how 
much duplication of paperwork exists between the Federal and 
State level, and how much this costs your company? Second, do 
you have estimates of cost of regulations on your company, what 
amounts specifically to customers ultimately?
    Mr. Lafferty. Yes and no. Our company----
    Mr. Fossella. Okay, thank you.
    Mr. Lafferty. We have released the study--and, actually, I 
believe that it is being made available to the members of this 
committee--that shows that our company spends over $23 per 
customer to comply with State and Federal regulations 
throughout all the territories and the States that we serve. We 
serve in 13 States, as well as, of course, regulated by the 
FCC.
    We have broken that down in total State and total Federal, 
but we have not broken it down to the specific State level. It 
is about $10 million on the Federal side in total that we spend 
and about $12 or $13 million on the State side in total that we 
spend, but I do not have available the specifics for each State 
for that amount.
    Now we have identified several areas of overlap of State 
and Federal regulation, as I pointed out in my written 
testimony and my comments earlier today. As far as the cost 
associated with just the overlap, we have not made that 
determination yet.
    But just one example is the Service Quality Reports alone 
at the FCC will cost us over a million dollars in the next 12 
months to comply and to file and to prepare. That is based on 
the OMB estimates on time, not on some internal estimate. We 
provide basically the same information; the States have the 
authority to regulate the exact same thing.
    Mr. Fossella. Thank you, Mr. Chairman.
    Mr. Tauzin. Let me introduce to you Paul Gillmor, the vice 
chairman of our full committee. Paul is not going to ask a 
question right now, but I want to introduce him to you. He is 
chairing the task force on this side. So if you will continue 
to communicate your thoughts and ideas on how we build this 
partnership and transition into the future, Mr. Gillmor will be 
the point man for our committee on this side; of course, Mr. 
Markey, the ranking member on the Democratic side.
    Again, we thank you for your----
    Ms. Dixon. One quick thing?
    Mr. Tauzin. Irma, yes, please.
    Ms. Dixon. I want you, if you don't mind, the last question 
of the gentleman--Mr. Fossella I think it is--he asked, what 
was the cost of imposing on the companies regulation as it 
relates to handling all the requirements of the States and the 
Feds.
    Mr. Tauzin. Yes.
    Ms. Dixon. Let me point out, I would like you to 
investigate what the cost is on the States to actually handle 
the requirements of the Feds, actually implementing and doing 
what you are asking us to do, staff and cost. We just ask you 
to look at it, because we are doing the best we can.
    And thank you for having us today.
    Mr. Tauzin. That would be good, too.
    Thank you very much. The hearing stands adjourned.
    [Whereupon, at 3:42 p.m., the subcommittee was adjourned.]
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