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Date:` ` June 6, 19990*oo     X` hp x (#%'0*,.8135@8:0*H&H&@@ moment. Chandler said the following: "Historically, administrators have rarely changed their daily routine and their positions of power except under the strongest pressures. Therefore, a study of the creation of new administrative forms and methods should point to urgent needs and compelling opportunities, both within and without the organization." ` `  I think we all agree that the FCC faces urgent needs and compelling opportunities. It also has a wonderful staff. It has a good strategy. Structure should follow. Thanks. ` `  MR. PEPPER: Thanks, Mike. Bill? ` `  MR. NAPOLI: Hi. My name is Bill Napoli. Currently I am a faculty member at the graduate at Rutgers University, but I will be moving to the Graduate School of Business at Fordham University in a month or so. I taught three hours of summer school last night, so I can be brief. ` `  And the points actually I just want to make focus on the new core functions that are that are being proposed and some thoughts I had on on them and how they need to sort of be conceptualized and approached. ` `  First, the concept of consumer protection I think is an important and an interesting one. But given the industries that we're talking about and the types of social,%?0*H&H&@@ political effects that we often can associate and responsibilities that we associate with many of the industries that fall under the FCC's authority, I think that concept of consumer protection needs to be pretty expansive to include things like diversity and and First Amendment freedoms. The concept of consumer protection for these industries means a bit more than than rates. ` `  Second, and I think I'm sort of echoing a bit of what Pat Aufderheide had said, which is that the when we approach competition, we need to approach it primarily as means to other economic, social and political ends, and that there needs to be a lot more analysis and focus on those ends and how they're how they're being achieved rather than competition of an ends in and of itself. ` `  And these two points together I think both suggest a bit of a more expansive analytical orientation within the Commission. Even as perhaps the policymaking and regulatory functions contract a bit, I think that should happen only in response to information and data that and conclusions that are drawn from a more expansive, analytical orientation about the effects that the policy changes are having at the level of how citizens are responding and how they are using and taking advantage of new services and how they are accessing information. ` `  MR. PEPPER: Thanks, Bill. Peter.%@0*H&H&@@Ԍ` `  MR. CRAMTON: Peter Cramton from the University of Maryland. The FCC's mantra, both today and in the 21st century, should be, "Make markets work better." How does the FCC do this? First, they play a very important role in defining and enforcing property rights, in particular spectrum management and interconnection rules and rights; designing market rules. ` `  One example would be price transparency. Markets can't work if consumers don't know what the prices are. So in the implementation of caller pays for wireless, the consumer when I place that call, I should I should have some indication of what price is going to be charged; and many other examples of price transparency, as well. ` `  The FCC should provide public goods that stimulate competition, reduce barriers to entry, reduce transactions costs in communications markets, provide data where they have a better access to data than private companies would. ` `  When we focus on spectrum management, in spectrum management, the FCC and in other areas, the FCC should rely on marketbased tests. The use of auctions has been a tremendous advantage and breakthrough of the '90s. They should make more spectrum available. There has been huge consumer benefits to increase competition of wireless that we've all benefitted from. ` `  Licenses need to be made even more flexible than%A0*H&H&@@ they currently are. The FCC needs to deal with the difficult problems of encouraging efficient relocation of spectrum incumbents in situations where it's technology has changed and there are incumbents sitting there that need to relocate or be terminated to avoid the holdup problem and and reduce transactions costs. ` `  There are many difficult questions the FCC needs to deal with. The timing of release of spectrum, setting limits on aggregating spectrum, band allocations. The best way to do this is really a very difficult question and when technology is changing so rapidly. ` `  But the FCC should err on the side of making more spectrum available, making it more flexible. And the FCC should also continue their leadership role in continuing to enhance auction designs. They should develop the commentorial auction to expand the set of questions which marketbased tests can be relied upon. ` `  They should explore the use of twosided auctions where where they're not just selling spectrum, where but if I've got spectrum that I want to sell, I can put that into the auction, as well. And I believe they should continue a collaboration like this with academics; that that's very has been beneficial to both the academics and the FCC and consumers. ` `  MR. PEPPER: Thank you.%B0*H&H&@@Ԍ` `  MR. CRAMTON: So FCC, make markets work better. ` `  MR. PEPPER: Thank you, Peter. Judy. ` `  MS. HARKINS: I started out being terrified that I was going to be first. So I'm glad to see I don't have to be terrified about being last. I'm Judy Harkins from Gallaudet University. And my area of background has to do with accessibility of telecommunications and television to people who have disabilities. And primarily my work, because of where I work and my background, is in the area of access for people who are deaf and hard of hearing. ` `  And the FCC does have an important role to continue to play in this area. There is a long legislative history that indicates that. The federal government wants the telecommunications products and services of the country to be accessible to people with disabilities. And the FCC will need to remain involved in in that issue. ` `  I think the FCC has done an exemplary job by establishing an internal task force so that one person in each division has responsibility for monitoring this area and communicating with the public. And I would like to see something like that continued because I think it's been very effective in in getting the staff learning curve up very quickly. And the staff have been absolutely excellent. I'm very impressed with the FCC staff. ` `  I agree with someone's earlier comment that we are%C0*H&H&@@ moving back to a place where we need more engineering. And I'm talking as an outsider in that area, but I'll give you an example. We do not want to be in a situation where we are constantly fighting with industry about having to retrofit problems that have popped up for people with disabilities. ` `  We would like for the FCC to help us to be proactive and to to get hooks built into infrastructure so that this will not be necessary. And to do that, I think we need some help in the international standards arena where we don't have an easy place at the table. And I hope the FCC can be our partner in that and helping I think it will benefit all of us including industry if this can be done as early as possible because that's when it's the most cheap way to do it. ` `  And so that in terms of one unique thing, I think that's an area where the FCC can be helpful. In terms of transitional issues, we have quite a few those because the technologies that people with disabilities have used for access, for example, to the telephone are quite antiquated. But they work. ` `  And right now what's beginning to happen is that people are starting to have problems or we're seeing products introduced that cannot be negotiated by these types of products. For example, the text telephone.%D0*H&H&@@Ԍ` `  We can't all of a sudden not allow deaf people to make phone calls. So this has to be we have to deal with it. And industry resists strenuously and I can't blame them having to accommodate very, very old technologies. ` `  So we need to we need some help in migrating forward those specialized technologies so that, first of all, they can be integrated to the maximum extent possible and not be special anymore. But to the extent that they do need to exist, that they can be updated and easily integrated. ` `  MR. PEPPER: Thank you, Judy. Rob? ` `  MR. ATKINSON: Rob Atkinson with the Director of the Technology and New Economy Project for the Progressive Policy Institute. ` `  I, first of all, want to commend the Commission for doing this. I'm going to focus most of my comments more on where we should where you should be in the next few years as opposed to where you should be in five years because I think five years, essentially that's 20 web years. It's really kind of hard to figure out where anything is going to be in five years. ` `  So clearly, competition is the goal that Congress and the Commission have embraced, I think correctly so. But I would I would argue we're not there yet. And until we are, we still need the FCC to play an active role.%E0*H&H&@@Ԍ` `  But given that competition is really what the Commission needs to be focusing on and advancing, I think there is a number of implications of that in terms of what it what it's role should be. ` `  And here I'll echo what Peter said. I think that one of the defining characteristics of the new economy is really all about speed, speed innovation and entrepreneurship. And I think the new telecommunications market has to is reflective of that. ` `  And unless the FCC really embraces speed as its defining principle in terms of the process, it's going to really delay and make this transition a lot more difficult and a lot more uncertain. ` `  Third, in this new competition environment where we have a whole series now of crosssubsidies to support universal service, I think that's working directly at odds with moving to competitive markets. FCC needs to seriously look at reforming universal service for the new economy. ` `  And I would argue the major principles of that really ought to be about reducing universal service support, but targeting it following several other people's points, targeting it to low income people; and then also replacing the implicit crosssubsidies of one service by another with more explicit and neutral subsidies. ` `  Fourth, needs to empower consumers with%F0*H&H&@@ information. Several people have said that. I think that's a critical role of government in the new economy is is how do we make sure that consumers have the information they need to make the make proper choices. ` `  I would add some note to that as I think the FCC needs better data. We're just releasing a report now on on looking at the new economy around the country and have really been unable to get data on telecommunications around the country. And I think that we need better data, particularly on broad band deployment. ` `  And fifth and finally, I think the FCC needs to embrace what people would term extroverted or extroverted government. How does the FCC really engage with all these other parties that are certainly some of them are here, but all really all around the country in both large firms, small firms, community groups, others, in a sustained way that they can they can engage with them and at the same time still maintain their objectivity. Thank you. ` `  MR. PEPPER: Thank you, Rob. And last but not least, Russ. ` `  MR. NEUMAN: My name is Russ Neuman. I'm at the Annenberg Public Policy Center at Penn. And our first speaker this morning, Bob Litan, said the future of the FCC is no FCC. And I think I want to pick up on that, but suggest that the future of the FCC instead might be%G0*H&H&@@ considered a new