WILLIAM E. KENNARD
FEDERAL COMMUNICATIONS COMMISSION
SUBCOMMITTEE ON COMMERCE, JUSTICE, STATE, AND THE JUDICIARY
COMMITTEE ON APPROPRIATIONS
U.S. HOUSE OF REPRESENTATIVES
FEDERAL COMMUNICATIONS COMMISSION'S
FISCAL YEAR 2000 BUDGET ESTIMATES
April 14, 1999
Mr. Chairman, Ranking Member, and Members of the Subcommittee, thank you for the opportunity to discuss with you today the Fiscal Year 2000 Budget Estimates of the Federal Communications Commission.
This morning I would like to: summarize our FY 2000 Budget Estimates; highlight the growing impact of the Telecommunications Act of 1996, and what remains to be done to achieve competition now that the Supreme Court has affirmed the FCC's authority to implement the core local competition provisions of the Act; note some of our other accomplishments; discuss our plans to assist the Congress as it considers reauthorization of the FCC later this year; report to you on the progress we have made in our Year 2000 remediation program; and share with you my agenda for the rest of 1999.
A 21st Century Vision
Before I address the major points of my testimony, however, I want to note that this
is the final appearance before you this century of an FCC Chairman seeking your support and funding. Therefore, I want to describe for you my vision of an FCC for the 21st century.
We are standing at the threshold of a new century, a century that promises to be as revolutionary in the technology that affects our daily lives and the future of our country as the inventions and innovations that so profoundly shaped the past 100 years. Just as the internal combustion engine, the telephone, and the railroad brought about our country's transformation from an agricultural to industrial society, the microchip, fiber optic cables, and satellites are fueling our transition from an industrial to an information-age society.
With the passage of the Telecommunications Act of 1996, we began the process of updating the rules for this New Economy, an economy centered on skilled workers, broad access to technology, and entrepreneurial markets. By opening up the marketplace to more competitors, we have a communications industry that is the envy of the world. Every major economic indicator in every sector of the communications industry is up: job growth, revenue, investment, and stock values are all at record levels. This growth has enriched the nation, and Americans are beginning to reap the benefits of competition with more choices and lower prices.
In the opening years of the next century, the telecommunications marketplace will change dramatically. Phone wires will deliver movies, cable lines will carry telephone calls, and the airwaves will carry both. This convergence of technologies will transform how we live, work, shop, and play. It will blur traditional industry lines. It will reshape our society.
As the marketplace changes, so must the Federal Communications Commission. The top-down regulatory model of the Industrial Age is as out of place in the New Economy as the rotary telephone. As competition and convergence develop, the FCC must streamline its operations and continue to eliminate regulatory burdens. Technology is no longer a barrier, but old ways of thinking are.
As we re-direct the FCC's focus for a competitive age, the Commission must reform itself. Already, we have taken some initial steps on the road towards re-engineering the FCC. We are re-focusing and consolidating our enforcement and consumer information functions, as well as automating and streamlining our licensing processes across the entire agency. But these steps are only the beginning.
Congress' review this year of the FCC presents an important opportunity to continue the discussion on how the FCC should respond to this transformation and what its role should be in the 21st century marketplace.
Our primary role must be to continue opening markets to competitors to bring more choices at affordable prices to all Americans. The Telecom Act requires that telecommunications monopolies open up their networks to allow new entrants to compete with them. With the recent Supreme Court decision affirming the FCC's role in implementing these provisions, we will continue working with the states and industry to accomplish this task. In addition, we must continue to ensure that all Americans have access to the wonders of the communications revolution.
As competition develops, we must re-focus our efforts on those functions that are appropriate for a competitive age. For example, we will take strong action against those who would rather cheat than compete for consumers. We will work to ensure that Americans are provided with clear information so that they can make sense of these new technologies and services and choose the ones best for them. We will enforce the law, resolve industry disputes, manage the spectrum, and work on international coordination. And finally, we will monitor the competitive landscape on behalf of the public interest, implementing important policies such as universal service in ways compatible with competition.
