[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
    THE BUDGET AND SPENDING OF THE FEDERAL COMMUNICATIONS COMMISSION

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

                                HEARING

                               BEFORE THE

             SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 16, 2012

                               __________

                           Serial No. 112-117



      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov


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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    HENRY A. WAXMAN, California
  Chairman Emeritus                    Ranking Member
CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        EDOLPHUS TOWNS, New York
MARY BONO MACK, California           FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   GENE GREEN, Texas
  Vice Chairman                      DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma              LOIS CAPPS, California
TIM MURPHY, Pennsylvania             MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas            JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California         JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire       TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia                MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana             JIM MATHESON, Utah
ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
GREGG HARPER, Mississippi            DORIS O. MATSUI, California
LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin 
BILL CASSIDY, Louisiana              Islands
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

                                 7_____

             Subcommittee on Communications and Technology

                          GREG WALDEN, Oregon
                                 Chairman
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
  Vice Chairman                        Ranking Member
CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
JOHN SHIMKUS, Illinois               MICHAEL F. DOYLE, Pennsylvania
MARY BONO MACK, California           DORIS O. MATSUI, California
MIKE ROGERS, Michigan                JOHN BARROW, Georgia
MARSHA BLACKBURN, Tennessee          DONNA M. CHRISTENSEN, Virgin 
BRIAN P. BILBRAY, California             Islands
CHARLES F. BASS, New Hampshire       EDOLPHUS TOWNS, New York
PHIL GINGREY, Georgia                FRANK PALLONE, Jr., New Jersey
STEVE SCALISE, Louisiana             BOBBY L. RUSH, Illinois
ROBERT E. LATTA, Ohio                DIANA DeGETTE, Colorado
BRETT GUTHRIE, Kentucky              JOHN D. DINGELL, Michigan (ex 
ADAM KINZINGER, Illinois                 officio)
JOE BARTON, Texas                    HENRY A. WAXMAN, California (ex 
FRED UPTON, Michigan (ex officio)        officio)

                                  (ii)


                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     1
    Prepared statement...........................................     3
Hon. Anna G. Eshoo, a Representative in Congress from the State 
  of California, opening statement...............................     5
Hon. Doris O. Matsui, a Representative in Congress from the State 
  of California, opening statement...............................     6
Hon. Lee Terry, a Representative in Congress from the State of 
  Nebraska, opening statement....................................     6
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, opening statement..........................     7
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................    83
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, prepared statement..............................    84

                               Witnesses

Julius Genachowski, Chairman, Federal Communications Commission..     7
    Prepared statement...........................................    11
    Answers to submitted questions...............................    86
David L. Hunt, Inspector General, Federal Communications 
  Commission.....................................................    32
    Prepared statement...........................................    34
    Answers to submitted questions...............................   107
D. Scott Barash, Acting Chief Executive Officer, Universal 
  Service Administrative Company.................................    67
    Prepared statement...........................................    70
    Answers to submitted questions...............................   111


    THE BUDGET AND SPENDING OF THE FEDERAL COMMUNICATIONS COMMISSION

                              ----------                              


                      THURSDAY, FEBRUARY 16, 2012

                  House of Representatives,
     Subcommittee on Communications and Technology,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:03 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Greg 
Walden (chairman of the subcommittee) presiding.
    Members present: Representatives Walden, Terry, Shimkus, 
Blackburn, Bilbray, Bass, Scalise, Latta, Upton (ex officio), 
Eshoo, Matsui, Barrow, Dingell, and Waxman (ex officio).
    Staff present: Ray Baum, Senior Policy Advisor/Director of 
Coalitions; Michael Beckerman, Deputy Staff Director; Nicholas 
Degani, FCC Detailee; Mike Gruber, Senior Policy Advisor; 
Debbee Keller, Press Secretary; Katie Novaria, Legislative 
Clerk; Roger Sherman, Democratic Chief Counsel; Hadass Kogan, 
Democratic Legal Fellow; and Kara Van Stralen, Democratic 
Special Assistant.

  OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Walden. Good morning, everyone, and welcome to today's 
hearing on what I am sure will be a riveting subject, 
especially if you are the chairman of the FCC: the budget and 
spending of the Federal Communications Commission. Despite the 
groans and droopy eyelids, some of us were up pretty late last 
night negotiating on the final spectrum fees and the big fees, 
and some of you were watching pretty intently, this is really 
important. This is important work that we are doing here today. 
We have an obligation as a subcommittee to review the budgets 
and spending activities of every agency under our jurisdiction, 
whether they get that money from rate payers or users, or from 
the general taxpayers. And so I welcome the Chairman of the 
FCC, Mr. Genachowski, here today.
    Given the state of our Nation's finances, I think it is 
time to call all hands on deck. As the committee with 
jurisdiction over the Federal Communications Commission, it is 
our responsibility to review how the Federal Communications 
Commission collects and spends Federal funds.
    We are the committee that created the FCC; although I don't 
think any of us was exact--well, maybe some were around when 
that happened. I don't think so, though. We are the committee 
that created the FCC; we are the committee that authorized it 
to collect regulatory fees; we are the committee that 
authorized spectrum auctions; and we are the committee that 
enabled the creation of the Universal Service Fund. It is high 
time that we looked clearly and deeply at how this Commission 
spends money outside of the yearly appropriations process.
    Three days ago, the administration released its proposed 
budget for fiscal year 2013, and the FCC has in turn submitted 
its corresponding budget estimates. And I was pleased to see 
some of those numbers. Last year, the FCC was given a budget of 
$424.8 million, and the FCC has reported that it can maintain 
current services with a budget of $421.2 million. Although that 
is less than a 1 percent decrease, hey, it is a start, and I 
appreciate the work the FCC is doing to keep costs down.
    But the FCC's proposal still leaves some open questions 
about its budget. What are the concrete results that taxpayers 
and regulatees can expect if Congress funds the FCC's requested 
new programs? If it consolidates its data centers, as proposed, 
what will that produce in terms of savings and will those 
savings be rolled into a lower base budget next year? And what 
is it doing to redirect its existing resources to address and 
resolve its backlogs and respond to changes in the marketplace?
    Similarly, I want to explore a bit about the sources of the 
FCC's funding. For example, it withholds up to $85 million each 
year to cover the costs of spectrum auctions. Is that 
sufficient? Does it actually need all of that money to conduct 
auctions? The rest of the FCC's own funding comes from 
regulatory fees, which are supposed to be assessed on the 
communications industry in proportion to the benefits that 
industry receives from the Commission. Given the swiftly 
converging communications marketplace, I am interested in how 
the Commission has reevaluated and reapportioned regulatory 
fees to ensure that all are paying their fair share.
    Finally, I want to better understand how the FCC's 
watchdogs, the Inspector General and the Universal Service 
Administrative Company, are funded and what they are doing to 
combat waste, fraud, and abuse. Although the Universal Service 
Fund isn't paid for with taxpayer funds, it does come out of 
the pocketbooks of taxpayers in the form of consumers, and the 
American people deserve to know that that money is being well 
spent. What is USAC doing to streamline the universal service 
funding process so that funded companies can focus on serving 
their constituents and not on filling out paperwork? 
Conversely, what are USAC and the Inspector General doing to 
make sure that universal service funds are not wasted or 
fraudulently obtained? What is the bang for the buck that we 
are getting from these watchdogs, and are additional resources 
needed to equip their oversight efforts?
    I thank today's witnesses, Chairman Genachowski, Inspector 
General Hunt, and Mr. Barash, for attending today's hearing and 
helping us sort through these important budgetary issues. With 
your help, we will have a better handle on what Congress can do 
to reduce the costs of government and improve its efficiency 
and accountability.
    [The prepared statement of Mr. Walden follows:]

    [GRAPHIC] [TIFF OMITTED] T2543.001
    
    [GRAPHIC] [TIFF OMITTED] T2543.002
    
    Mr. Walden. With that, I would welcome my colleague from 
California, Ms. Eshoo, and turn over the time to her for an 
opening statement.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Thank you, Mr. Chairman, and good morning to 
everyone. Welcome, Chairman Genachowski.
    The last time this committee authorized appropriations for 
the FCC was in 1990, before I came to Congress, and it was when 
my friend, Ed Markey, chaired what was then known as the 
Telecommunications and Finance Subcommittee. At that time, 
Congress authorized 109.83 and $119.83 million for fiscal years 
1990 and 1991 for spending on what now seems like a 
technological--technology stone age. Today, we are examining 
the proposed fiscal year 2013 budget of $346.78 million for the 
Commission and its operations over a complex, advanced 
telecommunications sector.
    The FCC is charged with a portfolio of technological 
challenges. These include making broadband available to all 
Americans, finding new sources of spectrum, upgrading and 
reforming universal service, fostering public safety 
interoperability, E-911 dependability and availability, and 
reforming the internal mechanisms of an agency that has been in 
continuous operation since 1934. These are not easy tasks, but 
they are essential to the economic well-being of our country.
    In reviewing the Commission's budget, I am sure we want to 
know, first and foremost, that the Commission has made very 
effort to streamline its budget while ensuring that it has the 
financial resources to perform its mission. In my view, we have 
to balance budget costs with smart investments. Our Nation's 
advanced communications are increasingly essential for new 
opportunities in almost every sector, including small 
businesses, education, health care, and the government. Money 
spent wisely at the Commission can give us a good bang for our 
buck. Enhancements in the Agency's cloud security and upgrades 
to the technical equipment used in the FCC's laboratory are two 
such examples.
    I can see from the FCC's budget that the Commission has a 
10-year low in Federal employees, that the contracting staff 
has been cut nearly in half during the past year. I wish that 
were the case in the Intelligence community. The Commission is 
currently operating under a budget that is lower than it was in 
2009, with a 2 percent increase over the previous year's 
spending level. This doesn't sound exactly like empire building 
to me.
    Chairman Genachowski, I look forward to hearing about where 
the FCC stands today, and where you envision the agency to be 
in the future. I also look forward to hearing from the FCC's 
Inspector General Hunt. Inspector Generals are, in my book, a 
group of the most important people in the Federal Government. 
And Scott Barash--I hope I have pronounced your name correctly, 
the CEO of the Universal Service Administrative Company, USAC, 
on how their work and budgets compliment the mandate of the 
Communications Act.
    So thank you, Mr. Chairman, for holding this very important 
hearing. It has been a long time since we have had one on this 
subject matter, and I will yield the balance of my time to 
Congresswoman Matsui.