FCC, although it might not be called that. ` `  Chairman Kennard asked that we take the broad view, and I'm going to attempt to do that by arguing that over the last 50 years, the primary mandate of the Commission was as an independent regulatory commission to adjudicate in the communications sector. And in the next century and millennia, the role of the FCC, I argue, should be to enhance and advance the communications sector. ` `  And if it's not an FCC, maybe it will be a cabinet level Department of Communications whose job picks up from five other current institutions of government including the NTIA, the Defense Labs, Bell Labs and Bell Corps from the private sector, OSTP and the National Science Foundation. ` `  And that the future of the FCC, instead of processing and applying rules, will be doing research to keep the technology, the openness of markets, access on the cutting edge in the American case, and that it's hard for an existing institution growing up on the application of rules to adopt these new procedures. ` `  So this would require working with the Hill, working with the academy and the private sector, and working probably at the next transition team to take a look at five years from now, how a new Department of Communications can address really fundamental questions of research, datagathering, making information available to the public about%H0*H&H&@@ how the new technologies work and what their options are in a fast changing, but hopefully competitive marketplace. And I think the future of the FCC is bright, although we're going to have to change the name. ` `  MR. PEPPER: Thank you. New and approved, the new name on the new and approved on the box. We actually are more than halfway through our time and we've just gotten through the first round. I appreciate those who actually did try to keep to two minutes and be succinct. And again, Peter, thank you for your suggestion. That worked. ` `  A couple of themes I think have come out of the discussion so far. One that seems to be pretty consistent that actually you could almost predict from this group as opposed to the two prior forms that we've had is that there is a lack of good information. In other words, how do we know when markets are at the point you can deregulate; how do we have basic information, as Rob said, about the telecommunications industry. ` `  You know, now this is somewhat controversial because, you know, Steve said we need to get information from incumbents; what about getting information from the new entrants. ` `  The new entrants come in and I think legitimately say, "Hey, wait a second. We're the little guys. We don't have a bunch of, you know, big Washington lobbyists and we%I0*H&H&@@ don't have big back offices. It's an enormous burden on us to provide data that the old monopolies provide as a matter of course. So, you know, why are you imposing a new regulatory obligation on us to provide data? We're just out there trying to compete. We're little guys." ` `  So this is kind of an interesting issue about who collects the data, how do we collect the data, whether data may be we have other agencies in government collecting all kinds of, you know, data. The Department of Commerce, for example, revising zip codes. There is a whole project going on in terms of trying to redefine indices of the new economy. So maybe this is something that we can talk about. ` `  There seemed to be agreement that, you know, at a very core I mean, this there were three things in which there seemed to be agreement: information data and questions about how one goes about doing that. ` `  Second, a focus on interconnection disputes. Even people who said that we can, you know, sort of do away with all of our traditional functions, at a core, there are going to be these these disputes on interconnection. Different people had different approaches to that. ` `  And the third area in which there seemed to be a great deal of agreement was on spectrum management, kind of a core spectrum function; whether it's, you know, licensed at all and get it out right away; at a minimum, sort of%J0*H&H&@@ define what it is people are getting. But there seems to be an enduring focus on yes, somebody is going to have to do spectrum and you guys haven't done such a terrible job that you shouldn't continue doing it. ` `  The one area in which there there was a lot of I heard disagreement were on the more social issues. Some people said, "Look, get out of this business. The markets are competitive." Other people were saying, "No, no. This is still a very important core function of the Commission. There is a public interest responsibility. And this is something that you should continue" "continue doing." ` `  On structural issues, I think there was wide agreement that leaner and faster, more consistent and more functional is probably probably some very, very good goals; and that, you know, sort of the delaying in the process I mean, some of the issues that that we heard about, some of the things that Steve raised and some of the things that Barbara raised I think are are important. And we have seen a consistency here. ` `  And then there in the future, there were a couple of questions that I think did come up in terms of what are our goals and different scenarios. Is it competition? Is it openness? What about interoperability? And some of the variables or factors that will affect getting to the competitive environment that people were %K0*H&H&@@ were talking about. ` `  And the other thing that I think people also well, no, I guess with what Jon Weinberg was saying and what Al was saying Hammond that maybe we are not moving to convergence. But I was going to say that there there seemed to be a moving towards a consensus without complete agreement that the rate of change is becoming faster, that in fact we are going to be living in this sort of convergent nirvana. So there was some difference there. ` `  I think it's useful maybe to focus a little bit on, you know, some of these points that people, you know, sort of disagree with the you know, with Lisa and I have, you know, taken notes here trying to listen and pull together as themes; just take a few minutes with some very, very short interventions on that because I would like to also be able to move on to and focus on some of these structural questions and then go to some of the stuff that Paul wanted us to talk about, as well. ` `  I know, Steve, you sort of raised your name card and then put it down or did you want to say something? ` `  MR. POCIASK: Well, I guess there there is something I wanted to say further on on the information collection. You raise a good point in that while we collect a lot of data from the incumbents, it would be a burden to to place the same requirement on others. But that is part%L0*H&H&@@ of of competition, is to have a level playing field. ` `  I would just suggest that we may dispute the rate of change of convergence. But if we don't measure it right, we'll never know we have it. We'll never know when consumers are really benefitting from something. They may benefit from some deregulation or some pricing flexibility. But if we can't measure it, then then we're bound to delay in its action. And so consumers will suffer from that. ` `  I think it's also important that we have that the FCC has the tools, not just the data, but the tools to be measuring consumer welfare. I think that is a criteria for these rules. And it may be that what the FCC is doing today is just right. ` `  But if they were to reorganize and I think Michael said it right into like a a competition commission, then that then they would have the data, the tools. They would have the same organization to look at a bit whether it's over coaxial cable, fiber, copper or wireless. A bit's a bit. And and I think would go a long way in terms of reform and improving the analysis that the FCC does for the public. ` `  MR. PEPPER: Okay. Thanks. Mike? ` `  MR. RIORDAN: I was going to make a comment on spectrum management.%M0*H&H&@@Ԍ` `  MR. PEPPER: Okay. Any other comments on data collection? Jeff? ` `  MR. EISENACH: While good public policy is to treat like actors alike in terms of this data collection question and the impact on small businesses, your point, the fact of the matter is that when regulation of any kind imposes a fixed cost as a opposed to a proportional cost on market actors, what it does is discriminate in favor of size. It creates a false economy of scale that is not there in the marketplace. ` `  And to the extent that data collection costs are fixed costs, I think you need to be very sensitive about discriminating against the small firm. ` `  The other question though is in a world in which data and information are remarkably cheap. How big are those costs really and how much of those costs can can the FCC or other parts of the government shoulder on their own? ` `  One question is to the extent that the FCC is requiring somebody to fill out a form, it probably ought to relook at that as a means of collection the data and go to more or less exclusively electronic means which can be costless with maybe a little startup cost can be costless. And then the question is who bears the startup cost. ` `  MR. PEPPER: All right. This is on the data%N0*H&H&@@ collection. ` `  MR. SCHEMENT: Yes. It seems to me that it is in the nature of complex systems that they are not able to be observed directly. And so some kind of indirect observation that is quantitative measure needs to be developed. And it needs to be developed in a way that goes that includes and embraces evaluation which is what I hear you say, Steve, and a couple of others; but also includes description in a proactive way that allows planning and allows others to to utilize that information as assets for planning. ` `  We talk when we talk about access to the network and marginalized populations, we oftentimes talk about lack of a telephone. And others will say, "Well, those populations have" "have access to other technologies. Isn't that a kind of access?". And the completely honest answer is simply we don't know. ` `  But we should know. So who is going to who is going to collect that data? The FCC can. The FCC ought to be looking to share with others; ought to be looking to build the kind of datacollecting regime that allows others to participate in collecting the data, but also in sharing it. ` `  MR. PEPPER: Another point, of course, is that in some case, as you know, the states and local utility commissions collect those data. And one of the things that%O0*H&H&@@ the D.C. Commission had done was collect extensive data on penetration rates and why the rate in the District was going down, that we were able to use. So part of this goes to not just putting things electronic, but finding out who else, if anybody, is already collecting stuff and coordinate data collection. ` `  MR. SCHEMENT: Coordinating it. Absolutely. ` `  MR. PEPPER: Anything else in data collection before we go to Mike on spectrum? Spectrum? ` `  DR. HAMMOND: Hello. This is Al Hammond. ` `  MR. PEPPER: Oh, I'm sorry. We have yes? ` `  DR. HAMMOND: I guess the other thing I want to say following up on what Jorge said is just to reemphasize that while we're talking about data collection from various firms and competitors, we also ought to be looking at data collection from the communities that are being served, as well. ` `  I mean, part of the way to assess the utility or the success of any policy is to see how it actually impacts the society which it's being promulgated for. So I think Jorge's discussion about looking at how what what access means for various populations is just one one example of why we should be looking at and finding out a way to collect data with regard to the public, as well. ` `  MR. PEPPER: Great. Thanks. Before we go ahead,%P0*H&H&@@ are there any other sort of comments from the ether, from our folks on