Just as the telecommunications industry and other sectors of our economy are constantly adapting to change and competition, so must we. We look forward to working with Congress -- as well as industry, consumers, state and local governments, and others -- on a critical assessment of what the "new" FCC should look like, and how we can get there.
A new century and new economy demand a new FCC. We must plan for the future, while continuing to work on the challenges we face today to promote competition, foster innovation, and help bring the benefits of 21st century telecommunications to all Americans.
Overview of FY 2000 Budget Estimates
To help the FCC begin to realize this 21st century vision, the Commission proposes a Fiscal Year 2000 budget of $230,887,000, and a staff of 1,930 funded full-time equivalents (FTEs). This represents an increase of $38,887,000 over the FCC's FY 1999 funding level, but no increase in staffing.
Of the $38.8 million increase, $20.3 million is directly related to the FCC's relocation to the Portals Building. This includes $9.6 million for higher rent, $.5 million for increased Federal Protective Service charges, $1.5 million for extended guard services due to the lease requirement to allow the public to enter the building at all five entrances, and $8.7 million to reimburse the General Services Administration for the costs it incurred to relocate the FCC to the Portals.
The remaining increase covers $6.8 million for mandatory salary and benefit increases, $.7 million for Consumer Price Index adjustments in contract services and $11.3 million for automation enhancements. Without adequate automation funding, the Commission will be unable to carry out our basic functions of awarding licenses to applicants for communications services, overseeing the implementation of new services for the public, and reviewing and updating existing rules and regulations. In view of the importance of these services to the economy of the United States, this investment in technology is critical. Since the automation enhancements will directly benefit the Commission's licensees, we propose that all of this increase be paid for by an increase in regulatory fees.
The total amount to be collected from regulatory fees would increase from $172,523,000 in FY 1999 to $185,754,000 in FY 2000.
The Growing Impact of the Telecommunications Act of 1996
Turning now to the growing impact of the Telecom Act, I am very pleased to report that the Act is working: consumers are beginning to see competitive choices in local telecommunications services, competitive deployment of advanced broadband services is well underway and the stage is therefore set for less regulation as competition expands.
I also note that by every measure, the telecommunications industry is thriving. Since the passage of the Telecom Act, revenues of the communications sector of our economy have grown by over $140 billion. Stock values of the companies in the telecommunications sector are up, indicating that Wall Street sees a future of a rapidly enlarging pie that is big enough for all, not a zero sum game.
One-fourth of our country's economic growth has come from the information technology sector. For 1998, it is estimated that the communications sector of our economy will have revenues in excess of $500 billion dollars. This growth has touched the lives of almost every American. Now, a growing number of American families across this nation have a choice of a vast array of high-tech communications services, services that now cost less.
This growth comes not only from established providers but, since the passage of the Telecom Act, we can now clearly see benefits flowing from the new competitors. The revenues of new local service providers more than doubled in 1997, and they increased substantially again in 1998. And this growth has meant new jobs for thousands of Americans.
In the wireless industry, capital investment in 1998 has more than tripled since 1993, with more than $50 billion of cumulative investment through 1998. Similarly, the wireless industry generated almost three times as many jobs as in 1993. All this while the cost of service to the consumer has dropped. A cell phone is no longer a luxury for the privileged, for with the advances in cellular service and the advent of digital, personal communications services, mobile phones are now a common communications tool for over 60 million people every day.
AT&T, BellSouth, MCI Worldcom, Ameritech, Sprint, SBC, Bell Atlantic and US West are all among the top 20 telecommunications companies, by revenue, worldwide. Similarly, GE Americom, Hughes, Loral and Panamsat are among the top 20 satellite service providers, by revenue, worldwide. And US satellite manufacturers such as Hughes, Lockheed Martin, Loral, Motorola and Orbital Sciences, maintain a strong lead in contracting and subcontracting satellite systems worldwide.
These are just a few examples of how the telecommunications economy and market are thriving, and are doing so in an increasingly competitive environment engendered by the Telecom Act.
