[Senate Hearing 114-181]
[From the U.S. Government Publishing Office]
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL
YEAR 2016
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TUESDAY, MAY 12, 2015
U.S. Senate,
Subcommittee of the Committee on Appropriations,
Washington, DC.
The subcommittee met at 10:29 a.m., in room SD-138, Dirksen
Senate Office Building, Hon. John Boozman (Chairman) presiding.
Present: Senators Boozman, Moran, Lankford, and Coons.
FEDERAL COMMUNICATIONS COMMISSION
STATEMENT OF HON. TOM WHEELER, CHAIRMAN
ACCOMPANIED BY HON. AJIT PAI, REPUBLICAN COMMISSIONER
OPENING STATEMENT OF SENATOR JOHN BOOZMAN
Senator Boozman. Good morning. The subcommittee will come
to order.
Today, the subcommittee will consider the fiscal year 2016
budget request for the Federal Communications Commission (FCC).
I would like to welcome our witnesses, FCC Chairman Tom Wheeler
and Commissioner Ajit Pai. We look forward to hearing from both
of you about the details of the FCC's budget request and the
work that you are now doing to carry out the agency's core
mission.
As we consider your request for the next fiscal year, we
are mindful of the ongoing need to clear the way for economic
opportunity and for international competitiveness. The FCC
plays an important role in ensuring that the United States
continues to lead the world in innovation and communication.
However, I fear this leading role is slipping. Under a
previous chairman, the agency released a book highlighting the
critical importance of regulatory independence and transparency
in the success of the telecom sector. According to the book,
``If the regulator is tied closely to the incumbent government,
changes in government can introduce an element of uncertainty
which heightens investment risk, and can serve potentially to
deter future investment.''
Unfortunately, the lessons of yesterday may have been lost
on today's decision-makers. With the FCC's embrace of the
President's plan for Internet regulation, the Commission moved
farther and farther away from the independence, transparency,
and regulatory certainty our Nation deserves.
The FCC's policies and actions have an enormous impact on
our country's economic growth and potential. I am interested to
hear more about the Commission's other efforts to promote
economic growth, reduce regulatory burdens, and increase
transparency, predictability, and accountability in the
regulatory process.
As members of this subcommittee, we have a tremendous
responsibility to ensure the funds we oversee are spent wisely.
Under the Budget Control Act and the budget resolution, the
discretionary spending cap for fiscal year 2016 limits
nondefense spending to $493 billion. This represents an
increase of just $1.1 billion over the fiscal year 2015 level
for all nondefense departments and agencies.
While the FCC's funding is offset by fees, that does not in
any way minimize our duty to ensure that the agency is
operating effectively and the funds are being spent
responsibly.
This year, the FCC is requesting an increase of $73
million, 21 percent more than it received in fiscal year 2015.
In a disappointing move, the FCC's budget proposes to paper
over part of that increase by transferring $25 million from the
Universal Service Fund to augment the FCC's operating budget.
The Universal Service Fund is intended to help ensure that
all Americans have access to telecommunications services. It is
not intended to be a reserve fund to pay for the FCC's
operating expenses.
Many people in Arkansas think the FCC has forgotten about
rural America. Transferring money away from broadband
deployment to offset agency spending in DC aggravates that all-
too-real perception.
All agencies have to make strategic decisions on how to
best allocate resources. Spending on staffing levels,
contractors, space and equipment needs, and technology must all
be appropriately balanced in order for agencies to effectively
carry out their core statutory mission and functions.
As we have seen too often, access to more funding does not
necessarily ensure that an agency will successfully achieve its
mission or spend that funding wisely.
Finally, as we review your budget request, I am interested
to hear what decisions you have made to operate more
efficiently in order to carry out your responsibilities within
current funding levels and would appreciate more specific
information regarding the costs of the FCC's projected move of
its headquarters.
The American people want a government that works for them,
not against them. They want us to curb wasteful spending; make
the Government more efficient, effective, and accountable; and
pursue policies that create economic opportunities for
everyone.
These are the priorities of the American people. They will
be reflected in the critical oversight we conduct, as we
consider the fiscal year 2016 budget requests for all of the
agencies within our jurisdiction.
Again, I look forward to your testimony today and to
working with you to address the challenges before us and to
clear the way for continued U.S. leadership in communications.
Thank you. I will now turn to my ranking member, Senator
Coons, for his opening statement.
STATEMENT OF SENATOR CHRISTOPHER A. COONS
Senator Coons. Thank you, Chairman Boozman, for convening
this important hearing today.
I would like to welcome our witnesses, Chairman Wheeler and
Commissioner Pai. I am thankful for your service and appreciate
you joining us here today, given the difficult and important
jobs that you have.
I welcome today's opportunity to examine the FCC's budget
request and discuss your crucial role in ensuring our national
communications infrastructure is reliable, effective,
efficient, and constantly innovating. As Americans grow to be
evermore connected, we demand even more from our connections.
Mobile broadband, smart homes, vehicle-to-vehicle
communications, high-definition television (HDTV), interactive
television all exist, but on a foundation of shared, limited,
public resources.
As the FCC continues to work to foster an environment that
encourages these technological achievements, it must also
ensure our communications systems work for all Americans,
regardless of whether they are rich or poor, urban or rural,
young or old.
Even though the FCC is, relatively speaking, a small
agency, it touches the lives of millions of Americans every
day. Over 90 percent of Americans own a cell phone and about
two-thirds of adults use smart phones. Cell phone companies
need access to spectrum resources to expand and upgrade their
networks.
Already this year, the FCC has auctioned 65 MHz of spectrum
in the 1.7 and 2.1 GHz band, the Advanced Wireless Services
(AWS-3) auction, which allowed several companies--AT&T and
Verizon--to improve their networks, one of which affected my
daily life in a meaningful way, while bringing in more than $44
billion to the U.S. Treasury.
The upcoming incentive auction will be the FCC's most
complex yet and will continue to make more spectrum available
while bringing in significant resources for the Treasury. So I
look forward to hearing more about the FCC's progress in
preparing for the upcoming auction and resources you might
need.
Just as cell phone use becomes more common, it is becoming
more critical our homes, offices, and, in particular, schools
are connected to fast and reliable broadband service in all
communities. Now the FCC oversees the $9 billion Universal
Service Fund, which expands access to communication systems
vital for every American. FCC has worked in the past few years
to modernize the fund, to ensure that it includes broadband
access, while also reducing waste.
Not only is it important that every student in America has
access to state-of-the-art tools to power their education, but
also that every town, no matter how rural, has some connection
to the vital information systems that drive our economy and,
increasingly, our way of life.
The FCC also has a crucial safety and security role. Our
Nation's communications networks do more than keep us in touch
with friends and families and job opportunities. In
emergencies, robust networks also save lives. I look forward to
an update about your efforts to improve 911 services, in
particular, and to enhance the Emergency Alert System, as well
as your role in helping passenger and freight trains meet new
safety requirements.
Your budget request for this year, as the chairman
referenced, is $413 million, $73 million over the 2015 level,
fully offset by fees and with a new proposed transfer from the
USF, which I look forward to hearing you discuss.
The FCC also requested $117 million to operate the spectrum
auction, an increase of $11 million, also fully offset by fees
so that none of this has an impact on the deficit.
I'm curious to hear more about the investments you propose
to make in the next fiscal year. Aging IT infrastructure, in
particular, may cause inefficiencies and lead to mission-
critical vulnerabilities to cyberattack. These risks are
especially concerning as you plan to conduct your first-ever
voluntary incentive auction.
Funding has been frozen for several years, and the forecast
for fiscal year 2016, I regret to say, is not encouraging. So I
hope you will also take this opportunity to explain in detail
how the FCC is identifying cost savings through increased
efficiency and eliminating waste.
We have a lot to discuss today. This is important ground to
cover. So thank you again for coming to share your perspectives
on the FCC's funding requirements and program goals for fiscal
year 2016.
Chairman Boozman, I thank you for your leadership, and I am
eager to keep working together to advance these bipartisan
initiatives. Thank you.
Senator Boozman. Thank you, Senator Coons.
Chairman Wheeler, I invite you to share your testimony.
SUMMARY STATEMENT OF HON. TOM WHEELER
Mr. Wheeler. Thank you very much, Mr. Chairman, Senator
Coons, members of the subcommittee.
You have my printed statement. I'm an old businessman, and
I am presenting to my board of directors here, and I thought I
would present like I did back in the day, so you also have a
slide deck there that we can walk through, hopefully.
If you look at slide 2, our current reality is that we are
paying too much in rent, that we have inefficient field
operations, that we are missing the ability to use technology
to reduce costs, and that we are burdening fee payers for
benefits they don't receive while at the same point in time
risking the Universal Service Fund.
SLIDE 2
Our response is a budget with the lowest full-time
equivalents (FTEs) in 20 years, the first requested FTE
reduction in 10 years, the first review of field operations in
20 years, and a reduction in contractors.
Now I've heard this described as the ``biggest ever FCC
budget.'' It is not quite that way. The fee-generated budget is
lower than last year's budget, before the extraordinary items
of our move and a few unfunded mandates.
If you look at the next slide, slide 3, this gives you a
quick view of the trends in the agency. As you can see on the
left, funding has been flat for the last 5 or so years. It is a
period in time in which we have had 8 percent inflation, so it
is, in essence, an 8 percent decline. And you are seeing our
FTEs at the lowest level ever.
SLIDE 3
Slide 4 talks about how this is happening at a time of
increasing demands that are of great importance to the economy.
The chairman talked about this as an agency of economic
opportunity. The kinds of things you see on the left, in terms
of new equipment operations, licensing, is how that opportunity
gets expressed in the economy. And we are putting fewer people
against that increase in things that are necessary for the
growth of the economy.
SLIDE 4
If you take a look at slide 5, we can walk through the cost
reductions that we are proposing in this year's budget. We are
not filling vacancies. We will have between 100 and 150 people
leave the agency for one reason or another this year, and we're
not going to fill all of those positions.
SLIDE 5
We are updating our field office activity. When you have
the kind of flat funding we are looking at, we have to be more
efficient. That is one way of doing it.
We are going to reduce the number of contractors. We are
asking for more IT funds so that we can reduce the number of
contractors, and everybody knows contractors are the most
expensive bodies you can hire. And this is the kind of
business-like assessment that we will make on an ongoing basis.
So that reflects itself on slide 6, in how you build the
budget itself. The fee-generated budget, as I said earlier, is
lower than last year before the extraordinary items. The move,
which will save money but which we have to pay for upfront,
will save $190 million gross, and requires a $51 million down
payment. And in a $400 million budget, that's a big skew.
SLIDE 6
There are mandates that have been imposed, that we have
been told to carry out, but not funded, such as broadcaster
relocation, such as public safety do not call, such as the
broadband map, such as cost-of-living increases. Together, they
come to about $65 million, $66 million. You remove those and
you reduce that budget by $66 million. That kind of puts into
perspective where we are on an apples-to-apples budget.
On slide 7, we look at how that increase breaks down in
percentages. Seventy-one percent are these unavoidable costs
that I just discussed. Eighteen percent goes for IT
improvements, which again are the underpinning of being able to
be more efficient and have cost reduction. Nine percent goes to
the mandates that we have. And 2 percent goes to cyber fixes
that we have been told we have to have in place.
SLIDE 7
But if you look at slide 8, controlling costs through
technology is how business handles the kind of situation that
we find ourselves in. So let's take a quick look at what we are
doing with technology.
SLIDE 8
We're going to move to the cloud. That saves us $1 million
to $2 million a year. We are going to have a single
architecture, which means less maintenance, which means fewer
consultants and more productivity. And we are going to move to
a common core platform, which, again, will save us $1 million
to $2 million a year.
But as I said, the big enchilada in this budget is the
move. The way government accounting works is that you have to
pay it upfront.
The chart on slide 9 talks about why it needs to happen,
illustrates why it needs to happen. We are going to move to
smaller space. We are going to move from 650,000 square feet to
475,000 square feet. We're going to move to lower-cost space.
We are paying about $60 a square foot right now, and the
General Services Administration (GSA) tells us we can get it
for about $45 a square foot.
SLIDE 9
And to make these kind of savings, which will total $190
million, we need to invest $51 million this year.
On the last slide, slide 10, the question has been asked,
why don't you just stay where you are? Our lease is up. We
could stay in place. If I were the landlord, I would use that
great bargaining position that I have to make sure that the
rates go up substantially. We would have to have some interim
relocation activities, just like we have to have for another
move. We would have to have new physical assets, because of
newly designed spaces.
SLIDE 10
So actually, you end up spending about $4 million more to
stay in the same place than if we were to move. So that is why
we think it is a prudent investment to spend $51 million this
year to save $190 million over the life of the lease.
And I look forward to discussing it with you further. Thank
you.
[The statement follows:]
Prepared Statement of Hon. Tom Wheeler
Chairman Boozman, Ranking Member Coons, and members of the
Financial Services and General Government Subcommittee, I am pleased to
appear before you to present the Federal Communications Commission's
fiscal year 2016 budget request.
Since first initiating a top-to-bottom management review last year,
the FCC's team has sought ways to streamline work, leverage assets, and
create more efficiencies. We have not shied from making difficult
choices, and you can see the results in our proposed fiscal year 2016
budget. This proposal reflects improvements in the FCC's operational
efficiency and a corresponding reduction in our full-time equivalent
(FTE) levels. Our requests for increased investments are largely short-
term costs like IT modernization efforts that will deliver long-term
savings and improvements in the agency's efficiency and effectiveness.
Most notably, this year's budget contains one significant cost where we
have very limited control--the agency's lease is expiring in 2017, and
we must initiate plans to transition to a less expensive real estate
option. With the pending lease expiration, this is no ordinary budget
cycle, and adjustments will be necessary.
Before diving into the fiscal year 2016 details, it is important to
acknowledge some baseline facts. Few, if any, Government agencies
deliver a better return on investment than the FCC. We do not require a
direct appropriation because we are funded entirely by fees collected
from those we regulate. The Commission not only pays its own way, but,
thanks to our world-leading auction capability, we also generate
significant revenue for the Treasury. Since 1994, our financial return
to the Government has equaled 13 times our combined operational costs.
For every dollar generated by the FCC, our agency uses only 8 cents for
its operations.
The Commission's spectrum auctions are one of the most significant
policy innovations of the past 25 years, and they continue to generate
billions of dollars and unleash massive benefits for our economy and
consumers. Already in the current fiscal year, we completed the most
lucrative spectrum auction in history. The AWS-3 auction generated $41
billion in net bids, and is expected to deliver over $20 billion toward
deficit reduction, as well as billions of dollars of funding for
nationwide public safety communications under FirstNet, and a range of
other programs mandated by Congress in the Middle Class Tax Relief and
Job Creation Act of 2012. The first-in-the-world Incentive Auction is
slated for 2016 and holds similar promise to spur economic growth and
innovation while raising billions for deficit reduction.
To build on this progress, and fulfill our statutory
responsibilities, the Commission is requesting $388,000,000 in general
spending authority derived from Section 9 regulatory fees for our
overall non-auction costs, up from $339.8 million in fiscal year 2015.
In addition, we are requesting an auctions cap of $117,000,000, an $11
million increase from last year, as well as the transfer of $25,000,000
from the Universal Service Fund (USF) to cover our costs for that
program. These are well-considered requests that reflect necessary
operational demands and the unique circumstances of this budget cycle.
If the Commission's lease were not expiring in 2017, our budget
proposal would look different and my presentation today would be
limited to a discussion of our team's better management practices,
significant IT improvements, and internal structural and processing
reforms. We would have been asking for a modest increase over last
year's funding level dedicated to completing the modernization program
of our IT systems--so we could start reaping the benefits of lower
costs and better services.
But our lease is expiring, and that is the biggest reason we are
requesting a budget increase. So let me address this issue up top. We
owe it to the American taxpayer to find the most cost-effective
solution for our housing costs. In the near-term, that will cost
money--an estimated $51 million for fiscal year 2016. These costs are
similar to recent agency moves like NIH and NLRB. Long-term, we will
use the move as an opportunity to create greater cost savings and
efficiencies by significantly reducing the Commission's footprint and
instituting new management techniques that encourage greater use of
shared space. Current projections show $13 million in annual savings
under a new lease and net savings of $119 million over the life of a
new lease. Yes, the costs will be significant for the coming year, but
they are an investment in a better overall deal for the American
people.
Since testifying before the House Financial Services Appropriations
Subcommittee in March, we hired a new staff person with significant
experience in agency relocations to assist us with this process. And
the new leasing option is just one example of the agency's commitment
to reviewing all of our policies and processes to improve efficiencies
and make sure the American people are getting the most bang for every
buck. We also already have initiated a space reduction plan to
consolidate all FCC headquarters staff in the main building of our
complex. This pre-move consolidation will result in cost avoidance and
savings in fiscal year 2016.