teleconference? No? Okay. Mike. ` `  MR. RIORDAN: Actually, I do have a quick comment on data collection. ` `  MR. PEPPER: Oh, okay. Great. ` `  MR. RIORDAN: Any empirical it really reinforces what was just said. Any empirical researcher knows that data is not very useful unless it is collected in a uniform way. So the fact that different states are collecting it in different ways is not terribly helpful. ` `  And perhaps an important role for the FCC might simply be just to suggest a uniform methodology for collecting data so that comparisons can be made. ` `  On this sort of consensus on the need for spectrum management, I agree with that. It's almost an obvious point. But I would add that I think in embracing this mission in the future, a great deal of caution, intrepidation and nervousness is warranted on the part of the FCC because spectrum management can be misused and easily become a barrier entry. ` `  It's a lot like land management. And the idea of sort of putting land out in public hands, but then regulating its use is well established at the most basic levels of government. Many countries in the world regulate land. The government owns land. It parcels it out. It%Q0*H&H&@@ controls it's a disaster. It doesn't work well. I think it's easier it's quite possible for spectrum management to be a disaster. ` `  Anyone knows that local zoning is necessary for efficient land use. But it can also be a barrier to entry and competition. And so there needs to be great safeguards against that in whatever organizational structure is developed for a continuing spectrum management function. ` `  MR. PEPPER: Thanks. I will go to Peter Pitsch, then Peter Cramton, and then Russ. I assume this is all on spectrum. Peter? ` `  MR. PITSCH: It is. I want to use it to illustrate a point I made before which is I think there is great hope for competition. I'm a congenital optimist in this area. But incrementalism is going to be the way this industry and the regulatory structure gets changed. ` `  And in the spectrum area, I think the Commission ought to identify aggressively one, two, three areas where it is going to apply a system that is much more flexible using commentorial auctions. Peter mentioned that, which I think goes handinhand with flexibility. ` `  Again, providing some track record for those who are not yet persuaded that flexibility and a more rightsoriented approach to spectrum management works. It's important to remember all these huge successes we've had in%R0*H&H&@@ the regulatory field, the competitive field from computer two, to subscriber line charges, to transvender sales, to broadcasting and deregulation, they were all highly controversial. ` `  Today, I don't think you would get that much argument over it. But we need to do the same thing in spectrum. By the way, I think we need to do the same thing in universal service. We need to do it in the area of regulating the telephone companies' essential facilities. Doing something like that with broad band; focusing in on the loop and colocation as the Commission has there. Again, providing an incremental way to establish a track record, to move this process forward. And then we'll see how the market evolved. ` `  MR. PEPPER: So what I'm hearing you say is be bold incrementally. ` `  MR. PITSCH: Think big, drink locally. I mean, you know, you need to you've got to realize where, you know I, as I said, was at the FCC for eight years. We did some very dramatic things. And we probably got shot down for overreaching sometimes. ` `  But I think you've got to have this vision. And then you've got to develop concrete examples to bring the middle along. And we need to do it a hell of a lot faster than we've been able to do in the last 20 years.%S0*H&H&@@Ԍ` `  MR. PEPPER: Thanks. Peter Cramton. ` `  MR. CRAMTON: I would like to begin by echoing what Mike says, that with spectrum management, yes, it's necessary. But it is easy to mismanage. And I don't think that the FCC's track record has historically over the long history been very good. It's really only been in the last ten years that the FCC has made profound steps in the right direction in terms of flexible use. ` `  And sometimes and then there are lots of examples of where more can be done. For example, buildout requirements. That made a lot of sense in an era when people were given spectrum. But it makes a lot less sense in an era where people are buying spectrum at auctions. Why would I pay a lot of money for it if I don't intend to use in an appropriate economic way. ` `  Also in spectrum management, the flexible use has an additional advantage. And that is and this also goes to the rule simplifying the rule, like eliminating buildout requirements and using having flexible use and more homogeneous rules will improve the liquidity of the spectrum market. And so then it will then you can move towards a much more competitive situation. ` `  There are costs to specializing the use. And one of these big costs is and there is always going to be special interest that come in that want a very special use. %T0*H&H&@@ But one of the big costs is making the market for spectrum less liquid. ` `  MR. PEPPER: Thanks. Russ? ` `  MR. NEUMAN: Maybe there is some useful debate yet on the issue of whether the FCC and perpetuity is going to be closely regulating and micromanaging the allocation of the spectrum. It seems to me that the distinction between wire line and spectrum allocation of of of getting broad band to the residents is going to blur as remote electronics move out, fiber gets closer to the home and the last hundred feet or thousand yards is in fact handled by spectrum, perhaps a variety of unlicensed and open spectrum use. ` `  It seems to me as a goal, through transition of the FCC, would be to open up more and more of the spectrum to a variety of purposes and not the kind of highly specific, traditional, onefunction only and I draw my colleagues' attention to what I consider an abomination which was the allocation of a great deal of very useful spectrum to digital television which the broadcasters don't really want to broadcast. ` `  The consumers, it's not clear, really want to watch it. And the Commission itself might not have wanted to allocate it in the way it did which highly restricted the use in a restrained, a kind of technical flexibility and%U0*H&H&@@ advancement that's been characteristics of the American private sector when it's not overregulated. ` `  MR. PEPPER: Thanks. Jeff. ` `  MR. EISENACH: Very briefly just to elaborate on that point which is I think in saying there is a consensus on spectrum management among those of us who have argued for a residual function for the FCC or some successor to the FCC. I think there is a consensus on the need for a residual property rights management institution; a registry, if you will; a land bureau that that prevents trespassing or enforces an antitrespassing statute. ` `  I don't think I don't think we ought to have ambiguity on the question of whether those of us who take that position at least see that as being anything like the historical spectrum management function. So just to create that distinction. ` `  MR. PEPPER: One of the issues in which there there did appear to be differences of oh, I'm sorry. Marvin. ` `  MR. SIRBY: Before we get too enamored of the property rights model and the and the property rights enforcement, I just want to reiterate the virtues of technology development and diffusion of new services that we've seen from completely open entry in things like the ISM band where we've seen everything from wireless local area%V0*H&H&@@ networks to metropolitan systems such as Metricom, enormous innovation that I think would not have been possible without an open entry environment. ` `  And the we we yes, we sell property, physical property, land, but we don't sell everything including the streets and make people pay the property owner every time you want to go from one block to the next. We have some shared use areas. And I think we need to maintain those. ` `  MR. PEPPER: Thanks. One of the issues that came up in which there appeared to be some controversy and not necessarily agreement was on the role of the FCC and merger review and in terms of questions, whether the Commission's what the Commission's role should be; if the Commission should have a role in evaluating mergers. ` `  I know that maybe Mike, you've actually, you know, spoken or written about that. So maybe do you want to say something and then see what other people have to say. ` `  MR. RIORDAN: So I was heavily involved when I was here in sort of contributing to developing the competitive framework that the Commission uses for evaluating mergers. And I thought that was clearly important work. ` `  But after I left, I sort of was forced in various ways to sort of reflect on the the merits of dual review of telecommunications mergers by the Department of Justice%W0*H&H&@@ and the FCC; and have followed with great interest and some agreement and some disagreement with the the Commissioner FurchtgottRoth's constraining view about FCC activism in this regard. ` `  And where I've come out on this in my thinking is that I think that there is a very strong case right now and perhaps for the next five years for for dual review of telecommunications mergers by the FCC and the DOJ because the reviews are not completely duplicative. They are different. ` `  There are different laws and they're for different standards and they're for different screens for mergers that the two agencies allow, and different processes. And so there is likely to be different conclusions that might be reached and different aspects. There is a different purview of the public interest standard than there is for the Clayton Act. ` `  The reason why I think this is important is because the telecommunications industry is so important. It's going to be determining the structure of the American economy for many, many decades to come. And the government should be very cautious with the decisions it makes now with regard to changing market structure because we're going to have to live with those decisions for a long time. ` `  Go back and read Jerry Brock's thesis on the%X0*H&H&@@ development the early development of the telecommunications industry and it will smack you in the face how policy decisions made a hundred years ago are affecting what we're talking about today in a very, very huge way. ` `  Part of the reason for the role of the FCC is that the the evaluation of the competitive effects and mergers today has nothing very little to do with competition today or even market structure today. The boundaries of industries telecommunications industries in the future are highly uncertain which technologies will be winners, which will be losers, what will be new technologies coming out. We just don't know. ` `  And, therefore, evaluating the competitive effects of mergers is almost inherently a very speculative, difficult exercise and it puts a very high burden on the DOJ when it goes to court to prove a theory of competitive harm. It can't be by the usual standards it uses. And I think that creates a real role for an expert agency like the FCC to contribute to those evaluations. ` `  Having said that, I think that perhaps five years from now, the telecommunications industry may become a lot more like other industries and a strong case could be made for the FCC stepping away and leaving this to a normal enforcement function of the DOJ under the Clayton Act.