[Senate Hearing 108-896]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 108-896

             COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            JANUARY 14, 2003

                               __________

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


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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas                JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon                 BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois        RON WYDEN, Oregon
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
                                     FRANK LAUTENBERG, New Jersey
      Jeanne Bumpus, Republican Staff Director and General Counsel
             Robert W. Chamberlin, Republican Chief Counsel
      Kevin D. Kayes, Democratic Staff Director and Chief Counsel
                Gregg Elias, Democratic General Counsel




                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on January 14, 2003.................................     1
Statement of Senator Allen.......................................     8
Statement of Senator Boxer.......................................    19
    Prepared statement...........................................    19
Statement of Senator Breaux......................................    18
Statement of Senator Brownback...................................    11
Statement of Senator Burns.......................................     9
    Prepared statement...........................................    10
Statement of Senator Dorgan......................................    17
Statement of Senator Fitzgerald..................................    82
Statement of Senator Hollings....................................     1
    Prepared statement...........................................     5
    Article from USA Today, dated January 14, 2003 entitled, Bell 
      monopolies push to disconnect competition..................     3
Statement of Senator Hutchison...................................    19
Prepared statement of Senator Inouye.............................    13
Statement of Senator Lautenberg..................................    15
    Prepared statement...........................................    15
Statement of Senator Lott........................................    14
Statement of Senator McCain......................................     6
    Prepared statement...........................................     7
Statement of Senator Nelson......................................    26
Statement of Senator Smith.......................................    21
    Letter from the High Tech Broadband Coalition................    22
Statement of Senator Snowe.......................................    26
Statement of Senator Sununu......................................    16
Statement of Senator Wyden.......................................    13

                               Witnesses

Abernathy, Hon. Kathleen Q., Commissioner, Federal Communications 

  Commission.....................................................    39
    Prepared statement...........................................    41
Adelstein, Hon. Jonathan S., Commissioner, Federal Communications 

  Commission.....................................................    44
    Prepared statement...........................................    45
Copps, Hon. Michael J., Commissioner, Federal Communications 
  Commission.....................................................    47
    Prepared statement...........................................    50
Martin, Hon. Kevin J., Commissioner, Federal Communications 
  Commission.....................................................    36
    Prepared statement...........................................    38
Powell, Hon. Michael K., Chairman, Federal Communications 
  Commission.....................................................    27
    Prepared statement...........................................    30

                                Appendix

Response to written questions submitted by Hon. Barbara Boxer to:
    Hon. Jonathan S. Adelstein...................................   113
    Hon. Michael J. Copps........................................   118
    Hon. Kevin J. Martin.........................................   103
    Hon. Michael K. Powell.......................................    94
Response to written questions submitted by Hon. Byron L. Dorgan 
  to 
  Hon. Michael K. Powell.........................................    93
Response to written questions submitted by Hon. Ernest F. 
  Hollings to:
    Hon. Kathleen Q. Abernathy...................................   106
    Hon. Jonathan S. Adelstein...................................   112
    Hon. Michael J. Copps........................................   116
    Hon. Kevin J. Martin.........................................   101
    Hon. Michael K. Powell.......................................    89
Response to written questions submitted by Hon. Daniel K. Inouye 
  to 
  Hon. Michael J. Copps..........................................   117
Response to written questions submitted by Hon. John D. 
  Rockefeller IV to:
    Hon. Kathleen Q. Abernathy...................................   107
    Hon. Jonathan S. Adelstein...................................   110
    Hon. Michael J. Copps........................................   123
    Hon. Kevin J. Martin.........................................    99

 
             COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY

                              ----------                              


                       TUESDAY, JANUARY 14, 2003

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m. in room 
SR-253, Russell Senate Office Building, Hon. Ernest F. 
Hollings, Chairman of the Committee, presiding.

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

    Chairman Hollings. Good morning. The Committee will please 
come to order. The Committee is privileged this morning to have 
the full Federal Communications Commission. We welcome you. And 
let me make an opening statement here.
    Chairman Powell testified in front of the Appropriation 
Subcommittee meeting last March and stated that FCC's 
fundamental mission was to implement the Communications Act as 
amended. And yet, I read in the Washington Post this month that 
one of those amendments, specifically the 1996 
Telecommunications Act, was an experiment, according to 
Chairman Powell.
    I think one of the biggest difficulties we have in the 
Congress is the lack of a sense of history. Let me remind 
everyone that it took 4 years, quite a struggle, to enact the 
1996 Act. What we had was the deregulation of a monopoly, a 
monopoly that had 100 percent of the last line into the home 
and business. And, of course, instant deregulation would have 
just extended and established that monopoly in the market, and 
there would be no competition, or really deregulation.
    At the same time, the United States of America had, and I 
think still has, the best communications system in the world, 
and we did not want to decimate the local Bell companies, the 
local service. And so, it was not intended as a total 
deregulation. We were trying to sort of deregulate it in 
steps--and mindful all the time that the public had built up 
these monopolies. Senator Wyden, Senator McCain, all of us, 
Chairman Powell, we all owned the seven Bells. They were built 
up with rate-paying charges.
    So we got together with the Bell companies and the 
competition. The competition, of course, being long distance. 
And it had been deregulated by Judge Greene, and very 
successfully so. They were down a third in size, and making 
three times the profit. And yet, the Bell companies kept saying 
that they wanted to get into long distance. And we had, at this 
Committee level, over a 4-year period, the Bell companies on--I 
think it was on a Friday, and the long distance on Monday--
meeting intermittently with the Committee staff, and the left 
hand knew what the right hand was doing. There were going to be 
no tricks. Everybody had the power. The long distance had the 
power. The Bell companies had the power politically to kill the 
initiative, the bill itself. We realized that.
    So their lawyers drew this up, sections 251 and 271. And 
right to the point, when they talk about low cost, that is why 
I mentioned the fact that we owned them. And how do you get 
competition going except to get the just and reasonable prices 
or a discount so that we can get some kind of competition 
started up against these mammoth Bell holdings.
    And they wrote it, but they lied. They did not have any 
idea of trying to get into long distance. And instead, as their 
letters had indicated that they would be in within a year--and 
I have those letters in my file--that they were going to get 
into long distance. They immediately questioned the 
constitutionality of what they had written, and held us up in 
the courts for some three years.
    Then they tried every trick in the book that you could 
think of. They said that they--instead of competing, were going 
to combine, and they merged the seven companies into four. They 
talked about rural America. I can see that chairman of the 
board of U.S. West sitting in my office. He wanted to get into 
rural America. And the morning paper showed that he was selling 
off rural American, rural properties out there in Colorado as 
fast as he could. It was a pure sham.
    The next thing we heard was data, ``Data was not 
contemplated. Data was not contemplated.'' And when we showed 
that it was mentioned 428 times at the hearings and in the Act 
and everything else, then they moved to Tauzin-Dingell and 
broadband. They were telling us that they could not afford to 
expand broadband, but deregulation would allow it. And at the 
same time, they were telling the market, where Chairman Powell 
visits regularly, that, oh, no, they were getting out of 
broadband--and, in fact, 70 percent of the business DSL lines 
that had been discovered over some 20 years ago, and that they 
had in their properties, and only extended when they got 
competition from the cable crowd. So then, they moved to 
parity, cable versus the Bells. And now they say that they need 
investment, ``What we need is jobs.'' They will try every trick 
in the book.
    The fact of the matter is that the 1996 Act has been a 
measured success. There is not any question that we have 
lowered greatly the barriers to entry of all segments of 
communication. We have fostered extensive innovation and made 
possible the explosive growth of the network in the Bell 
companies themselves. Bells have invested some $100 billion 
since the Act. Cable have invested some 60 billion. The CLECs, 
some 60 billion. In fact, one witness before the Committee 
says, ``We are over-invested is our problem,'' that they have 
got 2 trillion in optic fiber and other cable equipment in the 
ground and extended, and the return on that investment is only 
about 300 million a year, so the tremendous over-investment 
problem.
    And the particular company that cries and whines that they 
are going broke--my friend, Mr. Whitaker, out there at SBC, he 
is rated the tenth among the Fortune 500 in profits, 14th in 
size, going broke, selling below cost. I wish I could get a 
business and set it up that way, where I could become tenth 
largest in the country in profits.
    So we know that they have really been going forward as fast 
as they can. Now, what has happened is that the largest long-
distance operator--third largest in the country, I think; I had 
notes here--is Verizon. And the other companies are doing 
extremely well, but the orders that the FCC may soon implement 
in the Committee's consideration could destroy competition at 
the very time that it is beginning to take hold. In fact, just 
exactly that.
    I noticed in the morning paper here--unless there is 
objection--the Bell monopolies pushed to disconnect competition 
in USA Today--we will include that, which is even a better 
statement than mine on this particular score.
    [The information referred to follows:]

                      USA Today, January 14, 2003

             Bell monopolies push to disconnect competition

Our view: Public is asked to give up phone rate cuts for vague 
        promises.
    Seven years ago, Congress set out to break up the local Bell 
telephone monopolies and bring competition to consumers' homes. But 
just as states are finally figuring out how to make that promise a 
reality, and some communities are seeing phone bills drop, federal 
regulators may unplug the competitors at the behest of the four Bell 
monopolies.
    The Bells want to gut rules spurring competition that were enacted 
in the wake of the 1996 Telecommunications Act. They require the Bells 
to rent their networks at reasonable prices to potential rivals that 
may want to offer local phone service but can't afford to set up their 
own phone networks.
    For years, the law wasn't an issue because states let the Bells 
charge exorbitant fees that kept competitors out of their markets. Now 
that several states are ordering them to cut their network fees, 
competition is emerging, and phone rates are decreasing. On Monday, 
AT&T announced plans to compete in Washington, D.C., after the local 
government cut the charges for tapping into the network operated by 
Verizon. Nationwide, 11-percent of local phone lines were serviced by 
competitors through last June, nearly double their share two years 
earlier.
    Faced with the first real threat to their grip on local service, 
Verizon and the other Bells are crying to the Federal Communications 
Commission (FCC) that they're forced to rent their networks at a loss. 
They want to go back to the way it was: higher fees for rivals and less 
choice for consumers.
    Though a court-ordered decision won't come for a month, all five 
FCC commissioners have an opportunity to make clear which side they're 
on when they testify today at a hearing before the Senate Commerce 
Committee. If the Agency buys the Bells' argument, consumers stand to 
lose out on $9 billion in savings that competition could bring, 
according to a new report by the Competitive Telecommunications 
Association, which represents Bell rivals. In Michigan, for example, 
competition forced SBC Ameritech to cut rates 33 percent in June. In 
New York, where Verizon competitors provide 25 percent of dial tones, 
customers save $700 million a year.
    The advantages of ensuring an open field are obvious. Even so, the 
FCC has a long history of undermining competition. Consider:

   Cable TV. For a decade starting in the mid-1960s, the FCC 
        hampered development of cable TV to protect the interests of 
        local broadcasters, who saw cable as a threat. Cable systems 
        couldn't show movies less than 10 years old or duplicate 
        programs on over-the-air stations. When the FCC finally lifted 
        the roadblocks, cable service exploded.

   Cellphones. The FCC delayed cellphone service nearly a 
        decade, costing the country $86 billion in economic benefits, 
        according to a 1991 study by several economists. Then in the 
        1980s and early 1990s, the commission limited the number of 
        providers to just two in most markets, thinking that best 
        served consumers. When the FCC abandoned those restrictions in 
        1994, competition took off, and prices plummeted.

   FM radio. The FCC hampered the spread of FM radio for 
        decades. In 1945, some 55 stations broadcast in FM to 400,000 
        receivers; but then the FCC decided to give FM frequencies to 
        TV. FM didn't recover from that setback to become a viable 
        competitor to AM radio until the late 1960s.

    The Bells hope to repeat history by persuading the FCC to let them 
charge competitors higher prices for access to switches needed to 
direct calls to the right phone. They claim that the states are forcing 
them to subsidize this piece of the network. What's needed instead, 
they argue, is for rivals to build their own networks to produce 
``sustainable'' competition.
    Both arguments fall flat. The states base their access fees on the 
Bells' own cost data. And sustainable competition won't emerge if 
competitors can't even get in the door. If the Bells are able to raise 
their fees, AT&T, MCI and others say they will abandon efforts to break 
into local residential markets, leaving consumers once again stuck with 
their monopoly provider.
    What the Bells really want is as little competition as possible. 
Ever since the 1996 law was passed, they have tried to block rivals 
using an array of legal maneuvers and technical tricks. Along the way, 
they racked up an astonishing $2 billion in federal and state fines for 
undermining competition. They also broke promises to compete with other 
regional Bells in exchange for mergers that shrank the original seven 
Bells into four.
    Despite that past, FCC Chairman Michael Powell appears sympathetic 
to the Bells' pleadings. Recently, he has called for companies to move 
away from renting phone networks and build their own.
    Stripping away the current rules, however, would sacrifice real 
competition today for the promise of consumer choices sometime in the 
future. The Bells' track record suggests such a future is dubious.
    States increasingly are appealing to the FCC to do the right thing 
for consumers. That's a powerful call the commissioners would do well 
to answer.

    Chairman Hollings. But residential phone service--in almost 
40 states, the state public service commissions, with their 
local expertise, have set the terms by which the Bells must 
sell elements of their networks to competitors. And now the FCC 
wants to take away those elements. The Act permits this when 
the evidence shows that they are no longer necessary. But 
absolutely we are just getting in. The Bell companies still 
have at least 88 percent of that last line into the home and 
business.
    The determination, of course, is best made by local experts 
on a market-to-market basis, and not by us up here in 
Washington. Yet, the FCC is prepared to make an across the 
board determination that some of the Bells' unbundled network 
elements are no longer necessary and disregard the opinion of 
the state public service commissions. This makes no sense. The 
PUCs are the ones the FCC listens to before approving a Bell 
for 271. This has happened 35 times since the current Chairman 
became a Commissioner. The PUCs are the ones who examine the 
economics and data to set the rates for the Bells' network 
elements. This framework was upheld by the Supreme Court. The 
PUCs should be the ones to determine when a Bell no longer has 
to provide a network element to competitors at a discount in a 
particular market, not the FCC.
    But worse, in broadband, the FCC is about to create a 
monopoly in the small and medium business market and a duopoly 
in the residential market by just saying, ``Well, wait a 
minute. Telecommunications is really information.'' Now, come 
on. I mean, I never heard of such shenanigans since I have been 
up here.
    What does this mean? Without access to the Bell network for 
broadband, competitors will close up shop. Small and medium 
businesses throughout America will have one choice for their 
telecommunications provider, and American homes will have, at 
best, two. This is not the Telecommunications Act as they 
intended. The preamble aspired about new telecommunications 
technologies--the word ``data'' or ``Internet'' and ``advanced 
services,'' those words were mentioned in the hearings, in the 
bills, and on the floor over 400 times. The Act hinged on 
competitors having access to the Bell network on a just, 
reasonable, and nondiscriminatory rate whether that network 
carried a phone conversation or dial-up Internet service or 
high-speed data. This was not some hidden provision, some 
secret bargain reached in the dark of night.
    And now, despite this measured process Congress created, 
five Commissioners appear ready to radically revise the rules 
of the game all in the name of broadband and parity. And while 
you are at it, you may eliminate the possibility that universal 
service could ever support broadband. You are going to cut off 
the access of disabled Americans to broadband services and 
thwart law enforcement access to high-speed communications in a 
time of terror, all protections that Congress intended to 
maintain in a high-speed world.
    Let me stop there, and I will put the rest of my statement 
in the record, because you can see that we, at the committee 
level, are quite disturbed and concerned over the process as 
scheduled. For one thing, we have got--we have got--you know, 
Verizon is into long distance--we have got the Bell companies 
coming into long distance here in the District area. And we 
see, by the Chairman's prepared statement, that he is going to 
make a ruling in February so that they cannot get to it in 
March. I will have to find out in the morning paper. But we are 
having a dickens of a time here, at the congressional level, 
playing catch-up ball with the FCC, not administering the 
intent of Congress, but some wild ideas that they are supposed 
to promote jobs. You are supposed to promote competition--that 
they are supposed to promote investment--you are supposed to 
promote competition. And just at the time that the Act is 
really beginning to work, because of the delays of the Bell 
companies, now you are going to reward them and expand their 
monopoly.
    [The prepared statement of Chairman Hollings follows:]

            Prepared Statement of Hon. Ernest F. Hollings, 
                    U.S. Senator from South Carolina
    Today we hear from the five FCC commissioners who are faced with 
several pending proceedings that could radically revamp the future of 
the telecommunications industry.
    Competition is finally taking root across America. Millions of 
Americans are signing up for cheaper local phone service offered by 
competitors and the Bells dropping their rates as much as 30 percent.
    The Bells have received 271 approval in 35 states. They should be 
applauded. My BellSouth deserves particular praise, as they are the 
first to have achieved compliance throughout its region. Verizon is 
close behind and is already the 3rd biggest provider of long distance 
services.
    As competition begins to flourish, however, the cries of the Bells 
grow louder. Their current strategy is to focus on two orders under 
consideration by the FCC that could cap competition in the 
telecommunications industry at the very time it is beginning to take 
hold.
    Take residential phone service for example. In almost 40 states, 
the state PUCs, with their local expertise, have set the terms by which 
the Bells must sell elements of their networks to competitors, who have 
signed up millions of local phone customers.
    Now the FCC wants to take away some of those elements. While the 
Act permits this when evidence shows these elements are no longer 
necessary, that determination is best made by local experts on a 
market-by-market basis--not by those with offices overlooking the 
Southeast Freeway.
    According to last week's Wall Street Journal, the FCC may make a 
national determination that some of the Bells' unbundled network 
elements are no longer necessary. Another Journal article urged 
consumers to sign up now for competitors' service before the FCC takes 
it away.
    This makes no sense. The PUCs are who the FCC listens to before 
approving a Bell for 271. This has happened 35 times. The PUCs examine 
the economics and data to set rates for the Bells' network elements. 
The Supreme Court upheld this framework. Similarly, the PUCs should 
determine, or greatly influence when a Bell no longer has to provide an 
element to competitors at a discount in a particular market.
    Turning to broadband, the FCC is poised to create a monopoly in the 
small and medium business market and a duopoly in the residential 
market by classifying broadband as an information service.
    What does this mean? Without reasonable access under section 251 to 
the Bell network for broadband, you can forget about competitors. They 
will just close up shop.
    This is not what the Telecommunications Act intended. The preamble 
aspired about new telecommunications technologies. The words ``data'' 
or ``the Internet'' or ``advanced services'' were mentioned in the 
hearings, in the bills, and on the floor over 400 times.
    And the Act hinged on competitors having access to the Bell network 
on just, reasonable, and nondiscriminatory rates, whether that network 
carried a phone conversation, a dial-up internet service, or high speed 
data.
    This wasn't some hidden provision, some secret bargain reached in 
the dark of night. This was section 251. That was how competition was 
going to develop. If a regulation was too stringent, the statute 
allowed forbearance to ease restrictions if that would be in the public 
interest.
    And now, despite that measured process, the FCC is considering 
radically revising the rules of the game. All in the name of broadband 
and parity. This could also eliminate the possibility that universal 
service could ever support broadband, cut off access for disabled 
Americans to broadband services, and thwart law enforcement access to 
high speed communications in a time of terror--all of which Congress 
intended to maintain in a high speed world.
    Chairman Powell testified in front of our Appropriations 
Subcommittee hearing last March and stated that the FCC's fundamental 
mission was to implement the Communications Act, as amended. He was 
right. And yet this month, I read in the Washington Post that one of 
those amendments, specifically the 1996 Telecommunications Act, was an 
``experiment'' according to Chairman Powell.
    This experiment is finally beginning to work for American 
consumers, by reducing at long last, the price of local phone service 
and providing meaningful choices.
    We look forward to your testimony.

    Chairman Hollings. Senator McCain?

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

    Senator McCain. Thank you, Mr. Chairman. And I want to 
thank the Commissioners for being here. For most of you, this 
is your first opportunity to appear before us since your 
confirmation hearing. We thank you for coming.
    The telecommunications industry has been in a crisis for 
some time now. The effect has been disastrous for stockholders, 
who have seen trillions of dollars in capitalization evaporate. 
This crisis also threatens the future of American technological 
innovation as domestic suppliers lay off employees and cut back 
on research and development. Meanwhile, American consumers 
continue to face escalating rates for services.
    From January 1996 to the present, the consumer price index 
has risen 17.4 percent. Cable rates are up 47.2 percent. Local 
phone rates are up 23.2 percent. Long distance rates are down 
20 percent, although there are indications that long distance 
companies will be raising their rates in the very near future.
    As stewards of U.S. communications policy, FCC 
Commissioners can have a tremendous impact on the 
telecommunications sector and the national economy. Never has 
this been more evident than now. Last week, an article in the 
Wall Street Journal speculating about your potential actions 
boosted certain stocks and deflated others. You face monumental 
decisions in 2003 that will shape the future of communications 
forever. I trust you will not make these decisions lightly.
    Finally, I want to thank you again for being here, but I 
also would like to point out that one of the reasons why so 
much responsibility is borne by you is the failure of Congress 
to act legislatively. We continue to see competing pieces of 
legislation favoring one special interest or another because of 
massive campaign contribution, which then prevents us from 
coming together and agreeing on what is best for the American 
people. I hope that we can, as a Congress, reassert our 
rightful role legislatively, rather than depend upon the FCC, 
as well qualified and as hardworking and as dedicated as they 
may be.
    I would urge my colleagues, since we will be asking 
questions of all five Commissioners, to make our opening 
statements as brief as possible.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator McCain follows:]

   Prepared Statement of Hon. John McCain, U.S. Senator from Arizona
    Welcome, Commissioners. For most of you, this is the first 
opportunity you have had to appear before us since your confirmation 
hearing. We thank you for coming.
    The telecommunications industry has been in a state of crisis for 
some time now. The effect has been disastrous for stockholders who have 
seen trillions of dollars in capitalization evaporate. This crisis also 
threatens the future of American technological innovation as domestic 
suppliers lay off employees and cut back on research and development. 
Meanwhile, American consumers continue to face escalating rates for 
services.
    As stewards of U.S. communications policy, FCC commissioners can 
have a tremendous impact on the telecommunications sector and the 
national economy. Never has this been more evident than now. Last week, 
an article in The Wall Street Journal speculating about your potential 
actions boosted certain stocks and deflated others. You face monumental 
decisions in 2003 that will shape the future of communications forever. 
I trust you will not make these decisions lightly.
    In particular, reports suggest that you will soon resolve a series 
of proceedings affecting local telephone competition and broadband 
services. In these proceedings, you face the difficult challenge of 
implementing the Telecommunications Act of 1996--which, in my view, is 
a flawed piece of legislation drafted by special interests. Though the 
Act itself states that it was designed to ``reduce regulation,'' it has 
instead resulted in thousands of new regulations, massive litigation, 
and millions of dollars paid to lawyers and lobbyists. It took less 
than eight years to put a man on the moon, but as we approach the 7th 
anniversary of the Telecommunications Act, we have yet to see the 
fulfillment of the Act's stated goals--and the clock is ticking.
    The same special interests responsible for drafting the Telecom Act 
still walk these halls. The result has been legislative paralysis. So 
now all eyes are on you. I ask you to look beyond these special 
interests, and make the decisions you believe are in the best long-term 
interest of the American consumer.
    I look forward to your testimony.

    Chairman Hollings. Thank you.
    The Chair has the following order--Senators Allen, Burns, 
Brownback, Wyden, Lott, Lautenberg, Dorgan, Breaux, Hutchison, 
and Boxer.
    Senator Allen?

                STATEMENT OF HON. GEORGE ALLEN, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Allen. Thank you, Mr. Chairman. Thank you for 
calling today's hearing. And I thank all our very much 
respected, esteemed FCC Commissioners for being here, 
Commissioners Abernathy, Copps, Martin, Adelstein, and all led 
by our very skillful and impressive Chairman, Michael Powell.
    We are here to discuss the current state of the competition 
in the telecommunications industry.
    We all know all the bad news--the job losses, the debt 
loads, the underutilization of capacity. And I think that one 
thing, though, that we all can agree on with this bad situation 
is that we all talk in a variety of different ways of deploying 
greater broadband capabilities around the country and making 
sure that those Internet connections will be available and 
utilized to help reinvigorate the growth and the technology in 
the telecommunications enterprises. And full deployment of 
broadband services clearly will substantially change and 
significantly impact our society in so many different ways, 
whether in education, healthcare, commerce, entertainment, or 
government services. Broadband deployment is a key aspect of 
improving our Nation's overall economy and competitiveness, as 
well.
    Economists have talked about how many more jobs would be 
created, $500 billion annually by 2006, an increased GDP. All 
of this is obviously with the adoption of broadband, and 
promoting its deployment will help spur our Nation's economy 
now, and spur its growth and sustain it in the future.
    Now, during the past several years, much of the debate in 
Congress over broadband services has focused on whether we 
should support competition, versus deregulation, of 
telecommunications as the best mechanism for encouraging 
broadband deployment. In my opinion, the costly, strenuous 
debate that we have seen has reached an unproductive stalemate, 
and fails to consider that other technologies are available 
that can jumpstart consumer-driven investment and demand in 
broadband services.
    I believe what has been missing from this discussion is the 
relentless and invigorating power of innovation and promise of 
new technologies. And while I support competitive 
telecommunications environments and have been an advocate of 
Federal deregulation, I think it is beneficial to shift the 
policy discussion away from this debate and focus on something 
that is actually positive that Congress can do to foster 
innovation, stimulate technology in telecom sectors, and 
encourage the adoption of broadband services.
    In an effort to move away from this stalemated debate and 
work within the carefully crafted framework of the 1996 
Telecommunications Act, today I will be introducing legislation 
with Senator Boxer to foster a third alternative mode of 
broadband communication by making more unlicensed spectrum 
available for exciting new wireless broadband technologies. 
This means that you can move around with your laptop in your 
house the same way that you move around with your cordless 
telephone. The same would apply if you are in an airport or any 
other Wi-Fi enabled hotspot. In my view, these innovations in 
advancement in the wireless area, the unlicensed wireless area, 
or radio-based devices, or otherwise referred to as Wi-Fi, 
offer an additional means of delivering data at high speed and 
also allow new business models for delivering broadband 
connectivity to emerge. By using existing advances in 
technologies that are spectrally efficient, like cognitive 
radios and dynamic frequency selection, and creating an 
environment that encourages further innovations in wireless 
broadband devices, our hope--Senator Boxer's hope and mine--
with this legislation is to increase consumer demand of 
broadband devices and stimulate telecom and technology sectors, 
as well as the overall economy.
    Now, I understand, Mr. Chairman that the focus of this 
hearing is competition in the communications--
telecommunications areas. It is a very important proceeding 
currently before the Commission these days. But I am hopeful 
that the Commissioners will reserve some time to comment on 
emerging technologies, such as Wi-Fi, since our legislation 
will certainly involve the Federal Communications Commission.
    Thank you very much.
    Senator McCain. I would, again, urge my colleagues to make 
their opening statements short. It is now 5 minutes, 10 
minutes, of 10 o'clock and we have not yet heard a word from 
the witnesses.
    Chairman Hollings. Right. Senator Burns?

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. Thank you very much, Mr. Chairman. This is 
the way to start out the new year. I will submit my statement.
    I did want to pick up on what Senator Allen said, and I 
have a great deal of interest in that, and also your comments 
on the history of the 1996 Act. I think four years is pretty 
conservative. I think it started back in 1989 when, in this 
room--and I was sitting way down there--we offered a little 
competition to the cables. That is when I think that we 
realized that we were going to have to do something about the 
telecommunications industry, we had a 1935 law trying to 
regulate 1990s technologies, and it just was not working.
    I will be offering a broadband bill later on today--we are 
introducing with my colleague, Senator Baucus--and it is 
similar to the bill that I proudly cosponsored with Senator 
Rockefeller in the last session, and it has to do with a, to 
create a temporary tax incentive for providers in the form of 
expensing, allowing the immediate deduction of capital 
expenditure in the first year of service rather than 
depreciating an investment over time.
    We have taken a look that, Senator Baucus is one of the 
primary people on the Finance Committee. We think it has a good 
chance of passage, and I think it offers a way that we will see 
build-out, especially in the rural areas, as the recovery of 
some of that money that is invested.
    When providers build out next-generation broadband 
networks, which are typically more expensive, the bill would 
provide a 100 percent expensing. This legislation generally 
mirrors the broadband tax-credit legislation that, of course, 
Senator Rockefeller and I introduced in the last Congress. I'm 
looking forward to that.
    I'm continuing to work on E-911. I think from the tenor of 
the questions today, you will find that you will just about 
understand what the opening statements are all about.
    Again, I thank you, Mr. Chairman, for holding this hearing, 
and I thank the Commission for coming down today. We do not do 
enough of these kind of visits, and it seems like it always 
attracts quite a lot of crowd whenever we do.
    So, thank you very much, and I will submit the rest of my 
statement.
    [The prepared statement of Senator Burns follows:]

   Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana
    Mr. Chairman, thank you. I am pleased that we have begun the new 
Congress with a hearing of such importance and with such a 
distinguished panel of Commissioners.
    In 1996, my colleagues and I wrote a law to bring 
telecommunications competition--and the lower prices and innovative 
services that come with it--to all Americans. In doing so, we were very 
conscious of the tremendous benefits that resulted from bringing 
competition to the long distance market. Indeed, the 1996 Act did bring 
positive economic results and helped to fuel the economic boom of the 
late 1990s. There was a telecom explosion in the marketplace, even as 
parties pursued litigation to settle once and for all a regulatory 
scheme that would be used to implement the Act. It brought us 
incredible, cutting edge technologies and new services at affordable 
prices.
    Back in 1995 and 1996, we realized that local phone competitors 
would need some help to compete against century-old incumbents, and 
that they would need time to gain customers before they could be 
expected to stand on their own. We also realized that we needed to 
provide incentives to the incumbents to open their networks to 
competition. Recognizing that simple marketplace reality, we provided 
competitors with three different ways to enter the market and laid out 
a framework that would allow the Regional Bell Operating Companies the 
opportunity to enter into the long distance market. We also struck a 
balance between federal and state authority that gave the states an 
important and continuing role in promoting local phone competition.
    I continue to believe that the Act is fundamentally sound and that 
its core principles should be implemented. I look forward to the 
feedback of the Commissioners as they complete their work on the 
difficult and complex triennial review process. Like the Act itself, 
any decision on local competition rules should be the product of 
consensus on the Commission. Further, it should go without saying that 
any such decision should be true to the words and spirit of the Act.
    One of my top priorities is making certain every household and 
business in Montana has access to high speed Internet service. We must 
make certain that everyone in rural America has access to the same 
digital services enjoyed by those who live in urban areas. We can't 
effectively grow our economy, create new jobs, guarantee access to 
advanced health care services and provide new educational opportunities 
to our children until we make sure high speed Internet access is 
available across this Nation.
    The availability of broadband, particularly in rural areas, is an 
issue about which I feel very strongly, and upon which I will be very 
focused this year as Chairman of the Senate Communications 
Subcommittee. In this regard, I want to take a moment to make my 
colleagues aware of legislation I am introducing today to provide tax 
incentives to accelerate the deployment of high-speed Internet access 
in Montana and across the country.
    The broadband bill I am introducing today with my colleague Senator 
Baucus and a bipartisan coalition would create a temporary tax 
incentive for providers in the form of ``expensing''--allowing an 
immediate deduction of a capital expenditure in the first year of 
service rather than depreciating that investment over time. In the case 
of ``current generation'' broadband investments in rural and 
underserved areas, the bill would allow 50 percent expensing of the 
investment, with the rest to be depreciated according to normal 
depreciation schedules. When providers build out ``next generation'' 
broadband networks, which are typically more expensive, the bill would 
provide for 100 percent expensing.
    This legislation generally mirrors the broadband tax credit 
legislation introduced by my friend from West Virginia, Senator 
Rockefeller, in the last Congress, of which I was a proud and original 
cosponsor. I am going to be working on this issue very aggressively in 
the 108th Congress as well as a number of other important telecom 
initiatives including spectrum reform, eliminating the scourge of junk 
e-mail and continuing E-911 implementation issues. I intend to unveil 
the full Communications Subcommittee agenda for the 108th Congress, the 
``NexGenTen,'' tomorrow morning. This agenda will focus on bringing the 
benefits of the information age to all Americans.
    One area which is benefitting from healthy competition is in the 
area of video programming. A decade ago if you had problems with your 
cable service, you really didn't have a good alternative. But that's 
not the case today. EchoStar and DirecTV offer 500 channels of digital 
video and CD quality music. In fact, close to 35 percent of Montana 
households subscribe to a direct broadcast satellite service, the 
highest penetration rate in the Nation. Additionally, even though cable 
doesn't reach every household in Montana, where cable is deployed, they 
compete head to head with satellite providers. That competition makes 
certain my constituents have a choice. The market discipline imposed by 
competition is far more effective in protecting consumers than any 
government regulation. That is one of the reasons I have been such a 
strong proponent of Multichannel Video Distribution and Data Services 
(MVDDS) and co-sponsored legislation in the 107th Congress that would 
have allowed this new entrant to compete in the marketplace.
    There are other wonderful side effects of competition . . . one is 
that it forces companies to innovate in order to keep their customers 
and attract new ones. That's just what the cable industry and DBS 
providers are doing; investing billions to upgrade their systems in 
order to offer new services like high speed Internet access to 
thousands of Montanans that would otherwise go without.
    Finally, I should add a note of good news, as it is always 
gratifying when we pass a piece of legislation and it accomplishes our 
original aim. As we discuss rural broadband deployment, I want to 
mention that because of the Orbit Act we now have a new strong 
broadband provider for rural areas. After reaching an agreement with 
Intelsat, Liberty Satellite Technology--a subsidiary of Liberty Media 
and the National Rural Telecommunications Cooperative--will offer 
service to millions of rural residents and small offices which have no 
access to high quality affordable broadband service that is comparable 
to that offered in urban areas. If we had not taken action to open up 
the satellite market, Intelsat and its vast satellite system would not 
be able to be used to serve rural America.
    I look forward to the testimony of the distinguished panel today on 
these items of such importance to the economic health of our Nation. 
Thank you, Mr. Chairman.

    Chairman Hollings. Thank you.
    Senator Brownback?

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

    Senator Brownback. Thank you, Mr. Chairmans. I appreciate 
you holding this hearing. I thank the Commission for being 
here. I think you are going to hear a lot of statements, 
because we do not do this often enough, as Senator Burns said, 
and so we have got some things to put forward.
    The Commission, in my estimation--I have got a couple of 
items I want to specifically hit with you--really needs to be 
bold and decisive at this point in time. You have got several 
big issues in front of you. You are going to hear a lot of us 
talk about broadband facilities. I clearly think we need to 
move forward in this area. I have put forth legislation in the 
past. I'm going to continue to work on that so that we can put 
inter-platform competition into overdrive in an economically 
sound manner providing consumers with unprecedented and lasting 
competition and the benefits that will revitalize telecom and 
the technology economy.
    I recently signed a bipartisan letter to the Commission 
with 12 of my colleagues requesting the Commission take special 
interest in its treatment of fiber to the home to help make 
this happen. That is one area I wanted to mention to you.
    Another is on the UNE-P regulatory construct. It is my 
understanding that the Commission may be considering phasing 
out UNE-P by removing switching from the list of available 
network elements for competitive use. I would welcome such a 
reform. It is clear to me that if Congress intended for UNE-P 
to exist, we would not have included a separate resale 
provision in the Act. Such action will help encourage 
facilities-based competition in the telephone market, which 
reflects the viable economic and regulatory foundation that 
Chairman Powell has mentioned.
    I think this is something that needs to be moved forward 
aggressively and not phased in on a multi-year basis, if at all 
possible.
    TELRIC reform, either going forward or in general, must be 
included in efforts by the Commission to revive this sector, in 
my estimation. TELRIC can be revised and implemented faster 
than any unbundling deregulation and make a positive impact on 
the market sooner. Such reform must include the elimination of 
the hypothetical cost model and reliance on actual cost. TELRIC 
reform will enable incumbents to invest in new technologies and 
services in competition with other platforms, yet still permit 
competitors to use those facilities that continue to qualify 
for unbundling to gain a foothold in the marketplace.
    Now, if the Commission's efforts to revive the telecom 
sector do not include the elimination of the current TELRIC 
pricing methodology, I fear this Commission will not or cannot 
live up to its important responsibilities at this juncture. I 
really think this is a key place to focus on.
    And finally--and this is something I have visited with a 
number of you about at different times--for more than 50 years, 
regulations regarding indecency have existed on the books at 
the FCC. And yet in recent years, it appears that this portion 
of the Commission's job description has been forgotten.
    As medical studies continue to mount, more than 3,500 
already--and we just saw a front-page story in USA Today 
yesterday talking about violence in our children at a younger 
age--3,500 studies showing a correlation between viewing 
violence and violent behavior--3,500 studies--which is 
stronger--and that correlation is stronger than that of tobacco 
smoke and lung cancer. So clearly we must do something about 
the amount of indecency that plagues the airwaves.
    Now, this is not about censorship or government meddling, 
but about remembering that freedom of expression is not 
immunity from criticism, and particularly here when it involves 
the public airwaves.
    I would really encourage the Commission to look at this 
area, given the huge amount of medical data now available of 
what is happening when we entertain our children with violence.
    Thank you, Mr. Chairman.
    Chairman Hollings. Thank you very much.
    Senator Inouye had a conflict, and I want to, unless there 
is an objection, include his statement in the record.
    [The prepared statement of Senator Inouye follows:]

 Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
    Mr. Chairman, I want to thank you for holding this hearing. I 
cannot recall when we have held a single communications policy hearing 
with as much import. I remember when we passed the Telecommunications 
Act of 1996. It passed a Republican Senate and a Republican House 
nearly unanimously. I also remember when the FCC began to implement the 
Act. It did so nearly unanimously. Yet today, I am disturbed to read in 
virtually every press account that the FCC appears ready to radically 
reshape the industry through several pending proceedings, absent the 
harmony and agreement among the five Commissioners that should 
accompany decisions of such magnitude.
    If this Commission embarks on the course it has set for itself, and 
it does so in partisan fashion, then those at today's witness table who 
do so will know where to look when (not if) their actions extinguish 
competition in the telecommunications industry--the mirror.
    As a Senior Member of both the Authorizing and Appropriating 
Committees that oversee the FCC, I am appalled. I am appalled that the 
FCC stands ready to ignore the existence of millions of new local phone 
customers who have seen their bills slashed by as much as 30 percent. 
Instead, I understand that the FCC may cap such competition customers 
by eliminating the manner in which competitors access the Bell network 
to compete for customers--so called UNE-P. Apparently the FCC believes 
that if we deregulate significantly now, we will reap the benefits of 
some imagined competition later. A majority of FCC Commissioners may 
believe that. But the Telecom Act did not direct such a course. It 
instructs the FCC to deregulate the Bells incrementally, and only upon 
a finding that sufficient competition has developed to withstand a Bell 
strengthened by such deregulation.
    Moreover, such a finding is best made on a state by state and 
market by market basis. The state PUCs are the best judge of whether 
the Bells should receive regulatory relief in a particular market just 
as they are best positioned to provide the first determination as to 
whether a Bell has opened its market. And yet, I'm told the FCC may 
ignore the expertise of the state PUCs and simply make a national, 
uniform decision to deregulate the Bell network. It stands beyond 
reason to assume without any evidence or market analysis that 
deregulation that may be justified in New York is similarly justified 
in a small town in middle America.
    As if that were not enough, the FCC stands ready to flagrantly 
contravene the Communications Act by characterizing broadband as an 
information service--an action that bears no justification and will 
slam the coffin shut for the competitive small and medium business 
telecommunications carriers that compete with the Bells in market after 
market. The cornerstone of the Telecommunications Act was and is access 
to the Bell network--broadband or no broadband.
    Let me be perfectly clear to each of the Commissioners testifying 
today. Your job is to implement the statutes we in Congress pass, 
regardless of your individual views as to their merit. And from what I 
understand about your pending proceedings, you appear to be ignoring 
the jobs you were appointed to do. I look forward to the testimony of 
today's Commissioners. They have a lot of explaining to do.

    Chairman Hollings. Senator Wyden?

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

    Senator Wyden. Thank you, Mr. Chairman. I will be brief, 
because I have really only one point right now.
    The Senators have noted that there are a host of 
telecommunications issues coming down the track at the Federal 
Communications Commission. And my concern is that the big and 
powerful seem to be driving the train, and that the consumer is 
being left in the caboose. And, specifically, if you look at 
the key issues, the big media companies want the freedom to get 
even bigger. The big phone companies want changes to the 
telecommunications rules. Big Wall Street interests are 
weighing in, hoping to boost lagging share prices.
    And what I hope the Federal Communications Commission will 
address this morning is how these changes are going to benefit 
the consumer, because that is what the 1996 Act was all about. 
I certainly do not support needless regulations. There are 
areas that are ripe for innovation. But it just looks to me 
like the consumer is being left in the caboose on the 
telecommunications track, and I would like to see how their 
interests are being protected in the course of these debates.
    Thank you, Mr. Chairman.
    Chairman Hollings. Thank you.
    Senator Lott?

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

    Senator Lott. Thank you, Mr. Chairman and Senator McCain, 
for going forward with these hearings even under these unusual 
circumstances, because I think it is very important that we 
have early hearings and do everything we can to understand what 
the Federal Communications Commission is doing, and how they 
view the present condition of the very important sector of our 
economy, telecommunications.
    I understand that it has been probably at least three or 
four years since we have had all the Commissioners from the FCC 
before this Committee, so this is almost historic, and I'm 
looking forward to hearing from all five of the Commissioners.
    You know, we are very interested in the current state of 
competition in the telecom industry. It is one area that I have 
obviously been keenly interested in, and I am taking every 
opportunity to discuss this issue with all sectors of the 
economy.
    I was one of the Senators that worked on the Telecom Act of 
1996, worked with Senator Hollings on trying to get the 
compromise put together that led to the passage of legislation. 
And so, I'm now focused on how that competition is progressing 
and also wanting to understand and diagnose the problems in the 
industry so that we can pursue the best possible policies or 
laws in the government to encourage competition and expansion 
and good services for the consumers. That is our ultimate goal.
    So, I feel like progress is being made, in that now we see 
that section 271 approvals are being granted to the Bells, and 
I believe that they are offering long distance services 
perhaps--or have been approved to do that in 35 states. Also, 
the traditional long distance companies are now beginning to 
compete aggressively for a slice of the local market in a 
number of states.
    Despite that, there are still, obviously, a number of 
problems. This is such a dynamic field. So much is changing, so 
much is happening. I must confess, when we were working on the 
Telecom Act, we were still thinking in terms of just basic 
telephone service and did not anticipate the explosion of 
innovation and options that are available.
    So this is a very important hearing, and I look forward to 
hearing from the witnesses, and I do have some questions that I 
will propose at that time.
    Chairman Hollings. The Committee is informed that Senators 
Lautenberg and Senator Sununu will be assigned to our 
Committee. We welcome them, and we will recognize them just for 
a word so they can welcome the Commissioners.
    Senator Lautenberg?

              STATEMENT OF HON. FRANK LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thank you, Mr. Chairman. I know----
    Chairman Hollings. Turn your mike on.
    Senator Lautenberg. I will tell you, you learn--I just 
learned something about telecommunications, Mr. Chairman.
    [Laughter.]
    Senator Lautenberg. And I thank you very much, and Senator 
McCain, for permitting me to join you today, when officially 
I'm still not here. But the fact of the matter is that this is 
where my Senate career started, and it took me 20 years, Mr. 
Chairman, to get back here again. And I am pleased to be here 
and to walk into this very complex and very difficult area of 
consideration.
    The fact is that I--in keeping with Senator McCain's 
admonition, because we do not know who the next Chairman might 
be, I want to--I will put my statement into the record.
    [The prepared statement of Senator Lautenberg follows:]

             Prepared Statement of Hon. Frank Lautenberg, 
                      U.S. Senator from New Jersey
    Mr. Chairman, I want to thank you and all the Members of the 
Commerce Committee for letting me share the dais with you today.
    I was a Member of this Committee early in my Senate career and I am 
pleased to be rejoining it. The Committee has jurisdiction over many 
issues and agencies I care a great deal about and are so important to 
my state, such as rail, aviation, ports, the Coast Guard, fisheries, 
transportation of hazardous materials, consumer rights, science, and 
the subject of today's hearing: telecommunications.
    The Telecommunications Act of 1996--which I supported--promised 
that the former ``Baby Bell'' companies would be allowed to offer long-
distance telephone service in return for leasing their local lines and 
switches to competitors at reasonable prices. Congress wanted to 
promote competition in local, cellular, and long-distance markets.
    It appears that we succeeded with regard to cellular and long-
distance service. According to the Federal Communications Commission 
(FCC), rates for cellular phone service dropped by 32.8 percent--nearly 
one-third--between 1997 and 2001. Long-distance rates dropped 12.1 
percent. These reductions are saving consumers money in New Jersey and 
across the Nation.
    We haven't succeeded when it comes to local phone service, the cost 
of which rose 14.9 percent between 1997 and 2001, again according to 
the FCC. This is a big problem, especially in New Jersey. Consumers in 
my state pay some of the highest charges nationwide for local phone 
service--often $70 per month or more. This is a huge burden for people 
on a fixed income, especially the elderly.
    It seems to me that consumers would benefit tremendously from 
having a variety of companies competing with each other to offer the 
best quality local phone service at the lowest prices.
    I'm curious to hear from the Commissioners whether they disagree 
with my assessment.
    In some places, that is beginning to happen. AT&T, MCI, and some 
other companies (large and small)--aided by state utility 
commissioners--have gained access to local phone service markets in 
some states, including New Jersey this past summer. It appears that the 
increased competition--where it has taken hold--is driving prices 
down--in some instances, by as much as 30 percent.
    I understand that officials for the Bells argue that forcing them 
to lease their local lines to competitors at lower prices will make it 
difficult for them to make the capital investments necessary to offer 
broadband (high-speed Internet access), and that they are/will be 
facing enough competition from wireless companies and satellite-based 
service providers. I'm not convinced of the veracity of that argument 
and am anxious to hear what the Commissioners have to say about the 
subject. Suffice it to say that I think consumers need a break from 
high-priced telephone and Internet access bills and the best way to do 
that is to foster competition.
    Thank you again, Mr. Chairman--both for holding this immensely 
important hearing and for allowing me to participate as a ``Member-in-
Waiting.''

    Senator Lautenberg. But just a question, Mr. Chairman, 
because there are so many issues in front of this Committee 
that I am interested in, but, in particular, the one I hear so 
much about at home is telephone rates. Why does it cost so much 
in the State of New Jersey, the ninth largest state in 
population of the country, for our telephone service? And 
frankly, there is one place that I think we can look to and 
say, ``Well, here is a reason. It is not competitively 
inviting.'' And why is it not?
    Mr. Chairman, it is nice to see all of you, and I hope this 
will not be our last meeting. I doubt that that would occur so 
quickly. But the fact is that, as I look, Mr. Chairman, 
Chairman Powell, at the principles that you have detailed as to 
where you want to be with the prospective rule change, and I 
see ``expand the diversity, variety, and dynamism of 
communication, information, entertainment, and empower 
consumers, promote universal deployment of new services to all 
Americans,'' I think that is in substantial contradiction, Mr. 
Chairman, to the proposal that we have tentatively in front of 
us.
    The distinguished Chairman of this Committee, who worked 
long and hard to get the 1996 bill into place, had something 
quite different in mind, as we heard him say today. And 
frankly, I do not understand why we are taking a rules course 
to make changes that ought to be changed, if at all, within the 
Committee--make the recommendations here. Let us see whether or 
not there are amendments to the bill that ought to be 
considered.
    So I hope to hear, Mr. Chairman, that you will present your 
ideas as something that you would like considered by the 
Committee, and not impose a de facto change in the rules when 
they were so arduously defined in the first place.
    And, Mr. Chairman, I thank you very much.
    Chairman Hollings. Senator Sununu?

               STATEMENT OF HON. JOHN E. SUNUNU, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Sununu. Thank you, Mr. Chairman. It is a pleasure 
to be here. And I would only note to begin with that this is 
the third hearing that I have been invited to participate in as 
a non-member of the Committee, and you are very generous in 
doing so. I look forward to participating as a Committee 
Member.
    I would want to underscore what Senator Wyden said to the 
Commissioners, and that is that as we go through this hearing 
and the Commission goes through the rulemaking, the consumer 
remains forefront in our minds. We are here because of the rule 
changes that are being contemplated and that will be in front 
of the Commission in the months ahead. When we change the 
rules, we change the nature of competition. When we change the 
nature of competition, we affect the consumers. And we 
absolutely need to think about how the consumer is being 
effected with these changes.
    I would highlight two particular areas, where, as we go 
through the hearing and the rulemaking, you bear in mind. First 
is preemption and the role of the local regulators. Preemption 
is something that would concern me as a legislator. I hope it 
concerns you as a Commissioner, in that if we preempt, we do it 
for, I think, very sound and solid reasons, not because we do 
not trust local regulators to make a good decision about 
whether or not true competition exists in New Jersey or New 
Hampshire or Texas or any other state. I think we always have 
to defer to those local regulators, who are public servants, 
and have our public sentiments at heart.
    Second is the nature of competition. I have seen 
discussions and am aware of discussions about whether or not we 
favor inter-modal over intra-modal competition, and I just want 
to underscore that the simple act of choosing one versus the 
other biases the entire competitive playing field. It preempts 
new entrants, it can preempt new technologies that we might 
seek to have investments made. And before we start, before we 
head too far down the road, we need to think about how that 
simple act of choosing what we might think would be the best 
environment for competition, by definition, prohibits certain 
competitive practices from taking place.
    Thank you very much, Mr. Chairman.
    Chairman Hollings. Thank you.
    Senator Dorgan?

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

    Senator Dorgan. Thank you very much.
    This is a great opportunity for us to have some time with 
the Commissioners. And I want to say that the 1996 Telecom Act, 
which I was a part of writing, was designed to foster 
competition and make a number of changes that were very 
important, both for consumers and also for those involved in 
the industry itself.
    I worry that there are three areas in which, if observers 
who watch the Commission closely are accurate, three areas that 
are going to set us up for a train wreck. One is the area of 
competition.
    I think the UNE-P process, if the wrong decisions are made 
there, I think you undermine and pull the rug out from under 
the potential for competition in local exchanges. And if the 
incumbent companies are losing money, and it is a pricing 
issue, let us deal with pricing, but let us not decide to pull 
the rug out from under this in a way that will destroy 
competition. We have not yet achieved the fruits and benefits 
to the consumer of real competition of local exchanges. That 
has not happened. And the Commission has the responsibility, in 
my judgement, to take actions to help us foster that 
competition, not thwart it.
    Second, in the area of universal service, time and time 
again over the years, in my judgment, the Federal 
Communications Commission has narrowed the base of opportunity 
to provide the funding that is necessary for universal service. 
Describing the wireline broadband as an information service 
and, therefore, out of the reach of universal service 
contribution, in my judgment, is a predictor for failure of the 
universal service down the road. That cannot happen if we care 
about much of this country and access to communications in much 
of the country.
    And finally, the area of concentration. If the Commission 
is headed towards eliminating some of the barriers to 
additional concentration, that is a huge mistake. And I read 
what is being said by some Commissioners and where experts 
think the Commission is headed. Prior to the 1996 
Telecommunications Act, the top radio station group owned 39 
radio stations. Now the top group owns 1,100 radio stations.
    In my small State of North Dakota, the four largest 
stations have 31 commercial radio stations. One company owns 13 
of them, including all six commercial stations in one city.
    Now, I can talk about the national statistics as well. They 
are much more ominous. But the fact is, we are headed in 
exactly the wrong direction. In these areas, you need to have 
your foot on the brake, not your hand on the throttle. And I 
worry very much in all three of these areas, unless changes are 
made, we are headed for a train wreck, and I want to talk about 
that during the question period, Mr. Chairman.
    But this is very important. This can only work if the FCC 
helps make it work. And Senator Sununu and Senator Wyden and 
others are right about this. There is a great deal at stake 
here for the consumers in this country. We will never get 
competition unless we have the right decisions made by the 
Federal Communications Commission.
    Chairman Hollings. Very good.
    Senator Breaux?

               STATEMENT OF HON. JOHN B. BREAUX, 
                  U.S. SENATOR FROM LOUISIANA

    Senator Breaux. Thank you, Mr. Chairman and Senator McCain, 
for bringing us together. And, Mr. Chairman of the Commission 
and members of the Commission, welcome. We are glad you are 
here. Good luck. You have one heck of a challenge over the next 
six months. You are going to have a million different ideas 
about what you should be doing coming from a million different 
areas. I think your role is incredibly important, and the time 
on the clock is ticking very rapidly.
    You know, some may say you should not be involved in this 
at all. And I would make the point that, under the D.C. Circuit 
Court ruling, if you do not get involved, particularly in the 
unbundling areas for the local telephone exchange, there will 
be no rules at all, because the District Court has made it 
very, very clear that the previous rules are not 
constitutional. So it is absolutely imperative that you do 
start moving in this direction or there will be no rules at all 
in some of the most important areas.
    I think Congress has proved over the last several years 
that we cannot legislate again on this issue. I mean, we saw 
the trillions of dollars being spent by all of the outside 
groups in advertising about what Congress should be doing on a 
most incredibly complex set of rules and legislative dictates, 
and we were not able to do anything. Therefore, you, as an 
independent regulatory agency, are going to have to, I think, 
become involved under the existing laws to try and create what 
I would call a level playing field.
    Now, everybody can look at a level playing field and see it 
differently, but it seems to me that when one side--for 
instance, the cable companies--has almost no rules concerning 
their broadband coverage and their telephone coverage, and 
another group of providers are under all types of rules, 
including providing access to their equipment at below cost, 
that is not a level playing field.
    How do you fix it? I do not know. If I knew, I would offer 
some great legislative proposal. What we basically tried to do 
last year is to say, ``Look, FCC, go out and try and create a 
level playing field.'' It is not going to be easy. It is a hell 
of a challenge. But it should not be a political challenge. It 
should be a challenge based not on who can run the most ads, 
but who can do the best job. And I hope that you all will be 
able to use the short time frame you have to come up with some 
recommendations that accomplish that.
    Thank you.
    Chairman Hollings. Senator Hutchison?

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

    Senator Hutchison. Thank you, Mr. Chairman.
    I will not repeat what many of you have said, except to say 
I certainly support legislation that gives broadband regulatory 
parity regardless of how you get your Internet service. 
Broadband is the future of the industry, and I hope that you 
will move ahead with further broadband deregulation.
    The 1996 Act, which all of us participated in, was meant to 
give you a stairstep and a game plan so that everyone would 
know what the rules were and no one would be able to get an 
advantage and it would be a level playing field. I think the 
time has come to fulfill the intent of the Act.
    I want to make a further comment on a different issue 
because we have the Commission here, and that is that we 
understand you are currently evaluating your media ownership 
rules. And as you review these rules, including the 35 percent 
ownership cap and the newspaper/broadcaster cross-ownership 
rules, I hope that you will carefully weigh the adverse effect 
of relaxing these very important rules. When it comes to the 
primary source of news in any community, I think it is most 
important that we preserve local and diverse voices. 
Encouraging local competition and preventing one company from 
having too much control of the content in a single media market 
is essential for the best interest of consumers and well 
informed consumers in our country.
    Thank you, Mr. Chairman.
    Chairman Hollings. Thank you.
    Senator Boxer?