OPENING STATEMENT OF HON. DORIS O. MATSUI, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Matsui. Thank you, Ranking Member Eshoo, for yielding 
me time. I also thank Chairman Genachowski for being with us 
here today.
    The FCC, under the Chairman's leadership, has been dealing 
with important issues, head on, many of which were difficult to 
address. The FCC's funding is essentially flat, and has had 
limited staff movement since 2008, yet the FCC has moved major 
policy reforms forward. Just over the past few months, for 
instance, some of the important reviews to the Universal 
Service Fund. While not perfect, the reforms that the FCC put 
forth to both the high cost fund and to low income fund are 
both attempts to bring the USF into the 21st century.
    The FCC maintains its commitment to restrain any 
uncontrolled growth within the Universal Service Fund. I also 
support USF reforms aimed at addressing duplication and abuse 
within these programs. These reforms will likely require 
additional, yet effective, resources to properly certify 
households and enforce necessary requirements. The FCC's 
Lifeline proposal to develop a pilot program to extend lifeline 
for broadband will enable Americans living in both rural and 
urban areas to access affordable broadband services. After a 
viable pilot is conducted, it is my hope that the program 
becomes permanent and available to millions of Americans.
    Lastly, I look forward to your continued leadership, as 
Congress seems poised to provide the FCC authority to conduct 
incentive auctions and supporting the continued use of 
unlicensed spectrum for American innovation.
    Thank you, Mr. Chairman, for holding today's hearing, and I 
yield back the balance of my time.
    Mr. Walden. The Chair recognizes--thank you. The Chair 
recognizes the gentleman from Nebraska.

   OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEBRASKA

    Mr. Terry. Thank you, Mr. Chairman, and I thank our 
witness, Mr. Genachowski, for being here today, and we have had 
a good working relationship, and I really appreciate that.
    The FCC, this last year, has tackled many of the toughest 
issues, particularly high cost USF, and while I think maybe the 
screws were ratcheted a little too tightly and we may have to 
review that order, that is not the subject of why we are here 
today. It is to review the budget, see where you see the FCC 
going forward. Like all of Congress and committees and our 
individual offices who have received 12 percent cuts and 
cutting staff and really focusing to be lean and financially 
lean. We are seeing where you see the FCC doing the same thing, 
and that is what we want to hear.
    On issues of USF overall, while you were able to get some 
controls in place on the high cost, we see lack of controls and 
explosion in other areas of USF, particularly in Link Up and 
Lifeline, and want to see how you are going to control that, 
what your plans are in that area.
    So I look forward to your testimony, and with that, I will 
yield to the gentlelady from Tennessee.

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF TENNESSEE

    Mrs. Blackburn. I thank the gentleman, and Mr. Chairman, we 
welcome you. We appreciate that you are here and you are going 
to give us the opportunity to talk with you about this budget. 
You know, at a time when the Defense Department is taking a $32 
billion cut and looking at that right on the table, we are kind 
of curious as to why the FCC would say we need a 2 percent 
bump. And we want to make certain that we review that with you. 
As others have said, you know, part of this focus is on your 
agenda. Some of us think that you have supported or have moved 
toward an agenda that is restricting free markets and 
innovation, and that sometimes you are getting into issues that 
we don't--places where we don't think you should be going. And 
you do it because you say you can.
    Section 706, your interpretation on that, the same language 
that you used for net neutrality regulations, data roaming 
mandates, things of that nature, you and I have discussed that 
and so maybe this is a time for us to see some regulatory 
humility and restraint and pull those issues, and say is that 
the proper use of your time?
    And so I appreciate the chairman of the subcommittee 
allowing us to work with you and have the time to review this 
purpose that you have in your budget, and then the means that 
you go through in using the dollars that are given to you.
    I yield back.
    Mr. Walden. Do any of our other members want to--Mr. 
Scalise, Mr. Latta, do you want to use any of the remaining 
time, or should we get on with the hearing? OK.
    Mr. Dingell, would you like to offer an opening statement?
    Mr. Dingell. Mr. Chairman, defer just briefly, if you 
please.
    Mr. Walden. I don't believe we have any other speakers on 
our side, or I would.
    Mr. Dingell. Then at your suggestion, I will proceed.
    I don't have an opening statement, so I will defer on that.
    Mr. Walden. All right, thank you.
    Then I don't see any other members who have not had a 
chance to say something, so Mr. Genachowski, the microphone is 
yours for a limited duration. We will take it back later, but 
we do appreciate your being here and we look forward to your 
testimony. Welcome.

      STATEMENT OF JULIUS GENACHOWSKI, CHAIRMAN, FEDERAL 
                   COMMUNICATIONS COMMISSION

    Mr. Genachowski. Thank you, Chairman Walden and Ranking 
Member Eshoo, the other members who are here, for the 
opportunity to appear today. Before taking your questions, I 
would like to make two overarching points about the FCC's 
budget.
    First, the FCC creates tremendous value for our economy and 
the American people. Indeed, few, if any, Federal agencies 
deliver a high return on investment than the FCC. Spectrum 
auctions have raised more than $50 billion for the U.S. 
Treasury, and economists regard the economic value created by 
FCC auctions as being about 10 times that number, $500 billion. 
The U.S. has long led the world in developing policies to 
unleash spectrum for mobile investment and invasion. The FCC 
was the first agency to develop spectrum auctions, and also the 
first to free up so-called junk bands for unlicensed use, such 
as Bluetooth, cordless phones, and Wi-Fi. As Wi-Fi plays an 
increasingly important role in the spectrum ecosystem, the 
economic benefit created by unlicensed spectrum is estimated at 
up to $37 billion a year.
    Because of the work of this committee and the Senate 
Commerce Committee, the voluntary incentive auctions proposed 
in the FCC's National Broadband Plan could become the next big 
value creating breakthrough in spectrum policy, leading to very 
substantial new auctions of spectrum and freeing up unlicensed 
spectrum for white spaces and other higher-powered unlicensed 
use holds tremendous promise to become another value-creating 
breakthrough on the order of magnitude of Wi-Fi.
    Spectrum policy is just part of the FCC's overall efforts 
to create value by promoting private investment, innovation, 
competition, and job creation. Through our Broadband 
Acceleration Initiative, the FCC has removed barriers to 
broadband deployment and accelerated broadband buildout. For 
example, we have adopted orders to ease access to utility poles 
and established a shot clock to speed cell tower and antenna 
siting.
    As the FCC does its work under the Communications Act, more 
than 95 percent of our decisions have been bipartisan and our 
policies are working. Investment, job creation, and innovation 
are up across the information and communications technology 
sector, the broadband economy. These metrics are up both when 
looking at broadband absent services and when looking at 
broadband providers and networks. In 2011, the U.S. tech sector 
grew three times faster than the overall economy. Broadband is 
helping create new jobs all across the country, and not just 
for engineers, but also for construction workers, salespeople, 
and small business owners who are increasingly using the 
internet to increase sales and lower costs. The apps economy, 
which barely existed in 2009, has already created almost 
500,000 new jobs, according to expert estimates.
    The U.S. has regained global leadership in mobile 
innovation. We are also now ahead of the world in deploying 4G 
mobile broadband at scale. These next generation 4G networks 
are projected to add $151 billion in GDP growth over the next 4 
years, creating a project 770,000 new American jobs.
    Broadband providers invested tens of billions of dollars in 
wired and wireless networks in the first three quarters of 
2011, a double digit increase over the same period in 2010. 
Internet startups attracted 7 billion in venture capital in 
2011, almost double 2009 levels, and the most investment since 
2001.
    The value contributions I have identified would be enhanced 
even further by closing broadband gaps, and so the agency is 
focused on bringing universal service into the broadband era. 
Today, approximately 18 million rural Americans live in areas 
with no broadband infrastructure. Our plan adopted in October 
to modernize the Universal Service Fund will spur wired and 
wireless broadband buildout to hundreds of thousands of rural 
homes in the near term, and put us on a path to universal 
broadband by the end of the decade without increasing the size 
of the fund. The major overhaul of USF and intercarrier 
compensation was done on a unanimous basis at the Commission, 
and with bipartisan support by this committee, and I thank you 
for that.
    In addition to the broadband deployment gap, we are making 
strides on the broadband adoption gap. Nearly a third of 
Americans, 100 million people, haven't adopted broadband. Our 
Connect to Compete Initiative enlists government, nonprofit, 
and private sector leaders to tackle the barriers to adoption, 
one of several public private partnerships driven by the 
Commission to promote solutions to major challenges.
    We have adopted smart reforms to the successful E-Rate 
program, helping schools and libraries, and working with this 
committee, the FCC is also implementing the recently enacted 
legislation, such as the Communications and Video Accessibility 
Act, and the Local Community Radio Act.
    The agency is working to harness the power of 
communications to make our public safer. We granted waivers 
authorizing more than 20 jurisdictions to begin development of 
an interoperable public safety broadband network, and we 
support bipartisan congressional efforts to fund such a 
network. We are working with multiple stakeholders to advance 
next generation 911, an issue that Ranking Member Eshoo and 
Congressman Shimkus have championed, along with others on the 
committee. And we accelerated the launch of PLAN, a reverse 911 
alert system that allows local, State, and Federal authorities 
to send targeted alerts to mobile devices during an emergency.
    The FCC also provides value by protecting and empowering 
consumers, as we have done with our bill shock, text alert 
initiative, and our small business cyber planner, as well as 
our enforcement activities.
    The FCC provides value to our economy and the American 
people in many ways. That is point one. Point two is that the 
FCC is committed to smart, responsible government, and we have 
taken significant steps to modernize our programs and ensure 
that they are efficient and fiscally responsible, saving 
billions of dollars.
    Our work to modernize USF and Intercarrier Compensation 
will not only spur broadband buildout, it also eliminates 
billions of dollars in hidden subsidies on consumers' phone 
bills. Our work to reform the Lifeline program is expected to 
save up to $2 billion over the next 3 years, and includes an 
elimination of link up. Even before the order was adopted, we 
made changes that eliminated 270,000 duplicate subscriptions, 
saving $33 million in 2011. We have reformed our Video Relay 
Service Program, which provides vital communications for people 
who are deaf or hard of hearing, saving about $250 million 
without reducing availability of service.
    In addition to our programmatic changes, we have also 
reviewed the agency's rules and processes, asking tough 
questions to make sure the agency is operating efficiently and 
effectively. In connection with this review, we have already 
eliminated more than 200 outdated rules and five unnecessary 
data collections. We have identified two dozen more data 
collections for elimination, including seven voted on at 
yesterday's Commission meeting. We have significantly reduced 
backlogs, including, for example, a 52 percent reduction in 
satellite licensing applications, and increased the inclusion 
of proposed rules in NPRMs from 38 percent to 86 percent. We 
have made it a priority to move information and processes 
online, for example, revising our rules to the filing of all 
tariffs electronically, decreasing burdens on carriers and the 
Commission. We estimate that internal reforms like consolidated 
IT maintenance and new financial system have already saved the 
agency $8 million. And we have been able to do everything I 
have listed and more with the lowest number of full-time 
employees in 10 years.
    Harnessing 21st century communications technology to 
deliver value to the American people, and doing so in a smart 
and fiscally responsible way, that is the FCC's record the past 
3 years and that is our plan for the year and years ahead as 
reflected in our fiscal year 2013 requested budget.
    Because we are funded by fees, the budget is deficit 
neutral. Though of course, we are sensitive to those regulatory 
fees. The budget reflects a 2 percent increase in spending. It 
is flat on dollars adjusting for inflation. We plan to be flat 
on the number of full-time employees. The budget includes a few 
new initiatives, primarily technology investment designed to 
save money, and public safety investments aimed at saving 
lives. The budget includes proposals to reauthorize the 
Commission's auction authority, which expires in September 
2012, and to provide incentive auction authority, which I hope 
Congress will grant, in a way that enables the FCC to maximize 
the amount and benefit of recovered spectrum for our economy. 
The budget lays out strategic goals for the FCC, such as 
promoting innovation, investment, and America's global 
competitiveness. This will keep the agency focused on policies 
that will yield a substantial return on investment for our 
economy and the American people.
    I look forward to continuing to work with this committee. 
We have incorporated many of your suggestions over the last 3 
years. I look forward to continuing constructive engagement 
with each of you.
    [The prepared statement of Mr. Genachowski follows:]

