[Senate Hearing 106-861]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 106-861
 
          FEDERAL COMMUNICATIONS COMMISSION OVERSIGHT HEARING
=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION
                               __________

                              MAY 26, 1999
                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation









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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington             JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi                  Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine              JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri              RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee                BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan            RON WYDEN, Oregon
SAM BROWNBACK, Kansas                MAX CLELAND, Georgia
                       Mark Buse, Staff Director
                  Martha P. Allbright, General Counsel
     Ivan A. Schlager, Democratic Chief Counsel and Staff Director
               Kevin D. Kayes, Democratic General Counsel









                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held May 26, 1999........................................     1
Statement of Senator Brownback...................................    78
    Prepared Statement...........................................    81
Statement of Senator Cleland.....................................   103
Statement of Senator Dorgan......................................    89
Statement of Senator Hollings....................................    76
Statement of Senator Hutchison...................................    84
Statement of Senator Lott........................................    71
    Prepared Statement...........................................    72
Statement of Senator McCain......................................     1
    Prepared Statement...........................................     2
Statement of Senator Rockefeller.................................    86
Statement of Senator Stevens.....................................    91
Statement of Senator Wyden.......................................    82

                               Witnesses

Furchtgott-Roth, Hon. Harold W., Commissioner, Federal 
  Communications Commission......................................    42
    Prepared statement with attachments..........................    44
Kennard, Hon. William E., Chairman, Federal Communications 
  Commission.....................................................     3
    Prepared statement...........................................     5
Ness, Hon. Susan, Commissioner, Federal Communications Commission    32
    Prepared statement with attachment...........................    33
Powell, Hon. Michael K., Commissioner, Federal Communications 
  Commission.....................................................    59
    Prepared statement...........................................    62
Tristani, Hon. Gloria, Commissioner, Federal Communications 
  Commission.....................................................    38
    Prepared statement...........................................    40

                                Appendix

Burns, Hon. Conrad, U.S. Senator from Montana, prepared statement   111
A New federal Communications Commission for the 21st Century, 
  prepared statement with Appendices.............................    17
Gorton, Hon. Slade, U.S. Senator from Washington, prepared 
  statement......................................................   112
Responses to written questions submitted by Hon. Sam Brownback 
  to:
    William E. Kennard...........................................   120
    Susan Ness...................................................   126
    Michael K. Powell............................................   130
    Harold W. Furchtgott-Roth....................................   134
    Gloria Tristani..............................................   123
Responses to written questions submitted by Hon. Conrad Burns to:
    William E. Kennard...........................................   112
    Susan Ness...................................................   124
    Michael K. Powell............................................   129
    Harold W. Furchtgott-Roth....................................   133
    Gloria Tristani..............................................   122
Responses to written questions submitted by Hon. Trent Lott to:
    William E. Kennard...........................................   116
    Susan Ness...................................................   123
    Michael K. Powell............................................   126
    Harold W. Furchtgott-Roth....................................   131
    Gloria Tristani..............................................   121





Responses to written questions submitted by Hon. Olympia J. Snowe 
  to:
    William E. Kennard...........................................   120
    Susan Ness...................................................   126
    Michael K. Powell............................................   131
    Harold W. Furchtgott-Roth....................................   134
    Gloria Tristani..............................................   123
Nghiem, David, President & CEO, USA Wireless, Inc., letter dated 
  May 24, 1999, to Hon. John McCain, Chairman....................   135









          FEDERAL COMMUNICATIONS COMMISSION OVERSIGHT HEARING

                              ----------                              

                        WEDNESDAY, MAY 26, 1999

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:04 p.m. in room 
SR-253, Russell Senate Office Building, Hon. John McCain, 
chairman of the Committee, presiding.
    Staff members assigned to this hearing: Lauren Belvin, 
Republican senior counsel; Paula Ford, Democratic senior 
counsel; and Al Mottur, Democratic counsel.

            OPENING STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    The Chairman. Good morning.
    For the first time since 1990, the Commerce Committee meets 
today to oversee and reauthorize the activities of the Federal 
Communications Commission. I would like to welcome as witnesses 
the five members of the FCC: Chairman William Kennard and 
Commissioners Susan Ness, Gloria Tristani, Michael Powell and 
Harold Furchtgott-Roth and thank them for their attendance 
today.
    I know the Members of the Committee have many questions to 
ask and concerns to express, so I will keep these initial 
comments quite brief.
    Last year Robert Novak called the Federal Communications 
Commission ``the second most powerful bureaucratic entity after 
the Federal Reserve Board,'' and he is right. The FCC is 
responsible for implementing Congressional policy in regulating 
the telecommunications industry, which accounts for over one-
sixth of our country's gross national product and is the 
fastest growing sector of our country's economy.
    Obviously, the FCC's actions have much to do with the 
success that telecommunications companies have in the 
marketplace and as prime movers in our overall economic growth. 
As big an impact as the FCC's actions have on the industry and 
on the economy, however, it is the impact of the FCC's actions 
on the consumer that should be our focus today. The five 
individuals before us play a crucial role in determining the 
availability and affordability of the wired and wireless voice, 
video, and data services that are indispensable to everyday 
life here and around the world.
    For this reason, these five individuals' perspective and 
their judgment are matters of preeminent concern to this 
Committee and to the Congress. Their perspectives and their 
judgment is what we will examine today.
    As my questions will no doubt indicate, I find much that I 
disagree with vigorously. In my view, a majority of this 
Commission places too little confidence in competition and way 
too much in regulation. It tends to ignore the demands of 
making orderly, efficient and fair decisions on the matters 
before it, preferring to pursue issues that are within neither 
their expertise nor their jurisdiction. It has shown a 
distressing tendency towards inconsistent and ad hoc 
decisionmaking and toward picking and choosing which parts of 
the law it will choose to follow.
    In other words, in my view a majority of this Commission 
has shown itself all too susceptible to unpredictable actions, 
delayed decisions, flawed reasoning, and apparent inability or 
unwillingness to follow the law. As surely as these problems 
affect the big industries the FCC regulates, they harm 
individual consumers even more.
    Ted Turner has an excellent philosophy on decisionmaking 
that should apply to the FCC: Lead, follow, or get out of the 
way. To the extent the Committee finds that the Commission is 
unable to lead or unwilling to follow, it is our responsibility 
to make sure it gets out of the way.
    I welcome the witnesses. Mr. Kennard, Chairman Kennard, we 
will begin with you, and we will have the other five--the other 
four Commissioners after you. Please proceed.
    [The prepared statement of Senator McCain follows:]

   Prepared Statement of Hon. John McCain, U.S. Senator from Arizona

    Good morning. For the first time since 1990, the Commerce Committee 
meets today to oversee and reauthorize the activities of the Federal 
Communications Commission.
    I would like to welcome as witnesses the five members of the FCC, 
Chairman William Kennard and Commissioners Susan Ness, Gloria Tristani, 
Michael Powell and Harold Furchtgott-Roth, and thank them for their 
attendance today.
    I know the members of this Committee have many questions to ask and 
concerns to express, so I will keep these initial comments quite brief.
    Last year Robert Novak called the Federal Communications Commission 
``the second most powerful bureaucratic entity after the Federal 
Reserve Board,'' and he's right. The FCC is responsible for 
implementing Congressional policy in regulating the telecommunications 
industry, which accounts for over one-sixth of our country's Gross 
National Product and is the fastest-growing sector of our country's 
economy. Obviously, the FCC's actions have much to do with the success 
that telecommunications companies have in the marketplace and as prime 
movers in our overall economic growth.
    As big an impact as the FCC's actions have on the industry and on 
the economy, however, it's the impact of the FCC's actions on the 
consumer that should be our focus today. The five individuals before us 
play a crucial role in determining the availability and affordability 
of the wired and wireless voice, video, and data services that are 
indispensable to everyday life here and around the world. For this 
reason these five individuals' perspectives, and their judgment, are 
matters of preeminent concern to this Committee and to the Congress. 
Their perspectives, and their judgment, is what we will examine today.
    As my questions will no doubt indicate, I find much that I disagree 
with--vigorously. In my view a majority of this Commission places too 
little confidence in competition and way too much in regulation. It 
tends to ignore the demands of making orderly, efficient, and fair 
decisions on the matters before it, preferring to pursue issues that 
are within neither their expertise nor their jurisdiction. It has shown 
a distressing tendency toward inconsistent and ad hoc decisionmaking, 
and toward picking and choosing which parts of the law it will choose 
to follow.
    In other words, in my view a majority of this Commission has shown 
itself all too susceptible to unpredictable actions, delayed decisions, 
flawed reasoning, and an apparent inability or unwillingness to follow 
the law. As surely as these problems affect the big industries the FCC 
regulates, they harm individual consumers even more.
    Ted Turner has an excellent philosophy on decisionmaking that 
should apply to the FCC--``lead, follow, or get out of the way.'' To 
the extent the Committee finds that the Commission is unable to lead or 
unwilling to follow, it's our responsibility to make sure it gets out 
of the way.

    STATEMENT OF HON. WILLIAM E. KENNARD, CHAIRMAN, FEDERAL 
                   COMMUNICATIONS COMMISSION

    Mr. Kennard. Thank you very much, Mr. Chairman. I 
appreciate the opportunity to appear before you today. I have 
submitted my written testimony for the record and I ask that it 
be submitted in full.
    I wanted to just point out a couple of opening remarks. 
First of all, we meet at an extraordinary time. It is a time, 
as you point out, filled with promise and unlimited potential. 
Technology that was once found only in our science fiction can 
now be found in our desktops, our cars, our pockets. 
Traditional industry boundaries are rapidly disappearing and 
the communications world is converging.
    Already we are seeing glimpses of a future in which phone 
lines will deliver movies, cable lines will carry phone calls, 
and the air waves will carry both.
    Now, some have said that Congress got it wrong in 1996 by 
not foreseeing all of the convergence that is happening and not 
anticipating the medium that undergirds it, the Internet. 
Examining the data, however, I believe the opposite is the 
case. I think that Congress got it right in the 1996 Telecom 
Act. By placing competition at the foundation of our 
communications policy, the members of this committee and of 
this Congress set the stage for the explosive growth of the 
Internet, the digital economy, and the entire communications 
industry.
    I believe you drafted the blueprint that allowed thousands 
of entrepreneurs from across the country to build a 
communications industry for the twenty-first century. I also 
believe that the technical advances unleashed by these 
competitive forces are what is fueling our current economic 
boom, the longest peacetime expansion of our economy in 
history.
    As Federal Reserve Chairman Alan Greenspan noted earlier 
this month, the revolution in how we process and send 
information has made American businesses more efficient and 
responsive to consumer demand, increased productivity without 
inflation, and contributed to a surge in competitive trade. To 
use Chairman Greenspan's words, ``The United States is now an 
oasis of prosperity.''
    I believe that the spring at the center of that oasis is 
the communications sector of our economy. Over the past 3 years 
alone, revenues in the communications sector have grown by $140 
billion, climbing to a revenue level of $500 billion in 1998. 
With these profits, business has expanded and over 200,000 jobs 
have been created over the past 5 years.
    Looking at specific industries, the growth picture is even 
clearer. In the wireless industry, capital investment has more 
than tripled since 1993 for a cumulative total of $50 billion. 
Now almost 70 million Americans have a mobile phone and over 
the past 5 years 40,000 Americans have gone to work in new jobs 
that wireless companies have created.
    We have also seen a lot of robust competition in the long 
distance marketplace. By the end of 1997 there were over 600 
long distance providers competing for customers. We have seen 
interstate long distance calls drop dramatically, as well as 
international calls. In fact, almost 30 billion more minutes in 
long distance international calls were made from 1996 to 1997.
    In the local phone sector, this newly-born competition 
marketplace is growing. In the first quarter of 1999 alone, 
almost a million CLEC access lines were installed and, although 
still in its infancy, the competitive local exchange industry 
is now a sizable telecommunications force. There are now 20 
publicly-traded CLEC's with a total market capitalization of 
$33 billion, compared to 6 CLEC's with a market cap of $1.3 
billion prior to the passage of the 1996 Act.
    It is clear that competition in the marketplace is 
flourishing and we are seeing tremendous growth, and this has 
not been at the expense of the incumbents. On average, RBOC and 
GTE share price was up 45 percent in 1998.
    I am happy to report that over the past 18 months the FCC 
has been focused on its core mission. We have taken definitive 
steps to make sure that this growth continues by hastening the 
transition to a competitive telecommunications marketplace and 
making sure that we do so in a way that remains true to the 
intent of the Act, which is to open markets to competition.
    In the wireless industry, the FCC eliminated the original 
duopoly structure, we pumped more spectrum into the 
marketplace, making the PCS industry possible. Today Americans 
are using more wireless services than ever before and they are 
making those phone calls at costs 40 percent today than it did 
3 years ago.
    In the multi-channel video marketplace, we have made it 
easier for home satellite companies to compete with cable by 
allowing them to take steps to increase their capacity and 
deliver more services to consumers. We set a timetable for 
making sure that consumers can buy settop boxes from anyone 
willing to sell them, not just their cable company, and we 
cleared the way for people to affix antennas and satellite 
dishes on their homes and apartments.
    To promote local phone competition, we have opened the 
local loops, we have made it easier for competitors to get into 
the incumbents' central offices, and we established rules on 
spectrum compatibility so that many competitors can use the 
network to send voice and data.
    The competition unleashed in these traditional sectors also 
brings us closer to another goal of the Act, the deployment of 
advanced broadband services to the American people. By making 
large blocks of spectrum available, by allowing companies to 
use them for any technically feasible service, and by giving 
newcomers access to the essential elements of incumbent phone 
networks, the FCC is setting the stage for a robust competitive 
marketplace within and among sectors of the communications 
industry.
    With convergence has also come consolidation within and 
between industry groups. I fully understand that in a 
competitive world many businesses want to take advantage of 
efficiencies and economies of scale and acquire properties that 
complement their core businesses, and a big part of that 
interest is making sure that competition in telecommunications 
from local service to broadband is not stifled. It is this 
principle that guides me in assessing mergers before the 
Commission.
    In drafting the Telecom Act, Congress reached back to 
values as old as America itself. One of these was choice, the 
belief that, given an array of options, individuals can best 
decide what is best for them. Another was equality of 
opportunity, that every American, no matter where they live in 
our vast country, should have a chance to live up to their full 
promise. That is why, in addition to fostering competition, we 
have worked to bring the Internet into our Nation's schools and 
libraries, we have worked to craft universal service that is 
fair and enduring, to ensure that basic as well as advanced 
telecommunications reach families in rural America from farms 
and small towns to Indian reservations.
    Finally, as old industry boundaries fade away, the FCC 
itself must change. Simply put, the top-down regulatory model 
for the FCC is as out of date for the twenty-first century as 
the rotary phone. We need a new FCC and to that end the FCC is 
preparing a report outlining what we foresee the Commission 
doing as competition takes root and flourishes. Last week we 
held the first of a series of three public forums to get input 
from a number of stakeholders on how the agency can be 
reengineered to better serve the American public in the coming 
century.
    Mr. Chairman, I feel very honored to be entrusted with the 
task of remaking the FCC for the twenty-first century, and I 
know that the FCC staff, my fellow Commissioners, and the 
entire agency are ready for the challenge, and I look forward 
to working with you, with your continued guidance, to promote 
competition, foster continued growth in new technology, and 
bring these opportunities to all Americans.
    Thank you.
    [The prepared statement of Chairman Kennard follows:]

       Prepared Statement of Hon. William E. Kennard, Chairman, 
                   Federal Communications Commission

    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to review with you today the FCC's performance during the 
last eighteen months and how we have fulfilled our statutory 
obligations. Much of our work over the last eighteen months has 
continued to focus on implementing and enforcing the Telecommunications 
Act of 1996. Because so much of that Act was focused on promoting 
competition in local telecommunications services, encouraging 
deployment of advanced services, and deregulating where possible, I 
will focus my remarks today on these subjects.
                                overview
    I am pleased to report that the Act is working: competition is 
growing in a wide range of telecommunications markets--we see increased 
competition among long distance providers and consumers are beginning 
to have competitive choices for many local telecommunications services 
for the first time. The competitive deployment of advanced broadband 
services is spreading rapidly, and we are removing large amounts of 
historical regulation, particularly through the biennial review process 
and the forbearance authority granted in the Act.
    Today, we see tantalizing glimpses of this competitive. deregulated 
future. Many markets, such as wireless and long distance markets are 
quite competitive and many--but not all--of the fundamental 
prerequisites for fully competitive, deregulated local 
telecommunications markets are now in place as the result of 
Congressional mandates in the Act, and the rapid implementation of the 
Act by the FCC and our colleagues in the State Public Utility 
Commissions.
    This is not to say that fully competitive markets are inevitable 
and that we can now declare victory and simply walk away. Vigorous 
enforcement of the fundamental prerequisites for competitive markets 
and active, intelligent dispute resolution will remain necessary for 
some years to come, particularly if we are to avoid the kind of lengthy 
antitrust litigation that plagued the development of long distance 
competition. Indeed, today we are at that very delicate ``tipping 
point'': with just a little more time--and probably a lot more effort--
we'll be ``over the top'' and competition will gain a firm foothold. 
But if we are unable or unwilling to make this effort, the momentum 
toward competitive markets will slow, the balance will tip the other 
way and just as inevitably send us back to 1996 and even 1990.
    The coming year promises to hold breakthroughs in many 
telecommunications markets. The market-opening process in the Act has 
worked in tandem with the incentives and protections of Section 271 of 
the Act. I am encouraged by the progress being made by some of the Bell 
Operating Companies toward meeting the checklist requirements of 
Section 271. I look forward to the day that I can join my fellow 
Commissioners in granting a meritorious application for entry into 
interLATA telecommunications markets and seeing that decision withstand 
judicial scrutiny in the D.C. Circuit.
    I also anticipate substantial developments in the coming year with 
respect to the rapid deployment of advanced telecommunications 
services, including increased deployment in rural areas. In particular, 
broadband services delivered over DSL or cable modems should increase 
dramatically in residential markets throughout the country. Wireless 
competition also will continue to grow, and it is not unreasonable to 
begin looking to the day where wireless telephony services will be 
viewed by some consumers as a substitute for wireline services. We 
should also see increased progress towards open markets 
internationally, and it should be a good year for the development of 
exciting new satellite services.
    In sum, we are on the right track. Our implementation of the 
Congressional framework is working and we will have competitive, 
deregulated telecommunications markets in all sectors of the industry, 
and in all parts of the country, if we stay on course. It will take 
diligence and hard work by the FCC and our partners in the State Public 
Utility Commissions before fully competitive local markets are the 
norm, but I know that the dedicated women and men at the FCC and the 
State Commissions are ready and willing to undertake this hard work. I 
hope that all the members of the Commerce Committee, the Senate and the 
entire Congress will support us in this effort.
          good news: the telecommunications sector is thriving
    By every measure, the telecommunications industry is thriving. One-
fourth of our country's recent economic growth has come from the 
information technology sector. Since the passage of the 
Telecommunications Act, revenues of the communications sector of our 
economy have grown by over $140 billion. For 1998, it is estimated that 
the communications sector of our economy will have revenues in excess 
of $500 billion dollars. The market values of most companies in the 
telecommunications sector have increased substantially, indicating that 
Wall Street anticipates that the overall growth from competition will 
exceed lost market shares. In other words, telecommunications is like a 
rapidly enlarging pie that is big enough for many new participants; it 
is not a ``zero sum'' game.
    This growth has not happened by accident. It is the direct result 
of sound Congressional policies that have been implemented and enforced 
by the FCC and the states. The old regulatory structure guaranteed that 
telecommunications markets would display the attributes of monopoly--
lack of choice, consumer dissatisfaction, delays in deploying new 
services, excessive regulation, and slow growth. As we replace this 
structure with a framework for competitive, deregulated markets and 
begin to change attitudes through vigorous enforcement of the new 
framework, we are experiencing a blossoming in telecommunications that 
touches the lives of almost every American. Now, a growing number of 
American families across this nation have a choice of a vast array of 
high-tech communications services, and those services offer far greater 
capabilities, with far greater quality, and often at lower prices.
    This growth comes not only from established providers but, since 
the passage of the Act, we can now clearly see benefits flowing from 
the new competitors that are emerging as a result of the implementation 
of the Act by the FCC and the states. As barriers to entry have been 
removed and the fundamental rights that are necessary for competitive 
provision of telecommunications have been established, new firms have 
been showing up all over the country to take advantage of the pent-up 
demand for choices, new services, and lower prices. For example, the 
revenues of new local service providers more than doubled in 1997, and 
they increased substantially again in 1998. And this growth has meant 
new jobs for thousands of Americans.
    In the wireless industry, Congress and the FCC have created the 
conditions for substantial growth. The FCC has auctioned off large 
amounts of spectrum, making it possible for new firms to enter markets, 
and we have worked hard to address some of the fundamental conditions 
for vigorous competition, such as interconnection. As a result, annual 
capital investment more than tripled between 1993 and 1998, with more 
than $50 billion of cumulative investment through 1998. Similarly, the 
wireless industry generated almost three times as many jobs last year 
as in 1993. The industry did all this while the cost of service to the 
consumer dropped. A wireless telephone is no longer a luxury for the 
privileged. Instead, with the advances in cellular service, the advent 
of PCS and digital services, and most importantly, increased 
competition--choices of providers offering comparable service--mobile 
telephones are now a common communications tool for over seventy 
million people.
    Together with Congress and the Executive Branch, we have also 
promoted open entry and pro-competitive polices throughout the world, 
ranging from FCC policies to reduce international settlement rates to 
the adoption of the landmark World Trade Organization (WTO) agreement 
on telecommunications services. Together with the growth in our 
domestic markets, these policies will help ensure that companies such 
as AT&T, BellSouth, MCI Worldcom, Ameritech, Sprint, SBC, Bell Atlantic 
and US West have the opportunity to stay among the top twenty 
telecommunications companies, by revenue, worldwide. Similarly, GE 
Americom, Hughes, Loral and PanAmSat are among the top twenty satellite 
service providers, by revenue, worldwide. And US satellite 
manufacturers such as Hughes, Lockheed Martin, Loral, Motorola and 
Orbital Sciences maintain a strong lead in contracting and 
subcontracting satellite systems worldwide.
    I can't finish a summary of the sector without mentioning the 
Internet. It goes without saying that the Internet is booming, creating 
new jobs, new and better means of education and commerce. The Internet 
is a testament to a wise regulatory policy: don't regulate unless there 
is a clearly demonstrable need to do so. The FCC established a ``hands 
off '' policy three decades ago as evidenced by the original Computer 
Inquiry, and I can assure you that the FCC will not regulate Internet 
services. In fact, I believe that the unregulated, highly competitive 
Internet is a useful model for the more traditional telecommunications 
sectors. Of course, the basic legal prerequisites for competitive 
markets such as property rights and laws governing contractual 
relations should be enforced by the appropriate authorities.
    These are just a few examples of how the wise policies adopted by 
Congress and implemented by the FCC and the states have produced a 
telecommunications economy that is thriving, and are doing so in an 
increasingly competitive environment.
                         status of competition
    Let me take a few minutes to give you an idea of how competition is 
evolving, starting with markets for long distance telecommunications 
services. There are now over 600 long distance providers offering 
services, some on their own facilities, some entirely by resale and 
still others by a combination of owned facilities and resale. The 
vibrant competition between these firms has given customers a wide 
range of choices of providers and services, which has made an 
appreciable difference on the prices most consumers pay for long 
distance services. Long distance prices have steadily dropped over the 
past few years. The average cost of domestic interstate long distance 
dropped from 11.8 cents per minute to 10.3 cents per minute from 1996 
to 1997. At the same time, the average rate per minute for an 
international call dropped from $0.70 in 1996 to $0.64 in 1997. 
Consumers have responded to these rate reductions by increasing their 
use of these services. Interstate and international calling increased 
to 500 billion minutes in 1998.
    The wireless industry is surging. Everything that is supposed to be 
up is up, everything that is supposed to be down is down. 
Subscribership is up, jobs are up, investment is up, consumer bills are 
down, and the wait for a license is down. What is important to remember 
is that this surge of the wireless industry followed the elimination of 
the original duopoly structure and the introduction of competition by 
making more spectrum available to more players. In other words, 
Congressional and FCC policies to foster competition have worked for 
consumers' benefit and we expect that our local competition policies 
will bring similar benefits to wireline services.
    The international market is also flourishing. With the adoption and 
implementation of the WTO Agreement countries representing 90% of the 
$600 billion global market for basic telecommunications have pledged to 
open their markets to international competition. We have been 
successful in our negotiation of bi-lateral agreements with other 
governments to permit provision of satellite service in their 
countries, such as Mexico and Argentina. We are also seeing substantial 
progress with international settlement rates as a result of the WTO 
Agreement and FCC decisions such as the International Settlement Rate 
(``Benchmarks'') Order recently affirmed by the D.C. Circuit.
    Domestically, local competition is still nascent, but it is making 
significant strides. The revenues of local service competitors in 1998 
were about $4 billion. It is estimated that new local competitors now 
provide, over their own networks or by reselling incumbent company 
lines and unbundled loops, service to between four and five million 
telephone lines to customers--between two to three percent of the 
nation's total telephone lines.
    Local competitors are taking an increasing share of nationwide 
local service revenues. Local competition is broadening: new 
competitors are reselling incumbent company lines in almost every 
state--and about 40% of the incumbent lines they resell are connected 
to residences; new facilities-based competitors are active in almost 
every state. Local competitors continue to attract investment capital 
and deploy their networks. Industry sources report that 20 publicly-
traded competitive local exchange carriers (CLECs) have a total market 
capitalization of $33 billion-- compared to six such companies with 
$1.3 billion of total market capitalization prior to the 1996 Act. And 
these new competitors are working faster and working smarter. They 
continue to build fiber optic-based networks at a faster rate than 
incumbents.
                 advanced services/broadband deployment
    I would like to speak briefly about the progress in the last three 
years in the area of ``advanced telecommunications capability,'' or 
``broadband'' as it is popularly known.
    What is broadband? It is two-way communications of voice, data and 
images via any technology and, most importantly, at vastly higher 
speeds than most consumers have ever had in their homes. In practical 
terms, broadband will make it possible to change web pages as fast as 
you can flip through the pages of a book; will make possible two-way 
video conferencing in the home so that family members can see each 
other instead of just talking; and can make possible the downloading of 
feature length movies in minutes.
    Broadband can also greatly increase the possibilities of distance 
learning and medical treatment at home; and its potential for persons 
with disabilities--for increased communications via sign language or 
speech reading with the advantage of facial expressions and other 
nuances, and the possibility of text-based Internet pages converted 
into braille--is enormous.
    Section 706 of the 1996 Act, of course, directs the Commission to 
encourage the deployment of broadband to all Americans on a reasonable 
and timely basis. We released a Report in January on our nation's 
progress towards that goal.
    Our Report is just a snapshot taken a few seconds after the 
starting gun of a very long race--we and the runners in that race have 
a long way to go. In our Report, we concluded that advanced 
telecommunications capabilities are being rolled out in this country at 
a rate that outpaces the rollout of previous breakthrough products and 
services in the communications field. So, by this objective measure, we 
are ahead of the curve. On a subjective level, however, I am impatient. 
I want the Internet to go faster and farther for all Americans, and I 
am particularly concerned about deployment in rural areas and inner 
cities. We must ensure that a geometric increase in the deployment of 
advanced services is not accompanied by a geometric increase in the 
urban-rural disparity.
    At this early stage, the signs are encouraging. We see two things, 
in particular.
    First, since the 1996 Act, there has been an enormous amount of 
activity in the broadband area. Investment in broadband facilities has 
been tens of billions of dollars--large sums even by the standards of 
this business. In what is usually the most difficult part of this 
business to enter-- the so-called ``last mile'' to the home--many 
companies are building last miles, or giving serious study to the idea
     Local exchange carriers, both incumbent and competitive, 
are deploying new technology that has reinvigorated the ubiquitous and 
simple copper telephone loops into effective and low-cost broadband 
connections for residential consumers as well as businesses.
     Cable television companies are adding two-way broadband 
capabilities to their networks which are inherently focused on 
residential consumers, including rural and non-urban areas.
     Electrical power utilities, wireless cable companies, 
mobile and fixed radio companies, and many satellite companies are 
building or planning broadband systems--some with revolutionary new 
technologies--to serve residential consumers.
    Second, in terms of residential subscribers who are paying for the 
service, today broadband is on par with, or ahead of, the telephone, 
black-and-white and color television, and cellular service at the same 
stage in their deployment. And according to the cable and telephone 
companies, by the end of this year they will be offering broadband to 
millions of residences.
    As mentioned above, we at the FCC are committed to the greatest 
vigilance in ensuring that broadband services are deployed as rapidly 
as possible in rural areas that have been historically bypassed by 
competition and technological advances. In this regard, I am pleased to 
note that broadband services are being offered to residential consumers 
in a number of small towns and rural areas, which indicates that rural 
areas do not present intractable problems for broadband deployment. 
Rural areas may be targeted especially by satellite companies, which 
already have the highest proportion of their customers for Direct 
Broadcast Satellite television services in rural areas. I would also 
like to thank those Senators who joined with Senators Daschle and 
Dorgan in their letter to me last week. They have made recommendations 
that hold promise for rural America, and I look forward to working with 
them.
    The success of broadband so far is the result of many longstanding 
FCC policies. For example, the FCC has sought to facilitate new 
competition in all phases of the telecommunications business, enforcing 
unbundling requirements so that newcomers have fair access to elements 
of the incumbent networks, and allocating large blocks of spectrum in 
ways that make them useable for any technically feasible service.
    Because this is the very early stage in broadband's deployment, the 
nature of consumer demand is very unclear. Certainly, at present, it 
seems that many companies are entering broadband and offering it at 
consumer-friendly prices, and residential consumers are starting to 
find out about broadband. The market seems to be working and the best 
role for government is to observe, monitor and enforce our long-
standing policies of promoting competition and providing the spectrum 
and access rights that are the building blocks for a competitive 
market.
    telecommunications mergers and acquisitions: reconsolidation or 
                       foundation for the future?
    A strong effort to firmly establish competition in local markets 
and your support of this goal is all the more necessary since the 
telecommunications industry is experiencing a wave of mergers and 
acquisitions. As this Committee is aware, smaller companies are 
``bulking up'' by merging with each other, and major ``name brand'' 
telecommunications companies are also merging with one another as well 
as acquiring smaller companies.
    This activity could portend a reconsolidation of the 
telecommunications industry that prevents competition, to the public's 
detriment, or it could establish a strong foundation for aggressive 
competition and innovation that greatly benefits the public.
    With the stakes so high, when formerly monopolized markets are 
being opened to competition, it is essential that we do as much as we 
can to prevent anything that will retard the development of 
competition. This means lowering entry barriers, ensuring efficient 
interconnection of facilities, and encouraging the development and 
deployment of new technologies. This also means that the Commission 
needs to be particularly careful in evaluating mergers during this time 
of change and uncertainty, because a merger, once consummated, cannot 
easily be broken up. You can't unscramble an egg.
    ``Good'' mergers can spur competition by creating merged entities 
that can compete more aggressively and that can more quickly move into 
previously monopolized markets. If this competition develops, it will 
make it possible to substantially deregulate the local exchange 
markets, just as strong competition justified the substantial 
deregulation of the long distance and wireless markets. Similarly, a 
vertical merger between two firms that do not appear to be likely 
significant competitors in each other's markets may generate public 
benefits without imposing anticompetitive costs.
    But ``bad'' mergers are likely to slow the development of 
competition. Among the anticompetitive harms arising from a ``bad'' 
merger are: eliminating firms that would have entered markets; raising 
barriers to entry; discouraging investment; increasing the ability of 
the merged entity to engage In anticompetitive conduct; and making it 
more difficult for the Commission and State Public Utility Commissions 
to monitor and implement procompetitive policies. What makes evaluation 
of telecommunications mergers so difficult is that regulatory barriers 
to entry have, until recently, prevented many of these companies from 
competing with each other. Accordingly, it is not enough to simply 
consider whether existing rivalry between the firms would suffer, which 
is the focus of most traditional antitrust merger analysis. Rather, one 
must consider whether, but for the merger, the companies would have 
entered each other's markets and spurred the development of competition 
in formerly monopolized markets.
    In this time of great change and uncertainty, the FCC needs to be 
particularly vigilant to prevent any developments, including mergers, 
to slow the development of competition. That is why the FCC and, in 
some cases, State Public Utility Commissions, need to apply their 
unique knowledge, expertise and judgment in reviewing proposed mergers 
and acquisitions.
    In essence, there are three points to be asked regarding mergers:
    Do we want a cartel or competition? The Department of Justice 
typically evaluates competition that currently exists and, under 
existing antitrust precedent, it faces obstacles to challenging mergers 
between companies that do not currently compete. In contrast, the FCC 
is charged with creating the conditions for competition called for by 
the 1996 Act.
    Second, a merger, left un-reviewed by FCC, could violate the 
Communications Act. The FCC must enforce the telecommunications laws 
and ensure compliance with the Communications Act.
    Finally, we always use the same standard--the public interest test. 
Moreover, we always use an open and transparent process that is fully 
consistent with the Administrative Procedure Act. All interested 
parties, including the applicants and members of the public. must have 
the opportunity to participate and be heard. The FCC also must respond 
to the concerns raised in the record and explain its decision in 
writing in its order, which may be reviewed by the appellate courts.
                     barriers to competition remain
    Some of the most crucial prerequisites for local competition take a 
considerable period of time to put in place, even under the best of 
circumstances. Unfortunately, but not surprisingly, the availability of 
some of the most important prerequisites have been delayed, sometimes 
through litigation, sometimes through the intransigence of parties that 
are threatened by competition, and sometimes through the sheer scale 
and complexity of the task.
    This latter factor--the sheer complexity of the task--cannot be 
ignored: the development of local exchange competition is simply an 
order of magnitude more complicated, more labor-intensive and more 
capital-intensive than was the development of long distance 
competition.
    While the industry players actually have to do the work, regulators 
can play a critical role by getting the players together, insisting 
that a solution be found, setting standards and deadlines, and 
resolving implementation disputes. For example, by facilitating the 
development of the technical solution and establishing a clear 
implementation schedule for Local Number Portability, the FCC played a 
catalytic role in eliminating one complex technical barrier to 
competition.
    Although some amount of litigation is inevitable, the Supreme 
Court's recent reaffirmation of the FCC's fundamental responsibility to 
implement the Act has removed considerable uncertainty that may have 
been slowing the development of local competition. Another major 
barrier to local competition will fall as soon as the FCC is able to 
complete the determination later this year of what network elements 
should be unbundled--in accordance with the Supreme Court's remand.
    To keep markets open and the competitive momentum going, the FCC 
will act as the liaison between the incumbent LECs and the CLECs to 
minimize disputes and avoid lengthy proceedings and litigation. Where 
the FCC's intervention cannot quickly resolve interconnection problems 
informally, we are using our ``rocket docket'' to adjudicate these 
disagreements quickly, and to keep the market functioning smoothly.
               universal service and access charge reform
    Another area that has direct implications for the state of 
competition in the local market is our system of universal service 
subsidies and our interrelated access charge system. The Commission is 
currently engaged in a monumental undertaking which is known as 
universal service reform. The efforts Congress undertook to make 
universal service a part of the Telecommunications Act of 1996 were 
Herculean. We are working to ensure that our reformation of the 
universal service mechanisms embrace the vision you had when you passed 
legislation codifying universal service. In fact, tomorrow the 
Commission will take yet another step toward the reforms we need to 
make in order to accomplish the goals you established.
    As we move forward with universal service reform, we must be 
vigilant to balance caution and ambition. Our goal, like yours, is to 
ensure we satisfy the Telecommunications Act's clear policy of ensuring 
the availability of affordable phone service to consumers in all 
regions of the nation. Overzealousness or inaction could undermine this 
very clear policy goal. As you know, the FCC adopted a forward looking 
cost model last fall. Tomorrow I will recommend that my colleagues 
adopt an order and a further notice on the Federal State Joint Board 
recommendations and a further notice on the elements or ``inputs'' to 
be used within the model. I will urge my fellow commissioners to adopt 
many of the recommendations of the Federal State Joint Board, and put 
out for comment those recommendations that require further discussion 
among interested parties. I will also recommend that we look for 
comment on the actual inputs we will use in the cost model in order to 
implement the new universal service mechanism that is specific, 
predictable and sufficient. We are working diligently to adopt a final 
mechanism for the non-rural companies in September, for implementation 
in January 2000.
    Recognizing that access to technology is essential for future jobs 
and an important step necessary to close the digital divide. I have 
also consistently advocated the Congressionally-created universal 
service support for service to classrooms and libraries--the so-called 
E-rate. Under my tenure, the Commission finalized implementation of the 
E-rate and prioritized assistance so that the most needy would receive 
the biggest benefit. Moreover, the Commission ensured that strong 
program controls were in place. According to one study, 87% of 
Americans support the e-rate. This past year, 32,000 school districts, 
schools, and libraries from across the nation submitted applications 
for E-rate funding. At tomorrow's Commission meeting, I will be 
recommending that we fully-fund the E-rate program so that we can meet 
this demand and continue the work we've done this past year. With this 
funding, we'll be able to connect one-third of public schools 
throughout rural America. We look forward to working with you as we 
bring your vision of a reformed universal service mechanism to 
fruition.
                          consumer initiatives
    Throughout my tenure, I have sought to stress the importance of 
promoting competition while making sure it is not at the expense of 
consumers. Towards this end, we have taken a number of steps to ensure 
that consumers receive the benefits of the communications revolution.
     We have adopted Truth in Billing rules, to ensure that 
phone bills are clear and easy to read and that no service charges are 
``crammed'' onto the bills of consumers who didn't order or understand. 
These new rules require that bills be clear and understandable; new 
charges be highlighted; all charges have clear explanations about what 
they are and who to contact if there is a problem; and the bills state 
clearly which charges, if not paid, will result in termination of 
service.
     We now offer on the FCC's own website a ``Parents, Kids, 
and Communications Page.'' This site gives parents easy-to-understand 
information on some of the tools available to them when their children 
navigate the Internet and other media. We have included information on 
a whole range of filtering software, information on how to block 1-900 
calls, information on how to get a cable `lock-box' to block out 
certain channels, and an explanation of the TV ratings system and the 
V-chip.
     The FCC recently adopted tough new rules to take the 
profit out of slamming altogether. In 1998, the Commission also 
assessed or proposed more than $15 million in fines for ``slamming'' 
violations and now is consistently proposing slamming fines of over $1 
million. Unfortunately, once again litigation is inhibiting our ability 
to enforce these new rules. In addition, for the first time ever, we 
revoked a carrier's license to provide interstate services because of 
slamming abuses. We also brokered and endorsed industry-developed 
guidelines to stop ``cramming'' that have significantly reduced the 
number of cramming complaints and issued rules to protect consumer 
privacy concerning the use and disclosure of personal information to 
marketers.
     At our Commission Agenda meeting just two weeks ago, we 
adopted rules that will improve the ability of cellular phone users to 
complete wireless 911 calls. This will improve the security and safety 
of analog cellular users, especially in rural and suburban areas. The 
Commission approved three mechanisms for use by the cellular industry, 
any of which will result in more wireless 911 calls being completed 
than occurs today. We also took steps to improve consumer choice and 
foster competition regarding the commercial availability of navigation 
devices (e.g. cable television set-top boxes).
     We recently ordered long distance carriers to publicly 
post their rates on the Internet, in an easy-to-understand, clear 
format, permitting millions of Americans on-line to find out easily 
about long-distance rates. Newspapers and consumer groups will be able 
to make this information available to those not yet on-line. This 
action will make it easier for consumers to obtain information to help 
select the long distance plan that best suits their individual needs, 
once underlying litigation about our decision to require detariffing is 
resolved.
     We also are taking steps to ensure that the fifty-four 
million people with disabilities are not left out of the communications 
revolution. We have also strengthened closed captioning rules so that 
persons who are deaf or hard-of-hearing will have access to more 
programs on television; proposed new rules for telecommunications relay 
services and proposed to require the provision of speech-to-speech 
relay service; advocated that industry provide solutions to the problem 
of compatibility between digital wireless phones and TTYs; proposed 
rules to make telecommunications services and equipment accessible to 
persons with disabilities; and are also working with the Architectural 
and Transportation Barriers Compliance Board to propose rules on 
accessibility requirements for federal agencies when they use or 
purchase electronic and information technology.
                 a new fcc for the twenty-first century
    l am submitting as part of my testimony today a report entitled ``A 
New Federal Communications Commission for the Twenty-First Century.'' 
The Report describes the communications marketplace--past, present, and 
future--and the implications of those changes for the FCC's structure 
and regulatory framework. It is part of a continuing process of self-
assessment that the Commission has been engaging in to transform itself 
to meet the challenges of an information-age economy and an ever-
changing communications industry. This process of dramatic evolution at 
the FCC is required by the changes wrought in the Telecommunications 
Act of 1996, and it is consistent with the approach taken in the Act. 
The Act was evolutionary instead of revolutionary: rather than 
discarding the old regulatory framework at once, which would have been 
highly disruptive and fraught with uncertainty, Congress created a new 
``pro-competitive, de-regulatory policy framework'' while explicitly 
preserving the existing regulatory framework and directing the FCC to 
forbear from the old regulations as competition developed. Nonetheless, 
the pace and magnitude of change set in motion by the 1996 Act is truly 
breathtaking.
    My vision for a ``New FCC'' is a bold one--the FCC should change 
dramatically over the next five years. The FCC must undergo truly 
significant change to match the rapid evolution in markets set in 
motion by the 1996 Act. In a world of fully competitive communications 
markets, the FCC should focus only on those core functions that are not 
normally addressed by market forces. These core functions should 
revolve around: (i) universal service, consumer protection and 
information; (ii) enforcement and promotion of pro-competition goals 
domestically and worldwide: and (iii) spectrum management.
    The steps we are taking to transition to this model include: (1) 
Restructuring: We are consolidating currently dispersed enforcement 
functions into an Enforcement Bureau, and currently dispersed public 
information functions into an Information Bureau. The consolidation of 
these two key functions will improve efficiency and enhance the 
delivery of these services to the general public and to industry. (2) 
Streamlining and Automation: We are investing in new technology to 
create a ``paperless FCC'' by processing applications and licenses 
faster, cheaper, and in a more consumer friendly way through electronic 
filing and universal licensing. (3) Deregulation: We are completing 32 
deregulation proceedings covering hundreds of rules as a result of our 
1998 Biennial Review of regulations, and intend for the 2000 Biennial 
Review to produce even more deregulatory actions. (4) Strategic Plan: 
We are conducting three public forums with industry, consumer groups, 
state and local governments, and academic experts to solicit input on 
what the FCC's role should be in the Twenty-First Century, how we 
should be structured, and how we can work more efficiently and 
effectively to deliver services to the public. We have also established 
an e-mail site, ``[email protected]'' to receive additional input from the 
public on the above questions. The result of this effort will be a 
draft Strategic Plan covering a five-year period which we will submit 
to Congress in July 1999 for its review, and on which we will seek 
additional public comment.
                               conclusion
    We have come a long way towards a more competitive market place in 
communications, but we have much more work to do. The transition from 
monopoly regulation to open markets, from today's technologies to 
tomorrow's breakthroughs, is not yet complete. For the coming year our 
agenda is clear: promote competition, foster new technologies, protect 
consumers, and ensure that all Americans have access to the 
communications revolution.
    These will be the goals that guide us as we implement the Supreme 
Court's instructions on UNEs, as we continue opening local phone 
markets, as we work to make communications available to all Americans, 
as we review the mergers now before the Commission as well as those we 
may receive.
    The agenda for this year continues on the foundation laid last 
year: competition, community, common sense. We have a lot of work to 
do, and we have the will to do it well.
     We will promote competition in all sectors of the 
marketplace. We will reform access charges, and ensure that proposed 
mergers are pro-competitive and benefit consumers.
     We will continue to deregulate as competition develops, 
eliminating any unnecessary regulatory burdens, reducing reporting 
requirements, streamlining rules and our own internal functions.
     We will continue to protect consumers from unscrupulous 
competitors, and give customers the information they need to make wise 
choices in a robust and competitive marketplace. We will continue our 
policy of ``zero tolerance'' for those competitors who would rather 
cheat than compete.
     We will work to ensure that the Act's provisions on RBOC 
entry into the long distance marketplace are implemented in a manner 
that promotes competition and consumer welfare and is fair to all of 
the parties.
     We will ensure broad access to communications services and 
technologies for all Americans, no matter where they live. We will 
complete universal service reforms, continue oversight of the schools 
and libraries and rural health care universal service programs, 
encourage accessibility of emergency information via closed-captioning 
and video description, and ensure that the 54 million Americans with 
disabilities can use and have access to the communications network.
     We will foster innovation, working to ensure that America 
remains the world's leader in innovation. We will continue to promote 
the development and deployment of high speed Internet access, promote 
compatibility of digital video technologies with existing equipment and 
services, and promote competitive alternatives to cable and broadcast 
TV.
     Finally, we will advance these concepts worldwide, serving 
as an example and advocate of telecommunications competition worldwide. 
We will work to encourage the development of international standards 
for global interconnectivity, work to promote the fair use of spectrum 
through the WRC 2000, work on the worldwide adoption of the WTO 
Agreement for Basic Telecommunications, and aggressively enforce the 
FCC's International Settlement Rate (``Benchmark'') Order to reduce 
rates for international calls. We will continue to assist other nations 
in establishing conditions for deregulation, competition, and increased 
private investment in their telecommunications infrastructure so that 
they too, can share in the promise of the Information Age, and become 
our trading partners.
    This is an important and dynamic time in the history of 
telecommunications policy. I look forward to continuing to work with 
this Committee and other members of Congress so that the decisions we 
make today ensure that all Americans--irrespective of where they live, 
their race, their age, or their special needs--can share in the promise 
of the Information Age.
    Thank You. I look forward to answering any questions you may have.