               STATEMENT OF HON. BARBARA BOXER, 
                  U.S. SENATOR FROM CALIFORNIA

    Senator Boxer. Thank you, Mr. Chairman. I ask unanimous 
consent to place my statement in the record.
    Chairman Hollings. Included.
    [The prepared statement of Senator Boxer follows:]

 Prepared Statement of Hon. Barbara Boxer, U.S. Senator from California
    Thank you, Mr. Chairman, for calling this hearing. It provides us 
with a rare opportunity to hear from and question all five FCC 
Commissioners.
    I look forward to a lively discussion on the state of competition 
in the turbulent telecommunications industry and how we can best help 
consumers. Next month, the Commission may vote to eliminate the rules 
that are now creating local phone competition and competition in 
telephone Internet broadband service. I have three specific areas of 
concern about how such a decision would affect consumers:

    First, it is my understanding that competing companies led 
        the way in delivering innovative DSL broadband services to 
        consumers. I am concerned that this kind of competition could 
        be lost and then innovation will be lost.

    Second, I understand that some Commissioners believe that 
        competition among telephone companies is unnecessary on the 
        theory that there is competition among telephone, cable, and 
        wireless companies. But the incumbents still control the vast 
        majority of phone lines to the home and nearly half of 
        California lacks access to cable Internet broadband service. I 
        am concerned that the Commission may be relying on theoretical 
        competition rather than what is actually available in the 
        market.

    Third, I am concerned that the Commission does not 
        adequately appreciate the role of state regulators in 
        protecting consumers from poor service quality and abusive 
        business practices in communications services. I hope the 
        Commissioners will allow state regulators to continue 
        protecting consumers.

    I raise these issues because it is our responsibility to ensure 
that the Commissioners frame their decisions with a focus on consumers.
    On another matter Mr. Chairman, I am also interested in hearing the 
Commissioners's views on the ``Jumpstart Broadband Act'' that Senator 
Allen and I will introduce today. Our bill would make more spectrum 
available for technologies like wireless fidelity in order to help 
jumpstart the broadband market. It would also direct the FCC to create 
rules to ensure that devices operating in this spectrum cooperate with 
each other and not interfere with Department of Defense systems.
    If our bill succeeds, then we believe that the broadband monthly 
fee will be far more attractive to consumers as they will be able to 
wirelessly connect an array of devices by a simple attachment to their 
broadband connection and card in their digital device (hold up card). 
Also, cities like Long Beach are using this technology as an economic 
development tool to wirelessly connect people downtown. In November, my 
staff made a discussion draft of the bill available to the 
Commissioners and we made an updated draft available last week. I would 
appreciate hearing their feedback during the question and answer 
period.
    I also hope that we can hear the Commissioners' views on the 
effects of changing the rules that protect citizens from excessive 
concentration of major media ownership in fewer and fewer hands. When 
the rules were changed in the 1990s on radio ownership, the resulting 
mergers led to 30 percent fewer radio station owners than there was in 
1996. I wouldn't want to see that kind of decline in the ownership over 
news outlets where, for example, one company could own ABC news, a 
major newspaper, CBS news, and CNN. I am deeply concerned about what 
such concentration would mean for citizen access to diverse viewpoints 
and the possibility that it would increase the likelihood of the press 
driving rather than delivering the news.
    Last, I have to ask the Commissioners for their perspectives on how 
we can work together to minimize digital piracy. It seems to me that 
Digital Television will be welcomed warmly by consumers for two 
reasons. The first is that the technology means consumers will enjoy 
superior sound and pictures. The second, is that consumers will have a 
much wider array of programing choices. But if that content--with its 
superior sound and pictures--is vulnerable to piracy, producers, 
directors, writers and actors may make a lot less of it. Unless we can 
agree on a way to prevent piracy, we could see the range of new 
productions sharply diminished just as the ability of consumers to 
enjoy them is greatly increased.
    Mr. Chairman, thank you again for holding this hearing. I look 
forward to working with you to protect consumers and help jumpstart 
this vital industry.

    Senator Boxer. I will speak for about two minutes here.
    First of all, I think we have heard some words of wisdom 
from colleagues on both sides of the aisle, and it always makes 
me feel good about this Committee that we can do that, and it 
makes me proud.
    I think the issue of the day for me is consumers. That is 
it. That is why I'm here. And that is crucial. And also, 
competition is crucial.
    I want to say to all five of you, welcome. And I want to 
say how important your work is to my state, the largest state 
in the union--35 million people really watch everything that 
you do.
    I want to make a point here about competition. I understand 
that some Commissioners believe, or may believe, that 
competition among telephone companies is unnecessary on the 
theory that there is competition among telephone, cable, and 
wireless companies. What is important to note is that, in my 
state and in many states, the incumbent companies still control 
the vast majority of phone lines. And in my state, nearly half 
of California lacks access to cable Internet broadband service. 
So there is theoretical competition, and there is real world 
competition, and I hope you will think about this.
    I also agree with Senator Sununu's comments about looking 
carefully at what our states are doing to protect consumers. 
You know, all the wisdom does not reside here. We have good 
people at home, and I want to make sure that the consumers have 
that layer of protection.
    I want to thank Senator Allen. We have joined together on 
our Jumpstart Broadband Act, and we really believe strongly, we 
hope you will look at this--that if our bill succeeds, we will, 
in fact, jumpstart broadband service. This is just a little 
card right now. Eventually, it will be built into the 
computers. But you will slide this into your computer, and you 
can access the Internet that way if we give some more spectrum 
for these Wi-Fi devices. So we are excited about this, and we 
hope that we can get that bill through this Committee, and onto 
the floor. We hope you will help us with it.
    Last two points. I agree with Senator Hutchison's comments 
about more and more mergers. We could have a situation where 
just a couple of companies control all the news outlets. That 
is not healthy for the greatest democracy in the world. So I 
hope you will look at that, as well as digital piracy. Too many 
issues for too little time, but thank you very much.
    Chairman Hollings. Thank you.
    Senator Smith?

                STATEMENT OF HON. GORDON SMITH, 
                    U.S. SENATOR FROM OREGON

    Senator Smith. Thank you, Mr. Chairman.
    I would like to join my colleagues in welcoming the 
Commission. We appreciate the important work that you do, and 
it's probably never been a more important time for your 
Commission. I think if I have learned anything in six years in 
the Senate, it is that there are many good ideas, and many 
things well intentioned, but passing them into law is very 
difficult. And there are few issues I have ever tried to 
grapple with more difficult a resolution than the whole 
broadband issue. And so the work that you are doing now and the 
proposals that you are making, frankly, are where the action 
is, because our ability to come to a consensus here is 
certainly unlikely, in my experience on this Committee, because 
there are some very well intentioned, ideas, but certainly at 
cross-purposes.
    I would like to introduce, Mr. Chairman, into the record, 
if I may, a letter I received from the High Tech Broadband 
Coalition that is an association----
    Chairman Hollings. It will be included.
    [The information referred to follows:]

Hon. Gordon Smith,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

Dear Senator Smith:

    As the Committee on Commerce, Science, and Transportation prepares 
for next week's important hearing on the state of the 
telecommunications industry, and as you prepare your opening statement 
and questions for the witnesses, we would like to advise you of the 
policy changes that the High Tech Broadband Coalition (HTBC) strongly 
believes the Federal Communications Commission needs to make in order 
to foster broadband competition and deployment, a key to national 
economic recovery and growth.
    HTBC represents the leading trade associations of the computer, 
telecommunications equipment, semiconductor, consumer electronic, 
software and manufacturing sectors--a coalition of trade associations 
representing over 15,000 companies that participate in the non-carrier 
broadband ``value chain.'' HTBC believes that the best way to achieve 
widespread adoption of broadband is to embrace the sustainable inter-
modal competition that has developed in the broadband market--a market 
that is distinct from the legacy voice market. Moreover, we believe 
that strengthening such inter-modal competition will result in lower 
prices and increased quality for cable television, high-speed Internet 
access, and basic telephony.
    HTBC is very concerned about the impact current regulations are 
having on new investment in broadband facilities. For example, in part 
because of regulatory disincentives and continued uncertainty about the 
future regulatory structure, incumbent local exchange carriers (ILECs) 
reduced their capital expenditure (capex) budgets in both 2001 and 
2002, and are doing so again in 2003. Some carriers may reduce capex 
budgets this year by up to 30 percent. Without regulatory changes, 
industry capital expenditures will plummet further, declines in 
manufacturers' research and development (R&D) spending will persist, 
job losses will continue to mount (already well over 500,000 in the 
vendor/supplier community alone), and consumers will lose out on new 
services. In short, we believe that regulatory reform is absolutely 
necessary to stimulate broadband deployment and breath new life into 
the industry.
    As a result of the telecom collapse, communications equipment 
manufacturers have had to focus on reducing operating costs and in 
doing so have cut R&D spending. This decline raises a red flag. Our 
innovations have kept this country's communications infrastructure at 
the cutting edge and made the United States a worldwide leader in 
technology. The impact of reduced R&D investment may not be felt next 
week, but it poses a long-term serious threat to the rollout of new 
products and services and to our Nation's ability to compete in the 
global marketplace.
    Since its inception early in 2002, HTBC's principal focus has been 
on the importance of reform of the Federal Communications Commission's 
network unbundling rules to the future of broadband deployment and 
facilities-based competition in the United States. HTBC last year 
submitted Comments and Reply Comments in the Commission's Notice of 
Proposed Rulemaking concerning its unbundling rules (the Triennial 
Review proceeding),\1\ and the coalition has continued to meet with all 
levels of the FCC staff to further press this matter. HTBC has been 
urging the Commission to act with a sense of urgency to resolve the 
broadband issues in the Triennial Review. We believe that it is 
critical that the Agency adopt a report and order at its open meeting 
scheduled for February 13.
---------------------------------------------------------------------------
    \1\ Review of the section 251 Unbundling Obligations of Incumbent 
Local Exchange Carriers, Implementation of the Local Competition 
Provisions of the Telecommunications Act of 1996, Deployment of 
Wireline Service Offering Advanced Telecommunications Capability, 
Notice of Proposed Rulemaking, CC Docket Nos. 01-338, 96-98, 98-147, 
FCC 01-361 (rel. Dec. 20, 2001).
---------------------------------------------------------------------------
    The specifics of the HTBC policy recommendations are that the 
Commission must refrain from imposing section 251 (of the 
Telecommunications Act of 1996) unbundling obligations on new, last-
mile broadband facilities, including all fiber, remote terminals, and 
digital subscriber line (DSL) (and successor) electronics deployed on 
the customer side of the central office used to provide broadband 
services. HTBC also believes that the Commission must clarify that 
sections 251 and 261 prohibit states from imposing unbundling 
obligations on such facilities.\2\ At the same time, HTBC recommends 
that the Commission continue to require ILECs to provide competitive 
local exchange carriers (``CLECs'') with collocation space and 
unbundled access to ILECs' legacy copper facilities.
---------------------------------------------------------------------------
    \2\ 47 U.S.C. Sec. Sec. 251(d)(2), 251(d)(3) & 261(c).
---------------------------------------------------------------------------
    In support of its proposal, HTBC asserted that the section 251 
impair standard set forth in section 251(d)(2) of the Communications 
Act of 1934, as amended, is not met with respect to ILECs' new, last-
mile broadband facilities because ILECs have no unfair advantage over 
CLECs in deploying new broadband facilities, and CLECs can provide 
broadband services to consumers over alternative broadband platforms. 
In addition, excluding ILECs' new, last-mile broadband facilities from 
section 251 unbundling would promote broadband deployment in compliance 
with section 706.\3\ These conclusions were buttressed by an economic 
study that Corning submitted with its comments to the Commission \4\ 
and by an economic study performed by Drs. Haring and Rohlfs (attached 
as Appendix A to the HTBC comments).\5\
---------------------------------------------------------------------------
    \3\ Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56 
(1996).
    \4\ Cambridge Strategic Management Group, Assessing the Impact of 
Regulation on Deployment of Fiber to the Home: A Comparative Business 
Case Analysis Apr. 5, 2002) (``Corning Study''), attached as exhibit I 
to Comments of Corning, Inc., Review of the section 251 Unbundling 
Obligations of the Incumbent Local Exchange Carriers, CC Docket No. 01-
338, (filed Apr. 5, 2002).
    \5\ John Haring and Jeffrey H. Rohlfs, The Disincentives for ILEC 
Broadband Investment Afforded by Unbundling Requirements (July 16, 
2002).
---------------------------------------------------------------------------
    Recently, HTBC filed detailed proposed rule language with the 
Commission that would implement the above unbundling policies (see 
attachment). These draft rules would require an ILEC to unbundle a 
local loop, but would not require an ILEC to unbundle either a 
``broadband loop'' or dark fiber deployed in the local loop. A 
broadband loop is defined as any fiber-based facility deployed on the 
customer side of the central office that is used in whole or in part to 
transmit packetized information and the associated equipment attached 
thereto. It also includes any packet-based equipment attached to a 
copper loop. However, the draft rules also maintain various ILEC 
obligations and propose other safeguards to assure that a CLEC can 
continue to get access to the unbundled network elements that it is 
able to get today.
    HTBC continues to advocate public policies that promote strong 
facilities-based broadband competition among cable modem, DSL, fiber, 
satellite and wireless alternatives. Unfortunately, widespread 
broadband deployment by multiple platforms is not happening quickly 
enough under the current regulatory rules. Continuing to apply outdated 
rules to the capital-intensive broadband marketplace will send the 
industry into further depression. On the other hand, removing the 
shackles on the heavily regulated ``telephone'' side of the broadband 
market will promote sorely needed competition for delivering to 
consumers an endless array of bandwidth intensive applications, 
including video, made possible by robust, high capacity networks. We 
hope that you will support and encourage the five FCC Commissioners to 
act quickly and decisively in order to achieve this result.

        Sincerely,
                                          Robert Holleyman,
                     Business Software Alliance, President and CEO.
                                              Gary Shapiro,
               Consumer Electronics Association, President and CEO.
                                              Rhett Dawson,
                Information Technology Industry Council, President.
                                       Jerry J. Jasinowski,
                  National Association of Manufacturers, President.
                                            George Scalise,
                     Semiconductor Industry Association, President.
                                       Matthew J. Flanigan,
                Telecommunications Industry Association, President.

                                                 Attachment





    Senator Smith. Thank you, sir. It is an association of six 
high-tech trade associations, and it represents 15,000 
companies, including Intel, Lucent, Alcatel, and Microsoft. 
These are not phone companies. They are consumer electronics 
and software producers. They point out that this whole area is 
in turmoil, it needs resolution. They have some wonderful 
ideas. There are some good ideas in here for your Triennial 
Review, so I recommend them to you.
    I believe we need to continue to promote facility-based 
broadband competition among all telecommunications modes, 
including cable modem, DSL, fiber, satellite, and wireless, and 
we need to ensure competition. The companies who take the risk 
of deploying broadband facilities should get the benefit if 
they succeed.
    And finally, I would like to express my interest in the 
Commission's status report regarding the broadcast flag issue. 
As we continue to deploy more broadband, we need to address the 
problem of online piracy. As the Commissioners are well aware, 
American copyright industries are responsible for over 5 
percent of the Nation's GDP, and we need to direct our energies 
towards protecting the output of the country's copyright 
industry.
    And so, Mr. Chairman, thank you.
    Chairman Hollings. Thank you.
    Senator Nelson?

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Thank you, Mr. Chairman.
    Competition and the input of state regulators, that is what 
I would underscore.
    Thank you, Mr. Chairman.
    Chairman Hollings. Thank you.
    Senator Snowe?

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Mr. Chairman, and thank you for 
holding this hearing today, because I do think it is extremely 
appropriate to have the entire FCC Commission here to explore 
many of the issues concerning competition in the 
telecommunications industry.
    Clearly over the past 2 years, the industry has experienced 
difficulties with a $2 trillion loss in marketplace value as 
well as 500,000 jobs. Now, we know some of the problems in the 
industry are due to corporate malfeasance, others as a result 
of an economic downturn.
    When we considered the Telecommunications Act in 1996, and 
I was a Member of this Committee, obviously we were trying to 
design the best public policy that would provide the entrance 
of viable and robust competition in the telecommunications 
marketplace. This new framework, along with the rapid 
progression of available technologies, has fostered the growth 
of the market with increased choices for consumers. However, 
the recent economic climate has taken its toll on the industry, 
and it is in that light that we address many of the important 
issues today.
    While the topic of today's hearing encompasses many 
important issues, I would hope that the Commissioners today 
would focus on the Triennial Review, proceeding on the 
potential actions on the issues of unbundled network elements 
and those parts of the incumbent network that the incumbent 
companies must offer to competitive entrants.
    The FCC Commission is charged with the critical role of 
assessing how to best balance regulatory policy in a manner 
that encourages growth, innovation, and investment in the 
market while continually assessing the best policy to ensure 
competitive choices for consumers.
    And I hope in that light, Mr. Chairman, that the FCC 
Commissioners would help to explore some of these issues. What 
is the data? What are the criteria to determine what is going 
to be part of that network or what is not, or making that final 
determination.
    I think, obviously, a lot has changed in the 
telecommunications industry, and we have to have a better 
understanding of what are the viable factors, the reliable data 
that would make a decision that would change the essence of the 
Telecommunications Act of 1996. And obviously, you are in a 
position to evaluate that, and to provide recommendations to 
this Committee.
    In addition, I am concerned about the declining revenues in 
the Universal Service Fund, and I know the Commission has taken 
the action to use the unused E-rate funds to stabilize it. 
Again, I think we have to look at the methodology for the 
future in how to provide the necessary revenues to continue the 
support of those programs that it does provide for as a result 
of statutory requirements. So I will be monitoring that process 
closely, and I hope that you will continue to commit to the 
principles of the Universal Service Fund, because I do think 
those goals are primary and essential to the future of so many 
of the programs that are vital.
    So, again, Mr. Chairman, I thank you.
    Chairman Hollings. Thank you.
    The Committee is privileged to have full statements from 
each of the five Commissioners, and they will be filed. You 
can, as you are recognized, highlight them or deliver them in 
full.
    We will start first with Chairman Powell. We welcome you.

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

    Chairman Powell. Thank you, Chairman Hollings, and it is 
good to be here again, and also to soon-to-be-Chairman McCain 
and the other distinguished Members of the Committee, 
particularly a welcome to the new Members, who I have not had 
the privilege of testifying before. Congratulations, and it is 
good to be here.
    Soon after I began my tenure as Chairman of the FCC, I laid 
out an agenda under my leadership. The theme that binds it, 
simply, is digital migration. That is, we are at a critical 
crossroads in communications in which technology is driving us 
to cross over from a predominantly analog realm, with its 
matured infrastructure, classic services, and long practiced 
regulatory regime, to the digital world of the modern era, one 
that demands more advanced architecture, dynamic and innovative 
applications, and a more enlightened and flexible regulatory 
environment.
    In the next six months, as you have noted, the Commission 
will complete many of the specific proceedings intended to 
advance the digital migration. Specifically, we will tackle a 
bevy of proceedings dedicated to telephone competition, 
broadband deployment, and media ownership, and 21st Century 
spectrum policy. In so doing, I can assure you we will be 
guided exclusively by the public interest and resist the 
pressure to view our exercise, as so often urged, as awarding 
benefits and burdens to corporate interests.
    The preamble of the 1996 Act states succinctly its purpose, 
``an Act to promote competition, reduce regulation in order to 
secure lower prices and higher quality services for American 
telecommunications consumers, and encourage the rapid 
deployment of new communication technologies.'' Clearly, as 
evidenced from this preamble, promoting competition is a 
central objective of the Act.
    Seven years into the act, there is notable success, but 
perhaps significantly less in some markets than originally 
expected, and perhaps in different form than was first 
envisioned. In the local telephone market as of June 2002, 
CLECs reported 21.6 million of the approximately 189 million 
nationwide switched access lines in service. New entrants have 
pursued a variety of strategies for entering the local market 
to serve consumers. For instance, CLECs providing full 
facilities-based competition account for 6.24 million of those 
CLEC access lines. Of that number, cable telephony providers 
using coaxial cable, 2.6 million of the access lines, while 
other full-facilities-based CLECs, like fiber carriers, serve 
over 3.6 million lines. In addition, nearly 6.5 million 
consumers report that their wireless phone is their only phone. 
Partial facilities-based CLECs, using a combination of cell 
phone facilities and unbundled network elements leased from the 
ILEC, serve over 4 million access lines. In total, nearly 6.7 
million consumers are served by facilities-based competitors, 
and another 11.9 million are served by CLECs using no 
facilities, through resale or UNE-P.
    I think deserving special notice is that much of the most 
significant competition in voice, both local and long distance, 
has come from wireless phone service. As of June 2002, 129 
million consumers subscribe to wireless services. In the 
wireless space, there are currently six national carriers, two 
that are BOC-owned, one that is IXC-owned, and three that are 
independent, and a host of smaller regional local carriers. 
Price competition and innovation has been significant in this 
space.
    In addition, we are beginning to see the introduction of a 
reliable Internet telephony. Services provided by companies 
such as Vonage are providing an alternative to analog wire 
telephony over broadband connections.
    The Commission has before it a number of major proceedings 
that will attempt to improve and advance the goals of the 1996 
Act. With the benefit of hindsight, we will be able to assess 
the last seven years and consider how we might improve the 
regulatory environment to more aggressively promote facilities-
based competition, to promote major investment in advanced 
architecture, and to reduce regulation, all clearly hallmarks 
of the Act.
    First, in the Triennial Review of unbundled network 
elements rules, the Commission will address what it has been 
trying--what has been a trying time in its effort to establish 
the unbundled network element rules. The Commission, on its 
previous two attempts to establish such a regime, has failed to 
do so and pass judicial scrutiny, first, in the United States 
Supreme Court that struck down the Commission's original 
unbundled network rules, and more recently in the D.C. Circuit 
for failure to give fair weight to Congress' directive that the 
Commission unbundle only those elements that would impair the 
viability of entry. Therefore, it is important to understand 
the legal exercise that is before the Commission. For under the 
D.C. Circuit mandate, as Senator Breaux noted, by February 
20th, there will be no unbundling rules whatsoever if the 
Commission does not act quickly, consistent with the Court's 
ruling. The Commission must establish, from the ground up, the 
clear impairment of each and every element that it orders 
unbundled.
    I think it is very important to remember in this discussion 
that UNE-P is not a network element. It is a consequence of 
previous decisions that required each and every network element 
to be unbundled. That is, it is an aggregation of all the 
individual elements. If even one of those elements cannot be 
sustained under the rigorous impairment analysis, which we have 
failed twice, UNE-P will not be government-mandated as an 
alternative. The Wireline Bureau will provide an item for 
consideration to the Commission quite imminently.
    Second, after bringing the Triennial Review to the floor, 
the Commission will consider whether it should establish and 
enforce national performance measures and standards for 
incumbent LEC provision of UNEs, which many states, consumer 
groups, and competitive carriers have urged. We initiated this 
proceeding as a recognition that effective and efficient 
enforcement of our regulations is just as, if not more, 
important than the underlying regulations.
    Broadband, as I have often articulated, I think is the 
central communication policy objective in America today. If the 
United States is to empower consumers to enjoy the full panoply 
of benefits of the information age, provide a source for long-
term sustainable economic growth, continue to be a global 
leader in information and network technologies, then, as 
Congress did recognize in the Act, the development and 
deployment of broadband infrastructure will play a vital role. 
To my mind, the primary challenge in front of policymakers 
today in promoting broadband is to determine how we can help 
drive the enormous investment required to turn the promises 
into reality.
    Now, at the Commission, we have initiated a number of 
proceedings to address this challenge, guided by a few simple 
principles. First, get it built, and get it built everywhere. 
Encourage investment in new advanced architecture. Second, 
promote the vibrancy of this new Internet medium through a 
minimally regulated environment. Third, promote multiple 
platforms for the delivery of the broadband Internet.
    The biggest obstacle in telecommunication policy to many of 
the goals that we pursue is the unending and thorny problem of 
last-mile monopoly control of the telephone infrastructure. Our 
goal should be to encourage multiple pipes in the future of the 
broadband world to minimize, on a going forward basis, that 
obstacle. And fourth, to unleash the innovation that has been 
characteristic of the computer and software industries.
    The Commission will address broadband deployment in four 
interrelated proceedings. Our Triennial Review will consider 
many of the questions. It will address the unbundling 
obligations under the Act, where the ILEC deploys next 
generation fiber facilities in its network. In addition, the 
Commission will address obligations for the high-frequency 
portion of the loop, often referred to as ``line sharing.''
    Once completed with that proceeding, the Commission will 
turn its efforts to other proceedings, including the broadband 
wireline proceedings and cable proceedings, specific details of 
which are provided in my full testimony.
    Finally, in December 2001, the Commission initiated a 
review of the current regulatory environment for ILECs 
providing telecom services commonly referred to as the ``Dom/
Non-Dom proceeding.'' We, too, will try to complete that in the 
next several months.
    So as you can see, these next six months will be incredibly 
busy and a significant time for the Commission in the areas of 
local competition and broadband deployment. These decisions 
will be vital to our efforts to advance the digital migration 
in this country, faithfully implementing the will of Congress 
so that consumers, as we have all so carefully emphasized, 
continue to reap the Act's intended benefits.
    Thank you, Mr. Chairman.
    [The prepared statement of Chairman Powell follows:]

        Prepared Statement of Hon. Michael K. Powell, Chairman, 
                   Federal Communications Commission
    Good morning, Mr. Chairman and distinguished Members of the 
Committee. It is my pleasure to come before you today to discuss the 
state of competition in the telecommunications industry and, to the 
extent permissible, the various competition and broadband proceedings 
that are nearing completion at the Commission.
Introduction
    Soon after I began my tenure as Chairman, I laid out the 
Commission's agenda under my leadership. The theme that binds the 
agenda is ``Digital Migration.'' That is, we are at a critical 
crossroad in communications in which technology is driving us to cross 
over from the predominately analog realm--with its matured 
infrastructure, traditional services, and long-practiced regulatory 
regime--to the digital world of the modern era, one that demands more 
advanced architecture, dynamic and innovative applications, and a more 
enlightened and flexible regulatory environment. In short, our 
challenge is to move from the old to the new, while remaining faithful 
to our governing statutes and the venerable principles of 
communications policy--universal service, competition, and diversity, 
just to name a few.
    In the next six months, the Commission will complete many of the 
specific proceedings intended to advance the digital migration. 
Specifically, we will tackle a bevy of proceedings dedicated to 
telephone competition, broadband deployment, media ownership reform and 
21st Century spectrum policy. These proceedings will shape the 
communications landscape for years to come. My colleagues and I 
understand the enormity of our responsibility, as much as the absolute 
necessity of going through with it. In doing so, we will be guided 
exclusively by the public interest, and resist the pressure to view our 
exercise as awarding benefits and burdens to corporate interest.
    Guided by consumer interest, our course will 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.
The Status of Telecommunications Competition
    The preamble of the Telecommunications Act of 1996 (1996 Act or 
Act) states succinctly its purpose: ``An Act to promote competition and 
reduce regulation in order to secure lower prices and higher quality 
services for American telecommunications consumers and encourage the 
rapid deployment of new telecommunications technologies.'' Clearly, as 
evidenced from the preamble, promoting competition is a central 
objective of the Act. In its detail, the statute provides a regulatory 
blueprint that conveys extensive authority to the Commission to advance 
that objective.
    Seven years into the Act, there is notable success--though perhaps 
significantly less in some markets than originally expected, and 
perhaps in different forms than were first envisioned. A brief review 
of the reported results offers a snapshot of our progress. In the local 
telephone market, wireline-based competition, as of June 2002 (the most 
recent data reported by the Commission), competitive local exchange 
carriers (CLECs) reported 21.6 million (or 11.4 percent) of the 
approximately 189 million nationwide switched access lines in service. 
Slightly more than one-half of these reported CLEC switched access 
lines serve small business and residential customers.
    New entrants have pursued a variety of strategies for entering the 
local market to serve consumers. For instance, CLECs providing full 
facilities-based competition account for 6.24 million of the CLEC 
access lines. Of that number, cable telephony providers served almost 
2.6 million lines (mostly residential), and other full facilities-based 
competitors (fiber-providers, for example) served over 3.6 million 
lines. Of particular note, nearly 6.5 million consumers report that 
their wireless phone is their only phone. Partial facilities-based 
CLECs, using a combination of self-owned facilities and unbundled 
network elements leased from incumbent local exchange carriers (ILECs), 
serve over 4 million lines. In total, nearly 16.7 million customers are 
served by facilities-based competitors.
    CLECs providing service to consumers using no facilities of their 
own (i.e., relying exclusively on those of an ILEC) account for over 
11.9 million of the total CLEC access lines. Of that, approximately 
4.48 million consumers are served by CLECs using resale (as provided by 
the 1996 Act and unaffected by current rulemakings) and another 7.48 
million consumers are served by CLECs using UNE-P (pursuant to FCC 
regulations).
    Deserving special notice, the most significant competition in voice 
(local and long distance) has come from wireless phone service. As of 
June 2002, 129 million consumers subscribed to wireless telephone 
services, providing a direct alternative to wireline infrastructure for 
local telephone services. There are currently six national carriers 
(two that are BOC-owned, and four that are independent) and a host of 
smaller carriers and price competition and innovation have been very 
strong. It is estimated that anywhere from 3-5 percent of these 
wireless consumers use their wireless phones as their primary local 
phone service.
    In addition, broadband connections have also put pressure on 
wireline networks as many consumers that migrate to broadband for their 
Internet services have dropped their second telephone lines (which were 
used for dial-up Internet services). Moreover, 2002 saw the 
introduction of reliable Internet telephony services through a 
broadband connection. Companies such as Vonage are providing consumers 
with a direct substitute to their traditional wireline phones.
    These various sources of competition have contributed to the first 
declines in total access lines for the four major ILECs since 1933 (the 
only previous year where access lines declined).
    Competition also has increased exponentially in the long distance 
market. The corollary of opening up the local phone market was allowing 
incumbent local carriers to enter the long distance market (previously 
barred by law from doing so) after satisfying the requirements of 
section 271 of the Act. At present, Bell Operating Companies (BOCs) 
have obtained regulatory approval to offer long distance in 35 states, 
bringing new competitive alternatives to that market. Prices have 
declined substantially over the period since the Act, due principally 
to wireless substitution and extensive expansion of long distance 
capacity.
    Competition is moving forward in the broadband market. Broadband, 
or highspeed lines connecting homes and businesses to the Internet, 
increased by 27 percent during the first half of 2002, from 12.8 
million to 16.2 million lines. DSL lines in service increased by 29 
percent during the first half of 2002, from 3.9 million to 5.1 million 
lines. On the cable platform, broadband service increased by 30 percent 
during the first six months of 2002, from 7.1 million to 9.2 million 
lines. At the end of June 2002, the presence of broadband service 
subscribers was reported in all 50 states, the District of Columbia, 
Puerto Rico and the Virgin Islands, and in 84 percent of the Nation's 
zip codes, compared to 79 percent six months earlier.
    Clearly, a significant amount of competition has emerged since the 
Act. For residential customers in particular, facilities-based 
providers have contributed the lion's share of that competition.
Current FCC Proceedings
    The Commission has before it a number of major proceedings that 
will attempt to improve and advance the goals of the 1996 Act. With the 
benefit of hindsight, we will be able to assess the last seven years 
and consider how we might improve the regulatory environment to more 
aggressively promote facilities-based competition, to promote major 
investment in advanced communication infrastructure, and to reduce 
regulation--all hallmarks of the Act.
Local Wireline Competition Policy
    Local competition is one of the principal objectives of the Act--
meaningful, longterm, sustainable competition. Over the next six 
months, the Commission will consider and decide two sets of proceedings 
that will address certain aspects of the Commission's implementation 
and enforcement of Congress' unbundled network element (UNE) regime. 
These proceedings will determine which of the ILECs' network elements 
must be unbundled and offered to competitive entrants at regulated 
wholesale rates. And, will establish an effective and efficient 
enforcement regime to evaluate the incumbent's provisioning of these 
facilities and services to competitors.
1. Triennial Review of UNE Rules
        The First Swing--Strike One

    The FCC has had a difficult, trying time in its effort to establish 
the unbundled network element rules. Shortly after the Act was passed 
the Commission promulgated a set of local competition rules that 
included a mandate requiring that all network elements be unbundled for 
competitors. And, despite arguments that such a regime undercut the 
separate wholesale requirement that the complete network could be 
purchased at the deeply discounted prices available for each unbundled 
element. This became known as the UNE platform, or UNE-P. The sentiment 
at the time was to ``jump start'' competition by biasing the rules 
significantly in favor of easy entry. This understandably aggressive 
competitive stance, coupled with a capital market awash with cash for 
new ventures, enticed nearly 300 new competitors to rush into the 
market.
    These rules were struck down by the Supreme Court in 1998. The 
Court held that the Commission was not giving fair weight to Congress' 
directive that the Commission unbundle only those elements that would 
impair the viability of entry. The Court found the Commission's stance 
too generous to new entrants and not faithful to the statute, 
concluding ``if Congress had wanted to give blanket access to 
incumbents' networks on a basis as unrestricted as the scheme the 
Commission has come up with, it would not have included Sec. 251(d)(2) 
[the impairment standard] in the statute at all.'' Instead, ``[i]t 
would simply have said . . . that whatever requested element can be 
provided must be provided.'' The UNE rules were thus vacated.

        The Second Swing--Strike Two

    In 1999, the Commission attempted to respond to the Supreme Court's 
decision and craft new UNE rules. It modified its interpretation of the 
impairment standard slightly and crafted a set of rules that 
substantially mirrored the old, still allowing access to all network 
elements (rendering UNE-P still available) in nearly all markets. In 
that Order (known commonly as the UNE Remand Order), the Commission 
announced that it would reexamine its list of network elements every 
three years (it is from this commitment that the present Triennial 
Review takes its name). In response to this pronouncement, the 
Commission under my leadership initiated its first triennial review of 
its unbundled network element regime in December 2001, to ensure that 
our regulatory framework reflects current marketplace conditions and 
stays faithful to the goals and provisions of the Act.
    During the course of compiling our record in this proceeding, the 
United States Court of Appeals for the District of Columbia Circuit 
struck down the Commission's Order and subsequently vacated the 
Commission's second set of UNE rules.
    The court again found that the Commission had not given sufficient 
significance to the impairment standard. It pointedly held that the 
Commission had to consider much more rigorously whether there were 
competitive alternative sources of supply in different markets. It also 
criticized the Commission's ``open-ended notion of what kinds of cost 
disparity are relevant'' for purposes of identifying impairment. In 
particular, ``to rely on cost disparities that are universal as between 
new entrants and incumbents in any industry is to invoke a concept too 
broad, even in support of an initial mandate, to be reasonably linked 
to the purpose of the Act's unbundling provisions.'' (Emphases added.) 
The court emphasized that unbundling is not an unqualified good under 
the statute, for it imposes others costs that can undermine the Act's 
goals. The Commission had to strike a balance between competing 
concerns, rather than merely embrace unimpeded unbundling. The court 
consequently vacated all the unbundling rules, effective February 20th 
of this year.
    It is very important to understand the legal exercise that is 
before the Commission. Under the court mandate, there will be no 
unbundling rules at all in a few weeks if the Commission does not act 
consistent with the court's ruling. The Commission must establish, from 
the ground up, the clear impairment of each and every element that it 
orders unbundled. This is important to grasp, for it is often 
misunderstood, or misrepresented in the heated debate about UNE-P. ``To 
UNE-P or not to UNE-P'' is not the question before the Commission. UNE-
P is not a network element, nor does the statute provide for it as a 
complete entry vehicle. UNE-P is a consequence of previous regulatory 
decisions that required all network elements be unbundled, thereby 
making a full platform possible (that is, the platform is an 
aggregation of all the individual elements). If even one of those 
elements cannot be sustained under a more rigorous impairment analysis, 
the UNE-P will not be government mandated as an alternative, though it 
may be privately negotiated in the marketplace.
    It bears repeating that seven years into the Act, there have yet to 
be a set of unbundled network element rules that have survived judicial 
review, despite two major Commission attempts. Hopefully, the third 
time is the charm. It is vital the Commission craft a judicially sound 
set of rules in the Triennial Review in order to finally settle this 
critical chapter of implementing the Act, and stabilize the foundation 
of the wireline local competition industry.
    The legal mandate to rework the UNE rules is reason enough to 
recommend the Triennial Review, but not the sole reason. I believe, as 
prior Commissions and the courts have held, that Congress rightly 
sought to promote facilities-based competition. Facilities-based 
competition offers a number of compelling benefits:

    Greater product differentiation, offering consumers more 
        robust choice than available through resale.

    Less reliance on an incumbent, whose self-interest will 
        rarely be aligned with assisting a new competitor in having 
        access to its own network at steeply discounted prices.

    Greater infrastructure investment, stimulating the 
        downstream market for equipment suppliers, like Lucent and 
        Nortel, as well as promoting more jobs.

    Greater network redundancy, providing more alternatives 
        should homeland security risks threaten our network.

    While the statute provides a number of vehicles for competitive 
entry, including resale and unbundled elements, it is widely recognized 
that in the long-term there should be a transition to facilities in 
order to reap the greater benefits of competition. In determining which 
elements should be unbundled for competitors, the Commission will take 
into account stronger incentives for facilities-based entry or 
transition thereto.
    The Commission's third attempt to implement Congress' unbundling 
requirements through the Triennial Review proceeding will address 
several core components of our unbundling framework. First, it will 
involve the application of the statutory ``necessary'' and ``impair'' 
standards and a determination of whether, and if so, how, the 
Commission should take into account other goals of the Act, such as the 
development and deployment of new communications infrastructure and 
services. Second, it will consider, consistent with the recent D.C. 
Circuit ruling, the appropriate level of granularity in defining the 
specific network elements and markets at issue. Third, it will address 
the proper role of state commissions in the implementation of our 
unbundling rules.
    The Wireline Competition Bureau will have an item for the full 
Commission's consideration on the floor by the end of the month.
2. Performance Standards
    In addition to the Triennial Review, the Commission began in 2001 a 
rulemaking proceeding to consider, for the first time, whether the 
Commission should establish and enforce national performance 
measurements and standards for ILEC provisioning of unbundled network 
elements, which many states and CLECs have urged. While the Triennial 
Review examines network elements and determines whether competitors 
should have access to them, the performance measures proceeding 
examines whether competitors have efficient and effective access to 
them. After much discussion with all segments of the industry, the 
consensus is that competition policy would be enhanced by a small 
number of specific, enforceable performance-based rules.
    In response to our notice of proposed rulemaking, we received a 
variety of proposals--everything from completely occupying the field, 
to establishing a list of independently enforceable federal measures, 
to enhancing existing state penalties by adding federal penalties. We 
are working through the pros and cons of each of these proposals, and 
will move forward with a plan that ensures that the market-opening 
provisions of the Act are backed by a strong, effective and efficient 
enforcement regime that creates greater consistency, certainty and 
clarity in the marketplace. Indeed, it is for this reason that I have 
made my repeated requests to Congress for greater enforcement authority 
for the Commission.
    In examining possible performance requirements, however, we must be 
mindful of the important work that state commissions around the country 
have done in this area, and make sure that any federal standards we 
adopt advance our common goal of fully and faithfully implementing the 
Act. Enforcement should be something carriers take seriously, and not 
merely a cost of doing business, and one way to do this is to make sure 
that we are working together, and not at cross-purposes, with the 
states.
    The Wireline Competition Bureau will present its recommendations to 
the full Commission in the second quarter, 2003.
Broadband Deployment
    As I have stated on many occasions, broadband deployment is the 
central communications policy objective in America today. If the United 
States is to: (1) empower consumers to enjoy the full panoply of 
benefits of the information age; (2) provide a source for long-term, 
sustainable economic growth for our country; and (3) continue to be the 
global leader in information and network technologies--then, as 
Congress recognized in the Act, the development and deployment of 
broadband infrastructure will play a vital role.
    To my mind, the primary challenge in front of policymakers today in 
promoting broadband is determining how we can help drive the enormous 
investment required to turn the promises of broadband into reality. 
While figures are a bit facile in this area, by many estimates DSL 
cannot reach 50 percent of households, because of technical limitations 
that can be overcome only by building out the network. Cable has 
substantially deployed its data network (controlling 70 percent of the 
residential market), but still is unavailable to a significant number 
of households. Other technologies are deploying, such as wireless, 
powerline and satellite, but significant capital investment and 
technical research is needed to push those platforms to a wider 
addressable market. At the Commission, we have initiated a number of 
proceedings to address this broadband challenge, guided by the 
following principles:

    First, get it built--everywhere. Encourage investment in 
        new advanced architecture.

    Second, promote the vibrancy of these new Internet 
        platforms through a minimally regulated environment.

    Third, promote multiple platforms for the delivery of 
        broadband internet. The biggest obstacle to so many policy 
        goals in the wireline voice context is the last mile problem. 
        Our goal is to encourage multiple pipes to the home in the 
        future broadband world.

    Fourth, unleash the innovation that has been characteristic 
        of the computer and software industries.
1. Triennial Review
    As part of our Triennial Review proceeding, the Commission will 
consider several broadband related questions. Specifically, the 
Commission will address the unbundling obligations, under the Act, 
where an ILEC deploys next generation fiber facilities into its network 
or invests in fiber all the way to the home. In addition, the 
Commission will address the unbundling obligations for the high-
frequency portion of the loop, commonly referred to as ``line 
sharing.'' Again, we anticipate that the Wireline Competition Bureau 
will make its formal recommendations to the full Commission on these 
issues by the end of this month.
2. Wireline Broadband Item
    In an effort to limit regulatory uncertainty, the Commission, in 
February 2002, initiated a rulemaking to address the appropriate 
statutory classification of broadband Internet access services provided 
over the traditional or future wireline telephone network. In the 
Notice of Proposed Rulemaking (NPRM) in this proceeding, the Commission 
tentatively concluded that this service is an ``information service'' 
as defined in the Act. In addition, the proceeding asks both the 
regulatory implications, if any, of that proposed classification on 
existing regulations and on what the appropriate regulatory framework 
for the provision of wireline broadband Internet access services should 
entail. Finally, the item also sought comment on whether facilities-
based broadband Internet access service providers should be required 
under the Commission's statutory authority to contribute to support 
universal service.
    The Wireline Competition Bureau will provide its recommendations in 
this proceeding to the full Commission in the second quarter of 2003.
3. Second Cable Modem Service Order
    In addition to the Wireline Broadband Item, the Commission issued a 
Declaratory Ruling and Notice of Proposed Rulemaking in March 2002. 
That Declaratory Ruling classified cable modem service, a broadband 
Internet access service provided over cable facilities, as an 
``information service'' under the Act. The Commission, in the NPRM 
portion of the Order asked interested parties to comment on the 
appropriate regulatory framework for the provision of that information 
service. Specifically, the Commission sought comment on the scope of 
the Commission's jurisdiction to regulate cable modem service; whether 
we should require cable operators to offer ISPs access to their 
facilities; and the proper role of state and local franchising 
authorities in regulating cable modem service. Many of these questions 
are similar to those that arise in the telephone broadband context and 
should responsibly be considered together.
    The Media Bureau will have its recommendations on the questions 
raised in the Cable Modem NPRM to the full Commission in the second 
quarter of this year.
4. Dom/Non-Dom Proceeding
    Finally, in December 2001, the Commission initiated a review of the 
current regulatory requirement for ILECs broadband telecommunications 
services. The Commission sought comment in this proceeding on whether 
the Commission should make changes, based on marketplace developments, 
in its traditional regulatory requirements of ILECs' broadband 
transmission services. These transmission services are not broadband 
Internet access services offered to residential consumers, but high-
capacity transmission services offered to business consumers and 
competitive carriers. The Commission sought comment on the relevant 
product and geographic market for these broadband transmission 
services; whether the ILECs possess market power in the market and 
whether dominant carrier safeguards or other regulatory requirements 
should govern ILECs' provision of these services.
    The Wireline Competition Bureau will have their recommendations to 
the full Commission by the close of the second quarter.
Conclusion
    As you can see, these next six months will be an incredibly busy 
and significant time for the Commission in the areas of local 
competition and broadband deployment policies. These decisions 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 Act's intended benefits. 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.



    Chairman Hollings. Thank you, Mr. Chairman.
    Commissioner Martin?

   STATEMENT OF HON. KEVIN J. MARTIN, COMMISSIONER, FEDERAL 
                   COMMUNICATIONS COMMISSION

    Commissioner Martin. Thank you, Mr. Chairman, and thank you 
for this invitation to be here with you this morning.
    Chairman Hollings. Bring that a little closer.
    Commissioner Martin. I look forward to the insights you 
will provide and trying to answer any questions you might have.
    As I said during my confirmation hearing, I recognize that 
the Commission is a creation of Congress, and I welcome the 
opportunity to discuss the Commission's activities with you.
    As you know, the telecommunications industry has been 
responsible for much of the Nation's economic growth during the 
past decade. I believe the availability of advanced 
telecommunications is essential to the continued strength of 
the economy in the 21st century.
    There is no question, however, that these are turbulent 
economic times for the telecommunications sector. Companies are 
struggling under too much debt, unable to recoup the past 
investment they have made; markets are valuing companies at 
depressed levels, leaving companies with little capital; and 
carriers are postponing the purchase of equipment necessary to 
deploy competitive local and advanced services, leaving the 
manufacturers to suffer the consequences. And as more 
manufacturers founder, we risk being left with too few domestic 
providers of critical infrastructure. This can be a significant 
threat even to our national security. And finally, investors 
are questioning whether communications companies continue to be 
a profitable industry in which to risk capital.
    But this it not just about companies; it's about real 
people. Unfortunately, the impact of this downturn has not been 
limited to the companies in the telecommunications sector. 
Employees and their families throughout the Nation have 
experienced real pain resulting from the economic downturn and 
the numerous bankruptcies that have occurred. By the middle of 
last year, nearly 500,000 employees in the sector had lost 
their jobs, and the industry had lost over 2 trillion in stock 
value. As a result, many people saw their life savings 
disappear overnight just as they were hit by layoffs, with 
little or no severance pay.
    Several proceedings currently pending in the Commission 
could have a significant impact on the industry. I believe we 
have an opportunity to craft a balanced package of regulations 
to revitalize the industry. We should spur investment in next-
generation broadband infrastructure while also maintaining 
access to the network elements necessary for new entrants to 
provide competitive services.
    I believe it is critical to create a regulatory environment 
that encourages the deployment of new broadband infrastructure. 
Incumbents should have the proper incentives to invest the 
capital necessary to make 21st century broadband capabilities 
available to all Americans. This, in turn, would allow 
consumers to experience the benefits of next generation 
services and applications that new broadband networks can 
offer.
    In addition, I believe it is essential to continue to 
encourage local competition. We need to maintain the ability of 
new entrants to access elements of the incumbent network that 
are essential for competitive services. By maintaining this 
access, consumers will continue to receive the benefits of 
local competition. Such an approach is vital if we are to 
ensure that all areas throughout the Nation, including rural 
America, continue to enjoy the benefits of competitive choice.
    In that spirit, I offer the following three priorities for 
Commission action. I believe the Commission should prioritize 
new investment and deployment of advanced network 
infrastructure. I believe the Commission should focus on 
creating a regulatory environment that allows and encourages 
companies to invest in and deploy advanced services. I fear 
that without a stable regulatory framework for deploying and 
providing such services, our country's communications network 
could remain stagnant, not improving and not developing. The 
many people without access to advanced services now, 
particularly consumers in rural and underserved areas, would 
remain without. And competition, the driver of innovation, 
growth, and effective pricing, would remain minimal. But even 
if we change our underlying regulations governing the provision 
of basic telephony, companies will not invest in advanced 
services unless we ensure the regulations will not deprive them 
of the ability to make a sufficient return on their investment.
    Second, I believe the Commission must minimize further 
questions. We must avoid creating a greater uncertainty or 
prolonging ambiguity. To put off decisions that have the 
greatest impact on the marketplace to another day would only 
aggravate current market conditions. It also would potentially 
prolong the angst and uncertainty that surround the deployment 
of advanced services.
    And finally, I believe the Commission must faithfully 
implement the Act and be responsive to the courts. We must 
address the court's recent criticism of our existing unbundling 
framework while still keeping our eyes on Congress' goal of 
ensuring that local markets are truly open to competition. We 
must rigorously review our list of required elements for 
unbundling and determine which are necessary for sustained 
competition, but we must also ensure that access to those 
essential facilities continues.
    Assessments of whether access to an element is necessary to 
provide service may vary significantly among different markets, 
States, and regions. State commissions have worked well with 
the Commission in implementing the requirements of the 1996 
Act. A more granular review could allow for state cooperation 
and input, especially regarding highly fact intensive and local 
determinations.
    As you can see, a number of issues before us are vital to 
consumers and the marketplace and need timely resolution. 
Nevertheless, I believe we must begin somewhere. The framework 
I have set forth would achieve our goals without favoring any 
particular industry. And this calls for a delicate balance. We 
need to make sure that incumbent networks are open to 
competition and, at the same time, provide incentives for both 
incumbents and new entrants to build new facilities.
    Again, thank you for inviting me and my colleagues to be 
with you today, and I look forward to trying to answer your 
questions.
    [The prepared statement of Commissioner 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 I said during my confirmation 
hearing, I recognize that the FCC is a creation of Congress, and I 
welcome the opportunity to discuss the Commission's activities with 
you.
    As you know, the telecommunications industry has been responsible 
for much of the Nation's economic growth during the past decade. And 
the availability of advanced telecommunications is essential to the 
continued strength of the economy in the 21st century. There is no 
question, however, that these are turbulent economic times for the 
telecommunications sector.
    Companies are struggling under too much debt, unable to recoup the 
past investments they have made. Markets are valuing companies at 
depressed levels, leaving companies with little capital. Carriers are 
postponing the purchase of the equipment necessary to deploy 
competitive local and advanced services, leaving the manufacturers to 
suffer the consequences.
    As more manufacturers founder, we risk being left with too few 
domestic providers of critical infrastructure for advanced services, a 
significant threat even to our national security. Finally, investors 
are questioning whether communications continues to be a profitable 
industry in which to risk capital.
    But this is not just about companies, it is about real people. 
Unfortunately, the impact of this downturn has not been limited to the 
companies in the telecommunications sector. Employees and their 
families throughout the Nation have experienced real pain resulting 
from the downturn and the numerous bankruptcies that have occurred. By 
the middle of last year, nearly 500,000 employees in the sector had 
lost their jobs, and the industry had lost over $2 trillion in stock 
value. As a result, many saw their life savings disappear overnight 
just as they were hit by layoffs, with little or no severance pay.
    Several proceedings currently pending at the Commission could have 
a significant impact on the industry. I believe we have an opportunity 
to craft a balanced package of regulations to revitalize the industry 
by spurring investment in next generation broadband infrastructure 
while also maintaining access to the network elements necessary for new 
entrants to provide competitive service.
    I believe it is critical to create a regulatory environment that 
encourages the deployment of new broadband infrastructure. Incumbents 
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 consumers to experience the 
benefits of next generation services and applications that new 
broadband networks can offer.
    In addition, I believe it is essential to continue to 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 receive the benefits of competition. Such an 
approach is crucial if we are to ensure that all areas throughout the 
Nation, including rural America, continue to have access to the 
benefits of competitive choice.
    In that spirit, I offer the following three priorities for 
potential Commission action:
    First, the Commission should prioritize new investment and 
deployment of advanced network infrastructure. I believe the Commission 
should focus on creating a regulatory environment that allows and 
encourages companies to invest in and deploy advanced services.
    I fear that without a stable regulatory framework for deploying and 
providing such services, our country's communications network and 
services could remain stagnant, not improving, not developing. The many 
people without access to advanced services now, particularly consumers 
in rural and underserved areas, will remain without. And competition, 
the driver of innovation, growth, and effective pricing, will remain 
minimal.
    Even if we change our underlying regulations governing the 
provision of basic telephony, companies will not invest in advanced 
services unless we ensure that our regulations will not deprive them of 
the ability to make a sufficient return on their investment.
    Second, 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 day will only aggravate current market conditions and prolong 
the angst and uncertainty that surround the deployment of advanced 
services.
    Third, the Commission must faithfully implement the Act and be 
responsive to the courts. We must address 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. We must rigorously review our list of required elements 
for unbundling and determine which are necessary for sustained 
competition, while also ensuring that access to essential facilities 
continues.
    Assessments of whether access to an element is necessary to provide 
service may vary significantly among different markets, states, and 
regions. State commissions have worked well with the Commission in 
implementing the requirements of the 1996 Act. A more granular review 
could allow for state cooperation and input, especially regarding 
highly fact intensive and local determinations.
    As you can see, a number of issues before us are vital to consumers 
and the marketplace and need timely resolution. Nevertheless, we must 
begin somewhere.
    I believe the framework I have set forth would achieve our goals 
without favoring any particular industry. This calls for a delicate 
balance: we need to make sure that incumbent networks are open to 
competition, but, at the same time, provide incentives for both 
incumbents and new entrants to build new facilities.
    Again, thank you for inviting me and my colleagues to be here with 
you today. I am happy to try to answer any questions you might have.

    Chairman Hollings. Thank you, Commissioner.
    Commissioner Abernathy?