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    Mr. Walden. Chairman, thank you. I can't help myself. We 
had been here until one o'clock in the morning negotiating some 
of these things. Part of your testimony is so like 10:38 p.m., 
you know, others like--thank you for being here.
    I want to ask you about the Universal Service Fund. 
Obviously there is a lot of discussion about that and Jerry and 
others have spent a lot of their life trying to help improve 
this system, and I am sure you will hear more from them. But 
the contribution factor at 17.9 percent this quarter projected 
to stay above 17 percent so it is coming right off the phone 
bill. When will the Commission take a hard look at 
contributions reform?
    Mr. Genachowski. We will be doing that in the near future. 
Our strategy was to first tackle the spend in the programs, get 
those under control, direct them to where they should be 
directed. Having done that, the next step is to look at the 
contribution base and get that in a healthy place. We thought 
it made sense to sequence them, and the next step in sequence 
is contributions.
    Mr. Walden. So are you thinking 6 months, 3 months, next 
week, a year?
    Mr. Genachowski. I would say starting the process certainly 
within the next 6 months.
    Mr. Walden. OK. I noticed in the Commission's budget there 
is a proposal for $1.1 million for eight new vehicles along 
with equipment that can be used to detect sources of radio 
interference. Can you explain to us how these eight vehicles 
end up costing $1.1 million? I know that is pretty specific and 
granular, but it does stand out.
    Mr. Genachowski. These are vehicles that are used to detect 
and prevent interference across the spectrum, so to speak, from 
aviation interference to pirate radio. It does require 
sophisticated equipment. They are also used in times of 
disaster to help with early assessment and recovery efforts. We 
certainly insisted that the professional staff at the agency 
responsible for this keep those numbers as low as possible. In 
many cases, they are replacing equipment that objectively 
should have been replaced 10 years ago.
    Mr. Walden. All right. We may follow up a little bit on 
that.
    The Commission's budget proposal is half a million dollars 
for a study on the link between the identity of broadcast--a 
broadcast station owner and that station's ``service, including 
important content to all Americans.'' Do you know what is about 
and what the link is? Is that to something regarding ongoing 
media ownership?
    Mr. Genachowski. There are several statutory provisions 
that in order for us to implement we need data, and this is 
agreed upon by everyone at the Commission. There is Section 
257, which requires us to understand what is going on with 
small businesses, there are the ownership provisions and there 
are the EEO provisions. We are also under a directive from the 
Third Circuit to improve our data in this area. As you know, we 
are starting small with an initial essentially study of studies 
so that we can make sure that what we do in this area, what we 
need to do under the Communications Act is done as efficiently 
as possible.
    Mr. Walden. It just seems like $500,000 is a lot of money 
for a study of studies.
    Mr. Genachowski. No, well the study of studies will cost 
much less than that, under 100,000. The 500,000 is a budget 
amount for what would be the next step. I will tell you that 
the prior studies of the sort have cost closer to a million 
dollars, and in the spirit of fiscal responsibility, what we 
have said to our team at the agency is we are just going to 
have to figure out a way to do it for a lot less.
    Mr. Walden. So this is a link between media ownership and 
content, or what? What are you really looking at?
    Mr. Genachowski. The media ownership provisions in the 
statute are one area where the studies will help us exercise 
our responsibilities. They are not the only area, small 
businesses and EEO. So this will--it is part of what we need to 
do to have the data that we need to be able to take whatever 
steps are appropriate.
    Mr. Walden. The Commission opened a docket to consider 
reclassifying broadband as a Title II service, as you all know, 
back in '09. That docket remains open today. How many employees 
are currently working on that docket and why is it still open?
    Mr. Genachowski. I am not aware that any employees are 
working on the docket now.
    Mr. Walden. Well, why not close it?
    Mr. Genachowski. I am sorry?
    Mr. Walden. Why not close it, then, if nobody is working on 
it? It has been open since '09.
    Mr. Genachowski. It is something that we will consider. It 
is not--we have been focused on----
    Mr. Walden. Well, you are here. We could consider it now, 
you know.
    Mr. Genachowski. It is something I will discuss with our 
staff and colleagues.
    Mr. Walden. All right. Finally on my questions, you note in 
your written statement the Commission is allowed 20 
jurisdictions to start deploying interoperable communications 
in the 700 MHz public safety spectrum. My understanding is that 
30 more applications are waiting in the wings, but that the 
review process has stalled. If States are ready to go, 
including--we have heard from Oklahoma--and already have the 
funding to deploy their own networks at their own costs, why is 
the Commission holding them back?
    Mr. Genachowski. Well, I will say that assuming Congress in 
the next--in the near term adopts the legislation before 
including funding in the Public Safety Broadband Network, that 
will make it very easy for us to complete this very quickly. We 
have had a certain amount of humility and caution here because 
we don't want to start things going that then will be different 
from what Congress instructs us to do. So I think we are at a 
point where I understand the frustration, and at some point we 
have to go ahead and do the waivers, even if Congress doesn't 
act. But I am hoping that Congress is on a path to make this 
easy. Certainly if Congress does pass the legislation we will 
move forward very, very quickly because it is very important.
    Mr. Walden. All right, thank you. My time is expired. I 
turn to the gentlelady from California.
    Ms. Eshoo. Thank you, Mr. Chairman.
    I think that you raised the point about the $85 million in 
auction proceeds in your--I think you did in your opening 
statement, but I would like Chairman Genachowski to elaborate 
on how the FCC uses the 85 million.
    Mr. Genachowski. Sure. In many different ways, you know. 
Auction is a constant activity at the FCC, preparing for 
auctions, licensing post auction, and we conduct many more 
auctions than people realize, because many auctions are not 
high profile auctions. We conducted----
    Ms. Eshoo. How long do they usually take? What is the 
average length of time for an auction?
    Mr. Genachowski. Weeks would be the average, but the work 
that goes into all the auctions and the work that comes in 
implementing auctions is really very significant. The--we 
receive as an agency internally requests each year to spend to 
what would amount to more than the $85 million figure, because 
we do think that there is more and more work we could do that 
would generate a positive return on investment, but we work 
within the $85 million cap and there are things that we say no 
to because they hit the cap.
    Ms. Eshoo. Under the 2013 budget request submitted to 
Congress earlier this week, the agency requested $2.5 million 
to consolidate agency data centers. It is not a huge amount of 
money, but do you have an estimate on the agency's long-term 
savings from the decision?
    Mr. Genachowski. Yes, for the various data initiatives that 
we have included, we have run ROI analyses for the data center 
consolidation. Our analysis shows that we would save a little 
over a million dollars a year, about $1.1 million a year once 
it is completed. So it is a $2.5 million investment to save a 
million a year on an ongoing basis, so it should pay for itself 
in 2 years. We expect that to be complete in the next 12 to 18 
months.
    Similarly on the actual cloud updates, we expect that to 
yield a savings of about almost $1.5 million a year, so again, 
it pays for itself in the first year or two, and then on an 
ongoing basis we expect it to save 1.4 over time.
    And these are both the kinds of things that private 
companies are doing and they know that they need to do to save 
money.
    Ms. Eshoo. Right. It is my understanding that there are 
increasing bottlenecks in the FCC's laboratory in terms of 
reviewing new advanced hand-held devices, like smartphones and 
tablets that use LTE technology. What is the FCC doing to 
expedite the device approval process, and does this require 
additional engineering staff?
    Mr. Genachowski. Well this is something that I am concerned 
about, and your question is right on target. We have had an 
unbelievable proliferation of devices in the last few years, 
and each device has more antennas inside of it than it used to. 
And so the work of--to certify devices has gotten a lot 
greater, and that process is under pressure. We launched an 
internal review of this a few months ago. This is handled out 
of our Office of Engineering and Technology, and they are 
working on recommendations on how we can meet this new world 
where the volume of devices that have to be certified is going 
way up.
    Ms. Eshoo. Do you have any outstanding issues relative to 
the IG that have not yet been fully implemented by the FCC?
    Mr. Genachowski. Not that I am aware of. We take the role 
of the IG very seriously. He has independence and a track 
record of savings prosecutions over the last few years has been 
very significant.
    Ms. Eshoo. Thank you. I will yield back.
    Mr. Walden. Gentlelady yields back her time. Chairman 
recognizes the vice chairman of the subcommittee, Mr. Terry.
    Mr. Terry. Thank you, Mr. Walden.
    I want to thank you again for coming to Nebraska and coming 
to a couple of our great cities like Liberty and Diller, towns 
of what, 50 people or something like that, and 290, so it was a 
great event and hopefully everyone learned a little bit.
    Speaking of high cost fund, though, as Greg mentioned--
asked a question about the contribution side and the bill that 
Rick Boucher and I did paired the two, and on the contribution 
side there was always a thought that you needed legislative 
support for that area. Do you feel that you need legislative 
support to be able to change or adopt different ways to bring 
new revenue in, or not new revenue, but make everyone that does 
primarily voice pay into the Universal Service Fund as it was 
intended? Do you need us?
    Mr. Genachowski. I am not sure yet. Our general counsel's 
office has looked at this. This will be something that we look 
at in the proceeding. Certainly we come to you and ask for help 
if we need it, and we will work together to make sure that we 
understand the authority that is there.
    Mr. Terry. All right. Well, I appreciate the work that has 
been done so far, but keep us up to date.
    The second part is on the other part as I mentioned in my 
opening statement of Link Up and Lifeline. You mentioned that 
Link Up is going to be phased out. I would like you to comment 
further on that, time, are you just going to merge the two into 
Lifeline? And then how do we control the exploding costs in 
Lifeline, specifically, is there a plan set out and--well, go 
ahead and answer that.
    Mr. Genachowski. So we took this reform very seriously, and 
we reviewed all aspects of the program. We eliminated Link Up 
completely. It wasn't eliminated over here and put in over 
there because we thought that the mechanism of providing, I 
believe it was a $30 bounty for every Lifeline customer that 
was signed up, created incentives for waste, fraud, and abuse, 
and as the market changes it simply couldn't be justified. And 
there were some people who came to us and said why don't you 
just reduce the amount? We looked at it and said we can't 
justify that part of the program at all and we eliminated it, 
and I think--as a sign of our seriousness. With respect to the 
rest of the program, we tackled in a systematic way the 
problems that we saw. There were problems with duplicates, 
people receiving Lifeline support twice when they shouldn't. We 
have taken steps on that, including moving toward a database 
that will make it much, much easier for States and companies to 
enforce or to prevent duplicates. We tackled--we identified and 
tackled other unscrupulous practices.
    It is an important program. We have a history in this 
country of making sure that the lowest income among us have 
access to basic communication services, so we wanted to make 
sure that the program is on a strong foundation, and we were 
highly motivated to make sure that anything in the program we 
couldn't defend, we got rid of.
    Mr. Terry. I appreciate that.
    You mentioned 2 billion over 3 years. I want you to get 
into that a little more granular. Where is that 2 billion 
coming from?
    Mr. Genachowski. It is the status quo increases that we 
inherited if we had done nothing. We are on a curve. I think 
both Chairman Walden and you mentioned it. That curve was going 
up at a rate that was very hard to defend. Now in a bad 
economy, it is not surprising that this particular program goes 
up because low income people are eligible for it. In a bad 
economy there are more people who qualify, so it is not 
surprising that this program would go up in bad times, and it 
should go down in good times. Also, communications services are 
becoming more essential. But it was going up too fast and our 
goal was to remove from the, you know, the up all of the 
wasteful, inefficient, unjustified spending. And so what we 
believe we did is turn this line into this line, and over the 
next 2 or 3 years, that is a $2 billion difference in the 
program.
    Mr. Terry. My next question will take more than 25 seconds 
to answer, so I will just submit it in writing.
    Mr. Genachowski. Thank you, and thank you for inviting me 
to Nebraska. That trip was very valuable and informed in a 
positive way our reform only the things that you liked. The 
other things we got from other States.
    Mr. Walden. Wow, and you said that under oath, right?
    The Chair now recognizes the gentleman from California, Mr. 
Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    Since the 20 years that Congress last reauthorized the FCC, 
this subcommittee has held oversight hearings to look at your 
budget and to also review how the agency is functioning. I want 
to say that by all accounts, the FCC under your leadership is 
well-managed and it operates in a transparent and open manner. 
Since you became chairman, the agency has reformed the way 
dockets are managed. The number of notices in proposed 
rulemaking that contain the full text of rules has increased 
from 38 percent to 85 percent. The amount of time between a 
vote on a Commission decision and the release of the full text 
of the decision has decreased from 14 calendar days to 3 
calendar days, with a majority of actions released in 1 
calendar day. The ex parte rules underwent significant reform. 
The FCC has closed 999 dormant dockets, which represents 
approximately 1/3 of the agency's open proceedings, while 
reducing the number of pending broadcast applications by 30 
percent and the number of pending satellite applications by 89 
percent. In addition, the FCC has removed or streamlined 
unnecessary requirements. One hundred and ninety obsolete 
regulations have been removed since November 2011, and the 
Commission is working to eliminate unnecessary data collections 
and exempting small businesses from certain reporting 
requirements.
    The FCC has also made great efforts under your leadership 
to work on a bipartisan basis. Ninety-five percent of agency 
actions over the past 2 years have been bipartisan. And 
finally, staff morale has improved so much that the FCC was 
named the most improved Federal agency. This was accomplished 
despite a flat budget and flat staffing levels.
    On the issues, FCC has been greatly ambitious. The 
Commission has tackled difficult topics from universal service 