    
    

    
    
    
    

    
    
    
    

    
    
    
    

      A New Federal Communications Commission for The 21st Century

       i. the federal communications commission and the changing 
                       communications marketplace
A. Introduction
    Congress enacted the Communications Act of 1934 to provide for the 
widest dissemination of communications services to the public. Section 
1 of the Communications Act states that the purpose of the Act is to 
``make available * * * to all the people of the United States, without 
discrimination * * * a rapid, efficient, Nation-wide, and world-wide 
wire and radio communication service * * * at reasonable charges.''
    This goal remains vibrant today. What has changed since 1934 is the 
means to gel to this goal. With the passage of the Telecommunications 
Act of 1996 (Telecom Act), Congress recognized that competition should 
be the organizing principle of our communications law and policy and 
should replace micromanagement and monopoly regulation. The wisdom of 
this approach has been proven in the long distance, wireless, and 
customer premises equipment markets, where competition took hold and 
flourished, and consumers receive the benefit of lower prices, greater 
choices, and better service.
    The imperative to make the transition to fully competitive 
communications markets to promote the widest deployment of 
communications services is more important today than ever before. In 
1934, electronic communications for most Americans meant AM radio and a 
telephone, and sending the occasional Western Union telegram. Today, it 
means AM and FM radio, broadcast and cable TV, wireline and wireless 
telephones, faxes, pagers, satellite technology, and the Internet--
services and technologies that are central to our daily lives. 
Communications technology is increasingly defining how Americans 
individually, and collectively as a nation, will be competitive into 
the next century. It is increasingly defining the potential of every 
American child. So the goal of bringing communications services quickly 
to all Americans, without discrimination, at reasonable charges, 
continues to be of paramount importance. Competition is the best way to 
achieve this goal, while continuing to preserve and protect universal 
service and consumer protection goals.
    To accomplish this goal, our vision for the future of 
communications must be a bold one. We must expect that in five years, 
there can be fully competitive domestic communications markets with 
minimal or no regulation, including total deregulation of all rate 
regulation in competitive telephone services. In such a vibrant, 
competitive communications marketplace, the Federal Communications 
Commission (FCC) would focus only on those core functions that cannot 
be accomplished by normal market forces. We believe those core 
functions would revolve around universal service, consumer protection 
and information; enforcement and promotion of pro-competition goals 
domestically and internationally; and spectrum management. As a result, 
the traditional boundaries separating the FCC's current operating 
bureaus should no longer be relevant. In five years, the FCC should be 
dramatically changed.
    We are working to transition the FCC to that model--based on core 
functions in a competitive communications market--now. We are writing 
the blueprint for it, beginning with this report describing the steps 
we are already taking. After receiving input from our key stakeholders, 
we plan to develop this report into a five-year Strategic Plan which 
will outline precisely our objectives and timetable year by year for 
achieving our restructuring, streamlining, and deregulatory objectives. 
We must work with Congress, state and local governments, industry, 
consumer groups, and others to ensure that we are on the right track, 
and that we have the right tools to achieve our vision of a fully 
competitive communications marketplace.
B. The State of the Industry
    In the Telecom Act, Congress directed the FCC to play a key role in 
creating and implementing fair rules for this new era of competition. 
Over the course of the past three years, the FCC has worked closely 
with Congress, the states, industry, and consumers on numerous 
proceedings to fulfill the mandates of the Telecom Act.
    By many accounts, the Telecom Act is working. Many of the 
fundamental] prerequisites for a fully competitive communications 
industry are now in place, competitive deployment of advanced broadband 
services is underway, and the stage is set for continued deregulation 
as competition expands.
    Furthermore, by many measures, the communications industry is 
thriving. Since the passage of the Telecom Act, revenues of the 
communications sector of our economy have grown by over $100 billion. 
This growth comes not only from established providers, but also from 
new competitors, spurred by the market-opening provisions of the 
Telecom Act. (See Appendix A, Charts 1 and 2) This growth has meant new 
jobs for thousands of Americans.
    In the wireless industry, capital investment has more than tripled 
since 1993, with more than $50 billion of cumulative investment through 
1998. Mobile phones are now a common tool for over 60 million people 
every day, and the wireless industry has generated almost three times 
as many jobs as in 1993. (See Appendix A, Chart 3)
    Consumers are beginning to benefit from the thriving communications 
sector through price reductions not only of wireless calls, but also of 
long distance and international calls. (See Appendix A, Charts 4 and 5) 
Consumers are also beginning to enjoy more video entertainment choices 
through direct broadcast satellites, which are becoming viable 
alternatives to cable. We are also at the dawn of digital TV, which 
offers exciting new benefits for consumers in terms of higher quality 
pictures and sound and innovative services. (See Appendix A, Charts 6 
and 7) As we enter this digital age, broadcast TV and radio is still 
healthy, ubiquitous, and providing free, local news, entertainment, and 
information to millions of Americans across the country,
    Beyond the traditional communications industries, the Internet has 
truly revolutionized all of our lives. According to a recent study, at 
least 38% of American adults (79.4 million) already are online and 
another 18.8 million are expected to go online in the next year. In 
1998, 26% of retailers had a website, over three times the number in 
1996, and it is estimated that they generated over $10 billion in 
sales. On-line sales for 1999 are projected to be anywhere from $12 to 
$18 billion.
    Communications markets are also becoming increasingly globalized as 
the Telecom Act's procompetitive policies are being emulated around the 
world. Other countries are modeling their new telecommunications 
authorities after the FCC. As other countries open their communications 
markets and increase their productivity, new services and business 
opportunities are created for U.S. consumers and companies, as well as 
for consumers and companies worldwide.
C. Communications in the 21st Century
    Even more change is expected in the telecommunications marketplace 
of tomorrow. In the new millennium, millions of consumers and 
businesses will be able to choose from a range of services and 
technologies vastly different from those available today. Packet-
switched networks, running on advanced fiber optics and using open 
Internet Protocols to support seamless interconnection to transport 
immense amounts of information, will be ubiquitous. Millions of homes 
and businesses will be linked to this ``network of networks'' through 
``always on'' broadband connections. Outside the wired confines of the 
home or office, ``third generation'' wireless technologies will provide 
high-speed access wherever a consumer may be. Satellite technology will 
increase the ability to transfer data and voice around the world and 
into every home.
    Electronic commerce will play an even more central role in the 
economy of the 21st Century. Americans in the next century will be 
connected throughout the day and evening, relying on advanced 
technologies not only to communicate with others, but also as a vital 
tool for performing daily tasks (such as shopping or banking), for 
interacting with government and other institutions (such as voting, tax 
filing, health, and education), and for entertainment (such as video, 
audio, and interactive games).
    In the marketplace of tomorrow, it is expected that traditional 
industry structures will cease to exist. The ``local exchange'' and 
``long distance'' telephone markets will no longer be distinct industry 
segments. Video and audio programming will be delivered by many 
different transmission media. In a world of ``always on'' broadband 
telecommunications, narrow-band applications--such as our everyday 
phone calls--will represent just a tiny fraction of daily traffic. 
Cable operators, satellite companies, and even broadcast television 
stations will compete with today's phone companies in the race to 
provide consumers a vast array of communications services. In addition, 
telephone and utility companies may be offering video and audio 
programming on a wide-scale basis. As cross-industry mergers, joint 
ventures, and promotional agreements are formed to meet users' demand. 
the traditional distinctions between these industry segments will blur 
and erode.
D. Impact of Industry Convergence
    Convergence across communications industries is already taking 
place, and is likely to accelerate as competition develops further. 
Thus, in addition to refocusing our resources on our core functions for 
a world of fully competitive communications markets, the FCC must also 
assess, with the help of Congress and others, how to streamline and 
consolidate our policymaking functions for a future where convergence 
has blurred traditional regulatory definitions and jurisdictional 
boundaries.
    The issues involved in thinking about convergence and consolidation 
are complex. Prior to the Telecom Act, the core of the Communications 
Act was actually three separate statutes: it incorporated portions of 
the 1887 Interstate Commerce Act (governing telephony), the 1927 
Federal Radio Act (governing broadcasting), and the 1984 Cable 
Communications Policy Act (governing cable television). Telephony is 
regulated one way, cable a second, terrestrial broadcast a third, 
satellite broadcast a fourth. As the historical, technological, and 
market boundaries distinguishing these industries blur, the statutory 
differences make less and less sense. Maintaining them will likely 
result in inefficient rules that stifle promising innovation and 
increase opportunities for regulatory arbitrage.
    Some argue for developing regulatory principles that cut across 
traditional industry boundaries. For example, the policies of 
interconnection, equal access, and open architecture have served 
consumers well in the wireline context, a traditionally regulated 
industry. Similarly, concepts of connectivity, interoperability, and 
openness are the lifeblood of the Internet, an unregulated industry. 
While these similar principles appear to cut across these different 
media, it is unclear whether and how the government should be involved, 
if at all, in applying these principles in a world where competition 
will largely replace regulation.
    At the very least, as competition develops across what had been 
distinct industries, we should level the regulatory playing field by 
leveling regulation down to the least burdensome level necessary to 
protect the public interest. Our guiding principle should be to presume 
that new entrants and competitors should not be subjected to legacy 
regulation. This is not to say that different media, with different 
technologies, must be regulated identically. Rather, we need to make 
sure that the rules for different forms of media delivery, while 
respecting differences in technology, reflect a coherent and sensible 
overall approach. To the extent we cannot do that within the confines 
of the existing statute, we need to work with Congress and others to 
reform the statute.
              ii. the 21st century: a new role for the fcc
A. The Transition Period
    As history has shown, markets that have been highly monopolistic do 
not naturally become competitive. Strong incumbents still retain 
significant power in their traditional markets and have significant 
financial incentives to delay the arrival of competition. Strong and 
enforceable rules are needed initially so that new entrants have a 
chance to compete. At the same time, historical subsidy mechanisms for 
telecommunications services must be reformed to eliminate arbitrage 
opportunities by both incumbents and new entrants.
    The technologies needed for the telecommunications marketplace of 
the future are still evolving, and developing them fully requires 
significant time and investment. Moreover, there is no guarantee that 
market forces will dictate that these new technologies will be 
universally deployed. The massive fixed-cost investments required in 
some industries will mean that new technologies initially will be 
targeted primarily at businesses and higher-income households. Even as 
deployment expands, the economics of these new networks may favor heavy 
users over lighter users, and in some areas of the country deployment 
may lag behind.
    At the same time, consumer preferences will not change overnight. 
The expansion of communications choices is already leading to greater 
consumer confusion. Especially in a world of robust competition, 
consumers will need clear and accurate information about their choices, 
guarantees of basic privacy, and swift action if any company cheats 
rather than competes for their business.
    While the opportunities for the United States and the world of a 
global village are enormous, they can only be realized if other 
countries follow our lead in fostering competition in national and 
world markets. People all over the world benefit as more countries 
enter the Information Age and become trading partners. Thus, as we 
continue on our own course of bringing competition to former domestic 
monopoly markets, we must also continue to promote open and competitive 
markets worldwide.
    In sum, although the long-term future of the telecommunications 
marketplace looks bright, the length and difficulty of the transition 
to that future is far from certain. To achieve the goal of fully 
competitive communications markets in five years, we must continue to 
work to ensure that all consumers have a choice of local telephone 
carriers and broadband service providers, and that companies are 
effectively deterred from unscrupulous behavior. We must also continue 
to promote competition between different media, promote the transition 
to digital technology, and continue to ensure that all Americans have a 
wide and robust variety of entertainment and information sources.
B. The FCC's Role During the Transition to Competition
    During the transition to fully competitive communications markets, 
the FCC, working in conjunction with the states, Congress, other 
federal agencies, industry, and consumer groups, has six critical 
goals, all derived from the Communications Act and other applicable 
statutes:
    Promote Competition: Goal number one is to promote competition 
throughout the communications industry, particularly in the area of 
local telephony. The benefits of competition are well documented in 
many communications sectors--long distance, wireless, customer-premises 
equipment, and information services. The benefits of local telephone 
competition are accruing at this time to large and small companies, but 
not, for the most part, to residential consumers. We must work to 
ensure that all communications markets are open, so that all consumers 
can enjoy the benefits of competition.
    To meet this goal, we must continue our efforts to clarify the 
provisions of the Telecom Act relating to interconnection and unbundled 
network elements, work with the Bell Operating Companies (BOCs), their 
competitors, states and consumer groups on meeting the requirements of 
the statute related to BOC entry into the long distance market, reform 
access charges, and, as required by Sections 214 and 310(d) of the 
Communications Act and section 7 of the Clayton Act, continue to review 
mergers of telecommunications companies that raise significant public 
interest issues related to competition and consumers.
    In the mass media area, we must continue the pro-competitive 
deployment of new technologies, such as digital television and direct 
broadcast satellites, and the maintenance of robust competition in the 
marketplace of ideas. To meet these goals, we must continue rapid 
deployment of new technologies and services and regular oversight of 
the structure of local markets to ensure multiple voices, all the while 
updating our rules to keep pace with the ever-changing mass media 
marketplace.
    Deregulate: Our second goal is to deregulate as competition 
develops. Consumers ultimately pay the cost of unnecessary regulation, 
and we are committed to aggressively eliminating unnecessarily 
regulatory burdens or delays. We want to eliminate reporting and 
accounting requirements that no longer are necessary to serve the 
public interest. Also, where competition is thriving, we intend to 
increase flexibility in the pricing of access services. We have already 
deregulated the domestic, long distance market as a result of increased 
competition, and we stand ready to do so for other communications 
markets as competition develops. We have also streamlined our rules and 
privatized some of the functions involved in the certification of 
telephones and other equipment. We are currently streamlining and 
automating our processes to issue licenses faster, resolve complaints 
quicker, and be more responsive to competitors and consumers in the 
marketplace.
    Protect Consumers: Our third goal is to empower consumers with the 
information they need to make wise choices in a robust and competitive 
marketplace, and to protect them from unscrupulous competitors. 
Consumer bills must be truthful, clear, and understandable. We will 
have ``zero tolerance'' for perpetrators of consumer fraud such as 
slamming and cramming. We will make it easier for consumers to file 
complaints by phone or over the Internet, and reduce by 50 percent the 
time needed to process complaints. Further, we will remain vigilant in 
protecting consumer privacy. We will also continue to carry out our 
statutory mandates aimed at protecting the welfare of children, such as 
the laws governing obscene and indecent programming.
    Bring Communications Services and Technology to Every American: Our 
fourth goal is to ensure that all Americans--no matter where they live, 
what they look like, what their age, or what special needs they have--
should have access to new technologies created by the communications 
revolution. Toward this end, we must complete universal service reform 
to ensure that communications services in high-cost areas of the nation 
are both available and affordable. We must also ensure that our support 
mechanisms and other tools to achieve universal service are compatible 
and consistent with competition. We must evaluate--and if necessary, 
improve--our support mechanisms for low-income consumers, and in 
particular Native Americans, whose telephone penetration rates are some 
of the lowest in the country. We must make certain that the support 
mechanisms for schools, libraries, and rural health care providers 
operate efficiently and effectively. We must make sure that the 54 
million Americans with disabilities have access to communications 
networks, new technologies and services, and news and entertainment 
programming.
    Foster Innovation: Our fifth goal is to foster innovation. We will 
promote the development and deployment of high-speed Internet 
connections to all Americans. That means clearing regulatory hurdles so 
that innovation--and new markets--can flourish. We must continue to 
promote the compatibility of digital video technologies with existing 
equipment and services. Further, we will continue to encourage the more 
efficient use of the radio spectrum so that new and expanding uses can 
be accommodated within this limited resource. More generally, we will 
continue to promote competitive alternatives in all communications 
markets.
    Advance Competitive Goals Worldwide: Our sixth goal is to advance 
global competition in communications markets. The pro-competitive 
regulatory framework Congress set forth in the Telecom Act is being 
emulated around the world through the World Trade Organization 
Agreement. We will continue to assist other nations in establishing 
conditions for deregulation, competition, and increased private 
investment in their communications infrastructure so that they can 
share in the promise of the Information Age and become our trading 
partners. We must continue to intensify competition at home and create 
growth opportunities for U.S. companies abroad. We will continue to 
promote fair spectrum use by all countries.
C. The FCC's Core Functions in a Competitive Environment
    As we accomplish our transition goals, we set the stage for a 
competitive environment in which communications markets look and 
function like other competitive industries. At that point, the FCC must 
refocus our efforts on those functions that are appropriate for an age 
of competition and convergence. In particular, we must refocus our 
efforts from managing monopolies to addressing issues that will not be 
solved by normal market forces. In a competitive environment, the FCC's 
core functions would focus on:
    Universal Service, Consumer Protection and Information. The FCC 
will continue to have a critical responsibility, as dictated by our 
governing statutes, to support and promote universal service and other 
public interest policies. The shared aspirations and values of the 
American people are not entirely met by market forces. Equal access to 
opportunity as well as to the public sphere are quintessential American 
values upon which the communications sector will have an increasingly 
large impact. We will be expected to continue to monitor the 
competitive landscape on behalf of the public interest and implement 
important policies such as universal service in ways compatible with 
competition.
    In addition, as communications markets become more competitive and 
take on attributes of other competitive markets, the need for increased 
information to consumers and strong consumer protection will increase. 
We must work to ensure that Americans are provided with clear 
information so that they can make sense of new technologies and 
services and choose the ones best for them. We must also continue to 
monitor the marketplace for illegal or questionable market practices.
    Enforcement and Promotion of Pro-Competition Communications Goals 
Domestically and Worldwide. As markets become more competitive, the 
focus of industry regulation will shift from protecting buyers of 
monopoly services to resolving disputes among competitors, whether over 
interconnection terms and conditions, program access, equipment 
compatibility, or technical interference. In the fast-paced world of 
competition, we must be able to respond swiftly and effectively to such 
disputes to ensure that companies do not take advantage of other 
companies or consumers.
    The FCC is a model for other countries of a transparent and 
independent government body establishing and enforcing fair, pro-
competitive rules. This model is critical for continuing to foster fair 
competition domestically as well as to open markets in other countries, 
to the benefit of U.S. consumers and firms and consumers and firms 
worldwide. There always will be government-to-government relations and 
the need to coordinate among nations as communications systems become 
increasingly global. As other nations continue to move from government-
owned monopolies to competitive, privately-owned communications firms, 
they will increasingly look to the FCC's experience for guidance.
    Spectrum Management. The need for setting ground rules for how 
people use the radio spectrum will not disappear. We need to make sure 
adequate spectrum exists to accommodate the rapid growth in existing 
services as well as new applications of this national and international 
resource. Even with new technologies such as software-defined radios 
and ultra-wideband microwave transmission, concerns about interference 
will continue (and perhaps grow) and the need for defining licensees 
and other users' rights will continue to be a critical function of the 
government. We will thus continue to conduct auctions of available 
spectrum to speed introduction of new services. In order to protect the 
safety of life and property, we must also continue to consider public 
safety needs as new spectrum-consuming technologies and techniques are 
deployed.
D. Coordination with State and Local Governments and other Federal 
        Agencies
    In order to fulfill our vision of a fully competitive 
communications marketplace in five years, we need a national, pro-
competitive, pro-consumer communications policy, supplemented by state 
and local government involvement aimed at achieving the same goal. The 
Telecom Act set the groundwork for this goal, and the Commission is 
fulfilling its role of establishing the rules for opening 
communications markets across the country, in partnership with state 
regulators. The Commission must continue to work with state and local 
governments to promote competition and protect consumers. Toward this 
end, we have instituted a Local and State Government Advisory Committee 
to share information and views on many critical communications issues.
    The importance of working and coordinating our efforts in the 
communications arena with other federal agencies will also continue. We 
work particularly closely with the Federal Trade Commission on consumer 
and enforcement issues, and with the Department of Justice on 
competition issues. We also work with other federal agencies on public 
safety, disability, Y2K, reliability, and spectrum issues, just to name 
a few. We see our role vis-a-vis other federal agencies as cooperative 
and reinforcing, where appropriate.
           iii. the 21st century: a new structure for the fcc
A. The FCC's Evolving Structure
    The FCC must change its structure to match the fast-paced world of 
competition and to meet our evolving goals and functions, as derived 
from our authorizing statutes. Our transition goals must be 
accomplished with minimal regulation or no regulation where appropriate 
in a competitive marketplace. Moreover, a restructured and streamlined 
FCC must be in place once full competition arrives, so that we can 
focus on providing consumers information and protection, enforcing 
competition laws, and spectrum management.
    In sum, we must be structured to react quickly to market 
developments, to work more efficiently in a competitive environment, 
and to focus on bottom-line results for consumers. As competition 
increases, we must place greater reliance on marketplace solutions, 
rather than the traditional regulation of entry, exit, and prices; and 
on surgical intervention rather than complex rules in the case of 
marketplace failure. We must encourage private sector solutions and 
cooperation where appropriate. But we also must quickly and effectively 
take necessary enforcement action to prevent abuses by communications 
companies who would rather cheat than compete for consumers. 
Ultimately, throughout the agency, we must be structured to render 
decisions quickly, predictably, and without imposing unnecessary costs 
on industry or consumers.
B. Current Restructuring Efforts
    The FCC is currently structured along the technology lines of wire, 
wireless satellite, broadcast, and cable communications. As the lines 
between these industries merge and blur as a result of technological 
convergence and the removal of artificial barriers to entry, the FCC 
needs to reorganize itself in a way that recognizes these changes and 
prepares for the future. A reorganization of the agency, over time, 
along functional rather than technology lines will put the FCC in a 
better position to carry out its core responsibilities more 
productively and efficiently.
    As the first step in this process, in October 1998, Chairman 
Kennard announced plans to consolidate currently dispersed enforcement 
functions into a new Enforcement Bureau and currently dispersed public 
information functions into a Public Information Bureau. The 
consolidation of these two key functions that are now spread across the 
agency will improve efficiency and enhance the delivery of these 
services to the general public and to industry. The consolidation of 
these functions will also encourage and foster cooperation between the 
two new bureaus, other bureaus and offices, and state and local 
governments and law enforcement agencies. The end result will be 
improvements in performance of both these functions through an improved 
outreach program, a better educated communications consumer, and a more 
efficient, coherent enforcement program.
    The new Enforcement Bureau will replace the current Compliance and 
Information Bureau and, likewise, the new Public Information Bureau 
will include the current Office of Public Affairs, except for a small 
separate Office of Communications that will be responsible for 
interacting with the news media and for managing the agency's Internet 
website.
    The Commission is also investing in new technology to process 
applications, licenses. and consumer complaints faster, cheaper, and in 
a more consumer friendly way through electronic filing and universal 
licensing. Our goal is to move to a ``paperless FCC'' that will result 
in improved service to the public. Examples of these efforts include 
universal licensing, streamlined application processes, revised and 
simplified licensing forms, blanket authorizations, authorization for 
unlicensed services, and electronic filing of license applications and 
certifications.

                         1. Enforcement Bureau

    Since the Telecom Act was passed, telephone-related complaints have 
increased by almost 100%. In 1996, the Common Carrier Bureau received 
over 28,000 complaints; in 1998, that number increased to over 53,000 
complaints. With the increase in competition, we expect even more 
complaints to be filed as consumers grapple with changes in both 
service options and providers. While we have been implementing 
streamlined, electronic processes to address this burgeoning workload, 
we have also determined that the consolidation of many widely dispersed 
enforcement functions into an Enforcement Bureau is an important step 
toward a more forward-looking FCC organizational structure that will 
emphasize the importance of effective enforcement of the Communications 
Act.
    The Commission currently has four organizational units dedicated 
principally or significantly to enforcement--the Compliance and 
Information Bureau, the Mass Media Bureau Enforcement Division, the 
Common Carrier Bureau Enforcement Division and the Wireless 
Telecommunications Bureau Enforcement and Consumer Information 
Division. Consolidating most enforcement responsibilities of these 
organizations into a unified Enforcement Bureau will result in more 
effective and efficient enforcement. The Enforcement Bureau will 
coordinate enforcement priorities and efforts in a way that best uses 
limited Commission resources to ensure compliance with the important 
responsibilities assigned to the FCC by Congress.
    The consolidation of various FCC enforcement functions also 
responds to the fact that the need for effective enforcement of the 
Communications Act and related requirements is becoming even more 
important as competition and deregulation increase. As communications 
markets become increasingly competitive, the pace of deregulation will 
intensify. Those statutory and rule provisions that remain in an 
increasingly competitive, deregulatory environment will be those that 
Congress and the Commission have determined remain of central 
importance to furthering key statutory goals--e.g., providing a 
structure for competition to flourish, assisting customers and users of 
communications services in being able to benefit from competitive 
communications services, ensuring that spectrum is used in an efficient 
manner that does not create harmful interference, and promoting public 
safety.
    As unnecessary regulation is eliminated and the demands of the 
marketplace increase, the Commission must focus its resources on 
effective and swift enforcement of the statutory and regulatory 
requirements that remain. The consolidation of our enforcement 
activities will allow us to do just that in a streamlined, centralized, 
and more effective way.

                      2. Public Information Bureau

    Consumer inquiries at the Commission have increased dramatically 
since 1996. In 1998, we received over 460,000 phone calls to telephone 
service representatives, and over 600,000 calls to our automated 
response system. There were on average over 266,000 hits on the FCC's 
web site a day, totalling over 97 million in 1998 (up over 400% from 21 
million in 1996). We expect these numbers to increase as more consumers 
seek information regarding the ever growing array of services and 
providers in the communications marketplace.
    Currently, consumer inquiries are handled by several different 
offices and bureaus throughout the Commission and the methods used to 
handle these inquiries vary widely. While each office has a small 
contingent of staff handling inquiries, they have had varying degrees 
of success in meeting the ever increasing volume. Although the 
Commission established a National Call Center in June 1996, current 
processes still require a great number of consumers seeking information 
to contact other offices and bureaus directly to get their questions 
answered.
    The creation of the Public Information Bureau allows the Commission 
to better serve the public by establishing a single source organization 
as a ``one-stop'' shop or ``FCC General Store'' for handling all 
inquiries and the general expression of views to the Commission, 
thereby better meeting the public's information needs. Merging 
resources of the Office of Public Affairs, which includes public 
service and inquiry staffs and the Commission's public reference files, 
with the FCC Call Center will provide a streamlined, more efficient, 
and consolidated information source for the public. Consumers would 
only have to contact one source, whether by telephone (1-888-CALLFCC) 
or by E-mail or the Internet ([email protected]). The Public Information 
Bureau also plans to establish one source for mailing inquiries to the 
FCC (for example, P.O. FCC). The Public Information Bureau will also be 
responsible for facilitating resolution of informal consumer 
complaints, thereby strengthening the mission of the new Bureau to 
address most individual consumer needs in one place.
    The creation of the Public Information Bureau will encourage more 
public participation in the work of the Commission. The staff of the 
Public Information Bureau will conduct consumer forums across the 
country to inform and solicit feedback from consumers about the 
Commission's policies, goals, and objectives. This feedback will be 
shared with other bureaus to help ensure that Commission rules are 
fair, effective, and sensible, and that they support competition while 
responding to consumer concerns. The Public Information Bureau also 
plans to share its databases with state and local governments as 
appropriate, to coordinate our respective abilities to respond to 
consumer complaints and track and address industry abuses.
    The creation of the Public Information Bureau supports the 
Commission's efforts to foster a pro-competitive, deregulatory, and 
pro-consumer approach to communications services. The staff of the 
Public Information Bureau will provide consumers with information so 
that consumers can make informed decisions regarding their 
communications needs. The staff of the Public Information Bureau will 
also work with other bureaus to issue consumer alerts and public 
service announcements to give consumers information about their rights 
and information to protect themselves from unscrupulous individuals and 
firms. Finally, the Public Information Bureau will provide easy public 
access to FCC information as well as a convenient way for the public to 
make its views known, thus supporting the Commission's efforts to 
assist communities across America in dealing with complex 
communications issues and to provide opportunities for a wide range of 
voices to be expressed publicly.

         3. Streamling and Automating the FCC Licensing Process

    The Commission's ``authorization of service'' activities cover the 
licensing and authorization through certification, and unlicensed 
approval, of radio stations and devices, telecommunications equipment 
and radio operators, as well as the authorization of common carrier and 
other services and facilities. The Commission has already begun 
automating and reengineering our authorization of service processes 
across the agency by reengineering and integrating our licensing 
databases and through the implementation of electronic filing.
    The Universal Licensing System (ULS) project is fundamentally 
changing the way the Commission receives and processes wireless 
applications. ULS will combine all licensing and spectrum auctions 
systems into a single, integrated system. It collapses 40 forms into 
four; allows licensees to modify online only those portions of the 
license that need to be modified without resubmitting a new 
application; and advises filers when they have filled out an 
application improperly by providing immediate electronic notification 
of the error. During the month of February 1999, 75% of receipts (916 
applications) filed under the currently implemented portions of ULS 
were processed in one day.
    Universal licensing is an example of how we are working to change 
the relationship between the Commission, spectrum licensees, and the 
public by increasing the accessibility of information and speeding the 
licensing process, and thus competitive entry, dramatically. Universal 
licensing is becoming the model for automated licensing for the entire 
agency.
    In the Wireless Telecommunications Bureau, electronic filing has 
been fully implemented throughout the Land Mobile Radio services, 
antenna registration, and amateur radio filings. More than 50% of the 
Wireless Telecommunications Bureau's filings are now accomplished 
electronically. Significant service improvements are evidenced by the 
fact that 99% of Amateur Radio service filings are now processed in 
less than five days, with most electronically filed applications being 
granted overnight. The Wireless Bureau also has an initiative to 
transfer the knowledge used by license examiners in manually reviewing 
applications to computer programs so that applications can be received, 
processed, and licenses granted in even less time.
    The Mass Media Bureau is implementing a similar electronic filing 
initiative. In October, the FCC issued rules that substantially revise 
the application process in 15 key areas, including sales and license 
renewals, in order to effectuate mandatory electronic filing for 
broadcasters. When fully implemented, the new electronic filing system 
will reduce the resources required to process authorizations, 
accelerate the grant of authorizations, and improve public access to 
information about broadcast licensees.
    The Common Carrier Bureau has also implemented electronic filing of 
tariffs and associated documents via the Internet. The Electronic 
Tariff Filing System enables interested parties to access and download 
documents over the Internet, and to file petitions to reject, or 
suspend and investigate tariff filings electronically. Since July 1, 
1998, over 10,000 electronic tariff filings have been received. 
replacing approximately 750,000 pages of information.
    The results of all these streamlining efforts include a more 
economical use of FCC personnel resources, improvement in processing 
times, the ability of our customers to file via the Internet or through 
other electronic filing mechanisms, and the ability to provide our 
customers with immediate status reports on their applications as well 
as real time access to on-line documents. It is estimated that our move 
toward a ``paperless FCC'' will save the public approximately 700,000 
hours of paperwork in this fiscal year alone.

                     4. Budget and Workforce Impact

    In anticipation of the expected increased efficiencies our 
restructuring plans and other streamlining and automation improvements 
will produce, the FCC is confronting the issue of how it should look 
and operate in FY 2000 and beyond. We expect that our re-engineering 
and restructuring efforts will yield increased efficiencies and 
streamlining opportunities, particularly in the area of authorization 
of service, due to automation and regulatory changes. However, these 
efforts will also result in the potential displacement of staff in 
certain locations and a need to retrain and reassign other staff.
    Buyout authority is a tool that will enhance the Commission's 
ability to alter the skills mix of its workforce to carry out its 
changing mission more effectively. Targeted buyouts for staff would 
facilitate our restructuring efforts in a cost-effective manner. The 
Commission has requested buyout authority in its budget request for FY 
2000.
    The Commission is dedicated to keeping staff informed and involved 
in our restructuring and streamlining efforts, and to minimizing 
workplace disruption that may result from these efforts through staff 
retraining, reassignment, and other methods. It is critical, as we 
consider ways to restructure and streamline Commission operations, that 
we continue to recognize and respect the hard work of our employees, 
many of whom have been with the Commission for many years. Change is 
always difficult, and it is imperative that our staff understands and 
supports the necessary changes that are taking place--and will continue 
to take place--at the Commission. Accordingly, we are working closely 
with the National Treasury Employees Union (NTEU) to ensure that staff 
is involved in all these issues and that their views are incorporated 
into the Commission's planning process.

                 5. Restructuring Process and Timeline

    Planning for the Public Information Bureau began in late November 
1998 and for the Enforcement Bureau in mid-December 1998. A Task Force 
comprised of both managers and staff from relevant Bureaus and Offices, 
as well as NTEU representatives, has been meeting regularly since early 
January to consider such issues as the appropriate functions of each of 
the Bureaus and their organization. Efforts have also been made on an 
informal basis both inside and outside the Commission to ensure that a 
wide range of ideas are considered during the planning process. A 
proposed reorganization plan should be formally submitted to the 
Commission for its consideration in Spring, 1999. Upon approval by the 
Commission, it will be formally submitted to the NTEU and appropriate 
congressional committees.
C. Restructuring to Reflect Industry Convergence
    As the traditional lines dividing communications industries blur 
and eventually erode, the traditional ways of regulating or monitoring 
these industries will also have to change. The FCC must think about the 
complex issues resulting from converging communications markets from 
both a policy and structural perspective. How the FCC should be 
structured to address issues arising from a more competitive, converged 
communications marketplace is inextricably tied up with the policy 
choices that will be made on how to address the blurring of regulatory 
distinctions.
    From a structural perspective, as noted in our FY2000 budget 
submitted to Congress, there are a number of steps we are committed to 
take. We will continue to evaluate whether certain regulations are no 
longer necessary in the public interest and should be repealed or 
modified as required by Section 11 of the Communications Act. We will 
continue to use our forbearance authority where appropriate. We will 
continue our efforts to reduce reporting requirements and eliminate 
unnecessary rules, and to level regulation to the least burdensome 
possible, consistent with the public interest. In addition, in our FY 
2000 budget, we have committed to reviewing our cable services and mass 
media functions.
    We recognize that much additional analysis is needed to consider 
the impact of industry convergence on the FCC's policies and rules and 
on our structure. We will continue to meet with Congress, our state 
regulatory partners, industry, consumer groups, and others to solicit 
input and feedback on our restructuring, streamlining and policy 
initiatives and the impact of industry convergence.
                  iv. substantive deregulation efforts
    As telecommunications markets become more competitive, we must 
eliminate regulatory requirements that are no longer useful. We are 
already engaged in an ongoing process of reviewing our entire 
regulatory framework to see which rules should be eliminated or 
streamlined.
A. FCC Biennial Review of Regulations
    In November 1997, the Commission initiated a review of the 
Commission's regulations, as required by Section 11 of the Telecom Act. 
Beginning in 1998 and in every even-numbered year thereafter, the FCC 
must conduct a review of its regulations regarding the provision of 
telecommunications service and the Commission's broadcast ownership 
rules. The Telecom Act charges the Commission with determining whether, 
because of increased competition, any regulation no longer serves the 
public interest.
    Chairman Kennard announced in November 1997 that the Commission's 
1998 Biennial Review would be even broader than mandated by the Telecom 
Act. In addition, at the Chairman's direction, the Commission 
accelerated the Congressionally-mandated biennial review requirement by 
beginning in 1997 rather than in 1998. As part of the 1998 Biennial 
Review, each of the operating bureaus, together with the Office of 
General Counsel, hosted a series of public forums and participated in 
practice group sessions with the Federal Communications Bar Association 
to solicit informal input from the public. The Commission also hosted a 
web site on the biennial review and asked for additional suggestions 
via e-mail.
    After input from the public, the Commission initiated 32 separate 
biennial review rulemaking proceedings, covering multiple rule parts, 
aimed at deregulating or streamlining Commission regulations. The 
Commission devoted substantial attention and resources to the biennial 
review. Roughly two-thirds of the proceedings involved common carrier 
deregulation or streamlining. The Commission also instituted a broad 
review of its broadcast ownership rules. To date, the Commission has 
adopted orders in seventeen of the 1998 biennial review proceedings, 
with others to be forthcoming. (See Appendix B)
    From the outset, the focus of the Biennial Review has been on 
regulating in a common sense manner and relying on competition as much 
as possible. The Chairman and the other Commissioners have worked 
together to make the biennial review a meaningful force for 
deregulation and streamlining. The 1998 review was the Commission's 
first biennial review, and was being conducted while the Commission was 
still in the process of implementing the Telecom Act. The Chairman and 
the Commission intend to build on the 1998 review so that the 2000 
review and future reviews will produce even more deregulatory actions.
B. Continued FCC Deregulation Efforts
    As we move toward our goal of fully competitive communications 
markets, our efforts to streamline and eliminate unnecessary rules must 
be increased and expanded. Accordingly, the 2000 Biennial Review will 
be a top priority for the Commission.
    As we did with the 1998 review, we plan to start the 2000 review 
early, by putting a team in place in 1999 to work with the 
Commissioners and the Bureaus and Offices on planning and structuring 
the review. We will also continue to keep our review broad in focus. 
The team would evaluate the success of the 1998 review and consider 
whether changes are necessary for the 2000 review. The team would also 
consider whether any changes are needed in the methodology we have used 
to review our regulations. The team would again solicit input and 
recommendations from state regulators, industry, consumer groups, and 
others, to ensure that the 2000 review is a major force for 
deregulation.
    In short, we will be guided by one principle: the elimination of 
rules that impede competition and innovation and do not promote 
consumer welfare.
                     v. strategic planning efforts
A. Background
    The Government Performance and Results Act of 1993 (Results Act) 
provides a useful framework for a federal agency to develop a strategic 
plan. The Results Act recommends including as part of such a plan: a 
comprehensive mission statement; a description of the general goals the 
agency wants to achieve and how they will be achieved; a discussion of 
the means, strategies and resources required to achieve our goals; a 
discussion of the external factors that could affect achievement of our 
goals; and a discussion of the consultations that took place with 
customers and stakeholders in the development of the plan.
    The Results Act also recommends that an agency establish measurable 
objectives and a timeline to achieve the goals specified in the 
strategic plan. The agency would consult with Congress and solicit 
input from its customers and stakeholders. The purpose of the Results 
Act is to bring private sector management techniques to public sector 
programs.
B. FCC Implementation of the Results Act
    When the Results Act was passed, the FCC was already hard at work 
implementing similar management initiatives. In 1993, we began the work 
of reinventing ourselves, streamlining and restructuring the agency to 
meet the challenges of the Information Age. In the process we created 
the Wireless Telecommunications and the International Bureaus. In 1995, 
we issued a report--``Creating a Federal Communications Commission for 
the Information Age''--that included numerous recommendations for 
administrative and legislative changes, many of which were subsequently 
adopted.
    Each of our bureaus and offices developed their own mission 
statement, identified their customers and surveyed them on their needs. 
Benchmark customer service standards were established for each of their 
policy and rulemaking, authorization of service, enforcement and public 
information service activities. These standards were published on their 
websites and customers were periodically surveyed to determine whether 
their service goals were being met.
    We also volunteered to participate in Results Act implementation 
pilot projects, naming the Wireless Telecommunications Bureau's Land 
Mobile radio and the Office of Engineering and Technology's Equipment 
Authorization activities as the agency's two participants. We organized 
a Steering Committee with an ambitious schedule for completing the 
requirements of the Results Act.
C. Impact of the Telecom Act
    Enactment of the Telecom Act in February 1996 had a profound impact 
on the FCC. Pursuant to the Telecom Act, the FCC was required to 
initiate numerous rulemakings, many with statutorily mandated and 
expedited notice and comment period. The impact of implementing the 
Telecom Act affected every aspect of the FCC--its resource allocations, 
its schedule for rulemakings, and its very organizational structure--
for more than two years.
    Enactment of the Telecom Act also changed the scope and level of 
our Results Act planning effort. We had to reformulate our mission and 
performance goals in light of the Telecom Act. We decided for the first 
three years after passage of the Telecom Act to marry the major goal of 
the Act--to ``promote competition and reduce regulation in order to 
secure lower prices and higher quality services for American 
telecommunications consumers and encourage the rapid deployment of 
telecommunications technologies''--with the FCC's four major budget 
activities of policy and rulemaking, authorization of service, 
compliance, and public information services.
    This approach worked well during the major period that the FCC was 
implementing the Telecom Act. Under this approach, however, the 
performance goals for each of the individual Bureaus remained a 
somewhat disconnected patchwork of objectives reflecting a collection 
of individual Bureaus' efforts to implement the Telecom Act. Since 
passage of the Telecom Act, with the traditional distinctions between 
over-the-air broadcasting, cable, wireless, wireline and satellite 
becoming less distinct, it is becoming clear that the FCC must conceive 
a new approach to our mission and our structure.
D. New FCC Strategic Plan
    The FCC has determined that we need a new regulatory model and a 
new Strategic Plan that will serve as the Commission's blueprint as we 
enter the 21st Century. We need a new Strategic Plan to point the way 
to where we want to be and the means and resources by which we will get 
there.
    We are generally structuring our Strategic Plan based on our future 
core functions: universal service, consumer protection and information; 
enforcement and promotion of pro-competition communications goals 
domestically and internationally; and spectrum management. Our 
strategic planning efforts are thus tied into the restructuring and 
streamlining efforts that are already on-going. In addition, as noted 
above, we must take a hard look at how to organize ourselves for the 
New Media age. The convergence of technologies and industries require 
that we examine and change our stovepipe bureau structure, and we plan 
to address those issues in our Strategic Plan as well.
    Key senior managers will be responsible for developing the 
strategic objectives and performance goals for the Strategic Plan. As 
our work on restructuring proceeds, we will convene strategic objective 
planning sessions to develop a planning document for each of our core 
activities. We will also develop a schedule, based on fiscal years, on 
how we will achieve our objectives.
    The Strategic Plan will represent the cooperative work of the 
entire FCC, reflecting input from the Commissioners, Bureau management, 
agency staff, and others affected by or interested in the FCC's 
activities. In developing our Strategic Plan, we have already started 
to seek input from a wide variety of FCC stakeholders and intend to 
intensify our efforts in the next few months. These include other 
Commissioners, Commission staff, Members of Congress and their staff, 
the Office of Management and Budget (OMB), industry groups, consumer 
groups, academia and others. Suggestions will be gathered on both the 
draft Strategic Plan and on the steps to implement it--including 
deregulatory actions, restructuring and realignment of FCC functions 
and management. In addition, we plan to incorporate comments on this 
document, ``A New FCC for the 21st Century,'' into the draft Strategic 
Plan.
    Our draft Strategic Plan, along with any implementation proposals, 
will be made public and we will actively solicit comment. We will issue 
a Public Notice encouraging the public to comment on our draft plan, 
which will be displayed on our Internet Home Page by July 1999. We will 
hold a series of meetings with interested groups to gain their insight 
into how we can better serve the public interest. We will make 
particular efforts to discuss the draft plan with Congress, the states, 
industry, and with consumers and small companies affected by our work. 
We plan to submit a more final plan to Congress and OMB in September 
1999.
                            vii. conclusion
    Just as the communications industry and other sectors of our 
economy are constantly adapting to change and competition, so must the 
FCC. A new century and new economy demand a new FCC. We must plan for 
the future, while continuing to work on the challenges we face today to 
promote competition, foster innovation, and help bring the benefits of 
the 21st century to all Americans. We look forward to working with 
Congress, industry, consumers, state and local governments, and others 
on a critical assessment of what the ``New FCC'' should look like, and 
how we can get there.

  Executive Summary--A New Federal Communications Commission for the 
                              21st Century

    We are standing at the threshold of a new century, a century that 
promises to be as revolutionary in the technology that affects our 
daily lives and the future of our country as the inventions and 
innovations that so profoundly shaped the past 100 years. Just as the 
internal combustion engine, the telephone, and the railroad brought 
about our country's transformation from an agricultural to an 
industrial society, the microchip, fiber-optic cables, digital 
technology, and satellites are fueling our transition from an 
industrial to an information-age society. As the marketplace changes, 
so must the Federal Communications Commission (FCC). The top-down 
regulatory model of the Industrial Age is as out of place in this new 
economy as the rotary telephone. As competition and convergence 
develop, the FCC must streamline its operations and continue to 
eliminate regulatory burdens. Technology is no longer a barrier, but 
old ways of thinking are.
    Enclosed is a Report entitled ``A New Federal Communications 
Commission for the 21st Century.'' This report is part of a continuing 
process of self-assessment that the Commission has been engaging in to 
transform itself to meet the challenges of an information-age economy 
and an ever-changing communications industry. The Report describes the 
communications marketplace--past, present, and future--and the 
implications of those changes for the FCC's structure and regulatory 
framework.
     My vision for a ``New FCC'' is a bold one--in five years, the FCC 
should be dramatically changed. In a world of fully competitive 
comrnunications markets, the FCC should focus only on those core 
functions that are not normally addressed by market forces. These core 
functions would revolve around: (i) universal service, consumer 
protection and information; (ii) enforcement and promotion of pro-
competition goals domestically and worldwide; and (iii) spectrum 
management.
    The steps we are taking to transition to this model include: (1) 
Restructuring: We are consolidating currently dispersed enforcement 
functions into an Enforcement Bureau, and currently dispersed public 
information functions into a Public Information Bureau. The 
consolidation of these two key functions will improve efficiency and 
enhance the delivery of these services to the general public and to 
industry.
(2) Streamlining and Automation: We are investing in new technology to 
create a ``paperless FCC'' by processing applications, licenses, and 
consumer complaints faster, cheaper, and in a more consumer-friendly 
way through electronic filing and universal licensing. (3) 
Deregulation: We are completing 32 deregulation proceedings covering 
multiple rule parts as a result of our 1998 Biennial Review of 
regulations, and intend for the 2000 Biennial Review to produce even 
more deregulatory actions. (4) Strategic Plan: We are preparing a five-
year Strategic Plan that will outline our timetable for restructuring 
and streamlining FCC functions and management. As part of this process, 
we will work with Congress, state and local governments, industry, 
consumer groups, and others on a critical assessment of what the ``New 
FCC'' should look like and how we should get there.
      fcc 1999 proposed restructuring and streamlining timetable*
    March: Submit House Reauthorization Testimony/Initial Report to 
Congress
    April/May: Conduct preliminary meetings and discussions with 
Congress and other Stakeholders on Strategic Plan
    May 20, June 2 & 11: Conduct Public Forums with Industry, 
Consumers, State and Local Government Representatives, and Academics 
and Organizational Experts
    May 26: Submit Senate Oversight Testimony
    June: Transmit Current Restructuring Plan to Commissioners 
(Enforcement Bureau and Public Information Bureau)
    July: Transmit Current Restructuring Plan to Congress and National 
Treasury Employees Union; Transmit Draft Strategic Plan to Congress, 
OMB, and Stakeholders; Organize 2000 Biennial Review Team
    September: Transmit Final Strategic Plan to Congress, OMB, and 
Stakeholders
    October: Establish Enforcement Bureau and Public Information Bureau
    November: Begin Outreach on 2000 Biennial Review
    FY 2000: Begin Implementing Five-Year Strategic Plan
---------------------------------------------------------------------------
    *Note: Many of these dates are subject to change and may need 
Commission or Congressional approval.
---------------------------------------------------------------------------
                                 ______
                                 

              Appendix B.--1998 Biennial Regulatory Review

           i. proceedings initiated--completed/orders issued
Telecommunications Providers (Common Carriers)
    Streamline and consolidate rules governing application procedures 
for wireless services to facilitate introduction of electronic filing 
via the Universal Licensing System. 1998 Biennial Regulatory Review--
Amendment of Parts 0, 1, 13, 22, 24, 26, 27, 80, 87, 90, 95, 97, and 
101 of the Commission's Rules to Facilitate the Development and Use of 
the Universal Licensing System in the Wireless Telecommunications 
Services, WT Dkt No. 98-20, NPRM, FCC 98-25 (rel. March 19, 1998), R&O, 
FCC 98-234 (rel. Oct. 21, 1998).
    Streamline the equipment authorization program by implementing the 
recent mutual recognition agreement with Europe and providing for 
private equipment certification. 1998 Biennial Regulatory Review--
Amendment of Parts 2, 25 and 68 of the Commission's Rules to Further 
Streamline the Equipment Authorization Process for Radio Frequency 
Equipment, Modify the Equipment Authorization Process for Telephone 
Terminal Equipment, Implement Mutual Recognition Agreements and Begin 
Implementation of the Global Mobile Personal Communications by 
Satellite (GMPCS) Arrangements, GEN Dkt No. 98-68, NPRM, FCC 98-92 
(rel. May 18, 1998), R&O, FCC 98-338 (rel. Dec. 23, 1998).
    Eliminate rules concerning the provision of telegraph and telephone 
franks. 1998 Biennial Regulatory Review--Elimination of Part 41 
Telegraph and Telephone Franks, CC Dkt No. 98-119, NPRM, FCC 98-152 
(rel. July 21, 1998), R&O, FCC 98-344 (rel. Feb. 3, 1999).
    In addition to addressing issues remanded by the Ninth Circuit, 
reexamine the nonstructural safeguards regime governing the provision 
of enhanced services by the Bell Operating Companies (BOCs) and 
consider elimination of requirement that BOCs file Comparably Efficient 
Interconnection (CEI) plans. Computer III Further Remand Proceedings: 
Bell Operating Company Provision of Enhanced Services; 1998 Biennial 
Regulatory Review--Review of Computer III and ONA Safeguards and 
Requirements, CC Dkt Nos. 95-20 and 98-10. FNPRM, FCC 98-8 (rel. Jan. 
30, 1998), R&O, FCC 99-36 (rel. Mar. 10, 1999).
    Provide for a blanket section 214 authorization for international 
service to destinations where the carrier has no affiliate; eliminate 
prior review of pro forma transfers of control and assignments of 
international section 214 authorizations; streamline and simplify rules 
applicable to international service authorizations and submarine cable 
landing licenses. 1998 Biennial Regulatory Review--Review of 
International Common Carrier Regulations, IB Dkt No. 98-118, NPRM, FCC 
98-149 (rel. July 14, 1998), R&O, FCC 99-51 (rel. Mar. 23, 1999)
    Removal or reduction of, or forbearance from enforcing, regulatory 
burdens on carriers filing for technology testing authorization. 1998 
Biennial Regulatory Review--Testinq New Technology, CC Dkt No. 98-94, 
NOI, FCC 98-118 (rel. June 11, 1998), Policy Statement, FCC 99-53 (rel. 
Apr. 2, 1999).
    Deregulate or streamline policies governing settlement of accounts 
for exchange of telephone traffic between U.S. and foreign carriers. 
1998 Biennial Regulatory Review--Reform of the International 
Settlements Policy and Associated Filing Requirements, IB Dkt No. 98-
148, NPRM, FCC 98-190 (rel. Aug. 6, 1998), R&O, FCC 99-73 (rel. May 6, 
1999).
    Modify accounting rules to reduce burdens on carriers. 1998 
Biennial Regulatory Review--Review of Accounting and Cost Allocation 
Requirements, CC Dkt No. 98-81, NPRM, FCC 98-108 (rel. June 17, 1998), 
R&O, FCC 99-106 (adopted May 18, 1999).
    Eliminate duplicative or unnecessary common carrier reporting 
requirements. 1998 Biennial Regulatory Review--Review of ARMIS 
Reporting Requirements, CC Dkt No. 98-117, NPRM, FCC 98-147 (rel. July 
17, 1998), R&O, FCC 99-107 (adopted May 18, 1999).
Other
    Amend cable and broadcast annual employment report due dates to 
streamline and simplify filing. 1998 Biennial Regulatory Review--
Amendment of Sections 73.3612 and 76.77 of the Commission's Rules 
Concerning Filing Dates for the Commission's Equal Employment 
Opportunity Annual Employment Reports, MO&O, FCC 98-39 (rel. Mar. 16, 
1998).
    Streamline broadcast filing and licensing procedures. 1998 Biennial 
Regulatory Review--Streamlining of Mass Media Applications, Rules and 
Processes, MM Dkt No. 98-43, NPRM, FCC 98-57 (rel. Apr. 3, 1998), R&O, 
FCC 98-281 (rel. Nov. 25, 1998).
    Provide for electronic filing for assignment and change of radio 
and TV call signs. 1998 Biennial Regulatory Review--Amendment of Part 
73 and Part 74 Relating to Call Sign Assignments for Broadcast 
Stations, MM Dkt No. 98-98, NPRM, FCC 98-130 (rel. June 30, 1998), R&O, 
FCC 98-324 (rel. Dec. 16, 1998).
    Simplify and unify Part 76 cable pleading and complaint process 
rules. 1998 Biennial Regulatory Review--Part 76--Cable Television 
Service Pleading and Complaint Rules, CS Dkt No. 98-54, NPRM, FCC 98-68 
(rel. Apr. 22, 1998), R&O, FCC 98-348 (rel. Jan. 8, 1999).
    Streamline the Gettysburg reference facilities so that electronic 
filing and electronic access can substitute for the current method of 
written filings/access. 1998 Biennial Regulatory Review--Amendment of 
Part 0 of the Commission's Rules to Close the Wireless 
Telecommunications Bureau's Gettysburg Reference Facility, WT Dkt No. 
98-160, NPRM, FCC 98-217 (rel. Sept. 18, 1998), R&O, FCC 99-45 (rel. 
Mar. 11, 1999).
    Streamline and consolidate public file requirements applicable to 
cable television systems. 1998 Biennial Regulatory Review--Streamlining 
of Cable Television Services Part 76 Public File and Notice 
Requirements, CS Dkt No. 98-132, NPRM, FCC 98-159 (rel. July 20, 1998), 
R&O, FCC 99-12 (rel. Mar. 26, 1999).
    Streamline AM/FM radio technical rules and policies. 1998 Biennial 
Regulatory Review--Streamlining of Radio Technical Rules in Parts 73 
and 74 of the Commission's Rules, MM Dkt No. 98-93, NPRM, FCC 98-117 
(rel. June 15, 1998), First R&O, FCC 99-55 (rel. Mar. 30, 1999).
    Modify or eliminate Form 325, annual cable television system 
report. 1998 Biennial Regulatory Review--``Annual Report of Cable 
Television System.'' Form 325, Filed Pursuant to Section 76.403 of the 
Commission's Rules, CS Dkt No. 98-61, NPRM, FCC 98-79 (rel. Apr. 30, 
1998), R&O, FCC 99-13 (rel. Mar. 31, 1999).
                   ii. proceedings initiated--pending
Telecommunications Providers (Common Carriers)
    Deregulate radio frequency (RF) lighting requirements to foster the 
development of new, more energy efficient RF lighting technologies. 
1998 Biennial Regulatory Review--Amendment of Part 18 of the 
Commission's Rules to Update Regulations for RF Lighting Devices, ET 
Dkt No. 98-42, NPRM, FCC 98-53 (rel. Apr. 9, 1998).
    In NPRM portion, considering forbearance from additional 
requirements regarding telephone operator services applicable to 
commercial mobile radio service providers (CMRS) and, more generally, 
forbearance from other statutory and regulatory provisions applicable 
to CMRS providers. Personal Communications Industry Association's 
Broadband Personal Communications Services Alliances' Petition for 
Forbearance For Broadband Personal Communications Services; 1998 
Biennial Regulatory Review--Elimination or Streamlining of Unnecessary 
and Obsolete CMRS Regulations: Forbearance from Applying Provisions of 
the Communications Act to Wireless Telecommunications Carriers, WT Dkt 
No. 98-100, NPRM, FCC 98-134 (rel. July 2, 1998).
    Privatize the administration of international accounting 
settlements in the maritime mobile and maritime satellite radio 
services. 1998 Biennial Regulatory Review--Review of Accounts 
Settlement in the Maritime Mobile and Maritime Mobile-Satellite Radio 
Services and Withdrawal of the Commission as an Accounting Authority in 
the Maritime Mobile and the Maritime Mobile-Satellite Radio Services 
Except for Distress and Safety Communications, IB Dkt No. 98-96, NPRM, 
FCC 98-123 (rel. July 17, 1998).
    Simplify Part 61 tariff and price cap rules. 1998 Biennial 
Regulatory Review--Part 61 of the Commission's Rules and Related 
Tariffing Requirements, CC Dkt No. 98-131, NPRM, FCC 98-164 (rel. July 
24, 1998).
    Modify Part 68 rules that limit the power levels at which any 
device attached to the network can operate to allow use of 56 Kbps 
modems. 1998 Biennial Regulatory Review--Modifications to Signal Power 
Limitations Contained in Part 68 of the Commission's Rules, CC Dkt No. 
98-163, NPRM, FCC 98-221 (rel. Sept. 16, 1998).
    Streamline and rationalize information and payment collection from 
contributors to Telecommunications Relay Service, North American 
Numbering Plan Administration, Universal Service, and Local Number 
Portability Administration funds. 1998 Biennial Regulatory Review--
Commission Proposes to Streamline Reporting Requirements for 
Telecommunications Carriers, CC Dkt No. 98-171, NPRM, FCC 98-233 (rel. 
Sept. 25, 1998).
    Modify or eliminate Part 64 restrictions on bundling of 
telecommunications service with customer premises equipment. 1998 
Biennial Regulatory Review--Policy and Rules Concerning the Interstate, 
Interexchange Marketplace/implementation of Section 254(g) of the 
Communications Act of 1934, as Amended/Review of the Customer Premises 
Equipment and Enhanced Services Unbundling Rules in the Interexchange, 
Exchange Access and Local Exchange Markets. CC Dkt Nos. 98-183 and 96-
61, NPRM, FCC 98-258 (rel. Oct. 9, 1998).
    Eliminate or streamline various rules prescribing depreciation 
rates for common carriers. 1998 Biennial Regulatory Review--Review of 
Depreciation Requirements for Incumbent Local Exchange Carriers, CC Dkt 
No. 98-137, NPRM, FCC 98-170 (rel. Oct. 14, 1998).
    Repeal Part 62 rules regarding interlocking directorates among 
carriers. 1998 Biennial Regulatory Review--Repeal of Part 62 of the 
Commission's Rules, CC Dkt No. 98-195, NPRM, FCC 98-294 (rel. Nov. 17, 
1998).
    Seek comment on various deregulatory proposals of SBC 
Communications, Inc. not already subject to other biennial review 
proceedings. 1998 Biennial Regulatory Review--Petition for Section 11 
Biennial Review filed by SBC Communications, Inc., Southwestern Bell 
Telephone Company, Pacific Bell, and Nevada Bell, CC Dkt No. 98-177, 
NPRM, FCC 98-238 (rel. Nov. 24, 1998).
    Consider modifications or alternatives to the 45 MHz CMRS spectrum 
cap and other CMRS aggregation limits and cross-ownership rules. 1998 
Biennial Regulatory Review--Review of CMRS Spectrum Cap and Other CMRS 
Aggregation Limits and Cross-Ownership Rules, WT Dkt No. 98-205, NPRM, 
FCC 98-308 (rel. Dec. 18, 1998).
Broadcast Ownership
    Conduct broad inquiry into broadcast ownership rules not the 
subject of other pending proceedings. 1998 Biennial Regulatory Review--
Review of the Commission's Broadcast Ownership Rules and Other Rules 
Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, 
MM Dkt No. 98-35, NOI, FCC 98-37 (rel. Mar. 13, 1998).
Other
    Review current Part 15 and Part 18 power line conducted emissions 
limits and consider whether the limits may be relaxed to reduce the 
cost of compliance for a wide variety of electronic equipment. 1998 
Biennial Regulatory Review--Conducted Emissions Limits Below 30 MHz for 
Equipment Regulated Under Parts 15 and 18 of the Commission's Rules, ET 
Dkt No. 98-80, NOI, FCC 98-102 (rel. June 8, 1998).
    Streamline application of Part 97 amateur service rules. 1998 
Biennial Regulatory Review--Amendment of Part 97 of the Commission's 
Amateur Service Rules, WT Dkt No. 98-143, NPRM, FCC 98-1831 (rel. Aug. 
10, 1998).
    Streamline Part 90 private land mobile services rules. 1998 
Biennial Regulatory Review--47 C.F.R. Part 90--Private Land Mobile 
Radio Services, WT Dkt No. 98-182, NPRM, FCC 98-251 (rel. Oct. 20, 
1998).

    The Chairman. Welcome. Thank you, Mr. Kennard.
    Ms. Ness, Commissioner Ness.