STATEMENT OF HON. KATHLEEN Q. ABERNATHY, COMMISSIONER, FEDERAL 
                   COMMUNICATIONS COMMISSION

    Commissioner Abernathy. Good morning. Good morning, Mr. 
Chairman and distinguished Members of the Committee. It is a 
distinct pleasure and privilege for me to come before you for 
the first time during my term as a Commissioner to discuss the 
state----
    Chairman Hollings. Get that microphone up close; I'm sorry; 
just pull it a little bit closer so we can all hear.
    Commissioner Abernathy.--to discuss the state of 
competition in the telecommunications industry and to listen to 
your concerns and respond to any questions that you may have. 
Your passion regarding these issues comes through loud and 
clear this morning.
    As I reflect upon the state of competition and the 
appropriate role for the FCC to pursue, I am guided first and 
foremost by the statutory direction provided to us by Congress. 
Another key guiding principle that comes into lay is the 
importance of crafting clearly defined rules and then strictly 
enforcing those rules. And finally, the best measure of our 
success, as mentioned by Members of the Committee, will be 
whether citizens are benefitting from increased innovation, 
increased choice, and lower prices.
    The telecommunications marketplace is more competitive 
today than at any time in history, with the wireless sector 
enjoying the most robust competition. Market forces have 
prompted wireless carriers to lower prices sharply and to 
introduce a broad array of innovative new calling plans, 
features, and services.
    On the wireline side, long distance remains extremely 
competitive, but local competition has been slower to take hold 
because of the historical market strength, as mentioned by the 
Chairman, of the incumbent wireline providers. Nevertheless, 
the number of access lines served by competitive local exchange 
carriers continues to increase.
    Broadband services also have become increasingly 
competitive. Cable modem and DSL services are rapidly 
expanding, and there are promising developments in the area of 
wireless and satellite technologies, as mentioned by Senator 
Boxer and Senator Allen.
    Despite these positive trends, the last few years plainly 
have been a tumultuous time for the telecommunications 
marketplace. Overly optimistic projections of data growth 
spurred companies to invest in excess capacity. And when the 
dot com bubble burst, investors demanded retrenchment. In a 
scramble to shorten the path to profitability, many carriers 
went bankrupt. And in turn, equipment manufacturers were forced 
to write off inventory and lay off workers.
    Investment also has been chilled by regulatory uncertainty 
in the wake of successive court reversals of the FCC's core 
local competition rules, as mentioned by Mr. Powell. The U.S. 
Supreme Court held that the Commission's initial unbundling 
rules failed to include a meaningful limiting principle. And 
later, the D.C. Circuit Court of Appeals reversed and vacated 
the rules adopted on remand, stating that the Commission's 
analysis was inconsistent with the statutory mandate given us 
by Congress.
    In response to these court losses, I believe a critical 
role for the FCC in furthering the development of competition 
is to promote regulatory certainty. Having worked for ILECs, 
CLECs, and wireless providers, I know that companies, whether 
incumbent or new providers, put investments on hold when unable 
reliably to assess the regulatory risks that they will face.
    Two critical ways for the Commission to promote regulatory 
certainty are, first, to ensure that our rules adhere closely 
to the text, structure, and purpose of the Communications Act; 
and, therefore, they will withstand judicial scrutiny. And 
second, to promote a policy of swift and stringent enforcement 
when our rules are violated.
    Another key role for regulators is keeping up with the 
rapid pace of technological change in market developments. 
Otherwise, we run the risk of becoming irrelevant, or, worse, 
implementing regulatory requirements that harm the public 
interest. For example, the Commission should continue its 
efforts to define broadband Internet access services and to 
grapple with the regulatory implications of these statutory 
classifications. While I recognize that the broadband issue 
raises difficult, controversial questions, these questions will 
not go away by virtue of our unwillingness to craft an 
appropriate regulatory scheme.
    Finally, as Chair of the FCC's Joint Board on Universal 
Service, I want to emphasize the importance of ensuring that 
universal service remains sustainable in today's rapidly 
changing marketplace and that new competitive services are 
available to all Americans.
    Thank you for the opportunity to share these thoughts with 
you this morning and to learn from your experiences. I look 
forward to responding to any questions you may have and working 
with you to achieve our common goals.
    Thank you.
    [The prepared statement of Commissioner Abernathy follows:]

    Prepared Statement of Hon. Kathleen Q. Abernathy, Commissioner, 
                   Federal Communications Commission
    Good morning, Mr. Chairman and distinguished Members of the 
Committee. I appreciate the opportunity to appear before you to discuss 
the state of telecommunications competition. Competition is thriving in 
many respects, but at the same time the telecommunications industry is 
facing enormous challenges. I will begin by providing background 
information on the growth of competition as well as my assessment of 
key challenges confronting competitors. I will then discuss my views on 
the appropriate role for regulators in this environment.
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. We have six national wireless providers and many regional 
players. Consumers have benefited from the fruits of this competition, 
as providers have been forced to lower prices sharply and to introduce 
a broad array of innovative new calling plans, features, and services. 
Indeed, as wireless providers struggle to achieve or maintain a 
positive cash flow, some analysts have argued that the wireless sector 
may be too competitive--that is, that some consolidation may be 
necessary to restore its fiscal health.
    On the wireline side, competition has been slower to take hold 
because of the historical market strength of the incumbent wireline 
providers. Nevertheless, the number of access lines served by 
competitive local exchange carriers (CLECs) continues to increase. 
CLECs serve more than 11 percent of the Nation's lines--including 
approximately 8 percent of residential and small business lines. These 
carriers have employed a broad range of entry strategies: Some rely 
entirely on their own facilities; some deploy their own switches but 
rely on the incumbent carrier's loops; some provide service exclusively 
through unbundled network elements; and some rely on total service 
resale. Consumers have a choice of at least two local carriers in 67 
percent of the Nation's zip codes, and about 93 percent of all 
households are located in those zip codes. This data suggests that we 
are headed in the right direction competitively but the incumbent LECs' 
market strength requires continued regulatory intervention.
    Broadband services also have continued their ascension and have 
become increasingly competitive. There are now more than 16 million 
high-speed lines in service, including more than 14 million to 
residential and small business subscribers. Cable modem and DSL 
providers both increased their penetration by about 30-percent in the 
first half of 2002 alone. Perhaps most importantly, the gap between 
urban and rural deployment appears to be narrowing. While cable modem 
and DSL providers serve the vast majority of the broadband market 
today, there have been promising developments with respect to wireless 
and satellite technologies. For example, wireless carriers are 
beginning to introduce third-generation data services, Wi-Fi networks 
are becoming increasingly robust and are expanding their range, and 
several companies and joint ventures have announced plans to launch the 
next generation of satellite broadband services in the near future.
II. Economic and Regulatory Challenges
    While these statistics and technological developments in the 
abstract present a positive portrait of the overall competitive 
landscape, the last few years plainly have been a tumultuous time for 
the telecommunications marketplace. 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 began to 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 have left providers with little guidance about the network 
elements that will be available at regulated cost-based rates and have 
put at risk some current business plans that were developed around the 
now-vacated rules.
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 
2002).
---------------------------------------------------------------------------
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 
purpose.
    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 
statute. Therefore, as the Commission considers new unbundling rules, 
my paramount goal is to ensure that, irrespective of my own policy 
preferences, our decisions will comport with the statute and with the 
directives we have received from our reviewing courts.
    The Commission's initial efforts to develop unbundling and 
interconnection policies were largely theoretical, by necessity. We now 
have the benefit of several years of real-world experience under the 
Telecommunications Act of 1996. We therefore have a better 
understanding of which facilities competitors truly need at regulated, 
cost-based prices, and those they can self-provision or obtain at 
market-based rates. The D.C. Circuit Court of Appeals also has 
instructed us to bear in mind that unbundling imposes significant costs 
(it can deter investment in new facilities and impose substantial 
transaction costs) in addition to benefits (stimulating competitive 
entry), and I will attempt to strike an appropriate balance in our 
pending rulemaking.
2. Ensure Swift and Stringent Enforcement
    Another crucial part 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. I have accordingly been a 
strong proponent of addressing gaps in the law and developing a 
coherent regulatory framework for broadband services. 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 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 bundling 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.
    The same principles lead me to support examining our media 
ownership rules to ensure that we are keeping pace with changes in the 
media landscape. 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 
competition.
    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.

    Chairman Hollings. Thank you.
    Commissioner Adelstein?

STATEMENT OF HON. JONATHAN S. ADELSTEIN, COMMISSIONER, FEDERAL 
                   COMMUNICATIONS COMMISSION

    Commissioner Adelstein. Mr. Chairman, Senator McCain, thank 
you for inviting us today to discuss the future of competition 
in the telecommunications industry. It is a real honor to be 
back here before the Senate, and it is nice once again to see 
my friends and colleagues on the staff.
    As you have discussed, the FCC is now carefully considering 
these key issues, and it helps each of us, I think, to hear 
from you and all of the Members of the Committee on these 
pending decisions.
    One of the top priorities of the 1996 Act, an essential 
focus of mine, is to speed the deployment of broadband. The Act 
makes clear we must extend the benefits of the latest 
technologies to all Americans, rural and urban, including those 
who are economically disadvantaged and those who have 
disabilities. Our entire economy will benefit. If we speed 
broadband deployment, it can help restore telecommunications as 
an engine for economic growth. It can fuel a turnaround, not 
just for the telecommunications sector, which has lost over 
half a million jobs, but for the growth and productivity of the 
entire economy.
    Our international competitiveness is also at stake. 
International security is affected. We must roll out secure 
broadband networks quickly, especially in the face of global 
terrorism.
    For these reasons, our goal must remain to achieve the 
greatest amount of bandwidth for the greatest number of people. 
This hearing focuses on one of the two foundational pillars of 
the Act that drive deployment--competition. Its twin pillar, 
universal service, ensures that service will reach even those 
areas where competition falls short. Congress' goal in building 
the Act upon these twin pillars was to ensure that all 
Americans have access at reasonable and affordable rates to the 
best telecommunications system in the world. And I think we 
have that, and I think it is important that we maintain that 
through the proper policies on the issues that we are 
discussing today.
    Growing up in South Dakota, I have learned the importance 
of including rural America in this equation. The high cost, low 
incomes, schools and libraries, and rural healthcare funds, as 
Senator Rockefeller and Senator Snowe well know, have brought 
telecommunications services to many people who would not 
otherwise have them. Although universal service does not now 
support advanced services, it lays the groundwork that makes it 
possible for consumers to get them.
    We are currently at a crossroads. The telecommunications 
sector faces enormous challenges, as we have heard today. Job 
losses are on the rise, and consumer bills are up, as well, as 
Senator McCain and Senator Lautenberg have noted. And while 
investment is down in the capital markets, there is no money 
available to provide new capital for innovation and for new 
service development.
    In taking steps to restore confidence, we must take care 
not to undermine the competition that has emerged so far. The 
Act envisioned many forms of competition. Facilities-based 
competition may well provide its most durable form. We need to 
encourage it, along with all types of competition that Congress 
anticipated. Both intermodal and intramodal competition could 
provide strong pressures that will drive down prices, improve 
services, and offer consumers more choices.
    As Senator Allen and Senator Boxer have noted in the case 
of Wi-Fi, wireless services offer a dynamic new avenue for 
competition in both broadband and voice communications. We must 
encourage innovation and manage the spectrum more efficiently 
in order to maximize those opportunities. Where competition 
takes hold, the FCC is charged by law with taking the next 
step, deregulation. They are two sides of the same coin. You 
cannot have one without the other.
    The issue before us now is how to determine, as 
specifically as possible, whether the presence of competition 
is sufficient to permit deregulation, as envisioned by the 
Telecommunications Act.
    Once meaningful competition allows the FCC to modify or 
repeal its rules, we cannot walk away from consumers. I 
believe, like Chairman Powell, that enforcement will give the 
FCC the tools it needs to correct wrongs that may occur as a 
result.
    And Congress clearly made the state commissions our 
partners in implementing the Act. Decisions on competition 
policy should reflect Congress' directive that we are to 
achieve its goals with the assistance of state commissions. All 
the FCC's decisions reflect an understanding that Congress 
intended every American to have access to telecommunications 
services and eventually to advanced services at reasonable and 
affordable rates. Congress gave the FCC the tools it needs to 
attain these goals through universal service, competition, and 
subsequent deregulation.
    Again, thank you for inviting me to testify, and I look 
forward to your questions.
    [The prepared statement of Commissioner Adelstein follows:]

    Prepared Statement of Hon. Jonathan S. Adelstein, Commissioner, 
                   Federal Communications Commission
    Mr. Chairman, I thank you and Senator McCain for calling this 
hearing on the future of competition in the telecommunications 
industry. The Federal Communications Commission is now confronting this 
key issue head-on, and it will help all of us to hear from you and all 
the Members of the Senate Commerce Committee as we consider several 
pending decisions.
    One of the top priorities of the Telecommunications Act of 1996 
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 not just for the telecommunications sector, which has seen a 
loss of over half a million jobs, but for 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.
    This hearing focuses 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, and working as a staffer in the Senate, 
I have learned the importance of including rural America in this 
equation. We must fashion policies to help reverse the trend of 
economic decline and population loss facing many rural communities. 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.
    As you know, we are currently engaged in a number of proceedings 
that will have a significant impact on competition. Our General Counsel 
has advised us that open proceedings place constraints on our 
discussions. I can and will nevertheless discuss the context of how I 
understand Congress directed us to implement the law.
    Two proceedings are now occupying much of our efforts. One is the 
Triennial Review that determines which, if any, of the current slate of 
Unbundled Network Elements, or UNE's, the FCC should maintain or remove 
from the current list under the Act's ``necessary and impair'' standard 
as defined by the courts. Another is the proceeding that addresses 
whether the FCC should treat broadband services provided by incumbent 
local exchange carriers as telecommunications services regulated under 
Title II of the Communications Act, or as information services under 
Title I. The disposition of these two items, among others, is critical 
to the mission of implementing the 1996 Act according to Congressional 
mandate.
    We are currently at a crossroads. The telecommunications sector 
faces enormous challenges. Job losses are on the rise, as are 
consumers' bills, while investment is down.
    In taking steps to restore confidence, we must take care not to 
undermine the competition that has emerged so far. The Act envisioned 
many forms of competition, both among traditional wireline and 
intermodal telecommunications services. In the wireline arena, some 
competitors are facilities-based, while others compete through resale 
at negotiated prices, and others through the UNE system under TELRIC 
pricing. Many have argued persuasively that facilities-based 
competition will provide the strongest form of competition that is most 
beneficial to consumers, but we must encourage all types of competition 
Congress anticipated.
    We must also recognize the evolution of competition in the growth 
of intermodal competition, and faithfully implement Congress' 
directives by creating opportunities for both intermodal and intramodal 
competition. Both can provide strong competitive pressures that will 
drive down prices, improve services and offer consumers more choices.
    Wireless services 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.
    Where competition takes hold and becomes stable, the FCC is charged 
with taking the next step: deregulation. They are two sides of the same 
coin. Without one, you cannot have the other. The issue now before us 
is how to determine, as specifically as possible, when the presence of 
competition is sufficient to permit the deregulation envisioned by the 
Act, and how that deregulation should go forward.
    Once the presence of meaningful competition allows the FCC to 
modify or repeal rules and regulations, 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.
    Congress clearly made state commissions our partners in 
implementing the Act. 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.
    The Commission's decisions on these matters should reflect an 
understanding that Congress enacted the Telecommunications Act for the 
good of consumers. Congress intended all Americans, both rural and 
urban, 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.

    Chairman Hollings. Commissioner Copps?

   STATEMENT OF HON. MICHAEL J. COPPS, COMMISSIONER, FEDERAL 
                   COMMUNICATIONS COMMISSION

    Commissioner Copps. Thank you, Mr. Chairman. I am honored 
to be here today. I always appreciate the opportunity to return 
to the Senate, where I spent many years working under the 
leadership of my mentor and my friend, Senator Hollings. And I 
am pleased to note also that I have been privileged to know 
Senator McCain for many years, and I look forward to working 
with him as he reassumes the Chairmanship of this Committee. 
I'm looking forward to working with all of the Members of this 
distinguished group.
    The hearing does take place at the start of what promises 
to be a truly historic year at the Commission, a year that is 
going to determine how these industries look for years to come. 
So this hearing affords me and my colleagues an excellent 
opportunity to obtain the guidance of the Committee as we 
approach decision time.
    On all these issues, I strive first and foremost to 
maintain 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. In 
fact, the public interest is cited more than 110 times in the 
Communications Act.
    My public interest 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, 
whether they live in rural communities, on tribal lands, are 
economically disadvantaged, or are in the disabilities 
communities. Each and every citizen of this great country 
should have access to the wonders of communications. And I 
really do not think it exaggerates much to characterize access 
to communications in this modern age as a civil right.
    Today, having access to broadband is every bit as important 
as access to basic telecommunications services was in the past. 
Broadband, as has been noted here already, has become a key to 
our Nation's systems of education, commerce, jobs and 
entertainment, and, therefore, key to America's future. So I 
want to help make sure all of our citizens have that access.
    I sympathize about concerns of a lack of regulatory clarity 
in this area, but I am not sure whether we are, in fact, 
heading in the direction of providing greater clarity. So far, 
we have raised many more questions than we have answered. It 
could be that we have raised too many questions. In any event, 
our answers had better be good.
    Before we reclassify broadband services, for example, we 
had better understand the potentially far-reaching implications 
of our actions on such issues as rural deployment, universal 
service, and homeland security. We had also better understand 
the impact of our actions on a pillar of the Act, competition. 
Competition has the power to give choices to consumers. And 
with more options, consumers reap the benefits--better 
services, greater innovation, higher technology.
    As competition develops, we can meet another core goal 
established by Congress: deregulation. The 1996 Act is a 
deregulatory statute, but I really do not believe it was 
envisioned as deregulation at one fell swoop. Rather, it was to 
be deregulation over time, as competition took hold. Where 
markets function properly, we can rely more on market forces to 
constrain anticompetitive 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 
deregulated away.
    Managing the transition from monopoly to competition is, 
therefore, a tricky business. Each day, every day, we need to 
be about the job of pursuing Congress' goal of competition and 
consumer choice. First, we must use our current authority to 
reduce the chance that, in a competitive marketplace, corporate 
misdeeds and mismanagement will injure American consumers or 
the competition that Congress sought to promote in 1996. 
Second, we need to gather more and better data to inform 
commission decisionmaking. These efforts should include 
completing our proceedings on performance measurements, and 
they should include better follow-up on what happens in a state 
following a successful application for long distance 
authorization. We have a lot of work to do on that one.
    Third, we must be increasingly focused on enforcement, sure 
and swift and sending a clear message. Fourth, we must have 
concrete plans for protecting the consumers in the event a 
carrier ceases operation or otherwise disrupts service.
    In all of these areas, we must work closely and 
cooperatively with our colleagues on the state level. The path 
to success is not through preemption of the role of the states. 
We rely on state commissions for their efforts to open local 
markets to competition and to evaluate the openness of local 
markets in applications for long distance authorization. 
Similarly, state commissions are often best positioned to make 
the granular fact-intensive determinations about any impairment 
faced by competitors in local markets. The importance of 
federal/state cooperation cannot be overstated, and it would be 
worse than unfortunate if our decisions on the upcoming 
proceedings led to less cooperation with our state partners.
    As we move forward on these decisions, I encourage all 
parties to work together to help us find constructive 
solutions. All too often, the protagonists seem interested only 
in throwing the long ball in the legislative or the regulatory 
arena. But there is no simple panacea for all the ills that 
plague the telecom industries. My take is that everyone needs 
to take a deep breath, avoid kneejerk reactions, and lower the 
decibel level. We need to look for, first, incremental steps 
that can put us on the road to larger solutions.
    In this regard, I was pleased to learn of discussions among 
incumbents and competitors begun at the urging of leading state 
regulators, like Dave Svonda of Michigan. These discussions 
endure after the first couple of sessions, and I understand 
they may even be making some progress. I hope everyone who is 
participating will make a New Year's resolution to keep them 
going. And I think it would be tremendously helpful to hear 
some encouraging messages from the top of the corporate ladder 
where any solutions arrived at by this group will have to be 
blessed.
    Perhaps those in industry who would like to see the 
Commission less involved in their daily affairs would be well 
advised to look for collaborative solutions among themselves 
rather than getting to dug in that agency or congressional 
action becomes the only way out.
    What I have said about the importance of decisions on 
telecom this year applies equally, indeed, more so, to the 
media landscape. The Commission is currently reviewing 
virtually all of its media consolidation rules, and at stake in 
this proceeding are core American values of localism, 
diversity, competition, and maintaining the multiplicity of 
voices and choices that undergird our precious marketplace of 
ideas and that undergirds our democratic system. At stake in 
this vote is how TV, radio, newspapers and the Internet will 
look in the next generation and beyond. And 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 that these issues so clearly merit.
    Suppose for a moment that the Commission votes to remove or 
significantly modify the ownership limits. And suppose just for 
a moment that we made a mistake. How do you put that genie back 
in the bottle? And the short answer is that you cannot. And 
that is why we need, truly need, a national dialogue all across 
America with as many stakeholders as possible taking part in 
the Commission, in Congress, in the media, in the heartland of 
the country.
    So, Members of the Committee, these are some of the major 
issues on our plate this year. I approach these proceedings 
hopeful that the Commission will show proper restraint in 
remaking the communications world and will not presume to 
undercut the statutory competitive framework. We must be at 
pains not to let a zeal to deregulate before meaningful 
competition develops, cripple the very competition that 
Congress sought to engender.
    Thank you again for inviting me to be here and for giving 
me the opportunity of working with you as together we try to 
build a better world for all of our citizens through 
communications.
    [The prepared statement of Commissioner Copps follows:]

      Prepared Statement of Hon. Michael J. Copps, Commissioner, 
                   Federal Communications Commission
    Mr. Chairman, Senators, I am honored to appear before you today. I 
always appreciate the opportunity to return to the Senate where I spent 
many years working with my mentor and friend, Senator Hollings. And I 
am pleased to note also that I have been privileged to know Chairman 
McCain for many years and I look forward to continuing to work with him 
as he reassumes the Chairmanship of this distinguished Committee.
    This is the first time that I have appeared before you as a 
Commissioner of the Federal Communications Commission. I want to thank 
you 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 the utmost seriousness.
    When I appeared before this Committee in 2001 at my confirmation 
hearing, I told you that I was an optimist about the future of telecom 
and about communications technologies generally. A year and a half 
later, tough times though these are, I remain an optimist. It was just 
a couple of years ago that all the analysts were in high orbit 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 some 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 the same will happen here. While no technology will 
ever lay the business cycle to rest--I think we all 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.
    There is another factor at work here. Part of the market's problem 
is uncertainty about policy directions on such things as competition 
and broadband deployment. This hearing takes place at the start of what 
promises to be a truly momentous year at the Commission, going to the 
heart of competition in many industries. In 2002, we teed up issues 
that have the potential to substantially remake the communications 
landscape of America for many years to come. Two thousand two was, in 
many ways, prologue, because voting on the issues comes in 2003. I am 
pleased to participate in this discussion today and obtain the guidance 
of the Committee as we begin this critical year.
    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? It 
is my lodestar.
    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 right.
    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 systems of education, commerce, 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 Congress, and playing a game of regulatory musical chairs by 
moving technologies and services from one statutory definition to 
another.
    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. 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. 
We need to provide carriers with the certainty and stability to 
undertake investment to modernize infrastructure in rural communities.
    We had also better understand the impact on a second pillar of the 
Act--competition. Competition has the power to give choices to 
consumers--choices of services, choices of providers, choices of 
technology, and choices of sources of content. When consumers have more 
options, they reap the benefits--better services, greater innovation, 
higher technology, and more robust discourse.
    We need to talk also about the 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 all 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 goes away.
    As Congress foresaw, we are now seeing competition both within 
delivery platforms and among delivery platforms, with increasing 
convergence of industries, of services, and of markets. Facilitating 
competition both within and across platforms--and both are important in 
the statutory framework--presents a great challenge to a regulatory 
agency like the FCC. Managing the transition from monopoly to 
competition is 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 competition and consumer choice.
    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 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 who watch so zealously 
over the FCC and accord it such minimal deference. 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. I was troubled that the 
Commission recently moved forward with deregulation efforts by allowing 
the sunset of separate affiliate requirements without the benefit of 
such information or analysis. It is only with good data and continued 
vigilance that we can ensure that consumers reap the benefits of 
competition--greater choice, lower prices, and better services.
    Third, 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. Revoking some wrongdoer's license would send a real 
wake-up call to those who seek to misuse the Nation's spectrum.
    Fourth, 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, as we make decisions in our proceedings this 
year, 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. The path to success 
is not through preemption of the role of the states.
    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. Similarly, state commissions are often 
best positioned to make the granular, fact-intensive determinations 
about any impairment faced by competitors in their local markets. The 
importance of federal-state cooperation cannot be overstated. It would 
be worse than unfortunate if our decisions in the upcoming proceedings 
led to less cooperation with our state partners.
    As we move forward at the Commission to consider these decisions, I 
would also encourage parties to work together to help us find 
constructive solutions. All too often, parties seem interested only in 
throwing the long ball in the legislative or the regulatory arena. But 
there is no simple panacea for all the ills that plague the telecom 
industries. My take is that everyone needs to take a deep breath, avoid 
knee-jerk reactions to each others' suggestions, and thereby lower the 
decibel level. We need to look for first small steps. Incremental steps 
that can put us on the road to workable solutions. In this regard, I 
was pleased to learn of some incipient discussions among incumbents and 
competitors that began on the fringes of the recent NARUC Conference in 
Chicago. I congratulate everyone who is taking part in them and those 
who seized this opportunity to get a conversation going. There are 
those who remain skeptical that this process can accomplish anything, 
and they may be right, although their very skepticism only endangers 
those chances more. The discussions endure after the first couple of 
sessions, and I understand that they may even be making some progress. 
I hope all who are participating will make a New Year's resolution to 
keep the dialogue going. It would be helpful to hear some encouraging 
messages from the top of the industries participating in these 
discussions. 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 becomes the only way out.
    Finally, let me mention something that we should not do. We should 
not use the current situation as an excuse to back away from 
competition. This is fundamental. Instead, we must renew our efforts to 
promote competition. 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 and consumer choice.
    It is difficult to over-estimate the importance of the decisions 
that are going to be made on the competition issues. In the coming 
months, we will decide whether to keep, modify, or scrap many of our 
competition rules. Talk about important decisions--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.
    This applies not only to telecommunications, but also to the media 
landscape. The Commission is currently reviewing virtually all of our 
media consolidation rules. 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 percent 
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 springing forth from the well-
springs of America's creative genius rather than from the surveys of 
Madison Avenue advertisers.
    The elimination of 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 30 percent fewer radio station 
owners than there were before 1996. Most local radio markets are now 
oligopolies.
    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 
consolidation?
    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, Senator Hollings, distinguished Members of this 
Committee, these are some of the major issues on our agenda. I approach 
these proceedings hopeful that the Commission will show proper 
restraint and will not presume to undercut the statutory competitive 
framework. Instead, the Commission should use these proceedings to 
understand the marketplace better in our role as policy implementers 
and not policy makers. And we must be at pains not to let a zeal to 
deregulate before meaningful competition develops cripple the very 
competition that Congress sought to engender.
    Thank you for inviting me to appear before you and for the 
privilege of serving as a Commissioner of the FCC during these historic 
times. I look forward to working with each of you as we build a better 
future for all our citizens through communications.