In addition, we recently circulated to all FCC Commissioners a rule
change related to our field office structure based on a comprehensive
consultant's evaluation of these facilities. Overall, the offices have
a one-manager-to-four-employee ratio and many have oversized rental
facilities, which are draining our resources. The consultant's findings
indicate that we can more efficiently deploy staff by decreasing the
number of managers and relying instead on an engineer-intensive ``tiger
team'' approach that makes better use of regional offices, including
pre-deploying equipment on the ground and partnering with other Federal
officials in remote areas. This plan, if accepted by my fellow
Commissioners, will lead to field office closures and significant
annual savings without diminished productivity. I look forward to
working with my colleagues to review and finalize this matter.
Even before the inclusion of these facilities plans, the FCC's
operations were the leanest they've been in recent history. During the
past 6 years--beginning after fiscal year 2009--the FCC has operated
under essentially flat funding levels for our non-auctions activities.
In fact, calculating the flat funding levels in light of inflation and
sequestration impacts shows that we have suffered actual reductions in
the purchasing power of our budget. Although our auctions cap increased
in fiscal year 2013--fiscal year 2015 after a 9-year flat cap, auctions
monies only offset auctions operations. We have mostly directed these
increases toward additional costs related to the broadcast incentive
auctions process.
Flat funding has led to difficult decisions on staffing, as with
the field facilities plan. Make no mistake; the FCC's greatest asset is
its people. While the professional quality is the highest it's ever
been, the quantity is at historic lows. We are currently at 1,708 FTEs,
well below the 20-year average of 1,877. Nonetheless, our fiscal year
2016 budget request is the first FCC budget in a decade that does not
seek more FTEs. Our fiscal year 2016 projections include a net 37 FTE
reduction, including an overall non-Office of Inspector General (OIG)
reduction of 45 (offset by an OIG increase of 8 FTEs). At this stage,
our Managing Director's Office is using a flexible process and only
fills positions opened through attrition after a complete analysis of
staffing needs.
We will continue to seek efficiencies that allow the FCC to
continue to perform its mission, but there are limitations. Seeking
even lower FTE levels could have adverse operational effects. While the
Commission's staffing and resources have been steadily shrinking, the
industries we oversee have continued to grow at a healthy clip. The
result is an increasing workload for a declining FTE base. For example,
in the licensing operations area since 2010, our FTE levels have
declined by more than 25 across several bureaus, versus steady growth
in licensing activity over that same time, so at some point licensing
operations could slow. The result--especially without IT system
upgrades--is slower licensing.
There are other reforms under way to reduce costs and increase
efficiency. We're steadily reducing our use of expensive contractors.
We are currently at 483, down from over 600 in 2012, and trending down
to 435 by the end of fiscal year 2016.
We are aware that the Commission's licensees will bear the brunt of
our programming costs, and we are continuing to ensure that we assess
fees in a fair and equitable manner. This past year, we reduced the
burden of regulatory fees on smaller businesses by increasing the de
minimis payment level. This action relieved approximately 2,500 small
licensees--those owing less than $500--from having to pay fees. We also
have recalculated the amounts due by different licensees to ensure
regulatory fairness, and we will continue to revise this process as
warranted by industry developments.
Here's an important point about all of these reforms: these are
management efficiencies we would be pursuing regardless of budget
levels. I am committed to modernizing and streamlining all agency
operations, because it's the right way to run an agency, not because
budget constraints demand it.
Building on this foundation of reforms, we are requesting an $84
million increase for fiscal year 2016. This increase has three key
components. First, there are ``unavoidable'' costs that account for 70
percent of this overall increase. Chief among these is the $51 million
that I mentioned for the agency's pending move. This amount also
includes adjustments for inflation, and a $1 million requested increase
for the Office of the Inspector General, bringing their budget to $12.2
million.
Second, we are seeking an additional $17 million for Information
Technology (IT) investments. Our commitment to improving the agency's
effectiveness goes hand-in-hand with the need to improve our IT
systems: numerous paper-based, manual processes exist at the FCC,
resulting in hidden, human-intensive costs that could benefit from
automation. Moreover, the costs of continuing business as usual with
these IT systems will undermine the financial stability of the
Commission. The Government Accountability Office has noted that Federal
agencies currently spend more than 70 percent of their IT budgets on
maintaining legacy systems. The FCC, like other agencies, has been
caught in this legacy trap; as of the end of fiscal year 2013, we were
trending well above even the Federal average of 70 percent. We have
tackled this problem head-on and targeted all available resources
toward modernizing our IT systems. We pulled together our remaining
funds at the end of fiscal year 2014 and reprogrammed $8.75 million to
support this process.
We identified our ongoing IT modernization as a management
imperative, both to support process reform efforts as well as to
improve cost efficiency, and our fiscal year 2016 budget request
reflects this emphasis. Our IT-focused management strategy--made
possible by the reprogramming granted by this subcommittee--has
delivered solid, early results. We are well on our way toward making
the necessary changes to ensure that our FCC.gov Web site is accessible
and user friendly for consumers and stakeholders. We have initiated a
process to move all onsite IT infrastructure to a secure, lower cost,
off-site service provider ahead of our 2017 required move, to realize
cost savings and improve system resiliency. We also rolled out the new
Consumer Complaint Database at one-sixth the traditional cost for such
a project, epitomizing many of the agency-wide changes that we hope to
implement--inexpensive, off-the-shelf solutions, combined with
resiliency, user-friendly options, and the potential to improve our
internal data collection methods to increase transparency and inform
policy-making decisions.
Still, limited funds have delayed many improvements and threaten to
cost us more each day that we are unable to move ahead. The specific
funds required are outlined in our fiscal year 2016 budget: $5.8
million to replace the FCC's legacy infrastructure with a managed IT
Service provider, as well as one-time infusions of $9.6 million to
rewrite the FCC's legacy applications as part of a modular ``shift'' to
a modern, resilient, cloud-based platform. Without this infusion of
funding in fiscal year 2016, we face the prospect of being unable to
follow-through on critical upgrades, costing those who we license
more--with far fewer benefits.
The third area of requested budget increases--about $7 million--are
aimed at satisfying congressional mandates. We seek $2.5 million to
ensure a smooth and legally compliant process for administering the
$1.75 billion fund for relocating broadcasters after the incentive
auction. We have asked for $250,000 to support the start-up of the Do-
Not-Call Registry and $600,000 for yearly maintenance. We also
requested $3,000,000 a year for updates and upkeep for the National
Broadband Map. Before the FCC inherited the program, NTIA had a direct
funding stream for this key nationwide broadband deployment resource.
The map attracted over 2.5 million hits in 2014 and we expect it to be
an important resource going forward. Funding for the FCC's programmatic
takeover will leverage previous investments with new approaches to
providing open access to government data.
In addition to these requested increases, the budget also proposes
aligning sources of funds with uses to maximize fairness. Given the
special circumstance of the large, move-based increase, the Commission
determined that fiscal year 2016 would be the optimal time to properly
align our USF expenditures with cost outlays. Accordingly, the fiscal
year 2016 budget proposes shifting USF funds to cover our salary and
compensation expenditures directly related to universal service
activities. With this funding realignment, we will make USF pay for
USF. It will reduce by $25,000,000 the Section 9 regulatory fee burden
on licensees with no universal service relationship. USF will pay these
costs instead of forcing entities such as local broadcasters and marine
licensees to pay for USF FTE activities at the Commission. Overall, it
would reduce Section 9 fee burdens by about six percent. For example,
the impact on a large-market broadcaster would be several thousand
dollars per year. It will take the pressure off of our other licensees
at a critical juncture and it will ensure that there is adequate
enforcement of USF programs.
The $25 million transfer will go a long way toward making certain
that we have a reliable funding stream for program oversight. Although
regulatory fairness supports this transfer request, the importance and
ongoing complexity of our universal service work underscores the need
for this funding. Universal access to communications has been at the
core of the FCC's mission since the agency was established 80 years
ago. With broadband increasingly necessary for full participation in
our economy and democracy, connectivity for all is more important than
ever. While the private sector must play the leading role in extending
broadband networks to every American, there are some areas where it
doesn't make financial sense for private companies to build. That's why
the Commission modernized USF to focus on broadband, establishing the
Connect America Fund--a process that this subcommittee has recognized
as an essential activity. Already, the Connect America Fund (CAF) has
made investments that will make broadband available to 1.6 million
previously unserved Americans.
The Commission approved the first major modification of E-rate--
another universal service program and America's largest education
technology program. We refocused the program away from funding 20th
century technologies like pagers and dial-up phone service toward
supporting 21st century high-speed broadband connectivity. In the
process, we moved to close the Wi-Fi gap by ensuring that over the next
2 years an additional 20 million students will have Internet access at
their school or library desk. Importantly, we took steps to improve the
cost-effectiveness of E-rate spending through greater pricing
transparency and by enabling bulk purchasing to drive down costs.
conclusion
I am proud of the Commission's fiscal year 2016 budget request. It
reflects our commitment to an efficient workforce, IT modernization and
returning resources to the Treasury. During the next fiscal year, the
Commission will have unprecedented opportunities to become a model for
excellence in government. At the same time, we will manage an essential
$8.8 billion USF program that brings broadband services to all
Americans. We will continue our work in developing and deploying
spectrum resources, while providing billions of dollars for important
public safety programs. With this Subcommittee's support, we will make
that happen.
I appreciate this subcommittee's attention to the Commission's
funding for the next fiscal year, and I look forward to answering your
questions. Thank you.
Senator Boozman. Thank you, Chairman Wheeler.
Commissioner Pai, you are welcome to give us your
testimony.
SUMMARY STATEMENT OF HON. AJIT PAI
Mr. Pai. Thank you. Chairman Boozman, Ranking Member Coons,
members of the subcommittee, it is a privilege to appear before
you today. Thank you for inviting me to testify on the FCC's
budget request.
This year, the FCC requests a 17 percent increase in its
overall budget authority, or a baseline budget of $413 million.
Although all commissioners are asked to vote on a budget
proposed by the chairman, I've not been asked to participate in
the development of this request, and I am unable to support it.
Here is some perspective. When the FCC faced the monumental
task of conducting 80 separate rulemakings to implement the
Telecommunications Act of 1996, the agency's baseline budget
after adjusting for inflation was only $277 million, or 33
percent less than this budget request. At a time when domestic
discretionary spending is generally scheduled to remain flat
under the current budget caps, I don't believe that this
request is fiscally responsible. At a time when median family
income in this country is still lower than it was in 2007,
Federal agencies should be looking for ways to tighten their
belts.
For these reasons, I would like to offer three specific
suggestions as the subcommittee crafts the FCC's fiscal year
2016 budget.
First, I do not favor transferring $25 million from the
Universal Service Fund, or USF, to the Commission to fund the
FCC's work. Wherever possible, money from the USF should be
spent across the country to realize the promise of universal
access to communication networks to every American, no matter
how rural, as Ranking Member Coons aptly put it, not here in
Washington on administrative expenses.
Second, funds for moving the FCC's headquarters should not
be included within the FCC's general budget authority. Instead,
Congress should give specific budget authority for this
purpose. If these funds are included within our general
appropriation amount, it will paint a misleading picture of the
Commission's baseline budget and make it harder to reduce that
budget when the need is no longer there to spend money on
moving expenses.
Third, Congress should deny the Commission the use of
appropriated funds to implement or enforce the plan the FCC
recently adopted to regulate the Internet. Whether applying the
general Internet conduct standard to new business practices,
drafting advisory opinions in the enforcement bureau, or hiring
a new ombudsperson for the Internet, the Commission will spend
a lot of money and time applying regulations that are wasteful
and unnecessary and that are already proving harmful to the
American public.
Given that the FCC is struggling to fulfill core
responsibilities under the Communications Act, it is
irresponsible to spend millions of dollars regulating the
Internet.
Outside the budget, there is another issue with a fiscal
impact that I would like to discuss this morning. The FCC must
take immediate action to end abuse of the Designated Entity
(DE) program. What was once a well-intentioned program designed
to help small businesses has become a playpen for corporate
giants.
The FCC's recent Advanced Wireless Services (AWS-3)
spectrum auction is a shocking case in point. Earlier this
year, the FCC disclosed that two companies, each of which
claimed it was a ``very small business'' with less than $15
million in revenues together won over $13 billion in spectrum
licenses. Those very small businesses are now claiming over $3
billion in taxpayer-funded discounts.
How could this be? DISH Network, which has annual revenues
of approximately $14 billion and a market capitalization of
over $31 billion, has an 85 percent ownership stake in each of
those supposedly small businesses.
To be frank, I'm appalled that a corporate giant has
attempted to use small-business discounts to rip off American
taxpayers to the tune of $3.3 billion. This is money that
otherwise would have been deposited into the U.S. Treasury, and
it could've been used to fund over 581,000 Pell grants, to pay
for the school lunches of over 6.3 million schoolchildren for
an entire school year, or to extend tax credits for the hiring
of over 138,000 veterans for the next decade. As appropriators,
as taxpayers, you know that this is real money.
The DISH entities' applications are pending before the FCC.
If DISH didn't comply with FCC's rules, we must reject any
discounts. And going forward, the FCC must fundamentally reform
the DE program to prevent big business from ripping off the
American taxpayer ever again. The American people deserve no
less.
Chairman Boozman, Ranking Member Coons, members of the
subcommittee, thank you once again for inviting me to testify.
I look forward to answering your questions and to working with
you and your staff in the days to come.
[The statement follows:]
Prepared Statement of Hon. Ajit Pai
Chairman Boozman, Ranking Member Coons, and members of the
subcommittee, it is a privilege to appear before you today. Thank you
for inviting me to testify on the work of the Federal Communications
Commission.
Prior to becoming a Commissioner, I had the opportunity to serve on
the agency's staff. Every member of my Office has also previously been
a Commission staffer. And I have many friends who currently work in the
Commission's Bureaus and Offices. There will probably be disagreement
over some of the issues that we will discuss today. But I hope that we
will be able to agree on one thing: The FCC's staff is filled with
talented individuals who are dedicated to serving the American people.
Today, I will focus my remarks on three specific topics: the FCC's
fiscal year 2016 budget, rural broadband deployment, and recent abuse
of the designated entity program.
Fiscal Year 2016 Budget.--Although all Commissioners are asked to
vote on a budget proposed by the Chairman that is delivered to the
Office of Management and Budget, I have not been asked to participate
in the development of the agency's budget request. And after reviewing
this proposal, I am unable to support it.
To be sure, this subcommittee should give the FCC the resources
necessary to carry out its core responsibilities. We tackle a wide
variety of tasks assigned by Congress, from freeing up more spectrum
for mobile broadband to protecting public safety. But in its request,
the FCC asks for a 17 percent increase in its overall budget authority.
In all, the Commission is requesting a baseline budget of $413 million.
That is dramatically higher than it has been at watershed moments
in the agency's history. For instance, the agency's baseline budget,
after adjusting for inflation, was $277 million (or 33 percent less
than this budget request) when it faced the monumental task of
conducting 80 separate rulemakings to implement the Telecommunications
Act of 1996.
At a time when domestic discretionary spending is generally
scheduled to remain flat under the current budget caps, I do not
believe that this request is fiscally responsible. And at a time when
so many Americans in this country are struggling to make ends meet in
this stagnant economy (median income is lower now than it was in 2007),
Federal agencies should be looking for ways to tighten their belts.
For these reasons, I would like to offer three specific suggestions
as the subcommittee crafts the FCC's fiscal year 2016 budget. First, I
do not favor transferring $25 million from the Universal Service Fund
(USF) to the Commission to fund the FCC's work. Wherever possible,
money from the USF should be spent across the country to realize the
promise of universal access to communications networks, not here in
Washington, DC on administrative expenses. Moreover, this $25 million
transfer is a stealth tax increase on the American people.
Second, I do not believe that funds for moving the FCC's
headquarters or reorganizing how we use our existing facilities (known
internally as ``restacking'') should be included within the FCC's
general budget authority. If these funds are included within our
general appropriation amount, it will give many a misleading picture of
the Commission's baseline budget and make it harder to reduce that
budget when there is no longer the need to spend money on moving
expenses. Instead, I believe that Congress should provide us with
specific budget authority for this purpose.
Third, Congress should forbid the Commission from using any
appropriated funds to implement or enforce the plan the FCC recently
adopted to regulate the Internet. The implementation and enforcement of
these new rules will not only impose significant burdens on the
Nation's 4,462 Internet service providers and harm American consumers;
they will also consume substantial FCC resources. Whether applying the
general ``Internet conduct'' standard to new business practices,
drafting advisory opinions in the Enforcement Bureau, or hiring a new
Internet ``Ombudsperson,'' the Commission will expend substantial
resources implementing and enforcing regulations that are wasteful and
unnecessary, and are already proving harmful to the American public.
For example, KWISP Internet, which serves 475 customers in rural
northern Illinois, has told the Commission that because of the
regulatory uncertainty and costs created by the FCC's decision, it
plans to delay network upgrades that would have upgraded customers from
3 Mbps to 20 Mbps service, new tower construction that would have
brought service to unserved areas, and capacity upgrades that would
reduce congestion for existing customers.