          STATEMENT OF HON. SUSAN NESS, COMMISSIONER, 
               FEDERAL COMMUNICATIONS COMMISSION

    Ms. Ness. Thank you, Mr. Chairman. Mr. Chairman and members 
of the committee, I appreciate the opportunity to appear before 
you today. I welcome the dialogue between the Commission and 
our authorizing committee. You have entrusted us with 
significant responsibilities. We are accountable to you as the 
elected officials of the people for our performance.
    I want you to know that my colleagues and I have done our 
best to carry out the statutory obligations under the 
Telecommunications Act of 1996 and other laws. These are tough 
issues and complex times and I welcome the challenges ahead.
    We are likely to hear a number of criticisms today. I 
expect I will agree with some and respectfully disagree with 
others. But I again look forward to working with you, hearing 
your criticisms, your views, your thoughts, and taking that 
into account as we work on these very difficult issues.
    It is truly an exceptional time in the evolution of 
communications and information markets. There is good news and 
there is unfinished business. We are beginning to reap the 
harvest of the seeds that have been planted in years past and 
starting to see the promise of seeds planted more recently. The 
prices for some long distance services are at an all-time low. 
The same is true for international calling rates and for 
wireless services as well. Meanwhile, DBS has climbed past the 
10 million subscriber mark. Some 75 commercial and 
noncommercial television stations have begun digital 
broadcasting, and changes are under way in what have 
traditionally been monopoly sectors of the business, cable and 
telephone services.
    Most notably, incumbent telephone companies and cable 
operators are both spurring each other to deploy broadband 
services at a rapid rate. Satellite and wireless companies are 
not far behind. Competitive carriers have raised vast amounts 
of capital and are expanding their coverages from large 
businesses to smaller businesses and in some limited instances 
residential consumers. The Internet, which we do not regulate 
and have no intention of regulating, is still growing at an 
astounding rate.
    Our challenge is to keep this progress moving forward and 
to ensure that no sector of our society is left behind. 
Universal service has been a cornerstone of our 
telecommunications policy for decades and it remains so today. 
We therefore need to make sure that all Americans can enjoy the 
benefits that have resulted from new technology and 
competition, and in particular we need to ensure that rural 
Americans and those with limited incomes and our children 
continue to have affordable access.
    High quality telephone services are available today 
throughout the Nation at affordable prices. But we need to make 
sure that as more competition and a deregulated market develop, 
access to these services remains affordable and that advanced 
technology is deployed on a timely basis.
    So there is plenty of unfinished work. We welcome your 
guidance on the decisions that lie ahead. But we should take 
some pride in the very considerable benefits that are resulting 
already from decisions that you and we have made that bring us 
where we are today.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Commissioner Ness follows:]

         Prepared Statement of Hon. Susan Ness, Commissioner, 
                   Federal Communications Commission

    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to appear before you today.
    I welcome a dialogue between the Commission and our authorizing 
Committee. In particular, I am pleased to review with you our 
performance over the past 18 months and our efforts to fulfill our 
statutory obligations under the Telecommunications Act of 1996 and 
other laws. I also welcome your guidance on the issues that are pending 
before us, on our efforts to promote competition, deregulation, and 
universal service, and on how we can best meet the challenges ahead.
    This interaction between the Commission and our Oversight Committee 
is especially valuable now, during a period of monumental change. The 
telecommunications and information industries are undergoing a 
transition of epic proportions. Digitization and Internet technology 
are splintering the regulatory structures of the past. Convergence is 
presenting an abundance of new opportunities--and challenges--as voice, 
data, audio and video are delivered over a host of new technologies. 
Ten years ago, data represented less than five percent of all 
telecommunications traffic. Today, data is surpassing voice traffic and 
in the near future will represent the lion's share of traffic on our 
nation's telecommunications network. The Internet is moving at an 
astonishing clip to become integrated into the daily life of consumers, 
in ways that will profoundly change commerce in the 21st Century.
    Demand for bandwidth is burgeoning, and a variety of players, 
embracing different technologies, are racing to be the provider of 
choice. Telephone companies are rolling out digital subscriber line 
services, and cable companies are offering cable modems, each spurring 
the other to deploy broadband faster and more extensively. Meanwhile, 
fixed and mobile wireless, satellites and even broadcast stations, are 
investing to expand consumer choices. The potential for consumer 
benefits is enormous, but the challenge for traditional regulatory 
paradigms is also substantial.
                        managing the transition
    The changes that are underway are attributable as much to 
technology as to law and regulation. They are also a product of the 
availability of capital, management skill, and entrepreneurship. But 
law is still a critical part of the equation. The right legal framework 
can stimulate investment, risk-taking, and competition; the wrong 
framework can delay and distort marketplace activity.
    Recognizing an historic opportunity, and desiring to spur increased 
competition and innovation, Congress passed the Telecommunications Act 
of 1996. The full consequences of that law and of the FCC's efforts to 
implement it can be measured only over a longer sweep of time than 
three years. And any given individual's assessment, at any point in 
time, will necessarily find both strengths and weaknesses in the 
various judgments that have been made. Still, I believe that the law 
generally is working successfully, especially now that most of the 
judicial challenges have been resolved. The nature and velocity of the 
marketplace developments that are now underway are unprecedented, and I 
believe that the vast majority of consumers will reap substantial 
benefits. Further, these benefits will increase as remaining market-
opening difficulties are overcome, and competition expands its reach.
    Congress has established clear goals, and the means to get there. 
The overarching goal is ``to accelerate rapidly private sector 
deployment of advanced telecommunications and information technologies 
to all Americans . . .'' The primary tool is competition, which to 
varying degrees requires both regulation (see, e.g., 47 U.S.C. 
Sec. 251(c) (obligations of incumbent local exchange carriers) and 
deregulation (see, e.g., 47 U.S.C. Sec. 160) (forbearance)).
    Thanks to decisions that predate the Telecommunications Act, we are 
already well along in the development of fully competitive and 
unregulated markets for long distance service, information services, 
customer-premises equipment, and wireless services. In these areas, 
choice is abundant, innovation is rampant, and prices are declining. 
Much of this progress has occurred fairly recently.
    Consider: just three years ago most residential consumers paid 20 
or 25 cents a minute for a long distance call. Today, 10-cent-a-minute 
(or even lower) rate plans are widely available, and special offers 
abound, such as all-you can-talk pricing for weekends and free calls on 
Monday nights. (To be sure, not all consumers are reaping the benefits 
of lower prices. Some low-volume long distance consumers have been 
bombarded with additional charges and fees that exceed the savings in 
per-minute rates, which should be explored.)
    In commercial mobile radio service, the benefits of competition 
have been even more dramatic. A few years ago, a wireless call commonly 
cost 50 to 75 cents a minute, and customers paid hefty roaming fees. 
But when the first PCS providers challenged the cellular incumbents, 
rates plummeted 25 percent. They dropped even further as the 4th, 5th, 
or even 6th operators joined the fray. And now we have ``one-rate'' 
pricing, where consumers are offered big ``buckets'' of minutes that 
equate to as low as 10 cents a minute--and often with regional or 
national calling and no roaming fees. Now, it is often cheaper to make 
an intrastate toll call by wireless phone than over the wired telephone 
system.
    Similarly, many international call prices have plunged as countries 
implement their World Trade Organization market-opening commitments, 
and as the FCC enforces its accounting rate policies. Virtually 
everyone who makes a significant volume of international calls has seen 
a significant drop in rates.
    Competition has been more elusive in the video and local telephone 
markets, but even here there are signs of progress. With more than 10 
million subscribers, DBS is becoming a more credible competitor to 
cable, and competitive local exchange carriers are making inroads 
against incumbent local exchange carriers in business markets and in a 
small, but growing number of residential markets as well.
    In these markets, the challenge is to manage a successful 
transition from regulated monopoly to unregulated competition as we 
maintain our commitment to universal service.
    This transition is complicated. New services and technologies are 
surfacing that do not fit neatly into discrete regulatory structures. 
This leads both to creative tensions, and to certain anomalies.
    We need to remember that the development of full competition takes 
time. Just as we saw in the long distance market, and more recently 
with wireless services, there is often a gestation period of multiple 
years between the time when key steps are taken to promote competition 
and when robust competition actually emerges. This is particularly true 
when unnecessary litigation prolongs uncertainty, and deters 
investment.
    As we seek to accelerate the transition to competition, we need to 
be willing to trust the market to work, as we did when we denied state 
petitions to retain price regulation of commercial mobile radio 
services. But we also need to be careful not to undermine basic tenets 
of the Telecommunications Act. Sometimes, when we hear pleas to 
restrict or eliminate a particular requirement, the provision in 
question is one that Congress carefully chose as a tool to enable 
competition (see, e.g., 47 U.S.C. Sec. Sec. 251(c)(obligations of 
incumbent local exchange carriers) 271 (Bell entry into long distance), 
628 (program access)). It may even be a provision that Congress 
specifically told us not to use our forbearance authority to circumvent 
(47 U.S.C. Sec. 160(d) (referencing Sec. Sec. 251(c) and 271)).
    We also need to think with greater care about the layers of 
regulation that can flow from different levels of government. An 
incumbent or a new entrant may need to deal not only with the 
requirements of the Communications Act and the FCC, but also with state 
and local laws and regulations. Each layer of government has its own 
responsibilities, and its own legitimacy, but where possible we need to 
strive for cooperation, consistency and efficiency, to advance the 
national goals of competition, universal service, and deregulation.
    We have made considerable progress working with our state and local 
government colleagues in a renewed spirit of cooperation. Our 
partnership with the state commissioners, in particular, is vastly 
stronger than it was when I joined the Commission in 1994. Our local 
and state government advisory committee has also made significant 
progress by identifying practical solutions to thorny issues such as 
wireless antenna siting.
                           guiding principles
    As we move forward with our implementation of the 
Telecommunications Act, and with an evolution in the philosophy and 
structure of the FCC, I am guided by certain principles:
    First and foremost, of course, I take my direction from the law. It 
is not my place to second-guess the judgments of Congress, or to be 
selective in deciding which provisions of the law will be enforced.
    The law, however, leaves us a measure of discretion, and in 
exercising that discretion our principal goal should be to foster 
competition whenever and wherever possible. And as competition 
advances, regulation can and should retreat. Thus, we must more boldly 
rely on marketplace solutions, rather than the traditional regulation 
of entry, exit, and prices; and on surgical intervention rather than 
complex rules in the case of marketplace failure. The forbearance 
authority which you gave us is an excellent tool, sunset provisions are 
another, as is the biennial review process.
    Another principle is that we should minimize regulatory risk. 
Capital formation is hampered when rule changes are pending or are 
uncertain. Rules and decisions should be as clear and as consistent as 
possible. Decisions--whether in resolving rulemakings or complaints or 
simply in processing routine applications--need to be prompt and 
predictable. Enforcement should be swift and certain, so that 
regulatory delay is not a strategy of choice, a hindrance to market 
entry or an impediment to protecting consumers against inappropriate 
conduct by service providers.
    In addition, government often serves best by focusing a spotlight 
on problems and prodding parties to work together to design solutions. 
Sometimes government can be a useful catalyst for private sector 
solutions that serve better than regulatory prescription to resolve 
competing needs and speed the introduction of new technologies.
    Another basic tenet is that consumer interests should be paramount. 
It is the public, not any particular competitor or group of 
competitors, that we must serve. The Commission should not try to pick 
winners or losers, either individually or by industry sector. Nor 
should we be tempted by short-term ``fixes'' that impede long-term 
objectives.
    Finally, we should continually review our progress. It is important 
to evaluate, regularly and periodically, what is working and what is 
not--especially in such a rapidly changing environment--and then take 
steps to fix it. I do not advocate another major rewrite of the 
Communications Act at this time, for such a reopening of the statute 
would reintroduce uncertainty and deter investment.
    With this as backdrop, I want to elaborate on Commission activity 
over the past 18 months in five areas.
Digital Television
    Effectuating a successful transition to digital television for the 
benefit of consumers is an important Commission goal. Notwithstanding 
the growth of other media delivery systems, such as cable, DBS and the 
Internet, free, over-the-air television remains unparalleled in its 
pervasiveness and influence. Local broadcasters have been given the 
opportunity to participate in the digital revolution that is affecting 
every other segment of the communications and information industries. 
By the same token, consumers should have the opportunity to enjoy the 
numerous benefits--HDTV, multi-channel standard definition TV, and a 
host of ancillary and supplemental services--that DTV broadcasting can 
bring.
    The transition to digital is no simple matter, and no one should 
expect an overnight success. While I am encouraged by the progress that 
has been made to date, much remains to be done.
    The good news is that 75 stations are already on the air, which is 
ahead of the FCC-prescribed implementation schedule. But many 
problems--both technical and regulatory-- remain which are hindering a 
successful transition for industry and for consumers. We still need a 
greater quantity of innovative programming that will attract DTV 
viewers, and more affordable DTV receivers to attract more DTV 
programming (the ``chicken-and-the-egg problem''). We need the industry 
to resolve its knotty digital copyright issues so that compelling 
programming can be shown. We need better compatibility between digital 
cable service and DTV receivers. And we need even greater accommodation 
between cable operators and television broadcasters.
    My strong preference is for market-driven solutions to these 
problems, whenever possible. The Commission's role is primarily to 
highlight obstacles, facilitate dialogue among the stakeholders, and to 
guide, prod, shepherd, cajole, jawbone, and otherwise stimulate the 
development of solutions. Regulation is the tool of last resort, and 
any prescriptive (or proscriptive) intervention should be carefully 
thought through and proportionate to the circumstances.
Universal Service
    Another high priority is universal service. Again there is good 
news, and again there is much unfinished business.
    The Telecommunications Act of 1996 strengthened our nation's 
commitment to an inclusive vision in which communications services are 
available to all Americans. The new law reaffirmed long-standing 
policies of assisting low-income consumers, and those in high-cost 
areas, in obtaining access to high-quality, affordable telephone 
service. The new law also extended the concept of universal service by 
providing for targeted assistance to elementary and secondary schools, 
libraries, and rural health care providers. I am deeply committed to 
all of our universal service goals.
    The good news here is that the low-income support mechanism has 
been maintained and expanded, that consumers in high-cost areas are 
continuing to obtain high-quality services at affordable rates, and 
that we have launched the schools and libraries and rural health care 
support mechanisms. Each of these elements of universal service is 
important; all of them, collectively, will help to build stronger 
communities, a stronger economy, and a brighter future for our nation.
    The high-cost issues are extraordinarily complex and require 
special care. The Telecommunications Act is clear that we should not 
disrupt the ability of rural telephone companies--some 1300 strong--to 
serve their communities. We have followed that guidance and largely 
left rural telcos ``off the table'' for purposes of pending 
proceedings. In addition, the Federal-State Joint Board on Universal 
Service has appointed a Rural Task Force that is studying these issues. 
But as you know, we are proceeding with caution, consistent with your 
guidance.
    Even with the larger telephone companies, where more of the 
subsidies that keep rural rates affordable are implicit and therefore 
potentially vulnerable to erosion by competition, we are moving ahead 
with care. The risk of introducing unintended consequences is great. 
The challenge is to reform high-cost support mechanisms in a way that 
ensures that consumers will continue to have access to affordable, 
quality telecommunications services while being economically efficient, 
compatible with competition, and fair to both high-cost and low-cost 
states.
    We want to avoid unnecessary complexity or artificiality. We want 
to target support to the areas where costs are truly high. We want to 
avoid treading on the toes of state regulators, who (in the case of the 
larger telephone companies) are the ones that manage most of the 
implicit subsidies that keep rural phone rates affordable today. We 
want to avoid locking in legacy systems or hindering the emergence of 
new technologies and new competition. We want to avoid creating both 
the reality and the appearance of rate increases.
    And candidly, it is not clear how best to effectuate all of these 
goals simultaneously. Provided that consumers in high cost areas are 
continuing to enjoy access to telecommunications services at affordable 
and reasonably comparable rates, we can and should incrementally make 
explicit the implicit subsidies between carriers.
    Obviously, high cost mechanisms will continue to require a great 
deal of time and effort within the Commission, working closely with the 
Joint Board. But in the meantime, it is important for you to know that 
we are not reducing the support that is currently provided by the 
interstate jurisdiction; indeed, we are actively exploring ways to 
target additional federal support where it is needed. Further, the 
Joint Board has found that preexisting sources of implicit subsidy are 
not at this time being eroded. It helps a great deal that 
communications is a declining cost business and that demand for 
communications services is soaring, so despite some inroads made by 
competitors, the incumbents are continuing to grow and prosper.
Broadband Deployment
    I am personally committed to enabling all Americans to benefit in 
the communications revolution. As advanced services are rolled out, I 
want to ensure that rural America is included.
    Broadband services are more than just a means of enabling people to 
communicate more productively. They may provide the means by which to 
stem the tide of migration from the farms to the cities. They may 
enable entrepreneurs to remain in rural areas and develop prosperous 
businesses, boosting local economies. To this end, it is important that 
existing wireline carriers, cable companies, and new wireless and 
satellite ventures alike have the opportunity to bring new services, 
new choices, and new life to rural communities.
    We are still at an early stage in the rollout of broadband 
services, but early indications are that investment and innovation are 
strong, and that rural areas are not being neglected. We will, of 
course, keep a close eye as events continue to unfold.
International Issues
    Over the past eighteen months, the FCC has played a major role in 
expanding access to global communications at affordable rates. We have 
achieved some real successes in our efforts to drive international 
accounting rates closer to costs (and in winning a major judicial 
victory on this issue), and in opening global markets to competition 
under the WTO framework. Many countries have emulated the U.S. model by 
establishing independent regulators patterned after the FCC.
    Unfinished work includes continued enforcement of our accounting 
rate policies as we press for an acceptable multilateral resolution of 
this issue. We must also continue to be proactive with our trading 
partners to achieve full WTO compliance where U.S. companies are 
encountering market-access difficulties. And we must deploy the 
resources necessary both to complete WRC 2000 preparation process and 
to engage in meaningful and frequent negotiations with our trading 
partners sufficiently in advance of the Conference on the full range of 
spectrum issues that will be addressed. I am encouraged that regional 
bodies charged with developing spectrum management policies are opening 
up their processes. More regular bilateral discussions with our trading 
partners on spectrum management issues could serve to facilitate 
cooperative and timely resolutions of many of these issues.
Spectrum Management
    Surging demand for commercial use of the finite spectrum resource, 
both internationally and in the U.S., coupled with the technical 
complexities inherent in sharing spectrum, are propelling us to take a 
fresh look at our spectrum management policies. As global 
communications systems and terrestrial wireless networks proliferate, 
they often are competing for use of the same spectrum. Where feasible, 
there may be value in harmonizing spectrum allocation and assignment 
policies with our trading partners, particularly to implement global 
systems.
    As the demand for spectrum grows, the supply of useable spectrum 
shrinks. Consequently, we need to review our spectrum management 
policies to ensure that they provide incentives for private sector 
development of efficient spectrum use technologies. I am intrigued by 
the discussion at our recent en banc on spectrum management of 
software-defined radios as one way to increase both flexibility and 
efficiency of use.
                        ``reinventing'' the fcc
    As the marketplace changes, so too must the FCC. The Commission 
must continue to evaluate ways in which we can be more efficient and 
responsive. A process to do that is currently underway, and a dialogue 
with our authorizing Committees is obviously vital to the decisions 
that must be made.
    Two months ago, Chairman Kennard released his draft report, ``A New 
Federal Communications Commission for the 21st Century.'' This report 
provides an excellent starting point for any discussion of FCC 
organization and mission. The Chairman has also sought public 
discussion by arranging three forums (the first of which was held on 
May 20). Each of my colleagues has proffered thoughtful suggestions for 
streamlining and improving FCC performance.
    In the meantime, we must not permit ourselves to be diverted from 
the matters at hand. We do have unfinished business, and many market 
participants need to have timely resolution of issues that are pending 
before us. In this context, I am most grateful for the recent 
statements of the Majority Leader that ``Congress should start 
empowering the FCC rather than criticizing its individual decisions'' 
and of my colleague, Commissioner Michael Powell, who accurately 
observed, ``The agency cannot right its ship if stakeholders spend most 
of their time rocking the boat.''
                               conclusion
    Consumers are already reaping many benefits from competition 
fostered by past decisions of Congress and the FCC. The 
Telecommunications Act and its implementation by the FCC and the state 
commissions are expanding the realm of competition, and expanding the 
potential for consumer benefits. Yet the pace of change in 
communications markets is still accelerating, and care must be taken to 
ensure that national goals remain in focus.
    The FCC's main challenges during this historic transition are to 
know when to intervene and when not; to use creatively and judiciously 
the wide assortment of tools available as we move from monopoly to 
competition; and, at all times, to keep the interest of consumers 
paramount. Only then will we be fulfilling Congress' vision of 
competition and deregulation for the benefit of all Americans.
    Thank you very much for inviting me to testify before you today. I 
am happy to answer your questions.

    The Chairman. Thank you very much.
    Commissioner Tristani.

   STATEMENT OF HON. GLORIA TRISTANI, COMMISSIONER, FEDERAL 
                   COMMUNICATIONS COMMISSION

    Ms. Tristani. Thank you, Mr. Chairman. You caught me a 
little bit unawares. Not our usual order of speaking here.
    I am delighted to be here to discuss the role of the FCC as 
we continue to work toward the goals set forth in the 
Telecommunications Act of 1996 and in the Communications Act. 
First and foremost in my mind is universal service. We are 
working to ensure that universal service support does not erode 
as competition develops. I believe the Commission will take 
important steps at tomorrow's agenda meeting to resolve key 
issues relating to high-cost support for non-rural carriers.
    Both at the Commission and as a member of the Federal-State 
Joint Board on Universal Service, I have been pleased to 
observe the increasingly cooperative relationship between 
Federal and State commissioners in fulfilling Congress' goals 
for universal service reform.
    Second, I would like to express my continuing support for 
the 
E-rate program. I plan to cast my vote at tomorrow's agenda 
meeting to fully fund the E-rate program at $2.25 billion for 
the upcoming school year. I appreciate the support that many in 
Congress have expressed for the program, which I believe is a 
crucial step toward improving education in this country and 
preparing the United States to compete in the new global 
economy.
    Another way in which we can provide all Americans access to 
telecommunications is to fully and meaningfully implement 
section 255's mandate that telecommunications services be 
accessible to and usable by individuals with disabilities if 
readily achievable. In fulfilling this requirement, we must 
recognize that telecommunications plays a foundational role in 
our society. The ability to use telecommunications is now a 
prerequisite for many jobs, making access to such services 
vital to those 54 million Americans with disabilities.
    Our commitment to access should be ongoing. Future rule-
makings should routinely examine the effect of the proposed 
action on people with disabilities.
    Another of my priorities is effective implementation of our 
enhanced 911 rules for wireless providers. In our mobile 
society, wireless phones play a vital public safety role. We 
recently adopted new requirements for improved 911 call 
completion and I am eager to proceed with resolution of 
remaining implementation issues.
    An area of increasing importance to all Americans is 
broadband deployment. Access to broadband capacity is critical 
for our citizens to compete in the information economy of the 
twenty-first century. This year we issued our first section 706 
report, which was guardedly optimistic about the state of 
broadband deployment while recognizing that it is still too 
early in the process to declare victory.
    Indeed, with respect to rural and other hard to serve 
areas, I remain more guarded than optimistic. I am not yet 
convinced that these Americans will have access to advanced 
services on a reasonable and timely basis. I look forward to 
working with Members of Congress to ensure that rural consumers 
will not be left behind as advanced services become a 
marketplace reality in many other areas of the country.
    On the broadcast side, one of the things that we have been 
working on to broaden opportunities for all Americans are new 
equal employment opportunity rules. There are those who 
question whether we can craft new EEO rules that will withstand 
judicial review. I do not doubt that any rules we adopt will be 
challenged in court and I have no illusions that some will not 
argue that even the most modest EEO rules require the strictest 
judicial scrutiny.
    But if the burden of proof is high, so are the stakes. I 
believe we must make every effort to develop a meaningful EEO 
program that can and will be sustained.
    Although much of the Commission's work addresses the broad 
structure of the telecommunications industry, the actions I 
have drawn the most satisfaction from are those that directly 
improve the daily lives of average Americans. That is why I 
strongly supported the rules that we adopted last December to 
combat slamming, and I am profoundly disappointed that the D.C. 
Circuit Court stayed a significant portion of those rules last 
week just as they were about to become effective.
    In the wake of the stay, I continue to support the 
Commission's aggressive enforcement efforts against slammers, 
which I hope and expect will reduce the frequency with which 
consumers are slammed until we have new rules in place.
    Another consumer issue which I have been intensely 
interested in is the V-chip. This is the year that the V-chip 
will become a reality. I was honored to have been appointed by 
Chairman Kennard to head an FCC task force to ensure that the 
impending rollout of the V-chip is a success. I commend you, 
Mr. Chairman, and other Members of this Committee for your 
early and vigorous leadership on this issue.
    Again, I thank you for the opportunity to be here. I have a 
longer statement that I would appreciate being included in the 
record, and I look forward to answering any questions you may 
have.
    [The prepared statement of Commissioner Tristani follows:]

   Prepared Statement of Hon. Gloria Tristani, Commissioner, Federal 
                       Communications Commission

    Good morning Mr. Chairman and Members of the Committee. I am 
pleased to be here today to discuss the role of the FCC as we continue 
to work toward the goal set forth in the Telecommunications Act of 1996 
of opening telecommunications markets to competition for the benefit of 
all Americans. I'm also pleased to report that we have made some 
progress in the past year. I wanted to update the Committee on some 
things we have accomplished and where we might go from here.
    First and foremost is universal service. In rural states like my 
home state of New Mexico, universal service permits average Americans 
to have phone service who otherwise would not be able to afford it. 
Right now, we are working to ensure that universal service support does 
not erode as competition develops. I believe the Commission will take 
important steps at tomorrow's Agenda meeting to resolve key issues 
relating to high-cost support for non-rural carriers. The Commission 
not only will address the recommendations that the Federal-State Joint 
Board on Universal Service submitted for its consideration last 
November but also will take additional steps toward implementing the 
economic model that will ultimately be used to determine support 
amounts. Both at the Commission and as a member of the Joint Board, I 
have been pleased to observe the increasingly cooperative relationship 
between federal and state commissioners in fulfilling Congress' goals 
for universal service reform.
    One aspect of universal service that is particularly important to 
me is connecting unserved areas. In enacting Section 254, Congress told 
us not only to ``preserve'' but to ``advance'' universal service. I see 
no more worthy means of advancing universal service than to devise 
creative solutions to problem of unserved areas. In many of these 
areas, customers remain unserved because the alternative is to pay the 
local phone company thousands of dollars to have a line extended to 
their home. This is unacceptable. I believe the federal government, in 
the interest of advancing universal service, must take a more active 
role in connecting all Americans.
    I would note that many unserved areas are on Indian lands, and that 
Indians are among the poorest groups of Americans. Chairman Kennard has 
recognized this problem, and I commend his leadership on this issue. 
Earlier this year, the Chairman and I held a field hearing in New 
Mexico where we took testimony and visited Indian reservations to learn 
firsthand about the causes of this problem and some possible solutions. 
Subsequently, Commissioner Ness and Commissioner Furchtgott-Roth joined 
Chairman Kennard for similar field hearings in Arizona. Those hearings 
marked the beginning of a real commitment in the area of 
telecommunications to better fulfill the federal government's trust 
obligation with respect to Indians living on reservations.
    In addition, I would like to express my continuing support for the 
e-rate program. I plan to cast my vote at tomorrow's Agenda meeting to 
fully fund the e-rate program at $2.25 billion for the upcoming school 
year. I appreciate the support that many in Congress have expressed for 
our implementation of this program, which I believe is a crucial step 
toward improving education in this country and preparing the United 
States to compete in the new global economy. The goals of the program 
are sound and I am convinced that the e-rate funds that have recently 
been committed to schools and libraries around the country will 
generate enormous social and economic benefits for the nation in the 
years ahead.
    Another way in which we can provide all Americans access to 
telecommunications is to fully and meaningfully implement Section 255's 
mandate that telecommunications services be ``accessible to and usable 
by individuals with disabilities, if readily achievable.'' In 
implementing this requirement, we must recognize not only that the 
telecommunications sector is one of the largest and fastest growing in 
our economy, but also that it plays a crucial foundational role in our 
society. The ability to use telecommunications is now a prerequisite 
for many jobs, making access to such services vital to those 54 million 
Americans with disabilities. While I look forward to completing our 
Section 255 rulemaking soon, we must not stop there. Our commitment to 
access should be ongoing. Future rulemakings should routinely examine 
the effect of the proposed action on people with disabilities.
    Another of my priorities is effective implementation of our 
enhanced 911 rules for wireless providers. In our mobile society, 
wireless phones play a vital public safety role. We recently adopted 
new requirements for improved 911 call completion, and I am eager to 
proceed with resolution of remaining implementation issues such as 
technology choice, cost-recovery and liability limitations. I also 
applaud the initiatives pending in Congress on liability and 
designating 911 as a national emergency number.
    An area of increasing importance to all Americans is broadband 
deployment. Access to broadband capacity will be a crucial tool for our 
citizens to compete in the information economy of the 21st century. In 
Section 706 of the 1996 Act, Congress directed the Commission to 
monitor the roll-out of advanced telecommunications capability, and, if 
necessary, take steps to ensure that all Americans have access to such 
capability on a reasonable and timely basis. This year, we issued our 
first Section 706 Report, which was guardedly optimistic about the 
state of broadband deployment while recognizing that it is still too 
early in the process to declare victory. Indeed, with respect to rural 
and other hard-to-serve areas, I remain more guarded than optimistic. I 
am not yet convinced that these Americans will have access to advanced 
services on a reasonable and timely basis. This is an area I will 
continue to pursue aggressively, consistent with Congress' intent. 
Indeed, in the past week we received a letter from ten Senators setting 
forth several specific and thoughtful suggestions on how we could 
encourage the deployment of advanced services to rural areas. I look 
forward to working with members of Congress to ensure that rural 
consumers will not be left behind as advanced telecommunications 
services become a marketplace reality in many areas of the country.
    I believe there are two ways to accelerate the rollout of advanced 
services. The first is to ensure that competitors have access to the 
basic building blocks of advanced services that are controlled by 
incumbent LECs. That includes things like conditioned local loops and 
collocation space. Competitors can then combine those inputs with their 
own advanced services equipment to offer high speed connections to end 
users. The Commission recently strengthened its collocation rules and 
in the near future the Commission will, I hope, formally reinstate the 
requirement that conditioned loops be made available to competitors.
    The second way to spur advanced services is to make sure we're not 
overregulating the provision of those services by incumbent LECs. I 
recognize that there may be markets where, unlike the market for basic 
local telephone service, incumbents do not have a hundred-year head 
start. We need to think carefully before applying rules that may be 
ill-suited for such emerging markets. If we proceed thoughtfully in 
this area, I am optimistic that the FCC's policies will provide the 
right incentives for both new entrants and incumbents to furnish the 
bandwidth that millions of consumers are asking for.
    On the broadcast side, one of the things that we have been working 
on to broaden opportunities for all Americans are new rules on Equal 
Employment Opportunity. As the Committee is aware, this past year a 
panel of the U.S. Court of Appeals for the District of Columbia Circuit 
struck down the outreach portions of our previous EEO rules because it 
believed (wrongly, I think) that our rules effectively required hiring 
decisions based on race. We are working on new rules that will address 
the court's concerns while ensuring that all segments of the community 
have the opportunity to participate in, own, and see themselves 
reflected in, the media that has such a pervasive impact on our 
nation's cultural and political life.
    There are those who question whether we can craft new EEO rules 
that will withstand judicial review. I do not doubt that any rules we 
adopt will be challenged in court, and I have no illusions that some 
will argue that even the most modest EEO rules require the strictest 
judicial scrutiny. But if the burden of proof is high, so are the 
stakes. I believe we must make every effort to develop a meaningful EEO 
program that can and will be sustained.
    Although much of the Commission's work addresses the broad 
structure of the telecommunications industry, the actions I've drawn 
the most satisfaction from are those that directly improve the daily 
lives of average Americans. That is why I strongly supported the rules 
we adopted last December to combat slamming. I am profoundly 
disappointed that the D.C. Circuit stayed a significant portion of 
those rules last week, just as they were about to become effective. In 
the wake of the stay, I continue to support the Commission's aggressive 
enforcement efforts against slammers, which I hope and expect will 
reduce the frequency with which consumers are slammed until we have new 
rules in place.
    Another consumer issue in which I've been intensely interested is 
the V-chip. This is the year that the V-chip will finally become a 
reality in the lives of average Americans. By July 1, half of the new 
television models with screens thirteen inches or larger must have a V-
chip installed. By January 1, 2000, all such sets must have a V-chip. 
This will empower parents to protect their children from material that 
they deem unsuitable for their children. I commend you, Mr. Chairman, 
and other members of this Committee for your early and vigorous 
leadership on this issue.
    I was honored to have been appointed by Chairman Kennard to head an 
FCC Task Force to ensure that the impending roll-out of the V-chip is a 
success. One of the most important objectives of the Task Force is to 
ensure that all parts of the blocking system are in place and working, 
so that a parent who buys a TV set can be assured that the blocking 
function will work. We also will be working with various industry, 
consumer and other groups to educate parents about the V-chip and how 
it can be used in their daily lives.
    Once again, I appreciate the opportunity to testify before you 
today.

    The Chairman. Thank you very much.
    Commissioner Furchtgott-Roth.

  STATEMENT OF HON. HAROLD W. FURCHTGOTT-ROTH, COMMISSIONER, 
               FEDERAL COMMUNICATIONS COMMISSION

    Mr. Furchtgott-Roth. Thank you, Mr. Chairman, members of 
the committee. I am deeply humbled and honored to appear before 
you today. I cannot think of this room without thinking of the 
1996 Act and the importance of the Commission following the law 
as it is written.
    Four years ago I sat in this room, probably sat around this 
very table, as a House staffer, perhaps a little wet behind the 
ears, negotiating language on the Telecommunications Act for 
the House. The staff debates on language were intense and 
lengthy. We on the House side championed competition plain and 
simple. I believed then and I believe now that the greatest 
friend of the consumer is not a complicated Federal program 
that takes an army of Washington lawyers to decipher. The 
greatest friend of the consumer today is a new competitor 
offering better services and lower prices, and then tomorrow an 
even better friend comes along offering yet better services and 
even lower prices.
    I argued on behalf of the House that competition needed to 
be complete, that barriers to entry needed to be removed, and 
that competition needed to be unencumbered by complex 
regulation.
    The Senate side also championed competition, but with grave 
concerns about the future of telecommunications in rural 
America, and that is how the 1996 Act came to be. It is about 
competition. It is also about some special considerations for 
rural America.
    Competition has come about because the law now allows it, 
because consumers demand it, and technology will not be 
stopped. Competition has not come about because we have fancy 
computer cost models. In competitive markets prices are set by 
supply and demand, not by computer models.
    The Commission has made enormous progress in many areas in 
the past year, including E-911 services, access for the 
disabled, and several deregulatory efforts. I commend Chairman 
Kennard for his many successes.
    We have not made as much progress, however, in one area and 
that is securing a permanent solution to universal service, and 
I would like to spend a few moments on that topic. Rural 
America has been protected as a vestige of preexisting 
programs, not because we have done anything new or novel at the 
Commission.
    Today at the FCC--today the FCC looks at rural high- cost 
universal service support and some look at it through the lens 
of a very complicated computer cost model. Over the last decade 
the economies of the Soviet Union and communist regimes around 
the world have crumbled. They have collapsed in part because 
their governments tried to set all prices centrally. To most 
Americans and believers in free markets, centralized pricing 
was doomed to failure.
    But at the Commission we are told that they had perhaps the 
right concept, only the wrong computer model. To these 
observers of economic regulation, the Soviet Union might have 
been saved if only Bill Gates or Steven Jobs had been born in 
Russia.
    It takes more than a week to run the FCC's high-cost model. 
I suspect that the Soviet pricing models of the late 1980's 
could run faster. As an economist who has worked much of my 
career with economic cost models, I have little confidence in 
the results of models that take more than a few hours, that 
take even an hour to run, much less hundreds of hours.
    The FCC model spews out one set of numbers one month, a 
substantially different set of numbers the next month. I do not 
have any confidence that I know where high-cost money would 
come from or go to if we fully implemented the cost model 
today, and I would certainly not know where the money would 
flow when the model changes next month, the month after, 6 
months from now, or 10 years from now.
    This model is being proposed just for large carriers. Who 
knows what mechanism will be applied to small rural carriers if 
we ever manage to get to them, certainly not in this century.
    Today we hear concerns that perhaps OMB and CBO will start 
applying going-forward rules, pay as you go rules, on universal 
service. So we do not really know what will happen to universal 
service in the future.
    Computer models that can change at whim will change at 
whim. Is there anyone on this Committee who can say that he or 
she knows where and how much Federal high-cost support would go 
to his or her State? Has anyone been briefed on this topic by 
the Commission? Is there anyone who would like to explain this 
situation to a constituent? Keep in mind, the answer for large 
carriers is contained in a computer cost model that takes more 
than 100 hours to run, and the answer for small carriers--well, 
we will get to that later.
    The problem for the FCC is not that we do not have the 
right computer cost model. We simply are headed in the wrong 
direction on rural high-cost support--wrong priorities, wrong 
concepts. The statute neither mentions nor contemplates any 
form of cost model for universal service, but the Commission 
has decided that these extremely cumbersome models must be used 
to distribute high-cost universal service funds, regardless of 
how long it takes for the Commission to try to finalize them.
    It is with great disappointment that I must conclude that 
in my opinion the Commission has made very little progress on 
these universal service issues in the last year. I discussed 
these in my testimony last year to this Committee. Once again, 
it appears that the Commission is poised to proceed with only 
one aspect of universal service at the same time that it delays 
higher priorities.
    Thank you, Mr. Chairman and members of the committee. I 
look forward to guidance from this committee on how the 
Commission should proceed.
    [The prepared statement of Commissioner Furchtgott-Roth 
follows:]

  Prepared Statement of Hon. Harold W. Furchtgott-Roth, Commissioner, 
                   Federal Communications Commission

                              introduction
    Mr. Chairman, Senators, I am honored today to appear before this 
Committee.
    The Commission has enormous responsibilities under the 
Communications Act. You see before you five Commissioners who have 
worked hard and always with the best of intentions of implementing the 
Act. We have, from time to time, disagreed on specific Commission 
decisions, but we have also made great progress in many areas 
including, to name just a few: implementation of Section 255 for access 
to telecommunications service for persons with disabilities, E911 
services, enforcement of anti-piracy regulations, and the initial 
implementation of Section 11 on regulatory reform.
    Perhaps no single issue has received more attention than universal 
service, one of the cornerstones of the Telecommunications Act of 1996, 
embodied in Section 254 of the Act. To date, the Commission has not 
fully implemented all parts of this section. On previous occasions, I 
have raised several concerns about this fractured implementation and 
about the Commission's promulgation of rules that appear to be 
inconsistent with the statute. As for the Commission's implementation 
of universal service, however, I must regretfully inform the Committee 
that the Commission has made little progress in the last year. Another 
year goes by, and the result is another billion dollars for the e-rate 
program and another deferral for the high-cost program. Next year at 
this time, the Commission may well be here explaining why it must raise 
the e-rate tax again and why the cost models are almost ready and can 
be implemented if we can just extend the high-cost deadline by another 
six months.
    As I stated on several occasions last year: priorities matter.\1\ I 
remain convinced that rural, high-cost universal service is not just 
one of many objectives of Section 254; it should be the highest 
priority. The federal government has had universal service programs for 
rural, high-cost areas and for low-income Americans for many years. 
Section 254 embodied these ideals and set forth goals that emphasize 
rural, high-cost support as well as low-income support and other 
objectives.
---------------------------------------------------------------------------
    \1\ See, e.g., Dissenting Statement of Commissioner Harold 
Furchtgott-Roth Regarding the Report to Congress in Response to Senate 
Bill 1768 and Conference Report on H.R. 3579, rel. May 8, 1998.
---------------------------------------------------------------------------
                           universal service
    Almost one year ago, June 10, 1998, the Commission appeared before 
the Subcommittee on Communications of this Committee. At that time, the 
Commission's implementation of Section 254 and universal service was a 
prominent issue. And at that time I expressed my view that, in addition 
to numerous legal errors, the Commission had failed to implement 
Section 254 of the Telecommunications Act in a manner that reflected 
the priorities of Congress in general or of this Committee in 
particular.
    It is with great disappointment that I must inform you that, in my 
opinion, the Commission has made very little progress on these 
universal service issues in the last year. Indeed, almost all of the 
issues that I raised in my testimony of one year ago are still relevant 
today. While I have attached last year's testimony for your 
convenience, I would like to take a moment and review some of the 
issues I raised at that time and their current relevance.\2\
---------------------------------------------------------------------------
    \2\ Testimony of Harold W. Furchtgott-Roth, before the Subcommittee 
on Communications of the Senate Committee on Commerce, science, and 
Transportation, June 10, 1998 (Attachment I).
---------------------------------------------------------------------------
             commerce committee priorities left unattended
    Last year, I voiced my concern with this agency's responsiveness to 
Congressional intent in its implementation of Section 254. I noted that 
the Senate Commerce Committee had particular concerns that rural 
America not be left behind.

        The views of what was affectionately known as the Senate 
        Commerce Committee Farm Team were unmistakable: Section 254 on 
        universal service was of the People, by the People, and for the 
        People of high-cost, rural America. There were, to be sure, 
        other important components of universal service: low-income, 
        telemedicine, and schools and libraries. But these other 
        elements were dwarfed in both the language and the intent of 
        Section 254.

    Indeed, at this time last year, Congressional leaders sent the 
Commission a letter reiterating that ``our nation's core universal 
service program--i.e., support for high-cost and rural America--goes 
unattended by the Commission.'' At the time of the hearing, however, 
the Commission was already intending to delay the January 1, 1999 
implantation of high-cost Issues.
    In contrast, I also noted that, while perhaps not fully vetted, 
quick answers had been found for other components of universal 
service--namely the schools and libraries program. The Commission has 
repeatedly proceeded with some universal service programs while at the 
same time delaying higher priority issues.
    Once again, it now appears that the Commission is poised to proceed 
with only one aspect of universal service and at the same time delay 
higher priorities.
    Last year, I concluded that rural, high-cost issues should not be 
deferred while other aspects of universal service move forward.

        Rurals high-cost universal service issues should not be 
        resolved and implemented in some dim and distant future after 
        all other universal service issues have been resolved; rural, 
        high-cost universal service issues should be resolved and 
        implemented first. Rural, high-cost universal service should 
        not be viewed as the residual after enormous amounts for other 
        federal universal service obligations have been promised; 
        rural, high-cost universal service should receive the lion's 
        share of any increase in the federal universal service fund.

    While I recall the Commission providing numerous assurances that 
high-cost would not get left behind, here we are one year later and 
where is the Commission? Again seeking to raise the schools and 
libraries program by another billion dollars. And what about high-cost? 
The Commission is about to announce the second extension of time in the 
last year until at least January 1, 2000 for large-carrier high-cost 
implementation.
    And what about small company high-cost support? It will be 
addressed in some dim and distant future. It would appear to be the 
Commission's lowest priority.
        high-cost universal service and complicated cost models
    Nor do I believe that the Commission is converging on a solution to 
the high-cost universal service issues. While the Commission has 
continued to move forward with some of its universal service projects, 
it has ignored other statutory mandates.
    Almost one year ago, the Chairman and ranking members of the Senate 
and House Commerce Committees demanded that the FCC' ``suspend further 
collection of funding for its schools and libraries program, and 
proceed with a rulemaking that implements all universal service 
programs in a manner that reflects the priorities established by 
Congress in the Telecommunications Act of 1996.'' \3\ But the 
Commission continues to proceed with selected universal service 
programs, while at the same time delaying these higher priority issues.
---------------------------------------------------------------------------
    \3\ See, e.g., Letter from The Honorable John McCain, Chairman, 
Senate Committee on Commerce; The Honorable Ernest F. Hollings, Ranking 
Minority Member, Senate Committee on Commerce; The Honorable Tom 
Bliley, Chairman, House Committee on Commerce; The Honorable John D. 
Dingell, Ranking Minority Member, House Committee on Commerce; to The 
Honorable William Kennard, Chairman, Federal Communications Commission, 
June 4, 1998.
---------------------------------------------------------------------------
    And what could be the reason that the Commission has failed to act 
on high-cost universal service issues? I believe it is, at least in 
part, because the Commission has decided to use extremely complicated, 
complex, economic, computer, cost models. The statute neither mentions 
nor contemplates any form of cost model for universal service, but the 
Commission has decided that these extremely cumbersome models should be 
used to distribute high-cost universal service funds. How complicated 
are these models? It takes more than 180 computer hours to run the cost 
model program from start to finish. As an economist who has worked with 
economic models for much of my professional career, I have little 
confidence in the results of models that take hours to run--much less 
hundred of hours.
    Moreover, I have concerns about the results that could be produced 
by this model. Thus, I provide some illustrative results from model 
runs, by both wire center and study area, as attachments.\4\
---------------------------------------------------------------------------
    \4\ See Attachments II and III. The Joint Board recommended that 
the Commission use a cost-based benchmark with a range of 115% to 150% 
of the national weighted average. Second Recommended Decision, 13 FCC 
Rcd at 24761. The Joint Board also considered establishing a state's 
responsibility based on a percentage of intrastate telecommunications 
revenues somewhere between 3% and 6%. Second Recommended Decision, 13 
FCC Rcd at 24762. For illustrative purposes, my attachments assume a 
benchmark of approximately 135% and roughly a 6% contribution.
---------------------------------------------------------------------------
             universal service should not burden consumers
    One year ago I also voiced my concern that rates for many Americans 
would soon rise, ironically, all in the name of universal service. Once 
again, ``the Commission may soon vote to increase rates to support 
funds for certain universal service programs.''
    I continue to oppose using such access charge reductions to fund 
the e-rate program. The American consumer, not federal bureaucrats, 
should choose how to spend any reductions in access charges. Moreover, 
even if access charges are reduced, not all of the e-rate contributors 
benefit from such reductions. For example, there will be no offsetting 
reduction in access charges whatsoever for wireless customers who will 
simply have to pay higher rates. Similarly, there is no assurance that 
the consumers who benefit from access charge reductions will be the 
same consumers who wll bear the new universal service burden. For 
example, business consumers could disproportionaelty benefit from the 
access charge reduction while residential consumers pay for new 
universal service fees.
    In addition, unlike last year, there may not be any offsetting 
reductions in access charges for any consumers. Last Friday, the D.C. 
Circuit reversed and remanded the Commission's 1997 decision regarding 
the decrease in access charges that is scheduled to take place on July 
1, 1999. Under the Court's Order, the Commission must reconsider those 
reductions or at lease provide further explanation before the scheduled 
reductions can occur.
    Some at the Commission had argued that this scheduled decrease in 
access charges would offset the increase in the schools and libraries 
program that the Chairman has been urging. But the Court has delayed 
these reductions. Even if the Commission seeks to stay the Court's 
opinion while it reconsiders the productivity factor, it is unlikely 
that the Commission will be able to guarantee what reductions will take 
place prior to the Commission's vote this Thursday to increase the 
schools and libraries contribution.
    Thus, on Thursday, the net result to consumers will be an increase 
of $1 billion dollars in e-rate fees without a corresponding decrease 
in long distance charges.
             universal service should benefit rural america
    The rural, high-cost universal service program was not just one of 
many objectives of Section 254 of the Telecommunications Act; it was 
its highest priority. There are other goals of Section 254, but it is 
difficult to read Section 254 in its entirety and understand how a 
federal universal service fund program could have as its primary 
emphasis anything other than rural support. It is hard to dispute that 
the universal service section of the Telecommunications Act of 1996 was 
primarily intended to aid rural America.
    With that goal in mind, let us examine what has taken place over 
the last year. Federal universal service support has nearly doubled in 
size since passage of the Act. But amazingly, most of that growth has 
not benefited rural states. Instead, growth of universal service has 
been for other programs that largely flow to other areas of the 
country. Indeed, the schools and libraries program estimates that rural 
schools have received only 22% of that programs dollars committed in 
the first year.\5\ For the Committee's convenience, I have attached a 
state-by-state breakdown of the schools and libraries program 
receipts.\6\
---------------------------------------------------------------------------
    \5\ See National Rural/Urban Statistical Analysis (as of 2/27/99) 
found on the Schools and Libraries Division Website.
    \6\ See Attachment IV.
---------------------------------------------------------------------------
                    telecommunications merger review
    The Commission has pending before it numerous license transfers, of 
which a select few have been singled out by the Commission for stricter 
scrutiny. I testified regarding the concerns that I have with the 
process the Commission has established for this purpose yesterday 
before the Subcommittee on Commercial and Administrative Law of the 
Committee on the Judiciary of he House of Representatives. I have 
attached a copy of that testimony for the convenience of this 
Committee.\7\
---------------------------------------------------------------------------
    \7\ See Attachment V.
---------------------------------------------------------------------------
                               __________

                              ATTACHMENT I

Prepared Statement of Harold W. Furchtgott-Roth, Commissioner, Federal 
  Communications Commission, at a hearing before the Subcommittee on 
   Communications of the Senate Committee on Commerce, Science, and 
                     Transportation, June 10, 1998

    Mr. Chairman, Senators. I am honored today to appear before this 
Committee.
    Less than seven months ago, I was a nominee before this Committee; 
today I am a Commissioner of the Federal Communications Commission. I 
thank you for that honor and privilege.
    The Commission has enormous responsibilities under the 
Communications Act. You see before you five Commissioners who have 
worked hard and always with the best of intentions of implementing the 
Act. We have, from time to time, disagreed on specific Commission 
decisions. But I believe that we share a commitment to implementing the 
Act faithfully as written, to implement all of its parts and not just a 
selective few, and not to go beyond the letter of Act.
                          commission successes
    Under Chairman Kennard's brief tenure, we have made great progress 
in many areas including, to name just a few: implementation of the 
World Trade Organization agreement, the transition to digital 
television, the implementation of Section 255 for access to 
telecommunications service for persons with disabilities, E911 
services, enforcement of anti-piracy and anti-slamming regulations, and 
the initial implementation of Section 11 on regulatory reform.
    This list is not exhaustive. Nor have these issues been easy. But 
we have worked together as a Commission, resolved to find the best 
answer under the law and in the consumer interest. Perhaps we have 
issues resolved better than others. I am confident that the Commission 
has the openness to improve our decisions and regulations when better 
answers are found.
    For all of the accomplishments of the past six months, much remains 
to be done at the Commission. It is a busy place. We have numerous 
petitions from companies and private parties to take specific actions. 
We have countless complaints and comments from the public on specific 
issues.
                           universal service
    Perhaps no single issue has received more attention than universal 
service, one of the cornerstones of the Telecommunications Act of 1996, 
embodied in Section 254 of the Act. The implementation of Section 254 
has not been easy for the Commission. A great deal of effort by many 
well-intentioned people have been absorbed by the implementation of 
Section 254. Sadly, we appear to be far away from final implementation.
    One of the difficulties of implementation has been the language of 
Section 254 itself. It is demanding and exacting in many respects. The 
language of the Section is narrow in many areas; in those areas, the 
Commission has little flexibility in interpretation. The Commission can 
and must implement all aspects of universal service, including 
discounts to schools and libraries for telecommunications services as 
provided by statute.
    To date, the Commission has not fully implemented all parts of this 
section. I raised several concerns about this fractured implementation 
and about the Commission's promulgation of rules that appear to be 
inconsistent with the statute in some of my recent comments on 
Commission reports to Congress regarding universal service.\1\
---------------------------------------------------------------------------
    \1\ Dissenting Statement of Commissioner Harold Furchtgott-Roth 
Regarding the Federal-State Joint Board Report to Congress, rel. April 
10, 1998; Dissenting Statement of Commissioner Harold Furchtgott-Roth 
Regarding the Report to Congress in Response to Senate Bill 1768 and 
Conference Report on H.R. 3579, rel. May 8, 1998.
---------------------------------------------------------------------------
                     commerce committee priorities
    Another difficulty in the implementation of Section 254 has been 
the Commission's responsiveness to Congressional intent. It is in the 
realm of priorities, of Congressional intent, that I particularly seek 
guidance from this Committee.
    Nearly three years ago, I sat in this room for endless hours, and 
days, and weeks, and months as a Congressional staffer during the 
Conference on the Telecommunications Act of 1996. I learned a lot in 
conference, not just about the specific details of the law, but also 
about the Senate, about this Committee, about how it works, and about 
its priorities.
    As a House staffer, I had instructions to make sure that the law 
was good for consumers: lower prices, more innovation, greater choice 
through competition. The Senate Commerce Committee, however, had 
additional concerns, and in particular concerns that rural America not 
be left behind.
    The views of what was affectionately known as the Senate Commerce 
Committee Farm Team were unmistakable: Section 254 on universal service 
was of the People, by the People, and for the People of high-cost, 
rural America. There were, to be sure, other important components of 
universal service: low-income, telemedicine, and schools and libraries. 
But these other elements were dwarfed in both the language and the 
intent of Section 254.
    It seems that time and time again, the importance of high-cost, 
rural America to this Congress and this Committee is reinforced. Just 
last week Congressional leaders sent me a letter stating: ``our 
nation's core universal service program--i.e. support for high-cost and 
rural America--goes unattended by the Commission.''
                           priorities matter
    As I stated only a month ago in this Commission's last report to 
Congress: priorities matter.\2\ I remain convinced that rural, high-
cost universal service is not just one of many objectives of Section 
254; it should be the highest priority. The federal government has had 
universal service programs for rural, high-cost areas and for low-
income Americans for many years. Section 254 embodied these ideals and 
set forth goals that emphasize rural, high-cost support as well as low-
income support and other objectives.
---------------------------------------------------------------------------
    \2\ Dissenting Statement of Commissioner Harold Furchtgott-Roth 
Regarding the Report to Congress in Response to Senate Bill 1768 and 
Conference Report on H.R. 3579, rel. May 8, 1998.
---------------------------------------------------------------------------
    I was very disturbed that, at yesterday's en banc meeting, the 
Commission suggested referring some aspects of the high-cost program 
back to the joint board, precipitating a need to miss the January 1, 
1999 implementation date, while at the same time advocating full steam 
ahead on other new universal service programs. Make no mistake: the 
Commission is not converging on a solution to the high-cost universal 
service issue, and we should not rush to judgment to find a quick 
solution to a complicated problem just because promises about timing 
have been made to an important constituency. I fully support referral 
to the States who alone may be in a position to find the best answers 
to the high-cost issues.
    Yet quick, although perhaps not fully vetted, answers have been 
found for other components of universal service. Indeed, despite 
repeated Congressional requests to suspend further collections and 
``proceed with a rulemaking that implements all universal service 
programs in a manner that reflects the priorities established by 
Congress . . .,'' the Commission seems poised to proceed with some 
universal service programs while at the same time delaying higher 
priority issues.
    Rural, high-cost universal service issues should not be resolved 
and implemented in some dim and distant future after all other 
universal service issues have been resolved; rural, high-cost universal 
service issues should be resolved and implemented first. Rural, high-
cost universal service should not be viewed as the residual after 
enormous amounts for other federal universal service obligations have 
been promised; rural, high-cost universal service should receive the 
lion's share of any increase in the federal universal service fund.
             universal service should not burden consumers
    I am also concerned that rates for many Americans may soon rise, 
ironically, all in the name of universal service. The Commission may 
soon vote to increase rates to support funds for certain universal 
service programs. To be sure, there will be some offsetting reductions 
in access charges for some consumers, but not for all. And there will 
be no offsetting reduction in access charges whatsoever for wireless 
customers who will simply have to pay higher rates. I am willing to 
defend rate increases that are necessary to meet statutory requirements 
and Congressional priorities; I am not willing to defend rate increases 
that are necessary for neither.
                     a future for universal service
    Universal service is a difficult issue. That is precisely why 
Congress placed it in statute rather than continuing to rely on chance 
outcomes of regulations. I am committed to having the Commission follow 
the Communications Act as it is written. I believe that, if faithfully 
followed, Section 254 can meet all of its goals of universal service 
for all Americans. If we do not follow the statutory language, we are 
hopelessly lost. It is a difficult challenge, but one which this 
Commission is capable of meeting.
    I am sure that I speak for all of us in saying that we look forward 
to guidance from this Committee.