%Y0*H&H&@@Ԍ` `  MR. PEPPER: Actually, let's see, first I want to see whether, you know, Al or Gregg or Jon want to say anything? No? Okay. I saw actually, let's see, Jeff, Barbara, Nolan and Jannette. Why don't we do it that way. Jeff? ` `  MR. EISENACH: In referring to the merger issue, the FCC's and maybe at the most basic level, Mike, there has been a lot of focus here on the need for speed, number one. Number two, I think we would all most of us would agree that there is a very dramatic change taking place in the industry. Number three, I think we've agreed that it is important to establish an environment in which there is some certainty with respect to standards. ` `  I think all of those objectives are violated by dual review. If there is in fact a dramatic change taking place in the industry, then assets need to be restructured in order to reflect that change. A bias in that sense ought to be in favor of, not against mergers. There ought to be an expectation, a sense that mergers are taking place in order to reflect a reallocation of assets we all understand to be necessary. ` `  The FCC's history in reviewing mergers is one that neither creates much confidence with respect to speed, nor much confidence with respect to certainty. The FCC's history of imposing conditions on mergers has a number of%Z0*H&H&@@ problematic elements to it, one of which is the opportunity that that creates to pursue all sorts of "good social objectives" which may appear attractive to the current chairman or management or commission, but which may have little or no basis in statute. ` `  It is a de facto opportunity for extortion and has been used that way I believe in the past. The but but even ignoring that issue, one then goes to the question of whether we are going to have a uniform set of rules, something that we've talked about as desirable; that everyone ought to have the same rules apply to them. ` `  Every time the Commission approves a new merger with conditions attached to it, it is attacking uniformity. Every set of companies suddenly finds itself governed by a different regulatory framework attached to its attached to its merger. It's the sort of worst of the MSJ at large and and in a much more dynamic environment, potentially much more even destructive than that. ` `  So I don't think there is any case whatsoever for the FCC's independent review of mergers. I do think there is a case for the FCC's expertise to be involved in the merger process. And clearly, the DOJ ought to have the ability to draw on the expertise of the FCC in its review and maybe with some explicit statutory provisions for that to occur and to be required to occur.%[0*H&H&@@Ԍ` `  But but the dual review process that we have now I think already has been extremely destructive in deterring mergers that should have taken place or slowing down mergers that would create benefits for consumers and lower prices. And it ought to stop. ` `  MR. PEPPER: Okay. Thanks, Jeff. Barbara? ` `  MS. CHERRY: Yes. I agree with a lot of the statements that Jeff just made. And what I would like to offer is, again, if we could look at the institutional perspective, I believe what Jeff has just described is the fact that this dual review and let's recall as Ameritech is an example. It's not just DOJ. It's not just the FCC. It's also various state commissions. ` `  All these different reviews add to the arbitrariness of government action. It adds to the uncertainty. It adds to greater instability to sustain private investor private investment in infrastructure. ` `  So if the overall goal is, is that you're trying to create an institutional environment conducive to private investment infrastructure, the more reviews you have, the the worse you're going to make the environment for that kind of objective. ` `  I think increasingly government has to be willing to be more accountable to recognizing the impacts of its own behavior on what's happening in the performance of the%\0*H&H&@@ market. It affects what merger decisions are made or not made, whether you bother to pursue them or not. You have to take accountability for the regulatory rules it puts in place like various entry barriers actually encourage some kind of mergers over others. ` `  Some may claim that AmeritechSBC probably wouldn't be merging if the interlata barrier weren't there. So the rules we have in place also affect that. ` `  And finally, I think in terms of merger review, we also have to be mindful of the fact that it's not just arbitrariness of government behavior we have to worry about. But you are creating yet another forum for strategic behavior by the industry. Increasingly, government needs to recognize the role that its processes play in creating a different fora for competition. ` `  I've worked for both AT&T. I've worked for Ameritech and I understand very well the rhetoric on both sides. And it this industry has become one where it's probably just as and maybe even more important to duke it out in the regulatory sector than the competitive one because there is tremendous power for the status quo. There is tremendous power that comes from the rules that are in place. ` `  And it the FCC has to think about and government generally has to think about how much does it%]0*H&H&@@ want to continue to be the determining factor of where things are going. Is the marketplace going to be in the regulatory arena or is it going to be in the competitive one? ` `  MR. PEPPER: Thanks. Nolan and then we'll come back to Larry. ` `  MR. BOWIE: Yes. Well, I think that the FCC's activities in merger reviews is somewhat redundant from what the FTC and the Department of Justice does, as well as PUCs. But I think the cost of time may be justified in that consumers are somewhat protected from excessive cost and poor service. ` `  But moreover, there is a different rationale that the FCC employs that the other agencies do not. And that purpose is to ensure content diversity which is a contentneutral means of achieving First Amendment objectives to ensure that diversity of viewpoints will be aired under the assumption that diversity of source leads to diversity of viewpoint. ` `  But there may be a better alternative. And that is what Marvin suggested, which is the creation of shared youth areas by a spectrum set aside for noncommercial speech and publications, and also the provisions of subsidies to produce and distribute essential services and citizen information.%^0*H&H&@@Ԍ` `  MR. PEPPER: Thanks. ` `  MS. DATES: I just wanted to say something. ` `  MR. PEPPER: Yes. ` `  MS. DATES: Okay. I was going to say some things about mergers and the effects that they've had on the black community because I think that it is important in terms of how the FCC does function. And I think really when you talk about the FCC's low power radio proceedings, I think that's an example of how you can in fact use the procompetition mandate to foster opportunities so that in fact you can serve urban communities and rural small towns and communities by means of this low power radio idea that is being set forth by the FCC. ` `  And when you think about the fact the mergers have so effect to the black community because that's the larger companies have bought up so many of the and so many of the licensees have now gone to the big guys. The number of black owners has gone down dramatically. And I think that's in keeping with what Nolan was saying about the diversity of voices and viewpoints. ` `  MR. PEPPER: All right. Thank you. Why don't we take a few minutes oh, you want to oh, you put your thing down. Okay. ` `  MR. SPIWAK: Out of courtesy. ` `  MR. PEPPER: Okay.%_0*H&H&@@Ԍ` `  MR. SPIWAK: Just real quick, I've also been involved with a lot of the FCC mergers when I was here. And before that, I was very actively involved in electric utility mergers when I was in the electric utility business, both at FERK and private sector. ` `  In terms of Jeff's comments, you're right. Voluntary comments have become obscene. It's become a way of sort of, as you said, shaking down the industry. And that goes everything from charging AT&T 150 million dollars to make a voluntary contribution to America's children just to become nondominant for everything else. In fact, in my recent international article, I had a huge cite of all of them. ` `  But, again, the issue comes in as when you're looking at mergers, are they efficient or are they not. You have all these people come in going, "Oh, all these great efficiency mergers." Well, what have we seen? We've seen the reconcentration of the cable industry. We've seen the reconcentration of the broadcast industry. And we're seeing the attempted reconcentration of the local access ILEC market. ` `  About two years ago and this was back when I was still at the FCC I wrote an article on antitrust report. And I jokingly called it my reasonable mother article because there is an old line in antitrust law that%`0*H&H&@@ when all else fails, would your mother be ashamed of what you're doing. ` `  And I said, well, you know I started the article and I said, well, I'm sitting at my office when I was at the Competition Division. And my mother calls me up and goes, "Son, you work for the FCC's Competition Division. Should I be ashamed?". I said, "Well, no. You know, there is a lot of interesting stuff coming down." ` `  And sad to say, my prognostications in that article came to be about 90 percent correct. And then just as I left the FCC, we had the Bell AtlanticNynex case which from all accounts, from all sides was was not very well handled. And I wrote a second article and you can download this off the website. And, again, the intro to the article was my mother called me up again and said, "Son, did you lie to me? Are you sure I shouldn't be ashamed?". And I said, "No, this time you should be very ashamed." ` `  And, again, the question is does the FCC have a role. Absolutely. The government and this stretches all the way back to AT&T FCC v. U.S. v. FCC excuse me where you had the Department of Justice it was a satellite joint venture. And the Department of Justice said no and the FCC said, "Yes, we think it's a good idea because it clearly does not fall within the confines of the antitrust laws which is why since all the way going back to Gulf%a0*H&H&@@ States, the FCC is not bound to enforce antitrust laws. ` `  But on the other hand, the FCC is not allowed to move beyond the you know, economic first principles so much that it makes no sense. And so I think when the agency handles larger mergers that are highly political poorly, you end up getting the type of criticisms you get, for example, from Senator McCain taking pot shots at Commission staff which I thought were actually rather inappropriate. ` `  So it's a question of leadership and it's a question of doing a serious economic analysis and a view of what kind of market structure in the long run do you want to see. And I leave with this quote. ` `  A very good friend of mine who still works here I will not mention his name who was very actively involved 15 years ago with the divestiture of the AT&T. And we're driving home one day this is back when I worked at the FCC. And we're all talking about all these mergers. And he looked up at me and he said, "Funny, fifteen years ago we thought divestiture was the way to go." And that's not what's happening now. ` `  MR. PEPPER: Thanks. Phil. And then, Barbara, did you have another comment or ` `  MS. CHERRY: Technically no. ` `  MR. PEPPER: Okay. Phil. ` `  MR. SPIWAK: On the issue of the dual review, I%b0*H&H&@@ think the big challenges made with that existence is revolves around if possible reducing some of the ambiguity that's always associate with that public interest component of the review. I don't know if that's something that can be done. I mean, it's something that we as academics should be trying to work on, too. ` `  And I think it also gets back in some ways to the issue we were talking about before, about expanding the scope of the type of data that's gathered and analyzed. I mean, I think about something like the issue of the relationship between source and content diversity, that's operated as an assumption for many years, but yet isn't an assumption that the Courts are too often willing to to to agree with. ` `  And I think questions like that