and intercarrier compensation reform, open Internet 
protections, and numerous measures to promote broadband 
deployment. These efforts require a tremendous amount of time 
and dedication from the FCC staff, as well as agency resources. 
Based on my experiences over the past few years working closely 
with the agency, I am convinced that the FCC employs a 
disproportionate number of the most talented, experienced, and 
dedicated public servants in government.
    Now while you deserve a great deal of credit for all these 
accomplishments, I am confident that these accomplishments 
would not happen unless you realize you have to come before 
this subcommittee and answer our questions. But I do want to 
pay tribute to the work that you have been doing.
    Since this is an opportunity to ask you a question and the 
hearing is on the FCC's budget, you are going to be overseeing 
one of the most innovative and complex spectrum auctions ever. 
I want to know from you what sense of expertise is going to be 
required to administer this process, and could you provide us 
with a sense of what skills the Commission's staff requires to 
do the work that they do overseeing the communications 
marketplace? You have talented people with a great deal of 
expertise. You have got to be able to pay them adequately, give 
them a sense of job satisfaction, and as we look at the budget 
for the FCC, we have to recognize your needs. So if you could 
give us some sense of this?
    Mr. Genachowski. Well first of all, thank you for those 
very generous comments, and I particularly appreciate the 
comments about the staff. It is a great staff. They work very 
hard every day to deliver value to the American public. And as 
you know, in addition to honoring the staff, the career staff 
that was there, we focused on bringing in new people 
representing the full range of skills that the agency needs. 
And so lawyers obviously, but not just lawyers. We need very 
strong economists. We need very strong engineers. We need very 
strong business analysts. We need to understand the landscape 
in a very sophisticated way. I do spend a lot of my time on 
talent. I think we have recruited terrific people to the 
agency. It has to be an ongoing job, and you are right that 
implementing the auctions will require the very best of the 
agency, and may well require us to add to our expert resources 
to make sure that we get it right.
    Mr. Waxman. Well, I think the FCC is government at its 
best, and I commend you and your staff for doing the excellent 
work that you have been doing. That is why we are going to give 
you more work to do.
    Mr. Genachowski. Thank you.
    Mr. Waxman. Thank you very much, Mr. Chairman.
    Mr. Walden. Thank the gentleman.
    The Chair recognizes the gentlelady from Tennessee, Ms. 
Blackburn.
    Mrs. Blackburn. Thank you, Mr. Chairman.
    Chairman Genachowski, as we are talking about budget and I 
was getting ready for the hearing, I saw some data from the IRS 
that suggests that there is a growing trend with regard to FCC 
employees failing to pay their Federal taxes. Were you aware of 
this?
    Mr. Genachowski. No.
    Mrs. Blackburn. You were not, OK. Well it seems that with 
the majority of your employees making over $125,000 a year, and 
with there being a growing percentage of them not paying their 
taxes, I would think that since the President has as one of his 
goals for people to pay their fair share that we would 
appreciate if this is an issue that could be addressed. I would 
like to have your commitment and maybe something in writing 
that you are going to address this and that we are going to get 
in behind it and get it cleaned up.
    Mr. Genachowski. I haven't heard that. We will certainly 
look into it.
    Mrs. Blackburn. And will you respond back to me on that?
    Mr. Genachowski. Yes.
    Mrs. Blackburn. Thank you. I appreciate that.
    Looking at regulations that we have got out there, did--
have you paid attention to the Canadian radio and TV service, 
and they have just gone through a process where they are 
eliminating and streamlining 60 percent of their rules. And I 
think that that is certainly something that--it caught my eye. 
I hope it is catching the eye of you and your employees. Now, 
you are going to ask for 140 new employees, is that correct?
    Mr. Genachowski. That is not correct. I would be happy to 
explain.
    Mrs. Blackburn. OK, what is the number of new employees 
that you are requesting?
    Mr. Genachowski. The number of employees that we expect to 
have next year based on the appropriations we are requesting is 
flat to this year. There is a higher number that appears that 
is essentially a ceiling for flexibility, but our 
appropriations are targeted and in fact, the budget says that 
we are planning on being flat for the next year.
    Mrs. Blackburn. OK, so you have got the flexibility in case 
you need to add people?
    Mr. Genachowski. In the circumstances where that could 
theoretically arise, because it doesn't change our 
appropriations. If, for example, we determine that we could 
save money by in sourcing contractors--we have reduced 
contractors by about 50 percent over the last year, so 
conceivably we might say we might save money if we took 
contractors, made them FTEs, so under our budget we could do 
that because----
    Mrs. Blackburn. OK, well let me ask you this. In your 
budget, you had stated a top priority was to, and I am quoting, 
``conduct a review of rules and regulations within each FCC 
bureau and office with the goal of eliminating or revising 
requirements that are outdated.'' With what the Canadian radio 
and television agency has done, I hope that that is going to be 
a top priority.
    My question and my curiosity was if you were going to bring 
in people to make that stated objective a deliverable and an 
outcome that a year from now, we can say the FCC has indeed 
done this? So my question is what is the degree of priority 
that you are going to--budgets are about priorities, and we 
would like to see removing outdated rules and regulations a 
priority.
    Mr. Genachowski. So if I may, this has been a priority from 
day 1. One of the first hires that I made was a special counsel 
for government reform and she was tasked with exactly this. We 
have someone again who is in that role now who is accountable 
for ongoing review, ongoing elimination of rules. I would be 
happy to look at the Canada situation. I know that other 
agencies around the world have looked at our reforms. But I 
agree with you that one, it is a priority, and two, that if--
that one has to organize for it and set goals in order to 
achieve them.
    Mrs. Blackburn. Well, and there is a lot of outdated things 
we would like to get off the books.
    One more question. I understand that Section 9 of the 
Communications Act requires regulatory fees to be apportioned 
among industries based on full-time equivalent employees. Here 
is what I don't understand. Your budget proposal suggests that 
the wireless bureau and the media bureau each have more 
employees than the wire line bureau, and wire line providers 
pay more in regulatory fees than their competitors, so how do 
you reconcile this with the Act?
    Mr. Genachowski. I would like to get back to you on the 
specifics. In general, I do think it is possible that a--I 
don't know if rebalancing is the right word, but looking at the 
way we do the fees to make sure that they are fair as the 
markets change is an appropriate goal and that is something 
that we are looking at.
    Mrs. Blackburn. OK. I think that, as you know, one of the 
things we would love to see is for the reach and the scope to 
come down, your costs to come down, see you go through the type 
of reduction we have done in Congress. We have cut our budget 
11 percent. We would like for you to do the same.
    I yield back.
    Mr. Walden. Chair recognizes the gentleman from Michigan, 
Mr. Dingell.
    Mr. Dingell. Mr. Chairman, I thank you.
    I have some questions, Mr. Chairman Genachowski. I ask that 
the questions be responded to by yes or no.
    I note your fiscal year 2013 budget requests cuts in the 
wire line bureau's funding by 9 percent, while increasing the 
budget of your office and that of the other commissioners. Now 
am I correct in assuming that the wire line bureau is heavily 
involved in the implementation of the Universal Service and 
Intercarrier Compensation Order? Yes or no?
    Mr. Genachowski. Yes.
    Mr. Dingell. Mr. Chairman, does the 9 percent increase in 
the wire line budget mean that the Commission will complete by 
the end of this fiscal year all work associated with the USF 
and ICC Order, as well as the necessary follow on reforms of 
the USF contribution system? Yes or no?
    Mr. Genachowski. Yes, that is our goal, I believe.
    Mr. Dingell. I am sorry?
    Mr. Genachowski. I believe that is our goal. We have a time 
table for the implementation.
    Mr. Dingell. So it is a yes, or hopefully yes?
    Mr. Genachowski. Hopefully yes.
    Mr. Dingell. Hopefully. Is that--is the cut that you are 
making in the budget there going to expedite or retard the 
completion of that responsibility?
    Mr. Genachowski. We sought to--neither. We sought to make 
sure that we have the resources we need to move efficiently.
    Mr. Dingell. Now, Mr. Chairman, I would like to discuss 
Executive Order 13589 issued by President Obama November 15, 
2011. The order seeks to promote fiscal responsibility amongst 
the sundry executive agencies. Now this strikes me as 
imminently sensible; however, Section 8(c) of the order 
requests independent agencies to adhere to it. Does the 
Commission intend to adhere to Executive Order 13589? Yes or 
no?
    Mr. Genachowski. Yes, and we have announced that 
previously.
    Mr. Dingell. Now, Mr. Chairman, Section 2 of the order 
instructs agencies to reduce their travel, technology printing, 
and certain other costs by 20 percent, compared to 2010, 11. I 
commend you for reducing yours and the other Commissioners 
travel budget by 10.6 percent. Will similar cuts agency-wise 
help achieve the order's 20 percent reduction goal? Yes or no?
    Mr. Genachowski. I am not sure I completely understand the 
question, but we are focused on operating efficiently, meeting 
our obligations with respect to international treaties like the 
WARC, but reducing travel budget is something that we are 
certainly looking at.
    Mr. Dingell. I will ask, Mr. Chairman, that you provide 
documentation for the record to confirm this. You will have a 
chance to look at it and give it perhaps to your purposes a 
more satisfactory response.
    Mr. Genachowski. Thank you.
    Mr. Dingell. Now, Mr. Chairman, Section 3 of the order 
encourages agencies to devise strategic alternatives to 
government travel, including local technological alternatives 
such as teleconferencing and video conferencing. Has the 
Commission begun any analysis on this particular matter and 
compliance here?
    Mr. Genachowski. Yes, we have begun to implement that and 
we would like to implement--we would like to take advantage of 
it more. It will require resources to be able to conduct 
effective teleconferences.
    Mr. Dingell. Thank you, Mr. Chairman. Would you please 
provide a copy of the preliminary results for the record?
    Mr. Chairman, I note Section 3 of the order directs 
agencies to designate a senior level official to be responsible 
for the development and implementing policies and controls 
related to travel costs. Has the Commission complied with that 
mandate?
    Mr. Genachowski. I believe we have.
    Mr. Dingell. Would you tell us the name of the senior level 
official, if you could insert that for the record who will have 
that responsibility?
    Mr. Chairman, if so, which official has been--well, I have 
asked that question already. Now on a different topic, Mr. 
Chairman, are you familiar with the voluntary incentive auction 
legislation this committee approved last year? And I assume you 
are, are you not?
    Mr. Genachowski. Yes.
    Mr. Dingell. Mr. Chairman, do you recognize the strong 
possibility of interference in border areas of this country 
with Canadian and Mexican television stations which might be 
associated with repacking the markets along border areas? Yes 
or no?
    Mr. Genachowski. We recognize that that is an issue.
    Mr. Dingell. Now, Mr. Secretary, this is a matter of very 
special concern to me and a number of other members from border 
States. Can you assure me that as a result of the repacking 
process, none of my constituents in Michigan will lose access 
to over the air television signals? Yes or no?
    Mr. Genachowski. That is the goal and of course, we will 
faithfully implement the provisions of the law that is adopted.
    Mr. Dingell. Now, Mr. Secretary, can you give me and my 
colleagues on this committee the same insurance--assurances, 
namely that none of their constituents will lose access to an 
over the air television signal? Yes or no?
    Mr. Genachowski. Again, that is the goal and we will be 
guided by the act that is adopted.
    Mr. Dingell. Now, Mr. Chairman, you understand that there 
are two problems that plague us all. One here is that we will 
have loss of access to over the air television signals, but the 
other is that there will be the creation of significant 
interference, which will cause trouble to all manner of 
services if that is not addressed. Are we going to have the 
service continuing but somewhat defaced by interference? Yes or 
no?
    Mr. Genachowski. I think yes. I didn't hear the last part 
of the question, but I----
    Mr. Dingell. Well, let us find what that yes means. The yes 
means that we are going to have the service, but we are also 
going to have interference. Is that right?
    Mr. Genachowski. Well, the yes means that we are aware of 
these concerns and an important part of our work will be to 
address them consistent with the provisions in the statute.
    Mr. Walden. And Mr. Chairman----
    Mr. Dingell. I have used more time than I am entitled to. 
For your courtesy, Mr. Chairman, I thank you.
    Mr. Walden. Thank you. And we are going to go now to Mr. 
Scalise. You are up next.
    Mr. Scalise. Thank you, Mr. Chairman, and thank you, 
Chairman Genachowski for coming before us to talk about your 
budget.
    I want to follow up on some questions Mr. Terry was asking 
on the free cell phone program, as I know a lot of my 
constituents refer to it. What is the actual amount of the tax 
that people pay to provide that service?
    Mr. Genachowski. Well as the Chairman mentioned, there is 
an overall contribution rate that funds several things, high 
cost fund for rural areas, schools, libraries----
    Mr. Scalise. Right. Do you have any kind of a breakdown, 
though? Is it just as it relates to the free cell phone 
program, because that--we have seen a mushrooming, a 1,000 
percent increase in that program over the last 15 years, and it 
just seems like that specific program has been rife with waste, 
fraud, and abuse. I know you said you are looking into it and 
hope to achieve $2 billion in savings. I mean, the fact that 
over a 3-year period you feel you can get 2 billion in savings 
says there is tremendous waste, fraud, and abuse, and you know, 
especially in tough economic times you have got people that are 
struggling, they are maybe working two jobs, and they are 
struggling to pay their cell phone bill, and yet they are 
paying an increased tax to provide somebody else with a free 
cell phone. In some cases, you might have a family with four or 
five free cell phones in the household that they are paying 
for. A lot of people find that real offensive, and it just 
seems like can we quantify how much in taxes are people paying 
for that particular program that has mushroomed over the last 
15 years.
    Mr. Genachowski. So a couple of points. I completely agree 
with your point that in looking at these programs, we both have 
to look at the recipients and the consumers who are paying into 
it. And that has been a core part of our work and it is why we 
have been so serious about removing any waste or inefficiencies 
from the program.
    Mr. Scalise. Can you get me or the full committee the 