                             ATTACHMENT II



                             ATTACHMENT III



                             ATTACHMENT IV




                              ATTACHMENT V

     Testimony of Harold W. Furchtgott-Roth, Commissioner, Federal 
  Communications Commission, before the U.S. House of Representatives 
      Committee on the Judiciary, Subcommittee on Commercial and 
           Administrative Law Oversight Hearing, May 25, 1999

          novel procedures in fcc license transfer proceedings
    Thank you for the opportunity to appear before your distinguished 
Subcommittee on Commercial and Administrative Law. The topic for 
today's hearing is ``Novel Procedures in FCC License Transfer 
Proceedings.''
    At the outset, I would like to emphasize that debates about process 
are not trivial debates. To the contrary, regularity and fairness of 
process are central to a governmental system based on the rule of law. 
As the law recognizes in many different areas, the denial of a 
procedural right can result in the abridgment of a substantive right. 
Not the least of these areas is administrative law, the jurisdiction of 
this Subcommittee. The Administrative Procedure Act (APA) is grounded 
in the notions that fair processes result in better regulations, and 
that participatory processes result in regulations that people can 
accept, even if they disagree with them. Indeed, procedural fairness is 
so fundamental a principle in our legal system that the Framers 
expressly guaranteed it in the Constitution. See U.S. Const. Amdmt. V 
(``No person shall . . . be deprived of life, liberty, or property, 
without due process of law. . . .'').
    It is no secret that I have been, and remain, deeply concerned 
about the novel procedures currently being employed by the FCC in 
license transfer proceedings. My concerns arise out of the legal 
problems with the processes and standards--or more precisely, the lack 
thereof--that the Commission uses to evaluate applications for the 
transfer of licenses. The aggregate effect of these problems, described 
in detail below, is to create an administrative scheme that undermines 
the principles of fundamental fairness and procedural due process, the 
hallmarks of the APA.
The FCC Lacks ``Merger'' Review Authority Under the Communications Act
    As a threshold matter, I would like to correct a common 
misperception about the scope of the Commission's authority when 
reviewing license transactions involving merging parties. Contrary to 
its frequent assertions, the Commission does not possess statutory 
authority under the Communications Act to review, writ large, the 
mergers or acquisitions of communications companies. Rather, that Act 
charges the Commission with a much narrower task: review of the 
proposed transfer of radio station licenses from one party to another 
and review of the proposed transfer of interstate operational 
authorizations for common carriers. Nothing in the Communications Act 
speaks of jurisdiction to approve or disapprove the mergers that may 
occasion a transferor's desire to pass licenses on to a transferee.\1\ 
Under that Act, the Commission is, at most, required to determine 
whether the transfer of licenses serves the public interest, 
convenience and necessity.\2\
---------------------------------------------------------------------------
    \1\ 47 U.S.C. section 310(d) provides: ``No . . . station license . 
. . shall be transferred . . . to any person except upon application to 
Commission and upon finding by the Commission that the public interest, 
convenience, and necessity will be served thereby,'' i.e., by the 
license transfer. Section 214(a) states: ``No carrier shall undertake 
the construction of a new line or of an extension of any line, or shall 
acquire or operate any lines, or extension thereof, or shall engage in 
transmission over or by means of such additional or extended lines, 
unless and until there shall first have been obtained from the 
Commission a certificate that the present or future public convenience 
and necessity require or will require the construction, or operation, 
or construction and operation, of such additional or extended line.'' 
Notably, section 214(a) contains no ``public interest'' language at n1)
    \2\ The Commission does possess authority under the Clayton Act, 
which prohibits combinations in restraint of trade, to review mergers 
per se. See 15 U.S.C. section 21 (granting FCC authority to enforce 
Clayton Act where applicable to common carriers engaged in wire or 
radio communication or radio transmission of energy). That power is 
rarely invoked by the commission, however. If the Commission intends to 
exercise authority over mergers and acquisitions as such, it ought to 
do so pursuant to the Clayton Act, not the licensing provisions of the 
Communications Act.
---------------------------------------------------------------------------
    To be sure, the transfer of radio licenses and common carrier 
authorizations is an important part of any merger. But it is simply not 
the same thing. A merger is a much larger and more complicated set of 
events than the transfer of FCC permits. It includes, to name but a few 
things, the passage of legal title for many assets other than radio 
licenses, corporate restructuring, stock swaps or purchases, and the 
consolidation of corporate headquarters and personnel.
    Clearly, then, asking whether the particularized transaction of a 
license transfer would serve the public interest, convenience, and 
necessity entails a significantly more limited focus than contemplating 
the industry-wide effects of a merger between the transferee and 
transferor. For instance, in considering the transfer of licenses, one 
might ask whether there is any reason to think that the proposed 
transferee would not put the relevant spectrum to efficient use or 
comply with applicable Commission regulations; one would not, by 
contrast, consider how the combination of the two companies might 
affect other competitors in the industry. One might also consider the 
benefits of the transfer, but not of the merger generally. And one 
might consider the transferee's proposed use and disposition of the 
actual licenses, but one would not venture into an examination of 
services provided by the transferee that do not even involve the use of 
those licenses, as the Commission often does.
    By using the license transfer provisions of the Communications Act 
to assert jurisdiction over the entire merger of two companies that 
happen to be the transferee and transferor of licenses, the Commission 
greatly expands its organic authority. Certainly, in the context of a 
merger, license transfers occur as a result of the merger, but the 
Commission should not use this causative fact to bootstrap itself into 
jurisdiction over the merger. If control of licenses were to be 
transferred ``as a result of '' a licensee's bankruptcy, would the 
Commission assert jurisdiction to review the legal propriety of the 
declaration of bankruptcy? That would be preposterous, as that is a job 
for a bankruptcy court. Review of the merger of two communications 
companies which, just like the bankruptcy in my hypothetical, is an 
underlying cause of the transfer in question, is a job for the 
Department of Justice. Expanding our review of license transfers to a 
review of the event that precipitates the transfers-- whether that 
event is a merger a bankruptcy, or any other event that might lead a 
licensee to cede control of a license--is off the statutory mark.
    Despite the Commission's effort to exercise power over ``mergers'' 
under sections 914 and 310 of the Communications Act, it must be 
remembered that, in the end, the Commission can only refuse to permit 
the transfer of the relevant licenses. While such action would no doubt 
threaten consummation of a proposed merger, the Commission cannot--
despite its threats to do so in licensing orders \3\--directly forbid 
the stockholders of one company from selling their shares to the other.
---------------------------------------------------------------------------
    \3\ See, e.g, In the Matter of Applications for Consent to the 
Transfer of Control of Licenses and Section 214 Authorizations from 
Tele-Communications, Inc., Transferor, AT&T Corp., Transferee, CS 
Docket No. 98-178 (released Feb. 18, 1999), at para. 112 (purporting to 
prohibit the applicants from ``consummat[ing] the merger'').
---------------------------------------------------------------------------
    Put simply, the scope of FCC review ought to accord with the scope 
of our remedies: that is, it ought to be limited to considering (i) 
whether the public would suffer harm if radio licenses are transferred 
from Party A to Party B3, and (ii) whether the public convenience and 
necessity would be served by allowing Party A to convey authorizations 
to operate carrier lines to Party B. The fact that most orders 
involving mergers do not even identify the radio licenses or section 
214 authorizations at issue or discuss the consequences of their 
conveyance, but instead move directly to a discussion of the merger, 
reflects how far the Commission has strayed from the provisions of the 
Act.
    The exercise of power not authorized in the Communications Act is 
not just an independent strong: it also creates a violation of the 
Administrative Procedure Act. As the members of this Subcommittee well 
know, the APA requires a reviewing court to ``hold unlawful and set 
aside agency action'' that is ``in excess of statutory jurisdiction, 
authority, or limitations.'' 5 U.S.C. section 706(2)(C). This critical 
provision of the APA provides enforcement of the statutory limits on 
agency action and recourse for their transgression. Should the 
Commission ever purport to prohibit a ``merger''--as opposed to the 
simple transfer of licenses--I believe that action would violate this 
linchpin of the APA.
    Moreover, if the Commission stuck closely to its statutory 
authority, the adverse affects of the procedural practices that you 
have asked me to testify about today, while still legally problematic, 
would be greatly mitigated as a practical matter.
Potentially Arbitrary Review: Choice of Transfers for Full-Scale 
        Review, Procedures to be Employed, and Substantive Standards To 
        Be Applied
    Beyond the threshold question of statutory authority to regulate 
mergers, I have grave concerns about the process employed in FCC merger 
reviews, the subject of today's hearings. The Commission annually 
approves tens of thousands of license transfers without any scrutiny or 
comment, while others receive minimal review, and a few are subjected 
to intense regulatory scrutiny. For example, mergers of companies like 
Mobil and Exxon involve the transfer of a substantial number of radio 
licenses, many of the same kind of licenses as those at issue in other 
high-profile proceedings, such as AT&T/TCI, and yet we take no 
Commission level action on those transfer applications. I do not 
advocate extensive review of all license transfer applications, but 
mean only to illustrate that we apply highly disparate levels of review 
to applications that arise under identical statutory provisions.
    Unfortunately, there is no established Commission standard for 
distinguishing between the license transfers that trigger extensive 
analysis by the full Commission and those that do not. Nor do any of 
the Commission's orders in ``merger'' reviews elucidate the standard. 
Unfortunately, the orders tend to conclusorily assert that some mergers 
warrant heavy review and others do not.\4\ This is not a very helpful 
explanation. Regulated entities and even their often sophisticated 
counsel are left to wonder: Is the question whether the merging firms 
are large, successful corporations? (That is one of the obvious 
differences between the mergers that receive heavy attention from the 
Commission and those that do not.) Does the level of review depend on 
the type of services offered by the merging companies, i.e. a 
telephone/cable merger (such as AT&T/TCI) gets one sort of review, 
while a telephone/telephone merger (such as SBC/Ameritech) gets 
another? In short, merging parties have no clear notice as to the 
threshold showing for determining the scale of FCC license transfer 
review.
---------------------------------------------------------------------------
    \4\ See, e.g, Applications for Consent to the Transfer of Control, 
supra n. 3, at para. 16 (stating, without elaboration, that ``the face 
of some merger applications may reveal that the merger could not 
frustrate or undermine our policies'').
---------------------------------------------------------------------------
    If the answer is, as some have suggested, that the Commission 
reviews extensively only a subclass of license transfer applications--
those occasioned by mergers with the potential to affect the 
telecommunications industry--that response is incomplete. Whatever the 
soundness of this theory for distinguishing among transfer 
applications, it is not written anywhere, whether in agency rules, 
regulations, policy statements, or even internal agency guidelines. 
While the Communications Act does allow the Commission to make 
reasonable classifications of applications, see 47 U.S.C. section 
309(g), the Commission has in no way done so, much less in a way that 
puts the public on notice as to what those classifications are. Agency 
decisions regarding which license transfers to review, even as among 
license transfers occasioned by mergers, are entirely ad hoc and thus 
run a high risk of being made arbitrarily.
    Nor does the Commission have any established procedures for the 
handling of applications for license transfers. Any particular 
application on any particular day could be: adopted at a Commission 
meeting; voted by the Commission on circulation; processed with or 
without a formal hearing; processed with or without so-called ``public 
fora'': handled with or without additional private ``talks'' between 
the companies, interested parties, Commission staff, and individual, 
especially interested members of the Commission; granted with or 
without conditions; finalized after 90 days or 90 weeks, etc. The list 
goes on almost indefinitely.
    Section 1.1 of the Practice and Procedure subpart of the 
Commission's rules, entitled ``Proceedings before the Commission.'' 
does nothing to remedy the open-ended nature of Commission processes. 
It states that ``[t]he Commission may on its own motion or petition of 
any interested party hold such proceedings as it may deem necessary 
from time to time'' and ``[p]rocedures to be followed by the Commission 
shall . . . be such as in the opinion of the Commission will best serve 
the purposes of such proceedings.'' 47 C.F.R. section 1.1. This rule, 
written by the Commission, establishes only that the Commission can do 
essentially whatever it wants. There is nothing constraining or useful 
about this section.
    Moreover, this rule--the only general one about procedures on the 
Commission's books--is routinely flouted. Section 1.1. allows ``the 
Commission'' to decide on appropriate procedures. Under the 
Communications Act, ``the Commission'' is defined as being ``composed 
of five Commissioners appointed by the President, by and with the 
advice of the Senate, one of whom the President shall designate as 
chairman.'' 47 U.S.C. section 4(a). During my tenure, however, 
important procedural issues have not been decided upon by the full 
Commission, as section 1.1. requires; rather the Chairman seems to 
believe that he can set procedural rules on his own. This is contrary, 
however, to the little that section 1.1 actually does require--namely, 
full Commission action.
    The extraordinary process to which SBC and Ameritech are now being 
subjected--which includes ``discussions'' between the companies and 
Common Carrier Bureau staff unauthorized by the full Commission, with 
Chairman-set ``ground rules'' that are wholly unenforceable and thus 
subject to change at his personal whim--is illustrative of what happens 
when there are no limits on Commission discretion with respect to 
procedures.\5\
---------------------------------------------------------------------------
    \5\I express, of course, no view on the merits of this application. 
My exclusive focus here is on the process that employed to evaluate it. 
Accordingly, nothing in my testimony should be taken as reflective of 
any opinion on the question whether SBC and Ameritech are in compliance 
with Commission rules.
---------------------------------------------------------------------------
    Since there are no rules governing procedures (I do not think 
section 1.1 can fairly be said to be a rule of anything except 
unfettered discretion), the Commission (or even just the Chairman?) is 
free to change the procedural rules of the road from transaction to 
transaction, and even in the midst of a single transaction. Individual 
companies can be dragged through long and expensive proceedings, with 
full-fledged Commission action, while others have their applications 
promptly granted by the staff, with no rationale for the grossly 
disparate treatment--except for perhaps the cynical one that the 
Commission is favoring certain industries or companies. And individual 
companies can be subjected to this unprecedented processes at the 
direction, apparently, of the Chairman himself, without consultation or 
agreement by the full Commission. This is simply not the right way to 
run a licensing agency or to deal with the licensees who pay the 
regulatory fees that fund this agency.
    Finally, if the Commission did establish a threshold test for 
determining which license transfer applications should receive strict 
scrutiny, and what kinds of process it should utilize, the Commission 
would still need to set out the substantive tests for the differing 
scrutiny levels. As a general matter, our decisional precedents provide 
little concrete guidance on the substantive standard for approval of 
Title II or Title III license transfers: the proposition that a merger 
is in the ``public interest'' if it is not anti-competitive (or if it 
is also pro-competitive) is too generalized to be of any real help. 
Moreover, there is clearly a different ``public interest'' test being 
applied, sub silentio, in different cases under the same statutory 
provisions usually sections 310 and 214. The cases that undergo 
extensive inquiry exhaustively discuss all kinds of service areas and 
issues ancillary to the use of the actual radio licenses, and the 
decisions that are granted at the Bureau level are relatively 
perfunctory in their public interest analysis. We should, after 
identifying the threshold test for license transfers that warrant 
thorough inquiry, articulate clearer substantive criteria to guide the 
Commission's inquiry.
    The long and short of it is this: regulated entities have little 
basis for knowing, ex ante, how their applications will be treated, 
either procedurally or substantively. The license transfer process at 
the Commission is lacking in any transparent, fixed and meaningful 
standards. A person--even a well-trained lawyer--who wished to prepare 
for this process could find scant guidance in public sources of law, 
such as the Code of Federal Regulations or the Commission's 
adjudicatory orders. Rather, one would have to be trained in the 
unwritten ways of this Commission to know what to expect, and those 
expectations unfortunately would have little relation to federal 
administrative law.
    While obviously troublesome on an intuitive level, such a license 
transfer process suffers from at least four particular flaws under the 
APA. First, the wholly ad hoc nature of this process makes it all too 
easy for decisionmakers to discriminate among industries and even 
companies--in other words, to engage in arbitrary and capricious 
review. Protecting against such decisionsmaking is, of course, a core 
function of the Administrative Procedure Act. See 5 U.S.C. section 
706(2)(A) (reviewing court must ``'aside agency action . . . found to 
be arbitrary [and] capricious'').
    Second, and relatedly, by failing to state clearly the principles 
that it uses to judge license transfers, the Commission decreases the 
viability of meaningful judicial review. The net result is to undermine 
the statutory right of aggrieved parties to judicial review. See id. 
section 702 (``A person suffering legal wrong because of agency action, 
or adversely affected or aggrieved by agency action within the meaning 
of a relevant statute, is entitled to judicial review thereof.''). That 
right of review is an interested party's primary defense against 
arbitrary agency decisions.
    Third, the nonascertainable nature of the license transfer process 
means that interested parties have no fair notice as to the regulatory 
constraints on their conduct. Notice of what the law requires--i.e., 
which behavior is prohibited and which is permissible--is a bedrock 
element of fairness in our legal system, derivative of the Due Process 
Clause. No person should be penalized for violating a rule that is 
either so vague as to give no clear indication of the prescribed 
conduct, or entirely unpublished and thus unavailable to the public, 
residing only in the minds of regulators. The notice and comment 
procedures of the APA are designed to safeguard against lack of fair 
notice. They require notification, and an opportunity to participate in 
the making, of the standards that govern interested parties. See id 
section 553(b)-(c). Indeed. the whole rulemaking system of the APA is 
based on the assumption that governing standards will be published and 
public before they go into effect, allowing regulated parties a certain 
amount of time to conform their conduct to the new federal standards. 
See id section 553(d) (``The required publication or service of a 
substantive rule shall be made not less than 30 days before its 
effective date. . . .'').
    Finally, as Senator McCain recently pointed out in a letter to 
Chairman Kennard to concerning the pending SBC/Ameritech applications, 
the unpredictability of the Commission's procedures cast a pall on the 
Commission's impartiality. Specifically, when the Commission subjects 
parties to a novel, extended, and unwieldy process to which it has not 
subjected similarly situated applicants, a reasonable person might 
think that the decisionmakers possessed a bias--a bias manifesting 
itself in the especially high and numerous procedural hoops through 
which the decisionmakers were forcing the companies to jump. 
Unfortunately, the manipulation of procedural rules can be a cover for 
discrimination on the merits. The appearance of partiality created by 
the use of such highly unusual procedures contravenes the core 
principle of the APA (again based on the constitutional concerns of 
procedural due process) that decisionmakers be neutral. See 2 Davis & 
Pierce, Administrative Law Treatise at page 67 (3d ed. 1994) (``Due 
process requires a neutral, or unbiased, adjudicatory decisionmaker. 
Scholars and judges consistently characterize provision of a neutral 
decisionmaker as one of the three or four core requirements of a system 
of fair adjudicatory decisionmaking.'').
    To quote Senator McCain:

         A proceeding of . . . importance and potential consequences 
        must be attended, not only with every element of fairness, but 
        with the very appearance of complete fairness. That is the only 
        way its conduct will meet the basic requirement of due process. 
        Amos Treat and Co., Inc v. SEC, 306 F.2d 260 (D.C.Cir. 1962). 
        The Commission's objectivity and impartiality are unavoidably 
        opened to challenge by the adoption of procedures from which a 
        disinterested observer may conclude that it has in some measure 
        adjudged the facts as well as the law a case in advance of 
        fully hearing it. See e.g., Gilligan, Will & Co. v. SEC, 267 
        F.2d 461 (D.C.Cir. 1959).

    Letter from Sen. John McCain to Chairman William E. Kennard, May 
12, 1999.
    For the above reasons, it seems to me that the Commission's lack of 
guidelines regarding the process and substance of license transfer 
proceedings is in serious tension with the principles that undergird 
the APA.
Potential Constitutional Problems With A Boundless ``Public Interest'' 
        Test
    The statutory test to be applied to license transfers is, of 
course, the ``public interest'' standard. As noted above, the 
Commission has failed to place any outer limits whatsoever on this 
concept, freely reinterpreting the standard in each new case. Not only 
does the Commission's lack of clear guidelines with respect to 
standards governing license applications present issues of arbitrary 
decisionmaking and of fair notice, as discussed above, it may also 
create constitutional issues with respect to the non-delegation 
doctrine.
    This month, the United States Court of Appeals for the D.C. Circuit 
ruled in American Trucking Ass'n v. EPA, 1999 WL300618 (May 14, 1999) 
that the EPA's failure to adopt ``intelligible principles'' for 
implementing its statutory mandate to regulate air pollution effected 
an unconstitutional delegation of legislative power. The Court 
explained that ``[w]here . . . statutory language and an existing 
agency interpretation involve an unconstitutional delegation of power, 
but an interpretation without the constitutional weakness is or may be 
available, our response is not to strike down the statute but to give 
the agency an opportunity to extract a determinate standard on its 
town.'' Id at *6. According to this case and its precedential 
forebears, see International Union, UAW v. OSHA, 938 F.2d 1310 (D.C. 
Cir. 1991), this agency has a constitutional duty to choose 
interpretations of statutory language that avoid, rather than create, 
non-delegation doctrine problems.
    I believe that the FCC has not satisfied its obligation under 
American Trucking to adopt ``determinate, binding standards,'' 1999 WL 
300618 at *6, in order to channel its discretion under the ``public 
interest'' provisions. Putting aside the question of the breadth of the 
statutory standard itself, the Commission has not articulated any clear 
principles about what that standard means in the context of merger 
review; how it applies to different entities; and what justifies a 
departure from standard practice, to name just a few of the major 
outposts on the license transfer trail. In short, there are no self-
defined limits--at either end of the spectrum--on the Commission's 
consideration of whether to grant or deny a license transfer when 
mergers are involved, or otherwise. To my mind, this is arguably the 
kind of ``free-wheeling authority [that] might well violate the 
nondelegation doctrine.'' International Union, UAW v. OSHA. 938 F.3d at 
371.
    I have always thought that it was incumbent on the Commission to 
fashion some guidelines to place limits on its discretion as a matter 
of simple fairness. Under American Trucking and International Union, it 
would appear that the Commission also has a constitutional duty to do 
so. This duty it has not even attempted to carry out.
``Conditional'' Approval of License Transfer Applications
    Finally, I express some general apprehension about the 
``conditioning'' of grants for license transfer applications and 
section 214 authorizations. I think it is entirely appropriate, under 
the Commission's organic statute, for the Commission to condition 
license transfer and line extension applications on compliance with 
existing FCC rules or statutory provisions. See 47 U.S.C. section 
303(r) (``Commission shall . . . prescribe such . . . conditions, not 
inconsistent with law, as may be necessary to carry out the provisions 
of this Act''); id. section 214(c) (Commission ``may attach to the 
issuance of [214] certificate such terms and conditions as in its 
judgment the public convenience and necessity may require'').
    All too often, however, this Commission places conditions on 
license transfers that have no basis in the text of the Communications 
Act. That is, the Commission requires companies to do certain things--
things that it could not for lack of statutory authority require 
outright in a rulemaking--as a quo for the quid of receiving a license. 
Again this represents a transgression of the Commission's statutory 
limits and thus a violation of the APA. See 5 U.S.C. section 706(2)(C). 
It could also constitute an evasion of the notice and comment 
provisions of the APA, if the Commission (assuming it follows its own 
decisional precedent) uses its licensing orders to create standards 
that logically apply industry-wide, See id section 553.
    I am also concerned about situations in which this agency becomes 
an enforcer of the rules and regulations of other governmental 
agencies. We have no jurisdiction to enforce rules not promulgated 
under the Communications Act see id. section 303(r) (referring to 
conditions needed to ``carry out the provisions of this Act''), and we 
cannot and should not do the enforcement work of others. This is not to 
say that we should not take official notice, in the course of making 
licensing decisions, of findings by another agency that an applicant 
has violated a regulation in its bailiwick. We should certainly 
consider such findings in determining whether to grant or deny a 
license application. But we should not condition such a decision on 
compliance with another agency's regulation, thus putting ourselves in 
the position of potential enforcer of non-FCC rules should the 
transferee fail to conform to that regulation. For instance, if the 
Department of Justice enters into an antitrust agreement with a party, 
we have no business attempting to enforce the obligations created 
thereunder in our licensing orders.
    I am doubly concerned about conditional FCC approval when the rule 
at issue is not just that of another agency, but when that agency has 
made no formal, final, and material findings of a violation. That is, I 
do not think we should take official notice of alleged violations, 
including manners under investigation or in litigation, or of informal 
concerns that an agency is not yet ready or willing to pursue through 
their own established procedures. When we give formal weight to 
anything short of formal, final findings by other agencies, we create a 
situation that is rife with incentives for inter-agency gaming of the 
system, e.g., registering an objection with an agency about a matter 
that the complaining agency is not prepared to pursue itself, and 
requires the Commission to do extensive reviews in areas where it 
simply has no experience or authority.
    In sum, at the intersection of two areas--non-FCC rules and no 
final determination of a violation by a responsible entity--our 
authority to impose conditions on a license or 214 authorization 
transfer is at its weakest. Where non-FCC rules are at issue but there 
is a final, record finding of a material infraction thereof, there is a 
middle ground: we should take notice of that fact in deciding upon the 
application but not condition approval upon compliance. Finally, where 
extant FCC rules are involved, our power to condition a proposed 
transfer upon compliance with those rules and to enforce compliance, if 
necessary, is at its apex. We should never, however, impose conditions 
that have no basis in the text of the Communications Act, thus using 
our license transfer authority to impose new substantive obligations 
that Congress never contemplated.
                               conclusion
    For the reasons discussed above, I believe that the Commission's 
failure to establish, pursuant to notice and comment, public and 
intelligible principles to channel the exercise of authority delegated 
by Congress raises serious questions under the APA and the 
Constitution. In particular, the use of extraordinary processes in 
individual, high-profile cases threatens to undermine both the 
procedural and substantive rights of regulated entities. I further 
believe that the Commission's practice of attaching ``conditions'' to 
license transfers that lack a basis in the Communications Act or extant 
Commission rules, or that purport to enforce the judgments of other 
federal agencies, is also legally troublesome.
    As an ``independent'' agency, composed of unelected officials who 
have no direct accountability to the American public, I believe that we 
should proceed with heightened reserve when exercising discretionary 
functions If we so proceeded, we could better stay within the bounds of 
our statutory authority, mitigate the potential for arbitrary 
decisionmaking, safeguard the rights of judicial review, provide 
regulated entities with fair notice of the procedural and substantive 
rules governing their applications, avoid the appearance of 
impartiality, and steer clear of the non-delegation doctrine. In short, 
we could better serve the rule of law.

    The Chairman. Commissioner Powell.

  STATEMENT OF HON. MICHAEL K. POWELL, COMMISSIONER, FEDERAL 
                   COMMUNICATIONS COMMISSION

    Mr. Powell. Thank you. Good afternoon, Mr. Chairman and 
members of the committee. It is always a pleasure to appear 
before you.
    I certainly have much to applaud as a result of this 
Commission's efforts over the last year and share in my 
colleagues' assessments of some of those. But in your letter of 
invitation you specifically asked that we consider some of the 
more central and specific statutory mandates in the statute and 
address our progress with regard to them. And so I have chosen 
to direct my remarks to those things that remain yet undone and 
still lay before us, that are nonetheless critical to the 
implementation of the vision that is codified and articulated 
in the 1996 Act.
    I would first direct my comments to the question of 
universal service, which has already been raised. It, of 
course, would be unfair to suggest that the Commission has not 
spent time on universal service. The hours have been endless. 
However, I believe we have deferred for a bit too long the most 
difficult and complex issues that would better rationalize 
universal service in a manner that might actually facilitate 
competition and bring its benefits to rural and high-cost 
customers, such as access reform and pricing flexibility.
    While competitive developments continue to put pressure on 
high-cost subscribers and rates, competitors are first pursuing 
business and low-cost customers to the exclusion of other 
customers. Concurrently, the Government does continue to 
increase rate pressures through actions that demand more and 
more money from the system. The result is that competition does 
languish and the distorted aspects of universal service are 
partially to blame.
    I firmly believe that if we do not confront those problems 
and turn them around, rates may stay low but the levy of 
subsidy fees on consumers could skyrocket and the benefits of 
competition be lost. This would be a profound failure to meet 
the goals of the Act.
    Let me also briefly say something about section 271 
applications. I do continue to appreciate the complaints of 
Bell Operating Companies and others about the heavy burdens 
imposed by our interpretations of the competitive checklist and 
the failure of our procedures to provide timely and complete 
guidance on how to satisfy those burdens, and I appreciate 
these concerns.
    But I would be remiss if I also did not point out that 
Congress provided us only one vehicle by which we can address 
and tackle complex issues related to interLATA relief and that 
is in the adjudicatory context of a filed 271 application. To 
listen to the noise and the complaints, one would believe we 
rejected 20 to 30 applications. We have rejected five and have 
not seen one in almost a year. We have to have the opportunity 
to succeed in order to remedy or address many of the questions 
that have been raised in that context.
    I believe our more collaborative process, however, has 
permitted continued dialogue with the companies to gain a 
better understanding of what is expected. Some companies have 
faithfully participated fully in this process and, though 
perhaps not completely satisfied, have added immeasurably to 
the effort.
    But I think the development you should pay most attention 
to is the fact that many State commissions have adopted 
collaborative processes in their States. Such efforts seem 
likely to produce a number of strong presentations on the 271 
front later this year, and in that context the FCC will have 
another meaningful opportunity to advance Congress's section 
271 objectives of promoting competition in both local and long 
distance telephone markets.
    The topic of the day is advanced services. Convergence, 
digitalization, the rise of IP-based networks, and strategic 
mergers are dramatically changing what we now loosely call the 
industry. As a result, all competitors in these fiercely 
contested markets will attempt to bend the regulatory and 
governmental process to their own commercial will. But as 
Senator McCain noted, our duty is to the public and our first 
instinct must be to stay committed to competition as the 
vehicle for disciplining anti-competitive behavior and the 
engine for driving innovation and as the tool for maximizing 
consumer welfare.
    I still believe that regulation must be the exception in 
this incredibly fast-paced technology-driven environment. The 
regulators' heartfelt rush to lend a helping hand at the first 
sign of anxiety has proven, to my mind, so often to be more 
disruptive and counterproductive than the converse. I believe 
that anyone advocating the extension or intrusion of regulation 
into such a vibrant market bears a heavy burden of proving that 
the public is the one that will be harmed absent doing so.
    Proffered arguments should be eyed skeptically and 
critically. Before regulating in new areas, such as advanced 
services, we should first attempt to make sure we have 
unshackled the full flurry and potential of all competitors.
    Next, a word about regulatory forbearance. I believe one of 
the most valuable tools that Congress trusted us with was 
section 10 and its forbearance authority under the 
Communications Act. I have had some dissatisfaction with the 
Commission's use of this vehicle, but generally with the 
standard that we apply in our analysis more than the outcomes, 
which seems to place the entire burden of forbearance on the 
moving party.
    I believe Congress expected the Commission to accept more 
full responsibility for demonstrating a continued need for 
regulation in the presence of a healthy competitive market or 
where forbearance would promote competition. Indeed, I believe 
the Commission ought to employ a burden-shifting device in 
forbearance cases. We should also undertake substantive and 
factual examination of the rule and its effects to determine if 
the purposes truly must be achieved through regulation instead 
of market forces.
    Finally, or second to last, a word about mergers. I have 
kept an open mind, but I have come to doubt whether the 
marginal value of full-blown merger review by the Federal 
Communications Commission is justified by its costs in time and 
resources. Moreover, with all due respect to our hardworking 
staff, I really do not believe we possess enough personnel 
schooled in the complexities of antitrust and competitive 
economics to do the job well consistently.
    The antitrust authorities do. I believe that there is some 
room to preserve a complementary role for the Federal 
Communications in the review of mergers, but limiting it to its 
areas of expertise. The FCC certainly could consider the 
merger's impact on certain communications policies, such as 
media diversity and universal service, but the Commission would 
defer to the antitrust authority's competitive analysis.
    Finally, I share the concern that the Commission has not 
yet fully examined its broadcast ownership rules, as directed 
by the Act. Congress realized that many of the assumptions 
underlying these rules were formed decades ago when the media 
landscape was quite different. For my part, I have serious 
doubt that these rules could be defended on the same bases and 
justifications given when they were first adopted.
    Nonetheless, I believe that continued anxiety about the 
effects of greater liberalization of the rules on diversity of 
ownership, voices, and programming is the single greatest 
impediment to reaching a consensus and moving this proceeding 
forward. I urge this Committee to take up the ownership 
diversity question and contribute to developing a sustainable 
consensus so that we might move forward on ownership rules, and 
I applaud Chairman McCain's stated commitment to exploring 
ownership diversity and his willingness to possibly lead a 
legislative effort that promotes our cherished national 
commitment to meaningful opportunity in our most robust and 
critical industry.
    I stand ready to assist the Committee and Congress in 
formulating a sound, principle-based diversity initiative that 
will allow us to move forward.
    I thank you for your attention and look forward to your 
questions.
    [The prepared statement of Commissioner Powell follows:]

      Prepared Statement of Hon. Michael K. Powell, Commissioner, 
                   Federal Communications Commission

                              introduction
    Mr. Chairman, distinguished members of the Senate Committee on 
Commerce, Science and Transportation, good morning.
    Thank you for inviting my colleagues and I here today for this 
important oversight hearing. I am pleased to offer my views on the 
Commission's efforts to fulfill the specific statutory responsibilities 
delegated to it by Congress, which I believe should be our first and 
highest priorities. I will focus my remarks on our progress with 
respect to a few of the most important mandates of the 1996 
Telecommunications Act. They are:
     Section 254's Universal Service Provisions
     Section 271 Applications for RBOC entry into Long Distance
     Section 706 and Advanced Services
     Section 10's Regulatory Forbearance Mandate
    I will also briefly address the Commission's merger review efforts, 
its continued delay in re-examining the broadcast ownership rules and 
the question of restructuring the agency.
                           universal service
    Perhaps, the most celebrated aspect of the monopoly phone system 
that existed before the 1996 Act was the degree to which it fostered 
ubiquitous and affordable phone service. In moving away from state-
sanctioned monopoly to a competitive model, Congress was careful to 
ensure that ``universal service'' be ``preserved and advanced.'' In 
other words (chosen by Congress), Commission policies should promote 
access to telecommunications and information services that are 
``reasonably comparable'' to those available in urban areas at 
``reasonably comparable'' rates.
    Yet, Congress also well understood that if the benefits of 
competition were to be realized, the subsidy mechanisms of universal 
service would have to change. Closed monopolies could no longer be 
allowed to subsidize high cost or residential customers implicitly 
through higher rates on low volume and business customers. The reason 
was simple: new competitors would not enter high cost markets, where 
the incumbent alone could subsidize its rates and would instead enter 
business and low cost markets where the margins were much higher. Such 
a condition would deny residential rural and high cost customers the 
promised rewards of competition. To address this distortion, Congress 
commanded that universal service mechanisms be ``specific,'' 
``predictable'' and ``explicit.'' By having the subsidy known and 
portable, competing carriers would have an incentive to compete for 
high cost customers, too, because they could win the subsidy along with 
the customer.
    In addition to the exercise of making implicit subsidies explicit, 
Congress required a number of other measures that would necessarily add 
costs to serving customers. Some were mechanisms designed to facilitate 
competition and its hoped-for benefits, such as local number 
portability, and levying the universal service contribution on a 
broader class of customers, such as wireless carriers. The Schools and 
Libraries program, though its purpose is worthy, required substantial 
increases in money to fund the program, with no direct benefit to 
competition.
    Congress tasked the Commission, thus, to develop a universal 
service system that was ``explicit'' and that would produce a 
``sufficient'' amount of money to ``preserve and advance'' ``reasonably 
comparable'' rates and access to both rural and urban customers. 
Congress understood the importance of doing this quickly, for it set 
relatively tight implementation requirements on the agency.
    Regrettably, I must report that the core of Congress' mandate in 
this regard has not yet been achieved. While most would agree that the 
remnants of the implicit system continue to provide ``reasonably 
comparable'' rates to our citizens, the competitive distortions of the 
implicit system remain, leaving little doubt why CLECs have chosen to 
enter high volume, low cost business markets (where the rates are 
inflated relative to costs) rather than residential markets.
    I am disturbed by this failing. It would be unfair to suggest that 
the Commission has not spent time on universal service--the hours are 
endless. However, I believe we have continued to set aside or bump the 
difficult and complex issues that would rationalize universal service 
in a manner that might actually facilitate competition and its benefits 
to rural and high cost customers, such as access reform and pricing 
flexibility. Yet, at the same time, we have given high priority to 
other programs, such as schools, libraries, and rural health care, that 
require substantial new funds. We dole out these funds much as Congress 
might distribute the benefits of a new federal program. Talk about 
access charge reform and cost reductions and rationalization is too 
often thrown out, not as part of a sound economic public policy 
exercise, but as a political offset to controversial spending programs.
    There is a grave danger here. Competitive pressures that were 
unleashed by the Act and the Commission continue to put pressures on 
high cost subscribers and rates. Competitors, despite their 
protestations to the contrary, continue to pursue business and low cost 
customers to the exclusion of other customers. And, the government 
continues to increase rate pressures through actions that demand more 
and more money from the system. (Proposed increases in the schools and 
libraries program and some proposals for high cost assistance to 
intrastate common line costs require literally billions of dollars of 
new money.)
    The result is that competition languishes, and the distorted, as 
yet un-reformed universal service system is partially to blame. If this 
situation is not turned around, I fear that rates may stay low, but the 
levy of subsidy fees on customers could sky rocket and the benefits of 
competition could be lost. It will not be long before policymakers 
openly suggest greater rate regulation to keep these pressures (that 
they helped create) in check. This would be a profound failure to meet 
the goals of the Act.
                        section 271 applications
    Another central provision of the Act, is section 271, which was 
designed as the vehicle by which a BOC would win authorization to enter 
interLATA markets, while opening their local market to competition. No 
one seems particularly satisfied with the progress on this front, 
except perhaps those competitors that benefit from BOCs being barred 
from lucrative long distance and interLATA data markets.
    I continue to appreciate the complaints of the BOCs about the heavy 
burdens imposed by our interpretation of the checklist, as well as the 
failure of our procedures to provide timely and complete guidance on 
how to satisfy these burdens. Some of these complaints have merit, but 
some of them are merely strategic. I cannot, for example, give too much 
credence to a BOC that complains mightily about our 271 approach, yet 
has never filed a section 271 application with the Commission.
    This Commission has only one viable vehicle for concretely and 
definitely addressing section 271 policy questions and that is in the 
context of a duly-filed application. Congress determined that such a 
proceeding would be adjudicatory in nature and that we would have only 
90 days in which to issue a decision. The only way we really have to 
address the concerns raised by some companies is to get a viable 
application before us. Yet, we have not received a 271 application of 
any sort since July 1998. In fact, the noise level might lead one to 
believe we have rejected 20 or 30 applications, not just five. The only 
way for the Commission to successfully implement Congress' will is if 
the process is given a chance.
    That said, I believe that much progress has been made in terms of 
developing and providing general guidance on section 271 issues. As I, 
and others, urged, the Commission adopted a collaborative process that 
permitted continued dialogue with companies to gain a better 
understanding of what was expected. Some companies have faithfully 
participated in that process, and though not completely satisfied, have 
added immeasurably to the effort. Perhaps, more importantly, state 
commissions have adopted collaborative processes in their states. 
Working extensively in this manner with the companies has been 
extremely productive. Indeed, their good efforts will likely lead to a 
number of strong presentations to the FCC later this year. In that 
context, the FCC will have another meaningful opportunity to advance 
the Congress' section 271 objectives of promoting competition in both 
the local and long distance telephone markets.
                           advanced services
    Recognizing the advent of great technological achievement in 
communications, Congress minted section 706, which charged the 
Commission with encouraging the deployment of advanced services by 
removing regulatory barriers to such deployment. Our initial set of 
proposals to implement Section 706 from the 1996 Act are still pending, 
though our preliminary reports indicate that broadband deployment while 
progressing, is lagging behind innovative applications that depend upon 
it, and consumers' demand for those services. This is, in part, due to 
the heretofore unseen pace of innovation and change. We have watched a 
technological eternity go by since Congress passed the Telecom Act in 
1996. Convergence, digitalization, the rise of IP-based networks, and 
strategic mergers have all metamorphosed what we now loosely call ``the 
industry.'' The potential benefits that lay on the horizon for 
consumers have grown exponentially from the simple vision of choice in 
basic telephone service. So, too, have the risks that we may stay so 
focused on local residential voice markets, or short-sighted 
priorities, that we fail to unleash the power of competition for 
advanced services, as section 706 contemplates.
    I believe that the FCC and Congress must work diligently, if not 
urgently, to understand the developments in this area. All competitors 
in this fiercely contested market will attempt to bend the regulatory 
and governmental process to their own commercial will. But our duty is 
to the public. Our first instinct, therefore, must be to stay committed 
to markets and competition, rather than regulation, as the vehicle for 
disciplining anticompetitive behavior, as the engine for driving 
innovation, and as the tool for maximizing consumer welfare. It is the 
only system ever devised that has proven up to the task of giving 
consumers what they want, allowing private firms to prosper and 
spurring innovation, especially at a time of rampant change. Our 
historical commitment to this system has fostered a nation where 
entrepreneurship and private enterprise thrives.
    Regulation from our ``Commanding Heights'' has its time and place, 
but it must be the exception in this incredibly fast-paced, technology-
driven environment. The regulators' rush to lend a helping hand at the 
first sign of anxiety has proven, so often, to be more disruptive and 
counter-productive than the converse. I am of the view that anyone 
advocating the extension or intrusion of regulation into such a vibrant 
market bears a heavy burden of proving that the public, as opposed to 
firms with a particular business plan, will likely be harmed, absent 
doing so. Proffered arguments should be eyed skeptically and 
critically. Speculation of future anticompetitive behavior should be 
viewed with suspicion, especially in nascent markets where supposed 
would-be monopolists in fact lack market power. We must have enough 
courage to test and cross-examine rhetorical appeals. ``Digital 
divide,'' ``light touch,'' etc., are great sound bites, but are they 
truly meritorious arguments, or just clever window dressing for new 
regulation or purely short-term political or economic self-interests?
    Before regulating in new areas such as advanced services (including 
the pursuit of social objectives), we should first attempt to unshackle 
the full flurry of all potential competitors. I do believe, for 
example, that potentially important gladiators in the broadband battle 
are the LECs, who have yet to fully join the data-driven fight due to 
government regulations targeted at a different set of issues. But, they 
are not the only ones. Electric utilities hold a lot of promise. 
Wireless carriers do not intend to sit out this battle. Satellite 
providers are charging headlong into the fray. One need only read the 
daily headlines reporting the latest strategic partnerships. A 
positive, un-regulatory, national policy for advanced services (as 
embodied in Section 706 and other statutory provisions, if implemented 
correctly) will push to get these forces into the battle and save us 
the consequence of a futile regulatory, industrial policy.
                         regulatory forbearance
    Speaking of un-regulating, an important tool that I believe has 
been under-
utilized so far is the FCC's forbearance authority under Section 10 of 
the Communications Act. I have criticized some of our recent decisions 
in which the Commission declined to forbear from our rules or certain 
statutory provisions. The merits of those forbearance petitions have 
been less my concern, for reasonable minds can differ. My 
dissatisfaction has been generally with the standard we apply and our 
analysis, which seems to place the entire burden of forbearance on the 
moving party. I believe Congress expected the Commission to accept more 
responsibility for demonstrating a continued need for regulation in the 
presence of a healthy, competitive market or where forbearance would 
promote competition.
    Indeed, I believe the Commission ought to employ a burden-shifting 
device in forbearance cases. In operation, once a petitioner 
demonstrates that the market in which it operates is competitive (i.e., 
no competitive firm or entity enjoys market power, price trends are 
checked or downward, innovation is occurring) the burden would shift to 
the FCC and the opponents of forbearance to demonstrate why regulation 
is still necessary. And, in making that judgment, the Commission should 
not be able to simply rest on the grounds that the rule served a public 
purpose and petitioners have failed to prove that purpose is no longer 
worthy. The question should be whether the rule at issue is in fact 
superior to competition for serving that purpose.
    We should undertake a substantive and factual examination of the 
rule and its effects to determine if its purpose truly must be achieved 
through regulation instead of market forces. This approach presumes 
that healthy competition will normally maximize consumer welfare better 
than any regulation would, a presumption that we all must embrace to 
even get out of the starting block. Where competition has not quite 
``arrived'' to a market, we need to develop a greater faith that the 
deregulation embodied in Section 10 can serve to promote competition in 
most instances. We need to carefully analyze and understand what other 
mechanisms (competition, other types of less burdensome regulation, 
other regulatory bodies such as the States) make a certain regulation 
unnecessary so that we can chip away the layer upon layer of regulatory 
requirements as we transition to a competitive marketplace.
                                mergers
    The debate over the value of FCC merger review in addition to 
review by one of the antitrust agencies is well-worn. Clearly, as the 
keepers of the Communications Act and its policies, the FCC has some 
unique expertise that it can bring to telecommunications merger review 
that probably advances the public interest. Our review, however, is not 
generally limited to those areas in which we can claim primary 
expertise. Very often, we undertake a classic antitrust analysis, 
applying the same principles, precedents and guidelines as those 
employed by the antitrust authorities and rarely, if ever, does it 
produce different results.
    Such reviews can be quite burdensome on the parties and time 
consuming. For example, the FCC often requires voluminous filings that 
are duplicative of those made to the Department of Justice or the 
Federal Trade Commission. They often must incur the expense of outside 
counsel to prove their case to both agencies. I have come to doubt 
whether the marginal value of full-blown merger review by the 
Commission is justified by its cost in time and resources. Moreover, 
with all due respect to our hard working staff, we do not really 
possess enough personnel schooled in antitrust and competitive 
economics to do the job well consistently. The antitrust authorities 
do. I believe that there is room to preserve a more limited, 
complementary role for the FCC in the review of mergers, while limiting 
its involvement to its areas of expertise.
    If the Commission engaged in a simultaneous review with the 
antitrust authorities, this could improve efficiency. Under such a 
scheme, the parties would be required to file most documents only once 
and to one agency. The Commission would weigh in on issues such as 
whether the merger would violate an express provision of the 
Communications Act, or would otherwise undermine the congressional 
scheme. Furthermore, the FCC would consider the merger's impact on 
other communications policies such as media diversity and universal 
service that are not appropriately considered by antitrust authorities. 
But the Commission would defer to the antitrust authority's competitive 
analysis.
                          broadcast ownership
    Section 202 of the 1996 Telecom Act directed the FCC to make a 
number of specific changes to its broadcast ownership rules. Where the 
Act gave specific direction, the Commission has changed its rules as 
directed. Section 202 also more generally directed the Commission to 
``conduct a rulemaking proceeding to determine whether to retain, 
modify, or eliminate its imitations on the number of television 
stations that a person or entity may own, operate, or control, or have 
a cognizable interest in, within the same television market.'' This is 
the so-called ``TV-Duopoly'' rule.
    While technically the Commission is in compliance with the statute, 
since it initiated a rulemaking in November 1996, there is reason to be 
concerned about its slow progress. The Commission has a backlog of 
cases that it has been unable to resolve, pending the rulemaking's 
completion. The lack of closure is impeding business operations and 
complicating business planning.
    Another provision of Section 202, the biennial review provision, 
directs the Commission to ``review its rules adopted pursuant to the 
section and all of its ownership rules biennially as part of its 
regulatory reform under section 11 [of the Communications Act].'' The 
Commission issued a Notice of Inquiry in March 1998, yet nothing 
further has been done on this matter.
    I share the concern that the Commission has not fully examined its 
broadcast ownership rules as directed in the 1996 Telecom Act. Congress 
realized that many of the assumptions underlying these rules were 
formed decades ago, when the media landscape was quite different. For 
my part, I have serious doubt that these rules can be defended on the 
basis of the justifications given when they were adopted. These rules 
rest on antiquated moorings devised at a time when the broadcast 
industry looked very different than it does today. They deserve 
rigorous examination. Such examination should take into account the 
full competitive environment in which broadcasting operates--we should 
look at the impact of competition from cable, satellite and Internet 
services, for example.
    The Commission does need to assess the dynamic changes in 
technology and media markets to determine what limited rules are 
necessary to promote our public objectives, and sections 11 and 202 
afford us the opportunity.
    Part of the difficulty of reaching consensus on new ownership 
rules, is that they are infected with myriad goals and objectives that 
may not always be reconcilable. The competitive benefits of looser 
rules, may undermine (to some) our diversity goals. Indeed, I believe 
that continued anxiety about the effects of greater liberalization of 
ownership rules on diversity of ownership, voices and programming is 
the single greatest impediment to reaching a consensus on these 
structural rules.
    The Commission has struggled to develop a clear consensus on 
acceptable diversity principles that not only promote the public good, 
but that can withstand strict judicial scrutiny. This struggle, as much 
as anything, has contributed to the lack of progress on these rules.
    For this reason, I urge this Committee to take up the ownership 
diversity question and contribute to developing a sustainable 
consensus, so that we might move forward on ownership rules. I applaud 
Chairman McCain's stated commitment to exploring ownership diversity 
and his willingness to lead a legislative effort that promotes our 
cherished national commitment to meaningful opportunity in our most 
robust and critical industry. I stand ready to assist the Committee and 
Congress in formulating a sound, principle-based diversity initiative 
that will allow us to move forward.
                          fcc reauthorization
    With all of the crucial substantive tasks on our plate, we must 
still be able to step back and take a look at this agency and assess 
its structure and operation so that we can do the highest quality job 
that this Congress commands. I support Chairman Kennard's effort to 
develop a strategic plan for restructuring and streamlining FCC 
functions and management. I am hopeful that we will be able to move 
forward quickly under this plan to make needed changes. In my testimony 
at a House reauthorization hearing in March (which is attached), I 
offered some specific suggestions for consideration during the FCC 
reauthorization process.
    Specifically, I believe that before beginning any exercise to fix 
or restructure the Agency, I think it prudent to first consider what we 
think is broken or is not working particularly well at the FCC. I would 
submit five areas for exploration: (1) the need to more clearly define 
the Commission's annual priorities and focus; (2) the need to operate 
efficiently enough to meet the demands of an innovation-driven market; 
(3) how to structure the Agency to better align with market trends and 
demands; (4) whether to continue the administration of functions that 
are largely duplicated elsewhere in government; and (5) the breadth of 
the Commission's quasi-legislative authority. I explore these issues 
more fully in my attached testimony before the House Subcommittee.
                               conclusion
    Let me close by saying that I look forward to continuing to work 
with members of this Committee, other members of Congress, and with my 
colleagues on the many challenges that await us in implementing our 
statutory mandates. Thank you for your attention and I look forward to 
your questions.
                                 ______
                                 