From Courts to Cooperation and Competition
In recent months, the FCC's implementation of the Telecom Act also has been upheld repeatedly by the courts. Most recently, in January 1999, the United States Supreme Court affirmed the FCC's landmark decision implementing the core local competition provisions of the Telecom Act. In AT&T v. Iowa Utilities Board, the Supreme Court specifically: affirmed the FCC's fundamental jurisdiction to issue uniform national rules to facilitate competition for local telephone service; affirmed the FCC's interpretation concerning new competitors' rights to share parts of the incumbent carriers' networks without having to provide their own facilities; affirmed the FCC's rule that incumbent carriers may not dismantle their existing networks in ways that disadvantage new entrants and raise entry costs; affirmed the FCC's ruling that the Telecom Act enables new entrants to avail themselves of all or portions of existing interconnection contracts between incumbents and other competitors; affirmed the FCC's identification of a number of network elements designed to facilitate entry by new competitors; and directed the FCC to revisit its rule designating specific network elements that must be unbundled pursuant to the Telecom Act.
The FCC's legal victories at the appellate court level also have been significant over the past 14 months. For example, the Commission worked closely with the Department of Justice to defend successfully the integrity of the core market-opening provisions of the Telecom Act against repeated constitutional attacks. Thus, two different federal courts of appeal in the past year have issued three separate decisions upholding the constitutionality of specific provisions of the Telecom Act governing the Bell Operating Companies. In December 1998, the D.C. Circuit rejected contentions that Section 271 of the Act -- a key provision that governs Bell Company participation in the long distance market -- was an unconstitutional "bill of attainder" or punishment. The Supreme Court also declined to review a similar decision from the Fifth Circuit.
The Commission has had other court victories as well. In January 1998, the D.C. Circuit affirmed the FCC's interpretation of two key provisions of Section 271 which will help achieve Congress' goals to ensure local markets are opened to competition and enhance competition in the long distance market. In August 1998, the Eighth Circuit Court of Appeals affirmed a Commission decision reforming interstate "access charges" -- the rates that local telephone companies charge long distance companies for the right to originate and terminate all long distance calls. Finally, in January 1999, the D.C. Circuit affirmed the FCC's rules establishing benchmarks for rates that U.S. carriers pay to foreign carriers to complete international calls, a decision which should reduce the prices consumers have to pay for international calls.
Now that the courts have upheld most aspects of the FCC's implementation of the Telecom Act, we must ensure that the Supreme Court's decision in AT&T v. Iowa produces momentum behind the market-opening mandates of the Telecom Act instead of more delay and confusion. First and foremost, that means making sure that each of the three pathways to competition spelled out in the Telecom Act are open: facilities-based competition, resale, and unbundled network elements.
We know that the Supreme Court's decision requires the FCC to revisit one of these pathways: the FCC's interpretation of which network elements must be made available to competitors. We must not allow uncertainty on this point to slow the momentum toward competition.
This is why the Commission was pleased to learn last month that each of the regional Bell operating companies and GTE have agreed to fulfill their current obligations, as set forth in existing interconnection agreements, to provide unbundled network elements while the FCC revisits its interpretation of this key provision of the Telecom Act.
The law requires all of the stakeholders to cooperate. It requires parties to negotiate on interconnection and collocation. It requires state and federal regulators to collaborate. So the irony of the Telecom Act is that cooperation is the prerequisite to competition. I welcome these good faith gestures of the incumbent carriers. This pie is big enough for everyone to have a slice.
Now that the Supreme Court has given us greater clarity on these major outstanding issues, we must move forward immediately to settle any remaining ambiguities. I am committed to finalizing the standard for the network elements by early summer. We must put this matter to rest. The marketplace needs stability.
I will continue to link arms with my colleagues in the states to implement the Telecom Act in a fair, clear, and pro-competitive way. We now have three years of experience on which to build the future. It is a strong foundation, and together, we are going to complete the job that Congress gave us. And, we can now move quickly.
