[House Hearing, 108 Congress]
[From the U.S. Government Printing Office]




                               before the


                                 of the

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION


                           FEBRUARY 26, 2003


                            Serial No. 108-6


       Printed for the use of the Committee on Energy and Commerce

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                            WASHINGTON : 2003
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               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                      Ranking Member
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio                RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania     RICK BOUCHER, Virginia
CHRISTOPHER COX, California          EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina         SHERROD BROWN, Ohio
  Vice Chairman                      BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia             BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois               BART STUPAK, Michigan
HEATHER WILSON, New Mexico           ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JAN SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel


          Subcommittee on Telecommunications and the Internet

                     FRED UPTON, Michigan, Chairman

MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                      Ranking Member
CLIFF STEARNS, Florida               BOBBY L. RUSH, Illinois
  Vice Chairman                      KAREN McCARTHY, Missouri
PAUL E. GILLMOR, Ohio                MICHAEL F. DOYLE, Pennsylvania
CHRISTOPHER COX, California          JIM DAVIS, Florida
NATHAN DEAL, Georgia                 RICK BOUCHER, Virginia
ED WHITFIELD, Kentucky               EDOLPHUS TOWNS, New York
BARBARA CUBIN, Wyoming               BART GORDON, Tennessee
JOHN SHIMKUS, Illinois               PETER DEUTSCH, Florida
HEATHER WILSON, New Mexico           ANNA G. ESHOO, California
Mississippi                          ELIOT L. ENGEL, New York
VITO FOSSELLA, New York              ALBERT R. WYNN, Maryland
CHARLES F. BASS, New Hampshire       GENE GREEN, Texas
MARY BONO, California                JOHN D. DINGELL, Michigan,
GREG WALDEN, Oregon                    (Ex Officio)
LEE TERRY, Nebraska
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)


                            C O N T E N T S


Testimony of:
    Abernathy, Hon. Kathleen Q., Commissioner, Federal 
      Communications Commission..................................    33
    Adelstein, Hon. Jonathan S., Commissioner, Federal 
      Communications Commission..................................    49
    Copps, Hon. Michael J., Commissioner, Federal Communications 
      Commission.................................................    38
    Martin, Hon. Kevin J., Commissioner, Federal Communications 
      Commission.................................................    45
    Powell, Hon. Michael K., Chairman, Federal Communications 
      Commission.................................................    24





                      WEDNESDAY, FEBRUARY 26, 2003

              House of Representatives,    
              Committee on Energy and Commerce,    
                     Subcommittee on Telecommunications    
                                          and the Internet,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2123, Rayburn House Office Building, Hon. Fred Upton 
(chairman) presiding.
    Members present: Representatives Upton, Bilirakis, Barton, 
Stearns, Gillmor, Cox, Deal, Whitfield, Shimkus, Wilson, 
Pickering, Fossella, Bass, Bono, Walden, Terry, Tauzin (ex 
officio), Markey, Rush, McCarthy, Doyle, Davis, Boucher, Towns, 
Deutsch, Eshoo, Stupak, Engel, Wynn, Green, and Dingell (ex 
    Also present: Representatives Blunt and Burr.
    Staff present: Howard Waltzman, majority counsel; Will 
Nordwind, ajority counsel; Jon Tripp, deputy communications 
director; Hollyn Kidd, legislative clerk; Gregg Rothschid, 
minority professional staff; and Brendan Kelsay, minority 
professional staff.
    Mr. Upton. Good morning, everyone.
    The subcommittee will come to order. And without objection 
the subcommittee will proceed pursuant to committee Rule 4E. So 
    The Chair recognizes himself for an opening statement.
    I'd like to warmly welcome both Chairman Powell back to the 
subcommittee and the rest of the Commissioners for their very 
first appearance before us this year. We appreciate your being 
here with us today to discuss the health of the 
telecommunications economy from your perspective and how FCC 
regulations impact the economy.
    The importance of this hearing cannot be overstated. It 
comes on the heels of last Thursday's triennial review decision 
by the Commission. We come to this day with our economy at a 
critical crossroads. And to paraphrase my former boss, Ronald 
Reagan, I ask the question thanks to the FCC's decision is the 
telecommunications economy better off today than it was 6 days 
ago? I am afraid the answer is no.
    Unfortunately, the majority in the triennial review failed 
to follow Chairman Powell's bold vision and leadership. The 
majority misses a great opportunity. Where they had a chance to 
provide certainty, they have provided uncertainty. Where they 
had a chance to provide clarity and stability, they opted for 
chaos and continued regulatory haggling. In their third attempt 
to write rules for network unbundling, they have failed and the 
third time is no charm.
    They have failed to follow the standards established by 
Congress written into the 1996 Act and reenforced by the 
courts. Sadly, the FCC's mile is a form of competition that 
only French farmers could love.
    The one ray of hope in this mess is their efforts to 
prevent telephone rules and regulations from migrating to the 
new broadband networks. We should be encouraging the deployment 
of fiber and high speed networks, not discouraging them. And 
while it appears, and I emphasize that it only appears at this 
point without the written order, that the Commission tried to 
move toward a progressive broadband policy, they have included 
provisions requiring the phone companies to either maintain two 
networks, one fiber and one copper, or go to the State 
commissions for permission to replace the copper with fiber. 
That makes no sense.
    Today these companies are replacing copper with fiber 
without going to anyone for permission. This runs counter to 
common sense. But the Commission seems to have adopted a 
chaotic mix of often conflicting rules that in one sense seems 
to promote investment and growth, and on the other hamstring it 
in a morass of what will be likely 52 different proceedings 
around the country.
    The Commission, I believe, should have been focused on 
prompting clarity, certainty, investment and growth. If they 
had used these objectives as their touchstones, I believe that 
they would have come up with an order that reduces not 
increasing on bundling, but reduces not increases regulatory 
procedures and it would be based on a national framework.
    I would bring to the attention the article today in The 
Wall Street Journal where it says it is hard to picture the 
financial markets giving the Bells the hundreds of billions of 
dollars it would take. Investors have their eyes in their 
    Was this a good decision? Hello Washington, this is Wall 
Street calling. And the answer is no.
    Clearly the reaction from Wall Street the last few days 
should convince us that the FCC's decision has created 
confusion and concern. We even have analysts talking about such 
key telecom equipment makes and innovators as lucent as dollar 
stocks. And this decision seems to have spooked investors even 
further. They crave clarity and they got confusion.
    Appreciate you being here this morning. And I yield for an 
opening statement to my friend and colleague, the ranking 
member of the subcommittee, the gentleman Massachusetts, Mr. 
    Mr. Barton. Parliamentary inquire before we go to Mr. 
    This is my first hearing of the Telecommunications 
Subcommittee. What is your rule on opening statements and 
questions? I know there's discussion----
    Mr. Upton. We have already adopted. It is now a committee 
rule, but by the reading of the--I think it was 4C(e) if you 
defer your oral presentation of your opening statement, you 
will get 8 minutes on the first round of questions rather than 
    Mr. Barton. What if you give a 1-minute opening?
    Mr. Upton. No. Then you will 5 minutes on questioning.
    Mr. Barton. So it's all or nothing?
    Mr. Upton. You have a chance to defer or not.
    Mr. Barton. All right. I just want to clarify that.
    Mr. Upton. Mr. Markey?
    Mr. Markey. Thank you, Mr. Chairman.
    The Federal Communications Commission certainly has a full 
plate of issues to deal with this year, starting with last 
Thursday's decision on issues addressing the future or the lack 
thereof of competition for local telecommunications services to 
upcoming plans to deregulate certain services by redefining 
them, to the troubling direction the Commission appears to be 
heading in supporting greater media concentration in our 
    The FCC will make decisions in the coming months that will 
greatly effect prices consumers pay, the level of 
entrepreneurial opportunity, the prospects for job creation and 
innovation and the health of our media marketplace.
    Last Thursday the FCC appears to have gotten it half right. 
By retaining the ability of States to address critical local 
competition issues in the so called UNE-P policy area, the 
Commission took note of the fact that many States had cited 
this UNE-P competition to the Bell companies as a basis for 
approving their applications to get into the long distance 
    In addition, millions and millions of consumers not only 
have seen lower prices for local and long distance services 
from competitors, they have also seen lower local and long 
distances prices from the Bell companies as well.
    In Massachusetts, for example, Verizon recently announced 
in response to such competition that it was creating a 
variations freedom package that includes unmeasured, unlimited 
local regional long distance service plus home voicemail, 
caller ID, call waiting, three way calling and speed dialing up 
to 8 numbers all for $54.95 a month.
    To say that UNE-P does not foster competition simply 
ignores the everyday reality of millions of Americans. And I 
want to commend Commissioners Copps and Adelstein and Martin 
for supporting clear consumer interest in this area.
    Yet, the FCC last week also got it half wrong. And for 
those interested in the future of broadband competition and the 
prospects for job growth and innovation in the digital era, the 
broadband policy decisions and the FCC decision are deeply 
troubling. And given the response of the Bell companies after 
the FCC rendered its decision, it's clear the result for the 
economy will be devastating. Any small glowing ember of an 
economic recovery for the sector that existed has been 
effectively doused by the bucket of cold water the Bells threw 
on it after the FCC decision.
    The broadband decision also reflects an apparent 
unwillingness or an inability to learn the lessons of the past. 
In the late 1980's immediately after the breakup of AT&T, the 
Bell companies sought relief of the restriction prohibiting 
them from entering the information services marketplace. They 
argued that if they were permitted into information services, 
that that would give them the incentive to deploy fiber to the 
home. As Dave Barry might say I am not making this up, I sat 
here and listened to them tell us that.
    Judge Harold Greene eventually lead them into that 
business, but they didn't deploy. Instead they came back to 
Congress and the FCC and said that only if they were allowed 
into cable TV business would they have the necessary revenue 
stream to deploy fiber to the home. So in the 
Telecommunications Act we bent over backwards to facilitate 
their entry into cable. But, again, they didn't get into cable 
to any great degree and they didn't deploy fiber to the home.
    Why? Well, because they said they now needed interlata data 
relief for the emerging Internet marketplace. When they finally 
got around to opening their markets and obtaining long distance 
approval in their respective States, as you can now guess, they 
did not build out fiber to the home. Neither did they 
crisscross the country with the newly built long distance 
networks. They simply resold, in large part, the long distance 
services of AT&T, MCI and Sprint. Yet, by then they had a new 
    Again, I am not making this up. They said that if you 
deregulate our new investments for high speed service, take out 
the pesky competitors in the broadband marketplace and remove 
certain regulatory oversight, then they would really be going 
gangbusters getting fiber out to people's homes. They wanted a 
policy of new wires, new rules.
    Last Thursday 3 of you agreed to endorse this proposition, 
and almost immediately afterwards the Bell companies announced 
that they were not going to invest. They will not deploy. That 
the promise of 4 years of legislation and months of your work 
at the FCC was nothing but a fiber fable. By endorsing the 
policy of new wires, new rules the Bells say what we will now 
get is no new hires and no new investment.
    Do you feel betrayed? It is a long, long story. You look 
like many others have looked in the past, like Charlie Brown 
after Lucy pulls the football away. The Bells pulled it right 
away from you. It is just part of the fiber fable.
    Thank you, Mr. Chairman.
    Mr. Upton. Thank you, Mr. Markey.
    Mr. Tauzin.
    Chairman Tauzin. Thank you, Mr. Chairman.
    Mr. Chairman, let me first welcome Chairman Powell and 
members of the Commission to this hearing. It is good to see 
you all again.

    I want to thank you particularly, Mr. Chairman, for calling 
this hearing. You held a great hearing several weeks ago, at 
which time we heard from the investment community, analysis and 
comments from economists about the current state of the telecom 
sector of our economy. We learned three things that were 
    The first was that the telecom sector is in a dangerous 
state of economic disrepair. We learned that excessive 
regulation limits investment and retards growth. And we learned 
that regulatory uncertainty is the death knell for the 
telecommunications sector.
    That message should have been as clear to the FCC as it was 
to this committee, and I believe the message apparently was 
heard by Chairman Powell and Commissioner Abernathy. 
Unfortunately, 3 of our Commissioners seemed to think that we 
can get the telecom sector back on its feet by perpetuating 
rules for years to come, perhaps a decade, that will require 
one group of stockholder companies to subsidize their 
competitor stockholder companies by creating a fog of 
regulatory uncertainty for years to come in the form of 51 
State and DC proceedings that will likely lead to 51 suits that 
will go through 12 different appeal courts that will end up in 
the same Supreme Court that ordered the FCC to do its job and 
not to punt it to 51 different State and local authorities. 
What a mess.
    What we have seen, Mr. Chairman, is the bureaucratic 
equivalent of Claus Von Bulow, giving its sick patient another 
legal dose of poisonous uncertainty of extended regulatory 
confusion and subsidize phony competition.
    I will say that it appears we have a lot to be excited 
about with respect to the deregulation of broadband facilities. 
I will hold final judgment on that until we have seen the final 
rules, but it is clear at least that the Commission has gone a 
good step forward to deregulate broadband. But we want to see 
what the Commission contemplates, for example, for dark fiber 
and for the retirement of copper loops before we applaud too 
    If the Commission provides the regulatory relief that the 
agency claims it has provided, we on the committee and in the 
House will have won a tremendous victory. And for that I will 
be grateful. Many members of this committee and of the House 
have fought long and hard to deregulate broadband facilities 
and the relief outlined last week is exactly the kind of relief 
that we ought to have. It is the right policy.
    But a deregulated environment for broadband is one thing. 
You also need an attractive market for investment. And in these 
areas of regulatory certain, of encouraging facility based 
competition and investment in new facilities, what the 
Commission has done falls woefully short. In fact, I think it 
has dealt a dangerous blow to our already sick telecom sector. 
We saw it with the loss of $15 billion in market cap the day 
after the decision. We saw it in a decision by the Bells that 
they cannot predict that investors will give them the billions 
of dollars it needs to invest in broadband with the regulatory 
uncertainty this Commission has delivered.
    We're going to find out a lot today. We're going to learn 
why this Commission felt it was necessary to give AT&T and MCI 
WorldCom, this wonderful honest telecom company, why it's 
decided to give them the right to use other companies' 
facilities at below cost for at least another 3 years and 9 
months. Why it is okay for MCI and AT&T and the other CLECs who 
have facility based switches all over America, thousands of 
them, to park their facilities, to park this switches, to put 
them in mothballs and to use the Bell facilities because it is 
cheaper to use somebody's else switch if the government says 
you can use it at below cost. Why it was important to give 
these two giant telecom companies to use somebody else's 
property assets at below cost for perhaps another decade.
    Why this Commission did not hear the DC Court when it said 
it was your job to the granular analysis under UNE-P rules, not 
the States. Why the speeches so many of you gave about 
regulatory certainty and promoting facility based competition 
were nothing more than speeches when it came time for you to 
    We're going to learn a lot today. We're also going to learn 
about how NERUC influenced this decision, the regulators and 
the States how they want to continue their regulatory grasp on 
this industry.
    We're going to learn how, for example--we've obtained a 
document, I'll talk about it later with you in questions, from 
NERUC about how they intend even in the sunshine rules to 
perhaps illegally influence this Commission into making sure 
the rules are written so they can add back more regulatory 
authority under this new rule you propagated.
    We will learn why the Supreme Court was ignored by this 
Commission when it said very clearly that this Congress 
delegated to the FCC, not to the States, the authority and the 
responsibility to make the rules here for a national 
telecommunications network and why this Commission felt it 
could ignore the Supreme Court of the United States and give 
this authority instead to the States.
    We're going to learn a lot from this hearing, and look 
forward to it. Stick around.
    Thank you, Mr. Chairman.
    Mr. Upton. I know you're just getting wound up.
    I would recognize the gentleman from Virginia, Mr. Boucher.
    Mr. Boucher. Thank you very much, Mr. Chairman.
    I share the concerns that have been expressed by the 
subcommittee chairman and also the chairman of the full 
committee with respect to the Commission's treatment of local 
exchange carrier obligations regarding broadband. While the 
decision would appear to encourage investment in advanced 
networks by removing the requirement that competitors then get 
access to them at a rate that is below the cost of the LEC 
deployment, the benefits of that decision could well be negated 
by the other decision made by the Commission that would enable 
the Public Service Commissions of the States to pass on whether 
or not the old copper networks could then be retired as those 
copper networks are over built with modern fiber optic 
    If the LECs are ultimately required to maintain and to 
operate the old networks, there will be little incentive to 
invest in the new ones.
    As the Commission drafts an order incorporating these 
decisions, I hope that you will provide clarity on this matter 
by ensuring that the LEC can retire the old copper plant as new 
and modern facilities are constructed.
    Like other members of this committee I was pleased that 
representatives of the cable television and consumer electronic 
industries reached agreement in late December on a universal 
plug-and-play standard for digital television sets. When the 
Commission implements that agreement by regulation, digital 
sets will be compatible with all cable television systems and 
consumers will not need a new set-top box each time they change 
cable television providers. I commend the Commission for its 
notice seeking comment on a proposed regulation incorporating 
that agreement.
    A related matter, however, remains unresolved. There's an 
urgent need for the Commission to make available a consumer 
friendly version of the so-called PHILA license which equipment 
manufacturers are required to sign in order to manufacture 
cable compatible equipment. At present equipment manufacturers 
do not have an alternative to the very harmful PHILA license, 
and as they begin the lengthy design and manufacturing process 
for making cable compatible devices. A more consumer friendly 
version of this license is needed. And I urge the Commission to 
provide it at the earliest possible time.
    Finally, I strongly urge the Commission to put in place 
regulations making telemedicine services more available in 
rural America. I have many hospitals in my congressional 
district that want to provide telemedicine services, that need 
to provide those services for the convenience and cost savings 
of their patients that are currently because of the pricing 
regime unable to do that.
    I've had extensive correspondence with the Commission going 
back now for more than 1 year on the subject of the need for 
new regulations in this area. And I very much hope that the 
Commission will take that correspondence and other comments 
that the Commission has received on this subject into account, 
and put in place within just the next several months the new 
regulations that are needed to extend telemedicine services to 
a broader range of hospitals and clinics serving rural 
    Thank you very much, Mr. Chairman. I yield back.
    Mr. Upton. Thank you.
    Mr. Barton.
    Mr. Barton. Thank you, Mr. Chairman.
    I am asking you now just to consent to put my entire 
statement in the record.
    Mr. Upton. Without objection.
    Mr. Barton. I will defer it, but I am not sure I'll be able 
to wait for all the others, so I am going to take 3 minutes 
    Mr. Upton. Go ahead. The gentleman's recognized for 3 
    Mr. Barton. As I looked around the hearing room up on the 
podium it strikes me that there are not a lot of us that are 
here up on this end of the dias that were here in 1996 when we 
passed the Telecommunications Act. Mr. Markey was here, Mr. 
Boucher was here. Mr. Rush was here. Mr. Stupak may have been 
here. And on our side we go down to about Chris Cox. The rest 
of them are newbies. They weren't here when we fought this 
    I was here and I was on the conference committee, and our 
goal when we passed the Telco Act in 1996 was over time to 
create a level playing field and to really create competition. 
And nobody really knew how to do that, so we put in this very 
complicated system of steps it had to go through, and we threw 
it into your lap to decide.
    We're now here today, and with some exceptions, most of us 
that voted for the Act would say that the decision last week 
was the wrong decision, that it is a step back, it is not a 
step forward. We didn't know at the time that the way the rules 
were implemented created an unlevel playing field so that the 
long distance providers got access to the local loop at a below 
market rate, a below price rate. And that is what Chairman 
Tauzin was talking about.
    Now, from the ATT and World Com perspective, that is a good 
deal and nobody can be upset if their representatives say let 
us keep that good deal. But from the intent of the Act it is 
not a good deal. And the stock market has reacted accordingly 
in the last week.
    So as somebody who voted for the Act 7 years ago, as 
somebody who was on the conference committee, as somebody who 
wants there to be competition across the board, as somebody who 
has watched what's happened in the last 7 years I am very, very 
disappointed by this decision.
    Now there have been a lot of fingers pointed at certain 
members of the Commission, and I am not going to get into all 
that. But, you know, I am going to be a part of a process to do 
everything I can to change this decision at every level. 
Because I really want there to be competition at every level in 
the telco industry. And if we let this decision stand, you are 
not going to see that. You've created an unlevel playing field, 
and that was not the intent of the Act.
    You know, I called the subcommittee chairman, former 
Congressman Jack Fields who along with Mr. Bliley is kind of 
viewed at the godfather of this. And I said ``Jack, is this 
what you intended?'' And he said there is no way this is what 
we intended 7 years ago.
    So I know these are difficult questions, but this is not 
just another ruling by another Federal commission in Washington 
that does not have a real impact in the real world. It really 
matters. And sometimes the Congress will come in and overreach, 
sometimes we just throw things in your lap and say please do 
the right things, but sometimes when the Congress feels that 
you have done the wrong thing, we are going to try to help you 
do the right thing. And I am going to be a part of that 
    So I yield back, and I will ask some questions at the 
appropriate time.
    [The prepared statement of Hon. Joe Barton follows:]

  Prepared Statement of Hon. Joe Barton, a Representative in Congress 
                        from the State of Texas

    I would like to thank Chairman Upton for holding this important 
hearing, and Chairman Tauzin for his presence here today. When this 
hearing was first scheduled, we had no idea that we would have so much 
to discuss. However, that all changed last Thursday. That day the FCC 
made a landmark decision in regards to a number of subjects, including 
local carrier competition, especially in regards to UNE-P.
    We all know that the goal of the 1996 Telecom Act was to promote 
facilities-based competition. And to give competitors a chance to build 
scale so that they might be able to deploy their own facilities, the 
Act required the incumbent local exchange telephone companies (ILECs) 
to open their networks to their new competitors' Competitive Local 
Exchange Companies (CLECs).
    A CLEC entering the local phone market had three options to provide 
telecommunications services:

 build its own facilities (facilities-based competition), which 
        the FCC calls the interconnection option of service in that the 
        CLEC constructs its own facilities then interconnects with the 
 resale at wholesale rates any telecommunications service that 
        the ILEC provides on a retail basis; and/or
 buy unbundled network elements (UNEs) from the ILEC.
    In the case of UNE's there are generally two ways that a CLEC 
purchases them from the ILEC:

 . lease them individually to combine with its own facilities--
        e.g. combining the ILEC's loop with the CLEC's switch; or
 buy all of the UNEs that are used by a single end-user in 
        combinations and apply no facilities of its own.
    This last case is known as UNE-Platform or UNE-P.
    UNE-P is physically similar to resale. In each case, the CLEC uses 
the ILEC network to provide service to the end-user and essentially 
limits its own functions to marketing, inputting the order into the 
ILEC's systems, and billing. The CLEC does not use any of its own 
network facilities but simply rides in total the ILEC network. However, 
the FCC's interpretation of the Act treats the two cases very 
differently in terms of the cost to the CLEC. Under resale, the CLEC 
pays the ILEC the wholesale rate based upon the retail rates charged by 
the ILECs minus a set discount (generally about 20%) Under UNE-P, the 
CLEC pays the sum total of the cost of each of the unbundled network 
elements based on the TELRIC standard--not the true ILEC cost of 
providing these elements. In this case, not only is the CLEC getting a 
discount from the retail rate of 50 to 60%, but also they actually get 
the service at below the ILEC's cost.
    In my opinion, the FCC ruling merely continues this failed policy 
and violates the intent of the 1996 Telecommunications Act.
    It seems rather nonsensical to me that governmental policy requires 
one company to subsidize its competitors. In this case, the regional 
bells subsidize WorldCom and AT&T, the largest users of the UNE-P 
    Yet forgetting the impact on companies, these discounted services 
are not being offered evenly to all consumers. Evidence of cherry 
picking the most profitable consumer areas, often called redlining, is 
growing. I do not think the 1996 Act had the idea of promoting an 
uneven marketplace for the consumer.
    I come to this hearing with an open mind, and will listen to the 
witnesses intently. However, the recent decisions do raise a lot of 
questions, and I look forward to hearing answers to many of those 

    Mr. Upton. Thank you, Mr. Barton.
    Mr. Doyle.
    Mr. Doyle. Thank you, Mr. Chairman.
    Good morning. And thank you for scheduling today's 
    I want to extend a warm welcome to each of the 
Commissioners and express my gratitude for you taking the time 
from your busy schedules to be with us this morning.
    Although I was not a member of the Telecommunications 
Subcommittee last session of Congress, I am looking forward to 
actively working on issues within our subcommittee jurisdiction 
that will provide and expand cutting edge telecommunication 
services to my constituents in Pittsburgh. Part of the reason I 
chose to serve on this subcommittee is Pittsburgh is becoming 
increasingly a center of high tech manufacturing and high tech 
businesses and jobs. I am confident that the work we do will 
help Pittsburgh expand even further its growth in these areas.
    During my service on this subcommittee you can rest assured 
that one of my primary goals will be to ensure the availability 
of affordable choices and diverse services for every 
neighborhood both inner city and suburban within my district.
    My district has one of the highest concentrations of senior 
citizens in America, the majority of which live on fixed 
incomes and therefore a healthy telecommunications industry is 
a vital importance to my district.
    In areas where new competitors have entered the market for 
local and long distance services, monthly rates have dropped. 
Believe me, in an era of high cost of living and increased drug 
costs, seniors in my district are truly appreciative of the 
savings on their monthly phone bill that competition provides.
    In this regard, I want to commend the recent decision by 
the Commission to preserve the current UNE-P agreement. I 
strongly believe that this structure creates an environment 
that ensures competition for residential phone services and, 
thus, will improve choices in affordability for people in 
Pittsburgh and cities across America.
    I especially applaud Commissioners Martin, Adelstein and 
Copps for voting to preserve this competition and recognizing 
that the Federal Government should empower States with the 
ability to address the communication needs of their residents. 
However, I am very deeply concerned and disappointed with the 
decision to eradicate the line sharing requirements regarding 
fiber. In my view, the Commission's ruling offers little 
incentive for new competition in the high speed Internet market 
and will severely harm the chances for any existing or new 
company to offer alternative choices for services.
    As with the residential phone service market, it is clear 
that competition in the broadband market will ensure that more 
customers in the city of Pittsburgh will have affordable high 
speed Internet connections available for their business and 
personal use.
    Access to competitively priced DSL services is especially 
important for middle and low income households in my district 
where equal access means equal opportunity for educational, 
professionals and social growth not present before. I am 
greatly disappointed with this aspect of the FCC ruling which 
may mean that constituents will have fewer options and 
therefore reduced opportunity for affordable access to high 
speed Internet connections.
    My colleagues, I want to express my commitment and strong 
support for initiatives that foster greater competition, lower 
prices and increased access for my constituents back in 
Pittsburgh. And I remain committed and stand ready to work with 
those companies and industries that are taking concrete steps 
to help achieve these goals.
    Thank you, Mr. Chairman.
    Mr. Upton. Thank you, Mr. Doyle.
    Mr. Bilirakis.
    Mr. Bilirakis. Thank you, Mr. Chairman. Just a few seconds 
to commend you for holding this, what promises to be a most 
exciting hearing and to welcome, of course, Chairman Powell and 
the Commissioners to our subcommittee.
    The issues basically have been laid out I think by all of 
the members and I am not going to go into that. I just would 
like to sort of apologize to the Commissioners and to my fellow 
members. This is what we call the Florida Federal State Summit 
Day where many of our State legislators have come up from 
Florida. They certainly didn't pick a very good day for it. But 
anyhow, they'll be meeting throughout the day. And because I 
Chair the Health Subcommittee, I am going to have to spend some 
time with those good people. But I do look forward to your 
    And my AA, who is also my legislative person on this issue, 
will be in here all day listening to your comments and taking 
    Thank you, Mr. Chairman.
    Mr. Upton. Tell them to keep the orange prices down.
    Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman. And thanks for holding 
this hearing, and to the Commissioners welcome.
    And to Commissioner Adelstein, it is good to see you here 
as the newest member of the FCC Board.
    First, I'd like to talk a little bit about the results of 
last Thursday's ruling. I would like to commend Commissioners 
Martin, Adelstein and Copps for their hard work in keeping 
competition in the voice market and preserving the authority of 
the States in determining the access competitors should have to 
UNEs, that is the unbundled network element. I believe that 
this access is critical to maintaining competition and benefits 
to consumers.
    Consumers in my State of Michigan have benefited greatly 
from the unbundled network element platform known as UNE-P. In 
Michigan as of December 2002, 23 percent of the residential 
voice customers are served by competitors using UNE-P. As a 
result of this competition, unlimited local service by SBC has 
gone down from a price of $43 in 1999 to $14 as of June, 2002. 
There is no question that the UNE-P has greatly served 
Michigan's consumers, and I urge the members of this 
subcommittee to stand with the FCC majority and maintain their 
ruling to allow competition to continue.
    I particularly agree with the FCC for adopting a State led 
granular analysis. Local market and geographic factors must be 
weighed in order to best achieve competition. However, I am 
perplexed that the same analysis was not used in the broadband 
arena. It seems to me, just as one size does not fit all in the 
voice market, a localized and market analysis is just as 
necessary in the broadband market. I object to the wholesale 
deregulation of broadband services and at the very least, I 
believe that a specific assessment should have been made as to 
the impact this deregulation would have on the ability of rural 
markets to obtain broadband.
    I am also troubled that the broadband ruling by the FCC 
went even further than the Tauzin-Dingell bill some of you 
remember from the last few sessions of Congress. I did not 
support the Tauzin-Dingell Bill and its deregulation of the 
Bells. But even that bill, Tauzin-Dingell still preserved some 
degree of line sharing and made some attempt to contain build 
out requirements. I said at the time, and I still believe, that 
the Tauzin-Dingell bill went too far in deregulation and did 
not require enough in its build out requirements. For the FCC 
to take provisions in a bill that Congress did not pass and 
take this deregulation to an even greater degree is of great 
concern to me.
    Members of this committee voted for build out requirements 
because of the belief that if the Bells are given such broad 
relief, they should be held accountable for their build out 
promises. I see no accountability now as a result of last 
week's ruling. In fact, I see quite the opposite.
    In the last Congress Tauzin-Dingell was passed by the House 
in response to the Bells' promises that with regulatory relief 
for their broadband infrastructure, they would have the 
incentive they need to roll out broadband. Now the Bells have 
gotten the relief they sought, and even more, and yet they are 
telling us that broadband deployment is still not possible 
until the Bells receive even more relief from voice 
    I see a trend here: The Bells will deploy when they are 
assured monopoly status and profit guarantees.
    Mr. Chairman, I see my time is up. I could go on and on, 
but I am sure we will get a chance to talk about other issues 
such as universal service, broadcast media ownership and ways 
which can best promote improving telecommunications in rural 
areas like mine.
    Thank you.
    Mr. Upton. Thank you.
    Mr. Bass.
    Mr. Walden.
    Ms. Wilson.
    Ms. Wilson. Thank you, Mr. Chairman. And thank you also for 
holding this hearing.
    I wanted to thank the Commissioners for coming and spending 
some time. And thank you for your service. I know that you and 
your staffs have spent a lot of time working on these issues 
and to try honestly to come to a position that you think is 
best for the country. And while there may be differences among 
you, as there are differences among us, they are not personal 
and they are not political. They are about policy and what we 
can best do to serve our constituents and the consumers of the 
United States.
    I am not unfamiliar with these honest differences. Back in 
early 2001 Mr. Luther and I sponsored the amendment on line 
sharing, which failed in a tie vote. And there were strong 
feelings about what those provisions would do for consumers.
    I also don't represent AT&T or World Com, or Qwest, for 
that matter. What I do try to represent are the constituents in 
a rural State in the mountain west who are, in some cases, very 
far away from a city that might offer broadband communications.
    I think we're at a crossroads. And I think the real 
question now for the FCC and for the Congress, and for the 
President on building a broadband infrastructure for all 
Americans is this: Do we create a mandate for incumbents to 
deploy broadband and allow the return to the monopoly structure 
of the past or do we continue down the road for competition in 
all sectors of the industry and accept the ups and downs of 
that marketplace and give the consumers the benefit of good old 
American free enterprise? I tend to favor the later in both 
long distance and in local service.
    I want to see competition, because I believe that 
competition brings better service and more choices for 
    I do think it is apparent that the continued competition in 
all sectors of the telecommunications industry is benefiting 
consumers. They benefit consumers in my state.
    I was in Clovis, New Mexico on Monday. I am not sure anyone 
here in this room has ever been to Clovis, New Mexico, but it 
is kind of a major metropolitan area for eastern New Mexico. If 
you go about 2 hours north of Clovis to Des Moines, New Mexico, 
you could get DSL service there before you could get it in 
downtown Albuquerque.
    I think competition and universal service brings choices to 
consumers that's not available when you have a monopoly that 
controls the system.
    I want to see good jobs. I want to see broadband services, 
particularly in rural areas in places in New Mexico where most 
of us have never been. But I don't believe that an unbalanced 
policy will create jobs or increase investment.
    And again, I thank you for your service, for your 
impassioned views, even when those views disagree.
    Thank you.
    Mr. Upton. Thank you.
    Mr. Dingell.
    Mr. Dingell. Thank you, Mr. Chairman, members of the 
Commission thank you.
    Last week the Commission concluded a triennial review of 
its unbundled network elements rules. In that proceeding the 
Commission had the opportunity to issue a set of competition 
rules that could have had an enormous and positive impact on 
the telecom sector, one which is currently plagued by 
bankruptcies, lay-offs, decreasing revenues, declining 
investment and growing unemployment. I had high hopes that this 
Commission after having been twice reversed by Federal courts 
would get it right. I regret I was disappointed.
    Most specifically, I had hoped that the Commission would 
eliminate the unbundled network element platform, a terrible 
policy and one that I can assure you was never contemplated by 
those of us who wrote the law.
    I'd also hoped that the Commission would follow our 
direction to write the rules themselves and not simply and 
illegally delegate the authority to the States. But a misguided 
majority of the Commission failed on both counts.
    The central goal of the 1996 Act was facility based local 
competition, because only facility based competition is 
sustainable. By allowing the unbundled network element platform 
to continue, the Commission has eliminated any incentive that 
certain companies might otherwise have to build their own 
    Moreover, by ensuring that local phone prices will be set 
artificially low by the States, the FCC has made it much more 
difficult for companies that seek to build their own facilities 
to compete in the local marketplace. Unfortunately, the courts 
once again will have to sort through this mess while the 
American consumers and those who work in the telecommunications 
sector will suffer the consequences of this decision.
    The decision last week did have one silver lining in that 
broadband portion appears to mirror much of what the committee 
sought to achieve last year in passing the Tauzin-Dingell Bill. 
I have read in recent days, however, that certain Bell CEOs 
have announced that they will not invest in advanced networks 
because they did not receive all the relief that they were 
seeking. I hoped that that is untrue.
    I expect the Bells will use this new found regulatory 
freedom to do what they have promised, which is to invest 
rapidly and on a significant scale in local broadband networks. 
Such action, if taken, will lead over time to the creation of 
thousands of jobs and a much more competitive broadband 
    Let me briefly address another important topic. The 
Commission will soon conclude a proceeding that appears to be 
aimed at weakening or eliminating the present media ownership 
rules. The premise underlying this proceeding is that the 
emergence of new media platforms, and particularly cable and 
the Internet, has created so many voices that we don't need to 
worry about the tremendous consolidation that continues to 
occur in the industry.
    Ladies and gentlemen of the Commission, I challenge that 
premise. While there has been an expansion of delivery systems, 
the most watched national news broadcasts, the most popular 
cable news channels, and the most visited websites for news and 
information are all owned and controlled by only a small 
handful of companies. While concerns over concentration in most 
industries are appropriately addressed through the anti-trust 
laws, Federal policy has long recognized that in a vibrant 
democracy, the consolidation of those entities who distribute 
information poses far more serious concerns then, for example, 
concentration of those who distribute toothpaste or mouthwash.
    The Commission in its review of media ownership limits is 
required by law to promote competition and the public interest. 
The public interest analysis has long consisted of two 
components--localism and diversity. The Supreme Court recently 
upheld the Commission's authority in Turner Broadcasting System 
v. the FCC stating that protecting diversity is, ``Governmental 
purpose of the highest order'' ensuring the public's access to 
``a multiplicity of information sources.'' I support the 
Court's rational in Turner. I hope that the Commission will use 
it as a guidepost as it concludes these proceedings. I expect 
that I shall, and I like others up here, will try to hold them 
accountable if they do not.
    I thank you for your kindness to me, Mr. Chairman.
    Mr. Upton. Thank you, Mr. Dingell.
    Mr. Shimkus.
    Mr. Shimkus. I'll defer, Mr. Chairman.
    Mr. Upton. Mr. Pickering.
    Mr. Pickering. Mr. Chairman, I would like to listen to the 
Commissioners first. I would defer to questions.
    Mr. Upton. Thank you.
    Mr. Cox.
    Mr. Cox. Thank you, Mr. Chairman. Thank you for holding 
this hearing.
    Thank you, Chairman Powell and the Commissioners for your 
time and your counsel as we consider how changes in regulation 
might encourage a rebound in the moribund telecom industry.
    We're facing continuing declining investment in faster 
Internet connections by both incumbent service providers and 
their competitors. This is a recipe for continuing recession in 
these markets.
    In the tech industry in my home State the familiar saying 
is that you've got to innovate your way out of recession. But 
without new investment, we're not going to have any new 
innovation and thus, there will be no end to the current 
malaise. For this reason not only the industry but the FCC has 
been under considerable pressure.
    There's been a great deal of criticism of the FCC's new 
rules for telecom markets that you announced last week. 
Ironically, the rules appear to express the original spirit of 
Chairman Tauzin's efforts in the last Congress to encourage the 
deployment of high speed broadband and to ensure that new 
markets aren't burdened by the antiquated regulations of the 
old monopoly telephone system.
    Two years ago at this subcommittee's markup of Chairman 
Tauzin's Internet Freedom and Broadband Deployment Act, in 
April of 2001, the Chairman criticized restraints on local 
phone company entry into long distance and also criticized the 
policy of forcing incumbent local phone companies to offer 
their brand new broadband facilities on an unbundled basis to 
their competitors at prices dictated by government. The FCC 
appears to have taken those criticisms to heart. The Commission 
reports that in 2002 it approved 26 applications for Bell 
companies to enter long distance or so called inter-LATA 
    And as for deregulating broadband, in the most recent 
action the Commission has removed all requirements for 
incumbent local companies to share new fiber connections with 
their competitors. For those of us dreaming of real broadband, 
not the one or two megabits per second of many current 
broadband services, but 100 or 200 megabits per second and the 
ability to make videophone calls or the ability to watch any 
movie ever made on demand, or any sporting event going on in 
the country in high definition, the new rules create a powerful 
incentive to invest in the next generation of broadband. Local 
phone companies now have the freedom to profit from investment 
in new faster connections while still being required to ensure 
competition in their existing voice telephone markets. These 
rules will encourage telecom companies to invest the marginal 
dollar in bringing fiber-optic cable deeper into 
neighborhoods--and we can reasonably hope--right into our 
homes, fulfilling the Chairman's goal of deregulated broadband.
    To complement these new rules I urge the Commission to 
refrain from any new regulation of other broadband providers, 
including cable and satellite.
    Finally, I'd like to take full advantage of Chairman 
Upton's gracious offer to allow a free-for-all at this 
morning's hearing. I am grateful that we're not constrained by 
a narrow agenda, and I would urge my colleagues to unite in 
opposition to the one policy that we all know would be 
disastrous for technology companies and consumers alike: new 
taxes on Internet access.
    I urge my colleagues to support H.R. 49 to permanently 
extend the moratorium on Internet access taxes.
    And I thank the chairman.
    Mr. Upton. Thank you, Mr. Cox.
    Mr. Rush.
    Mr. Rush. Thank you, Mr. Chairman.
    Mr. Chairman, I want to commend you on convening today's 
hearing. And today we have the opportunity to hear from the 5 
FCC Commissioners on the state of the telecom industry. And as 
you know, the telecom industry is reeling from tremendous 
economic loss and its survival will depend on how several 
policy issues are addressed at the national level.
    As we have witnessed, the Commission tackled one of these 
issues last week when it voted to continue UNE-P and deregulate 
the broadband market. However, I for one am dismayed that the 
Commission failed to include a provision that will require the 
ILECs to build our broadband facilities to undeserved areas, in 
particular urban poor and rural areas.
    I am also concerned that the Commission's decisions 
regarding UNE-P will have an unintended consequence and create 
a massive job cuts in the telecommunication sector. As I said, 
Mr. Chairman, the Commission will tackle several important 
issues this year including its revision of media ownership 
rules. The FCC's decision to relax its rules on media ownership 
or continue to caps will have a tremendous impact on our goal 
of promoting diversity and localism on our public airwaves.
    I hope that when the time comes to review these rules, that 
the Commission remains committed to preserving diversity 
including diversity in ownership and the localism.
    In regard to the e-rate program, I understand that the FCC 
has conducted investigations where it found that the e-rate 
program is riddled with fraud and financial abuse apparently 
due to deceitful contractors. In light of this news, I am 
looking forward to hearing the Commissioners' views on how they 
intend to solve this problem. I question the commitment of the 
FCC to administer this program fairly and efficiently when 
fraudulent individuals are receiving funding but legitimate 
institutions with legitimate needs are being denied access to 
the program based on minor technical irregularities on their 
    Mr. Chairman, I thank you. And I yield back the balance of 
my time.
    Mr. Upton. Thank you.
    Mr. Sterns.
    Mr. Stearns. Good morning. And thank you, Mr. Chairman.
    Let me welcome the Commissioners and appreciate your 
sitting here.
    We have a new procedure if a person passes, then they pick 
up 3 minutes on their questions. So, you know, you're probably 
expecting more questions.
    I think most people would agree it was just a half loaf, 
the final decision that you folks made. And we heard at our 
February 5 Telecommunications Subcommittee hearing about 
regulatory uncertainly. And, you know, quite frankly, after 
that decision I think we now have regulatory uncertainty again. 
You perhaps increased it with sustained judicial scrutiny. So I 
think that's probably one of the large disappointments of our 
members that you were given the authority in the Telecom Act to 
promulgate regulations, make decisive decisions and that I 
think as it turns out now, we're going to have more litigation, 
more judicial scrutiny.
    The second point I would make is that in reference to what 
Chairman Powell said in his testimony, that ``The Commission 
has yet to craft judicially sustainable unbundled network 
element rules. Furthermore, the Commission faced judicial 
setbacks in the areas of intercarrier compensation and 
reciprocal compensation.'' The Chairman continues with ``The 
Commission lost its last 3 cases covering 5 rules in cable and 
broadcast ownership.''
    So I doubt that we will ever have regulatory certainty as a 
competing interest will continue to battle no matter what 
decision you're rendered, but I think the feeling was that it 
is got more litigious. You decision should not exacerbate the 
opportunities for litigation and complicate things. And I think 
investment decisions are going to be a little more difficult 
now, and that's probably the key that all of us are worried 
about because the telecom industry is in such a disarray.
    And the second point I mentioned earlier is that while the 
FCC can and should delegate certain authorities to the state, 
and I am a proponent of state's rights, we're dealing with a 
Federal statute where Congress seeded a tremendous amount of 
authority to the Commission and you used that authority. The 
Commission adopted the UNE-P approach without statutory 
authorization. So that's a concern of ours.
    At the very least, the Commission should retain primary 
decisionmaking rule in determining the future of its own 
    And last, Mr. Chairman, just in the last 38 seconds I have 
left, I want to talk a little bit about the ongoing Commission 
decision with ownership, media ownership rules. I have a bill 
in this area, and it is an issue I have been involved with 
since the 1996 Act and believe strongly that the FCC must 
address the ongoing changes in the media marketplace allowing 
for modernization in this market to continue. Along these lines 
I am introducing legislation again to ease some of these 
antiquated ownership restrictions, including cost ownership 
limitation and multiple ownership of TV broadcast stations. So 
I look forward to that review.
    And, Mr. Chairman, I appreciate the hearing.
    Mr. Upton. Thank you.
    Mr. Davis.
    Mr. Davis. Mr. Chairman, I'll pass for now. Thank you.
    Mr. Upton. Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman. Good morning to you. 
And to you, Chairman Powell and the entire Commission.
    It looks like you made a decision that hasn't pleased 
anyone. Maybe there's something in that.
    I appreciate this hearing being held this morning on the 
heels of the decision, the weighty decision that you made 
recently and to answer some of our questions about a number of 
issues that confront the telecommunications industry.
    The policies of the 1996 Telecom Act were designed to lead 
to more consumer choice and lower prices while also opening up 
the telecom market to competition.
    And to my friend Joe Barton, I was here, too, and I was one 
of the conferees on that. So I remember a lot of it, and I 
think that I have a good sense of what the intent of the 
Congress was.
    The Act established, I think, an effective mechanism for 
growth based upon a model where competitors would be given an 
opportunity to share the networks of a historical monopoly 
while attracting customers and eventually building their own 
networks. Now, making parts of the monopoly network available 
on an unbundled basis was the key to encouraging the investment 
in new networks. Competitors being given the chance to compete 
against the established monopoly would then rush or hasten 
themselves into the market to compete with those monopolies.
    The giant monopolies, despite their traditional reluctance 
to deploy innovative technologies, would feel compelled to then 
invest in order to keep up with their nimble competitors and 
not lose customers. I think that's a pretty clear snapshot of 
it. And then the consumer would be the beneficiary. The 
investment of the new networks would lead to better quality, 
competition would increase consumer choices and consumers would 
pay lower prices.
    So did the plan work? What happened? I think its impact was 
delayed by continuous litigation, a lack of enforcement and a 
reluctance to comply with the Act. But in States where 
competition has finally taken hold, consumers are enjoying 
lower prices. And companies that make use of this access are 
offering unique services to distinguish themselves from what 
the Bells are offering. That's why I was pleased that the FCC 
saw the benefit of retaining these rules as they relate to the 
unbundled network platform.
    But I am confused about something, and that's the FCC's 
conclusion that the same analysis doesn't apply to broadband. I 
am not so sure, and you'll have obviously ample opportunity to 
answer this, why it makes sense to assure continued competition 
in voice services through leasing of certain network elements 
but with regard to broadband competition, that is eliminated by 
removing important elements like line sharing. I think our 
shared goal is to accelerate broadband deployment, and I think 
it appears that giving the Bells broadband relief was premised 
on the belief that they would then deploy advanced fiber 
networks. But over the last 5 years we've been told that 
companies don't have an incentive to invest in a new network if 
they must then share with its competitors.
    So we've also been told repeatedly that this debate is 
about data and not about voice, because broadband is the key to 
reigniting our economy.
    So I think that we're at yet another important juncture. I 
don't think any of the decisions that are taken are easy. They 
are not simple. And I'd like to believe that we all start with 
the basic intent to do, obviously, the best for our country. So 
I look forward to questioning the Commissioners both on E911, 
media consolidation and the issue that I raised in my opening 
    Thank you, Mr. Chairman. And thank you, members of the 
Commission, for being here today.
    Mr. Upton. Thank you.
    Mr. Terry.
    Mr. Terry. Defer.
    Mr. Upton. Mr. Fossella. Defers.
    Mr. Gillmor.
    Mr. Gillmor. Thank you, Mr. Chairman. I'll simply enter my 
very profound statement in the record.
    Mr. Upton. Ms. Bono.
    Ms. Bono. Defer.
    Mr. Upton. Mr. Whitfield. Defer.
    This side, Mr. Wynn.
    Mr. Wynn. Defer.
    Mr. Upton. Mr. Green.
    Mr. Green. Mr. Chairman, I'll defer, but following my 
colleague Mr. Gillmor, I express the frustration at what we've 
seen. So I'll look forward to the questioning.
    Mr. Upton. Thank you.
    That completes the opening statements from the subcommittee 
this morning.
    [Additional statements submitted for the record follow:]