                               ATTACHMENT

  Prepared Statement of Hon. Michael K. Powell, Commissioner, Federal 
         Communications Commission, before the Subcommittee on 
    Telecommunications, Trade and Consumer Protection of the House 
                 Committee on Commerce, March 17, 1999

     Good morning, Mr. Chairman and other distinguished members of the 
House Subcommittee on Telecommunications, Trade and Consumer 
Protection. Thank you for inviting me here to assist you as the 
Subcommittee deliberates the statutory reauthorization of the Federal 
Communications Commission (FCC).
    Initially, let me state that I support Chairman Kennard's effort to 
develop a strategic plan for restructuring and streamlining FCC 
functions and management. I am hopeful that we will be able to move 
forward quickly under this plan to make needed changes. In my testimony 
however, as the Subcommittee's invitation letter suggests, I will 
attempt to provide some specific suggestions for consideration during 
your deliberation on FCC reauthorization.
    Before beginning any exercise to fix (or to use Chairman Tauzin's 
phrase ``remission'') the Agency, I think it prudent to first consider 
what we think is broken or is not working particularly well at the FCC. 
I would submit five areas for exploration: (1) the need to more clearly 
define the Commission's annual priorities and focus; (2) the need to 
operate efficiently enough to meet the demands of an innovation driven 
market; (3) how to structure the Agency to better align with market 
trends and demands; (4) whether to continue the administration of 
functions that are largely duplicated elsewhere in government: and (5) 
the breadth of the Commission's quasi-legislative authority.
  i. the commission needs to more clearly define its annual priorities
    I believe that the key to any well-run organization is the 
enumeration of a clearly understood and widely communicated set of 
priorities. A common complaint I often hear is that outside parties 
have no solid sense of the Commission's priorities or direction. The 
Chairman often does share his view of the coming year in speeches, 
press releases and in daily conversation, as do other Commissioners, 
but there is no structured process by which the Commission formally 
develops and publicly reports its priorities.
    One way to address this problem would be the development of an 
annual, full Commission statement of priorities. Congress could require 
the Commission to set out a list of its priorities in the annual report 
it currently files pursuant to section 4(k) of the Communications Act 
of 1934. 47 U.S.C. Sec. 154(k) (West 1998). Such a compilation of 
priorities would help focus the work of the Commission and create 
greater regulatory certainty.
    ii. the fcc is not efficient enough to meet the demands of its 
                               customers
    The extent and pace of change in the telecommunications industry is 
mind-
boggling. It is driven by exponential advancements in microprocessing 
power, digitalization, Internet protocol-based network models and 
bandwidth. As Royce Holland, Chairman and Chief Executive Officer of 
Allegiance Telecom, Inc. recently remarked, ``The pace of change in the 
industry is like Moore's Law on Viagra.'' Market opportunities in this 
environment are lucrative but fleeting. As in the days of old, however, 
the Agency still labors endlessly for many months and even years on 
policy issues and ultimately implements its judgments in the form of 
newly-minted rules and regulations. The relevancy of the new rules 
fades rapidly with time. Some are out right obsolete the very moment 
they are passed. In this environment, the FCC must become a 
dramatically more efficient place. A decision that comes too late, 
might as well not have been made at all.
A. Deregulation
     The most obvious way to improve efficiency at the Agency is to 
have fewer rules to administer. This highlights the importance of 
deregulation where the cost of a rule is not justified by its benefits. 
There are a number of vehicles Congress has provided for deregulating 
and I believe that they must be employed with greater rigor than they 
have to date. Congress wisely commanded the FCC to conduct a biennial 
review of its regulations and to shed those that it determines are no 
longer necessary. While we have made some progress in this area, I 
believe we can be much more aggressive.
     A second vehicle that I believe has been under-utilized is our 
forbearance authority under Section 10 of the Communications Act. 47 
U.S.C. Sec. 160 (West 1998). I have criticized many of our recent 
decisions in which the Commission declined to forbear from our rules. 
The merits of those forbearance petitions have been less my concern, 
for reasonable minds can differ. My dissatisfaction is with the 
standard we apply and our analysis, which seems to place the entire 
burden of forbearance on the moving party. I believe Congress expected 
the Commission to accept more responsibility for demonstrating a 
continued need for regulation in the presence of a healthy, competitive 
market. Indeed, I believe the Commission ought to employ a burden-
shifting device similar to that employed in civil rights cases.
    In operation, once a petitioner demonstrates that the market in 
which it operates is competitive (i.e., no competitive firm or entity 
enjoys market power, price trends are checked or downward, innovation 
is occurring) the burden would shift to the FCC to demonstrate why 
regulation is still necessary. And, in making that judgment, the 
Commission should not be able to simply rest on the grounds that the 
rule served a public purpose and petitioners have failed to prove that 
purpose is no longer worthy. The question should be whether the rule at 
issue is in fact superior to competition for serving that purpose. We 
should have to undertake a substantive and factual examination of the 
rule and its effects to determine if its purpose truly must be achieved 
through regulation instead of market forces. This approach presumes 
that healthy competition will normally maximize consumer welfare. 
Congress could explicitly adopt such a burden-shifting approach to 
forbearance.
B. Shift To Enforcement
    A second way for the Commission to become more efficient is by 
shifting away from pre-approval, ``by-the-grace of us'' regulation and 
toward enforcement. Telecommunications regulation has traditionally 
developed along the lines of the broadcast model. That is, parties need 
advance approval for initial operation, changes and deployment of new 
innovations. This has become a real impediment to timely decisions. A 
regime in which there are more presumptions of good faith on the part 
of competitors, backed up with strong enforcement by the Agency, would 
greatly enhance our efficiency.
     In this regard, I applaud the Chairman's initiative to assemble 
under one bureau the Commission's enforcement functions. Similarly, the 
initiative to create an expedited complaint resolution process, dubbed 
``the rocket docket,'' is a positive step in this direction. The shift 
to enforcement, however, needs to be more than a consolidated bureau. 
It needs to be a shift in thinking as well. The FCC, as a whole, must 
become more comfortable with enforcement as a means of regulation and 
must address our speculative fears about deregulation through 
enforcement, rather than let those fears paralyze our willingness to 
deregulate.
C. Need For Better Internal Process
     The Commission structure is inherently inefficient. Because it is 
a deliberative body with independent Commissioners who each have a 
vote, it is very difficult to keep things moving along at a pace 
demanded by the market. In contrast, organizations that are more 
hierarchical generally have better success with moving more quickly. 
Nonetheless, for the Commission to keep pace, it needs the benefit of 
management professionals dedicated to managing our agenda and keeping 
our substantive items on track.
    I would urge the Congress to consider creating a professional 
management directorate to accomplish this purpose. There are examples 
of similar activities in other government institutions. The court 
system has long employed a clerk's office that keeps the caseload 
moving, rather than leave this responsibility to the sitting Judges. 
Similarly, many divisions of the Department of Justice (such as the 
Antitrust Division) have a Directorate of Operations, headed by a 
substantive professional who helps keep the pipeline to the decision-
makers flowing. These functions at the FCC are presently managed by the 
Chairman's personal office.
      iii. the fcc is not aligned structurally with market trends
    It is regularly observed that the Commission is organized around 
industry segments that increasingly are less relevant as convergence 
strains and eliminates their unique technical distinctions. Many 
commentators have urged that Congress consider consolidating bureaus 
along competitive lines. I agree that it would be useful to consider 
such structural changes, though I believe there are limits to how much 
can be gained by such an effort.
    The balkanized structure of the Commission makes it difficult to 
re-deploy employees to address urgent tasks. Attorneys currently 
analyzing policy issues for the Mass Media Bureau, for example, cannot 
easily be moved to work on issues in other bureaus, even though the 
subject area may be similar. Thus, even though there is a need for 
attorneys in the Cable Services Bureau, separation of these bureaus 
prevents ready reassignment of personnel. Within larger bureaus, the 
Commission would have the opportunity to maximize its use of employees. 
It could, for example, cross-train the workforce through rotations and 
training. In this way, the Commission could maximize employee 
flexibility and enhance its ability to reallocate resources to match 
priorities.
    Though I do not take a strong position on any particular proposal, 
I would recommend considering consolidation in a few areas. The first 
would be the formation of a multi-channel competition bureau. Such a 
bureau would administer our rules with regard to what are currently the 
mass media, cable television and direct broadcast satellite (DBS) 
industries. Regulation of each of these mediums presently rests in a 
separate bureau. A single leadership structure overseeing these fields 
would allow for greater harmonization of rules and decisions in 
furtherance of a merged and increasingly competitive industry segment. 
With the elimination of some cable rate regulation at the end of this 
month, and increased attention being given to the inter-relationship 
between broadcast and DBS, the time may be ripe for considering such a 
proposal.
    A second area worthy of some thought is complete or partial 
consolidation of the Common Carrier and Wireless Telecommunications 
bureaus. There has been a great deal of discussion about wireless 
technologies competing with and serving as a substitute for traditional 
wireline service. Indeed, some have suggested that over time most voice 
communications will be carried by wireless carriers, while the wireline 
infrastructure will be used more for data. These trends may argue for a 
single bureau dedicated to these currently separate industries.
    I do note, however, that there is a limit to the value of this 
functional realignment. Because the statute is organized along industry 
lines our rules necessarily do as well and functional consolidation may 
be more form than substance. Additionally many industries support 
industry organization because they enjoy having a ``champion'' to 
tussle over policy.
              iv. administration of duplicative functions
    A fifth area on which Congress may choose to focus is where 
Commission authority overlaps with that of other government agencies. 
Because communications is so fundamental to virtually all human 
activity, there is almost always some connection to FCC authority (no 
matter how tangential). Yet, the core expertise of the FCC should truly 
be considered in assigning to it, rather than some other agency, a 
central role on a given issue. While such governmental overlaps may be 
desirable, they at least should be complementary (or supplementary) 
rather than simply duplicative. A few suggested areas of inquiry are 
outlined below.
A. Merger Review
     The debate over the value of FCC merger review in addition to 
review by one of the antitrust agencies is well-worn. Clearly, as the 
keepers of the Communications Act and its policies, the FCC has some 
unique expertise that it can bring to telecommunications merger review 
that probably advances the public interest.
    Our review, however, is not generally limited to those areas in 
which we can claim primary expertise. Very often, we undertake a 
classic antitrust analysis, applying the same principles, precedents 
and guidelines as those employed by the antitrust authorities and 
rarely does it produce different results. Such reviews can be quite 
burdensome on the parties. For example, the FCC often requires 
voluminous filings that are duplicative of those made to the Department 
of Justice or the Federal Trade Commission. They often must incur the 
expense of outside counsel to prove their case to both agencies. I have 
come to doubt whether the marginal value of full blown merger review by 
the Commission is justified by its cost in time and resources. 
Moreover, with all due respect to our hard working staff, we do not 
really possess enough personnel schooled in antitrust and competitive 
economics to do the job well consistently. The antitrust authorities 
do.
    I believe that there is room to preserve a complementary role for 
the FCC in the review of mergers, while limiting it to its areas of 
expertise. Perhaps, consideration of the legislation recently 
introduced by Senators DeWine and Kohl would be a good place to start
    The Commission engaging in simultaneous review with the antitrust 
authorities could improve efficiency. Under such a scheme, the parties 
would be required to file most documents only once and to one agency. 
The Commission would consider issues such as whether the merger would 
violate an express provision of the Act, or would otherwise undermine 
the congressional scheme. Furthermore, it would consider the merger's 
impact on other communications policies such as media diversity and 
universal service that are not appropriately considered by antitrust 
authorities. But the Commission would defer (either substantially or 
completely) to the antitrust authority's competitive analysis.
B. Consumer Affairs
    An important function of any branch of government is to safeguard 
consumers. Undoubtedly, because of our regulatory authority over 
certain industries and our intimate understanding of the industry, we 
are uniquely positioned to administer certain consumer affairs. 
Nonetheless, there are other agencies that have similar authority and 
some judgment might be made as to which is best positioned to 
administer certain issues. For example, the FCC has occasionally jumped 
into issues that relate to advertising under its public interest 
authority. The Federal Trade Commission, however, has specific 
authority in these areas. The same is true of other issues such as 
consumer fraud (e.g., ``cramming'' and ``slamming.'') Congress should 
evaluate the benefits of such overlapping jurisdiction.I77C. Equal 
Employment Opportunity
    I personally support narrowly-tailored Equal Employment Opportunity 
(EEO) rules. The Commission has administered its own EEO program in 
certain industries for some time. Yet, in most other industries there 
is not an EEO authority separate from the Equal Employment Opportunity 
Commission and the federal, state and local civil rights authorities. I 
believe that there is some advantage to having the FCC involved because 
of its unique relationship with certain industries particularly those 
that operate pursuant to a government-conferred license. However, I 
would be remiss if I did not point out there is some overlap that 
should be examined to ensure that the respective roles are 
complementary and not duplicative. By eliminating duplication, such an 
examination, in my view, would bolster support for the government's 
role in promoting opportunity in communications.
D. Political Rules
     Finally, I would point out that the FCC has historically 
administered a number of rules that are designed to affect the quality 
of elections. These rules are focused on the obligations of the 
licensee and not the candidates, but they undoubtedly are intended to 
shape the quality and tenor of elections. Greater involvement in this 
area would require a more comprehensive understanding of campaigns and 
existing election laws than I believe this Agency possesses. 
Furthermore, any extension of such authority should be weighed against 
the role of the Federal Election Commission. I am uncomfortable, 
personally, as an un-elected regulator initiating policies and rules 
that affect the electoral process without specific congressional 
direction to do so.
        v. the breadth of the fcc's quasi-legislative authority
    A phenomenal amount of time is consumed in this industry in fights 
over the FCC's jurisdiction. One major source of this ongoing battle is 
the tension between the statutory regime that reigned under the 1927 
and 1934 Acts and that predominantly adopted by Congress in the 1996 
Act. The former's hallmark is that it conferred sweeping authority in 
the Commission to act to ensure ``the public interest, convenience and 
necessity.'' The 1996 Act, however, attempted to craft, in many 
respects, a detailed blueprint for the industry and the Agency. In many 
places, it provides highly detailed statutory provisions and 
instructions. There is a real tension between these two regimes, 
elements of which are scattered throughout the Act.
    The venerable public interest standard has much to commend it. It 
provides a great deal of flexibility and punctuates a consumer focus. 
However, this standard does allow the Agency to self-initiate a broad 
range of government action without specific statutory direction. That 
is, it serves as a basis for quasi-legislative action by the 
Commission.
    The quasi-legislative authority of the Commission has its merits, 
but if read too broadly, it serves to invite industry, consumer groups 
and special interest to seek both redress and advantage from the 
Agency, rather than Congress. This can lead to the Agency initiating 
action that Congress subsequently disapproves of, or believes conflicts 
with a more specific mandate in the statute.
    I am not suggesting elimination of the public interest standard. I 
do believe, however, that Congress might consider certain limiting 
principles with respect to its employment as a jurisdictional basis in 
certain areas.
                             vi. conclusion
    I would like to conclude with one caution. As long as the 1996 Act 
is the basis for telecommunications law, Congress would be ill-advised 
to hollow or unduly wound the Commission. There are undoubtedly areas 
in which we tinker where we should not. There are certainly ways to 
improve our processes and our decisions. But, even controlling for all 
that, the FCC will remain a very important institution for dealing with 
the telecommunications sector and its transition to competition and its 
transformation in response to innovation.
    Congress has the power to cut employees and even Commissioners if 
it chooses. But if not done carefully, rather than harm the Agency the 
industry and consumers will be harmed. It is the industry that will 
still have to come to the Commission to get its licenses approved or 
have a section 271 application approved. It will still be states and 
local schools that have to file for universal service. Consumers will 
still need somewhere to have their complaints acted upon. Such redress 
will not be enhanced by a diminished Agency.
    I look forward to continuing to work with Members of Congress and 
with my colleagues on the many challenges, and tremendous 
opportunities, that await us in implementing the 1996 Act. I trust 
that, by working collaboratively and by having faith in free markets, 
we will bring the benefits of competition, choice, and service to 
American consumers.
    Thank you for your attention.

    The Chairman. Thank you, and I thank all the Commissioners.
    I note that the majority leader is here. With the agreement 
of the other members of the Committee, if you would like to go 
ahead, please proceed.

                 STATEMENT OF HON. TRENT LOTT, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. Thank you, Mr. Chairman. I appreciate you 
doing that because I do need to get back to the floor. But this 
committee has a lot of very important jurisdiction, but I do 
not believe any area is more important or more exciting right 
now than the one we are hearing about today from these 
Commissioners.
    So I want to thank you, Mr. Chairman, for having the 
hearing in this first step of reauthorizing the Federal 
Communications Commission. I want to recognize and thank 
Chairman Kennard and all the Commissioners for your dedicated 
service and your work. I know that we gave you a monumental 
task with the bill we passed just 3 years ago, and I know that 
it has taken time and will continue to take time to fully carry 
it out. But I think you have been working diligently at that 
and I want to express my appreciation to all the Commission.
    What is happening in the telecommunications area is one of 
the most exciting that I have seen. Watching what is happening, 
it is kind of like dog years. You know, ordinarily something 
that would take 7 years is happening in 1 year, and it is going 
to continue that way.
    But since it is such a dynamic field and because the 
technologies are converging like never before, it makes your 
job even more important and our oversight responsibility even 
more important.
    I know there are areas of concern, like the section 271, 
but I think the problems do not mean that this section is not 
working. It means it will still take time and we will have to 
work on that to come up with the right solution.
    I basically just want to urge you to work with us in making 
sure that the FCC is as responsive, efficient, and effective as 
it possibly can be. The American consumer deserves an FCC with 
a structure and mission which enables our telecommunications 
market to continue to prosper, and we need to work together 
through some of the problems.
    I want to thank Commissioner Powell for his last comments. 
I think clearly there are some things we can do to help with 
that diversity, and it is such a vibrant field and we want to 
support that.
    I thank Senator McCain for his leadership in that 
particular area. But basically I just wanted to be here because 
I appreciate the work you are doing. I wanted to hear your 
comments and, even though I may have to leave, I look forward 
to hearing your responses to questions I am sure you will 
receive from the committee.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Lott follows:]

  Prepared Statement of Hon. Trent Lott, U.S. Senator from Mississippi

    Thank you Chairman McCain for holding this hearing. This is the 
first step in reauthorizing the Federal Communications Commission.
    I also want to recognize and thank Chairman Kennard and all of the 
Commissioners for their dedication and service. I know we gave you a 
monumental task with the bill that we passed, the 1996 
Telecommunications Act, and I appreciate the challenges you face.
    America is experiencing its greatest explosion in 
telecommunications history, certainly that I've ever seen. It's like 
dog years, where 1 year in the telecommunications world equals 7 years 
in other sectors.
    Telecommunications represents a significant portion of America's 
economic growth, providing thousands of jobs & billions of investment 
dollars.
    Both Congress and the FCC have a duty--and an opportunity--to 
examine and guide this dynamic area of industry.
    Today, technologies are converging like never before. A telephone 
company is no longer just a telephone company. This is the '96 Act at 
work.
    Congress made its mark on this new world 3 years ago, a short 3 
years ago, and it in effect spurred this new world.
    I believe the Act is working. What was a dream to Congress, 
entrepreneurs and industry leaders have made reality. I firmly believe 
the Act's goals of local competition and consumer choices will be 
fulfilled and America will be better off.
    Nobody here or in the Congress wants to turn back the hand of time. 
New technologies, new companies and new choices are coming our way, and 
we need to keep the momentum going, the lines of communication open, 
and the investment flowing.
    I know there is concern about the absence of a Section 271 approval 
for an incumbent phone company, but this doesn't mean the Section is 
not working. We all knew it would take time. There have been 
roadblocks, but I'm encouraged and confident that progress will be 
made. We need to work together through some of the problems.
    Having said that, all of the mergers and acquisitions and 
convergence taking place not only affect the lives of Americans, but 
will also require changes in how government approaches this new 
competitive market to ensure that it thrives.
    During this transition period, it will be important for Congress to 
make sure that the FCC is properly structured. That it has the right 
tools to foster and further the ongoing evolution. I like Chairman 
Kennard's analogy that old regulatory models are like the old black 
rotary phones--it rings true.
    The FCC must indeed change as it works on many priority items--from 
universal service and access charge reform to merger reviews, 
enforcement efforts and dealing with the surge of spectrum demand.
    There are a variety of ideas on both sides of the aisle and in both 
Houses of Congress about how the FCC should be revamped to deal with 
today's new market conditions. I will take a look at these proposals 
and, as Congress moves forward, I will also personally solicit input 
from the FCC Commissioners.
    America's fast-paced telecommunications market demands an FCC that 
is responsive, efficient and effective. More importantly, the American 
consumer deserves an FCC with a structure and mission which enables our 
telecommunications market to continue to prosper.
    I'm confident Congress will do the right thing for the FCC & for 
America.

    The Chairman. Thank you, Senator Lott.
    Senator Hollings, would you like to make an opening 
statement before I ask questions?
    Senator Hollings. No, thank you. I will wait my turn. Thank 
you.
    The Chairman. Mr. Kennard, all of us have a lot of 
questions. I will be brief.
    When you say and the other Commissioners say that the Act 
is working well, let me point out consumers are now paying more 
than $3 billion each year on their telephone bills in the form 
of PIXI's, universal service connectivity charges, and number 
portability charges. The long distance price index has gone up 
8 percent during the last several years. The intrastate long 
distance price index has gone up 10 percent. And although the 
FCC has reduced interstate access charges by over $2.5 billion, 
the Bureau of Labor Statistics price index for long distance 
service has stayed at the same level.
    Long distance carriers like ATT and MCI have begun having 
to charge their customers a minimum monthly fee for the first 
time. Of course, the pro-competitive multi-channel video 
policies and its stringent rate regulation rules have boosted 
cable rates 24 percent since 1996.
    That does not look to me like the Act and the 
implementation of it has been a great success.
    Mr. Kennard, in a speech recently you stated, on May 17, 
you stated:

          The public interest standard requires the FCC to review 
        mergers so the Commission can perform its unique duty to 
        articulate to the American public what are the benefits of this 
        merger to average Americans.

    However, in a separate speech 2 days later, Assistant 
Attorney General Joel Klein, who heads the Justice Department 
merger review team, said that:

          Most people--apparently including the FCC--do not realize 
        everything we do in antitrust is consumer-driven. We are a 
        unique Federal agency. Our interest is to protect what the 
        economists call consumer welfare, and there is one simple truth 
        that animates everything we do, and that is competition. The 
        more people chasing after the consumer to serve him or her, the 
        better to get lower prices, to get new innovations, to create 
        new opportunities. The more of that juice that goes through the 
        system, the better.

    I think Mr. Klein articulated pretty well what reviews are 
supposed to do, and they seem to be exactly the same consumer 
benefits that you say the FCC pursues when the FCC reviews 
mergers under the ``public interest standard.'' If that is 
true, what does separate FCC reviews of proposed mergers add to 
the process other than needless cost and delay?
    I will be glad to listen to all of the Commissioners' 
points on that, starting with you, Chairman Kennard.
    Mr. Kennard. Certainly. I appreciate the opportunity to 
answer that question, Mr. Chairman. First of all, there is a 
lot of confusion about the respective roles of the FCC and the 
Department of Justice Antitrust Division these days. First of 
all, the FCC does not conduct an antitrust review of mergers 
that is cloaked in public interest rhetoric. It is a very 
different analysis. There is a different burden of proof, it is 
a different statutory requirement that we have to look at.
    The Chairman. What statutory requirement is that? I am 
sorry to interrupt.
    Mr. Kennard. The Antitrust Division is charged with 
enforcing the antitrust laws, the Clayton Act, the Sherman Act. 
The FCC, as you know, is charged with ensuring that mergers 
serve the public interest. Traditionally, the FCC in making 
that analysis has determined whether a particular merger has 
been demonstrated to serve the public interest by furthering 
the goals of the Communications Act.
    Now, one need only look at recent mergers to see how this 
different standard plays out in practice. In the Bell Atlantic-
Nynex merger, for example, the Antitrust Division looked at 
that merger. They found that it did not lessen competition, as 
is their requirement under the antitrust laws. The FCC's 
analysis was different. The FCC looked to see whether that 
merger would enhance the pro-competitive goals of the 
Communications Act and ended up imposing some conditions, some 
market-opening conditions, on that merger which the Justice 
Department would not have imposed because their function is not 
to regulate. They are a law enforcement organization that 
enforces the antitrust laws.
    So there is--I am concerned that there seems to be a common 
misunderstanding that we have overlapping jurisdictions and are 
duplicating the effort of DOJ. That is not the case, Mr. 
Chairman.
    The Chairman. Ms. Ness.
    Ms. Ness. The FCC and the DOJ do have to some extent 
overlapping responsibilities, but also they are complementary. 
As Chairman Kennard elaborated, the standard that is imposed 
for the Department of Justice is a different standard under the 
Clayton Act. If we were to exercise our Clayton Act 
jurisdiction, which we generally decline to do--we would be 
conducting a very similar review of the mergers, looking at 
whether or not there is a diminution of competition.
    But as Chairman Kennard noted, our review is looking at 
whether or not a merger is in the public interest. The review 
is conducted in a public proceeding. It is reviewable by a 
court. Should the Department of Justice in its limited review 
as to whether or not there is a diminution of competition 
decide not to proceed, there is no judicial review. That is the 
end of the matter.
    Our review, as we have noted in our past decisions, looks 
at whether or not the merger serves the public interest, and 
particularly with respect to market-opening issues. That is 
what we did in a number of cases, for example the MCI-WorldCom 
merger, where four of us determined that it was, in fact, in 
the public interest; in Bell Atlantic-Nynex, where we did 
determine as a Commission that had the merger as proposed gone 
forward we would have denied the merger as not being in the 
public interest, but with the conditions imposed the balance 
had shifted and it was indeed in the public interest.
    These are important benefits for the American consumer.
    The Chairman. Commissioner Tristani.
    Ms. Tristani. Mr. Chairman, I would agree with what my 
colleagues Chairman Kennard and Commissioner Ness have said. I 
would also add that another difference in the reviews is that 
the burden of proof is quite different. In the Commission 
review, the proponents of the merger have to demonstrate, they 
carry the burden that the merger is in the public interest.
    The Chairman. Yes, right.
    Ms. Tristani. That is in the law, Mr. Chairman, and we are 
following the law as written.
    The Chairman. Thank you.
    Commissioner Furchtgott-Roth.
    Mr. Furchtgott-Roth. Thank you, Mr. Chairman. I would 
concur with my colleagues to the extent of saying that the FCC 
and the Department of Justice do not have overlapping 
jurisdiction except to the limited degree that we have shared 
jurisdiction of the Clayton Act.
    I must respectfully disagree with my colleagues in the 
interpretation of our statutory authority under the 
Communications Act to review mergers. I believe if one does a 
word search of the Communications Act one will not find 
references to mergers or acquisitions. Our review is entirely 
under section 310 of license transfers and section 214 of 
licenses to operate. These are much narrower license transfers 
and those are the only points at which there is a public 
interest review.
    I had the--well, I was starting to say the pleasure; I do 
not know if it is pleasure or not, but I certainly testified on 
this very topic yesterday before the House Judiciary 
Subcommittee on Administrative Procedures. I have attached my 
testimony on that matter, and I guess I do not believe that you 
will find in the Communications Act a specific statutory 
authority for the Commission to review mergers.
    The Chairman. Commissioner Powell.
    Mr. Powell. Thank you, Senator.
    I would have to concede that one can articulate that there 
are different standards than those employed under the Sherman 
Antitrust Act, but that does not really mean the analysis is 
different. As someone who has been in the Antitrust Division, I 
can tell you that, while I think that things like the MCI-
WorldCom review were done correctly, they are awful similar and 
nearly identical to the same sort of review we would have 
conducted at the Antitrust Division.
    Our FCC staff employs and makes great use of the Antitrust 
Division horizontal merger guidelines, which guide and 
construct our analysis. The consideration of anticompetitive 
effects, horizontal and vertical, are virtually identical.
    As a matter of theory, there is a reservoir of additional 
authority one could lay claim to at the Commission. The 
question is whether it is ever employed in a way meaningfully 
enough to justify the costs of the additional impositions and 
time of the review. I have become skeptical about that. We 
could have a debate about whether you want the Commission doing 
that or not, but I think that the value that it is adding, at 
least as I have seen it demonstrated, is not that significant 
from the review that is already conducted.
    Second, I think that one would have to concede that the 
public interest standard is awful wide-open and many of the 
standards and the principles that the others have articulated 
are a matter of Congressional--I mean, Commission construct. 
That is, over the years the Commission has interpreted that 
mandate in placing burdens of proof, has interpreted that 
mandate in a way that sets out the conditions and principles.
    We certainly have had Commission precedent that could be 
used to justify actions the Commission has taken that have been 
approved in court. But at the end of the day it is a fairly 
wide-open mandate that the Commission has had and a great deal 
of discretion in constructing it the way it chose.
    Third, I would say that, with respect to conditions and 
market opening, I do not dispute that if there is an 
appropriate role for the Commission one could justify a 
different role for us in that regard. But I have to tell you I 
am skeptical of that in the sense that it is a form of 
industrial policy in which you have confidence that the five of 
us are capable of looking out into markets and making somewhat 
personal and subjective judgments about what will advance the 
public good in that regard, and I just have less confidence in 
at least my ability to do that well consistently as others 
might.
    So that is my view of it.
    The Chairman. Mr. Kennard, do you know any other industry 
that is subject to multiple reviews?
    Mr. Kennard. None immediately come to mind. I would have to 
think that through and get back to you on that.
    The Chairman. Thank you.
    Senator Hollings. You have got the election industry. You 
have got to go through a Republican primary before you get to 
the general election. [Laughter.]
    The Chairman. There is a lot of money in that one.
    Senator Hollings. Yes.
    The Chairman. Senator Hollings.

             STATEMENT OF HON. ERNEST F. HOLLINGS, 
                U.S. SENATOR FROM SOUTH CAROLINA

    Senator Hollings. Mr. Chairman, thank you very much.
    I commend the Commission for sticking by its guns on 271. 
There is not any question that that is the kidney ailment that 
communications competition has at the moment. We need to pass 
that kidney stone and get the Bell companies to comply with the 
checklist and enter the competition. That is what they all 
begged, and I was there all 4 years that we worked on it, and, 
oh, they wanted to compete, compete, compete. And all they have 
done is combine, combine, and combine.
    I pick up my USA Today and the president of Bell South made 
last year $54.9 million. I ran for the wrong job. I think I 
could have gotten the votes to chair Bell South and I might do 
that yet.
    But the truth of the matter is that they are squatting 
right on their monopoly. Now, the task for us in order to get 
fair competition is to open them up in a studied, 
compassionate, considerate way, namely considerate of the best 
telecommunications that any country has ever had. So we did not 
want to get in and barrel in and mess up. So we asked them and 
over the year's period their attorneys wrote that checklist. 
There is nothing wrong with it.
    Now, we had the USWest's chairman up before this Committee 
recently. He had never applied. He complained and said that 
there was so much bureaucracy over there and you folks had 
misinterpreted the checklist and added onto it and enlarged it 
and everything else of that kind, that there was not any chance 
for compliance. He has, while he has not applied to you folks, 
applied to various state commissions and he has been turned 
down. And the whole time he was begging for some kind of relief 
in order to serve the rural areas, he was selling off his rural 
facilities as fast as he could. So there is quite an act going 
on.
    Mr. Kennard, can we not just go ahead and have a drop-dead 
date by, say, January 1, 2001, and they have to comply with the 
checklist or thereafter in any State where they have not 
complied get a $50,000 a day fine? They have had 3\1/2\ years 
and they have got all the lines in, what we are talking on and 
everything else, is 98 percent controlled by Bell Atlantic. We 
are in their region, and that is the monopoly that has held up 
the real dynamism of the Telecommunications Act of 1996.
    Mr. Kennard. Well, Senator, the goal of section 271, as you 
know, is to require the Bell companies to open their markets to 
competitors before they can get into long distance. I think 
that that created an incentive structure that is working. I 
think, unfortunately----
    Senator Hollings. You think it is working?
    Mr. Kennard. I think the incentive structure is working. We 
saw a lot of foot-dragging initially. A lot of companies 
decided as soon as that Act was passed that they would go into 
denial and they would rather litigate and oppose it, as opposed 
to comply.
    It was only earlier this year that the U.S. Supreme Court 
reaffirmed the FCC's authority to enforce many of the market-
opening rules that were passed under that statute. I think that 
some of the Bell companies are now coming to the table and 
recognizing that there is a lot of work to do to open up these 
markets, and I think that that process has to continue, because 
if we were to establish just a drop-dead date that these 
markets would automatically be thrown open I fear that----
    Senator Hollings. They would go right on down to the wire. 
After you gave them a year and a half more, they still would 
not comply and sit there and wait like some of them are on Y2K. 
I mean, they have had 30 years to comply with Y2K and they are 
still waiting on special laws and special consideration.
    If General Motors came up and said, ``On January 1, I am 
going to have a new model but it is going to have some glitches 
in it, and what I want to do is talk to anybody that gets a 
glitch and let us argue with them and, by the way, do away with 
200 years of State law,'' you would look at them and laugh. I 
mean, come on. But that is what we have got going on.
    Specifically in communications, we have waited, 3\1/2\ 
years, and you say it is working. Now, I understand Bell 
Atlantic might start in New York later this year, but that is 
the only movement I see. I try to keep a running survey here of 
what is going on and I do not see any incentive.
    Rather than 12 percent guaranteed, they are making 24 and 
30 percent. It is wonderful. So if I was running the business 
and there was not any requirement to comply, I think I would 
continue making the 24 to 30 percent, and paying the lawyers. 
When you say it goes up 8 percent, and the distinguished 
Chairman cited an 8 percent increase, it could have gone up 18 
percent. That is market fores, market forces, deregulation.
    But go ahead. Can we not do that? Therein is the E-rate. We 
contemplated you not raising taxes--it is a good thing you do 
not run for office.
    Mr. Kennard. It is a good thing, Senator.
    Senator Hollings. You have got in the morning paper that 
that is what we intended. Not at all. They had a 40-percent 
access charge, cushion, pork, whatever you want to call it, 
that the long distance companies had to pay, but once they got 
into the competition that would relieve that 40 percent some 
and we could deal that around to get into the schools.
    But now you are going to raise taxes. You seem to move 
right quickly there, not on access charges, not on universal 
service, but on something that was not intended.
    Mr. Kennard. Well, Senator, let me assure you that we are 
moving on all those fronts. When I said that we implemented 
that provision the way its authors intended, I meant the people 
who actually wrote the provision, Senator Rockefeller, Senator 
Kerry, and Senator Snowe. I have had conversations with and 
talked to them about what their intent was.
    Senator Hollings. Well, I was also sponsoring that and I 
was in the conference, and I can tell you what the intent was. 
That is exactly what we had in mind all the time. I do not 
believe I have ever heard Senator Rockefeller say we are going 
to raise taxes and raise the prices in order to comply with the 
E-rate. We knew that the money was there.
    Let me ask one last question if you do not mind, Mr. 
Chairman. I understand Commissioner Powell is more or less a 
defense Commissioner. Now, with these complaints going to the 
bureau and going to the staff, can we not make another one a 
complaint Commissioner so we can facilitate and accelerate? He 
is doing a good job with defending as a Commissioner. Why do 
you not get--Ms. Ness is smiling; she looks like she is 
volunteering for the job. [Laughter.]
    Senator Hollings. Get up on the staff so we can get some of 
these things moving.
    Mr. Kennard. Well, that is a good suggestion, Senator. I 
think Commissioner Ness would make a fine enforcement czar at 
the FCC. But we do have plans under way to create an 
enforcement bureau.
    I share your concern. I think that the whole enforcement 
culture at the FCC needs to change. We need to be much more 
proactive. We need to devote more resources to enforcement, 
because now that we have written these rules on competition it 
is important that they be enforced. We are in the process of 
creating a bureau to do that. It will be given new resources, 
and we hope to re-invigorate the whole enforcement philosophy 
at the agency.
    Senator Hollings. Thank you, Mr. Chairman.
    The Chairman. Senator Brownback.

               STATEMENT OF HON. SAM BROWNBACK, 
                    U.S. SENATOR FROM KANSAS

    Senator Brownback. Thank you very much, Mr. Chairman, and 
thanks for holding the hearing and thank you to the 
Commissioners for coming.
    I want to pick up on something a couple of Commissioners 
cited to, and that was on the universal service and the support 
for the universal service. It strikes me that the high-cost 
portion of universal service we should have had completed by 
the statutory deadline of May 8, 1997. We are 2 years later and 
we still do not have this in place. I do not think the Congress 
thought we would be taking this amount of time to get that in 
place.
    This is particularly important to rural States like mine, 
like are represented by a number of the people here on the 
dais, and it is not in place. It seems like you are putting 
other things out there and you are not dealing with the tough 
one that could put upward price pressure on rural residents in 
phone service.
    This is a very important issue to a number of us. So I 
would like to specifically ask each of you: The Commission has 
committed to adopting a hold-harmless principle to explicit 
Federal universal service support, meaning that no State shall 
receive less explicit support after the FCC completes the high-
cost proceedings than that State currently receives. Now, a 
substantial portion of Federal access charges currently 
represent implicit Federal support for universal service.
    I would like to ask each of the Commissioners the 
following: Are you willing to commit to this Committee right 
now that, as you unanimously agreed to do so in the so-called 
Stevens report, you will apply the hold-harmless principle to 
all of the current implicit support that exists in access 
charges? Would you be willing to commit to that now so we can 
start making some pricing in rural States as to what sort of 
support and help and what sort of charges our rural resident 
customers are going to have?
    Mr. Kennard. I would be happy to address your question, 
Senator I would like to go to the earlier comments about 
universal service. First of all, let me assure you that the 
Commission is devoting a lot of resources to universal service. 
It is a top priority of the Commission since I arrived there as 
chairman and it will continue to be.
    I assure you that, as you point out, these are tough 
questions. I think it was H.L. Mencken who said that there is--
for every complex problem there is a simple solution and it is 
almost always wrong. Since I have been chairman, a lot of 
people have come to my office and they have offered quick fixes 
for universal service. You know, just throw money here or throw 
money there and it will be fine.
    What we are working on is a permanent, enduring, 
sustainable solution to universal service. That is why we are 
working so hard on these cost models, to make sure that we have 
a platform to put universal service on a steady footing as we 
move into the next century.
    Now, all that being said, in the meantime we have also 
assured that we have held the States harmless. Support has been 
flowing. It will continue to flow. In fact, over the past 3 
years since the Act was passed we have spent far more on 
universal service than any E-rate program by many multiples, 
and that will continue to be the case.
    Now to your specific question: I will absolutely commit to 
a hold-harmless. I have said this repeatedly in my public 
statements and speeches.
    Senator Brownback. On explicit and implicit charges?
    Mr. Kennard. Well, we are--certainly on the explicit fund. 
We will adopt tomorrow an order, hopefully, which will invoke a 
hold-harmless provision for all of universal service, so that 
those high-cost States will not be subject to risk as we 
proceed to a more permanent solution.
    But I also say this. I have been encouraged by efforts 
among the industry in recent months to address this implicit 
subsidy problem in universal service support. I was encouraged 
just hearing this week, in fact, that the industry seems to be 
coalescing around some solutions that they are going to present 
to us that I am very encouraged and looking forward to see.
    Senator Brownback. Chairman Ness--Commissioner Ness.
    Ms. Ness. Senator, we are very committed to ensuring that 
universal service is available at affordable rates that are 
reasonably comparable, both urban and rural. Indeed that has 
been one of the things I have been most concerned about in my 
tenure on the Commission.
    Senator Brownback. Could I just really cut to the chase on 
this, because my time is going to run out. Will you support 
hold-harmless on explicit and implicit costs on universal 
service support?
    Ms. Ness. I am committed to ensuring that we have 
reasonably affordable rates that are comparable. I cannot say 
that I would hold harmless on implicit subsidies because I do 
not know that anybody can tell you specifically what the 
implicit costs are. It depends on how much you want to fund, 
and that is why you have to look at what is reasonably 
comparable and affordable and to ensure that it remains so as 
competition comes into the marketplace. That is what we are 
certainly committed to doing, to have a system that addresses 
that and addresses it in a meaningful way.
    Senator Brownback. Commissioner Tristani.
    Ms. Tristani. Like Commissioner Ness, I am committed to the 
hold-harmless principle, but not ready to say all the way until 
we know more. I would like, and because I know you are short on 
time, but I am very committed to universal service reform and 
if it is taking time it is because we want to make sure it is 
done correctly and right.
    Senator Brownback. Commissioner Furchtgott-Roth.
    Mr. Furchtgott-Roth. Senator, I believe I am on the record 
as supporting hold-harmless in both explicit and implicit to 
the extent that current programs would be on an ongoing basis, 
some of which are scheduled to be reduced.
    I cannot help but note, Senator, if I may, H.L. Mencken may 
have said that it takes some sort of complex solution to a 
complex problem, but I am a firm believer that it is better to 
be approximately right than exactly wrong. I am absolutely, 
absolutely convinced that the computer models that the 
Commission is working on are going to give us exactly the wrong 
answer, and it is going to take hundreds of hours to get there.
    Senator Brownback. What I have seen thus far is that way.
    Commissioner Powell.
    Mr. Powell. Senator, I think that there is absolutely room 
for hold-harmless in the context of explicit. I think implicit 
is very difficult to commit to you because the proceeding has 
not gone far enough for us to understand responsibly what is 
nested in that hornet's nest that we call implicit subsidies. I 
certainly would like to know a lot more about it before I would 
commit publicly to a particular mechanism that might prove 
distorting in itself.
    Senator Brownback. Chairman Kennard, I would note that you 
testified June 10, 1998, before this Committee that: ``I will 
not allow Federal support for rural America to be reduced.'' I 
would suggest that includes both explicit and implicit within 
this.
    Nobody passed this Act thinking that we were going to raise 
rural rates. So I really would push you to say we are not going 
to raise rural rates, and that covers both explicit and 
implicit.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Brownback follows:]

   Prepared Statement of Hon. Sam Brownback, U.S. Senator from Kansas

    Mr. Chairman, thank you for holding this important hearing today. 
This committee's oversight responsibility for the FCC is arguably the 
Commerce Committee's most important function.
    Well, here we go again. More than two years after the date that the 
FCC was statutorily required to finish all rules related to Universal 
Service Reform, we are being told that a final decision on the rules is 
being delayed once again from July until September, with implementation 
not occurring until the year 2000. It astounds me that, the day before 
the FCC is set to vote on the second year of funding of the E-rate 
program, the FCC is pushing back the reform of the high-cost portion of 
Universal Service even further into the future in clear violation of 
the Telecommunications Act.
    And this is occurring despite assurances from the Commission to the 
contrary. On June 10, 1998, the last time all five FCC Commissioners 
appeared before this Committee, Chairman Kennard stated ``I think I can 
comfortably speak for all of my colleagues here in saying that we all 
are committed to reforming Universal Service and doing it in a way that 
is consistent with the statute, and doing it on a timetable that is 
expeditious.'' Last July, Chairman Kennard stated that ``[B]y the end 
of April 1999, I expect the Commission to have calculated the 
appropriate revenue benchmark, and to have acted on the recommendations 
of the Joint Board.'' He also stated that ``I am confident that this 
schedule will allow non-rural LECS to take the further steps necessary 
to ensure that the transition to the new high cost mechanism is 
completed by July 1, 1999.''
    Well, that was almost a year ago, and we are still at least more 
than six months away from achieving the reform of the high-cost portion 
of Universal Service. And in addition to the length of this process 
being beyond the statutory pale, I have no confidence that this process 
will produce a system that accurately reflects the cost of providing 
phone service in rural areas and that does not put upward pressure on 
rural residential phone rates.
    The Commission has spent almost as much time as I have been in the 
Senate trying to come up with a forward-looking cost model that 
accurately reflects the sunk costs associated with building the Copper 
Phone network that serves almost 100% of this Nation. I can think of 
nothing more contradictory than assessing the costs of building and 
maintaining an actual network using futuristic, hypothetical 
assumptions about such costs.
    Nothing has confirmed my suspicions about the use of a model than 
the process undertaken by the Commission to adopt one. The algorithms 
and the inputs have produced wildly variant results, none of which to 
date seem to even approach reality. In addition, if the costs are 
evaluated on a study-area rather than a wire-
center basis, the model will grossly understate the cost of providing 
service to certain wire centers, which would force many of the large 
telephone companies serving those areas to continue to cross-subsidize 
among consumers throughout a State.
    I must also take exception with the Commission's plan to adopt 
principles on Thursday espoused by the Joint board. Two months ago, 
seventeen of my colleagues and I sent a letter to the Commission 
expressing our concerns about several of the Joint Board's 
recommendations. We have yet to receive a written response. I am 
disappointed that the Commission has chosen to move ahead on adopting 
the principles embraced by the Joint Board before addressing our 
concerns.
    Mr. Chairman, the high-cost portion of Universal Service Reform 
should have been completed by the statutory deadline of May 8, 1997. I 
am extremely disappointed with the manner in which the Commission has 
handled the high-cost proceeding, and I do not believe that the 
Congress in general, and this Committee in particular, has been 
properly consulted, nor has its advice been properly heeded.
    Congress did not pass the Telecommunications Act of 1996 to 
increase rural residential phone rates. The manner in which the 
Commission handles the high-cost portion of Universal Service Reform 
will have a direct impact on rural residential rates. The Commission 
has an obligation to prevent such rate increases and, as a result, not 
to reduce the current level of explicit and implicit universal service 
support. I hope that we have the opportunity to address these important 
issues, as well as other issues affecting the Telecommunications 
Industry, during this hearing.

    Senator Hollings [presiding]. The Chairman said Senator 
Wyden is next.

                 STATEMENT OF HON. RON WYDEN, 
                    U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Senator Hollings.
    I would like to pick up first on this issue of merger 
policy raised by Chairman McCain. I happen to believe that 
consumers are getting shellacked by some of these big mergers 
while we have got three agencies--the FCC, the FTC, and 
Justice--sort of tossing the ball back and forth. Now, I want 
to see us deal with private markets through private means on 
these major issues, like getting advanced telecommunications 
services to rural areas and high speed Internet access.
    But I think we are going to need some merger accountability 
with these three agencies, and I would like to hear first your 
thoughts on how we get it, and not just have three agencies 
tossing the ball back and forth. Mr. Powell, I know you have 
had some thoughts on it.
    Mr. Powell. It is a good question. Just to correct one 
misconception, it is either the FTC or the Antitrust Division. 
They never review the same merger.
    Senator Wyden. I understand that, but potentially three. We 
have three agencies that are in this debate.
    Mr. Powell. Agreed. I do not know that I would accept the 
premise that the ball is tossed. Each of them do conduct their 
full-blown merger reviews to the best of their judgments and 
they may not have reached conclusions that I would agree with 
or you would agree with, but they nonetheless are executing the 
conditions and laws that they are empowered to. I am not so 
sure we defer or have passed off, one way or the other, the 
responsibilities.
    I do think that you raise a very, very important question 
about the effectiveness of antitrust regimes as tested by the 
new developments in this kind of high tech, innovation-driven 
economy. I think the issues that are being pursued at the 
Antitrust Division in the context of Microsoft and other cases 
are teeing up whether we as a Nation believe that those are 
viable vehicles for that. I suspect if they are not that the 
Congress will have a need or a responsibility to reevaluate the 
underlying regimes that we tender if they are not happy with 
the results that are produced.
    I also continue, just as one trained in antitrust a bit, 
that I do not always accept just on its face that big equals 
bad. I also think that there have been some extraordinary 
benefits that have accrued the consumers as a result of some 
consolidations. But I would not be so naive as to suggest that 
I think that anyone should be able to combine who wants to and 
as long as they are making money it is good for the economy.
    Senator Wyden. No one I know is suggesting that big is 
always bad. It is just that when we hear so often from some of 
the big players in communications that they do not have the 
money for communications services in rural areas and then we 
hear about a big merger, it seems to me we ought to at least 
have a sensible policy to ensure some accountability.
    As I see it, we do have three agencies in this debate and 
we have got a lot of folks falling between the cracks. For 
those of us who want to see private markets work, it seems to 
me that government has got to get its act together on merger 
policy and it ought to do it sooner rather than later.
    Mr. Kennard, I want to ask you about one question that I am 
going to raise when we mark up the telecommunications--excuse 
me, the Communications Act reauthorization. I have felt for a 
long time that negative politics is doing more to disgust and 
alienate citizens from the political process than just about 
anything else. These TV commercials where people paint their 
opponent as sinister and unsavory and often unshaven kind of 
sorts just turn people off.
    I think there is something we can do about it and I want to 
ask your opinion. Under the Act, broadcasters are required to 
sell commercial air time to candidates for Federal office at 
the lowest available price. It is known as the lowest unit 
broadcast rate. I have introduced legislation that would say 
that to take advantage of this subsidy the candidate, if they 
are going to say things about their opponent, should do it 
themselves. They should be personally accountable. They could 
say anything they wanted in their campaign, but in order to get 
the subsidy that is offered under the Act that we are 
reauthorizing they would have to actually make the comments 
about their opponent themselves, a sort of stand by your ad 
kind of policy, rather than just have some anonymous announcer 
do it.
    What would be your reaction to that?
    Mr. Kennard. Well, I think it is a very interesting 
proposal. I certainly share your concern and the concerns of 
Chairman McCain that we can do a lot better in this country in 
reforming our campaign finance laws. One of the things I 
learned early on in this job, though, is that reforming those 
laws is certainly the prerogative of the U.S. Congress.
    So I would certainly endorse your efforts in this area and 
would look forward to helping in any way I can.
    Senator Wyden. I would be interested if any of the other 
Commissioners have an opinion on it. There is a First Amendment 
right to free speech, but I do not know of any constitutional 
right to discounted time in the media. I think that this may 
well be a way that we could jump-start this campaign finance 
reform effort and do it in a way that responds to what I think 
most alienates people from the political process, and that is 
negative ads.
    Do any of you other Commissioners want to add a comment to 
it?
    [No response.]
    Senator Wyden. All right. We appreciate your endorsement, 
Mr. Chairman. We look forward to working with you.
    Thank you, Mr. Chairman.
    The Chairman [presiding]. Senator Wyden, only the yellow 
light is on. It is the first time in the history of your 
participation in this committee. [Laughter.]
    Senator Hutchison.