At a time when the FCC is struggling to fulfill many of its core
responsibilities under the Communications Act, it is irresponsible for
the Commission to spend millions of dollars to regulate the Internet.
This subcommittee is well aware that budgets are finite. Funds spent on
diversions like regulating the Internet are funds that can't be spent
on critical priorities. Instead of trying to fix something that isn't
broken, let's use our limited budget to fix something that is broken,
such as the Commission's Lifeline program.
Lifeline.--The Lifeline program has a noble purpose. And for about
a couple of decades after its inception in 1985, the program was
generally free of substantial controversy. During the last
administration, for example, Lifeline grew at an annual rate of just
2.1 percent in real terms. Unfortunately, things quickly changed
thereafter.
From the end of 2008 to 2012, the size of the program exploded from
$819 million to $2.19 billion, an increase of 25.9 percent a year in
real terms. This growth was fueled by substantial fraud and abuse.
Phone companies were claiming subsidies for phantom customers or
siphoning multiple subsidies for the same person. And some consumers
were apparently signing up with every Lifeline company around. A 2013
FCC investigation identified 306 individuals, each of whom had signed
up for at least four Lifeline accounts--some actually had 11 accounts
in their name!
The good news is that State regulatory commissions took notice, and
eventually the FCC did as well. In 2012, the FCC adopted new rules
designed to reduce some of the waste, fraud, and abuse of the program.
For example, the agency created a National Lifeline Accountability
Database to prevent multiple carriers from getting subsidies for the
same customer. Those initiatives have proven to be a useful start. For
instance, in 2014, the Lifeline cost program $1.6 billion. This was a
drop from 2012--but still twice as high as it was in 2008 before the
abuse began.
There's much work yet to be done to effect real reform of the
Lifeline program.
First, the time has come to put Lifeline on a budget just like we
have done for every other program under the Universal Service Fund.
It's as true for a Federal program as it is for a family: A budget
induces careful spending. A Lifeline budget will increase incentives to
eliminate fraud and improve accountability within the program. Placing
a cap on Lifeline spending will also prevent any future explosion in
spending without direct Commission accountability.
Second, we must reduce the financial incentives for people to
commit Lifeline fraud. Lifeline was not designed to give people free
phone service. It was intended to provide low-income consumers with
discounted phone service. And the recent shift to free wireless service
plans has dramatically increased the incentive for individuals to break
the FCC's rules by signing up for the program more than once.
Most importantly, we need to stop wireless carriers participating
in Lifeline from giving away free phone service. Instead, recipients
should make some monthly contribution. Requiring some ``skin in the
game'' would align the Lifeline program with our other universal
service programs, each of which requires some contribution by
recipients to cut down on waste, fraud, and abuse.
Next, we need to empower the states to police the program. The
Lifeline program has historically been a Federal-State partnership,
with states offering their own funds to supplement the Federal program
and doing their part to squelch misconduct. Nothing in the law prevents
the FCC from clarifying that states are free to take appropriate
measures to ensure the integrity of the program.
Third, the FCC must step up its enforcement efforts. Under former
Chairman Clyburn and during the first few months of Chairman Wheeler's
tenure, the FCC proposed substantial forfeitures against carriers for
allegedly violating our Lifeline rules. But there's been only
scattershot action ever since; as Senator McCaskill put it at a recent
hearing, ``we've had some enforcement, [but] there hasn't been much in
a year.'' The waste, fraud, and abuse haven't stopped--and we shouldn't
either. Now is the time to make fighting Lifeline fraud a priority
again.
And fourth, there's been much talk about expanding Lifeline to
cover broadband. Before we do that, however, we need to do our due
diligence. The Commission has already held a pilot program to test out
subsidies for broadband and how that impacts adoption. But we still
haven't seen the results.
Before there's any discussion of expanding the program to
broadband, we have to finish that report and give Commissioners and the
American public a meaningful opportunity to study it and provide their
feedback. After all, the most definitive study of broadband adoption to
date suggests that two thirds of non-adopters wouldn't subscribe to
broadband at any price. So we need to be cautious about expanding the
Lifeline program and make sure we're really getting a bang for the
taxpayer's buck.
Rural Broadband.--Although the Communications Act of 1934 is not
perfect, it does make an important promise in its very first sentence:
Congress created the Federal Communications Commission to ``make
available, so far as possible, to all the people of the United States .
. . a rapid, efficient, Nation-wide, and world-wide wire and radio
communication service with adequate facilities at reasonable charges.''
We at the FCC need to take this promise seriously. We must
recognize that broadband operators in rural America today face unique
challenges. Unlike the urban environment, rural carriers must carefully
plan their infrastructure over a 10- or 20-year time scale if they are
to recover their costs. Congress recognized this reality in section 254
of the Act, embedding the statutory command that universal service
support be ``predictable.''
The good news is that in 2011, the Commission fundamentally
reoriented the Universal Service Fund to support broadband, rather than
just telephone service. It also set a budget for the high-cost fund and
laid out the steps that were needed to move forward with
implementation.
The bad news is that we're behind schedule. The Universal Service
Transformation Order promised to start distributing support through the
Connect America Fund Phase II, the Mobility Fund Phase II, and the
Remote Areas Fund in 2013. But only last month did we finally make our
State-level offers to price-cap carriers, and this means merely that
we've gotten through Part 1 of the CAF Phase II process. We still need
to establish the rules for Part 2--competitive bidding--and the
timeframe for doing that is uncertain. We're even further behind when
it comes to the Mobility Fund Phase II and the Remote Areas Fund.
We're also behind when it comes to fixing known problems with the
Universal Service Fund. A good example of this is the stand-alone
broadband problem. Through a quirk of regulatory history, our rules
offer universal service support to carriers that build out broadband,
but only when they bundle their broadband services with traditional
telephone lines. That system has increasingly come under strain as
consumers flee landlines in favor of wireless and Internet-based
alternatives. Indeed, it has put some carriers to a Hobson's choice.
Either they offer stand-alone broadband--which urban consumers have and
rural consumers want--and lose universal service support, or they deny
consumers a broadband option and risk the customer dropping service
altogether. Perversely, it's more profitable for some carriers to lose
a customer entirely than retain him or her as a stand-alone broadband
customer. The net result is that rural carriers hold back investment
because they are unsure if they can deploy the services that consumers
are demanding.
A stand-alone broadband funding mechanism would correct this
vestige of our outdated rules. I was pleased last June that my
colleagues agreed with my suggestion to propose such a mechanism for
rate-of-return carriers serving the highest-cost reaches of our
country. It would give consumers a real option of choosing whether they
want to purchase broadband and telephone service from the same company.
It would give carriers more assurance that legacy regulations won't
prevent them from responding to consumer demand, thus increasing
broadband deployment. And it could be done within the existing budget,
something everyone with a phone line can celebrate. We need to live up
to our commitment to get this done by the end of the year.
The to-do list regarding the Universal Service Fund goes even
further. We should implement the 100 percent overlap rule to ensure
that universal service funds are targeted to unserved areas rather than
where the private sector has already deployed. We should commence a
rulemaking to deal with the unique challenges of rural broadband
deployment in Alaska. We should move forward with a voluntary path to
model-based support for interested rate-of-return carriers. We should
stop spending universal service funds to increase rural telephone rates
and get rid of the ``rate floor'' that penalizes rural areas but not
big cities like Washington, DC. And more.
To be clear, none of this is meant as criticism of our hard-working
staff. Deputy Chief of the Wireline Competition Bureau Carol Mattey and
the members of the Telecommunications Access Policy Division have done
yeoman's work over the past several years, modelling the costs of
deploying a next-generation network, sifting through complicated waiver
petitions, and poring over countless competing claims that a particular
census block is served by broadband (or not). They represent the best
of public service.
Instead, I believe that the Commission has embraced the wrong
priorities. Rather than focusing for the last year on adopting Internet
regulation--a solution that won't work to a problem that doesn't
exist--we should have concentrated on ensuring that we have truly
universal broadband deployment. Digital opportunity for millions of
Americans hangs on our decisions on rural broadband. Even if their
plight doesn't grab headlines, we have a responsibility to hear them. I
believe that no part of rural America should miss the broadband
revolution while waiting for the regulatory dust to settle. And so I
hope the Commission--not just the staff, but the full Commission--will
be moving forward soon on all these fronts to facilitate more rural
broadband.
DE Program.--The FCC must take immediate action to end abuse of the
designated entity program. What was once a well-intentioned program
designed to help small businesses has become a playpen for corporate
giants.
Here's how the program was supposed to work. When Congress first
granted the FCC auction authority in 1993, its goal was to help small
businesses--``designated entities'' in FCC parlance--compete for
spectrum licenses with large, established companies. A small business
that lacked the funding to outspend a large corporation could bid, say,
$100,000 for a license but end up paying only $75,000. In effect, a
Federal subsidy would cover the remaining $25,000.
Perversely, this well-intentioned program now helps Goliath at
David's expense. Small business discounts are now being used to give
billions of dollars in taxpayer-funded subsidies to Fortune 500
companies and to make it harder for legitimate small businesses to
compete in the wireless market. A bipartisan, bicameral chorus in
Congress has raised concerns about this state of affairs. And the
public is taking notice as well. For instance, Americans for Tax
Reform, the Communications Workers of America, and the NAACP have all
pointed out that big businesses are now abusing the program and driving
out legitimate small and minority-owned businesses.
The FCC's recent AWS-3 spectrum auction is a shocking case in
point. Earlier this year, the FCC disclosed that two companies, each of
which claimed it was a ``very small business'' with less than $15
million in revenues, together won over $13 billion in spectrum licenses
and are now claiming over $3 billion in taxpayer-funded discounts. How
could this be? DISH Network Corp. has an 85 percent ownership stake in
each (not to mention highly intricate contractual controls over each).
Allowing DISH, which has annual revenues of approximately $14 billion
and a market capitalization of over $31 billion, to obtain over $3
billion in taxpayer-funded discounts makes a mockery of the small
business program. Indeed, DISH has now disclosed that it made
approximately $8.504 billion in loans and $1.274 billion in equity
contributions to those two companies--hardly a sign that they were
small businesses that lacked access to deep pockets.
I am appalled that a corporate giant has attempted to use small
business discounts to box out the very companies that Congress intended
the program to benefit and to rip off American taxpayers to the tune of
$3.3 billion. This is money that otherwise would have been deposited
into the U.S. Treasury. This is money that could be used to fund
581,475 Pell Grants, pay for the school lunches of 6,317,512 children
for an entire school year, or extend tax credits for the hiring of
138,827 veterans for the next 10 years. As appropriators, you know that
this is real money.
And it is certainly not too late to ensure that the Treasury gets
it. The DISH entities' applications are pending before the FCC. If it
turns out that DISH did not comply with the FCC's rules, the agency
must deny them these discounts. The American people deserve no less.
DISH's abuse of the program during the AWS-3 auction also had an
enormously negative impact on real small businesses. Small, rural
operators throughout our country recently explained that the DE program
is having a ``devastating impact'' on their ability to obtain spectrum
and compete. Here are just a few examples:
--Rainbow Telecommunications Association, Inc. (0.098 percent of
DISH's size) provides communications services to rural parts of
Kansas. Rainbow was the provisionally winning bidder for one
license that would have allowed it to serve parts of Kansas,
but it was outbid by a DISH entity claiming a taxpayer subsidy.
As a result, it did not win a single license in the auction.
--Pioneer Telephone Cooperative, Inc. (0.107 percent of DISH's size)
serves rural parts of Oklahoma. Although Pioneer won three
licenses in Oklahoma and Kansas, it was outbid by a DISH entity
claiming a taxpayer subsidy for another license that it could
have used to serve other parts of Oklahoma.
--Geneseo Communications Services, Inc. (0.112 percent of DISH's
size) serves rural parts of Illinois. Although Geneseo won two
licenses in Illinois, it was outbid by DISH entities claiming
taxpayer subsidies for four other licenses that Geneseo could
have used to serve different parts of Illinois.
In every one of these cases, the small businesses that the DISH
entities outbid either claimed no taxpayer-funded discounts or ones
that were smaller than those claimed by DISH.
These examples are just a small part of a much broader story. There
were over 440 licenses in the auction for which the DISH entities
outbid smaller companies or ones that were not providers of nationwide
service that had been winning the licenses. That's more than three
times as often as those providers were outbid by AT&T, Verizon, and T-
Mobile combined.
The FCC must take action to ensure that this abuse never happens
again. We took the first step last month with a public notice that tees
up a wide range of proposals that, if adopted, would end this corporate
welfare. I want to thank my colleagues for accommodating my request
that we put all options on the table--including strictly limiting how
much large companies can invest in a designated entity, capping the
taxpayer subsidy that any designated entity can obtain during an
auction, prohibiting coordinated bidding, and fundamentally revising
our attribution rules.
If we are going to heed the lessons of the AWS-3 auction, the work
cannot end there. I look forward to working with my fellow
Commissioners and Congress to ensure that we implement fundamental
reforms to the program. We must have a singular focus in this
proceeding: We must close any loopholes that could allow big business
to rip off the American taxpayer, not create new avenues for abuse, as
the FCC proposed last year over my dissent. And if, in the face of
recent experience, the FCC does not follow through to crack down on
abuse of the designated entity program, then Congress must act.
Chairman Boozman, Ranking Member Coons, and members of the
subcommittee, thank you once again for holding this hearing and
allowing me the opportunity to speak. I look forward to answering your
questions, listening to your views, and working with you and your
staffs in the days ahead.
Senator Boozman. Thank you, Commissioner Pai.
FCC BUDGET
Let me ask you, and you touched on this, the FCC's 2016
budget request contains spending increases of more than $73
million. This represents a 22 percent increase above current
levels. In your testimony, you said that you did not support
that.
Are there any areas where you believe the FCC should shift
resources from current activities to pursue other priorities?
Mr. Pai. Thank you for the question, Mr. Chairman. I do
think that there are other areas that would benefit from more
and more sustained FCC attention.
For example, weeding out waste, fraud, and abuse in the
Lifeline Program and comprehensively reviewing the rules that
apply to Lifeline, making sure that we have a standalone
mechanism for supporting broadband in rural America. That has
been on the shelf for a couple years. It would be great to get
that kick-started.
Additionally, freeing up more spectrum for both licensed
and unlicensed use, particularly in the 5 GHz band.
Implementing more reforms to our rules to make sure there are
fewer barriers to infrastructure investment, accelerating what
I call the IP Transition.
Finally, providing long-needed relief to the AM radio band.
There are a lot of great AM broadcasters around the country who
have been dying for relief for 22 years, and the FCC could
focus on that.
There are a number of different areas like that that I
think could benefit, if the FCC focused on it.
Senator Boozman. How has the agency focus on Internet
regulation affected its allocation of resources?
Mr. Pai. Mr. Chairman, I think there's no question it has
diverted a substantial amount of staff hours and financial
resources toward what was essentially a discretionary project.
I've often said that net neutrality was a solution in search of
a problem. The Internet wasn't broken before the FCC tried to
fix it.
But nonetheless, the agency has spent an inordinate amount
of time producing what ended up being over 300 pages of
regulations, which are going to have to be implemented and
enforced in coming years. It is going to have to litigate those
issues in the courts. That has detracted from the core purpose
of the FCC under section 1, which is to realize the promise of
communication services for every American.
So if we focused on rural broadband, if we focused on
providing more resources to schools and inner cities, there are
many things we could do to increase broadband deployment, but,
unfortunately, net neutrality has been a diversion.
RURAL BROADBAND SERVICE
Senator Boozman. Chairman Wheeler, following up on that,
earlier in the year, all five FCC commissioners promised the
Senate Commerce Committee that, by year's end, they would
complete the rate-of-return USF reforms to allow support for
standalone broadband. This is an effort that the commissioners
support. This is something I think the subcommittee supports.
These are the areas that we are really looking for so that we
can make a difference.
Could you update us regarding the status of that effort?
Mr. Wheeler. Yes, thank you, Mr. Chairman.
First of all, I don't change one comma in the commitment
that we will have this done this year. Three of the five
Commission offices, mine included, actually sat down with the
rate-of-return carriers to begin to work through the process of
just how you build this new model to make sure that we are
delivering broadband by rate-of-return carriers.
The challenge in this is that there are going to be puts
and takes for individual companies, and we are trying to say
how we keep our eye on the ball, which is to deliver broadband
in rural areas, and, at the same point in time, not create
exigencies that unnecessarily burden those companies that are
trying to provide that kind of service.
I think we have made good progress. I expect that we will
be moving toward a new model that we will release and propose
shortly. But we are dedicated to the proposition, and we are
going to get this done.
Senator Boozman. And ``shortly'' is like the next month or
two?
Mr. Wheeler. It is by football season.
FEE STRUCTURE
Senator Boozman. I can relate to that.
Let me ask you, despite rapid changes in the marketplace,
the FCC has not substantially updated the regulatory fee
structure. Will you commit to updating the way your agency
collects regulatory fees to ensure the fees are equitably
spread throughout the industries that the FCC regulates?