    Prepared Statement of Hon. Paul E. Gillmor, a Representative in 
                    Congress from the State of Ohio

    I thank the Chairman for yet another opportunity to address the 
health of the telecommunications sector, and greatly appreciate FCC 
commissioners' participation today, in light of last week's unbundled 
network element (UNE) Triennial Review ruling.
    Earlier this month, our subcommittee held a hearing where investors 
reconfirmed that the telecommunications sector continues to experience 
an economic slump. Yet today, after regulatory action has progressed to 
help remedy such circumstances, the question remains: How will the 
Commission's Triennial Review impact the financial state of service 
providers and equipment manufacturers, and more importantly, will it 
generate more certainty with industry spurring facility-based 
    I am primarily concerned with the Commission's decision to grant 
states the authority to decide whether to spur competition between the 
ILECS and CLECS. Such a directive potentially creates administrative 
and cost-related burdens on state public utility commissions, 
incumbents, their competitors, and ultimately the consumer. This notion 
served evident soon after the FCC's decision last Thursday, as 
afternoon trading resulted in a loss for a number of respective 
telecommunications companies.
    I am initially pleased with the Commission's actions easing 
restrictions that would have required incumbents to provide rivals 
discount access to fiber-optic lines, confirming a competitive 
broadband market that I hope will soon bring more investment and 
services to consumers. However, I do realize that there are many 
details that must be hammered-out and look forward to the FCC providing 
clarity to other issues such as the state's role in determining whether 
an incumbent must maintain its retired copper.
    Again, I welcome the panel and look forward to your testimony, and 
yield back the remainder of my time.
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming

    Thank you, Mr. Chairman.
    I would like to thank you all for coming Today to share your views 
with the Subcommittee on the health of the telecommunications sector.
    As you have recently completed the Triennial Review, deliberations 
that some have described as a contentious, I look forward to hearing 
your testimony and your reflections on last week's proceedings.
    I hope in your testimony you will address the recent, precipitous 
fall of Telecommunications stocks in the wake of the FCC's order last 
Thursday. I hope you can convince me that the market deflation is not a 
proxy for those who put their money on the line to fund this critical 
sector--which is what it appears to be to me. The pain that was doled 
out on Wall Street was shared by animals of all stripes in the telecom 
sector. Are investors telling us this was a lose--lose order? The 
investor's actions are telling me there is still great uncertainty in 
telecom regulations. I hope you will all agree with me that in order 
for robust, affordable competition, the FCC needs to establish clear, 
consistent and judicially sustainable regulations. Absent that, the 
market may continue to voice its dissatisfaction.
    Representing the entire state of Wyoming, I know firsthand how 
important telecommunications are to rural residents. We're the 9th 
largest state by area, but the smallest in population--just under a 
half a million. In fact, if you look in the dictionary under ``rural'' 
it reads ``see Wyoming.'' Unfortunately, however, despite all the 
fabulous things Wyoming living provides, it is still rural America and, 
therefore, lags behind the rest of the country in comprehensive telecom 
choices and innovative telecom solutions. I would like to see that 
    I look forward to your comments on how this most recent FCC action 
will connect more Wyomingites to the Internet through broadband 
connections and ensure that the full spectrum of telecom services are 
available to everyone back home, and in fact all across the rural west, 
commensurate with those in New York, Los Angeles and Washington, D.C. 
That is, in fact, the promise of broadband, to be connected and 
productive no matter where you choose to connect from.
    I look forward to hearing your testimony and welcome you to the 
Prepared Statement of Hon. Mary Bono, a Representative in Congress from 
                        the State of California

    I would like to begin by saying that I am honored to be a part of 
the important work that this Subcommittee will face in the coming 
legislative session. I look forward to working with my colleagues to 
tackle the tough issues that affect consumers from every walk of life, 
every day of their lives.
    My colleagues have made many important observations here today and 
I do not wish to be repetitive, but there are a few important issues 
that I do want to go on the record as having responded to today. The 
first issue is the critical importance to the telecommunications 
industry of regulatory certainty.
    Throughout this broadband debate we have all heard from carriers of 
all shapes and sizes, urban and rural, incumbent and competitors alike. 
They have very different business plans and, as you know all too well, 
different opinions on the way competition should proceed. The one 
common theme among all of these disparate companies, however, is a 
strong and urgent call for regulatory certainty. Individual investors, 
Wall Street analysts and companies alike all demand it.
    I fear that the recent FCC action on the Triennial Review threatens 
to exponentially increase regulatory uncertainty for the 
telecommunications sector. I fear lawsuits all across the country that 
will drag out resolution of these important issues for many years to 
come. Our world of digital packets of information traveling at the 
speed of light knows no geographic boundaries. However the resulting 
state-by-state patchwork of burdensome regulations threatens to pose 
yet another obstacle to getting reasonably priced broadband to our 
    The old adage is true, you can't make everyone happy, all of the 
time. But if we level the playing field and let the markets work, the 
smart people in these companies can at least develop business plans and 
investors can judge their strategy on the merits. These companies need 
some clear direction so they can plan their futures, adjust, adapt and 
deliver for their shareholders.
    The constant ebb and flow of law suits, court decisions and 
legislative and regulatory changes at the federal, state and local 
levels must be brought into order. Unfortunately, it appears the recent 
Commission action only makes our troubling situation worse. I would 
urge you all to carefully consider the chilling effect that regulatory 
uncertainty has on investment, and ultimately our economy.
    In this new era of rapidly advancing inter-modal competition, there 
are media ownership rules that similarly require careful examination to 
determine if they have been rendered irrelevant by the multiple and 
growing numbers of sources of information for consumers. I urge the 
Commission to carefully examine these rules and make prudent 
adjustments to those that have become irrelevant.
    Finally, as you may know, I have written to the FCC to urge that 
you deny requests from states requesting the authority to implement 
technology-specific overlays that would require a take-back of wireless 
numbers. My own state of California comes to mind.
    The bottom line is that consumers will not stand for a take-back of 
their wireless numbers. Consumers should not have to travel to their 
wireless phone store to have their numbers reprogrammed and then be 
burdened with the challenge of communicating their new number to 
friends, colleagues and loved ones. I recognize the serious nature of 
number exhaustion, but encourage you to continue to pursue successful 
approaches such as thousand block pooling to ensure that wireless 
customers are not unfairly discriminated against.
    Just ten short years ago we watched as the telecommunications 
sector drove the greatest economic expansion in the history of the 
world. This House Energy and Commerce Committee along with you the 
Commissioners of the FCC and the Senate Commerce Committee hold the 
keys to the greatest economic engine the world has ever seen. The 
American people that are suffering through this depressed economy 
demand leadership. We must provide certainty and stability to the 
telecommunications sector so that our markets can work and drive our 
economy to greatness once again.
    Thank you Mr. Chairman.
Prepared Statement of Hon. Lee Terry, a Representative in Congress from 
                         the State of Nebraska

    Mr. Chairman, today we find ourselves at a crossroads in the future 
development and economic viability of the telecommunications industry 
in this country. The industry continues to be faced with a complex 
regulatory scheme that stifles new investment and innovation. 
Unfortunately, it is the American consumer who loses.
    Last week's decision by the Federal Communications Commission 
(``FCC'') to clarify and fix the old rules and regulations was an 
opportunity lost. Instead of giving the financial markets a reason to 
cheer, the FCC managed to depress the prices of telephone companies and 
leave their customers and shareholders with more questions than answers 
about tomorrow's telecommunication world.
    The FCC decision to permit states to fashion separate UNE rules 
opens up the prospect of creating 51 different sets of rules governing 
future investments and operations of telecommunication firms. Carriers 
are now using their limited financial resources to provide new services 
to customers but this decision will require them to stretch these 
resources even further to the detriment of better telephone service.
    On most issues you will find me squarely in the camp of supporting 
the rights of states to regulate commerce within their borders. 
However, in 1996 Congress decided this issue the other way and 
preempted state regulation of the telecommunications industry. Congress 
established a policy of federal regulation of the industry, which in 
last week's decision the FCC appears to have overturned. Even Justice 
Antonin Scalia, a traditional state's rights advocate, has found the 
1996 preemption by Congress of state jurisdiction in this area 
    Mr. Chairman, FCC Chairman Powell, in his statement to accompany 
the Commission's decision last week stated that, ``this `Picasso-esque' 
state process would be `chaotic'.'' Incredibly, the decision, opposed 
by Chairman Powell but supported by three commissioners, seems only to 
prolong this ``chaotic'' state of telecom regulation. The challenge to 
any company to create a new business plan to include a Competitive 
Local Exchange Carrier (``CLEC'') has just been increased significantly 
by the uncertainty of this most recent FCC decision.
    As economic disincentive continues due to the current complex 
regulatory scheme, I become even more concerned for the well being and 
preservation of those providing telecommunications service to rural 
America. Rural and non-rural telecommunications companies have been and 
continue to provide quality telecommunications services to customers in 
High-Cost areas. However, the Commission's decision does not bring 
clarity to the providers who continue to deploy broadband to these 
areas. In the end it will be the consumer who will be hurt.
    In rural America, broadband is used as an economic incentive to 
bring companies into small towns, which allows these communities to 
grow and survive. The lack of investment in broadband and other 
telecommunications facilities will force many companies that rely on a 
solid broadband network to retreat into big cities where large 
broadband platforms already exist.
    Rural consumers rely just as heavily on telecommunications services 
as do those consumers who live in larger cities, and the 
Telecommunications Act of 1996 was designed to make sure that all 
consumers had access to the same types of services. However, as the FCC 
moves forward in their rulemakings I am finding it harder and harder to 
understand why there continues to be a lack of future certainty in the 
prospects of quality telecommunications service for rural America.
    Mr. Chairman, today's hearing is timely and will give the 
subcommittee a good record on which to address many of the questions 
left in limbo by the FCC's decision. I look forward to working with the 
chairman and my colleagues as we try to find the right answers to guide 
the future of the telecommunications industry.
  Prepared Statement of Hon. Gene Green, a Representative in Congress 
                        from the State of Texas

    Mr. Chairman: As I have read the news story's concerning the recent 
FCC decision impacting our local broadband and phone service, I cannot 
help but feel disappointed.
    The Commission had a great opportunity to promote better broadband 
access for consumers, spur technology investment, and promote 
    Unfortunately it did none of the above.
    Instead the Commission punted to 51 local Public Utility 
Commissions and threw the fate of an entire industry back into the 
black hole of regulation.
    No regulatory relief was granted from the below cost pricing of the 
Unbundled Network Element rates that are draining the Bell companies 
    The muddled broadband relief granted to new fiber leaves a lot of 
questions that will hinder fiber to home deployment.
    Most importantly and what is causing me the greatest concern is how 
Wall Street perceived the FCC decision.
    I can say with good certainty that there review was not positive.
    Blake Bath, recent subcommittee witness from the Wall Street 
investment firm Lehman Brother, essentially says this ruling severely 
wounds the Bells.
    It creates significant regulatory uncertainty that will scare off 
new capital investment in the sector.
    Scott Cleland with the Precursor Group spelled it out in even 
clearer term when he said and I quote, ``The FCC majority chose more 
government price reductions for consumers over stimulating job creation 
and investment.''
    What is important to take away from this statement is that while 
consumers may enjoy a short and temporary price reduction for the 
telecommunications services, it will be just that--short and temporary.
    Every Bell with the exception of maybe Verizon is losing money on 
the UNE front and nothing lives forever if it is constantly losing 
    When the 96 Telecommunications Act was passed there was a clear 
intent to foster facilities based competition, it now appears that we 
are abandoning that goal.
    Going forward, I expect this ruling to be a bonanza for the legal 
community in this town and that eventually the federal courts will do 
the job each of you was supposed to do.
    While I have read each of your statements and understand that you 
each had only the best intentions, this ruling is going to be a 
disaster for the American consumer.
    You have done nothing to spur new investment and have in fact 
inflicted severe financial harm on all the major players left standing 
in the technology arena.
    It is my sincere hope that Energy & Commerce Committee immediately 
make plans to correct this flawed decision through legislation since a 
regulatory solution is no longer possible.
    Thank you Mr. Speaker and I yield back the balance of my time.
 Prepared Statement of Hon. Richard Burr, a Representative in Congress 
                    from the State of North Carolina

    Mr. Chairman, I appreciate the opportunity to submit my views on 
the health of the telecommunications sector.
    I am especially pleased that Commissioners from the Federal 
Communications Commission (FCC) are here to share their thoughts on 
this subject. Certainly, there is a great deal of interest from many 
people, including Members of this Committee, to learn about some of the 
details of the Triennial review. Quite frankly, I think that this 
Subcommittee is owed a more detailed explanation of not just what 
happened, but why.
    As a lawmaker, it is my goal to improve the lives of my 
constituents and promote fair and equitable solutions in matters of 
public policy. As a regulator, it is your job at the Federal 
Communications Commission to implement the will of this body, and 
again, to improve the lives of all Americans and promote fair and 
equitable solutions in matters of public policy.
    Most people don't care about how the phone works, how switching is 
priced, or that UNEs are bundled or unbundled. But, what they do care 
about is that we, the people in this body, and you, the regulators, get 
it right. It is our job to ensure that telephone and broadband services 
are affordable and available to the American public.
    I do not believe that the FCC got it right. In fact, I believe the 
FCC foolishly ceded its responsibility to act and passed the buck to 
state regulators in the name of federalism. A gross distortion of the 
term, I might add. A proven federalist, Justice Antonin Scalia clearly 
determined the 1996 Telecommunications Act to be federal in nature and 
that the Act did not grant authority to states to make regulatory 
    It is clear to me that the Commission has willfully defied the 
intent of this body on several aspects in their Order. The FCC is 
required by Section 251(d)(2) of the 1996 Act to prescribe national 
rules for network elements. The Order instead gives state regulators 
the authority to determine which network elements must be made 
available and which do not. In the end, the consumer suffers because 
UNE-P is unsettled and Incumbent Carriers will resist additional 
investment in equipment and infrastructure that must be sold at garage 
sale prices.
    As regards the broadband relief granted in the Order, I concur with 
Chairman Powell. The Commission did take a substantial step forward. 
Under leadership from our distinguished full Committee Chairman, Billy 
Tauzin and Ranking Member John Dingell, I believe that this Committee 
helped to push that debate and force positive action. It is, however, 
unfortunate that such laudable action will go unrealized. The health of 
the telecommunications sector will not even remain status quo, but will 
in all likelihood go from bad to worse as a result of this Order. Jobs 
in western North Carolina will be lost because companies like Nortel, 
Lucent, and Corning cannot sustain in the current market.
    People may not be able to tell you how the telephone works, but 
they sure can tell you how it feels to be unemployed. I am inclined to 
ask my Chairman to consider legislation to address the serious 
deficiencies in the Order. It is my hope that it is not too late.
    Before I close, I would like to address one additional matter. As 
the Commission continues to review the national ownership 35 percent 
cap, I hope that they will this time bear the consumer in mind. This 
nation needs more voices in broadcasting and our local broadcasters 
need the ability to serve the needs of each individual community. I 
admire the conviction of a North Carolina broadcaster, Jim Goodmon, who 
made the decision to remove the show Temptation Island from the 
programming schedule. Clearly, his principles are in the public 
interest unlike those who choose to disregard the will of Congress.
Prepared Statement of Hon. Roy Blunt, a Representative in Congress from 
                         the State of Missouri

    My plan had been to come to the hearing and make a congratulatory 
statement, thanking the Commission for finally doing something positive 
to revive the telecommunications sector and thereby, beginning to 
reverse the telecommunications meltdown that we have been experiencing.
    Regrettably, I am compelled this morning to make a far different 
statement than I had intended, because I was truly distressed to learn 
last Thursday, ``Black Thursday'', the outline of the Commission's 
Triennial Review decision.
    As best that I can figure out from assessing the public materials 
provided by the Commission, Wall Street's reaction to the decision and 
the media accounts of it, I believe that far from reversing the 
meltdown, the Commission majority may have succeeded in further 
exacerbating it.
    Chairman Powell last October alerted the Congress to the abysmal 
financial condition of the telecommunications industry with 500,000 
jobs lost, $2 trillion in market value extinguished and 
telecommunications companies laboring under $1 trillion in debt.
    This is one of the most vital sectors of the economy, not only as a 
financial engine to drive the economy towards recovery, but also vital 
to national and homeland security. What did last Thursday's Triennial 
Review decision do to remedy this situation and engender 
revitalization? Well, since Thursday's decision through Monday, the 
market capitalization losses in the telecommunications sector have been 
$21.7 billion.
    The Commissioners who sit before us today are entrusted with 
promoting competition and reducing burdensome regulations in the 
communications arena. This is not a foreign concept to them. In fact, 
Commissioner Martin testified before the Senate Commerce Committee last 
month, that ``the Commission must minimize further questions and avoid 
creating greater uncertainty or prolonging ambiguity in this area. To 
put off decisions that have the greatest impact on the marketplace to 
another will only aggravate current market conditions and prolong the 
angst and uncertainty that surround the deployment of advanced 
services'' (Commissioner Kevin Martin). Still yet, Commissioner Copps 
testified ``part of the market's problem is uncertainty about policy 
directions on such things as competition''.
    Regrettably some of the commissioners say one thing and believe 
another with the end result being uncertainty and ambiguity driving 
forces of litigation to come. As has been the case at every step since 
Congress in 1996 directed the FCC to write rules promoting local phone 
competition. The FCC's two previous attempts to devise rules that could 
withstand court review failed.
    FCC Commissioner Abernathy predicted that lawyers will ``thrive'' 
while carriers become ``mired in a regulatory wasteland.'' Chairman 
Powell believes the decision ``will prove too chaotic for an already 
fragile telecom market'' and will produce ``a molten mass of regulatory 
activity.'' Furthermore, he sees a legal quagmire in the new state-
oriented rules, predicting ``51 major state proceedings . . . litigated 
through 51 different federal district courts . . . likely to be heard 
by 12 Federal Courts of Appeals . . . eventually back in the Supreme 
    The last thing this sector needs is more ambiguity and uncertainty. 
Particularly as the Commission will address local competition, 
broadband deployment, broadcast ownership reform, homeland security, 
and 21st Century spectrum policy.
    Unfortunately, our Commission has failed to seize the golden 
opportunity to reverse the disastrous regulatory policies of the 
Clinton/Gore FCC. I hope the same does not happen in the coming months.

    Mr. Upton. We welcome the Honorable Kevin Martin, 
Commissioner of the FCC, the Honorable Michael Copps, 
Commissioner of the FCC, fellow Commissioners, the Chairman of 
the FCC Mr. Michael Powell, and Commissioner Kathleen Abernathy 
and Commissioner Jonathan Adelstein.
    I would just note for the record that because we have such 
member interest today, I am going to be watching this time 
clock with great scrutiny. And your statements, thank you for 
sending them up early. We were able to review them the last day 
or two. Your statements will be made part of the record in its 
entirety. And we would like to limit your remarks, therefore, 
to 5 minutes each.
    And I would note for the members that when we get to the 
question and answer period, I really want to see your questions 
completed by the time that 5 minute mark hits and we will let 
the members of the Commission respond to those.
    We're going to go in the order of seniority for the 
testimony now, starting with Mr. Powell.


    Mr. Powell. Thank you, Mr. Chairman.
    In the interest brevity, I will read a reduced version of 
my statement and ask that the full statement be submitted to 
the record.
    Good morning, Chairman Upton, Congressman Markey and 
distinguished members of the Telecommunications and Internet 
Subcommittee. Thank you for inviting me and my colleagues to 
discuss the state of the communications marketplace and the 
Federal Communications Commission's agenda on which we have 
embarked to meet the challenges of the changing communications 
    Two years ago I had the privilege of appearing before this 
subcommittee for the first time as Chairman and noted the 
enormous challenge of leading the Commission through a period 
of momentous change in the communications industry. Now, as 
then, the most formidable task confronting the Commission is 
recognizing and responding to the fundamental fact that each 
industry segment in our extensive portfolio is in the throes of 
revolution. There is new innovation, new markets, new 
competitors, and, equally important, new regulatory challenges.
    Over the course of the last 2\1/2\ years, the telecom 
industry has faced many hardships--most of which are the result 
of financial and economic pressures, misaligned expectations 
and competitive pressures. That said, there are some bright 
spots that provide hope for the sector generally and for the 
American public specifically. On a going-forward basis, 
however, great uncertainties continue to plague the entire 
sector, casting a wide shadow over those bright spots and 
hindering the recovery of the sector, and in some measure, the 
economy as a whole.
    Clearly, the telecom industry, which accounts for anywhere 
from 14 to 16 percent of our Nation's GDP, is suffering. By now 
we are all too familiar with the fact that by estimates 500,000 
jobs have been lost and approximately $2 trillion of market 
value vanished. Uncertainty looms large as announcements of 
layoffs have not slowed, as investors have generally shied away 
from the sector and industry players have continued to 
dramatically scale back capital investments. As I have often 
stated, the Commission must work to bring some stability to 
this industry. That means decisions that are faithful the 1995 
Act and that withstand judicial scrutiny; decisions that focus 
on producing consumer welfare; decisions that align incentives 
for investment in facilities; decisions that walk away from 
past policies of government engineered competition and 
regulatory arbitrage.
    Last week, I think the Commission had the opportunity, 
through the Triennial Review decision, to reverse the tides of 
industry uncertainty and unrest by providing a regulatory 
framework to stimulate long-lasting consumer benefits, 
sustainable competition, investment, innovation and economic 
growth. Although we made noble strides in the area of broadband 
infrastructure deployment, the Commission chose a course in 
some of its decisions that will cause further unrest for the 
industry with the ultimate loser being the American public.
    I have long held that the developments and deployment of 
broadband capable infrastructure to all Americans is the 
central communications policy objective of our day. Last week, 
the Commission took a substantial step in our broadband 
agenda--focusing principally on new infrastructure investment 
in the traditional last mile telephone network--a vision that 
Congress shared is shared by the Commission.
    By relieving incumbents from unbundling obligations for 
future broadband investment, the Commission aligned incentives 
to invest with the inherent risks and costs associated with 
broadband infrastructure investment. The result, over time, 
should be more broadband capable infrastructure to more 
    But despite our efforts to spur investment in next-
generation broadband, I fear the Commission has taken two 
actions that will hinder the realization of the investment and 
the concomitant benefits it will bring to our Nation's citizens 
and economy. I fear that the majority's elimination of the line 
sharing unbundled element and its decision to abdicate its 
statutory responsibility with regard to the switching element 
flies in the face of the explicit congressional goals of 
bringing American public new infrastructure investment and 
innovation and meaningful competition, and it flaunts the 
admonitions of the judiciary.
    The majority's decision to eliminate line sharing is of 
immediate concern. Line sharing has given birth to facilities-
based competitive broadband telecom carriers and has provided a 
valuable source of input for broadband Internet service 
providers. The result has been lower prices for broadband users 
and as a result, increased demand. I fear that the majority's 
elimination of line sharing strikes a blow to facilities-based 
    In addition, I fear that a result of this action will cause 
higher prices for broadband Internet access subscribers. 
Furthermore, I do not accept the argument that the elimination 
of line sharing provides an affirmative incentive for ILEC 
deployment of new broadband infrastructure. Line sharing rides 
on the old copper infrastructure, not the new fiber facilities 
that we are seeking to advance to deployment. For these 
reasons, I could not accept the majority's decision to 
eliminate this element.
    In opening this proceeding the Commission committed itself 
to conduct a thorough review of the unbundling regime. This 
review took on greater importance in light of the bursting of 
the telecom bubble and subsequent economic hardships facing the 
telecom industry and the D.C. Circuit's USTA decision to vacate 
for a second time in 7 years the rules that unbundled virtually 
every element in the network. In light of that decision and its 
predecessor from the Supreme Court, the Commission has changed 
its charge with restructuring the list of unbundled network 
elements from the ground up.
    It is with this backdrop that the Commission considered 
whether or not in which markets to unbundle the switching 
element. Unfortunately, a majority in essence decided not to 
decide at all. Instead, handing over its clear statutory 
obligation to 51 State public utilities commissions. In doing 
so, I look in vain to find a clear coherent or consistent 
Federal policy driving that decision. Indeed, the truth is that 
in the course of our deliberations we never really addressed 
the merits of whether a competitor was actually impaired 
without access to the switching elements and therefore should 
be unbundled. Instead, the focus of the decision was merely on 
giving the States subjective and unrestricted role in 
determining the fate of the switching element, and therefore 
the UNE-P platform.
    The result, what nearly every industry observer calls the 
``full employment act for telecom lawyers'' violates every 
principle I have ever stood for in addressing regulatory reform 
in this space. It is legally suspect, in my opinion and does 
little to reduce regulation, as required. It is a gross step 
back from facilities-based competition, the most proven form of 
consumer welfare producing competition in the telecom sector. 
It is harmful to the recovery of the economy, and our Nation's 
economy. And, most importantly, it is harmful to consumers in 
the long run.
    The approach adopted by the majority to my mind suffers 
from several fundamental legal flaws. Indeed, as I mentioned 
above, there seems to be no logical Federal policy driving the 
decision. In a regime that allows for unfettered and 
unreviewable State discretion, one can only assume the 
Commission as an affinity for UNE-P which in turn can only 
suggest that the Commission for a third time as adhered to the 
more unbundling is better approach, an approach that has twice 
been rejected by the courts and flies in the face of the 
    Mr. Upton. Time is up.
    Mr. Powell. Give me 2 minutes and I will be done.
    Mr. Upton. Well, remember your statement is part of the 
    Mr. Powell. All right, Mr. Chairman. I will just briefly 
    Mr. Upton. I give you a couple of little extra seconds in 
    Mr. Powell. All right, I'll take my comments in summary.
    The most devastating part of this decision is nobody wins. 
The clear import of it is we will await many years to see what 
the uncertain resolution of these proceedings will be as to 
whether elements will be available or not. The investment 
community has spoken as to how it views this decision 
downgrading substantially the sector.
    And so with this, I will look forward to your questions and 
hope that we would continue to have a constructive relationship 
with the subcommittee.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Michael K. Powell follows:]

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

    Good morning, Chairman Upton, Congressman Markey and distinguished 
members of the Telecommunications and the Internet Subcommittee. Thank 
you for inviting me and my colleagues to discuss the state of the 
communications marketplace and the Federal Communications Commission's 
deregulatory, pro-competitive agenda on which we have embarked to meet 
the challenges of the changing communications marketplace.

                            I. INTRODUCTION

    Two years ago, I appeared before this Subcommittee for the first 
time as Chairman and noted the enormous challenge of leading the 
Commission through a period of momentous change in the communications 
industry. Then, as now, the most formidable task confronting the 
Commission was recognizing and responding to the fundamental fact that 
each industry segment in our extensive portfolio was in the throes of 
revolution. There was new innovation, new markets, new competitors, 
and, equally important, new regulatory challenges.
    Soon after I began my tenure as Chairman, I laid out the 
Commission's agenda. The theme that bound the agenda, and encapsulated 
the enormity of the Commission's overall responsibility, was ``Digital 
Migration.'' That is, we were and continue to be at a critical 
crossroad in communications as technology drives us to cross over from 
the predominately analog realm to the digital world of the modern era. 
With regards to mature legacy networks, we understood the basic 
technology and infrastructure elements, their cost characteristics, the 
service and product offerings, the consumer's wants and expectations, 
and the role of government intervention to frame overall policy. In the 
relatively nascent digital world, however, the new advanced 
architectures and technologies are just beginning to be understood and 
deployed, with no clear winning technology or industry. The cost 
characteristics may differ substantially from those of traditional 
networks to which we are accustomed. The industry, the capital markets, 
and the Government collectively find themselves navigating the 
uncharted terrain of dynamic and chaotic experimentation.
    In the ensuing two years, our job has become more difficult as the 
entire communications sector has been battered by the economy's 
downturn and the bursting of the dot-com and telecom bubbles. Our task 
to faithfully implement Congress' vision took on added responsibility 
as the winds of uncertainty--both financial and legal--swirled 
continually through the market and the courts. Indeed, on the heels of 
the sector's decline, the Commission had to confront the rash of 
bankruptcies to ensure that American consumers and other critical end-
users were not significantly impacted by service discontinuances. 
Additionally, over the last year, the Commission and the country was 
faced with the scourge of corporate fraud that has been cast by 
corporate wrongdoers--causing further financial difficulties and 
WorldCom's bankruptcy, the largest bankruptcy in United States' 
history. Again, faced with unanticipated convulsion, the Commission 
enumerated critical steps in furtherance of reform and recovery that 
the agency, Congress, the Administration, and companies and firms 
within the industry could undertake.
    Our collective challenge has obviously ballooned beyond merely 
transitioning from the old to the new, stewarding the implementation of 
our governing statute, and safeguarding the venerable principles of 
communications policy--e.g., public interest, universal service, 
competition and diversity. Yet, as I learned in my previous career as a 
soldier difficulty is a supreme challenge, not an easy excuse. In fact 
when I set out in my Chairmanship, I expressed a commitment to engage 
the ``hard issues''; those that were complex, difficult and 
controversial, but nonetheless desperately needed to be addressed by 
the Commission to bring certainty and more stability to the market. The 
Commission began to execute this daunting agenda after long and careful 
planning, with last week's adoption of the Triennial Review Report and 
Order. Still to come we will tackle a bevy of proceedings and 
initiatives dedicated to local competition, broadband deployment, 
broadcast ownership reform, homeland security, and 21st Century 
spectrum policy. In doing so, I will continue to be guided exclusively 
by the public interest, and resist the pressure to view our exercise as 
awarding benefits and burdens to corporate interest.
    Flowing from the public interest, my guiding principles in 
implementing the will of Congress endeavor mightily to:

 Bring consumers the benefits of investment and innovation in 
        new communications technologies and services.
 Expand the diversity, variety and dynamism of communication, 
        information, and entertainment.
 Empower consumers, by moving toward greater personalization of 
        communications--when, where, what and how they want it.
 Promote universal deployment of new services to all Americans.
 Contribute to economic growth, by encouraging investment that 
        will create jobs, increase productivity and allow the United 
        States to compete in tomorrow's global market.
    In the end, these proceedings will shape the communications 
landscape for years to come. My sincere desire is that the Commission 
will achieve the right decisions and promulgate rules that will 
fundamentally provide regulatory clarity and certainty, survive 
judicial scrutiny and promote long-term sustainable competition and 
growth to serve the public interest. With this backdrop, I will briefly 
discuss the health of the telecommunications sector and leave you with 
some of my thoughts and, in some areas, concerns regarding the 
Commission's first big decision of the new year--the Triennial Review.