            STATEMENT OF HON. KAY BAILEY HUTCHISON, 
                    U.S. SENATOR FROM TEXAS

    Senator Hutchison. Thank you, Mr. Chairman.
    I want to go back to the E-rate issue because I think that 
is the key part of our oversight responsibility here. I am 
still getting angry letters and phone calls from constituents 
about how this program was implemented: the increased phone 
bills with no appreciable enhancement in service.
    Now I am understanding that you are going to nearly double 
the amount that you have been spending on the universal access, 
nearly a billion dollar increase from this year, all of which 
leaves still unresolved Congress' mandate to have better 
universal service issues and support for the rural and high-
cost programs to be fairly distributed. These funds will be 
raised by boosting subsidies paid by local, long distance, and 
wireless phone companies, and of course they are yet to decide 
how much they are going to pass to consumers, but you can bet 
that their altruism will have limits.
    I want to say that some of the estimates are that these 
charges could be as much as 20 percent of a phone bill. I do 
not doubt that there is a benefit to wiring our classrooms and 
libraries today. It is clear that we must afford our children 
throughout our country the opportunity to become computer 
proficient. But to require captive consumers to pay the full 
cost does not pass the fairness test.
    If it is our goal to make computer and Internet access an 
educational goal, it should be viewed as an education issue, 
not as a telecommunications entitlement paid for by taxes 
crafted by the FCC. At the very least, I do not think these 
fees should be increased until we have had a chance to look at 
how the money that has been assessed so far has been spent and 
what are the benefits, whether there are better alternatives, 
and if you have looked into better alternatives than just 
reaching into the customers' pocketbook for this program.
    For instance, what private sector incentives could be 
created to expand Internet access for schools? What about 
States' educational responsibilities? It is my understanding 
that you are now going into capital expenditures that could be 
more of the State responsibility.
    What would happen if there were no Federal program? Many 
commentators have said that markets themselves will bring about 
more affordable products and services, making subsidies 
unnecessary. Has that been also discussed?
    My question is, it seems like you are taxing first and 
providing service requirements later, and I want to know if you 
are going beyond your authority, which I think you are, but 
what is your opinion of that, and if you have looked at other 
avenues to pay for these costs instead of letting the customer 
that is captive pay them completely?
    Thank you.
    Mr. Kennard. Thank you, Senator. First of all to your point 
about telephone rates, the average American in this country is 
paying less on their phone bill today than 2 years ago. Those 
figures are documented in my written statement. They differ 
somewhat with the figures that I heard from Senator McCain and 
I am very interested in studying the figures that he presented 
today.
    But from everything that we have gathered, phone bills are 
going down. Interstate long distance bills are plummeting. For 
the most part, local phone bills are remaining steady, thanks 
to the vigilance of our colleagues at the State commissions.
    In the interstate jurisdiction, we have decreased the costs 
of long distance companies by over $3 billion in the last 2 
years. The 
E-rate is very affordable, given that scenario. I do not know 
where you got the 20 percent figure. It differs somewhat from 
the figures that we have. We believe that the worst case 
scenario is that a consumer in America today would pay on 
average no more than 33 cents for the E-rate program, which is 
quite affordable, particularly given the public benefits.
    You talked about private sector initiatives. There are some 
wonderful private sector initiatives out there. We have seen 
Net Days spring up around the country. There are wonderful 
programs, and we have seen some good participation by the 
private sector. But it is my view that we cannot rely on those 
alone, because if we do a lot of kids are going to fall through 
the safety net.
    One of the great things about the E-rate program is that 
the money is targeted to our poorest schools, our most rural 
schools. Of the $1.7 billion spent last year, 80 percent of 
that money went to the poorest schools in America, kids who are 
struggling just to be able to buy a school lunch. Thanks to 
this program, now many of those kids have technology in their 
classrooms.
    So my belief is that the program works, that it is 
efficient and affordable, and it is consistent with the law.
    Senator Hutchison. Well, Mr. Chairman, I would just say 
that if we lower the rates and increase taxes--and if you look 
at the State taxes and the various other Federal taxes that are 
on a phone bill, if we continue to increase those I think the 
benefits that are coming from deregulation or more competition 
are going to be diminished.
    I also believe that a stealth tax that cannot really be 
pinned on anyone is always the easiest kind of tax to put 
forward, but it nevertheless is a tax. I think we have got to 
be fair and I think there needs to be a real sound study about 
what of these responsibilities are Federal and what should be 
borne by telephone consumers and what are State 
responsibilities. If you are going to have lower prices, should 
not that benefit actually be given to the consumers?
    So I just, I am very concerned about the creeping taxes, 
and people have noticed it. I see that number of taxes on my 
phone bill increase it seems like every month. That is an 
exaggeration, I am sure, but I certainly have seen a number of 
increases in both Federal and State taxes that are beginning to 
encroach on the ``savings'' from deregulation.
    Would any of the other Commissioners wish to respond to the 
impending increase of the tax that appears to be in the offing? 
Mr. Furchtgott-Roth?
    Mr. Furchtgott-Roth. Senator, one of the issues that you 
raise is our legal authority. I think the Commission does have 
legal authority for telecommunications services and even 
advanced telecommunications services. Those represent, I 
believe, a minority of the funds that have been committed. The 
majority of the funds are for capital equipment, which I think 
is difficult to read into the statute.
    I testified on this matter before the House Ways and Means 
Committee last year.
    Senator Hutchison. Well, I would just say that I think in 
the past where you have had pennies on a phone bill take up the 
slack for rural service it is something that we have all agreed 
is a good thing. But I think that we are going another step 
with the E-rate and I am not sure that it is a fair allocation 
of responsibility on the consumer and that it is a fair 
allocation of the money when it comes from the Federal level as 
opposed to the State level.
    Yes, Ms. Ness.
    Ms. Ness. Senator, I would add that these are discounts for 
services. That means that the schools and the libraries have to 
contribute based on their ability to do so towards the cost of 
the service.
    In addition, this goes to libraries, which have benefited 
the entire community. In many rural areas the library is the 
place where the community gathers, and this has provided an 
enormous benefit to those jurisdictions. It has provided an 
enormous benefit to be able to have distance learning. Where 
schools have not been able to provide courses for their 
students, now they can do so by aggregating the students 
together through distance learning.
    Each school must provide a technology plan in order to be 
able to get funding for the service. Those are approved by the 
States. The States are very engaged in determining whether or 
not this is for an academic purpose.
    We have tried to instill competition into the marketplace, 
again by having discounts, by putting the bids up on the 
Internet, so that many players can compete to provide the 
lowest cost to provide those services.
    Senator Hutchison. I do not disagree--my time is up. I do 
not disagree that it is a worthy cause. I just would ask the 
two questions to be considered by the FCC: Is it a fair burden 
for the telephone consumer to pay the full cost; and have you 
looked at other ways to provide this service that does not fall 
just on the consumer?
    But my time is up. Thank you, Mr. Chairman.
    The Chairman. Senator Rockefeller.

           STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    Senator Rockefeller. Thank you, Mr. Chairman.
    I do not have a lot of questions. I think it is important--
and Commissioner Kennard knows this; I have often said this to 
him--I think he has one of the three most interesting jobs in 
Washington, and I think the Commissioners have one of the three 
most difficult jobs in Washington, because we passed the 
Telecommunications Act in 1996. Of course as soon as we passed 
the Telecommunications Act there was the assumption that it was 
going to start working by 3 p.m. the next day, and there was 
this little matter of cost models, which are incredibly 
important for actually determining how universal service is 
going to work in the future, and you want to get it right and 
that takes time.
    There is the small and incidental factor that a whole lot 
of local companies or RBOC's sued. That does not exactly speed 
up your timetables insofar as I am aware. GTE still is, but a 
number of the others have dropped out. They have stopped suing, 
and I think that could be helpful.
    But I frankly am impressed by the progress that you have 
made on a whole series of fronts, and I think that the E-rate 
obviously is one subject and something I feel very strongly 
about. But on the other hand, I think you are also moving 
carefully and deliberately toward developing the right kinds of 
policies that reach out to all Americans, and that is a very 
hard thing to do.
    It has been raised by some that the universal service 
concept, which predates Social Security in fact, is a tax. Of 
course it is not a tax. It is simply an obligation. It is like, 
as I have said often in this committee room before, West 
Virginia has no oceans that I am aware of within its borders, 
but we do pay taxes for the Coast Guard, and that is because it 
is in the national interest. West Virginia is not a big State, 
but our interstates are four lanes like they are in 
Pennsylvania and Ohio. They are not two lanes based upon the 
size of the State.
    So in other words, we have an obligation in this country. 
The concept of universal service is actually very well named 
because that is what it is, is to make sure that all children, 
starting with the poorest, and that all areas, whether it is 
broadband or technology or whatever it is, that they are 
eventually going to get a fair and comparable service at the 
same rates that everybody else gets. That is what universal is 
all about.
    So I have never really understood that universal service is 
a tax. And particularly I have never understood it--and maybe, 
Chairman Kennard, you could repeat once again what you said 
before--that it is going up. In fact, it is going down, as you 
indicated, because of the local access charges. I think that is 
terribly important to repeat and to repeat and to repeat until 
people really do hear it, that the cost of all of this is going 
down for Americans, not up but down, and that is because of the 
local access charge.
    Could you explain that? Then I have one more question.
    Mr. Kennard. Certainly. The FCC through a series of actions 
over the last few years has consistently reduced the access 
charges, the charges that the long distance companies pay to 
connect and terminate calls on the local network. Over the past 
couple of years those charges have decreased by about $3 
billion, of course far in excess of the amount of the E-rate.
    But even putting that aside, this is a declining cost 
industry. Costs are continuing to go down for carriers. So 
again, this is a very affordable program. Worst case scenario, 
it is about the cost of a postage stamp a month for the average 
American. I believe that is a small price to pay in order to 
ensure that our next generation of kids have access to the 
technology they need to compete in a global information age 
economy.
    Senator Rockefeller. You indicated in your statement that 
the telecommunications industry has grown by about $140 
billion, and I forget what timetable you put on it, but it is 
exponential. I think very shortly or perhaps right now, if you 
take the health care industry and the telecommunications 
industry and combine them you have one quarter of the entire 
gross domestic product. I mean, it is a gigantic industry, 
growing faster and faster and faster.
    Does this not have some consequence upon a 
telecommunications company being able to do right, therefore, 
by something called universal service?
    Mr. Kennard. I absolutely agree, and I think that that 
includes not only the E-rate program but all of universal 
service. One of the reasons why we have a telecommunications 
system in America which is the envy of the rest of the world is 
because of universal service. It has worked and it has worked 
well in our country.
    It is going to work better, because as the economy 
expands--and actually about a quarter of our economic expansion 
is attributed to communications and information about a half 
trillion dollars in revenue a year and growing. As that pie 
expands, as people find more efficient ways to provide service 
to rural America, universal service will thrive and be even 
more affordable as we move into the next century.
    Senator Rockefeller. Let me just say one more thing. We 
were here last year battling and battling and battling, and it 
was not a particularly pleasant hearing. But one of the things 
that I thought was very good that came out of that hearing was 
that feelings and thoughts were put out on the table.
    Chairman McCain, I think very rightly, called for a GAO 
study and a report, in other words, on what was going on and if 
there was waste, fraud or abuse, and what about asbestos and 
all kinds of other things. The results were very clear and the 
answers were very clear, and it seems to me that we cleared up 
a lot of the problems that were confronting us as Commerce 
Committee Members last year because they were put to bed not so 
much by us, but by third party observers with real neutrality 
and credentials, for example the GAO.
    Therefore, I think there has been a lot of progress. My 
feeling about the FCC Commissioners, all five of you, is that I 
do not know how you put up with the pressure that is on you. I 
do not know how you master the details for what it is you have 
to do. I do not know how you construct your economic models. 
But it seems to me that your direction is forward and proper 
and strong, and essentially that the deal that was made in the 
Telecommunications Deregulation Act was that, yes, we will do 
deregulation and yes, you are going to do right by universal 
service to provide certain services to all Americans at 
comparable prices, is in fact now beginning to work.
    I thank the--
    Senator Dorgan. Thank me. [Laughter.]
    Senator Rockefeller [presiding]. Senator Dorgan.

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. I am the only one left to thank. The 
Chairman is on his way back. We have a vote occurring. But let 
me ask my questions and then I will go vote, and I am sure he 
will return by the time I am ready to leave.
    Let me just in shorthand try to get to this point that the 
Senator from Texas was making. She was making the point that 
there was an increased tax somewhere. In fact, as I see it you 
have moved for access charge reductions that actually exceed 
the additional charges that occur, explicit charges on bills. 
So there is no new net imposed charge here.
    To the extent that those who received access charge 
reductions are, and should be, moving those cost reductions 
through to the customers and to the extent that others are then 
increasing a charge to the customers. The net effect should be 
not a new tax at all, but in fact probably a slightly lower 
telecommunications bill. Is that accurate, Mr. Kennard?
    Mr. Kennard. Yes, it is.
    Senator Dorgan. I just want to make that point, because 
some people just take one piece and say, ``Gee, look at this 
piece.'' But you cannot look at just that piece. You have got 
to look at the access charge reductions that you enforced.
    Let me just talk for a couple minutes about two things--No. 
1, advanced telecommunications services. Before I do that, let 
me say that the issue of universal service is critically 
important to me. Senator Brownback and others made the point, 
those of us in rural America must rely on you to make the right 
choices and the right decisions. Some wrong decisions were made 
in many instances by the board that preceded you. You have done 
some U-turns, for which I am most appreciative.
    Four of the five of you are fairly new to this board. You 
inherited a huge set of responsibilities. I am not one who is 
critical. I think you have a tough job. I want to help you 
through that to get to the right choices on universal service.
    I am especially concerned about broadband and advanced 
telecommunications services. You have put out an interim report 
saying you by and large think things are going fine. I would 
say that I think unless there is some intervention, unless you 
connect advanced telecommunications services buildout to 
universal service, we will have a Nation of haves and have-nots 
with respect to broadband capabilities and advanced services.
    Can I ask whoever would like to respond to that, because a 
group of us have just written you a letter about that 
expressing our concern and expressing our hope to work with you 
to make sure the right thing happens with advanced services 
buildout.
    Mr. Kennard. Certainly. First of all, Senator, let me thank 
you for your guidance and your leadership on all of the 
universal service issues. You have really been a great help to 
the Commission, as evidenced by your recent letter that you 
sent us along with Senator Daschle and other Members of the 
Committee. You have provided us with some very good suggestions 
on how we can ensure that rural America enjoys the advanced 
services we want all America to have.
    When we issued the report to Congress under section 706 
which deals with advanced services, I did not mean to suggest 
that everything is going swimmingly. What I meant to suggest 
when I voted for that report is that it is a little too early 
to tell. We have seen in some rural communities some of the 
rural telcos in particular have been rolling out advanced 
services at a good clip and some very small communities in 
America are enjoying them. Others are not.
    But we are very early on in this very nascent advanced 
services rollout and it is a little too soon to say it is a 
failure. It is certainly too soon to say that it is a success. 
We will monitor it closely. We will certainly adopt many of the 
recommendations that you have proffered in your letter, and I 
hope that moving forward this problem will not be a problem 
that we are concerned about.
    Senator Dorgan. Does anyone else wish to respond to that? 
Yes, Commissioner Ness.
    Ms. Ness. If I may add to the Chairman's statement, you 
mention in your letter as well the opportunities that might be 
available to us from satellite and wireless telecommunications 
to provide broadband services to rural areas. These are 
particularly attractive, given the cost structures of those 
industries. So we are doing what we can to ensure that all 
avenues, that all competitive carriers, can provide access, and 
in particular focusing on the specific needs of rural areas. 
That is an area of concern.
    I particularly am interested in ensuring that rural areas 
have access to broadband because this is a great boost to the 
rural economy. This provides the opportunity for people to 
remain in their communities, to provide robust services, to 
provide for new industries. I see this as a great opportunity. 
I think it is an achievable opportunity, but, as the Chairman 
said, it is at the very beginning stages of the development of 
broadband. But we would like to do what we can to ensure that 
there are no impediments, and specifically focusing on the 
needs of rural areas.
    Senator Dorgan. I have other things to query, but I am told 
there are only 2 minutes on the vote and I am aging. So I am 
going to have to move quickly.
    One very brief question.
    Senator Stevens [presiding]. You are what?
    Senator Dorgan. I am aging, so I do not get to the floor 
quite as fast as I used to to make these votes.
    I will be quick. Commissioner Kennard, I sent you a note. A 
constituent of mine complained saying that they were driving 
down the road one day with a young son or daughter in the car 
and they heard language on broadcast radio they thought was 
inappropriate. I have had the same experience as a parent. So I 
wrote you a note asking, what are the standards these days? I 
guess, what are the words you cannot say on radio, is probably 
a better way of asking.
    Mr. Kennard. I am not sure it would be appropriate for me 
to say that here. Senator, I would be happy to meet with you 
privately and talk about that.
    Senator Dorgan. I am not sure I am prepared to--I am not 
sure I am prepared to hear it. But I do not mean to ask it in 
an amusing way.
    I think a lot of people are concerned, what are the 
standards, how are they set, how are they enforced. Because I 
cannot miss this vote, let me leave it at that, but just having 
raised it on behalf of some constituents, and perhaps--I note 
Mr. Furchtgott-Roth is nodding as well. It is an issue of some 
importance and a difficult one.
    Thank you very much.
    Mr. Chairman, thank you very much.
    The Chairman [presiding]. Thank you very much, Senator 
Dorgan.
    Senator Stevens.

                STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    Senator Stevens. Commissioner Ness, what you said about 
having new industries is a dream that I had for the rural areas 
of Alaska, to become involved in a lot of things because of the 
universal service requirements of the Act. But just let me read 
to you all section 254[a][2]. I am sure you are familiar with 
it, so everyone will be reminded:

          The Commission shall initiate a single proceeding to 
        implement the recommendations from the joint board required by 
        paragraph 1 and shall complete such proceeding within 15 months 
        after the date of the enactment of the Telecommunications Act 
        of 1996. The rules established by such proceeding shall include 
        a definition of the services that are supported by Federal 
        universal service support mechanisms and a specific timetable 
        for implementation. Thereafter, the Commission shall complete 
        any proceeding to implement subsequent recommendations from any 
        joint board on universal service within 1 year after receiving 
        such recommendations.

    Now, have you all complied with that law?
    Mr. Kennard. I believe we have, Senator. We timely 
initiated a proceeding in May 1997. We convened a Joint Board 
in order to make specific recommendations to the Commission. 
That Joint Board under the leadership of Commissioner Ness has 
come up with a number of very excellent recommendations, a 
number of which we will be considering at the Commission 
meeting tomorrow.
    The Chairman. You had a single proceeding and you completed 
it within 15 months?
    Mr. Kennard. No, clearly not all aspects of that proceeding 
were set forth, were completed. But we did set--we did complete 
a specific timetable for implementation, which is also the 
language.
    Senator Stevens. But you implemented schools and libraries 
and the concept of the E-rate just overnight. You have done 
that part of the other section, which I think you have not 
quite complied with it either, and that is the provisions of 
[h][1][B][i] with regard to the carriers having an option to 
offset the obligation of contributions to universal service or 
reimburse for utilizing the mechanism.
    But I do not see where you have complied with the law, and 
the trouble is that it just seems to me that pet political 
projects have preceded and gone forward and you have not 
complied with the basic concept that brought about the 
enactment of the 1996 Act. It would not have been enacted 
without the universal service. Everybody knows that. It is 
still dangling out there, and I am very fearful that we are now 
in Alaska going to enter the twenty-first century still having 
a portion of the nineteenth century in terms of our 
communications concepts if you do not finish your job.
    How are we going to be assured that rural America is going 
to have the support and the high-cost areas are going to have 
the support unless you complete that proceeding that we urged 
you to have, a single proceeding reaching the conclusion and 
protecting universal service? Now, when are you going to do 
that?
    Mr. Kennard. Senator, I certainly understand your 
impatience and sense of urgency about this. I share it. But we 
have, I think properly, resisted the urge to come up with a 
simple solution to universal service that just will not work. 
In the meantime we have ensured that funding for all rural 
areas, including the State of Alaska, is secure.
    It would be foolhardy for us to adopt some sort of a flash 
cut and try to restructure a program like universal service 
that is so important to the Nation and going to be even more 
important into the next century by adopting some sort of a 
simple solution that will not work. That is why we have 
convened the Joint Board, worked very closely with our State 
colleagues, convened a Rural Task Force, because we want to 
make sure that when we get an ultimate solution it is going to 
be one that is sustainable and that will work.
    Senator Stevens. Well, your predecessor had the theory, I 
believe it is correct to say, that access charge reductions 
would pay for the schools and libraries. Now, that has 
obviously not happened. Would you not agree with that?
    Mr. Kennard. Not exactly, Senator, because clearly there 
have been access reductions that far exceed the amount of the 
E-rate program. The question is have the long distance carriers 
passed those savings through to those consumers? Well, we know 
consumers are enjoying lower long distance rates, so they are 
enjoying lower rates.
    But we also know that some long distance carriers chose to 
put line items on their bill. That does not mean that bills are 
going up. All that means is that consumers are seeing charges 
for universal service that did not appear before.
    Senator Stevens. Well, I was the one that asked the GAO to 
look into the action of your predecessor in creating three 
corporations which were entirely outside of the province of the 
FCC, and that was abandoned. But now it seems to me that what 
we have done is, what the Commission has done, is concentrated 
exclusively almost on the concept of the schools and libraries. 
I do not deny that that was a goal, but there was no time frame 
on that, but you did it within a year.
    But you did not do what we asked you to do within 15 
months. Now, it does seem to me that we are getting to the 
point now where many people in the rural areas are fearful that 
we are going to lose universal service and the support that is 
needed, because now you are proceeding again to get another 
increase, but that increase is going to be dedicated to more 
schools and libraries.
    Let me tell you about one contract awarded in my State. 
That contract was awarded at a cost of $630,000 over the lowest 
bid, over the lowest bid. When we inquired, they said cost was 
not a factor. As a matter of fact, the statement was: Cost, 
especially costs that are subsidized by 90 percent, should not 
be the sole or even primary factor in the consideration of what 
we are doing in the schools and libraries.
    Now, can you justify that statement to me when it is coming 
out of the universal service fund?
    Mr. Kennard. I am not familiar with the facts of that case. 
I do know, Senator, that the program was designed carefully to 
make sure that we would give deference to the State procurement 
process, so that the FCC would not become a procurement agency 
for these funds.
    We also ensured that, in order to ensure that the money is 
spent efficiently, that the money be put out for competitive 
bid based on a technology plan approved by a third party, and 
with the understanding that the lowest bid is not necessarily 
going to create the best technology for the schools. So the 
fact that the lowest bid was not selected does not mean that 
anything was necessarily wrong.
    Senator Stevens. My time has expired. Let me just make one 
comment if I can.
    A visually impaired constituent of mine wrote to me that he 
is concerned because he gets directory assistance charges every 
time he needs a number because he cannot read the phone book. 
What have you done about that?
    Mr. Kennard. I certainly share your concern about this. In 
fact, when I heard you were concerned about this I asked my 
staff to provide you a report on how we can solve this problem. 
I hope you have had an opportunity to receive that. But in any 
event, we are certainly working closely with you and your staff 
to address that issue.
    Senator Stevens. Well, I think it is a universal, not just 
my staff and Alaska. That is a problem for all unsighted 
people.
    Mr. Kennard. Oh, of course.
    Senator Stevens. My father was blind, so I am very 
interested in that subject.
    Thank you very much.
    The Chairman. In the interest of--Senator Stevens, perhaps 
the other Commissioners would like to comment. You raised a 
very important issue and, with the indulgence of my colleagues, 
I would like to allow the other Commissioners to comment on 
your questions that you have asked, beginning with you, 
Commissioner Ness. Do you have any additional comments to make 
concerning the line of questions that Senator Stevens has just 
inaugurated?
    Ms. Ness. Senator Stevens has focused in on the importance 
of Universal Service and the importance of completing our 
Universal Service proceeding in a timely fashion. And I share 
your frustration, Senator. It has been one of the more complex 
issues that we have had to grapple with. We want to ensure that 
the dollars that go into Universal Service are applied 
judiciously, and that high-cost areas continue to have 
affordable, sufficient and reasonably comparable rates. I 
believe we are doing so as we speak.
    There has not been a reduction in the level of funding that 
has gone into Universal Service for high-cost areas. We are 
working closely with the States to come up with a regime that 
will continue to ensure that it is affordable. Most of the 
implicit subsidies that take place within the 
telecommunications system are at the State level. So we want to 
make sure that funds are targeted to the high-cost areas. Where 
feasible, using access charge reform, which we are hoping to 
complete this fall, we will directly target those amounts, 
identify them, and make them explicit.
    These are difficult issues. We do not want to waste the 
funding, but we do want to make sure that high cost areas 
continue to receive adequate funding. And we will do that.
    Senator Stevens. My assistant, Ms. Rhodes, tells me that 
the Universal Service Fund remains at 1.7, but the high-cost 
fund is going up to 2.25 tomorrow. I mean the Schools and 
Libraries Fund is going up to 2.25.
    Ms. Ness. The $1.7 billion, that is for the rural carriers. 
What we have done is to continue to provide for the rural 
carriers separately. They are not subject to access----
    Senator Stevens. It is a flat rate, but you are going up in 
the others. You are going up on the newest program before you 
have assured Universal Service.
    Ms. Ness. There is no reduction of funding for the high-
cost areas. Particularly, the small rural carriers are doing 
very well. Their funding sources are continuing. Indeed, they 
are prospering. At least as far as our information goes, there 
is no reduction in 
either funding or revenues for small carriers.
    What we did not want to do was precipitate a regime that 
would be inappropriate for the smaller carriers. We want to 
make sure that any regime that we apply to them works. We 
recognize that they have very different cost structures, very 
different needs. We want to make sure that they are 
sustainable. That is why we have said we are not going to touch 
them for quite some time, and there will not be anything done 
unless and until we are assured that it will work for the rural 
carriers.
    So that is the reason why we have not proceeded as 
aggressively as you would like, as I would like. But we are 
trying to put together a regime that is sustainable.
    The Chairman. Or in compliance with the law.
    It is not a matter of ``like,'' Commissioner Ness, it is a 
matter of compliance with the law that Senator Stevens and I 
are trying to get at here.
    Commissioner Tristani.
    Ms. Tristani. Mr. Chairman, as my colleagues have stated, 
this is an extraordinarily difficult proceeding, the high-cost 
proceeding. And as I stated earlier, I do want to make sure we 
get it right.
    I come from a State that has high-cost areas. I come from 
New Mexico. It has a lot of rural carriers. It has a lot of the 
carriers that we will not be addressing until later. I would 
not proceed to fully support the E-Rate if I had any kind of 
misgiving that it would imperil in any way the high-cost 
funding or the levels of funding that they are receiving.
    The Chairman. Mr. Furchtgott-Roth.
    Mr. Furchtgott-Roth. Thank you, Mr. Chairman and Senator 
Stevens.
    Approximately a year ago, I sent a letter to the Schools 
and Libraries Corporation, with a set of questions. One of 
those questions, Senator Stevens, was: How much of the funding 
for schools and libraries is going to fund programs that were 
not the low-cost bid? How much is going to support programs 
that were the low-cost bid?
    I received a response, to my dismay, that they have no 
information on this question, which is precisely the question 
you just asked, about a specific case in Alaska. Simply told, 
we do not know. No one knows. Because no one has wanted to find 
out.
    We also have a situation, Senator, where we are proceeding 
with doubling the size of a program. We have received, it is 
true, $2.25 billion, approximately, in demand. I have asked the 
question: To which States have we received this demand? I have 
gotten back the answer: We do not know.
    We are funding a program; we cannot even tabulate where the 
demand is going. And I am extraordinarily interested to 
discover today the statistic that, at most, this will cost 
consumers 33 cents a most.
    Now, I am just a poor boy from South Carolina, but let me 
tell you a little bit of arithmetic that I learned, which is 
there are about 100 million households in America. Every 
billion dollars is $10 per household per year; $2.25 billion is 
over $20 per household per year. Now, 33 cents a month--if we 
can fund schools and libraries for 33 cents a month per 
household, I think we ought to fund the entire Federal budget 
through this program, because that is the most amazing piece of 
accounting I have ever heard. It is great. [Laughter.]
    Senator Stevens. As the chairman of the appropriations 
committee, I would like to find that economist. [Laughter.]
    Senator Stevens. That leads me to comment, and I am glad 
you will let me continue. You all are funding demands. We 
prioritize demands and fund those we can afford. You are not 
doing that at all. I have heard tales about one school that was 
completely rewired, totally rewired, in order that it could be 
hooked up to the E-Rate. That was not what was in that law at 
all. You are supposed to make available the services to them 
and the local school district should have rewired the building. 
We would have done that, in handling the budget.
    If we provide Federal funds, the States and local people 
must match something. But this is a free ride. The trouble is 
we are going downhill now, and it is picking up momentum, and 
it is taking so much money out of this fund that we think it 
will kill the Universal Service Fund before we are through. You 
are taxing the users and you are allocating the money that is 
coming in without any idea of prioritizing the demand that is 
coming to you.
    Now, I do not know who is running that School Foundation, 
or Corporation, or whatever you want to call it. But we did not 
create it. I understand you are going to try to federalize this 
system now, to the point that you are legislating tomorrow. I 
am going to watch that very carefully. I have watched the GAO 
to watch it very carefully. I do not want to see you again 
assume authority that you do not have.
    Mr. Chairman, this is something that we must control. I 
support the concept of these schools and libraries and health 
facilities being hooked up. But when you go in and pay costs 
that the local district and local school area should pay in 
order to justify the services available under the 
Telecommunications Act, I think it is a waste of money of the 
users, of the ratepayers, of the system.
    The Chairman. Well, as you know, Senator Stevens, an empire 
was set up once before that the GAO declared illegal, which we 
are paying people $250,000 a year to serve on some board that 
was created. So I would argue that it certainly does bear 
watching.
    Mr. Furchtgott-Roth, are you finished with your statement?
    Mr. Furchtgott-Roth. Yes, sir.
    The Chairman. Commissioner Powell.
    Mr. Powell. Senator, first of all, to give just a direct 
answer to Senator Stevens' question. From my interpretation, 
no, I do not think we met that stated statutory requirement. I 
do not think that we conducted a single proceeding, and we 
certainly did not finish it in 15 months.
    The Chairman. You say you have not conducted a single 
proceeding?
    Mr. Powell. We have conducted proceedings, but I would 
suggest that, as I interpret the law, I do not think we did 
what it envisioned.
    What I would say is I would focus also intensely on that 
first phrase, ``a single proceeding.'' I will describe to 
Congress an understanding of how critical I think that was. 
Universal Service is a complex--everyone has alluded to it--a 
complex, comprehensive, very difficult to manage program, with 
a whole lot of money sloshing around into it. There are many 
difficult judgments and tradeoffs and complexities in 
allocating and making determinations as to how it should be 
collected and distributed.
    I think that if this program does not work out well, part 
of the blame will be a number of single, separated proceedings 
that make separate and distinct judgments that are difficult to 
sort of calibrate at the end of the day. There is an 
incongruence between how much progress there has been in the 
S&L and the other accounts. I will not be one of those who 
contribute to what the explanations of those are, and I 
certainly support the program. But what worries me is Congress 
did something, first and foremost, in the 1996 Act, in which it 
said: ``Preserve and advance, but make sure you do the things 
that will facilitate competition--competition for your 
constituents as well as those in the city of New York.''
    The part of that exercise that is most critical lays in 
front of us and not behind us. I am always astonished when 
people say: ``Where is competition?'' I do not find it to be 
that complex where it is. We continue to have distortions in 
the system that we have yet to correct. Until we do, I think it 
continues to be naive to suggest that the grandest part of the 
Act will be achieved in a manner that preserves and protects 
the concerns that you have.
    The complexity of doing it at bites of the apple and not 
comprehensively, I think, are part of what makes it cacophonous 
and virtually impossible at some level to do. Each stage is a 
little more money. Another billion for schools and libraries. 
When we do high-cost, there will be more money. Then we will 
get to the parts that I think are most critical--access reform. 
At what point will political will--our will or citizens' will 
to bear the price of rationalization expire?
    I hope it does not expire before we get to the part that I 
believe is absolutely essential to any of the other goals of 
the Act being achieved. I think that is the central criticism I 
have.
    The Chairman. What needs to be done?
    Mr. Powell. What needs to be done, we are on track to do, 
though it is late in coming. I think the central, most 
important proceeding in this whole exercise is an integrated 
high-cost access reform regime. The high-cost part, in order to 
guarantee the concerns that Senator Stevens raises, and the 
access reform part because the incentives are distorted.
    I also want to make sure that the citizens of Alaska get a 
competitive, fighting chance. I know that will not happen 
unless we rationalize the cost relationships among consumers in 
this regard. It has to be done very soon. We have publicly 
stated we are going to commit to doing it by September. I only 
hope to God we do. But we are going to get to a point where a 
lot of what we had hoped for will not be achievable if we do 
not.
    I cannot go back and change the course that brought us 
here, though.
    Senator Stevens. Thank you. I am glad you are where you 
are, because I certainly agree with you. But my greatest worry 
is that by the time we get this decision, the bulk of the 
service will be provided by people who do not contribute to the 
fund at all.
    Thank you.
    The Chairman. Senator Stevens, there is nothing anyone 
likes better than the sound of their own voice. On May 1, 1997, 
Senator Burns and I wrote a letter to the FCC:

    We have previously cautioned you that any attempt by the 
Commission to implement one portion of Universal Service 
funding without coherently and comprehensively implementing all 
parts of it will not be economically rational. It will 
unavoidably discriminate against some companies and subscribers 
and will therefore fail to comply with the clear and 
unmistakable terms of the statute.

    That was a letter sent to Commissioner Hundt. I guess it 
shows the utility of sending letters in this business.
    Chairman Kennard, if you did have some response, I think it 
would be fair to let you make that.
    Mr. Kennard. Yes, I appreciate that, Mr. Chairman.
    First of all, I would like to introduce a note of optimism 
into this discussion. Because I think that we are--as I sat 
here and listened to the discussion, I was thinking, what would 
we be talking about today if the Commission had decided to rush 
ahead with Universal Service, discarding the cost models, 
rushing past our State colleagues who were very, very concerned 
about ensuring that they had input into this process, if we had 
literally blown them off, not convened a Joint Board, not done 
the things that are necessary in order to form a national 
consensus around these important issues of Universal Service 
and access reform.
    We would be having a different discussion, but I think it 
would be every bit as difficult and negative. Because we would 
have rushed into a Universal Service access reform plan before 
we were ready to do it. We would have tried to come up with 
simple, easy solutions, which would have been time bombs in the 
future. None of us would be sitting here today, if we had done 
the alternative, with any degree of confidence that we had put 
Universal Service on a firm footing for the next century.
    So, I am not here to apologize for the fact that we have 
tried to move cautiously and in a way that develops a 
comprehensive record, reached out to a lot of people in the 
industry and in the States, in order to do what I think is most 
prudent in order to solve this problem. In the meantime, I 
think it is really important to note that the companies that 
are receiving Universal Service support are doing very, very 
well today in this country. Their rates or return are higher 
than they have ever been. They are continuing to provide 
Universal Service subsidy support to consumers in rural areas. 
The Lifeline Program is healthy and it is better than it has 
ever been.
    So, yes, we have not come up with a consolidated solution 
on access charge and Universal Service reform. We will. We are 
on track to do it. We are doing it in a way that will, in my 
view, build a broad consensus for an ultimate solution we can 
all be proud of.
    The Chairman. Senator Breaux.
    Senator Breaux. I want to make sure the Chairman has 
finished his line of questioning. I do not want to step on your 
toes at this critical point in our legislative process. I do 
not have much in there; I want to keep what I got, just a 
little bit. [Laughter.]
    Senator Stevens. This all started back when we started a 
rate integration resolution in the seventies, to require the 
integration of Alaska and Hawaii into the overall interstate 
rate pool. Literally, everything started flowing from that. But 
I have a deep and abiding involvement here, and I do thank you 
for your courtesy.
    Senator Breaux. Thank you.
    I am going to change the subject for just a moment. I 
guess, Mr. Chairman, maybe I will direct this to you, and 
anybody else can chime in. I want to talk about advanced 
telecommunications capability data transmission in particular. 
I remember when we were debating the 1995-96 Act that we did 
not get into a lot of discussion on the regulation or 
deregulation of data transmission--for instance, advanced 
capability communication ability. We did have a section 706, 
which you all are very familiar with, that was in the statute. 
That said we should be encouraging the deployment of advanced 
telecommunications capability. We said that the Commission 
shall make some inquiries to basically determine whether the 
advanced telecommunications capability is being deployed in a 
reasonable and timely fashion and, if not, take immediate steps 
to try and encourage it.
    It seems to me that in the process of making some of those 
determinations in the section 706 proceedings that the question 
of whether there is a monopoly out there in data transmission 
or not was considered by the Commission. It seems that what you 
all have said in this area is that you believe--and I am 
quoting now from the proceedings--that it is premature to 
conclude that there will not be competition in the consumer 
market for broadband. The preconditions for monopoly appear 
absent. Today, no competitors have a large, embedded base of 
paying residential consumers, and the record does not indicate 
that a consumer market is inherently a natural monopoly.
    Now, the question that I need some discussion on: If we 
conclude that data transmission, for instance, is not in a 
monopolistic situation in this country, it would seem to me 
that in the absence of specific authority to regulate cross-
boundary transmission of data is not present in the Act. 
Therefore, my question, I guess, Mr. Chairman, is this: Is it 
free and open to provide data services across borders now, 
across the LATA's? If it is not, that would infer to me that it 
is being regulated. If in fact it is being regulated, what is 
the authority? I find none in the statute.
    I know that we do not take the position that if it is not 
prohibited, then we regulate it. You have to have some 
authority to regulate something, I think, before we regulate 
it. But just do not regulate something if there is no authority 
to do so in the absence of a monopoly, which apparently has 
been concluded by the Commission. So, you understand what I am 
trying to get to. Can you comment on that?
    Mr. Kennard. Yes, I believe I understand the question. I 
think you have to parse carefully what the Commission 
determined in that 706 order. You have to make a distinction 
between the services, the advanced services, themselves and the 
facilities over which they are provided. Clearly, advanced 
services today in America are being provided over, for the most 
part, essential facilities that are still controlled by 
providers who have monopoly power, the last mile into the home. 
That is still a monopoly service--only one provider, only one 
wire into the home, providing advanced services, at least on 
the telco side.
    So the Commission has been careful, I believe, in its 
orders----
    Senator Breaux. Just on that point, how does that statement 
jibe, if you will, with the statement that the record does not 
indicate that the consumer market is inherently a natural 
monopoly? Is that not contradictory to what you just said?
    Mr. Kennard. Well, today, in advanced services, it is a 
very nascent market. There are less than a million DSL 
subscribers, less than a million cable modem subscribers in the 
country. Nobody has a monopoly in the provision of those 
services. But people do have a monopoly in the facilities over 
which they are provided. That is the distinction that I am 
trying to draw. So we certainly have authority to control 
access to that essential facility, that copper wire.
    We have not regulated the service itself. I think that we 
have been careful to say very clearly that we are not 
interested in regulating the provision of the service, but only 
at the whole level, the way people access the essential 
facility to provide it.
    Senator Breaux. Well, can the RBOC's provide data across 
the LATA's or not?
    Mr. Kennard. No. Except in very narrow circumstances.
    Senator Breaux. What is the authority in the Act that 
prohibits them from doing that? I do not think we discussed 
this in the Act, to tell you the truth. We talked about voice 
transmissions. The only thing I can find that we did on 
advanced communication capability data transmission is to tell 
the FCC to take a look at it.
    Mr. Kennard. The FCC did take a look at the issue you 
raised, whether we could, in effect, give broad-scale inter-
LATA relief to RBOC's for data alone. Almost a year ago, in 
August of last year, the Commission determined unanimously that 
the statute did not give us authority to, in effect, deregulate 
the provision of inter-LATA advanced services. And that was 
based on our best reading of section 271 of the Act.
    Senator Breaux. Well, it would seem to me that you did not 
have authority to deregulate it, but you never had the 
authority to regulate it in the first place. Do the judicial 
decisions regulate data transmission?
    Mr. Kennard. Well, in many cases--I would say in virtually 
all cases--these are offered on an integrated basis. Now, we 
have proposed a pathway for the Regional Bell Operating 
Companies to provide these services, essentially in a 
deregulated fashion, if they are willing to put those data 
services in a separate subsidiary. Then they could, and should 
be, deregulated. But as long as they want to offer it on an 
integrated basis, they are subject to section 271 of the Act.
    Senator Breaux. My concern is I do not know how we proceed 
to deregulate something without the authority to regulate it in 
the first place. You talk about we have not deregulated, but I 
do not know where the authority to regulate it comes from in 
the first place. It seems to me that the court decision did not 
talk about data transmission, and nothing in the Act talks 
about deregulating it or regulating it. I just do not know how 
we have the authority to say you cannot do that, because we 
never addressed that issue.
    Mr. Kennard. Well, we looked at the Act when this question 
arose, and it was fairly clear to us that the definition of 
telecom services under the Act encompasses both voice and data. 
Absent an explicit congressional directive to the contrary, we 
have to enforce the Act as it is written.
    Senator Breaux. What else does it include that we did not 
spell out? Are there a whole bunch of other services out there 
that probably can be lumped into that, too, that we never 
talked about?
    Mr. Kennard. I do not think it is a long list, but I would 
be happy to talk to you about that at some point.
    Senator Breaux. Any other commissioners have anything to 
add to my question?
    [No response.]
    Senator Breaux. Everybody is in agreement with the Chairman 
on that?
    [No response.]
    Senator Breaux. I take it by your absence of saying 
something is regulated, we can assume the answer is yes?
    Mr. Furchtgott-Roth. Senator, if I may just simply confess 
my ignorance. I am not quite sure I follow the question.
    Senator Breaux. Maybe it is the ignorance of the 
questioner.
    Mr. Furchtgott-Roth. No, no, no. It is a complicated 
question. But I think the Chairman did raise a good point, that 
section 271 addresses telecom services, and we are sort of 
bound by the language of the Act.
    Senator Breaux. OK.
    Thank you, Mr. Chairman.
    The Chairman. Senator Snowe.
    Senator Snowe. Thank you, Mr. Chairman.
    I want to welcome the chairman and the members of the 
Commission.
    First, I would like to ask a question that has had a 
particular impact in my State, and perhaps other States as 
well. It is the issue of the area code. I think, as you know, 
Mr. Chairman, and members of the Commission, that the State's 
Public Utilities Commission has asked to have delegation 
authority to undertake the determination on how to use the 
existing area code as opposed to dividing up the State and 
having another area code. As you know, they have been ordered 
to do so, although we did understand today that the North 
American Numbering Plan Administrator has pushed off the date 
from July 1999 to the year 2001.
    But, nevertheless, I think that it is important for the 
State's Public Utilities Commission to be able to have the 
ability and the authority to administer their own plan with 
respect to the area code. I think it is totally unnecessary to 
divide the State up into another area code. It is a rural 
State. The fact is, they still have enough under the existing 
area code that represents five times Maine's population. So I 
think it is unnecessary in terms of the economic costs, the 
social implications, to require a new area code in the State of 
Maine.
    When could the State's PUC expect a decision from the 
Commission with respect to having this additional authority?
    Mr. Kennard. We have received a petition from the State of 
Maine. In actuality, before the petition was filed, I met with 
the chairman of the Maine Public Utility Commission, Tom Welsh, 
who, by the way, is an extraordinarily talented man. You are 
lucky to have him. We discussed how we could give the State 
more flexibility to address this issue. I anticipate that that 
decision will come out in a matter of probably a couple of 
months.
    Now, in the meantime, at tomorrow's meeting of the full 
Commission, we intend to address this problem. The fundamental 
problem is, as a country, we are running out of numbers. We 
will hopefully address this problem at tomorrow's meeting by 
coming up with new ways to allocate numbers so that we can 
conserve them.
    Senator Snowe. Are other States facing a similar problem? I 
think it is important for States to have the flexibility, 
because it does have an impact. I think on smaller States most 
especially, because of the cost to small businesses and also 
the social impact. I think that Maine's PUC certainly has 
demonstrated that it would fulfill its obligations in 
developing a conservation plan. But also I think there is the 
ability to continue to use the existing area code without 
imposing this whole new system and another area code in the 
State.
    Mr. Kennard. We are seeing this problem crop up in States 
around the country. My own personal view on this, and I have 
conveyed it to my colleagues in the States, is that these 
matters are intensely local. They tend to be intensely 
emotional. We at the Federal level should be delegating as much 
authority to the local State commissions to deal with this, 
because they are more familiar with the issues locally than we 
are, provided that none of the solutions frustrate our Federal 
goals of administering our Act and promoting competition. And 
we will continue to do that.
    Senator Snowe. Have other States made similar requests?
    Mr. Kennard. Yes. We have had discussions and requests from 
the State of Pennsylvania. I think California has a request in. 
It is a problem in a number of States.
    Senator Snowe. Well, I would urge the Commission to 
consider the flexibility involved. I would hope that that would 
be possible.
    On the other issue of the E-rate, and I know it has already 
been mentioned--first of all, I want to commend you, Mr. 
Chairman, for urging full funding of the E-Rate. I hope the 
full Commission--I know you will be considering that issue 
tomorrow--will support it. I always find it a little bit 
amazing and somewhat ironic that the E-Rate is challenged, 
given the global economy that we live in today, that 6 out of 
10 jobs require technological proficiency, and even more so in 
the future.
    I think about last year's overwhelming support in Congress 
for an increase in the number of H-1B visas that would be made 
available to bring high-tech workers into this country because 
there are 190,000 jobs that are not able to be filled by 
companies across the country because we do not have the skills 
necessary in our workers for technology. So I cannot think of 
anything more important than ensuring that our school systems 
and libraries all across the country have access to the 
Internet, that they are wired, that individual classrooms are 
wired.
    Only 51 percent of individual classrooms in public schools 
are actually connected to the Internet in this high-tech age. 
And so I see the need ever more. As I go through schools in my 
State and as I was visiting with a technical college in Maine 
recently, I can only tell you one thing--it is learning the 
skills that are necessary to fill the jobs that are going to be 
out there.
    In fact, we had a hearing yesterday on the small business 
committee, talking about the number of unfilled jobs because 
the workers do not have the technology skills. So I see the E-
Rate as becoming increasingly important to the future of this 
country and to the future of the workforce.
    Mr. Kennard, can you tell us, from your perspective--and 
any members of the Commission--about the impact that the E-Rate 
has had from what you can see, in terms of the applications?
    Mr. Kennard. It has been tremendously positive. I know that 
not only from the statistics that I have seen, but also 
anecdotally. I have visited many schools in the country--inner-
city schools rural schools--where literally you see kids' lives 
changed by their ability to get access to technology. I have 
seen this happen.
    In the year that this program has been in effect, we have 
been able to improve the lives of about 38 million children, 
80,000 schools and libraries around the country, and wired over 
600,000 classrooms. Those are very tangible benefits. And those 
benefits will pay dividends for years and years to come in our 
country. So I agree with you.
    Senator Snowe. Is it true that 65 percent of rural schools 
and libraries that applied for E-Rate funding for this year are 
in the 70-percent discount level? In other words, that is 
demonstrating a tremendous need?
    Mr. Kennard. I cannot confirm that percentage, Senator, but 
I do know that one of the reasons why full funding is important 
is to reach the large proportion of rural schools that tend to 
be in that 70-percent band.
    Senator Snowe. So the $2.25 billion is not only necessary 
to meet the existing demand for the program, but also the long-
term needs of our Nation?
    Mr. Kennard. Absolutely.
    Senator Snowe. How many applications can we expect for this 
coming year?
    Mr. Kennard. Well, we have received this year about 30,000 
applications, requesting $2.4 billion in funding. We do not 
fund to demand. I wanted to just correct the record on that. 
There is a cap of $2.25 billion. So this year, even at full 
funding, we will have to turn away a lot of applicants and a 
lot of schools.
    Senator Snowe. What kinds of requests are they making?
    Mr. Kennard. Requests for a range of services; primarily 
the ability to wire the classrooms to the Internet. That is the 
particular need of the poorest schools. Internet access. Basic 
telecommunications services. All manner of E-mail applications.
    Senator Snowe. I would hope that the full funding is 
provided. I see it as a tremendous need in this country. 
Technological illiteracy is having an impact on companies in 
filling their positions. We need that. When you think about 
Internet access among lower-income, high-minority schools, it 
is even worse. Only 39 percent of the classrooms in low-income 
schools have this access, and only 37 percent of classrooms 
with minority populations of 50 percent or more.
    So I would hope that we could get support for the full 
funding, and recognize that wiring classrooms and making sure 
that our classrooms have the necessary technology to meet the 
needs of the future--not only for themselves personally and 
professionally, but for this country.
    So I thank you for your leadership on this issue.
    Mr. Kennard. Thank you.
    Senator Snowe. Thank you, Mr. Chairman.
    The Chairman. Senator Cleland.