Mr. Wheeler. Yes, Mr. Chairman. That is an ongoing effort.
What we are trying to do is we are trying to peg the regulatory
fees to the expenses that are associated with them. And this is
one of the things that is at the heart of this Universal
Service Fund issue that we have been talking about, because
broadcasters are paying for the administration of universal
service, as well as other licensees that don't participate in
universal service. So how do you make sure that there is a
relationship between that which you get charged and the
services that you receive?
We have also moved to reduce the burden on small
businesses. If your fee is less than $500, you shouldn't have
to hire some lawyer or accountant for a couple thousand bucks
to make your filing for you. So we have just eliminated that
altogether.
But yes, to your specific question, changing how we do fees
is a very important part of what we are doing.
Senator Boozman. Commissioner Pai, would you like to
comment on that?
Mr. Pai. Mr. Chairman, I share the chairman's vision of
making sure that our regulatory fee structure is calibrated to
the realities in the marketplace as it stands. And without
revealing nonpublic information, what I can say is that the
Commission is on the brink of making additional progress toward
that goal.
Senator Boozman. Senator Coons.
Senator Coons. Thank you, Chairman Boozman. I appreciate
the opportunity to continue some of this conversation.
If I could, I mentioned in my opening statement that I'm
very interested in the incentive auction and the auction funds.
So, Chairman Wheeler, if you would start? Congress authorized
the FCC to conduct three different auctions in 2012. You are
preparing for the third, the voluntary incentive auction.
Could you just go into a little bit more detail about why
this is so much more complicated and how the aging IT
infrastructure the FCC continues to operate with is, in some
ways, a barrier to a successful auction; and whether you expect
to meet the goals of starting the auction, making spectrum that
is badly needed ideally suitable for mobile and broadband by
early 2016; and how you will ensure that broadcasters might be
made whole, while maximizing the spectrum auction?
Mr. Wheeler. Thank you, Senator.
Senator Coons. Just a few questions.
Mr. Wheeler. That laundry list there kind of lays out
exactly why this is a big undertaking.
I mean, I keep calling it a Rubik's cube, because what we
are doing is we are going into the marketplace to buy spectrum
from broadcasters. Then we will turn around and repurpose it,
and sell it in a forward auction for the wireless carriers.
But that center ring in the Rubik's cube is where the real
action takes place, because as the amount coming in varies, as
somebody says, okay, I'm out of the auction now, you have to
have real-time rebanding that determines what you are
auctioning out there. That goes to your software point.
And I'll be very candid, sir, and say that when I walked
into this job about 18 months ago, I sat down with the team,
which is a terrific team that is doing this. I mean, this has
never been tried before in the world, okay? The policy issues
and how they are going through this is terrific, but I said,
hey, folks, I used to run software companies, and I'm worried
about this software component, and I'm worried about our
ability to have the IT infrastructure that can do the job.
So I requested a 6-month delay, so that we could get that
right. We are going to have this auction the first quarter of
calendar year 2016. The software is going to work. I actually
just had a briefing on it last week. We had a red team working
on it. We are actually trying to run this like a software
company. And I'm confident that we are going to have a
successful auction in the first quarter of 2016.
Senator Coons. That's encouraging, and I would appreciate
your talking a little bit further, if you would, about how
proactive investments in dealing with aging infrastructure on
the IT side and proactive investments, although significant, in
a relocation may actually net positive to the taxpayer over
time, but why some of the government accounting rules require
you to do so in a lump sum upfront.
Mr. Wheeler. Thank you, Senator. Let's separate the real
estate from the IT aspect.
On IT, we have 100,000 unique datasets in the agency that
have grown kind of like topsy over the years. Somebody says,
``Hey, I need,'' and something gets created. We have 207
different platforms that don't speak to each other. The
maintenance of those alone is an expensive proposition.
If we can rationalize all of those, put them in the cloud,
have a common platform, we are going to be able to reduce FTEs
that support them and, even beyond that, the consultants you
have to bring in to do the fix on this or the fix on that, but
you need someone that is a specialist on this because you
haven't built the program.
So for instance, we did an update using our new approach of
our consumer site, that we brought in for a fraction of what
the consultant said he would charge us. And we want to do that
across the whole agency. So that is on the IT side.
On the real estate side, when I did real estate deals,
normally, you would just take the buildout cost and everything
and amortize them over the course of the lease. Obviously, the
owner of the building makes a little more in that process. The
government says, no, that is not the way we do things. The way
we do things is we pay them upfront, because that is what is
best for the taxpayer.
It's going to cost us upfront $51 million this year to save
$190 million over the course of a lease. I think that's a good
investment, sir.
Senator Coons. Commissioner Pai has raised a concern that
if we approve or authorize appropriations, that that will in
some way distend future considerations of what the base budget
is. Is that a legitimate concern? Is that a reason not to do
this?
Mr. Wheeler. I don't think it is a reason not to do it. I
think Commissioner Pai's idea that it should be segregated and
flagged as this is just what it is, is a terrific idea.
Senator Coons. Commissioner Pai, any input you would like
to offer on IT investments, the voluntary auction, or that last
question about how to best ensure that taxpayers receive
benefit and yet appropriators get a reasonable baseline going
forward?
Mr. Pai. Thanks for your question, Senator.
Turning first to the voluntary incentive auction, I believe
that we have to get this right. Congress gave us only one
chance to get it right, so I think it is critical that we get
it right instead of getting it done based on a particular
deadline.
In terms of getting it done right, I have three general
buckets of concern. One is that we tend to be making the
incentive auction more complicated than it already is. As the
chairman has aptly pointed out, it is sort of like a Rubik's
cube, making it all fit together.
But there are different proposals on the table--for
example, dynamic reserve pricing, the variable band plan,
different spectrum blocks with different levels of impairment
that people are going to have to figure out--that are going to
make it even tougher for broadcasters and wireless companies to
make the decision to come to the table and to come to the table
with sufficient resources.
Secondly, I think there are also some pretty important
technical questions that need to be ironed out. For example, as
the chairman pointed out, how do we know the repacking software
is going to work in crunch time? Similarly, what types of uses
should be allowed in the guard band? That is something that
engineers have to inform us about.
And then the third bucket are other factors outside of our
control. We have heard from a number of carriers and from the
capital markets that, given the amount of money that was
unexpectedly raised in the AWS-3 auction, it might be difficult
for some of the carriers to turn around on a dime and
participate as robustly as we would like them to in the
incentive auction.
So as to how each of these three items play out, I am
agnostic in terms of the timing, but I think it is critical for
us to sort them out, regardless of the timeline, to make sure
that we manage to meet Congress' expectation for this auction.
Senator Coons. Terrific. Thank you.
Senator Boozman. Thank you, Senator.
Senator Moran.
Senator Moran. Mr. Chairman, thank you and Senator Coons
for having this hearing.
When I was in the position of Senator Coons as the ranking
member, it had been 9 years since the FCC had testified in
front of this subcommittee. Chairman Powell came that year, and
we have had the FCC in front of us every year since. I think it
is one of the most important agencies this subcommittee has
jurisdiction over, and I thank you for conducting this hearing.
I thank the chairman and the commissioner for joining us.
Chairman Wheeler, over the last week, I've asked several
people who come into contact in their business lives with the
FCC as to what questions they would like me to ask of you. The
ultimate and best suggestion was, whatever you do, ask for a
yes or no answer, and I'm going to try to do that as often as I
can, although now I am the one who is using up my time.
INCENTIVE AUCTION
Senator Coons asked a question about the incentive auction,
and what I heard you say is that you are confident that the
auction will occur early in 2016. That is a yes?
Mr. Wheeler. That is a yes.
Senator Moran. My question that follows that then, you have
been having meetings with broadcasters, and do you believe they
now have the information necessary to make an informed decision
whether or not to participate in that auction?
Mr. Wheeler. For the most part, yes, but we are not
complete in the set of rules that we are developing. We'll get
those done in the next couple months, and then they will have
the information.
Senator Moran. And do you have an ability at this point to
predict how interested the broadcasters are in allowing their
spectrum to be auctioned?
Mr. Wheeler. Oh, wow, predicting a market. I can say that
there has been great interest. I've had major broadcast CEOs in
my office saying that they are seriously looking at whether or
not they would put their spectrum up.
I think that there is great interest in participating in
the auction, but we won't know until we open the doors.
UNIVERSAL SERVICE FUND REFORMS
Senator Moran. Likewise, Senator Boozman asked a question
about rural broadband. I want to focus on the Universal Service
Fund and the circumstance we find ourselves in.
First of all, I am pleased to see that we are moving in a
correction toward the order that was entered prior to your
arrival, Mr. Chairman. In your visit with me at the time of
your confirmation, you committed to reforming the reforms. And
I would like to see that continue expeditiously with a great
deal of common sense and a sensitivity toward how rural the
country is and how small many of those providers are.
One of the things that I would like to ask about this
morning, though, is the Universal Service Fund. In so many
instances, the landline is no longer the desired option by the
customer, and yet the Universal Service Fund collects money on
that service, but we need that money to be used to deploy
broadband in rural America.
What is the plan to transition the Universal Service Fund
phone support to help support broadband, so that rural
customers can access that broadband at comparable and as
affordable rates as urban areas?
Mr. Wheeler. Thank you, Senator.
First of all, I want you to know that I will continue to
live up to that commitment to you. I think I came right in and
said this QRA stuff, which you and I had a long discussion
about, is ridiculous, and it's gone.
Senator Moran. Thank you.
Mr. Wheeler. And as I said earlier, we are in the process
of looking at just how we put together a rate-of-return
package. I agree that it doesn't make much sense to have the
linkage between narrowband and broadband, and I know
Commissioner Pai and I are in violent agreement on that point.
Senator Moran. Nice to see.
Mr. Wheeler. The difficulty is, it is harder than just
cutting the cord here, because we need to make sure that we are
not just supporting existing broadband, but we are also
providing funds to the unserved areas. And how we get that
right is essentially what we are going through right now.
But we need to cover more of rural America, and we will do
that, and we are doing it in this order, in the other order
that Commissioner Pai and I both just voted favorably for a
couple months ago, and we just actually took the action a
couple weeks ago, we released $10 billion to be spent over the
next 6 years by 6 companies in the price-cap carrier
arrangement. And then we have put in behind that a structure
that says that those areas they are not going to serve, we are
going to auction off. We are going to put auctions back to
work, to say, okay, who wants to serve this area and what will
it cost to serve it?
So one of the things we are going through, we are going
through both changing the existing models that people are used
to working with, and the problem, as I said before, that's
gazintas and gazoutas that affects companies, but also changing
the overall construct and saying it is not just your father's
USF program anymore.
We want to look at bringing new people in. We want to look
at having markets decide things by auction. And that is what we
are committed to doing.
Senator Moran. If the industry could come up with a plan to
present to you, is there a way that that would be considered
within the FCC?
Mr. Wheeler. Yes, sir. That was essentially what we were
saying when the three commissioners' offices got together with
them. Where you stand depends on where you sit, sir. We have to
make sure that everybody understands they are sitting in the
same place.
Senator Moran. How long do you see a transition taking?
Mr. Wheeler. A transition to?
Senator Moran. A transition to that form of broadband
support?
Mr. Wheeler. I hope that we can have the plans in place
this year.
Senator Moran. Let me ask just about call completion.
Mr. Wheeler. Yes, sir.
Senator Moran. What progress is or isn't being made?
Mr. Wheeler. So there are three components to call
completion.
One is enforcement. We fined Windstream $2.5 million. We
fined Level 3 almost $1 million.
The second is that they had this fraudulent activity going
on where you would hear a ring even though the call wasn't
being completed. And we have passed a rule, and Commissioner
Pai and I again worked together on this, to make that illegal
and to be able to take enforcement actions against that.
Then the third question becomes, okay, beyond that, how do
we quantify what is going on? So we have a data inquiry out to
the affected carriers right now, saying we want to know what
happens about this. That will help us define what further steps
we need to take.
Senator Moran. When will you be able to share that report?
Mr. Wheeler. I hope, again, that is something that will be
done toward the end of this year.
Senator Moran. A busy year, Mr. Chairman.
Mr. Wheeler. Yes, sir.
Senator Moran. Commissioner Pai, I intended to ask you to
respond to anything you wanted to respond to. My time has
expired. With the chairman's indulgence, Commissioner Pai,
anything you would like to respond on to the questions I asked
the chairman?
Mr. Pai. Sure. I will just build on briefly to the
chairman's answer with respect to the mechanism for supporting
standalone broadband.
STANDALONE BROADBAND
This is something that we long had a colloquy about. We've
seen it for ourselves in Kansas.
The need is acute, and we need to get this done. I join the
chairman in both my commitment to getting it done and
commitment to finishing the project by the end of the year.
This is part of the reason why I proposed support for
standalone broadband a couple years ago, because these carriers
have a Hobson's choice. They either go it alone with standalone
broadband without USF funds or they risk losing the customers.
And I'm glad that, on a bipartisan basis, we teed up a lot
of these issues, including how the mechanisms should be
structured, and there was a proposed rulemaking last June.
We teed up a number of other different proposals in that
same NPRM, as it's called. But we need to be clear. We don't
need a second path for carriers. We don't need an elegant
mathematical model. We don't need a follow-up to QRA, which I'm
grateful to the chairman for scrapping.
What I am increasingly optimistic about is that we can
adopt targeted reforms to our rules, in particular, our part 36
and part 54 accounting rules. That regulatory tweak, which we
have all the legal authority in the world to do, I believe
could help some rate-of-return carriers offer standalone
broadband without effectively being penalized for it.
So the green shoots will hopefully blossom over the next
couple months. But again, I stand ready to work with the
chairman, with our other colleagues, and, of course, with you
to make sure the mechanism is something that works for rural
America.
Senator Moran. Thank you, both, very much.
Senator Boozman. Senator Lankford.
Senator Lankford. Thank you. Thank you, both, for being
here.
DESIGNATED ENTITY PROGRAM
I want to follow up on these conversations about the
designated entity program. And what is the potential right now?
About $3 billion in lost revenue.
Where does that stand for the future? What is the process
at this point for reevaluating the program and how it's
managed? And as you alluded to before, closing the loophole on
this, what is the conversation right now?
Mr. Wheeler. Thank you, Senator. Let's parse it into two
parts.
The first part Commissioner Pai spoke eloquently about, the
reality that happened in the Advanced Wireless Services (AWS-3)
auction. I can't find a lot to argue with on that. I think we
are strongly of the belief that this was designed for
designated entities.
How the rules were, in fact, used, followed by the bidders,
is an item that is now finally before us, because yesterday was
the day that opportunities to challenge those licenses closed,
and we have like a dozen challenges to them. You may have
noticed that the Wireless Bureau was slow in getting those out,
because we wanted to make sure that we understood everything
there was in those, so that we would be able to respond in this
kind of situation.
We are now to the point where there are challenges to those
licenses, and we will respond accordingly. That's what happened
in AWS-3.
On the broader designated entity question, again,
Commissioner Pai and I are in agreement. This program needs to
be updated.
I was around when it was created in 1993. It has the right
kind of philosophy, in that it is a mandate from Congress that
we need to make sure that there are opportunities created for
small businesses. And the problem is that the world has changed
a lot since then, and our rules haven't.
So what we did a few weeks ago, probably a month ago now,
was to put out a public notice, because we want to make sure
that we have the record to support everything we do. We put out
a public notice saying, here are the kinds of issues that got
raised in AWS-3, give us input on that.
It is our intention that we are going to have a rulemaking
that will be in plenty of time before the incentive auction, so
that people will know what the rules are there, and change the
structure of the designated entity rules to make sure that they
meet the mandate of Congress and to make sure that they don't
run afoul of the kind of things that we have seen happening.
Senator Lankford. Okay. Thank you.
Anything else you needed to add to that?
Mr. Pai. Senator, no. I can't improve upon that. We are
working in common purpose, and I hope that some of the comments
and changes that were teed up in the public notice will be
adopted as fundamental reforms to this program.
Senator Lankford. Okay, that's great.
LIFELINE PROGRAM
Let's transition to the Lifeline Program. You all put some
reforms in place over the last couple years. That program
rapidly accelerated, and it is starting to be able to draw back
some. It still has a distance to go.
What are the major reforms that are still pending, whether
that be pending rulemaking or proposals, or whether that be
changes that are in operation that you would seek?
My State of Oklahoma is one of the prime examples of that,
and I have already mentioned to you as well, I am willing to
work together to make sure that those individuals who are
eligible for this receive it, and those that are not do not, as
you walk through the process.
So what is pending at this point?
Mr. Wheeler. So we will bring out a reform of the Lifeline
Program notice of proposed rulemaking in the next couple
months. And it will address the kind of issues that you have
mentioned here, and many others.
There was just a report by the Government Accountability
Office in which they came out and said there has been great
progress in helping to clean up this program and move it
forward, but there aren't enough specific management goals. You
are not shooting to these specific targets and saying, ``Are
you getting them?'' We are going to be developing those, so
that we can have a management-like approach to Lifeline.