    Over the course of the last two and a half years, the 
telecommunications industry has faced many hardships--most of which are 
the result of financial and economic pressures, misaligned expectations 
and competitive pressures. That said, there are some bright spots that 
provide some hope for the sector generally and for the American public 
specifically. On a going-forward basis, however, great uncertainties 
continue to plague the entire sector, casting a wide shadow over those 
bright spots and hindering the recovery of the sector--and in some 
measure, the economy as a whole.
    Clearly, the telecommunications industry, which accounts for 
anywhere from 14-16 percent of our Nation's GDP, is suffering. By now 
we are all too familiar with the fact that by some estimates some 
500,000 jobs have been lost and approximately $2 trillion of market 
value has vanished. In some segments, the industry has experienced 
over-capacity and over-investment in certain markets and aggressive, 
and some argue unsustainable, pricing wars. We have witnessed 
accounting scandals; an acute focus on paying down the nearly $1 
trillion of debt carried by telecommunications companies throughout the 
world; inefficient industry structures; lack of investor confidence; 
capital markets closing the door to new investment; and companies 
retrenching by aggressively cutting capital spending and jobs. Given 
the interconnected and inter-dependent nature of the telecommunications 
industry, the industry pain has been felt by nearly everyone--from 
equipment vendors to service providers. One looks around in vein 
searching for anyone prospering in the sector.
    Still, as we look out at 2003, there are some bright spots for the 
industry and for consumers. To begin with, demand for communications 
service continues to rise and in turn so has network traffic, though 
companies are learning that revenues do not increase proportionally 
with demand. Yet in the wireline phone space we have actually seen 
declines in the growth of access lines over the last two years--for 
only the second time in history--the first being in 1933. In addition, 
digital migration is allowing service providers to deliver new and 
innovative services to consumers--from broadband Internet access 
services to wireless services to new video services--ushering in a new 
era of competition to the benefit of consumers.
    Indeed, in the local phone space, nearly 16.7 million customers are 
served by facilities-based competitors, a combination of partial 
facilities-based CLECs (over 4 million lines) and full facilities-based 
carriers (over 6.2 million lines from cable operators and other full 
facilities-providers). In addition, a whole generation is being 
encouraged to ``cut the cord'' completely--and they are doing so, as an 
estimated 6.5 million customers use their wireless phone as their only 
phone. In the wireless space, six national facilities-based carriers 
are vigorously competing for the 129 million consumers who subscribe to 
wireless services (as of June 2002). Furthermore, long distance 
continues to see intense and increasing competition, with some 
estimates that rates have fallen 33 percent over the course of the last 
3 years alone. Competition in the broadband Internet access space 
continues to flourish and put pressure on wireline revenues (by 
providing an alternative to second lines and in limited, but growing 
circumstances, primary line local and long distance voice services). 
Over 16 million households subscribe to residential broadband Internet 
access and that number is growing.
    Despite these gains and bright spots, substantial uncertainty 
continues to plague the industry. There is uncertainty about the 
disruptive change wrought by new technologies, and, of course, there is 
massive regulatory uncertainty that has sprung from repeated judicial 
setbacks in our regulation of local competition and the broadcast media 
ownership space. Indeed, in the seven years since the passage of the 
Telecommunications Act of 1996 (1996 Act), the Commission has yet to 
craft judicially sustainable unbundled network element (UNE) rules, as 
the Commission's first two attempts were vacated. Furthermore, The 
Commission faced judicial setbacks in the areas of inter-carrier 
compensation and reciprocal compensation. On the media side, the 
Commission has lost its last three cases covering five rules in cable 
and broadcast ownership regulation in the appellate courts, effectively 
toppling over the Commission's last biennial review of the broadcast 
media ownership rules.
    This uncertainty looms large as announcements of layoffs have not 
slowed, as investors have generally shied away from the 
telecommunications industry and industry players have continued to 
dramatically scale back capital investments. As I have often stated, 
the Commission must work to bring some stability back to this industry. 
That means decisions that are faithful to the 1996 Act and that 
withstand judicial scrutiny; decisions that focus on producing consumer 
welfare; decisions that align incentives for investment in facilities; 
decisions that walk away from past policies of government engineered 
competition and regulatory arbitrage. We simply must get back to the 
economic and regulatory fundamentals envisioned by Congress. Today, the 
market does not rule, nor does the central planner--the courts' alone 
rule the telecommunications valley, as bad regulatory decisions have 
put judges front and center. The 1996 Act hoped to slow judicial 
oversight and the reign of Judge Greene, yet it has failed utterly in 
that regard.


    Last week, the Commission had the opportunity, through the 
Triennial Review decision to reverse the tides of industry uncertainty 
and unrest by providing a regulatory framework to stimulate long-
lasting consumer benefits, sustainable competition, investment, 
innovation and economic growth. Although we made noble strides in the 
area of broadband infrastructure deployment, the Commission chose a 
course in some of its decisions that will cause further unrest for the 
industry with the ultimate loser being the American public.

The Step Forward--Broadband Relief
    I have long held that the development and deployment of broadband 
capable infrastructure to all Americans is the central communications 
policy objective of our day. The march from analog to digital--what I 
have often referred to as the digital migration--is at the heart of the 
Commission's agenda under my leadership. In no area is the migration 
more profound or promising than in bringing broadband capable 
infrastructure to all of our Nation's citizens.
    Last week, the Commission took a substantial step in our broadband 
agenda--focusing on new infrastructure investment in the traditional 
last mile telephone network--a vision of Congress that is shared by 
this Commission. Specifically, our decision to provide broadband 
unbundling relief should set the stage for long-term investment in next 
generation broadband infrastructure, bringing a bevy of new services 
and applications to consumers. By refraining from unbundling new 
advanced network infrastructure, the Commission aligned incentives to 
invest with the inherent risks and costs associated with broadband 
infrastructure investment. The result, over time, should be more 
broadband capable infrastructure to more Americans.

The Two Steps Back: Line Sharing and Switching
    Despite our efforts to spur investment in next-generation broadband 
infrastructure, I fear that the Commission has taken two actions that 
will hinder the realization of that investment and the concomitant 
benefits it will bring to our Nation's citizens and economy. Indeed, 
this sentiment was expressed following the decision by Wall Street 
analyst Jeffrey Halpern of Bernstein Research, who said that the 
Commission's ``intention to relieve some of the pressure on the RBOCs 
in order to spur investment and drive technological innovation and 
broadband infrastructure deployment are almost dead on arrival.'' I 
fear that the majority's elimination of line sharing UNE and its 
decision to abdicate its statutory responsibility with regard to the 
switching element flies in the face of the explicit Congressional goals 
of bringing the American public new infrastructure investment and 
innovation and meaningful competition. Moreover, it flaunts the 
admonitions of the judiciary.
    Line Sharing--Although few of the Commission's actions in 
implementing the Telecommunications Act of 1996 have produced 
identifiable benefits to the American public, line sharing has been a 
success. Line sharing has given birth to facilities-based competitive 
broadband telecommunications carriers. These line-sharing CLECs have, 
in turn, provided a valuable source of broadband transmission services 
to independent internet service providers, such as Earthlink. Indeed, 
by some estimates, as much of 40 percent of the broadband transmission 
inputs bought by independent broadband ISPs are procured by facilities-
based CLECs. The result has been lower prices for broadband consumers, 
most notably in the last year--and, of course, with lower prices we 
have seen continued strong growth in adoption rates even in the face of 
a down economy. The majority's determination to eliminate line sharing 
through a three-year phase out that is defined by higher wholesale 
prices is of immediate concern.
    First, the elimination strikes a blow to facilities-based 
competition and will likely result in higher retail broadband Internet 
access prices for consumers in the near-term. By limiting facilities-
based competition in this space, as the majority has effectively done, 
the Commission has at best provided no incentive for retail DSL 
Internet access providers to lower prices and at worst provided an 
incentive for the large providers (i.e., ILECs and cable operators) to 
increase retail prices. The majority's action in this space not only 
turns a blind eye to consumers, but also drives a stake in the Bush 
Administration's focus on spurring demand and take-rates for broadband 
Internet access service.
    Second, the elimination of line sharing and the resulting 
elimination of competition in the broadband space could very well 
provide a disincentive for ILEC investment in next generation 
architecture. If nothing else, the elimination of line sharing cannot 
credibly be viewed as an incentive for new infrastructure investment. 
Line sharing rides on the old copper infrastructure, not new fiber 
facilities that we seek to advance to deployment. The presence of line 
sharing would have provided an incentive for ILECs to invest in fiber 
networks faster so that they could migrate toward a less regulated 
environment. Instead, the majority has defied all logic by choosing a 
course of stepping back from facilities-based competition, stepping 
back from lower retail broadband Internet access prices and wholesale 
broadband transmission prices, and finally, in stepping back from 
providing positive incentives for ILECs to upgrade broadband 
infrastructure. One fails to see where the public interest was served 
in this decision.
    Switching--In opening this proceeding, the Commission committed 
itself to conduct a thorough review of its unbundling regime. This 
review took on greater importance in light of the bursting of the 
telecom bubble and subsequent economic hardships facing the 
telecommunications industry and the D.C. Circuit's USTA v. FCC decision 
to vacate, for a second time, the rules that unbundled virtually every 
element in the incumbents' networks. In light of that decision and its 
predecessor from the Supreme Court, the Commission was charged with 
reconstructing the list of unbundled network elements from the ground 
up. In the course of our review, the switching element became the focus 
of the debate--with over 1,300 competitive switches deployed throughout 
the country.
    The importance of the element, however, is not in its 
functionality, but in the fact that it represents the capstone of the 
unbundled network element platform. If the switching element is 
available on an unbundled basis, a carrier has the option of reselling 
the entire incumbent's network, at heavily subsidized rates set by 
regulators, without having to provide any of its own infrastructure. In 
short, it can enter the market without bringing anything of its own to 
the party. Since this proceeding began in December 2001, several 
carriers, most notably the major long distance companies have 
aggressively attempted to enter the local market using UNE-P.
    It is with this backdrop that the Commission considered whether or 
not, and in which markets, to unbundle the switching element. 
Unfortunately, a majority of the Commission, in essence, decided not to 
decide at all--instead, handing over its clear statutory authority to 
51 state public utility commissions. In so doing, one looks in vain to 
find a clear, coherent or consistent federal policy driving its 
decision. Indeed, the truth is that in the course of our deliberations 
we never addressed the merits of whether a competitor was actually 
impaired without access to the switching element and therefore the 
element should be unbundled. Instead, the focus of the majority was 
merely on giving the states a subjective and unrestricted role in 
determining the fate of the switching element, and therefore UNE-P.
    With regard to switching, the result--that nearly every industry 
observer calls a ``full employment act for telecommunications 
lawyers''--violates each and every principle I have long outlined in 
addressing regulatory reform in this space as it: (1) is legally 
suspect, in my opinion and does little to ``reduce regulation,'' as 
required by Congress; (2) is a gross step back from facilities-based 
competition, the most proven form of consumer welfare producing 
competition in the telecommunications sector; (3) is harmful to the 
recovery of the telecommunications economy and our Nation's economy; 
and, most importantly, (4) is harmful to consumers in the long run.

Legally Perilous
    A majority of the Commission chose in the case of the switching 
element to delegate nearly unbounded authority to state regulators to 
determine whether a competitor is impaired without access to the 
incumbent's switching element. Over the course of the next nine months, 
51 state public utility commissions will embark on 51 separate and 
distinct proceedings to determine whether economic and operational 
barriers to entry exist in a market defined by the state and pursuant 
to nothing more than federal suggestions for review by the states.
    The approach adopted by the Commission suffers from several facial 
fundamental legal flaws. Indeed, as I mentioned above, there seems to 
be no logical federal policy driving the Commission's decision. In a 
regime that allows for unfettered and unreviewable state discretion, 
one can only assume that the majority has an affinity for UNE-P, which, 
in turn, can only suggest that the Commission for the third time has 
adhered to ``more unbundling is better'' approach--an approach that 
twice has been rejected by the courts and that flies in the face of the 
D.C. Circuit's mandate.
    Furthermore, the Commission fails to adopt any meaningful limiting 
principle, as required by Congress and the courts, with regard to 
switch unbundling. The Commission places switching on the list to be 
unbundled in the mass market not because of an affirmative finding of 
impairment, as required by the statute and the courts, but because it 
``presumes'' impairment. More remarkable, even where it ``presumes'' no 
impairment it permits some switching for the three months during which 
a state may rebut the presumption. No affirmative finding of impairment 
by the Commission as the statute requires--just presumptions and a 
laundry list of criteria that a state must review in an effort to find 
or not find impairment as the state sees fit. This is exactly the 
regulatory bias twice rejected by the courts.
    In addition, the majority fails to apply the very impairment 
standard adopted by the Commission and applied to every other element 
under review. Instead of applying the standard to make a judgment on 
impairment or under what conditions economic or operational impairment 
exist, it opines only on ``factors'' that may or may not lead to 
impairment. Finally, I am somewhat concerned about discussions from 
some state regulators suggesting states could collaborate or seek 
guidance from other state proceedings on this issue, much like the 271 
process. One fails to see how even this Commission could accept the 
legality of such collaboration when reviews and findings must be based 
on the granular state specific findings, according to the majority. For 
this reasons, as well as others, I fear the Commission may soon find 
itself in the embarrassing position of having its unbundling regime 
vacated for a third time.

Abandoning Facilities-Based Competition
    Stepping back, the Triennial Review is at bottom about the nature 
of the competition that Congress and the Commission are trying to 
incent. It has long been my view that facilities-based competition 
(both full and partial) has produced the most welfare for consumers 
(through lower prices and differential product offerings), provides for 
positive investment for our economy, creates jobs and provides us with 
valuable infrastructure alternatives in the face of threats to our 
homeland. As is the case in line sharing, the Commission turns its back 
on facilities-based competition. By setting up a state review regime 
where an apparent acceptable outcome is unbundled switching (and 
therefore UNE-P) in perpetuity, the Commission retreats from its 
previously stated policy of promoting facilities-based competition.
    One can see on its face why a CLEC that has access to each and 
every element in the ILEC network at deeply discounted rates would 
choose simply to resell the ILECs' network as opposed to investing in 
equipment, such as a switch. How could we expect a CEO to look at his 
board of directors with a straight face and explain a desire to expend 
capital on equipment when it could be rented for next to nothing? In 
addition, this access provides a direct disincentive to those, like 
cable companies, that might otherwise use their own facilities to enter 
the market. Indeed, one analyst stated that as a result of the decision 
last week to perpetuate the life of UNE-P ``cable at least would have 
little appetite to invest in a market where several competitors already 
existed for consumer voice.'' 1
    \1\ Credit Suisse First Boston, Outcome of Triennial Review of UNE 
Rules, at 4 (February 20, 2003).
Harmful to the Industry; Harmful to the Economy
    Equally as troubling is the impact the Commission's decision, or 
more accurately indecision, will have on the telecommunications 
industry and our economy. As an initial matter, a failure to implement 
a regime with any meaningful transition to invest in facilities is a 
clear negative to telecommunications equipment manufacturers--the 
historical source of research, development and innovation in the U.S. 
telecommunications sector and the segment of the telecom economy hit 
the hardest over the last two years.
    Furthermore, one can expect continued regulatory uncertainty to 
accompany 51 state proceedings that may be litigated in 51 different 
federal district courts where the perceived aggrieved party will surely 
take its gripes. This could lead to court cases heard by each of the 12 
Federal Courts of Appeal where disparate opinions very well may end up 
before the Supreme Court, the same court that vacated the Commission's 
first attempt at an excessive unbundling regime in 1999. What is the 
impact of the uncertainty today? The answer: Investment fleeing the 
    On Wall Street and the venture capital side of the equation, one 
can already see what the continued uncertainty is doing to the sector. 
To be sure, CLECs seeking to devise and implement business plans in the 
face of uncertain and varying regulatory regimes from state to state 
will face a monumental task in finding new funding to support their 
ventures. On February 20, 2003, the day of the Commission's adoption of 
the Triennial Review Report and Order, the major RBOCs lost over $15 
billion in market cap, one CLEC lost 43 percent, and the major 
equipment suppliers lost anywhere from 4 percent to 14 percent of their 
value. Reactions from investment analysts spoke loudly in the wake of 
our decisions--the entire sector was downgraded by several firms, 
others suggested that the resulting ``enormous uncertainty about the 
telecom industry'' as a result of the Commission's decision 
``represents a very high level of risk to investors, risk they can 
avoid by moving their funds to other industries.'' 2
    \2\ Commerce Capital Markets, Telecom Regulation Note: FCC's 
Triennial Highlights, at 5 (February 21, 2003).
    Unfortunately, for consumers, the telecommunications industry and 
our Nation's economy, the Commission's decision to create greater 
uncertainty and prolong ambiguity in this area will allow us to test 
that theory first hand.

Harmful to Consumers
    Finally, and most importantly, the majority's decision to give the 
states the unfettered ability to continue in perpetuity the house of 
cards that is UNE-P is likely to prove harmful to consumers in the long 
run, for it is fatally flawed as sustainable local competition. This is 
not the low lying plateau on which the high aspirations of the 1996 Act 
should be planted. It is a model based on assumptions that hundreds of 
stars will align forever. Every state must keep every element available 
to competitors and every court must uphold that view--an unlikely 
scenario considering our 0-for 2 in the courts thus far. It is a model 
based on every state regulator throughout the land lowering wholesale 
prices so that the entering LECs can attain the 45-50 percent gross 
margins on local service that they claim is a prerequisite for some to 
enter. Furthermore, it is based on the premise that neither the 
Commission nor Congress will never actually apply the statute and put 
some teeth to the impairment standard. With each passing day, month and 
year, the regulatory arbitrage bubble continues to expand ever more 
perilously with each variable and it is sure to eventually pop, like 
dot-coms of old. In the meantime, facilities-based investment and 
competition will take a back seat to regulatory arbitrage to the 
detriment of every local telecommunications consumer. Let us hope that 
technology can do what the Commission failed to do--drive the 
development of meaningful economic competition to the benefit of all of 
the American public.

                             IV. CONCLUSION

    Telecommunications history, like history generally, cannot be 
rewritten in one or two years. Indeed, we may not know whether the 
unwritten history in promoting competition in local telephony and 
broadband is truly a success for many years. Rather, in assessing our 
progress in implementing the 1996 Act, we must strive always to make 
sure that if we inadvertently take one step backward in our efforts, we 
take at least two steps forward soon thereafter. Not two steps back, 
and one forward. These next six months will be an incredibly busy and 
significant time for the Commission. The decisions we make will be 
vital to our efforts to advance the digital migration in this country, 
and faithfully implement the will of Congress so that consumers can 
continue to reap the 1996 Act's intended benefits. I am heartened by 
the great strides taken already in the march of the digital migration. 
In addition, these decisions will help bring some much needed 
regulatory certainty and clarity, especially in the face of the 
numerous adverse court decisions over the last five years, so that the 
marketplace can adapt and stabilize and industry participants can 
vigorously compete, invest and innovate--all to the benefit of the 
American telecommunications consumer.

    Mr. Upton. Thank you very much.
    Ms. Abernathy.


    Ms. Abernathy. Good morning, Chairman Upton, Congressman 
Markey and distinguished members of the subcommittee. It is a 
distinct privilege and pleasure to come before you for the 
first time during my term as a Commissioner to discuss the 
health of the telecommunications sector.
    I also look forward to listening further to your concerns, 
learning from your experience and answering any questions that 
you may have.
    As I reflect on the state of the telecom market and the 
appropriate role for the FCC, I am guided first and foremost by 
the statutory direction provided by Congress. Another key 
guiding principle is the importance of promoting regulatory 
certainty by drafting clear rules and then stringently 
enforcing those rules. And finally, the best measure of our 
success will be whether consumers are benefiting from increased 
competition, innovation and lower prices.
    On the positive side, the telecommunications marketplace is 
more competitive today than at anytime in history with the 
wireless sector enjoying the most vibrant competition. Market 
forces have prompted wireless carriers to lower prices sharply 
and to introduce a broad array of new calling plans, features 
and services. And as I consider last week's Triennial Review 
Order, I'm optimistic that the Commission's decision to exempt 
new broadband investment from unbundling obligations should 
remove any regulatory disincentives for carriers to invest in 
broadband infrastructure. I'm hopeful that in time this 
decision will bring consumers the benefits of better, faster 
and more robust services.
    Distinctly less positive, is the status of competition in 
the traditional market. This market has increasingly been 
dominated by UNE-P competition rather than the sort of 
facilities-based competition that Congress and most members of 
this Commission have identified as the ultimate goal. 
Investment in new facilities has stagnated. Court reversals of 
prior FCC decisions have also produced a great deal of 
regulatory uncertainty for the service providers. In response 
to these court losses, I have emphasized that a critical role 
for the FCC in furthering the development of competition is to 
promote regulatory certainty. Unfortunately, instead of 
providing clear direction to the troubled markets, a majority 
of the Commission last week voted to punt this issue to the 
States. As Congressman Barton noted, this is not an academic 
exercise that we're engaged in here.
    I believe that conducting separate proceedings in the 50 
States followed by an endless cycle of litigation in the 
Federal courts guarantees a continuation of the 7 years of 
uncertainty that have haunted our unbundling rule. The FCC 
developed a substantial evidentiary record which made clear 
that competitors have deployed over 1300 switches nationwide. 
This led me to conclude that competitors should be weaned off 
UNE-P as a long term business strategy. While I recognize that 
others may differ from my conclusion, it was clearly 
unreasonable to abdicate our statutory responsibility by 
failing to conduct any impairment analysis. The Commission 
should have provided clear direction to carriers and to the 
markets, and instead it has created a regulatory morass.
    Having worked for an ILEC, a CLEC and wireless providers, I 
know that all companies whether incumbents or new providers put 
investments on hold when there is regulatory uncertainty, and 
that slows the growth of integration and the deployment of new 
services for consumers.
    The reaction of the financial markets to last week's 
decision was a telling sign that the FCC missed a key 
opportunity to introduce regulatory certainty. As noted by 
Chairman Tauzin, by you Chairman Upton, in the afternoon 
following the Commission's ruling carriers collectively lost 
approximately $15 billion in market capitalization, and perhaps 
worse, equipment manufactures lost billions more. I sincerely 
regret that while Congress and the administration are striving 
to develop an economic stimulus package, the Commission's 
decision on UNE-P has damaged our already fragile markets.
    I believe that investors have pulled back because the 
uncertainty associated with conducting 51 separate regulatory 
proceedings is even worse than a single negative decision at 
the Federal level. While an adverse FCC ruling can be appealed 
in a single proceeding, advocating our statutory role in 
handing it over to the States produces an explosion of 
litigation. And while this is a lawyer's dream, it is a 
business nightmare.
    In closing, the silver lining in the FCC's order as noted 
by Congressman Dingell was our decision to provide substantial 
regulatory relief for new broadband investment. While some 
incumbent carriers have stated that the UNE-P decision will 
keep them committing capital in the near future, I believe that 
over time the broadband relief package will lead to increased 
investment and broadband deployment which will be a big win for 
    As we move forward, I will continue to be guided by my core 
goals of adhering to the statute and promoting regulatory 
certainty. And it is important to remember that there are many 
challenges ahead for the FCC and the 5 of us have an obligation 
to work together to ensure we deliver on the promise of 
increased competition, innovation and lower prices.
    Thank you for the opportunity to share my thoughts with 
you. And I look forward to responding any questions you may 
    [The prepared statement of Hon. Kathleen Q. Abernathy:]

Prepared Statement of Hon. Kathleen Q. Abernathy, Commissioner, Federal 
                       Communications Commission

    Mr. Chairman and distinguished members of the Subcommittee, thank 
you for the opportunity to appear before you this morning. It is my 
distinct privilege to testify before the Subcommittee for the first 
time during my term as a Commissioner and to discuss the health of 
telecommunications sector. The diagnosis I would give is mixed: 
Competition is thriving in some respects, but at the same time the 
telecommunications industry is facing enormous challenges. Investment 
has stagnated, companies have laid off thousands of workers, and many 
carriers and equipment manufacturers have been forced into bankruptcy. 
I will begin by providing background information on the state of 
competition as well as my assessment of key challenges confronting 
competitors. I will then explain my views on the appropriate role for 
regulators in this environment, including a brief discussion of key 
issues decided in the recently adopted Triennial Review Order.

                        I. STATE OF COMPETITION

    The telecommunications marketplace is more competitive than at any 
time in history, with the wireless sector enjoying the most robust 
competition. Market forces have prompted carriers to lower prices 
sharply and to introduce a broad array of innovative new calling plans, 
features, and services. On the wireline side, competition has been 
slower to take hold because of the difficulties replicating the last 
mile. Nevertheless, the number of access lines served by competitive 
local exchange carriers (CLECs) continues to increase. Broadband 
services also have become increasingly competitive, with cable modem 
and DSL services expanding at a rapid clip, and with promising 
developments in the area of wireless and satellite technologies.


    Despite the growth of competition in most telecommunications 
markets, the last few years plainly have been a tumultuous time for 
service providers and consumers. Overly optimistic projections of data 
growth spurred companies to invest enormous amounts of capital to boost 
network capacity. While demand for telecommunications services grew 
briskly, it did not grow at a sufficient pace to justify the massive 
build-out of fiber capacity. Eventually, when the dot-com bubble burst, 
the financial community realized that there was a wide gulf between the 
supply of network capacity and the demand for data transmission. 
Investors responded by insisting that network owners retrench and 
demonstrate profitability over a much shorter time horizon than 
initially projected. A downward spiral ensued, as many 
telecommunications carriers went bankrupt after failing to generate 
sufficient revenues to service their accelerating debt loads. The 
resultant slowdown in capital expenditures ultimately left equipment 
manufacturers with surplus inventory and personnel. No segment of the 
industry was left unscathed. Not only did the economy suffer from 
devalued businesses and widespread layoffs, but several companies--most 
notably, WorldCom--appear to have resorted to financial deception to 
mask poor performance. This fraud compounded the downturn by shaking 
investors' confidence in the truthfulness of financial statements.
    On top of these economic factors, the telecommunications 
marketplace is beset by regulatory uncertainty as a result of 
successive court reversals of the FCC's core local competition rules. 
When the FCC first adopted unbundling rules pursuant to section 251(c), 
the U.S. Supreme Court remanded the Commission's interpretation of the 
``necessary and impair'' standard in section 251(d), holding that the 
Commission had failed to develop a meaningful limiting principle. After 
the FCC adopted new rules on remand, the D.C. Circuit Court of Appeals 
reversed those rules on the grounds that the Commission's analysis was 
not sufficiently ``granular,'' the Commission disregarded the costs 
associated with unbundling obligations, and the Commission failed to 
consider the significance of intermodal competition. These court 
setbacks left providers with little guidance about the network elements 
that will be available at regulated cost-based rates and put at risk 
some current business plans that were developed around the now-vacated 
rules. While I am pleased that the Commission's Triennial Review Order 
creates a clear, pro-investment framework for broadband facilities, I 
am very disappointed that the majority's decision on unbundled 
switching (UNE-P) will prolong the paralyzing uncertainty and 
investment disincentives that have been plaguing the sector.

                       III. REGULATORY RESPONSES

A. Promoting Regulatory Certainty

    The Telecommunications Act of 1996 was enacted to ``promote 
competition and reduce regulation,'' and there is no question that 
regulators play a pivotal role in overseeing the transition to the 
fully competitive markets envisioned by Congress. As I have emphasized 
since taking office,1 one critical role for the FCC in 
furthering the development of competition is to promote regulatory 
certainty. In an economic environment where carriers would have a 
difficult time raising capital even under the best of regulatory 
circumstances, the absence of clear rules can deal a crushing blow. 
Even where capital is available, incumbents and new competitors alike 
put investments on hold when they cannot reliably assess the regulatory 
risks they will face. It is no exaggeration to say that a company may 
prefer receiving an adverse ruling to having no rules at all; in the 
former case, the company can adjust its business strategy and move on 
consistent with the regulatory parameters, while in the latter the 
result is often paralysis.
    \1\ For a full explanation of my guiding regulatory principles, see 
My View From the Doorstep of FCC Change, 54 Fed. Comm. L. J.199 (March 
    Viewed from the perspective of regulatory certainty, the 
Commission's Triennial Review Order is a decidedly mixed blessing. On 
the positive side, the Order brings much-needed certainty to the 
broadband marketplace. After years of seeing investment chilled by 
questions about whether regulators would require newly upgraded 
broadband facilities to be unbundled at deeply discounted TELRIC rates, 
the Commission has put that concern to rest. The Commission made clear 
that, while competitors will have unfettered access to existing 
infrastructure--copper loops and subloops, and digital circuits over 
TDM pathways--incumbents will not have to provide unbundled access to 
new fiber capacity at higher data rates.
    In contrast to this decisive, pro-investment ruling, however, a 
majority of the Commission adopted a UNE-P regime that is a major 
setback for the cause of regulatory certainty and facilities-based 
investment. The majority has effectively turned over to the states the 
entirety of the decision regarding the availability of unbundled 
switching. Apart from the legal flaws in this course of action (which I 
discuss below), the policy will be destabilizing for the entire 
industry. Carriers will be unable to craft sound business plans and 
instead will be forced to litigate the merits of UNE-P before 51 
separate jurisdictions, and then take this battle to 51 separate 
district courts. It is hard to imagine a less stable regime.

1. Adhere to the Text of the Statute
    One of the best ways to promote regulatory certainty is to adopt 
rules that are consistent with congressional intent as set forth in the 
statute. While appellate risks are endemic in the administrative 
rulemaking process, they can be diminished significantly by ensuring 
that rules adhere closely to the statutory text, structure, and 
    The costs of regulatory uncertainty are significant. Carriers 
develop business plans based on the FCC's regulations, and when those 
regulations are subsequently found to violate the statute, business 
plans must be scrapped. In a worst-case scenario, a company may be 
unable to survive under the new regulatory regime. The risk of such 
outcomes can be diminished in the future through the exercise of 
greater discipline and conservatism in our interpretation of the 
    Not surprisingly, as the Commission considered new unbundling 
rules, my paramount goal was to ensure that our decisions would comport 
with the statute and with the directives we had received from our 
reviewing courts. With respect to the recent FCC decision on unbundled 
switching, I am deeply troubled that the majority's approach appears to 
be clearly at odds with our statutory obligations. Section 251(d)(2) of 
the Act directs the FCC to apply the impairment standard, and the 
Supreme Court confirmed the Act's shift of ultimate authority and 
responsibility to the federal jurisdiction. While I believe that the 
FCC may appropriately delegate some authority to state commissions to 
make more granular findings regarding impairment, we may not abdicate 
our responsibility. To remain faithful to the statutory scheme, the FCC 
must retain the primary decisionmaking authority, and we must establish 
clear standards for the states to apply.
    The majority perhaps could have shored up its sweeping grant of 
authority to the states by establishing a right of appeal to the FCC, 
so that the ultimate decisionmaking authority resided at the 
Commission. But it refused to do even that. And while the majority 
relies on the ability of incumbent LECs to pursue appeals in federal 
district court under section 252(e)(6), it remains to be seen how a 
reviewing court can gauge a state's compliance with the federal regime 
when the FCC has refused to provide any specific guidance on what that 
regime should be.
    An equally significant legal vulnerability is that the majority 
made no real effort to adopt a meaningful limiting principle regarding 
switch unbundling. The Commission has twice been reversed on this exact 
ground, and I fear this may be strike three. The Supreme Court and the 
D.C. Circuit have made clear section 251(d)(2) permits the Commission 
to unbundle an element only when we can affirmatively justify doing so. 
Turning this mandate on its head, the majority decided that switching 
must be unbundled because they cannot rule out that some impairments 
may exist. The fact that states may impose some limitations, based on 
their subjective evaluation of various nonbinding factors, imposes no 
real constraint on the availability of unbundled switching. Moreover, 
the majority made no attempt to square its decision with the record 
evidence showing extensive switch deployment by competitive LECs, 
including a number of carriers serving mass market customers on a UNE-L 
basis. I do not believe that this approach is remotely consistent with 
the direction we have received from the court of appeals.

2. Ensure Swift and Stringent Enforcement
    Another crucial element of promoting competition in a stable 
regulatory environment is pursuing a strong enforcement policy. Market-
opening mandates are worth little to competitors unless they are 
swiftly and stringently enforced. Indeed, a record of poor enforcement 
can deter competitive entry and investment just as surely as an absence 
of rules can. This goal requires a concerted effort by the FCC and our 
colleagues at the state level. I am pleased that this Commission has 
aggressively punished violations through forfeitures and consent 
decrees that have imposed the maximum fines allowed by law. The state 
commissions also have a good track record in policing the marketplace. 
I strongly support Chairman Powell's call for increased enforcement 
authority to ensure that the maximum forfeitures are sufficient to 
deter anticompetitive conduct by even the largest entities. I also 
support the adoption of national performance standards for unbundled 
network elements, and potentially for special access services as well, 
to ensure that the Commission is able to detect and respond to 
discrimination and other rule violations.

B. Keeping Pace with Technological and Marketplace Changes

    Another key role for regulators is keeping up with the rapid pace 
of technological change and market developments. Otherwise, we run the 
risk of becoming irrelevant, or worse, implementing regulatory 
requirements that harm the public interest. The broadband relief 
granted in the Triennial Review proceeding recognizes the difference 
between new and legacy networks, and accordingly adheres to this 
    For similar reasons, I also have been a strong proponent of 
addressing gaps in the law and developing a coherent regulatory 
framework for broadband services (in addition to the regulation of the 
underlying facilities, which we have just addressed). Since the 
Communications Act does not specifically define broadband Internet 
access services, the FCC must select one of the existing service 
categories--information services, telecommunications services, and 
cable services. For several years, the Commission declined to resolve 
the fierce debate over the appropriate classification of cable modem 
service. As the Commission remained on the sidelines, providers did not 
know which regulatory rules would apply, and some therefore were 
reluctant to invest capital. Making matters worse, courts began to step 
in to provide their own statutory interpretations, which unfortunately 
were not consistent.
    I am pleased that the Commission last year classified cable modem 
service as an interstate information service and proposed a similar 
analysis for the DSL Internet-access services provided to consumers. I 
also support moving expeditiously to clarify the regulatory 
implications of our statutory classifications, including issues 
relating to ISP access, universal service contributions, access by 
persons with disabilities, and the scope of our discontinuance rules. 
Only by tackling these difficult questions head-on can we provide the 
kind of stable and predictable regulatory environment that encourages 
investment in new products and services. I also believe that the 
analytical framework the Commission has begun to construct ultimately 
will help harmonize divergent policy approaches to cable modem and DSL 
services, and, in doing so, promote efficient investment and deliver 
increased benefits to consumers.
    This principle of keeping pace with change is equally important to 
our promotion of non-market-based public policy objectives, such as the 
preservation and advancement of universal service. That is why the 
Federal-State Joint Board recently took a fresh look at the services 
that should be eligible for support, and why the Commission and the 
Joint Board have made it a top priority to ensure that our contribution 
methodology for the federal support mechanisms responds to changes in 
the way people now communicate. I supported the interim universal 
service contribution measures the Commission recently adopted, but I 
remain concerned that our existing revenue-based contribution framework 
will not be sustainable long term in light of the increased prevalence 
of bundled service offerings and the difficulty distinguishing among 
revenues from interstate telecommunications services, local 
telecommunications services, information services, and customer 
premises equipment. It therefore remains my goal to promote more 
comprehensive reforms that will enable the Commission to protect 
universal service in this changing environment.
    My desire to keep pace with technology and marketplace changes also 
leads me to support examining our media ownership rules. In addition, 
section 202 of the Act compels such a review, and recent court 
decisions have underscored the urgency of conducting a rigorous 
examination. We must ascertain whether the congressional objectives of 
promoting competition, diversity, and localism continue to be served by 
our existing ownership restrictions, or whether changes are necessary. 
Most of the rules at issue were established before cable television 
became the dominant form of entertainment, news, and information that 
it is today, and before the advent of the Internet, direct broadcast 
satellite service, and satellite digital audio radio service. Even 
within the traditional broadcast world we have had an expansion of 
programming and we are on the verge of another revolution as the DTV 
transition is gaining momentum. These dramatic changes compel us to 
analyze whether our existing rules best serve the public interest.
    Finally, a related reason for keeping pace with technological 
change is that legacy rules may not merely be ill-suited to new 
services or technologies--those rules may actually harm consumers by 
curtailing the development of facilities-based competition. This is a 
critical concern, because we must encourage the development of new 
platforms and services that will challenge incumbent providers if we 
are to fulfill the overarching congressional interest in substituting a 
reliance on market forces for regulation to the extent possible. I have 
therefore advocated a policy of regulatory restraint when it comes to 
nascent technologies and services. We should not reflexively assume 
that legacy regulations should be carried over to a new platform, but 
rather adopt rules that are narrowly tailored to the interests in 
protecting competition and consumers. For example, as wireless carriers 
and satellite operators strive to enter the emerging broadband market, 
we should avoid saddling them with regulations simply because other 
providers may be subject to them. The fact that cable operators pay 
franchise fees and that DSL providers are subject to detailed 
nondiscrimination requirements does not necessarily justify imposing 
identical measures on new broadband platforms.
    In time, the Commission should pursue regulatory parity, because 
differential rules cause harmful market distortions. But a good way to 
achieve that end is to exempt incumbents from legacy regulations when 
new platforms take hold and diminish the need for market intervention, 
as opposed to regulating new platforms heavily during their infancy. 
The danger associated with the latter approach is that it threatens to 
prevent the nascent platform from developing at all--and in turn to 
prevent consumers from reaping the benefits of facilities-based 
    I thank you for your time. I look forward to hearing your views and 
answering your questions on how the Commission should promote 
competition and consumer welfare in the telecommunications marketplace.

    Mr. Upton. Thank you.
    Mr. Copps.