                STATEMENT OF HON. MAX CLELAND, 
                   U.S. SENATOR FROM GEORGIA

    Senator Cleland. Thank you, Mr. Chairman.
    I just want to echo the wonderful sentiments and statement 
of Senator Snowe. I want to thank Senator Snowe and Senator 
Rockefeller and the leadership of this Committee for putting 
together such an innovative program. I was not here on the 
Committee when the 1996 Telecommunications Act was passed--
thank God. [Laughter.]
    Senator Cleland. But I do get the opportunity to interpret 
what in the world happened. I will say to you that I think this 
is one of the most far-reaching aspects of it. I say that, and 
applaud you, Mr. Chairman, for pressing on in your effort to 
have the education rate, the E-Rate, funded, so that our 
libraries and schools throughout our country can be connected. 
I was speaking to a young, bright software developer who has 
become a billionaire, as so many of these Internet and cybernet 
companies have become very wealthy. And he said, the worst 
thing you can do is to be out of the Net. If you are out of the 
Net, you are out of business in many ways, and you are out of 
the education business certainly.
    In my State, Mr. Chairman and members of the Commission, 
this E-Rate alone has meant some $77 million to schools and 
libraries in my State. They are in the Net, and we thank you 
for that.
    As a matter of fact, I have sent a letter to every school 
superintendent in my State, emphasizing the importance of being 
part of the new global cybernetics economy and taking advantage 
of the E-Rate opportunity.
    Well, thank you for that.
    I would just like to say that I have BellSouth based in 
Georgia. I like it. It is a wonderful company. I think it is 
going to be a leader in terms of fulfilling the intent of the 
1996 Telecommunications Act. As a matter of fact, BellSouth is 
applying to the Georgia Public Service Commission, and has an 
application there underway, with a third party review. If they 
get approved by the PSC in Georgia in September or October, I 
think they might be the first Regional Bell Operating Company 
to get State permission, and they will be coming then to the 
FCC for your concurrence, so they can participate as the Act 
envisioned.
    So I am proud of BellSouth and its efforts to comply with 
the law and be a leader and step forward. They are doing that 
at this moment in Georgia. You can be looking forward to an 
application coming to the FCC from BellSouth. It does look like 
they will have good results with the Georgia Public Service 
Commission, dated sometime in September or October. I just 
commend that application to you for prompt acceptance, because 
I think it will help set a tone for the Regional Bell Operating 
Companies that we need set very badly.
    I would say to you also that I am concerned about the fast 
pace of, shall we say, mergers. There are so many things 
happening in the world of telecommunications today that are 
fast paced, it is almost difficult for regulators and 
government officials and legislation to keep up with it, to 
keep apace of what is fair and just. But I noticed that SBC and 
Ameritech are currently waiting for a decision on their 
proposed merger.
    I just wonder where the FCC really comes in this whole 
merger business. I am new to the Committee. I know the 
antitrust people in Justice have a role. But educate just a 
little bit about your understanding maybe, Mr. Chairman, and 
any members of the Commission that want to chime in. Where do 
you see yourself in this fast-paced, fast-moving merger, 
buyout, long-lines, AT&T connecting up with cable, and others 
connecting up with other operations? It is a fast-paced 
business. Where do you all fit in, in commenting or making an 
observation about how this impacts on the world of 
telecommunications and competition particularly?
    Mr. Kennard. Well, Senator, we try to look at these issues 
through the eyes of the consumer, because we are pledged to 
protect the public interest. The best way to do that is to do 
all of our decisions through the prism of the public. So what I 
try to do in my decisionmaking is to determine how best to 
serve the public, consumers.
    In the context of mergers, our review is quite different 
from the review of the Department of Justice and the Federal 
Trade Commission. We, alone among those agencies, have an 
obligation, given to us by statute, to make sure that the 
public interest is served in those decisions. That is why we 
have ensured that--and I feel very strongly about this--that 
when we make these decisions involving large mergers, that will 
affect the structure of this industry for years to come, that 
we ensure public participation.
    So we have reached out to States Attorneys General and 
consumer groups and labor unions and competitors, although they 
are always there anyway, to make sure that their voices are 
heard in these debates. Because if we close our eyes or close 
our ears to the issues that they are going to raise, I do not 
see how we can advance the public interest.
    Senator Cleland. Thank you very much.
    Does your staff or do you all have to file or want to file 
an amicus curiae brief, or friend of the court brief, with the 
Justice Department, and say, ``We have looked at it from the 
consumer point of view and we think that this merger here might 
create an unfair advantage, a monopoly, and be unfair 
competition.'' Do you all wade into those kind of issues? Do 
you file those kind of briefs with the Department of Justice?
    Mr. Kennard. We typically do not. The Department of Justice 
does not have--it is not an Administrative Procedures Act 
agency, so it does not have the same open public processes that 
we do. Typically it goes the other way. The Justice Department 
will comment in our proceedings occasionally. But we do 
coordinate with them. We endeavor to ease the regulatory 
burdens on parties that have to get approvals from both the 
Justice Department and the FCC.
    Senator Cleland. Mr. Chairman, may I have one more 
question? I know my time is up.
    The Chairman. Yes.
    Senator Cleland. In 1985, the Fairness Doctrine, 
unfortunately in my opinion, was eliminated in terms of 
political campaigns and issues discussed on the public 
airwaves. Senator Wyden pointed out that the status of American 
campaigning today is atrocious at best. I just wondered if 
there is any sympathy among the Commission for bringing the 
Fairness Doctrine back in order to establish some kind of more 
level playing field for discussion of political issues today 
and political campaigns?
    Mr. Kennard. Well, I would just note on that subject that 
there are two rules that are related to the Fairness Doctrine 
that are still in force at the FCC--the Personal Attack Rule 
and the Political Editorializing Rule--that are being subject 
to court challenge right now. But we do not have a pending 
docket on the Fairness Doctrine today, no.
    Senator Cleland. Thank you very much, Mr. Chairman.
    The Chairman. Thank you very much.
    Mr. Kennard, of those referenced in an earlier question, 
those 1 million subscribers to advanced broadband services, do 
not over 700,000 of them subscribe to cable?
    Mr. Kennard. The last figure that I looked at----
    The Chairman. Roughly.
    Mr. Kennard [continuing]. Roughly--about 700,000 cable 
modem subscribers and about half a million DSL subscribers.
    The Chairman. Is not cable a local monopoly?
    Mr. Kennard. It is. Certainly, in most parts of the country 
it has a monopoly on the provision of those services, yes, 
cable services.
    The Chairman. Well, why should not cable be forced to open 
its monopoly facilities for data like the telecos have to for 
voice?
    Mr. Kennard. It is a tough question, Senator, and one that 
we have been doing a lot of thinking on recently at the FCC. A 
lot of people came to the agency, first, I guess, in the 
context of the 706 report, and then, later, in the context of 
the AT&T-TCI merger, and urged those of us at the Commission to 
require that the cable plant be opened.
    Speaking for myself, my view is that that marketplace is 
still in its infancy and one that really no one presented a 
credible proposal on how the FCC should get involved. At the 
end of the day, I decided that we should closely monitor the 
deployment of these services, but that ultimately our goal 
should be to encourage multiple broadband pipes into the home 
as opposed to trying to regulate up, as I call it--put cable on 
the same regulatory platform as the telecos. Because as I know 
you know, the goal of our law is to introduce competition and 
deregulate as quickly as we can.
    The Chairman. Well, as I understand the facts, the 
competition is not there. There are two controllers now of 
broadband access, one of whom is AT&T and the other is the 
cable industry. I would be very interested in how we can get 
that competition in there.
    I would like to talk about forbearance for a minute. How 
many forbearance petitions has the FCC granted since the 1996 
Telecommunications Act was passed?
    Mr. Kennard. Of the forbearance petitions that have been 
filed, if memory serves, we have received nine petitions, and 
granted, either in whole or in part, six of those. I should 
say, we have received 23, we have considered 9--taken them to 
decision, that is.
    The Chairman. On the 14-point checklist, you wrote, on May 
10, you disagreed with an assessment that we made that there 
was actually more than 14 points on the checklist. What is your 
specific numerical answer to the following question: If a 
Regional Bell Operating Company were to apply for section 271 
authorization tomorrow, how many individual requirements would 
that company have to satisfy?
    Mr. Kennard. Well, the statute establishes a 14-point 
checklist. The number of requirements on the checklist will not 
change unless you decide to change the law. Now, the way the 
checklist works is the FCC determines whether a Regional Bell 
Operating Company has complied with various requirements of the 
Commission, which are incorporated, by reference, in the 
checklist. So there are a number of requirements that have to 
be met.
    The checklist itself, Mr. Chairman, incorporates, by 
reference, compliance with a number of FCC rules that are 
adopted, for the most part, under sections 251 and 252. So I 
have never made a specific count. The requirements vary from 
company to company, depending on their unique circumstances.
    The Chairman. Would any of the other commissioners like to 
comment on those previous two questions concerning broadband 
access and the checklist?
    Commissioner Ness.
    Ms. Ness. Is your question with respect to broadband 
access, the question that Senator Breaux raised earlier?
    The Chairman. No. Concerning the fact that cable controls a 
significant--go ahead.
    Ms. Ness. On the cable access issue, we believe that it is 
still in a nascent stage, that the cable infrastructure and 
cable regulation came up through a very different regime than 
did the common carrier regime. We are monitoring the situation. 
I care very much about openness. I care very much about access. 
I care very much about interoperability. Nor have we concluded 
at this time that there is no jurisdiction. But I do believe 
that the competitive factors are in play right now and that no 
action is needed at this time.
    The Chairman. Commissioner Tristani, do you have any 
comment?
    Ms. Tristani. I would agree with Commissioner Ness on that.
    The Chairman. Commissioner Furchtgott-Roth----
    Mr. Furchtgott-Roth. Mr. Chairman----
    The Chairman. Both questions, the checklist as well as the 
broadband access.
    Ms. Tristani. On the checklist, I agree with Commissioner 
Kennard.
    I wanted to add something on the opening up of the cable. 
Cable is where broadband is really being deployed at a rapid 
rate. My concerns, aside from some jurisdictional ones because 
I am not sure whether we have got the right framework, are that 
if we start regulating when the market seems to be working very 
well we might stifle the little bit of broadband deployment 
that is going on.
    Mr. Furchtgott-Roth. Mr. Chairman, on your first question 
about unbundling of cable, in my review of the statute I find 
absolutely no basis for the Commission to make that requirement 
of cable operators. I have a longstanding position that the 
Commission should stay clearly and narrowly within the law as 
it is written, and I find no basis for us to impose that 
requirement on cable operators.
    On your second question, about the 14-point checklist, I 
think that the Commission must review each application in the 
context of the statute as it is written. I have addressed this 
issue in more detail in the second Bell South Louisiana 
application, which you may find of interest.
    The Chairman. Yes.
    Ms. Ness. If I may respond to your second question, on the 
checklist. I believe that we have appropriately interpreted the 
statute. It does refer back to 251 and 252 and we have applied 
those sections appropriately and have been so far upheld by the 
courts in our interpretation of 271.
    The Chairman. Well, of course the congressional 
interpretation of the law was that within a year to a year and 
a half everybody would be competing with everybody else. That 
was the expectation. Now we are nearly 4 years later and that 
obviously has not happened, so something went awry between the 
time the legislation was deliberated on and passed and what has 
happened since.
    Commissioner Powell.
    Mr. Powell. Senator, on the cable access question, I think 
you actually put your finger on the most difficult part of the 
public policy question over time, which will be: Is there 
justification for treating them different? But I would defend 
the proposition that, because of their legacies and the way 
they come to us, they do have differences that are difficult to 
resolve.
    I would also submit that, my sound bite for this is that it 
is like an algebraic equation that still has too many variables 
to solve. It is easy to talk about the potential importance of 
doing something like that or doing it, but as I dig into this 
deeper and deeper there are an intense number of unknowns, even 
technically, about how the service works or whether it will 
work.
    I would submit, by the way, that I am far from convinced 
that it has already arrived and is the successful, essential 
facility for broadband, as some suggest it is. Indeed, many 
companies that have deployed these bundled cable offerings have 
had catastrophic failings. Others have been more successful.
    I also guess I believe that I think that the thorniness of 
the interconnection regime in the phone context should be 
avoided, if possible, at all costs. I think it is expensive, it 
does not work all that well. I see in the marketplace 
competitors fighting aggressively to find alternatives to that 
cable possibility and driving innovation in order to produce a 
world in which there may be two, three, four, or five other 
alternatives to the home, and I think that there is energy 
there and we should be a little bit careful in too prematurely 
stifling those possibilities.
    Turning to the question of the checklist, clearly there are 
14 points. That said, there are a lot of subtleties that 
require other considerations, as my colleagues have outlined. 
But I cannot emphasize enough that I have some of the same 
concerns about the proliferation of items, but feel quite 
frustrated that I cannot have the vehicle to address some of 
them in the absence of a duly constituted presented 
application.
    Since July of last year, we have not had such an 
opportunity. They will say rightly that they are not 
comfortable with what all the requirements are. But the truth 
be told, a lot of the problems are what it takes to satisfy and 
get the approval of the State commissions, which we have had 
not that much direct involvement in.
    The Chairman. Thank you. Our vote has started and I want 
Senator Rockefeller to be able to ask his questions and we do 
not want to keep you to go back and forth.
    I already talked to Chairman Kennard over the phone about a 
statement that was made by one of his senior staff people on an 
important decision on the Ameritech--SBC merger. I pointed out 
that there was $4 billion in market capitalization that was 
lost as a result of his statement. Whether or not a penny was 
lost, we constitute you Commissioners to make these decisions, 
not the staff people.
    My staff do not make decisions for me, nor do they voice 
what my decision will be. It is unacceptable, it is 
unacceptable for a person who is a staff person, who is 
unaccountable to Congress, as you are, to make statements that 
disturb markets and distort a process that you are supposed to 
be going through and making the final decision on.
    I am very disturbed about it. A lot of us are very 
disturbed about it, because we vest and place responsibility in 
you to make those decisions, not staffers who we have no 
control over and has no accountability to us.
    We may disagree on decisions and we may disagree on 
policies, but at least there is an accountability and there is 
a dialogue. I do not even know who this guy was, but it is not 
acceptable and it is a practice that should cease immediately, 
as my letter indicated that it should. The accountability rests 
on the Commissioners, who are confirmed--are nominated by the 
President of the United States and confirmed in their positions 
by the Senate of the United States. We take that responsibility 
very seriously.
    Senator Rockefeller.
    Senator Rockefeller [presiding]. Thank you, Mr. Chairman
    I guess this will be the last statement or question. Just 
looking at the question of the E-rate, it strikes me that this 
has been really an all-inclusive process. It has not been 
entirely a happy one, but it has been a very good one. I think 
that both Senator Stevens and Senator McCain have played a very 
large part in it.
    I really go back to the debate we had in this Committee and 
then the debate that we had on the floor. It was a bipartisan 
deal that was struck on the E-rate on the floor.
    It was retained in the conference committee. In the law 
there are three separate designations of classrooms. In the 
conference report there were two more, three more.
    So again, it came about from the very beginning as a 
bipartisan vote and a bipartisan effort. But then it went on 
from that, because it then went to the joint board. The joint 
board was not the Federal Communications Commission, but the 
joint board was a special thing and that involved the States. I 
can remember making phone calls to various people that I never 
heard of in States that I had heard of. But it was a very 
inclusive process.
    They made--they contributed to setting what the funding for 
the E-rate level might be. Then the FCC came back and there was 
the Stevens report in 1998 and the FCC responded to that and 
made a number of adjustments because of that. In fact, you 
restructured the administration in some ways, Chairman Kennard, 
of that. You set new funding priorities.
    They are very carefully laid out--telecommunications, 
Internet access, only internal connections to get to the 
classrooms. The things that are not allowed, are allowed, and 
those that are allowed are very clearly delineated. Poorer 
schools first, which you have talked about.
    Then Chairman McCain, I think, made an enormous 
contribution when he called for the GAO report when there were 
questions being raised about that, the whole schools and 
libraries effort. Then you responded in fact to all of the GAO 
requirements and suggestions, so that in turn responded to the 
Chairman of the Commerce Committee.
    So I look at the E-rate and I look at my State and I look 
at the 60 percent of jobs in this country that require 
computing skills and the 22 percent that have it. I look at the 
82 percent, whatever it is, 80-plus percent of the American 
people, that want the E-rate, that think it is a really good 
thing. I try to contemplate the future of my State and my 
country without the E-rate, and I shudder with fear. The E-rate 
in a sense is probably the principal vehicle to allow us to be 
competitive in the world that confronts us.
    So I think all in all this has been a pretty good process. 
It has not been without controversy. Nothing involving the FCC 
is without controversy. As you say, you are sued on everything, 
and if you are not sued then somebody puts litigation up 
against somebody else and you are blocked from doing things. 
But I think it has been a fairly inclusive process.
    I would just end on this note, that I remember back a 
couple of years ago there was a lot of controversy when 
California, Silicon Valley, imported 50,000 French IT workers. 
There was a huge hullaballoo across the country and in this 
body: Why could we not get our own? Well, the reason we could 
not get our own is we did not have them. I think the figures on 
California 2 or 3 years ago was, only 15 percent of their 
classrooms were wired up, and it struck me there just might be 
a connection between those two things.
    So the E-rate I think is an enormously positive factor for 
our country, perhaps one of the most fundamentally important 
things for our country to do. It has been a participatory, 
bipartisan process from the beginning, not without some 
controversy, but what of importance is without controversy.
    So now, for the first time as Chairman of the Commerce 
Committee----[Laughter.]
    Senator Rockefeller [continuing]. I want to thank the 
Commissioners, not just for being here for 3 hours today, but 
for having really I think the hardest jobs in Washington. Also, 
as I have told Chairman Kennard, if I were his age, yours would 
be the job I would want.
    Hearing adjourned.
    [Whereupon, at 4:49 p.m., the Committee was adjourned.]
                            A P P E N D I X

   Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana

    Thank you, Mr. Chairman. As we move into an era where human thought 
can be transmitted across the globe at the speed of light, it becomes 
increasingly important that regulatory hurdles not impede the dramatic 
potential of new technologies.
    Unfortunately, the Commission has consistently failed to act on 
issues critical to the future of this country's information 
infrastructure, even when it has been clearly told to do so by 
Congress. As the author of Section 706 of the Telecommunications Act, I 
am particularly concerned at the Commission's incredible decision that 
broadband deployment throughout the country is ``reasonable and 
timely.'' Section 706 directs the FCC to engage in deregulatory action 
to make these technologies available to ``all Americans.'' Simple 
common sense dictates that the current level of broadband deployment in 
U.S. households--less than two percent--does not equal ``all 
Americans.'' I will not allow Montana and rural America to be left 
behind in this critical area because of bureaucratic inaction.
    Universal service has been another prime example of the 
Commission's continuing inaction on a crucial matter. The Committee has 
been assured time and again that comprehensive universal service reform 
would be completed in rapid order. First it was delayed from May of 
1997 until January 1999, in order to focus on the erate program. Then 
came a further delay until July 1999. I was assured at that time, as 
were several other members of the Committee, that this additional time 
would allow for universal service to be completed in the right way. Now 
we hear that an additional delay might take place and that no action 
will occur until September 1999. I have to say that, frankly, the 
timeline of the universal service order is beginning to resemble that 
of the construction schedule of the Denver International Airport.
    While it has not acted on universal service, the Commission has 
instead decided to dramatically expand the erate program by $1 billion 
a year. The fact of the matter is that it is impossible to get 
something for nothing. If the cost of the erate is raised $1 billion, 
that cost will be borne directly by consumers.
    I want to make it clear, however, that I have always supported the 
goal of connecting all of our schools to the Internet, as well as the 
provision of advanced telecommunications services to rural health care 
centers. I just felt that it was wrong to fund these programs on the 
backs of American consumers. It is with this in mind that Chairman 
Tauzin and I have proposed using one-third of an outdated 3% excise tax 
on telephones to fund the schools and libraries and rural health care 
programs. Currently, none of the money collected by the tax goes to 
fund telephone service for Americans.
    This proposal is a win/win solution. It's a win for consumers, 
since it would eliminate the need for new charges on telephone service. 
It's a win for taxpayers, who would see billions of dollars in current 
taxes eliminated. It's a win for our schools, libraries and rural 
health care centers, who would see their programs fully funded without 
threatening universal service.
    I would now like to turn my attention to the obvious need for 
structural reform at the Commission. The current structure of the FCC 
has impeded rather than fostered the movement toward deregulation. In 
previous oversight hearings, I have expressed my concern that 
significant overlap exists between the Bureaus, particularly in the 
case of mass media regulation. In addition, the volume of new FCC rules 
and regulations has increased tremendously, as has the sheer volume of 
court appeals. Clearly more must be done to foster the move towards 
deregulation and open markets. We must streamline the Commission's 
structure to create a regulatory framework that encourages innovative 
technologies and consumer choice.
    I look forward to the testimony of the witnesses on these issues 
that are so vital to our nation's future
    Thank you, Mr. Chairman.

 Prepared Statement of Hon. Slade Gorton, U.S. Senator from Washington

    I look forward to hearing from the FCC Commissioners. Your jobs are 
among the most fascinating imaginable. The evolution of communications 
technology within the last few years has been extraordinary, and 
promises to revolutionize not only how we communicate, but how we 
transact business, how we assess taxes, how we reconcile conflicting 
domestic and international laws for mediums that know no boundaries, to 
revolutionize, in essence, the way we live.
    While your jobs are fascinating, I wouldn't want them. The 
challenges you face are daunting. My limited exposure to some of the 
contentious issues facing you has increased my respect and compassion 
for you all.
    On the subject of Universal Service in particular, I appreciate how 
hard your task is. But I agree with Commissioner Furchtgott-Roth that 
the schools and libraries fund appears to have received far more 
attention and promotion from the Commission than the much more critical 
issue of how to reform the enormous subsidy system for rural and high 
cost areas to ensure competition while guaranteeing affordable service. 
In part because the Commission is set to vote tomorrow on increasing 
significantly the size of the schools and libraries fund, however, I 
would like to address three issues regarding that program.
    The first is the size of the e-rate program. I understand that you 
will vote tomorrow on a proposal to expand the size of the fund to 
$2.25 billion per year. Those who advocate a larger fund assert that 
the requests from schools and libraries for grants and subsidies exceed 
the current fund. One would hope so--who wouldn't ask for ``free'' 
money? The problem, of course, is that the money is not ``free.'' The 
schools and libraries program is paid for by every telephone user in 
the country, and the tax now shows up on everyone's bill.
    Before the current e-rate program was adopted by the FCC, the 
Commission told us that the new subsidy program would not cost anyone 
anything,. This curious assertion, cloaked in a Rube Goldberg-like 
explanation of access charge reductions and increased usage rates, was 
eagerly accepted by many. But it proved to be untrue. Now, we are again 
told by the Commission that the fund can be significantly increased at 
no cost to anyone because customers' increased payments to the schools 
and libraries fund would be offset by lower long distance charges. The 
long distance charge reduction, the FCC says, will come from lower 
access charges, that is, payments from long distance companies to local 
companies. Doesn't this mean that the local companies, if they don't 
pass the charges on to consumers, end up paying for the increase in the 
schools and libraries fund? I would like each of the Commissioners to 
explain why the fund can be increased at no cost to anyone.
    My reservations about the size of the schools and libraries funds 
and who really will pay for it do not prevent me from wanting to ensure 
that Washington state gets its fair share of the existing pie, and that 
my state's policies are not undermined by the federal government. The 
other two issues regarding the schools and libraries fund are peculiar 
to Washington state, and are ones about which I have written to each of 
the Commissioners on a number of occasions.
    Before the FCC adopted regulations implementing the schools and 
libraries program, Washington state had adopted its own programs to 
facilitate deployment of advanced and low-cost telecommunications 
services to schools. Unfortunately, the FCC's rules undermined the 
Washington state efforts in two ways, both of which are the subject of 
petitions to the FCC that I fully support. The first problem is that 
Washington state intended to include private colleges in its advanced 
services network, but the FCC rules would cut subsidies for all schools 
that are part of the network if private colleges are included. The 
second problem is that telecommunications services that are provided to 
schools directly by Washington state, as opposed to being provided by 
carriers, are not eligible for subsidies. This effectively penalizes 
Washington state for having taken the initiative in providing access to 
telecommunications services for all students--my constituents in 
Washington state pay into the federal program, but, because of the 
current FCC rules, don't get their fair share of the benefits. I 
strongly encourage you to grant the Washington state petitions on these 
issues.
                               __________

    Response to Written Questions Submitted by Hon. Conrad Burns to 
                           William E. Kennard

    Question 1. Chairman Kennard, Senator McCain and I have sent you 
letters recently regarding the pending broadcast ownership proceeding 
involving duopoly, LMAs, and one-to-a-market. As you know, in those 
letters we were very clear that the intent of the 1996 Act was to 
liberalize these rules. Can you tell me what the status of the 
proceeding is and when you plan to act?
    Response. On August 5, 1999, the Commission concluded its 
attribution, local TV ownership, and national TV ownership proceedings 
by adopting new rules. The rules we adopted reflect a careful balancing 
of our goals of protecting diversity, localism, and competition with 
the need to update the ownership rules to reflect changes in the 
telecommunications marketplace.
    We relaxed both our TV duopoly and our radio-television cross-
ownership rules. With respect to the TV duopoly rule, we will allow 
common ownership of TV stations in separate DMAs regardless of contour 
overlap. We will also allow common ownership of two television stations 
in the same DMA if there is no Grade B overlap between the two stations 
or if, after the merger, eight full-power television stations 
(including both commercial and noncommercial stations) remain in the 
DMA, and at least one of the two merging television stations is not 
among the top four-ranked stations in the DMA. We have also established 
standards for waiver of the TV duopoly rule, involving failed, failing, 
or unbuilt stations.
    With respect to the radio-television cross-ownership rule 
(previously referred to as the one-to-a-market rule), the new rule 
would allow common ownership of up to two television stations and six 
radio stations (or one television and seven radio stations if the TV 
duopoly rule could also be met) in the same market if twenty voices 
will remain in the market post-merger, up to two television stations 
and four radio stations if ten voices will remain in the market, and up 
to two television stations and one radio station in any market. We 
provide for waiver of the rule with respect to radio stations if the 
transaction involves a failed station. Voices include TV and radio 
stations, as well as newspapers and cable.
    The new rules attribute TV LMAs where they involve time brokerage 
of another television station in the same market for more than 15% of 
the brokered station's broadcast hours per week. TV LMAs entered into 
before November 5, 1996, the date of adoption of the Further Notice of 
Proposed Rule Making in the local ownership proceeding, will be 
grandfathered until the 2004 biennial review proceeding, at which time 
their status will be assessed. TV LMAs entered into on or after 
November 5, 1996 will not be grandfathered, but will be given two years 
to come into compliance with the new rules or terminate. Thus, all 
existing LMAs will be afforded some relief. We estimate that about 60% 
of existing LMAs meet the new going forward TV duopoly rules and will 
therefore be able to be converted into permanent duopolies.
    Question 2. In your estimation, what data speeds constitute 
broadband access? Can you be specific vith reward to both upstream and 
downstream speeds?
    Response. In the Commission's Report on the deployment of broadband 
capability to all Americans, released on February 2, 1999 the 
Commission defined ``advanced telecommunications capability'' or 
broadband. (The Report is FCC 99-5 in Docket CC No. 98-146 and is 
available on the Commission's web page at http://www. 
fcc.gov/Bureaus/Common__Carrier/Reports/fcc99005.txt.)
    In a Section beginning at paragraph 20, the Report defined 
broadband:

          ``as having the capability of supporting, in both the 
        provider-to-consumer (downstream) and the consumer-to-provider 
        (upstream) directions, a speed (in technical terms, 
        `bandwidth') in excess of 200 kilobits per second (kbps) in the 
        last mile. . . . We have initially chosen 200 kbps because it 
        is enough to provide the most popular forms of broadband--to 
        change web pages as fast as one can flip through the pages of a 
        book and to transmit full-motion video.'' [Footnote omitted.]

    The Report also recognized that:

          ``as technologies evolve, the concept of broadband will 
        evolve with it: we may consider today's `broadband' to be 
        narrowband when tomorrow's technologies are deployed and 
        consumer demand for higher bandwidth appears on a large scale. 
        For example, we may find in future reports that evolution in 
        technologies, retail offerings, and demand among consumers have 
        raised the minimum speed for broadband from 200 kbps to, for 
        example, a certain number of megabits per second (Mbps).'' 
        [Footnote omitted.]

    Question 3. Mr. Chairman and Commissioners, I know that 
implementation of E911 location technology has been a high priority of 
yours and I want to commend you for your efforts and the establishment 
of the October 1, 2001 implementation deadline. E911 location 
technology will enable our emergency service providers to save lives 
and it is imperative that we ensure that technology [is] available to 
the public as soon as possible. Can you comment on any recent progress 
made at the Commission in this critical area?
    Response. The Commission has been active in a number of areas 
related to implementation of wireless Enhanced 911 (E911) services. At 
the outset, we would like to assure you that the Commission remains 
fully committed to moving forward on these critical issues 
expeditiously, consistent with the Commission's mission of protecting 
the public safety through the use of wire and radio communications. A 
brief summary of recent progress on these matters follows:
                phase ii wireless e911 ali requirements
    The Commission's rules governing wireless enhanced 911 (E911) 
services currently require that covered wireless carriers provide 
automatic location information (ALI) as part of E911 service beginning 
October 1, 2001, provided that two conditions have been met. First, the 
local Public Safety Answering Point (PSAP) must have requested ALI from 
the carriers and must be ready to use ALI, and, second, there must be a 
cost recovery mechanism in place by which carriers can recover the 
costs of implementing ALI. At the time the original rules were adopted 
in 1996, the Commission and parties to the proceeding expected that ALI 
would be implemented by upgrading wireless carriers' networks, which 
would allow the carriers to provide ALI for all wireless E911 calls. 
Noting promising new developments in handset-based location 
technologies, the Commission is now considering issues related to the 
possible use of handset-based ALI technologies.
    Over the course of the past several months, the Commission has 
sought and received informed views and specific proposals on issues 
relating to the provision of ALI from many interested parties, 
including ALI technology manufacturers, wireless carriers, and network 
and handset manufacturers, as well as representatives of the public 
safety community. For instance, Commission staff held a public 
Technology Roundtable in late June with all these groups represented. 
The Roundtable revealed, among other things, that further development 
work needs to be completed on all the competing ALI technologies. This 
is not surprising in light of the variety of technical protocols used 
by wireless carriers. It also has become apparent that public safety 
representatives are not, at this point, of one mind on these important 
but difficult public safety issues, such as the timetable for 
deployment of both handset and network-based solutions, accuracy 
standards, and penetration levels. As the Commission considers the 
various arguments of the commenters, it will remain mindful of the 
importance of the wireless E911 rules to public safety and the need to 
avoid delaying the provision of ALI on wireless E911 service. The 
Commission's overriding goal is to have ALI available on as many 
wireless E911 calls as quickly as possible.
    The Commission is actively considering these wireless E911 issues 
and expects to act soon. The Commission hopes that its actions will 
bring additional certainty regarding the ALI requirements for E911 so 
that wireless carriers will begin deploying ALI technologies 
expeditiously.
               strongest signal--second report and order
    One of the important issues in the Commission's 1996 E911 Second 
Notice of Proposed Rulemaking concerned proposals to help improve the 
transmission of 911 calls, specifically in geographic locations where a 
wireless caller attempts to make a 911 call but the wireless system to 
which the caller subscribes has a blank spot--an area where the 
system's radio signal is weak or non-existent. To help address this 
problem, the Commission adopted rules in December 1997 which, among 
other things, required that cellular carriers complete all 911 calls, 
not just those of their subscribers. In addition, in May 1999, the 
Commission adopted rules to improve call completion rates. The 
Commission approved three call completion methods, any of which will 
result in the completion of more wireless 911 calls than occurred 
previously. The actions taken by the Commission are expected to improve 
the security and safety of analog cellular users, especially in rural 
and suburban areas.
                    wireless e911 report on phase i
    In response to a recent Commission Public Notice, industry and 
public safety organizations filed a report on August 9, 1999, on issues 
relating to the implementation of Phase I wireless E911 services. The 
Commission's Phase I E911 rules require covered wireless carriers to 
provide enhanced 911 capabilities, including the provision of callback 
and location information to Public Safety Answering Points (PSAPs), 
according to a phased-in approach. The report to the Commission 
addressed the issues of cost recovery mechanisms and choice of 
transmission technologies. The Wireless Telecommunications Bureau has 
invited public comment on the report and the Commission expects to take 
action on these issues this fall.
    Question 4. The FCC was required by the 1996 Telecommunications Act 
to complete its reformation of the federal universal service support 
system, replacing implicit subsidies with explicit subsidies, by May 8, 
1997. It is now over two years past that deadline--and over three years 
since passage of the Act--and the Commission still has not completed 
such action. In fact, it has missed even its own, self-imposed deadline 
of January 1999 and is possibly in danger of missing its July 1999 
deadline. When will the reform of universal service finally be 
completed?
    Response. The Commission plans to release an order defining final 
model inputs and support methodology variables for the reformed 
universal service system for large carriers (those not meeting the 
statute's definition of a ``rural telephone company'') this fall, for 
implementation on January 1, 2000. As the Fifth Circuit Court of 
Appeals recently affirmed, the 1996 Act requires the Commission to 
adopt, by May 8, 1997, a definition of the services supported by 
universal service mechanisms, and a specific timeline for 
implementation. The Commission did so on that date. The implementation 
timeline that the Commission adopted establishes separate schedules for 
reforming universal service for rural telephone companies and for non-
rural carriers.
    The Commission determined that non-rural carriers should make the 
transition to a support mechanism based on forward-looking costs. The 
Commission has established January 1, 2000, as the date for this 
transition, and is on schedule to have a forward-looking mechanism in 
place at that time. The Commission and its staff have worked extremely 
hard over the last three years to ensure that the process for selecting 
and completing a forward-looking model is as open as possible. We have 
received thousands of pages of comments from industry representatives, 
state commissions, and other stakeholders, and held numerous public 
forums, en banc hearings, and provided other opportunities for public 
input. This process has allowed us to develop a forward-looking cost 
model that is vastly more accurate than the industry-proposed models 
first submitted to us in 1996. The most recent result of this process 
was our release, in May 1999, of orders defining proposed cost model 
variables and establishing the outlines of a support methodology, based 
on the Joint Board's November 1998 recommendations. We intend to 
release final orders this fall establishing implementation details so 
that the revised mechanism for non-rural carriers will be in place on 
January 1, 2000.
    Although larger-scale reforms of high-cost support mechanisms are 
contemplated for non-rural carriers beginning on January 1, 2000, the 
Commission also made significant changes to the existing support 
mechanisms that were effective on January 1, 1998. The existing support 
amounts were removed from interstate access charges and now flow 
through an explicit support mechanism, consistent with the statutory 
mandate. The support amounts available from the existing mechanism were 
also made portable, so that they are available to competitors that win 
customers from the incumbent.
    The Federal-State Joint Board on Universal Service also appointed a 
Rural Task Force to study what universal service reforms are necessary 
for rural telephone companies. The Rural Task Force is to submit a 
report with recommendations to the Joint Board by September 2000. The 
Joint Board will then make its recommendations to the Commission, based 
on the Rural Task Force's report. The Commission intends to act 
expeditiously to implement the Joint Board's recommendations as soon as 
we receive them, but no earlier than January 1, 2001.
    Also, as a part of its elforts to extend the full range of modern 
telecommunications services to all Americans, the Commission recently 
adopted a Notice of Proposed Rule Making seeking comment on how to 
promote universal service in unserved and underserved areas, including 
tribal lands and other insular areas. Consistent with the 1996 Act's 
goal of ensuring that consumers in all regions of the nation should 
have access to telecommunications and information services at 
affordable rates, the Commission has taken steps to address impediments 
to deployment and subscri-
bership in unserved and underserved areas of the Nation. In the Notice, 
the Commission invites comment on a range of possible modifications to 
its high-cost, low-income and rural health care support mechanisms that 
are designed to promote deployment and subscribership in these areas. 
The Commission is committed to ensuring that consumers have access to 
and can afford the services supported by federal universal service 
mechanisms.
    Question 5.  NARUC has proposed FCC-state commission cooperation on 
Section 706, promoting access to advanced technologies. What is your 
reaction?
    Response. I endorse the idea of FCC-state cooperation under Section 
706 and have already begun a long-term and mutually fruitful 
cooperative process with the states. Indeed, Section 706(a) envisions 
such cooperation when it says ``The Commission and each State 
commission with regulatory jurisdiction over telecommunications 
services shall encourage the deployment. . . .''
    We are currently in discussions about how to best accomplish our 
mutual goals.
    Question 6. How do you see the FCC-state commission relationship 
developing over the comings months and years?
    Response. I see this relationship developing fully and productively 
over the coming months and years. Of course, at this initial stage, it 
is impossible to foresee all future developments. At this time, there 
appears to be much room for the Commission and states to explore 
various cooperative avenues. These may include: developing ``best 
practices'' to speed the deployment of broadband by encouraging private 
investment; deregulating, in ways that will give companies that are now 
regulated incentives to deploy broadband; encouraging new entry, 
especially by public utilities and the deployers of new wireless ``last 
miles''; granting access to ``essential facilities'' for broadband; 
learning about the precise nature of consumer demand for broadband; and 
exploring creative ways to assure the broadband is deployed in areas 
that the market will not serve, including funding in appropriate 
circumstances.
    Question 7. What is the status of the Rural Task Force, which will 
be making recommendations concerning universal service for rural 
telecom providers?
    Response. Because of the important service that rural telephone 
companies provide to many of the highest-cost customers in the country, 
and because of the unique cost structures of these small companies, the 
Commission took early steps to ensure that the universal service reform 
process would not threaten rural companies. In order to ensure that 
rural companies were not harmed by the transition to high cost support 
mechanisms based on forward-looking costs, or by the uncertainty 
associated with such a transition, the Commission declared very early 
in the universal service proceeding that there would be no reduction in 
the support available for serving customers in rural carriers' serving 
areas. As noted above in response to Senator Burns' Question #3, on 
September 17, 1997, the Federal-State Joint Board on Universal Service 
created a Rural Task Force to study what universal service reforms are 
necessary for rural telephone companies. The Rural Task Force is due to 
submit a report with recommendations to the Joint Board by September 
2000. The Joint Board will then make its recommendations to the 
Commission, based on the Rural Task Force's report. The Commission 
intends to act expeditiously to implement the Joint Board's 
recommendations as soon as we receive them, but no earlier than January 
1, 2001.
                               __________

     Response to Written Questions Submitted by Hon. Trent Lott to 
                           William E. Kennard

    Question 1. Last December the FCC issued an order to address 
unauthorized changes of carrier selection, more commonly known as 
slamming. This order contained a complex set of rules for providing 
credits to consumers who have been victimized by slamming and for 
compensating a slammed customer's original carrier. Recognizing the 
complexity of this issue, your order also invited industry to put 
forward alternative proposals for addressing slamming that would still 
achieve the Commission's goals. In March, a coalition of long distance 
providers, after working closely with the Commission staff, presented 
the Commission with a proposal for an industry-funded neutral third-
party administrator that would remove much of the complexity for 
industry and consumers alike. My understanding is that this concept has 
support from many parties, including the National Association of 
Attorneys General, and that some groups--among them the larger consumer 
interest groups--believe that the industry plan is a superior approach 
to fight slamming. To me, an industry solution that in fact simplifies 
the process, makes the consumer whole and takes the profit out of 
slamming makes more sense than imposing a set of government regulations 
that may not be workable in practice.
    Last week the Commission's own slamming rules were stayed by the 
court indefinitely. A legislative remedy will take a long time to work 
its way through the Hill, if it does at all, and it will take some time 
to craft the rules to implement such legislation. The industry 
proposal, which is still before the Commission, seems to me to be the 
most rapid way to bring relief to consumers. Is the Commission giving 
the industry proposal serious consideration? How quickly can we expect 
the Commission to act on this proposal?
    Response. Because of the potential advantages of utilizing an 
industry-funded neutral third-party administrator to address slamming, 
the Commission has studied seriously this proposal with input from 
industry, the states, and consumer interest groups. During the course 
of evaluation, the Commission has been made aware of opposition to the 
proposal from the National Association of State Utility Regulators 
(NARUC) and a number of large consumer groups. Indeed, NARUC has 
offered alternative suggestions to the Commission for the 
administration of our slamming regulations, which would involve state 
participation. Certain members of the U.S. Senate also have expressed 
reservations about the effectiveness of an industry-funded slamming 
proposal, raising bias concerns. At the same time, the Commission has 
evidence that slamming complaints appeared to be declining prior to the 
effective date (since stayed by the court) of the Commission's new 
rules relating to consumer liability. This downward trend in complaints 
suggests that the impending rules governing consumer liability would 
have the desired effect of curtailing slamming. Therefore, the 
Commission is moving quickly to resolve the MCI petition proposing a 
third party administrator to handle slamming complaints and to resolve 
the outstanding issues raised by various parties in petitions for 
reconsideration as well as to consider the proposals submitted by NARUC 
and various states. Once these outstanding issues have been addressed, 
the Commission can return to the Court of Appeals to request a lift of 
the stay of the Commission's slamming rules and obtain the desired 
relief for consumers.
    Question 2. Many people believe that there are billions of dollars 
in excess earnings in local company access charges (that is, earnings 
above what is needed for any legitimate subsidy of local service). The 
FCC has an extensive record on this issue pending before it. Yet access 
reform may be further delayed. When does the FCC plan to act on access 
reform, and is there anything that the FCC can do, effective this July, 
to give the American people a downpayment on the reductions that are 
due them?
    Response. The Commission's price cap regulation system 
significantly reduces access charges on an annual basis, without 
limiting the level of local exchange carriers' (LECs') earnings. This 
encourages LECs to become more efficient and reduce their costs. The 
LECs' most recent tariff filing, effective this past July, reduced per-
minute annual access charges by approximately $1.5 billion compared to 
the previous year's rate levels. There will be another significant 
reduction next July. FCC-mandated access reductions have triggered 
decreases in per-minute long distance rates charged by long distance 
carriers.
    Beyond the operation of the price cap formula, the FCC's current 
policy allows competition to encourage additional reductions in 
interstate access charges. For example, the Commission's recently-
adopted Access Charge Reform Fifth Report and Order gives the nation's 
largest LECs progressively greater flexibility in setting interstate 
access rates as competition develops, gradually replacing regulation 
with competition as the primary means of setting prices.
    In addition to this market-based approach to access reform, the 
Commission is continuing to examine possible changes to interstate 
access rate structure to ensure that it better replicates the operation 
of a competitive market. In the Access Charge Reform Fifth Report and 
Order, the FCC invited parties to comment on proposed revisions to the 
rate structure for local switching charges, which would further reduce 
interstate access rates. The FCC also will continue to monitor the 
interstate access market carefully and may consider a more prescriptive 
approach to access charge reform, if necessary.
    Question 3. The FCC recently released its report of audits of 
certain incumbent local company records that indicate a significant 
amount of equipment is unaccounted for. If you couple that with reports 
that access charges are, and have been, significantly above cost, what 
steps is the FCC taking to address these specific concerns?
    Response. The Commission has issued a Notice of Inquiry seeking 
public comment on issues related to the auditors' findings. 
Specifically, due to the discrepancies between the auditors findings 
and the statements made by the companies, we found it necessary to seek 
public comment and review of the audit documents to help us assess what 
further action the Commission should take. This public review is now 
taking place. Public comments are due September 13, 1999; replies are 
due 30 days thereafter.
    The companies have raised concerns about the audit methodology 
including the procedures and practices of the auditors. After reviewing 
comments, if we determine that proceeding with an enforcement action is 
appropriate, we would then assess the rate impact of the auditors' 
findings. Such an assessment may result in some further reduction in 
the access charges paid by long distance carriers.
    In addition, as described above, FCC-mandated reductions in access 
charges have triggered reductions in per-inute rates long distance 
companies charge to their customers. For example, effective this past 
July, the FCC reduced the local telephone companies per-minute annual 
access charges by approximately $1.5 billion compared to the previous 
year's rate levels. AT&T and MCI have recently recognized that the 
FCC's efforts to reduce the access charges that long distance companies 
pay to the local telephone companies have made possible the recent per-
minute long distance rate reductions. Access rates should continue to 
fall.
    Question 4. I understand that the Commission has opened a 
proceeding to implement the spectrum provisions of the 1997 Balanced 
Budget Act. When Congress expanded the FCC's authority to use auctions 
in the 1997 Balanced Budget Act, we specifically provided that certain 
private radio services are exempt from auctions because licensees in 
these radio services use their radio systems to protect the safety of 
life, health or property. It was further noted in the Conference 
Committee Report that these exempt services include private, internal 
radio systems used by utilities, pipelines, state and local government 
agencies, emergency road services, and others. However, I understand 
that aside from state and local government agencies and tow truck 
operators, the Commission has not proposed in this proceeding to exempt 
utilities, pipelines, railroads, or any of the other radio services 
identified in the Conference Report. Could you please confirm whether 
it is the Commission's intent to follow Congress' directions, as 
explained in the Conference Report, or whether the agency is proposing 
to unilaterally narrow the exemption language?
    Response. The Commission recently adopted a Notice of Proposed Rule 
Making (``Notice''), WT Docket No. 99-87, FCC 99-52 (released March 25, 
1999) to seek comment on the revisions to its auction authority made by 
the Balanced Budget Act of 1997. The Notice seeks comment on the scope 
of the Balanced Budget Act's exemption from competitive biding for 
public safety radio services and the regulatory provisions that could 
be established to ensure that frequencies assigned without auctions 
meet the statutory requirements for exemption. The Commission intends 
to implement that statutory exemption in a manner that reflects 
Congress' intent, as explained in the Conference Report.
    The Notice specifically acknowledges that certain non-governmental 
entities are eligible for licensing in auction-exempt public safety 
radio services. The Notice highlights the Conference Report language 
stating that the exemption is broader than the definition of ``public 
safety services'' included in Section 337(f)(1) of the Communications 
Act, and includes private internal radio services used by utilities, 
railroads, metropolitan transit systems, pipelines, private ambulances, 
volunteer fire departments. Based on the express statutory language and 
legislative history of the public safety radio services exemption, the 
Commission tentatively concluded that certain spectrum already 
allocated to the Public Safety Radio Pool, or which the Commission has 
previously set aside for public safety uses, should be included in the 
definition of ``public safety radio services.'' However, these 
tentative conclusions are not meant to preclude the Commission from 
including other private internal radio services within that definition, 
and the Notice specifically seeks comment on the other private radio 
services or frequency bands within services that should be designated 
as ``public safety radio services.''
    It is because the Commission recognizes that various types of 
entities other than state and local governments are eligible for 
licensing in public safety radio services that it seeks comment on 
whether it should establish criteria to ensure that public safety radio 
services spectrum licensed without auction to non-government entities 
is used to protect the safety of life, health, or property and not made 
commercially available to the public, as mandated in Section 
309(j)(2)(A). Similarly, because the Commission recognizes that various 
entities in addition to state and local governments are eligible to use 
auction-exempt public safety radio service frequencies, it seeks 
comment in the Notice on whether it should establish categories or 
frequency pools for the various types of users and allocate specific 
frequencies within the public safety radio services to each category or 
pool. The creation of new frequency pools would be consistent with a 
proposal submitted by UTC, the American Petroleum Institute, and the 
Association of American Railroads, and on which the Notice also seeks 
comment.
    Question 5. Despite Congress' direction that the FCC use 
engineering solutions, frequency coordination, and other means to avoid 
application conflicts and hence the need for auctions, I understand 
that as part of this same proceeding the FCC is proposing to change its 
licensing rules for private radio services so that such application 
conflicts are likely.
    Congress would like to know why the FCC is trying to create 
application conflicts and thereby force private radio users into 
competing at auction, instead of following Congress' direction in the 
Act that auctions are to be used only where such conflicts cannot be 
avoided.
    Response. The Commission's Notice of Proposed Rule Making in WT 
Docket No. 99-87 also seeks comment on how the Balanced Budget Act's 
revisions to its auction authority affect the categories of services 
that previously were determined to be nonauctionable by the Commission. 
In considering how to implement its expanded auction authority, the 
Commission is mindful of the emphasis Congress placed on its obligation 
in the public interest, under Section 309(j)(6)(E), to continue to use 
engineering solutions and other means to avoid mutual exclusivity among 
applicants for initial licenses. In the NPRM, the Commission notes that 
the Balanced Budget Act has not altered the criteria in Section 
309(j)(3) that the Commission is required to use to determine that a 
particular licensing scheme is in the public interest. The Commission 
has previously interpreted Section 309(j)(6)(E) to impose an obligation 
to avoid mutual exclusivity in defining licensing schemes for 
commercial services only when it would further the public interest 
goals of Section 309(j)(3). Accordingly, in the Notice, the Commission 
seeks comment on how it should apply the public interest factors in 
Section 309(j)(3) in establishing licensing schemes or methodologies 
for both new and existing, commercial and private services under the 
Balanced Budget Act. Specifically, the Commission notes that the 
Balanced Budget Act expressly incorporated the Section 309(j)(6)(E) 
obligations in the Section 309(j)(1) general grant of auction 
authority. The NPRM seeks comment on whether that express reference 
changes the scope or content of that obligation, or the prior 
interpretation of Section 309(j)(6)(E), in light of the public interest 
factors in Section 309(j)(3).
    The services deemed nonauctionable under the authority provided by 
the 1993 Budget Act were largely private and noncommercial radio 
services. In the Notice, the Commission does not propose changes to the 
licensing rules for specific private radio services, but rather seeks 
comment on the basic statutory framework that should be applied to the 
Commission's determinations of which wireless services are potentially 
auctionable and what processes should be used in licensing new and 
existing services. The Notice also seeks comment on the licensing 
schemes that might be used for private services and considers whether 
auctions are an appropriate tool for managing the efficient assignment 
of this spectrum. No conclusions have been reached about the approach 
we will take. The Commission's goal is to gather a record in light of 
the changed statute and evalual;e whether our licensing processes 
should change, if at all, in the interests of sound spectrum 
management. For example, with respect to Private Land Mobile Radio 
Services frequencies below 470 MHz that are licensed on a shared basis, 
the Commission specifically asks whether the Commission should retain 
the current licensing scheme in light of the extensive modifications 
the Commission has already made to its regulatory framework to maximize 
spectrum efficiency in these bands through engineering solutions. 
Additionally, the Commission seeks comment on whether it should 
establish a new class of licensee for private radio services called a 
Band Manager. As considered in the Notice, the Band Manager would apply 
for a private radio license, with mutually exclusive applications 
subject to resolution through competitive bidding, and sublicense 
portions of its license to specific eligible users through private 
contractual arrangements. The record in this docket closes on September 
16, 1999.
    Question 6. I understand the FCC has proposed to auction licenses 
in the 900 MHz band for ``multiple address systems,'' that are used by 
utilities, pipelines, and railroads to remotely monitor and control 
their utility or rail networks. An allocation of one megahertz of 
bandwidth for MAS was made more than 10 years ago, but because of 
Commission inaction and now a new rulemaking to force auctions on these 
channels, no licenses have been granted on these channels. Congress is 
also disturbed to hear that the agency may delay this matter even 
further because of its proceeding to implement the auction provisions 
of the 1997 Budget Act. Could you please provide Congress with a 
timetable for completing action in the multiple address system docket, 
and explain why utilities, pipelines, and railroads, which are exempt 
from auctions, must wait any longer to begin using these much-needed 
channels?
    Response. There are three spectrum bands allocated for Multiple 
Address System (MAS) use: 932/941 MHz, 928/959 MHz, and 928/952/956 
MHz. The 932/941 MHz band was allocated for both Federal Government and 
non-Government point-to-multipoint use in 1989. In 1992, the Commission 
opened filing windows regarding applications for these frequencies. In 
response to these filing windows, the Commission received over 50,000 
applications, most of which proposed to provide commercial (subscriber-
based) service and were mutually exclusive with at least one other 
application. The other bands have been available since the early 1980s 
and are heavily used in many major metropolitan areas. The 928/959 MHz 
band is used primarily for control of wide-area paging systems. The 
928/952/956 MHz band is used primarily for private, internal systems, 
especially by the power, petroleum, and security industries. In 
February 1997, the Commission proposed to license the first two bands 
by geographic area and resolve mutually exclusive initial applications 
by competitive bidding, because the Communications Act then provided 
that mutually exclusive applications to provide subscriber-based 
services were auctionable. It also proposed to allocate the 928/952/956 
MHz band exclusively for private, internal svstems.
    Before that rule making proceeding was completed, the Balanced 
Budget Act of 1997 was enacted. Among other things, the Balanced Budget 
Act eliminated the Commission's authority to use lotteries to select 
among mutually exclusive applications for initial licenses. 
Accordingly, the 50,000 pending applications for the 932/941 MHz band 
were dismissed. The Balanced Budget Act also required the Commission to 
award all mutually exclusive licenses, with certain exceptions, by 
using competitive bidding procedures. One of those exceptions is for 
``public safety radio services,'' which, as you point out, includes 
radio services used by utilities, pipelines, and railroads. Because the 
Balanced Budget Act altered the criteria for determining whether or not 
applications for a particular service or class of frequencies are 
subject to competitive bidding, and the fact that the three MAS bands 
are available to both ``public safety'' and non-public safety entities, 
the Cornmission in July 1999 released a Further Notice of Proposed Rule 
Making to build a sufficient record to decide, inter alia, whether the 
928/952/956 MHz band comes within that exception. Comment was sought on 
such issues as the current level of representation of ``public safety 
radio services'' in the band, whether the band should be allocated for 
such services only, and, if so, whether the frequencies should be 
licensed geographically or site-by-site. The deadlines for comments and 
reply comments are September 17 and October 18, respectively. We intend 
to resolve these issues, and implement appropriate licensing procedures 
for MAS spectrum, in an efficient and expeditious manner following the 
close of the public comment period.
                               __________

    Response to Written Question Submitted by Hon. Sam Brownback to 
                           William E. Kennard

    Question.  For several years, the Commission has been working on an 
economic model to calculate the cost of providing universal telephone 
service to rural, insular, and other high-cost areas. The model and the 
inputs used in the model have gone through many changes. The Commission 
has already violated its statutory obligation to finish the universal 
service proceeding by May 8, 1997. If no model, including the inputs 
used in the model, is actually being used by the Commission one year 
from now to determine the cost of universal service support to non-
rural telecommunications carriers, what should the Commission do? 
Should it scrap the use of a model completely?
    Response. The Commission is currently on schedule to implement a 
revised high-cost support mechanism for non-rural carriers based on 
forvvard-looking costs, as estimated by a cost model, on January 1, 
2000. As I noted above in response to Senator Burns' Question #3, as 
the Fifth Circuit Court of Appeals recently affirmed, the 1996 Act 
requires the Commission to adopt, by May 8, 1997, a definition of the 
services supported by universal service mechanisms, and a specific 
timeline for implementation. The Commission did so on that date. The 
Commission took significant steps towards timely implementation of 
revised support mechanisms for non-rural carriers by adopting the fixed 
algorithms and assumptions for the model in October 1998, and by 
adopting proposed input values and the framework for a support 
methodology in May 1999. We plan to release orders this fall 
establishing final model input values and the details of the support 
methodology so that the revised mechanism can be in place on January 1, 
2000.
    Given the enormous progress that we have made thus far towards 
implementing a new methodology based on forward-looking costs for non-
rural carriers, we have every confidence that we will have a forward-
looking mechanism in place on January 1, 2000. If some unforeseen 
circumstance should prevent this, however, we believe the Commission 
should consider alternatives to forward-looking cost models at that 
time if such alternatives would permit more expeditious implementation 
of high-cost support that is consistent with section 254.
                               __________

  Response to Written Question Submitted by Hon. Olympia J. Snowe to 
                           William E. Kennard

    Question.  It is my understanding that WMTW, Channel 8 in Maine, 
has an application pending before the Commission to construct a digital 
TV tower in Baldwin, Maine. As with most tower construction proposals, 
this one has not been without controversy, and I know that letters were 
received by the FCC that strongly opposed the WMTW application. While I 
take no position on the application itself--neither supporting nor 
opposing it--and am seeking no special treatment for the application in 
terms of its processing, I have received inquiries from constituents on 
this matter and the timing of the FCC decision.
    Accordingly, what is the status of this application, and how soon 
should the citizens of Baldwin and WMTW expect a final decision from 
the Commission?
    Response. Station WMTW-TV, Portland, Maine, has filed an 
application to construct a new broadcast tower in Baldwin, Maine. The 
Commission has received numerous objections to the proposed 
construction, primarily opposing zoning approval and location of the 
tower. While I cannot discuss the merits of the objections, I can say 
that the Commission generally defers to the decision of appropriate 
local governmental bodies with respect to the location of broadcast 
towers. It is the Commission's belief that zoning questions should be 
left to local authorities who are more familiar with such matters and 
who possess the particular expertise required to rule on these 
questions. We note that Station WMTW-TV has obtained local zoning 
approval for the tower site. Further, the staff has completed its 
review of the application and finds that the proposal meets all of the 
interference requirements of the Commission's rule. However, the 
proposed tower relocation would result in coverage losses to some 
existing areas, meaning that some residents could lose the broadcast 
signal. Therefore, on August 19, 1999, staff of the Mass Media Bureau 
wrote the station to request it provide the FCC certain information 
with respect to the loss areas. As soon as this information is 
submitted by the applicant and reviewed by the staff, the processing of 
the pending application will be completed promptly. Also, I would like 
to assure you that all information in the record, including your 
constituents' comments, will be considered in reaching a final decision 
in this matter.
                               __________

     Response to Written Questions Submitted by Hon. Trent Lott to 
                            Gloria Tristani