As I say, we expect this notice of proposed rulemaking
(NPRM) to start in the next couple months.
Senator Lankford. Is it your assumption, at the end of the
day, that individuals would receive a phone for free under the
Lifeline Program or that is a subsidized phone, there is still
a cost that they incur per month as well?
Mr. Wheeler. That is specifically one of the questions that
we are going to ask, and we will make the decision based on the
record.
Senator Lankford. Okay. What is your assumption of the
direction that is going? What is that conversation that is
happening on that? Or do you need to save that for the record?
Mr. Wheeler. I have heard arguments on both sides. So what
we are going to do is tee up in the NPRM this specific
discussion and try and tease out from everybody and have people
debating the various topics so we can have the best record to
make that decision on.
Senator Lankford. There is also a conversation in my State
of Oklahoma and multiple other States with a large native
population that the subsidies were set up for individuals that
are Native American but it seemed to be the assumption on
tribal lands, to try to expand that out to tribal members. And
it seems to be expanding well beyond what it was intended for.
In my State, there are more individuals on Lifeline than
there are total tribal members in the State that get the tribal
subsidy. So there is a problem with that, and I assume it's in
multiple other States as well.
Is that part of the rulemaking?
Mr. Wheeler. One of the things I learned when I came to the
Commission was that all of Oklahoma was tribal lands. I didn't
realize that myself.
You pointed out to me the other day that tribal members
carry an identification card that says, ``I am a tribal
member.'' I mean, the reality is that multiple years ago,
during the Bush administration, when Lifeline was expanded to
nonfacilities-based carriers, that a whole series of things
were triggered that we now have to address. And that clearly is
one of the obvious things, and I can assure you, sir, that will
be in the NPRM.
OPEN INTERNET ORDER
Senator Lankford. Let me do one last question on this, and
I'll try to be brief. We need to talk about some of the open
Internet conversations. I understand the issues that are
flowing through this and the opinions that are out there.
My question really circles around, why not a legislative
fix for this? Why do a rulemaking? There are so many different
exceptions that were built in, and the areas to say these 30
different parts you don't apply to this, and these 700
different rules you don't apply to this.
There seem to be so many exceptions, it looks like a round
peg in a square hole in some places. When there was a
congressional conversation about some of these same issues and
how to resolve it, why do it through a rulemaking and try to
adapt rather than wait on Congress to be able to respond to it?
And the second part of that is, is there any guess, at this
point, in your budget, as you think about this long term, of
the cost of litigation based on this, as you're beginning to
prepare for that?
Mr. Wheeler. Thank you, Senator.
Legislation has been proposed in both houses, as you know.
I read in the trades this morning that, in this body, Senator
Thune and Senator Nelson are discussing how to come together on
legislation. That is the prerogative of the Congress. And we
would, certainly, bow to whatever decision the Congress makes.
In so far as the budgetary impact, we don't sit down and
say, well, this is specifically what it is going to take to do
this program or that program, with the possible exception of
Lifeline where we do sit down and say we have 155 people who
are dedicated to Lifeline. We don't have that kind of thing
with open Internet, though.
Senator Lankford. So do you have any guess on litigation
costs? When you start to dip into this, you have to know there
will be tremendous litigation on the backside. Is there any way
to estimate? Obviously, we have to look at that as well, what
is about to happen in costs of litigation.
Mr. Wheeler. I don't have an estimate for that, sir.
Senator Lankford. Okay. More than $10 million, do you
think?
Mr. Wheeler. I don't have an estimate, sir.
It's a fixed cost. The reality is, we are not going to go
out and hire Ted Olson or something like that, if that's what
you're asking. It is a fixed cost. We have an appellate group
inside the Office of General Counsel.
They are worrying about antenna sighting on one day, and
they're worrying about USF appeals the next day, and they are
worrying about this the next day.
Senator Lankford. Okay. Thank you.
ENFORCEMENT BUREAU CONSOLIDATIONS
Senator Boozman. Chairman Wheeler, the FCC announced in
March that 16 of the 24 enforcement bureau offices around the
country would be closed. What impact will these closings have
on the FCC's ability to address interference concerns?
Mr. Wheeler. Thank you, Mr. Chairman. It will improve our
efficiency.
One of the realities that we have is that the offices were
placed there 20 years ago in an entirely different era when
radio frequency interference was not an issue. On average, less
than 40 percent of their time is spent on RF interference
issues.
We ought to be spending more time on the challenges to the
future economy, which is a wireless economy, rather than trying
to figure out if the local broadcaster has painted his tower.
So what we are proposing is a structure that will put
electrical engineers in eight strategically located offices, so
that they can then get out of those offices and deal with the
issue, which is never in the office. It is out there.
And in addition, we get a lot of complaints from the
industry that, hey, I tell you about some kind of RF problem
and it like falls into a black hole. Back to Senator Coons' IT
question, if we have the right kind of IT structure, I want to
have a dashboard, so that you can say let me look up who is
responsible for this, where it is in the status, and what the
outcome is.
But we are not structured to that right now. We are
structured to an era when you used to go and inspect
broadcaster's records. They used to be in files at their
offices. They're now online. We used to worry about whether
towers were lit, and we have to ask the question, is that the
broadcaster's responsibility or should we have 24 field offices
out there doing that?
So we are trying to reallocate our resources to do a better
job.
Senator Boozman. So the resources that you save, then, are
going to go toward interference, as opposed to across other
enforcement areas or just within the agency itself?
Mr. Wheeler. We believe that we will be improving our
interference enforcement. We believe we will save about $9
million a year because----
Senator Boozman. And that is going back into interference?
Mr. Wheeler. That goes into the general fund. It will be
used, obviously, for paying for what will be increased cost to
travel and this sort of thing. We want to have a coordinator at
headquarters who oversees the whole thing. We want to build the
dashboard. All of those, of course, will cost money.
Senator Boozman. Right. So you're not committing to putting
it in interference for sure. It is going in the general.
Mr. Wheeler. But the focus of the field offices is going to
be interference.
Senator Boozman. Okay.
RATE REGULATION
Commissioner Pai, under the Title II reclassification, if
someone files a complaint with the FCC that an Internet service
provider is charging unreasonable rates, isn't the FCC legally
obligated to investigate the complaint and make a determination
under section 201?
Mr. Pai. Yes, Mr. Chairman. That would be the FCC's
obligation, which is why ex post rate regulation is explicitly
on the table, as a result of the net neutrality regulations.
Senator Boozman. Okay.
Mr. Wheeler. Can I just add one thing in there, Senator? I
hope somebody files with that. I've said this with Commissioner
Pai, and I've had this discussion before.
I hope somebody files with this, because if they do, I hope
we will be able to, as a Commission, to take an action that
makes it clear that ex ante rate regulation is not what we're
after here, and that we will produce a decision that makes it
clear that is not what we are trying to do here. And we are in
strong agreement on the effect if not how to get there.
Senator Boozman. Mr. Pai?
Mr. Pai. Well, Mr. Chairman, and with due respect to my
chairman, I think the order says they won't get engaged in ex
ante regulation. That means things like tariffs, developing a
methodology for assessing costs----
Senator Boozman. We are talking about consumer as well as
interconnection rates?
Mr. Pai. Exactly. As I read this open Internet order, it
explicitly permits ex post rate regulation both of the
consumer-facing service as well as interconnection, under
section 201 of the Communications Act.
Senator Boozman. Chairman Wheeler, you're not interested in
interconnection rates?
Mr. Wheeler. I am saying our goal is not to have rate
regulation. In the 201(b) interpretations that some people have
said, that this gives us some kind of ex post authority, I
would like to be able to make it clear that it is not a rate
regulation tool.
Senator Boozman. Either with consumer or interconnection?
Mr. Wheeler. That we need it specifically for consumer rate
regulation, okay? As we look at interconnection, I think we
need to make sure that we make decisions based on what the
facts of the situation are. I'm not trying to dodge your
question, but I'm trying to say, absent understanding what the
facts are, I think we need to wait for that.
Senator Boozman. So I guess the question then is, would you
have objection to Congress prohibiting the FCC from spending
money on regulating rate charges for the broadband Internet
access service, including those for interconnection?
Mr. Wheeler. So I think that one of the things that is most
interesting is that, as I believe Senator Lankford pointed out,
we forbore from a lot of sections in title II. There has been a
concern raised, well, okay, this Commission will stay out of
that, but what about the next one? If Congress wants to come
along and say that is off the table for the next Commission,
too, I have no difficulty with that.
Senator Boozman. Thank you, Mr. Chairman.
Senator Coons.
Senator Coons. Thank you, Chairman Boozman. Thank you for a
broad and vigorous conversation about a lot of different
issues. I want to take us back to access to broadband and
making sure that we have an E-rate program and an USF that
works.
You announced sweeping reforms last year to the E-rate
program to bring broadband and Wi-Fi to schools and libraries
while modernizing the program and eliminating funding for lower
priority programs.
How will these changes to the E-rate program build on funds
provided through the Connect America Fund to ensure every child
has the ability to access the Internet or complete their
homework, either at school or home? How is that actually going
to lay out in reality?
Mr. Wheeler. Thank you, Senator, for the question.
Literally, we just closed the funding period. And there is
about $3.9 billion in requests that came in that we will be
able to fund.
The exciting thing about what has happened this funding
year is that, because of some of the good work that Jon
Wilkins, our Managing Director, did here, he was able to
identify a couple billion dollars in USF funds that were
literally just sitting there, and without any impact on
ratepayers, to be able to reprioritize those so that they could
deliver Wi-Fi to the desk of the student.
It's one thing to connect the school, but getting it to the
principal's office or the computer lab isn't enough anymore. It
has to be to the desks.
We have always provided for that in the rules, but there
was never any money, because it got sucked up by the first
part, what is called category one. Now there is the ability to
do that.
As a result of that, 20 million students are going to be
connected at their desks that weren't before. And that is a
significant achievement.
The other thing that is really important as well is that in
connecting the schools, the worst situation for high-speed
connectivity was in rural America. Now that is no great
surprise, but there were unique challenges that exist in rural
America that we addressed in the new rules so that we could
close the rural fiber gap to get the connection to the schools
so that it could get Wi-Fi to the desks.
As I say, the first iteration under the new rules has just
happened.
Senator Coons. I suspect something you will find bipartisan
agreement about is the need to continue with investment for
rural access. Many don't think of Delaware as a rural State,
but we have rural communities, and I hear regularly in Kent and
Sussex counties in southern Delaware about their concerns about
broadband access--libraries, schools, homes.
In my former role as county executive, I was responsible
for a 911 call center and spent a lot of time on upgrading its
response and some of the transition from a predominantly
landline world to predominantly cell phone world. I know that
you have been working hard on some investments to try to
strengthen it.
Commissioner Pai, could you explain a little bit more about
the recent FCC rules on the topic, and any other 911
improvements you think are necessary?
Chairman Wheeler, the FCC budget, if I remember correctly,
provides something like $850,000 for a do not call registry for
public safety answering points. If you could explain what that
would be used for, I would appreciate a few minutes on 911
centers?
Mr. Pai. Thank you for the question, Senator. I think that
our responsibilities are rarely cast into as sharp relief as
when we are talking about public safety. The FCC has taken a
number of steps recently to improve 911 functionality across
the country.
For instance, we recently adopted some standards with
regard to what is called location accuracy. Probably the most
fundamental aspect of a 911 call is for emergency response to
be able to figure out where is the person in need. That was
increasingly difficult in this world where people are calling
from cell phones, and it was difficult to figure out a
location.
Thanks in part to bipartisan efforts on that issue, I think
we are moving forward with standards that will hopefully hasten
the day when anybody calling from any kind of device will be
able to be found very quickly.
Additionally, we are kicking off an initiative to study the
architecture of our public safety answering points (PSAPs)
nationwide. Unlike a lot of countries, we have over 6,000 of
those PSAPs sprinkled across the country, some small, some
large.
I have visited the New York City PSAP, for example. It is
massive, rows and rows of dedicated professionals. I have
visited some PSAPs with just one or two people, and they have
to be there at all hours of the day.
Is there some way to rationalize that structure to make
sure that we deliver public safety value while also being
careful stewards of taxpayer funds? That is something that the
FCC is shepherding a conversation about.
Also, the FCC isn't just issuing mandates from up high. We
are also leading by example.
In that regard, I want to thank the chairman for our recent
announcement that the FCC, beginning on June 1, I think it is,
will now be allowing FCC employees in headquarters here in
Washington, DC, to themselves directly access 911, where
previously they would have to dial an access code, such as 9.
You might think an access code isn't the biggest deal, but
in the press of an emergency, it is not one of the things that
people think about. They just know the number 911.
So I think we're going to be leading by example. Hopefully,
other Federal agencies, other than the private sector entities,
will do the same. Those are just three of the things that
spring to mind.
Mr. Wheeler. Can I just pile on there and give credit where
credit is due on that last item? That was entirely because
Commissioner Pai brought this issue to us and championed this
issue.
He has also done an outstanding job working with hotels
around the country, to get them to voluntarily do the same
thing.
Mr. Pai. I'm very grateful to the chairman for the kind
words. In return, if he decides to move the FCC to Wichita, I
will support him in that endeavor to save money.
Mr. Wheeler. We can agree on only a few things.
Mr. Pai. I thought I would push the envelope.
Senator Coons. Wichita? Wonderful.
Mr. Pai. If planes, trains, and automobiles go there
Senator----
Senator Coons. Not so cost-effective.
If you would, the do not call registry?
Mr. Wheeler. Oh, I'm sorry. Yes, so we need to create--
PSAPs get robocalled.
Senator Coons. I know.
Mr. Wheeler. That's what the issue is. And it wastes the
time of these people that Commissioner Pai was talking about.
We need to have a registry for that.
The difficulty that we are facing is Congress said create
this registry, and it's a terrific idea, but we are asking you
for the money to fund it.
Senator Coons. Right.
One last question, if I might, Mr. Chairman, about positive
train control. This is a complex and difficult public safety
investment, improvement. Can you just give us an update on
progress toward the deadline, and what the FCC can or should be
doing to help expedite the process so that it is possible to
meet the deadline for a number of infrastructure investments
and processes that need to be done?
Mr. Wheeler. Thank you, Senator.
There are two parts to positive train control. One is the
spectrum, and the other is the placement of the antennas that
will control that spectrum.
We have been opening up spectrum transferring. So for
instance, with commuter lines, we recently eased their power
restrictions so they can push out more power over the same
spectrum using fewer poles. For Amtrak, we have new spectrum in
the Northeast corridor now, and we did some spectrum license
transfers last week. So that's kind of the spectrum side.
Then there is the process that is required for us to carry
out under the environmental protection and historical
protection acts, that we create a structure for Native American
communities to be able to review the placement of the poles
that hold the antennas.
When I walked in, there was a huge problem because it was
not structured in a way that could handle the terrific input
that was coming from the railroads. I'm happy to say that,
thanks to the cooperation and hard work with tribal leaders, we
now have in place a process that will handle 2,800 requests
every 2 weeks. And it is, frankly, a process that the railroads
have not been able to fill. We are at about 27 percent capacity
right now, which is good news. I'd rather have excess capacity;
I'm not casting aspersions here.
And so I think that we are making some real serious
progress on PTC.
Senator Coons. Okay.
Thank you, Mr. Chairman.
Senator Boozman. Senator Moran.
Senator Moran. Mr. Chairman, thank you very much.
First of all, I want to thank the Commission. I mentioned
in a hearing, the last time we were together, which I think was
in the Commerce Committee, an E-rate case that had been pending
since 2011. Within a week of that hearing, the case was settled
in the Kansas Board of Regents.
Mr. Wheeler. Isn't it amazing how those kinds of things
happen?
CROSS-BORDER COORDINATION
Senator Moran. Let me turn to a letter that I and 28 of my
colleagues recently worked on, including Senator Coons, related
to Mexican border spectrum issues. There is significant public
well-being at stake here along that border. The effort here is
to implement a 2012 agreement that the Mexican Government
entered into.
My question is, does your budget reflect the necessary
resources? And do you have the necessary expertise critical to
get this issue resolved and to assist the Mexican Government in
addressing this issue?
Mr. Wheeler. Thank you, sir. I think the answer is yes. I
think I've got some good news for you on that, too.
As you know, we are in ongoing negotiations with the
Mexican Government. And I believe that we are now to a point
where we have reached a structure where there can be rolling
approvals, if you will. So we bring forward and say here are a
group of licenses we have to worry about, and they deal with
those. We can deal with them on that kind of basis rather than
just dropping a whole load of hypotheticals on the table and
say deal with that.
So our international bureau has been doing a great job on
this, and I think that we have crested the hill, sir.
Senator Moran. So the new standard is that if I raise a
topic, it is resolved within a week?
Mr. Wheeler. Well, sir----
FCC BUDGET
Senator Moran. Let me turn to the diversion of money. I
think Commissioner Pai mentioned this in his testimony.