    Mr. Copps. Thank you, Mr. Chairman.
    Let me use the few minutes I have here just to step back a 
little and look at the larger topic of today's hearing, which 
is the overall health of the telecommunications and 
communications sector, which is the background for the 
decisions that we are all interested in talking about.
    Let me say at the outset that I'm an optimist about the 
future of telecom and about communications technologies 
generally. That puts me in a minority compared many of the so 
called expert and analysts, but I do not mind being either 
being a minority or taking issue with the prevailing wisdom.
    You know, it was just a couple of years ago that all the 
experts and analysts were jumping up and down, prosperity for 
telecom forever, end of the business cycles and all the rest. 
And then the recession hit and all those experts went on a turn 
of a dime from irrational exuberance to equally irrational 
pessimism. I think they were wrong in both the up side and the 
down side. Certainly the business plans of more than a few 
companies were faulty, but the technologies behind them not 
only remained, they proliferate and I believe they are going to 
lead the way to American prosperity in the 21 century; 
broadband, wireless, digital broadcasting. Interactive media, 
telemedicine, telecommunting are already joining the parade. 
And around the corner where we can't even see yet is much, much 
    The health of this critical sector has many facets. 
Macroeconomic issues, capital market issues, issues related to 
accounting, corporate behavior and, of course, there are 
regulatory issues. In all these matters I've strived to 
maintained my commitment to the public interest. It is at the 
core of my own philosophy of government, more germanely it 
permeates the statutes which the Commission implements. Indeed, 
the term public interest appears over 110 times in the 
Telecommunications Act. And my public interest objective as an 
FCC Commission is to help bring the best, most accessible and 
cost effective communications system in the world to all of our 
people, and I mean all of our people whether they live in rural 
communities, on tribal lands, are economically disadvantaged in 
the disabilities communities, whatever. Each and every citizen 
of this great country should have access to the wonders of 
communication, and I really do not think it exaggerates much to 
characterize access to communications in this modern age as a 
civil right.
    Much of our focus at the Commission is on competition and 
deregulation. Competition has the power to give choices to 
consumers and with more options consumers reap the benefits; 
better services, greater innovation, higher technology. 
Managing competition within and across platforms, and both are 
important in the statutory framework, presents great challenge 
to us. Facilitating competition in a rapidly converging and 
fast changing environment at the same time as we transition 
from monopoly to competition is tricky, and it is a hands-on, 
not a hands-off job.
    As competition develops we are enabled to meet another core 
goal of Congress deregulation. The 1996 Act is a deregulatory 
act, not deregulation in one fell swoop, but over time, as 
step-by-step competition takes hold. Where markets function 
properly, we can rely more on market forces to constrain anti-
competitive conduct. Where competition does not exist or market 
failures arise, we must respond with clear and enforceable 
rules tailored to serve the public interest. The choice is not 
between regulation and deregulation; it is a question of 
responsible versus irresponsible deregulation. And the public 
interest must never be deregulated away.
    In today's environment we must use our current authority to 
reduce the risk corporate misdeeds and mismanagement or 
accounting degradations will injure consumers or competitors. 
We need to gather more data in today's environment to better 
inform our decision, including completing our proceedings on 
performance measurements and following up on what happens after 
a section 271 approval is granted.
    We need to be increasingly focused on enforcement. Sure and 
swift in sending a clear message. And we must have concrete 
plans for protecting consumers in the event a carrier ceases 
operations or otherwise disrupts service.
    In all of these areas we must work closely and 
cooperatively with our colleagues at the State level. This 
cooperation works. It has led to the grant of 35 long distance 
applications under Section 271, the majority of them in the 
past year.
    As we move ahead to implement this decision and to consider 
further items, I also encourage parties to work far more 
collaboratively to find constructive solutions. And this is 
really, I think, maybe my central message in these remarks. 
Feelings on these issues run high. No one emerged as a hands 
down winner or loser in last week's decision. But now it is 
time to take a deep breath, to lower the decimal level, to 
nourish the collaborative dialog and try to pull together for 
the common good. Frankly, I think the state of the telecom 
industry intra-industry dialog has been pretty close to awful 
over the past year or more. All too often parties seem 
interested only in throwing the long ball, looking for the 
silver bullet solution, but more often they're firing blanks. 
There is no simple panacea for the ills that plague the 
industry. And I hope the collaborative efforts that some of our 
State regulators have made to bring industry together and FCC 
and State regulators, everybody else, will really merit the 
backing of this subcommittee. I can't think of anything really 
more important right now to start talking with one another. 
Takes some little immediate targetable objectives and try to 
make some progress there so we can then move ahead to some of 
the bigger issues.
    My time is about up, but before I conclude I do want to 
mention one other matter that I do not go anywhere these days 
without discussing, and that is the issue of media 
concentration. I think that review is without doubt the most 
important item on our agenda this year, because I think at 
stake in this proceeding are core values of localism and 
diversity and competition, and I am concerned that we are on 
the verge of dramatically altering our Nation's media landscape 
without the kind of national dialog and debate that this issue 
and the American people deserve to have.
    Suppose for a moment that we vote to remove or 
significantly modify the ownership limits. And suppose simply 
for the sake of argument that we make a mistake. How do you put 
the genie back in the bottle? And I think the answer is you do 
not. It is done. That is why we really have to take our time. 
We really have to fill out our record. And we really have to 
engage all Americans, because they are all stakeholders in this 
issue in the bottom line of that debate.
    Thank you very much.
    [The prepared statement of Hon. Michael J. Copps follows:]

  Prepared Statement of Hon. Michael J. Copps, Commissioner, Federal 
                       Communications Commission

    Mr. Chairman, Members of the Subcommittee, I am honored to appear 
before you today. This is the first time that I have appeared before 
you in my role as an FCC Commissioner and I welcome the opportunity to 
share with you some of my perspectives on the great issues before us 
and, more importantly, to hear yours. I am a product of the Congress, 
having worked for many years--many years ago--on the Senate side for my 
friend, Senator Fritz Hollings. Let me tell you first of all how 
grateful I am for the privilege of being an active participant in the 
deliberations of the FCC as the telecommunications revolution 
transforms our lives and remakes our world. It is a responsibility that 
I undertake with utmost seriousness.
    Let me say at the outset that I am an optimist about the future of 
telecom and about communications technologies generally. That puts me 
in a minority compared to many of the so-called experts and analysts, 
but I don't mind either being a minority or taking issue with the 
prevailing wisdom. It was just a couple of years ago that all the 
analysts were soaring in optimism over anything even remotely related 
to telecom. You'll remember how they pitched prosperity forever, with 
telecom leading the way into some brave new world that would no longer 
be subject to the vagaries of the business cycle. Then recession hit, 
and all those experts went--on the turn of a dime--from irrational 
exuberance to equally irrational pessimism.
    I think they were wrong on both the upside and the downside. Sure, 
the business plans of more than a few companies were faulty, but the 
technologies behind them not only remain--they proliferate. Plus, this 
``boom-and-bust-and-boom-again'' cycle that we have lived through in 
telecom is really nothing all that new--it has accompanied other great 
technology and infrastructure rollouts throughout our history. Excess 
enthusiasm and risky investment at the outset, the bubble bursts, and 
then--if the infrastructure need endures and the technology is viable--
growth returns. I think exactly that will happen here. While no 
technology will ever lay the business cycle to rest--I think we all 
finally understand that now--a technology as substantive and 
transformative as telecommunications is not going to remain fallow for 
long. I am encouraged that, at long last, some of the experts are 
beginning to see the end of the telecom downturn. I'm encouraged by the 
more balanced approach that a few of these experts are beginning to 
show. Because, in fact, what's coming down the road is going to make 
all of the dramatic telecommunications changes of the past century--and 
they were dramatic--pale by comparison. Communications technologies 
will not only be a part of America's 21st century prosperity. They will 
lead the way. Broadband, wireless, Wi-Fi, digital broadcasting and 
interactive media, telemedicine and telecommuting are already joining 
the parade, and around the corner where we can't see yet will be much, 
much more.
    The health of this critical sector has many facets. There are, 
among others, macroeconomic issues, capital market issues, issues 
related to accounting and corporate malfeasance, and of course, there 
are regulatory issues. As we discuss these regulatory issues, let me 
emphasize that, at all times, I strive to maintain my commitment to the 
public interest. As public servants, we must put the public interest 
front and center. It is at the core of my own philosophy of government. 
More germanely, it permeates the statutes which the Commission 
implements. Indeed, the term ``public interest'' appears over 110 times 
in the Communications Act. The public interest is the prism through 
which we should always look as we make our decisions. My question to 
visitors to my office who are advocating for specific policy changes is 
always: how does what you want the Commission to do serve the public 
interest? This is my lodestar.
    Much of our focus at the Commission is on competition and 
deregulation. Competition has the power to give choices to consumers. 
With more choices, consumers reap the benefits--better services, 
greater innovation and higher technology. Managing competition within 
and across platforms--and both are important in the statutory 
framework--presents great challenge to us.
    Congress declared that the preeminent goal of the 1996 Act is ``to 
ensure lower prices and higher quality services for American 
consumers.'' I am of the strong belief that we should not use the 
current economic downturn as an excuse to back away from competition. 
This is fundamental. Instead, we must renew our efforts to promote 
competition, just as Congress directed. It is during recessions and 
tough economic times when we hear the pleas for less competition and 
increased consolidation. But re-monopolization is not the cure for 
telecom's problems. Instead we should vigorously pursue Congress's goal 
of competition.
    Competition, just as Congress predicted, did unleash an 
unprecedented investment in 21st century communications infrastructure. 
Facilitating competition in this fast-changing environment, at the same 
time as we transition from monopoly to competition, is, to say the 
least, tricky. To assume that a simple hands-off approach can be the 
midwife for a brave new competitive world is to ignore the facts of 
life. Promoting competition is a hands-on, not a hands-off, job. Each 
day, every day, we need to be about the job of pursuing Congress's goal 
of consumer choice through more competition.
    As we carry out our job of implementing Congress' statutory 
framework, we need to gather more and better data to inform Commission 
decision-making. I would also note the need for such data to sustain 
our decisions legally once they are made, especially in light of the 
often-activist approach of some of the courts that watch so zealously 
over the FCC. We have come to rely over the years perhaps too much on 
self-reported industry data or Wall Street analysts for information to 
make critical decisions. We must commit to doing the hard work of 
collecting our own data rather than relying on potentially misleading 
and harmful financial, accounting, and market information produced by 
corporate sources subject to clear biases and market pressures. And we 
must conduct more of our own analyses of the industries we regulate.
    These efforts should include completing our proceedings on 
performance measurements that have been pending for over a year. And 
they should include better follow-up on what happens in a State 
following a successful application for long-distance authorization. One 
thing this Commission has done to promote competition is to move 
briskly ahead on Section 271 applications. No year comes close to 
matching the pace of 271 approvals--many of which I supported--during 
the past 12 months. But competition is not the result of some frantic 
one-time dash to check-list approval. It is a process over time. It is 
about--or should be about--creating and then sustaining the reality of 
competition. Our present data on whether competition is taking hold is 
sketchy and non-integrated. We need better data to evaluate whether and 
how approved carriers are complying with their obligations after grant 
of the application, as Congress required.
    We must also tend to the critical intersection between competition 
and deregulation. As competition develops, we are enabled to meet 
another core goal of Congress--deregulation. The 1996 Act is at base a 
deregulatory statute. Not deregulation at one fell swoop, but over time 
as, step-by-step, competition takes hold. So the Act clearly envisions 
deregulation as competition expands to replace monopoly. Where markets 
function properly, we can rely more on market forces--rather than 
legacy regulation--to constrain anti-competitive conduct. Where 
competition does not exist or market failures arise, however, we must 
respond with clear and enforceable rules tailored to serve the public 
interest. The choice is not between regulation and deregulation; it is 
a question of responsible versus irresponsible deregulation. And the 
public interest never gets regulated away.
    We recently voted on one of the most important telecom orders on 
the Commission's agenda this year, the so-called Triennial Review. The 
Order was not the one that I would have written had I been given carte 
blanche. Then again, each of my colleagues could--and probably would--
make that same statement. But now that we have worked through these 
issues and made the difficult decisions, it is time to make it work.
    This brings me to a central point of my presentation this morning. 
As we move ahead to implement this decision and to consider further 
items, I encourage parties to work far more collaboratively to find 
constructive solutions. Feelings run deep on these issues. No one 
emerged as the hands-down winner or the complete loser in last week's 
vote. But now we need to take a deep breath, nourish a collaborative 
dialogue, lower the decibel level and, finally, try to pull together to 
make some progress. Quite frankly, I believe the state of telecom's 
intra-industry dialogue has been pretty close to awful over the past 
year and more. All too often, parties seem interested only in throwing 
the long ball in the regulatory or legislative arenas. But there is no 
simple panacea for all the ills that plague the telecom industries. All 
these expensive public relations campaigns and hurling costly ads at 
one another don't appear to be helping anybody except Madison Avenue 
advertising agencies.
    Why not try--just try--looking for some incremental steps that can 
put us on the road to larger solutions? Resolution of any number of 
issues, maybe even including pricing, could benefit from a 
collaborative dialogue. In this regard, I was pleased to learn of 
discussions among incumbents and competitors begun at the urging of 
state regulators late last year. I'm told this dialogue even made a bit 
of progress before some of the participants decided to focus their 
whole attention on the Commission in recent weeks as we worked our way 
toward completion of the Triennial Review. My hope today is that these 
discussions can begin again and work toward an early problem-solving 
agenda of incremental, achievable, target-able first steps that could 
pave the way for even greater cooperation farther down the road. I hope 
this Subcommittee will encourage that process.
    There are those who remain skeptical that such a process can 
accomplish anything, and they may be right, although their very 
skepticism only endangers those chances more. Perhaps those in the 
business world who would like to see the Commission less involved in 
their daily affairs would be better off looking for collaborative 
solutions among themselves rather than getting so dug in that agency 
action or Congressional action becomes the only way out. I do know 
this: something more is needed in communications among our 
communications industries.
    Moving from competition for the benefit of consumers, a second 
priority of the Federal Communications Commission is to facilitate 
universal service. The goal here, imposed by statute, is to ensure that 
all Americans have access to communications services. My overriding 
objective as an FCC Commissioner is to help bring the best, most 
accessible and cost-effective communications system in the world to all 
of our people--and I mean all of our people. That surely includes those 
who live in rural communities, those who live on tribal lands, those 
who are economically disadvantaged, and those with disabilities. Each 
and every citizen of this great country should have access to the 
wonders of communications. I really don't think it exaggerates much to 
characterize access to communications in this modern age as a civil 
    No one should underestimate the force of the Congressional 
commitment to universal service. A critical pillar of federal 
telecommunications policy is that all Americans should have access to 
reasonably comparable services at reasonably comparable rates. Congress 
has been clear--it has told us to make comparable technologies 
available all across the nation. Many carriers serving rural America 
have made, or plan to make, significant investments in communications 
infrastructure. But they need certainty and stability to undertake the 
investment to modernize their networks, including investment in 
broadband. Rural carriers face unique and very serious challenges to 
bring the communications revolution to their communities. As we move 
forward on all of our proceedings, including, among others, universal 
service decisions, broadband policy, access charge reform, and 
intercarrier compensation, we just must do everything we can to make 
certain that we understand the full impact of our decisions on rural 
America. If we get it wrong on these rural issues, we will consign a 
lot of Americans to second-class citizenship.
    Today, having access to advanced communications--broadband--is 
every bit as important as access to basic telephone services was in the 
past. Providing meaningful access to advanced telecommunications for 
all our citizens may well spell the difference between continued 
stagnation and economic revitalization. Broadband is already becoming 
key to our nation's education and commerce and jobs and entertainment 
and, therefore, key to America's future. Those who get access will win. 
Those who don't will lose. I want to make sure we all get there.
    I sympathize with the concerns about the lack of regulatory clarity 
in this area, but I question whether we are in fact heading in the 
direction of providing greater certainty. The Commission has already 
placed cable modem services into Title I. We reached a similar but 
tentative conclusion for wireline DSL providers in an NPRM last year. 
My worry is that we are taking a gigantic leap down the road of 
removing core communications services from the statutory frameworks 
intended and established by Congress, substituting our own judgment for 
that of the law, and playing a game of regulatory musical chairs by 
moving technologies and services from one statutory definition to 
another, all without understanding the full impact of our decision.
    Law enforcement has raised concerns about the implications of this 
decision on its ability to protect our citizens. And the Federal-State 
Joint Board on Universal Service recently concluded that a Title I 
decision would mean that the universal service fund could never support 
broadband access. Additionally, rural carriers have expressed concerns 
about cost recovery for broadband deployment. Before we move all the 
chairs, we had better understand the potentially far-reaching 
implications of our actions for such issues as homeland security, 
universal service and ensuring that all Americans, including those 
living in rural and high-cost areas, have access to advanced services.
    As we strive to implement competition and to advance universal 
service, we must be ever-mindful of our preeminent charge to protect 
consumers. Let me lay out three steps we should take in this regard. 
First, we must use our current authority to reduce the chance that, in 
a competitive market, corporate misdeeds and mismanagement will injure 
American consumers or the competition that Congress sought to promote 
in the 1996 Act. In light of all the accounting depredations we have 
witnessed in the financial world regulated by the SEC, we need to 
reassure ourselves that our own accounting procedures and requirements 
are in good stead. Our accounting data inform our decisions about the 
reality of competition and the protection of consumers. Some 
traditional FCC accounting rules may be good candidates for 
extinction--and the Commission has already done a good bit of 
extinguishing--but it may be that the new times in which we live demand 
some new procedures. In that regard, I am pleased that the Commission 
and the States have come together in a new Joint Conference on 
Accounting to look at these challenges, I hope from the bottom up. I am 
also pleased that Chairman Powell designated me as a member of this 
Joint Conference.
    Second, we must be increasingly focused on enforcement. The 1996 
Act developed a bold vision for a vastly different telecommunications 
world, one in which the vitality of competition was to replace the 
heritage of monopoly. As competition grows and regulation is reduced, 
enforcement becomes even more important. This Commission has taken 
forward steps on enforcement, but there still is the need to make our 
enforcement more efficient, more effective, and broader reaching. In 
addition to the broad enforcement authority given to the Commission in 
Section 4, the statute gives the Commission the authority to conduct 
investigations and audits, to issue subpoenas, assess forfeitures, 
issue cease-and-desist orders, and revoke licenses. We must use all of 
the tools we have. For example, revocation of some wrongdoer's license 
would send a real wake-up call to those who seek to misuse the nation's 
spectrum. Congress may even wish to expand our enforcement authorities, 
which I believe all of us would happily welcome.
    Third, in a competitive environment, we must establish a concrete 
plan for how we will protect consumers in the event a carrier ceases 
operations or otherwise disrupts service. A central responsibility of 
the FCC is to protect the network from dangerous disruption, not only 
for consumers, but for critical public safety, military, and government 
users. We need to make sure we do all we can to protect consumers and 
ensure that they do not face service disruptions.
    In all of these areas, we must work closely and cooperatively with 
our colleagues at the State Commissions. The Telecom Act is very much a 
federal activity, using the term ``federal'' in its historical context 
of the state and national governments working together. The Commission 
and the State Commissions have a joint responsibility under the Act to 
ensure that conditions are right for competition to flourish.
    We rely on State Commissions for their efforts to open local 
markets to competition. We rely on State Commissions to evaluate the 
openness of local markets in applications for long-distance 
authorization under Section 271. This cooperation works. It has led to 
the grant of 35 long-distance applications, the majority of them in the 
past year. And I firmly believe we have seen stronger applications due 
to the involvement of the State Commissions. The importance of Federal-
State cooperation cannot be overstated.
    Before I conclude, I want to briefly mention one other matter. 
Indeed, I don't go anywhere these days without talking about it. The 
Commission is, as you know, currently reviewing virtually all of our 
media concentration rules. I think this review is, without doubt, the 
most important item on our agenda this year. In the coming months, we 
will decide whether to keep, modify, or scrap virtually all of our 
media competition rules. There is the potential here to remake our 
entire communications landscape, for better or for worse, for many 
years to come. The stakes are enormous for every community and for 
every citizen of our great country.
    These rules, among other things, limit a single corporation from 
dominating local TV markets; from merging a community's TV stations, 
radio stations, and newspaper; from merging two of the major TV 
networks; and from controlling more than 35% of all TV households in 
the nation.
    At stake in this proceeding, as I see it, are core American values 
of localism, diversity, competition and maintaining the multiplicity of 
voices and choices that undergird America's precious marketplace of 
ideas and that sustain our democracy. At stake in this vote is how TV, 
radio, newspapers, and the Internet will look in the next generation 
and beyond. And at stake is the ability of consumers to enjoy creative, 
diverse and enriching entertainment.
    The elimination of some radio consolidation protections in 1996 has 
already led to conglomerates owning hundreds (in one case, more than a 
thousand) stations across the country. More and more programming 
originates outside local stations' studios--far from listeners and 
their communities. Today there are 34 percent fewer radio station 
owners than there were before 1996 and most local radio markets are 
    Some media watchers argue that this concentration has led to far 
less coverage of news and public interest programming and to less 
localism. Many feel radio now serves more to advertise the products of 
vertically integrated conglomerates than to inform or entertain 
Americans with the best and most original programming. Additionally, I 
am concerned that we have not analyzed the impact of consolidation on 
the increasing pervasiveness of offensive and indecent programming as 
programming decisions are wrested from our local communities and made 
instead in distant corporate headquarters. Is it simple coincidence 
that the rising tide of indecency--whether sexual, profane, or 
violent--is occurring amidst a rising tide of media industry 
    I am frankly concerned that we are on the verge of dramatically 
altering our nation's media landscape without the kind of national 
dialogue and debate these issues so clearly merit. The stakes are 
incredibly enormous and we must, simply must, get this right. We need 
the facts. We need studies both broad and deep before we plunge ahead 
to remake the media landscape. And we need to hear from people all 
across this land of ours.
    Suppose for a moment that the Commission votes to remove or 
significantly modify the ownership limits. And suppose, just suppose, 
that it turns out to be a mistake. How would we ever put that genie 
back in the bottle? The answer is that we could not. That's why we 
need--truly need--a national dialogue on the issue. We need it all 
across America with as many stakeholders as possible taking part. And 
in my book, every American is a stakeholder in the great Communications 
Revolution of our time.
    Mr. Chairman, distinguished Members, these are some of the major 
issues on our agenda. There are others, too, which you may want to 
discuss today. I approach all of these issues with the expectation--the 
happy expectation--of continuing to work closely with the Congress 
which authorizes and enables our work. Thank you for inviting me to 
appear before you. I look forward to working with each of you as we 
build a better future for all our citizens through communications.

    Mr. Upton. Mr. Martin.


    Mr. Martin. Thank you, Mr. Chairman for the invitation to 
be with you all this morning. I look forward to listening to 
the insights you will provide and trying to answer the 
questions you might have.
    As you know, telecommunications industry has been 
responsible for much of the Nation's economic growth during the 
past decade. The availability of advance telecommunications is 
essential to the continued strength of the economy in the 21 
century. Today, however, the telecommunications sector is 
struggling, the bursting of the .com bubble coupled with the 
downturn in the overall economy have had a profound impact on 
the industry. Investors are reluctant to risk capital in the 
technology sector, telecom and technology companies battle to 
get back on their financial feet. Carriers have postponed the 
purchase of equipment and infrastructure necessary to deploy 
advanced services to consumers. Manufacturers have suffered the 
consequences. And most importantly, hundreds of thousands of 
employees throughout the Nation have lost their jobs.
    In our just concluded final proceeding we at the Commission 
faced an important but difficult task. As always, our role as 
Commissioner is first and foremost to implement the 
Telecommunications of Act of 1996 and its deregulatory and 
market-opening provisions. And giving the timing of our review, 
we had to do so against the backdrop of a depressed 
telecommunications sector.
    Last week's decisions regarding the future of local 
telephone competition was the most difficult of my tenure at 
the Commission. Throughout the decisionmaking process, I 
believed we needed to craft a balanced package of regulations, 
one that would help revitalize the industry by spurring 
broadband deployment while also preserving local phone service 
competition. Consistent with the 1996 Act where a facilities-
based competition exists, we should deregulate. Where markets 
are not yet open, regulations should continue to ensure that 
competitors can provide service to consumers. Competition first 
and then deregulation.
    I believe the order we adopted last week achieves such a 
principled and balanced approach. It ensures that we have 
competition and deregulation. We deregulate broadband where 
there is competition from cable making it easier for companies 
to invest in new equipment and deploy the high speed services 
that consumers desire. We preserve existing competition for 
local telephone service, the competition that has enabled 
millions of customers to benefit from lower telephone rates. 
And we accomplished these goals in a manner that is consistent 
with the statute and the rulings of the courts. I believe these 
steps will benefit consumers and the industry.
    I have long believed that the Commission should make 
broadband its top priority. It is critical to create a 
regulatory environment that encourages new investment and the 
deployment of new broadband infrastructure. I commend Chairman 
Powell for his leadership on this issue and for bringing these 
contentious issues to their resolution.
    I also appreciate the leadership shown by this committee, 
in particular Chairman Tauzin and ranking member Dingell, 
Chairman Upton and Telecommunications Subcommittee ranking 
member Markey. We watch closely the debates you have had and we 
noted your concerns. The order we adopted last week captures 
the spirit of what I believe this committee was working toward; 
facilitate broadband deployment but maintain the market opening 
provisions of the 1996 Act necessary to ensuring price 
competition in local telephone service.
    As this committee has noted, the markets for voice and 
broadband are quite different. Cable operators and DSL 
providers compete vigorously for residential broadband 
customers. In fact, unlike in the voice market, phone companies 
are not the predominant providers of residential broadband 
service, cable operators are. Approximately two-thirds of all 
broadband consumers subscribe to cable, not DSL. Yet the 
incumbent phone companies, not the cable operators, are the 
ones that have had to unbundle their networks to competitors. 
Phone companies, like cable operators, should have the proper 
incentives to invest the capital necessary to 21 century 
broadband capabilities available to all American consumers. 
This in turn would allow more consumers to experience the 
benefits of next generation service and applications that new 
broadband networks can provide.
    The Commission's triennial review brings us closer to that 
goal. It provides significant regulatory relief for new 
investment allowing for deployment of infrastructure to provide 
the broadband and video services of tomorrow. It removes 
unbundling requirements in all newly deployed fiber to the 
home. And it also deregulates the fiber and new packet based 
technologies used for broadband services today.
    The Commission's decision also adjusts the TELRIC or 
``wholesale'' prices for all investment in equipment, even 
those used to provide telephone service. As a result, where 
phone companies must allow competitors to use their network, 
they will be able to charge the higher rates for the use of any 
new equipment.
    In sum, companies desiring to push fiber further to the 
home and deploy new infrastructure will have that opportunity. 
And more consumers will have the ability to enjoy fast speeds 
and exciting applications of true broadband.
    Today millions of consumers now have a choice of local 
telephone service providers. Competition is finally taking hold 
in the business market. But in the residential market, 
competition is more tenuous. Many consumers still have only one 
option for their local phone provider, and even where consumers 
have more than one, those options are dependent on the 
equipment of the incumbent's network.
    The Commission's decision works to preserve and encourage 
local competition by maintaining the ability of competitors to 
access elements of the incumbent's network through incentive to 
provide service, consumers will continue to receive the 
benefits of competition. Such an approach is crucial if we are 
to ensure that all areas throughout the Nation continue to have 
access to the benefits of competitive choice.
    The 1996 Act requires competitors have access to pieces of 
the incumbent's network when they are impaired in their ability 
to provide service. The court of appeals has made clear that in 
analyzing impairment, uniform national rules may be 
inappropriate. Rather one needs to take into account specific 
market conditions and look at specific geographic areas. The 
Commission's order follows these admonitions putting in place a 
granular analysis that recognized that competitors face 
different operational and economic barriers in different 
    For example, the barriers competitors face in deploying 
equipment and trying to compete for residential customers in 
Manhattan, Kansas are different from the barriers faced to 
complete for business customers in Manhattan, New York. As a 
result, our order calls for States to make these market-by-
market analysis as the courts have called for. I believe stateS 
are better equipped to know what equipment is in their local 
central office than a bureaucrat in Washington.
    In the course of the debate surrounding this proceeding, 
some of my colleagues wished to end the unbundling of all 
residential switching immediately. I believe such action would 
be inconsistent with recent court decisions and the state of 
competition in many markets. To declare an immediate end to 
unbundling in every market across the country would prevent 
competitors from providing service where the incumbent remains 
necessary. In those markets, residential phone competition 
would be killed over night and such an approach would also 
ignore the court's mandate for a more granular analysis.
    If I could just then conclude.
    I believe in a limited government and that competition, not 
regulation is the best method of delivering the benefits of 
choice, innovation and affordability to consumer. The 1996 Act 
puts in place a policy that requires local markets be opened to 
competition first and then provides for deregulation. The 
Commission's decision last week faithfully implements this 
policy and it develops a balanced approach.
    Thank you for inviting me to be here today. And I look 
forward to your questions colleagues.
    [The prepared statement of Hon. Kevin J. Martin follows:]

   Prepared Statement of Hon. Kevin J. Martin, Commissioner, Federal 
                       Communications Commission

    Thank you for this invitation to be here with you this morning. I 
look forward to listening to the insight you will provide and trying to 
answer any questions you might have.
    As you know, the telecommunications industry has been responsible 
for much of the nation's economic growth during the past decade. The 
availability of advanced telecommunications is essential to the 
continued strength of the economy in the 21st century.
    Today, however, the telecommunications sector is struggling. The 
bursting of the dotcom bubble coupled with the downturn in the overall 
economy have had a profound effect on the industry. Investors are 
reluctant to risk capital in the technology sector. Telecom and 
technology companies continue to struggle to get back on their 
financial feet. Carriers have postponed the purchase of equipment and 
infrastructure necessary to deploy advanced services to consumers, 
leaving manufacturers to suffer the consequences. And most importantly, 
hundreds of thousands of employees throughout the nation have lost 
their jobs.
    In our just-concluded Triennial proceeding, we at the Commission 
faced an important, but difficult task. As always, our role as 
Commissioners is first and foremost to implement the Telecommunications 
Act of 1996 and its deregulatory and market-opening provisions. Yet, we 
needed to do so against the backdrop of the depressed 
telecommunications sector.
    Last week's decision regarding the future of local telephone 
competition was the most difficult of my tenure at the FCC. Throughout 
the decision making process, I believed we needed to craft a balanced 
package of regulations that would help revitalize the industry by 
spurring new investment in next generation broadband infrastructure 
while also maintaining access to the network elements necessary for new 
entrants to provide competitive service. We needed to create a 
regulatory environment that would help renew investment, promote 
competition, and deregulate where competitive forces prevail, thereby 
enabling competition to provide consumers with the benefits of greater 
choice and lower prices.
    I believe the Order we adopted last week achieves a principled, 
balanced approach. It ensures that we have competition and 
deregulation. It adopts clear rules and immediate regulatory relief for 
broadband deployment and new investment; it removes the obligation to 
unbundle switches for business customers immediately; and it provides a 
detailed roadmap for eliminating the remaining unbundling obligations 
for network elements. The decision also preserves existing competition 
for local service--the competition that has enabled millions of 
consumers to benefit from lower telephone rates.
    I believe in limited government. I believe that competition, not 
regulation, is the best method of delivering the benefits of choice, 
innovation, and affordability to consumers. The 1996 Act puts in place 
a policy that requires local markets be opened to competition first, 
and then provides for deregulation. The Commission's decision last week 
faithfully implemented this policy. Where facilities-based competition 
exists--for example, from cable modems in the broadband market or CLECs 
in the business market--we have provided deregulation. We also have 
preserved existing voice competition where competitors are impaired. 
That is what the law and the courts require.


    I have long believed that the Commission should make broadband its 
top priority. It is critical to create a regulatory environment that 
encourages new investment and the deployment of new broadband 
    Today, cable and DSL providers compete vigorously for new 
residential customers. In fact, cable operators are the predominant 
providers of residential broadband; approximately two-thirds of all 
broadband consumers subscribe to cable, not DSL. Yet it has been the 
incumbent phone companies--not the cable operators--that have been 
required to unbundle their network to competitors.
    Incumbents, like cable operators, should have the proper incentives 
to invest the capital necessary to make 21st century broadband 
capabilities available to all American consumers. This in turn would 
allow more consumers to experience the benefits of next generation 
services and applications that new broadband networks can offer.
    The Commission's Triennial Review decision brings us closer to that 
goal by providing significant regulatory relief for broadband and new 
investment. It removes unbundling requirements on all newly deployed 
fiber-to-the-home, allowing for deployment of infrastructure to provide 
the broadband and video services of tomorrow. It provides significant 
regulatory relief for new hybrid fiber-copper facilities, deregulating 
the fiber and the new packet-based technologies used to provide 
broadband services today. In fact, our decision essentially endorses 
and adopts in total the High Tech Broadband Coalition's proposals for 
the deregulation of fiber to the home and any fiber used to deliver new 
packet-based technology.
    The Commission's decision also adjusts the TELRIC, or 
``wholesale,'' prices for all new investment in equipment, even those 
used to provide telephone service.
    Companies desiring to push fiber further to the home and deploy new 
infrastructure will now have the opportunity. And more consumers will 
be able to enjoy the fast speeds and exciting applications that a true 
broadband connection offers.


    The Commission's decision also works to preserve and encourage 
local competition. By maintaining the ability of new entrants to access 
elements of the incumbent network that are essential for competitive 
services, consumers can continue to receive the benefits of 
competition. Such an approach is crucial if we are to ensure that all 
areas throughout the nation continue to have access to the benefits of 
competitive choice.
    The 1996 Act requires that competitors have access to pieces of the 
incumbents' networks when they are ``impaired'' in their ability to 
provide service. The Court of Appeals has made clear that in analyzing 
impairment, ``uniform national rules'' may be inappropriate. Rather, 
one needs to take into account specific market conditions and look at 
specific geographic areas. The Commission's order follows these 
admonitions, putting in place a granular analysis that recognizes that 
competitors face different operational and economic barriers in 
different markets. For example, the barriers competitors face in 
deploying equipment and trying to compete for residential customers in 
Manhattan, Kansas are different from the barriers faced to compete for 
business customers in Manhattan, New York.
    Although some of my colleagues disagreed with certain aspects of 
this analysis, this disagreement primarily concerns the switching 
network element for residential customers. We all agree that states 
should play a significant role in determining whether impairment exists 
for transport. We all agree that states should play a significant role 
in determining whether impairment exists for loop facilities. And, we 
all agree that incumbents should no longer be required to unbundle 
switching for business customers.
    In the course of the debate surrounding this proceeding, some of my 
colleagues wished to end the unbundling of all residential switching 
immediately. I believe such action would be inconsistent with recent 
court decisions and the state of competition in many markets. It is 
true that a significant number of residential telephone customers now 
receive service from a CLEC, but the overwhelming majority of these 
customers is currently served through an incumbents' switch. To declare 
an immediate end to the unbundling of all switching in every market in 
the country would ignore the Court's mandate for a more granular 
analysis and effectively end residential competition. Instead, the 
decision treats residential switching as we do other network elements, 
removing unbundling obligations after an analysis of the local market 
to determine whether competitors are impaired.
    The Commission must faithfully implement the Act and be responsive 
to the courts. Our decision in the Triennial proceeding addressed the 
court's recent criticism of our existing unbundling framework, while 
still keeping our eye on Congress's goal of ensuring that local markets 
are truly open to competition.
    In sum, the FCC's Order achieved a balanced approach that provides 
regulatory relief for incumbents' new investment in advanced services 
while ensuring that local competitors will continue to have the access 
they need to provide service to consumers. I believe these steps will 
benefit consumers and the industry.
    Again, thank you for inviting me and my colleagues to be here with 
you today.

    Mr. Upton. Thank you.
    Mr. Adelstein.


    Mr. Adelstein. Mr. Chairman, Congressman Markey and members 
of the subcommittee, thank you for calling this timely hearing 
on the health of the telecommunications sector.
    We've heard lots of heated debate over this, and lots of 
different ideas from members of the subcommittee today over how 
to restore the health of the sector, and rightfully so. It 
critical to our national economy, not just to the 
telecommunications sector alone. The issues the FCC is now 
considering go to the heart of what Congress intended to 
accomplish in the 1996 Telecommunications Act. And the 
importance of getting the answers right is underscored by the 
huge economic challenges now facing the industry.
    As my colleagues and members of the subcommittee have 
noted, we're facing over half a million jobs that have been 
lost in this sector. Capital expenditures are plummeting. 
Equipment manufacturers are engaged in unprecedented layoffs. 
All this threatens the quality of our telecommunications system 
which can degrade if investment in the network declines. 
Ultimately consumers will suffer, service quality goes down or 
if they cannot get access to the latest technologies at a 
reasonable price. The FCC must promote competition and 
investment so that consumers can benefit from the most advanced 
technologies at reasonable prices.
    As the newest member of the Commission I am relying on some 
key principles throughout my deliberations on these issues. 
First and foremost, my role is to implement the law as written 
by Congress, not to impose my own policy preferences on it. It 
is imperative to reach decisions also that are judicially 
sustainable. So many of the members of the subcommittee have 
noted because the courts are the final arbiter on this.
    Second, the Act is designed to promote many forms of 
competition. Both intermodel and intramodel competition can 
provide strong pressures that will drive down prices, improve 
services and offer consumers more choices.
    Wireless technology has also offered great new avenues for 
competition. Many argue persuasively that facilities-based 
competition is the strongest and provides the most benefits for 
consumers. We must encourage this and all types of competition 
that Congress anticipated and envisioned in the 
Telecommunications Act.
    Third, the Act envisions deregulation in areas where 
competition has firmly taken hold. Deregulation follows 
competition under the Act.
    Fourth, the Act envisions State commissions as our full 
partners in its implementation. Our decisions reflect Congress' 
directive that we are to achieve its goals with their 
    Perhaps most importantly, we are here to protect the public 
interest, as Commission Copps noted, which means watching out 
for consumers. The Telecom Act was meant to ensure that 
everyone has access to the best network in the world and at 
reasonable prices.
    I hope I have adhered to all of these principles in my 
recent decision on the Triennial Review. Clearly we have got to 
restore the health of the telecom economy. As a member of the 
Commission I will do all I can consistent with these principles 
to do so.
    Now this hearing touches on one of the two foundational 
pillars of the Act that drive deployment and service quality, 
competition. Its twin pillar, universal service, ensures that 
deployment will reach even those areas where the marketplace 
falls short. Ultimately Congress' goal was to ensure that all 
Americans have access at affordable rates to high quality 
telecommunication services including advanced services, which 
brings me to a top priority of the Act and a central focus of 
mine as a result, which is to speed the deployment broadband 
across this country.
    The Act makes clear we must extend the benefits of the 
latest technologies to all Americans whether they live in the 
inner city, in rural areas or in the suburbs. It does not 
matter where they live. We are going to get at everywhere as 
quickly as we possibly can.
    I think our entire economy will benefit if we can speak 
broadband deployment. It could help restore telecommunications 
as an engine for economic growth. It can fuel turn on not just 
for that sector, but for the growth and productivity of the 
entire economy.
    We have correctly chosen a market model to drive 
deployment, but that choice behooves us to take note and to 
take considered action when investment slows to a halt, as it 
has in our telecommunications markets. This is especially true 
considering that secure broadband networks are crucial for our 
national security in light of the events of 9/11.
    So I believe at the bottom we must bear consumers in mind 
in all of our decisions, whether they involve unbundled network 
elements, broadband, universal service or media ownership, 
which is an enormous proceeding that we are about to undertake. 
Congress intended all Americans to have access to 
telecommunications services and eventually advanced services at 
affordable rates. And I believe that Congress gave the FCC the 
tools it needs to obtain these goals through universal service, 
competition and subsequent deregulation.
    Thank you for the opportunity to testify. And I look 
forward to your questions.
    [The prepared statement of Hon. Jonathan S. Adelstein 

Prepared Statement of Hon. Jonathan S. Adelstein, Commissioner, Federal 
                       Communications Commission

    Mr. Chairman, thank you for calling this timely hearing on the 
health of the telecommunications sector. I look forward to hearing from 
you and all the members of the subcommittee on this issue, as well as 
any other issues of concern affecting the industry.
    We have seen a lot of heated debate over the health of the 
telecommunications sector, and rightfully so. The performance of this 
sector is critical to our national economy. Issues that currently are 
under consideration at the Federal Communications Commission go to the 
fundamental core of what the 1996 Telecommunications Act means--and 
what Congress intended to accomplish with it. What is the state of 
competition in this country? What remains for the FCC to do to open 
markets? And where is existing competition sufficient to warrant 
deregulation as envisioned by the Act?
    The importance of getting the answers right is underscored by the 
huge economic challenges now facing the telecommunications industry. We 
have seen more than half a million jobs lost in the past 18 months. 
Capital expenditures are plummeting. Equipment manufacturers are 
engaged in unprecedented layoffs. All of this threatens the quality of 
our telecommunications system, which can suffer as investment in the 
network declines. Ultimately, consumers will pay the price if service 
quality goes down, or they cannot get access to the latest technologies 
for a reasonable price.
    The Federal Communications Commission must create a stable and 
clear regulatory environment that promotes competition and investment 
in our telecommunications infrastructure so that consumers can benefit 
from the most advanced technologies at reasonable prices.
    As a new member of the Commission, I am relying on some key 
principles to guide my deliberations. First and foremost, my role is to 
implement the law as written by Congress, not to impose my own policy 
preferences. In following the statute, it is imperative to render 
decisions that are judicially sustainable, since the court is the final 
arbiter of whether a decision comports with the law.
    Second, one of the two basic thrusts of the Act is to promote 
competition. The Act envisioned many forms of competition, both 
intramodal (among traditional wireline providers) and intermodal. Both 
types of competition can provide strong competitive pressures that will 
drive down prices, improve services and offer consumers more choices. 
In the wireline arena, some competitors are facilities-based, while 
others compete through resale at negotiated prices, and others through 
the UNE system. Many have argued persuasively that facilities-based 
competition will provide the strongest form of competition that is most 
beneficial to consumers, still it is the Commission's role to encourage 
all types of competition Congress anticipated. Wireless services also 
offer a dynamic and burgeoning new avenue for competition in both 
broadband and voice communications. We must encourage new and 
innovative technologies, and more efficient spectrum management, to 
maximize those opportunities.
    Third, the Act envisions deregulation in areas where competition 
has firmly taken hold. Deregulation follows competition under the Act, 
not vice versa. Once the presence of meaningful competition allows the 
FCC to modify or repeal rules and regulations, however, we cannot walk 
away from consumers. I believe, like Chairman Powell, that enforcement 
will give the FCC tools it needs to correct wrongs that may occur as a 
result of deregulation.
    Fourth, the Act envisions State Commissions as our full partners in 
its implementation. They play a key role in helping us to determine if 
a competitor is eligible for universal service. They also are required 
to determine whether the Bell Operating Companies have satisfied 
Section 271 requirements in States and should be permitted to provide 
long distance services. Congress also chose to have the State 
Commissions arbitrate interconnection agreements between incumbent 
providers and their competitors. Decisions on competition policy should 
reflect Congress' directive that we are to achieve the goals it 
established with the assistance of the State Commissions.
    Finally, we are here to protect the public interest. The 
Telecommunications Act of 1996 was ultimately written for consumers. It 
was meant to ensure that everyone has access to the best network in the 
world at reasonable rates.
    Clearly, there is room for improvement in the telecommunications 
economy. As a regulatory body, the Commission can certainly lead the 
way in bringing the stability and certainty to the market that will 
translate into faster economic growth. As a member of the Commission, I 
will do all that I can, consistent with the principles outlined above, 
to adopt decisions and regulations that will lead to an improved and 
healthier telecommunications industry.
    This hearing touches on one of two foundational pillars of the Act 
that drives deployment and service quality: competition in the 
marketplace. Its twin pillar, universal service, ensures that 
deployment and quality will reach even those areas where competition 
and the marketplace fall short. Ultimately, Congress' goal in building 
the Act upon these twin pillars was to ensure that all Americans have 
access, at reasonable and affordable rates, to high quality 
telecommunications services, including advanced services.
    Growing up in South Dakota, I learned the importance of including 
rural America in this equation. The High Cost, Low Income, Schools and 
Libraries and Rural Health Care Funds have brought services to many 
people who would not otherwise enjoy them. Although universal service 
does not now directly support advanced services, it lays the groundwork 
for the creation of networks that make it possible for consumers to 
access them.
    One of the other top priorities of the Act and, therefore, a 
central focus of mine as a Commissioner, is to speed the deployment of 
broadband and other advanced services. The Act makes clear we must 
extend the benefits of the latest technologies to all Americans--
whether they live in the inner city, the suburbs or rural areas.
    Our entire economy will benefit if we speed broadband deployment 
across our country. Broadband deployment will help restore 
telecommunications as an engine for economic growth. It can fuel a 
turnaround for not only the telecommunications sector, but also the 
growth and productivity of the entire economy. Not only domestic 
economic recovery, but also international competitiveness is at stake, 
for we must maintain our traditional leadership in a global economy 
with foreign competitors who have long since begun building their own 
broadband networks, often with heavy state subsidies. We will win in 
the end, because we have correctly chosen a market model to drive 
deployment, but that choice behooves us to take note, and to take 
careful, considered action, when investment slows to a halt, as it has 
in our domestic telecommunications markets.
    Secure broadband networks are also crucial for our national 
security. We cannot allow tomorrow's critical infrastructure to roll 
out slowly, particularly in the face of global terrorism. Nor can we 
neglect the importance of maintaining domestic sources that provision 
our networks.
    For these reasons, our goal must remain to achieve the greatest 
amount of bandwidth for the greatest number of people.
    Commission decisions should reflect an understanding that Congress 
enacted the Telecommunications Act of 1996 for the good of consumers. 
Congress intended all Americans to have access to telecommunications 
services, and eventually advanced services, at reasonable and 
affordable rates. Congress gave the FCC tools to attain these lofty, 
yet attainable, goals through universal service, competition and 
subsequent deregulation.
    Thank you for the opportunity to testify today.