Other FCC Accomplishments
I would like to turn now to other areas of accomplishment since I became Chairman of the FCC in November 1997. Throughout my tenure, I have sought to:
I believe that during my Chairmanship, the Commission has stood for promoting competition, fostering new technology and creating opportunity while streamlining the agency and getting rid of unnecessary regulation. The Commission is also dedicated to making sure that the burgeoning digital revolution does not become a digital divide. This is evident in many of our efforts since I became Chairman: for example, in the Broadband Task Force, my "opportunity agenda," my views on universal service, my advocacy of the E-rate, the FCC's outreach to the disabled community, overseeing implementation of DTV, promoting low power FM, my views on implementation of Section 271, the FCC's efforts to protect consumers against cramming and slamming, greater inclusion of state regulators, and the FCC's holding field hearings around the country with different groups.
Recognizing that access to technology is essential for future jobs and an important step necessary to eradicate the digital divide, I have also consistently advocated the Congressionally-created universal service support for service to classrooms and libraries -- the so-called E-rate. Under my tenure, the Commission finalized implementation of the E-rate and prioritized assistance so that the most needy would receive the biggest benefit. Moreover, the Commission ensured that strong program controls were in place. No funding commitment letters were permitted to be sent until the program was reviewed both by an independent auditor and the General Accounting Office. I am pleased to report today that funding commitment letters totaling $1.66 billion now have been sent to over 30,000 school and library applicants, which completes the funding commitment process for the first year of the program. In addition, the Universal Service Administrative Company has begun accepting applications for the second year of the program. The FCC also is continuing to work to simplify the application process to make it both simpler and faster for schools and libraries.
Central to our first year achievements is the creation of a Bandwidth Task Force, a pro-active, cross-bureau, cross-disciplinary group whose responsibility is to identify for the Commission issues of bandwidth constraint within the nation's telecommunications infrastructure. I have highlighted the current bandwidth constraints as one of the most important issues to be addressed in the field of telecommunications policy and regulation. Current bandwidth constraints include: access to the information superhighway for the mass market, (the "last mile" issue); connectivity to high bandwidth backbone by the nation's small-to-medium size towns and communities; and inside wiring issues (the "last 100 feet"). The Bandwidth Task Force also has the responsibility of prioritizing achievable means to facilitate the deployment of competitive alternative high-bandwidth technologies and the ability of all consumers to obtain broadband interconnections and assisting the different areas of the agency in realizing these goals.
We have also created a cross-agency task force to assess how to stay ahead of the rapid consolidation of industry in the telecommunications area. I began the Technology Advisory Committee, another intra-agency group headed up by the Chief of the FCC Office of Engineering and Technology and comprised of engineers, economists, scientists and technologists. During my tenure, the DTV task force, headed by Commissioner Ness, was established to address tower siting issues for DTV. The FCC also launched a vigorous effort, led by Commissioner Powell, to educate communications industries about Year 2000 compliance issues and to monitor industry efforts to address Y2K compliance. Finally, we established the Opportunity Working Group, a cross-agency task force charged with ensuring that all Americans receive the benefits of the communications revolution.
Similarly, I have sought to strengthen the cross-agency Disabilities Issues Task Force to highlight, among other things, the importance of making technology available to everyone. For example, we have: strengthened closed captioning rules so that persons who are deaf or hard-of-hearing will have access to more programs on television; proposed new rules for telecommunications relay services and proposed to require the provision of speech to speech relay service; advocated that industry provide solutions to the problem of compatibility between digital wireless phones and TTYs; and proposed rules to make telecommunications services and equipment accessible to persons with disabilities. Moreover, I have tried to raise the profile of the needs of persons with disabilities in the telecommunications area through speeches, statements, and demonstrations at the FCC of equipment and how persons with disabilities would benefit from it. We have also sought to ensure that the voices of people with disabilities and their advocates are heard at the FCC.