actual costs to consumers, how much people are paying for 
that----
    Mr. Genachowski. Yes.
    Mr. Scalise (continuing). That component, and you know, of 
course we can see if we can break it down for how much an 
individual would pay, but definitely the broad costs or what 
the total cost of the program is. And then if you were to 
achieve that $2 billion in savings by rooting out the waste, 
fraud, and abuse, which unfortunately should have been done 
years ago, but if it is done tomorrow or over the next 3 years, 
would your Commission actually reduce the amount of taxes 
people are paying under that program to accommodate for the $2 
billion in savings?
    Mr. Genachowski. Yes, we don't--the contribution rate is 
set by the payouts, and so these savings will translate into 
lower contributions that otherwise we would have----
    Mr. Scalise. Is that automatic, because it seems like an 
open-ended entitlement as the program has mushroomed by 1,000 
percent increase, basically just forces an increased tax on 
what folks were paying.
    Mr. Genachowski. The savings are--and the reflection of 
contribution rate are automatic. We can't control things----
    Mr. Scalise. So it is not at the discretion of the 
Commission? If the usage goes down by $2 billion, the tax will 
go down by 2 billion, or does your Commission have to actually 
do something to lower it?
    Mr. Genachowski. My understanding is that the answer is 
yes. Whether or not technically the Commission has to do 
something, I don't know, but there is a direct----
    Mr. Scalise. And we will take a look, because clearly if it 
is not automatic, I surely would like to see us bring 
legislation forward that would ensure that the taxpayers would 
get that 2 billion in savings, it wouldn't just be spent in 
other places.
    Looking at your budget, you have 12 full-time employees 
requested in the wire line bureau under the goal to maximize 
the benefits of spectrum. That seems like a duplication of--
between wire line and wireless. Is there any reason why that 
request is there to do something that looks like it is 
duplicated somewhere else?
    Mr. Genachowski. I would like to get back to you on that. 
In general, we see more and more overlap between what happens, 
for example, for a healthy and successful wireless 
infrastructure. The wire line back haul is very important, 
because of course the signals go into a tower and then they go 
into the wires. So that could explain what you are pointing to, 
but we will get you a specific explanation.
    Mr. Scalise. I appreciate that.
    Switching gears, I want to talk a little bit about video 
regulation. I would just like to get your take on the 
marketplace when you have got MVPDs negotiating between 
broadcasters. Would you consider the current relationship a 
true free market, or is there some government intervention 
there?
    Mr. Genachowski. Well as you know, we have exercised 
humility, regulatory humility in the area of retransmission 
consent negotiations. Certainly some have argued that there 
isn't a true free market there, that there are advantages that 
one side has over the other. We have opened a proceeding to 
monitor it. We haven't yet seen a strong enough case for 
government intervention.
    Mr. Scalise. But there is--I mean, there are rules right 
now for channel placement, basic to your must carry. Those are 
government mandates that interfere with a pure free market. I 
don't know if you would agree with that or not.
    Mr. Genachowski. I think there is certainly the argument is 
that provisions like that distort the market when it comes to 
retransmission consent negotiations. That is the subject of an 
open proceeding that we have right now.
    Mr. Scalise. And a final question. I know this is something 
that Congress would have to decide, but if Congress were to 
repeal compulsory copyright license and retransmission and go 
to kind of a broader free market, in that relationship 
between--with the satellite and the cable carriers and the 
broadcasters, wouldn't there still need to be a negotiation 
over a copyright license? If we were to repeal those laws, 
would the carriers just be able to get it for free or would 
they have to have still some negotiated agreement to carry that 
signal from a broadcaster?
    Mr. Genachowski. I presume there would have to be an arm's 
length negotiation in any situation.
    Mr. Scalise. Yes, because there would still be traditional 
copyright laws that would be in effect, wouldn't that be the 
case?
    All right, I appreciate it. I yield back the balance of my 
time.
    Mr. Walden. The gentleman yields back, and I am sure he 
doesn't know anybody that has a bill that would do any of those 
things, but we----
    Mr. Scalise. We could sure get one out there and have a 
hearing on it, if you would be so gracious, Mr. Chairman.
    Mr. Walden. We now go to the gentleman from Illinois, Mr. 
Shimkus, for 5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. Thank you, Chairman, 
for coming here. I was talking to some colleagues before I was 
moseying over, and I just told them, you know, you were going 
to be appearing before us. I said a lot can be learned about 
friendliness, returning phone calls, gracious smile. I mean, 
even though I am public policy, there is always fights. You 
handle yourself with great decorum, and I just--I appreciate 
that and I think that helps us in the bipartisan nature in 
trying to deal with some of this stuff, so----
    Mr. Genachowski. Thank you.
    Mr. Shimkus. This is--Congresswoman Blackburn and actually 
Congressman Scalise kind of hit on this, and you answered a 
little bit about the employees in the landline, as I would use 
the vocabulary, and how, you know, everything is moving to 
cellular technology. And of course, you know, my interest in 
broadband applications to rural America. You did mention how 
there is a backbone so there is still a need, but is there--I 
guess in looking through the budget, seeing the number of full-
time employees that are dealing in the wire line, is there a 
plan to be able to shift full-time equivalent positions while 
keeping what you need for the backbone, but also there is still 
more of an explosion in the area of broadband and wireless 
technology.
    So I guess that is the question is how many--not exactly, 
but this shifting of that, is that a possibility in what you 
have got planned?
    Mr. Genachowski. Well these are exactly the kinds of issues 
we talk about in the budgeting process, and we run it as a 
company would run it, and different bureaus make their case for 
what they need, and we regard our job as doing capital 
allocation as against overall targets. So it is--I would say 
that, you know, no one--none of our specific areas are 
completely satisfied with their budget, but we also think at 
the end of the day they have what they need to get their work 
done.
    Mr. Shimkus. And again, obviously the turf fights that are 
involved in government and also in private sector, trying to--
we would hope to see that move and that a new technology area 
maintaining enough to maintain, like we talked about, they need 
a backbone, but we want to make sure that we have the people on 
the ground. And of course, we are not in a growing government 
mode, as everyone agrees, so that--the shifting would be a 
better aspect of being able to do that.
    Following up on last July, the Commission promised to open 
a further rulemaking on rebalancing the regulatory fees before 
the end of 2011. Can you give us a status report on where that 
is at?
    Mr. Genachowski. I asked about this, and the status report 
that I got is it is being actively worked on. We recognize that 
it is something that we should move forward on, and I have 
asked the team to accelerate that.
    Mr. Shimkus. And the final question I have is really the 
fees used to manage the spectrum auctions. Obviously based upon 
what may happen pretty soon, that is going to be really 
important. We have seen some years where there is a big need, 
and some years may not be as big. But you can correct me if I 
am wrong, but there seems to be a consistent $85 million per 
year every year. And the concern is, is that really an 
evaluation of the costs needed to do the spectrum auction, 
ramping up or ramping down, some years that may not be enough. 
We may be coming to one. Some years it may be way too much, so 
can you give me some analysis on that pot of money and the 
whole spectrum debate?
    Mr. Genachowski. Yes, of course, a few thoughts. One is the 
auction work is very active all the time, even when it is not 
in the newspapers. For example, we held several auctions last 
year. They were not super high value auctions, but they require 
the machinery, they require the expertise, and they require 
them to be professionally handled. And then the auction teams 
are always getting ready for the next auction and licensing and 
implementing the last auction.
    We do find that almost every year the requests from the 
auction team for funding are higher than the $85 million cap, 
and I have mixed feelings about it because on one hand, 
auctions have proven to be such a high return on investment for 
the country. If we could put more resources into it, could we 
move faster on auctioning spectrum? Possible, although given 
fiscal constraints, we are working within the cap that is 
there, and yes, we will have a challenge next year assuming 
incentive auction legislation passes to do what we need to do, 
but we will burn all the candles, the midnight oil, whatever it 
is that one has to burn to get it done.
    Mr. Shimkus. So you are basically saying the 85 is really a 
ceiling that really is accounted for every year, regardless of 
what the perception maybe is the real value of an auction? You 
are saying that that is a pretty good baseline for what you 
need every year?
    Mr. Genachowski. Yes, and we have internal processes to 
make sure that it is appropriate, yes. And we didn't go back 
and look at what the value would be if we increased that by 10 
or 20, you know, in this fiscal climate we think our obligation 
is to work with what we have to be efficient everywhere. 
Because we are working through assuming the legislation is 
passed. We are working through it. If issues come up, you can 
be sure I will be back and we will work on it together.
    Mr. Shimkus. Thank you. Thank you, Mr. Chairman.
    Mr. Walden. I now recognize the gentleman from Ohio, Mr. 
Latta.
    Mr. Latta. Well thank you, Mr. Chairman, and thank you, Mr. 
Chairman, for being with us today. I appreciate it, and also to 
hear your testimony.
    There has been a lot of discussion, first, with the USF and 
I might change gears just a little bit here and might get back 
to it, but I find in your testimony it is kind of interesting. 
You were talking about the small business cyber planner, and to 
ward off cyber tax. I served on the Republican Cyber Security 
Task Force not too long ago. It is an ongoing problem.
    I guess a couple of the questions are how are you getting 
that information out to businesses, that they know they should 
be contacting, who they can contact? Who--is it someone 
specifically at the Commission that is in charge of it? Are you 
working with other departments and agencies so you are not--
once again, like sometimes we do in government, reinvent the 
wheel each time someone touches it, then somebody else does it, 
instead of having it all put together?
    Mr. Genachowski. It is a great point, and I feel very 
strongly about this. In the cyber planner, we did that together 
with the Small Business Administration, the Chamber of 
Commerce, the National Urban League, some other companies. We 
wanted to start with a base of people who said listen, here is 
one piece of paper. You don't have to look at a lot of 
different pieces of paper. Since then, we have been working to 
extend the distribution. We just met 2 days ago and I asked my 
team for a game plan to take distribution to the next level. 
What agencies, can we work with members of Congress and ask you 
to distribute it in your communities? What else can we do? We 
did something similar with FEMA and emergency communication 
tips, where I approached Craig Fugate at FEMA and said let us 
work on this together. We put out a joint tip sheet to help 
consumers prepare for disasters, and we are now putting in a 
place--a plan in place to get other agencies, Federal, State, 
and local to look at those, work on having a common set of 
advice for consumers, and then use all our collective 
distribution capacities to get it out. And I very much enjoy 
working with you on this.
    Mr. Latta. Well, that is important, because I know the more 
that I have talked with a lot of my constituents there is just 
little--you know, they are not really aware of it. They--it 
happens to somebody else, it never happens to me, or they don't 
even know it happened to them, you know. They are hit by 
someone from another country and we just had hearings in this 
committee last week, a week ago Wednesday it was, and how fast 
these cyber attacks occur. I think it is really important that 
we make sure that these small businesses--but also I think that 
we always talk in some cases about the small businesses. I 
think some of the larger businesses out there don't realize 
what risk they are at. So I think it is incumbent on us also to 
make sure we get that information out to everybody out there to 
make sure they understand that there is a real problem.
    But I am sorry, did you say that you do have somebody at 
the Commission that is designated as the point person so you 
will be all coordinating and working together like with 
Homeland Security or whoever else?
    Mr. Genachowski. Yes----
    Mr. Latta. OK, thank you.
    And going back to the gentlelady from Tennessee and her 
line of questions and talking to you had mentioned your 
testimony about that you eliminated more than 200 outdated 
rules and five unnecessary data collection. Now this is going 
in the reverse way whatever we were just talking about.
    We hear from a lot of different businesses, and again, 
small and large, that there is a lot--one of the things that 
really costs them a lot of money and a lot of time is they have 
six agencies or departments that they have got to comply with. 
Is that something that you all are looking at within the 
Commission to make sure all of a sudden that, you know, there 
are other agencies and departments out there that are trying to 
do the exact same thing that are incurring more costs on these 
individuals out there, small businesses, to prevent them from 
going out and making a profit?
    Mr. Genachowski. Yes, I will give you a bit of what we did 
yesterday. We found that--yesterday--the way that the landscape 
works--different circles. So in doing now what was yesterday--
essentially the same over what they did----
    Mr. Latta. Mr. chairman, I see my time is expired, and I 
yield back.
    Mr. Walden. Gentleman yields back his time.
    Mr. Chairman, thank you for being here today. We look 
forward to continuing our good work together, and if all comes 
to fruition on the spectrum bill as part of the overall 
agreement. I have no reason to doubt it won't. We will be 
spending a lot of time, because I don't think anybody has ever 
done an incentive auction before and we want to make sure we 
are in partnership with you to get it right, so thank you very 
much.
    Mr. Genachowski. Thank you.
    Mr. Walden. We will call up our second and final panel of 
witnesses, the Inspector General for the Federal Communications 
Commission, Mr. David L. Hunt, and the Chief Executive Officer 
of the Universal Service Administrative Company, Scott Barash.
    I will just give you the microphone guidance here. The 
closer you can get to them, the better they work, and the light 
needs to be on, so then we will be able to hear you. You really 
have to get close to these microphones.
    Mr. Hunt, thank you for being--well, thank you both for 
being here. Mr. Hunt, thank you and we will start with your 
testimony today, sir. I am not sure that microphone is on. Push 
the button there. No.
    Mr. Hunt. Is that OK?
    Mr. Walden. That is much better, thank you.
    Mr. Hunt. Oh, the light was on before.