    Mr. Upton. Thank you all.
    The FCC is required by Section 251D(2) of the 1996 Act to 
prescribe national rules for network elements. Triennial Review 
Order instead gives the State regulators the authority to 
determine which network elements must be made available and 
which do not. In addition, the Supreme Court and the D.C. 
Circuit Court of Appeals required that the Commission establish 
a limiting standard for the availability of network elements 
and did not require blanket access to those network elements.
    I'd like each of you to comment in terms of what your 
belief is with regard to the Triennial Review Order as to 
whether its squares or does not square with the dictates of the 
statute and the courts.
    Mr. Powell, I know you talked in your testimony about that 
this flies in the face, it flaunts the judiciary, but as we 
look to the future and the possibility of 51 different court 
reviews going back to the 1996 Act, I'd like you to comment how 
this fits with the dictates of that statute.
    And maybe, Mr. Martin, we'll just start with you and we'll 
go right down the panel.
    Mr. Martin. I think it does square with the dictates of 
Section 251 and the court's requirements as they've been 
interpreted back to the Commission.
    The most recent decision, the USTA decision before the D.C. 
Circuit requires the Commission to take into account greater 
granularity in its setting up of standards. I think the actions 
the Commission took last week were setting up national 
standards that could be applied, but that that application 
would still be done on a case-by-case and market-by-market 
analysis, and that we deferred to the States to end up trying 
to implement those national standards, not just on the 
switching elements but on transport and on other elements as 
    So I think that the Commission was attempting to adopt 
national standards, provide guidelines and limitations but at 
the same time having an analysis geographic and a market-by-
market analysis that would be done by the States.
    Mr. Upton. Mr. Copps.
    Mr. Copps. Well, I think it does square. I would agree with 
what Commissioner Martin has said. The Supreme Court has, it is 
true, said that the FCC has jurisdiction but it never said that 
the decision must be made solely by the FCC. We are in the 
process here of trying to provide Federal criteria and factors 
and then asking the States to apply the facts in their own 
local settings and standards. So I think that way we will get 
more precise line drawing and be more responsive to some of the 
things we have heard from the courts.
    Mr. Upton. Chairman Powell.
    Mr. Powell. Mr. Chairman, I personally and professionally 
think the decision is substantially flawed legally on a number 
of points. But I think I would emphasize the central one, which 
is I have heard a lot of people talk about it is not time to 
deregulate. The statutory provision is about what gets 
regulated in the first place.
    And one of the things the courts have chastised the 
Commission about is this attempt to presume the availability of 
everything and have the burden of the statute be to prove that 
it is not time to take that element away. I mean, what the 
court said is that the Commission must build the list from the 
ground up. And for every incremental decision it makes as to 
what it puts on, it must then find to a high level of 
granularity and rigor that it belongs on the list.
    In this decision with respect to switching, it is presumed 
impaired. The Commission has not the granular prerequisite 
finding to make that presumption, which makes no mistakes is 
the default of the land unless proven otherwise. I can 
understand the sentiment that wishes everything is unbundled 
until proven otherwise, but that is just not the statute as 
written nor as interpreted by the courts. And I think it is in 
this fundamental way that we have erred for a third time.
    Mr. Upton. Ms. Abernathy.
    Ms. Abernathy. Mr. Chairman, as I think was clear from my 
dissent, I believe that Congress mandated a Federal scheme for 
unbundling, and I don't think that was what was adopted by the 
FCC. The Act spells out the terms of a partnership with the 
States under 251D(2) and the Commission is directed to 
determine what network elements should be made available.
    Now, once we impose limitations, I think that we may 
delegate to the States authority to make more granular 
findings, and that's comparable to what we did with the 
transport piece of the item. But mind you, there was no finding 
at the Federal level supported by the record about whether 
there is impairment with regard to switching. And therefore, I 
dissented and I think it is a fatal flaw.
    Mr. Upton. Mr. Adelstein.
    Mr. Adelstein. Mr. Chairman, you referred to Section 
251D(2). I happened to bring a copy of it with me. And I think 
it is clear that the statute directs that if competitors are 
impaired without access to a particular UNE, that it must 
remain available. And that was the challenge before the 
Commission was to determine whether or not switching, for 
example, or transport was impaired and whether it needed to 
remain as a UNE.
    The FCC did, as I agree with you, give a primary role to 
the FCC in determining what are proper UNEs. I also agree with 
Commissioner Abernathy that we are given authority under the 
statute to delegate that to the States that agree that we need 
    Congress clearly envisioned a role for the States. As a 
matter of fact, Section 251D(3) of the Act is entitled 
Preservation of State Access Regulations, which makes clear 
that it is under our authority to have them have a role, and I 
believe it was envisioned as a partnership by Congress that 
there be a role for the States in this. And our general counsel 
has advised me that there is authority for us to delegate to 
the States a certain role in determining whether or not a 
particular element is required to be unbundled.
    Mr. Upton. I think I will come back to that on the second 
round. But Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman.
    For 100 years we had regulatory certainty in the United 
States. The Bells had no competition. Now what did that lead 
to? Well, it led when I arrived on the committee and right into 
the early 1980's, almost every American had a black rotary dial 
phone still in their front parlor with a very short cord on it, 
as well, so that your parents could hear what you were saying. 
And the reality was, is that the Bells used to testify that 
everyone could buy their phone from anyone, it would destroy 
the entire network across the country. It couldn't take the 
pressure. The government said no. Competition.
    On long distance, anytime anyone was on the phone for a 
long distance call, run to the phone, grandma's on the phone. 
It is long distance. Hurry. It is too expensive. The government 
said no, we're going to force the Bells to have competition.
    On cell phones they had a guaranteed license across the 
whole country. What did they do with it? Well, they said in 
1980 by the year 2000 we would have 1 million customers for 
cell phones, and it would be analog. The government said we are 
going to introduce a third, fourth, fifth and sixth competitor 
into the marketplace. Then it went digital. Every American now 
has one in their pocket. And the prices have dropped to the 
point where it is effectively now competing for business and 
long distance and the local marketplace.
    And in 1996--1996 even though the Bells had invented DSL in 
the labs 10 years before, not one single person had DSL in this 
country. And we passed the Telecom Act. Now 80 percent of all 
Americans have broadband going past their home. Now only about 
20 percent subscribe to it because it is too expensive, because 
we have a dupoly. But that is a tremendous success story, and 
only because we passed the Telecom Act of 1996.
    So, ladies and gentlemen, the question now is should the 
Bells be relieved from the pressure of having more competition, 
more pressure to innovate, which they do not understand unless 
there is competitive pressure or should we relieve the pressure 
upon them? In my opinion in the broadband decision the 
Commission hit the telecom trifecta; it is bad for jobs, it is 
bad for innovation, it is bad for consumer prices.
    According to the FCC press statements, the FCC relieved the 
Bell companies of the unbundling requirement for fiber fed lose 
when the Bell companies invest in new technologies such as 
packetized switches. But they announce they're not going to 
invest. And they permit the CLECs to continue to have access to 
the so-called TDM based 5 loops at a DS1 or 3 level of 
capacity, yet remembering that it was competitors who initial 
drove innovation in this marketplace. The problem is that the 
FCC decision will have the effect of freezing mores law and law 
and substituting the Bells' law, we want more. They do not 
believe in innovation. They believe in more monopoly. Most 
customers, especially the business company customers want 
higher and higher capacity and the presence of competitors 
pushes this demand up and up forcing the Bells to keep pace.
    Under the FCC decision, especially in the business 
marketplace, the CLECs will not be able to take advantage of 
the next leap in technology and create competitive alternatives 
as the CLEC will be frozen and their access to today's 
technology. Without accepting your premise, Mr. Chairman, that 
phone companies and cable companies will actually compete in 
the residential marketplace, which I believe is folly, please 
explain why you believe it is good policy to reverse our 
competition experience in the business marketplace and strand 
small and medium size businesses to a deregulated re-
monopolized Bell company and no viable alternative platform is 
left in this sector of the market?
    Mr. Powell. I appreciate the opportunity to ask that, 
because I think it is a pretty compelling story.
    If you look out over the country today, the vast majority 
of the network does not include the kind of facilities we are 
speaking about. They are not constructed, they are not in the 
ground, they are not available to anybody and are serving any 
consumers. So we talk about one of the central communication 
policy objectives in this country as it should be to get our 
network onto digital fiber based networks to allow us to 
provide this services and digital services future. That's also 
in the statute as one of its major goals and objective, best 
embodied in 706.
    I believe there is two central ways a policymaker can look 
at that question. One, are there are regulatory barriers that 
can be relieved to help stimulate construction in investment of 
the network, and can competition do it? I happen to believe 
that both are valuable tools. But I believe when you look at 
this space it is hard to be a competitive stimulating force 
using an infrastructure that is not even constructed yet. It is 
hard to imagine competition within the network that is not 
built being the source of stimulating investment to build it in 
the first place.
    I think that in the case, in this unique case of fiber 
deployment to which the country has a high value that requires 
massive amounts of new construction, the most viable tool for 
the stimulation of that investment was a deregulatory one, and 
that there is competitive threats but they are going to come 
from people who have alternate facilities to use in order to 
stimulate that investment----
    Mr. Markey. Mr. Chairman, did you keep Friday Wall Street 
Journal headline, Regional Bell Giants Back Off on Promise to 
Invest in Broadband Despite Winning a DSL Ruling? Isn't it the 
very fact that there is an absence of competition which your 
ruling on Thursday created, the very world that the Bells 
wanted to go to where they are not forced to innovate because 
they know now that they have much more of a captive 
    Mr. Powell. I just don't agree. I mean, 5 years ago I 
    Mr. Markey. Even the Bells talked----
    Mr. Powell. Mr. Markey, 5 years ago I learned that if we 
make policy based on the emotional reactions of any industry 
segment or their promises or their wishes we are engaged----
    Mr. Markey. The Bells do not model emotions. They do not 
have a emotions, all right. They don't innovate, they don't 
have emotions----
    Mr. Powell. I do not know they don't----
    Mr. Shimkus. Mr. Chairman, a point of order on time. If we 
are going to do the policy on time, then members have to comply 
with the request.
    Mr. Markey. Okay. I agree. Thank you.
    Mr. Upton. Mr. Tauzin.
    Chairman Tauzin. I, too, Mr. Chairman, want to present a 
Wall Street Journal entitled today Bye-Bye Baby Bells. And it 
is right to the point, makes the case. That when a Bell company 
loses a local dialing customer to AT&T it still collects the 
wholesale price from AT&T, albeit one set by regulators. I 
might have below costs. So every time that happens the Bells 
lose money. They get less cost for covering for AT&T than it 
cost them to provide the service themselves. But AT&T naturally 
targets the most profitable Bell companies and does so by using 
cheapo access through an infrastructure that all the other Bell 
companies have to pay for.
    Now let us talk about consumers, members of the Commission. 
Mr. Jenkins points out that for the Bells last week's ruling 
with an intimation of the dreaded death spiral wherein all the 
good customers leave and only the money losing ones remain. 
That's a great telecommunications world to live in where the 
Bell companies are left with folks who can't pay the bill, 
poorest of their customers and all the good customers are bye. 
You see the problem; the customers AT&T is being bribed to lure 
away are exactly the ones who bear a disappropriate share of 
the freight of the old system. That's the mousetrap a pro-
regulatory Commission has created.
    Now, the sad truth, Mr. Martin, I think you'll agree with 
me, is that this Commission, the one you serve on as Chairman, 
is a much more deregulatory minded Commission than the Reid 
Hunt Commission or the Bill Canard Commission. The Reid Hunt 
Commission which came up with UNE-P. And I love your statements 
about limited government and deregulatory approaches. But what 
you've done in this ruling is to pun your nose at the Supreme 
Court and instead of using the authority of a deregulatory 
commission to end this awful system, while AT&T can pick the 
pockets of the Bell consumers as they try to cross the bridge 
into the new markets of broadband. Instead of ending that 
system and doing the granular analysis the court in DC ordered 
you to do, you instead turn this whole decision process to 51 
regulatory minded commissions. You say to us you want limited 
government, less government regulation and yet you've taken a 
deregulated commission which had the mandate from the court to 
deregulate here and you've given that authority to 51 
regulatory minded State commissions.
    And I read your speeches, Commissioner Martin, and they 
baffle me. I am going to quote from the January 14 speech. 
``The Commission must minimize further questions and avoid 
creating greater uncertainty of prolonging ambiguity in this 
area to put off decisions that have the greatest impact in the 
marketplace to another day will only aggravate current market 
    And in speech in September you also said ``The Commission 
can contribute to market stability by establishing a more 
stable and reliable regulatory environment. Rod proceeding that 
remain pending for an extended period can contribute to 
    Now, if you really believe that, if you said this in 
January in these speech and then in September, why in earth 
would you continue the uncertainty by giving to 51 regulatory 
minded commissions the authority the Supreme Court said rested 
with you, a deregulatory commission, to put an end to some of 
these silly rules whereby one shareholder company, AT&T and 
WorldCom, can pick the pockets of Bell company customers the 
way the UNE-P rules allow them to do so, even where there is no 
impairment, where there are hundreds of switches available 
owned by AT&T and WorldCom and other CLECs to service those 
customers without parking these switches and using the Bell 
company switches at below costs? Explain your statements to me 
in January of September with your vote on the Commission, 
please, Mr. Martin.
    Mr. Martin. I do think it was important for the Commission 
to go on and take action on this issue, which I think it did. 
And I think that it was important for us to set up a national 
framework, and I think it was also important for us to take 
into account the D.C. Circuit's decision that we needed to put 
forth a framework that would allow for greater granularity and 
distinguish between the customers who were overpaying and 
therefore subsidizing and those who weren't overpaying and 
subsidizing the network. And I think it is setting up a 
framework that allows the States to do that is the----
    Chairman Tauzin. I am going to run out of time. I want you 
to read the Supreme Court, and I want you to comment. Maybe 
Chairman Powell will comment on it, too.
    The Supreme Court said, this is the Scalia decision, an 
Iowa Utilities Board, that the question in these cases is not 
whether the Federal Government has taken the regulation of 
local telecommunications competition away from the States. With 
regard to matters addressed in the 1996 Act it unquestionably 
has. If there is any new Federal regime, if it is to be guided 
by Federal agency regulations, the States should be guided by 
those regulations. If there is any presumption applicable to 
this question, it should arise from the fact that a Federal 
program administered by 50 independent State agencies is 
``suppressing strange.'' And it went on to say this at bottom 
is a debate about whether the States will be allowed to do 
their things, which you have allowed them to do in this rule, 
but about whether it will be the FCC or the courts to make 
these decisions.
    What you have done in your decision in my opinion, and 
please comment if you can and Mr. Powell I would like your 
comment before I pass on, as to how what you have done does not 
fly directly in the face of what Judge Scalia said; that the 
Congress took the decision about this regulatory framework away 
from the States in 1996 and gave it to you. And the only 
question now is whether the courts are going to make these 
rules or whether you will. Haven't you said in your ruling this 
week that you are going to leave it up to the courts? Fifty-one 
different decisions, 12 different circuits another Supreme 
Court case. Isn't that the result of what you have done?
    Mr. Martin.
    Mr. Martin. Mr. Chairman, the Supreme Court case you were 
quoting from, the court you have taken from, was actually where 
it was upholding the Commission's wholesale prices that I think 
you described as below cost as not being a taking. It was 
saying that those were not below cost. It was actually 
upholding the Commission's Federal rule that had developed 
    Chairman Tauzin. Nevertheless, it said it was your decision 
not the States, did it not?
    Mr. Martin. It did, Mr. Chairman.
    Chairman Tauzin. It did unquestionably say that?
    Mr. Martin. It did. It said that it did and it was 
upholding the Commission's framework where it had developed a 
broad formula that was then applied on a state-by-state, 
market-by-market basis to come up with exact TELRIC prices. The 
same kind of formula we are talking about applying in this 
circumstances on the switching.
    Chairman Tauzin. We terribly disagree with that.
    Mr. Chairman, would you answer that same question?
    Mr. Powell. The quote you read comes out of the Iowa 
Utilities case which quite ironically, the industry 
participants were opposite sides on this very question.
    Chairman Tauzin. Right.
    Mr. Powell. It was the long distance companies that were 
arguing it was a Federal regime and it was the BOCs insisting 
on States.
    The quote that I think you are referring to is in a 
footnote in the opinion which Scalia is, interesting enough, 
having the exact same debate with other members of the court--
    Chairman Tauzin. Right.
    Mr. Powell. [continuing] as to whether States rights or 
traditional State authority is being violated, and he is 
responding for the majority quite aggressively to the contrary.
    I find it interesting, just note, that the 1996 Act is 
750,000 words of Federal law that tries, perhaps at too 
minuscule a level at times perhaps, even but tries to 
completely set out terms and conditions extensively and give 
the Commission full implementation, including the original 
local competition of rules of given 6 months to do, including 
these rules.
    The two prior times the Commission has done this, Chairman 
Hunt and Chairman Kenard, it seemed to have no problem the 
national responsibility and executing the national rules. But 
when the merits of that were in favor of unbundling, it was 
okay. When the merits might be toward less unbundling, somehow 
it is a State granular question.
    I think that at a minimum I would agree with my colleagues 
and defend their point that we have the authority to delegate 
some responsibilities to the state. But we don't an obligation 
to do so. That is a discretionary decision. And I think under 
delegation law you have to be sure that the Federal authority 
that is delegating retains ultimate authority. In this case 
there is no review, there is no subsequent FCC ability to 
change or disrupt the decisions that are made, and I think that 
is another basis on which it has a legal failing.
    Mr. Upton. Mr. Boucher.
    Mr. Boucher. Well, thank you very much, Mr. Chairman.
    I made known my views with respect to your decisions of 
last week during the course of the opening statement, and so 
rather than dwell on those matters during this question period, 
I am going to take the opportunity of your presence here today 
to talk about a couple of other very important 
telecommunications issues that are other matters with which you 
are concerned, and we are also concerned, and I think today it 
is appropriate to address several of them.
    First of all, I would like to talk with you about 
telemedicine service and what needs to be done in order to make 
it more available in more places in rural America. Almost a 
year ago, in April 2002, the Commission issued a notice of 
proposed rulemaking looking for ways that the rural health care 
support mechanism could be streamlined and enhanced in order to 
make services more available to health care facilities in rural 
America while staying within the existing budget framework and 
keeping the existing cap in place.
    I responded to that notice with extensive comments, making 
specific recommendations on ways that telemedicine service 
could become more available to more facilities through 
appropriate Commission action. I know that many other people 
also responded with comments to your notice. But now almost a 
year has gone by and I am just hoping that you can put this 
issue forward on your agenda and reach a decision with regard 
to these much needed regulations within just the next couple of 
    As I said in my opening statement, I have numerous 
hospitals and clinics in my district that want to provide the 
convenience and cost savings to their patients that 
telemedicine affords. Frankly, the current rates for 
telemedicine service are beyond their reach. With the 
adjustments that have been recommended to you, staying again 
within your budget framework and your budget cap, services can 
be extended to these facilities in my district and to hundreds 
if not thousands of other facilities across rural America.
    I would just ask you, Mr. Chairman, if you share my 
interest in the subject, and I believe you do. And assuming 
that you do, if you can give us some indication of when the 
Commission might be able to assemble a regulation and act on it 
in a positive way?
    Mr. Powell. Thank you, Mr. Boucher. I share your enthusiasm 
and deep passion. We have talked about this.
    One of the things that I realized in the wake of 9/11 was 
we continued to see that the rural health care program was 
quite underutilized. While the schools and library program gets 
the headlines and gets a lot of the attention, gets a a lot of 
the focus, we thought that the rural health care program and 
the telemedicine program has had enormous benefits and in the 
wake of 9/11 we thought could have very serious benefits was 
being under-utilized.
    We undertook an examination to determine why. What we 
discovered was there were a lot of people not taking advantage 
of the program, that the eligibility criteria as well as some 
other technical problems were leading to that. So we initiated 
the proceeding, you know, out of that understanding and that 
    I am regretful that it is not done. I think that, you know, 
this area and time is not on your side. Every day is another 
day of risk. It has not been given a lower priority. I can only 
apologize that resources and issues particularly with the 
Triennial and the 271s have not allowed us to give it as much 
attention as it deserves. But I pledge to you, and I can talk 
to you more off line as I have a better sense of what the 
actual timeframes are, that we will continue to move ahead and 
try to get this done as soon as possible and soon as it 
    Mr. Boucher. Well, thank you, Mr. Chairman. I appreciate 
that response, and I will look forward to our future 
discussions on that subject.
    With respect to another issue, the Commission has an 
opportunity to facilitate a broad range of program access to 
consumers as a part of your ongoing broadband regulatory 
classification proceeding. Companies that own transport and 
also are either affiliated with or directly own a content 
provider have the very convenient ability to use their 
transport mechanism in order to discriminate in favor of their 
own content or their affiliated content to the disadvantage of 
the unaffiliated content provider. I think that kind of 
discrimination is wrong. I think that the transport provider 
should not slow down access to the competitor's site. I think 
the transport provider should not use his position in order to 
degrade the quality of receipt of a program or other 
transmission from the competitor's site. And I would assume 
that you would also agree that that kind of conduct is wrong, 
it is anti-consumer and should be unlawful through Commission 
    I would simply ask you, Mr. Chairman and other members, if 
you would care to comment on this kind of conduct and the 
potential for it to occur and if you would be willing to 
consider as a part of your broadband regulatory classification 
proceeding, adopting a provision that would not allow this kind 
of discriminatory conduct to occur?
    Mr. Chairman.
    Mr. Powell. Thank you, Congressman.
    This issue, as you articulate it, is a classic anti-
competitive anti-trust issue and, indeed, depending on the 
nature, extent and the motivations could easily constitute a 
violation of the anti-trust statutes and certainly would be 
actionable in that sense.
    I have always been concerned, as I think my colleagues have 
demonstrated, that when you have integration of both content 
and distribution you certainly have a heightened possibility of 
an anti-competitive event. Indeed, I think it is that same 
logic that led this Commission to extend the program access 
rules in the context of cable, a rule that attempts to 
guarantee that continued unfettered--not completely unfettered, 
but continued vigilance about the access of vertical 
integration of content.
    I think the same issue is right to identify and stay 
vigilant about on the broadband side. I do not know that I have 
yet seen sort of a compelling record that we have a clear and 
demonstratable problem on this issue, but I have seen and have 
empathized with the potential for it.
    And I don't know yet whether I can answer confidentially 
that I think it is right for this particular proceeding. But I 
will tell you within our own Commission we have some working 
group folks working on looking at that issue, meeting with 
companies like software companies and content providers who 
brought this issue to our attention trying to understand the 
nature of the problem and trying to see whether it is timely or 
what there would be for an effective regulatory response.
    Mr. Boucher. Thank you very much, Mr. Chairman.
    Thank you, Mr. Chairman.
    Mr. Upton. The gentleman's time expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
    Mr. Barton. Thank you, Mr. Chairman.
    I am not going to reiterate my opening statement, but just 
to give you an analogy. It seems to me if you go back and look 
what they did at electricity deregulation, State of California 
4 or 5 years ago, they maintained local rate retail rates, they 
regulated them, actually required a price discount, but they 
deregulated wholesale rates. So when they got a problem in the 
wholesale market because they did not have enough supply coming 
in, it took the whole electricity segment in California down 
the tubes. And right now the State of California is on the hook 
for about $20 billion.
    And what you all voted on last week 3 to 2 seems to me very 
similar to what the State of California attempted to do in 
their electricity markets 5 or 6 years ago. It just does not 
pass the smell test.
    But having said that, My first question is just a general 
question. The Chairman can answer, any of the other members.
    Commissioners Adelstein and Copps both said that they 
didn't have enough information before they voted on the Act 
that they did not see all the details. So my first question is 
were there details available? Did the Office of the General 
Counsel or anyone else at the Commission have a legal analysis, 
and was it presented to the Commission before it made the vote 
last week?
    Mr. Powell.
    Mr. Powell. Mr. Barton, I can assure you that in the course 
of this extensive and aggressive deliberation there was 
substantial advice offered by the General Counsel about the 
various litigation risk of approaches. I personally, having 
been a Commissioner that has been there 5\1/2\ years, and a 
lawyer, and seen the failings in the dialog with my colleagues 
personally represented my own concerns and anxieties about the 
legal risks associated with the decision.
    I think it is fair to say that the final decision on this 
item came together late. And being a member not in the majority 
ultimately I no longer had control over what the specific cuts 
were on the items to which I dissented.
    Mr. Barton. Well, is it true to say that some of the 
details have not been worked out yet and that people who voted 
in the majority could disagree on what those details should be? 
Since you are not a part of the majority, I might let Mr. 
Martin, Mr. Copps or Mr. Adelstein answer that.
    Do you all know what you all voted on, and do you have a 
gentlemen's agreement on what the details are going to be? 
Anybody in the majority.
    Mr. Martin. On both the broadband piece and as well on the 
local competition piece there are details that are being worked 
out. We voted on a framework and on the understanding that we 
had, which was put in writing and worked on it by the staff. 
But the final language of the order is not yet ready in that 
they are trying to draft it in compliance with that now. But 
that is applicable on both of them.
    Mr. Barton. Do you all have a memorandum of understanding, 
so to speak, that you all agreed upon before the vote?
    Mr. Martin. The----
    Mr. Barton. I'm not being facetious. I have no clue how 
Federal commissions make decisions and whether you are even 
allowed to do it. But I know when we vote on things around 
here, you know, we share specific details and I will talk to 
Mr. Markey. And he will tell me I am crazy and then he will 
talk me, and he thinks I am crazy. But eventually we agree on 
language before we vote.
    I mean, did you all have something that you all agreed on 
before you voted?
    Mr. Martin. Yes. The staff put together a memorandum that 
captured the essence of the language that everyone had agreed 
to, as I said, on both the broadband side and on the 
competition side.
    Mr. Barton. So you do not think there is going to be any 
different expectations on down the road? You think you all got 
it right and everybody is going to be happy and just all this 
outrage that you are hearing is just stuff us fussbudgets who 
were here 7 years ago and we did not get it then and obviously 
we still do not get it?
    Mr. Martin. I would not guess that everyone was going to be 
happy. That certainly has not been the----
    Mr. Barton. No. When they understand as well as you 
understand, see, that is my point. Since I do not understand 
yet, but I am hopeful that when I do understand maybe I will 
agree that you are correct. I doubt that, but it is a 
possibility. So----
    Mr. Copps. Can I just add one comment?
    You know there is one way you all could help us. We labored 
under restrictions and constraints of something called the 
Governmental Sunshine Act. Now that sounds wonderful. Everybody 
is for government and the sunshine. It puts a formidable 
constraint on the ability of the 5 people at this table to talk 
together. In fact, it downright prohibits our talking together.
    So you take an item like this, which is some 400 pages 
long, there was never once in this process time when we could 
sit down the 5 of us and say ``Here is where we think we are. 
Let us share some basic philosophical overview of this and then 
work your way toward the granularity of details.''
    I do not know of any other institution other than 
independent Federal regulatory agencies that are forced to 
operate under a system like that.
    Mr. Barton. But you can meet, but if you do it, you have to 
do it in the open.
    Mr. Copps. That is right.
    Mr. Barton. You would rather have some ability to do it 
behind closed doors?
    Mr. Copps. That is right. This is correct.
    Mr. Barton. Okay.
    My time has expired, Mr. Chairman.
    Mr. Upton. Thank you.
    Mr. Wynn is recognized for 8 minutes.
    Mr. Wynn. Thank you, Mr. Chairman.
    I would also like to thank all the Commissioners for 
appearing before us today and for your testimony.
    Mr. Martin, the FCC has the authority to do the kind of 
granular analysis that was required. Is it your view that the 
FCC cannot do this, and if that is so why do you feel that way?
    Mr. Martin. I certainly think that the type of granular 
analysis where you are actually going to be examining the 
specific market conditions on a market-by-market basis would be 
better done by the regulators who are closer to that situation; 
the State regulators in many instances have the benefit of 
regulating the retail rates, for example, of those consumers 
and are analyzing the market conditions on a market-by-market 
basis. So I think they are closer to that situation.
    Mr. Wynn. So it is fair to say you do not believe that the 
FCC can competently do that?
    Mr. Martin. I think it would certainly be difficult for the 
staff to do that on a nationwide basis.
    Mr. Wynn. Is that your view, Mr. Copps?
    Mr. Copps. I think theoretically we would have the 
authority to do that. But I think the courts have been pretty 
plain that when you are seeking the kind of granularity that 
parties to the various court proceedings always seem to want to 
come out of these proceedings that you have to go to that level 
to get that kind of granularity.
    Mr. Wynn. Mr. Powell, I believe you disagree with that 
    Mr. Powell. I disagree in this regard. I think it is fine 
to sort of exactly say there could be details that only could 
be done at the State levels, and indeed I agreed with respect 
to other portions of the order that that was appropriate. But 
nobody has ever demonstrated to my satisfaction what those 
specific things that are so uniquely granular are that can only 
be done at that level.
    And I think the holy crusade that was fought over switching 
is being dressed up to some degree in these level of granular 
details. Many of the details that people cite to me in an 
attempt to persuade me about this are things that are squarely 
in the control of regulatory authorities in the first place. 
They are not marketing impairments. They are not specific to 
the local conditions that are economic impairments. They are 
things that State regulators already regulate; the price of co-
location, nonrecurring charges. I think that it flies in the 
face of the D.C. Circuit to have the government set certain 
prices and then cite those as the basis for impairment to put 
something on the list.
    And so for me personally, and I respect my colleagues if 
they disagree, but I never was demonstrated to my satisfaction 
that we actually had identified what those things are that were 
uniquely local. And that is why I find it ironic that in recent 
days we hear lots of discussion about the States putting 
together regional collaboratives in order to address this. 
Well, that just flies in the face of the premise. How is it 
that it is only so granular that it is only within the borders 
of the State but we will not put together consortiums of large 
swaths of the country to do it?
    Mr. Wynn. Okay. Thank you.
    The other question I had, and anyone can respond to this, 
what do you believe is causing the delay in the expansion of 
facilities-based competition? I mean, because that seems to be 
what we are evaluating here, facilities-based versus 
maintaining UNE-P. And well why has not facilities-based 
expanded and is it ever going to if you maintain UNE-P?
    Mr. Powell. Congressman Wynn, I will take a shot at that.
    I actually am of the view that facilities-based competition 
is moving at a much more substantial clip than most of the 
market than this attempted intermodal competition that is being 
engineered by the regulatory side. I think the most significant 
competition that consumers have seen and can taste and touch 
and feel have been in the areas like wireless and cable, and 
other areas that control their facilities in a meaningful way.
    I think within the equation of facilities-based competition 
using the facilities of the incumbent it is just an enormous 
regulatory morass. And if you think about it, every last 
component or input of this local regulatory experimentation is 
being regulated in 51 jurisdictions and then being appealed to 
the courts. So 7 years into this statute we don not even have 
the rules yet for unbundled network elements, and many of our 
most fundamental judgments have been overturned 1, 2 or 3 
    So there is no clear stability yet about the terms and 
conditions by which, you know, those markets are facilitated.
    Mr. Wynn. Is there anything to suggest that with this rule 
we are going to move closer to an expansion of facilities-based 
competition or are we looking to basically remain sort of the 
status quo?
    Mr. Powell. Well, I know we all disagree about this, but in 
my opinion I do not think there is anything I can point to that 
I see promotes the direction toward facilities.
    And I would like to emphasize something that I think it is 
often, you know, sort of misstated or demagogued. We are not 
talking about no use of the incumbent's network. Whether I 
believe that was a right or not, the statute would never permit 
me to do that. We are talking about whether the entrant has to 
bring anything of its own to the party. Not whether it has to 
bring something, whether it has to bring anything. And under 
the UNE-P approach and the approach that we have put into 
place, it is clear that for a very long time you do not.
    Mr. Wynn. Okay. Thank you.
    Mr. Copps. Could I just add a quick comment?
    Mr. Wynn. Sure.
    Mr. Copps. I think it is clear that in the final analysis 
the ultimate arbitrator determining the future of facilities-
based competition is the economy itself. The overall health of 
the economy. But I think you have to look at these other 
strategies, whether it is resale or UNEs, whatever, in kind of 
a time context and as providing kind of a lifeline or a way 
station as we all move toward where we want to move, which is 
facilities-based competition. But the times have not been very 
encouraging of that kind of build out.
    Mr. Wynn. Thank you.
    On the question of the retirement of copper lines, is it 
correct that the ILECs would have to get State permission in 
order to retire a line? Is that----
    Mr. Powell. Well, I have heard this raised by a number of 
people, and I'd welcome the opportunity to clarify that.
    I think that it is easy to misinterpret the press statement 
on this point. It was not, as I understand it, the Commission's 
intention to create an affirmative obligation to have the 
state's permission to retire copper in order to use fiber 
facilities. I think all the Commission was noting is that 
within States there are sometimes statutes about processes you 
have to go to disservice something. The Commission was not 
introducing a rule that you had to have State permission; it 
was only alluding to the fact that there would be such 
processes that might be effected there. But it did not attempt 
to put in a new requirement or even embrace the requirement.
    Now, moreover, carriers will always have the ability to 
provide that voice capability over the new fiber and thereby 
delist the copper anyway. So we will try to make that more 
clear when the actual order comes out.
    And I yield to my colleagues if I have----
    Mr. Wynn. Let me just ask, since my time is running, Mr. 
Martin, did you say that the ILECs would be able to charge the 
rates that they wanted under this order, because that was not 
my understanding, but I thought I heard you say that?
    Mr. Martin. No. I said that the order also had some 
instructions for adjustments on the TELRIC pricing model as it 
applies to new investment going forward.
    We talked about changes that could be made to depreciation 
    Mr. Wynn. Did you say that they could charge higher rates?
    Mr. Martin. They would be able to for the wholesale prices 
for new investment that they make. Not on the investment that 
has already occurred.
    Mr. Wynn. Good. I am about to run out of time.
    Mr. Powell, I along with many of my colleagues are very 
concerned with the current ownership limits. We raised them in 
1996 from 25 percent to 35 percent. I do not want to cast 
dispersions or suggest things that may not be true with respect 
to your views. Would you share your thoughts on the ownership 
limits and the process that might result in raising them?
    Mr. Powell. Sure. I think it is important to understand 
that what I think we are pursuing is trying to correct the 
failed mechanics by which we established the media rules. You 
know, I do not have that much of a passion about exactly how 
they come out.
    In many ways, I am doing what this Congress ordered us to 
do, which it said you will review these rules every 2 years, no 
if, ands and buts about it. And you shall eliminate or modify 
rules that you believe are no longer in the public interest. 
That began in 1998. The Commission's first effort at that was 
disastrous. It went into the D.C. Circuit and we lost--we are 0 
for 5 on media rules. One of the reasons is the Court is saying 
that there is a presumption in that statute that obligates to 
validate the merits of a rule using rigorous and empirical 
evidence or get rid of it. And if you do not get rid of it, we 
are going to get rid of it for you.
    So as I picked up my obligation as chairman to do the 
second biennial, we are faced with trying to develop a system 
and an approach to media ownership regulations that will be 
faithful to what you directed us to do every 2 years, and the 
way the court has interpreted our obligation to do that.
    You know, Commissioner Copps talks about, you know, what if 
we are wrong and you cannot put the genie back in the bottle. 
What if we are wrong and the courts are the ones who eliminate 
all the rules? You are not going to put that genie back in the 
bottle, either. And I think that what we are trying to do is 
really work on the way we do biennials, taking a fuller account 
of the kinds of market evidence that the court said you had 
better have an explanation for.
    I think every member of this Commission is unanimously 
committed to the goals I have heard talked about; localism, 
diversity, competition, stay at the forefront of our guidance 
in these proceeding.
    Will some rules fall? Maybe. Will some rules be modified? 
Maybe. May some new rules be introduced? Maybe. All of which 
the Congress said you have an obligation to consider in making 
your judgment. So that's what we're really doing.
    How the rules come out, I have not prejudged them and I do 
not have a hard and fast view about what each rule's ultimate 
conclusion will be. But I know that the record that we have to 
development and the empirical analysis we have to do is harder 
than anything we have done before in defending our rules. And 
the burden is to defend them. Because if I really wanted them 
to go away, I would not do that at all and I would just let the 
D.C. Circuit knock them out one by one.
    Mr. Wynn. Thank you.
    Thank you, Mr. Chairman.
    Mr. Upton. Mr. Shimkus used the defer rules. He's 
recognized for 8 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. And I know my friend, 
Mr. Markey, will be watching me like hawk, so I will try to get 
my questions out rapidly.
    Consumer interest, we talked a lot about that. Many of you 
know, and Commissioner Adelstein, you were at the rollout for 
the E-011 Caucus which we did by camera with Senator Burns, 
Senator Clinton, myself and my colleague Congresswoman Eshoo. 
And there is a part in this whole enhanced 911 debate that is 
involved in this area.
    I commend you for having Mr. Hatfield do a report which I 
have a copy of and I have read. I want to encourage my 
colleagues to do two things. One is read the report. Two, join 
the caucus.
    In the findings and recommendations, third, the basic 
comment is that there is 3 phases to enhanced 911. We have the 
cellular companies, we have the local exchange carriers and we 
have the PCAPs or the call centers. So the question is very 
simple, and I would like to ask Commissioner Abernathy, 
Commissioner Martin and Chairman Powell, Mr. Hatfield observed 
that the existing wire line E-911 structure is seriously 
antiquated. He says that the existing wire line E-911 structure 
is built upon not only an outdated technology but one that was 
originally designed for an entirely different purpose. He notes 
that it is an analog technology in an overwhelmingly digital 
world, yet it is critical, as I said, to the chain on enhanced 
    So the question to you 3 Commissioners how is the current 
order going to encourage the necessary investment in the 
current wire line structure particularly with the consumer 
focus on enhanced 911? And why do we not go with the Chairman 
first and then Ms. Abernathy and then Mr. Martin?
    Mr. Powell. Thank you, Mr. Shimkus.
    Just so I understand, the current Triennial of the 
decision, what impact it may have on----
    Mr. Shimkus. Correct. Yes, I have not per se, but I----
    Mr. Powell. That is okay. I understand.
    Mr. Dingell. Concise.
    Mr. Powell. I am not so sure I have the answer. But I think 
what you point out is that one of the things that we have run 
into in the deployment of enhanced 911 capability is that the 
ILECs will remain an instrumental part of that in that they 
provide some of the critical trunking that allows some of these 
services to work. And there have been some disputes over the 
cost, particularly associated with who is obligated to pay for 
that infrastructure and how are the costs going to be shared.
    I do not know whether I can draw a direct parallel to the 
decision, but of course as you look at the limited pile of 
revenue and expenses that companies have to invest in changes, 
whether they be broadband or E-911 functionality, I suppose you 
could make an argument that if this has a continued detrimental 
effect on revenue, budgets and expenditures it will only put 
