DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE JUDICIARY, AND RELATED FOR FISCAL AGENCIES YEAR 1998 APPROPRIATIONS WEDNESDAY, APRIL 16, 1997 SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, U.S. SENATE, Washington, DC. The subcommittee met at 10 a.m., in room S-146, the Capitol, Hon. Judd Gregg (chairman) presiding. Present: Senators Gregg, Campbell, Domenici, and Hollings. FEDERAL COMMUNICATIONS COMMISSION STATEMENT OF HON. REED E. HUNDT, CHAIRMAN ACCOMPANIED BY ANDREW S. FISHEL, MANAGING DIRECTOR OPENING REMARKS Senator GREGG. We will begin the hearing here on the Federal Communications Commission [FCC] appropriation. Senator Hollings, how are you today? Senator HOLLINGS. Good morning, Judd. You all right? Senator GREGG. I am great, great. Senator HOLLINGS. Good. Senator GREGG. We have somebody with some knowledge base on this subject here. We can actually begin. I have no opening statement. Did you have an opening statement? Senator HOLLINGS. No; thank you. Senator GREGG. We would be happy to hear from you, Mr. Hundt. OPENING STATEMENT OF MR. HUNDT Mr. HUNDT. Thank you very much. Let me introduce Andy Fishel, our Managing Director, who is sitting to my right. Thank you very much for having this hearing. As I am sure you know, at this particular time in history, the Federal Communications Commission is wrestling with some of the most difficult problems that the agency has ever had to address, and they certainly are time-consuming, and voluminous problems. In the last year, pursuant to the Telecom Act, and the normal crush of business, we have initiated 265 separate rulemakings, and have reviewed one-quarter of 1 million pages of comments filed by 72,000 parties. At the same time, we have completed 14 auctions; we began our 15th yesterday. Our daily workload over the course of the last year has led to us granting 425,000 separate applications, resolving more than 80,000 separate complaints. And our overtime electricity bill has tripled in the past year. And the work is just beginning. We anticipate filings under section 271 of the new law for Bell companies to get into long distance. Ameritech's filings, this year, so far, in Michigan alone, have been supplemented by 17,000 pages of documents. We have also been dealing with some very daunting economic and intellectual problems, not just voluminous but just plain hard. Let me give you two examples and then bring my statement to a close, so that we can proceed as you would wish. An example. Congress asked us to take implicit universal subsidies and make them explicit, and establish a universal service system that expressly contemplates that there could be multiple universal service providers that receive that subsidy. Consequently, we have been working very hard in recent months to figure out how to implement this mandate in a way that preserves and addresses universal service for small telephone companies, and particularly for small telephone companies in rural America. In many parts of America, particularly those that are rural, it is not the six large Bell companies and GTE that are the service providers, but it is, in total, 1,400 small telephone companies and rural cooperatives. We understand, clearly, that Congress has asked us in no way to have these companies be victims, or sufferers from the policy of competition. Instead, we need to reconcile the policy of competition with the country's historic commitment to preserving, maintaining, and supporting universal service in this country. The first step, pursuant to the congressional mandate, was to work with the joint board of State and Federal commissioners to write a report. This was done in November. Here is where I think we are now. I speak not for the whole Commission, which will vote on this matter on May 6, but just to give you some insight, Mr. Chairman, on this particular matter, as an example of the kind of work that we've been pleased to do, but have been somewhat burdened by. Rural telephone companies, the backbone of universal service to rural America should, I think, continue to receive all the universal service assistance that they are receiving today, and that they would be receiving if we did not need to reform the methods. The methods today, known by acronyms like LTS and DEM weighting, and high cost fund, do need to be reformed pursuant to the mandate of Congress. They need to be made explicit. But the reform should not be one, in my view, that shortchanges these telephone companies in any way. The joint board thought that it might be a good idea to freeze high cost support based on 1995 investment. My own personal conclusion is that in this respect, we should not follow the joint board's recommendation and we should continue to distribute high cost support according to existing formulas, which will allow support to rise in 1998 and 1999, based on investments made in 1996 and 1997. For the year 2000, it is my view that we should adopt a proposal made by smaller telephone company associations to adjust the level of support by inflation. Another instance of some of the work we have been doing—the joint board report was read, by some, to suggest that we should eliminate all support for second residential lines and multiline businesses. Members of this committee, including the distinguished ranking Democratic member, have suggested to us that this is not an aspect of the joint board report that we should adopt, and we agree at least I agree with that view. Rural telephone companies, in my view, should continue to receive support for all lines through at least January 1, 2001. And a last example of a problem that we are struggling with, and I think we are coming up with the right and happy solution-how do we fulfill Congress' mandate to connect every classroom and library and rural health care clinic in the country to our Nation's telephone networks, without, in any way, causing any threat, direct or indirect, to the price of basic residential dialtone service? I believe that the recommended decision is circulating now, or virtually now-I have not checked my clock-but essentially today, among