The President's budget requests of diversion of $25 million
directly from the Universal Service Fund for the purpose of
identifying improper payments, waste, fraud, and abuse. I
consider those dollars within the Universal Service Fund pretty
scarce and important.
Based upon what I know about the Inspector General's
report, in 2008, this is just an example, the IG predicted to
Congress that they would find $608 million in potential
improper payments. As I understand it, the number after this
onerous audit was a mere $79,000.
My questions are: What does FCC have to indicate that
regulators would find $25 million of waste, fraud, and abuse?
In other words, to allocate the money, one would think you're
going to get a greater return than the money spent for the
Universal Service Fund. And secondly, wouldn't it be better to
take those dollars from the general operations budget than to
take them out of the Universal Service Fund?
Mr. Wheeler. Thank you, sir. You just gave me an idea. I
frankly hadn't thought about comparing ins and outs.
I know that in the last 6 weeks, we fined AT&T over $10
million on a Lifeline fraud. So I can virtually guarantee, but
I will submit for the record, the specific ability to recapture
those funds.
The point that I was trying to make earlier, Senator, is
that we have 155 people who are working on universal service.
It is about 10 percent of our employees. We are in a situation
where we are cutting employees.
How do we hold universal service management, enforcement,
and appeals harmless from budget cuts? I think the model was
established by Congress when you said to us the point you just
made about inspector general. We want inspector general
activities on waste, fraud, and abuse to be paid for not by the
FCC, but by the Universal Service Fund.
The database that we had to build to go after that waste,
fraud, and abuse was paid for out of the Universal Service
Fund, as it should be. It is the same kind of concept where the
cost of managing the auction is paid for out of the auction
proceeds. I think it is just good business to associate expense
with revenue.
I also think it is good equity for the ratepayers. You were
asking me previously about how we were setting the rates. We
ought to establish that these are the benefits you get, and
this is what you pay, but not load in the costs for somebody
else into what a broadcaster has to pay, for instance.
But what is really important I think to mention here is
that those 155 people, that $25 million, we have to pay that
one way or another, okay? It is not going to go away. So what I
am suggesting is that there should be a dollar-for-dollar
reduction in the general fees charged by the agency, so that we
can ensure that universal service is protected from any FTE
reductions or any of the other things, and is paid for out of
the funds generated by it.
And yes, sir, I can virtually guarantee--I will bring you
years of history that it has always been paid for by
enforcement.
Senator Moran. Let me make one final point and then turn to
Commissioner Pai for any response he would like to make.
I have asked you for, I think I submitted it in writing,
ITT infrastructure questions at our Commerce hearing in March.
I will resubmit those today and look forward to it.
Commissioner Pai.
Mr. Pai. Sorry, on?
Senator Moran. Anything, in particular, on my question
about the $25 million?
Mr. Pai. Thanks for the question, Senator. I think my
concern is twofold.
First, we should think about what the Universal Service
Fund actually is. This is basically a tax on consumers. Any
consumer with a phone bill pays into the Universal Service
Fund. So by definition, if you extract $25 million from that
fund, the consumer is going to have to make up that gap
eventually. So to accommodate this $25 million transfer, or any
other further transfers in future years, if this one were to be
approved, the tax on consumers would have to go up to cover
that gap.
Secondly, in terms of how the money is going to be spent, I
agree that enforcement of the rules regarding Universal Service
Fund is absolutely essential. Since I started at the FCC, I've
been talking about the need for more effective enforcement of
our Lifeline rules, making sure that people don't take
advantage of the system.
But we need to reprioritize, in my view, the FCC's
operations in Washington, to streamline our operations, make
ourselves more efficient, to free up funds to go after that
kind of enforcement, rather than diverting it from the
Universal Service Fund. My concern is that this is essentially
the camel's nose under the tent, so to speak. I would prefer
that we keep the two activities separate, for the sake of
consumers.
Senator Moran. Commissioner, thank you very much.
Mr. Chairman, thank you for the opportunity to have a
conversation today.
Senator Boozman. Senator Coons.
Senator Coons. I simply wanted to thank our witnesses for
your service and for your testimony today, and for the very
businesslike way that you approach both the solutions to the
challenges in front of you and to working together. Thank you.
Senator Boozman. Thank you, Senator Coons.
Thank you all for being here. We had a good hearing, and I
think we really do have some profound disagreements. And yet,
we really do have some areas that we all agree on one thing.
As I go out and about throughout the State, and I know it
is true of my colleagues, in the old days when you talked about
infrastructure, you talked about roads and bridges, water, and
electricity. Now infrastructure, what you're dealing with,
broadband connectivity, is so very, very important.
So I think that we are all agreeing that this needs to get
done. And, certainly, we are looking for ways to help you get
it done.
Again, that is so important not only for rural America,
which we are concerned about, but we are also very concerned
about urban America, the whole country.
So we appreciate you being here.
The other thing, before I go on, is I want to thank you,
but I also want to thank your staff. I know they have worked
really hard in getting you all prepared, as have our staff.
Mr. Wheeler. We want to thank your staff, sir.
Senator Boozman. Exactly. Our staff also, and we do
appreciate them.
ADDITIONAL COMMITTEE QUESTIONS
If there are no further questions, the hearing record will
remain open until next Tuesday, May 19, at noon, for
subcommittee members to submit any statements or questions to
the witnesses for the record.
[The following questions were not asked at the hearing, but
were submitted to the Commission for response subsequent to the
hearing:]
Questions Submitted to Hon. Tom Wheeler
Questions Submitted by Senator John Boozman
Question. The Spectrum Act established the Broadcaster Relocation
Fund to cover the costs of moving broadcasters to different channels
after the incentive auction.
What steps are you taking to minimize relocation costs to ensure
that the $1.75 billion in the fund is sufficient?
Answer. At this point, we have no reason to believe that the $1.75
billion Broadcaster Relocation Fund will be insufficient to cover
broadcasters' relocation costs. We are taking appropriate measures to
disburse funds as fairly and efficiently as possible to ensure the
sufficiency of the fund. We have proposed to optimize the final
broadcaster channel assignments to minimize relocation costs by: (1)
maximizing the number of stations assigned to their pre-auction
channels; and (2) avoiding reassignments of stations with high
anticipated relocation costs, based on the most accurate information
available.
Question. Do you believe that 3 years will be enough time to move
all of those stations?
Answer. Yes. The Commission engaged Widelity, Inc. through a
competitive process to evaluate and provide time and cost estimates
regarding the post-auction broadcaster transition. They concluded that
``[t]he process will be complex, but we feel that it can be achieved.''
The Commission agreed and found that a phased, 39-month transition
period (a 3-month period during which broadcasters will file their
construction permit application followed by a 36-month period
consisting of varied construction deadlines) is likely to ensure a
successful transition for all broadcasters. We fully intend to make
initial allocations quickly to help broadcasters initiate the
relocation process, and the Commission is committed to working with
stations to ensure a smooth transition. Stations may seek a 6-month
extension if necessary in order to complete construction.
Question. Are there any protections in place that would prevent
broadcasters who didn't participate in the auction from having to pay
out-of-pocket move expenses when they are reassigned a new channel?
Answer. Yes. Broadcasters who do not participate in the auction but
who are assigned to a new channel in the repacking process will be
eligible for reimbursement of their reasonably incurred costs from the
Reimbursement Fund.
Question. What costs are you being ``told to carry out'' related to
broadcaster relocation that are not supported by Public Law 112-96?
Please specify why the administrative costs associated with broadcaster
relocation are not part of the administrative costs for which the
Commission may be reimbursed for ``carrying out'' the incentive auction
and its various components.
Answer. Section 6403(c)(2)(C) requires that the forward auction
proceeds must ``be sufficient to cover the costs incurred by the
Commission in . . . making any reassignments or reallocations under''
Section 6403(b)(1)(B), which includes the relocation of broadcasters
post-auction. Consistent with Section 6403(c)(2)(C) of the Spectrum
Act, the administrative costs that the Commission will bear associated
with the broadcaster relocation post-auction will be covered by forward
auction proceeds as part of the Commission's administrative costs of
conducting the auction.
Question. Broadband Mapping.--Wasn't the responsibility for
creating and maintaining the broadband map assigned to NTIA as a part
of the American Recovery and Reinvestment Act?
When and why did the FCC assume responsibility for the map?
What is the annual cost for the FCC to administer and manage the
map?
ARRA appropriated $350 million to develop and maintain the map. How
much of that money has been spent? Please provide specific details on
how that money been spent.
Answer. The National Broadband Map has been populated by data from
the National Telecommunications and Information Administration's (NTIA)
State Broadband Initiative (SBI). Both the National Broadband Map and
the SBI program were funded by ARRA. The vast majority of the $350
million appropriated under ARRA to develop and maintain the map was
used by NTIA on the SBI grants to obtain the data from the states that
allowed for the creation of the map.
Pursuant to a Memorandum of Understanding (MOU) between NTIA and
FCC in October of 2009 (as amended in April 2010), NTIA agreed to
provide the FCC with up to $18.65 million in ARRA funds to develop the
National Broadband Map. Pursuant to the terms of its MOU with NTIA, the
FCC spent $15.88 million in ARRA funds on the map effort through the
map's deployment online in February of 2011. The FCC's expenditures
included funds for IT infrastructure, operations and maintenance, and
funds to support FCC personnel and contractors to create, operate and
maintain the map. Since the map's deployment, the FCC has managed the
costs of the map and has worked pursuant to a reimbursable agreement
with NTIA that uses non-ARRA funds. However, the FCC lacks a continued
funding source for the map due to the expiration of its most recent
agreement with NTIA at the end of May 2015.
The FCC recognized the importance of having the data behind the map
and in 2013 adopted rules to collect substantially similar data
directly from broadband providers. Such data could be used to populate
the map going forward. As our Managing Director has testified before
Congress, the FCC is in the midst of a modernization of all of its IT
systems to reduce costs and improve reliability and performance. We are
currently evaluating costs in the context of our overall IT budget and
modernization to maintain the map as it exists today, to update the map
with data from the FCC's data collection, or to rebuild the map to
update the now-6-year-old technology.
Question. Chairman Wheeler, at the May 12 hearing, you testified
that closing 16 field offices will save $9 million, and that you want
to commit some of the savings to have a coordinator at headquarters and
create a dashboard to help the agency better guard against interference
problems.
What is the estimated cost of those two items and is the remainder
of the $9 million savings?
Will any of the FTEs or funds saved by closing field offices be
reallocated to support other functions of the Commission, such as the
Enforcement Bureau?
Answer. The recommended ``coordinator'' position in headquarters is
one of five management positions in our recommended modernized
organizational structure, titled the Field Director. Therefore, the
estimated cost of this position--approximately $190k with base pay and
estimated benefits--is already included in the $9 million savings
figures and will not erode any of the $9 million. Overall, we are
recommending streamlining the management structure from 21 to 5
individuals, including the Field Director in headquarters. We found an
overabundance of managerial positions. The average field location has
just 4.5 full-time employees (``FTEs'') (with many having just 1 or 2
FTEs). Yet for every 4 field employees, there is 1 manager.
Additionally, we saw this fragmentation driving variation in our
processes and output.
We also plan to implement a dashboard to track our progress on
complaints for escalation and accountability purposes. The ability to
understand the status and outcome of investigations and inspections in
a more ``real-time'' basis will be in addition to other adjustments to
our IT system. For instance, we are investigating adding functionality
to track deployed equipment, travel requirements, and Field activity
productivity metrics. Our goal is for the Field Director to own and
maintain this dashboard and use it to review the performance the three
regions and eight offices. We are still in the process of developing
cost estimates for these improvements; however, they will be updates to
our current case management system, Enforcement Bureau Activity
Tracking System (EBATS), which is already in place.
The top priority use of savings will be reinvestment in our
restructured field organization, including such areas as IT upgrades,
equipment modernization, and agent training. Any residual savings will
be incorporated into our general operating budget to address the most
important ongoing needs across the Commission as we continue to work to
fully deliver our many statutory missions under a constrained budget.
We have taken seriously guidance from our congressional oversight
and appropriations committees to operate more efficiently. We have
developed this plan in accordance with this goal, and believe once
implemented it will update and overhaul outdated management models,
realize significant cost savings, and make the FCC a 21st-century
agency.
Question. Greater deployment of wireless broadband is a goal we all
share. However, one obstacle to meeting this goal is that the siting
process on Federal lands is extremely cumbersome. Under Section 6409(b)
& (c) of the Middle Class Tax Relief Act of 2012 and various Executive
Orders and Presidential Memoranda, the Federal Government has been
tasked with streamlining the siting processes for wireless broadband
deployment on Federal lands and properties. Thirty percent of America's
landmass is owned or controlled by the Federal Government, but to date,
siting wireless facilities on these lands and properties has been met
with high costs, delays, and moratoria.
What steps is the FCC taking to make this process more efficient?
Answer. The FCC has actively participated in the working group that
was formed to implement the 2012 Executive Order. This working group
has produced, among other things, a uniform application for siting
communications facilities on Federal lands and buildings, and it is
developing a model categorical exclusion for communications facilities
under NEPA. The FCC's contributions have helped ensure that both of
these documents are appropriately tailored to the unique circumstances
of wireless facilities. The FCC is also participating in the Broadband
Opportunity Council that was established by Executive Memorandum
earlier this year. The FCC has no authority over Federal agencies'
decisions regarding use of their own lands. Our role is to work with
landholding agencies to educate them about wireless communications and
facilities, as well as to encourage them to consider successful models.
______
Questions Submitted by Senator Jerry Moran
Question. In 2012 the Department of State, working with the Federal
Communications Commission, reached a long anticipated agreement with
the Mexican Government regarding spectrum sharing in the 800 MHz band
to ensure both countries' operators would be permitted to maximize use
of this spectrum band without unnecessary interference. Unfortunately
the Mexican Government has yet to act upon the responsibilities assumed
by Mexico in the agreement. As you know, the domestic benefits of this
agreement are completely dependent upon Mexican action--and as a result
are at a standstill almost 3 years following the signing of the
Protocol. What is the FCC doing to resolve this international
standstill? How has the FCC coordinated with the Department of State to
resolve this issue? When can Congress expect to see progress by the
Mexican government to ensure that the hoped-for public and economic
benefits are fully realized? Please provide more detail as to the
process, including benchmarks and timelines the FCC and Mexico are
attempting to establish to eliminate the standstill we face today.
What is the FCC doing to resolve this international standstill?
Answer. While negotiations with Mexico have not progressed as
quickly as we would like, the FCC has engaged with our Mexican
counterparts since 2012--including throughout Mexico's
telecommunications regulatory reform which took place in 2012-2014--to
realize the benefits of the Revised Protocol. Subsequent to the
establishment of Mexico's new regulatory agency, the Federal
Telecommunications Institute (IFT), in September 2013, FCC staff worked
with IFT staff to reestablish relationships with the appropriate
contacts and team members responsible for 800 MHz issues in Mexico.
Since 2013, the FCC, in coordination with the State Department, has
held several in-person meetings both in Mexico City and in Washington
with IFT staff and Commissioners, as well as video conferences. Since
2014, FCC and IFT staff have worked together diligently on various 800
MHz related policy and legal issues and have held regular task force
calls. FCC Chairmen and Commissioners have repeatedly raised the 800
MHz rebanding issue during their meetings with Mexican officials,
including the ITU Plenipotentiary in Korea in October 2014 and most
recently at the GMSA Mobile World Congress in Barcelona, Spain in March
2015. The FCC has been waiting for IFT to issue new licenses to
incumbent Mexican licensees that need to move out of the portion of the
800 MHz band spectrum that will be used for public safety. During the
most recent call with IFT staff on April 28, 2015, IFT staff indicated
that they are in the process of finalizing the necessary steps to issue
new licenses to authorize the clearing of the 800 MHz band.
Question. How has the FCC coordinated with the Department of State
to resolve this issue?
Answer. The FCC has coordinated closely with State Department on
these issues since the signing of the Revised Protocol with Mexico in
2012. The State Department has been invited to and has participated in
the in-person task force meetings in Mexico City and at the FCC with
IFT staff, as well as teleconferences and videoconferences with Mexican
counterparts.
Question. When can Congress expect to see progress by the Mexican
Government to ensure that the hoped-for public and economic benefits
are fully realized?
Answer. The FCC has been assisting IFT as much as possible, but
Mexico does not have an accurate database of its licensees like the FCC
does. IFT staff have been collecting data from their licensees and
reporting the information to the FCC so that our Transition
Administrator can plan the relocation for both countries. While Mexico
is making some progress, the FCC has emphasized to IFT the importance
of moving forward on this issue as quickly as possible. One of the
problems facing Mexico is that it has some government licensees whose
relocation is more complex. All incumbent licensees must be issued new
licenses in different spectrum before relocation can begin. IFT
indicated recently that it is working towards issuing new licenses and
taking the necessary steps to clear the 800 MHz band, but has not
committed to any specific dates.