more financial pressure on the ability to make new investments 
to help enhance 911. But I honestly have not personally studied 
that or know whether it is even a credible concern, but that 
would be the theoretical concern that we would need to look at.
    Mr. Shimkus. Thank you.
    Ms. Abernathy.
    Ms. Abernathy. Thank you.
    When I was working on this years ago when I was at 
Airtouch, one of the problems when we were doing wireless E-911 
is we just fundamentally failed to appreciate the critical role 
that the wire line carriers would play. And we worked closely 
with the wireless bureau and with the Commission in coming up 
with rules, but at no time did we pull into the dialog the wire 
line providers. We also worked closely with PSAPs.
    I think what you have seen is that all of a sudden now we 
are coming up to D-day for deployment and we are finding that 
the wire line players were never part of the dialog nor part of 
the commitment, and so we are having to move in that direction 
and engage them and show them why this is such an important 
obligation on their part. Because if the connection that they 
have to provide between the wireless parties and the PSAP, if 
that connection fails, then all of the investments that have 
been made by the other parties go down the tubes. And, in fact, 
you do not have location capabilities for consumers.
    Mr. Shimkus. Mr. Martin.
    Mr. Martin. I think that one of the other aspects that we 
were talking about with Congressman Wynn a minute ago about the 
change in our rules as it relates to any TELRIC pricing that 
would apply for any new investment going forward to the extent 
that any of that was being sold, similar to services or 
equipment was being sold on a wholesale basis would obviously 
have an impact on the new investment that might be required in 
the context of E-911 capability as well.
    But I also think that the Hatfield report just highlighted 
the importance of the local exchange carriers will continue to 
play in E-911 and the importance of their upgrading their 
equipment that will make the entire network capable of 
receiving it even from the wireless side.
    And just finally, also the importance of the PSAPs being 
able to make sure that the funds that are being collected for 
E-911 are actually being used to make sure that they are 
implementing the rules as they are required. Some of the States 
have collected funds and not had that going in that direction 
even though----
    Mr. Shimkus. Okay. Well, I don't want to go in that. But 
let me know go in reverse order with those answers.
    What in your last order would incentivize a competitive 
carrier to invest in a robust--now this is a competitor, this 
is CLEC. What in this order is going to incentivize the CLEC to 
invest in a robust facilities-based network necessary to have 
the redundancy required that we are asking for in enhanced 911?
    Let us go with you, Mr. Martin, first please.
    Mr. Martin. The pieces of the network that end up being 
used for the enhanced 911, the CLECs provision in the services 
currently is going to be over the use of the incumbent's 
    Mr. Shimkus. So there is nothing to incentivize them to 
build out to facilities-based in your recent order?
    Mr. Martin. On E-911 services there is nothing in 
particular on the most recent order that would encourage them 
to be providing E-911 capability.
    Mr. Shimkus. Thank you.
    Ms. Abernathy?
    Ms. Abernathy. I think there is nothing in this order that 
will incentivize CLECs. I think the seduction of TELRIC pricing 
creates a disincentive to rational business behavior, which 
would be to invest in some facilities. So I think in this 
instance there is no incentive.
    Mr. Shimkus. Mr. Chairman.
    Mr. Powell. Yes, Congressman. I would agree that I do not 
think there is a lot, except do think that the order makes 
clear that certain kinds of transport will be off the list if 
there is competitive supply. So in markets where you have some 
competitive supply already, a CLEC is going to be obligated to 
either use competitive supply, which does not necessarily get 
at your question, or self provision, which might.
    Mr. Shimkus. I want to thank you for that.
    Part of the report also said that there should be 
congressional champions, and I think that is why the 
congressional enhanced 911 caucus was formed, to do that, to 
bring attention here. And we had a great reception and a great 
press conference. And it is going to cause us to look at 
enhanced 911 very carefully in all the State quarters involved. 
So, again, I want to encourage all my colleagues. I think it is 
a critical aspect that I would encourage them to join with us. 
If there is anything about consumer protection, it is rolling 
this out.
    There is a lot of friends in this room, and a lot of 
friends in the fight. Locating people on a cellular phone, 
their location is critical for saving lives. And in the 
business model you have to have capital to invest in new 
technologies. And when you drain capital from one area, you do 
not have capital then to expand in maybe other areas. And that 
was my connection. I do not have the answer. Hopefully, we will 
move forward.
    And with that, maybe I should wait until I go down to zero. 
But with that, ranking member Markey--Chairman, I yield back 
the balance of my time.
    Mr. Upton. Noted the gentleman yields back 5 seconds.
    The gentleman from Illinois, Mr. Rush is recognized for 5 
    Mr. Rush. I want to thank you, Mr. Chairman.
    Commissioner Copps, when we introduced the Tauzin-Dingell 
legislation last year, which is like your decision and the 
decision of the Commission, removed unbundling obligations for 
the Bells advanced facilities, I introduced an amendment that 
held the Bells to a strict time line for broadband deployment 
to ensure that they use their new regulatory freedom to benefit 
all Americans, including residents and undeserved or low income 
    My question is why did not the Commission impose such a 
build out requirement on the Bells? And without such a 
requirement, what assurances do you have that the Bells will 
deploy more broadband facilities, particularly in the 
undeserved areas where they are so sorely needed?
    Mr. Copps. Well, I do not have a lot of assurance on that, 
nor do I think I would have the possibility at the Commission 
to win a majority for that kind of a charge. And maybe that is 
something that would have to come to Congress and be dealt with 
in legislation.
    But we have every year an exercise that the Commission 
calls the Section 706 process to look at the progress we are 
making regarding the reasonable and timely deployment of 
broadband. And I think we have to really take that with utmost 
seriousness and really ask some questions that we have not 
asked before. And I think when you start talking about 
broadband, although the term seems to be going out of style 
digital gap, some question in my mind that there is a digital 
gap not just in rural America but in the inner city. And we can 
argue back and forth whether deployment is reasonable and 
timely. I would come down on the side in those areas it is 
neither reasonable nor timely and that we need to put that very 
much forward on our list of priorities at the Commission, even 
as you are attempting to put it very much forward on the 
priorities of the U.S. Congress.
    Mr. Rush. Chairman Powell, do you have a response?
    Mr. Powell. I think I would largely agree, only to say that 
your question, I am very familiar with your amendment. It is 
very unclear to me the Commission would have legal authority to 
obligate in quite the way that you were able to do as a matter 
of legislative law. I cannot say that I have studied that 
ostensively, but for the Commission to direct construction of 
facilities along a time line in certain markets I think would 
be a strain to come up with an authoritative basis on which we 
would have that authority. So I think there is sometimes a 
partnership in which the things that we cannot do, you know, we 
do have to rely on Congress to do.
    Mr. Rush. Okay.
    Chairman Powell, do you believe that the current national 
television broadcast ownership cap is promoting either great 
diversity of voices in terms of serving the needs of minority 
communities or promoting greater minority ownership of 
broadcast properties? If we as a nation are really serious 
about greater opportunities for minority involvement and all 
their facets of the broadcast business, should we not be 
exploring more direct means to achieve that results, such as 
the tax incentives like those in the bill recently introduced 
in the Senate by Chairman McCain, and which I am also preparing 
to introduce a House companion bill in the next few weeks?
    Mr. Powell. Well, Congressman, I applaud you, will do 
anything I can to help. I have for 5\1/2\ years believed that 
the most critical problems facing minority interests in the 
development of alternatives in the media marketplace was most 
preeminently access to capital. And I think that the tax code 
is often used to subsidize high public values for that purpose, 
and I have always thought that the one policy that I have seen 
when I look over the history of the country that actually 
seemed to achieve what it professed to achieve was the minority 
tax certificate program that preexisted. Now, I think there 
were flaws in that program, and I think that I worked with 
Senator McCain and others to try to remedy some of those flaws 
and make it more broadbased and sustainable judicially. And I 
think that it has done that. But I think that that is what we 
need to do. I think that will have a much greater impact.
    You know, I should not try to duck your question about the 
35 percent ownership rule. I can only say if it was meant to do 
that, it sure has not proven very productive. I mean, the 
decline in minority ownership and the limited amount of 
opportunity has taken place in the face of the rule. And I 
think that when this issue matters a great deal to me 
personally. And, you know, when I look and study that we run 
more in more often than not to capital formation challenges and 
for a minorities who are often new entrepreneurs who do not 
have the kind of legacy networks in an industry that is pretty 
clubby and pretty old. And so--not in age. My apologies to any 
    And I think there are just more productive directions to 
try to achieve the goals we do. And then I think that--you 
know, whether I agree with them or not, and I should confess 
publicly that a lot of the court decisions in the area of 
minority ownership and affirmative action I do not personally 
subscribe to. But I am still constrained by them. And I think 
that cases like Adaran and Richmond v. Grossnan and stuff have 
been terribly constraining to a government policymaker to go at 
these problems more directly.
    So I think things like access to capital, tax certificate 
policy, other kinds of policy are more productive directions 
for those objectives.
    Mr. Rush. Thank you, Mr. Chairman. I yield back.
    Mr. Upton. Thank you, Mr. Rush.
    Mr. Walden is recognized for 8 minutes, taking advantage of 
the deferment rule.
    Mr. Walden. Thank you, Mr. Chairman. Is timing is 
    Chairman Powell, I accept your apology, as the only 
licensed broadcast owner here in the committee, I do not 
perceive myself to be old or stoogy, or whatever it was you 
just said. And I declare a conflict, and will as I serve on 
this committee.
    But I think your point about access to capital, especially 
for minority ownership, is clearly a huge problem. And I would 
welcome the opportunity to work with my colleague on that 
initiative, and would be happy to join you on that effort. 
Because I think that it is truly the best way to facilitate 
more diverse voices in the marketplace.
    While I'm on that topic, because one of the issues before 
this subcommittee is your rulemaking proposal on ownership and 
the various rules, having been in the radio business nearly 17 
years now I have witnessed an extraordinary change and an 
extraordinary level of new competition for the same set of ears 
that I try to appeal to. Whether it is XM and Sirius, cable 
audio channels, satellite delivered audio channels, AOL-Time 
Warner, Internet channels, the advent of peer-to-peer file 
sharing where it is all music and it gets out there. You see 
what is happening with private recording devices where they can 
skip ads on TV now and the effect that is having on over the 
air broadcasters and others. And all of them, and the addition 
of LP FM as it is beginning to come out, and I know you are 
opening the door--a short window for translators as well, 
    It is an enormously different market than it was in 1934 or 
1996. And I hope as you look at the concentration rules, while 
there may be some problems with vertical concentration where 
you own the rights to the station and everything else that goes 
on your market or conceivably could come there; that is almost 
a fair trade issue as opposed to a license issue in my mind. 
But you will take into account that it is a very competitive 
marketplace with far more radio stations in each market and TV 
than there were in my father's generation, and indeed when I 
entered this business. And that we have to be able to compete 
against a competition that never existed before to be able to 
survive as the free over the air broadcaster that services the 
    With all due respect to my friends at XM and Sirius and 
others, satellite delivered broadcasters don't give one hoot or 
holler about whether the local school is closed today in my 
community. That is my responsibility. But I compete against 
them for audience share. So I hope you will keep all that in 
    Ms. Abernathy, I was especially intrigued by your testimony 
as I read it yesterday flying out here from the west coast. And 
on page 4 you talk about in an economic environment where 
carriers would have a difficult time raising capital even under 
the best of regulatory circumstances, the absence of clear 
rules can deal a crushing blow. And I know in other testimony 
there is discussion about we lost half a million jobs and 
billions of dollars in capital. And I know after this recent 
ruling, you know, the stock market did not smile on the Bells. 
Can you, and each of you maybe, give me some idea if you float 
part of this back out to all the States without a clear 
definition from the Commission, at least not that we have seen 
yet on impairment and with no real appeal process back to the 
Commission, how long is it going to take 51 entities to decide 
plus the court cases and is this yet another crushing blow to 
moving forward with the capital necessary to continue to build 
out the facilities?
    Ms. Abernathy. I think absolutely it is. I mean, the 
problem whether you are for UNE-P or against UNE-P, there is no 
clarity here. Now, I happen to think we should transition off 
of it and wean the carriers off of it to a more rational 
business structure. But in this scenario what you are doing is 
you are saying there is no certainty at all. Do not build a 
business model around it. Do not invest in new infrastructure. 
And instead, even for some of the CLECs who have not had to 
engage at the State level, have not had to hire lawyers to do 
lobbying at the State level, we are now saying that you are 
going to have to go state-by-state and then, of course, there 
will be appeal from those decisions. And there will be a 
tremendous amount of uncertainty. And I believe there will also 
be States who will not meet the 9 month deadline for trying to 
get this done. So we will see waivers and extensions.
    So this does not create the kind of environment where Wall 
Street looks at these companies and says ``Okay, I know what 
your business plan is going to look like in 2 to 3 years, and I 
know how you are going to make money, and here is some 
    Mr. Walden. Mr. Chairman.
    Mr. Powell. Well, I will try as best I can to address your 
question about time lines with the big caveat is that one of 
the consequences of this approach is that it will vary 
dramatically across the country. But even assuming a State 
finished in the 9 months that the order affords them, which I 
do not have that much optomisim for--I do for some of the 
marquis States who are well resourced, have the kind of 
expertise and make this priority. And the State commissions are 
very burdened, too. They do energy dereg, they do gas, water, a 
lot of other things. So I don't know what their priorities are.
    But in the best case, the lead States are likely to finish 
maybe in 9 months, or probably more likely a year. I think 
there will be a substantial number of States who are still 
struggling with this if the Commission permits it. Now, 
according to the order as I understand it, it comes falling 
back to us if they do not finish it in 9 months.
    But those cases are appealed to Federal district courts. 
Why is that important? Because Federal district courts tend to 
be pretty backed up and to even get a case docketed is usually 
a year before you are even docketed. That is not hearing the 
case. It takes a year before you will even be put on the 
schedule. It might take another year for the case to be 
resolved. You cannot assume that they will all come out the 
same way. Some will be remanded, some will be continued. If 
they are finaled, they will be appealable to one of the 12 
courts of appeals of the United States, which usually are going 
to take another year or 2. And then, you know, if there is a 
split in the circuits, they reach different decisions, you are 
going to have a petition granted, that is probably another 1\1/
2\ years. It could easily be even in an optimistic scenario 4 
    I would only offer, and I do not mean to argue it will be 
only be, but that is very likely. I give you the only example I 
know of the 271 process.
    The Act just passed its seventh anniversary and we have 
completed 35 States, and 20 of them were done in the sixth 
year. That is with the process that comes directly to the 
Commission. That is with a process that tells the Commission it 
must rule in 90 days, period and that decision is final. That 
is where guidance can be uniformly shared across States and 
from the precedent set by the FCC, and that is a 7 year 
    I cannot possibly imagine how this one is going to be 
dramatically more efficient than that one, given that there are 
many more criteria, much less precedential review by the 
Commission, much fewer timeframes.
    So, again, I mean my greatest criticism, to be candid, is I 
could understand a disagreement on UNE-P or not to UNE-P, but I 
think in many ways we have chosen the worst of all possible 
courses, which is we do not know for that kind of timeframe.
    Mr. Walden. Mr Copps?
    Mr. Copps. Yes. Well, let me just make a quick comment, Mr. 
    We do have some timeframes in here, 90 days and 9 months. 
Hopefully, that will move it along. And then it depends if you 
go to court and who is going to take you to court. And I do not 
know if that is going to be the folks who are declined the lack 
of regulatory certainty or who it is going to be, but I suppose 
no matter where we came down on this we would be going to 
    But, you know, I do not want to take all the hits on this 
decision for creating tremendous regulatory uncertainty. I have 
comments on this in the past. I think the Commission stands 
kind of guilty of creating regulatory uncertainty in a lot of 
different areas, other than this, and I hate to see this one 
singled in on as the only candidate. I think we are doing on 
broadband, for example, is creating not in this decision so 
much, but in the cable modem decision and in the Title 1 
pending wire line decision, I do not think the markets have a 
clue of how we are going to come out on that or when we are 
going to come out on there, or if we move things to Title 1 
what are going to be the stipulations imposed on people who are 
operating under Title 1. So I do not want to take the only 
bullet that is fired here on creating regulatory uncertainty.
    Mr. Upton. Thank you.
    Mr. Davis recognized for 8 minutes.
    Mr. Davis. Thank you, Mr. Chairman.
    I look forward to working with you, Chairman Powell, and 
your qualified colleagues as well.
    I would like to ask again a question about published 
reports with respect to the intention of at least some of the 
Bell companies not to deploy broadband in any immediate or 
significant fashion. In developing the ruling we have been 
discussing today what assumption did you have as to the impact 
of your broadband relief would have on their willingness to 
proceed with broadband deployment?
    Mr. Powell. I think, first and foremost, we did what the 
statute requires, which is to make a candid assessment of 
whether new architecture is necessary and would be impaired 
without it.
    One of the things we observed in this segment of the market 
is the vast majority of competitors were using facilities 
rather than fiber to be competitive; that is there was copper 
available and they were able to use aspects of the network to 
provide the services and speeds they offered. And one of the 
assumptions was do we believe competitors are impaired without 
access to the future availability of fiber. And at least for 
myself I concluded no because there were alternative facilities 
that provided adequate services for them, at least at this 
moment in time. Now, this review is done every 2 years 
    I think there is a consideration guided by the statute and 
Section 706 that says the Commission should stay attuned to 
trying to remove barriers to investment in new architecture of 
advanced telecommunications services.
    I personally believed that there is a huge disincentive to 
undertake the expensive activity of constructing new facilities 
if they were immediately available to people who would be able 
to compete for you for those services. I think it is not that 
different from copyright law or patent law that allows an 
innovator or the one who assumes risk some reasonable amount of 
time to profit from those risks taken before making it more 
generally available. That was at least the theory.
    I would like to emphasize very strongly if there is one 
thing I hate about this industry is its constant passion play 
between billion dollar self-interested actors.
    Now I have never once accepted the representations of any 
company in making the assumptions on which they do. I try to 
base it on sound economic judgments which should promote the 
most positive incentive. Sometimes that happens to coincide 
with their lobbying effort. That does not mean that I buy it 
wholesale. I have yet to ever see one that was persuasive.
    So it does not surprise me. I am as disappointed as anyone 
on this committee by some of the statements. I think it is fair 
to say that the BOCS, but not all of them said that. Qwest was 
very, for example, careful to say something different. But I 
also think it is a lot of crying, there is a lot of crybaby 
reactions to a bitter decision at the end of the day, and I 
have heard a lot of those.
    I still do not think that when they go back in the board 
room and they look at their fiduciary responsibilities to 
shareholders they will be able to ignore completely the 
opportunity that the decision provides, no matter what their 
lobbying shops will say about the consequences.
    Mr. Davis. Appreciate your candor, Mr. Chairman.
    Would any other Commissioners care to comment on this 
particular point?
    Mr. Copps. Well, I think in addition to some of the 
statements which have been made, which I think are unfortunate, 
there might be a larger and a more historical context in which 
to look at this. There was a study done recently, and I hope I 
do not misquote it, by Mr. Hassett at the American Enterprise 
Institute. And he made the point that a good bit of the 
investment that has gone into broadband has come from the 
competitive community. And, indeed, it was his conclusion after 
looking at the fact that a lot of the ILEC investment made in 
broadband was probably stimulated by the CLEC investment made 
in broadband.
    So in addition to the statements we are looking at right 
now in the passion of the moment, I think we need to look at 
historically at investment patterns from the ILECs into 
    Ms. Abernathy. Thank you, Congressman.
    I think that they will do what is in their best interest, 
and that is what I fully expect. So when I analyze this issue I 
ask myself what is most rational in order to remove 
disincentives to investment. And then they either will based on 
business incentives invest or they will not.
    I believe that the competitiveness of the cable product as 
far as offering broadband will create markets where this kind 
of investment will make sense. And where it does, I will not be 
standing in the way forcing them to sell it off at discount 
    So I am comfortable with our decision, and I do believe 
that we will see some investment, perhaps not as quickly as we 
might have liked.
    Thank you.
    Mr. Martin. I would just say that there was an underlying 
assumption in the decisions that I made. There was obviously a 
hope that the broadband investment would follow the decision. 
And I'd certainly echo the comments of the Chairman and the 
other Commissioners that were disappointed by the fact that the 
public comments that have said that that might not follow.
    Mr. Davis. Chairman Powell, I believe you have stated that 
the additional development of cable and Internet sources of 
news information has added to the multitude of voices in the 
marketplace and perhaps as a basis to revisit the restrictions 
that are currently set on diversity of ownership within the 
broadcast industry, is that correct?
    Mr. Powell. Yes, as far as it goes. And in many ways what I 
am stating is exactly what has been stated back to us by the 
cases in which we were overturned in which when we ignore the 
availability of alternative outlets we are quickly chastised 
for not taking those considerations into account.
    Mr. Davis. So here is my question. I have looked at the top 
five Internet news sites according to Nelson, November 2002, 
MSNBC, CNN, AOL News, Yahoo and ABC. These are all owned by the 
same people who are the major sources of broadcasting news 
information now. So my question to you in terms of your 
analysis of the need for diversity, are these different voices 
or are they the same voices?
    Mr. Powell. They are both depending upon who you are 
talking about. I think Yahoo is a distinctly different voices 
than any of the networks. I do not know that Yahoo owns any 
television properties that I am aware of. I think there are 
many other sources of news and information on the Internet that 
are not owned by people.
    I understand, the point about top 5, but let me just even 
concede that to you. I mean, I think that is a red herring. We 
have not argued that somehow Internet has supplanted 
traditional television, and that is the reason. I think your 
argument is correct, but it goes to how much weight that should 
be given. Maybe minimal at this point in time, I would be the 
first to agree to that. But it cannot be ignored either I think 
or we are at judicial peril.
    But I do not think that that is the one that is most 
groundbreaking in terms diversity. If you look at the vast 
majority of the broadcast rules that are under review, they 
date back to the 1970's. How about just cable? Cable, which 86 
percent of Americans now subscribe to or direct broadcast 
satellite, which is a substantial portion of that, I think it 
is completely irresponsible not to take into account the 
availability of sources of information, entertainment and news 
that have been introduced into the market in cable since the 
1970's and the 1960's. And I think that is the most compelling 
additional infrastructure.
    Mr. Davis. Commissioner Copps, would you care to comment on 
this point? I have a few seconds left.
    Mr. Copps. We need to better understand the changing nature 
of competition. It is true that there are more radio stations, 
but certainly there is less radio competition. We know for a 
fact we have 34 percent fewer radio station owners in February 
of 2003 than we had in 1996. Yes, we do have more channels on 
television, but 90 percent of the top stations are owned by the 
giant broadcast companies. The top 20 sites on the Internet are 
owned, pretty much, by the same players. So we need to take a 
really close look at this.
    And, you know, there are so many dimensions to it. And I do 
not want to get us caught in a situation like we are in today 
up here when we do our media concentration decision and come up 
here and try to explain. We had better make sure that we have 
teed up and talked about all of the options that might be 
proposed for this. If somebody is going to propose changing the 
35 percent rule to go to 35 or 40, or 45 percent, we had better 
have a study that goes out and looks at the results of that 
rather than just trying to pick a figure out of thin air and 
say let us go with us and vote on it. Because that will survive 
neither the granularity test of the courts nor the good 
judgment of the American people.
    Mr. Davis. Thank you.
    Thank you, Mr. Chairman.
    Mr. Upton. Thank you.
    Ms. Wilson.
    Ms. Wilson. Thank you, Mr. Chairman.
    Mr. Adelstein, I wanted to ask you a question about build 
out requirements. Do you agree with me that the FCC's decision 
on broadband essentially mirrors the Tauzin-Dingell Bill but 
without the mandatory billout requirements? And in light of the 
Bells' public statements denying any intention to deploy 
broadband, do you believe it would be prudent for Congress to 
step in and impose such requirements?
    Mr. Powell. Thank you for the question. I do believe that 
this bill does in many ways mirror the Tauzin-Dingell 
deregulation that was envisioned by that bill. And, in fact, I 
think that the opinion of the majority in this case gave the 
Bells everything that they asked for on broadband. And it is 
disappointing. I shared the disappointment with my colleagues 
that they have made public statements that they will not invest 
despite having earlier said before the proposal was unveiled 
that if that was the case, that they would have made major 
    I share the view of the chairman that there is not clear 
authority on the part of the Commission to require those kind 
of buildout requirements. So it would take an act of Congress, 
as was contemplated under the Tauzin-Dingell Bill to require 
that kind of a buildout. And would welcome and be willing to 
implement any such legislation were Congress to enact it.
    Ms. Wilson. Commissioner Martin, I had a question about 
line sharing and your position on line sharing and the FCC's 
    I guess what may be the best way to put this is how will 
residential consumers of broadband expect to benefit from the 
elimination of line sharing?
    Mr. Martin. There was no rule that I was actually more 
concerned about and the implications of what the Commission 
ended up doing. I actually had--there is probably no company 
that I met with more than Covad, one of the primary users of 
line sharing, who I had met with repeatedly about my concerns 
on the rule.
    But I think that in the end if we are going to be faithful 
to the implementation of the Act and along with the court 
decisions that have come down, the D.C. Circuit decision that 
came down last spring, of all the rules that it talked about it 
it was most critical, actually, of the line sharing rule and of 
the Commission's previous, I think it called itself blinding to 
cable competition in the residential broadband market space. 
And it said that the Commission had to take into account the 
availability of cable as an alternative for high speed Internet 
access in trying to determine whether it was justified to keep 
its line sharing rule in place. And I think that we needed to 
end up taking into account the cable competition that is there 
going forward.
    So I think that the consumers will still have access 
through either cable competitors and through the incumbent I'll 
find a bundled service of offerings, and through competitors 
who are still able to use the line for both voice and data 
services, and also for a bundled alternative as well.
    But I think that the Commission's impact on consumers of 
its immediate rule, I do not know. I think the Commission tried 
to do its best to blunt any negative impact by having a very 
long transition, which I think it was one of the things that 
the Commission was trying to do.
    Ms. Wilson. Chairman Powell, you may have answered this in 
response to other members' questions, but I would like to hear 
it from you and what your reaction is to the Bell company 
executive statements since last Thursday that they will not 
deploy additional broadband infrastructure, and particularly in 
light of I think this undermines the public policy basis for 
moving or for removing the unbundling requirements for fiber 
loops. And I wonder what is your response to them?
    Mr. Powell. Well, I think I would say two things. One, I 
would echo the view that I expressed a moment ago that we will 
see. I think that we are still in a period of sort of bidder 
reaction by all parties to the decision, and I am not convinced 
that what we are seeing is not a statement that has been run 
through management and the board of directors in making actual 
investment decisions, but are the public affairs reactions to a 
decision to which they are desperately disappointed.
    I happen to believe that at the end of the day if this is a 
green field of regulatory freedom that provides an opportunity 
for new services and new revenues, the economics will be more 
compelling and no matter what their initial emotional reactions 
are, there will be a positive opportunity.
    But I also want to seque to something that I think that we 
threw off the balance in this decision. To go back to your 
first question, you have got to be careful not to make it too 
good for somebody. And when we took out line sharing, that is 
one of the things we did.
    Line sharing is provisioned over copper facilities. Not the 
new stuff we are trying to get built, but the old stuff. It 
would have provided the kind of continued competitive 
stimulation that would make it sort of like a magnetic poll. 
You know, the unregulated positive and the regulated negative 
with a competitor in the field. And you would have had much 
more stimulation to move to the advanced architectures we are 
trying to incent. That incentive has been completely ripped 
from the market.
    And to your point, I do not see a single thing good for 
consumers on this part of the decision. I know what will 
happen. One, we are probably going to kill off the companies 
that use it in the retail space. But just as quickly you will 
see an increase in broadband prices, which is the demand 
problem that so many talk about. And not just in DSL, because 
DSL leads the price movements in cable. Why? Because cable has 
30 to 40 percent margins already. If DSL goes up, it is pretty 
easy for them to match without having any consequences. And 
they will. I just fear that we are going to have an increase in 
broadband prices as a result of the line sharing decision.
    Ms. Wilson. Thank you, Mr. Chairman.
    Mr. Upton. Thank you.
    Ms. McCarthy.
    Ms. McCarthy. Mr. Chairman, Mr. Deutsch has asked that he 
go ahead of me. He is ranking on another committee. With your 
    Mr. Upton. No problem.
    Mr. Deutsch recognized for 5 minutes.
    Mr. Deutsch. Thank you, Mr. Chairman.
    Thank you, Ms. McCarthy. I really appreciate that.
    In terms of, you know, the decisions on the broadband, I 
guess one of the questions I would have is last year in our 
legislation we specifically said that before you unregulate 
broadband there should be buildout through rural communities, 
redline communities. Obviously, you did not do that.
    From the policy perspective, if any of you could respond, I 
mean how much did you look at the ability to try to make that 
happen, I mean so the tradeoff of universal service at the same 
time as deregulation? And was that something you could have 
done, did you want to do if you had more authority, would you 
have done? I mean, was it something you discussed, Mr. Powell?
    Mr. Powell. I cannot say in the hypothetical what I would 
have done. I mean, it is not something that we discussed. And I 
think the reason is we----
    Mr. Deutsch. Hold your breath.
    Mr. Powell. Well, I do not want to burn up your time 
    Mr. Deutsch. That is fine.
    Mr. Powell. We generally do not spend that much time on 
stuff that we are pretty clear that we do not have legal 
authority to do. So I do not think that much time was spent on 
the idea of an affirmative buildout obligation. The 
Commissioners did deliberation.
    Mr. Deutsch. Yes. Anyone else want to jump in?
    Ms. Abernathy. The one point, Congressman, that I would add 
is that when you are talking about the smallest LECs in rural 
America, in the truly rural parts where you see a lot of USF 
dollars, those LECs generally are exempt from unbundling. So 
they have no unbundling obligations. And what we have generally 
seen in those markets is that the USF dollars have been a 
tremendous help in insuring that they are doing broadband 
buildout, which is why I think in New Mexico in some of the 
smaller areas you tend to see more broadband than in the larger 
markets. Because they have access to USF dollars, they do not 
have competitors coming into those markets that would require 
them to sell it off at discount prices. And so they are able to 
deliver to their customers sometimes better services than you 
might get in the larger areas.
    Mr. Copps. You know, I do not think we should be too 
categorical in saying that we have to have legal authority for 
buildout. I cannot give you a precise definition of what 
authority we have, but I do know we have Section 706 that talks 
about the reasonable and timely deployment of broadband. And it 
charges us to take advances and to take steps to deploy advance 
services such as broadband. And I think what we really need to 
be doing is having an explanation of what steps we could 
actually take within the constraints we presently operate 
under. And I rather suspect there is probably a little more 
wiggle room there than some people think.
    Mr. Deutsch. So if I can follow up, I mean that as a direct 
contrast to what Chairman Powell just said. I mean, am I 
hearing you correctly? You are saying you might have some 
authority to do something----
    Mr. Copps. I am just telling you how I interpret Section 
706 which talks about the reasonable timely deployment of 
broadband and enjoins the Commission to take steps to encourage 
it. Now, how far that can go and what you can actually mandate 
a company to do, I do not think we have sufficiently explored. 
But I think we ought to be exploring it because I think there 
is no higher priority than we have than----
    Mr. Deutsch. Yes. I mean, is that something that is as the 
Commission you folks are going to do? I mean, do you see this 
sort of--you know, I mean just the balance not being quite the 
way, at least for House perspective, it is something we ask?
    Mr. Copps. Well, you have my vote to do it.
    Mr. Deutsch. All right.
    Mr. Powell. I think that is interesting. We can sit around 
and talk about it, but 706 in my--I do not need to spend a lot 
of time, is not in my opinion a substantial basis for----
    Mr. Deutsch. Let me--because I will probably have a chance 
maybe just one other question or one other line of questioning, 
and that really deals with how you looked at the system in 
terms of saying to unregulated as the idea that it is a duopoly 
at this point in time. And I guess, you know, just in terms of 
the analysis from the staff level, you know, the duopoly that 
comes to mind is really the cellular duopoly that was really 
sort--by any, I think, analysis was really a failure until you 
had other competitors in the market. I mean, in terms of both 
price competition, technology competition it was a failure. And 
when you got more than two in is when you saw the technology 
change, digital and these dramatic price reductions.
    Now, it sounds as if, you know, you are relying upon the 
duopoly issue. And I think to some extent it seems like a false 
issue at many levels because, you know, cable systems in the 
community I live in were never build out to huge industrial 
areas, commercial areas, and yet that is the argument you are 
making. So I am trying to get some sense of how you looked at 
that. You know, what type of analysis, what type of--you know, 
real empirical or theoretical backup to the premise of basing 
your argument on a duopoly analysis?
    Mr. Powell. Well, at least speaking for me, I do not think 
it was based on a duopoly analysis or comfort. The duopoly is a 
sufficient number of competitors to provide competitive 
services to consumers.
    This problem is somewhat unique than a traditional 
competitive problem. This is about how do you get facilities 
that currently do not exist built and who is going to build 
them. And who is going to pay for them to be built.
    And I am an anti-trust lawyer who believes in competition 
as passionately as anybody. But I think that it only--only so 
far as is legitimate. To the extent that you're relying--I do 
not know that I follow the argument that a competitor who would 
use an infrastructure that is not even constructed yet is 
providing the competitive threat to construct the network in 
the first place.
    This country may years from now if it has a digital 
architecture all over the country that is providing services to 
the country, maybe the Congress will determine that it should 
make all of those facilities open to new competitors as well. 
But we're in this unfortunate position at this point as a 
Nation that we don't even have this architecture. And many 
other countries in the world do. And it is beginning to be a 
significant disadvantage for the United States of America in 
terms of new and productivity growth. So I am not content with 
duopoly, but I also think that the problem is not about 
competitive services on a mature infrastructure. It is finding 
the right incentives to get somebody to undertake one of the 
most massive construction projects of greatest importance to 
American consumers in the history of the country.
    Once upon a time when we wanted to do the telephone, we 
monopolized with government sanction the whole system. I hope 
we do not do that again. But it is a recognition that at some 
point you have to have the scale and the resources to build it.
    Mr. Deutsch. Thank you.
    Mr. Upton. Mr. Pickering is recognized for 8 minutes.
    Mr. Pickering. Thank you, Mr. Chairman.
    And before I go to questions, I would like to give some 
context to my questions and to where I believe we are and the 
decision that the FCC has just made where we are from a 
committee, from a congressional point of view. And to commend 
those who have played a very important role in bringing us to 
this point.
    Chairman Tauzin and the ranking member, Mr. Dingell, should 
be commended for promoting the broadband bill that in many ways 
was adopted by the FCC in their recent decision and order.
    Chairman Upton and his leadership.
    The committee did not address the UNE-P. They addressed the 
broadband provisions, which were adopted by the FCC. That 
legislative debate and legislative pressure influenced your 
decisions. So this committee and the leadership of the 
committee should be commended for what they did in bringing 
that about.
    Now, in many ways I disagreed with that legislation, and 
have remaining questions about the decision reached by the FCC. 
But you can not deny that what has just been adopted was 
debated in this committee, in this House and the leadership of 
this committee should take great credit in their work and their 
effort. Nobody can deny that.
    For the Commission, you have acted. There is tremendous 
pressure upon you from competing interests and those interests 
will always disagree, even though if we take into context that 
much of what you adopted was the industry position, the Bell 
position over the last 2 years of new wires/new rules, old 
wires/old rules. It is basically what you have adopted in the 
UNE-P order and in the broadband exactly what was proposed over 
the last 2 years.
    As I look at the 3 objectives of what we have tried to 
carry out from the 1996 Act, and that is to incent capital 
investment, that is one objective.
    Two, promote competition, maintain and preserve 
competition; that objective.
    Three, do a market-by-market, state-by-state analysis of 
how we are emerging in competition and investment. And if you 
look at those three objectives, I would say that the 
Commission's action met all three. Now they did it in a very 
dynamic tense at times disagreeable context, but that is 
actually the best part of politics and policymaking. It is 
always a part of it. We should expect no less. And that dynamic 
tension of divergent views actually I think in this case has 
rendered us a balanced decision and good policy. I think we 
will see good incentive for investment in broadband, the green 
field as Chairman Powell mentioned.
    I think for emerging competition, and where are we today 
thanks to the FCC? Thirty-five States have approved and the FCC 
has approved 271s. In those States which represent a vast 
majority of Americans now have choice for long distance, and 
they now have choice in local competition.
    Ten million people have signed up for an alternative local 
providers. Tremendous significance in local competition and 
tremendous significance in long distance. We no longer have the 
distinctions in most of the country on distance service. It is 
all distance, no distinctions, no segregation and that was a 
key objective of the Act which is now being accomplished.
    Soon there will be 41 States, most of the country, almost 
all of the country within the year will have a choice between 
local providers and long distance providers, all distance 
service at roughly $50 to $60 for both. Tremendous savings for 
consumers. Tremendous accomplishment.
    We do not need to lose that sense of accomplishment in the 
acrimony of the decision that is being made.
    Chairman Powell, you should be commended for tremendous 
leadership. Your No. 1 priority was broadband. It has been 
adopted, as was this committee's.
    To Chairman Martin, let me commend you for being a strong 
voice for States and for competition, as well as for investing 
in capital. I think dynamic tension actually caused a good 
decision, a balanced decision.
    And what I would like to do is to talk about some of the 
questions as we go forward on other issues, but to again focus 
on those three objectives and how we go from here with the FCC 
decision and the drafting of the rule. And as we look at other 
decisions in broadcast and in wireless issues that could effect 
not only the wire line competition, but competition in general.
    Chairman Powell, in the discussion today much has been made 
over how confusing this could be from a regulatory uncertainty 
point of view with 51 States, with the litigation. The reality 
is no matter what you decided there was going to be litigation. 
No matter what you decided there would be regulatory 
uncertainty because of that litigation. The only way that we 
could avoid that is to take away due process, to take away 
appeals, to expedite appeals review, to consolidate all 
appeals, to take it straight to the Supreme Court. Now that is 
one way to eliminate regulatory uncertainty because of 
litigation, but I think it would be a very dangerous precedent 
across the country if we did that. We have considered that 
before, but we decided that would be too dangerous of a 
    The reality is that whoever in the competitive playing 
field, long distance or the Bells or the States, do not get 
what they wanted, they would litigate. And the same thing that 
happened in 1996, even though everyone agreed on all sides of 
the 1996 Act, they all fought the regulatory battle. And as 
soon as the regulatory decision, they went to court. And there 