are you know, could be subject to a lot more empirical investigation than they have. I know I think Chairman Kennard has been emphasizing issues like that. But I think if there were a greater sort of pool of information about that component of the review in ways that could somehow reduce the inherent sort of ambiguous nature of that, then it could stand on a bit more equal footing perhaps with other components of the merger review and not seem as ambiguous and perhaps unnecessary. ` `  MR. PEPPER: Thanks. Why don't we go to is%c0*H&H&@@ there oh, I heard did I hear somebody in videoland? ` `  DR. HAMMOND: Is it possible for me to make a comment on this? This is Al Hammond. ` `  MR. PEPPER: Yes. Thank you, Al. Go ahead. ` `  DR. HAMMOND: Hello? ` `  MR. PEPPER: Yes, go ahead, Al. Al, are you there? ` `  DR. HAMMOND: Yes, I'm here. ` `  MR. PEPPER: Go ahead. ` `  DR. HAMMOND: On this issue of merger review, I think the public interest component that the FCC brings to the process is important. And while there certainly should be some concern about the "shake downs" that occurred in the process most recently, the flip side of that is when many communities are facing essentially redlining that will go on for the shortterm future as people debate whether or not the educational institutions get a rebate or or rural health care gets a rebate, there are still communities out there that are not receiving services and not going to be the ones that are being first wired or first served. ` `  And to the extent that what this public interest component does is encourage some of these merging firms who otherwise wouldn't be providing services to rethink their deployment and to provide services in areas where they wouldn't do it as soon. But it is important and I think it%d0*H&H&@@ does serve a worthwhile public interest purpose. ` `  So I would disagree with some of the characterizations of the mergers. And I, too, agree that Congress has been a bit ridiculous in some of the criticism they've had, especially given how much money they take from the industry in donations. ` `  MR. PEPPER: Thank you, Al. I'm not going to touch that one. One more comment on mergers and let's move on to another another topic. Steve, did you have something on mergers merger review? ` `  MR. POCIASK: Right. Just just a short comment. I following up on the last comment, I think there is a lot of good that come out of these mergers as we see the convergence that we've talked about. As AT&T moves into cable, there is a lot of promise in the services that that they will be able to provide. ` `  And and I think what that adds is a is a level of rivalry between those distinct industries that have separate rules today. So when we look at the industry and regulating the industry as we have, we need to understand that customers don't buy industries, they buy services. And some of those services can come over different types of information transport. ` `  And so what some of these mergers do is they provide, such as the AT&T one is providing for for the%e0*H&H&@@ telecommunications a sense of interindustry rivalry which is healthy. In the case of some of the ILEC mergers, we're seeing what are regional companies becoming endtoend providers which AT&T already is. ` `  So in that sense, we're seeing people add the capabilities and full services that consumers want. And I'm not it's not clear to me that when we look at the industry broader, that we have a concentration problem here. And I I my position is that I see the merger review at the FCC as a duplication. ` `  MR. PEPPER: Thanks, Steve. New topic, Russ. ` `  MR. NEUMAN: I'm surprised by how little the model of the internet has been used as a model for understanding the future of the role of what we now know as the Federal Communications Commission. When we talk about the broadcast model, we think about a channel and an owner and controlling an issue. Diversity of voices is very much linked to a backward looking notion of when each channel was dedicated to a specific function and owned by an individual or corporation. ` `  With the internet, the user goes where they want to go. And the attempts thus far to control and constrain and use portals and sticky sites to control and limit the diversity on the internet has failed because of the character fundamentally of the of the nature of the%f0*H&H&@@ technology. ` `  And so my vote for the future model of the FCC is its current model which is based on forbearance, and the notion that if the FCC has an important and unified and central goal for the next five or ten years, it's getting megabytes, gigabytes and ultimately terabytes to the home through a diversity of technologies including multiple spectrum and multiple wire line or optical fiber technologies. So that the need for the history of the FCC for individual channel regulation is no longer necessary or appropriate. ` `  DR. WEINBERG: Pepper, I can't resist picking up on that if I might. Jon Weinberg. ` `  MR. PEPPER: Okay. Go ahead, Jon. Okay. ` `  DR. WEINBERG: I mean, I think Russ is absolutely right, that the internet model is the way to go for the communications marketplace of the future. And in that sense, I think, speaking to your summary before, we are moving towards convergence. And I'm hopeful that we'll get there in a substantial way. ` `  My caveat is that the internet model isn't going to happen by itself; that it's to get there, we're going to need broad band deployment, we're going to need interconnection, and we're seriously going to need open architecture which is at the core of the success of the%g0*H&H&@@ internet. ` `  And the FCC is going to have to make its choices perhaps including in the merger review process to try and make sure that those things happen. ` `  MR. PEPPER: Thank you. Patricia? ` `  MS. WORTHY: My only comment, Russell, would be to make sure though I mean, I I love that notion, but to make sure that everyone has access; that that's that's what's critical and that's the point we cannot forget. Yes. ` `  MR. PEPPER: And that actually leads into a universal service question. No, Judy. Go ahead. ` `  MS. HARKINS: Just a small comment, saying that I believe that in terms of your obligations in accessibility, that open architecture will serve those, as well, because it allows small businesses to provide products. And small businesses have always done a pretty good job of delivering products to people with disabilities. Anything that creates a barrier to entry for them is going to create problems that will be difficult to solve. ` `  MR. PEPPER: Thank you. If we could just Nolan? ` `  MR. BOWIE: The internet model that Russ Neuman just mentioned I think is inappropriate at this time in history. It may eventually evolve into the appropriate%h0*H&H&@@ model. ` `  Going into the next phase of questioning dealing with the universal service in terms of access being only 30 percent of the U.S. homes versus 60 percent for cable, 93 percent for telephone or 99 plus for broadcasting. All of those models are more appropriate where there are more people using the service and benefitting from them. ` `  MR. PEPPER: Can we take maybe a few minutes to talk a little bit about other social issues on which there were disagreements such as universal service? There are some questions about indecency and the role of the Commission. Paul, do you want to say something? ` `  MR. McGEADY: Yes. We've been concerned with indecency complaints since the Pacifica case. In fact, we were makers in the Pacifica case. So we've been with it right along. And we've come to the conclusion that the present house rule of the FCC does a disservice to the American people. ` `  Your present rule requires that in order for you to entertain an indecency complaint, you must have a complete transcript or a videotape of the material. So what happens if the ordinary citizen is watching a television program and something grossly sexual and offensive comes on which you could even recognize at the FCC that is offensive? What do you do?%i0*H&H&@@Ԍ` `  You send a form letter saying, "Unless you've got a transcript or a videotape, we are not going to entertain it." Now, this is a terrible thing. ` `  In the Pacifica case, the FCC got the complaint, recognized that it had obvious merit, and they asked the station, "Send in your" "Send in your transcript." That's the way to go in the future. In other words, if you want to serve the public, then ask the station to send you the material and then make your decision. ` `  MR. PEPPER: Thank you. Everybody's sort of Peter? ` `  MR. PITSCH: Is this the time to make a comment about universal service? ` `  MR. PEPPER: Yes, this is yes. ` `  MR. PITSCH: Okay. ` `  MR. PEPPER: I would like to spend a few minutes on universal service. ` `  MR. PITSCH: Again, going back to my days at the FCC in the '80s, one of the major achievements of the FCC over these last several decades was I believe the subscriber line charge decision. And because of that decision and it you know, I'm not saying it wasn't without its bumps in the roads and we needed to work with our state conferrers perhaps better than we did. ` `  But Rob made this point. Others I think have made%j0*H&H&@@ the point that we're all in favor of competition. But unless we reform the universal service system, we are going to skew that competitive process. We are going to discourage the deployment of new technologies. And the Commission has started to move in the right direction. And obviously a big chunk of this is in the domain of the states. ` `  But the FCC needs to aggressively more forward and handle its piece of the puzzle. And a lot of that is going to require putting more and more charges for fixed services back on customers who are enjoying the benefit of access. ` `  The first rule of fairness ought to be if there are people who can't afford this vital service, let's help them. Maybe the income targeted subsidies should be increased over time. That's something we put in place when I was here. ` `  But the second rule of fairness is you ought to pay for what you get and get what you pay for. And if, in fact, low volume users are getting the benefit of access, then they then they're going to have to pay for it. If they're getting the benefit of a bill that's being rendered on a monthly basis, they're going to have to pay for that. And that's fair. ` `  There are lots of rich farmers and ranchers in Wyoming who ought to pay more than they are and consistent%k0*H&H&@@ with the statute. I think the FCC needs to move aggressively to reform universal service. And as someone else said, ought to go back to the Congress and say, "Let's fund this properly through general revenues." ` `  MR. PEPPER: Thank you. We're just going to on the universal service go right around the table. So Rob. ` `  MR. ATKINSON: Yes. I want to focus a little more on on thinking about universal service and advanced services. And I guess I would caution the Commission to not get too overzealous about that issue because right now the internet is not divided between the haves and the havenots. It's divided between the wants and the wantnots. ` `  And there are a lot more people who could afford the internet who simply don't have it because they don't want it. And to somehow say that we need to apply the telephony model of universal service to the internet at this phase I think is a is a fundamentally grave mistake, particularly, as Peter just said, as we're recognizing that universal services itself is a concept that is impeding competition. I don't think we want to go there. I would argue don't go there with the issue of advanced services. ` `  MR. PEPPER: Thank you. Barbara? ` `  MS. CHERRY: Yes. I think universal service is one of these areas where the political process is being driven a lot more by myths and implicit assumptions than%l0*H&H&@@ they realize. And I think some initial research by Jorge