Question. More than 900 small cable operators across the country
rely upon a single buying group, the National Cable Television
Cooperative (NCTC), to purchase the programming they offer their
customers. Existing law clearly indicates that Congress intended to
prevent programmers from charging ``buying groups'' discriminatory
rates. However, due to problems with the manner in which the FCC
drafted its rules, the NCTC does not enjoy the protections Congress
intended. This problem was brought to the FCC's attention in June of
2012. In October 2012, the FCC issued a rulemaking tentatively
concluding that its definition of a ``buying group'' needs to be
modernized to fix this problem and sought comment on this matter. The
issue has now been before the FCC for more than 2 years, and last year
the Small Business Administration has urged the FCC to act. What is the
status of this proceeding? Does the FCC intend on examining this rule
this year? Why or why not?
Answer. The Commission sought comment in 2012 on a variety of
issues related to our program access rules, including whether to modify
the current definition of ``buying group.'' The National Cable
Television Cooperative (NCTC) sought the change because its existing
practice excludes it from the definition, and thus, NCTC claims it is
unable to avail itself of the complaint process under our rules.
Although the Commission made a tentative conclusion to potentially
modify the ``buying group'' definition in the Further Notice, the
record in the proceeding indicates that a rule change is not necessary
for NCTC to qualify as a buying group, and it appears that this is more
of a dispute over ultimate liability than a regulatory issue. NCTC
previously complied with the requirements of the existing definition;
past and recent filings have not demonstrated that it is burdensome to
satisfy these requirements, should NCTC choose to do so.
If NCTC has information that might shed new light on this
conclusion, I invite them to add that analysis to the record and to
share their findings with Bureau staff.
Question. According to the agency's fiscal year 2016 budget
request, the FCC has not requested additional full time employees. Can
you please describe in detail the composition of the FCC staff by
position type? How many attorneys does the FCC employ? How many
economists does the FCC employ? How many engineers does the FCC employ?
How many administrative staff does the FCC employ? How has that changed
over the past 5 years? Please provide detail on other positions that
may not be included in the questions above.
Answer. The FCC employs 1,686 employees. The current breakdown of
FCC employees by type of positions is as follows:
--592 Attorneys
--60 Economists
--256 Engineers
--149 in administrative offices/positions
--629 employees in other occupations, such as analysts, specialists,
IT, and accounting/finance positions
Over the past 5 years, the total number of employees has declined
from the FCC's staffing levels in fiscal year 2010 to the present. For
comparison, the fiscal year 2010 figures by type of position were as
follows:
--544 Attorneys
--57 Economists
--270 Engineers
--201 in administrative offices/positions
--760 in other occupations, such as analysts, specialists, IT, and
accounting/finance positions.
Question. One of the goals of the 2011 Connect America Fund
proceeding was to transition universal service support away from voice
services to broadband service for unserved and underserved Americans.
Last year, 130 Members of Congress wrote to the FCC urging progress on
universal service updates that are tailored for small companies so they
could receive support for offering stand-alone broadband, which
consumers are increasingly demanding. Just this week, 61 Senators wrote
yet another letter to ask about the FCC's plan to transition to a
broadband support system. I understand that the FCC has sought comment
on such updates at least three times now in the last few years. When
will the FCC make additional progress in this regard?
Answer. As I explained at the March 18, 2015, Senate Committee on
Commerce hearing on FCC oversight, resolving the issue of ensuring that
the universal service program better reflects today's marketplace and
technology in areas served by rate-of-return carriers will require all
the stakeholders to work together and make hard decisions to reach
consensus on the best path forward. Everybody agrees that the goal of
any changes should be supporting broadband in rural areas, but so long
as the recipients of USF funding remain divided, achieving those goals
remains problematic.
I recognize the substantial time, effort, and resources that have
been invested in this effort to date by stakeholders in the rate-of-
return community, and I am committed to finding a path forward by the
end of the year. It is important to have a solution--or set of
solutions--that creates the right incentives to deploy modern networks
throughout rural America, meets the Commission's overarching policy
objectives, and has the widespread support of the rate-of-return
carrier community. I remain hopeful that we will be able to achieve
such a solution in order to deliver successfully on our shared goal of
more robust broadband throughout rural America.
Question. The FCC is at a 30-year low for Full-Time Employees, yet
the budget request is at a historical high. In fact, this is the
Commission's largest budget request in the history of the agency. What
is driving such a large budget request? Specific to the FCC's lease
expiring--I understand there are two options, either to move to a new
location or restack. What is most cost-effective, moving or restacking?
To the extent there are one-time budget items--such as the office move
or restacking--can the committee expect the budget to return to
baseline levels after the one-time expense?
Answer. As noted in your question, the FCC's fiscal year 2016
budget request represents a marked increase over the fiscal year 2015
appropriated level of $339.8 million, and the auctions cap would be $11
million more than we received last year. These are well considered
requests that reflect necessary operational demands. For fiscal year
2016, the Commission has been forced to adjust its costs upward to
manage and execute activities leading to the termination of our
headquarters lease in 2017. Over 70 percent of our requested increase
supports ``unavoidable'' costs such as the restacking and move,
inflationary increases, and the Office of Inspector General base
increase. Another 25 percent of the increase relates to important IT
investments that include replacing the FCC's legacy infrastructure with
a managed IT service provider to generate efficiencies and savings;
rewriting legacy applications as part of a modular ``shift'' to a
modern, resilient cloud-based platform; and improving the IT resiliency
of the FCC enterprise.
With regard to the question of whether the move or restacking is
most cost-effective, please note that the move and the restacking are
not equivalent. There are two potential options: (1) move to a new
location or (2) renovate the existing building floor by floor to
achieve the space reductions, which will also necessitate the agency to
move into a temporary facility and relocate the employees back when
each floor is completely renovated. The existing FCC space requires
major infrastructure changes to include but not limited to electrical,
plumbing, IT cabling and wireless technology, and physical security
requirements. The most cost-effective solution is determined after a
full and open competition procurement action is evaluated. The
incumbent will have an opportunity to provide a proposal based on the
revised FCC space requirements.
With regard to future budget requests, it is important to note that
we will use the move as an opportunity to create greater cost savings
and efficiencies by significantly reducing the Commission's footprint
and instituting new management techniques that encourage greater use of
shared space. Current projections show net savings of over $100 million
over the life of our new post-2017 lease. Furthermore, the FCC
estimates that the IT investments it requests will realize cost savings
between 2 and 3 million dollars by fiscal year 2017 and an additional
five to $10 million over the next 5 years. Currently, the Commission is
developing its fiscal year 2017 budget request and as mentioned in the
fiscal year 2016 congressional budget we expect to request additional
funds for the move or restacking initiative in fiscal year 2017 of
approximately $19.6 million. The Commission's normal practice when
developing its annual budget request is to return to the baseline
amount if no additional initiatives are requested.
Question. You have characterized it as a ``myth'' that the FCC
plans to regulate retail prices in response to consumer complaints, but
you specifically refrained from forbearing from Section 208 of the
Communications Act so that consumers can bring a complaint ``in the
event that a carrier violates its common carrier duties.'' Are you
assuming that consumers will never ever bring complaints about their
broadband rates? Do you believe the FCC has the authority to regulate
broadband rates? Does the FCC plan to regulate broadband rates?
Answer. Section 208 sets forth the well-established process by
which consumers and companies can bring any complaints (e.g., for
violation of the prohibitions on blocking, throttling, and fast lanes)
to the Commission for resolution. Thus, Section 208 is necessary to
ensure full compliance with the law and Commission regulations. In
fact, Congress specifically precluded the Commission from forbearing
from Section 208 in the commercial mobile wireless context. I have
repeatedly stated that there will be no regulation of retail broadband
rates, and retaining Section 208 does not change that.
Question. One concern that many smaller broadband providers have
shared with me is the burden of complying with new rules and
regulations on their small companies with relatively few employees as a
result of the Commission's decision to reclassify broadband as a Title
II service. I share their fear that this burden may disproportionally
affect small businesses, resulting in increased costs to and reduced
investments by the smaller Internet service providers that are
primarily responsible for connectivity for rural Americans. The FCC
recognized this burden when it created a temporary small business
exemption of application of the transparency requirements. That
exemption expires on December 31, 2015. What consideration have you
given to making the small business exemption permanent? Will you be
making it permanent? What other steps is the FCC taking to protect
small businesses from suffering from a regulatory burden that should
not be intended to affect them, one they cannot absorb, and one that
could potentially eliminate a competitive marketplace by forcing out
small businesses from the broadband marketplace in favor of large
businesses who can absorb the costs of the regulatory burden?
Answer. The Open Internet Order temporarily exempted providers with
fewer than 100,000 broadband connections from complying with the
enhancements to the transparency rule. I heard from many small
businesses over the course of the rulemaking--farmers, musicians, and
small online retailers--many of whom spoke out in favor of strong rules
to protect an Open Internet. The Order was carefully crafted to address
the concerns both of small businesses at the edge of the network, as
well as small broadband providers. On June 22, 2015, we released a
public notice to seek input on whether and how to address that
exemption on a permanent basis.
Question. Through its National Broadband Plan released by the FCC
on March 17, 2010, the FCC seeks to free up and deploy 500 MHz of
spectrum by 2020. Of the targeted 500 MHz, the FCC seeks to reclaim at
least 120 MHz from the 600 MHz band currently allocated to television
broadcasters. The FCC's Band Plan provides flexibility in how much
spectrum is cleared with spectrum clearing targets ranging from a high
of 144 MHz to a low of 42 MHz. Most current discussions involving the
FCC's spectrum clearing targets associated with next year's scheduled
broadcast incentive auction seem to narrow the FCC's target clearing
range from a high of 126 MHz to a low of 84 MHz. Can you share your
current thinking on the FCC's targeted spectrum clearing goal and how
you plan to achieve this goal?
Answer. The incentive auction is designed to allow market forces to
determine how much spectrum will be recovered. The initial clearing
target will be determined by the level of broadcaster participation. We
are committed to designing an auction that makes it simple for
broadcasters to participate, as well as providing broadcasters with the
information necessary to make this important business decision. To that
end, we have engaged in significant outreach to broadcasters, including
dozens of broadcaster meetings at the Commission and locations across
the country and broadcaster-focused Webinars, to educate them about the
opportunities presented by the auction.
______
Questions Regarding FCC's IT Systems
Question. Describe the role of the FCC's Chief Information Officer
(CIO) in the development and oversight of the IT budget for your
agency. How is the CIO involved in the decision to make an IT
investment, determine its scope, oversee its contract, and oversee
continued operation and maintenance?
Answer. The FCC's CIO is situated within the Office of Managing
Director and works directly with both the Managing Director and the
Chief Financial Officer. The CIO provided significant input to
determine the FCC's IT investment, which is reflected in the fiscal
year 2016 budget. All requested programmatic funding increases, apart
from the restacking/move of the FCC, are IT-based. We continue to
strengthen the IT staff by hiring more experienced personnel, bringing
in highly-skilled detailees from other agencies to oversee
implementation, and decrease the number of contractors.
Question. Describe the existing authorities, organizational
structure, and reporting relationship of the Chief Information Officer.
Note and explain any variance from that prescribed in the newly-enacted
Federal Information Technology and Acquisition Reform Act of 2014
(FITARA, Public Law 113-291) for the above.
Answer. The FCC has been moving in the right direction to ensure
that our CIO has the support and level of responsibility contemplated
by Congress in FITARA. Our CIO works directly with the CFO and Managing
Director to develop the budget, and he has access to enhanced
procurement staff with an IT focus. In fact, the FCC has an outstanding
CIO, and we hope that by building his department and strengthening and
empowering his staff, we will serve as a role model for IT good
governance. In addition, our CIO has a good working relationship with
the Federal CIO and is in step with efforts to modernize the approaches
of the acquisition and implementation of IT in government.
Question. What formal or informal mechanisms exist in your agency
to ensure coordination and alignment within the CXO community (i.e.,
the Chief Information Officer, the Chief Acquisition Officer, the Chief
Finance Officer, the Chief Human Capital Officer, and so on)?
Answer. Given the compact nature of the FCC, the Office of Managing
Director (OMD) coordinates and directs the office's staff, including
the CFO and CIO. Also situated under OMD are human resources and
procurement office personnel. The combination of these offices within
OMD and the elevated status of the CIO in answering directly to the
Managing Director have created an IT-centric focus that greatly
benefits the Commission in long-term planning efforts.
Question. According to the Office of Personnel Management, 46
percent of the more than 80,000 Federal IT workers are 50 years of age
or older, and more than 10 percent are 60 or older. Just 4 percent of
the Federal IT workforce is under 30 years of age. Does your agency
have such demographic imbalances? How is it addressing them?
Answer. The Commission does not consider an applicant's age when
making hiring decisions. The FCC also is proud that its working
environment encourages loyal staff and excellent retention. During the
past year, the FCC has endeavored to hire and retain qualified, skilled
staff regardless of their age, including highly respected personnel
detailed from other agencies. We believe that we need to maintain a
fully staffed IT shop and decrease dependency on IT contractors. Until
we receive essential funding, however, we will be unable to fully to
meet needed staff levels.
Question. How much of the agency's budget goes to Demonstration,
Modernization, and Enhancement of IT systems as opposed to supporting
existing and ongoing programs and infrastructure? How has this changed
in the last 5 years?
Answer. The Government Accountability Office has noted that Federal
agencies currently spend more than 70 percent of their IT budgets on
maintaining legacy systems. The FCC, like other agencies, has been
caught in this legacy trap; as of the end of fiscal year 2013, we were
trending well above even the Federal average of 70 percent. In fact,
the FCC has trended as high as 80 percent for Operations and
Maintenance (O&M) and this level actually increased during the past 5
years. Notable exceptions have been new auction system development to
support the agency's mission and critical security upgrades.
We have tackled the problem of legacy systems head-on and targeted
all available resources toward modernizing our IT systems. But
additional funds are necessary in order to make this a reality,
however, or risk maintaining high-cost, antiquated and inefficient
systems. The FCC's fiscal year 2016 budget requests $5.8 million to
replace the FCC's legacy infrastructure with a managed IT Service
provider, as well as one-time infusions of $9.6 million to rewrite the
FCC's legacy applications as part of a modular ``shift'' to a modern,
resilient, cloud-based platform. These new funds will be dedicated to
removing the legacy restraints imposed on our budget and allow for
spending directed toward more economical and useful resources.
Question. What are the 10 highest priority IT investment projects
that are under development in your agency? Of these, which ones are
being developed using an ``agile'' or incremental approach, such as
delivering working functionality in smaller increments and completing
initial deployment to end-users in short, 6-month timeframes?
Answer. We have very modest IT investment projects compared to most
other agencies and are currently utilizing reprogrammed funds to
support a server move. Our fiscal year 2016 budget outlines the
remainder of our specific priorities: $5.8 million to replace the FCC's
legacy infrastructure with a managed IT Service provider, as well as
one-time infusions of $9.6 million to rewrite the FCC's legacy
applications as part of a modular ``shift'' to a modern, resilient,
cloud-based platform. We also have asked for $2.2 million to improve
the resiliency of the FCC systems, specifically to address gaps
identified in our recent FISMA audit process.
At present, the development of a replacement for our ECFS (or
``comments'') system is an important example of the continued use of
agile development. Our move to ``O365'' is a top-ten priority, but it
does not involve development, just moving our Microsoft infrastructure
to a true cloud environment. Our highest priority development efforts
are mostly centered on incentive auctions and licensing systems. These
upgrades are a stop-gap measure until funding is made available for
fundamental rewrites of those systems into a true cloud infrastructure,
fully utilizing the agile approach.
Question. To ensure that steady State investments continue to meet
agency needs, OMB has a longstanding policy for agencies to annually
review, evaluate, and report on their legacy IT infrastructure through
Operational Assessments. What Operational Assessments have you
conducted and what were the results?
Answer. Yes. We determined last year that we had 207 legacy
systems, mostly unsupportable going forward. As a result, we developed
a long-term IT modernization plan that is reflected in our fiscal year
2016 budget. Our fiscal year 2016 budget requests $5.8 million to
replace the FCC's legacy infrastructure with a managed IT Service
provider, as well as one-time infusions of $9.6 million to rewrite the
FCC's legacy applications as part of a modular ``shift'' to a modern,
resilient, cloud-based platform. A rationalization process for all
systems and applications is ongoing as part of our effort to reduce the
overall cost and complexity of FCC systems.
Question. What are the 10 oldest IT systems or infrastructures in
your agency? How old are they? Would it be cost-effective to replace
them with newer IT investments?
Answer. The FCC has identified the legacy system issue as a core
impediment to agency efficiency and a major contributor to overpriced
maintenance costs. It would be more cost-effective to replace these
systems with newer IT investments and we are moving in this direction.
The development of the new Consumer Complaint Database is an example of
this work.