    Chairman Hollings. Well, thank you. And I appreciate the 
admonition that we be more deliberate in the approach to the 
problem.
    I think back in 1976, I was in Beijing in an earthquake, 
and I can hear little Wong running down the hall of that hotel, 
``Be calm, be calm--earthquake.'' For all of us who want 
Chairman Powell to immediately get investment going, jobs 
going, business going, as long as ``Be calm, be calm--war''--as 
long as there's war in imminence, there's not going to be any 
investment in telecommunications or anything else. The market 
shows that. And that is the situation we are in with the entire 
economy.
    And the exercise that is going on now in the Congress is 
political. It is not economic. We ended the fiscal year just 
three and a half months ago at a $428 billion deficit. That is, 
we spent $428 billion more than we took in. We put into the 
economy $428 billion stimulus. And now, in this 3\1/2\ months 
in this fiscal year--October, November, December, and part of 
January--$159 billion. That is $587 billion stimulus in 15 
months, and we still are level and losing more jobs, more 
manufacturing and everything else.
    So, even if you solve the war problem, even if you pass the 
$30 to $40 billion a year--and both sides are arguing they will 
always get together--nothing is going to happen this year with 
respect to a big investment in broadband. I would like to get 
it; you would like to get it. But obviously it does not pay. 
The Bell companies, who have that last line in, and could 
really serve the residences, it does not pay. So there is no 
use to go through an exercise about facility-based operators. 
We had 300 facility based operators in CLECs, and we are down 
to 60. They are broke. Who is going to finance them?
    Otherwise, you have got, yes, cable coming along, because 
it does pay for them to put another service in where they have 
already got a line. So they have got 70 percent of the 
residential. The Bells have got 70 percent of the business, on 
broadband.
    Now, we could change it some maybe with Wi-Fi and some 
combinations. Look at that. Tell us, technically. You folks 
have got the expertise, and you here are the best of experts.
    But what I find is this pellmell race, in order to act like 
you are doing something just when competition starts, and here 
it is, seven years--my own Bell South, they took seven years to 
comply. Now they have complied in the entire region without a 
change in the law, but they delayed us some seven years. When 
John Clendenon told me that December 1995, ``We will be into 
long distance in a few months,'' I checked with him, the last 
wording of the law--I said, ``Now, John, does that suit you?'' 
He was down in Florida already, on vacation in December. You 
and I were up here working. He said, ``Yeah, that is fine. We 
will be into long distance in a few months.'' Now it is seven 
years later.
    So they are in--and the very people that are hollering 
``Parity, parity, let us level the playing field,'' are the 
ones that have got it unlevel. They have still got 88 to 90 
percent of the last line into the home and the business.
    So let us remember here this one question. I am quoting 
from this morning--and I just saw this a minute ago--``For 
years''--this is the editorial--``Bell monopolies push to 
disconnect competition. For years, the law wasn't an issue 
because states let the Bells charge exorbitant fees that kept 
competitors out of their markets. Now that several states are 
ordering them to cut their network fees, competition is 
emerging and phone rates are decreasing. On Monday, AT&T 
announced plans to compete in Washington, D.C., after the local 
government cut the charges for tapping into the network 
operated by Verizon. Nationwide, 11 percent of local phone 
lines were serviced by competitors through last June, nearly 
double their share two years earlier. Faced with the real first 
test to their grip on local service, Verizon and the other 
Bells are crying to the Federal Communications Commission that 
they were forced to rent their networks at a loss. They want to 
go back to the way it was, higher fees for rivals, and less 
choice for consumers. Through a court ordered decision--though 
a court ordered decision won't come for a month, all five FCC 
Commissioners have an opportunity to make clear which side 
they're on when they testify today at the hearing before the 
Senate Commerce Committee.''
    Are you on the side of the higher prices and less 
competition, or not?
    Commissioner Powell. Absolutely not. First of all, I would 
urge that if we are going to submit articles for the record, 
that the opposing view that is in the USA Today article also be 
included, because I think it demonstrates that these are 
legitimate and difficult issues to which responsible people 
have differing viewpoints about the right way to maximize 
consumers.
    I would like to take on what I think for a moment, which is 
the great mythology of what this exercise is really about. I 
think what you should hope from your regulators is that we are 
not sitting around just deciding whose side to join in the way 
that they present the debate and be either Bell- or CLEC-
oriented, either what the Bells want, or those who hate them 
want, in and of themselves. I hope that public policy is clear-
eyed and focused on what the right economic conditions and 
limits of the statute are.
    One thing about that, the Commission must act 
constitutionally, which is it must act faithful to the statute, 
as interpreted by the judiciary.
    I think it bears emphasizing that the UNE-P regime is 
compelled, as much or more, by anything that for seven years 
the Commission has afforded access to all elements, and not 
once yet, not once in that seven years, have those rules been 
in place in a sustainable way. As has been mentioned, they will 
be vacated on February 25th--not just one of the elements; all 
of the elements. For that reason, the Commission's obligation 
is truly pointed and significant, and that is one of the 
reasons we are acting.
    Congress put the impairment standard in the provision to 
ensure--not just as a protection for Bell operating companies 
to not unbundle things they do not want, but as an insurance 
that the kind of competitive entry you would get would be the 
kind that was long term, meaningful, and sustainable, that 
there are some obligations for a long term competitor to bring 
something to the party and that--not just be able to access 
another's network because it would be beneficial or preferable, 
but only because it was really necessary. Two courts now have 
condemned the Commission of failure to give faith to that 
provision.
    I cannot tell you what the outcome of our proceeding will 
be, but I can tell you that it is driven significantly by an 
obligation to read that statute faithfully in a way that the 
courts have interpreted and produce a list of elements, 
including potentially some participation by the states, that is 
faithful to those interpretations.
    It is not about, I think, although the BOCs would love for 
it to be about whether they are losing money or not, or whether 
they are suffering or not--this is also just as much about the 
kind of competition we are going to get or not.
    I have seen a lot of entry in the five years I have served 
in the Commission, and I have seen a lot of bubbles burst. I 
have seen a lot of excitement and euphoria around numbers like 
the Chairman mentioned, 300 entrants--300 entrants who are not 
with us today, who are not with us in part because the 
foundations of the models were flawed, because they were 
unsustainable. And they were not facilities-based providers. 
Many of them were those who took advantage of regulatory 
arbitrage opportunities. Many are not. Many of those that have 
survived bankruptcy and are remaining as viable competitors in 
the market are partially or fully facilities-based. There is 
room for all of it.
    But I do think that the government should be thoughtful 
about what kind of competition it wants to incent in a way that 
is long term and viable, and that we are not sitting here five 
years from now wondering what happened if another bubble were 
to burst. And that is what we are guided by. That is the 
exercise that we are forced to undertake. I think it is 
faithful to the statute, and I think it is as razor-sharp 
focused on promoting competition as any other alternative 
promoted by a company.
    Chairman Hollings. Very good.
    Senator McCain had to be excused.
    Senator Burns?
    Senator Burns. Let us shift gears here a little bit. I 
think it was sort of an historic thing that happened this past 
week. In fact, last month--that came into light at the Consumer 
Electronics meeting out in Las Vegas--but last month, the major 
cable operators and consumers electronic companies reached an 
agreement that will foster the retail availability of digital 
television sets that connect directly to cable systems. 
Consumers will be able to buy plug and play DTV sets that will 
be capable of receiving high-definition programming services 
provided by cable operators without the need of a set-top box. 
The availability of digital plug and play television sets will 
help speed the transition from analog to digital television and 
allow the government to reclaim valuable spectrum for wireless 
3G use. I want to commend both the cable and the consumer 
electronics industry for reaching that agreement.
    This major breakthrough clears an important hurdle in DTV 
transition. I would like to hear your view on this agreement 
and the potential that it has for this transition to move 
forward. Any Commissioner, I ask you all.
    Chairman Powell. Well, let me just state briefly, Senator, 
that we are equally excited about the breakthrough, because I 
think it is a breakthrough. The industry has been struggling 
for many years to try to solve that problem. The Commission has 
been relatively involved in trying to spur that sort of 
negotiation and those sorts of breakthroughs all year long. I 
have personally been deeply invested in it and have had very 
strong support from my colleagues.
    I do think it is significant. I do think it is what 
consumers are waiting for--the understanding that when they buy 
a set at Circuit City, they understand and can have an 
expectation about bringing it home, plugging it into their 
cable system or their other systems, and having it work and 
provide that panoply of programming.
    The Commission acted quickly in response to the 
announcement, and just last week initiated the notice of 
proposed rule-making that would be required to do the 
governmental aspects of possible implementation of that 
agreement. It certainly is one of my priorities. We are working 
to do that as quickly as possible to be another spur in the 
transition.
    Senator Burns. Anyone else want to comment on that?
    Commissioner Copps. Well, I would just say I, too, am 
encouraged by that action. These things do not happen in a 
vacuum. I think we need to commend the Congress for the role it 
took in trying to encourage the players to get together, and I 
think we should commend Chairman Powell for the leadership role 
he has taken to try to get the players together to make this 
happen, too. We are making progress, I think, at long last in 
the digital TV issue.
    And just as an aside, without opening up a whole other 
area, I hope while we are looking at areas like set-top boxes 
and DTV tuners and all of that, that we will afford, and that 
you will afford, some time to look at the public interest 
responsibilities of digital TV broadcasters also, because I 
think that is just critical to the success of the transition.
    Commissioner Adelstein. I, too, share your enthusiasm, 
Senator Burns, and the enthusiasm of our Chairman and 
Commissioner Copps, for the deal that was reached between the 
cable industry and the consumer electronics industry. I think 
it will make it much easier for consumers to be able to just 
plug and play their television sets. They will buy it, they 
will plug and play, and that will really speed along the 
transition.
    I recently saw some of the exciting new products at that 
show you mentioned, the consumer electronics show, and it was 
amazing what is happening with digital television. The 
manufacturers are doing an outstanding job of putting new 
products out, and the price points, I think, are coming down 
dramatically, which is essential if we are going to get the 
transition done. Because if people cannot afford these new 
sets, then we are not going to get to the point where we can 
get the spectrum back.
    The point of this is to maintain free over the air 
television at the same time that we move the transition along 
to the point that we can get the spectrum back from the 
broadcasters, because it is so urgently needed for public 
safety and other uses.
    Commissioner Martin. I agree, as well, with the statements 
my colleagues have made about the importance for consumers that 
they have been able to reach this agreement, and also the 
recommendations. And we all congratulate Chairman Powell. It 
was really at his encouraging of the industry that they were 
able to do that. So I would agree with both those comments.
    Senator Burns. This morning, I think you heard from most of 
the Senators that serve on this Commission some concern about 
whenever we start talking about doing things in Washington, 
D.C., and then circumventing the states' PUCs. What should the 
states' role be in this transition area of competition in the 
local loop? Should the states' role be preempted when it comes 
to implementing the act in local markets? And if pricing is 
decided only by the incumbents, what is the competitor's 
recourse if the price is not based on economic cost? What role 
do the local PUCs play, in your view?
    Chairman Powell. In my view, the states play an 
extraordinarily significant role, and a role provided to them 
by Congress. First of all, with respect to pricing, the 
Congress squarely conferred upon state commissions expressly in 
section 251 and 252, the authority to establish prices for the 
wholesale unbundled network elements. More importantly, states 
also are the sole regulator of retail rates. In many ways, 
state PUCs have their hands on probably the two most 
significant levers with whether competition will work or not: 
that is, the retail revenue and the wholesale revenue 
associated with the economic question. That is a profound and 
significant obligation.
    With respect to unbundling elements and other roles, the 
statute often speaks to them, as well. I think the word 
``preemption'' is being thrown around in this debate incredibly 
lightly without a thoughtful reflection of what the statute 
actually provides. Section 251, in my opinion, clearly confers 
on the FCC authority to make unbundled network determinations. 
But the statute also very specifically says that states are 
permitted, pursuant to their authority, to develop 
interconnection policies, but only if they do not conflict with 
the federal regime or otherwise undermine their impairment.
    So to the extent to that there is a preemptive effect under 
the statute, it is one that Congress has put in the statute 
expressly. And I do not think it is particularly a question 
about whether we reach out to preempt them. I think it is 
always going to be a question of whether a rule that we impose 
pursuant to our obligation, whether or not it is in direct 
conflict with a rule that a state might otherwise impose. And 
Congress concluded that, should that be the case in any given 
instance, the federal rule would be supreme in that context. 
That is clearly laid out in the statute. I do not think that is 
FCC discretionary preemption. I think it is the resolution of 
conflict as provided for by the Act.
    Commissioner Copps. I would see the role of the states as a 
role of full partner, certainly not to be preempted lightly. As 
the Chairman says, occasions may come when there is preemption, 
or where some general standards are set. But, in point of fact, 
what the courts are telling us is, a lot of times, that we do 
not have the granularity of evidence to sustain our rules and 
regulations. That is where we need to turn to the states, 
because they can get that kind of granularity quicker than we 
can.
    I would also say, though, that it is easy to talk about 
more cooperation and full partnership, but it is hard work. You 
have got to reach out and do it every day. You go to the 
meetings, talk to these people, make sure they are involved in 
all the decisions. And I have tried to devote a good bit of my 
time to that, and I think my colleagues have, too. It is an 
important relationship, and it should be a full partnership.
    Commissioner Adelstein. Well, I would agree with that 
sentiment that the states play a key role in this, and the 
local PUCs do an outstanding job of helping the Federal 
Communications Commission to make market-opening determinations 
in their respective states.
    I would note, Senator Burns, that you have an outstanding 
PUC commissioner in Bob Rowe, from Montana, a good friend of 
yours and a good friend of mine, who I think exemplifies the 
kind of commitment and decency and intelligence that can reside 
in the state commissions. And it would be tragic if we did not 
draw upon that kind of experience and knowledge in making these 
kind of determinations about market opening.
    Just a comment on the issue of the conflict that the 
Chairman raised between potentially federal policy and state 
policy. I would note that is in section 251(d)(3) of the act, 
which is entitled ``Preservation of State Authority.'' So we 
need to be very careful in considering this as to whether or 
not we are taking a section that talks about the preservation 
of state authority and using it as a means of, in fact, 
limiting state authority. So these are the kinds of issues that 
we need to debate in front of the Commission.
    Commissioner Abernathy. Senator Burns, I think the one 
point I would add is that this statute was well crafted, as far 
as creating critical roles for both the states and the federal 
regulators. If we do not work together and in tandem, then we 
are lost, because these issues are so terribly complex. So I do 
not envision any preemption in the sense of the FCC reaching 
out and taking away authority from the states. Rather, I am 
going to be guided by the statutory language and the roles that 
are defined there, and work in cooperation with our colleagues, 
because that is the only way that we will be able to deliver 
this vision to the consumers across America.
    Commissioner Martin. The Federal Government and the states 
have worked cooperatively and play a complementary role in 
trying to implement the local provisions--local competition 
provisions of the Telecommunications Act, and I think that the 
courts have challenged us to try to develop a more granular 
analysis, and I think that we should try to take advantage of 
the local PUCs' expertise and experience in this regard. So I 
would forward to continuing to have a cooperative relationship 
with them.
    Senator Burns. Thank you.
    Chairman Hollings. Very good.
    Senator McCain?
    Senator McCain. I want to thank the witnesses.
    Consumers often pay more for cable television than their 
local telephone bill. The Commission recently rejected the 
proposed merger of Echostar and Direct TV. Meanwhile, cable 
rates continue to escalate faster than the rate of inflation.
    In response to the Commission's action, Gene Kimmelman, of 
Consumers Union, stated, ``The merger of the two dominant 
providers of satellite TV naturally raised concerns, but this 
merger could have been structured in a way that actually helped 
consumers by making satellite television a legitimate 
competitor to cable.''
    If a stronger DBS competitor is not permissible, do you see 
any other competitor capable of restraining rates offered by 
cable companies? Are there any policy changes we should be 
considering to addressing rising cable rates?
    Chairman Powell?
    Chairman Powell. First of all, on your point, I understand 
and thoroughly considered the kind of arguments that Mr. 
Kimmelman was making in the context of Echostar. With all due 
respect, in my own personal opinion, I thought the 
anticompetitive effects of the merger far outweighed the 
putative benefits of that, and that was our judgment. It is 
interesting that we often debate----
    Senator McCain. And what is the competitor to cable?
    Chairman Powell. If cable--first of all, our conclusion 
was, DBS is a viable competitor to cable. Both DBS providers 
are a viable competitor to cable. I think the facts will 
indicate, even with price increases, there has been 
disciplining effects of them entering the market.
    I think you are right to be concerned about rising----
    Senator McCain. Where have those disciplining effects 
manifested themselves?
    Chairman Powell. For example, two out of----
    Senator McCain. Not--certainly not in cable rates.
    Chairman Powell.--two out of three new cable subscribers--
two out of three new multi-channel subscribers, choose dish 
over cable. Dish, with its digital packages has driven greater 
investment and innovation in the cable network by forcing cable 
to upgrade systems to digital interactive product, to force 
them to begin to look at cable modem service and invest in 
developing that. I don't want to diminish the rise of cable 
rates, but I think competition often has multiple effects, 
other than just price, and I think there are some of those that 
have been seen.
    I think that the greatest missing piece in competition in 
cable still is the phone company infrastructure. I think it is 
probably the most significant potential out there that has yet 
to be invested in and deployed to be a competitive video 
alternative, but there have been minimal efforts at that. I 
think the video over DSL experimentation out in the Qwest 
territory is the kind of thing that ultimately--not in the 
short term, but ultimately--I think are going to be both 
necessary for those companies' survival, and probably critical 
to continued competitive discipline in cable.
    Senator McCain. Well, a lot of consumers would like to see 
some of those positive effects, Chairman Powell, which they 
have not seen yet. In fact, the cable rates have been rising 
rather than decreasing, despite all of those marvelous 
technological breakthroughs that you have described.
    For all of the witnesses, starting with Chairman Powell, 
the preamble of the 1996 Telecom Act states that its principle 
purpose is to, ``promote competition, reduce regulation in 
order to secure lower prices and higher quality services for 
American telecommunications consumers, encourage the rapid 
deployment of new telecommunications technologies.''
    What statutory changes would you suggest, if any, to help 
accomplish the Act's stated purpose? Beginning with you, 
Chairman Powell.
    Chairman Powell. Well, Senator, I do not know if any 
dramatic changes to the statute are necessary to achieve those 
goals. I do think that the Congress is going to increasingly be 
called upon to understand the new derivations of services that 
are a consequence of technical change and convergence. While I 
am aware, and credit that in 1996 there was a general 
understanding about advanced services, I really do not believe 
that it could have been so prescient to understand the kind of 
technological migrations and conversions we are seeing today. 
And they are straining, almost to a level that cannot be 
contained, the parameters of the statute in some ways.
    The statute still is very Balkanized, that, if you are a 
certain kind of carrier and you put that label on your head, 
that is your regulatory environment. If you are a different 
kind, that is your regulatory environment. Half the fights we 
are having today are over labeling. What classification are we 
going to stick on your forehead? Because the regulatory 
consequences flow from that.
    But increasingly, there will come a day that you will have 
a hard time distinguishing a BOC from a cable company. I think 
there is going to come a day you are going to have a hard time 
distinguishing a wireless provider, what we call today, from a 
telephone company. And I think that we are going to have to ask 
ourselves questions about the competitive dynamic that 
somebody, by virtue of their history or their legacy, is 
treated one way; and by another's history or legacy, treated 
another way.
    So at one point, the Congress considered Title VII in the 
original concept, and it might have been premature in 1996. But 
I do think coming rapidly is a day in which wrestling with the 
question of a converged communication market, it is going to be 
really, really important.
    And I would add, because so many Senators are rightly 
concerned, as we are, about universal service, how the 
universal service mechanisms are going to migrate with 
technology, as well, and what new initialized judgments are we 
going to make about how to continue to promote those goals in 
the most effective way.
    Senator McCain. Mr. Martin?
    Commissioner Martin. In addition to addressing some of the 
issues related to the convergence and harmonization of our 
regulatory regime as it applies to different technologies, I 
have been supportive of the Chairman's call for additional 
enforcement authority, that the Commission would have an 
additional ability to enforce the rules that it does have. So 
that would be the only other change that I would add.
    Senator McCain. What changes are those?
    Commissioner Martin. The ability to increase, actually, the 
Commission's ability to find companies when they were in 
violation of the Commission's rules.
    Senator McCain. Ms. Abernathy?
    Commissioner Abernathy. Thank you. I, too, support increase 
fine and forfeiture authority. I think that enforcement is 
going to become more critical as we move forward in this new 
competitive age.
    And I guess I would look at the issues that we are tackling 
when it comes to broadband regulation and the distinction 
between whether it is a Title I or a Title II service. We are 
making, I think, the right decisions, based on the statute as 
it is written today. But, as pointed out by Chairman Powell, 
the distinctions between what is a broadband versus a wire-line 
service, versus a cable service, are rapidly being eliminated. 
What we are trying to do----
    Senator McCain. I guess I had better restate my question. 
Are there any statutory changes that you feel need to be made 
to the 1996 Telecommunications Act?
    Commissioner Abernathy. Not specifically that I can think 
of.
    Senator McCain. Thank you.
    Mr. Adelstein?
    Commissioner Adelstein. Well, in my many years as a Senate 
staffer, I was much more comfortable making legislative 
recommendations than I am in my current capacity. But I would 
say that I share the view of the others that has been 
expressed, and the Chairman's contention that additional 
enforcement authority is warranted, particularly if we are 
going to move in the direction of deregulation where we are not 
going to have some of the mechanisms in place, the rules in 
place, that if there are violations of the rules that remain, 
there has to be strong enforcement authority. And given the 
vast size of some of the companies that we are overseeing, it 
is very hard to really get their attention with a small 
pinprick of the size of the forfeiture and fine authority that 
we currently have.
    I would also say that it may be appropriate to look at the 
bankruptcy laws, in terms how they function and how the FCC's 
role, vis-a-vis bankruptcies, are, in relation to 
telecommunications companies, which--we have seen a rash of 
bankruptcies, and there are some real questions about how much 
authority we have in working with bankruptcy courts to ensure 
that consumers are protected as bankruptcies occur.
    Senator McCain. Dr. Copps?
    Commissioner Copps. I think my first inclination is always 
to see if there is not something in the current statute that 
can address the problems we have got. I know the statute has 
not delivered the kind of services or results that you or many 
other Senators or a lot of the American people would have liked 
to see. But on the other hand, I do not think it is the 
hundred-yard dash to perfection. It is kind of the long, hard 
contest of application. So I think that is the first recourse. 
So I do not know that I have any suggestions for right this 
second.
    I do think, though, that in the area of media consolidation 
that I talked about earlier, that it could well be that we are 
going to have to make the statute probably clearer there. I 
think some of the suggestions that have been raised here with 
regard to bankruptcy are extremely germane. Convergence was 
mentioned. I think we can deal a bit with that right now, and 
we should go through that exercise and maybe come to Congress 
with some options before we suggest specific changes with 
regard to that.
    And then we have the outstanding question of universal 
service, a lot of debate going back and forth. It is all teed 
up for a decision. Hopefully we can navigate our way through 
that. But if not, then it might be necessary to come to 
Congress and look for further guidance with regard to that.
    Senator McCain. Thank you, Mr. Chairman.
    Chairman Hollings. Thank you.
    I want to thank Senator Brownback and Senator Wyden for 
yielding to Senator Lott, who has an 11:30 meeting.
    Senator Lott?
    Senator Lott. Thank you, Mr. Chairman, and thanks to my 
colleagues for allowing me this time. I just have a couple of 
questions, even though I am sure we could go on for quite some 
time with questions.
    On the point that Senator McCain was just making, we want 
to reserve our rights and our responsibilities as a legislative 
body, but we want you to act to interpret what we have done, 
and then we want the states to be involved, too. So you are in 
the position of being criticized if you do act and criticized 
if you do not act sometimes, and I know you are in a difficult 
position. But this is a critical area, and I think you are 
going to have to step up to some of these decisions, which the 
law requires, and now the courts are requiring. So I know it 
will not be easy, but good luck as you face some of these 
decisions you are coming up to.
    But I also think that the point that Senator McCain was 
making is a critical one. As we move forward, I think we, as a 
Congress, and you, as the regulatory body, should work together 
and think seriously about, do we need to, and the last time I 
used this word, it caused some consternation because different 
people interpreted what I said way beyond what I meant--we may 
need to ``tweak'' the law some. And that is not to say that we 
tilt it one way or the other, but it was--we passed it in 1996. 
My goodness, the world has changed so much in this area.
    And so I hope that you will seriously think about that and 
maybe be prepared to talk with us, either privately or in 
subsequent hearings, about what we might need to do in the 
future to review the law.
    And in that question, Chairman Powell, and maybe some of 
the others would want to respond, the basic question is, is the 
1996 Act working to increase new local and long distance 
competition and provide lower rates, or not?
    Chairman Powell. I think it is working, but it is not 
working in an optimal way. I think that it is working to bring 
entrepreneurial activity. It is working to induce competitive 
alternatives. As I think Senator McCain mentioned, and I would 
say it is true of local rates, too, we have not seen 
significant price-disciplining effects as a consequence of the 
activity across the board, which is one of the goals in the 
preamble.
    I think that we have--if you are talking about reduction of 
regulation being one of the roles, I mean, I think we are still 
pretty much in the midstream of really having ballooning 
regulations in order to continue to deal with the permutations 
going on in the market, rather than a reduction.
    For all the talk of us deregulating and some accusations 
that it is reckless, I will assure there will be hundreds of 
pages of rules that come out of any decision we reach in the 
next few weeks to oversee the decision. I would take issue that 
there is anything going to be radically deregulatory about some 
of the things that we do under the statute.
    But more importantly, I think that innovation and 
investment are important. I mean, I think it easy to say, 
``Let's mechanically apply the statute, and that does not 
matter,'' but it does matter because of this migration point 
that I am trying to emphasize, which is, the whole country has 
to move from its matured analog infrastructure to advanced 
digital infrastructure if this country is going to go into the 
next century of communications, period. I feel very strongly 
about it. This is about moving the old to the new.
    Yes, incrementalism has its place, but so does boldness, 
when it is called for. And I think that this country will find 
itself at a competitive disadvantage, not delivering the kinds 
of advanced services to its citizens, if it does not work on 
the kinds of economics, stimulus of investment, regulatory 
environment that promotes rather than retards that kind of 
activity. Wireless is a perfect example.
    I will leave it at that. I can make several proposed 
legislative recommendations about things that I think we are 
going to have to do to make spectrum reach its full potential, 
which we are beginning to see lately in things like Wi-Fi.
    Commissioner Copps. Could I just----
    Senator Lott. Anybody want to add to that?
    Dr. Copps?
    Commissioner Copps. I'd just comment briefly, if I could.
    A perfect act? No, of course not. But perfect flop? I do 
not think so either. And I think one thing we need to keep in 
mind is, we have got to give this some time to work. We have 
spent an awful lot of time in the courts since 1996 in 
litigation. We have been through ups and downs in the economy 
that were wrenching for the industry. And we have been in a 
rule and regulatory writing process. And all of these things, I 
think, make a final judgment on this Act--history's final 
judgment--very, very difficult.
    I do not think there is any question that the Act has 
spurred competition in wireless, in broadband, with the CLECs. 
It is a deregulatory act. But, again, it is how you interpret 
that. I interpret it as an incrementally deregulatory act. I 
think coming in to change the act at--every time there is a 
change is wrong. I think many of these technologies that we are 
looking at right now, the new technologies that are going to 
save us, are in themselves transitional technologies. They are 
going to change in a few years. So we cannot just always be 
changing every chapter of the law to accommodate transitory 
technologies.
    I think the Act did create a new federal-state balance, 
which was good. I think it recognized convergence, and it made 
a strong statement on behalf of universal service.
    All of that being said, I do not think my personal view of 
what the Act is or how successful it was is really very 
important. My job is to implement the Act as it is written.
    Senator Lott. Let me ask Mr. Martin this question. As we 
look at revising the spectrum policy, what are your views on 
the best way to ensure that this valuable asset can be used 
most effectively to provide new and expanded communications 
options for rural areas, like in my State or Maine or Montana 
or North Dakota?
    Commissioner Martin. Well, certainly the changes in 
technologies that are occurring are allowing us to adopt rules 
that are more flexible and allow technologies actually to take 
more advantage of different pieces of the spectrum, higher 
frequencies, and potentially allow us to take much advantage of 
the--and a much more efficient use of spectrum going forward. 
So I think that that is one thing that I think the Commission, 
in its rules, makes sure it takes into account.
    And I also think that the Commission should be trying to 
set forth clear spectrum decisions as it relates to 
interference and trying to establish a more definitive 
statement about what levels of interference are actually 
allowed. I know that's one of the things the Spectrum Policy 
Task Force had tried to address, and I think that that would 
probably be something that would be helpful for us to encourage 
the more efficient use of spectrum going forward.
    Senator Lott. Quickly, one last question. And Mr. 
Adelstein, maybe I could ask you to respond to this one. One of 
the issues that we have dealt with in the past and that you are 
going to be dealing with is this media ownership review 
question. And I wonder what your views are on the impact that 
these changes in rules would have on individual stations in 
communities, especially regarding coverage of local news. 
Because I really am concerned that if we go about this the 
wrong way, we are going to have a further deterioration of that 
local involvement in the local coverage.
    Commissioner Adelstein. That is an excellent question, 
Senator Lott. We are confronting some of the most important 
questions in the history of the Commission on media ownership, 
the largest review we have ever undertaken, and I am aware of 
your longstanding leadership on trying to maintain a diversity 
of voices and to maintain a localism of coverage, which have 
been the hallmarks of the Federal Communications Commission's 
job in maintaining media diversity.
    We have had the court remand to us a number of these rules. 
The D.C. Circuit Court has found that the FCC has not 
adequately justified those rules. And I would have to commend 
the Chairman for undertaking a series of studies to try to 
determine what the proper evidentiary basis is for these rules 
so they can be sustained in court. I think we need to continue 
that analysis. We need to reach out to Americans and to hear 
what they have to say in the--in every part of the country 
about these rules, because it will affect every American very 
profoundly.
    The Congress required us to do, in a biennial review, to 
review all of these rules to determine if they continue to be, 
in the words of the Telecommunications Act, ``necessary in the 
public interest.'' And in doing that, I think we need to stick 
to the traditional FCC hallmarks of diversity of voices, 
localism, and competition in the media, and that will preserve 
a free marketplace of ideas and the free flow of ideas in this 
country.
    Senator Lott. Ms. Abernathy, would you like to add anything 
to that?
    Commissioner Abernathy. I think the only thing that I would 
add is that we are acutely aware of how important our review of 
the media ownership rules are. That is why we have got hearings 
scheduled. That is why we have had over 2,000 comments. We have 
released six consumer oriented studies, six market based 
studies. What we are focused on is ensuring that we develop a 
record with data that will support whatever limits we 
ultimately decide are appropriate in order to preserve 
diversity, localism, and competition.
    Senator Lott. Thank you, Mr. Chairman.
    Chairman Hollings. Very good.
    Senator Brownback?
    Senator Brownback. Thank you very much.
    I want to express my support for the reform-minded comments 
and thoughts that I have heard put forward here that seem to me 
to be based on market realities. It seems to me you are looking 
to move forward in a reform-minded way, based on market 
realities, the reforms I am hearing the sentiments put forward 
about. I want to express my support for that.
    Chairman Powell, when you talked about the Balkanization of 
the actual law itself and putting different labels on people's 
heads, and that determined the level of regulation, I would 
hope that as you wrestle with that issue you would not regulate 
up one group to say, OK, ``Well, let's regulate this to try to 
level the playing field,'' but rather we would regulate down to 
try to create more of an open atmosphere for people as those 
thoughts come forward. It just looks like, to me, you could go 
either way, or you could do nothing with it, as well. But if we 
have got that sort of system and if we can't get it changed 
statutorily, you have got some parameters to be able to allow 
that competition to take place, very much on an awareness of 
what is happening in the market. You can move a lot faster and 
better than we can here in moving a bill through Congress or 
any sort of changes that we might try to make.
    I do want to note something that came up in a number of 
comments, that there were a lot of my colleagues and people 
interested in Wi-Fi as a way of being able to move forward 
making Broadband available through the use of a particular 
technology. But is it not true that Wi-Fi requires wire-line 
broadband connection in order to connect to the high-speed 
Internet? Is that not going to be required to make that 
technology work?
    Chairman Powell. Yes, the way the technology is currently 
configured and deployed. Right now the leading standards of 
802.11a, b, and g, in its various versions, have a limit in 
their range--at best, 300 feet on an 802.11b network. At some 
point, it has to be connected to the Internet. Whether 
theoretically--and I think you will see this at some point, 
that you begin to backhaul wirelessly, those will either come 
from more robust wireless technologies or you will begin to 
find clever ways to knit these networks together. If you were 
to go to New York City today in Bryant Park in Manhattan, you 
would find the entire park wired with Wi-Fi by integrating 
various wireless access points together so that you basically 
have seamless coverage of the whole area.
    Yes, somewhere, ultimately, there is probably a big, fat 
pipe that plugs that into the Internet, but the key is how far 
away from the consumer can that ultimately be? I think we reach 
a magic point if that point can be farther than the traditional 
last mile, meaning I can get my Wi-Fi connection and my 
Internet service past, say, the phone company's last-mile 
copper line or past the cable's last. If I can then do that, I 
am getting into the backbone where I have a whole host of 
additional competition and providers to access to.
    So, yes, under current technology. But I think one of the 
things that people are very, very excited about is, at least to 
some degree, it holds out the potential of connecting up with 
other kinds of platforms for more robust service.
    Senator Brownback. Which is all good. It just--you know at 
the present time----
    Chairman Powell. Right.
    Senator Brownback.--if we are excited about this 
technology, and I think we should be, and it is right to be, 
you have got to hook into this big, fat pipe. And right now, a 
consumer using Wi-Fi still has to get within 300 feet of a big, 
fat pipe.
    Chairman Powell. That is right.
    Senator Brownback. And so if you are in your home or your 
business, you have got to be within 300 feet of that big, big 
connection somewhere to be able to make this work.
    I think it is good to be excited about it. I think it also, 
though, points out the need to be able to get those pipes, that 
final last mile, into people's homes and into their businesses, 
and that is something we have been wrestling with for some 
period of time and maybe, hopefully, we will be able to get 
some of that resolved this year.
    I want to ask, just briefly, of Commissioners Copps and 
Adelstein and maybe others, as well, I noted in my opening 
statement to you about all the studies that have been taking 
place on the impacts of the entertainment--and particularly of 
violence--and on children and the longstanding regulations that 
have existed in the FCC in this particular area. Is the 
Commission, or are you as Commissioners, interested and 
committed to pressing on this area now that we have such a 
quantity of medical data and studies that are showing the 
impact in this particular area? Have you considered it, and 
will you commit to redoubling your efforts to focus on this 
area?
    Commissioner Copps. Well, speaking for myself, I am 
tremendously interested, and I appreciate very much the 
leadership you have shown on the issue. I do not think we are 
doing an adequate job in dealing with the issue of indecency. 
Every day, I hear from dozens, hundreds, sometimes thousands of 
people who are put off by the kind of programming their 
children are being forced to watch, whether it's excessive 
sexual content or excessive violence on the airwaves. I think, 
personally, and I have suggested recently, that if we are not 
doing a good enough job in dealing with indecency and we are 
not enforcing it, maybe we need to look again at our Commission 
definition of indecency. And when we do so, I have specifically 
said, I think we should deal with the subject of violence on 
television. It is not easy to deal with; it is merely necessary 
to deal with it.
    I think as good a case can be made for violence as 
obscenity, or violence as indecency as can be made for 
excessively graphic sexual content. So I think you are onto 
something that is important not only to me and to the Congress, 
but I think it is important to the American people. I think we 
need to do something about it. I think they want us to do 
something about it. And you certainly have my commitment, and I 
am going to do everything I can to move the ball forward on 
that.
    Senator Brownback. I want to support that sentiment. And 
again--in yesterday's USA Today front-page story about the 
level of violence now at the kindergarten level, saying that it 
is just backing down more and more within the system. And I 
would urge you, as well, to focus on violence first. I think 
the data--the medical data--is the strongest and the most 
thorough there.
    Commissioner Adelstein. Well, I would applaud those 
sentiments that were expressed by Commissioner Copps. He has 
done an outstanding job of showing real leadership on this 
issue. And I might add that, Senator Brownback, you've also had 
a long legacy of leadership on this issue. And I have learned 
from it personally.
    I recall that at our--my confirmation, that you raised to 
me a study on violence and the effect of violence on 
television, excessive violence, on children, that children do 
not have a filter to be able to keep that out. It goes right 
through to the very base of their brain in a way that adults 
have filters that are able to keep that out. And so it could 
have damaging impacts on our children beyond what we could 
possibly imagine.
    And as a new father--I have a child who is nearly two years 
old at home--it was particularly profound for me to recognize 
that problem, and now I am extremely careful about watching 
what it is that he sees on television. And I am very concerned 
about it.
    You know, we see some of the best programming on television 
these days, and some of the worst, and we need to try to uphold 
the law. The law requires that we prevent indecency over our 
airwaves, and the court has upheld that during hours when 
children watch. And we need to enforce the law that we have on 
the books. That is our obligation, that is our sworn oath as 
Commissioners of the FCC.
    And one way that we can also help is to do more to promote 
the V-chip. As a--again, as a new father, I am trying to 
explore how that works and trying to work with that on my own 
television set, and we need to do more to help consumers know 
about how the V-chip works, and how they can use that to try to 
control what it is that their children see on television.
    Senator Brownback. I thank you.
    Commissioner Copps. Senator, may I add one more comment to 
that?
    Senator Brownback. Yes, please.
    Commissioner Copps. I know in the great communications 
world, everything is connected. Senator McCain was talking 
about cable rates. You have to look at that in a wide context, 
and I think as we deal with media consolidation and industry 
consolidation, we have to look at that.
    The same thing applies here when we are talking about 
indecency. Is it--and violence on TV--is it simple coincidence 
that we have a rising tide of indecency, and a rising tide of 
violence on the airwaves at the same time that we are 
experiencing rather a heavy dose of consolidation? I do not 
have the easy answer for that question, but I think it is a 
question that we surely should answer before we move to final 
decisions on some of these consolidation issues.
    Chairman Hollings. Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman. I will begin with 
you, Chairman Powell, but I would like other Commission Members 
involved in this as well, and that is the question of media 
concentration. Today there are five companies that drive 
broadcasting in America--Disney, News Corp, Viacom, Clear 
Channel, and AOL Time Warner. And the Commission is looking at 
relaxing a number of rules on media concentration, and it seems 
to me that there is a very real possibility that what the 
Commission is going to do is shift policies so that basically 
one company could own everything in town. One company could own 
the paper and several TVs and the radios and the Internet 
network and essentially the whole ball game. And I would like 
to hear how a sky-is-the-limit policy is going to help the 
consumer, because I think that today's telecommunications 
policy has got to be seen through a consumer prism.
    And why don't we start with you, Mr. Chairman, and I would 
like to engage the other Members of the Commission, as well, 
because I think this is going to say a whole lot about what 
communication is going to look like for our kids and our 
grandkids. And with five rules on the line this spring, we need 
to know where the Commission stands on media concentration.
    If we could begin with you, Mr. Chairman.
    Chairman Powell. I think it is an excellent question and 
worthy of debate. The first thing that I would say is a little 
bit on the premise, which is, candidly, I do not believe 
anything coming out of the Commission's decision is going to 
result in the ability for one person to own everything. I think 
that is a straw man. It is not----
    Senator Wyden. I am talking about one company essentially 
owning everything in town. You will oppose a policy like that?
    Chairman Powell. First of all, you would have to believe a 
policy like that would be--one, be able to pass the muster of 
an antitrust division review; two, whether that would be able 
to pass the muster of a market transaction review in a public 
interest standard at the Commission. But we do not know what 
the outcomes of the rules are yet. It is important to note that 
that is an ongoing deliberation.
    I am skeptical, however, that some of the more melodramatic 
versions of what is likely to come out of the Commission are 
actually an accurate reflection of the way the majority of the 
Commission thinks about that. You have me at a disadvantage, 
because I cannot tell you what the rules will be, or not.
    I would emphasize we are reviewing them, mostly because 
this body told us we had to, that we had to every two years, 
and that we had to justify them. Whether regrettable or not, 
the court has interpreted that provision to require us to prove 
that they have the benefits we assert in order to justify them. 
And if we do not, the court has said that it will vacate them, 
and, indeed, has vacated a number of them. Of the last four 
major media cases in court, we lost all four, either on 
constitutional, arbitrary and capricious grounds.
    So I think what we are doing is, number one, a response to 
your mandate to go through the biennial review and look at the 
rules in the context of the modern marketplace. I do not think 
anything we have suggested diminishes the importance of the 
values of diversity, localism, and viewpoint variety. I have 
never suggested that those are less critical values in the 
modern American media marketplace than they have ever been. The 
question is, what body of rules will most promote those 
objectives and pass judicial scrutiny and be faithful to your 
biennial review provision.
    And I would leave you only with the one point. Most of our 
rules are 30 to 40 years old. That is not to say that they are 
outdated in and of themselves, in terms of what they are trying 
to achieve. But the candid truth is, they are somewhat 
incoherent as matched against the actual media marketplace.
    Forty years ago, there was not even cable television, yet 
85 percent of Americans today get their news information and 
media from cable. The court looks at us and says, ``How can you 
just write that out of your consideration of ownership 
limits?'' And I think the Commission has to come up with a 
coherent way to look at the marketplace, an empirical 
justification for its rules. And whatever it can do in that 
context, it will do.
    Senator Wyden. Are you at all troubled by the fact that 
Clear Channel went from 40 stations to 1,240 stations in just a 
few years?
    Chairman Powell. Candidly, I am troubled, and I think that 
is a consequence of statutory deregulation. We are often 
criticized as the institution that did that. Much of that 
deregulation is a consequence of the section of the statute.
    I would also note, though, that I could demonstrate our 
concern, even though this was a principal focus of the two 
previous Commissions. The Commission, under my leadership, has 
moved to block a number of radio transactions, and previous 
Commissions never moved to block a single one. I was a 
Commissioner before for three years. There was never a single 
radio merger designated for hearing. Presently, under our 
leadership, there are a number of them currently in hearing.
    I am concerned about the concentration, particularly in 
radio, and I think that we are not constructing a regime that 
will not provide a meaningful filter for undue concentration.
    Senator Wyden. How do you do the proceeding involving these 
five regulations so as to produce a different regime? I mean, 
what you have said, frankly, encourages me. I came here, as 
always, with the greatest respect for you, but very troubled by 
where the Commission is headed. You have told me, ``Don't sweat 
it. We're not going to go out there and take the brakes off 
everything.'' I would like to have you amplify a little bit----
    Chairman Powell. Well, I would----
    Senator Wyden.--just on your thoughts about----
    Chairman Powell. I would be happy----
    Senator Wyden.--a new regime.
    Chairman Powell. I would be disingenuous if I would say 
that when we are done, you will love everything we did, but I 
will say that I do think that is the characterization of our 
activity, not the one that is popular in the newspapers about 
rabid deregulation of the media industry.
    What do I think? I think that we have to start looking at 
the media marketplace through the eyes and ears of consumers. 
We talk a lot about consumers. Part of what the empirical study 
is designed to do is to try to put substance on how consumers 
actually access information, as opposed to seeing them through 
the historical battles of broadcasters versus cable guys versus 
satellite guys, that I think presents a very warped perception 
of the way consumers actually access media.
    If, for example, cable is a significant medium by which 
consumers actually watch television, I think we have to include 
that in the base of how we determine media viewpoints and 
concentration. So I think we have to have a broader view of 
what constitutes the media marketplace.
    I also think that we need to be more calibrated. That is, a 
couple of our rules, in my opinion, are three-cushion shots to 
a problem, that when you get through going through the 
gyrations of trying to stop, you realize there is a better way 
you could do that much more directly and much more simply. A 
lot of times, for example, the strongest arguments about the 
national ownership limit are about really trying to preserve 
localism. In many ways, I often wonder, well, then why do we 
not specifically focus on the rules about what you can own 
locally, rather than trying to do it through a number of three-
cushion shots to the problem? So that is another thing we are 
looking at. We are looking at whether there is a more direct, 
cleaner, sustainable way to do the same thing.
    And I would submit if--this is another area where I feel a 
profound obligation, because these things have constitutional 
import. Whether we like the media companies or not, we are 
being measured against a First Amendment standard.
    If I really did not care about media ownership, I would do 
nothing, and let--the courts will vacate every last rule before 
I am done. That is where we are headed at the moment.
    Senator Wyden. Could we just get the other Commission 
Members on the record, Mr. Chairman, on this? I think this 
media concentration issue is so critical, I would just like to 
hear from the other Commission Members.
    Commissioner Copps. Senator, I am not going to tell you, 
``Don't sweat it.'' I hope you will sweat it.
    Senator Wyden. I will tell you, Chairman Powell has told me 
that he does not want to see one company call the shots in a 
given town, but I am still very troubled about the prospects of 
where we are headed, and that is why I would like you all on 
the record.
    Commissioner Copps. Well, I do not think we are being 
melodramatic in saying that some of the changes that have been 
suggested for our consideration, although we do not have an 
item on this yet, obviously, can fundamentally remake the media 
communications landscape. And that is pretty important, I 
think, to every American citizen. It goes to the kind of 
entertainment you get, to the homogenization of programming 
that we have seen, and the debates with the music lists, and 
how do you get--if you are a creative artist in a town or a 
region, how do you get your music played in an era of 
consolidation? And the short answer some have suggested is that 
it is becoming increasingly difficult.
    It goes to the whole nature of our democratic process, 
sustaining that marketplace of ideas. And it is not--obviously, 
if we are going to do away with these rules--the Chairman says 
we are not going to do away with them, but if you do away with 
something like newspaper cross-ownerships, newspaper/broadcast 
cross-ownership, you do create some pretty far-reaching 
ownership opportunities in that particular locality.
    But even if you do not go that far, if you are going to 
increase the caps by 5 percent or 10 percent or 15 percent, is 
that minor or is that major? We do not know. We have not teed 
that up for consideration yet. I think it is a pretty major 
question. It could be that that 10 percent can fundamentally 
remake what is going on in a town in your state.
    So it goes to the fundamentals, and that is why I said I am 
so committed to trying to energize and to spark a national 
debate. This should not be an inside-the-Beltway issue, because 
it goes to the rights of every citizen of this country on the 
kind of entertainment they and their kids are going to have, 
the kind of democratic dialogue, the openness to ideas that 
they are going to have. There is nothing as important as this 
in our agenda. And as I say, I hope--I hope you and your 
colleagues will sweat it, because it is important.
    Senator Wyden. Other Commission Members?
    Commissioner Martin. I agree with the concerns that have 
been raised about the level of media concentration that has 
occurred in some sectors, and that could occur. And I think we 
do need to be cognizant of the importance of localism and 
diversity and maintaining those core principles or core values 
the Commission has tried to foster in our media ownership rules 
in the past.
    That being said, I do think we need to respond to the 
court's direction that we justify those rules going forward and 
that we take into account the new voices that are out there. 
And I think there is a way to do that and still maintain that 
localism and diversity.
    And finally, I would just say, in response to some of your 
concerns about the radio consolidation, that I think the 
Commission should also be cognizant of unintended consequences 
that could potentially occur with the way our rules interact. 
One of the things that may have occurred in the radio context 
is that the way we define the market may have actually allowed 
for increased consolidation beyond the level which Congress may 
have envisioned when it changed the law in the 
Telecommunications Act. And I think that that may have had some 
consequences, as well, that would allow for relatively small 
markets to be treated as larger markets than they actually are, 
the way we have defined them. And I think that is something 
else that the Commission needs to be aware of as it goes 
forward and considers these rules.
    Senator Wyden. I want to hear from the other 
Commissioners--and my point is, that is a valid concern. But to 
go from 40 stations to 1,240 stations in a few years is why 
this Congress has got to be concerned about it, and we are 
going to go after this every day.
    The other Commissioners, if we could?
    Commissioner Abernathy. Yes, the media concentration 
proceeding is a critical proceeding for us, because, unlike in 
the telecom arena where technology continues to drive products 
and services to consumers--and hopefully we do not mess it up 
too much--I think in the media consolidation area, we have our 
fingers on exactly how we are going to be receiving information 
in the future.
    Having said that, the idea that all of our existing rules, 
as they were written for an entirely different environment, 
that they should not be changed, that they should not be 
adapted to ensure that we promote diversity and localism and 
competition, I think that would also be naive.
    So we are committed to a diverse source of media 
information for consumers. I think our goal is to gather as 
much critical data as possible, assimilate it, understand it, 
understand what is driving the market, and figure out what is 
the best way to achieve diversity and localism and how all of 
the different media interact with each other in delivering 
products and services to consumers.
    Commissioner Adelstein. Senator Wyden, your question goes 
to the very heart of our democracy and how our citizens receive 
information, entertainment, news and local public affairs. I 
cannot imagine a more important issue that we are going to 
undertake as a Commission than this one. I do believe the 
Commission is undertaking it with all the seriousness with 
which it deserves.
    You pointed to the issue of radio consolidation, which is a 
large concern of mine, as well. And as the Chairman pointed 
out, that was a result of the Telecommunications Act of 1996, 
which entirely eliminated the cap on radio ownership that one 
owner could have. Now, if you do not like that, that is like a 
canary in the mine. If that is an outcome that is a concern, 
and it may well be--the canary in the mine was something that 
would warn the miners whether it was safe to go forward or to 
enter in--then the question here is, is it safe for us to go 
forward with this kind of thing in other areas of the media? We 
are looking at cable and television and newspaper-television 
cross-ownership. Do we want to go down that path in those 
areas? We need to make a very careful determination about that.
    Senator Wyden. My time is up, and I am going to be on 
canary alert, folks, because I think this is just about as 
serious as it gets.
    Thank you, Mr. Chairman.
    Chairman Hollings. Senator Dorgan?
    Senator Dorgan. Mr. Chairman, in 1996 we had a debate about 
this, and I actually offered an amendment on the floor of the 
Senate that you might remember and--to restore the old 
ownership limits on television stations. I won on a recorded 
vote at about 4:00 in the afternoon. And then, a Senator 
changed his vote in order to allow reconsideration, and then 
dinner occurred, and apparently three to four Senators had an 
epiphany over dinner, changed their votes, and the other side 
won. So we have had a long, tortured history with this issue.
    But I was most interested in my colleague's questions. And 
Chairman Powell, I listened to your answer, a long, thoughtful 
answer, and I don't have the foggiest idea where you come down 
on this, having listened carefully.
    [Laughter.]
    Senator Dorgan. Do you not agree, for example--let me take 
it from the specific to the general--do you not agree, for 
example, that if you had moved last month to Minot, North 
Dakota, and all of the commercial stations in that city are 
owned by one company, that there has been a diminution of 
competition, that it is diminished, that it is not beneficial 
to the consumer to have no competition among the radio 
stations, commercial stations, in Minot? Would you agree with 
that?
    Chairman Powell. I would agree with that, and I would also 
say that that situation specifically that you are referring to, 
which you and I have discussed, is a consequence of the market 
definition that the prior Commission used that Commissioner 
Martin referred to. It is also something that I teed up at the 
proceeding that is currently underway in an effort to fix that.
    Yes, I would agree it is a problem. I think it was 
particularly a problem in that case because of the way the 
market was defined. And that problem, I think we teed up to try 
to address, and----
    Senator Dorgan. And I appreciate that. But I guess the 
reason all of us are sensitive to this is that we read and hear 
the sounds coming from the Commission that they are talking 
about relaxing the ownership rules at a time when what we see 
is massive concentration. And let me just--when you talk about 
additional voices out there, when you add cable to the mix, 
ownership is even more complicated. Ninety percent of the top 
50 cable channels are owned by four companies--Disney, AOL Time 
Warner, Viacom, and News Corp. When you talk about more voices, 
are you talking about more voices by one ventriloquist?
    [Laughter.]
    Senator Dorgan. And is this not a case where, when people 
talk about diversity, there is, in fact, less diversity?
    I guess I am just very concerned about this. I appreciate 
Dr. Copps' work on it. I think all of us ought to be concerned 
when we see this massive concentration occurring, because 
localism in the media is very, very important. When an 
anhydrous ammonia car goes off a track in Minot, North Dakota, 
in the middle of the night, ask yourself who was working at the 
station. Who was working at the radio station? Or was it being 
run through a board 1,500 miles away? You know what I am 
talking about.
    The reason we are asking these questions is because many of 
us are very concerned about concentration, which is the 
antithesis of competition.
    Now, let me--and you may want to respond to that, but let 
me just go to one other point, if I might, on the issue of the 
competition in local exchanges, because that is another issue 
that I mentioned in my opening statement. I mentioned a train 
wreck earlier, and there was a fellow named Joe Connelly who 
actually decided in the early part of this century, the first 
25 or 30 years, that you could make money by staging train 
wrecks. You could actually charge people, and then buy two old 
locomotives and lay a track and have a big train wreck. And he 
made a lot of money. ``Head-on Joe Connelly,'' they called him.
    My concern about a train wreck here--and you are not going 
to--nobody is going to charge to have the American people watch 
this--but if you decide tomorrow or next month or next year 
that this switch will not be available, for example, to local 
competitors because you think there ought to be facilities-
based competition, you will, in my judgment, do dramatic injury 
to those very competitors who I think will be able to move to 
facilities-based competition.
    It did not happen with respect to the long-distance market 
quickly. MCI and Sprint, I believe, were allowed, for a good 
many years, to use the facilities of AT&T, during which 
period--a long period--they were able to become facilities-
based competitors. But my feeling is that we must care a lot 
about this, and that we have less competition than I expected 
six to seven years after we wrote the Act, and I worry very 
much that we will have dramatically less competition if the 
Commission moves forward and removes the capability of having 
competitors come in to use those unbundled facilities.
    So those are two very important areas that I'm very 
concerned about. I like all of you. And let us assert, for the 
record, by unanimous consent, you are all great people.
    [Laughter.]
    Senator Dorgan. But you have an enormous responsibility. 
And if you get it wrong, we are going to have much, much more 
concentration and much less competition, and the American 
consumer, in my judgment, is going to suffer grievous injury.
    So, Chairman Powell, why do you not respond to both of 
those areas?
    Chairman Powell. I will try, in reverse order.
    I think it is important to understand what is and isn't 
available in the local competition. You are right, in the long-
distance competition carriers were able to resale for a very 
long time. Resale is a provision available under the local 
rules as well. Nothing in the unbundled network element 
proceeding addresses, in any way, shape, or form, the 
statutorily provided resale mechanism, which is generally the 
functional equivalent of what long-distance companies used in 
the future.
    The second point I would make is that I have to give faith 
to all parts of the statute that Congress crafted. I have had 
two courts of the United States, the highest in the land, say 
the impairment analysis is a filter. What is important about 
that is that nothing being contemplated by the Commission is 
going to result to absolutely no access to the incumbent's 
network. I will pledge that to you right now. That is not 
possible under the statute. That is not within my view of what 
the right economics are.
    Indeed, in the numbers that I gave in the beginning, a 
substantial number of competitors in the United States, more 
than are using UNE-P, are providing competitive alternatives in 
the United States market without using UNE-P, because you are 
going to be able to get elements to which you would genuinely 
be impaired in order to provide local service. We are talking 
about which pieces and on what terms and conditions.
    When I read the stories that Senator Hollings has referred 
to, some of the articles, I just lose it, shaking my head at 
the drama with which people suggest that contemplated in the 
proceeding is the complete removal of the ability to access the 
incumbent's network and rent them at advance cost. It is just 
simply not----
    Senator Dorgan. But Mr. Powell, the contemplation is the 
removal of the most likely opportunity to be able to provide 
competitive service. That is--I mean, you can talk about the 
mouse at the door, but there is a big lion out there.
    Chairman Powell. I just happen to, respectfully, disagree 
with you, that I do not accept--even though I do not think it 
prejudges where we are, I do not accept that the only likely 
opportunity for meaningful competition in the United States is 
a full UNE-P offering and nothing else.
    Senator Dorgan. No, we are not having that, you are going 
to win a debate we are not having. I am not talking about it 
being the only circumstance. But I am saying the most likely 
circumstance to promote competition is for competitors that are 
non-facilities-based at this stage of their competition to be 
able to--with reasonable pricing, to access those unbundled 
elements.
    And if the issue is pricing--and I have some sensitivity to 
the Bell companies, if this is not priced adequately, let us 
reprice it. Let us have a proceeding on that.
    Chairman Powell. I would repeat my points. Number one, 
resale is always, and continues to be, available under the 
statute, first and foremost. Nobody is going to not have that 
option available to them. A lot of them do not like that it is 
not discounted. On average, resale is discounted 20 percent. On 
average, a carrier like AT&T has said to Wall Street, ``We will 
not enter unless we have 50 percent margins.'' Sure, if TELRIC 
provided a 50 percent margin, that might be preferable, but 
resale is absolutely in the statute and sacrosanct.
    The other thing about the unbundled network elements, there 
will still be unbundled network elements available in these 
markets; but where the impairment standard cannot be satisfied, 
no matter what the mechanism for that is, those certain 
elements will not be. Just to give you an example about 
switching, UNE-P being provided most significantly by the major 
long-distance carriers, each of them have already deployed 
switches in virtually all of the markets that they serve.
    So, I mean, I cannot say what will be the consequence of 
that, but I really do not accept that they--there are no viable 
competitive options without that.
    Senator Dorgan. But no one is asserting that. Let me just--
--
    Chairman Powell. Well, it seems so.
    Senator Dorgan. Well, no, no one's asserting that. But the 
most viable option is an option you may well take away. That is 
the point.
    Let me make--Mr. Chairman, the red light is on, but I would 
make one final point.
    A couple of the Commissioners described circumstances under 
which they alleged there would not be, as a result of their 
proceedings, preemption with respect to state officials. But 
the fact is, the description of what you would do described 
preemption almost exactly, and I guess I am confused about 
that. They claim not to be preempting, but, in fact, the 
description of the precedence that Federal action would take is 
exactly preemption, is it not?
    Chairman Powell. I can only tell you, to the extent there 
is any preemption, it is by operation of this statute, which 
says quite clearly, under section 251, only where decisions are 
in conflict or would undermine the implementation of the 
Federal statute, that the Federal rule governs. That is the 
only preemption I am referring to, the one that the statute 
lays out and commands that I faithfully employ. That is all.
    Senator Dorgan. Is it not by operation and interpretation 
of the statute--and this hearing is about the interpretation of 
the statutes?
    Chairman Powell. I would argue quite forcefully, as an 
attorney, that this aspect of the statute is not ambiguous and 
is relatively clear.
    Chairman Hollings. Senator Snowe?
    Senator Snowe. Thank you, Mr. Chairman.
    I also, too, want to add my voice to the concerns expressed 
about the relaxation of media ownership rules. Now, I know that 
the Commission is undertaking a major review, and I am pleased, 
Chairman Powell, that you have authorized field hearings to be 
conducted. And I know, Dr. Copps, you have been a strong 
proponent of holding those types of field hearings. In fact, I 
would recommend that they be done on a geographic basis across 
the country, because truly this is a critical issue.
    If you are talking about diversity and competition and 
localism, I do not know whether or not, when we are talking 
about the enormous consolidation that has occurred within media 
conglomerates, that it is serving the public interest.
    When you think about the fact that we used to have 1,400 
plus newspapers, and we are now down to 300 independent 
newspapers, or that five major companies own a preponderance of 
the largest stations in the country, newspapers, online 
services, then you really, I think, have to look at this issue 
with a critical eye. So I just want to add my voice of concern 
with respect to that issue.
    In fact, I understand the FCC issued a statement that it 
did not--it released pieces of research which contend that 
diversity is growing in programming and ownership. And 
obviously that has been an issue that has been counted by other 
organizations. And I would be interested to know, given the 
kind of consolidation that has occurred, how, in fact, would 
have diversity been promoted under those circumstances.
    Chairman Powell. Well, again, I would not fix on a 
particular study and act to defend it. I am not the author of 
studies, and I do not know which specifically you are referring 
to. And I also do not defend the absolute proposition that 
somehow concentration equals diversity, or, or I also, equally, 
do not agree that concentration always does not equal 
diversity. In fact, I am always intrigued by this discussion 
with--by reference to history.
    The ``golden age'' of television that I assume was the 
concentration environment that people prefer was dominated by 
three major networks, period. Indeed, some of our studies show 
that in 1960, there were 15 minutes of network news a day 
compared to the--and local news, with 15-minute brief 
productions of that--compared to the multiple hours of it that 
we have today.
    Again, I do not and will not be the one who says that 
concentration is an unqualified good; nor do I accept that 
getting larger is an unqualified bad. One way that I can make 
the second point is to only suggest that one of the things is, 
quality news production happens to be one of the most 
significantly expensive programming endeavors in the United 
States media environment. A lot of times one of the things we 
have seen that has been discouraging is smaller and independent 
stations not being able to meet the costs associated with 
maintaining news departments--reporters, equipment necessary to 
do that. Sometimes when we have allowed combinations, the 
efficiencies associated with it often bring a news organization 
back into being.
    You know, there are a lot of problems with other major 
media outlets. But on the other hand, today the average 
consumer has available to them a multitude of more channels on 
the average television product than at any time in history. Is 
the Outdoor Channel, is the History Channel, is Bravo, is A&E, 
is The Sopranos, is ER, is all of that a negative consequence 
of concentration? I think some of that is the benefits of a 
growing and sophisticated media operation.
    But I am not--and I do not want to be maneuvered into the 
position of trying to argue that concentration is a complete 
good. I happen to be an antitrust lawyer who believes strongly 
it is not. But I also think it is just as indefensible to 
suggest that some of those combinations have not resulted in 
very important benefits for consumers. I would match the media 
environment in the United States to any Western democracy in 
the world for its breadth, depth, and diversity. I certainly do 
not want the British system, the French system, the German 
system. And I think that there is plenty of room to follow 
those cherished values, improve the impact on diversity, not 
let Citizen Kane take over the media, but at the same time be 
responsible about what consumers really see and hear.
    Senator Snowe. Well, what is your timetable, Chairman 
Powell, on this issue?
    Chairman Powell. Senator Snowe, I--the timetable, roughly, 
is the mid to late spring, which we have announced on prior 
occasions, and we can keep you posted on the pace of that 
schedule, but that is generally the operating administrative 
schedule.
    Senator Snowe. And have you received much input on this 
issue at this point? I know you have----
    Chairman Powell. I would argue we have received more input 
than on almost any imaginable issue. At last count, we had 
2,000 comments.
    Senator Snowe. Yes.
    Chairman Powell. And by the way, the vast majority of them 
are comments from individual consumers and not companies and 
organizations and institutions. We have had the good services 
of consumer public-interest groups who have published Web sites 
and documents on how to file comments with the FCC. There has 
been a massive amount of news coverage over the issue.
    So, yes, we have had an extensive amount of input. You can 
always argue we can have more, but we are not limitless in 
resources or limitless in time and ability, and at some point, 
you have to make responsible decisions about the best uses of 
your resources.
    Senator Snowe. Well, I just hope that the trends are not 
ignored. I mean, I think you have to evaluate that very 
carefully and to understand the implications and the 
ramifications of moving considerably in that direction. I mean, 
there is--unquestionably something has changed dramatically, 
and I think we have to evaluate it very closely to understand 
the impact of that trend.
    Concerning the issue of competition, getting back to the 
1996 Act--and obviously it was not the end-all and be-all, and 
we obviously were not soothsayers when it comes to predicting 
the new services.
    One of the issues that was obviously central to that debate 
and crafting that legislation was the idea of mitigating the 
advantages of those who--those companies providing local 
services so that you can invite competition and other companies 
having the ability to enter that market. Have those advantages 
been mitigated over time by the local companies?
    Chairman Powell. Yes. I mean, it is tough to answer 
completely. Meaning, do I think some of them have? Yes, most 
definitely, both probably principally by the regulatory 
oversight obligations of both the 271 process and other 
regulatory proceedings that have helped try to pry open local 
networks. In that sense, there has been some mitigation of the 
advantages.
    But in the marketplace, I mean, I think one of the things 
that is most difficult about the premise of the statute is the 
incentives are somewhat misaligned, which is one of the most 
frustrating things that I confront with a large Bell operating 
company, is they have a thousand ways to Sunday to make it 
difficult. Not all of them are easy to police from one Federal 
agency, or I would even submit from the PUCs across the states. 
One of the reasons we have asked for greater enforcement 
authority is to try to be more effective in that.
    But I do think there is something to be said to trying to 
balance incentives slightly better so that you are not just 
relying exclusively on trying to bring someone to their knees 
who otherwise does not want to submit, that you can find win-
win situations in which the balance of the policies or the 
economics will incent more positive behavior. And I think that 
is one of the things both state and federal commissioners are 
starting to realize and try to work on. It is also one of the 
things I think that underlines questions in the UNE-P 
proceedings. So----
    Senator Snowe. Yes.
    Chairman Powell.--they are still strong. I mean, if you own 
80 or 90 percent of the market and you already have a network 
that is deployed and built, those kinds of advantages, I think, 
as everybody recognizes, are not lightly eroded. And I do not 
think that we are going to do anything that will turn back an 
effort to continue to make inroads.
    Senator Snowe. You mentioned earlier that those who 
survived had been facilities-based, and those who have not did 
not--many who--many of the companies that did not survive were 
not facility-based of the 300 I think you mentioned. So, from 
that standpoint, are you suggesting, then, that those obviously 
who have had that market for a long period of time and have 
been there providing local services have an extraordinary 
advantage?
    Chairman Powell. The incumbent?
    Senator Snowe. Right.
    Chairman Powell. Oh, of course. Of course they have an 
extraordinary advantage. I think certainly Congress recognized 
that when it----
    Senator Snowe. But do you see that correlation between 
those who survived and those who did not? Are you suggesting 
that is the case? It is because they are facility-based 
operations that they had that advantage that you--that others 
could not----
    Chairman Powell. Yes, I would say a word----
    Senator Snowe.--overcome in entering that market?
    Chairman Powell.--I would say a word about that, because I 
think that is an important point. What are the advantages if 
you have some of your own facilities? And, by the way, I have 
not argued that inter-modal is the complete solution, that you 
have to have all your own facilities.
    What are the advantages if you have some? Number one, you 
have the ability to product differentiate and control your 
costs to a much greater degree than if you just resell the 
incumbent's network. A consumer can see the potential of a real 
qualitative distinction. I do not know about you, but I do not 
want to be called and have my dinner interrupted for someone to 
urge me to switch local service when there will not be any 
price advantage, any product differentiation advantage; I am 
just being bothered. I do not think that is the competition we 
hope this effort lands on.
    If you have more control of facilities, you can 
differentiate your products, you can control your costs, you 
have less dependency on this recalcitrant incumbent. I think 
that if everything were to proceed indefinitely with a resale 
model, which I think has advantages as a transitional one, you 
would be committing us forever to have extraordinary regulatory 
effort in the management of that recalcitrant relationship. So 
I think those who have facilities find that that gives them an 
advantage.
    The other thing that gives them an advantage is their 
redundancy. If something goes wrong in the incumbent's network, 
they have a greater robustness to survive. One of the things 
that I saw on September 11th is, when Verizon's facility was 
damaged in New York because of the World Trade Centers, anyone 
completely using their services is equally damaged. The 
redundancy that maybe our new homeland security imperatives 
require would be to try to incent more redundant facility 
deployment in the country.
    And then, finally, I tend to have a focus on facilities, 
because I think that is who equipment suppliers sell to, people 
who buy gear to build networks. Lucent, which I think is a 
national jewel, is lying barely breathing on its bed. This is 
where the research and development is done in this country for 
advanced networks. If we lose that, if we lose the equipment 
suppliers, the people who do the R&D, the former Bell Labs 
organization, I think we're going to be worrying about a lot 
more than even our understandable goals about competition.
    So if you are a facilities provider, you are buying 
something from somebody, and I think that is an advantage. 
Previous Commissions have held that that is what we should be 
trying to drive to. That does not mean flash cut, but it does 
mean to have incentives to push the transition in that 
direction.
    I would conclude by saying I have often heard people talk 
about the anti-competitive powers of an incumbent, and we are 
not supposed to trust them to do the right thing. I take just 
as skeptical an eye about an entrant who promises that they are 
going to move in the direction this country needs, but do not 
want any incentives or obligations or rules to do so, ``Just 
trust us.'' I do not trust them any more than I trust the 
incumbents not to act anticompetitively. I think rules should 
be structured to try to create incentives to move them in that 
positive direction.
    Senator Snowe. Well, just a follow up question. Will you be 
developing criteria that dictate fairness on these elements? I 
mean, I think the question is--it is an issue of fairness, and 
it is leveling the playing field, to be sure. But if you remove 
some elements from the network, how are you--on what basis 
would you be making that decision and determining that will 
affect--either advantage or disadvantage somebody trying to 
enter the market?
    Chairman Powell. It is another way of saying, what meaning 
will we give to the impairment standard? And I think that we 
will probably focus on criteria that try to evaluate, number 
one, sort of, process or physical limitations. If you take the 
loop, for example, it's a pretty tall order to suggest somebody 
can reconstruct the whole loop infrastructure. So, those kinds 
of physical impairments will be important, and process 
impairments.
    The other thing is we will responsibly look at the economic 
realities associated with different kinds of models. There 
could be models that are theoretically positive but 
economically prohibitive, meaning truly prohibitive. No one 
would be able to do that, no one could do that. That might 
constitute impairment. But it will not be enough that it is 
just harder. It will not be enough that it is just marginally 
more expensive.
    These are arguments that the Commission made in its prior 
decisions that the court rejected, which is, it is okay for you 
to try to true-up truly prohibitive increases in cost, but it 
is not okay for you to say, just because it costs something, or 
costs more relative to the regulatory mandated price, that that 
is enough to unbundle an element.
    And so, that is what we have to do, look at that kind of 
economic criteria. And I truly do not know what this Commission 
will decide are the other results of it.
    Senator Snowe. Thank you.
    Chairman Hollings. Senator Fitzgerald?

            STATEMENT OF HON. PETER G. FITZGERALD, 
                   U.S. SENATOR FROM ILLINOIS

    Senator Fitzgerald. Thank you, Mr. Chairman. Members of the 
Commission, thank you all for being here.
    Before I get into telecom, I do want to second Senator 
Brownback's remarks regarding standards over the airwaves 
broadcasts. I have had a lot of complaints in the Chicago area 
about so-called ``shock jocks.'' Some--a radio program being 
directly targeted at young high school kids where there, I have 
even had a group that came in and played to me what sounded 
like incitements to violence. And I guess the Commission has 
been active in fining several of those stations, but apparently 
that has not been enough of a deterrent, at least in my state, 
and sooner or later, somebody is going to cross a line that I 
think the Commission may want to consider pulling the license, 
because I do not think your current regime of fining is really 
having an adequate effect.
    With respect to the subject of this hearing--and I guess I 
would like to start out directing this question to Chairman 
Powell--you said in your opening statement, and you quoted the 
preamble to the Telecom Act, saying that competition is the 
central objective of the Act. And everybody seems to agree on 
that. One of the rules you will apparently be considering in 
your Triennial Review is a request by the Baby Bells to have 
their broadband service reclassified as an information service. 
If that were to happen, Chairman Powell, could the Bells not 
then make the legal argument that they need not unbundle the 
loop used to provide that service? And if that argument were to 
be successful, would that not kill competition in the small 
business market, given that cable companies do not provide 
broadband service for small businesses?
    Chairman Powell. First of all, just a point of 
clarification--that classification question will be in a 
separate proceeding, I just wanted to make clear----
    Senator Fitzgerald. Oh, that is right.
    Chairman Powell.--that that is not the Triennial. Some--
there are broadband questions in the Triennial, but the 
specific one you are interested in----
    The law is tricky and sometimes convoluted here, but I 
would tell you that today the average Internet service provider 
does not have access to unbundled loops. That is not the way 
they are--they are not getting access to their 
telecommunications inputs in that manner. The AOLs of the 
world, the Earthlinks of the world, are buying services out of 
tariffs pursuant to a regime we call ``Computer 1, 2, and 3,'' 
not through unbundling network elements, because the statute is 
very specific that only telecommunications service providers 
are able to get elements in that way. AOL, Earthlink, Microsoft 
Network by no means qualify and do not receive their inputs in 
that manner.
    The question is more carriers that are buying inputs to, in 
essence, turn around and sell wholesale other services to the 
likes of AOL and MSN instead of the BOC, and what they are 
under the terms of the statute. That is one question this will 
answer.
    But I also would like to emphasize that many people 
believe--and I understand the anxiety, but I sincerely, and as 
genuinely as I can represent it, do not agree that Title I 
means there is no ability to reach these kinds of questions. If 
that were true, then the Commission would have never been able 
to regulate cable at all, which has asserted complete 
jurisdiction over them under Title I long before the Congress 
passed the Cable Act of 1984. The very regime that governs 
Internet service access to elements today, Computer 1, 2, and 
3, are rooted in the Commission's Title I authority, not in its 
Title II authority.
    So my view is, one of the things that is being pursued here 
is to try to have as clean a slate as possible to make the 
regulatory judgments about broadband that are unique to it as a 
service, as opposed to inadvertently triggering or bringing the 
whole realm of common carrier regulations to this new and 
emerging medium just by virtue of its definition.
    So information service, if that is what the Commission 
does, I would submit strongly does not automatically mean that 
nobody can get access to it. It does not automatically mean 
that there would not be rules or regulations governing its use, 
but it would mean that the burden was incumbent on the 
Commission to make those decisions----
    Senator Fitzgerald. Well, I am not sure we are on the same 
wavelength here. Pardon the pun. But I am thinking about the 
case where a Baby Bell is providing DSL service in, say, the 
Chicago area, and CLECs are providing a competing DSL service 
using that last loop of the incumbent SBC. If you classify the 
Baby Bells' broadband services, or reclassify them, as 
information service, is it not true that then the Baby Bells 
could make the legal argument that they need not unbundle the 
loop used to provide that service?
    Chairman Powell. It might be, but solely for purposes of 
that service. So the argument would be the CLEC you describe in 
your hypothetical is now the functional equivalent of AOL, and 
it will have access to that element, perhaps, not by the 
unbundling regime, but by a separate regime if or how the 
Commission develops or modifies it.
    Senator Fitzgerald. So if you do this reclassification, you 
still plan to allow for competition in the DSL services for 
small businesses in some other way? Is that----
    Chairman Powell. Well, I cannot yet tell you what the 
answer to the question is of the pending proceeding, but I 
would suggest that the reclassification, in and of itself, does 
not answer the question whether you could still require access 
to that infrastructure. That question is going to be taken on 
in the proceedings----
    Senator Fitzgerald. But will this not--here is what I mean, 
you do that reclassification--you talk in your opening 
statement about capital formation and solving the problem of 
legal uncertainty. Whatever you may say here, or think, I am 
sure that the Baby Bells could hire lawyers who could make the 
argument in court that they no longer have to unbundle the loop 
used to provide those DSL services. And that would bring so 
much legal uncertainty that it would, in my judgment, probably, 
by itself, destroy capital formation in the--for competitors of 
the Baby Bells in providing DSL service.
    Would Dr. Copps care to comment?
    Commissioner Copps. Yes, I would like to comment on that, 
because I think your question goes right to the heart of the 
matter. We have been talking about the necessity for stability 
and predictability and ginning up investment and all that, and 
here we are, I think, creating a lot of uncertainty. I think 
the question that you raised about the RBOC is a legitimate 
question.
    There are many, many others that are involved in this 
reclassification of broadband services at Title I. What is it 
going to do for access for Americans with disabilities, which 
are guaranteed now under Title II? What is going to happen 
under Title I? What about slamming protections? What about rate 
averaging and rate integration? What about universal service? 
What is the impact on the Internet? The questions just go on 
and on. What is the impact on our ability to address homeland 
security?
    We have got to know where we are going on this before we 
jump into that, and I assume we will take our time and get to 
those answers. But it is something that is just fraught with 
tremendous consequences, and I am not attracted to the argument 
that we have got ancillary authority over in the kind of 
regulatory Never-Never Land of Title I, because all we have got 
is questions now. We do not know anything about the willingness 
of this Commission to go in and fill that Title I with 
ancillary protections.
    And I would also point out that ancillary protections are 
kind of sitting ducks for the courts. So there is more 
instability and more time if we do not know where we are going.
    Senator Fitzgerald. Ms. Abernathy?
    Commissioner Abernathy. I guess the one point that I would 
add, Senator, is that I know what the RBOCs might try and 
argue, but my view is that so long as there is an underlying 
telecom service being provided, then you are entitled to the 
loop under unbundled routes under the UNE rates. Now, if after 
providing that telecom service, you then carry data over that 
same loop, I am not going to restrict what is carried over the 
loop, but the criteria, the qualifying factor, for access to 
the loop is, is it a telecom service? And those parties that 
you are talking about provide telecom services to end users, so 
they are entitled to access to the loop.
    Senator Fitzgerald. Well, I think that the different 
answers we got here themselves suggest what kind of legal 
uncertainty could be thrown out there, and I would urge you to 
tread very cautiously here, because a lot of companies have 
gone out, raised a lot of money under what they thought were 
the rules of the game. And if you wind up moving the goal posts 
in the middle of the game, I think that you could inhibit 
capital formation in the telecom area for eons to come. So you 
have got to be very, very careful here.
    And I would also want you to think about extending the time 
for your periodic reviews of your regulations, because 
constantly changing the regulations is something that itself 
must be inhibiting capital formation in the area. Sooner or 
later we have to have rules, and we have to know that they are 
not going to change, for people to have business plans 
developed and so that they can go out and raise capital and 
stick with their business model. But if there is this constant 
uncertainty that when the Commission changes, or when they have 
another rule that they are going to move the goal posts again, 
nobody is going to want to have anything to do with this field. 
And I think that is almost as important a consideration that 
you--it is almost as important that you have fixed rules that 
do not change frequently as that you get the rules right, 
because we may never be able to get the rules exactly right. 
But at a certain point, they have to be firm, and cannot be 
constantly changing.
    Chairman Powell. Senator, if I could just conclude on this 
point. And--I could not agree more, but that is exactly what we 
are doing. The suggestion that we have rules and they are 
stable and everybody is using them and now we are changing them 
belies the reality of what the status of the rules are. For 
seven years now, the rules that we have had have been swamped 
with litigation by virtue of the way the Commission crafted 
them. Right now, those rules are set to expire, set to expire 
by order of the court. We have gone to the courts twice, 
including to the Supreme Court, and been rejected. It is for 
that very reason that I think we have this profound obligation 
to do the unbundled rules today, and to do them in a way that 
we generally, in our very best judgment and that of my 
colleagues, believe will be sustainable in a judicial 
environment to get the very stability that you are suggesting.
    Senator Fitzgerald. Could I make a final comment? I know my 
red light is----
    Chairman Hollings. Yes.
    Senator Fitzgerald. One of the reasons a lot of 
corporations in American choose Delaware corporate law, as 
opposed to, say, Idaho corporate law, is because the rules, the 
court interpretations, are very well established, and almost 
every phrase in the Delaware corporate law has been litigated 
and interpreted, and companies feel that they know what the law 
means and how it is going to be interpreted.
    In the seven years since the Telecom Act has been law, we 
are going through a period where its meaning is being 
interpreted and litigated in the courts. But at a certain 
point, we will reach some stability. If we keep having new 
regulations that invite new litigation over new 
interpretations, this could go on forever. And so I would just 
encourage you to think about what you do very, very carefully.
    And with that, this hearing has gone on an awful long time, 
and so----
    Chairman Hollings. Senator Lautenberg?
    Senator Lautenberg. I agree with the Senator from Illinois 
that this hearing has gone on a long time, and I notice one 
thing here, Mr. Chairman, that the red light here does not mean 
what it means out in the street. Out in the street, it means 
keep going, but go faster. And so--and this, for me, is kind of 
a homecoming and makes me, as I sat here, wish that I had not 
taken a two year sabbatical, and just stuck it out. And I would 
have been next to one of, closer to one of you, and----
    [Laughter.]
    Senator Lautenberg.--and I would have deprived this 
audience of having to sit here all this time.
    Very simply, and--Mr. Powell, I want to commend you for 
your eloquent and thorough testimony, and that of your 
colleagues, as well. It is obvious that you have a lot to think 
about and have--and you and your associates here have put in 
time thinking about some very complicated issues.
    I would like, in this case, not to hold my colleagues too 
long, but to get to a kind of fundamental question that 
bedevils me, and that is that we--with all of the pressure that 
we assume would be on, from a competitive standpoint, that we 
would see an improvement in local phone rates, well, from 1997 
to the current times--no, to 2001--we have seen mobile phone 
rates drop nearly 33 percent, long distance drop 21 percent 
over the same period. Local phone rates, on the other hand, 
have increased nearly 15 percent in this same period. And those 
statistics say to me that we need to do much more to lower 
local phone rates, at least to present the opportunity to lower 
local phone rates.
    Is there a plan in the FCC's agenda to move local rates 
down? And if so, how would you say that we get there?
    Chairman Powell. The one thing I would note, Senator 
Lautenberg, is what is very different in the local market is, 
number one, the local rates are regulated, in contrast to the 
wireless industry and the long-distance industry, number one, 
and they are not regulated by us. Meaning, what the local rates 
are or are not are a consequence of the actions of local State 
utility commissions in setting those rates or permitting those 
rates to be changed. We have little to nothing, directly, to 
say about that process.
    We are a partner, in that we are trying to help create a 
competitive environment that will put pressures on those rates 
and in those markets. But even with competition, those rates 
being moved or modified still require an affirmative decision 
of that regulatory authority, and not just simply a free-
floating market response like we have in those other two 
markets.
    And then the last thing I would commend to you, and I think 
is part of the difficulty here, is that we have two systems at 
play with local rates. One of them is competition, but one of 
them is universal service. And a substantial amount of rates in 
the United States are subsidized by virtue of the universal 
service program, so they are not really reflective that often 
of actual economic costs, but they are reflective of whatever 
subsidy costs are being permitted by the local rate authority. 
It has been one of the things that has been challenging, 
because we care a lot about universal service, but it is very 
difficult to entice an entrant to compete for below-cost 
service and hope the government makes them whole against the 
actual cost of providing that service.
    I can only say that all of that is imbedded in our 
universal service proceeding about subsidies. All that is 
imbedded in our efforts to promote competition. But ultimately, 
at the end of the day, while those rates are still regulated, 
they are principally the province of state commissions.
    Senator Lautenberg. Well, does the Commission not have some 
responsibility to make certain that these marketplaces are more 
competitive? And by--and we see all kinds of actions in the 
courts, as well as before the commissions, appealing for more 
open competition, and it does not seem to be happening. The 
fact is that the operating companies appealed for their higher 
rates based on their need to invest further in infrastructure 
and in new technologies and so forth.
    So are we saying to the public at large that, ``Listen, you 
have got to pay higher rates so that these companies can 
improve their own competitive position,'' or do we have an open 
marketplace where newcomers, or those who can compete 
effectively have an entry point into the market so that we can 
enforce the fact that we really want to see competition for 
these subscribers and for lower rates?
    Chairman Powell. I think the answer is both. I mean, I 
think there is a hybrid here, which is yes. I think there is a 
national commitment to try to open up markets for competition. 
But it still sort of begs the question, because as long as the 
rates are not actually reflective solely of competitive 
dynamics, there is a lot of other reasons in a given set of 
rates why they are what they are.
    For example, many times state commissions, understandably, 
are fighting to have quality improvements in the residual 
network and want or impose obligations on carriers to make 
those investments to improve quality of service. This is going 
on in, for example, the former Ameritech region in an 
aggressive way. A lot of times the carrier says, ``Well, it'll 
cost X, and I don't have that revenue,'' and the state 
commission will agree to rate increases in an effort to provide 
that functionality.
    The other thing is, I think the statute in both certain 
Commission policies that we would all agree are merited have 
been things that have forced us to put additional costs on 
consumer bills. For example, we want local number portability, 
the ability to switch carriers and keep your number. That is a 
charge on your local bill. We wanted the schools and libraries 
program to make available broadband services to consumers. That 
has become a charge on the local bill. E-911 services, 
ubiquitous in the United States, has become a charge on the 
local bill. So while we have had these other pressures, we have 
also had a number of understandable legal mandates that have 
also raised the price of local bills that we just have to 
accept responsibility for as well.
    Senator Lautenberg. Mr. Chairman, I will hold this no 
longer. Thank you very much for the opportunity to appear here 
today.
    Chairman Hollings. Well, of course, the Committee is 
indebted to each of you.
    Let me--Chairman Powell, you testify eloquently about 
facility-based competition here today, yet over the, three to 
four years ago, in the SBC/Ameritech merger, the Commission 
ordered that they enter at least 30 markets outside of its 
region as a facilities-based competitor provider. But nothing 
is really done. Otherwise, when you come to the UNEs that you 
are now about to take certain elements--back in 1999, Chairman 
Kennard was trying to create a national list of UNEs. And I 
quote my authority now, Chairman Powell, ``I disagree sharply 
that we should designate the same elements of the incumbent's 
network for unbundling in every region of the Nation.'' This 
raises such questions as whether regulators with closer 
proximity and more intimate knowledge should take a leading 
role in that analysis.
    Or, again, with respect to just the questions being asked, 
with respect to now calling telecommunications information in 
the broadband proceeding, you say here in the FCC ruling on the 
Echostar/Direct TV merger, and I quote Chairman Powell, ``At 
best, this merger would create a duopoly in areas served by 
cable. At worst, it would create a merger to monopoly in 
unserved areas. Either result would decrease incentives to 
reduce prices, increase the risk of collusion, inevitably 
result in less innovation and fewer benefits to the consumers. 
This is the antithesis of what the public interest demands.''
    Now, that is for video program, but somehow you seem to 
think that is acceptable to the telecommunications market, 
because that is exactly what will happen when you take it out 
of Title II and put it under Title I. Those are the kind of 
things that disturb us here at the Committee.
    If you wanted to comment, I would yield. Otherwise, I know 
that it is the luncheon hour.
    I would officially let the record show that I want to 
thank--is Chairman McCain coming back? I want to thank Chairman 
McCain, because he and his staff have worked with our staff in 
getting you folks together.
    Senator Lautenberg commented on the red light. The truth of 
it is, this has been a wonderful opportunity for each of the 
Commissioners to express themselves, and I hope we can have 
further hearings of this kind, because it has been very 
valuable to all of us. You can tell how maybe misinformed we 
are, misdirected or whatever else, but the Committee is 
indebted to each of you, and we appreciate it very much.
    We will be in recess, subject to the call of Chairman 
McCain.
    [Whereupon, at 12:45 p.m., the hearing was adjourned.]
                            A P P E N D I X

 Response to Written Questions Submitted by Hon. Ernest F. Hollings to 
                         Hon. Michael K. Powell
    Question 1. Chairman Powell, you have expressed a strong interest 
in developing ``facilities-based'' local competition. Wireless carriers 
have invested tens of billions of dollars in spectrum and their own 
extensive facilities. You have identified wireless networks as perhaps 
``the best hope for residential consumers.'' Even with their own 
networks, however, wireless carriers remain dependent on the Bells for 
connections between cell cites and mobile switching centers. Despite 
clear language in the Telecommunications Act, the Bells have sometimes 
refused to provide these interoffice links to wireless carriers as 
unbundled network elements. Given the importance you have placed on 
promoting ``facilities-based'' and inter-modal competition, can we 
expect the Commission to confirm that the Bells must provide these 
links as UNEs to wireless carriers?
    Answer. Wireless carriers constitute significant facilities-based 
competitors in the local telecommunications market today. 
Notwithstanding any difficulties wireless carriers may have had in 
obtaining unbundled network elements (``UNE''), there are now over 140 
million wireless customers nationwide, and of these, an estimated 6.5 
million customers use their wireless phone as their only phone. As to 
the content of the Triennial Review Order, I cannot provide detailed 
information beyond the information already publicly disclosed by the 
Commission in its press release of February 20, 2003. (As a courtesy, 
please find attached a copy of the Commission's February 20, 2003 press 
release, at Appendix 1.) * I can, however, assure you and the Committee 
that the Order will clarify the extent to which wireless carriers may 
obtain unbundled network elements.