Schement and Milton Mueller helped jumpstart our realization about that with their study that showed a lot of the missed universal service; you know, which people really tend to be off the network or not. ` `  Well, I think we need to this gets to the data collection, as well. I think we need to extend our data collection to better verify whether or not the myths that our driving our political decisions are correct or not. ` `  So I would like to give as an example, I was recently at a conference and some other individuals here were, too, and at the London Business School. And I was surprised to find that they had certain data that surprised me what the results were. And I think something comparable in the United States should be done. ` `  First of all, in the United States, we are still vacillating between, well, do we have universal service that is subsidized rates for like everybody or should we just have targeted support; and then if we're going to have subsidized support, how should we pay for it. ` `  Well, in the U.K., they conducted a survey. They surveyed both a general sampling of the population as well as disadvantaged groups. And for both cases, they found that the priority for subsidizing, the price of utility service was the lowest for telephone compared to any other%m0*H&H&@@ utility. ` `  Seventythree percent thought we should subsidize water. Sixtyseven percent thought that electricity should be subsidized. Fiftythree percent thought gas should be subsidized. But only 12 percent thought telephone should be. Interesting. ` `  So the consumers themselves are saying, "We don't think the subsidy should be as great for telephone as other services." But even more interestingly, in the survey, they went on to say, "Well, if we should subsidize services for people who are in need, how should we fund it?". And the people at both if you were in a disadvantaged group as well as in the general population said their least favorite method was crosssubsidy. ` `  Only seven percent supported crosssubsidy in the price structure. Only 11 percent favored an increase and a valueadded tax. Fortyone percent of the respondents said they would be willing to pay increased income taxes or some other and another 41 percent, some other method. ` `  And I only bring this up to mention that I think the politicians in the United States and it really struck me when I went to Europe we're being driven by a lot of myths. We think people want to subsidize more than they do and we think people would object to funding universal service for telephone like any other welfare service.%n0*H&H&@@Ԍ` `  But the survey at least in England shows that's not how people think. Maybe we should do more work to find out how consumers and the voters in the United States really thing so that then government won't have to be afraid to be honest about what they're doing, just like the truth in billing. ` `  We wouldn't have to go through this whole, you know, rigamorole about, well, is it really a tax or not and who is going to take be accountable for it. We could cut to the chase. And I think, again, this is a case where we can look to other countries to see how they can do it. ` `  MR. PEPPER: Thank you. Patricia, you were kind of chomping at the bit to say something or ` `  MS. WORTHY: Well, I just well ` `  MR. PEPPER: We're going down the table and you happen to be next. Why not. Go ahead. ` `  MS. WORTHY: Well, a couple of things. First of all, the telephone rates in England are low relatively low as opposed to their fuel rates. So, therefore, I would think that that has a lot to do with the survey results. ` `  Secondly, I would think that it would be very hard to get anything through Congress that is going to change the subsidy flowing to rural America. And if you think it can, go right ahead and try. ` `  MR. PEPPER: Jorge. Thank you, Patricia.%o0*H&H&@@Ԍ` `  MS. CHERRY: Again, I would just say it's an example. Let's find out instead of going on myths. Why don't we get some empirical data. ` `  MR. SCHEMENT: I'm impressed over the years that I've known Barbara that as she's gotten farther away from the corporate environment, she's begun to sound more like an academic. ` `  But I endorse the view that that we operate under some myths and that we don't we don't quite understand. And I want to just briefly review what some of the myths I think are. ` `  But first of all, I want to disagree with you, Bob, perhaps for the first time in my life, that we have some disagreement here on universal service. By my count, Pat Aufderheide, Al Hammond and Nolan Bowie, Pat Worthy, Judy Harkins, Jannette Dates, possibly Jon Weinberg and myself which is roughly 25 percent of those present all argued in favor of a role for the FCC in connecting with underserved populations and that that should be something the FCC should address. ` `  And while a few of us or others around the table seem to not be so sure about universal service as a longterm goal, I didn't hear an equal collection of individuals arguing arguing against it. ` `  So let me just address some of the myths that I%p0*H&H&@@ think Barbara is alluding to. There is not very much evidence, not only gathered by ourselves, but gathered by phone companies, data that we have access to, that access subsidies increased the penetration rate for the telephone. ` `  That it appears, at least from a good bit of data supplied by phone companies and some work we've done, as well, that access charges don't have any effect at all; that what happens is people utilize the access subsidy to get on and then they can't pay the toll charge and then they fall off. ` `  And so that there is a churn rate going on across the board in the U.S. It may be as high as 15 percent of households per year that are turned on and off on and off the network. PacBell or PacTel and Bell Atlantic both claim informally and, therefore, perhaps this should be off the record, that roughly one percent of households are disconnected every month for failure to pay pay toll charges. ` `  So if we're going to subsidize, we shouldn't subsidize access. Access isn't the problem. We should subsidize maintenance. Helping people stay on once they're on is much more likely to keep people on and raise telephone rates from where they penetration rates from where they have been than if we were focusing on access. ` `  The two states that subsidize maintenance the most%q0*H&H&@@ aggressively and most effectively are Nebraska and Pennsylvania. And they both have the highest penetration rates of all. Now, Nebraska is historic. But Pennsylvania is recent and they have achieved very high, 97 percent, telephone penetration rate. ` `  These are unlike Nebraska, Pennsylvania has large minority populations. It is both rural and and urban; has the largest rural population in the United States, yet still manages to have very high penetration rates because it is maintenance that is being subsidized rather than rather than access. ` `  We should also recognize, as I think we do, that Americans are increasingly accessing the network, whatever it is we want that to mean, via multichannels and that, therefore, universal service in the future a future theory of universal service should in part revolve around the notion of choice. ` `  Americans make choices on how to access and we ought to facilitate those choices because what we want to do is facilitate access. It shouldn't matter to us how they access. It should matter to us that they access in functional ways and that functional is a social construction that they decide for themselves. ` `  Thirdly, we have a myth that in order to get corporations to participate, we have to force them to%r0*H&H&@@ participate. I'm not sure that's the case. We have not explored the possibility of what it would take to create incentives for corporations to participate in enhancing access, especially for populations that fall within their markets that are themselves underserved. ` `  And then finally, back to Barbara's point which I think is absolutely on target. We have a long history in this country that Americans appreciate every subsidy that they get and resent every subsidy that somebody else gets that they don't get. ` `  And that as a consequence of that, crosssubsidies that don't go that go to some but not to others are always controversial whereas subsidizing systems that somehow or other manage to cover a very large portion of the population such as social security tend to be seen as relatively noncontroversial. The Gore tax is seen as a tax unresented because it is seen as a targeted crosssubsidy. ` `  If we are to move towards a subsidized system in universal service in the future and I'm not sure we need to subsidize very much but if we need to move to a subsidized system, we ought to think of it in a way where every American feels that they are getting something for it rather than where Americans feel that something is being taken away from them and given to somebody else which they hardly resent.%s0*H&H&@@Ԍ` `  In this same way, the corporate players want deregulation for themselves, but want to make sure that there is regulation for others. ` `  MR. PEPPER: Thanks. ` `  MR. ROSSTON: This is Gregg. ` `  MR. PEPPER: Hold on. ` `  MR. ROSSTON: Okay. ` `  MR. PEPPER: Why don't we have Marvin and then we'll go to radio world. ` `  MR. SIRBY: Before we we embrace wholeheartedly the idea that general tax revenues should be used to support universal service, it's worth remembering that telecommunications exhibits pronounce network extranalities. What that means is that those telemarketers get value when some additional low income person joins the network. And they ought to contribute to that low income person joining the network in return for the value they're receiving. ` `  And it is economically more efficient to have internal cross subsidy than it is to do it out of general revenues because it's it's putting the cost where the value lies. ` `  MR. PEPPER: Thanks, Marvin. In the audio land? ` `  DR. WEINBERG: Let's let Gregg go first, then I'll jump in. ` `  MR. ROSSTON: Okay. I just wanted to earlier%t0*H&H&@@ on, I made the point and I think a couple of other people did, that consumer information is really important in the competitive world. And I think with respect to universal service, this is one way where we could possibly make a difference in the universal service to rural areas. ` `  Right now it's implicit. No one knows how much it is and where it's going to. If we were to the FCC, although it can't change the statute and it can't change Capitol Hill, it can change how explicit this funding is so the people know what they're paying for. And this may be sort of one of Peter Pitsch's ways of changing things that people then may not find is, you know, a bad thing or they may revolt against it. ` `  And putting it where consumers know what they're paying for is an important fact of competition and a way we can make the system more efficient. ` `  MR. PEPPER: Thanks, Gregg. Jon Weinberg? ` `  DR. WEINBERG: This is Jon Weinberg. I think we need to distinguish here and someone mentioned my name before and I'm I shudder at the thought of anyone not knowing what I think. So I'll jump in. ` `  I think we need to distinguish between our current universal rules and the broader universal policies. Our current universal rules are a disaster. We're funneling all sorts of money on the theory that we need to equalize rates%u0*H&H&@@ in rural and urban areas. ` `  And I can't think of any good reason why we would want to equalize any good policy reason why we would want to equalize rural and urban rates as opposed to simply trying to keep rural rates sufficiently low so as to keep people on the network, not have them drop off because rates are out of control. So a lot of that doesn't make sense. ` `  On the other hand, the fact that we've got problems there doesn't mean that