I have been advised by our IT staff that examples of our oldest
applications include: GenMen, ULS, CDBS, ECFS, ELS, ETFS, EDOCS, EMTS
and PAMS. Aging Infrastructure includes: E25K, V490 servers, UPS units
in Auctions computer room, Core Routers and the Distribution Switches,
as well as our SAN. The age of these applications and infrastructure is
broad, but mostly falls into the over 10-year range with some probably
approaching 20 years.
It is more cost effective to rewrite the applications into a cloud
infrastructure versus replacing the equipment. The initial estimate for
just modernizing the applications in the present manner was well over
$22 million, not including upgrading all of the hardware. Our request
reflects a 50 percent cost avoidance on the development effort alone
without even addressing cost avoidance on the hardware.
Question. How does your agency's IT governance process allow for
your agency to terminate or ``off ramp'' IT investments that are
critically over budget, over schedule, or failing to meet performance
goals? Similarly, how does your agency's IT governance process allow
for your agency to replace or ``on-ramp'' new solutions after
terminating a failing IT investment?
Answer. We are currently in the process of implementing a long-term
modernization effort. We do not have issues and problems related to
over-budget, over-schedule, or related issues due in part to a lack of
investment in future needs. Our IT governance process, managed through
OMD, allows for a fast turn-around through direct contact and
discussion with the CFO and Managing Director.
Question. What IT projects has your agency decommissioned in the
last year? What are your agency's plans to decommission IT projects
this year?
Answer. We have not decommissioned any IT projects but did replace
the Consumer Complaints system. Because of flat funding and not having
significant new IT projects funded other than auctions, our entire
focus has been on O&M for existing systems. We were compelled to halt
improvements and upgrades to the Broadband Map this year due to funding
restraints.
Question. The newly-enacted Federal Information Technology and
Acquisition Reform Act of 2014 (FITARA, Public Law 113-291) directs
CIOs to conduct annual reviews of their agency/department's IT
portfolio. Please describe your agency/department's efforts to identify
and reduce wasteful, low-value or duplicative information technology
(IT) investments as part of these portfolio reviews.
Answer. In February 2014, the FCC conducted a top-to-bottom review
of its internal processes and determined that IT systems at the agency
were in serious need of modernization. Since that time, we have been
actively engaged in eliminating the 207 legacy systems and creating
integrated systems similar to the Consumer Complaint Database.
The CIO's input on the portfolio review is clearly highlighted in
our fiscal year 2016 Budget request: $5.8 million to replace the FCC's
legacy infrastructure with a managed IT Service provider, as well as
one-time infusions of $9.6 million to rewrite the FCC's legacy
applications as part of a modular ``shift'' to a modern, resilient,
cloud-based platform. We also have asked for $2.2 million to improve
the resiliency of the FCC systems, specifically to address gaps
identified in our recent FISMA audit process.
Question. In 2011, the Office of Management and Budget (OMB) issued
a ``Cloud First'' policy that required agency Chief Information
Officers to implement a cloud-based service whenever there was a
secure, reliable, and cost-effective option. How many of the agency/
department's IT investments are cloud-based services (Infrastructure as
a Service, Platform as a Service, Software as a Service, etc.)? What
percentage of the agency/department's overall IT investments are cloud-
based services? How has this changed since 2011?
Answer. The FCC is currently planning to move to cloud-based
system. Beyond the move of Microsoft products to O365, which is a full
cloud-based deployment, lack of funding will limit our ability to re-
write our applications in to a cloud infrastructure. We currently have
instantiations of cloud including ZenDesk, Relativity, Mule API
Manager, box.com, Google Apps for Government, Amazon Web Services,
Appian, and CenturyLink for Web site deployment. We also are planning
for several more, including; Azure, SoftLayer, Office365, Incentive
Auction, ISAS Bidding system, BPM using ServiceNow and IdaaS using
Okta. Please note that these involve only partial deployments in most
instances. ZenDesk is a full cloud implementation like O365.
Question. Provide short summaries of three recent IT program
successes--projects that were delivered on time, within budget, and
delivered the promised functionality and benefits to the end user. How
does your agency define ``success'' in IT program management? What
``best practices'' have emerged and been adopted from these recent IT
program successes? What have proven to be the most significant barriers
encountered to more common or frequent IT program successes?
Answer. The FCC rolled out the Consumer Complaint Database at about
one-sixth of the traditional cost for such a project and it epitomizes
many of the agency-wide changes that we hope to implement for IT:
inexpensive, off-the-shelf solutions, combined with resiliency, user-
friendly options, and the potential to improve our internal data
collection methods to increase transparency and inform policy-making
decisions.
Unfortunately, lack of funding has undermined additional system
development projects. On April 6, 2015, we did sign a contract to move
our server off-premises to a secure Federal cluster site in West
Virginia. The move to O365 also is a significant project with a fixed
price and will be delivered on time and on budget. Further, we plan to
develop and deliver the ECFS commenting system in the same timeframe
and using the same methodologies as the complaints system. This process
will replace the aged system that had difficulty handling four million
comments during our recent Open Internet proceeding.
Also, OMD is working hard on improving the searchability,
navigability, and appearance of the FCC's external Web site,
improvements in search functionality should be seen within the next 2
months, if not earlier. Improving usability and appearance will involve
input from FCC.gov stakeholders internally and externally.
As part of this process, we revamped the FOIA page at fcc.gov to
make data and filing information more readily available to members of
the public. Information on the budget and appropriations for the
current fiscal year and the number of total FTEs are available on the
Web site. FOIA Annual Report and quarterly reports to DOJ are also
available on the Web site. The FCC is a partner in FOIA Online, and
once fully implemented, PERM will commence posting FOIA logs and status
updates online.
______
Questions Submitted by Senator Christopher A. Coons
Question. The legislation authorizing the incentive auction also
created a $1.75 billion TV Broadcaster Relocation Fund to compensate
broadcasters who do not participate in the auction but are nevertheless
required to relocate their signal.
Is the FCC confident that the TV Broadcaster Relocation Fund will
fully compensate broadcasters for necessary relocation costs resulting
from the upcoming incentive auction?
Answer. At this point, we have no reason to believe that the $1.75
billion Broadcaster Relocation Fund will be insufficient to cover
broadcasters' relocation costs. We are taking appropriate measures to
disburse funds as fairly and efficiently as possible to ensure the
sufficiency of the fund. We have proposed to optimize the final
broadcaster channel assignments to minimize relocation costs by: (1)
maximizing the number of stations assigned to their pre-auction
channels; and (2) avoiding reassignments of stations with high
anticipated relocation costs, based on the most accurate information
available.
Question. In the event that the TV Broadcaster Relocation Fund
cannot fully compensate broadcasters, how will the FCC allocate
payments from the fund?
Answer. We are taking appropriate measures to disburse funds as
fairly and efficiently as possible to ensure the sufficiency of the
Reimbursement Fund. If future developments suggest that the $1.75
billion Reimbursement Fund will be insufficient to cover all eligible
costs, the Commission has delegated authority to the Media Bureau to
develop a prioritization scheme for reimbursement claims.
Question. The FCC is currently considering a change to its
procedures under the effective competition provision of the 1992 Cable
Act, which would institute a nationwide rebuttable presumption that
there is effective competition for pay television services in every
community in America. Critics argue that this move will allow cable
companies to insist on carriage agreements that increase rates for
customers and reduce the availability of broadcast stations for lower-
income Americans.
Are you confident that the rule change will not have a negative
impact on consumers and broadcasters?
If the critics are correct, what options does the FCC have to
address any harm that does occur, such as reversing the presumption
once more or taking other corrective action?
Answer. On June 3, 2015, the Commission adopted a Report and Order,
Implementation of Section 111 of the STELA Reauthorization Act (MB
Docket No. 15-53), which flipped the presumption of Effective
Competition. In the more than 20 years since Congress's 1992
instructions, competition in the video marketplace has increased
dramatically. Direct broadcast satellite (DBS) providers, like DIRECTV
and DISH Network, now have a ubiquitous nationwide presence providing
competition in virtually all markets. This is in addition to the
competition increasingly being provided by other pay-TV providers. The
Commission found, in almost all cases, that Effective Competition did
exist and that most cable operators who petitioned the FCC met the
statutory test. Where there is Effective Competition, the need for
basic service tier rate regulation is diminished.
Last year, the STELA Reauthorization Act further instructed the
Commission to make it easier for small cable operators to petition the
FCC to determine Effective Competition in their markets. The size of
the cable system, however, bears little relationship to whether it has
Effective Competition. Thus, it is only appropriate for the Commission
to adopt a process that reflects the reality that Effective Competition
exists throughout the Nation and provides relief to operators both
large and small.
For the last several years, we have been able to watch real-world
examples of what happens when cable rate regulation is removed. In the
thousands of cable systems subject to Effective Competition, we have a
sizable number of real life examples, not hypotheses. Significantly,
our most recent report on cable industry prices concludes that the
average rate for basic service is lower in communities with a finding
of Effective Competition than in those without such a finding. This is
not surprising, since competitive choice is the most efficient market
regulator. Similarly, there has been no evidence in this proceeding to
suggest that our previous findings of Effective Competition in
thousands of communities led to any changes in the tier placement of
local broadcast stations.
This is our presumption: competition results in lower prices for
consumers. However, any local franchising authority is free to come to
the FCC and rebut this new presumption for its service area, and, where
successful, regulate basic tier cable rates. In addition, nothing in
this Order affects other franchising authority responsibilities
including the collection of franchise fees, provisions relating to PEG
channels and I-Nets, and the creation and enforcement of customer
service standards.
Based on the record compiled in this proceeding, I firmly believe
that the critics have been and will be proven wrong on this issue.
However, in the event that consumers are negatively impacted as a
direct result of our action reversing the presumption, the Commission
has the breadth of its authority under Title VI of the Communications
Act to implement appropriate remedies, including the ability to modify
our rules as necessary.
Question. The FCC manages a small but very important program that
provides telephone relay services so that a deaf person can communicate
with a hearing person using the telephone. This critical program allows
deaf people to interact with the hearing world, whether it's calling
their friends and family, interviewing for a job or ordering a pizza.
Like the USF programs, the FCC has an important oversight role to
ensure that the program's funds are spent efficiently to meet the needs
of the deaf community without overcharging the millions of Americans
that pay into the fund.
Can you provide an update on what the FCC is doing to revise this
program and its compensation rates?
Answer. In 2013, the Commission unanimously adopted an Order and
Notice of Proposed Rulemaking (NPRM) to reform the Video Relay Service
(VRS) program. In that Order, the Commission sought to enhance the
provision of high quality, functionally equivalent service, improve
program efficiency, and prevent fraud, abuse, and waste. Among other
changes, the Commission adopted measures to achieve greater
interoperability across provider services. The Commission also
recognized that for many years, the compensation paid to providers
substantially exceeded their actual costs. To correct this problem
while avoiding a sudden, potentially harmful drop in provider
compensation, the Commission adopted a gradual 4-year schedule for
adjusting rates in the direction of cost based levels. In slowly
adjusting the compensation rates during the period in which it is
implementing structural reforms, the Commission improved the
predictability of reimbursements, allowed providers an opportunity to
plan effectively for the transition to cost-based rates, and provided a
window of opportunity for smaller VRS providers to grow, increase their
efficiency, and test the value of their service on a more level playing
field. In the NPRM portion of that order, the Commission sought comment
on proposals to use auctions and other methods to most appropriately
establish cost-based rates.
In a recent filing, the six VRS providers requested the Commission
to interrupt the 4-year rate adjustment schedule by temporarily
``freezing'' VRS compensation rates at the current levels. The
providers contend that such a measure is necessary to enable them to
maintain service quality and offer certain additional service
improvements. The Commission is currently considering a Further Notice
of Proposed Rulemaking that asks about the proposal put forth by the
six VRS providers, among other options.
Question. When do you expect the revised rates to be announced?
Answer. The Commission announced the rate schedule for the VRS and
other relay services on June 30, 2015.
Question. Will currently planned compensation rate reductions lead
to a decreased level of VRS service for the deaf?
Answer. We do not believe so; however, as indicated above, we are
seeking additional information on this question, including whether we
should consider a temporary pause in the rate schedule. In any event,
we will abide by our statutory mandate to ensure that
telecommunications relay services ``are available, to the extent
possible and in the most efficient manner'' to persons in the United
States with hearing or speech disabilities.
Question. How has the FCC calculated the current compensation
rates? How will the FCC calculate the revised rates?
Answer. Prior to June 2010, VRS compensation rates were calculated
based on projections of cost and demand submitted by providers. In
setting compensation rates for the 2010-2011 Fund year, the Commission
found that for the prior 4 years, for which rates had been set based on
providers' projected costs, providers had been overcompensated by more
than $2.00 per minute, due to reliance on projected costs and
inaccurate demand forecasts submitted by providers. Since that time,
the Commission has routinely collected and reviewed providers' actual
(or historical) cost data, which served as a basis for the rate
reductions adopted in the 2013 VRS Reform Order.
Question. What criteria has the FCC used to determine which costs
will be included in the allowable costs for compensation under the
current regime? Why does the FCC not include the cost of equipment
provided to users? Is the FCC reconsidering which costs will be
included in the future, to closer match the actual costs paid by the
industry for this service?
Answer. The Commission's list of ``allowable'' costs is based on
the elements needed to make the service available. It has remained
constant through most of the existence of VRS and has been factored
into the business decisions of providers to enter the VRS market.
Equipment costs have been excluded from the cost basis for VRS
rates since 2006. As the Commission then explained, the expenses for
which providers are compensated ``must be the providers' expenses in
making the service available and not the customer's costs of receiving
the service. Compensable expenses, therefore, do not include expenses
for customer premises equipment--whether for the equipment itself,
equipment distribution, or installation of the equipment or necessary
software.'' Telecommunications Relay Services and Speech-to-Speech
Services for Individuals with Hearing and Speech Disabilities, CG
Docket No. 03-123, Memorandum Opinion and Order, 21 FCC Rcd 8063, 8071,
17 (2006) (emphasis original).
In this regard, we noted that consumers increasingly access VRS
using their own general purpose, off-the-shelf equipment, such as smart
phones and tablet computers, rather than dedicated equipment offered by
VRS providers. As the court of appeals stated in upholding the
Commission's VRS rate determination, this reliance on off-the-shelf
equipment ``will make provider-funded video equipment even less
relevant to the provision of VRS.'' See Sorenson Communications, Inc.
v. FCC, 765 F.3d 37 (D.C. Cir. 2014).
The Commission fine-tuned the list of allowable costs in the 2013
VRS Reform Order. Regarding cost methodology, the NPRM sought comment
on possible alternatives to setting compensation based on calculation
of specific costs--such as by employing auctions or other forms of
competitive bidding to set some or all elements of the applicable
compensation rate.
Question. Positive Train Control.--Please describe the FCC's role
in obtaining or helping to obtain spectrum licenses for railroads for
implementation of PTC.
Please describe the FCC's role in approving the use of spectrum
held by railroads for implementation of PTC, including the pendency of
any requests for waivers or technical assistance.
Answer. Since my arrival at the FCC in November 2013, I have made
facilitating PTC deployment a top priority.
As you know, the Act does not designate specific spectrum bands for
PTC, nor does it direct the FCC to allocate specific spectrum for PTC.
Absent such direction from Congress--and consistent with decades of
successful, market-driven spectrum policy--the FCC encouraged the
railroads to turn to secondary markets for spectrum, especially given
that much of the spectrum the rails chose for PTC had previously been
auctioned and licensed to other private parties in major rail markets.
To facilitate this process, I have asked FCC staff to continue engaging
with the railroads to develop creative approaches to meet their
spectrum needs. These include facilitating an efficient secondary
market by matching existing licensees with railroads needing spectrum,
encouraging the freight and commuter rails to develop interoperable
systems, examining spectrum sharing and lease arrangements, and waiving
power level limits to enable PTC systems to operate more effectively.
This strategy has been successful. Whether through secondary market
purchases or leases with PTC-220, the freights, Amtrak and the commuter
rails have cooperated to find spectrum to meet their needs in most
parts of the country. In those areas, like the Northeast Corridor,
where additional spectrum is required for PTC purposes, our work in
facilitating spectrum is ongoing. For example, we are actively
reviewing a proposed exchange of comparable spectrum that would
complete spectrum acquisition in the Metropolitan NYC area, fulfilling
the MTA's needs, providing spectrum for Amtrak use, and accommodating
New Jersey Transit requirements in Northern New Jersey. We continue to
assist railroads in their efforts to identify partners for secondary
market transactions.
The spectrum between 217 MHz and 222 MHz that has been chosen by
the railroads for PTC use comprises three different spectrum bands that
were originally auctioned for very different uses. The service rules
applicable to those bands have requirements consistent with those
original uses. We have waived many of those rules, including technical
rules relating to transmit power levels, tower heights, and
interference criteria at the request of the railroads to facilitate PTC
deployments.
SUBCOMMITTEE RECESS
Senator Boozman. The subcommittee hearing is hereby
adjourned.
[Whereupon, at 11:49 a.m., Tuesday, May 12, the
subcommittee was recessed, to reconvene subject to the call of
the Chair.]