    * The information referred to has been retained in Committee files.
---------------------------------------------------------------------------
    Question 2. When the Bells ask the FCC for authority to provide 
long-distance service in a state, they argue that UNE-P based 
competition is facilities-based competition. The Commission has always 
agreed. Why would the Commission now eliminate UNE-P on the grounds 
that it is not facilities-based competition? How can the Commission 
justify relying on UNE-P to give the Bells regulatory relief, only to 
eliminate it as a competitive alternative after it has granted that 
relief? Does the Commission now intend to revisit all of its long 
distance orders and revoke those that relied on UNE-P?
    Answer. As a threshold matter, the Commission did not rely 
exclusively on the availability or use of UNE-P in granting any section 
271 application. Indeed, each of those decisions was consistent with 
the unbundling requirements as they stood on the date each Bell 
Operating Company (``BOC'') filed its application, and each of those 
decisions appropriately found that the BOC had taken the steps 
necessary to open its markets to competition consistent with the 
requirements of section 271. To the extent subsequent interpretations 
of section 251 call into question the Commission's determinations under 
section 271, the Telecommunications Act of 1996 (``1996 Act'') 
provides, under section 271(d)(6), for receipt of complaints from 
parties and notice and hearing to determine whether a BOC continues to 
meet the conditions of section 271.

    Moreover, Congress did not, in the 1996 Act, provide for the 
availability of UNE-P as a separate entry strategy for competitive 
carriers in section 251. As you know, Congress acknowledged three entry 
strategies in section 251: full facilities based entry; no facilities 
entry via resale; and access to unbundled network elements subject to 
the 1996 Act's ``necessary'' and ``impairment'' limiting standards. The 
availability of UNE-P is a consequence of the Commission's, not 
Congress', broad reading of the necessary and impairment standards that 
resulted in the unbundling of nearly every individual element of the 
incumbent's network. As we all well know, however, the Commission's 
interpretation has been vacated by the courts twice (first the Supreme 
Court and most recently by the D.C. Circuit).
    Finally, I would acknowledge that the specific concerns raised in 
your questions are largely moot as a result of the majority's decision 
to delegate the impairment analysis as it relates to switching (a vital 
component of UNE-P) to the states. Accordingly, I do not believe the 
Commission will be required to address the issues raised in your 
questions in the near term.

    Question 3. Competitors generally offer local voice telephone 
service to consumers at prices 10-50 percent less than the Bells. If 
competitors lose the UNE-P or access to critical UNEs and cannot 
continue to offer service at these prices, will the 20 million 
customers served by competitors be able to obtain service from the 
Bells at the same competitive rates they currently enjoy? Moreover, can 
the FCC ensure that millions of potential new customers, in addition to 
the 20 million existing customers mentioned above, have available to 
them similar competitive offerings and discounts?
    Answer. As a general matter, a substantial number of Americans 
benefit daily from facilities-based competitive offerings. Indeed, of 
the price savings you cite in your question, actual marketplace 
experience demonstrates that facilities-based competitors offer the 
most significant competitive benefits for consumers--both as a matter 
of price and innovation. For example, cable companies offering 
facilities-based local voice telephony offer discounts over 50 percent 
to consumers over the Bell offering (see response to Senator Boxer's 
first question for a description of Cox's offering in California). 
Consumers are also benefiting from the innovation that facilities-based 
competition is ushering into the marketplace, such as Internet-capable 
mobile phones or free long distance services in the case of wireless. 
Other facilities-based providers are employing Voice Over Internet 
Protocol (``VoIP'') to compete for the local phone subscriber, offering 
consumers with a broadband connection the ability to choose over 100 
area codes. The result for a consumer living in a separate area code 
than her family is that not only can she save herself money (with a 
cheaper phone plan) but she can save her family money (as family's 
formerly long distance calls to her are now billed as local).

    As I noted above, an estimated 6.5 million customers use their 
wireless phone as their only phone. Moreover, as detailed in the 
Commission's most recent report regarding local telephone competition, 
as of June 2002, competitive local exchange carriers (``CLECs'') 
reported that they provided service to 6.2 million lines over their own 
facilities, meaning that they did not use unbundled switching or loops. 
Accounting for another 7.5 million lines, incumbent local exchange 
carriers (``ILECs'') reported that they provided unbundled access 
without switching to over 4 million end user lines and that almost 3.5 
million end user lines are served via traditional resale--an entry 
mechanism guaranteed to all competitive entrants by Congress. 
Completely separate from these developments, technologies like VoIP are 
gaining subscribers in both the business and residential markets. None 
of these competitors need UNE-P to provide competitive services to end 
users, and, as demonstrated above, consumers are benefiting from lower 
prices, and just as importantly, from new, innovative services and 
applications. Accordingly, the assumption that only the Bell Operating 
Companies (``BOCs'') would be able to provide competitive services if 
competitors did not have access to UNE-P is not borne out by the 
experience of the market.
    Moreover, if access to switching were limited or removed, I believe 
competitors would develop innovative facilities-based strategies 
faster. It is worth noting, though, that switching is only one element. 
At no time has the Commission ever considered a blanket ``termination'' 
of section 251's requirement that ILECs provide unbundled access to 
elements of their networks. The Commission could not terminate this 
requirement consistent with the 1996 Act.
    This is, however, speculative, as the majority of the Commission 
voted to defer to the states to determine whether to continue to make 
UNE-P available. Although I do believe that certain competitors will 
continue to be able to make competitively priced services available 
over their own facilities, they will have to compete with UNE-P based 
competitors who benefit from substantial regulatory subsidies, 
potentially hindering the efforts of facilities-based competitors. 
Thus, although consumers will enjoy some short-term benefit from this 
engineered competition, the long-term benefits of robust, facilities-
based carriers may be damaged.
    Question 4. The D.C. Circuit's decision in USTA v. FCC, remanding 
the Commission's unbundling and line sharing rules, was inconsistent 
with the Supreme Court's holding in Verizon. However, the FCC's pending 
proposals to reduce competitors' access to network elements seem based 
on a similar predicate to the Court's suggestion that competitors using 
UNEs do not offer ``real'' competition to the incumbents.
    Do you believe that UNE-P competition is not real competition?
    If so, why? If not, why would the FCC seek to curtail such 
competition?
    Answer. I do not believe that UNE-P competition is a sustainable 
form of competition and I believe it does not provide nearly as many 
benefits or as much value to consumers as do providers who control at 
least some of their own facilities. Although I believe that UNE-P may 
have limited use as an entry and transitional strategy to facilities-
based alternatives, UNE-P is wholly artificial in that the viability of 
its economics are completely controlled by regulatory micromanagement 
not just of the critical inputs, but of the wholesale prices of those 
inputs. Nothing in our great country's history suggests that such 
government engineered competition is sustainable or brings consumers 
real value. Moreover, unlike UNE-P providers, facilities-based 
competitors (whether full or partial) can provide consumers with 
differentiated products, services and pricing regimes while lessening 
their dependency on their primary competitor, the incumbent, for their 
critical inputs.

    Question 4a. Do you believe, as the FCC stated in its petition for 
rehearing, that the ``limitations that the panel's decision can be read 
to impose have no basis in the statutory text and appear to be 
inconsistent with several provisions of the 1996 Act''?
    Answer. Yes. The court's decision appeared to hold that the 1996 
Act itself severely limited the Commission's discretion as to how to 
conduct its impairment analysis under section 251 of the 1996 Act. It 
was thus proper for the Commission to seek rehearing of the USTA 
decision given that, regardless of the underlying substance, the D.C. 
Circuit's decision can be fairly read to impose a far more restrictive 
standard of review than is warranted under applicable precedent. See 
Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 
(1984). It is a separate question, however, as to whether the 
Commission must apply limiting principles in its unbundling analysis as 
a reasonable exercise of its authority. Indeed, the Supreme Court has 
told us that we must do so. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 
366, 387-90 (1999).

    Question 5. On October 9, 2002, I wrote, along with Congressman 
Markey, to urge the Commission to pursue certiorari of the USTA 
decision referenced in question 4. above. The FCC has since decided not 
to do so. In our letter, we stated ``If you do not plan to pursue 
certiorari, please explain your reasoning in detail including your 
legal justification for such a change in posture.'' Now, almost four 
months later, we have yet to receive a response explaining your 
decision not to pursue cert. in any detail, or setting forth any legal 
justification for the change in Commission posture. Please provide me 
with answers that are responsive to our request made on October 9, 
2002.
    Answer. On September 4, 2002, the U.S. Court of Appeals for the 
District of Columbia Circuit denied the Commission's rehearing request 
concerning United States Telecom Ass'n v. FCC, 290 F.3d 415 (D.C. Cir. 
2002), petition for writ of cert. pending, WorldCom, Inc. v. United 
States Telecom Ass'n, No. 02-858 (filed Dec. 3, 2002). The Commission 
filed its rehearing petition in USTA because we believe that the 
decision denied the Commission the deference and flexibility to which 
it was entitled in making network element unbundling determinations, 
and because that decision is in tension with the reasoning of the 
Supreme Court's analysis upholding our network element pricing rules in 
Verizon Communications Inc. v. FCC, 535 U.S. 467 (2002) and AT&T Corp. 
v. Iowa Utils. Bd., 525 U.S. 366 (1999).
    In December 2002, WorldCom, AT&T and Covad filed a petition for 
certiorari, challenging the USTA decision in the Supreme Court.
    In February 2003, the U.S. Department of Justice, on behalf of both 
the Commission and the United States, filed a brief in response to the 
certiorari petition of WorldCom, AT&T and Covad (attached hereto at 
Appendix 2). * In that brief, the government explained the reasons that 
it had not sought certiorari and why review, at this time, was not 
necessary. First, although noting that USTA was erroneously decided, 
the Government explained that the Commission's ongoing Triennial Review 
would address many of the same issues raised by the court of appeals. 
Second, even before the court's decision, the Commission had determined 
as a matter of discretion to engage in much of the same analysis that 
the court directed, including whether to adopt a more ``granular'' 
approach to unbundling. Third, in light of these circumstances, the 
government concluded that a review of the court of appeal's decision 
would not be an efficient use of judicial or agency resources.

    * The information referred to has been retained in Committee files.
---------------------------------------------------------------------------
    At our January 14, 2003 hearing at which you appeared, Chairman 
Powell stated that the Commission's UNE Triennial Review must include 
as a ``core component'' an analysis of ``the proper role of state 
commissions in the implementation of our unbundling rules.'' 
Commissioner Martin likewise confirmed his belief that the Commission's 
rules should ``allow for state cooperation and input, especially 
regarding highly fact intensive and local determinations'' in 
recognition of the fact that ``[a]ssessments of whether access to a 
[unbundled network] element is necessary to provide service may vary 
significantly among different markets, states and regions.'' 
Commissioner Adelstein characterized the states as ``our partners in 
implementing the Act,'' Commissioner Copps noted that ``[t]he path to 
success is not through preemption of the role of the states.''

    Question 6. How will the Commission ensure that its order in the 
UNE Triennial Review preserves the meaningful participation of the 
states in the development of local competition as Congress intended?
    Answer. I note that the Commission cannot diminish the states' 
broad authority over retail rates for local exchange services and the 
rates charged by incumbents for access to unbundled network elements. 
Nothing in the Triennial Review will alter that authority. Thus, it is 
inaccurate to say that any decision the Commission could make would 
somehow exclude the states from any significant role in implementing 
local competition.
    This is particularly the case with regard to the Triennial Review, 
which focuses on a specific subset of local competition issues: the 
rules under which network elements are to be unbundled by ILECs. 
Congress established the role of the states in section 251(d). Section 
251(d)(2) makes clear that Congress intended the Commission to 
determine what network elements will be unbundled. Section 251(d)(3) 
preserves state access regulations that are consistent with the 1996 
Act's unbundling requirements and that do not substantially prevent the 
implementation of these requirements. It is useful to quote the opinion 
of the Supreme Court in Iowa Utils. Bd. on the role of the states in 
implementing local competition:

        ``[T]he 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 the matters 
        addressed by the 1996 Act, it unquestionably has. The question 
        is whether the state commissions' participation in the 
        administration of the new federal regime is to be guided by 
        federal-agency 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 surpassing strange . . . This is, at bottom, a debate not 
        about whether the states will be allowed to do their own thing, 
        but about whether it will be the FCC or the federal courts that 
        draw the lines to which they must hew. . . . To be sure, the 
        FCC's lines can be even more restrictive than those drawn by 
        the courts--but it is hard to spark a passionate `states 
        rights' debate over that detail.''

        AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 378 n.6 (1999).

    It was my hope that the Triennial Review would faithfully implement 
the Congressional ``division of labor'' that was so clearly confirmed 
by the Supreme Court. Unfortunately, I believe we have only been 
partially successful. The Triennial Review's decision with regard to 
transport and high-capacity loops will create what I believe is an 
appropriate role for the states. The decision considers several 
different types of transport, and makes a clear finding regarding 
impairment for each type. It then sets out the specific conditions 
under which state commissions may remove certain types of transport and 
high-capacity loops based on the number of competitive providers along 
certain transport routes. Here, the state commissions can play the 
valuable role of ensuring that the federal standard is implemented 
efficiently and accurately. This stands in marked contrast to the 
decision of the majority of the Commission with regard to switching. 
There, the majority has decided that it can only make ``presumptive 
findings,'' and has left to the states the ultimate decision of whether 
competitors are or are not impaired without access to the switch with 
little more guidance than a general, non-exclusive laundry list of 
economic and operational factors. Moreover, they have decided to do so 
without any right of appeal back to this Commission. Even assuming 
Congress intended to grant states some measure of ``meaningful 
participation'' beyond what the explicit words of the 1996 Act require, 
Congress could not have intended such a result.

    Question 6a. Does the D.C. circuit decision's emphasis on a need 
for a more granular review of the need for UNEs suggest that the FCC 
must grant a strong oversight role to the states given that they are 
undeniably better equipped to gauge market conditions, competition, and 
compliance with the law on a market by market basis than is the FCC?
    Answer. No. Many parties, including representatives of state 
commissions, have chosen to give the D.C. Circuit's USTA decision this 
reading, but I do not believe the decision can be fairly read in this 
way. Far from mandating a state-by-state decision-making process, the 
D.C. Circuit instead criticized the Commission itself for establishing 
broad rules of nationwide applicability without engaging in any kind of 
detailed analysis to determine if its decisions were valid in different 
service or geographic markets. United States Telecom Ass'n v. FCC, 290 
F.3d 415, 422 (D.C. Cir. 2002), petition for writ of cert. pending, 
WorldCom, Inc. v. United States Telecom Ass'n, No. 02-858 (filed Dec. 
3, 2002). Certainly, the Commission is capable of conducting market 
analyses to some degree of granularity. For example, the Commission 
makes market-by-market decisions in the area of pricing flexibility, to 
determine whether ILECs should be subject to a lesser amount of 
regulation with regard to the prices they charge for special access 
services. See, e.g., Access Charge Reform, CC Docket No. 96-262, Fifth 
Report and Order, 14 FCC Rcd 14221 (1999), aff'd, WorldCom, Inc. v. 
FCC, 238 F.3d 449 (D.C. Cir. 2001); Bell South Petition for Pricing 
Flexibility for Special Access and Dedicated Transport Services, 
Memorandum Opinion & Order, WCB/Pricing No. 02-24, 17 FCC Rcd 23,725 
(released Nov. 22, 2002).
    Of course, states should have a role in the process of making more 
granular market determinations. But Congress entrusted this Commission 
with making determinations about the availability of unbundled network 
elements. Accordingly, any delegation to the states should not rely on 
a simple and broad assumption that the states are inherently better 
equipped to make all determinations, but rather on some reasonable 
relationship between the facts that need to be determined and the 
ability of the states to determine these facts.
    With regard to unbundled switching, I do not believe the majority 
has established this relationship. They have instead chosen to rely on 
a broad and unsupported assumption that the states are better placed, 
in all instances and for all possible economic and operational 
criteria, to make impairment decisions. I believe the majority goes 
well beyond what Congress or the D.C. Circuit intended.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Byron L. Dorgan to 
                         Hon. Michael K. Powell
    Question. Many products such as media applications and computer 
games have been designed for the Internet, and more of those are being 
designed with broadband in mind. A large majority of developers are 
assuming that they will be able to have their customers attach devices 
they create to broadband connections just as freely as devices are now 
attached to the telephone network. On the dial-up network the FCC has 
established rules or common carriage and rules to ensure that consumers 
can attach any device as long as they do not harm the network. This has 
generated tremendous innovation as it has led to consumers attaching 
fax machines, computers and satellite boxes to the existing network. At 
the present time, the FCC has tentatively concluded to deregulate 
wireline broadband by reclassifying it as an information service. As 
part of your deliberations regarding this proceeding, how is the FCC 
evaluating what such a change could have on consumers' ability to use 
the applications and devices of their choice in a deregulated broadband 
environment? Or, the impact such a change could have on innovation if 
the tentative conclusion is adopted?
    Answer. As a core principle of our broadband policy, the Commission 
seeks to empower Americans with access to multiple, competing broadband 
networks that they can use to access an ever expanding array of diverse 
content and computer applications. I share your concern, in that it is 
my firm belief that consumers must continue to have unfettered access 
to the legal content and applications of their choosing over the 
Internet and should enjoy the use of broadband devices to the extent 
that they do not unlawfully or unduly harm the network. In our 
evaluation of our ongoing broadband proceedings we are cognizant of 
this issue and continue to explore whether there is or will be actual 
harm to consumers absent government intervention. To the extent that 
such harm exists, we will consider an appropriate regulatory response. 
The options for such a response need not, however, be limited to the 
application of traditional and heavy handed common carriage regulation 
that permeates the traditional one-wire telephone world. That said, by 
continuing our tireless efforts to bring broadband capable 
infrastructure to all Americans via multiple, competing broadband 
networks, competitive forces may prevent the realization of these harms 
to consumers. I assure you that we are actively monitoring the 
situation and will take any action the Commission deems necessary to 
promote the public interest in this area.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                         Hon. Michael K. Powell
Local Telephone Service Competition
    Question 1. Competing companies generally offer service to 
consumers at prices 10-50 percent less than the Bells. If the FCC 
terminates the requirement for traditional phone companies to offer 
parts of their infrastructure for lease to competitors, wouldn't that 
leave the vast majority of California customers without a choice for 
local phone service and drive up rates for consumers?
    Answer. No. At no time has the Commission ever considered a blanket 
``termination'' of section 251's requirement that incumbent LECs 
provide unbundled access to their networks. The Commission could not 
terminate this requirement consistent with the 1996 Act. Rather, much 
of the controversy in the Commission's Triennial Review proceeding 
stemmed from the Commission's review of unbundling requirements as 
applied to switches. Even if the Commission had decided that switching 
should not be unbundled, competitors would still have had unbundled 
access to significant parts of the incumbent's network, such as loops 
and interoffice transport. In addition, competitors will always have 
the option of reselling an incumbent's telecommunications service as 
mandated by Congress in section 251.

    Furthermore, Californians, like millions of other Americans, today 
experience the benefits of competitive alternatives to complete network 
sharing, specifically, facilities-based competition. Indeed, the 
benefits to the citizens of California from full facilities-based 
competition as reported recently by the Los Angeles Times, are exactly 
the types of benefits that I believe all of our Nation's citizens 
should continue to enjoy and that government policy should strive to 
achieve. The Times discusses how Cox Communications is using cable 
telephony as an alternative to SBC's local service. The savings for 
consumers are over 50 percent as basic service with several features 
and including taxes and other charges costs a Cox subscriber $25.18/
month versus the $51.59/month an SBC subscriber pays. See James S. 
Granelli, Expanding Cable Telephony is New Kid on SBC's Block, LA 
Times, Jan. 21, 2003, at C1.
Broadband DSL Competition
    Question 2. According to the California PUC, half of my state has 
no access to cable broadband service and the speeds available over 
satellite are not competitive with DSL. If you do not continue to allow 
competition in DSL broadband service, will not consumers in my state be 
at the mercy of a DSL broadband monopoly?
    Answer. As you may be aware, many consumers currently have DSL 
service available to them from providers other than the incumbent local 
exchange carrier (``ILEC'') via an arrangement called ``line sharing.'' 
Line sharing enables new entrants such as Covad to provide DSL over the 
high frequency portion of each customer's copper phone line at the same 
time the incumbent provides local voice service to the customer over 
the same line. This enables facilities-based competitors to provide 
competitive DSL to consumers with essentially all the same advantages 
that the incumbent enjoys. Unfortunately, a majority of my colleagues 
at the Commission (over my objection) determined that our line sharing 
requirements should be eliminated, thus depriving consumers of a 
valuable competitive choice in broadband. My view is that this 
constitutes bad policy and is inconsistent with the Commission's 
overall finding that competitors are impaired without access to copper 
phone lines, with no corresponding benefit to consumers in the form of 
greater incentives for companies to invest in the most advanced 
broadband technologies.
    I would note, however, that where competitors rely entirely on 
access to an incumbent monopoly's facilities to reach the consumer, 
availability of broadband to those areas that currently have no access 
is held hostage to the monopolist constructing and advancing facilities 
to these new areas. For this reason, the Commission is continuing to 
provide incentives for all broadband providers to invest in broadband 
capable infrastructure over any and all platforms, from DSL, to cable 
facilities, to powerline facilities, to wireless platforms (mobile, 
fixed, unlicensed, and satellite).

    Question 3. If I understand correctly, regulation of broadband 
delivered over telephone lines is dependent on whether or not the 
Commission chooses to define DSL broadband as a ``telecommunications'' 
service, and as a result is regulated, or an ``information'' service, 
which would result in an unregulated environment. Can any of you 
explain how a voice conversation carried over phone lines could be 
declared a telecommunications service while an e-mail conversation 
carried over phone lines is not?
    Answer. Congress provides the Commission with the definitions it 
must apply in determining whether and how any given communications by 
wire or radio are regulated under the 1996 Act. The 1996 Act defines 
``telecommunications'' as ``the transmission, between or among points 
specified by the user, of information of the user's choosing, without 
change in the form or content of the information as sent and 
received.'' 47 U.S.C. Sec. 153(43). In turn, the 1996 Act defines 
``telecommunications service'' as ``the offering of telecommunications 
for a fee directly to the public, or to such classes of users as to be 
effectively available directly to the public, regardless of the 
facilities used.'' 47 U.S.C. Sec. 153(46). The 1996 Act defines 
``information service'' as ``the offering of a capability for 
generating, acquiring, storing, transforming, processing, retrieving, 
utilizing, or making available information via telecommunications, and 
includes electronic publishing, but does not include any use of any 
such capability for the management, control, or operation of a 
telecommunications system or the management of a telecommunications 
service.'' 47 U.S.C. Sec. 153(20).
    The 1996 Act contemplates that the telephone network may be used to 
provide telecommunications, telecommunications services, or information 
services. Nevertheless, the statute imposes traditional common carrier 
regulation only on telecommunications services, leaving other 
capabilities such as information services largely unregulated unless 
the Commission can properly exercise its ancillary jurisdiction 
pursuant to Title I of the 1996 Act. Title I does not itself, however, 
include specific regulatory requirements. It is important to remember 
that our current proceedings are determining only the proper statutory 
classification of wireline broadband Internet access. We have not, for 
instance, yet considered whether Voice Over Internet Protocol will be 
regulated as a common carrier telecommunications service.
    With this background, a voice conversation is appropriately treated 
differently from e-mail under the 1996 Act. A voice conversation 
carried over phone lines is perhaps the paradigmatic example of what 
the 1996 Act defines as a telecommunications service: the user makes a 
call to a specific point or points, speaks, and the network then 
transmits this information without any change in form or content.
    By contrast, e-mail is more appropriately viewed as an information 
service. The Commission discussed this classification in detail in its 
1998 Report to Congress regarding the universal service system 
(generally referred to as the ``Stevens Report'' after Senator Ted 
Stevens). In re Federal-State Joint Board on Universal Service, Report 
to Congress, CC Docket No. 96-45, 13 FCC Rcd 11501 (1998). In this 
Report, the Commission concluded that Internet access generally, and e-
mail specifically, were most appropriately considered ``information 
services'' under the 1996 Act. Specific to e-mail, the Commission 
concluded that ``an electronic mail message is stored on an Internet 
service provider's computers in digital form,'' offering the subscriber 
``extensive capabilities for manipulation of the underlying data.'' Id. 
at 11539. Moreover, the user's ``Internet service provider does not 
send that message directly to the recipient'' but instead sends it to a 
`` `mail server' computer owned by the recipient's Internet service 
provider, which stores the message until the recipient chooses to 
access it. The recipient may then use the Internet service provider's 
facilities to continue to store all or part of the original message, to 
rewrite it, to forward all or part of it to third parties, or otherwise 
process its contents. . . . The service thus provides more than a 
simple transmission path.'' Id. Instead, the Commission concluded that 
it offers users the ``capability for . . . acquiring, storing, 
transforming, processing, retrieving, utilizing, or making available 
information'' and was thus more accurately classified as an information 
service under the 1996 Act. Id. The Commission has not acted to disturb 
that conclusion.
    These conclusions are entirely consistent with the general 
treatment of e-mail by this Commission and the courts in decisions 
predating the 1996 Act's definitions. Under these earlier decisions, e-
mail has always been treated as an information or enhanced service and 
thus not subject to regulation by the Commission as a common carrier 
service. See Amendment of Section 64.702 of the Commission's Rules and 
Regulations (Computer II), Final Decision, 77 FCC 2d 384 (1980) 
(distinguishing between basic transmission services consisting of a 
communications path for the movement of information, and enhanced 
services consisting primarily of data processing); United States v. 
Western Elec. Co., 714 F. Supp. 1, 11, 19 n.73 (D.D.C. 1988), rev'd in 
part, 900 F.2d 283 (D.C. Cir. 1990) (amending the Modified Final 
Judgment (``MFJ'') to allow Bell Operating Companies to provide 
services including electronic mail services notwithstanding their 
classification as ``information services'' under the MFJ).
Wi-Fi and the Jumpstart Broadband Act
    Question 4. Commissioners, my staff has made the ``Jumpstart 
Broadband Act'' available to your offices. Have you had time to review 
the legislation and could you provide feedback on it?
    Answer. The Jumpstart Broadband Act calls for the FCC to allocate 
not less than 255 MHz of contiguous spectrum in the 5 gigahertz band 
for unlicensed use by wireless broadband devices while ensuring that 
Department of Defense devices and systems are not compromised. As you 
know, unlicensed wireless broadband devices have been enjoying great 
success using spectrum that is currently available in the 2.4 GHz and 5 
GHz bands. I strongly support the unlicensed spectrum model as a key 
component of our overall spectrum and broadband policies, and I share 
your belief that unlocking the potential of high-speed broadband will 
bring numerous benefits to the American public.
    The Commission is very supportive of initiatives to identify 
additional spectrum to continue to fuel the future growth in unlicensed 
deployment, and has been working aggressively in this area. I am 
pleased that the National Telecommunications and Information 
Administration, the U.S. Department of Defense and the Federal 
Communications Commission have reached agreement on a plan that would 
allocate an additional 255 MHz of contiguous spectrum in the 5 GHz 
region for unlicensed wireless devices. These negotiations were first 
sparked both by a petition for rulemaking filed by the Wireless 
Ethernet Compatibility Alliance and preparation for the upcoming 2003 
World Radio Conference which will consider changes to the frequency 
allocations in the 5 GHz region.
    The agreement includes technical specifications for the unlicensed 
wireless devices that would protect Department of Defense systems 
against interference. This agreement is consistent with the objectives 
of the Jumpstart Broadband Act, and the Commission plans to initiate a 
Notice of Proposed Rulemaking this Spring that will begin the process 
of implementing the agreement and positioning us for the upcoming WRC.

    Question 5. Commissioners, innovation has flourished in the current 
unlicensed spectrum bands. What do you believe the potential is for 
increased innovation and do you agree that more spectrum should be 
allocated to encourage this innovation?
    Answer. Unlicensed spectrum services have been a great success 
story. Just as wireless phones have transformed the voice 
communications market, and direct broadcast satellite (``DBS'') has 
changed the competitive landscape for cable, I am optimistic about the 
impact of spectrum-based services on the provision of broadband. The 
innovation and growth of unlicensed spectrum use in recent years adds 
fuel to my optimism. In creating a regulatory environment that has 
facilitated this success, the Commission has crafted rules to control 
radio frequency interference without limiting the types of devices that 
might be developed. We are reaping the benefits of this approach with a 
wide array of useful innovative products based on the Wi-Fi and 
Bluetooth standards that industry developed within the broad framework 
of our rules. We agree that more spectrum would prompt further 
development of unlicensed wireless products to the benefit of industry, 
businesses and consumers, and are taking significant steps in that 
direction.

    Question 6. Commissioners, would you agree that additional 
unlicensed spectrum could help spur new broadband services and would be 
a good idea regardless of how you proceed on the broadband proceedings 
before you?
    Answer. Yes. Consistent with that view, the Spectrum Policy Task 
Force recently recommended that the Commission attempt to identify 
additional spectral resources for unlicensed use. I have attached a 
copy of their Report for your reference (attached hereto at Appendix 
3). * That is why the Commission plans, as noted above, to initiate a 
rulemaking to provide additional spectrum for unlicensed devices in the 
5 GHz region. Further, the Commission adopted a Notice of Inquiry in 
December 2002 to identify additional spectrum for unlicensed devices 
and specifically invited comment on potential sharing of previously 
licensed spectrum in the TV broadcast band and in the 3.6 GHz region. 
Advances in technology may now allow unlicensed devices to share 
spectrum with certain radio services where this was not feasible in the 
past.

    * The information referred to has been retained in Committee files.
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    Question 7. Experts in technology we have talked with say that the 
technology clearly exists that would allow unlicensed devices to keep 
from harming incumbent systems. Do your experts tell you the same 
thing?
    Answer. Yes. As an initial matter, this technological advancement 
was central to portions of the Spectrum Policy Task Force Report. 
Moreover, the agreement reached among the National Telecommunications 
and Information Administration, the U.S. Department of Defense, and the 
Federal Communications Commission will provide access to additional 5 
GHz spectrum for unlicensed devices without harming incumbent systems. 
As noted above, the Commission has also initiated a rulemaking to look 
into sharing certain licensed spectrum with unlicensed devices, and 
expects to learn even more about advanced enabling technology in that 
proceeding.
Digital Copyright Issues
    Question 8. Commissioners, consumers are excited about the 
potential that digital television and HDTV have to increase 
dramatically the quality of their viewing experience. At the same time, 
those who make movies and shows are concerned that those shows and 
films distributed in digital format will be copied and distributed at a 
huge loss to them. Does it not seem to you that some form of protection 
for content carried over the air and over cable to these fantastic new 
TVs is necessary and fair?
    Answer. As your question suggests, compelling digital content is 
critical to the success of the digital television transition. I 
recognize that content producers are deeply concerned about the 
unauthorized redistribution of their product, especially over the 
Internet, and that some say they are reluctant to release high-value 
content without adequate protection from piracy.
    The Commission is examining these issues in two rulemaking 
proceedings. First, on August 8, 2002, we adopted a Notice of Proposed 
Rulemaking seeking public comment on whether the Commission can and 
should mandate copy protection technology for digital broadcast 
television content. The Notice specifically sought comment on the 
implementation of a ``broadcast flag'' technology that proponents 
assert would protect digital broadcast content from Internet 
redistribution while, at the same time, respect consumers' ability to 
make copies for their personal use. The record in this proceeding 
recently closed and the Commission staff is currently reviewing the 
more than 6,000 public comments that were filed.
    Second, on January 10, 2003, the Commission issued a Notice of 
Proposed Rulemaking seeking comment on an agreement regarding one-way 
``plug and play'' digital television receivers negotiated between 
several large cable television operators and consumer electronics 
(``CE'') manufacturers. Among other things, the cable/CE agreement asks 
the Commission to adopt certain ``encoding rules'' that the cable 
television and consumer electronics industries indicate are modeled 
generally on section 1201(k) of the Digital Millennium Copyright Act of 
1998 and the existing license for ``DTCP'' technology. The comment 
period in this proceeding is schedule to close on April 28, 2003.

    Question 9. Chairman Powell, as you know, major films such as 
``Spiderman'' and ``Star Wars II'' were available on the Internet for 
illegal download even before they were released in theaters. How do 
these films get on the Internet for illegal distribution and what would 
you recommend we do about this kind of piracy?
    Answer. I am not aware of any specific information the Commission 
may have as to how films such as the ones identified become available 
on the Internet prior to their theatrical release. I would submit, 
however, that if the films are on the Internet prior to theatrical 
release, it is likely that the initial act of piracy involved someone 
within the private distribution chain.
    Further, the Commission does not have any specific policy 
recommendations for addressing piracy that occurs before theatrical 
release. Our focus remains on evaluating the broadcast flag and other 
copy protection systems for the purpose of helping combat illegal 
distribution of digital broadcast content over the Internet. We have 
yet to conclude that we have the authority to address such copy 
protection systems for over-the-air broadcast content. Thus, I would 
hesitate to comment or recommend specific Commission actions for the 
type of piracy outlined in your question.
Media Concentration
    After the elimination of radio consolidation protections in the 
1990s, in California alone, one company, Clear Channel, owns a stunning 
102 radio stations. In some towns that means every station is 
controlled by the same corporation. Now I hear that the FCC is 
considering eliminating the concentration protections for TV, cable, 
and newspapers.
    Question 10. If you eliminate the current rules altogether, then 
could TV and cable in California experience similar concentration as 
radio?
    Answer. Let me assure you that I do not favor the Commission 
eliminating all broadcast ownership regulation. Indeed, I am confident 
there will be meaningful media rules after the Commission finishes with 
its current Biennial Review.
    As you know, in the Telecommunications Act of 1996, Congress 
removed these national limits on radio ownership and also increased the 
number of stations any one company could own in local markets. This has 
resulted in a number of companies acquiring a larger share of local and 
national radio markets. As these transactions have occurred, some have 
argued that the Commission's methodology of measuring markets may, in 
some cases, result in anomalies where one company owns an inordinate 
share of the radio stations serving a particular market. In light of 
these concerns, the Commission, as part of the ongoing biennial review 
of its broadcast ownership rules, is now actively considering whether 
its market definition should be revised.
    You also ask about the consequences for broadcast television and 
cable television in California if the Commission ``eliminate[s] the 
current rules altogether.'' The Commission has developed an extensive 
record in its pending media ownership proceedings. It is premature, 
however, to draw any specific conclusions about what decisions the 
Commission ultimately will make in these proceedings. I would suggest, 
however, that complete elimination of our current rules is not a 
probable outcome. My goal is to ensure that the rules we do adopt will 
better reflect the reality of today's media marketplace which, by any 
measure, is far more diverse and competitive than when our rules were 
first implemented. The Commission's failure to account adequately for 
dramatic growth and change in the media market over the years would be 
an open invitation for the courts to strike down our next set of 
ownership rules just as it has done in the recent past when our 
ownership rules have been challenged in court. Rejection by the courts 
would be harmful for consumers, who depend on a diverse marketplace of 
ideas, and for media companies that need regulatory certainty for 
planning and investment purposes. Consequently, I am committed to 
developing ownership policies that preserve and promote diversity, 
competition, and localism in today's media market and are judicially 
sustainable.
Miscellaneous
    Question 11. Do you foresee an overlay strategy for the 310 area 
code that would prevent a split but only change digital cell phones 
prospectively, therefore eliminating the inconvenience to individuals 
who presently own cell phones and assuring that purchasers of analog 
cell phones would not have to change their code?
    Answer. The California Commission has proposed to the Commission to 
place all wireless customers in a new area code, including existing 
wireless customers, which would require current wireless customers to 
change their area codes but retain their seven-digit telephone number. 
The California Commission could modify its request and propose a 
specialized overlay in the 310 area code that would require only new 
wireless subscribers to be assigned to the new area code.
    The California Commission could also implement an all-services 
overlay that would be available to all new services and, therefore, 
would not require existing wireless customers to change their area 
codes or phone numbers. The California Commission may take such action 
without seeking additional authority from the Commission.
    On the HERO Act (public safety spectrum): The FCC has an open 
rulemaking on digital television. One of the areas of concern to me is 
that critical spectrum for public safety--spectrum that will help first 
responders coordinate effectively in the event of a terrorist attack 
such as 9/11--is being held pending the broadcasters' transition to 
digital television. Congresswoman Harman, who is now Ranking Member on 
the House Intelligence Committee, has introduced a bill, the HERO Act, 
to have the public safety spectrum in issue turned over by a date 
certain at the end of 2006, precisely to get at a problem first 
responders had in coordinating during and immediately after the 9/11 
attacks.

    Question 12. What has the FCC done, and what can it still do, to 
speed up the broadcasters' conversion and to get the public to 
participate in the transition as well?
    Answer. In the last two years, the Commission has taken an 
aggressive leadership role in trying to bring the digital television 
(``DTV'') transition to a successful conclusion. We have been using all 
of the tools at our disposal, both formal and informal, to facilitate 
the DTV transition. For example, in October 2001, I established the 
Digital Television Task Force to coordinate and prioritize the 
Commission's efforts in this important area. We also have redoubled our 
efforts to work with all of the parties involved in the DTV transition 
in order to re-energize and focus the dialog around solutions that 
would accelerate the transition and benefit consumers.
    Last April, for instance, we challenged all of the industries 
involved in the DTV transition--broadcasters, networks, cable and 
satellite television operators, and consumer electronics 
manufacturers--to take specific voluntary steps that would encourage 
consumer adoption of DTV technology and further accelerate the 
transition. I am pleased to report that, by and large, each industry 
has responded favorably to our call to action.
    The Commission also has been actively and aggressively engaged in 
other matters involving the DTV transition, including equipment 
compatibility, copyright protection, and digital carriage obligations, 
just to name a few. In some cases we have used our authority to mandate 
change when an industry could not--or would not--come to a solution. 
For example, last summer the Commission amended its rules to require 
that broadcast television receivers incorporate the capability to 
receive DTV signals.
    The Commission will continue to act to keep the DTV transition 
moving forward. We will be guided by pragmatism, but it will be backed 
up by regulatory action that we will not hesitate to employ where 
necessary.

    Question 13. On area code relief: My state, California, is a great 
market, particularly for high tech and new telecommunications services. 
One drawback to this impressive growth is that these new 
telecommunications services use telephone numbers. Senior citizens, 
residents and small businesses, particularly in urban areas, have had 
to endure many successive area code changes. The state of California 
has a petition pending to try some new avenues of relief. For example, 
the state wants to overlay a new code for devices that don't require 
human interaction--like credit card verification devices--so that real 
people are not burdened or confused. The state has other innovative 
ideas, and these have included requiring wireless carriers to offer 
local number portability and ordering a wireless overlay in the Los 
Angeles area code 310 and 909 region. What is your position?
    Answer. The Commission also seeks to minimize the burdens of 
frequent area code changes on telephone service consumers, but these 
burdens must be weighed against the increasing demand for telephone 
numbers by new or improved telecommunications services. The Commission 
has and will continue to explore measures that will promote more 
efficient use of numbers. Placing services that do not require human 
interaction in a separate area code may be one such measure, but only 
if the numbers used for these services are readily identifiable, and if 
enough of these numbers exist to justify a separate area code. The 
Commission also believes that participation by wireless carriers in 
thousands block number pooling will result in more efficient number 
utilization.
                                 ______
                                 
Response to Written Questions Submitted by Hon. John D. Rockefeller IV 
                        to Hon. Kevin J. Martin
Universal Service
    The E-Rate has made it possible for us to expedite the integration 
of technology into our education system by wiring tens of thousands of 
schools and libraries across the country. I think it is extremely 
important for the Commission to pursue Universal Service reforms that 
will ensure the long-term viability of all aspects of the program--
including the E-Rate.

    Question 1. Please update me about the status of the Commission's 
efforts to strengthen the Universal Service program. I am interested in 
what reforms are needed to enable us to serve the needs of low-income 
and rural Americans in the long-term AND continue the progress we've 
made in wiring schools and libraries.
    Answer. The Commission's efforts in this area are multifaceted. 
With regard to the low-income program, the Commission has asked the 
Federal-State Joint Board on Universal Service to review the Lifeline 
and Link-Up programs for all low-income consumers. In the context of 
this review, the Joint Board is examining the effectiveness of the 
current rules, possible modifications to the programs, and outreach 
efforts.
    The Commission's high cost support program is designed to ensure 
that consumers in high cost and rural areas have access to 
telecommunications services that are reasonably comparable to those 
provided in urban areas at reasonably comparable rates. We, at the 
Commission, are fully committed to supporting telephone service in high 
cost, rural areas and ensuring that all Americans have access to 
affordable, quality telecommunications services. Due to our 
implementation of ongoing reforms to various aspects of the high cost 
program, total high cost support has grown from approximately $1.7 
billion in 1998 to a projected $3.3 billion in 2003.
    The Commission has an ongoing rulemaking which is directed at 
strengthening the Schools and Libraries (``E-Rate'') program. The 
Commission's goals in undertaking this proceeding, consistent with the 
statute, are three-fold: (1) to consider changes that would fine-tune 
our rules to improve program operation; (2) to ensure that the benefits 
of this universal service support mechanism for schools and libraries 
are distributed in a manner that is fair and equitable; and (3) to 
improve our oversight over this program to ensure that the goals of 
section 254 are met without waste, fraud or abuse.
    Also, in May 2003, the Commission will host a forum, facilitated by 
Commissioner Kathleen Q. Abernathy, regarding the E-Rate program. This 
forum will convene a group of school administrators, service providers, 
equipment vendors, and other key parties to explore new means of 
ensuring that funds are disbursed in a fair, efficient and cost-
effective manner.
Effect of Broadband Deregulation on Universal Service
    The Commission is considering changing the way certain broadband 
services are regulated by re-classifying them as ``information 
services.''

    Question 2. What impact would these changes have on the way 
contributions are collected for the Universal Service program? At a 
time when we are searching for ways to strengthen Universal Service, do 
you think it is wise to pursue actions that may threaten existing 
funding resources?
    Answer. I am committed to preserving and advancing Universal 
Service as well as ensuring that Universal Service has sufficient 
funding. The Commission sought comment in the Wireline Broadband 
Internet Access proceeding on what implications, if any, adopting the 
Commission's tentative conclusion might have for funding Universal 
Service. Should the Commission adopt its tentative conclusion, section 
254(d) of the Telecommunications Act of 1996 (``1996 Act'') would still 
allow the Commission to require broadband Internet access providers to 
contribute to universal service if the public interest so required. I 
am carefully considering the record developed in response to this 
proceeding as I make my decision in this matter.
Broadband and Competition
    I believe that stimulating investment in high-speed Internet 
services will help our economy and provide a variety of other benefits 
as well (telemedicine, distance learning, etc.)

    Question 3. What do you think the best strategies are for speeding-
up the deployment of broadband without threatening competition in local 
telephone markets?
    Answer. I share your enthusiasm for the promise of broadband and 
what it can bring to the American public. As a result, the Commission 
has made the deployment of broadband-capable infrastructure the 
Commission's top priority. To my mind, the biggest challenge to 
broadband deployment is the enormous capital investment needed--the 
vast majority of which must come from the private sector--to either 
upgrade existing networks or build entirely new broadband-capable 
networks. I believe the best strategy for speeding up the deployment of 
broadband is to provide the proper incentives for that capital to flow 
into these broadband construction projects.
    At the Commission, we are achieving this objective through three 
primary avenues. First, we are reducing unnecessary barriers to 
broadband deployment so as to align the incentives to invest with the 
risks associated with that investment. Second, where possible, we are 
clarifying the regulatory landscape for the provision of broadband 
Internet access service to lower the administrative costs of regulatory 
uncertainty. Third, and possibly most important, we are providing 
incentives for the development and deployment of new broadband-capable 
networks from wireless platforms, such as 3G, Wi-Fi, mesh networks, 
other fixed wireless networks and satellite to wireline platforms such 
as cable modem, DSL, powerline, and fiber-to-the-home. Examples of 
these actions can be found in our recent Triennial Review Order, our 
implementation of some of the recent recommendations by the 
Commission's Spectrum Policy Task Force, our cable modem and DSL 
definitional proceedings, our providing for more spectrum for 3G and 
other unlicensed spectrum, and an upcoming proceeding on powerline 
broadband to name just a few.
    This strategy will not threaten sustainable competition in local 
telephone markets and, in fact, will over time enhance that 
competition. Currently, facilities-based voice competitors, most 
notably in the cable and wireless space, are making great inroads and 
providing consumers with a competitive differentiated local telephony 
product. In addition, competitive local exchange carriers will continue 
to have access to significant portions of incumbents' networks for the 
provision of voice services. Finally, by promoting facilities-based 
broadband networks we are seeing that local and long distance voice is 
an inexpensive application that is offered to broadband subscribers. 
Whether it is a Voice over Internet Protocol (``VoIP'') product being 
offered by Vonage at a competitive rate to broadband consumer or voice 
applications provided by the likes of Microsoft through their broadband 
XBOX gaming console the lesson is clear--bring a broadband pipe to the 
American public and you necessarily bring local voice competition.
Local Competition
    According to recent reports in the Wall Street Journal, the 
Commission may be preparing to scale back competitors' access to local 
networks by changing the rules relating to the unbundled network 
element platform. According to recent FCC statistics, competition in 
local telephone markets is just now starting to take hold in a 
meaningful way.

    Question 4. If the unbundled network element platform were to no 
longer be an available method for competitors to access Bell networks, 
what would it mean for the future of local competition--particularly in 
rural areas and regions with challenging topography where the cost of 
deploying facilities is particularly high?
    Answer. In large measure, a majority of Commissioners in the 
Triennial Review proceeding ensured that the unbundled network element 
platform (``UNE-P'') framework will remain intact by giving state 
commissions the ultimate responsibility to determine whether there is 
impairment with regard to access to unbundled switching. To my mind, 
the Commission abdicated its statutory responsibility to determine 
whether switching should be unbundled to state regulators. I dissented 
from this decision because unlimited UNE-P will not lead to sustainable 
competition and does not provide nearly as many benefits to consumers 
as does competition from providers that control all or nearly all of 
their own facilities. It is worth expressing that to the extent the 
Commission established a transition away from UNE-P, competitors would 
continue to enjoy access to unbundled loops for local services. Thus, 
even in the absence of UNE-P, competitors would continue to have access 
to significant portions of the incumbents' network.
    With regard to rural areas specifically, our record in the 
Triennial Review proceeding indicates that because the rate for 
unbundled loops is, as a general matter, much higher in rural areas 
than in more dense urban areas, the resulting rate for UNE-P is not as 
advantageous to competitors as buying services for resale. Accordingly, 
if the Commission had established a transition away from UNE-P in the 
Triennial Review, I do not believe there would have been any 
significant reduction of competition in rural areas. Conversely, the 
majority's decision to retain UNE-P will not, in my opinion, result in 
any significant benefits for rural consumers. The answer to the 
challenge of bringing competition to rural areas is not to create an 
artificial entry mode for competitors: the answer is to create the kind 
of regulatory environment that incents robust competitors to innovate 
so they can more easily provide a real alternative to the incumbent in 
these areas.
Interplay Between State Regulators and the FCC
    In a recent letter to all five of the Commissioners, several 
representatives of the National Association of Regulatory Utility 
Commissioners wrote, ``State flexibility to maintain UNE-P as well as 
the ability to add to any national UNE list is critical to keeping 
competition `on track.' ''

    Question 5. What is your vision for the appropriate interplay 
between state regulators and the FCC in implementing the 1996 Act and 
promoting a competitive telecommunications market that benefits 
consumers?
    Answer. As I stated in my response to Senator Hollings' sixth 
question, quite aside from anything the Commission has done in the 
Triennial Review, the states play a substantial role in ensuring that 
the 1996 Act is fully and faithfully implemented and is promoting 
competition. The states have broad authority over retail rates for 
local exchange services and the rates charged by incumbents for access 
to unbundled network elements. Moreover, section 252 gives them a 
central role in arbitrating and approving interconnection agreements. 
With regard to unbundled network elements, Congress established the 
role of the states in section 251(d). Section 251(d)(2) make clear that 
Congress intended the Commission to determine what network elements 
will be unbundled. Section 251(d)(3) preserves state access regulations 
that are consistent with the Act's unbundling requirements and that do 
not substantially prevent the implementation of those requirements.
    My vision for the appropriate interplay between state regulators 
and the Commission is in accord with this basic division of labor 
established by Congress. The states must continue to play their 
substantial role in regulating the local exchange market. But the 
requirements of the 1996 Act are, at the end of the day, a Federal 
program to introduce competition into the local exchange markets, and 
one that this Commission has been given substantial responsibility for 
implementing. Congress entrusted this Commission with determining the 
availability of unbundled network elements. Accordingly, any delegation 
to the states should not rely on a simple and broad assumption that the 
states are inherently better equipped to make all determinations, but 
rather on some reasonable relationship between the facts that need to 
be determined and the ability of the states to determine these facts.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to 
                          Hon. Kevin J. Martin
    The D.C. Circuit's decision in USTA v. FCC, remanding the 
Commission's unbundling and line sharing rules, was inconsistent with 
the Supreme Court's holding in Verizon. However, the FCC's pending 
proposals to reduce competitors' access to network elements seem based 
on a similar predicate to the Court's suggestion that competitors using 
UNEs do not offer ``real'' competition to the incumbents.
    Question 1. Do you believe that UNE-P competition is not real 
competition?
    If so, why? If not, why would the FCC seek to curtail such 
competition?

    Question 1a. Do you believe, as the FCC stated in its petition for 
rehearing, that the ``limitations that the panel's decision can be read 
to impose have no basis in the statutory text and appear to be 
inconsistent with several provisions of the 1996 Act''?
    Answer. The Commission has examined competition in the 271 
Application process. Section 271 allows the BOCs into the in-region 
interLATA market upon showing that their in-region local markets are 
open to competition and other statutory requirements are met. One of 
the statutory tests requires the BOCs to demonstrate the presence of a 
facilities-based competitor. Under this test, contained in section 
271(c)(1)(A) (entitled ``Presence of a Facilities-Based Competitor''), 
the BOC must demonstrate that a competing provider offers telephone 
service ``either exclusively over their own telephone exchange service 
facilities or predominantly over their own telephone exchange service 
facilities in combination with the resale of the telecommunications 
services of another carrier.''
    In its 1997 271 application for the State of Michigan, Ameritech 
argued that competitors using UNEs satisfied the ``Presence of a 
Facilities Based Competitor'' prong.\1\ Specifically it stated that 
``facilities-based'' competition included competition using UNEs. 
Moreover, it asserted that ``own telephone exchange service 
facilities'' includes both facilities to which a carrier has title and 
unbundled elements obtained from a BOC.'' \2\ Ameritech further argued 
``that unbundled network elements are a carrier's own facilities 
because resellers do not have control over the facilities they use to 
provide service, whereas carriers have control over facilities they 
construct and over unbundled network elements they purchase.''
---------------------------------------------------------------------------
    \1\ Application of Ameritech Michigan Pursuant to section 271 of 
the Communications Act of 1934, as amended, To Provide In-Region, 
InterLATA Services In Michigan, FCC 97-298, para.87 (rd. August 19, 
1997).
    \2\ Id.
---------------------------------------------------------------------------
    In that same proceeding, BellSouth and SBC also argued that 
competitors using UNEs satisfied the ``presence of a Facilities-Based 
Competitor'' test. BellSouth and SBC argued ``that Congress intended to 
treat unbundled network elements as a competing provider's own 
facilities in order to give the BOC the incentive to make all checklist 
items available and provide competing providers with the flexibility to 
choose whether to build a particular facility or purchase unbundled 
network elements from the BOC.'' \3\
---------------------------------------------------------------------------
    \3\ Id. at para. 88.
---------------------------------------------------------------------------
    The Commission agreed that competitors using UNEs satisfied the 
test that required the ``presence of a Facilities-Based Competitor.'' 
The Commission interpreted the phrase ``own telephone exchange service 
facilities,'' in section 271(c)(1)(A), to include ``unbundled network 
elements that a competing provider has obtained from a BOC.'' In making 
this interpretation the Commission rejected the argument that 
``providers can offer unique services and provide consumers with 
genuine competitive choices only when they build facilities.'' Instead 
the Commission concluded that ``many of the benefits that consumers 
would realize if competing providers build facilities can also be 
realized through the use of unbundled network elements.''
    Since that decision the Commission has granted 35 long distance 
applications and has reaffirmed this policy in several applications. In 
granting 271 applications, the Commission has repeatedly concluded that 
incumbent carriers have satisfied the requirements of Track A based on 
``the numerous [competitive] carriers providing facilities-based 
service to residential and business customers in [the] market'' and 
based on record evidence that ``each of these carriers serve more than 
a de minimis number of residential and business customers via UNE-P or 
full-facilities lines.''

    At our January 14, 2003 hearing at which you appeared, Chairman 
Powell stated that the Commission's UNE Triennial Review must include 
as a ``core component'' an analysis of ``the proper role of state 
commissions in the implementation of our unbundling rules.'' 
Commissioner Martin likewise confirmed his belief that the Commission's 
rules should ``allow for state cooperation and input, especially 
regarding highly fact intensive and local determinations'' in 
recognition of the fact that ``[a]ssessments of whether access to a 
[unbundled network] element is necessary to provide service may vary 
significantly among different markets, states and regions.'' 
Commissioner Adelstein characterized the states as ``our partners in 
implementing the Act,'' Commissioner Copps noted that ``[t]he path to 
success is not through preemption of the role of the states.''

    Question 2. How will the Commission ensure that its order in the 
UNE Triennial Review preserves the meaningful participation of the 
states in the development of local competition as Congress intended?
    Question 2a. Does the D.C. circuit decision's emphasis on a need 
for a more granular review of the need for UNEs suggest that the FCC 
must grant a strong oversight role to the states given that they are 
undeniably better equipped to gauge market conditions, competition, and 
compliance with the law on a market by market basis than is the FCC?
    Answer. During my tenure at the Commission, I have witnessed first 
hand the helpful role that the states have played in our mutual goal of 
implementing the requirements of the 1996 Act.
    Our decision in the Triennial Proceeding sets forth a market-
specific impairment analysis for unbundling network elements that 
provides an important role for the states. As I have stated before, I 
believe the states are in a better position to be able to make fact-
specific determinations about particular geographic markets.
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                          Hon. Kevin J. Martin
Local Telephone Service Competition
    Question 1. Competing companies generally offer service to 
consumers at prices 10-50 percent less than the Bells. If the FCC 
terminates the requirement for traditional phone companies to offer 
parts of their infrastructure for lease to competitors, wouldn't that 
leave the vast majority of California customers without a choice for 
local phone service and drive up rates for consumers?
    Answer. Competition for local service has enabled millions of 
consumers to benefit from lower telephone rates.
    The Telecommunications Act requires that competitors have access to 
portions of the incumbents' networks when they are ``impaired'' in 
their ability to provide service. The Commission's decision in the 
Triennial review proceeding sets forth a framework to determine 
impairment based on a fact-specific granular analysis which recognizes 
that competitors face different operational and economic barriers in 
different markets.
Broadband DSL Competition
    Question 2. According to the California PUC, half of my state has 
no access to cable broadband service and the speeds available over 
satellite are not competitive with DSL. If you do not continue to allow 
competition in DSL broadband service, will not consumers in my state be 
at the mercy of a DSL broadband monopoly?
    Answer. Under the Commission's decision, competitive DSL service 
providers can continue to access an incumbents' local loop to provide 
DSL service to consumers. Moreover, competitive service providers may 
also continue to take advantage of the Commission's ``line-splitting'' 
rules--that currently enable competitive DSL service providers to reach 
CLEC end user customers by negotiating for access to the loop provided 
by a CLEC offering voice service.