    STATEMENTS OF DAVID L. HUNT, INSPECTOR GENERAL, FEDERAL 
 COMMUNICATIONS COMMISSION; AND D. SCOTT BARASH, ACTING CHIEF 
  EXECUTIVE OFFICER, UNIVERSAL SERVICE ADMINISTRATIVE COMPANY

                   STATEMENT OF DAVID L. HUNT

    Mr. Hunt. Mr. Chairman and members of the subcommittee, I 
appreciate the opportunity to come before you today to discuss 
the activities and budget of the Office of Inspector General 
for the Federal Communications Commission. I have been the 
Inspector General at the FCC since June of 2009, first in an 
acting capacity and then a permanent role since January 2011.
    Somebody mentioned to me when I first walked in, I 
understand you are a veteran of these and I am not. This is my 
first time at a hearing, and I really appreciate the 
opportunity. I have a very well-written speech by my staff, but 
as a former trial attorney I am better just going off my notes 
and that is what I am going to do. The silent groan you hear 
behind me is my staff who wrote my speech.
    What I would like to talk about primarily because I think I 
may have given you more information than you may have wanted in 
my written statement, just about my staff and their dedication. 
It ties to the fact that we have a very small staff looking 
over a very large amount of money. In the past 2 years alone, I 
have had an auditor who--we had a filing that was due at 
midnight, a mandatory filing. She had suddenly gotten sick, was 
sent to the hospital. She, on her own accord, ripped the IVs 
out of her arm and came back to work to make sure everything 
was filed on time. I have an auditor who has worked on E-Rate 
for over a decade. He has spent, on average, 6 to 9 months of 
his life on the road, tracking down fraud, waste, and abuse in 
schools and libraries. I have an attorney who dictated an 
affidavit from a hospital bed with the nurse taking notes, 
running faxes to and from a judge in Texas, because he required 
the affidavit before he made a filing on a motion in court. I 
had sent half of my staff to Texas to support the Department of 
Justice in another USF investigation because of the number of 
staff that we had left, I had to send interns with them. These 
attorneys and auditors, including just regular staff people, 
had to crawl under wireless equipment, had to crawl under 
buildings, had to pull wires and just check everything. You 
would be surprised how many times you go to a school and see 
all the lights on, and you go behind it and there's nothing 
plugged in except a--somebody wrote a program to make the 
lights go on and off. I have had an attorney who had to do a 
conference call, and had to do the conference call in the 
emergency room while the nurse was placing nitroglycerin under 
his tongue. Our staff works very, very hard with what assets we 
have.
    You are asking for actually very few people to oversee 
billions and billions of dollars. Any other IG office out there 
would have several people, if not dozens of people, working on 
the stuff that we rely on one or two people to do.
    Anyway, I just want you to know that we really appreciate 
the chance to come here. We work very closely with the 
Department of Justice, the Department of Education, Department 
of Interior. We are trying to save money all the time. We are 
trying to run as efficiently as humanly possible. Financially-
wise we can't do anything less, because like I said, we are 
operating on such a tight budget. But I want to let you know 
that the staff you have at the FCC Office of Inspector General 
are as dedicated a staff as you will ever see in the Federal 
Government, and we appreciate this chance to talk. I look 
forward to coming back and talking again, if I have the 
opportunity.
    Thank you very much.
    [The prepared statement of Mr. Hunt follows:]