we need to ditch the concept of universal service because I think it's going to remain the case in the FCC for the 21st century that access to information is a public good and it's a public good even without regard to Marvin's network effects. ` `  And for that reason, it's appropriate for government to subsidize it for low income users, for other users who would not have access and I mean that in the common language sense, not the technical sense absent government action. And that's a role that some government agency, whether it's the FCC or another, needs to continue to play in. ` `  MR. PEPPER: Thanks, Jon. We'll go to Al Hammond, Nolan Bowie and Larry Spiwak. And then I want to shift for the last 15 minutes to some of the questions that are both structural in terms of the Commission and then how we can do our job better because those were another set of issues that%v0*H&H&@@ were raised in the first going around. Al? Al Hammond? ` `  DR. HAMMOND: I just want to follow up on a comment made earlier about universal service and the internet being an issue of wants and wantnots. I think that's that's not accurate. And this again goes to the issue of how one goes about acquiring information. ` `  If anyone looks at the price points for computers, for instance, or other price points for cable modems, you must realize that there is a substantial portion of society that just doesn't have the money right now to acquire those goods visavis other goods that are more important right now, whether it be a refrigerator or paying the rent for the month. ` `  When the price point drops farther for computers or when the price points drop farther for cable modems, maybe we can talk about it being an issue of want and wantnot. But right now it's still an issue of have and havenot. And I think it's disingenuous to present it otherwise. ` `  And I think Jorge is right. And I I think those two these two things come together. If you look at the price points dropping, then it does ultimately become an issue of choice. And choice becomes the most important delimiter. But until the price points drop, that's not the case. ` `  MR. PEPPER: Thanks, Al. Nolan?%w0*H&H&@@Ԍ` `  MR. BOWIE: On the issue of universal service, I think first of all we have to redefine exactly what we're talking about. I think that the evolving concept of universal service is shortsided. It ought to mean 100 percent of the universe at issue herein again all of the people of the United States whether rich or poor. Those who are wealthier should pay for their services. ` `  The 1996 Telecom Act, for example, defines schools as K through 12 exclusively. It bypasses preschools, technical and trade schools, community colleges, places where people who will probably go back to school need resources. They won't necessarily be available. ` `  It also does not anticipate the way people will be expected to learn in the future. They're going to be more mobile. The technologies will be smaller, better, cheaper. And with the expectation of lifelong learning obligations, they won't necessarily be going to a school or a physical building to learn. ` `  Universal service to what? I still don't think that that's fully defined. We need to define what essential services will be available. I think, for example, email, literacy, 911 emergency are a bare minimum. But it is really a question of the quality of life. ` `  And the bigger question that we tend not to answer or even have a public discussion about is what kind of%x0*H&H&@@ society do we want to become, inclusive or exclusive; united or divided; stable and predictable or chaotic and unpredictable? How long must the how wide must the gap grow before it is detrimental to the American society? What possibly will happen to the creative and productive ability of the United States work force in the global knowledge economy if we don't achieve universal service? What are the potential costs and down sides, and are we willing to pay those costs? ` `  Finally, I would like to suggest that the role of the government still is to provide for the common defense and provide for the general welfare. And I think that both of these are appropriate when we think about universal service. ` `  Thus, I think a new rationale may be required for building a national information infrastructure. Government has traditionally provided an infrastructure so that where there are market failures, where there is redlining, where private corporations are not willing to go. ` `  I think there is a role for the government to provide the subsidies or the fiber to connect the poor and the information havenots. And I think the national defense rationale may be appropriate. It's the same response that the Eisenhower administration used when the Soviet Union successfully launched Sputnik with the National Defense%y0*H&H&@@ Education Act. ` `  I also point out that the national highway system was rationale was the national defense; that the internet as opernet was a national defense initiative. Lastly, I would suggest that well, that's enough. ` `  MR. PEPPER: Thanks, Nolan. Larry, one last comment on this because I think we want to be able to go ` `  MR. SPIWAK: I'll make it real quick. I mean, everybody knows that universal service is a worthy social goal. I mean, when I was here at the FCC, I mean, Bill Kennard had asked us in back when he was general counsel, "Do you know what you're doing?". I would say, "Look, you know, Section 1 of the Communications Act, nationwide network, fair price." This is a good thing to have everybody talking to one another. ` `  But I think one of the problems over the last couple of years is that the FCC hasn't really realized how much of a barrier to entry its current universal service policies are. And this is a very serious thing because the sad thing about this is that in its shortterm effort to provide children with advanced products, what you're doing is in the long term, it's a selfdefeating exercise. ` `  I mean, specifically is that if you have universal service, you basically have to pay about ten percent of your gross revenues into the universal service%z0*H&H&@@ fund. Now, if you're a new entrant and now we're talking big new entrants here. You bleed red ink for the first three to five years. That's the way the business works. ` `  And if you're going to enter a market and you're worried about cash flow, cash flow, you're not going to enter the market because, you know, gross revenues, I've got to deal with cash flow. So this is a real problem and deal with it which is why, by the way, you see a lot of utilities for example not deciding to make an endtoend retail strategy, but only a wholesale strategy; because they don't want to deal with universal service issues. Okay? ` `  Moreover and so the solution to that is that if we want true universal service, we expand supply and especially in rural areas where quite frankly there is a lot of areas where there is not much money, so nobody is going to want to invest. ` `  But, for example, municipal utility entry which I've been in, the FCC has been sitting on a petition there for the last two years. And there are some legal issues with the city of Abilene. But still, here is your solution to the universal service problem and we need to find a way around that. ` `  The other issue that I would like to bring up is that the FCC's universal service policies have also caused a lot of consternation abroad. The EC, the ITU are livid at%{0*H&H&@@ the U.S. over its universal service policy because every call from the poorest African nation is going to subsidize an ISBN line to Ted Turner's ranch. ` `  In fact, the ITU is so mad, they used exclamation points. This is the United Nations. They didn't use that with Kosovo. But they used it dealing with the FCC's universal service policies. ` `  And so I think when we talk about universal service, we should not allow children to be used as what I described, as regulatory human shields to defend flawed legal and economic policies because it's very sad and a very selfdefeating exercise. ` `  MR. PEPPER: You've never sort of overstated your positions. I we only have about 11 minutes left. And so if you know, Jeff and Pat, I mean, is there anything really urgent? ` `  MS. AUFDERHEIDE: I want to be in the practical recommendations. ` `  MR. PEPPER: All right. Well, let's get to practical recommendations since we only have about ten minutes to be practical. ` `  MR. EISENACH: May I say two very quick things on universal service? The first is on price points. You can buy a computer today for $19.95 a month. You can get your internet subscription as part of that. It is the price of%|0*H&H&@@ phone service. It is less than the price of owning a television set if you finance the television set. ` `  The notion that the price points are a barrier to internet access, I think the standard that Al Hammond set out is one that we passed in the last six months. And there is every indication that those prices are going to keep falling. ` `  Secondly, on universal service, given the level of taxes we levy on telecommunications service, it's the single biggest barrier to getting on the internet, particular broad band. If I were to buy my daughter a $600.00 computer today and then hook her up with a DSL line to the internet, I would probably pay i the neighborhood of 25 percent of the cost of that DSL line in taxes. ` `  That's to say $15.00 a month on a $60.00 DSL line; $180.00 a year on that DSL line; almost $600.00 over the threeyear life of the computer which is to say that for practical purposes, where aggressive taxes on telecommunications services amount to a 100 percent tax on the ability of someone to connect their child to the internet with a broad band line. That's crazy. ` `  We've got to be cutting those telecommunications taxes which are regressive. We've got to be cutting those as the first step to advancing universal service, not imposing more subsidies to make up for a crazy tax regime.%}0*H&H&@@Ԍ` `  MR. PEPPER: Obviously, not withstanding what Jorge said, that there are some differences of opinion about universal service. And I think maybe we can continue those. And we would love to be able to get more input. And obviously, there is a record here that will mention a website, an email address we can receive email comments and additional information. ` `  But I really would like to spend the last few minutes here talking about things or hearing your suggestions of how to be practical about making some reforms. Pat? ` `  MS. AUFDERHEIDE: First of all, I want to say that I think it's really a great thing to have discussions like this. Looking at the three discussions that have been showcased already, one of the things that really strikes me is that astonishing impoverishment of the public sector and of the academic sector in comparison to the thinktanks and the and the the corporations and the the trade associations and law firms. ` `  And I think that's that's simply that's a longstanding fact that if we are to have a serious thinking and analysis on this emerging and still very confusing world, the FCC is going to play an important role in confronting how do we get better informed, longterm, academic, scholarly, thoughtful analysis into this.%~0*H&H&@@Ԍ` `  One very, very simple thing that I think could happen is more intermixture between different groups and not to have these groups isolated in academic, consumer and corporate sectors. ` `  Another really, really simple, straightforward thing that could happen is that the FCC could improve and make state of the art its wonderful resource of the website which is so much more accessible to some of us even locally than the Portals, and was a terrific, terrific step forward from those awful years when the only you know, we had to trek down here and and confront those icy people at the public records office. ` `  And it would be also wonderful to to make more userfriendly the the process of having these conversations about setting standards for data collection and for conducting research. Thank you. ` `  MR. PEPPER: Thanks, Pat. Peter let's go Peter, Russ, Barbara, Larry. We'll have to make it really short because we do have to ` `  MR. PITSCH: Right. Just incorporate by reference my earlier comments about streamlining management and delegating. I want to talk briefly about the organizational function. The Commission's questions asked about licensing. I think that would be an excellent idea. Licensing, auction, try to streamline that process.