    Question 3. If I understand correctly, regulation of broadband 
delivered over telephone lines is dependent on whether or not the 
Commission chooses to define DSL broadband as a ``telecommunications'' 
service, and as a result is regulated, or an ``information'' service, 
which would result in an unregulated environment. Can any of you 
explain how a voice conversation carried over phone lines could be 
declared a telecommunications service while an e-mail conversation 
carried over phone lines is not?
    Answer. The terms ``telecommunications service'' and ``information 
service'' are defined in the Communications Act of 1934, as amended by 
the 1996 Act. The Act defines ``Information service'' as ``the offering 
of a capability for generating, acquiring, storing, transforming, 
processing, retrieving, utilizing, or making available information via 
telecommunications.'' The Act defines ``telecommunications'' as ``the 
transmission, between or among points specified by the user, of 
information of the user's choosing without change in the form or 
content of the information as sent and received.'' The Act defines 
``Telecommunications service'' as ``the offering of telecommunications 
for a fee directly to the public, or to such classes of users as to be 
effectively available to the public, regardless of facilities used.''
    The Commission has stated that under this definition, ``an entity 
provides telecommunications only when it both provides a transparent 
transmission path and it does not change the form or content of the 
information.'' If this offering is made directly to the public for a 
fee, it is deemed a ``telecommunications service.'' On the other hand, 
``[w]hen an entity offers subscribers the `capability for generating, 
acquiring, storing, transforming, processing, retrieving, utilizing or 
making available information via telecommunications,' it does not 
provide telecommunications, it is using telecommunications.''
    In the Wireline Broadband Proceeding, the Commission tentatively 
concluded that providers of wireline broadband Internet access service 
``offer more than a transparent transmission path to end-users and 
offer enhanced capabilities.'' The Commission tentatively concluded 
that this service is ``an `information service' under section 3 of the 
Act'' because providers of wireline broadband Internet access ``provide 
subscribers with the ability to run a variety of applications that fit 
under the characteristics stated in the information service 
definition.''
    In the order approving the AOL-Time Warner merger, the Commission 
concluded that it ``has Title I jurisdiction over instant messaging 
services . . .'' and that the FCC ``need not classify instant messaging 
services . . . as information services, cable services or 
telecommunications services . . .''
Wi-Fi and the Jumpstart Broadband Act
    Question 4. Commissioners, my staff has made the ``Jumpstart 
Broadband Act'' available to your offices. Have you had time to review 
the legislation and could you provide feedback on it?
    Answer. Thank you for providing the Commission with your 
legislation. I generally support making more spectrum available for 
unlicensed devices. Unlicensed devices have been a huge success story, 
from cordless phones to wireless broadband connections, such as 802.11b 
and Bluetooth. Accordingly, I think the Commission should make more 
spectrum available for unlicensed devices, particularly for broadband, 
and I support efforts to movie quickly to do so.
    As the Jumpstart Broadband Act recognizes, providing additional 
unlicensed spectrum in the 5 GHz band raises the question of 
interference to important U.S. Government applications. The legislation 
thus requires protections for Department of Defense systems now 
operating in that spectrum. Indeed, industry and government officials 
have recently agreed on such protections.

    Question 5. Commissioners, innovation has flourished in the current 
unlicensed spectrum bands. What do you believe the potential is for 
increased innovation and do you agree that more spectrum should be 
allocated to encourage this innovation?
    Answer. I believe there is significant potential for increased 
innovation in unlicensed spectrum. While there are numerous 
possibilities for new products and services, one of the most exciting 
potential innovations is a last-mile application to connect people's 
homes to the Internet. Such a service would offer a real alternative to 
telephone wires, cable, and satellite connections. For example, one 
company can purportedly send Wi-Fi transmissions up to seven kilometers 
away. I think it is imperative that we encourage these kinds of 
innovations and ensure they have sufficient spectrum to flourish. I 
thus agree that more spectrum should be made available for unlicensed 
devices and support efforts to more quickly do so.

    Question 6. Commissioners, would you agree that additional 
unlicensed spectrum could help spur new broadband services and would be 
a good idea regardless of how you proceed on the broadband proceedings 
before you?
    Answer. I believe that additional spectrum could spur new broadband 
services. As mentioned, I am hopeful that unlicensed operations could 
provide a last-mile application to connect people's homes to the 
Internet. Regardless of the development of broadband through telephone 
wires and cable systems, additional broadband technologies are always 
beneficial.

    Question 7. Experts in technology we have talked with say that the 
technology clearly exists that would allow unlicensed devices to keep 
from harming incumbent systems. Do your experts tell you the same 
thing?
    Answer. I have heard different things from different experts. The 
Commission's Office of Engineering and Technology states that the 
agreement reached among the National Telecommunications and Information 
Administration, the Department of Defense, and the Federal 
Communications Commission will provide access to additional 5 GHz 
spectrum for unlicensed devices without harming incumbent systems.
Digital Copyright Issues
    Question 8. Commissioners, consumers are excited about the 
potential that digital television and HDTV have to increase 
dramatically the quality of their viewing experience. At the same time, 
those who make movies and shows are concerned that those shows and 
films distributed in digital format will be copied and distributed at a 
huge loss to them. Does it not seem to you that some form of protection 
for content carried over the air and over cable to these fantastic new 
TVs is necessary and fair?
    Answer. Digital television offers many benefits to consumers--a 
markedly sharper picture resolution and better sound; an astounding 
choice of video programming, including niche programs and movies on 
demand; CD-quality music channels of all genres; interactivity; 
sophisticated program guides with parental control capabilities; and 
innovative services such as high speed Internet service. Many people 
believe that digital content will remain limited until copy protection 
issues are resolved. Therefore, resolving this issue could be important 
to the DTV transition.
    Our jurisdiction in this area is unclear. We have a pending 
proceeding asking whether we have the jurisdiction to require 
implementation of a digital broadcast content protection mechanism, 
known as the ``broadcast flag.'' The record is still open and I have 
not come to a conclusion on this point.
    I am still hopeful that there may be technological solutions that 
will both prevent the commercial distribution that concerns content 
owners, and yet preserve the home recording rights that consumers have 
come to expect.
Media Concentration
    After the elimination of radio consolidation protections in the 
1990s, in California alone, one company, Clear Channel, owns a stunning 
102 radio stations. In some towns that means every station is 
controlled by the same corporation. Now I hear that the FCC is 
considering eliminating the concentration protections for TV, cable, 
and newspapers.

    Question 9. If you eliminate the current rules altogether, then 
could TV and cable in California experience similar concentration as 
radio?
    I also hear from the Writers Guild, local broadcasters, independent 
film makers, Consumers Union, and others that the FCC is rushing to 
judgment on whether to eliminate or drastically change its media 
concentration protections.
    Answer. The existing media ownership rules were crafted to promote 
three principles: competition, diversity, and localism. While the media 
marketplace may have changed since those rules were first adopted, our 
need to promote these core values has not.
    I recognize, however, that we have a statutory mandate to review 
our media ownership rules every two years to make sure they are still 
necessary. As we debate these rules, we must be mindful of recent court 
action. The courts have been looking at our decisions with increasing 
scrutiny, striking the rules down when the Commission has not 
adequately justified their retention. In fact, the D.C. Circuit has 
struck down the last five media ownership rules it has reviewed. In 
most of these cases, the court expressly chastised the Commission for 
failing to consider the plethora of new voices present in the 
marketplace today.
    Thus, our ownership rules should protect competition, diversity, 
and localism, but do so in a manner reflective of today's media 
environment.
Miscellaneous
    Question 10. Do you foresee an overlay strategy for the 310 area 
code that would prevent a split but only change digital cell phones 
prospectively, therefore eliminating the inconvenience to individuals 
who presently own cell phones and assuring that purchasers of analog 
cell phones would not have to change their code?
    Answer. The FCC could grant the California Commission authority to 
implement a specialized overlay to which only new wireless subscribers 
would be assigned. This would avoid a split and allow current wireless 
customers to keep their cell phone numbers. I have previously supported 
efforts to provide states additional flexibility they require to 
address numbering issues, such as implementing technology specific 
overlays.

    On the HERO Act (public safety spectrum): The FCC has an open 
rulemaking on digital television. One of the areas of concern to me is 
that critical spectrum for public safety--spectrum that will help first 
responders coordinate effectively in the event of a terrorist attack 
such as 9/11--is being held pending the broadcasters' transition to 
digital television. Congresswoman Harman, who is now Ranking Member on 
the House Intelligence Committee, has introduced a bill, the HERO Act, 
to have the public safety spectrum in issue turned over by a date 
certain at the end of 2006, precisely to get at a problem first 
responders had in coordinating during and immediately after, the 9/11 
attacks.

    Question 11. What has the FCC done, and what can it still do, to 
speed up the broadcasters' conversion and to get the public to 
participate in the transition as well?
    Answer. Last May, the Commission proposed a set of graduated 
sanctions for those broadcasters that fail to meet their build-out 
deadlines, beginning with admonishment and reporting requirements and 
culminating in the rescission of the station's DTV authorization. The 
Bureau has been following this practice in acting upon licensees' 
extension requests.
    Last August, the Commission required that all TV sets of a certain 
size include a broadcast tuner. Also last August, the Commission issued 
a notice of proposed rulemaking regarding whether we have authority 
over copy protection of digital broadcast content, and if so, whether 
we should use that authority to mandate a digital broadcast copy 
protection mechanism.
    Finally, in January of this year we released a notice of proposed 
rulemaking on the recent agreement between the consumer electronics 
industry and the cable industry to allow for the creation of cable-
ready digital television sets.
    There is still, however, much for the Commission to do. For 
example, in addition to those issues outlined above, we also have a 
proceeding pending relating to broadcasters' digital cable carriage 
rights.

    Question 12. On area code relief: My state, California, is a great 
market, particularly for high tech and new telecommunications services. 
One drawback to this impressive growth is that these new 
telecommunications services use telephone numbers. Senior citizens, 
residents and small businesses, particularly in urban areas, have had 
to endure many successive area code changes. The state of California 
has a petition pending to try some new avenues of relief. For example, 
the state wants to overlay a new code for devices that don't require 
human interaction--like credit card verification devices,--so that real 
people are not burdened or confused. The state has other innovative 
ideas, and these have included requiring wireless carriers to offer 
local number portability and ordering a wireless overlay in the Los 
Angeles area code 310 and 909 region. What is your position?
    Answer. I have previously supported efforts to provide states 
additional flexibility they require to address numbering issues, such 
as implementing technology specific overlays. I understand that state 
commissions often bear the brunt of consumer complaints. State 
commissions, not the FCC, feel the outcry from consumers when number 
conservation measures are adopted. The Commission is currently 
considering the issues raised in the California Public Service 
Commission's petition. I plan to give the issues raised in the 
California PUC petition full consideration.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to 
                       Hon. Kathleen Q. Abernathy
    The D.C. Circuit's decision in USTA v. FCC, remanding the 
Commission's unbundling and line sharing rules, was inconsistent with 
the Supreme Court's holding in Verizon. However, the FCC's pending 
proposals to reduce competitors' access to network elements seem based 
on a similar predicate to the Court's suggestion that competitors using 
UNEs do not offer ``real'' competition to the incumbents.

    Question 1. Do you believe that UNE-P competition is not real 
competition? If so, why? If not, why would the FCC seek to curtail such 
competition?
    Answer. UNE-P competition is ``real'' competition. Carriers 
entering the market using the UNE platform have offered consumers 
additional choice, new service packages, and lower prices. Such entry 
has spurred new offerings from incumbent LECs. At the same time, the 
Commission must consider whether all the elements that make up the UNE 
platform may be unbundled in all markets consistent with section 
251(d)(2) of the Act, and also whether such competition will be 
economically efficient and sustainable in the long term.
    I do not believe that the FCC is seeking to curtail UNE-P 
competition. Rather, the focal point of the Commission's inquiry in the 
Triennial Review proceeding is determining which elements must be 
unbundled pursuant to sections 251(c) and 251(d)(2), as construed by 
the Supreme Court and the D.C. Circuit Court of Appeals. Because the 
D.C. Circuit reversed the FCC's previous order establishing unbundling 
requirements, the Commission must adopt new requirements. In doing so, 
according to the D.C. Circuit's mandate, the Commission must conduct a 
granular analysis of ``impairment''--that is, the Commission must 
ascertain whether each element ``is one for which multiple, competitive 
supply is unsuitable.'' USTA v. FCC, 290 F.3d 415, 427 (2002). If this 
analysis results in a finding that there is no impairment caused by a 
lack of access to a component of the UNE platform in a particular 
market, then the platform would not be available in that market 
(although other elements for which impairment is found would remain 
available on an unbundled basis, and total service resale would remain 
an option). This outcome, however, would result from the Commission's 
implementation of the Act consistent with direction from the court of 
appeals, rather than from an affirmative effort to curtail a particular 
entry strategy.

    Question 1a. Do you believe, as the FCC stated in its petition for 
rehearing, that the ``limitations that the panel's decision can be read 
to impose have no basis in the statutory text and appear to be 
inconsistent with several provisions of the 1996 Act''?
    Answer. I agree that the D.C. Circuit's analysis did not defer 
sufficiently to the FCC's judgment and that the court went beyond the 
point necessary to reverse the Commission's rules as overbroad. The 
court's interpretation of the impairment standard, in my view, is not 
the only permissible reading of the statutory text. Nevertheless, as a 
Commissioner I am bound to follow the law as it is interpreted by the 
court of appeals.

    At our January 14, 2003 hearing at which you appeared, Chairman 
Powell stated that the Commission's UNE Triennial Review must include 
as a ``core component'' an analysis of ``the proper role of state 
commissions in the implementation of our unbundling rules.'' 
Commissioner Martin likewise confirmed his belief that the Commission's 
rules should ``allow for state cooperation and input, especially 
regarding highly fact intensive and local determinations'' in 
recognition of the fact that ``[a]ssessments of whether access to a 
[unbundled network] element is necessary to provide service may vary 
significantly among different markets, states and regions.'' 
Commissioner Adelstein characterized the states as ``our partners in 
implementing the Act,'' Commissioner Copps noted that ``[t]he path to 
success is not through preemption of the role of the states.''
    Question 2. How will the Commission ensure that its order in the 
UNE Triennial Review preserves the meaningful participation of the 
states in the development of local competition as Congress intended?
    Answer. I have no doubt that the state commissions will play a 
pivotal role in carrying out the market-opening provisions in section 
251 of the Act. As an initial matter, the statute assigns the states 
key responsibilities in approving interconnection agreements, mediating 
and arbitrating disputes, and setting rates for unbundled network 
elements, among other things. See 47 U.S.C. Sec. 252. In addition, 
states have taken the lead in developing performance standards 
concerning the ordering, provisioning, and maintenance and repair of 
unbundled network elements. States will continue to supervise the 
negotiation process, establish network element prices, and monitor 
incumbents' performance in carrying out the standards adopted in the 
Triennial Review proceeding. In addition, where the FCC is unable to 
make granular impairment findings based on limitations in the record, 
the Commission is likely to delegate authority to state commissions to 
make factual findings that will determine the outcome of the impairment 
analysis. Finally, states retain authority to regulate local 
competition pursuant to state law, provided such state regulation ``is 
consistent with the requirements of [section 251] and does not 
substantially prevent implementation of the requirements of [section 
251] and the purposes of [Part II of Title II of the Act].'' 47 U.S.C. 
Sec. 251(d)(3)(B&C),

    Question 2a. Does the D.C. circuit decision's emphasis on a need 
for a more granular review of the need for UNEs suggest that the FCC 
must grant a strong oversight role to the states given that they are 
undeniably better equipped to gauge market conditions, competition, and 
compliance with the law on a market by market basis than is the FCC?
    Answer. As noted above, where the FCC is unable to make 
sufficiently granular impairment findings, it is likely to enlist the 
states in performing the granular analysis mandated by the court of 
appeals. I also agree that states are particularly well equipped to 
perform an oversight role in ensuring that incumbent LECs comply with 
the Act and the FCC's rules. For example, states have established 
detailed performance measurements for ``hot cuts'' (the process of 
connecting a loop to a competitor's switch), and I expect that states 
will play the primary role in monitoring that process on a localized 
basis.
                                 ______
                                 
Response to Written Questions Submitted by Hon. John D. Rockefeller IV 
                     to Hon. Kathleen Q. Abernathy
Universal Service
    The E-Rate has made it possible for us to expedite the integration 
of technology into our education system by wiring tens of thousands of 
schools and libraries across the country. I think it is extremely 
important for the Commission to pursue Universal Service reforms that 
will ensure the long-term viability of all aspects of the program--
including the E-rate.

    Question 1. Please update me about the status of the Commission's 
efforts to strengthen the Universal Service program. I am interested in 
what reforms are needed to enable us to serve the needs of low-income 
and rural Americans in the long-term AND continue the progress we've 
made in wiring schools and libraries.
    Answer. The Commission has launched several proceedings to ensure 
the continuing vitality of the Universal Service program. As described 
below, these proceedings aim to improve and strengthen all of our 
support mechanisms, and therefore will benefit consumers in high-cost 
areas, families with low income, and patrons of schools, libraries, and 
rural health care facilities. As Chair of the Federal-State Joint Board 
on Universal Service, I make it a top priority to ensure that these 
programs deliver the intended benefits in a fair, efficient, and 
effective manner.

   Schools, Libraries, and Rural Health Clinics. The Commission 
        has a pending rulemaking that seeks to improve the efficiency 
        and effectiveness of the support mechanism for schools and 
        libraries. In connection with this rulemaking, I recently 
        announced that I am organizing a public forum on May 8 focusing 
        on proposals to improve our oversight over the program, 
        including means of combating waste, fraud, and abuse. I hope to 
        develop consensus at the Commission on ways of avoiding 
        wasteful expenditures and preventing gaming of the system so 
        that deserving school children and library patrons continue to 
        have access to critical services. The Commission also has a 
        pending rulemaking on how to improve the administration of the 
        support mechanism for rural health care facilities. This 
        mechanism appears to be underutilized, so the Commission is 
        exploring how to remove obstacles to rural health clinics' 
        obtaining support.

   Contribution Methodology. In December 2002 the Commission 
        adopted a number of measures to stabilize the Universal Service 
        contribution factor in an effort to mitigate the growing 
        funding burden on consumers. For example, the Commission 
        increased the contributions of most wireless carriers, 
        eliminated the lag between the reporting of revenues and the 
        recovery of contribution costs, and prohibited mark-ups of 
        contribution costs on customers' bills. While these were 
        important steps, I believe that more fundamental reform may be 
        necessary to ensure the sustainability of Universal Service 
        funding in the long term. As bundled service offerings that 
        include local and long-distance voice services and broadband 
        Internet services become ever more prevalent, it is 
        increasingly difficult to isolate revenues from interstate 
        telecommunications services. Accordingly, I believe that a 
        contribution methodology incorporating a component based on 
        end-user connections (or some other surrogate), in addition to 
        or in lieu of our revenue-based methodology, may create a more 
        sustainable model for funding Universal Service in the future. 
        The Commission has sought comment on several proposals and will 
        consider additional reforms based on the record now being 
        developed.

   High-Cost Support. The Commission has several proceedings 
        underway that focus on the distribution of support to high-cost 
        areas. First, with respect to our non-rural support mechanism, 
        we are considering a Recommended Decision from the Federal-
        State Joint Board on Universal Service responding to a remand 
        by the Tenth Circuit Court of Appeals. This proceeding focuses 
        on how to ensure that funding is sufficient for non-rural 
        carriers serving high-cost areas. Second, the Commission is 
        considering another Joint Board Recommended Decision regarding 
        the definition of services that are eligible for Universal 
        Service support (the Joint Board recommended preserving the 
        status quo). Third, the Commission recently referred a 
        proceeding to the Joint Board concerning the intersection of 
        competition and Universal Service in rural areas. This 
        proceeding will address the so-called ``portability'' of 
        support--i.e., the manner in which competitive ETCs are 
        funded--as well as questions concerning support for multiple 
        lines, among other issues.

   Low-Income Support. Finally, the Joint Board will soon 
        release a Recommended Decision on various proposals to improve 
        the effectiveness of the Lifeline and LinkUp programs for low-
        income consumers. This Recommended Decision will suggest new 
        ways for low-income consumers to qualify for support and also 
        address questions regarding verification of eligibility and 
        outreach efforts.

Effect of broadband deregulation on Universal Service
    The Commission is considering changing the way certain broadband 
services are regulated by re-classifying them as ``information 
services.''

    Question 2. What impact would these changes have on the way 
contributions are collected for the Universal Service program? At a 
time when we are searching for ways to strengthen Universal Service, do 
you think it is wise to pursue actions that may threaten existing 
funding sources?
    Answer. The Commission's ongoing analysis of the appropriate 
classification of broadband Internet access services should not affect 
the Commission's authority to assess contributions on service 
providers. Section 254(d) authorizes the Commission to assess 
contributions on carriers that provide ``telecommunications services,'' 
as well as on providers of ``telecommunications.'' Thus, if the 
Commission were to rule that an incumbent LEC's self-provisioned DSL 
transmission is an information service, the Commission also could 
impose a Universal Service contribution obligation on the 
``telecommunications'' portion of that information service. The 
Commission's Wireline Broadband NPRM sought comment on whether to 
extend contribution obligations in this manner in the event that the 
Commission rules that broadband Internet access services do not include 
any separate telecommunications services. Therefore, I do not believe 
that the regulatory classification of broadband Internet access 
services threatens the Universal Service contribution base--regardless 
of the classification, the Commission must make a policy judgment 
whether providers should make separate contributions for broadband 
services.
Broadband and Competition
    I believe that stimulating investment in high-speed Internet 
services will help our economy and provide a variety of other benefits 
as well (telemedicine, distance learning, etc.).

    Question 3. What do you think the best strategies are for speeding-
up the deployment of broadband without threatening competition in local 
telephone markets?
    Answer. Section 706 of the Telecommunications Act of 1996 provides 
one of the Commission's most important responsibilities--promoting 
broadband deployment. Congress directed the Commission to facilitate 
broadband deployment through various means, including the elimination 
of regulatory barriers to infrastructure investment. Our recent 
Triennial Review decision took significant steps to accomplish this 
goal. For example, the Commission ruled that packetized channels over 
fiber loops and subloops would not be subject to unbundling at TELRIC 
rates, thus creating a powerful incentive for carriers to deploy new 
fiber facilities. At the same time, the Commission required the 
continued unbundling of high-capacity loops (e.g., T-1 lines) to 
preserve competition in the small and medium enterprise market.
    I am disappointed, however, that a majority of the Commission 
decided to eliminate the line-sharing obligation. Had the Commission 
freed incumbents from unbundling obligations over newly deployed fiber 
but maintained the obligation to unbundle a broadband channel over 
existing copper, the Commission could have promoted both competition 
and investment. Nevertheless, even though I believe the Commission was 
unwise to eliminate line sharing, on balance the broadband portions of 
the Triennial Review decision are likely to help accelerate the rollout 
of broadband services to all Americans.
Local Competition
    According to recent reports in the Wall Street Journal, the 
Commission may be preparing to scale back competitors' access to local 
networks by changing the rules relating to the unbundled network 
element platform. According to recent FCC statistics, competition in 
local telephone markets is just now starting to take hold in a 
meaningful way.

    Question 4. If the unbundled network element platform were to no 
longer be an available method for competitors' to access Bell networks, 
what would it mean for the future of local competition--particularly in 
rural areas and regions with challenging topography where the cost of 
deploying facilities is particularly high?
    Answer. I believe that making significant changes to the 
availability of the unbundled network element platform (UNE-P) would 
have promoted competition in the long term by giving carriers 
incentives to deploy their own facilities. There is no doubt that 
facilities-based competition will promote consumer welfare more 
effectively than a resale-type model such as UNE-P, which provides 
access to the incumbent's network at superefficient TELRIC prices. 
Unfortunately, a majority of the Commission adopted a framework under 
which states have discretion to preserve UNE-P in all markets 
indefinitely. That framework is unlikely to create significant 
incentives for competitors to deploy facilities of their own, and 
therefore is unlikely to promote sustainable competition. Moreover, the 
majority's framework is likely to engender litigation in each of the 50 
states, thereby plunging the industry into uncertainty for years to 
come. I believe that the FCC should have adopted a national framework 
that eliminated the obligation to unbundle circuit switches in markets 
where there is clear evidence of switch deployment by competitors and 
where operational impairments have been addressed. Such an approach 
could have preserved unbundling obligations in rural markets where the 
cost characteristics create an insurmountable barrier to entry.

Interplay Between State Regulators and the FCC
    In a recent letter to all five of the Commissioners, several 
representatives of the National Association of Regulatory Utility 
Commissioners wrote, ``State flexibility to maintain UNE-P as well as 
the ability to add to any national UNE list is critical to keeping 
competition `on track' ''.

    Question 5. What is your vision for the appropriate interplay 
between state regulators and the FCC in implementing the 1996 Act and 
promoting a competitive telecommunications market that benefits 
consumers?
    Answer. The FCC and state commissioners both play an important role 
in promoting local competition, and the Act spells out the terms of 
their partnership. Section 251(d) of the Act directs the FCC to decide 
which network elements should be made available at cost-based rates. 
Where the FCC lacks sufficient information, it may be appropriate to 
rely on state commissions for fact-finding purposes, although I believe 
that the FCC must retain the ultimate authority over the availability 
of network elements. For example, under the FCC's new framework for 
unbundled transport, the Commission adopted a binding objective trigger 
that determines where impairment is present, and the states will make 
findings to determine where the trigger has been met. I believe this is 
the appropriate model for federal-state cooperation. By contrast, the 
majority's switching decision abdicates our federal responsibility by 
leaving it to individual states to determine where unbundled switching 
should be available. While Congress gave the FCC responsibility for 
deciding which network elements to unbundle, section 252 gives states 
important roles in setting prices for interconnection and unbundled 
network elements, approving interconnection agreements, and mediating 
and arbitrating disputes. Moreover, section 251(d)(3) preserves state 
authority to adopt regulations that are consistent with the 
requirements of section 251 and do not substantially prevent 
implementation of the federal regime.
                                 ______
                                 
Response to Written Questions Submitted by Hon. John D. Rockefeller IV 
                     to Hon. Jonathan S. Adelstein
Universal Service
    The E-Rate has made it possible for us to expedite the integration 
of technology into our education system by wiring tens of thousands of 
schools and libraries across the country. I think it is extremely 
important for the Commission to pursue Universal Service reforms that 
will ensure the long-term viability of all aspects of the program--
including the E-rate.

    Question 1. Please update me about the status of the Commission's 
efforts to strengthen the Universal Service program. I am interested in 
what reforms are needed to enable us to serve the needs of low-income 
and rural Americans in the long-term AND continue the progress we've 
made in wiring schools and libraries.
    Answer. I strongly support maintaining a strong and sound Universal 
Service mechanism, including the E-rate. I recently had the privilege 
of being made a member of the Federal-State Joint Board on Universal 
Service. Because only one Democrat can serve on the Joint Board, 
Commissioner Copps and I established a rotation schedule which would 
allow me to begin serving this year. He intends to return some time in 
2004. We plan to confer closely.
    The FCC and the Federal-State Joint Board are actively reviewing 
many issues that go to the heart of your question regarding our efforts 
to strengthen the program. The Joint Board will soon make a 
recommendation to the FCC regarding Lifeline and Link-Up to ensure that 
people who need access to these programs know about them and can 
participate more readily. We are looking at the question of the 
portability of funding and the best manner in which to do that.
    The FCC also is looking at which services should be included in the 
definition of universal services and thus eligible for funding. We are 
also addressing the contribution methodology to ensure that the funding 
mechanism is specific, predictable and sufficient, as Congress 
directed.
    Currently, the administration of the Schools and Libraries program 
is experiencing significant criticism. We are working on ways to 
address some of the concerns that have been raised by various 
interested entities. We also plan to hold an open forum on May 8, 2003 
to better understand some of the issues and potential solutions.
    My goal is to ensure that universal service funding, for high cost 
areas, schools and libraries, rural health care facilities and low 
income consumers works as Congress intended.
Effect of Broadband Deregulation on Universal Service
    The Commission is considering changing the way certain broadband 
services are regulated by re-classifying them as ``information 
services.''

    Question 2. What impact would these changes have on the way 
contributions are collected for Universal Service program? At a time 
when we are searching for ways to strengthen Universal Service, do you 
think it is wise to pursue action that may threaten existing funding 
sources?
    Answer. I share the concern about the potential effect that the 
Title I reclassification may have on our ability to support Universal 
Service funds. It potentially creates a problem in the area of not only 
contribution to the fund, but also in revenue recovery by the small and 
rural ILECs that have made the investment to bring broadband services 
to their customers. Such an action potentially could eviscerate efforts 
to bring advanced services to rural America.
    So the question is should the FCC treat broadband offered by 
incumbent local exchange carriers--usually DSL--as a telecommunications 
service regulated under Title II of the Communications Act--which is 
the Common Carrier portion of the Act--or as an information service 
under Title I--the general provisions of the Act. This seemingly simple 
difference can have huge ramifications for universal service. If these 
broadband services are classified as information services, the FCC 
loses much of the oversight that comes with Title II. And information 
service providers don't now contribute to Universal Service. This 
raises a lot of questions. Does it mean, for example, that revenues 
from these services can't contribute toward Universal Service? We've 
got to think hard about this at a time when the demands on the fund are 
increasing and contributions are decreasing.
Broadband and Competition
    I believe that stimulating investment in high-speed Internet 
services will help our economy and provide a variety of other benefits 
as well (telemedicine, distance learning, etc.)

    Question 3. What do you think the best strategies are for speeding 
up the deployment of broadband without threatening competition in local 
telephone markets?
    Answer. I believe that Congress has many tools with which it can 
work to speed the deployment of broadband. Some of these would be loan 
and grant programs, and another way would be through tax credits.
    Although universal service doesn't directly support advanced 
services, it's a vital mechanism that lays the groundwork for the 
creation of the broadband networks of the future. The high-bandwidth 
applications, like video services, that will drive revenues and expand 
opportunities will ride on these networks. And thus universal service 
will play a key role in bringing them to everyone in America.
    Competition has historically functioned as a major force in 
spurring broadband deployment. The Commission can choose to deregulate 
where competition has already steadfastly taken hold. Under the Act, 
deregulation must follow competition, and not vice versa.
Local Competition
    According to recent reports in the Wall Street Journal, the 
Commission may be preparing to scale back competitors' access to local 
networks by changing the rules relating to the unbundled network 
element platform. According to recent FCC statistics, competition in 
local telephone markets is just now starting to take hold in a 
meaningful way.
    Question 4. If the unbundled network platforms were to no longer be 
an available method for competitors' to access Bell networks, what 
would it mean for the future of local competition--particularly in 
rural areas and regions with challenging topography where the cost of 
deploying facilities is particularly high?
    Answer. Congress intended competition to take shape in many forms. 
One is facilities-based, another is through resale, and another is 
through interconnection. Although I believe that facilities-based 
competition is the most stable, I do believe that Congress intended it 
to take many shapes.
    That being said, I believe that the Commission's record supported a 
finding of impairment to competitors without access to UNE-P in at 
least the mass market. Approximately 10 million customers are served 
through UNE-P and the Commission itself has found it to be appropriate 
to base Track A approval in the 271 process on the presence of UNE-P 
competition. Had we eradicated access to UNE-P, we may have done away 
with a great deal of competitive choice that customers now have.
Interplay Between State Regulators and the FCC
    In a recent letter to all five of the Commissioners, several 
representatives of the National Association of Regulatory Utility 
Commissioners wrote, ``State flexibility to maintain UNE-P as well as 
the ability to add to any national UNE list is critical to keeping 
competition `on track'.''

    Question 5. What is your vision for the appropriate interplay 
between state regulators and the FCC in implementing the 1996 Act and 
promoting a competition telecommunications market that benefits 
consumers?
    Answer. As I stated in my testimony, I perceive that Congress made 
the state Commissions our partners in both the areas of competition and 
Universal Service.
    In some areas, Congress explicitly granted us the jurisdiction, and 
in others, Congress granted the state Commissions the jurisdiction. One 
such example is in the establishment and pricing of UNEs. We establish 
the ``menu'' of UNE's and the state Commissions price them through 
their ratemaking authority.
    In the Triennial Review Order I believe that we have maintained the 
appropriate balance with the state Commissions in our efforts to 
promote a telecommunications market that benefits consumers.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to 
                       Hon. Jonathan S. Adelstein
    The D.C. Circuit's decision in USTA v. FCC, remanding the 
Commission's unbundling and line sharing rules, was inconsistent with 
the Supreme Court's holding in Verizon. However, the FCC's pending 
proposals to reduce competitors' access to network elements seem based 
on a similar predicate to the Court's suggestion that competitors using 
UNEs do not offer ``real'' competition to the incumbents.

    Question 1. Do you believe that UNE-P competition is not real 
competition? If so, why? If not, why would the FCC seek to curtail such 
competition?
    Question 1a. Do you believe, as the FCC stated in its petition for 
rehearing, that the ``limitations that the panel's decision can be read 
to impose have no basis in the statutory text and appear to be 
inconsistent with several provisions of the 1996 Act''?
    Answer. The Telecommunications Act of 1996 envisioned competition 
coming in many forms. These modes are resale, interconnection and 
facilities-based competition, separately and in combination with each 
other. As a Member of the Federal Communications Commission, it is 
incumbent upon me to honor Congress' vision of how it intended to bring 
competition to the local loop. My position is to implement the law, not 
impose my policy views upon it. Legislation is rightly in the hands of 
Congress. Although never specifically mentioned as a specific 
``element,'' ``UNE-P'' is competition that finds its roots in the 
interconnection-based provisions of the Act. We determine which of our 
unbundled network elements (UNEs) must be made available to competitors 
through the filter of section 252(d)(2) Access Standards, commonly 
known as the necessary and impair standard. We must apply this standard 
to the individual UNEs and determine if a competitor would be impaired 
in its efforts to provide the service it seeks to offer without access 
to that particular UNE. If we find that there is no impairment, then we 
will move UNE-P from our list of UNE's that are available; if a legal 
impairment still exists, then UNE-P will continue to be available. 
Since this language requires that we only consider whether unbundled 
network elements are necessary and if a carrier will be impaired 
without access to them ``at a minimum,'' the statute allows us to look 
at other considerations such as the effect on competition and the 
deployment of broadband under section 706.

    At our January 14, 2003 hearing at which you appeared, Chairman 
Powell stated that the Commission's UNE Triennial Review must include 
as a ``core component'' an analysis of ``the proper role of state 
commissions in the implementation of our unbundling rules.'' 
Commissioner Martin likewise confirmed his belief that the Commission's 
rules should ``allow for state cooperation and input, especially 
regarding highly fact intensive and local determinations'' in 
recognition of the fact that ``[a]ssessments of whether access to a 
[unbundled network] element is necessary to provide service may vary 
significantly among different markets, states and regions.'' 
Commissioner Adelstein characterized the states as ``our partners in 
implementing the Act,'' Commissioner Copps noted that ``[t]he path to 
success is not through preemption of the role of the states.''

    Question 2. How will the Commission ensure that its order in the 
UNE Triennial Review preserves the meaningful participation of the 
states in the development of local competition as Congress intended?
    Question 2a. Does the D.C. circuit decision's emphasis on a need 
for a more granular review of the need for UNEs suggest that the FCC 
must grant a strong oversight role to the states given that they are 
undeniably better equipped to gauge market conditions, competition, and 
compliance with the law on a market by market basis than is the FCC?
    Answer. I believe that Congress intended for the Federal 
Communications Commission and the state Commissions to be partners in 
the implementation of both pillars of the Communications Act of 1996, 
Universal Service, and competition and any corresponding subsequent 
deregulation. Section 251(d)(3) is entitled ``Preservation of State 
Access Regulations.'' To paraphrase the provision, the Commission 
cannot preclude the enforcement of any regulation, order, or policy of 
a state commission that establishes access and interconnection 
obligations of local exchange carriers; is consistent with the 
requirements of the interconnection section of the Act; and does not 
substantially prevent implementation of the requirements of this 
section and the purposes of the common carrier regulation portion of 
the Act. I view this particular provision as ensuring that we cannot 
scuttle the state Commissions' efforts to respond to the competitive 
initiatives in the Act unless the state's efforts would serve to 
substantially impair the Commission's ability to carry out the 
requirements that the Act places on the Federal Communications 
Commission. I believe that the states must be given a significant role 
in this process just as they have been given significant roles, in 
among others, the section 251 arbitration proceedings, the Section 271 
process, and under section 254, the designation of Eligible 
Telecommunications Carrier status. The state commissions are closer to 
the ground in the implementation process. That is one of the reasons 
for which the Congress chose to make them an integral part of the team 
to implement the 1996 Act. I believe that the states must participate 
in determining if access to a particular UNE is necessary and that if 
that carrier doesn't have access to it, it will be impaired in the 
provision of that service. I believe that the appropriate role of the 
state is fluid depending upon the particular UNE under discussion. If a 
particular UNE lends itself to a national statement of impairment or no 
impairment, then we have satisfied the USTA court's direction of 
granularity. With other UNE's, a national determination may not be 
possible, and thus the states are best suited, with guidance, to make 
that determination.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                       Hon. Jonathan S. Adelstein
Local Telephone Service Competition
    Question 1. Competing companies generally offer service to 
consumers at prices 10-50 percent less than the Bells. If the FCC 
terminates the requirement for traditional phone companies to offer 
parts of their infrastructure for lease to competitors, wouldn't that 
leave the vast majority of California customers without a choice for 
local phone service and drive up rates for consumers?
    Answer. Yes, wholesale relief from the UNE requirements could 
possibly leave a vast majority of customers without access to 
competitive choices and the benefits, of lower prices and better 
service, that flow from competition. However, such comprehensive relief 
from these requirements is not being contemplated at this time.

    Question 2. Commissioners Copps and Adelstein, you issued a joint 
concurring statement in SBC's petition for forbearance in its 
application for dominant carrier status. In that statement, you stated 
that you voted for the proceeding not because it was the ``optimal 
outcome, or even a good one,'' but because it was better than no 
decision at all. If the Commission had failed to act, there would have 
been an automatic grant of SBC's request. I am concerned that you would 
oppose the order but vote for it anyway because it was better than 
doing nothing. In your pending review on local phone competition, the 
Commission faces another deadline of February 20. Will you face a 
similar dilemma there?
    Answer. No, we do not face a similar dilemma here. First, we expect 
to complete this process by the District Court imposed deadline. 
Second, in the proceeding entitled section 272(f)(1) Sunset of the BOC 
Separate Affiliate and Related Requirements, the situation was such 
that without any Commission action, all of our regulatory oversight 
over SBC's affiliate would have lapsed completely on a date certain. In 
section 272, Congress required Bell companies to provide long-distance 
and manufacturing services through a separate affiliate. In 
implementing these requirements, the Commission concluded that Congress 
adopted these safeguards because it recognized that Bell companies may 
still exercise market power at the time they enter long-distance 
markets. Congress provided that these requirements would continue for 
three years, but could be extended by the Commission by rule or order. 
Thus, no Commission decision would have meant no remaining oversight or 
control. I chose to concur in that item because, although I was pleased 
with neither our lack of analysis, nor the ultimate decision, we were 
able to include some safeguards to make it less likely that the SBC 
affiliate could engage in discriminatory treatment because of SBC's 
dominance in the market. The interconnection rules in the Act call for 
negotiation, and if necessary, State commission arbitration, in order 
to breathe life into the interconnection process. These relationships 
are contractual in nature. As such, even if we had not been able to 
reach a decision by February 20, 2003, the contracts would remain in 
force and effect and there would not be unbridled chaos as some have 
suggested.

Broadband DSL Competition
    Question 3. According to the California PUC, half of my state has 
no access to cable broadband service and the speeds available over 
satellite are not competitive with DSL. If you do not continue to allow 
competition in DSL broadband service, will not consumers in my state be 
at the mercy of a DSL broadband monopoly?
    Answer. Yes, if there were no requirements placed on the Bell 
companies to unbundle their networks, then it is possible that the 
incumbent LEC would be the only provider of DSL or any other form of 
broadband competition in particular markets. As you are aware, the 
access to loops, switching and transport is a different issue than the 
pricing for that access. If not priced as UNE's under total element 
long run incremental costs (TELRIC), the RBOCs might price these 
features and functionalities at just and reasonable rates. And although 
line sharing gives competitive carriers access at TELRIC rates or zero, 
they could possibly access the higher frequency bandwidth portion of 
the line at just and reasonable rates under these provisions. Moreover, 
competitors would still have access to the entire loop.

    Question 4. If I understand correctly, regulation of broadband 
delivered over telephone lines is dependent on whether or not the 
Commission chooses to define DSL broadband as a ``telecommunications'' 
service, and as a result is regulated, or an ``information'' service, 
which would result in an unregulated environment. Can any of you 
explain how a voice conversation carried over phone lines could be 
declared a telecommunications service while an e-mail conversation 
carried over phone lines is not?
    Answer. That is just one of the challenges faced in determining 
whether these services should be treated as information services under 
Title I of the Act, or as telecommunications services under Title II of 
the Act. Both allow us to regulate it, but in completely different ways 
and to very different ends. Your example is a good one in terms of 
demonstrating how difficult it is to classify these services.
Wi-Fi and the Jumpstart Broadband Act
    Question 5. Commissioners, my staff has made the ``Jumpstart 
Broadband Act'' available to your offices. Have you had time to review 
the legislation and could you provide feedback on it?
    Answer. I commend your efforts and the efforts of Senator Allen in 
encouraging the deployment of additional unlicensed services in the 5 
GHz band. The Jumpstart Broadband Act provides a solid framework for a 
Commission allocation for unlicensed use by wireless broadband devices 
and appropriately recognizes the important need for interference 
protection standards to protect incumbent Federal Government agency 
users of 5 GHz spectrum.

    Question 6. Commissioners, innovation has flourished in the current 
unlicensed spectrum bands. What do you believe the potential is for 
increased innovation and do you agree that more spectrum should be 
allocated to encourage this innovation?
    Answer. I do agree that more spectrum should be allocated for 
unlicensed services. Unlicensed operations are one of the few 
communications success stories over the past couple of years, and I 
think the Commission should continue to promote the development and 
deployment of more advanced unlicensed broadband devices and services. 
In doing so, though, we must continue to be mindful of interference to 
existing licensed users. I look forward to addressing some of these 
issues at the Commission over the next several months.

    Question 7. Commissioners, would you agree that additional 
unlicensed spectrum could help spur new broadband services and would be 
a good idea regardless of how you proceed on the broadband proceedings 
before you?
    Answer. I am very excited about the promise of unlicensed wireless 
technologies, and indeed of all spectrum-based technologies, to provide 
broadband services to American consumers. While much of the recent 
attention has focused on the explosive growth of Wi-Fi services, I 
think that there also are a number of other promising spectrum 
technologies--licensed and unlicensed terrestrial services, as well as 
satellite-based services--that will be able to offer broadband 
services.

    Question 8. Experts in technology we have talked with say that the 
technology clearly exists that would allow unlicensed devices to keep 
from harming incumbent systems. Do your experts tell you the same 
thing?
    Answer. I am very encouraged by the recent agreement between 
industry and Federal Government agencies regarding the operation of 
wireless local area networks in the 5 GHz band and the protection of 
incumbent operations. I fully support this important consensus.
Digital Copyright Issues
    Question 9. Commissioners, consumers are excited about the 
potential that digital television and HDTV have to increase 
dramatically the quality of their viewing experience. At the same time, 
those who make movies and shows are concerned that those shows and 
films distributed in digital format will be copied and distributed at a 
huge loss to them. Does it not seem to you that some form of protection 
for content carried over the air and over cable to these fantastic new 
TVs is necessary and fair?
    Answer. Some sort of protection may be required. We are currently 
exploring this issue, including the scope of the FCC's jurisdiction in 
this area, in our broadcast flag proceeding.

    Question 10. Commissioner Adelstein, you have said that the FCC is 
obligated to protect ``the free flow of ideas and creativity.'' Do you 
believe that a part of that obligation includes the protection of 
creative content from piracy?
    Answer. When I made that statement, I was referring to our public 
interest mandate, our role in ensuring that broadcasters serve the 
``public interest, convenience, and necessity.'' As part of that 
mandate, we must maintain broadcast ownership rules that promote the 
public interest. Whether the FCC has a role in protecting digital 
content from privacy depends in part on the scope of its jurisdiction. 
As stated above, we are currently considering that issue in our 
broadcast flag proceeding.
Media Concentration
    After the elimination of radio consolidation protections in the 
1990s, in California alone, one company, Clear Channel, owns a stunning 
102 radio stations. In some towns that means every station is 
controlled by the same corporation. Now I hear that the FCC is 
considering eliminating the concentration protections for TV, cable, 
and newspapers.

    Question 11. I also hear from the Writers Guild, local 
broadcasters, independent film makers, Consumers Union, and others that 
the FCC is rushing to judgment on whether to eliminate or drastically 
change its media concentration protections. If you eliminate the 
current rules altogether, then could TV and cable in California 
experience similar concentration as radio?
    Answer. If we were to eliminate the current rules altogether, I 
believe TV and cable could conceivably experience similar 
concentration.

Miscellaneous
    Question 12. Do you foresee an overlay strategy for the 310 area 
code that would prevent a split but only change digital cell phones 
prospectively, therefore eliminating the inconvenience to individuals 
who presently own cell phones and assuring that purchasers of analog 
cell phones would not have to change their code?
    Answer. I oppose the taking back of telephone numbers from existing 
mobile wireless users, whether they have digital or analog phones. As 
noted in my answer below, I am hopeful that with the implementation of 
wireless local number portability and the consideration of the 
California PUC request to raise the contamination percentage to 25 
percent for thousands-block pooling, we can significantly improve the 
numbering resources situation in California so as to eliminate any 
discussion of telephone number take backs.
    On the HERO Act (public safety spectrum): The FCC has an open 
rulemaking on digital television. One of the areas of concern to me is 
that critical spectrum for public safety--spectrum that will help first 
responders coordinate effectively in the event of a terrorist attack 
such as 9/11--is being held pending the broadcasters' transition to 
digital television. Congresswoman Harman, who is now Ranking Member on 
the House Intelligence Committee, has introduced a bill, the HERO Act, 
to have the public safety spectrum in issue turned over by a date 
certain at the end of 2006, precisely to get at a problem first 
responders had in coordinating during and immediately after the 9/11 
attacks.

    Question 13. What has the FCC done, and what can it still do, to 
speed up the broadcasters' conversion and to get the public to 
participate in the transition as well?
    Answer. In January 2002, the Commission issued state-wide licenses 
for public safety use of the 700 MHz band. However, many large cities 
will not have timely access to the 700 MHz public safety spectrum 
because of incumbent broadcasters on TV Channels 62, 63, 64, 65, 67, 
68, and 69. Public safety representatives have urged that the 700 MHz 
band be cleared of incumbent broadcasters as soon as possible, and by 
no means later than the end of 2006. A date certain for access to the 
700 MHz band is critical to public safety agencies' ability to engage 
in long-range financial planning and in the purchase of equipment. 
Inasmuch as Congress has mandated that a set Digital Television market 
penetration benchmark must be reached before a complete transition 
becomes mandatory, establishing a schedule for a complete transition of 
the 700 MHz public safety band to exclusive public safety use is a 
matter not completely within the Commission's control.
    With regard to other actions taken to facilitate the transition, I 
commend the Chairman for his leadership in securing voluntary industry 
commitments to increase consumer access to compelling digital content 
and to increase consumer awareness of the digital transition. The 
Commission has proposed a graduated regime of sanctions to impose on 
stations that fail to build out their DTV facilities and adopted a DTV 
tuner mandate, requiring that televisions have the capability to 
receive and display DTV over-the-air channels. Two on-going proceedings 
aimed at facilitating the transition include the DTV periodic review 
(reviewing whether adjustments to the existing rules for the transition 
are needed) and a proceeding on the Digital Cable Compatibility 
proposal recently submitted jointly by cable operators and electronics 
manufacturers.

    Question 14. On area code relief: My state, California, is a great 
market, particularly for high tech and new telecommunications services. 
One drawback to this impressive growth is that these new 
telecommunications services use telephone numbers. Senior citizens, 
residents and small businesses, particularly in urban areas, have had 
to endure many successive area code changes. The State of California 
has a petition pending to try some new avenues of relief. For example, 
the state wants to overlay a new code for devices that don't require 
human interaction--like credit card verification devices,--so that real 
people are not burdened or confused. The state has other innovative 
ideas, and these have included requiring wireless carriers to offer 
local number portability and ordering a wireless overlay in the Los 
Angeles area code 310 and 909 region. What is your position?
    Answer. The issue of technology-specific overlays for mobile 
wireless customers is a difficult one. I am hopeful that with the 
implementation of wireless local number portability and the 
consideration of the California PUC request to raise the contamination 
percentage to 25 percent for thousands-block pooling, we can avoid the 
need for a technology-specific overlay directly targeting mobile 
wireless phones. If a technology specific overlay is adopted, we 
believe that the overlay should convert to an all services overlay at a 
date certain and that such a proposal should not include the taking 
back of telephone numbers from end users.
    I am always interested in hearing innovative ideas from state 
commissions to make numbering usage more efficient. I will encourage 
the Commission to look into the possibility of area codes for non-
geographically sensitive devices (such as credit card verification 
devices) and into increasing the contamination threshold for number 
pooling.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to 
                         Hon. Michael J. Copps
    The D.C. Circuit's decision in USTA v. FCC, remanding the 
Commission's unbundling and line sharing rules, was inconsistent with 
the Supreme Court's holding in Verizon. However, the FCC's pending 
proposals to reduce competitors' access to network elements seem based 
on a similar predicate to the Court's suggestion that competitors using 
UNEs do not offer ``real'' competition to the incumbents.

    Question 1. Do you believe that UNE-P competition is not real 
competition? If so, why? If not, why would the FCC seek to curtail such 
competition?
    Answer. Congress made clear that facilitating competition within 
and across platforms are both important in the statutory framework. 
Congress recognized that many competitors would not be able to 
duplicate the incumbent's network. Congress therefore required the 
Commission to determine those network elements that an incumbent must 
unbundle and offer to its competitors in the local market. In those 
markets where competitors are impaired without access to loops, 
switching, and transport, UNE-P may offer the only competitive 
alternative for certain customers. I am pleased that, in the face of 
intense pressure for the Commission to make broad nationwide decisions 
that would have doomed the future use of unbundled elements, we instead 
adopted a more reasonable process under which the state commissions 
conduct a granular analysis that takes into account geographic and 
customer variation in different markets. Through this process, we will 
be able to foster the competition that Congress sought in the 1996 Act 
and to fulfill the mandate of the law, which is ``to secure lower 
prices and higher quality services for American consumers.''

    Question 1a. Do you believe, as the FCC stated in its petition for 
rehearing, that the ``limitations that the panel's decision can be read 
to impose have no basis in the statutory text and appear to be 
inconsistent with several provisions of the 1996 Act''?
    Answer. I remain concerned not only about these aspects of the 
court decision, but also about apparent inconsistencies between this 
decision and the Supreme Court decision issued several days before. It 
may therefore have been better to try to resolve the uncertainties by 
seeking review of the D.C. Circuit decision, rather than moving forward 
with another decision that will face a renewed round of litigation.

    At our January 14, 2003 hearing at which you appeared, Chairman 
Powell stated that the Commission's UNE Triennial Review must include 
as a ``core component'' an analysis of ``the proper role of state 
commissions in the implementation of our unbundling rules.'' 
Commissioner Martin likewise confirmed his belief that the Commission's 
rules should ``allow for state cooperation and input, especially 
regarding highly fact intensive and local determinations'' in 
recognition of the fact that ``[a]ssessments of whether access to a 
[unbundled network] element is necessary to provide service may vary 
significantly among different markets, states and regions.'' 
Commissioner Adelstein characterized the states as ``our partners in 
implementing the Act,'' Commissioner Copps noted that ``[t]he path to 
success is not through preemption of the role of the states.''

    Question 2. How will the Commission ensure that its order in the 
UNE Triennial Review preserves the meaningful participation of the 
states in the development of local competition as Congress intended?
    Answer. In some parts of the Order, the Commission recognized that 
the states have a significant role to play in our unbundling 
determinations. We understood in those sections that the path to 
success is not through preemption of the role of the states, but 
through cooperation with the states. In those areas, we adopted a 
reasonable process under which a state Commission is able to conduct a 
granular analysis that takes into account geographic and customer 
variation in different markets.
    In other sections of the Order, however, we did not provide a 
meaningful role for the state commissions. In particular, the 
Commission limited--on a nationwide basis in all markets for all 
customers--competitors' access to broadband loop facilities whenever an 
incumbent deploys a mixed fiber/copper loop. The Commission has 
recognized time and again that loops are the ultimate bottleneck 
facility. Yet, the Commission has chosen to eliminate this bottleneck 
facility on a nationwide basis without adequate analysis of the impact 
on consumers, without analyzing different geographic or customer 
markets, and without conducting the granular, fact-intensive inquiry 
demanded by the courts.

    Question 2a. Does the D.C. circuit decision's emphasis on a need 
for a more granular review of the need for UNEs suggest that the FCC 
must grant a strong oversight role to the states given that they are 
undeniably better equipped to gauge market conditions, competition, and 
compliance with the law on a market by market basis than is the FCC?
    Answer. The D.C. Circuit made clear that a more granular analysis 
was necessary to take into account differences among specific markets 
or segments of markets. State commissions with closer proximity to the 
markets are often best positioned to make the fact-intensive 
determinations about impairments faced by competitors in their local 
markets.

  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                         Hon. Michael J. Copps
    Question. Commissioner Copps, I share your concerns about the 
possible modification of ownership limits under consideration and I 
strongly agree with you about the need to ensure that every American 
stakeholder is given an opportunity to participate in this debate. I 
understand the Media Council and Society of Professional Journalists in 
Hawaii have formally requested an opportunity to discuss the media 
concentration issue in general, and the Hawaii duopoly waiver situation 
in particular.
    I respectfully request that the FCC work with the Media Council and 
Society of Professional Journalists to facilitate a hearing or meeting 
in Hawaii on this important issue.
    Answer. This decision is too important to make in a business-as-
usual way. We need a national dialogue on these critical issues. That 
is why I've been pushing so hard for media hearings. I plan to 
participate in forums that are currently being planned by a number of 
private groups in cities across the mainland--from New York to Chicago 
to Los Angeles. But it shouldn't fall exclusively to private 
organizations like the Columbia Law School or the Annenberg Center to 
rally the public on these matters. It's the FCC's responsibility--it is 
our public interest duty --to reach out and tell the public about this 
proceeding, and then to solicit and listen to their input.
    I am committed to participating in as many public hearings on these 
issues as I can. To that end, I have made arrangements to hold field 
hearings in Seattle and Durham this month. But, in organizing these 
field hearings, we were not permitted to draw on the resources of the 
full Commission or our Media Bureau for assistance in all of the 
logistics that go into such events, nor were we provided any additional 
funding for them. Those resources would be critical to the success of 
an event in Hawaii. I for one would welcome the opportunity to work 
together with my colleagues and the staffs of the Media and Consumer & 
Governmental Affairs Bureaus to make such an event happen. I have asked 
the Chairman to address this matter of a hearing in Hawaii and I hope 
he will do so soon.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                         Hon. Michael J. Copps
Local Telephone Service Competition
    Question 1. Competing companies generally offer service to 
consumers at prices 10-50 percent less than the Bells. If the FCC 
terminates the requirement for traditional phone companies to offer 
parts of their infrastructure for lease to competitors, wouldn't that 
leave the vast majority of California customers without a choice for 
local phone service and drive up rates for consumers?
    Answer. The mission of facilitating competition in all 
telecommunications markets became the law of the land in the 1996 Act. 
I share your concern about the possibility that certain customers will 
be left without the competitive choices that Congress sought. The 
Triennial Review offered us the opportunity to encourage competition 
and to fulfill the mandate of the law, which is ``to secure lower 
prices and higher quality services for American consumers.'' In some 
sections, the decision advances that mandate. We preserve voice 
competition in the local markets and we allow it to grow. We accord the 
states an enhanced role in making the granular determinations necessary 
to foster competition and to ensure that consumers will reap the 
benefits of lower prices, better services, and greater innovation. In 
other sections, however, I am troubled that we are undermining 
competition, particularly in the broadband market, by limiting--on a 
nationwide basis in all markets for all customers--competitors' access 
to broadband loop facilities. I fear that this decision may well result 
in higher prices for consumers and may put us on the road to re-
monopolization of the local market.