is nothing that is going to change that reality. Nothing we can 
do, nothing you can do, nothing the industry should not do. 
This is the American way.
    And, unfortunately, we cannot change that. We can accept it 
and realize that we may want something today, but that process 
takes time. We are changing a 100 year telecom policy and with 
6 or 7 years we have made tremendous progress.
    Mr. Chairman, let me ask a question on the--I have used up 
almost all my time instead of asking your question. But this is 
my question. In 1999 you dissented in the unbundling 
requirements, particularly as it relates to the impairment of 
switching. And in that dissent you said a preferable option 
would have been to provide some time limited ability for State 
commissions that perceive their markets are different to remove 
elements from the national list based on showing consistent 
with this decision and resisting of rules. If you said that, 
and I want to give you a chance to say whether that is 
consistent or whether there has been a reason for change or 
somehow out of context from your position today. But if you 
said that it should be in participation and in partnership with 
States in 1999, do you disagree with that today?
    Mr. Powell. One, I do not think that is what I said. That 
is a footnote in another wise larger dissent. It was a 
criticism of the Commission's decision even then to make 
national impairment findings that were not based on anything 
other than I think the footnote says ``highly generalized 
assumption.'' And it was a criticism of the Commission's 
refusal to let States take something off a list once it had put 
something on the list.
    Now that all said, to the extent you read it differently I 
was dead wrong. And with the experience and wisdom and time and 
an intervening court case, I would reach a completely different 
decision today, as I did. I do not think that is the fair 
reading of it, but if it is a ``gotcha'' exercise, I assure 
that I now distant myself wholeheartedly from the footnote and 
the 4 or 5 intervening years of experience I have had certainly 
convince me that that would be an erroneous and is an erroneous 
    Mr. Pickering. Mr. Chairman, my time is up.
    Will we have a second round?
    Mr. Upton. We hope to.
    Mr. Pickering. Okay. Thank you.
    Mr. Upton. I know there are members on both sides of these 
walls and ready and willing to come back at their proper time.
    Ms. McCarthy.
    Ms. McCarthy. Thank you, Mr. Chairman.
    And I thank the Commissioners for being so patient with us 
    Mr. Markey's comments about the black phone got me 
reminiscing as I was sitting here these many moments, having 
grown up in rural Massachusetts where there was not just a 
black phone, but it was a party line. So you had other 
restrictions besides that ``Hurry up because grandma's 
    But I'm a midwesterner now from the great State of 
Missouri, Harry Truman's home State where he coined the phrase 
``I'm from Missouri, show me,'' and we are sort of the show me 
State when he was in the legislature there.
    And then we have another kind of coinage out in Missouri 
which is ``if it ain't broke, don't fix it.''
    So today I am listening to my colleagues and to you, and I 
am very impressed with both the questions and your responses. 
And I know it is hard to make the perfect bill. I was a 
legislator for 18 years in the Missouri House before I came 
here. So crafting legislation that is perfect is near to 
impossible, and I think we all know as hard as we tried on the 
Telecom Act, that you and your wisdom and courts in theirs 
would try to fix anything that was broke in that law.
    But I have listened today and still not sure I understand 
what is broke. Let me use my district as an example. Because 
consumers in my district have 4 choices for high speed 
Internet. Now, they do have SBC and then we have two cable 
companies that service the entire area. We have Birch Telecom 
and Covad. And so those 4 choices provide consumers with many 
options on service and prices, and speeds. And so I am 
wondering, you know, last Thursday's decision well actually out 
in my community limit our choices now to just two; either one 
of the cable companies whoever is serving them and then SBC. 
And I do not think that it is the intent of the Commission to 
reduce competition because, you know, that is something we have 
all talked about as one of the good goals of the law we put in 
    So I am just kind of curious. Because Commissioner Copps, 
you mentioned inner city and a concern that you have about 
competition and service there. In Kansas City what has happened 
to that black phone Mr. Markey talked about, that stationary 
land line into a home in the inner cities is gone. And for most 
of my inner city constituents they have got a cell phone, that 
is their phone. Their only phone. There is no land line. Okay. 
Their choice was a really great deal on this cell phone and 
that is what they live with, and that is their access to the 
outer world.
    But if we are going to be about bringing broadband into 
their lives, we have also limited them, I think, somewhat with 
the decision that has been made and future ones that might be 
made while we have been--you know, the companies and 
foundations have been good about wiring schools and libraries 
so people can have access to Internet, there is still a huge 
gap in my central and inner city community of Kansas City on 
the ability to have access to the world.
    And I think about our children who will never know that 
black phone that Mr. Markey and I grew up with. But they do 
need to have the ability to access the world.
    And in your decisionmaking as you pursued what you thought 
would be best for competition, pricing and access, at least in 
my community it is becoming more limited. And I wonder if you 
would share your thoughts with me about how you plan to address 
or maybe have addressed in the order that I have not read 
reaching out to those very communities that will find 
themselves priced out of a very important telecommunication 
    Thank you.
    Mr. Powell. Congresswoman, indeed starting where you began 
with your comments as to the loss of competition and the 
scenario outlined, I could not agree more. I think the reason 
that that competition that you alluded to is going to be lost 
is because the Commission voted to eliminate line sharing, 
which is the principal way that a company like Covad uses to 
compete in the retail Internet broadband space. They do not 
have access to. They are not able to be a retail competitor in 
the same way that they were before.
    So I would simply say with respect to the situation you 
outlined that I think I agree. And I think it is why I 
dissented from that aspect of the decision. Because I think 
line sharing actually has brought the kind of consumer welfare 
we often talk about abstractly. I could see it, I could measure 
it, I could understand the philosophical underpinnings that 
made it work. And I thought it deserved to stay.
    I think that aspects of broadband questions are somewhat 
different and more abstract where you do not have anybody 
providing service yet or that you are trying to stimulate the 
deployment of the railroad tracks so somebody can bring those 
trains to people. And I think sometimes those are different 
economic equations than ones that have begun to mature somewhat 
    So, you know, I will just leave it at that. At least as you 
expressed the concern, I would share the concern and say that I 
think we have unfortunately hurt that possibility.
    Ms. McCarthy. Mr. Chairman, I know I have gone over my 
time, but may he have a moment?
    Mr. Upton. Go ahead.
    Mr. Copps. Well, I would just say that when we are talking 
about line sharing and broadband, and I was not pleased the way 
it turned out with either one of those. I think that if you 
look at the two of them, probably the decision on broadband 
cuts off a lot more in the way of competition than the one on 
line sharing, serious though that is. And I really am worried 
in the direction that we took on the broadband what we are 
doing for competition and our ability to reach out to the inner 
cities and to rural America, too.
    You know, you hear all this talk about new wires and new 
rules, I am just--sometimes I worry a little bit that maybe we 
are going to end up with no rules and old monopoly. And I do 
not think that is going to get us to where we want to go from 
the standpoint of deployment to those hard to reach and not 
always very profitable customers.
    Ms. McCarthy. I thank you for your sensitivity. I thank 
each and every one of you for your participation here today. I 
hope you will keep in mind this very issue that we are 
discussing and tackle it. You are going to have many 
challenges. I do not envy you your jobs. I some days wonder 
about mine. But I wish you well in that, but I appreciate your 
sensitivity to this need. Because it is really the future of a 
country. If we do not have that ability to make sure everybody 
has access to the knowledge they need, then we will all suffer 
as a country.
    Thank you, Mr. Chairman, for your patience.
    Mr. Upton. Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman.
    Just before I start my questions, I just want to say 
something in defense of Kevin Martin. I know, Kevin, that you 
perhaps do not know this, but The Wall Street Journal has been 
handed out and everyone has a copy up here. So your face is in 
front of all of us. And I do not want you think that anything 
is personal. That we all have a lot of respect for you. We know 
your leadership in many areas and we are here to discuss the 
issues, and it is nothing personal. And we just want to--I as 
one member just want to be positive about you and say that we 
appreciate your participation and regardless of how it goes, 
that we just have a great amount of respect for you.
    Mr. Powell, in Section 202H as determined by the courts 
requires that any modification or retaining of media ownership 
regulations must be based on solid factual record. You have got 
a long record here. I have got, you know, about 12 different 
actions that you have taken, including FCC Commission's 12 
empirical studies. Now you have 15,000 comments received in 
these 12 empirical studies, do you believe that the Commission 
has a record necessary to complete the review by this spring, I 
guess the question is?
    Mr. Powell. I think that we do, yes.
    Mr. Stearns. Okay. On September 13, 2001 the Commission 
adopted its notice of proposed rulemaking on newspaper 
broadcasts cross ownership. You mentioned in a January 16 
statement this rule is one that might need modifying. Now given 
that this rule is over 3 decades old, do you support lifting 
the provisions limiting the granting of a broadcast license 
based on the operation or control of a newspaper?
    Mr. Powell. I cannot commit to what the ultimate outcome of 
the proceeding is. I do not want to prejudge that proceeding, 
but I do believe that is one of the rules that would require 
extensive justification to remain valid in the biennial review.
    Mr. Stearns. Anyone else? Mr. Martin, maybe want to give 
your comments, too, or any other of the Commissioners?
    Mr. Martin. I also, I cannot commit obviously to the final 
outcome of the proceeding, but I do believe that that is one of 
the rules that we should take action on. And I have been 
concerned that there has been no action actually taken yet on 
the newspaper broadcast rule which was originally put into 
place, as you said, almost 3 decades ago. Many of our other 
rules have been relaxed in some form or another, and I think at 
least some recognition of the changes that have occurred in the 
marketplace in response to the newspaper broadcast rule is 
warranted at this time.
    Mr. Stearns. Okay.
    Mr. Copps. Can I go back to your----
    Mr. Stearns. Sure.
    Mr. Copps. I am going to go back to your previous question. 
I have to respectfully disagree. I do not think we have 
anything approaching the kind of record that we have to have in 
order to move forward in the very near term future with voting 
on the elimination or the change of the ownership rules. This 
is still primarily an inside the beltway issue. This is not an 
issue that has engaged the majority of the American people who 
are impacted seriously and directly impacted by the kind of 
entertainment that is coming our way. We need to know how that 
has changed and who is control of it. I think the whole 
Democratic dialog, and I do not think I am being histrionic 
about this, is at stake here. And we have to take this issue 
out. We have to go to other venues and other markets and look 
at the reality. What is the realty of diversity and localism, 
and competition in a specific market in February 2003 compared 
to what it was in 1996 or 186, or 1976? Because we are, we are 
playing around here with something that is very fundamental to 
the future of the American people. I understand this is a 
biennial review. But I think you had better look at it kind of 
as the mother of all biennial reviews for broadcast and media. 
Because I think the direction we set here is going to set the 
stage for a long time to come.
    Mr. Stearns. No, I understand. Let me just ask Mr. Powell, 
you know I have in front of me all the things that has been 
done, and we have the 15,000 comments received by the FCC, the 
12 empirical studies. But maybe Mr. Powell, you might just run 
through a lot of the things that have been done, which I think 
has opened up to the public and opened up to the professionals 
an opportunity to give their comments.
    So, Mr. Copps has indicated that it is a very important 
issue and there has not been enough dialog, there has been not 
enough opportunity to discuss it, you might give some of the 
things that you have done just for the record.
    Mr. Powell. Well, for the record I think this is one of the 
most extensively developed records in the history of the 
    Mr. Stearns. It looks that way to me.
    Mr. Powell. It is as extensive as any that I have seen in 
5\1/2\ years; 15,000 comments. And I should note for the record 
almost all of them are from individual citizens and not from 
companies. Suggesting that we do not hear from the public, most 
of that 15,000 are individual comments from the public.
    We have never had comprehensive empirical studies in an 
effort to measure what really takes place out in the country 
and in the economy as we have had this time. We did so because 
the courts suggested. You might just simply do a comparison to 
the previous Commission's record when it chose to maintain the 
rules and see how it compares to ours. There were no empirical 
studies of any significance. There were nothing like the kind 
of comments we have solicited. There has been nothing like the 
kind of analytical work that is going on in the context of this 
proceeding, I would submit in almost any proceeding involving 
any of the rules in the history of the Commission than the ones 
that are being developed here.
    Commissioner Copps' views are genuinely held. He enjoys 
these public hearings. They do have some value. Indeed, we 
agree. We are having one tomorrow for a full day in Richmond, 
just for that purpose. It will be one of several that I 
personally have participated in and my colleagues have 
participated in. But, for God's sake, at some point it is time 
to be a Commission and act.
    And you can develop record until you are blue in the face, 
but at some point people expect you to make a decision. And I 
believe that the record is in place. It certainly will be in 
place to make thoughtful and defensible decisions by the 
timeframe that we have outlined. And I think when you reach 
that point, your fiduciary duty to the Congress and to the 
public is to act and not continue to draw process out for its 
own ends.
    Mr. Stearns. I would say amen to that.
    So let me close, Mr. Chairman. Just thank Mr. Powell for 
his continued willingness to accommodate the public by allowing 
them to provide their comments.
    Mr. Upton. Mr. Stupak.
    Mr. Stupak. Well, thanks, Mr. Chairman.
    You know, I was here when we did the 1996 bill on 
telecommunications, and in looking at the decision last 
Thursday, parts of it I certainly agree with, and other parts I 
do not. But if I go back to Michigan, if I may, I think the Act 
has worked well there.
    You know, in Michigan the public service commission has 
recommended to the FCC that Ameritech be granted permission to 
provide long distance service. This recommendation is based on 
the fact that SBC has finally opened up the market, and 
Michigan in fact is among the State leaders and a number of 
lines are used by competitors.
    I have argued in the past that SBC should not get the 
benefit of deregulation because it was such a poor service 
provider in Michigan. And since then, in all fairness to them, 
they have really stepped up, they have improved their service. 
And the argument now is that to turn back the competitor's 
access to the Bells voice networks at this point would roll 
back the competition that has been so beneficial. So in 
Michigan I actually saw the Act working the way it was intended 
to do.
    I mentioned earlier it was $43, we got it down to, I 
believe it was like $19. So I think that has been working 
fairly well.
    So while I agree with the rationale and the majority's 
voice ruling that a localized market and geographic analysis is 
necessary in order to determine the best way to achieve 
competition in the voice market in this country, but it seems 
to me that at the very least if the assumption is that 
sufficient competition will exist with cable, there should be 
some analysis that cable competition in fact exists in the 
market before eliminating the other competition to the Bells.
    So Commissioner Adelstein, maybe you can answer. Would such 
an analysis not be beneficial with respect to the broadband 
arena as well? You did it with voice, why not with the 
broadband then?
    Mr. Adelstein. Well, I think that is an excellent question.
    On the voice side, I think the decision was between more 
choice and lower prices for consumer and fewer choices and 
higher prices. And I'll opt with more choice and lower prices 
every time.
    Mr. Stupak. Well, in rural areas we see all the time 
whenever we deregulated, it leaves us with less choices and 
more costs. And I do not care if it is trucking deregulation, 
the telephone, whatever it is. So when we come to at least 
broadband, should we not at least do that analysis with respect 
to rural areas that have such unique needs?
    Mr. Adelstein. Well, I think this committee did a good job 
at talking about buildout requirements for rural areas, as was 
discussed earlier in the hearing. I come from South Dakota,
    Mr. Stupak. Right.
    Mr. Adelstein. And we have real issues with rural buildout 
as well. And I think there is a lot of ways to deployment. I 
mean, competition is a great way to drive it. Universal service 
helps in rural areas. And we need to really look at the 
broadband in terms of how it is going to impact rural areas. I 
think that is an area that does deserve further attention.
    Mr. Stupak. Commissioner Powell, you indicated you had 
15,000 comments in your last answer to Mr. Stearns. Did you 
receive any comments from the Bells that they would invest in 
those areas if unbundling requirements were removed? Did they 
make any pledges that they would do that, or have you received 
any comments along those lines?
    Mr. Powell. Just to clarify my response with regard to the 
media ownership proceeding?
    Mr. Stupak. Sure. I'm sorry.
    Mr. Powell. The 15,000 comments.
    Mr. Stupak. But you still get comments----
    Mr. Powell. Oh, sure, we got lots of comments.
    Mr. Stupak. More than one, I am sure. But did you get any 
commitments from the Bells to really, you know, deploy in the 
rural areas?
    Mr. Powell. We do not ask for commitments in exchange for 
the policy choices we make. There are thousands of pages in 
which people talk about the incentive for investing in certain 
markets over the other. I am sure I could find you examples of 
things that they said would be likely as a consequences of 
these changes. But, no, I would not say that I have commitments 
by anybody as to what they would do, no matter how the case 
came out.
    Mr. Stupak. Well, did the Bells give you any commitment or 
any comments about their intentions if you granted them 
broadband relief to get it into rural areas?
    Mr. Powell. The Bells, as has the high tech community of 
Silicon Valley, as has equipment manufacturers like Corning, 
Lucent and Nortel all argued with some force that they believed 
that the incentives were distorted for the next generation 
development of glass and fiber infrastructure that would be the 
next generation of services. It was not exclusively a Bell 
proposition. Indeed, it was probably argued just as forcefully 
by the high tech broadband coalition and by equipment suppliers 
who desperately want an opportunity to build that network.
    So, yes, they argued it, so did others. And that was a 
portion of what we considered, but certainly was not 
exclusively what we considered.
    Mr. Stupak. You know, we had a hearing back on April 25, 
2001 on the Tauzin-Dingell Bill back then, and Mr. Paul Mancini 
from Southern Bell Corporation, SBC, came in. And we talked a 
lot about that. And there were commitments then. Like we are 
going to do 80 percent, we have this new program called Pronto. 
But then when pushed on it, and I can always submit this for 
the record if need be, it was pretty obvious to us that while 
they may do 80 percent in very remote areas, here is what Mr. 
Mancini says on page 122 of the hearing. ``In very remote rural 
areas the economics probably make it very difficult for either 
cable or telephone company wires to serve these areas. As one 
of the other speakers said, in some areas it may be more cost 
effective for satellite and wireless to serve those areas. We 
are looking at partnering with some of those satellite and 
    And so I asked him whether--actually cable is doing that in 
my area now in upper Michigan. So I guess while there is always 
this intent and they will do 80 percent, we always seem to be 
in the last 20 percent. How do we get that last 20 percent 
    Mr. Powell. It is a difficult question. But I would love to 
take an opportunity to make some things clear about the rural 
equation, the rural problem.
    First of all, it is important to remember that a lot of 
rural parts of America in this country are not being served by 
the BOCS. I mean, we keep acting like the incumbent is always 
the BOCS. Indeed, in the vast majority of a lot of these rural 
jurisdictions the ILEC, the incumbent, is actually a local 
rural telephone company. These rules are to their benefit as 
well. These are the ones who have invested capital and spent 
time investing in rural American much more than in BOCS or 
anyone else have, and they are beneficiaries of this, too. And 
I think they, more than anyone else, have demonstrated their 
commitments to those areas.
    Second, I think it is important to put on the record that 
UNE-P has not demonstrated its attractiveness to rural areas. 
Indeed, if you actually look at the competitive statistics, the 
vast majority of rural America has not been entered into by 
unbundled platform providers, instead resellers go into those 
markets. The reason is because even under UNE-P the loop cost, 
the cost of the line forms a huge part of the expense. And it 
is still too expensive.
    Rural America is a singularly unique problem for wireline 
infrastructure. It is why we have universal service. It is why 
we need to address it as a special case. It is why I think 
Congress rightfully debates things like tax credits and 
broadband incentive plans. Because I think there are market 
shortcomings in those markets. But I think the notion that, you 
know, the Bells or some of the traditional carriers, or even 
UNE-P carriers who are bundling and going after the high 
percentage customers who are the ones who are the salvations 
for those markets I think are wrong. I think we have to look at 
the unique needs of the carriers that have actually made a 
commitment to serve.
    Mr. Stupak. But under last week's decision you basically 
gave the Bells what they said they would do under Tauzin-
Dingell where they would expand out to the rural areas, but now 
I read all these press articles saying well we cannot do it 
because we did not get enough. How much is enough and when is 
it going to come?
    Mr. Powell. Well, it is not for me to defend what they said 
they would do or not do.
    Mr. Stupak. Sure.
    Mr. Powell. But, you know, I think they say that generally. 
But whether we thought that this was the key to solving 
broadband in rural America, I would be the first to say I do 
not think that that was the motivating expectation in the 
    Mr. Stupak. Oh, I----
    Mr. Powell. I mean, you know, I think none of us can lay 
great credit to any of the choices we made, even though we 
disagree wholeheartedly that any of the things any of us have 
expressed is the complete solution for the problems of rural 
America because it is just singularly unique. And these rules 
are much more broadly applicable to the country as a whole.
    Mr. Stupak. Thank you.
    Mr. Upton. Thank you, Mr. Stupak.
    You all have been very patient with us for almost 4 hours. 
We are going to take a 5 minute recess. And we will come back 
with Mr. Whitfield.
    Mr. Upton. I think we are ready to resume.
    And next on the list is the gentleman from New York, Mr. 
    Mr. Fossella. Thank you.
    Mr. Upton. Eight minutes.
    Mr. Fossella. Chairman, members of the Commission, in 
regards to the switching element. In your opinion what 
discretion will the States have in determining the unbundling 
of the switching element? And second, describe what process or 
processes the State would go through to make a decision and 
what if any ability does the FCC have to overrule and/or weigh 
in on the state's decision?
    Mr. Martin. With regard to the state's rule in the 
switching element, I think they will be able to take into 
account the specific characteristics that are going on in their 
markets. For example, whether or not switches have been able to 
be deployed and used for business customers in relative 
geographic market. They will be required as we determined that 
there was some operational impairments as it related to a hot 
cut process, such that the carriers made sure that they were 
not impaired in their ability to move copper lines that are 
serving residential customers over to the switches that they 
were deploying. So I think the States would be involved in both 
those operational issues and in the analysis of some of the 
economic issues, taking a look as one of the factors whether or 
not switches have been deployed to use for business customers.
    Mr. Fossella. Is there anything else anyone else has to 
    Mr. Adelstein. I would just add that the order--we are not 
able to go into all the details under the rules that we have as 
to what is going to be in there. But it does give them clear 
and objective factors to use in the States in determining 
whether or not an impairment exists.
    Mr. Fossella. With respect to that, does the statute 
require affirmative finding of impairment by the Commission to 
be unbundled? Does the statute require that, Mr. Chairman?
    Mr. Powell. In my view the statute is quite clear that at 
least for the Federal jurisdiction to put an item on the list 
it must make an affirmative finding that you are impaired 
without it. And that impairment finding has to be consistent 
with the direction of the D.C. Circuit's case.
    Mr. Fossella. I am assuming everybody else agrees with 
that, or if not--everybody agrees with that?
    Under what conditions, economic or operational, do you 
think in your decision or ruling does the impairment exist, and 
in what form?
    Mr. Martin. Most specifically I think the Commission 
focused on the operational impairments that would be involved 
in using switches, particularly for residential customers. The 
record, there was quite an extensive bit of record evidence 
talking about the problems that competitive carriers would have 
in trying to use their own switches in the service of mass 
markets in which unlike business markets where you can make a 
wholesale switch of a customer and all of its lines all at once 
over to your own switch; with mass markets it would be an 
ongoing opportunity to be trying to market and pick up new 
residential customers. In those circumstances it created 
additional operational barriers to be able to try to put in 
place a process to process those customer requests and those 
moving of lines over on a periodic bases. So I think the 
primary focus of the Commission's impairment finding as it 
related to residential switches would have been the operational 
impairment, however there are some other issues as well.
    Mr. Fossella. So you are saying that you are not presuming 
there is an impairment, or are you saying there is an actual 
    Mr. Martin. No. There is a presumption that there is an 
impairment based upon the operational issues that are involved 
in the record. Then we have asked the States to be resolving 
those hot cut issues by adopting some kind of a batch cut 
process, saying that that does create an impairment today. 
Asking them to resolve that, and then during that process also 
take into account some of the other factors that are in the 
record to determine whether in a given specific market there 
are any of those other factors that would also create either an 
operational or economic impairment.
    Mr. Fossella. Is there any discretion or ability for the 
FCC to review or change the state's decisions or is it more of 
an unfettered, unreviewable action that is going to be 
ultimately adopted by the state?
    Mr. Martin. Well, the Commission would have adopted some of 
the frameworks that would end up being applied by the state, 
the same as we were doing in some of the other circumstances in 
some of the other elements of the network that are in question 
as to whether or not they need to be impaired. The States would 
have a role in determining those as well, and then of course if 
the State doesn't act, then that would come back to the 
Commission after that.
    Mr. Fossella. The State does not act?
    Mr. Martin. Does not act.
    Mr. Fossella. But if it does act, you cannot change that?
    Mr. Martin. Right.
    Mr. Fossella. Is that clear?
    Do you think that this ruling and ultimately if it finds 
its way to court, will be vacated for a third time? Anybody 
have an opinion on that?
    Mr. Adelstein. We designed it in such a way that it would 
not. We made every effort to make this legally sustainable. We 
worked very closely, and are continuing to work closely with 
the Office of General Counsel to ensure that it is structured 
in such a way as that it can be sustained in court.
    Mr. Fossella. So you do not believe it will be vacated a 
third time?
    Mr. Adelstein. Well, I want to predict what the courts are 
going to do, but we certainly designed it with sustainability 
in mind.
    Mr. Fossella. I am assuming everybody shares that view 
unless I hear otherwise?
    Mr. Powell. No, I can't share that view. I would agree that 
you cannot be confident in predicting the court, but I think in 
very many fundamental ways there are significant legal errors 
made that are clearly and very potentially reversible error.
    Put it this way: In many ways this is identical to the UNE 
remand order of 1999 except that it allows more. That same 
decision and that same bias in 1999 got overturned. I am not 
quite so sure what is significantly different in this order 
from that one in that regard.
    Ms. Abernathy. I would agree with the Chairman. I think 
that Section 251D(2) of the Act directed the Commission to 
determine what network elements should be made available, that 
has not been here. Under the order that was adopted you could 
have the same facts presented in different States and come up 
with completely different conclusions regarding impairment on 
    Mr. Fossella. Okay. And more so I can understand I guess 
the fundamentals of what is at stake here from an economic 
point of view, and I will use Commissioner Martin as an 
example. Suppose you go into manufacture candy bars and you 
have invested significant capital to create this wonderful 
factory and generate candy bars. The bottom line is your costs 
are, say, $.75. You determine to sell them in the retail market 
for $1. Then you find and discover that there is a regulatory 
empowered by the Congress that regulates candy bars. And one of 
their missions is to promote competition. And they come to you, 
to the Martin Candy Bar Company and they say, ``You know what? 
There is another big entity out there that we want to be a 
competitor of yours. And one way in which we have determined to 
promote competition is for you to allow them to use your 
product at .75 or in some cases less than .75, so they in turn 
can resell it in the market.''
    I am just curious, (a) it is applicable to what we are 
talking about here, and (b) I guess more important is if indeed 
that was the case, what would you do, Mr. Martin, as CEO of 
this candy bar company, what would you in turn feel is the 
right thing to do, what in turn would you go back to the 
regulators or through the Congress ultimately to say ``I 
support this position and I agree with your efforts to support 
promote competition'' or ``This seems to be wrong and you 
should take steps to mitigate this wrong or change it.''
    Just out of curiosity, what position you would take?
    Mr. Martin. Well, I am sure if I were the CEO of the candy 
bar company I would not like the fact that I was being told to 
sell anything at any given price. I also think, though, that 
sitting at the Commission my obligation is to implement the law 
that was passed by Congress. In 1996 the Act required that 
pieces of the incumbent's network to which competitors would be 
impaired if they did not have access had to be unbundled, and 
that it had to be unbundled at a regulated price.
    There are two different aspects of the issue. One is what 
is the price and whether or not that access is required under 
the 1996 Act. And I believe that that is the question of 
whether access is required is a question of whether or not you 
are impaired to be able to provide service. And I think that 
that is what this order attempted to address.
    Mr. Fossella. So you do not see any fundamental problem 
with the underlying premise of compelling a private entity to 
sell below cost?
    Mr. Martin. I think that the underlying premise of 
compelling the companies to sell pieces of their network at a 
discount was a part of the 1996 Act. And our job as a 
Commissioner is to implement that. I think that was a part of 
the complex proceedings that were designed to open up the 
market to competition and still allow for deregulation. And I 
think that was what the 1996 Act embodied, those two purposes.
    Mr. Fossella. Thank you.
    Mr. Upton. Mr. Dingell.
    Mr. Dingell. Mr. Powell, let me name several very fine, 
very large corporations. AOL-Time Warner, News Corp., Clear 
Channel, Disney, Viacom and General Electric. These firms 
control the lion's share of not only content production, but 
also distribution. Is this not so?
    Mr. Powell. It is largely so, but a lot of the distribution 
is controlled by large broadcasting groups in addition to them.
    Mr. Dingell. Okay. But it is nonetheless true. We now 
confront then these companies control 6 television networks, 
they control cable news services, they control the largest ISP 
in the world. They control scores of newspapers, magazines, 
book publishers and a great many television and radio stations.
    Now, we can eliminate media ownership rules. How are we 
going to assume that these companies will not then be able to 
acquire other assets and continue to consolidate?
    Mr. Powell. We will not eliminate all the media ownership 
rules, and what we will endeavor to do is that the goals that 
you outline continue to be protected under whatever rules we do 
ultimately leave in place.
    Mr. Dingell. See, I do not know what you have in mind, so I 
cannot tell you what you have in mind. I can only tell you that 
if you eliminate these rules, you will permit them to engage in 
further consolidation. If you cut back on the media rules, you 
will still permit further consolidation perhaps less or 
    Now, I understand that your studies include no forward 
looking economic models that contemplate whether mergers will 
occur or not and what effect they might have on competition. Is 
that true?
    Mr. Powell. There is an extensive number of studies that 
cover a number of areas. I do not recall whether that----
    Mr. Dingell. But your studies, Mr. Chairman, the ones upon 
which you relied?
    Mr. Powell. I do not recall whether they predict whether a 
company will merge. Part of that is behavior, which is very 
difficult to predict on an economic model anyway.
    Mr. Dingell. Okay. But your economic models do not include 
that as a measure or a method for contemplation.
    Now, having said that, how is it that we are to assume then 
that there will not be further mergers, acquisitions and 
    Mr. Powell. I do not think in any market you can assume 
that, but you would also assume that it will be reviewed by 
competent authorities before being approved.
    Mr. Dingell. So do your studies give us anything in the way 
of forward looking models that contemplate the impact on 
consolidation, on diversity of news and information or its 
impact on localism?
    Mr. Powell. Yes, I think they do. They do not----
    Mr. Dingell. Do they?
    Mr. Powell. They do.
    Mr. Dingell. I understand they do not.
    Mr. Powell. Well, I believe that they do. They do not 
economic predictions of whether people merge, but they make an 
assessment of current concentration and the level of diversity 
in different markets to determine whether there might be or 
would be harms to consumers by different combination.
    Mr. Dingell. I have a feeling that you have put some 
qualification. You used the word ``kind'' and not ``future.'' 
Am I correct on that?
    Mr. Powell. Kind?
    Mr. Dingell. Yes. And not future when you described what 
they would be doing.
    Mr. Powell. What the studies attempt to do is do a 
comprehensive empirical evaluation of the size of markets, what 
concentration levels has existed, what our historical 
experience has been when people were permitted to come together 
and when they weren't. And to that extent I think they do 
provide insights on predicting what would happen by different 
    But I cannot, and you were correct to say, point to some 
econometric model that will tell me exactly who will merge and 
what the consequences will be.
    Mr. Dingell. Well, I am not asking you to produce that. You 
cannot produce that. But you can tell us the consequences of it 
if you have a particular level of merger. I am going to submit 
you some further questions on this point for purposes of the 
    Now, you proposed then to leave in place the anti-trust 
laws and enforcement under the, for example, Sherman Act. This 
requires that there be evidence of actual misconduct, does it 
    Mr. Powell. No, it does not. The Sherman Anti-Trust Act has 
two major provisions, some of which apply to collusion and the 
kind of things you are referring to, but a significant part of 
it is about revealing transactions and whether they would have 
an anti-competitive effect. Those merge reviews are predictive. 
They do exactly what you are suggesting, which is attempt to 
predict what would be the anti-competitive effects or not of a 
particular combination.
    Mr. Dingell. My time is running out. But I would note that 
the Sherman Act requires that there be, first of all, that you 
take action on the basis of structural things, i.e., that this 
creates a monopoly or tends to create a monopoly, or that there 
is some behavior by the person involved which tends to create a 
    And, Mr. Chairman, I ask that I be permitted to proceed for 
1 additional minute.
    Mr. Upton. Without objection.
    Mr. Dingell. Is that not correct?
    Mr. Powell. That is correct. And that latter part you 
alluded to is what I was alluding to as well.
    Mr. Dingell. So now your powers under the current 
Telecommunications Act and the FCC statutes that you administer 
is prophylactic so that the FCC evaluates the possibilities 
that particular transactions might harm the public interest in 
some way, is that so?
    Mr. Powell. That is correct.
    Mr. Dingell. The two then are quite different. So let us 
state cases like FCC v. WNCN Listeners' Guild and FCC v. NCCB. 
The Supreme Court has given considerable deference to your 
ability to use its expertise to make predictive judgment. Is 
that not correct?
    Mr. Powell. Well, I do not disagree.
    Mr. Dingell. But if you throw away your powers to address 
many of these things, you will not then have these powers under 
the Sherman Act?
    Mr. Powell. Well, Mr. Dingell, I do not think I agree that 
we are contemplating throwing away our powers. I think those 
cases refer to the public interest standard----
    Mr. Dingell. You can say that you are not, and I will be 
content that you are not, but I do not think you can tell me 
that in this particular meeting. Because that is a source of 
    I have even heard that you have asked your staff to devise 
a mathematical formula to assess whether or not there is an 
excessive concentration of media ownership in a given 
marketplace. Is that correct?
    Mr. Powell. We are doing work like that, yes.
    Mr. Dingell. Okay. That is important to the question of 
whether or not there be a reduction in your authorities to 
address the question of media ownership, is that not so?
    Mr. Powell. Yes.
    Mr. Dingell. Mr. Chairman, I ask that the record be kept 
open so I can submit a few additional questions.
    Mr. Upton. Without objection I would just note to all 
members here that we are going to keep the record open until 
the end of the week. Any member wishing to ask a question, we 
will submit that as a committee.
    And I would yield at this point to the gentleman from 
Kentucky 8 minutes. Mr. Whitfield.
    Mr. Whitfield. Mr. Chairman. Thank you.
    And I want you to know that I never intend to be the last 
member to attend a hearing again.
    But I also welcome the Commissioners here today.
    During the discussion today there has been a number of 
references to court decisions, and in one of the statements 
given it says the court of appeals has made clear that in 
analyzing impairment uniform national rules may be 
    In that decision did they say maybe or did they say would 
be? I mean, did they mandate that in analyzing impairment that 
uniform national rules would be inappropriate?
    Mr. Adelstein. Mr. Whitfield, I can answer that. I will 
actually read you from the D.C. Circuit Court opinion on the 
case, USTA case. It said ``The Commission chose to adopt a 
uniform national rule mandating the elements on bundling in 
every geographic market and customer class without regard to 
the state of competitive impairment in any particular market. 
As a result UNEs will be available to CLECs in many markets 
where there is no reasonable basis for thinking that 
competition is suffering from any impairment of the sort that 
might have been the object of Congress' concern.''
    So the court was basically chastising the Commission for 
having made a national finding rather than making a market-by-
market analysis.
    Mr. Whitfield. Okay. But I am trying to determine whether 
or not it was unequivocally clear that uniform national rules 
would be inappropriate?
    Mr. Powell. No, not in any way shape or form.
    Mr. Whitfield. Okay.
    Mr. Powell. I mean, it is important to remember what the 
court is criticizing is that the Commission has made an 
impairment finding without evaluating granular facts. I do not 
see anything in the opinion that would not suggest that if we 
could evaluate the appropriate level of granular facts, you 
could do that in a national level.
    Mr. Adelstein. Well, I would say that it is almost 
impossible to read that without understanding the D.C. Circuit 
was clearly uncomfortable with the Commission's decision.
    Mr. Whitfield. I know we can argue about the semantics of 
these legal opinions. But I get the impression that there was 
no clear mandate that uniform national rules would be 
inappropriate. Is that your understanding, Mr. Martin?
    Mr. Martin. I think that there was a mandate that the 
Commission had to take into account the granularity at a 
greater level. I think there is no question the D.C. Circuit 
was telling the Commission to take into account variations that 
occur from market-to-market and including from geographic area-
to-area, from residential to business customers.
    Mr. Whitfield. So you feel that in order to do it the 
proper way you had no other choice except to let the State 
commissioners do that, is that correct?
    Mr. Martin. I think that was the best choice to end up 
doing it, yes.
    Mr. Whitfield. Okay. A second question, and this reminds me 
a little bit of the railroad industry because in the railroad 
industry we are always talking about trackage rights, using 
someone else's property. And I have read in a number of 
articles that AT&T would probably not go into a local loop 
situation unless the regulators set a price that would 
guarantee them at least a 45 percent gross profit margin. Have 
any of you read that or are you familiar with that? Have you 
heard anything about that?
    Mr. Martin. I read that in the article this morning that I 
think was referenced earlier from The Wall Street Journal, but 
I did not read that as a part of the proceedings in the record 
that they need to have a 45 percent----
    Mr. Whitfield. So as far as profit margins for various 
companies, that was not something that you considered at all, 
is that correct?
    Mr. Powell. No, but Mr. Whitfield, the number comes from 
the company's own representation to the stock market.
    Mr. Whitfield. Okay.
    Mr. Powell. That quote is frequently bantered around as a 
statement made by management to the investment community about 
the conditions by which they would enter markets. That is where 
that comes from.
    Mr. Whitfield. Now under your order did you require that 
AT&T go into every local market?
    Mr. Powell. No.
    Mr. Whitfield. Can the RBOCs leave any market that they 
want to leave without regulatory approval?
    Mr. Powell. No.
    Mr. Whitfield. So basically what we are saying here is that 
AT&T can voluntarily enter those markets that it chooses to 
enter and that they will make that decision based on a 45 
percent gross profit margin. Now, would you have had the 
ability or could you have legally have made sure that the RBOCs 
had a profit margin at a certain level? Would you have been 
precluded from doing that?
    Mr. Powell. I think we would be precluded because the 
retail rates charged in local markets are in the control of 
State commissions. And whatever return is permitted is 
permitted as a matter of State regulatory authority.
    Mr. Whitfield. Okay. But in essence here it does seem like 
that one entity can make a decision that they are not going in 
unless they have a 45 percent return on gross profit margin, 
while another entity that has already invested money has no 
assurance of any kind of return. Would you agree with that 
    Mr. Powell. I personally would say that that statement is 
correct. Now, in fairness the TELRIC methodology tries to 
provide for compensation and a reasonable profit, but there is 
nothing that suggests that the carrier can at its discretion 
have more commercially reasonable requirement.
    Mr. Whitfield. Would you agree with that statement, Mr. 
    Mr. Martin. I do not think there is any obligation, there 
is any legal obligation for any of the competitors to go into a 
market. So, yes, there is no obligation so they are going to 
have the opportunity to choose which markets they want to go 