Over the past 14 months, the Commission has also focused on ways to increase competition in the telecommunications area. Toward this end, some of the Commission's achievements include: beginning a rulemaking to establish a pro-competitive, pro-innovative framework for advanced telecommunications services offered by incumbent local telephone companies and by new entrants; adopting a competitively neutral mechanism for long-term number portability cost recovery; lowering barriers to non-U.S. licensed satellites providing service within the U.S.; implementing the WTO Agreement on Basic Telecommunications Services, lowering barriers to entry by foreign carries in the United States; adopting rules requiring set top boxes, cable modems and other navigation devices be available "over the counter" as well as from cable companies; conducting 800 MHz, LMDS and 220 MHz auctions, and issuing 1608 licenses; reopening review of access charges; and issuing a bandplan for the 18 Ghz band, segmenting the band to allow new satellite services to operate without interfering with terrestrial operations.
I have also sought to refocus the Commission on the importance of community and empowering people and the public safety community. For example, we have: issued technical standards for implementation of the "V-Chip" and approved industry-developed plans for a television rating system; allocated and adopted service and licensing rules for 24 MHz of spectrum for use by public safety entities, such as police, fire and ambulance services; and adopted an Order extending the deadline for compliance with electronic surveillance assistance requirements of CALEA to allow enough time to develop the technologies necessary to provide law enforcement officials with the tools they need to perform authorized wiretaps.
In the area of consumer protection, the Commission: proposed more than $13 million in fines for "slamming," including the first slamming fine of over $1 million; for the first time ever, revoked a carrier's license to provide interstate services because of slamming abuses; brokered and endorsed industry-developed guidelines to stop "cramming;" issued rules empowering consumers to protect themselves against outrageous payphone long distance charges; and issued rules to protect consumer privacy concerning the use and disclosure of personal information to marketers.
As Chairman, I have also emphasized the importance of strengthening agency enforcement as essential to protect consumers and enhance competition. As a result, the FCC since I became Chairman has: investigated and shut down or fined hundreds of companies that engaged in "slamming;" shut down 261 unlicensed "pirate" radio operations, including five which were interfering with air traffic control or were otherwise endangering human life; established a "fast-track" complaint process for resolution of complaints that are important to maintaining fair rules of competition; promptly adjudicated and stopped long distance marketing arrangements that violated and attempted to evade the market-opening long distance provisions of the Telecom Act; and issued the first-ever Temporary Restraining Order halting alleged violations of the pro-competition provisions of the Communications Act.
Finally, over the past 14 months, I have stressed the importance of removing unnecessary, burdensome regulations. Our efforts to streamline regulations include: adopting rules to auction mutually exclusive applications for broadcast licenses; streamlining the broadcast application processes to reduce the number and length of forms; simplifying the equipment authorization process; implementing electronic filing for authorization requests for common carrier tariffs and comments and pleadings in most notice and comment rulemakings; and, as part of the 1998 biennial regulatory review, proposing specific streamlining initiatives in over two dozen areas.
This year the House and Senate Commerce Committees have announced their intentions to consider legislation to reauthorize the Commission. The FCC's last authorization legislation was signed into law in September 1990 and authorized the FCC through September 30, 1992. See Public Law 101-396 (H.R. 3265), the "Federal Communications Commission Authorization Act of 1990."
As a result, since 1992, the FCC has been technically a "non-authorized" agency, dependent for its congressional policy guidance on annual appropriations legislation and other major legislation such as the Cable Act of 1992, the Omnibus Budget Reconciliation Act of 1993, the Telecommunications Act of 1996, and the Balanced Budget Act of 1997.
To assist Congress in its current FCC reauthorization effort, the Commission has already begun re-engineering itself for the new century. Our actions to date and plans for the future will be detailed in a comprehensive report we plan to submit this summer to you, to our authorizing committees, and to other Members of Congress as well as to the public.
Over the next few months, we intend to undertake a comprehensive self-assessment of our core mission and goals, what steps we must take to achieve our goals, how to better measure our performance and effectiveness, and how to use that information to make fundamental improvements in the way we operate. We want to involve both our staff and our many stakeholders in this self-assessment, including you and other Members of Congress, companies, industry associations, consumer groups, academics, state and local governments, and the public. The result of this effort will be a draft Strategic Plan covering a five year period which we will release in July 1999, and on which we will seek additional public comment.
