[Senate Hearing 114-181]
[From the U.S. Government Publishing Office]


 
  FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL 
                               YEAR 2016

                              ----------                              


                         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.]