    Mr. Whitfield. But my statement was you have one entity 
that has already invested in the infrastructure. You have 
another entity that will go in places where they are guaranteed 
a 45 percent gross profit margin. You have the other entity 
that has no assurance of what the profit margin will be.
    Mr. Martin. I do not know, the second premise of your 
question, of whether or not the one entity will only go in with 
a 45 percent profit margin. That may very well be what they 
have reported to Wall Street, but I do not know that.
    Mr. Whitfield. Well, whether or not they do or not, they 
have the ability to ensure that their profit margin is 45 
percent. And the RBOCs do not have the opportunity to ensure 
any profit margin. Would you agree with that?
    Mr. Martin. Well, the local incumbent carriers, no. There 
is no way that we can guarantee--the regulator guarantee. And 
their local rates are actually regulated by State regulations 
would take into account the profit margin----
    Mr. Whitfield. Now, when Mr. Markey was talking about fair 
competition, does that sound like fair competition to you?
    Mr. Martin. I think it has be put in the context of the 
1996 Act in which the local markets and the Bell companies have 
been the monopoly providers of those local services, and in 
which those markets were--a part of the 1996 Act is those 
markets whether they are going to be provided open to 
competition through various means. And one of those means was 
the innerconnection and using of the incumbent's facilities at 
a regulated rate.
    Mr. Whitfield. Well, you know there are aspects of this 
that are controlled at the national level. You could have, had 
you chosen, directed all State regulators to ensure that every 
company received a profit margin of at least X amount. You 
could have done that, could you not? You would not have been 
precluded from that, would you?
    Mr. Martin. No, actually, I am not sure that we could end 
up doing that under the Act. I think that----
    Mr. Whitfield. What provision in the Act would prevent 
    Mr. Martin. Well, I think that the TELRIC pricing 
methodology allows for some profit margin, but the States were 
the ones who actually set those prices.
    Mr. Whitfield. But could not you direct the States to set a 
certain profit margin? Could you direct the States to do that, 
the State regulators?
    Mr. Martin. I do not think we could direct them to set an 
overall profit margin. The only margin that we can impact 
directly is in the context of the TELRIC pricing methodology 
which prices the wholesale. But we could not demand an overall 
profit for the companies for those regulated entities.
    Mr. Whitfield. And I would just make one other comment. How 
many of you would agree with the statement that as it relates 
to local service, this decision will make it more difficult for 
the RBOCs to raise capital? How many of you would agree with 
    Ms. Abernathy. I agree with that statement.
    Mr. Whitfield. Mr. Chairman?
    Mr. Powell. Yes.
    Mr. Whitfield. Mr. Martin?
    Mr. Martin. Well, you are asking whether or not the RBOCs 
will have a more difficult time raising capital?
    Mr. Whitfield. I am just saying with this decision will it 
be more difficult for them to raise capital?
    Mr. Martin. Not versus the date before the decision. I 
think the overall prospect of the overall decision still had 
significant deregulatory relief on the broadband side.
    But do I think that vis-a-vis taking away competition? Yes, 
I think that this decision probably did have an----
    Mr. Whitfield. So you do not think it would be more 
difficult for them to raise capital?
    What about you, Mr. Copps?
    Mr. Copps. No, I do not.
    Mr. Whitfield. You do not?
    Mr. Copps. No.
    Mr. Whitfield. And Mr. Adelstein?
    Mr. Adelstein. I think it is hard to predict how the 
markets would react. But I do believe that the broadband side 
would be a positive for them, on the switching side it would be 
    Mr. Whitfield. Thank you, Mr. Chairman.
    Mr. Upton. Mr. Green.
    Thank you, Mr. Whitfield.
    Mr. Green is recognized for 8 minutes. Do you want to 
    Mr. Green. I would like to yield just so I can follow the 
    Chairman Tauzin. And if the gentleman is kind enough to 
yield, but the Speaker has called me to a meeting and I 
appreciate his indulgence. I would ask unanimous consent the 
gentleman be accorded an additional 4 minutes so that I can use 
his time and then yield the balance to him.
    Mr. Green. Thank you, Mr. Chairman. Yield.
    Mr. Upton. Without objection.
    Chairman Tauzin. I thank the gentleman.
    Mr. Powell and members of the Commission, I want to call to 
your attention a so called confidential document that has come 
to our attention. It is a document written apparently by James 
Bradford Ramsey, General Counsel for NERUC, the National 
Association of Regulatory Utility Commissions. In this 
document, which is marked ``confidential, do not circulate 
outside of NERUC, the most important things for everybody to 
do'' there is a statement on the last page ``that success will 
depend on the FCC drafting staff. The approach is easily 
sustainable'' I courts in think, ``but the order has to be 
drafted the right way.''
    And then this goes out----
    Mr. Upton. May I interrupt the Chairman just one--could we 
make a copy of that for all members?
    Chairman Tauzin. Yes. I will have to read from it first. I 
will make a copies for all members.
    ``Most important thing for everybody to do. Call, and write 
a note if you can to Commissioner Martin and his assistant Don 
Gonzalez has gone out on a limb for a strong State role. He and 
Dan should get a direct expression of thanks from each of you 
on this issue.''
    ``Key points. After you thank him, you should talk again 
about the critical need to preserve State flexibility across 
the board on UNEs to add and subtract from the list (they are 
still editing this part of the opinion). It is my understanding 
that we will be given flexibility to add switching back in, but 
at least as of today there is language in the order that would 
otherwise undermine and have State authority to add anything 
else like say line sharing back into the list. Strictly 
speaking we are still in 'sunshine' until the text of the order 
comes out. But I would work a general expression of concern 
about the State role across the board re: adding back in into 
any thank you. Might also ask questions about whether they have 
all costs for the deregulated broadband services including 
suitable overhead allocations sent to Part 64.''
    I call this to your attention and ask you, Mr. Martin, are 
you getting those kind of calls?
    Mr. Martin. No, I have not been getting those kind.
    Chairman Tauzin. So you have not received any calls saying 
thank you, by the way please write the order the way we would 
like it written?
    Mr. Martin. No. I have gotten calls saying thank you. 
Actually, I have not even gotten calls. I have attended the 
NERUC meetings that were occurring here and some State 
commissioners individually came up and said they appreciated my 
efforts to make sure they continued on.
    Chairman Tauzin. Do you know whether Mr. Gonzalez is 
receiving calls even though the sunshine rule is on, advising 
him or thanking him but with a caveat we sure appreciate you 
write the rules our way?
    Mr. Martin. No, I do not know.
    Chairman Tauzin. Well now let me ask you now, in the last 
round of questions you indicated that last week's decision 
established a national framework for determining when switching 
would have to be unbundled. A national framework like the 
TELRIC methodology that you alluded to in our earlier questions 
would entail specific and objective criteria set by the FCC and 
then used by the States to engage in a factfinding exercise to 
determine whether the FCC's criteria has been met as opposed to 
allowing the States to set their own criteria subjectively. 
That framework, by the way, is exactly what the FCC created for 
transport. And my question to you is specific. Are you 
committed here today that the switching framework will entail 
specific objective criteria set by the FCC and then used by the 
States under factfinding to determine whether that criteria has 
been met?
    Mr. Martin. The factors and the framework that the 
Commission will have in relation to the switching will involve 
specific and objective criteria similar to what would be done 
in the transport context, although----
    Chairman Tauzin. You say similar. What is the difference?
    Mr. Martin. In the transport context, as I understand the 
way the Commission's order would end up being implemented, the 
fact, for example, if there were a certain number of carriers 
on a transport route, that that would be dispositive. The State 
would then have no discretion beyond just counting the number 
of carriers.
    In the case of switching there other factors that they 
could take into account and the presence of two or three 
competitors, for example, providing switching to business 
customers for example are supposed to be given substantial 
weight cutting against the fact that the switching was made 
    Chairman Tauzin. So in other words----
    Mr. Martin. It would be dispositive.
    Chairman Tauzin. [continuing] the difference between your 
transport order and this so called national framework with 
switching is that you have given the States subjective ability 
rather specific and objective criteria? In other words, if they 
find the presence or the lack of presence of something, that is 
not dispositive? You have given them the right to say how much 
value that has. You have given them subjective ability as 
opposed to specific and objective criteria, is that correct?
    Mr. Martin. Yes. We have allowed them to take into account 
other criteria as well. For example, the----
    Chairman Tauzin. Well then how is this a national framework 
if the FCC is going to allow each commission on the State level 
to determine which criteria they want to use to make a 
determination? How is this a national framework?
    Mr. Martin. I think you were asked and the reference in the 
earlier part of your question alluded to the TELRIC pricing 
methodology. In that methodology as well the Commission had 
various factors that were to be considered----
    Chairman Tauzin. But they entailed specific and objective 
criteria, as I understand TELRIC. And are you telling me that 
this switching rule will be as specific as the TELRIC rule was 
in terms of the state's ability to enforce it?
    Mr. Martin. I do not know if it will end up being as 
specific. I think that, obviously----
    Chairman Tauzin. It will be less specific?
    Mr. Martin. I do not know whether it will be as more or 
less specific from that. I will involve some criteria and there 
will have objective factors in that, like the number of 
switches that are available, whether they are being used as 
sort of residential or business customers.
    Chairman Tauzin. But those will not be dispositive? If a 
local commission wants to ignore those criteria and go to some 
other criteria, they will have a right to do so?
    Mr. Martin. They have the right to take into account the 
other criteria that we outlined.
    Chairman Tauzin. So in effect it will be quite different 
from a national specific and objective criteria regime? Each 
State can set up its own criteria, make its own decision? We 
could have different rules applying in different States, is 
that right?
    Mr. Martin. No. I think that they will still have to take 
into account the same criteria that we have outlined that any 
State essentially will have to----
    Chairman Tauzin. Well, this is what this memo from NERUC is 
all about. It is all about them lobbying you cleverly and 
thanking you. Lobbying you for as much flexibility as possible 
the lack of specificity and criteria as possible so they can 
add things back in, so they can literally re-regulate in the 
face of your decision you told me to have a national framework, 
that they can regulate differently state-to-state, that they 
can do what they want to do with much more flexibility and 
objective and rather subjectively they can do what they want to 
do. That is exactly what NERUC is saying they are going to do 
their best to kind of influence and Mr. Gonzalez on to get as 
much flexibility and therefore the right to add as much new 
regulatory authority as they can possibly add to it because you 
have left the door wide open for them to do that by giving them 
the right to pick what criteria they want to give weight to.
    And I am asking you, are you going to let that happen?
    Mr. Martin. I certainly do not think, and I will do my best 
not to let the States hijack this process. I think that this 
has been a--and I haven't seen the memorandum that you are 
referring to.
    Chairman Tauzin. I will make you a copy of it.
    Mr. Martin. But I certainly do not want to let the States 
hijack this process. However, I do think that the Commission 
will be setting out objective and specific criteria that the 
States will end up being able to consider. And that I think 
that they will be required to consider going forward.
    Chairman Tauzin. We are going to watch that very careful.
    Thank you, Mr. Martin.
    Thank you, Mr. Chairman.
    Mr. Upton. Mr. Green.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Martin, I want to follow up what my colleague 
Congressman Whitfield's last question was about investment.
    I read in your testimony that you believe that last 
Thursday's decisions by the Commission would spur new 
investment in the telecommunications sector. But the day after 
the decision was rendered, Wall Street chopped $13 billion in 
value off the telecommunications sector. Is it still your 
opinion that the Commission's decision is going to spur 
investment, and I would like to know specifically where in the 
sector you believe the investment will go toward, particularly 
whether it be the local RBOCs, the regional Bells? Because I 
know they lost value because of the Commission.
    Mr. Martin. I think that the decision last week that the 
Commission rendered hopefully addressed some of the concerns 
that have been portrayed by some of the companies about 
incentives for investing in new broadband infrastructure. And I 
think that there have been a lot of concerns that have been 
raised over the last year and maybe even 18 months both at the 
Commission and elsewhere about the potential regulatory 
disincentives that our framework had for new investment. And I 
think that the Commission did a significant job in trying to 
provide regulatory relief for new investment in deciding that 
unbundling the fiber all the way to the home would no longer be 
required and changing our unbundling rules for fiber and hybrid 
fiber copper systems or changing the TELRIC incentive for any 
new investment, I think those are the kind of incentives that 
the Commission attempted to address last week that would 
provide additional incentives for investment going forward.
    Mr. Green. Well, obviously, with the market responding the 
way it did, it is going to be hard for those companies to get 
that investment in the capital markets with the loss of that 
value immediately afterwards. So, obviously, we disagree.
    I would like to ask Chairman Powell's opinion of that. Do 
you think the decision last Thursday will spur new investment 
in telecommunications systems, and particularly in light of 
what happened in the stock market over the next 2 days?
    Mr. Powell. No. Candidly, in my own personal judgment I do 
not think that it will. And, again, I do not think that is 
because alone of the debate about what the substantive results 
are. It is the fact that if there is one thing capital abhors 
as a matter of risk, it is clear uncertainty. And I think that, 
yes, things have been uncertain for a while and it was anxious 
in anticipating that this decision would bring clarity to that. 
And I think that we have unfolded the process, and I understand 
the arguments for the support of that. But I do not agree with 
them that we have unleashed a process that I think has 
introduced more uncertainty and risk in a way that the capital 
markets cannot and will not cope with.
    The market loss as you are describing, I would like to note 
for the record are not just the RBOCs. It was a massive loss 
for RBOCs. You know, even some of the IXEs went down in the 
early wake of the decision. Equipment suppliers, you know, 
Nortel, Corning, even people who should have benefited in some 
small parts, you know, were slaughtered even worse. Covad, the 
leading provider of line sharing dropped 43 percent in the same 
day. It is not a resounding endorsement, at least by the 
capital markets of the decision.
    Mr. Green. And I guess that is some of our concern because, 
you know, the goal is to be able to have investment into the 
market to make up for what we lost because of the dot com 
    Let me, before I get to my next question, I guess in 
watching what happened at the Commission, I felt like the 
Commission instead of regulating were being Members of 
Congress. Because we are the only agency in our Constitution at 
making an elephant a giraffe. And when I watched what the 
Commission did last week, it was almost like a Frankenstein. It 
took an arm and put it where a leg was at, and vice versa. And 
it just seemed like it is going to be difficult to make it 
    Commissioner Martin, let me read a quote to you. ``I 
believe the Government particularly commissions should place a 
higher priority on facilities-based deployment and competition. 
In the past the Commission adopted a framework that may have 
discouraged facilities-based competition allowing competitors 
to use every piece of an incumbent's network at super efficient 
price. Under such a regime new entrants have little incentive 
to build their own facilities and since they could use the 
incumbent's cheaper and more quickly.''
    Do you agree with that sentiment?
    Mr. Powell. I do. I think that was taken from a speech of 
mine, and actually what I said in the following sentence was 
that I also thought that the Commission should be addressing 
those with rules that would not favor CLECs or ILECs, that we 
should adopt rules that would relate to co-location, that we 
should adopt rules that would relate to provisioning of those 
network elements for competitors to be able to use. And that 
the particular problem as it related to unbundling was focused 
most notably on new investment.
    Mr. Green. Well, again, looking at last Thursday's decision 
it did not unbundle those networks to the extent they are still 
being able to compete on other lines for super efficient prices 
by the UNE rate.
    Let me take for example AT&T that had a $45 billion in 
revenue during the past year and if you phased out the 
unbundled network element platform, then AT&T would with other 
competitors be forced to deploy their own facilities in order 
to compete in their own marketplace, is that not correct?
    Mr. Powell. If they were forced to----
    Mr. Green. If they had to have their own facilities-based 
now almost 7 years after the Telecom Act is passed forcing them 
to go to facilities-based as outlined in your statement from 
last September, but the Commission's decision last week did not 
allow that or did not, you know, it is not facilities-based 
encouragement I guess?
    Mr. Powell. I think that it is ultimately facilities-based 
encouragement in the sense, as I mentioned before, on the 
broadband side it is certainly encouragement for investments in 
new infrastructure. But even on the competitive side I think we 
did put in place a framework for how those unbundling 
obligations will be phased out slowly over time. But ultimately 
as a Commissioner we were required under the Telecommunications 
Act to ensure that if there was impairment, that the 
competitors would have access to that equipment. And that while 
I do think we need to do all that we can to make sure that we 
are putting in place the regulatory framework that encourages 
new investment, to the extent that a competitor was impaired, 
the Act requires us to give access to the incumbent's 
infrastructure to the extent the competitors are impaired.
    Mr. Green. What in the decision was--Mr. Chairman, I 
thought I had 8 minutes, or 12 minutes. Chairman added 4 to my 
8 since I did not----
    Mr. Upton. Thank you. After this question we will go to Mr. 
Engel. We are expecting a vote on the House floor very shortly.
    Mr. Green. Okay. Thank you.
    It just seems unfortunately when I looked at what happened 
with the stock market and, again, watching this for a number of 
years, I think the Commission's decision will not incur AT&T or 
any other, they will still use other facilities instead making 
theirs facilities-based. I think in 1996, and a great many of 
us voted for that Act, intended the competition but the goal 
was to get the facilities-based competition and we are not 
there. And it has been 7 years and I do not know if the 
Commission last week helped us get there any quicker.
    Thank you, Mr. Chairman.
    Mr. Upton. Thank you. Mr. Engel recognized for 5 minutes.
    Mr. Engel. Thank you, Mr. Chairman. I had this bad dream. I 
keep waiting to speak and then someone jumps in. And I figured 
just when it would get to me, there would be a vote on the 
House floor, and I suppose I should bring some levity into it 
my asking Mr. Copps how come his name plate is higher than 
everybody else's. I do not know if that is some kind of 
    Thank you all for coming, and thank you for your 
perseverance. It is not easy when you come before our 
committee. But, as you can tell, our chairman is very fellow 
and the members very much concerned about it.
    I want to take the opportunity to thank Ms. Abernathy. We 
had a very good meeting the other day, and I want to thank you 
for coming for.
    And I know that Mr. Adelstein and I have lunch next week. I 
do not know if he is paying or I am paying, but if any of the 
rest of you want to pay, you can have lunch with me anytime.
    And Mr. Powell, it is good to see you again, and everyone 
as well.
    And, Mr. Martin, when Mr. Stearns was praising you at the 
start of his speech, I thought, oh, he is going to move in for 
the kill. But I thought it was relatively mild.
    A couple of hours ago Mr. Wynn----
    Mr. Towns. Would the gentleman yield?
    Mr. Engel. I will certainly yield.
    Mr. Towns. I would like a lunch with Chairman Powell.
    Mr. Engel. Well, his father grew up in my district, so he 
should have lunch with me first.
    Let me say that Mr. Wynn about 2 hours ago I think it was 
asked a question about media ownership. And I wonder if I could 
just revisit that quickly.
    We know that the old 35 percent there was no magic number 
the court said, how did you get 35. I am wondering if each of 
you are any of you can tell me if you would support a broadcast 
media ownership cap that is higher than 50 percent? If you have 
formulated your opinions on it yet? I am wondering if any of 
you would care to comment on that?
    Mr. Copps. I would not want to prejudge any outcome. But 
whoever was pushing an idea like that would really have to 
demonstrate the public interest benefits to be derived from it.
    Mr. Engel. Is there anyone who would advocate it? Anybody 
advocate higher than 50?
    Mr. Powell. I would just say, you know, this is what we are 
trying to figure out. It would depend. I mean, I think that it 
is interesting that in the cable ownership context we advocated 
a number more in akin to these 35 percent numbers. The court 
struck it down and it opined about numbers as high as 60.
    I do not necessarily subscribe to that. Because I think 
what they are really saying is you had better have a darn good 
theory for drawing the line more aggressively than we suggest.
    I do not think that it would be appropriate to say yes, I 
support a number really high. I will support whatever I think 
the record can defend.
    Ms. Abernathy. Congressman, I think the one point I would 
add is that just in the wire line arena, I assume companies 
will do what is in their own best interest always. And so I 
think that they are inclined to consolidate as far as we would 
let them. So as we are looking at our rules, we will need to 
have a comfort level about how much concentration is okay. And 
I do not know where that is yet. I am still looking at the 
record. But I am going to approach it with a presumption that 
they will go as far as we will let them, because that is what 
is in their own best interests and that is what we have seen in 
every market. And I think that is normal. Not necessarily a bad 
thing, but shame on us if we do not take that into account as 
we are adopting rules and regulations.
    Mr. Engel. Thank you.
    The announcement last week, the UNE-P announcement, the 
FCC's announcement last week the capital markets have not in my 
opinion responded well to those announcements. When you look at 
it, it is not only the telephone companies that are adversely 
effected, but also the manufacturers.
    Certain portions of the network are inexpensive, relatively 
inexpensive and easy to install such as switches. But as of a 
year ago our calculations show there were roughly 75 CLEC 
circuit switches in New York State owned by 34 different 
carriers. And there were also a similar number of CLEC packet 
switches. So I am wondering if anyone can comment on why the 
FCC found that a CLEC would be impaired if it did not have 
unbridled access to incumbent LEC switching capabilities? I am 
wondering if you could give me the rational on that?
    Mr. Martin. I think one of the things that we looked at 
last week and that the record demonstrated was that there were 
distinctions of taking advantage of the switches that you might 
put in place and distinctions between residential and business 
customers or mass marketing customers and a large business 
    In other words, when you sign up a business customer and 
you are going to put in your own switch, you will be able to 
put a whole set of lines over into place and use that switch 
with a whole significant number of lines. For example, a 
business customer, they have 200 lines all at once. So you only 
have to send a technician in on 1 day to move those lines over 
for on 1 day and you move all 200 lines at once.
    If you were trying to take advantage of kind of a mass 
marketing operation where you would then be required to 
periodically be signing up particularly residential customers 
and then you would have to be sending in technicians frequently 
to be able to do that and make that hot cut process work and 
cut over. I think it is those kind of operational issues and 
so--that make a big distinction. I think that is what the 
Commission focused on significantly last week in its decision.
    I also think that one of the reasons why that is what we 
focused on so significantly is we actually were instructing the 
States to try to address that issue by adopting that kind of a 
batch cut process. In other words, allowing the aggregation of 
individual mass marketing customers up to a certain level that 
you can justify sending a technician in and moving those lines 
over, just the same as you do on the business side. And I think 
that is one of the things that the Commission was trying to 
    Mr. Copps. Can I make just a quick comment? The matter of 
the investment and the expectations of Wall Street and 
everything has been brought up a number of times.
    You know, I do not really know what it is in the final 
analysis that spurs investment. I do not even know if these 
companies do want to invest. Somebody made the comment earlier 
on ``Hello Washington, Wall Street calling.'' And I think that 
is fine insofar as it goes but I do not think it is entirely 
the end game when we are talking about something like this. And 
I do not know what the expectation of the analysts were from 
this proceeding. I do not know if they were realistic, if they 
expected somehow that we were going to have this moment of dawn 
and clarity and there would be no legal challenge after that. I 
mean, maybe some of them were thinking that way. I do not know. 
If they were, they were way off the mark.
    But when I think when we try to discern all the motivations 
for investment, we are pretty shaky ground.
    Mr. Powell. Congressman, I would like to note something 
that has not been said here today, which I think your question 
shines the spotlight on it.
    Unfortunately, when we do these exercises, a lot of it has 
to be predictive. Would a competitor who is not yet there be 
impaired under 12 different economic criteria which we try to 
crunch and evaluate and now I guess States will try to crunch 
and evaluate? But what could be the most powerful evidence that 
you could do it yourself? It should be the fact that other 
people are there doing it themselves.
    And I think that, you know, it is very easy to get swirled 
around the switching element. But of all the possible elements 
that are in issue nobody would disagree that the one most 
likely to be able to be self-provisioned is switching. It is 
belied by the fact that there are hundreds and thousands of 
them deployment throughout the country. Even the large IXCs who 
fight most for this decision, almost all of them have 
substantial switch presences in markets across the country 
because they provide long distance service using them in points 
of presence.
    And I think at some point, you know, sort of regulatory 
prediction sort of leaves the realm of reality. I mean, there 
it is. Why is it that somebody is impaired if it can be done?
    I think it is also important to credit an enormous amount 
of CLECs in this country who have done it that way. The vast 
majority of competitive local exchange carriers who are not 
long distance companies, which is an important distinction are 
using their own switches. ALTSP, the Association of Local 
Telecom Service Providers didn't argue for preservation of 
switching so much in the proceeding because most of their 
members do it already. Because they know owning the brains of 
the network is the key to product differentiation, lower prices 
and greater competitive heft. This is mostly a methodology to 
bundle with a declining long distance business. I think that is 
somewhat of a distinct problem. But the point you make, which 
is one I feel is a little bit lost, is that when there are 
switches around we should stop the kind of complicated economic 
predictive analysis and merely take cognisance of that fact. 
And I do not think that that is a particularly a granular 
    Mr. Engel. I agree with you.
    Thank you, Mr. Chairman.
    Mr. Upton. Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me begin by first asking the question about the 
telecommunication development fund. Based on some narrow 
interpretation that we are not able to get the benefit from the 
fund as we thought we would when the law was actually passed in 
the 1996 Telecommunications Act, because only a certain percent 
we can get interest in, you know, there is legislation being 
put forth in this Congress by Congresswoman Wilson and of 
course Congressman Upton, and myself.
    I would like to get the views of the Commission on that in 
terms of would you be supportive of that, the fact that, you 
know, where access to capital is always a problem. You know, 
trying to get service into under served areas. This is an 
opportunity where the government does not put up anything. So I 
would like to get your views on that.
    Mr. Powell. I would love to comment.
    First on that, I sit on the board of the Telecom 
Development Fund and I am an active participating member. And I 
think it is a great idea that is underfunded and does not have 
enough ability to get a return on its corpus to make as much 
difference as it could. I have watched it firsthand and it is 
frustrating. I think the good men and women who are on it are 
doing the best they can, but it is a relatively modest amount 
of money and it is a modest amount in which it can be return.
    I have always felt that areas like this where we take in 
sometimes millions, sometimes billions in auction revenue 
across the country, that much of that money could be put to 
more tailored uses to pursue goals in the telecom sector. The 
telecom sector produced the revenue for the country, so a 
greater portion of it could be used to advance some of the 
    You could imagine if we could take some percentage of 
auction proceeds and use them more effectively in the TDF fund. 
So I would love to work with you on any ideas in that area, and 
I also just plug again something I have cared about for 5 
years, the tax certificate effort. Because I think that the 
structural rules--I do not disagree that structural rules have 
impact on diversity, but I think it is minimal compared to the 
problems of capital. And no matter what those rules are, if we 
can not help the money flow, help new entrepreneurs enter 
markets that have very expensive characteristics, then it is 
all for naught anyway.
    Mr. Towns. All right. Thank you.
    Any other comments?
    Mr. Copps. Well, I certainly would agree with that. This is 
an area where we need some really creative thought. If you stop 
to think about the challenges of getting communications out to 
the inner city or the Upper Peninsula of Michigan where I spent 
some time growing up, it is really kind of overwhelming. So I 
hope that we will learn to make maximum use of this. And I 
would very much look forward to working with you and your 
colleagues on the committee as we try to device new ways to 
accomplish those purposes.
    Ms. Abernathy. The only point I would add, Congressman, is 
to echo the Chairman's concern about you have to have capital. 
Having been in business prior to joining the government and 
having worked when I was with a large company trying to do some 
work with some smaller startups that involve women and 
minorities, the capital funding issue kills you at the front 
    Entering the telecom arena is not like starting a dry 
cleaners. It is not like starting a local grocery store. It is 
a brutal industry. It is at a time when the markets are not 
very friendly. And so to ensure that we continue to promote 
some of these social goals that we value, there is going to 
have to be some capital made available.
    Mr. Towns. All right. Thank you.
    Mr. Adelstein. I would just like to add I am very pleased 
to hear the Chairman talk about potential uses for auction 
revenues. I think that there is a proposal called Digital Gifts 
to the Nation that proposes using some of these revenues for 
educational purposes. And I think that this would also be an 
outstanding kind of area to invest in to try to get the startup 
capital available. And I think your legislative idea is a good 
one. And looking at creative ways of finding resources for that 
including revenues from our auctions is an excellent one as 
    Mr. Towns. Right. Thank you very much. And look forward to 
working very closely with you. Because I really feel that if we 
make these changes, that there will be additional money. It 
will not be enough. But it will actually improve the situation. 
Because I think it is an idea, as you agree too, that makes a 
lot of sense.
    It has been reported that one of the next major issues that 
the Commission planned to tackle is that of media ownership 
caps. First of all, is that so? And if so, what's the time 
    Mr. Powell. It is accurate. Again, pursuant to Section 202H 
in which the Congress commands the Commission to review its 
ownership rules every 2 years, this is the second such biennial 
review since the passage of the Act, and that is what you are 
reading about.
    I would like to emphasize that the biennial review is 
principally about broadcast ownership rule, not all media 
ownership rules which is sometimes reported. And the timeframe 
is we have stated pretty publicly that we hope to complete that 
proceeding something in the very late spring, probably my best 
estimate would be sometime in May.
    Mr. Towns. On that note, I yield back. I understand I do 
not have anything to yield back?
    Mr. Upton. You are correct, Mr. Towns. Thank you.
    I would just note for the record that all members will be 
able to, as we start this second round, we are expecting some 
votes soon, that all members will be able to submit questions 
in writing if they do not get an opportunity. And we will close 
that record at close of business on Friday and then submit the 
questions the first thing next week.
    I just have a quick question that I want to follow up on 
with Mr. Towns, and obviously we are all pleased to hear that 
the biennial review on this cross ownership ban is going to be 
considered. And these curtains are closed for a reason, Mr. 
Copps. I am not sure I am going to get to Richmond tomorrow 
with the snow that is coming down. I know there 13,000 some 
comments. I do not think it is any surprise for folks to know 
where I stand on this particular issue. And, for me, I live in 
a community of about 50,000 people, southwest Michigan. The 
newspaper stand outside of the post office on main street has a 
stand for the Detroit News, the Detroit Free Press, the Wall 
Street Journal, the Chicago Tribune, the Herald Palladium and 
the USA Today. Our cable companies in the area provide local 
channels from Grand Rapids, Kalamazoo, Battle Creek, Elkhart, 
Indiana, South Bend and Chicago. And particularly the news that 
is broadcast, as we look at the Tribune Company, WGN, channel 
9, uses quite a bit of their nightly news commentary from the 
Chicago Tribune. And I think virtually everybody that watches 
it thinks that their news is enhanced because of the ownership 
that is there.
    And I just want to know, I have yet to hear any complaints 
from any of the views with that regard. And I just want to know 
is you have had extensive hearings throughout the country and, 
you know, the many thousands that have come in, have you 
actually heard some complaints with regard to the news 
gathering organizations of some of those media giants?
    Mr. Copps. Yes, I have heard complaints, and no I have not 
had extensive hearings throughout the country. I would like to 
have extensive hearings throughout the country, but I am going 
to be going off on my own and doing a couple shoestring 
hearings and also trying to attend some of the other forums 
that have been put together by public institutions and all. But 
I do not think we have met our obligation to have as many 
hearings around the country as we should have.
    Let us look at that 13,000 and that 15,000, all of those 
comments coming in. You know, my conclusion on that is if we 
have got 13,000 comments from the relatively few number of 
Americans who know about this issue, then when we get to that 
point where enough Americans know about this issue or are 
concerned about, we are going to be looking at 15 million 
comments. This is an inside the beltway issue right now. It is 
not an issue for the vast majority of the American people, 
although it should be an issue for the vast majority of the 
American people.
    We teed this up back in September or October. One network, 
one time mentioned the fact that this proceeding was going 
forward, and that was reportedly at 4:45 in the morning. So, 
you know, not everybody knows that this is teed up. Not 
everybody knows that the FCC is going to have the possibility 
to change these views. Not everybody reads the Federal Register 
and knows exactly how to comment.
    So, yes, I want to go out and have those hearings. And some 
will say well, you are just going to get anecdotal information 
when you go out there. I do not buy that. I think if I go to 
Detroit, Michigan or any state, Kansas, Nebraska, I think I am 
going to find factual data, granular data and expertise that 
some of our normal commentors just do not have. And I 
appreciate all the comments that have come in, but I do not 
think the comments have the kind of diversity that I am looking 
for. In our universities, in our broadcasting community, in our 
journalistic community out there there is a lot of people that 
have a lot to add to this debate. And I think we do them a 
tremendous disservice by not doing the outreach to tell them 
that this is going on.
    Mr. Upton. Well, we look forward to hopefully to having 
this stick on a time table and some decision is made this 
    Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman.
    You know, what really worries a lot of public interest? If 
we could have the network chieftains sit here just for one 
whole day. The networks would cover it, that is for sure. And 
the public would then all start to have views as to whether or 
not, instead of having 6, only 3 of them would be sitting there 
a year later. And I would be you could probably have very 
strong views on the subject. And that is the issue that Mr. 
Copps is raising.
    By the way, I was just wondering Mr. Tauzin asked Mr. 
Martin about the NERUCs, whether or not they thanked him.
    Mr. Chairman, did the Bells, has any Bell employee or 
lobbyist thanked you since Thursday for anything? Have they 
talked to you at all?
    Mr. Powell. I have not gotten a lot of thanks in the last 
few weeks, no.
    Mr. Markey. No Bell has talked to you and thanked you?
    Mr. Powell. And, Congressman Markey, of course out in the 
public someone said ``Thanks, for your efforts.'' I have had 
nobody talk to me about the substance or----
    Mr. Markey. So about like Mr. Martin then? You have each--
    Mr. Powell. I have no idea what that letter said.
    Mr. Markey. I understand what you are saying. Okay. I just 
wanted to make sure that we are living in the same world; that 
is all.
    You know, and Commissioner Abernathy, you are right. 
Corporations have no responsibility to the public interest. As 
a matter of fact, it is antithetical in many instances to their 
legal obligation to maximize profit for their shareholders. And 
a lot of these corporations if you kicked them in the heart, 
you are going to break their toe. I mean, we know that. Okay. 
So the public interest is sitting right here. And the public 
interest for a regulatory purposes is the intelligence and the 
conscience of the 5 of you in telecommunications policy. And 
the same way that it is our intelligence and our conscience 
when we legislate in the same areas. It is us. There is no 
magical, you know, formula up there. It is you.
    So that is what you have to accept, is your moral 
responsibility in addition to your legal responsibility. I 
mean, it is you. It is your conscience. Because no one else is 
going to tell you what it is. It is your own life experiences.
    Now, I have heard many people, and I want to think Mr. 
Dingell for starting to down this line. There are many people 
who are right now advocating a level of consolidation that 
would make Citizen Kane look like an under achiever in the 
media field, you know. And I actually hear some people talk 
about--and by the way, let me stipulate that not only did 
Congress screw up the radio deregulation, but it needed a 
little bit of help from the FCC as well. But I think, you know, 
can we all accept that that was a big mistake, a big mess. Too 
much consolidation in many communities across the country. And 
that is my concern.
    It is not so much the national reach as it is in each 
individual community. So, for example, in most communities in 
America if one company owned 2 TV stations, 8 radio stations 
and a newspaper since the best of them only have 2 newspapers, 
and then another company owned the other 2 biggest TV stations, 
8 radio stations and the other newspaper that would pretty 
much, you know, dictate then the coverage of almost the local 
news and public affairs in that community forever; a couple of 
    And I think that that would just go too far. So, that is 
the bottom line on kind of your common sense reaction to it. If 
the public ever got to hear that, you know, they would say well 
that does not make any sense. You know, when I was growing up 
in the 1960's, you know, we had 5 newspapers in Boston, 3 TV 
stations, had all these radio stations, you know. So that's the 
oral paradigm before we had the introduction of new technology. 
So clearly the new technology should make even more choices, 
even more voices possible. Not fewer than the 1960's, huh? So I 
start there.
    So within that common sense guideline I think it makes 
sense that adjustments can be made, decisions can be made, but 
you know not trying to reach some kind of free market paradigm, 
because that is not what communications is. We are talking 
about democracy now. We are talking about the information that 
goes into the minds of each American determining their 
relationship with their local community and with their state. 
And cable does not really deal with that. And satellite does 
not really deal with that. And the Internet does not really 
deal with that to the exception to which on the Internet you 
can pick up the local newspapers on line that gives you the 
same information.
    So, Mr. Copps, give me your view. Give me how important you 
think this issue is for the American people fundamentally as 
you are now entering into this new deliberation?
    Mr. Copps. Well, important as the decision we spent so much 
time talking about today is to the future of 
telecommunications, I think it almost pails in significance 
compared to the media ownership and the broadcast caps that are 
coming up. I think this does go to the very nature of the 
entertainment that the American consumer hears and listens to. 
Is there localism? Is it bubbling up from the creative genius 
of the American people or is it more and more coming out of the 
advertising agency on Madison Avenue? So I think it has that 
    And then as you so eloquently said, it goes to the very 
marketplace of idea and the democratic discourse we have, and 
who is going to have access, and what issues are going to be 
covered. And I think arguably we are not doing a very good job 
of that in the country today even though we have more variety 
of formats, they say, and all of that. I do not know what that 
translates into when you start talking about diversity in a 
historical basis.
    So, I am not trying to sabotage a vote or to sink a vote. I 
just want to make sure that when we vote we have an adequate 
corpus of information to cast an intelligent vote on. Does that 
we mean we answer every question in the world? No, it does not. 
Does it mean we answer some elemental questions like what are 
the impacts of this going to be on diversity of programming or 
on diversity of job opportunities in the industry?
    You talked about new technologies. How does something like 
digital television play into this? You said new technologies 
are supposed to expand diversity. I do not know. Here, if you 
have a channel that can suddenly do 5 or 6 multicasts how much 
new diversity that is, variety of format maybe. What is the 
impact on children? And this is a question that kind of 
intrigues me, too. Is there a relationship between the rising 
tide of consolidation that we have seen in this country and the 
rising tide of indecent programming that we have on the 
airwaves? And I think there are some people who think there is.
    I do not know the answer to that. But I think we had better 
ask the question and at least get some input before we proceed.
    What is the impact going to be on advertisers, small 
advertisers, mom and pop stores in a consolidated media 
environment? And what is the impact going to be on diverse 
ethnic communities based on not just the programming they get, 
but the products and services that are previewed to them? So, 
you know, it just goes to the very crux of what we are talking 
    Mr. Upton. Thank you.
    Those buzzers mean that this hearing is now officially over 
as we have a series of votes on the House floor.
    I want to thank all of you for the many hours you spent 
with us today. And, Chairman Powell, particularly with your 
leadership trying to put the things together. And we look 
forward to seeing the actual order as it is written.
    Thank you. God bless.
    [Whereupon, at 3 p.m., the subcommittee was adjourned.]