the commissioners of the FCC, will accomplish this goal, it will not be necessary in any way, to directly or indirectly threaten, prejudice, or increase basic residential dialtone in order to accomplish the goals of connecting rural health care clinics providing service to low-income people, or connecting classrooms and libraries. PREPARED STATEMENT As to the specific techniques that we suggest instead, they bear substantial resemblance to today's techniques where purchasers of interstate tariffs, particularly businesses, do, in fact, carry the bulk of the load of maintaining the communications networks of America. I could describe it in more detail, if you wish, and possibly you would like me to bring this to a conclusion now. Thank you for your indulgence. [The statement follows:] PREPARED STATEMENT OF REED E. HUNDT INTRODUCTION Mr. Chairman and Members of the Subcommittee, thank you for this opportunity to testify on the Federal Communications Commission's fiscal year 1998 Budget Estimates. The Telecommunications Act of 1996 updates the FCC's charter first granted in the Communications Act of 1934. Congress sought to establish a pro-competitive, deregulatory national policy framework for communications. This framework reflects a bipartisan consensus that introducing competition and deregulation in America's telecommunications marketplace offers numerous potential benefits for consumers, business users, communications companies, and the economy as a whole. If our competition policy is a success, then the market, not government, will declare industries or firms winners or losers. And, as The New York Times editorial page observed last month, if competition succeeds, customers used to squabbling with their local telecommunications service provider over installation, service repairs, or rates can do more than fight. They can switch. Accordingly, implementation of the Telecommunications Act remains the FCC's day-to-day agenda. We also remain committed to the goal of public benefits from communications. Market forces alone will not always adequately meet all of society's public interest 39-831 98 - 12 goals, such as addressing public safety needs. Consumer education and outreach is also an integral part of our mandate. Finally, we are working to make the FCC's operations as smart, simple, and streamlined as possible. The payoff is that our productivity is up. Even as we project the return of FCC staffing to pre-Telecommunications Act levels, our workload continues to grow. TELECOMMUNICATIONS ACT IMPLEMENTATION We have been able to meet or beat every deadline the Telecommunications Act sets for us, while continuing to carry out all of our other responsibilities. So far, we have completed 44 implementation-related rulemakings and adopted 146 individual items. We have also held 18 public forums on issues related to Telecommunications Act implementation, including interconnection, access charge reform and universal service, national wireless facilities siting policies, and market entry barriers for small businesses. We are in the process of completing 23 proceedings, and the Telecommunications Act requires us to initiate at least 12 additional proceedings. As we continue to implement the Act, we are discovering a number of things we did not realize previously. One is that the process of introducing the competition envisioned by the Act is increasing our workload in ways that are difficult to predict and to plan. We have been inundated with filings in the various proceedings before us. For example, we have reviewed 75,000 pages of comments and other filings by parties in the universal service proceeding alone. On access reform we received a four-and-a-half foot stack of comments that does not include over 300,000 e-mail comments concerning charges that Internet Service Providers and similar companies pay to local telephone companies. In both proceedings, we have spent hundreds of person hours in meetings with interested parties. We have also spent almost $450,000 in overtime electric bills during the past year, more than triple what we spent the year before, just to keep our buildings open to support the longer staff hours. With respect to Bell Operating Company (BOC) entry into the long distance market, we now know that the 49 anticipated filings by BOC's under §271 of the Act may not be as neat as the process suggests. Earlier this year, for example, Ameritech filed twice before withdrawing its application, which resulted in over 17,000 pages of filings. Last Friday, SBC Communications filed the third in-region long distance entry petition, which consists of 5,000 pages of filings. In fact, for fiscal year 1997 we project filings received in all docketed proceedings will increase 88 percent over fiscal year 1996. Additionally, while Telecommunications Act implementation has required us to increase Full Time Equivalents (FTE's) devoted to policy and rulemaking activities by 50 percent since fiscal year 1995, filings received for review in docketed proceedings have increased by 227 percent during the same period. We are required to, and do, give consideration to every one of the filings and comments received by the agency. The Telecommunications Act impacts our workload in other ways as well. Veronis, Suhler & Associates reported two weeks ago that mass media mergers and acquisitions totaled $113 billion in 1996. How many new broadcast license transfers will be filed with the Commission as the industry continues to benefit from the new structural freedom the Act affords? How many complaints will be filed concerning over-the-air-reception devices? How many preemption cases will the FCC be called upon to address pursuant to § 253 of the Act? Five of the ten largest U.S. business mergers in 1996 were between telecommunications companies, and each one required FCC review. With the digitization of communications, the entire computer industry has become part of the communications sector of our economy, and has a number of issues before the FCC. Moreover, each action we take has advocates and opponents. Many decisions will be challenged