    Question 1. Last December the FCC issued an order to address 
unauthorized changes of carrier selection, more commonly known as 
slamming. This order contained a complex set of rules for providing 
credits to consumers who have been victimized by slamming and for 
compensating a slammed customer's original carrier. Recognizing the 
complexity of this issue, your order also invited industry to put 
forward alternative proposals for addressing slamming that would still 
achieve the Commission's goals. In March, a coalition of long distance 
providers, after working closely with the Commission staff, presented 
the Commission with a proposal for an industry-funded neutral third-
party administrator that would remove much of the complexity for 
industry and consumers alike. My understanding is that this concept has 
support from many parties, including the National Association of 
Attorneys General, and that some groups--among them the larger consumer 
interest groups--believe that the industry plan is a superior approach 
to fight slamming. To me, an industry solution that in fact simplifies 
the process, makes the consumer whole and takes the profit out of 
slamming makes more sense than imposing a set of government regulations 
that may not be workable in practice.
    Last week the Commission's own slamming rules were stayed by the 
court indefinitely. A legislative remedy will take a long time to work 
its way through the Hill, if it does at all, and it will take some time 
to craft the rules to implement such legislation. The industry 
proposal, which is still before the Commission, seems to me to be the 
most rapid way to bring relief to consumers. Is the Commission giving 
the industry proposal serious consideration? How quickly can we expect 
the Commission to act on this proposal?
    Response. I concur with Chairman Kennard's response to this 
question.
    Question 2. Many people believe that there are billions of dollars 
in excess earnings in local company access charges (that is, earnings 
above what is needed for any legitimate subsidy of local service). The 
FCC has an extensive record on this issue pending before it. Yet access 
reform may be further delayed. When does the FCC plan to act on access 
reform, and is there anything that the FCC can do, effective this July, 
to give the American people a downpayment on the reductions that are 
due them?
    Response. I concur with Chairman Kennard's response to this 
question.
    Question 3. The FCC recently released its report of audits of 
certain incumbent local company records that indicate a significant 
amount of equipment is unaccounted for. If you couple that with reports 
that access charges are, and have been, significantly above cost, what 
steps is the FCC taking to address these specific concerns?
    Response. I am particularly concerned by the results of the audit 
reports and implications of misstated regulatory accounts on other 
parties, including consumers, purchasers of access service, state 
commissions, and competitors. As I stated when we released the reports, 
I encourage the Commission to move swiftly toward initiating any 
enforcement action that may be necessary.
    Question 4. I understand that the Commission has opened a 
proceeding to implement the spectrum provisions of the 1997 Balanced 
Budget Act. When Congress expanded the FCC's authority to use auctions 
in the 1997 Balanced Budget Act, we specifically provided that certain 
private radio services are exempt from auctions because licensees in 
these radio services use their radio systems to protect the safety of 
life, health or property. It was further noted in the Conference 
Committee Report that these exempt services include private, internal 
radio systems used by utilities, pipelines, state and local government 
agencies, emergency road services, and others. However, I understand 
that aside from state and local government agencies and tow truck 
operators, the Commission has not proposed in this proceeding to exempt 
utilities, pipelines, railroads, or any of the other radio services 
identified in the Conference Report. Could you please confirm whether 
it is the Commission's intent to follow Congress' directions, as 
explained in the Conference Report, or whether the agency is proposing 
to unilaterally narrow the exemption language?
    Response. I concur with Chairman Kennard's response to this 
question.
    Question 5. Despite Congress' direction that the FCC use 
engineering solutions, frequency coordination, and other means to avoid 
application conflicts and hence the need for auctions, I understand 
that as part of this same proceeding the FCC is proposing to change its 
licensing rules for private radio services so that such application 
conflicts are likely.
    Congress would like to know why the FCC is trying to create 
application conflicts and thereby force private radio users into 
competing at auction, instead of following Congress' direction in the 
Act that auctions are to be used only where such conflicts cannot be 
avoided.
    Response. I concur with Chairman Kennard's response to this 
question.
    Question 6. I understand the FCC has proposed to auction licenses 
in the 900 MHz band for ``multiple address systems,'' that are used by 
utilities, pipelines, and railroads to remotely monitor and control 
their utility or rail networks. An allocation of one megahertz of 
bandwidth for MAS was made more than 10 years ago, but because of 
Commission inaction and now a new rulemaking to force auctions on these 
channels, no licenses have been granted on these channels. Congress is 
also disturbed to hear that the agency may delay this matter even 
further because of its proceeding to implement the auction provisions 
of the 1997 Budget Act. Could you please provide Congress with a 
timetable for completing action in the multiple address system docket, 
and explain why utilities, pipelines, and railroads, which are exempt 
from auctions, must wait any longer to begin using these much-needed 
channels?
    Response. I concur with Chairman Kennard's response to this 
question.
                               __________

    Response to Written Questions submitted by Hon. Conrad Burns to 
                            Gloria Tristani

    Question 1. In your estimation, what data speeds constitute 
broadband access? Can you be specific vith reward to both upstream and 
downstream speeds?
    Response. I concur with Chairman Kennard's response to this 
question.
    Question 2. Mr. Chairman and Commissioners, I know that 
implementation of E911 location technology has been a high priority of 
yours and I want to commend you for your efforts and the establishment 
of the October 1, 2001 implementation deadline. E911 location 
technology will enable our emergency service providers to save lives 
and it is imperative that we ensure that technology [is] available to 
the public as soon as possible. Can you comment on any recent progress 
made at the Commission in this critical area?
    Response. I concur with Chairman Kennard's response to this 
question.
    Question 3. The FCC was required by the 1996 Telecommunications Act 
to complete its reformation of the federal universal service support 
system, replacing implicit subsidies with explicit subsidies, by May 8, 
1997. It is now over two years past that deadline--and over three years 
since passage of the Act--and the Commission still has not completed 
such action. In fact, it has missed even its own, self-imposed deadline 
of January 1999 and is possibly in danger of missing its July 1999 
deadline. When will the reform of universal service finally be 
completed?
    Response. I concur with Chairman Kennard's response to this 
question.
    Question 4. NARUC has proposed FCC-state commission cooperation on 
Section 706, promoting access to advanced technologies. What is your 
reaction?
    Response. I am excited by NARUC's recent proposal that the FCC 
establish a Federal-State Joint Conference to speed deployment of 
advanced services to underserved areas under Section 706 of the Act. In 
particular, I believe that such a Joint Conference could prove 
invaluable in collecting data on advanced services deployment and 
coordinating initiatives by various government and private groups. I am 
likewise interested in exploring the proposal that the Conference could 
select certain communities for special attention by naming them ``706 
zones.''
    Question 5. How do you see the FCC-state commission relationship 
developing over the comings months and years?
    Response. I concur with Chairman Kennard's response to this 
question. Moreover, as a former state commissioner, I am particularly 
sensitive to the need for the Commission to understand state 
perspectives and experiences in formulating national telecommunications 
policy.
    Question 6. What is the status of the Rural Task Force, which will 
be making recommendations concerning universal service for rural 
telecom providers?
    Response. I concur with Chairman Kennard's response to this 
question.
                               __________

    Response to Written Question Submitted by Hon. Sam Brownback to 
                            Gloria Tristani

    Question.  For several years, the Commission has been working on an 
economic model to calculate the cost of providing universal telephone 
service to rural, insular, and other high-cost areas. The model and the 
inputs used in the model have gone through many changes. The Commission 
has already violated its statutory obligation to finish the universal 
service proceeding by May 8, 1997. If no model, including the inputs 
used in the model, is actually being used by the Commission one year 
from now to determine the cost of universal service support to non-
rural telecommunications carriers, what should the Commission do? 
Should it scrap the use of a model completely?
    Response. I concur with Chairman Kennard's response to this 
question.
                               __________

  Response to Written Question Submitted by Hon. Olympia J. Snowe to 
                            Gloria Tristani

    Question.  It is my understanding that WMTW, Channel 8 in Maine, 
has an application pending before the Commission to construct a digital 
TV tower in Baldwin, Maine. As with most tower construction proposals, 
this one has not been without controversy, and I know that letters were 
received by the FCC that strongly opposed the WMTW application. While I 
take no position on the application itself--neither supporting nor 
opposing it--and am seeking no special treatment for the application in 
terms of its processing, I have received inquiries from constituents on 
this matter and the timing of the FCC decision.
    Accordingly, what is the status of this application, and how soon 
should the citizens of Baldwin and WMTW expect a final decision from 
the Commission?
    Response. I concur with Chairman Kennard's response to this 
question.
                               __________

     Response to Written Questions Submitted by Hon. Trent Lott to 
                               Susan Ness

    Question 1. Last December the FCC issued an order to address 
unauthorized changes of carrier selection, more commonly known as 
slamming. This order contained a complex set of rules for providing 
credits to consumers who have been victimized by slamming and for 
compensating a slammed customer's original carrier. Recognizing the 
complexity of this issue, your order also invited industry to put 
forward alternative proposals for addressing slamming that would still 
achieve the Commission's goals. In March, a coalition of long distance 
providers, after working closely with the Commission staff, presented 
the Commission with a proposal for an industry-funded neutral third-
party administrator that would remove much of the complexity for 
industry and consumers alike. My understanding is that this concept has 
support from many parties, including the National Association of 
Attorneys General, and that some groups--among them the larger consumer 
interest groups--believe that the industry plan is a superior approach 
to fight slamming. To me, an industry solution that in fact simplifies 
the process, makes the consumer whole and takes the profit out of 
slamming makes more sense than imposing a set of government regulations 
that may not be workable in practice.
    Last week the Commission's own slamming rules were stayed by the 
court indefinitely. A legislative remedy will take a long time to work 
its way through the Hill, if it does at all, and it will take some time 
to craft the rules to implement such legislation. The industry 
proposal, which is still before the Commission, seems to me to be the 
most rapid way to bring relief to consumers. Is the Commission giving 
the industry proposal serious consideration? How quickly can we expect 
the Commission to act on this proposal?
    Response. I concur with the Chairman's answer. For consumers, 
slamming is a pernicious act, for which prompt and fair resolution is 
essential. To be workable, any process we adopt must have the support 
of consumers, the industry, and the states.
    Question 2. Many people believe that there are billions of dollars 
in excess earnings in local company access charges (that is, earnings 
above what is needed for any legitimate subsidy of local service). The 
FCC has an extensive record on this issue pending before it. Yet access 
reform may be further delayed. When does the FCC plan to act on access 
reform, and is there anything that the FCC can do, effective this July, 
to give the American people a downpayment on the reductions that are 
due them?
    Response. I agree with the Chairman and continue to be a strong 
proponent of access reform.
    Question 3. The FCC recently released its report of audits of 
certain incumbent local company records that indicate a significant 
amount of equipment is unaccounted for. If you couple that with reports 
that access charges are, and have been, significantly above cost, what 
steps is the FCC taking to address these specific concerns?
    Response. I concur with the Chairman's answer.
    Question 4. I understand that the Commission has opened a 
proceeding to implement the spectrum provisions of the 1997 Balanced 
Budget Act. When Congress expanded the FCC's authority to use auctions 
in the 1997 Balanced Budget Act, we specifically provided that certain 
private radio services are exempt from auctions because licensees in 
these radio services use their radio systems to protect the safety of 
life, health or property. It was further noted in the Conference 
Committee Report that these exempt services include private, internal 
radio systems used by utilities, pipelines, state and local government 
agencies, emergency road services, and others. However, I understand 
that aside from state and local government agencies and tow truck 
operators, the Commission has not proposed in this proceeding to exempt 
utilities, pipelines, railroads, or any of the other radio services 
identified in the Conference Report. Could you please confirm whether 
it is the Commission's intent to follow Congress' directions, as 
explained in the Conference Report, or whether the agency is proposing 
to unilaterally narrow the exemption language?
    Response. I concur with the Chairman's answer. Private radio is an 
important component of our spectrum management policy.
    Question 5. Despite Congress' direction that the FCC use 
engineering solutions, frequency coordination, and other means to avoid 
application conflicts and hence the need for auctions, I understand 
that as part of this same proceeding the FCC is proposing to change its 
licensing rules for private radio services so that such application 
conflicts are likely.
    Congress would like to know why the FCC is trying to create 
application conflicts and thereby force private radio users into 
competing at auction, instead of following Congress' direction in the 
Act that auctions are to be used only where such conflicts cannot be 
avoided.
    Response. I concur with the Chairman's answer.
    Question 6. I understand the FCC has proposed to auction licenses 
in the 900 MHz band for ``multiple address systems,'' that are used by 
utilities, pipelines, and railroads to remotely monitor and control 
their utility or rail networks. An allocation of one megahertz of 
bandwidth for MAS was made more than 10 years ago, but because of 
Commission inaction and now a new rulemaking to force auctions on these 
channels, no licenses have been granted on these channels. Congress is 
also disturbed to hear that the agency may delay this matter even 
further because of its proceeding to implement the auction provisions 
of the 1997 Budget Act. Could you please provide Congress with a 
timetable for completing action in the multiple address system docket, 
and explain why utilities, pipelines, and railroads, which are exempt 
from auctions, must wait any longer to begin using these much-needed 
channels?
    Response. I concur with the Chairman's answer. In addition, I would 
support concurrent Commission action on the MAS Further Notice and the 
Balanced Budget Act Notice, if this will expedite the licensing of MAS 
spectrum.
                               __________

    Response to Written Questions Submitted by Hon. Conrad Burns to 
                               Susan Ness

    Question 1. In your estimation, what data speeds constitute 
broadband access? Can you be specific with regard to both upstream and 
downstream speeds?
    Response. I agree with the Chairman and support our conclusion in 
the 706 Report last February that 200 kilobits per second in both 
directions was sufficient to provide the most popular broadband 
services. In the future greater speed may be needed to make creative 
use of color, graphics, and streaming video--all of which require fast 
bitstreams. When we issued our 706 report, I underscored the need for 
broadband to be available not only in our cities, but across rural 
America, and pledged to work to eliminate any barriers to competition 
that might arise as this nascent industry develops. As I noted last 
February, I plan to monitor closely developments in rural deployment of 
broadband capability.
    Question 2. Mr. Chairman and Commissioners, I know that 
implementation of E911 location technology has been a high priority of 
yours and I want to commend you for your efforts and the establishment 
of the October 1, 2001 implementation deadline. E911 location 
technology will enable our emergency service provides to save lives and 
it is imperative that we ensure that technology [is] available to the 
public as soon as possible. Can you comment on any recent progress made 
at the Commission in this critical area?
    Response. The Chairman's answer provided a comprehensive summary of 
the Commission's implementation of E911 services, and I fully support 
the Commission's efforts to continue the implementation of E911 Phase I 
and II as well as Congressional legislation mandating a nationwide 911 
emergency numbering scheme.
    I would only add that the rules adopted in the Commission's E911 
Second Notice of Proposed Rulemaking to address the ``blank spot'' 
problem apply to cellular licensees providing analog service. These new 
rules will improve the transmission of 911 calls for users of analog 
mobile phones, or digital mobile phones with an analog mode in 
geographic areas with a blank spot in a licensee's cellular coverage. 
Some mobile phones, however, are digital only. For digital only mobile 
phones, currently there is no solution to the ``blank spot'' problem. 
As the mobile phone market migrates away from analog to digital 
services, this will represent an increasingly significant public safety 
gap in 911 coverage for digital only mobile phones unless a solution 
can be found.
    Question 3. The FCC was required by the 1996 Telecommunications Act 
to complete its reformation of the federal universal service support 
system, replacing implicit subsidies with explicit subsidies, by May 8, 
1997. It is now over two years past that deadline--and over three years 
since passage of the Act--and the Commission still has not completed 
such action. In fact, it has missed even its own, self-imposed deadline 
of January 1999 and is possibly in danger of missing its July 1999 
deadline. When will the reform of universal service finally be 
completed?
    Response. I concur with the Chairman's response. I also share your 
frustration regarding the time it has taken to complete universal 
service reform. As Chair of the Universal Service Joint Board, I have 
spent many hours working through complex issues with my counterparts on 
the state public utility commissions, as well as with my colleagues at 
the FCC to achieve a workable solution. Universal service reforms must 
be sustainable and any mechanism we adopt must have achieved a level of 
accuracy, predictability, and openness that garners widespread 
acceptance. I believe that we are on the right track.
    While I would have preferred to have completed this process early, 
one result of the lag in the development of local competition is that 
implicit subsidies have not eroded as rapidly as feared, and the 
revenues and cash flows of carriers that serve rural areas remain 
healthy.
    Question 4. NARUC has proposed FCC-state commission cooperation on 
Section 706, promoting access to advanced technologies. What is your 
reaction?
    Response. I agree with the Chairman. FCC-state cooperation is 
essential in facilitating access to advanced technologies. States have 
valuable insights regarding their service areas and obstacles involved. 
I look forward to continuing to work with our state colleagues to find 
creative solutions to deployment of advanced services in the rural 
areas of the country.
    Question 5. How do you see the FCC-state commission relationship 
developing over the coming months and years?
    Response. I agree with the Chairman's answer. We have worked hard 
to develop a productive relationship with the states to better serve 
the American public. In deed, the roots of many of our best ideas can 
be traced back to best practices adopted by the states. As competition 
evolves, the need for monopoly regulation recedes. We are working 
closely with the states, for example, to coordinate reporting 
requirements to remove unnecessarily cumbersome or duplicative rules. 
As a member of the NARUC Communications Committee, I welcome the 
opportunity to explore other areas for further coordination.
    Question 6. What is the status of the Rural Task Force, which will 
be making recommendations concerning universal service for rural 
telecom providers?
    Response. I concur with the Chairman's response. I was very 
impressed with the members of the Rural Task Force when I met with them 
recently to discuss their progress on universal service issues for 
rural carriers. We need to ensure that rural telephone companies--some 
1300 strong--continue to be able to serve their communities. Their 
issues are unique and require special consideration. I look forward to 
receiving the Task Force recommendations.
                               __________

    Response to Written Question Submitted by Hon. Sam Brownback to 
                               Susan Ness

    Question.  For several years, the Commission has been working on an 
economic model to calculate the cost of providing universal telephone 
service to rural, insular and other high-cost areas. The model and the 
inputs used in the model have gone through many changes. The Commission 
has already violated its statutory obligation to finish the universal 
service proceeding by May 8, 1997. If no model, including the inputs 
used in the model, is actually being used by the Commission one year 
from now to determine the cost of universal service support to non-
rural telecommunications carriers, what should the Commission do? 
Should it scrap the use of a model completely?
    Response. I concur with the Chairman's answer and also express my 
optimism that the forward-looking cost model will be a valuable tool. 
If, however, the model fails to achieve widespread acceptance for 
providing an accurate prediction of relative cost, I am open to other 
alternatives.
                               __________

  Response to Written Question Submitted by Hon. Olympia J. Snowe to 
                               Susan Ness

    Question.  It is my understanding that WMTW, Channel 8 in Maine, 
has an application pending before the Commission to construct a digital 
TV tower in Baldwin, Maine. As with most tower construction proposals, 
this one has not been without controversy, and I know that letters were 
received by the FCC that strongly opposed the WMTW application. While I 
take no position on the application itself--neither supporting nor 
opposing it--and am seeking no special treatment for the application in 
terms of its processing, I have received inquiries from constituents on 
this matter and the timing of the FCC decision.
    Accordingly, what is the status of this application, and how soon 
should the citizens of Baldwin and WMTW expect a final decision from 
the Commission?
    Response. I concur with the Chairman's answer.
                               __________

     Response to Written Questions Submitted by Hon. Trent Lott to 
                           Michael K. Powell

    Question 1. Last December the FCC issued an order to address 
unauthorized changes of carrier selection. More commonly known as 
slamming. This order contained a complex set of rules for providing 
credits to consumers who have been victimized by slamming and for 
compensating a slammed consumer's original carrier. Recognizing the 
complexity of this issue, your order also invited industry to put 
forward alternative proposals for addressing slamming that would still 
achieve the Commission's goals. In March, a coalition of long distance 
providers, after working closely with the Commission staff, presented 
the Commission with a proposal for an industry-funded neutral third-
party administrator that would remove much of the complexity for 
industry and consumers alike. My understanding is that this concept has 
support from many parties, including the National Association of 
Attorneys General, and that some groups--among them the larger consumer 
interest groups--
believe that the industry plan is a superior approach to fight 
slamming. To me, an industry solution that in fact simplifies the 
process, makes the consumer whole and takes the profit out of slamming 
makes more sense than imposing a set of government regulations that may 
not be workable in practice.
    Last week the Commission's own slamming rules were stayed by the 
court indefinitely. A legislative remedy will take a long time to work 
its way through the Hill, if it does at all, and it will take some time 
to craft the rules to implement such legislation. The industry 
proposal, which is still before the Commission, seems to me to be the 
most rapid way to bring relief to consumers. Is the Commission giving 
the industry proposal serious consideration? How quickly can we expect 
the Commission to act on this proposal?
    Response. I generally subscribe to the views expressed in Chairman 
Kennard's response to this question to the extent he welcomes the 
industry proposal and commits the Commission to moving quickly to 
resolve these issues. I think there are potential advantages to 
consumers of utilizing an industry-funded neutral third-party 
administrator. We must weigh these advantages against the concerns of 
some state commissions, members of Congress and others who oppose the 
proposal. I hope the Commission can conclude its review of this 
proposal in the fall, assuming continued industry cooperation and an 
ongoing dialogue with interested parties.
    As I have stated on other occasions, I firmly support the 
Commission taking steps, pursuant to Section 258 of the 1996 Act, to 
establish policies and rules designed to combat unauthorized changes of 
consumers' long distance carriers (``slamming''). The Act mandates that 
we turn the ship of federal telecommunications regulation smartly in 
the direction of competitive markets, and away from the traditional 
central planning model. It is critical to the functioning of 
competitive markets that consumers make effective choices in the 
marketplace, as these choices tell self-interested firms what to sell, 
how much and where. Slamming robs consumers of choices they have made, 
and thus I am more than pleased to support its prevention and vigorous 
prosecution.
    Question 2. Many people believe that there are billions of dollars 
in excess earnings in local company access charges (that is, earnings 
above what is needed for any legitimate subsidy of local service). The 
FCC has an extensive record on this issue pending before it. Yet access 
reform may be further delayed. When does the FCC plan to act on access 
reform, and is there anything that the FCC can do, effectively this 
July, to give the American people a down payment on the reductions that 
are due them?
    Response. I believe there is an urgent need to complete our work to 
reform access charges. I hope the Commission can make additional 
headway in our ongoing access reform efforts over the next 3-6 months. 
As the Chairman's response indicates, the most recent access tariff 
filings by local exchange carriers (``LECs'') in July 1999 would 
substantially reduce annual access charges, and there is likely to be 
another reduction next July. Nothing necessarily compels inter-exchange 
carriers to pass these savings onto consumers, but I would expect that 
competitive market forces in the long-distance market will result in 
substantial consumer savings (as the recent news of long-distance price 
wars demonstrate).
    The Commission's reform of access charges is closely tied to our 
task of reforming universal service subsidies to make them more 
explicit and portable. Universal service reform will encourage new 
entrants to compete more vigorously for many consumers by undermining 
the advantage incumbent LECs have traditionally enjoyed by virtue of 
their exclusive access to implicit universal service subsidies. 
Similarly, access charge reform will create incentives for economically 
efficient entry by competing exchange access providers by enabling 
these charges to more properly reflect the manner in which access costs 
are incurred. Thus, costs that increase the longer one is on the phone 
might properly be recovered through per-minute pricing. Moreover, costs 
that remain about the same, regardless of how many calls one makes, or 
how long any one call is, should be recovered by flat charges. These 
charges would be dictated by market forces, not regulatory 
intervention.
    As the Commission has noted, however, the artificially high per-
minute long distance rates that result from implicit access charge 
subsidies flowing from high volume to low volume consumers have 
distorted competitive entry. Competitors realized that high volume 
consumers and businesses were paying rates well above cost and thus 
seized on the opportunity to serve them, and thereby maximize profits. 
Conversely, competitors have been slow to embrace low volume 
residential customers under the old system, because these firms are 
less likely to be able to recoup the costs of serving those customers, 
relative to high volume customers. High per-minute long distance rates 
also have discouraged all consumers from using this valuable service.
    Access charge reform seeks to correct these problems by ensuring 
that flat costs are recovered through flat fees and per-minute costs 
through per-minute fees. Thus, such reform is necessary to promote 
competition because it removes policies that have tended to make some 
customers, particularly low volume customers, unattractive prospects 
for new entrants. The Commission's current policy is to allow 
competitive forces, rather than additional regulation, to determine the 
extent of any additional reductions to interstate access charges. We 
are, however, considering other approaches. Without these reforms, all 
consumers. including low volume consumers, would be much less likely to 
receive the benefits of competition. Thus, I am personally committed to 
pushing forward with access reform as expeditiously as the enormous 
complexity of this issue allows.
    Question 3. The FCC recently released its report of audits of 
certain incumbent local company records that indicate a significant 
amount of equipment is unaccounted for. If you couple that with reports 
that access charges are, and have been, significantly above cost, what 
steps is the FCC taking to address these specific concerns?
    Response. I refer to Chairman Kennard's report on the status of our 
access charge reform and Continuing Property Record (``CPR'') Audit 
proceedings. The Commission has initiated an Inquiry into the CPR Audit 
Reports wherein we will gather and analyze information concerning the 
validity and implications of the Reports. At present, we are seeking 
public comment and review of various documents to help us evaluate 
differences between the auditors' findings and statements by the 
companies audited, and to help us determine what further action, if 
any, the Commission should take. As for the cost of exchange access, it 
is my understanding that this is an issue staff is considering as part 
of our ongoing access reform proceeding.
    I fully agree that the information contained in the Audit Reports 
should have been released in some manner, primarily to ensure its 
factual accuracy, methodological validity and to determine whether, if 
the Reports' conclusions are valid, there has been a detrimental impact 
on ratepayers. Such an impact, if proven, would be serious, and I would 
willingly support addressing that impact right now were I persuaded 
that we have enough information to prove it. As our initiation of the 
Inquiry into the Audit Reports suggests, however, we simply do not have 
enough information to endorse fully and take action on the Reports' 
conclusions at this time. Specifically, the intention to start a future 
proceeding reflects the fact that we lack sufficient confidence in the 
Reports to proceed to enforcement without first subjecting their facts 
and analysis to public scrutiny. I fully recognize the potential for at 
least some adverse impact on consumers if such scrutiny indicates that 
the Audit Reports' conclusions are appropriate. Moreover, I do not 
doubt the integrity of our Common Carrier Bureau auditors' work or even 
necessarily the validity of their preliminary analyses and conclusions. 
I am simply unprepared to take action on these analyses and conclusions 
before they are tested in the fire of vigorous debate by other 
interested parties. Thus, I look forward to working with my colleagues 
to develop and analyze the record in the Inquiry as expeditiously as 
possible. Likewise, in the access charge reform proceeding, I look 
forward to considering, with the help of interested parties, whether 
access charges are above cost and what remedial actions might be 
necessary.
    Question 4. I understand that the Commission has opened a 
proceeding to implement the spectrum provisions of the 1997 Balanced 
Budget Act. When Congress expanded the FCC's authority to use auctions 
in the 1997 Balanced Budget Act, we specifically provided that certain 
private radio services are exempt from auctions because licensees in 
these radio services use their radio systems to protect the safety of 
life, health or property. It was further noted in the Conference 
Committee Report that these exempt services include private, internal 
radio systems used by utilities, pipelines, state and local government 
agencies, emergency road services, and others. However, I understand 
that aside from state and local government agencies and tow truck 
operators, the Commission has not proposed in this proceeding to exempt 
utilities, pipelines, railroads, or any of the other radio services 
identified in the Conference Report. Could you please confirm whether 
it is the Commission's intent to follow Congress' directions, as 
explained in the Conference Report, or whether the agency is proposing 
to unilaterally narrow the exemption language?
    Response. I generally subscribe to the response to this question 
provided by Chairman Kennard. Although auctions have proven to be a 
superior licensing tool, Congress and the Commission have recognized 
that it may not be a suitable mechanism for all radio services, 
especially those used in connection with public safety. I would add 
also that the congressional intent behind the auction exemption for 
``critical infrastructure'' and other public safety services is clear. 
There is no intent on my part to narrow this exemption language or to 
impose irrational regulatory requirements that micromanage the non-
commercial use of frequencies licensed, pursuant to law, by means other 
than auctions.
    Question 5. Despite Congress' direction that the FCC use 
engineering solutions, frequency coordination, and other means to avoid 
application conflicts and hence the need for auctions, I understand 
that as part of this same proceeding the FCC is proposing to change its 
licensing rules for private radio services so that such application 
conflicts are likely. Congress would like to know why the FCC is trying 
to create application conflicts and thereby force private radio users 
into competing at auction, instead of following Congress' direction in 
the Act that auctions are to be used only where such conflicts cannot 
be avoided.
    Response. I generally agree with the response to this question 
provided by Chairman Kennard. I believe that we should evaluate our 
licensing schemes on a regular basis to see if they continue to make 
sense. In WT Docket No. 99-87, I firmly believe we have begun this 
process for private radio services in a neutral fashion, without 
prejudging questions of mutual exclusivity and auctionability. Before 
getting to these questions, we must (and I believe we will) faithfully 
analyze the current process to determine, as Section 309(j)(6)(E) 
requires, whether it is in the ``public interest to continue'' to 
employ techniques that avoid mutual exclusivity. In sum, if it is 
broken, we should fix it; if it is working fine in the public interest, 
we should ``continue'' its use.
    Question 6. I understand the FCC has proposed to auction licenses 
in the 900 MHz band for ``multiple address systems,'' that are used by 
utilities, pipelines, and railroads to remotely monitor and control 
their utility or rail networks. An allocation of one megahertz of 
bandwidth for MAS was made more than 10 years ago, but because of 
Commission inaction and now a new rulemaking to force auctions on these 
channels, no licenses have been granted on these channels. Congress is 
also disturbed to hear that the agency may delay this matter even 
further because of it proceeding to implement the auction provisions of 
the 1997 Budget Act. Could you please provide Congress with a timetable 
for completing action in the multiple address system docket, and 
explain why utilities, pipelines, and railroads, which are exempt from 
auctions, must wait any longer to begin using these much-needed 
channels?
    Response. I concur generally with the response of Chairman Kennard. 
I agree that licensing rules for both commercial and public safety use 
of the MAS bands has been delayed for much too long. Once the comment 
cycle is closed in the current ongoing proceeding, I will urge my 
colleagues to expedite final action and licensing of these frequencies.
                               __________

    Response to Written Questions Submitted by Hon. Conrad Burns to 
                           Michael K. Powell

    Question 1. In your estimation, what data speeds constitute 
broadband access? Can you be specific with regard to both upstream and 
downstream speeds?
    Response. I generally agree with Chairman Kennard to the extent he 
reiterates, in his response to this question, the Commission's 
estimates in our February 2, 1999 Report to Congress of what data 
speeds constitute broadband access. I should emphasize, however, that 
such estimates are not static, but rather will evolve as the 
capabilities and primary uses of technology developed over time.
    Question 2. Mr. Chairman and Commissioners, I know that 
implementation of E911 location technology has been a high priority of 
yours and I want to commend you for your efforts and the establishment 
of the October 1, 2001 implementation deadline. E911 location 
technology will enable our emergency service providers to save lives 
and it is imperative that we ensure that technology available to the 
public as soon as possible. Can you comment on any recent progress made 
at the Commission in this critical area?
    Response. I generally subscribe to the Chairman's response to this 
question and I hope that you find helpful the brief report on recent 
progress in this area. Personally, I believe we have no higher calling 
than that of facilitating and promoting the public's safety. Wireless 
E911 is a very important component of this objective and I believe it 
should be implemented by carriers at the earliest practicable date. 
Lives are at stake. I am committed to resolving all outstanding issues 
before the Commission on an expedited basis so that the industry is 
provided certainty and timely deployment may continue.
    Question 3. The FCC was required by the 1996 Telecommunications Act 
to complete its reformation of the federal universal service support 
system, replacing implicit subsidies with explicit subsidies, May 8, 
1997. It is now over two years past that deadline--and over three years 
since passage of the Act--and the Commission has still not completed 
such action. In fact, it has missed even its own, self-imposed deadline 
of January 1999 and is possibly in danger of missing its July 1999 
deadline. When will the reform of universal service finally be 
completed?
    Response. I share many of your concerns regarding delays in 
completion of our reforms in this important area. It is my 
understanding and my fervent hope that this fall the Commission will 
address, with respect to non-rural telephone companies, the universal 
service issues you have identified.
    On numerous occasions, I have made clear my support for the 
universal service programs that it is this Commission's duty to 
implement under the Telecommunications Act of 1996. The Act requires 
that the services designated for universal service support be 
``available at just, reasonable and affordable rates'' in ``all regions 
of the Nation, including low-income consumers and those in rural, 
insular and high cost areas.'' 47 U.S.C. Sec. Sec.  254(b)(1), 
254(b)(3). I wholeheartedly endorse the overall goal of the statute, 
and I know that the public interest will be well-served if we remain 
faithful to the intent of these and other provisions in implementing 
universal service programs.
    One of the fundamental objectives of universal service reform for 
non-rural carriers is that we make traditional implicit subsidies 
explicit and portable. This will encourage new entrants to compete more 
vigorously for many consumers by undermining the advantage incumbent 
LECs have traditionally enjoyed by virtue of their exclusive access to 
implicit universal service subsidies. Thus, universal service reform is 
critical to the development of competition in addition to the provision 
of supported services at reasonable and affordable rates. As such, I 
agree that universal service reform should be completed as quickly as 
practicable.
    Question 4. NARUC has proposed FCC-state commission cooperation on 
Section 706, promoting access to advanced technologies. What is your 
reaction?
    Response. I concur in Chairman Kennard's response to this question 
to the extent that he underscores his commitment to working 
cooperatively with state commissions on issues for which the two 
jurisdictions have important roles to play. The need for such 
cooperation is especially critical in areas, such as the promotion of 
advanced services, that depend heavily on interconnection arrangements. 
Because of their central role in reviewing, arbitrating and approving 
such arrangements generally, state commissions may have valuable 
perspectives and expertise on how best to promote the development of 
advanced services. To this, the Commission can bring additional, 
valuable expertise as well as a national perspective and consistency. 
The combination of these resources can, I believe, promote advanced 
services deployment. Thus, I foresee continued cooperation between the 
Commission and state commissions in the advanced services context
    Question 5. How do you see that FCC-state commission relationship 
developing over the coming months and years?
    Response. This relationship must continue to develop and to develop 
in its current positive direction. In addition to issues related to 
advanced services, as noted in the above response, we must have a 
greater cooperative effort in all areas of shared and common 
jurisdiction. The recent Fifth Circuit remand of the Universal Service 
funding issues emphasizes the need for the Commission to cooperate and 
negotiate with state regulatory authorities, instead of dictating our 
desired outcome.
    Question 6. What is the status of the Rural Task Force, which will 
be making recommendations concerning universal service for rural 
telecom providers?
    Response. It is my understanding that the status of our universal 
service reform efforts for rural companies is as Chairman Kennard 
describes in his response to this question. Upon receiving the Rural 
Task Force's report next fall regarding which reforms may be necessary 
for rural telephone companies, it is my understanding that the 
Commission will act on those recommendations quickly, so as to 
implement any necessary reforms by January 1, 2001.
                               __________

    Response to Written Question Submitted by Hon. Sam Brownback to 
                           Michael K. Powell

    Question. For several years, the Commission has been working on an 
economic model to calculate the cost of providing universal telephone 
service to rural, insular, and other high-cost areas. The model and the 
inputs used in the model have gone through many changes. The Commission 
has already violated its statutory obligation to finish the universal 
service proceeding by May 8, 1997. How much longer are you prepared to 
wait before the Commission implements a model? If no model, including 
the inputs used in the model, is actually being used by the Commission 
one year from now to determine the cost of universal service support to 
non-rural telecommunications carriers, what should the Commission do? 
Should it scrap the use of a model completely?
    Response. Chairman Kennard's description of the status of the 
technical development of our universal service cost model generally 
comports with my understanding. As I have stated on other occasions, 
one of the most daunting challenges of our universal service reforms 
for non-rural carriers is making traditional implicit subsidies 
explicit and portable. The model could provide one option to assist us 
in tackling this challenge by helping us to introduce some notion of 
cost into what traditionally has been a non-cost-based rate structure. 
Introducing some notion of cost, in turn, holds out the prospect of 
making these rate structures more consistent with competitive markets 
and deregulation. Thus, I think it remains a worthy objective to 
capitalize on the enormous time and resources that our staff, the 
industry and state commissions have invested in developing the model. 
At the same time, I share many of your concerns regarding delays in 
completion of our reforms in this important area. Universal service 
reform, along with access reform, is critical to achievement of the 
Act's goals of promoting competition, deregulation and innovation. 
Thus, I remain open to any method of making rate structures more 
compatible with competitive markets that can help us achieve these 
goals effectively and in a manner that promotes competition in both the 
short and long terms.
                               __________

  Response to Written Question Submitted by Hon. Olympia J. Snowe to 
                           Michael K. Powell

    Question. It is my understanding that WMTW Channel 8 in Maine has 
an application pending before the Commission to construct a digital TV 
tower in Baldwin, Maine. As with most tower construction proposals, 
this one has not been without controversy, and I know that letters were 
received by the FCC that strongly opposed the WMTW application. While I 
take no position on the application itself--neither supporting nor 
opposing it--and am seeking no special treatment for the application in 
terms of its proceeding, I have received inquiries from constituents on 
this matter and the timing of the FCC decision.
    Accordingly, what is the status of this application, and how soon 
should the citizens of Baldwin and WMTW expect a final decision from 
the Commission?
    Response. The Commission's staff is actively considering the 
application pending for WMTW-Channel 8 (Baldwin, Maine). As noted in 
the Chairman's response, the staff has asked the applicant for 
additional information on what, if any, coverage losses may exist as a 
result of the tower's location. This information is required to be 
filed to facilitate the modification application process. As soon as 
this information is submitted, the Commission staff will complete 
processing of the application in a timely manner.
                               __________

     Response to Written Questions Submitted by Hon. Trent Lott to 
                       Harold W. Furchtgott-Roth

    Question 1. Last December the FCC issued an order to address 
unauthorized changes of carrier selection, more commonly known as 
slamming. This order contained a complex set of rules for providing 
credits to consumers who have been victimized by slamming and for 
compensating a slammed consumer's original carrier. Recognizing the 
complexity of this issue, your order also invited industry to put 
forward alternative proposals for addressing slamming that would still 
achieve the Commission's goals. In March, a coalition of long distance 
providers, after working closely with the Commission staff, presented 
the Commission with a proposal for an industry-funded neutral third-
party administrator that would remove much of the complexity for 
industry and consumers alike. My understanding is that this concept has 
support from many parties, including the National Association of 
Attorneys General, and that some groups--among them the larger consumer 
interest groups--believe that the industry plan is a superior approach 
to fight slamming. To me, an industry solution that in fact simplifies 
the process, makes the consumer whole and takes the profit out of 
slamming makes more sense than imposing a set of government regulations 
that may not be workable in practice.
    Last week the Commission's own slamming rules were stayed by the 
court indefinitely. A legislative remedy will take a long time to work 
its way through the Hill, if it does at all, and it will take some time 
to craft the rules to implement such legislation. The industry 
proposal, which is still before the Commission, seems to me to be the 
most rapid way to bring relief to consumers. Is the Commission giving 
the industry proposal serious consideration? How quickly can we expect 
the Commission to act on this proposal?
    Response. I believe that everyone at the Commission shares the same 
goal--significantly reducing and eventually eliminating slamming. In 
that regard, I have expressed my firm support for the Commission, 
pursuant to section 258 of the 1996 Act, to enact rules and regulations 
designed to eliminate these unauthorized changes. I share your concern, 
however, that the rules adopted by the Commission last December were 
overly complex, and as I expressed at that time, inconsistent with the 
safeguards and incentives established in the Act. Specifically, I 
believe that the consumer absolution scheme created in that order would 
lessen the incentives of the party most able to take appropriate action 
to combat slamming--i.e the authorized carrier--and may also 
inadvertently lead to an increase in fraudulent claims of slamming. 
Given these reservations, I am prepared to give serious consideration 
to any proposal that is more consistent with section 258. With respect 
to specific timing, I defer to the Chairman.
    Question 2. Many people believe that there are billions of dollars 
in excess earnings in local company access charges (that is, earnings 
above what is needed for any legitimate subsidy of local service). The 
FCC has an extensive record on this issue pending before it. Yet access 
reform may be further delayed. When.does the FCC plan to act on access 
reform, and is there anything the FCC can do, effective this July, to 
give the American people a downpayment on the reductions that are due 
them?
    Response. I remain committed to acting on any proceeding designed 
to eliminate implicit subsidies in access charges, which I believe have 
a disruptive effect on competition. I agree that, when access charges 
are reduced, the American consumer, not federal bureaucrats, should 
choose how to spend those reductions. Unfortunately, the Commission 
denied consumers the full benefit of the most recent access charge 
reductions in July. By choosing to increase the e-rate tax by $1 
billion, the Commission intercepted the benefit of the July reductions 
in access charges, and applied them to its excessive schools and 
libraries program. I will continue to support responsible access charge 
reform and Commission action that ensures that the American consumers 
are the ultimate beneficiaries of this reform.
    Question 3. The FCC recently released its report of audits of 
certain incumbent local company records that indicate a significant 
amount of equipment is unaccounted for. If you couple that with reports 
that access charges are, and have been, significantly above cost, what 
steps is the FCC taking to address these specific concerns?
    Response. I have asked my staff to keep me abreast of proposals 
related to these concerns.
    Question 4. I understand that the Commission has opened a 
proceeding to implement the spectrum provisions of the 1997 Balanced 
Budget Act. When Congress expanded the FCC's authority to use auctions 
in the 1997 Balanced Budget Act, we specifically provided that certain 
private radio services are exempt from auctions because licensees in 
these radio services use their radio systems to protect the safety of 
life, health or property. It was further noted in the Conference 
Committee Report that these exempt services include private, internal 
radio systems used by utilities, pipelines, state and local government 
agencies, emergency road services. and others. However, I understand 
that aside from state and local government agencies and tow truck 
operators, the Commission has not proposed in this proceeding to exempt 
utilities, pipelines, railroads, or any of the other radio services 
identified in the Conference Report. Could you please confirm whether 
it is the Commission's intent to follow Congress' directions, as 
explained in the Conference Report, or whether the agency is proposing 
to unilaterally narrow the exemption language?
    Response. As the Commission studies comments we have received in 
response to the Notice with an eye toward crafting final rules, I 
believe the entire Commission shares the belief that we should here, as 
in all proceedings, act in a manner consistent with Congressional 
intent.
    Question 5. Despite Congress' direction that the FCC use 
engineering solutions, frequency coordination, and other means to avoid 
application conflicts and hence the need for auctions, I understand 
that as part of this same proceeding the FCC is proposing to change its 
licensing rules for private radio services so that such application 
conflicts are likely. Congress would like to know why the FCC is trying 
to create application conflicts and thereby force private radio users 
into competing at auction, instead of following Congress' direction in 
the Act that auctions are to be used only where such conflicts cannot 
be avoided.
    Response. The Commission's Notice specifically noted that the 
Balanced Budget Act requires the Commission to use engineering 
solutions and other techniques to avoid mutual exclusivity, consistent 
with the public interest. As we move forward in this proceeding, I can 
assure you that we will be vigilant in ensuring that we remain faithful 
to the statute.
    Question 6. I understand the FCC has proposed to auction licenses 
in the 900 MHz band for ``multiple address systems,'' that are used by 
utilities, pipelines, and railroads to remotely monitor and control 
their utility or rail networks. An allocation of one megahertz of 
bandwidth for MAS was made more than 10 years ago, but because of 
Commission inaction and now a new rulemaking to force auctions on these 
channels, no licenses have been granted on these channels. Congress is 
also disturbed to hear that the agency may delay this matter even 
further because of its proceeding to implement the auction provisions 
of the 1997 Budget Act. Could you please provide Congress with a 
timetable for completing action in the multiple address system docket, 
and explain why utilities, pipelines, and railroads, which are exempt 
from auctions, must wait any longer to begin using these much-needed 
channels?
    Response. I understand that the Commission is committed to 
resolving the matters raised in the MAS proceeding in an expeditious 
manner after close of the comment period in this proceeding early this 
fall. As the Commission builds a record in this proceeding to deal with 
a host of difficult issues raised by the fact that the MAS bands are 
allocated for both ``public safety'' and ``non-public safety'' 
services, we will of course remain mindful of the fact that public 
safety exception applies to utilities, pipelines and railroads. We will 
endeavor to issue rules quickly so that these industries can begin 
using these critical channels.
                               __________

    Response to Written Questions Submitted by Hon. Conrad Burns to 
                       Harold W. Furchtgott-Roth

    Question 1. In your estimation, what data speeds constitute 
broadband access? Can you be specific with regard to both upstream and 
downstream speeds?
    Response. I refer to the statements of the Commission in its Report 
on the deployment of broadband capability to all Americans, released on 
February 2, 1999. I recognize that, as technologies evolve, this 
determination may, after proper notice and comment from the public, 
need to change as well.
    Question 2. Mr. Chairman and Commissioners, I know that 
implementation of E911 location technology has been a high priority of 
yours and I want to commend you for your efforts and the establishment 
of the October 1, 2001 implementation deadline. E911 location 
technology will enable our emergency service providers to save lives 
and it is imperative that we ensure that technology available to the 
public as soon as possible. Can you comment on any recent progress made 
at the Commission in this critical area.
    Response. The Chairman's response to this question lists the 
efforts we have made this year in the area of E911 implementation. I 
would simply add that the Commission is poised to take action this 
month on our E911 Phase 2 rules, which specify requirements for covered 
carriers providing automatic location information to public safety 
agencies. I remain committed, as I have said in the past, to making 
sure that our rules ensure that the benefits of this life saving 
technology reach all Americans as quickly as possible.
    Question 3. The FCC was required by the 1996 Telecommunications Act 
to complete its reformation of the federal universal service support 
system, replacing implicit subsidies with explicit subsidies, by May 8, 
1997. It is now over two years past that deadline--and over three years 
since passage of the Act--and the Commission still has not completed 
such action. In fact, it has missed even its own, self-imposed deadline 
of January l999 and is possibly in danger of missing its July 1999 
deadline. When will the reform of universal service finally be 
completed?
    Response. I share your concern that reformation of the federal 
universal service support system has not yet been completed. I am 
concerned that the Commission has distorted the priorities of section 
254 of the Act. I remain committed to acting on this measure once it is 
presented to the full Commission.
    Question 4. NARUC has proposed FCC-state commission cooperation on 
Section 706, promoting access to advanced technologies. What is your 
reaction?
    Response. I fervently support and encourage the participation of 
the States in all regulatory matters, including matters regarding 
Section 706. With respect to the proposed establishment of a Joint 
Conference under Section 410 (b) of the Communications Act, I will 
support Commission action to the extent that it is consistent with the 
terms of section 410.
    Question 5. How do you see the FCC-state commission relationship 
developing over the coming months and years?
    Response. I encourage the Commission to consult early and often 
with the States in regulatory matters of common interest. Over the past 
several years, I have learned much from State commissioners. I believe 
that governmental decisions should be made, consistent with the law, at 
the levels of government closest to the people. I value my many friends 
at State Commissions, and I look forward to working with them in the 
future.
    Question 6. What is the status of the Rural Task Force, which will 
be making recommendations concerning universal service for rural 
telecom providers?
    Response. As stated by Chairman Kennard, the Federal-State Joint 
Board on Universal Service created a Rural Task Force on September 17, 
1997 to study what universal service reforms are necessary for rural 
telephone companies, and is due to submit a report with recommendations 
to the Joint Board by September 2000. The Joint Board will then make 
its recommendations to the Commission, based on the Rural Task Force's 
report.
    Anecdotally, I have heard that the Rural Task Force has been 
encouraged by Commission staff to address how to apply the FCC's cost 
model for universal service in rural America, particularly small 
carriers. The FCC's cost model is ill-suited for the purposes of 
universal service for either large carriers or small. I trust that the 
Rural Task Force will reflect the concerns of rural America and not be 
bullied into advising the Commission on an ill-considered agenda. I 
believe that universal service for small carriers should be the 
Commission's first priority in implementing section 254 of the Act. I 
am deeply troubled by the present plan of delaying action on this 
priority until January 1, 2001.
                               __________

    Response to Written Question Submitted by Hon. Sam Brownback to 
                       Harold W. Furchtgott-Roth

    Question.  For several years, the Commission has been working on an 
economic model to calculate the cost of providing universal telephone 
service to rural, insular, and other high-cost areas. The model and the 
inputs used in the model have gone through many changes. The Commission 
has already violated its statutory obligation to finish the universal 
service proceeding by May 8, 1997. How much longer are you prepared to 
wait before the Commission implements a model? If no model, including 
the inputs used in the model, is actually being used by the Commission 
one year from now to determine the cost of universal service support to 
non-rural telecommunications carriers, what should the Commission do? 
Should it scrap the use of the model completely?
    Response. I have previously voiced my concern with this agency's 
responsiveness to Congressional intent in its implementation of Section 
254. Rural, high-cost universal service is not just one of many 
objectives of Section 254; it should be the highest priority. I believe 
the delay in high-cost implementation has been caused, at least in 
part, by the Commission's decision to use extremely complicated, 
complex, economic, computer, cost models. The statute neither mentions 
nor contemplates any form of cost model for universal service, but the 
Commission has decided that these extremely cumbersome models should be 
used to distribute high-cost universal service funds. I support 
scrapping the use of the model immediately.
                               __________

  Response to Written Question Submitted by Hon. Olympia J. Snowe to 
                       Harold W. Furchtgott-Roth

    Question.  It is my understanding that WMTW Channel 8 in Maine has 
an application pending before the commission to construct a digital TV 
tower in Baldwin, Maine. As with most tower construction proposals, 
this one has not been without controversy, and I know that letters were 
received by the FCC that strongly opposed the WMTW application. While I 
take no position on the application itself-- neither supporting nor 
opposing it--and am seeking no special treatment for the application in 
terms of its processing, I have received inquiries from constituents on 
this matter and the timing of the FCC decision.
    Accordingly, what is the status of this application, and how soon 
should the citizens of Baldwin and WMTW expect a final decision from 
the Commission?
    Response. According to the Mass Media Bureau, the commission 
received objections to the proposed construction of WMTW's new tower. 
These objections are based primarily on zoning and tower location 
concerns. While I cannot discuss the merits of this particular 
application, it is true that the Commission's traditional policy--and 
one with which I agree--is generally to defer to the decisions of local 
governmental bodies with respect to tower siting. I understand, 
however, that WMTW has indeed obtained local zoning approval for the 
proposed construction, and that the Bureau has concluded its initial 
review. Apparently, the Bureau has sought further information from the 
station regarding possible signal coverage losses caused by the 
proposal. I hope that the Bureau will move quickly to resolve this 
application once that information is received. I will certainly do all 
that I can to see to it that this matter is handled, as all matters 
should be, expeditiously. Please do not hesitate to contact me if you 
have further questions about the status of this application.
                               __________
                                        USA Wireless, Inc.,
                                         Houston, TX, May 24, 1999.
Hon. John McCain, Chairman,
Committee on Commerce, Science, and Transportation,
U.S. Senate,
Washington, DC
    Dear Senator McCain: Thank you for giving us the opportunity to 
present our concerns to your committee for the FCC's oversight hearing. 
USA Wireless, Inc., a telecommunications company, has previously 
contacted your office regarding our difficulty in receiving effective 
responses to questions on cellular-phone radiation safety issues and 
cellular-phone interference issues. We feel that the FCC has not 
responded to our specific questions; therefore, we suggest that an 
action must be taken to define the FCC's responsibilities to the 
telecommunications industry and to the public.
    USA Wireless feels that the FCC staff, specifically the Office of 
Engineering and Technology (OET), have not taken our concerns seriously 
or addressed our questions with objectivity and professionalism. 
Questions regarding the cellular phone's interference measurement 
procedures and standards--a topic for which the FCC is solely 
responsible--have not been responded to directly. Since the FCC is the 
regulating and responsible party for interference issues, we do not 
understand why they have failed to provide straight answers to our 
questions. USA Wireless has also not received straight answers to 
questions and concerns regarding the FCC's adopted cellular-phone 
radiation safety guidelines. The FCC has simply referred us to the 
government health agencies, such as the FDA and EPA, who recommended or 
commented on the proposed guidelines before the FCC adopted the 
guidelines. Although the FCC only adopted the radiation safety 
guidelines, does that mean that the FCC can divorce themselves of 
responsibility from questions that arise concerning the guidelines? We 
contacted the health agencies, however, they referred us back to the 
FCC, which placed us in an endless loop that never supplied definite 
answers. Whom is responsible for health issues related to cellular 
phone radiation? Whose responsibility is it to protect the public? The 
ineffective manner in which the FCC has handled these issues have made 
us question the goals and responsibilities of the FCC. Overall, their 
responses were surprising due to their lack of detail and explanations. 
Even more surprising, was the response by OET to your office on January 
19, 1999, which withheld information and did not give a clear picture 
of the issues presented by USA Wireless to the FCC.
    As a telecommunications company, we expect the FCC to respond to 
our concerns and further investigate the issues we presented. We feel 
that the consequences and implications of not responding to our company 
are too negative. How would the public respond in knowing that USA 
Wireless, a telecommunications company, provided information to the FCC 
that was disregarded and not given an adequate explanation? Since 
responsibility for radiation safety issues is easily passed from one 
agency to another, we would like to focus specifically on the 
interference issues since there is no question that they are the FCC's 
responsibility. Since the FCC's major concern is with interference, 
they should respond to these issues and make sure that we understand 
the interference requirements and measurement procedures for the 
cellular phone. We feel that they have been ineffective in their 
responses, which could have serious implications in the public's and 
industry's opinion. We do not understand why the FCC would choose not 
to respond, if sharing information could lead to a solution. After all, 
we questioned the FCC with the goal of helping them arrive to a 
resolution that would satisfy both the public and the industry.
    Since our initial contacts with the FCC, we have encouraged the FCC 
to work with the industry towards making cellular phones safer and much 
more efficient. We are now suggesting for the FCC to take adequate 
responsibility for interference issues and to define their 
responsibilities in radiation safety issues. We feel we have asked 
reasonable questions and have provided enough information for us to 
receive an equally as reasonable and professional response. Despite our 
disappointment in the FCC's responses, we feel that the industry and 
the government owe the public clear answers and practical solutions. We 
still feel that if the industry and government agencies work together, 
the resolution would benefit the industry and, more importantly, the 
public. Recently, USA Wireless sent your office a video tape containing 
two live television interviews that explain the goals and philosophy of 
our company. We feel that the information in the interviews is evidence 
of our efforts to bring solutions to the public and the industry. We 
feel that any new information, especially from an industry member who 
is willing to share information, should not be ignored.
    We hope that the Committee on Commerce, Science, and Transportation 
will evaluate these issues carefully and urge an immediate improvement 
in the FCC's responsiveness and effectiveness. We hope you are able to 
investigate why we have been treated in this manner and why the FCC has 
not been able to give clear answers to our company, to your office, and 
to the public. Again, thank you for the opportunity to express our 
concerns to your committee. Please contact us if you would like more 
information or if you have any questions.
            Sincerely,
                                       David Nghiem, Ph.D.,
                                President & CEO, USA Wireless, Inc.

                                
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