    Question 2. Commissioners Copps and Adelstein, you issued a joint 
concurring statement in SBC's petition for forbearance in its 
application for dominant carrier status. In that statement, you stated 
that you voted for the proceeding not because it was the ``optimal 
outcome, or even a good one,'' but because it was better than no 
decision at all. If the Commission had failed to act, there would have 
been an automatic grant of SBC's request. I am concerned that you would 
oppose the order but vote for it anyway because it was better than 
doing nothing. In your pending review on local phone competition, the 
Commission faces another deadline of February 20. Will you face a 
similar dilemma there?
    Answer. Although the Commission adopted an Order on February 20, 
the procedural issues in this proceeding were far different than those 
raised by SBC's forbearance petition. The statute provides that, if the 
Commission does not deny a forbearance petition, it is deemed granted. 
The Commission therefore needed to act by a certain date on SBC's more 
far-reaching forbearance request. In the other instance, the Commission 
is responding to a court decision overturning its previous network 
element rules. As several parties argued, had the Commission not 
reached a decision, it is unlikely that there would have been immediate 
disruption in the market because unbundling obligations would have 
continued pursuant to unexpired interconnection agreements, state law 
requirements, or other federal requirements.
Broadband DSL Competition
    Question 3. According to the California PUC, half of my state has 
no access to cable broadband service and the speeds available over 
satellite are not competitive with DSL. If you do not continue to allow 
competition in DSL broadband service, will not consumers in my state be 
at the mercy of a DSL broadband monopoly?
    Answer. I dissented from the far-reaching broadband sections of the 
Order, because I was troubled that we are undermining competition, 
particularly in the broadband market, by limiting--on a nationwide 
basis in all markets for all customers--competitors' access to 
broadband loop facilities whenever an incumbent deploys any fiber for 
that loop. That means that as incumbents deploy fiber anywhere in their 
loop plant--a step carriers have been taking in any event over the past 
years to reduce operating expenses--they are relieved of the unbundling 
obligations that Congress imposed to ensure adequate competition in the 
local market. And make no mistake--this decision affects not just new 
investment, but it also eliminates unbundling obligations for past 
investment. The Commission has recognized time and again that loops are 
the ultimate bottleneck facility. Yet, the Commission has chosen to 
eliminate this bottleneck facility on a nationwide basis without 
adequate analysis of the impact on consumers, without analyzing 
different geographic or customer markets, and without conducting the 
granular, fact-intensive inquiry demanded by the courts. To make 
matters even worse, in some markets such as the small and medium 
business market, there may not be any competitive alternatives if 
competitors cannot get access to loop facilities. I fear that this 
decision may well result in higher prices for consumers and may put us 
on the road to re-monopolization of the local market.

    Question 4. If I understand correctly, regulation of broadband 
delivered over telephone lines is dependent on whether or not the 
Commission chooses to define DSL broadband as a ``telecommunications'' 
service, and as a result is regulated, or an ``information'' service, 
which would result in an unregulated environment. Can any of you 
explain how a voice conversation carried over phone lines could be 
declared a telecommunications service while an e-mail conversation 
carried over phone lines is not?
    Answer. The Commission will soon be deciding how to classify 
broadband services, and whether the transmission component for 
broadband services, including for Internet access, should be offered 
outside of the statutory framework that applies to telecommunications 
carriers. Not only could this decision create a division between e-mail 
and voice conversations, but it could also lead to the result that 
certain voice conversations are fully deregulated while other voice 
services remain subject to Congress' statutory framework. My worry is 
that we are heading down the road of removing core communications 
services from the statutory frameworks intended and established by 
Congress, substituting our own judgment for that of Congress, and 
playing a game of regulatory musical chairs by moving technologies and 
services from one statutory definition to another.
Wi-Fi and the Jumpstart Broadband Act
    Question 5. Commissioners, my staff has made the ``Jumpstart 
Broadband Act'' available to your offices. Have you had time to review 
the legislation and could you provide feedback on it?
    Answer. I have reviewed the legislation. First I must state that as 
a FCC Commissioner it is my responsibility to implement legislation 
that is enacted. It is not my place to advise Congress on how to vote 
on a particular piece of legislation. However, I can state that the 
goal of expanding the spectrum resources available to wireless 
broadband devices is one that I support wholeheartedly. It is important 
that as we do so we do two things, both of which are included in your 
bill. The first is that the FCC should not lock ourselves into any one 
wireless broadband technology. 802.11(b) is a huge success, but other 
innovations are sure to come and any spectrum policy should insure that 
new technologies and new entrepreneurs have a chance to turn good ideas 
into consumer benefits. The second is that the FCC should make smart 
interference decisions as early as possible. This does not mean that we 
should be over-restrictive, allowing no interference however minimal. 
This would preclude innovation and competition. Instead we should seek 
out the level of protections that bring the best service to the most 
people.

    Question 6. Commissioners, innovation has flourished in the current 
unlicensed spectrum bands. What do you believe the potential is for 
increased innovation and do you agree that more spectrum should be 
allocated to encourage this innovation?
    Answer. The unlicensed bands have allowed tremendous innovation and 
have allowed entrepreneurs to bring products and services to Americans 
in ways that are just impossible in licensed bands. We should not allow 
a lust to auction to undermine the clear benefits that the spectrum 
commons model produces. I have worked to find more unlicensed spectrum 
in the past and I will do so in the future.

    Question 7. Commissioners, would you agree that additional 
unlicensed spectrum could help spur new broadband services and would be 
a good idea regardless of how you proceed on the broadband proceedings 
before you?
    Answer. The mistake that the Commission made in undermining 
broadband competition by denying competitors access to fiber optic 
facilities makes working to develop wireless broadband as a competitor 
even more important. If incumbent companies dominate the broadband 
market consumer prices will rise and innovation may suffer.

    Question 8. Experts in technology we have talked with say that the 
technology clearly exists that would allow unlicensed devices to keep 
from harming incumbent systems. Do your experts tell you the same 
thing?
    Answer. While we must be careful with our interference rules, clear 
and rational interference rules can be met by unlicensed devices.
Digital Copyright Issues
    Question 9. Commissioners, consumers are excited about the 
potential that digital television and HDTV have to increase 
dramatically the quality of their viewing experience. At the same time, 
those who make movies and shows are concerned that those shows and 
films distributed in digital format will be copied and distributed at a 
huge loss to them. Does it not seem to you that some form of protection 
for content carried over the air and over cable to these fantastic new 
TVs is necessary and fair?
    Answer. Some form of protection is clearly needed. Copyright law 
already provides one form of protection. Technology may offer another. 
But the question of whether the FCC should impose a technology on the 
high-tech industry in order to protect the content industry is 
complicated. While we want content owners to be able to protect their 
products, we must be mindful of the unintended consequences of our 
actions. I will look for a way to give content producers the tools they 
need, while not creating large new costs that will be borne by 
consumers, threatening personal privacy, or undermining free speech and 
fair use.
Media Concentration
    After the elimination of radio consolidation protections in the 
1990s, in California alone, one company, Clear Channel, owns a stunning 
102 radio stations. In some towns that means every station is 
controlled by the same corporation. Now I hear that the FCC is 
considering eliminating the concentration protections for TV, cable, 
and newspapers.

    Question 10. If you eliminate the current rules altogether, then 
could TV and cable in California experience similar concentration as 
radio?
    Answer. If we eliminate these rules, I fear the entire media 
landscape--across the country--very well could look like radio, where 
abandoning media concentration rules led to the wholesale consolidation 
that you describe. I don't believe that we yet understand the 
implications of our actions. We do have the radio experience to learn 
from. Many believe that the loosening of ownership caps and limits 
created real problems in radio. Arguably, consolidation created some 
economies and efficiencies that allowed broadcast media companies to 
operate more profitably and may even have kept some stations from going 
dark and depriving communities of service. But it is also true that 
radio consolidation went far beyond what anyone expected. Conglomerates 
now own dozens, even hundreds--and, in one case, more than a thousand--
stations all across the country. More and more of their programming 
seems to originate hundreds of miles removed from listeners and their 
communities.
    And we know there are 34 percent fewer radio station owners in 
March 2003 than there were before these protections were eliminated. 
The majority of radio markets are now oligopolies. That raises serious 
questions. Media watchers like the Media Access Project, Consumers 
Union, and Professor Robert McChesney argue that this concentration has 
led to far less coverage of news and public interest programming. The 
Future of Music Coalition in its multi-year study finds a 
homogenization of music that gets air play, and that radio serves now 
more to advertise the products of vertically-integrated conglomerates 
than to entertain Americans with the best and most original 
programming.
    I don't believe we have obtained the data to determine the 
prospective effect on localism, diversity, and independence of TV, 
cable, radio, and newspapers if we eliminate our protections, 
especially given our history with radio consolidation.
    I also hear from the Writers Guild, local broadcasters, independent 
film makers, Consumers Union, and others that the FCC is rushing to 
judgement on whether to eliminate or drastically change its media 
concentration protections.

    Question 11. Commissioner Copps, I understand that the Commission 
has contracted out a number of studies on media concentration. Are you 
satisfied that those studies have examined the effect of elimination of 
media concentration rules on citizen access to diverse viewpoints or to 
the control exerted by a few businesses over the majority of media?
    Answer. No, I am not. The studies that the Commission is relying on 
are narrow and incomplete, and several outside groups argue that they 
are seriously flawed. They don't provide an analysis of what would 
happen if we were to lift the television audience cap 20 or 30 or 50-
percent instead of scrapping it; they don't address what the likely 
prospective effect on localism, diversity, and independence would be if 
we eliminate the national cap and other protections--of particular 
interest, given our history with radio consolidation; and they don't 
answer questions such as:

   How do consolidation and co-ownership affect the media's 
        focus on issues important to minorities and to the objective of 
        diversity? What are the effects on children?

   What effects have media mergers, radio consolidation, and TV 
        duopolies had on the personnel and resources devoted to news, 
        public affairs, and public service programming, and on the 
        output of such programming? How about the effect on the 
        creative arts?

   How are advertising and small business affected?

    We need answers to these questions and many others before we can 
make an informed decision.
Miscellaneous
    Question 12. Do you foresee an overlay strategy for the 310 area 
code that would prevent a split but only change digital cell phones 
prospectively, therefore eliminating the inconvenience to individuals 
who presently own cell phones and assuring that purchasers of analog 
cell phones would not have to change their code?
    Answer. We need to work closely with state public utility 
commissions on these numbering issues. We must work together as 
partners to tackle numbering problems. That is why I advocated allowing 
more states to undertake number pooling before the national system was 
implemented. And that is why I am hoping we can address as 
expeditiously as possible petitions from states to undertake additional 
number conservation measures. California filed just such petitions last 
fall. Those petitions sought to implement a technology specific overlay 
and to increase the contamination threshold for reclaiming blocks of 
numbers. I am disappointed to see it has been several months and we 
have still not issued a decision. I hope we will put resources towards 
completing this proceeding as soon as possible. As long as measures are 
fair to consumers and industry, we should accommodate state requests to 
implement strategies that will address their situation. And once we 
grant a state's petition, we should allow other states to use those 
same strategies if they want.

    On the HERO Act (public safety spectrum): The FCC has an open 
rulemaking on digital television. One of the areas of concern to me is 
that critical spectrum for public safety--spectrum that will help first 
responders coordinate effectively in the event of a terrorist attack 
such as 9/11--is being held pending the broadcasters' transition to 
digital television. Congresswoman Harman, who is now Ranking Member on 
the House Intelligence Committee, has introduced a bill, the HERO Act, 
to have the public safety spectrum in issue turned over by a date 
certain at the end of 2006, precisely to get at a problem first 
responders had in coordinating during and immediately after, the 9/11 
attacks.

    Question 13. What has the FCC done, and what can it still do, to 
speed up the broadcasters' conversion and to get the public to 
participate in the transition as well?
    Answer. In August, 2002, the Commission took two major steps to 
encourage the long-delayed transition to digital television. We moved 
to resolve the continuing industry deadlock over inclusion of 
technologies to provide digital broadcast copy protection, and we 
addressed the important issue of requiring digital tuners in our 
television receivers. Given digital media's susceptibility to piracy, 
the issue of content protection must be resolved before broadcasters 
will make new, innovative and expensive digital content widely 
available. The high price and scarcity of DTV-capable receivers that 
are on the market now are not consistent with realizing the 
Congressional goal of transitioning to digital television at such time 
as 85 percent of homes have digital reception capability, but history 
indicates, and some of the major manufacturers agree, that the costs of 
incorporating DTV tuners into television sets should fall fairly 
rapidly as all sets include these tuners.
    We were also able recently to re-start the process of addressing 
the Commission's long-dormant proceedings on the public interest 
obligations of broadcasters in the DTV environment. And there does seem 
to be some industry movement now as well, such as recent broadcaster 
and cable commitments to digital programming and the industry's recent 
agreement on action to address cable compatibility issues. Public 
comments are being sought on the broadcast flag, broadcasters' public 
interest obligations in the DTV environment, and cable compatibility 
issues.
    So, we are making some progress, but there is still a long way to 
go. We still have to resolve must-carry, the definition of ``primary 
video'' and ``program-related'' and so on, but my sense is we're moving 
faster now than we were a year ago.

    Question 14. On area code relief: My state, California, is a great 
market, particularly for high tech and new telecommunications services. 
One drawback to this impressive growth is that these new 
telecommunications services use telephone numbers. Senior citizens, 
residents and small businesses, particularly in urban areas, have had 
to endure many successive area code changes. The State of California 
has a petition pending to try some new avenues of relief. For example, 
the state wants to overlay a new code for devices that don't require 
human interaction--like credit card verification devices,--so that real 
people are not burdened or confused. The state has other innovative 
ideas, and these have included requiring wireless carriers to offer 
local number portability and ordering a wireless overlay in the Los 
Angeles area code 310 and 909 region. What is your position?
    Answer. We must aggressively look for innovative strategies to 
conserve numbers and use them more efficiently. The FCC has been taking 
some steps to implement these strategies. We are rolling out number 
pooling so that carriers receive fewer numbers at a time. And as of 
last fall, wireless carriers are participating in these pooling 
efforts. We are adopting criteria to limit the quantity of numbers that 
carriers can hold without using. We are requiring carriers to file 
information so that we can monitor the use of numbers. We are moving 
forward--albeit not as quickly as I would have liked--to ensure that 
wireless carriers implement local number portability just as wireline 
carriers have already done. Portability not only allows you to keep 
your number when you switch carriers--something that is good for 
consumers--but it also aids our efforts to conserve numbers. There are 
also additional steps we should be considering. I agree that we should 
explore separate area codes for those numbers consumers do not dial. 
These services include ATM machines, credit card authorization 
machines, location systems such as On-Star, and even gas station pumps. 
This step could free up more numbers for consumers. Finally, we need to 
get a handle on bigger issues looming on the horizon. We need to 
address the impact of new technologies such as voice over the Internet 
on the use of numbering resources. We need to be ahead of this curve, 
because these new technologies could swamp our best efforts at number 
conservation.

    Question 15. For Commissioner Copps: Commissioner Copps, I 
understand you personally visited the area in Los Angeles--the 310 and 
909 area codes--and attended a Town Meeting on area code issues. What 
do the business people, senior citizens, disabled community and other 
residents of that area want?
    Answer. I heard clearly the frustration consumers are experiencing 
with the proliferation of new telephone numbers and area codes. Every 
time there is an area code change, consumers face substantial burdens. 
Not only is there the confusion and inconvenience of a new number, but 
there are significant costs as people need to change business cards, 
stationery, company brochures, the sides of company vehicles, and 
advertising. California has seen a virtual explosion in the number of 
new area codes. In the last three years of the 20th century, 
Californians faced more area code changes than in the 50 years prior to 
that. Consumers at the Town Meeting wanted the FCC, working together 
with the California Commission, to undertake a concerted, cooperative 
effort to do all that we can to slow the rate of area code changes.
                                 ______
                                 
Response to Written Questions Submitted by Hon. John D. Rockefeller IV 
                        to Hon. Michael J. Copps
Universal Service
    The E-Rate has made it possible for us to expedite the integration 
of technology into our education system by wiring tens of thousands of 
schools and libraries across the country. I think it is extremely 
important for the Commission to pursue Universal Service reforms that 
will ensure the long-term viability of all aspects of the program--
including the E-rate.

    Question 1. Please update me about the status of the Commission's 
efforts to strengthen the Universal Service program. I am interested in 
what reforms are needed to enable us to serve the needs of low-income 
and rural Americans in the long-term AND continue the progress we've 
made in wiring schools and libraries.
    Answer. I share your concern about the need to maintain a strong 
and sustainable Universal Service mechanism. 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. To that end, we must implement 
Congress' directive to preserve and advance universal service.
    The Commission and the Federal-State Joint Board are at present 
actively reviewing many issues that go to the heart of our efforts to 
strengthen the Universal Service program. The Commission is considering 
the services that should be supported by these mechanisms and must 
issue a decision by this summer. The Commission is also in the midst of 
a proceeding to improve the operation and oversight of the E-Rate 
program in order to ensure that our children and communities have 
access to the tools they need to succeed in the 21st century. 
Similarly, the Commission has undertaken a proceeding to improve the 
rural health care program, which helps rural health care providers 
obtain access to modern telecommunications and information services. In 
addition, the Federal-State Joint Board on Universal Service has begun 
a proceeding to examine the portability of Universal Service in markets 
with competition and will soon make recommendations to the Commission 
on ways to improve the effectiveness of the Lifeline and Link-Up 
programs. By completing these proceedings expeditiously and in a manner 
that adheres closely to Congress' statutory framework, we can continue 
to serve the needs of low-income and rural Americans and continue the 
progress we've made in wiring schools and libraries across the country.
Effect of Broadband Deregulation on Universal Service
    The Commission is considering changing the way certain broadband 
services are regulated by re-classifying them as ``information 
services.''

    Question 2. What impact would these changes have on the way 
contributions are collected for the Universal Service program? At a 
time when we are searching for ways to strengthen Universal Service, do 
you think it is wise to pursue action that may threaten existing 
funding sources?
    Answer. I share your concern about the potential effect that a 
statutory reclassification may have on our ability to support Universal 
Service. At present, providers of DSL services contribute to Universal 
Service whereas cable modem providers do not. If the Commission were to 
determine that wireline broadband Internet access is an information 
service provided via telecommunications, providers of such services 
might no longer contribute unless the Commission exercises its 
permissive authority to require contributions. I believe we need to 
address expeditiously the issue of broadband providers' contribution to 
Universal Service. We must continue to look for long-term solutions 
that will put the fund on a solid footing. When the Commission finally 
addresses this issue, I hope we will do so in a manner that does not 
narrow the contribution base and undermine the sufficiency of the fund. 
We must also work to avoid a system that opens the door to regulatory 
arbitrage or distortions in the market.

Broadband and Competition
    I believe that stimulating investment in high-speed Internet 
services will help our economy and provide a variety of other benefits 
as well (telemedicine, distance learning, etc.)

    Question 3. What do you think the best strategies are for speeding 
up the deployment of broadband without threatening competition in local 
telephone markets?
    Answer. Today, having access to advanced communications--
broadband--is every bit as important as access to basic telephone 
services was in the past. As you point out, providing meaningful access 
to advanced telecommunications for all our citizens may well spell the 
difference between continued stagnation and long-term economic 
revitalization. Already, broadband is a key component of our Nation's 
systems of education, commerce, employment, health, government and 
entertainment. Congress recognized the importance of broadband access 
in the Telecommunications Act of 1996. Not only did Congress give the 
FCC and the state commissions the statutory mandate to advance the 
cause of bringing access to advanced telecommunications to each and 
every citizen of our country, but it also directed that one of the 
guiding principles of Universal Service is that ``access to advanced 
telecommunications and information services should be provided in all 
regions of the Nation.''
    I believe we can promote deployment of broadband without 
undermining the competition that Congress sought in the 1996 Act. 
Indeed, competition can promote broadband deployment. We are now seeing 
competition not only within delivery platforms, but also among delivery 
platforms. We are seeing convergence of industries, convergence of 
services, and convergence of markets. It is clear that companies are 
moving to deploy advanced technologies in response to competition from 
other broadband providers. As Congress predicted, the competition 
resulting from the 1996 Act unleashed an unprecedented investment in a 
21st century communications infrastructure.
    I dissented from the far-reaching broadband sections of the Order, 
because I was troubled that we are undermining competition in the 
broadband market. I fear that this decision may well result in higher 
prices for consumers and may put us on the road to re-monopolization of 
the local market.
    We must also remember, however, that at the same time that Congress 
sought to promote competition, it also reaffirmed a core principle at 
the heart of the public interest--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. We must ensure that we 
give meaning to and carry out our duties under these provisions.
    I believe that the Commission should initiate, within the rather 
broad authority given it by the Congress, a more proactive program to 
promote the deployment of broadband to all Americans. I therefore 
support launching a proceeding to examine steps we should take to 
promote the deployment of advanced services, and the role of Universal 
Service in that effort. This should be a priority matter.
Local Competition
    According to recent reports in the Wall Street Journal, the 
Commission may be preparing to scale back competitors' access to local 
networks by changing the rules relating to the unbundled network 
element platform. According to recent FCC statistics, competition in 
local telephone markets is just now starting to take hold in a 
meaningful way.

    Question 4. If the unbundled network platforms were to no longer be 
an available method for competitors' to access Bell networks, what 
would it mean for the future of local competition--particularly in 
rural areas and regions with challenging topography where the cost of 
deploying facilities is particularly high?
    Answer. Congress recognized that many competitors would not be able 
to duplicate the incumbent's network. Congress therefore required the 
Commission to determine those network elements that an incumbent must 
unbundle and offer to its competitors in the local market. In those 
markets where competitors are impaired without access to loops, 
switching, and transport, UNE-P may offer the only competitive 
alternative for certain customers. I am pleased that, in the face of 
intense pressure for the Commission to make broad nationwide decisions 
that would have doomed the future use of unbundled elements, we instead 
adopted a more reasonable process under which the state commissions 
conduct a granular analysis that takes into account geographic and 
customer variation in different markets. Through this process, we will 
be able to foster the competition that Congress sought in the 1996 Act 
and to fulfill the mandate of the law, which is ``to secure lower 
prices and higher quality services for American consumers.''
Interplay Between State Regulators and the FCC
    In a recent letter to all five of the Commissioners, several 
representatives of the National Association of Regulatory Utility 
Commissioners wrote, ``State flexibility to maintain UNE-P as well as 
the ability to add to any national UNE list is critical to keeping 
competition `on track'.''

    Question 5. What is your vision for the appropriate interplay 
between state regulators and the FCC in implementing the '96 Act and 
promoting a competition telecommunications maret that benefits 
consumers?
    Answer. As I stated in my response to Senator Hollings' sixth 
question, quite aside from anything the Commission has done in the 
Triennial Review, the states play a substantial role in ensuring that 
the 1996 Act is fully and faithfully implemented and in promoting 
competition. The states have broad authority over retail rates for 
local exchange services and the rates charged by incumbents for access 
to unbundled network elements. Moreover, section 252 gives them a 
central role in arbitrating and approving interconnection agreements. 
With regard to unbundled network elements, Congress established the 
role of the states in section 251(d). Section 251(d)(2) make clear that 
Congress intended the Commission to determine what network elements 
will be unbundled. Section 251(d)(3) preserves state access regulations 
that are consistent with the Act's unbundling requirements and that do 
not substantially prevent the implementation of those requirements.
    My vision for the appropriate interplay between state regulators 
and the Commission is in accord with this basic division of labor 
established by Congress. The states must continue to play their 
substantial role in regulating the local exchange market. But the 
requirements of the 1996 Act are, at the end of the day, a Federal 
program to introduce competition into the local exchange markets, and 
one that this Commission has been given substantial responsibility for 
implementing. Congress entrusted this Commission with determining the 
availability of unbundled network elements. Accordingly, any delegation 
to the states should not rely on a simple and broad assumption that the 
states are inherently better equipped to make all determinations, but 
rather on some reasonable relationship between the facts that need to 
be determined and the ability of the states to determine these facts.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to 
                          Hon. Kevin J. Martin
    All FCC Commissioners should answer: The DC Circuit's decision in 
USTA v. FCC, remanding the Commission's unbundling and line sharing 
rules, was inconsistent with the Supreme Court's holding in Verizon. 
However, the FCC's pending proposals to reduce competitors' access to 
network elements seem based on a similar predicate to the Court's 
suggestion that competitors using UNEs do not offer ``real'' 
competition to the incumbents.
    Question 1. Do you believe that UNE-P competition is not real 
competition?
    If so, why? If not, why would the FCC seek to curtail such 
competition?

    Question 1a. Do you believe, as the FCC stated in its petition for 
rehearing, that the ``limitations that the panel's decision can be read 
to impose have no basis in the statutory text and appear to be 
inconsistent with several provisions of the 1996 Act''?
    Answer. The Commission has examined competition in the 271 
Application process. Section 271 allows the BOCs into the in-region 
interLATA market upon showing that their in-region local markets are 
open to competition and other statutory requirements are met. One of 
the statutory tests requires the BOCs to demonstrate the presence of a 
facilities-based competitor. Under this test, contained in Section 
271(c)(1)(A) (entitled ``Presence of a Facilities-Based Competitor''), 
the BOC must demonstrate that a competing provider offers telephone 
service ``either exclusively over their own telephone exchange service 
facilities or predominantly over their own telephone exchange service 
facilities in combination with the resale of the telecommunications 
services of another carrier.''
    In its 1997 271 application for the state of Michigan, Ameritech 
argued that competitors using UNEs satisfied the ``Presence of a 
Facilities Based Competitor'' prong.\1\ Specifically it stated that 
``facilities-based'' competition included competition using UNEs. 
Moreover, it asserted that ``own telephone exchange service 
facilities'' includes both facilities to which a carrier has title and 
unbundled elements obtained from a BOC.'' \2\ Ameritech further argued 
``that unbundled network elements are a carrier's own facilities 
because resellers do not have control over the facilities they use to 
provide service, whereas carriers have control over facilities they 
construct and over unbundled network elements they purchase.''
---------------------------------------------------------------------------
    \1\ Application of Ameritech Michigan Pursuant to Section 271 of 
the Communications Act of 1934, as amended, To Provide In--Region, 
InterLA TA Services In Michigan, FCC 97-298, para.87 (rd. August 19, 
1997).
    \2\ Id.
---------------------------------------------------------------------------
    In that same proceeding, BellSouth and SBC also argued that 
competitors using UNEs satisfied the ``presence of a Facilities-Based 
Competitor'' test. BellSouth and SBC argued ``that Congress intended to 
treat unbundled network elements as a competing provider's own 
facilities in order to give the BOC the incentive to make all checklist 
items available and provide competing providers with the flexibility to 
choose whether to build a particular facility or purchase unbundled 
network elements from the BOC.'' \3\
---------------------------------------------------------------------------
    \3\ Id. at para. 88.
---------------------------------------------------------------------------
    The Commission agreed that competitors using UNEs satisfied the 
test that required the ``presence of a Facilities-Based competitor. The 
Commission interpreted ``the phrase ``own telephone exchange service 
facilities,'' in section 271(c)(1)(A), to include unbundled network 
elements that a competing provider has obtained from a BOC.'' In making 
this interpretation the Commission rejected the argument that 
``providers can offer unique services and provide consumers with 
genuine competitive choices only when they build facilities.'' Instead 
the Commission concluded that ``many of the benefits that consumers 
would realize if competing providers build facilities can also be 
realized through the use of unbundled network elements.''
    Since that decision the Commission has granted 35 long distance 
applications and has reaffirmed this policy in several applications. In 
granting 271 applications, the Commission has repeatedly concluded that 
incumbent carriers have satisfied the requirements of Track A based on 
``the numerous [competitive] carriers providing facilities-based 
service to residential and business customers in [the] market'' and 
based on record evidence that ``each of these carriers serve more than 
a de minimis number of residential and business customers via UNE-P or 
full-facilities lines.''

    All FCC Commissioners should answer: At our January 14, 2003 
hearing at which you appeared, Chairman Powell stated that the 
Commission's UNE Triennial Review must include as a ``core component'' 
an analysis of ``the proper role of state commissions in the 
implementation of our unbundling rules.'' Commissioner Martin likewise 
confirmed his belief that the Commission's rules should ``allow for 
state cooperation and input, especially regarding highly fact intensive 
and local determinations'' in recognition of the fact that 
``[a]ssessments of whether access to a [unbundled network] element is 
necessary to provide service may vary significantly among different 
markets, states and regions.'' Commissioner Adelstein characterized the 
states as ``our partners in implementing the Act,'' Commissioner Copps 
noted that ``[t]he path to success is not through preemption of the 
role of the states.''

    Question 2. How will the Commission ensure that its order in the 
UNE Triennial Review preserves the meaningful participation of the 
states in the development of local competition as Congress intended?
    Question 2a. Does the D.C. circuit decision's emphasis on a need 
for a more granular review of the need for UNEs suggest that the FCC 
must grant a strong oversight role to the states given that they are 
undeniably better equipped to gauge market conditions, competition, and 
compliance with the law on a market by market basis than is the FCC?
    Answer. During my tenure at the Commission, I have witnessed first 
hand the helpful role that the states have played in our mutual goal of 
implementing the requirements of the 1996 Act.
    Our decision in the Triennial Proceeding sets forth a market-
specific impairment analysis for unbundling network elements that 
provides an important role for the states. As I have stated before, I 
believe the states are in a better position to be able to make fact-
specific determinations about particular geographic markets.
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                          Hon. Kevin J. Martin
Local Telephone Service Competition
    Question 1. Competing companies generally offer service to 
consumers at prices 10-50-percent less than the Bells. If the FCC 
terminates the requirement for traditional phone companies to offer 
parts of their infrastructure for lease to competitors, wouldn't that 
leave the vast majority of California customers without a choice for 
local phone service and drive up rates for consumers?
    Answer. Competition for local service has enabled millions of 
consumers to benefit from lower telephone rates.
    The Telecommunications Act requires that competitors have access to 
portions of the incumbents' networks when they are ``impaired'' in 
their ability to provide service. The Commission's decision in the 
Triennial review proceeding sets forth a framework to determine 
impairment based on a fact-specific granular analysis which recognizes 
that competitors face different operational and economic barriers in 
different markets.
Broadband DSL Competition
    Question 2. According to the California PUC, half of my state has 
no access to cable broadband service and the speeds available over 
satellite are not competitive with DSL. If you do not continue to allow 
competition in DSL broadband service, will not consumers in my state be 
at the mercy of a DSL broadband monopoly?
    Answer. Under the Commission's decision, competitive DSL service 
providers can continue to access an incumbents' local loop to provide 
DSL service to consumers. Moreover, competitive service providers may 
also continue to take advantage of the Commission's ``line-splitting'' 
rules--that currently enable competitive DSL service providers to reach 
CLEC end user customers by negotiating for access to the loop provided 
by a CLEC offering voice service.

    Question 3. If I understand correctly, regulation of broadband 
delivered over telephone lines is dependent on whether or not the 
Commission chooses to define DSL broadband as a ``telecommunications'' 
service, and as a result is regulated, or an ``information'' service, 
which would result in an unregulated environment. Can any of you 
explain how a voice conversation carried over phone lines could be 
declared a telecommunications service while an e-mail conversation 
carried over phone lines is not?
    Answer. The terms ``telecommunications service'' and ``information 
service'' are defined in the Communications Act of 1934, as amended by 
the 1996 Act. The Act defines ``Information service'' as ``the offering 
of a capability for generating, acquiring, storing, transforming, 
processing, retrieving, utilizing, or making available information via 
telecommunications.'' The Act defines ``telecommunications'' as ``the 
transmission, between or among points specified by the user, of 
information of the user's choosing without change in the form or 
content of the information as sent and received.'' The Act defines 
``Telecommunications service'' as ``the offering of telecommunications 
for a fee directly to the public, or to such classes of users as to be 
effectively available to the public, regardless of facilities used.''
    The Commission has stated that under this definition, ``an entity 
provides telecommunications only when it both provides a transparent 
transmission path and it does not change the form or content of the 
information.'' If this offering is made directly to the public for a 
fee, it is deemed a ``telecommunications service.'' On the other hand, 
``[w]hen an entity offers subscribers the `capability for generating, 
acquiring, storing, transforming, processing, retrieving, utilizing or 
making available information via telecommunications,' it does not 
provide telecommunications, it is using telecommunications.''
    In the Wireline Broadband Proceeding, the Commission tentatively 
concluded that providers of wireline broadband Internet access service 
``offer more than a transparent transmission path to end-users and 
offer enhanced capabilities.'' The Commission tentatively concluded 
that this service is ``an `information service' under section 3 of the 
Act'' because providers of wireline broadband Internet access ``provide 
subscribers with the ability to run a variety of applications that fit 
under the characteristics stated in the information service 
definition.''
    In the order approving the AOL-Time Warner merger, the Commission 
concluded that it ``has Title I jurisdiction over instant messaging 
services . . .'' and that the FCC ``need not classify instant messaging 
services . . . as information services, cable services or 
telecommunications services . . .
Wi-Fi and the Jumpstart Broadband Act
    Question 4. Commissioners, my staff has made the ``Jumpstart 
Broadband Act'' available to your offices. Have you had time to review 
the legislation and could you provide feedback on it?
    Answer. Thank you for providing the Commission with your 
legislation. I generally support making more spectrum available for 
unlicensed devices. Unlicensed devices have been a huge success story, 
from cordless phones to wireless broadband connections, such as 802.1 
lb and Bluetooth. Accordingly, I think the Commission should make more 
spectrum available for unlicensed devices, particularly for broadband, 
and I support efforts to movie quickly to do so.
    As the Jumpstart Broadband Act recognizes, providing additional 
unlicensed spectrum in the 5 GHz band raises the question of 
interference to important U.S. Government applications. The legislation 
thus requires protections for Department of Defense systems now 
operating in that spectrum. Indeed, industry and government officials 
have recently agreed on such protections.

    Question 5. Commissioners, innovation has flourished in the current 
unlicensed spectrum bands. What do you believe the potential is for 
increased innovation and do you agree that more spectrum should be 
allocated to encourage this innovation?
    Answer. I believe there is significant potential for increased 
innovation in unlicensed spectrum. `While there are numerous 
possibilities for new products and services, one of the most exciting 
potential innovations is a last-mile application to connect people's 
homes to the Internet. Such a service would offer a real alternative to 
telephone wires, cable, and satellite connections. For example, one 
company can purportedly send Wi-Fi transmissions up to seven kilometers 
away. I think it is imperative that we encourage these kinds of 
innovations and ensure they have sufficient spectrum to flourish. I 
thus agree that more spectrum should be made available for unlicensed 
devices and support efforts to more quickly do so.

    Question 6. Commissioners, would you agree that additional 
unlicensed spectrum could help spur new broadband services and would be 
a good idea regardless of how you proceed on the broadband proceedings 
before you?
    Answer. I believe that additional spectrum could spur new broadband 
services. As mentioned, I am hopeful that unlicensed operations could 
provide a last-mile application to connect people's homes to the 
Internet. Regardless of the development of broadband through telephone 
wires and cable systems, additional broadband technologies are always 
beneficial.

    Question 7. Experts in technology we have talked with say that the 
technology clearly exists that would allow unlicensed devices to keep 
from harming incumbent systems. Do your experts tell you the same 
thing?
    Answer. I have heard different things from different experts. The 
Commission's Office of Engineering and Technology states that the 
agreement reached among the National Telecommunications and Information 
Administration, the Department of Defense, and the Federal 
Communications Commission will provide access to additional 5 GHz 
spectrum for unlicensed devices without harming incumbent systems.
Digital Copyright Issues
    Question 8. Commissioners, consumers are excited about the 
potential that digital television and HDTV have to increase 
dramatically the quality of their viewing experience. At the same time, 
those who make movies and shows are concerned that those shows and 
films distributed in digital format will be copied and distributed at a 
huge loss to them. Does it not seem to you that some form of protection 
for content carried over the air and over cable to these fantastic new 
TVs is necessary and fair?
    Answer. Digital television offers many benefits to consumers--a 
markedly sharper picture resolution and better sound; an astounding 
choice of video programming, including niche programs and movies on 
demand; CD-quality music channels of all genres; interactivity; 
sophisticated program guides with parental control capabilities; and 
innovative services such as high speed Internet service. Many people 
believe that digital content will remain limited until copy protection 
issues are resolved. Therefore, resolving this issue could be important 
to the DTV transition.
    Our jurisdiction in this area is unclear. We have a pending 
proceeding asking whether we have the jurisdiction to require 
implementation of a digital broadcast content protection mechanism, 
known as the ``broadcast flag.'' The record is still open and I have 
not come to a conclusion on this point.
    I am still hopeful that there may be technological solutions that 
will both prevent the commercial distribution that concerns content 
owners, and yet preserve the home recording rights that consumers have 
come to expect.
Media Concentration
    After the elimination of radio consolidation protections in the 
1990s, in California alone, one company, Clear Channel, owns a stunning 
102 radio stations. In some towns that means every station is 
controlled by the same corporation. Now I hear that the FCC is 
considering eliminating the concentration protections for TV, cable, 
and newspapers.

    Question 9. If you eliminate the current rules altogether, then 
could TV and cable in California experience similar concentration as 
radio?
    I also hear from the Writers Guild, local broadcasters, independent 
film makers, Consumers Union, and others that the FCC is rushing to 
judgment on whether to eliminate or drastically change its media 
concentration protections.
    Answer. The existing media ownership rules were crafted to promote 
three principles: competition, diversity, and localism. While the media 
marketplace may have changed since those rules were first adopted, our 
need to promote these core values has not.
    I recognize, however, that we have a statutory mandate to review 
our media ownership rules every two years to make sure they are still 
necessary. As we debate these rules, we must be mindful of recent court 
action. The courts have been looking at our decisions with increasing 
scrutiny, striking the rules down when the Commission has not 
adequately justified their retention. In fact, the D.C. Circuit has 
struck down the last five media ownership rules it has reviewed. In 
most of these cases, the court expressly chastised the Commission for 
failing to consider the plethora of new voices present in the 
marketplace today.
    Thus, our ownership rules should protect competition, diversity, 
and localism, but do so in a manner reflective of today's media 
environment.
Miscellaneous
    Question 10. Do you foresee an overlay strategy for the 310 area 
code that would prevent a split but only change digital cell phones 
prospectively, therefore eliminating the inconvenience to individuals 
who presently own cell phones and assuring that purchasers of analog 
cell phones would not have to change their code?
    Answer. The FCC could grant the California Commission authority to 
implement a specialized overlay to which only new wireless subscribers 
would be assigned. This would avoid a split and allow current wireless 
customers to keep their cell phone numbers. I have previously supported 
efforts to provide states additional flexibility they require to 
address numbering issues, such as implementing technology specific 
overlays.

    On the HERO Act (public safety spectrum): The FCC has an open 
rulemaking on digital television. One of the areas of concern to me is 
that critical spectrum for public safety--spectrum that will help first 
responders coordinate effectively in the event of a terrorist attack 
such as 9/11--is being held pending the broadcasters' transition to 
digital television. Congresswoman Harman, who is now ranking member on 
the House Intelligence Committee, has introduced a bill, the HERO Act, 
to have the public safety spectrum in issue turned over by a date 
certain at the end of 2006, precisely to get at a problem first 
responders had in coordinating during and immediately after, the 9/11 
attacks.

    Question 11. What has the FCC done, and what can it still do, to 
speed up the broadcasters' conversion and to get the public to 
participate in the transition as well?
    Answer. Last May, the Commission proposed a set of graduated 
sanctions for those broadcasters that fail to meet their build-out 
deadlines, beginning with admonishment and reporting requirements and 
culminating in the rescission of the station's DTV authorization. The 
Bureau has been following this practice in acting upon licensees' 
extension requests.
    Last August, the Commission required that all TV sets of a certain 
size include a broadcast tuner. Also last August, the Commission issued 
a notice of proposed rulemaking regarding whether we have authority 
over copy protection of digital broadcast content, and if so, whether 
we should use that authority to mandate a digital broadcast copy 
protection mechanism.
    Finally, in January of this year we released a notice of proposed 
rulemaking on the recent agreement between the consumer electronics 
industry and the cable industry to allow for the creation of cable-
ready digital television sets.
    There is still, however, much for the Commission to do. For 
example, in addition to those issues outlined above, we also have a 
proceeding pending relating to broadcasters' digital cable carriage 
rights.

    Question 12. On area code relief: My state, California, is a great 
market, particularly for high tech and new telecommunications services. 
One drawback to this impressive growth is that these new 
telecommunications services use telephone numbers. Senior citizens, 
residents and small businesses, particularly in urban areas, have had 
to endure many successive area code changes. The state of California 
has a petition pending to try some new avenues of relief. For example, 
the state wants to overlay a new code for devices that don't require 
human interaction--like credit card verification devices,--so that real 
people are not burdened or confused. The state has other innovative 
ideas, and these have included requiring wireless carriers to offer 
local number portability and ordering a wireless overlay in the Los 
Angeles area code 310 and 909 region. What is your position?
    Answer. I have previously supported efforts to provide states 
additional flexibility they require to address numbering issues, such 
as implementing technology specific overlays. I understand that state 
commissions often bear the brunt of consumer complaints. State 
commissions, not the FCC, feel the outcry from consumers when number 
conservation measures are adopted. The Commission is currently 
considering the issues raised in the California Public Service 
Commission's petition. I plan to give the issues raised in the 
California PUC petition full consideration.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to 
                       Hon. Kathleen Q. Abernathy
    The D.C. Circuit's decision in USTA v. FCC, remanding the 
Commission's unbundling and line sharing rules, was inconsistent with 
the Supreme Court's holding in Verizon. However, the FCC's pending 
proposals to reduce competitors' access to network elements seem based 
on a similar predicate to the Court's suggestion that competitors using 
UNEs do not offer ``real'' competition to the incumbents.

    Question 1. Do you believe that UNE-P competition is not real 
competition? If so, why? If not, why would the FCC seek to curtail such 
competition?
    Answer. UNE-P competition is ``real'' competition. Carriers 
entering the market using the UNE platform have offered consumers 
additional choice, new service packages, and lower prices. Such entry 
has spurred new offerings from incumbent LECs. At the same time, the 
Commission must consider whether all the elements that make up the UNE 
platform may be unbundled in all markets consistent with section 
251(d)(2) of the Act, and also whether such competition will be 
economically efficient and sustainable in the long term.
    I do not believe that the FCC is seeking to curtail UNE-P 
competition. Rather, the focal point of the Commission's inquiry in the 
Triennial Review proceeding is determining which elements must be 
unbundled pursuant to sections 251(c) and 251(d)(2), as construed by 
the Supreme Court and the D.C. Circuit Court of Appeals. Because the 
D.C. Circuit reversed the FCC's previous order establishing unbundling 
requirements, the Commission must adopt new requirements. In doing so, 
according to the D.C. Circuit's mandate, the Commission must conduct a 
granular analysis of ``impairment''--that is, the Commission must 
ascertain whether each element ``is one for which multiple, competitive 
supply is unsuitable.'' USTA v. FCC, 290 F.3d 415, 427 (2002). If this 
analysis results in a finding that there is no impairment caused by a 
lack of access to a component of the UNE platform in a particular 
market, then the platform would not be available in that market 
(although other elements for which impairment is found would remain 
available on an unbundled basis, and total service resale would remain 
an option). This outcome, however, would result from the Commission's 
implementation of the Act consistent with direction from the court of 
appeals, rather than from an affirmative effort to curtail a particular 
entry strategy.

    Question 1a. Do you believe, as the FCC stated in its petition for 
rehearing, that the ``limitations that the panel's decision can be read 
to impose have no basis in the statutory text and appear to be 
inconsistent with several provisions of the 1996 Act''?
    Answer. I agree that the D.C. Circuit's analysis did not defer 
sufficiently to the FCC's judgment and that the court went beyond the 
point necessary to reverse the Commission's rules as overbroad. The 
court's interpretation of the impairment standard, in my view, is not 
the only permissible reading of the statutory text. Nevertheless, as a 
Commissioner I am bound to follow the law as it is interpreted by the 
court of appeals.

    At our January 14, 2003 hearing at which you appeared, Chairman 
Powell stated that the Commission's UNE Triennial Review must include 
as a ``core component'' an analysis of ``the proper role of state 
commissions in the implementation of our unbundling rules.'' 
Commissioner Martin likewise confirmed his belief that the Commission's 
rules should ``allow for state cooperation and input, especially 
regarding highly fact intensive and local determinations'' in 
recognition of the fact that ``[a]ssessments of whether access to a 
[unbundled network] element is necessary to provide service may vary 
significantly among different markets, states and regions.'' 
Commissioner Adelstein characterized the states as ``our partners in 
implementing the Act,'' Commissioner Copps noted that ``[t]he path to 
success is not through preemption of the role of the states.''
    Question 2. How will the Commission ensure that its order in the 
UNE Triennial Review preserves the meaningful participation of the 
states in the development of local competition as Congress intended?
    Answer. I have no doubt that the state commissions will play a 
pivotal role in carrying out the market-opening provisions in section 
251 of the Act. As an initial matter, the statute assigns the states 
key responsibilities in approving interconnection agreements, mediating 
and arbitrating disputes, and setting rates for unbundled network 
elements, among other things. See 47 U.S.C. Sec. 252. In addition, 
states have taken the lead in developing performance standards 
concerning the ordering, provisioning, and maintenance and repair of 
unbundled network elements. States will continue to supervise the 
negotiation process, establish network element prices, and monitor 
incumbents' performance in carrying out the standards adopted in the 
Triennial Review proceeding. In addition, where the FCC is unable to 
make granular impairment findings based on limitations in the record, 
the Commission is likely to delegate authority to state commissions to 
make factual findings that will determine the outcome of the impairment 
analysis. Finally, states retain authority to regulate local 
competition pursuant to state law, provided such state regulation ``is 
consistent with the requirements of [section 251] and does not 
substantially prevent implementation of the requirements of [section 
251] and the purposes of [Part II of Title II of the Act].'' 47 U.S.C. 
Sec. 251(d)(3)(B&C),

    Question 2a. Does the D.C. circuit decision's emphasis on a need 
for a more granular review of the need for UNEs suggest that the FCC 
must grant a strong oversight role to the states given that they are 
undeniably better equipped to gauge market conditions, competition, and 
compliance with the law on a market by market basis than is the FCC?
    Answer. As noted above, where the FCC is unable to make 
sufficiently granular impairment findings, it is likely to enlist the 
states in performing the granular analysis mandated by the court of 
appeals. I also agree that states are particularly well equipped to 
perform an oversight role in ensuring that incumbent LECs comply with 
the Act and the FCC's rules. For example, states have established 
detailed performance measurements for ``hot cuts'' (the process of 
connecting a loop to a competitor's switch), and I expect that states 
will play the primary role in monitoring that process on a localized 
basis.
                                 ______
                                 
Response to Written Questions Submitted by Hon. John D. Rockefeller IV 
                     to Hon. Kathleen Q. Abernathy
Universal Service
    The E-Rate has made it possible for us to expedite the integration 
of technology into our education system by wiring tens of thousands of 
schools and libraries across the country. I think it is extremely 
important for the Commission to pursue Universal Service reforms that 
will ensure the long-term viability of all aspects of the program--
including the E-rate.

    Question 1. Please update me about the status of the Commission's 
efforts to strengthen the Universal Service program. I am interested in 
what reforms are needed to enable us to serve the needs of low-income 
and rural Americans in the long-term AND continue the progress we've 
made in wiring schools and libraries.
    Answer. The Commission has launched several proceedings to ensure 
the continuing vitality of the universal service program. As described 
below, these proceedings aim to improve and strengthen all of our 
support mechanisms, and therefore will benefit consumers in high-cost 
areas, families with low income, and patrons of schools, libraries, and 
rural health care facilities. As Chair of the Federal-State Joint Board 
on Universal Service, I make it a top priority to ensure that these 
programs deliver the intended benefits in a fair, efficient, and 
effective manner.

   Schools, Libraries, and Rural Health Clinics. The Commission 
        has a pending rulemaking that seeks to improve the efficiency 
        and effectiveness of the support mechanism for schools and 
        libraries. In connection with this rulemaking, I recently 
        announced that I am organizing a public forum on May 8 focusing 
        on proposals to improve our oversight over the program, 
        including means of combating waste, fraud, and abuse. I hope to 
        develop consensus at the Commission on ways of avoiding 
        wasteful expenditures and preventing gaming of the system so 
        that deserving school children and library patrons continue to 
        have access to critical services. The Commission also has a 
        pending rulemaking on how to improve the administration of the 
        support mechanism for rural health care facilities. This 
        mechanism appears to be underutilized, so the Commission is 
        exploring how to remove obstacles to rural health clinics' 
        obtaining support.

   Contribution Methodology. In December 2002 the Commission 
        adopted a number of measures to stabilize the universal service 
        contribution factor in an effort to mitigate the growing 
        funding burden on consumers. For example, the Commission 
        increased the contributions of most wireless carriers, 
        eliminated the lag between the reporting of revenues and the 
        recovery of contribution costs, and prohibited mark-ups of 
        contribution costs on customers' bills. While these were 
        important steps, I believe that more fundamental reform may be 
        necessary to ensure the sustainability of universal service 
        funding in the long term. As bundled service offerings that 
        include local and long-distance voice services and broadband 
        Internet services become ever more prevalent, it is 
        increasingly difficult to isolate revenues from interstate 
        telecommunications services. Accordingly, I believe that a 
        contribution methodology incorporating a component based on 
        end-user connections (or some other surrogate), in addition to 
        or in lieu of our revenue-based methodology, may create a more 
        sustainable model for funding universal service in the future. 
        The Commission has sought comment on several proposals and will 
        consider additional reforms based on the record now being 
        developed.

   High-Cost Support. The Commission has several proceedings 
        underway that focus on the distribution of support to high-cost 
        areas. First, with respect to our non-rural support mechanism, 
        we are considering a Recommended Decision from the Federal-
        State Joint Board on Universal Service responding to a remand 
        by the Tenth Circuit Court of Appeals. This proceeding focuses 
        on how to ensure that funding is sufficient for non-rural 
        carriers serving high-cost areas. Second, the Commission is 
        considering another Joint Board Recommended Decision regarding 
        the definition of services that are eligible for universal 
        service support (the Joint Board recommended preserving the 
        status quo). Third, the Commission recently referred a 
        proceeding to the Joint Board concerning the intersection of 
        competition and universal service in rural areas. This 
        proceeding will address the so-called ``portability'' of 
        support--i.e., the manner in which competitive ETCs are 
        funded--as well as questions concerning support for multiple 
        lines, among other issues.

   Low-Income Support. Finally, the Joint Board will soon 
        release a Recommended Decision on various proposals to improve 
        the effectiveness of the Lifeline and LinkUp programs for low-
        income consumers. This Recommended Decision will suggest new 
        ways for low-income consumers to qualify for support and also 
        address questions regarding verification of eligibility and 
        outreach efforts.

Effect of broadband deregulation on Universal Service
    The Commission is considering changing the way certain broadband 
services are regulated by re-classifying them as ``information 
services''.

    Question 2. What impact would these changes have on the way 
contributions are collected for the Universal Service program? At a 
time when we are searching for ways to strengthen Universal Service, do 
you think it is wise to pursue actions that may threaten existing 
funding sources?
    Answer. The Commission's ongoing analysis of the appropriate 
classification of broadband Internet access services should not affect 
the Commission's authority to assess contributions on service 
providers. Section 254(d) authorizes the Commission to assess 
contributions on carriers that provide ``telecommunications services,'' 
as well as on providers of ``telecommunications.'' Thus, if the 
Commission were to rule that an incumbent LEC's self-provisioned DSL 
transmission is an information service, the Commission also could 
impose a universal service contribution obligation on the 
``telecommunications'' portion of that information service. The 
Commission's Wireline Broadband NPRM sought comment on whether to 
extend contribution obligations in this manner in the event that the 
Commission rules that broadband Internet access services do not include 
any separate telecommunications services. Therefore, I do not believe 
that the regulatory classification of broadband Internet access 
services threatens the universal service contribution base--regardless 
of the classification, the Commission must make a policy judgment 
whether providers should make separate contributions for broadband 
services.
Broadband and Competition
    I believe that stimulating investment in high-speed Internet 
services will help our economy and provide a variety of other benefits 
as well (telemedicine, distance learning, etc.).

    Question 3. What do you think the best strategies are for speeding-
up the deployment of broadband without threatening competition in local 
telephone markets?
    Answer. Section 706 of the Telecommunications Act of 1996 provides 
one of the Commission's most important responsibilities--promoting 
broadband deployment. Congress directed the Commission to facilitate 
broadband deployment through various means, including the elimination 
of regulatory barriers to infrastructure investment. Our recent 
Triennial Review decision took significant steps to accomplish this 
goal. For example, the Commission ruled that packetized channels over 
fiber loops and subloops would not be subject to unbundling at TELRIC 
rates, thus creating a powerful incentive for carriers to deploy new 
fiber facilities. At the same time, the Commission required the 
continued unbundling of high-capacity loops (e.g., T-1 lines) to 
preserve competition in the small and medium enterprise market.
    I am disappointed, however, that a majority of the Commission 
decided to eliminate the line-sharing obligation. Had the Commission 
freed incumbents from unbundling obligations over newly deployed fiber 
but maintained the obligation to unbundle a broadband channel over 
existing copper, the Commission could have promoted both competition 
and investment. Nevertheless, even though I believe the Commission was 
unwise to eliminate line sharing, on balance the broadband portions of 
the Triennial Review decision are likely to help accelerate the rollout 
of broadband services to all Americans.
Local Competition
    According to recent reports in the Wall Street Journal, the 
Commission may be preparing to scale back competitors' access to local 
networks by changing the rules relating to the unbundled network 
element platform. According to recent FCC statistics, competition in 
local telephone markets is just now starting to take hold in a 
meaningful way.

    Question 4. If the unbundled network element platform were to no 
longer be an available method for competitors' to access Bell networks, 
what would it mean for the future of local competition--particularly in 
rural areas and regions with challenging topography where the cost of 
deploying facilities is particularly high?
    Answer. I believe that making significant changes to the 
availability of the unbundled network element platform (UNE-P) would 
have promoted competition in the long term by giving carriers 
incentives to deploy their own facilities. There is no doubt that 
facilities-based competition will promote consumer welfare more 
effectively than a resale-type model such as UNE-P, which provides 
access to the incumbent's network at superefficient TELRIC prices. 
Unfortunately, a majority of the Commission adopted a framework under 
which states have discretion to preserve UNE-P in all markets 
indefinitely. That framework is unlikely to create significant 
incentives for competitors to deploy facilities of their own, and 
therefore is unlikely to promote sustainable competition. Moreover, the 
majority's framework is likely to engender litigation in each of the 50 
states, thereby plunging the industry into uncertainty for years to 
come. I believe that the FCC should have adopted a national framework 
that eliminated the obligation to unbundle circuit switches in markets 
where there is clear evidence of switch deployment by competitors and 
where operational impairments have been addressed. Such an approach 
could have preserved unbundling obligations in rural markets where the 
cost characteristics create an insurmountable barrier to entry.