%0*H&H&@@Ԍ` `  Also, regarding the policy area, Michael talked about one competition bureau. I think the Chairman threw out a couple of ideas. I would argue that along with delegation, it will be important to make sure that this policy bureau doesn't become too big because that becomes a source of delay. ` `  So making sure it wouldn't be terrible if there were two or three policy bureaus. And also, I recommend a strong you'll like this, Bob a strong OPP, a strong OGC. I think that's important for the Commission to have input. ` `  And the other thing I want to say is someone has got to own delay. Someone in the agency has got to own delay. One of the really big problems with independent agencies and five people is it's too easy for people not to be responsible for delay. I would put the circulate item list on the website. How many Commissioners have voted? You know, don't hold me to that one. ` `  But we've got to be thinking we've got to be thinking about that because right now trying to get something through the Commission is a twoyear process. It takes way too long. ` `  MR. PEPPER: Thank you. Russ. ` `  MR. NEUMAN: Briefly and briefly. Some of you may have thought I wondered into the wrong hearing room when I%0*H&H&@@ suggested a very broad review of responsibilities and communications including the Office of Science and Technology Policy and the White House, etcetera. ` `  I am serious about that enterprise. And my concrete suggestion for the senior staff of the Commission is a skunkworks that involves interdepartmental participation; that would involve leading thinkers in other agencies and perhaps even on the Hill to talk about what at a very broad level could take seriously an internet model of the future of communications. ` `  MR. PEPPER: Thanks. Barbara? ` `  MS. CHERRY: Okay. I guess the key point I would like like to raise is I think the key thing is to continually become more interdisciplinary in the analysis that the FCC does and how it reflects upon its own role in influencing how the industry works. ` `  I agree with the earlier comment. There is a couple of ways to do this. One is to include more fields as was mentioned before than we have before like sociologists, anthropologists, human factors engineering. Have more integrated experience within given individuals. ` `  If we can have individuals of more multiple experience, I find it incredibly helpful to work for multiple companies and then going to academia or have more people who are willing to cross boundaries. Perhaps the FCC%0*H&H&@@ could better facilitate some kind of internships or coordination. ` `  I think you don't really understand how government works until you've been part of it. You don't really understand how business works until you've been part of it. We need more interdisciplinary experience; more international comparative work, interdisciplinary in that way. ` `  Have more fora like today. We're actually bringing in people from different groups like academia; and more empirical research to make sure that we really are operating more out of facts and not myths. ` `  MR. PEPPER: Thank you. Larry? ` `  MR. SPIWAK: Two obvious points. Reinventing government is a bit of an oxymoron. And of course, Bismarck's famous line about those who love both law and sausages shall inquire how neither are made. ` `  I commend Mike on his suggestion of having everybody an economic advisor. But you're talking about a competition bureau. Well, I was part of a competition division which was which was one of these pet reinventing government projects. ` `  And the problem that we're all talking about with regulation is that everybody no matter what you call it, it's still form over substance because everybody is still%0*H&H&@@ mad over delay. ` `  And there are various things that make regulation in and of itself very obnoxious. There is regulatory capture. There is entrenchment. There is political pressure. There is all the things. One of the things ` `  MR. PEPPER: What's your concrete suggestion because the clock is ticking. ` `  MR. SPIWAK: Two quick points, is that I think that you need sort of a group much like the Competition Division former Competition Division or the OPP under Peter's watch where you have a bunch of people who are somewhat independent, indeed bordering on the insubordinate, where they can go and fire memos and, therefore, help the Commission to focus on the debate. And this time when you do it ` `  MR. PEPPER: Okay. And the second suggestion? ` `  MR. SPIWAK: That's it. This when you do it, have an organizational charter so that when your people are asked to read the law, do the economics, get the right answer, and it might go against the political wisdom, that they're not punished for it. ` `  MR. PEPPER: Thanks. Jannette, a suggestion? ` `  MS. DATES: Include within the new Enforcement Bureau the mission of enforcing equal opportunity requirements. Short.%0*H&H&@@Ԍ` `  MR. PEPPER: Thank you. And, Nolan, the last word? ` `  DR. WEINBERG: No words from ether land? ` `  MR. PEPPER: Oh, wait, wait, wait. All right. Jon, you'll get yours. ` `  DR. WEINBERG: Okay. ` `  MR. PEPPER: Nolan? ` `  MR. BOWIE: Well, reinvent OTA or a specific OTA, Office of Technology assessment, that deals exclusively with communications and information technology. I think Russ Neuman's suggestion that the FCC do this work in addition to some regulatory authority would offer the same kind of conflicts that the Atomic Energy Commission had in the past. ` `  Second, the FCC should digitize and put online all unclassified information unless exempt from Freedom of Information Act discovery. ` `  MR. PEPPER: Thank you. Peter, did you still have yours up? No? Okay. Jon Weinberg? ` `  DR. WEINBERG: FCC's ripe for wholesale reorganization of the bureau structure around function, not delivery mechanism, whatever the future of special management. It doesn't make sense to spread it over four bureaus. ` `  We could have the bureau offer some spectrum management to the extent that the key new mission of the FCC%0*H&H&@@ is interoperability and open architecture. We could have a bureau devoted to that, taking in from the Common Carrier or Cable and other bureaus. ` `  You need to work on the 8th floor process. It doesn't and bring in the 8th floor offices in earlier on items. It's not workable to have items spring from the brow of Zeus full formed at and that's when the other Commissioners get it on the mix. ` `  MR. PEPPER: Thanks. ` `  DR. WEINBERG: The prefaces to make sure that items don't get lost on the eighth floor need processes so that the eighth floor can more effectively goose staff to take action on key items when the bureaus themselves don't give them high priority. Down with task forces to start on that, but it should be more nimble and closer to the Chairman's office. ` `  And as Peter Pitsch said, we've probably got too many layers of management and need to chip away at what Tom McGarrity would call the ossification of the agency that makes it hard to get things through the process. ` `  MR. PEPPER: Thank you. Al or Gregg, do you have anything? No? Well, I want to thank well, yes? No? Okay. I want to thank everybody for ` `  MR. ROSSTON: Quickly, get rid of the Cable Bureau; get rid of the Mass Media Bureau; and combine the%0*H&H&@@ Wireless Bureau as the Office of Licensing Spectrum. And put the I agree with Mike Riordan and get a Policy Division or a Policy Bureau that looks at competition issues. ` `  But get rid of these other bureaus that are sort of technology focused. And then have the International Bureau not be a satellite advocacy bureau, but an international advocacy bureau, trying to export competition worldwide. ` `  MR. PEPPER: Thank you. Is that it? ` `  DR. HAMMOND: I'm going to defer. ` `  MR. PEPPER: Thank you, Al. Okay. I thank everybody again. A couple of, again, procedural things at the closing. First, there is we have a new email address for people either here or online or anybody who is listening or seeing this as a tape later which is newfcc@fcc.gov. ` `  Please give us your suggestions, especially just you know, Gregg, Al, you didn't have a chance for last word. Jon, you know, email those in. Anybody here who wants to put those in the record, that would be great. ` `  Also, we urge people to check out our website at www.fcc.gov and look for the place on there which is the "FCC for the 21st Century" site because we do have, for example, access to the transcripts of these forums and other%0*H&H&@@ material. ` `  I want to thank all of you who are the participants for coming. And I want to thank our West Coast with Oregon to California and Oregon contingent via audio. And I really appreciate everybody hanging in for for three hours. ` `  I also am indebted not only to Lisa Sockett who is really heading up this effort for us here at the at the Commission, but the other people who have been participating in back of us, sort of unseen to us, but seen by you, who has been Maryanne McCormick who has been helping us to record all of this. And then we do take these flip charts and turn them into notes for ourselves. And that's a very, very important part of our process. So thank you very much on Maryanne. ` `  And people in Public Affairs who have been really instrumental, Brett Freedman who I think most of you met on the way in, Maureen Piertino who has been critical, Martha Contee who really made these forums happen. ` `  And certainly not least, but last is the audiovisual staff, the people who have actually put our pictures up on the screens, made the audio services work and have gotten us out on the internet. So thank you all very, very much. ` `  For those who are the participants at the round%0*H&H&@@ table, we're going to continue maybe some informal discussions. We have some sandwiches upstairs. And so if you could stick around, that would be terrific. Thank you very, very much. ` `  (Whereupon, at 1:02 p.m. on Friday, June 11, 1999, the meeting was adjourned.) // // // // // // // // // // // // // // // // // // //%0*H&H&@@  ? (!   ` X VHeritage Reporting Corporation &(202) 6284888V "REPORTER'S CERTIFICATE ă  ?X  FCC DOCKET NO. : N/A  ?  CASE TITLE : A NEW FCC FOR THE 21ST CENTURY  ?x  HEARING DATE : JUNE 11, 1999  ?  LOCATION :  WASHINGTON, DC  I hereby certify that the proceedings and evidence are contained fully and accurately on the tapes and notes reported by me at the hearing in the above case before the Federal Communications Commission. Date: __61199_ __Shari R. Bowman____________ Official Reporter Heritage Reporting Corporation 1220 "L" Street, N.W. Washington, D.C. 20005  ? <! TRANSCRIBER'S CERTIFICATE ă  I hereby certify that the proceedings and evidence were fully and accurately transcribed from the tapes and notes provided by the above named reporter in the above case before the Federal Communications Commission. Date: __62199_ __Bonnie Niemann______________ Official Transcriber Heritage Reporting Corporation  ?  <!PROOFREADER'S CERTIFICATE ă  I hereby certify that the transcript of the proceedings and evidence in the above referenced case that was held before the Federal Communications Commission was proofread on the date specified below. Date: __62199_ __Lorenzo Jones_______________ Official Proofreader Heritage Reporting Corporation