The FCC is viewing this reauthorization process as an excellent opportunity to assess and reform the goals, structure and processes of the agency as we plan for a new FCC that fits the telecommunications marketplace of the future.
Moreover, a restructured and streamlined FCC must be in place once competition arrives so that we can focus on providing consumers information and protection, resolving industry disputes and enforcing the law, allocating spectrum and other scarce resources, working with other nations to open their markets, and protecting universal service and other public interest objectives that may not be met by normal market forces.
In sum, we will seek to be structured to react quickly to market developments, to work more efficiently in a competitive environment, and to focus on bottom-line results for consumers. As competition increases, we must place greater reliance on marketplace solutions, rather than on traditional regulation of entry, exit and prices; and on surgical intervention rather than complex rules in the case of marketplace failure.
We Also Need the Right Tools
As I testified in June 1998 before the Senate Commerce Committee, we cannot create a "leaner and smarter" FCC by ourselves. We need Congress to give us the full range of tools necessary to reshape the Commission and its staff.
This is why we were all pleased to read in the Congressional Record of February 23, 1999, the following statement by Senate Majority Leader Lott (R-MS) which he made as part of longer remarks on the third anniversary of enactment of the Telecom Act of 1996:
"During this continued period of transition, it will be important for Congress to make sure that the Federal Communications Commission is properly structured. That it has the right tools to foster and further the ongoing evolution. Chairman Kennard's analogy--old regulatory models are a thing of the past, much like the old, black rotary phones-- rings true. The FCC indeed must change, and Congress should start empowering the FCC rather than criticizing its individual decisions." (Emphasis added.)
One such empowering tool is buyout authority for which we have proposed legislative authority in our FY 2000 draft appropriations language. We need this authority to buyout permanent employees and to replace them with employees who have the appropriate mix of skills to handle our changing workload demands.
We also need legislation as again presented in our FY 2000 appropriations language to ensure that the goals of Section 309(j) of the Communications Act are met, and that our auctions/ licensing process is not completely undermined by the bankruptcy courts.
Year 2000 Compliance
I am pleased to report to you today that the FCC has made substantial progress in alleviating Year 2000 (Y2K) problems for our internal application software systems, networks, and hardware. The Commission is on schedule to achieve 93% compliance by April 30, 1999 and has achieved 73% compliance to date. The Commission's ongoing relocation to the new Portals office facility has had some minimal adverse impact on FCC Y2K remediation efforts. However, the Portals move has also resulted in major progress on our achieving Y2K compliance for the FCC's headquarters infrastructure.
I have continued to stress the great importance of achieving Y2K compliance for both the FCC and telecommunications industry systems. I also want to commend Commissioner Michael Powell, who as a member of the President's Council on Year 2000 Conversion, has lead the Commission's internal Y2K compliance program while carrying out his important leadership role in the FCC's industry outreach effort.
The transition from monopoly regulation to open markets, from today's technologies to tomorrow's breakthroughs, is not yet complete. Therefore, as we look forward to the
upcoming new century, the challenge before this Commission is clear: to promote competition, to foster new technologies, to protect consumers, and to ensure that all Americans have access to the wonders of the communications revolution. These goals are the will of the American people and of Congress, set forth in the Telecom Act. And we at the FCC will continue to work hard to bring these benefits to every American.
These goals will guide us as we review the major mergers now before this Commission. They will be in our minds as we continue our work in opening local phone markets to competition, so Americans have choice in local phone service. They will guide us as we work to make our communications network accessible to all Americans, especially the 54 million Americans with disabilities.
Our agenda for this year which I have attached to my testimony is a full one. It is also an important one, fully justifying the resources we have requested from you in our FY 2000 budget submission.
The agenda for this year continues on the foundation laid last year -- competition, community, common sense. We have a lot of work to do, and we have the will to do it well. With your support of our FY 2000 budget request, we will succeed:
During this time the ground rules we set now will structure competition and the telecommunications industry for years to come. Decisions we make today will determine whether or not all Americans - irrespective of where they live, their race, their age, or their special needs - can share in the promise of the Information Age.
This concludes my testimony. I'd be pleased to answer your questions.