Interplay between state regulators and the FCC
    In a recent letter to all five the Commissioners, several 
representatives of the National Association of Regulatory Utility 
Commissioners wrote, ``State flexibility to maintain UNE-P as well as 
the ability to add to any national UNE list is critical to keeping 
competition `on track' ''.

    Question 5. What is your vision for the appropriate interplay 
between state regulators and the FCC in implementing the 1996 Act and 
promoting a competitive telecommunications market that benefits 
consumers?
    Answer. The FCC and state commissioners both play an important rule 
in promoting local competition, and the Act spells out the terms of 
their partnership. Section 251(d) of the Act directs the FCC to decide 
which network elements should be made available at cost-based rates. 
Where the FCC lacks sufficient information, it may be appropriate to 
rely on state commissions for fact-finding purposes, although I believe 
that the FCC must retain the ultimate authority over the availability 
of network elements. For example, under the FCC's new framework for 
unbundled transport, the Commission adopted a binding objective trigger 
that determines where impairment is present, and the states will make 
findings to determine where the trigger has been met. I believe this is 
the appropriate model for federal-state cooperation. By contrast, the 
majority's switching decision abdicates our federal responsibility by 
leaving it to individual states to determine where unbundled switching 
should be available. While Congress gave the FCC responsibility for 
deciding which network elements to unbundle, section 252 gives states 
important roles in setting prices for interconnection and unbundled 
network elements, approving interconnection agreements, and mediating 
and arbitrating disputes. Moreover, section 251(d)(3) preserves state 
authority to adopt regulations that are consistent with the 
requirements of section 251 and do not substantially prevent 
implementation of the federal regime.
                                 ______
                                 
Response to Written Questions Submitted by Hon. John D. Rockefeller IV 
                     to Hon. Jonathan S. Adelstein
Universal Service
    The E-Rate has made it possible for us to expedite the integration 
of technology into our education system by wiring tens of thousands of 
schools and libraries across the country. I think it is extremely 
important for the Commission to pursue Universal Service reforms that 
will ensure the long-term viability of all aspects of the program--
including the E-rate.

    Question 1. Please update me about the status of the Commission's 
efforts to strengthen the Universal Service program. I am interested in 
what reforms are needed to enable us to serve the needs of low-income 
and rural Americans in the long-term AND continue the progress we've 
made in wiring schools and libraries.
    Answer. I strongly support maintaining a strong and sound universal 
service mechanism, including the E-rate. I recently had the privilege 
of being made a member of the Federal-State Joint Board on Universal 
Service. Because only one Democrat can serve on the Joint Board, 
Commissioner Copps and I established a rotation schedule which would 
allow me to begin serving this year. He intends to return some time in 
2004. We plan to confer closely.
    The FCC and the Federal-State Joint Board are actively reviewing 
many issues that go to the heart of your question regarding our efforts 
to strengthen the program. The Joint Board will soon make a 
recommendation to the FCC regarding Lifeline and Link-Up to ensure that 
people who need access to these programs know about them and can 
participate more readily. We are looking at the question of the 
portability of funding and the best manner in which to do that.
    The FCC also is looking at which services should be included in the 
definition of universal services and thus eligible for funding. We are 
also addressing the contribution methodology to ensure that the funding 
mechanism is specific, predictable and sufficient, as Congress 
directed.
    Currently, the administration of the Schools and Libraries program 
is experiencing significant criticism. We are working on ways to 
address some of the concerns that have been raised by various 
interested entities. We also plan to hold an open forum on May 8, 2003 
to better understand some of the issues and potential solutions.
    My goal is to ensure that universal service funding, for high cost 
areas, schools and libraries, rural health care facilities and low 
income consumers works as Congress intended.
Effect of broadband deregulation on Universal Service
    The Commission is considering changing the way certain broadband 
services are regulated by re-classifying them as ``information 
services.''

    Question 2. What impact would these changes have on the way 
contributions are collected for Universal Service program? At a time 
when we are searching for ways to strengthen Universal Service, do you 
think it is wise to pursue action that may threaten existing funding 
sources?
    Answer. I share the concern about the potential effect that the 
Title I reclassification may have on our ability to support universal 
service funds. It potentially creates a problem in the area of not only 
contribution to the fund, but also in revenue recovery by the small and 
rural ILECs that have made the investment to bring broadband services 
to their customers. Such an action potentially could eviscerate efforts 
to bring advanced services to rural America.
    So the question is should the FCC treat broadband offered by 
incumbent local exchange carriers--usually DSL--as a telecommunications 
service regulated under Title II of the Communications Act--which is 
the Common Carrier portion of the Act--or as an information service 
under Title I--the general provisions of the Act. This seemingly simple 
difference can have huge ramifications for universal service. If these 
broadband services are classified as information services, the FCC 
loses much of the oversight that comes with Title II. And information 
service providers don't now contribute to universal service. This 
raises a lot of questions. Does it mean, for example, that revenues 
from these services can't contribute toward universal service? We've 
got to think hard about this at a time when the demands on the fund are 
increasing and contributions are decreasing.
Broadband and Competition
    I believe that stimulating investment in high-speed Internet 
services will help our economy and provide a variety of other benefits 
as well (telemedicine, distance learning, etc.)

    Question 3. What do you think the best strategies are for speeding 
up the deployment of broadband without threatening competition in local 
telephone markets?
    Answer. I believe that Congress has many tools with which it can 
work to speed the deployment of broadband. Some of these would be loan 
and grant programs, and another way would be through tax credits.
    Although universal service doesn't directly support advanced 
services, it's a vital mechanism that lays the groundwork for the 
creation of the broadband networks of the future. The high-bandwidth 
applications, like video services, that will drive revenues and expand 
opportunities will ride on these networks. And thus universal service 
will play a key role in bringing them to everyone in America.
    Competition has historically functioned as a major force in 
spurring broadband deployment. The Commission can choose to deregulate 
where competition has already steadfastly taken hold. Under the Act, 
deregulation must follow competition, and not vice versa.
Local Competition
    According to recent reports in the Wall Street Journal, the 
Commission may be preparing to scale back competitors' access to local 
networks by changing the rules relating to the unbundled network 
element platform. According to recent FCC statistics, competition in 
local telephone markets is just now starting to take hold in a 
meaningful way.
    Question 4. If the unbundled network platforms were to no longer be 
an available method for competitors' to access Bell networks, what 
would it mean for the future of local competition--particularly in 
rural areas and regions with challenging topography where the cost of 
deploying facilities is particularly high?
    Answer. Congress intended competition to take shape in many forms. 
One is facilities-based, another is through resale, and another is 
through interconnection. Although I believe that facilities-based 
competition is the most stable, I do believe that Congress intended it 
to take many shapes.
    That being said, I believe that the Commission's record supported a 
finding of impairment to competitors without access to UNE-P in at 
least the mass market. Approximately 10 million customers are served 
through UNE-P and the Commission itself has found it to be appropriate 
to base Track A approval in the 271 process on the presence of UNE-P 
competition. Had we eradicated access to UNE-P, we may have done away 
with a great deal of competitive choice that customers now have.
Interplay between state regulators and the FCC
    In a recent letter to all five the Commissioners, several 
representatives of the National Association of Regulatory Utility 
Commissioners wrote, ``State flexibility to maintain UNE-P as well as 
the ability to add to any national UNE list is critical to keeping 
competition `on track'.''

    Question 5. What is your vision for the appropriate interplay 
between state regulators and the FCC in implementing the `96 Act and 
promoting a competition telecommunications market that benefits 
consumers?
    Answer. As I stated in my testimony, I perceive that Congress made 
the state commissions our partners in both the areas of competition and 
universal service.
    In some areas, Congress explicitly granted us the jurisdiction, and 
in others, Congress granted the state commissions the jurisdiction. One 
such example is in the establishment and pricing of UNEs. We establish 
the ``menu'' of UNE's and the state commissions price them through 
their ratemaking authority.
    In the Triennial Review Order I believe that we have maintained the 
appropriate balance with the state commissions in our efforts to 
promote a telecommunications market that benefits consumers.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to 
                       Hon. Jonathan S. Adelstein
    All FCC Commissioners should answer: The DC Circuit's decision in 
USTA v. FCC, remanding the Commission's unbundling and line sharing 
rules, was inconsistent with the Supreme Court's holding in Verizon. 
However, the FCC's pending proposals to reduce competitors' access to 
network elements seem based on a similar predicate to the Court's 
suggestion that competitors using UNEs do not offer ``real'' 
competition to the incumbents.

    Question 1. Do you believe that UNE-P competition is not real 
competition? If so, why? If not, why would the FCC seek to curtail such 
competition?
    Question 1a. Do you believe, as the FCC stated in its petition for 
rehearing, that the ``limitations that the panel's decision can be read 
to impose have no basis in the statutory text and appear to be 
inconsistent with several provisions of the 1996 Act''?
    Answer. The Telecommunications Act of 1996 envisioned competition 
coming in many forms. These modes are resale, interconnection and 
facilities-based competition, separately and in combination with each 
other. As a member of the Federal Communications Commission, it is 
incumbent upon me to honor Congress' vision of how it intended to bring 
competition to the local loop. My position is to implement the law, not 
impose my policy views upon it. Legislation is rightly in the hands of 
Congress. Although never specifically mentioned as a specific 
``element,'' ``UNE-P'' is competition that finds its roots in the 
interconnection-based provisions of the Act. We determine which of our 
unbundled network elements (UNEs) must be made available to competitors 
through the filter of Section 252(d)(2) Access Standards, commonly 
known as the necessary and impair standard. We must apply this standard 
to the individual UNEs and determine if a competitor would be impaired 
in its efforts to provide the service it seeks to offer without access 
to that particular UNE. If we find that there is no impairment, then we 
will move UNE-P from our list of UNE's that are available; if a legal 
impairment still exists, then UNE-P will continue to be available. 
Since this language requires that we only consider whether unbundled 
network elements are necessary and if a carrier will be impaired 
without access to them ``at a minimum,'' the statute allows us to look 
at other considerations such as the effect on competition and the 
deployment of broadband under Section 706.

    All FCC Commissioners should answer: At our January 14, 2003 
hearing at which you appeared, Chairman Powell stated that the 
Commission's UNE Triennial Review must include as a ``core component'' 
an analysis of ``the proper role of state commissions in the 
implementation of our unbundling rules.'' Commissioner Martin likewise 
confirmed his belief that the Commission's rules should ``allow for 
state cooperation and input, especially regarding highly fact intensive 
and local determinations'' in recognition of the fact that 
``[a]ssessments of whether access to a [unbundled network] element is 
necessary to provide service may vary significantly among different 
markets, states and regions.'' Commissioner Adelstein characterized the 
states as ``our partners in implementing the Act,'' Commissioner Copps 
noted that ``[t]he path to success is not through preemption of the 
role of the states.''

    Question 2. How will the Commission ensure that its order in the 
UNE Triennial Review preserves the meaningful participation of the 
states in the development of local competition as Congress intended?
    Question 2a. Does the D.C. circuit decision's emphasis on a need 
for a more granular review of the need for UNEs suggest that the FCC 
must grant a strong oversight role to the states given that they are 
undeniably better equipped to gauge market conditions, competition, and 
compliance with the law on a market by market basis than is the FCC?
    Answer. I believe that Congress intended for the Federal 
Communications Commission and the state commissions to be partners in 
the implementation of both pillars of the Communications Act of 1996, 
universal service, and competition and any corresponding subsequent 
deregulation. Section 251 (d)(3) is entitled ``Preservation of State 
Access Regulations''. To paraphrase the provision, the Commission 
cannot preclude the enforcement of any regulation, order, or policy of 
a state commission that establishes access and interconnection 
obligations of local exchange carriers; is consistent with the 
requirements of the interconnection section of the Act; and does not 
substantially prevent implementation of the requirements of this 
section and the purposes of the common carrier regulation portion of 
the Act. I view this particular provision as ensuring that we cannot 
scuttle the state commissions' efforts to respond to the competitive 
initiatives in the Act unless the state's efforts would serve to 
substantially impair the Commission's ability to carry out the 
requirements that the Act places on the Federal Communications 
Commission. I believe that the states must be given a significant role 
in this process just as they have been given significant roles, in 
among others, the Section 251 arbitration proceedings, the Section 271 
process, and under Section 254, the designation of Eligible 
Telecommunications Carrier status. The state commissions are closer to 
the ground in the implementation process. That is one of the reasons 
for which the Congress chose to make them an integral part of the team 
to implement the 1996 Act. I believe that the states must participate 
in determining if access to a particular UNE is necessary and that if 
that carrier doesn't have access to it, it will be impaired in the 
provision of that service. I believe that the appropriate role of the 
state is fluid depending upon the particular UNE under discussion. If a 
particular UNE lends itself to a national statement of impairment or no 
impairment, then we have satisfied the USTA court's direction of 
granularity. With other UNE's, a national determination may not be 
possible, and thus the states are best suited, with guidance, to make 
that determination.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                       Hon. Jonathan S. Adelstein
Local Telephone Service Competition
    Question 1. Competing companies generally offer service to 
consumers at prices 10-50-percent less than the Bells. If the FCC 
terminates the requirement for traditional phone companies to offer 
parts of their infrastructure for lease to competitors, wouldn't that 
leave the vast majority of California customers without a choice for 
local phone service and drive up rates for consumers?
    Answer. Yes, wholesale relief from the UNE requirements could 
possibly leave a vast majority of customers without access to 
competitive choices and the benefits, of lower prices and better 
service, that flow from competition. However, such comprehensive relief 
from these requirements is not being contemplated at this time.

    Question 2. Commissioners Copps and Adelstein, you issued a joint 
concurring statement in SBC's petition for forbearance in its 
application for dominant carrier status. In that statement, you stated 
that you voted for the proceeding not because it was the ``optimal 
outcome, or even a good one,'' but because it was better than no 
decision at all. If the Commission had failed to act, there would have 
been an automatic grant of SBC's request. I am concerned that you would 
oppose the order but vote for it anyway because it was better than 
doing nothing. In your pending review on local phone competition, the 
Commission faces another deadline of February 20. Will you face a 
similar dilemma there?
    Answer. No, we do not face a similar dilemma here. First, we expect 
to complete this process by the District Court imposed deadline. 
Second, in the proceeding entitled Section 272(f)(1) Sunset of the BOC 
Separate Affiliate and Related Requirements, the situation was such 
that without any Commission action, all of our regulatory oversight 
over SBC's affiliate would have lapsed completely on a date certain. In 
Section 272, Congress required Bell companies to provide long-distance 
and manufacturing services through a separate affiliate. In 
implementing these requirements, the Commission concluded that Congress 
adopted these safeguards because it recognized that Bell companies may 
still exercise market power at the time they enter long-distance 
markets. Congress provided that these requirements would continue for 
three years, but could be extended by the Commission by rule or order. 
Thus, no Commission decision would have meant no remaining oversight or 
control. I chose to concur in that item because, although I was pleased 
with neither our lack of analysis, nor the ultimate decision, we were 
able to include some safeguards to make it less likely that the SBC 
affiliate could engage in discriminatory treatment because of SBC's 
dominance in the market. The interconnection rules in the Act call for 
negotiation, and if necessary, State commission arbitration, in order 
to breathe life into the interconnection process. These relationships 
are contractual in nature. As such, even if we had not been able to 
reach a decision by February 20, 2003, the contracts would remain in 
force and effect and there would not be unbridled chaos as some have 
suggested.

Broadband DSL Competition
    Question 3. According to the California PUC, half of my state has 
no access to cable broadband service and the speeds available over 
satellite are not competitive with DSL. If you do not continue to allow 
competition in DSL broadband service, will not consumers in my state be 
at the mercy of a DSL broadband monopoly?
    Answer. Yes, if there were no requirements placed on the Bell 
companies to unbundle their networks, then it is possible that the 
incumbent LEC would be the only provider of DSL or any other form of 
broadband competition in particular markets. As you are aware, the 
access to loops, switching and transport is a different issue than the 
pricing for that access. If not priced as UNE's under total element 
long run incremental costs (TELRIC), the RBOCs might price these 
features and functionalities at just and reasonable rates. And although 
line sharing gives competitive carriers access at TELRIC rates or zero, 
they could possibly access the higher frequency bandwidth portion of 
the line at just and reasonable rates under these provisions. Moreover, 
competitors would still have access to the entire loop.

    Question 4. If I understand correctly, regulation of broadband 
delivered over telephone lines is dependent on whether or not the 
Commission chooses to define DSL broadband as a ``telecommunications'' 
service, and as a result is regulated, or an ``information'' service, 
which would result in an unregulated environment. Can any of you 
explain how a voice conversation carried over phone lines could be 
declared a telecommunications service while an e-mail conversation 
carried over phone lines is not?
    Answer. That is just one of the challenges faced in determining 
whether these services should be treated as information services under 
Title I of the Act, or as telecommunications services under Title II of 
the Act. Both allow us to regulate it, but in completely different ways 
and to very different ends. Your example is a good one in terms of 
demonstrating how difficult it is to classify these services.
Wi-Fi and the Jumpstart Broadband Act
    Question 5. Commissioners, my staff has made the ``Jumpstart 
Broadband Act'' available to your offices. Have you had time to review 
the legislation and could you provide feedback on it?
    Answer. I commend your efforts and the efforts of Senator Allen in 
encouraging the deployment of additional unlicensed services in the 5 
GHz band. The Jumpstart Broadband Act provides a solid framework for a 
Commission allocation for unlicensed use by wireless broadband devices 
and appropriately recognizes the important need for interference 
protection standards to protect incumbent Federal government agency 
users of 5 GHz spectrum.

    Question 6. Commissioners, innovation has flourished in the current 
unlicensed spectrum bands. What do you believe the potential is for 
increased innovation and do you agree that more spectrum should be 
allocated to encourage this innovation?
    Answer. I do agree that more spectrum should be allocated for 
unlicensed services. Unlicensed operations are one of the few 
communications success stories over the past couple of years, and I 
think the Commission should continue to promote the development and 
deployment of more advanced unlicensed broadband devices and services. 
In doing so, though, we must continue to be mindful of interference to 
existing licensed users. I look forward to addressing some of these 
issues at the Commission over the next several months.

    Question 7. Commissioners, would you agree that additional 
unlicensed spectrum could help spur new broadband services and would be 
a good idea regardless of how you proceed on the broadband proceedings 
before you?
    Answer. I am very excited about the promise of unlicensed wireless 
technologies, and indeed of all spectrum-based technologies, to provide 
broadband services to American consumers. While much of the recent 
attention has focused on the explosive growth of Wi-Fi services, I 
think that there also are a number of other promising spectrum 
technologies--licensed and unlicensed terrestrial services, as well as 
satellite-based services--that will be able to offer broadband 
services.

    Question 8. Experts in technology we have talked with say that the 
technology clearly exists that would allow unlicensed devices to keep 
from harming incumbent systems. Do your experts tell you the same 
thing?
    Answer. I am very encouraged by the recent agreement between 
industry and Federal government agencies regarding the operation of 
wireless local area networks in the 5 GHz band and the protection of 
incumbent operations. I fully support this important consensus.
Digital Copyright Issues
    Question 9. Commissioners, consumers are excited about the 
potential that digital television and HDTV have to increase 
dramatically the quality of their viewing experience. At the same time, 
those who make movies and shows are concerned that those shows and 
films distributed in digital format will be copied and distributed at a 
huge loss to them. Does it not seem to you that some form of protection 
for content carried over the air and over cable to these fantastic new 
TVs is necessary and fair?
    Answer. Some sort of protection may be required. We are currently 
exploring this issue, including the scope of the FCC's jurisdiction in 
this area, in our broadcast flag proceeding.

    Question 10. Commissioner Adelstein, you have said that the FCC is 
obligated to protect ``the free flow of ideas and creativity.'' Do you 
believe that a part of that obligation includes the protection of 
creative content from piracy?
    Answer. When I made that statement, I was referring to our public 
interest mandate, our role in ensuring that broadcasters serve the 
``public interest, convenience, and necessity.'' As part of that 
mandate, we must maintain broadcast ownership rules that promote the 
public interest. Whether the FCC has a role in protecting digital 
content from privacy depends in part on the scope of its jurisdiction. 
As stated above, we are currently considering that issue in our 
broadcast flag proceeding.
Media Concentration
    After the elimination of radio consolidation protections in the 
1990s, in California alone, one company, Clear Channel, owns a stunning 
102 radio stations. In some towns that means every station is 
controlled by the same corporation. Now I hear that the FCC is 
considering eliminating the concentration protections for TV, cable, 
and newspapers.

    Question 11. I also hear from the Writers Guild, local 
broadcasters, independent film makers, Consumers Union, and others that 
the FCC is rushing to judgment on whether to eliminate or drastically 
change its media concentration protections. If you eliminate the 
current rules altogether, then could TV and cable in California 
experience similar concentration as radio?
    Answer. If we were to eliminate the current rules altogether, I 
believe TV and cable could conceivably experience similar 
concentration.

Miscellaneous
    Question 12. Do you foresee an overlay strategy for the 310 area 
code that would prevent a split but only change digital cell phones 
prospectively, therefore eliminating the inconvenience to individuals 
who presently own cell phones and assuring that purchasers of analog 
cell phones would not have to change their code?
    Answer. I oppose the taking back of telephone numbers from existing 
mobile wireless users, whether they have digital or analog phones. As 
noted in my answer below, I am hopeful that with the implementation of 
wireless local number portability and the consideration of the 
California PUC request to raise the contamination percentage to 25 
percent for thousands-block pooling, we can significantly improve the 
numbering resources situation in California so as to eliminate any 
discussion of telephone number take backs.
    On the HERO Act (public safety spectrum): The FCC has an open 
rulemaking on digital television. One of the areas of concern to me is 
that critical spectrum for public safety--spectrum that will help first 
responders coordinate effectively in the event of a terrorist attack 
such as 9/11--is being held pending the broadcasters' transition to 
digital television. Congresswoman Harman, who is now ranking member on 
the House Intelligence Committee, has introduced a bill, the HERO Act, 
to have the public safety spectrum in issue turned over by a date 
certain at the end of 2006, precisely to get at a problem first 
responders had in coordinating during and immediately after, the 9/11 
attacks.

    Question 13. What has the FCC done, and what can it still do, to 
speed up the broadcasters' conversion and to get the public to 
participate in the transition as well?
    Answer. In January 2002, the Commission issued state-wide licenses 
for public safety use of the 700 MHz band. However, many large cities 
will not have timely access to the 700 MHz public safety spectrum 
because of incumbent broadcasters on TV Channels 62, 63, 64, 65, 67 68, 
and 69. Public safety representatives have urged that the 700 MHz band 
be cleared of incumbent broadcasters as soon as possible, and by no 
means later than the end of 2006. A date certain for access to the 700 
MHz band is critical to public safety agencies' ability to engage in 
long-range financial planning and in the purchase of equipment. 
Inasmuch as Congress has mandated that a set Digital Television market 
penetration benchmark must be reached before a complete transition 
becomes mandatory, establishing a schedule for a complete transition of 
the 700 MHz public safety band to exclusive public safety use is a 
matter not completely within the Commission's control.
    With regard to other actions taken to facilitate the transition, I 
commend the Chairman for his leadership in securing voluntary industry 
commitments to increase consumer access to compelling digital content 
and to increase consumer awareness of the digital transition. The 
Commission has proposed a graduated regime of sanctions to impose on 
stations that fail to build out their DTV facilities and adopted a DTV 
tuner mandate, requiring that televisions have the capability to 
receive and display DTV over-the-air channels. Two on-going proceedings 
aimed at facilitating the transition include the DTV periodic review 
(reviewing whether adjustments to the existing rules for the transition 
are needed) and a proceeding on the Digital Cable Compatibility 
proposal recently submitted jointly by cable operators and electronics 
manufacturers.

    Question 14. On area code relief: My state, California, is a great 
market, particularly for high tech and new telecommunications services. 
One drawback to this impressive growth is that these new 
telecommunications services use telephone numbers. Senior citizens, 
residents and small businesses, particularly in urban areas, have had 
to endure many successive area code changes. The state of California 
has a petition pending to try some new avenues of relief. For example, 
the state wants to overlay a new code for devices that don't require 
human interaction--like credit card verification devices,--so that real 
people are not burdened or confused. The state has other innovative 
ideas , and these have included requiring wireless carriers to offer 
local number portability and ordering a wireless overlay in the Los 
Angeles area code 310 and 909 region. What is your position?
    Answer. The issue of technology-specific overlays for mobile 
wireless customers is a difficult one. I am hopeful that with the 
implementation of wireless local number portability and the 
consideration of the California PUC request to raise the contamination 
percentage to 25 percent for thousands-block pooling, we can avoid the 
need for a technology-specific overlay directly targeting mobile 
wireless phones. If a technology specific overlay is adopted, we 
believe that the overlay should convert to an all services overlay at a 
date certain and that such a proposal should not include the taking 
back of telephone numbers from end users.
    I am always interested in hearing innovative ideas from state 
commissions to make numbering usage more efficient. I will encourage 
the Commission to look into the possibility of area codes for non-
geographically sensitive devices (such as credit card verification 
devices) and into increasing the contamination threshold for number 
pooling.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to 
                         Hon. Michael J. Copps
    All FCC Commissioners should answer: The DC Circuit's decision in 
USTA v. FCC, remanding the Commission's unbundling and line sharing 
rules, was inconsistent with the Supreme Court's holding in Verizon. 
However, the FCC's pending proposals to reduce competitors' access to 
network elements seem based on a similar predicate to the Court's 
suggestion that competitors using UNEs do not offer ``real'' 
competition to the incumbents.

    Question 1. Do you believe that UNE-P competition is not real 
competition? If so, why? If not, why would the FCC seek to curtail such 
competition?
    Answer. Congress made clear that facilitating competition within 
and across platforms are both important in the statutory framework. 
Congress recognized that many competitors would not be able to 
duplicate the incumbent's network. Congress therefore required the 
Commission to determine those network elements that an incumbent must 
unbundle and offer to its competitors in the local market. In those 
markets where competitors are impaired without access to loops, 
switching, and transport, UNE-P may offer the only competitive 
alternative for certain customers. I am pleased that, in the face of 
intense pressure for the Commission to make broad nationwide decisions 
that would have doomed the future use of unbundled elements, we instead 
adopted a more reasonable process under which the state commissions 
conduct a granular analysis that takes into account geographic and 
customer variation in different markets. Through this process, we will 
be able to foster the competition that Congress sought in the 1996 Act 
and to fulfill the mandate of the law, which is ``to secure lower 
prices and higher quality services for American consumers.''

    Question 1a. Do you believe, as the FCC stated in its petition for 
rehearing, that the ``limitations that the panel's decision can be read 
to impose have no basis in the statutory text and appear to be 
inconsistent with several provisions of the 1996 Act''?
    Answer. I remain concerned not only about these aspects of the 
court decision, but also about apparent inconsistencies between this 
decision and the Supreme Court decision issued several days before. It 
may therefore have been better to try to resolve the uncertainties by 
seeking review of the D.C. Circuit decision, rather than moving forward 
with another decision that will face a renewed round of litigation.

    All FCC Commissioners should answer: At our January 14, 2003 
hearing at which you appeared, Chairman Powell stated that the 
Commission's UNE Triennial Review must include as a ``core component'' 
an analysis of ``the proper role of state commissions in the 
implementation of our unbundling rules.'' Commissioner Martin likewise 
confirmed his belief that the Commission's rules should ``allow for 
state cooperation and input, especially regarding highly fact intensive 
and local determinations'' in recognition of the fact that 
``[a]ssessments of whether access to a [unbundled network] element is 
necessary to provide service may vary significantly among different 
markets, states and regions.'' Commissioner Adelstein characterized the 
states as ``our partners in implementing the Act,'' Commissioner Copps 
noted that ``[t]he path to success is not through preemption of the 
role of the states.''

    Question 2. How will the Commission ensure that its order in the 
UNE Triennial Review preserves the meaningful participation of the 
states in the development of local competition as Congress intended?
    Answer. In some parts of the Order, the Commission recognized that 
the states have a significant role to play in our unbundling 
determinations. We understood in those sections that the path to 
success is not through preemption of the role of the states, but 
through cooperation with the states. In those areas, we adopted a 
reasonable process under which a state commission is able to conduct a 
granular analysis that takes into account geographic and customer 
variation in different markets.
    In other sections of the Order, however, we did not provide a 
meaningful role for the state commissions. In particular, the 
Commission limited--on a nationwide basis in all markets for all 
customers--competitors' access to broadband loop facilities whenever an 
incumbent deploys a mixed fiber/copper loop. The Commission has 
recognized time and again that loops are the ultimate bottleneck 
facility. Yet, the Commission has chosen to eliminate this bottleneck 
facility on a nationwide basis without adequate analysis of the impact 
on consumers, without analyzing different geographic or customer 
markets, and without conducting the granular, fact-intensive inquiry 
demanded by the courts.

    Question 2a. Does the D.C. circuit decision's emphasis on a need 
for a more granular review of the need for UNEs suggest that the FCC 
must grant a strong oversight role to the states given that they are 
undeniably better equipped to gauge market conditions, competition, and 
compliance with the law on a market by market basis than is the FCC?
    Answer. The D.C. Circuit made clear that a more granular analysis 
was necessary to take into account differences among specific markets 
or segments of markets. State commissions with closer proximity to the 
markets are often best positioned to make the fact-intensive 
determinations about impairments faced by competitors in their local 
markets.

  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                         Hon. Michael J. Copps
    Question. Commissioner Copps, I share your concerns about the 
possible modification of ownership limits under consideration and I 
strongly agree with you about the need to ensure that every American 
stakeholder is given an opportunity to participate in this debate. I 
understand the Media Council and Society of Professional Journalists in 
Hawaii have formally requested an opportunity to discuss the media 
concentration issue in general, and the Hawaii duopoly waiver situation 
in particular.
    I respectfully request that the FCC work with the Media Council and 
Society of Professional Journalists to facilitate a hearing or meeting 
in Hawaii on this important issue.
    Answer. This decision is too important to make in a business-as-
usual way. We need a national dialogue on these critical issues. That 
is why I've been pushing so hard for media hearings. I plan to 
participate in forums that are currently being planned by a number of 
private groups in cities across the mainland--from New York to Chicago 
to Los Angeles. But it shouldn't fall exclusively to private 
organizations like the Columbia Law School or the Annenberg Center to 
rally the public on these matters. It's the FCC's responsibility--it is 
our public interest duty --to reach out and tell the public about this 
proceeding, and then to solicit and listen to their input.
    I am committed to participating in as many public hearings on these 
issues as I can. To that end, I have made arrangements to hold field 
hearings in Seattle and Durham this month. But, in organizing these 
field hearings, we were not permitted to draw on the resources of the 
full Commission or our Media Bureau for assistance in all of the 
logistics that go into such events, nor were we provided any additional 
funding for them. Those resources would be critical to the success of 
an event in Hawaii. I for one would welcome the opportunity to work 
together with my colleagues and the staffs of the Media and Consumer & 
Governmental Affairs Bureaus to make such an event happen. I have asked 
the Chairman to address this matter of a hearing in Hawaii and I hope 
he will do so soon.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                         Hon. Michael J. Copps
Local Telephone Service Competition
    Question 1. Competing companies generally offer service to 
consumers at prices 10-50-percent less than the Bells. If the FCC 
terminates the requirement for traditional phone companies to offer 
parts of their infrastructure for lease to competitors, wouldn't that 
leave the vast majority of California customers without a choice for 
local phone service and drive up rates for consumers?
    Answer. The mission of facilitating competition in all 
telecommunications markets became the law of the land in the 1996 Act. 
I share your concern about the possibility that certain customers will 
be left without the competitive choices that Congress sought. The 
Triennial Review offered us the opportunity to encourage competition 
and to fulfill the mandate of the law, which is ``to secure lower 
prices and higher quality services for American consumers.'' In some 
sections, the decision advances that mandate. We preserve voice 
competition in the local markets and we allow it to grow. We accord the 
states an enhanced role in making the granular determinations necessary 
to foster competition and to ensure that consumers will reap the 
benefits of lower prices, better services, and greater innovation. In 
other sections, however, I am troubled that we are undermining 
competition, particularly in the broadband market, by limiting--on a 
nationwide basis in all markets for all customers--competitors' access 
to broadband loop facilities. I fear that this decision may well result 
in higher prices for consumers and may put us on the road to re-
monopolization of the local market.

    Question 2. Commissioners Copps and Adelstein, you issued a joint 
concurring statement in SBC's petition for forbearance in its 
application for dominant carrier status. In that statement, you stated 
that you voted for the proceeding not because it was the ``optimal 
outcome, or even a good one,'' but because it was better than no 
decision at all. If the Commission had failed to act, there would have 
been an automatic grant of SBC's request. I am concerned that you would 
oppose the order but vote for it anyway because it was better than 
doing nothing. In your pending review on local phone competition, the 
Commission faces another deadline of February 20. Will you face a 
similar dilemma there?
    Answer. Although the Commission adopted an Order on February 20, 
the procedural issues in this proceeding were far different than those 
raised by SBC's forbearance petition. The statute provides that, if the 
Commission does not deny a forbearance petition, it is deemed granted. 
The Commission therefore needed to act by a certain date on SBC's more 
far-reaching forbearance request. In the other instance, the Commission 
is responding to a court decision overturning its previous network 
element rules. As several parties argued, had the Commission not 
reached a decision, it is unlikely that there would have been immediate 
disruption in the market because unbundling obligations would have 
continued pursuant to unexpired interconnection agreements, state law 
requirements, or other federal requirements.
Broadband DSL Competition
    Question 3. According to the California PUC, half of my state has 
no access to cable broadband service and the speeds available over 
satellite are not competitive with DSL. If you do not continue to allow 
competition in DSL broadband service, will not consumers in my state be 
at the mercy of a DSL broadband monopoly?
    Answer. I dissented from the far-reaching broadband sections of the 
Order, because I was troubled that we are undermining competition, 
particularly in the broadband market, by limiting--on a nationwide 
basis in all markets for all customers--competitors' access to 
broadband loop facilities whenever an incumbent deploys any fiber for 
that loop. That means that as incumbents deploy fiber anywhere in their 
loop plant--a step carriers have been taking in any event over the past 
years to reduce operating expenses--they are relieved of the unbundling 
obligations that Congress imposed to ensure adequate competition in the 
local market. And make no mistake--this decision affects not just new 
investment, but it also eliminates unbundling obligations for past 
investment. The Commission has recognized time and again that loops are 
the ultimate bottleneck facility. Yet, the Commission has chosen to 
eliminate this bottleneck facility on a nationwide basis without 
adequate analysis of the impact on consumers, without analyzing 
different geographic or customer markets, and without conducting the 
granular, fact-intensive inquiry demanded by the courts. To make 
matters even worse, in some markets such as the small and medium 
business market, there may not be any competitive alternatives if 
competitors cannot get access to loop facilities. I fear that this 
decision may well result in higher prices for consumers and may put us 
on the road to re-monopolization of the local market.

    Question 4. If I understand correctly, regulation of broadband 
delivered over telephone lines is dependent on whether or not the 
Commission chooses to define DSL broadband as a ``telecommunications'' 
service, and as a result is regulated, or an ``information'' service, 
which would result in an unregulated environment. Can any of you 
explain how a voice conversation carried over phone lines could be 
declared a telecommunications service while an e-mail conversation 
carried over phone lines is not?
    Answer. The Commission will soon be deciding how to classify 
broadband services, and whether the transmission component for 
broadband services, including for Internet access, should be offered 
outside of the statutory framework that applies to telecommunications 
carriers. Not only could this decision create a division between e-mail 
and voice conversations, but it could also lead to the result that 
certain voice conversations are fully deregulated while other voice 
services remain subject to Congress' statutory framework. My worry is 
that we are heading down the road of removing core communications 
services from the statutory frameworks intended and established by 
Congress, substituting our own judgment for that of Congress, and 
playing a game of regulatory musical chairs by moving technologies and 
services from one statutory definition to another.
Wi-Fi and the Jumpstart Broadband Act
    Question 5. Commissioners, my staff has made the ``Jumpstart 
Broadband Act'' available to your offices. Have you had time to review 
the legislation and could you provide feedback on it?
    Answer. I have reviewed the legislation. First I must state that as 
a FCC Commissioner it is my responsibility to implement legislation 
that is enacted. It is not my place to advise Congress on how to vote 
on a particular piece of legislation. However, I can state that the 
goal of expanding the spectrum resources available to wireless 
broadband devices is one that I support wholeheartedly. It is important 
that as we do so we do two things, both of which are included in your 
bill. The first is that the FCC should not lock ourselves into any one 
wireless broadband technology. 802.11(b) is a huge success, but other 
innovations are sure to come and any spectrum policy should insure that 
new technologies and new entrepreneurs have a chance to turn good ideas 
into consumer benefits. The second is that the FCC should make smart 
interference decisions as early as possible. This does not mean that we 
should be over-restrictive, allowing no interference however minimal. 
This would preclude innovation and competition. Instead we should seek 
out the level of protections that bring the best service to the most 
people.

    Question 6. Commissioners, innovation has flourished in the current 
unlicensed spectrum bands. What do you believe the potential is for 
increased innovation and do you agree that more spectrum should be 
allocated to encourage this innovation?
    Answer. The unlicensed bands have allowed tremendous innovation and 
have allowed entrepreneurs to bring products and services to Americans 
in ways that are just impossible in licensed bands. We should not allow 
a lust to auction to undermine the clear benefits that the spectrum 
commons model produces. I have worked to find more unlicensed spectrum 
in the past and I will do so in the future.

    Question 7. Commissioners, would you agree that additional 
unlicensed spectrum could help spur new broadband services and would be 
a good idea regardless of how you proceed on the broadband proceedings 
before you?
    Answer. The mistake that the Commission made in undermining 
broadband competition by denying competitors access to fiber optic 
facilities makes working to develop wireless broadband as a competitor 
even more important. If incumbent companies dominate the broadband 
market consumer prices will rise and innovation may suffer.

    Question 8. Experts in technology we have talked with say that the 
technology clearly exists that would allow unlicensed devices to keep 
from harming incumbent systems. Do your experts tell you the same 
thing?
    Answer. While we must be careful with our interference rules, clear 
and rational interference rules can be met by unlicensed devices.
Digital Copyright Issues
    Question 9. Commissioners, consumers are excited about the 
potential that digital television and HDTV have to increase 
dramatically the quality of their viewing experience. At the same time, 
those who make movies and shows are concerned that those shows and 
films distributed in digital format will be copied and distributed at a 
huge loss to them. Does it not seem to you that some form of protection 
for content carried over the air and over cable to these fantastic new 
TVs is necessary and fair?
    Answer. Some form of protection is clearly needed. Copyright law 
already provides one form of protection. Technology may offer another. 
But the question of whether the FCC should impose a technology on the 
high-tech industry in order to protect the content industry is 
complicated. While we want content owners to be able to protect their 
products, we must be mindful of the unintended consequences of our 
actions. I will look for a way to give content producers the tools they 
need, while not creating large new costs that will be borne by 
consumers, threatening personal privacy, or undermining free speech and 
fair use.
Media Concentration
    After the elimination of radio consolidation protections in the 
1990s, in California alone, one company, Clear Channel, owns a stunning 
102 radio stations. In some towns that means every station is 
controlled by the same corporation. Now I hear that the FCC is 
considering eliminating the concentration protections for TV, cable, 
and newspapers.

    Question 10. If you eliminate the current rules altogether, then 
could TV and cable in California experience similar concentration as 
radio?
    Answer. If we eliminate these rules, I fear the entire media 
landscape--across the country--very well could look like radio, where 
abandoning media concentration rules led to the wholesale consolidation 
that you describe. I don't believe that we yet understand the 
implications of our actions. We do have the radio experience to learn 
from. Many believe that the loosening of ownership caps and limits 
created real problems in radio. Arguably, consolidation created some 
economies and efficiencies that allowed broadcast media companies to 
operate more profitably and may even have kept some stations from going 
dark and depriving communities of service. But it is also true that 
radio consolidation went far beyond what anyone expected. Conglomerates 
now own dozens, even hundreds--and, in one case, more than a thousand--
stations all across the country. More and more of their programming 
seems to originate hundreds of miles removed from listeners and their 
communities.
    And we know there are 34 percent fewer radio station owners in 
March 2003 than there were before these protections were eliminated. 
The majority of radio markets are now oligopolies. That raises serious 
questions. Media watchers like the Media Access Project, Consumers 
Union, and Professor Robert McChesney argue that this concentration has 
led to far less coverage of news and public interest programming. The 
Future of Music Coalition in its multi-year study finds a 
homogenization of music that gets air play, and that radio serves now 
more to advertise the products of vertically-integrated conglomerates 
than to entertain Americans with the best and most original 
programming.
    I don't believe we have obtained the data to determine the 
prospective effect on localism, diversity, and independence of TV, 
cable, radio, and newspapers if we eliminate our protections, 
especially given our history with radio consolidation.
    I also hear from the Writers Guild, local broadcasters, independent 
film makers, Consumers Union, and others that the FCC is rushing to 
judgement on whether to eliminate or drastically change its media 
concentration protections.

    Question 11. Commissioner Copps, I understand that the Commission 
has contracted out a number of studies on media concentration. Are you 
satisfied that those studies have examined the effect of elimination of 
media concentration rules on citizen access to diverse viewpoints or to 
the control exerted by a few businesses over the majority of media?
    Answer. No, I am not. The studies that the Commission is relying on 
are narrow and incomplete, and several outside groups argue that they 
are seriously flawed. They don't provide an analysis of what would 
happen if we were to lift the television audience cap 20 or 30 or 50-
percent instead of scrapping it; they don't address what the likely 
prospective effect on localism, diversity, and independence would be if 
we eliminate the national cap and other protections--of particular 
interest, given our history with radio consolidation; and they don't 
answer questions such as:

   How do consolidation and co-ownership affect the media's 
        focus on issues important to minorities and to the objective of 
        diversity? What are the effects on children?

   What effects have media mergers, radio consolidation, and TV 
        duopolies had on the personnel and resources devoted to news, 
        public affairs, and public service programming, and on the 
        output of such programming? How about the effect on the 
        creative arts?

   How are advertising and small business affected?

    We need answers to these questions and many others before we can 
make an informed decision.
Miscellaneous
    Question 12. Do you foresee an overlay strategy for the 310 area 
code that would prevent a split but only change digital cell phones 
prospectively, therefore eliminating the inconvenience to individuals 
who presently own cell phones and assuring that purchasers of analog 
cell phones would not have to change their code?
    Answer. We need to work closely with state public utility 
commissions on these numbering issues. We must work together as 
partners to tackle numbering problems. That is why I advocated allowing 
more states to undertake number pooling before the national system was 
implemented. And that is why I am hoping we can address as 
expeditiously as possible petitions from states to undertake additional 
number conservation measures. California filed just such petitions last 
fall. Those petitions sought to implement a technology specific overlay 
and to increase the contamination threshold for reclaiming blocks of 
numbers. I am disappointed to see it has been several months and we 
have still not issued a decision. I hope we will put resources towards 
completing this proceeding as soon as possible. As long as measures are 
fair to consumers and industry, we should accommodate state requests to 
implement strategies that will address their situation. And once we 
grant a state's petition, we should allow other states to use those 
same strategies if they want.

    On the HERO Act (public safety spectrum): The FCC has an open 
rulemaking on digital television. One of the areas of concern to me is 
that critical spectrum for public safety--spectrum that will help first 
responders coordinate effectively in the event of a terrorist attack 
such as 9/11--is being held pending the broadcasters' transition to 
digital television. Congresswoman Harman, who is now ranking member on 
the House Intelligence Committee, has introduced a bill, the HERO Act, 
to have the public safety spectrum in issue turned over by a date 
certain at the end of 2006, precisely to get at a problem first 
responders had in coordinating during and immediately after, the 9/11 
attacks.

    Question 13. What has the FCC done, and what can it still do, to 
speed up the broadcasters' conversion and to get the public to 
participate in the transition as well?
    Answer. In August, 2002, the Commission took two major steps to 
encourage the long-delayed transition to digital television. We moved 
to resolve the continuing industry deadlock over inclusion of 
technologies to provide digital broadcast copy protection, and we 
addressed the important issue of requiring digital tuners in our 
television receivers. Given digital media's susceptibility to piracy, 
the issue of content protection must be resolved before broadcasters 
will make new, innovative and expensive digital content widely 
available. The high price and scarcity of DTV-capable receivers that 
are on the market now are not consistent with realizing the 
Congressional goal of transitioning to digital television at such time 
as 85-percent of homes have digital reception capability, but history 
indicates, and some of the major manufacturers agree, that the costs of 
incorporating DTV tuners into televisions set should fall fairly 
rapidly as all sets include these tuners.
    We were also able recently to re-start the process of addressing 
the Commission's long-dormant proceedings on the public interest 
obligations of broadcasters in the DTV environment. And there does seem 
to be some industry movement now as well, such as recent broadcaster 
and cable commitments to digital programming and the industry's recent 
agreement on action to address cable compatibility issues. Public 
comments are being sought on the broadcast flag, broadcasters' public 
interest obligations in the DTV environment, and cable compatibility 
issues.
    So, we are making some progress, but there is still a long way to 
go. We still have to resolve must-carry, the definition of ``primary 
video'' and ``program-related'' and so on, but my sense is we're moving 
faster now than we were a year ago.

    Question 14. On area code relief: My state, California, is a great 
market, particularly for high tech and new telecommunications services. 
One drawback to this impressive growth is that these new 
telecommunications services use telephone numbers. Senior citizens, 
residents and small businesses, particularly in urban areas, have had 
to endure many successive area code changes. The state of California 
has a petition pending to try some new avenues of relief. For example, 
the state wants to overlay a new code for devices that don't require 
human interaction--like credit card verification devices,--so that real 
people are not burdened or confused. The state has other innovative 
ideas , and these have included requiring wireless carriers to offer 
local number portability and ordering a wireless overlay in the Los 
Angeles area code 310 and 909 region. What is your position?
    Answer. We must aggressively look for innovative strategies to 
conserve numbers and use them more efficiently. The FCC has been taking 
some steps to implement these strategies. We are rolling out number 
pooling so that carriers receive fewer numbers at a time. And as of 
last fall, wireless carriers are participating in these pooling 
efforts. We are adopting criteria to limit the quantity of numbers that 
carriers can hold without using. We are requiring carriers to file 
information so that we can monitor the use of numbers. We are moving 
forward--albeit not as quickly as I would have liked--to ensure that 
wireless carriers implement local number portability just as wireline 
carriers have already done. Portability not only allows you to keep 
your number when you switch carriers--something that is good for 
consumers--but it also aids our efforts to conserve numbers. There are 
also additional steps we should be considering. I agree that we should 
explore separate area codes for those numbers consumers do not dial. 
These services include ATM machines, credit card authorization 
machines, location systems such as On-Star, and even gas station pumps. 
This step could free up more numbers for consumers. Finally, we need to 
get a handle on bigger issues looming on the horizon. We need to 
address the impact of new technologies such as voice over the Internet 
on the use of numbering resources. We need to be ahead of this curve, 
because these new technologies could swamp our best efforts at number 
conservation.

    Question 15. For Commissioner Copps: Commissioner Copps, I 
understand you personally visited the area in Los Angeles--the 310 and 
909 area codes--and attended a Town Meeting on area code issues. What 
do the business people, senior citizens, disabled community and other 
residents of that area want?
    Answer. I heard clearly the frustration consumers are experiencing 
with the proliferation of new telephone numbers and area codes. Every 
time there is an area code change, consumers face substantial burdens. 
Not only are there the confusion and inconvenience of a new number, but 
there are significant costs as people need to change business cards, 
stationery, company brochures, the sides of company vehicles, and 
advertising. California has seen a virtual explosion in the number of 
new area codes. In the last three years of the 20th century, 
Californians faced more area code changes than in the 50 years prior to 
that. Consumers at the Town Meeting wanted the FCC, working together 
with the California Commission, to undertake a concerted, cooperative 
effort to do all that we can to slow the rate of area code changes.
                                 ______
                                 
Response to Written Questions Submitted by Hon. John D. Rockefeller IV 
                        to Hon. Michael J. Copps
Universal Service
    The E-Rate has made it possible for us to expedite the integration 
of technology into our education system by wiring tens of thousands of 
schools and libraries across the country. I think it is extremely 
important for the Commission to pursue Universal Service reforms that 
will ensure the long-term viability of all aspects of the program--
including the E-rate.

    Question 1. Please update me about the status of the Commission's 
efforts to strengthen the Universal Service program. I am interested in 
what reforms are needed to enable us to serve the needs of low-income 
and rural Americans in the long-term AND continue the progress we've 
made in wiring schools and libraries.
    Answer. I share your concern about the need to maintain a strong 
and sustainable universal service mechanism. 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. To that end, we must implement 
Congress' directive to preserve and advance universal service.
    The Commission and the Federal-State Joint Board are at present 
actively reviewing many issues that go to the heart of our efforts to 
strengthen the universal service program. The Commission is considering 
the services that should be supported by these mechanisms and must 
issue a decision by this summer. The Commission is also in the midst of 
a proceeding to improve the operation and oversight of the E-Rate 
program in order to ensure that our children and communities have 
access to the tools they need to succeed in the 21st century. 
Similarly, the Commission has undertaken a proceeding to improve the 
rural health care program, which helps rural health care providers 
obtain access to modern telecommunications and information services. In 
addition, the Federal-State Joint Board on Universal Service has begun 
a proceeding to examine the portability of universal service in markets 
with competition and will soon make recommendations to the Commission 
on ways to improve the effectiveness of the Lifeline and Link-Up 
programs. By completing these proceedings expeditiously and in a manner 
that adheres closely to Congress' statutory framework, we can continue 
to serve the needs of low-income and rural Americans and continue the 
progress we've made in wiring schools and libraries across the country.
Effect of broadband deregulation on Universal Service
    The Commission is considering changing the way certain broadband 
services are regulated by re-classifying them as ``information 
services.''

    Question 2. What impact would these changes have on the way 
contributions are collected for Universal Service program? At a time 
when we are searching for ways to strengthen Universal Service, do you 
think it is wise to pursue action that may threaten existing funding 
sources?
    Answer. I share your concern about the potential effect that a 
statutory reclassification may have on our ability to support universal 
service. At present, providers of DSL services contribute to universal 
service whereas cable modem providers do not. If the Commission were to 
determine that wireline broadband Internet access is an information 
service provided via telecommunications, providers of such services 
might no longer contribute unless the Commission exercises its 
permissive authority to require contributions. I believe we need to 
address expeditiously the issue of broadband providers' contribution to 
universal service. We must continue to look for long-term solutions 
that will put the fund on a solid footing. When the Commission finally 
addresses this issue, I hope we will do so in a manner that does not 
narrow the contribution base and undermine the sufficiency of the fund. 
We must also work to avoid a system that opens the door to regulatory 
arbitrage or distortions in the market.

Broadband and Competition
    I believe that stimulating investment in high-speed Internet 
services will help our economy and provide a variety of other benefits 
as well (telemedicine, distance learning, etc.)

    Question 3. What do you think the best strategies are for speeding 
up the deployment of broadband without threatening competition in local 
telephone markets?
    Answer. Today, having access to advanced communications--
broadband--is every bit as important as access to basic telephone 
services was in the past. As you point out, providing meaningful access 
to advanced telecommunications for all our citizens may well spell the 
difference between continued stagnation and long-term economic 
revitalization. Already, broadband is a key component of our nation's 
systems of education, commerce, employment, health, government and 
entertainment. Congress recognized the importance of broadband access 
in the Telecommunications Act of 1996. Not only did Congress give the 
FCC and the state commissions the statutory mandate to advance the 
cause of bringing access to advanced telecommunications to each and 
every citizen of our country, but it also directed that one of the 
guiding principles of universal service is that ``access to advanced 
telecommunications and information services should be provided in all 
regions of the Nation.''
    I believe we can promote deployment of broadband without 
undermining the competition that Congress sought in the 1996 Act. 
Indeed, competition can promote broadband deployment. We are now seeing 
competition not only within delivery platforms, but also among delivery 
platforms. We are seeing convergence of industries, convergence of 
services, and convergence of markets. It is clear that companies are 
moving to deploy advanced technologies in response to competition from 
other broadband providers. As Congress predicted, the competition 
resulting from the 1996 Act unleashed an unprecedented investment in a 
21st century communications infrastructure.
    I dissented from the far-reaching broadband sections of the Order, 
because I was troubled that we are undermining competition in the 
broadband market. I fear that this decision may well result in higher 
prices for consumers and may put us on the road to re-monopolization of 
the local market.
    We must also remember, however, that at the same time that Congress 
sought to promote competition, it also reaffirmed a core principle at 
the heart of the public interest--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. We must ensure that we 
give meaning to and carry out our duties under these provisions.
    I believe that the Commission should initiate, within the rather 
broad authority given it by the Congress, a more proactive program to 
promote the deployment of broadband to all Americans. I therefore 
support launching a proceeding to examine steps we should take to 
promote the deployment of advanced services, and the role of universal 
service in that effort. This should be a priority matter.
Local Competition
    According to recent reports in the Wall Street Journal, the 
Commission may be preparing to scale back competitors' access to local 
networks by changing the rules relating to the unbundled network 
element platform. According to recent FCC statistics, competition in 
local telephone markets is just now starting to take hold in a 
meaningful way.

    Question 4. If the unbundled network platforms were to no longer be 
an available method for competitors' to access Bell networks, what 
would it mean for the future of local competition--particularly in 
rural areas and regions with challenging topography where the cost of 
deploying facilities is particularly high?
    Answer. Congress recognized that many competitors would not be able 
to duplicate the incumbent's network. Congress therefore required the 
Commission to determine those network elements that an incumbent must 
unbundle and offer to its competitors in the local market. In those 
markets where competitors are impaired without access to loops, 
switching, and transport, UNE-P may offer the only competitive 
alternative for certain customers. I am pleased that, in the face of 
intense pressure for the Commission to make broad nationwide decisions 
that would have doomed the future use of unbundled elements, we instead 
adopted a more reasonable process under which the state commissions 
conduct a granular analysis that takes into account geographic and 
customer variation in different markets. Through this process, we will 
be able to foster the competition that Congress sought in the 1996 Act 
and to fulfill the mandate of the law, which is ``to secure lower 
prices and higher quality services for American consumers.''
Interplay between state regulators and the FCC
    In a recent letter to all five the Commissioners, several 
representatives of the National Association of Regulatory Utility 
Commissioners wrote, ``State flexibility to maintain UNE-P as well as 
the ability to add to any national UNE list is critical to keeping 
competition `on track'.''

    Question 5. What is your vision for the appropriate interplay 
between state regulators and the FCC in implementing the '96 Act and 
promoting a competition telecommunications market that benefits 
consumers?
    Answer. As I stated in my testimony, I believe we must work closely 
and cooperatively with our colleagues at the state commissions. 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. Similarly, state commissions are often 
best positioned to make the granular, fact-intensive determinations 
about any impairment faced by competitors in their local markets.
    In some parts of the Order, the Commission recognized that the 
states have a significant role to play in our unbundling 
determinations. We understood in those sections that the path to 
success is not through preemption of the role of the states, but 
through cooperation with the states. In those areas, we adopted a 
reasonable process under which a state commission is able to conduct a 
granular analysis that takes into account geographic and customer 
variation in different markets.
    In other sections of the Order, however, we did not provide a 
meaningful role for the state commissions. In particular, the 
Commission limited--on a nationwide basis in all markets for all 
customers--competitors' access to broadband loop facilities whenever an 
incumbent deploys a mixed fiber/copper loop. The Commission has 
recognized time and again that loops are the ultimate bottleneck 
facility. Yet, the Commission has chosen to eliminate this bottleneck 
facility on a nationwide basis without adequate analysis of the impact 
on consumers, without analyzing different geographic or customer 
markets, and without conducting the granular, fact-intensive inquiry 
demanded by the courts.