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    Mr. Walden. Thank you, Mr. Hunt. That is very moving 
testimony. We appreciate and applaud the work that you and your 
people do at the agency.
    Mr. Hunt. Thank you.
    Mr. Walden. We might want to have some guidance here about 
pulling out IVs and things, but----
    Mr. Hunt. It wasn't easy, apparently. One of our staff 
drove her to the hospital, Mr. Chairman, and just waited there 
with her. In fact, the hospital had called wondering where she 
was. She was back in her office. But thank you very much.
    Mr. Walden. Thank you, Mr. Hunt.
    Sir, is it Barash or Barash.
    Mr. Barash. Barash.
    Mr. Walden. Barash, I am sorry. Mr. Barash, thank you for 
being here. We look forward to learning more about USAC and we 
appreciate your testimony.

                  STATEMENT OF D. SCOTT BARASH

    Mr. Barash. Good morning, Mr. Chairman, and good morning, 
Ranking Member Eshoo. My name is Scott Barash and I am the 
acting Chief Executive Officer of the Universal Service 
Administrative Company, or USAC. USAC is the independent, not-
for-profit corporation created in 1997 to administer the 
universal service support mechanisms. USAC is governed by a 
Board of Directors selected by the Chairman of the FCC from 
nominations by universal service stakeholder groups. USAC's 
mission is to collect FCC-mandated contributions from 
telecommunications carriers and distribute these funds to 
beneficiaries in the four universal service support programs--
High Cost, Low Income, Rural Health Care, and Schools and 
Libraries--in accordance with FCC rules, orders, and 
directives. As a neutral administrator, USAC does not establish 
policy and may not advocate for policy positions. In order to 
accomplish our mission, we work very closely with the FCC, 
which oversees our operations.
    In 2011, USAC collected $8.4 billion in contributions from 
telecommunications carriers and disbursed approximately $8.1 
billion to beneficiaries. USAC spent $106.9 million to collect 
and distribute these funds, generating an administrative 
expense rate of 1.34 percent. In other words, 98.66 percent of 
contributions from telecommunications carriers went to 
universal service program beneficiaries. This percentage 
compares favorably to the rate at which other Federal 
assistance programs and non-profit organizations deliver funds 
to their beneficiaries.
    I will now briefly describe the four universal service 
programs, what USAC does to administer those programs, and how 
much we spent in 2011 to do so.
    The High Cost Program provides support to ensure that 
telecommunications rates and services available to customers 
who live in rural or hard-to-serve areas are reasonably 
comparable to rates and services available in urban areas. In 
calendar year 2011, the High Cost Program disbursed $4 billion 
to 1,903 companies in support of 110 million lines. To provide 
program support, every month USAC gathers data from companies, 
performs extensive calculations to derive the support they are 
eligible for, and makes disbursements to them. To administer 
the High Cost Program in 2011, USAC spent $16.9 million.
    The Low Income Program provides support to make voice 
telephony affordable to eligible low-income consumers. USAC's 
role is to disburse to telecommunications carriers a defined 
dollar amount each month for each eligible consumer to whom 
they provide discounted service. Administering the Low Income 
Program is similar to the High Cost Program: we gather data 
from companies every month, performs calculations on that data, 
and then makes monthly disbursements. In 2011, the Low Income 
Program disbursed $1.7 billion to 2,025 companies. To 
administer the Low Income Program in 2011, we spent $5.4 
million.
    The Rural Health Care Program provides reduced rates to 
eligible health care providers for telecommunications and 
Internet services necessary for the provision of health care. 
Eligible participants must be a rural public or non-profit 
health care provider.
    USAC is responsible for processing applications for 
support, confirming eligibility pursuant to FCC rules, and 
reimbursing service providers for discounts delivered to rural 
health care providers. We review applications, invoices, and 
other program information to ensure that applicants and service 
providers follow FCC rules and support FCC efforts to prevent 
and detect waste, fraud and abuse. In 2011, the Rural Health 
Care Program disbursed $81.5 million to 472 companies 
representing 3,088 eligible health care providers, and another 
$54.3 million to beneficiaries of the Rural Health Care 
Program. To administer this program, we spent $12.7 million.
    The Schools and Libraries Program, commonly known as E-
Rate, provides discounts of up to 90 percent to assist most 
schools and libraries in the United States in obtaining 
affordable telecommunications and Internet access services. 
Program funds are disbursed to companies providing services to 
eligible beneficiaries, in this case public and most non-profit 
K through 12 schools, and all public and many private 
libraries. Administration of the Schools and Libraries Program 
is much like it is in the Rural Health Care: we process 
applications for support, confirm eligibility, and reimburse 
telecommunications companies and Internet access providers for 
discounts delivered to beneficiaries. In 2011, the program 
reviewed 44,651 applications and disbursed $2.2 billion to 
4,165 companies providing services to tens of thousands of 
schools and libraries in all States and territories of the 
United States. To administer the program, we spent $71.9 
million.
    Universal service contributions, which we spoke of in the 
prior panel, come from telecommunications carriers earning 
revenues from providing interstate and international calling 
services. These companies file revenue data with USAC, which we 
aggregate and submit to the FCC. In 2011, to bill and collect 
the $8.4 billion in universal service contributions, we spent 
approximately $3 million.
    An important responsibility of USAC is to support FCC 
efforts to protect the integrity of the fund. We do this in 
many ways, from reviewing information submitted by contributors 
and beneficiaries to assessing details about individual 
payments to full-scale audits of contributors and 
beneficiaries. These measures are designed to verify the 
accuracy of data used in calculating collections and 
disbursements, the eligibility of supported goods and services, 
and participants' compliance with program requirements. A 
Memorandum of Understanding between the FCC and USAC defines 
the roles and responsibilities, and contains detailed 
operational and reporting requirements.
    Once we disburse money to beneficiaries, we want to 
validate that the payments were properly made. To this end, 
working with the FCC and OMB, we launched in 2010 a Payment 
Quality Assurance, or PQA, Program. PQA is designed to provide 
estimates of improper payments in all four programs, as 
required by the Improper Payments Elimination and Recovery Act, 
or IPERA. Based on these assessments, an independent 
statistician calculates estimates of improper payment rates for 
each program and reports this information to the FCC.
    We also use these results as a basis to improve internal 
procedures associated with improper payments and provide 
outreach to beneficiaries. Results for 2011, based on 1,600 
assessments, show improper payment rates in the High Cost 
Program of 0.11 percent, the Low Income Program of 0.23 
percent, the Rural Health Care Program of 1.7 percent, and the 
Schools and Libraries Program of 0.94 percent. We spent $1.3 
million on this activity in 2011.
    We have also done audits of beneficiaries and contributors. 
Shortly after the PQA launch in 2010, again in close 
consultation with the FCC and OMB, we launched the Beneficiary 
and Contributor Audit Program, or BCAP. Under BCAP in 2011, we 
completed 79 audits examining $1.7 billion in universal service 
funding. When fully implemented, BCAP will give USAC the 
capacity to conduct up to 343 audits each year. As with PQA, 
results will shape corrective actions for both auditees and 
USAC.
    Outside auditors have consistently delivered clean opinions 
on USAC's finances and procedures. In the last 4 years, USAC 
has significantly revised and upgraded its internal controls 
review program, in compliance with the principles of OMB 
Circular A-123. Program staff members have incorporated these 
controls into operational activities to enhance the security 
and accuracy of procedures that define how we handle the 
information we gather and the funds we collect and distribute.
    The GAO has recommended that USAC and the FCC conduct 
robust risk assessments in the Schools and Libraries Program 
and the Low Income Program. We are working with the FCC to 
identify independent contractors to carry out these risk 
assessments and we expect to use these results as a basis for 
efforts to strengthen further the internal controls already in 
place.
    Thank you for the opportunity to appear before you today. I 
would be happy to respond to any questions.
    [The prepared statement of Mr. Barash follows:]