in court. The subsequent_workload from implementing the Telecommunications Act's changes is very large. Being prepared to handle this growing workload, like implementation of the Act itself, requires that we have sufficient resources. OVERVIEW OF FISCAL YEAR 1998 BUDGET REQUEST The FCC proposes an fiscal year 1998 budget of $217,000,000 with 2,155 FTE's. This represents an increase of $30 million over an adjusted fiscal year 1997 appropriation level, as described below. The proposed increase is for one purpose only: to reimburse the General Services Administration (GSA) for one-time, non-recurring costs to relocate FCC headquarters to a consolidated working space at the Portals project in Southwest Washington. The reimbursable costs are attributable to expenses for information systems at the Portals, as well as design requirements and systems furniture that have to be paid for in fiscal year 1997 in order for the items to be available by the time the move begins early in fiscal year 1998. It is anticipated that $10 million in additional funding will be required in fiscal year 1999 to repay GSA for the remaining costs associated with the relocation. We are advised the roof will be in place at the Portals building later this Spring. The building itself incorporates design elements necessary to accommodate the specific requirements of the FCC. The schedule calls for the FCC to move in six equal phases beginning approximately December 1997 and ending June 1998. With the exception of the increased funding for headquarters relocation, the FCC's fiscal year 1998 appropriations request is $187 million. Please note that this is $2.1 million less than our total fiscal year 1997 appropriation of $189,079,000. It is also $2.1 million less than the base appropriation included in the President's budget. This reduction reflects a change in the estimated cost of salary increases. We are requesting no additional funding to cover $7.3 million in anticipated uncontrollable costs, primarily to cover the cost of fiscal year 1997 and fiscal year 1998 locality and pay raises. Also included are inflationary costs for various non-compensation accounts including rent, mail, and service contracts. We have assumed that these costs will be funded from the savings generated by the reduction of 100 FTE's through 1998. These staff reductions will be accomplished through attrition and a decrease in the number of employees initially hired on term appointments, as those appointments expire in fiscal year 1998. Our proposal to operate at a current service baseline for fiscal year 1998 of $187 million is less than last year's appropriation. The amount to be collected from regulatory fees would increase from $152,523,000 in fiscal year 1997 to $162,523,000 in fiscal year 1998. As you know, in fiscal year 1996 Congress appropriated $10 million to the FCC for Telecommunications Act implementation. The FCC obligated $7.2 million of this amount prior to September 30, 1996. The balance of $2.8 million has been carried forward into fiscal year 1997 to complete Telecommunications Act initiatives begun in fiscal year 1996. Almost all of the $2.8 million is either obligated or committed in the agency's accounting system for the completion of implementation-related initiatives, such as the continuation of required paralegal and data support services, and economic analysis of telecommunications issues. The FCC has also carried forward into fiscal year 1997 $2.4 million of spectrum auction receipts that are obligated for necessary auctions-related expenses in the current fiscal year. Finally, we carried forward into fiscal year 1997 $3 million in regulatory fees collected in excess of the appropriation requirements for fiscal year 1995 ($2.9 million) and fiscal year 1996 ($100,000). Our plan is to redirect these funds to programmatic activities, such as electronic licensing, which is a significant part of our ongoing efforts to streamline the Commission's processes. PUBLIC SAFETY SPECTRUM In addition to promoting competition, the second fundamental task of the FCC is to secure the public interest in communications. One of the public's most urgent needs is for more public safety spectrum. The Commission took a giant step toward addressing this need two weeks ago when it adopted the Digital Television (DTV) Table of Allotments, which recovers immediately 60 MHz of spectrum previously used for TV channels 60-69. I hope that 24 MHz of this newly recovered spectrum (out of a total of 138 MHz to be recovered over the next ten years) can be reallocated quickly to help address the serious spectrum needs of public safety agencies. As I noted when we adopted the DTV Table, the benefits of this reallocation can be measured, literally, in lives saved. Affording the public safety community new spectrum with nationwide capacity will also facilitate development of network interoperability and will create new efficiencies in equipment manufacturing that can be passed on to public safety users. Additional spectrum, however, is only one step in improving public safety wireless communications. The Public Safety Wireless Advisory Committee (PSWAC) identified other areas in which improvements are needed. For example, the public safety community has long been beset by the problems of operating in many different frequency bands-meaning that police, fire, and emergency agencies in one town often cannot talk to each other because they operate on different frequencies. Past FCC policies contributed to the problems we see today. The Commission allocated spectrum on a piecemeal basis-leading to the fragmentation that characterizes public safety communications. A significant portion of our ongoing public safety proceeding will be devoted to addressing interoperability problems. We are also working on ways to improve the features and delivery of emergency communications, for example, examining the various ways that we can increase the accuracy and reliability of wireless 911 and enhanced 911 services. To alleviate congestion on 911 circuits, the FCC earlier this year announced the availability of a |