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    Mr. Walden. Thank you for your testimony. I appreciate your 
testimony and the work you that you are doing to try and 
continue to improve and reduce fraud and deal with all that.
    I was made aware a year or two ago about a situation in my 
district, and I won't get into the specifics of it, but they 
had overlapping people that were on sort of both sides of some 
of the USAC funding. I think it was in the E-Rate program. And 
the problem, I think they may not have followed all the rules, 
I don't know. That is something for all of you to figure out, 
but we got these really isolated, remote communities. I am 
talking one person for every 8 miles of power line. Counties 
with fewer than 2,000 people and thousands of miles, and there 
is very, very few people, like the main town, the county hub is 
399 people, I think. And so when they go to try and take 
advantage of these programs, there isn't a giant pool of people 
who can be--you know, you are on the school board, you are also 
the guy running the--now having said that, I have also served 
on the Oversight Committee where we did a lot of looking at the 
waste, fraud, abuse and all of that. We can't tolerate that.
    But I hope there is some way to find a balance here for 
these really remote communities where there are only--they are 
very--there is only a handful of people that do everything, and 
not because of collusion or anything else, there just ain't 
anybody else around, you know? And so I hope maybe we can have 
some general discussion about somewhere down the road, because 
I think it is a problem that is unique to sort of the rural 
West, perhaps, where literally you have a hospital in three of 
these counties. I mean, it is just remote. No stop light for 
probably 3 hours, you know what I mean? This is high desert 
remote, and so I--and yet, they are trying to figure out how to 
serve their communities, and so I just throw that out for your 
consideration.
    Mr. Barash. Well, we are very sensitive to the needs of our 
customers, and----
    Mr. Walden. Is your mic on?
    Mr. Barash. Yes, I will get closer.
    Mr. Walden. There you go.
    Mr. Barash. We are very sensitive to the needs of our 
customers, particularly the small rural customers, both in--for 
schools and libraries and rural health care, as well as high 
cost, and what we have tried to do in recent years is to really 
expand our outreach and that includes training sessions around 
the country, that includes our webinar presence, that includes 
going out to stakeholder groups, whether it is schools, whether 
it is health care providers or telecom groups. So we have 
really tried to focus on that, because you are correct that one 
of the problems is that you might have the same person who is 
doing everything.
    Mr. Walden. And they are, and they do that in everything in 
these small towns.
    Mr. Barash. And then in addition, there is often turnover, 
so the person who knows everything and who had the files 
leaves, and then someone else inherits this and they may not 
understand what the----
    Mr. Walden. Or they may also be on the school board and at 
the phone company, and by the way, the county judge who drives 
the snow plow truck. I mean, it literally happens that way.
    Mr. Barash. I think you are absolutely right.
    Mr. Walden. And they are just trying to figure out how to 
get broadband or whatever out to their schools and their 
communities and connect them, and then lo and behold, they 
realize they have stumbled across some line that said oh, you 
can't be on both of these. And then they get penalized--the 
community gets penalized because it is like well, you don't get 
any more money and by the way, we are going to take back what 
you have, et cetera, and they are just going oh, all I was 
trying to do here--and yet I have seen the other side of this 
coin where people manipulated the system and had warehouses 
full of computers they never intended to deploy and ripped off 
the fund. And so----
    Mr. Barash. It is a balance that we try to strike every day 
in administering the program. We try to do as much up front 
review as possible, and to prevent having to go back. That is 
the worst of all worlds. So we are very focused on the average 
piece and also on the up front review piece.
    Mr. Walden. Yes, so anyway, this group is in the middle of 
that and trying to dig its way out, and it is not good.
    Mr. Hunt, in your written testimony you highlighted single 
company that was able to defraud the FCC's telecommunications 
relay service of $55 million, and you also suggest that the 
work of the IG ultimately led to 26 indictments in that case. 
What happened there?
    Mr. Hunt. Mr. Chairman, thank you. It was a program that we 
have been aware of for a while. It is something where you don't 
know how bad it is until you get into it, and we were 
surprised, too. I mean, the entire FCC Inspector General Office 
hasn't had 26 indictments and non-USF cases ever in the over a 
decade it has operated. The more we dug, the worse it got, and 
again, not to be crying or bemoan my staffing situation, two 
people sitting behind you who pretty much did it was apart from 
the rest of our staff, but when we did the--that one raid, we 
had 40 FBI agents going with us. We had to go in nine different 
States. You are looking at a program that just wasn't looked at 
that much, and 26 indictments was amazing for us. We had no 
idea, but it is so easy on that program to defraud the 
government. I could go in my home, get a computer, light it up 
and I could defraud the government, frankly.
    Mr. Walden. I appreciate that, and maybe you can help us 
identify more areas we need to spend more time digging into as 
well, and be helpful in that respect.
    Mr. Hunt. Yes, Mr. Chairman, we have been working with 
Congress as much as we can. We have been working with the 
chairman's office, we have made many recommendations, as had 
DOJ, on how to stop this fraud and stop it from occurring. We 
are working both ends, stop it on the front end with the 
chairman's help, and get it from the back.
    Mr. Walden. And then maybe your people won't have to pull 
out their IVs to go stop if we can get it stopped first.
    So--and those recommendations, I am sure you have made 
those available to us in past reports and all, but if there are 
some specifics you think we should dig down into more and kind 
of look at the policy and help shine the light on, we would be 
happy to do that.
    Mr. Hunt. Absolutely.
    Mr. Walden. I thank you.
    I turn to my friend from California, Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman, and I want to concur 
with you that--on this last item that how we can help support 
and advance the work that you are doing. We are eager to do 
that.
    I want to thank you, not only for doing what you do, but 
with the--really a high level of integrity and commitment and 
dedication. We are going through an era, I think, where because 
of all the challenges in the country, so many people are angry. 
They feel let down. You could go on and on. I was at a 
telephone town hall meeting last night where 9,000 people 
participated. Obviously I didn't get to answer 9,000 questions, 
but if there was a common thread that went through it, it was 
how people--how concerned they are about our country. I wish 
every TV station in the country could have carried your opening 
statement today, because it is a reflection of really 
professional, good, solid people working to make the country 
better and the government more accountable, so I really salute 
you. I don't know if--I don't think my words are adequate to 
describe all that I am sensing, but bravo to you and to your 
team, and thank you.
    Mr. Hunt. Thank you very much.
    Ms. Eshoo. You have really restored a great deal of faith 
in all of us, and as I said in my opening statement, I think 
the IGs are just--if you want to know what is going on in the 
government and you want a clear, unbiased, nonpartisan, hard 
look at what is going on in every agency, just go to the IG 
inspectors and the work and the reports that they issue. So 
thank you again.
    Your most recent semi-annual report indicated that the 
proposed reforms of the Universal Service Fund ``will have a 
significant impact on OIG planning and conduct and oversight 
activities.'' Can you explain exactly what that means? What 
will be the change under the reforms? Is that what you are 
referring to, what you are going to have to do to track the new 
program?
    Mr. Hunt. Yes, Congresswoman. Whenever any change is made, 
we sometimes have to tack to left or tack to the right. We 
study everything. You know, I have a separate person who 
studies--he is dedicated to working on Hill matters. He studies 
everything that comes out, looks at everything from USAC. We 
work with USAC quite a bit. But every time a rule or regulation 
changes, it may change one of our cases, even civilly or 
criminally. And so it is something we have to track pretty much 
constantly.
    A large part of what we do is----
    Ms. Eshoo. Do you have the resources to do this, what you 
are describing?
    Mr. Hunt. Well, let me just say----
    Ms. Eshoo. Well is not a good answer. I don't mean that in 
a personal way. You sound skeptical.
    Mr. Hunt. No, Congresswoman, I am not skeptical. We don't, 
but I just want to let the Congresswoman know, we have been 
working very closely with the chairman's office to try to get 
additional staff, and Congress was kind enough to give us 
additional monies for 2012, fiscal year 2012. We spend those 
monies, if not on personnel, on contracts to do further 
auditing work. But I thought about it several times, where is 
the cap? I mean, how many people would you have to add to the 
IG shop before it is not worth adding people, and a number 
could be--I mean, you could give me 50 people tomorrow and I 
could put them all to work, so I don't know how else to explain 
it.
    Ms. Eshoo. What my sense is is that you don't think you 
have enough to do what needs to be done, but do you think you 
are going to be able to fulfill your oversight 
responsibilities?
    Mr. Hunt. Well, Congresswoman, the staff we have is very 
good, and any program this big always needs additional 
oversight, could always use it. I know USAC has added 
additional people to their staff to help do audits, but like I 
said, you are trying to track about $10 billion with 30 people, 
and when the economy goes south, the crime rate, at least in 
our field, goes up so white collar crime is booming, and on one 
case alone we have a single person tracing down $110 million 
with no FBI support and no other support from DOJ. So they have 
had to cut back as well. So as they cut back, all of a sudden 
we find ourselves having to do depositions and interviews, when 
normally the FBI would do those for us. Now there are not 
enough FBI agents around to help us accomplish that.
    Ms. Eshoo. Well, we want to be of all assistance to you, 
because your work is so important.
    Mr. Barash, I am sorry, I don't have time to ask you the 
great questions I was going to ask you, but I will submit them 
to you in writing.
    Thank you, Mr. Chairman, and thank you both for your very 
important work, and to your entire team.
    Mr. Hunt. Thank you, Congresswoman.
    Mr. Walden. Thank you. Gentleman from Ohio, Mr. Latta, is 
now recognized.
    Mr. Latta. Thank you, Mr. Chairman.
    Mr. Hunt and Mr. Barash, thanks very much for being with us 
today. I appreciate your testimony.
    If I could just start off with this question maybe to both 
of you that State commissions have also been out there 
detecting duplication and other waste within the Commission's 
Lifeline program, and what efforts have your respective offices 
made to reach out to the State commissions to also address 
these and related concerns?
    Mr. Hunt. Thank you, Congressman, for that question. 
Actually, Congressman, another one of my IGs behind me is 
coordinating an effort within our office and has contacted, 
literally, all 50 States. We are actively coordinating with, I 
believe at last count, eight or nine, so we work very closely 
with the States on low income and Lifeline issues. Primarily 
what we do is basically ask for their support, because they can 
offer us the most help at the local level than we can offer 
from Washington, DC. But we are very much interacting with 
local governments and do so frankly all the time.
    Mr. Latta. OK. Let me ask this. Going back to the 
chairman's testimony I am sure you heard a little bit earlier, 
and you all know that in the Lifeline program, the whole idea 
is in the next 3 years to be able to save up to $2 billion that 
is going to be out there, and also in 2011 alone saving $33 
million and eliminating 270,000 duplicate subscriptions.
    Could you go through the procedures of how you find these 
folks, and what happens when you do, and do you recoup payment 
or what happens?
    Mr. Barash. Yes, I would be happy to do that. What we do is 
we collect data from the companies, collect subscriber data 
from the companies. We then bump that data up against each 
other in a system that we built last year to do this job. We 
then identify potential duplicates. We reach back out to the 
companies and say are these, in fact, duplicates. They get back 
to us. We then have a final list of duplicates. We then 
allocate the duplicates to one of the other companies randomly, 
and then instruct the other company to de-enroll the 
subscriber.
    So it is a relatively cumbersome process at this point.
    Mr. Latta. Pardon me for interrupting. How long does that--
you know, from point A to point B, how long does that take?
    Mr. Barash. A couple months by the time the back and forth 
occurs. So it is a relatively cumbersome process at the moment. 
It is one that we initiated in very close consultation with the 
FCC last year. What we are moving toward, and this is in the 
recent order that was approved by the Commission, is a national 
Lifeline accountability database that we are now working on 
that we hope to have up in early 2013 that will allow companies 
on a real-time basis to determine whether someone is already 
receiving Lifeline service or not.
    So right now we are in an interim phase where we are 
identifying duplicates and saving money, but then in the future 
we will be doing this up front and preventing this problem from 
occurring in the first place.
    Mr. Latta. OK, and then going back to my one question, 
after you do identify that individual, let us just say that 
they might have had three or four that might have happened. Is 
there recoupment or what happens at that stage?
    Mr. Barash. At this stage there is not recoupment. They are 
cut off. If they have more than one they are cut off from all 
of them. We have seen an instance or two where there are--
someone might be getting three and they would be cut off from 
two of those.
    Mr. Latta. OK. Thank you very much, and Mr. Chairman, I 
yield back.
    Mr. Walden. Gentleman yields back. Mr. Guthrie has no 
questions.
    We appreciate the incredible work you all do, and we look 
forward to working with you to improve transparency, 
efficiency, and accountability in the work that is done by the 
agency. So thank you for being here, and with that, we will 
have the usual and customary opportunity for members to submit 
statements and questions. We look forward to your responses, 
and thanks again.
    Mr. Barash. Thank you very much.
    Mr. Walden. This hearing is adjourned.
    [Whereupon, at 10:47 a.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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