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OPENING STATEMENT
of
MICHAEL K. POWELL
Commissioner
Federal Communications Commission
Before the
Subcommittee on Telecommunications, Trade
and Consumer Protection of the House Committee on Commerce

2123 Rayburn House Office Building
Washington, D.C.
March 17, 1999

Good morning, Mr. Chairman and other distinguished members of the House Subcommittee on Telecommunications, Trade and Consumer Protection. Thank you for inviting me here to assist you as the Subcommittee deliberates the statutory reauthorization of the Federal Communications Commission (FCC).

Initially, let me state that I support Chairman Kennard's effort to develop a strategic plan for restructuring and streamlining FCC functions and management. I am hopeful that we will be able to move forward quickly under this plan to make needed changes. In my testimony however, as the Subcommittee's invitation letter suggests, I will attempt to provide some specific suggestions for consideration during your deliberation on FCC reauthorization.

Before beginning any exercise to fix (or to use Chairman Tauzin's phrase "re-mission") the Agency, I think it prudent to first consider what we think is broken or is not working particularly well at the FCC. I would submit five areas for exploration: (1) the need to more clearly define the Commission's annual priorities and focus; (2) the need to operate efficiently enough to meet the demands of an innovation driven market; (3) how to structure the Agency to better align with market trends and demands; (4) whether to continue the administration of functions that are largely duplicated elsewhere in government; and (5) the breadth of the Commission's quasi-legislative authority.

I. The Commission Needs To More Clearly Define Its Annual Priorities

I believe that the key to any well-run organization is the enumeration of a clearly understood and widely communicated set of priorities. A common complaint I often hear is that outside parties have no solid sense of the Commission's priorities or direction. The Chairman often does share his view of the coming year in speeches, press releases and in daily conversation, as do other Commissioners, but there is no structured process by which the Commission formally develops and publicly reports its priorities.

One way to address this problem would be the development of an annual, full Commission statement of priorities. Congress could require the Commission to set out a list of its priorities in the annual report it currently files pursuant to section 4(k) of the Communications Act of 1934. 47 U.S.C. 154(k) (West 1998). Such a compilation of priorities would help focus the work of the Commission and create greater regulatory certainty.

II. The FCC Is Not Efficient Enough To Meet The Demands Of Its Customers

The extent and pace of change in the telecommunications industry is mind-boggling. It is driven by exponential advancements in microprocessing power, digitalization, Internet protocol-based network models and bandwidth. As Royce Holland, Chairman and Chief Executive Officer of Allegiance Telecom, Inc. recently remarked, the pace of change in the industry is like Moore's Law on Viagra. Market opportunities in this environment are lucrative but fleeting. As in the days of old, however, the Agency still labors endlessly for many months and even years on policy issues and ultimately implements its judgments in the form of newly-minted rules and regulations. The relevancy of the new rules fades rapidly with time. Some are out right obsolete the very moment they are passed. In this environment, the FCC must become a dramatically more efficient place. A decision that comes too late, might as well not have been made at all.

A. Deregulation

The most obvious way to improve efficiency at the Agency is to have fewer rules to administer. This highlights the importance of deregulation where the cost of a rule is not justified by its benefits. There are a number of vehicles Congress has provided for deregulating and I believe that they must be employed with greater rigor than they have to date. Congress wisely commanded the FCC to conduct a biennial review of its regulations and to shed those that it determines are no longer necessary. While we have made some progress in this area, I believe we can be much more aggressive.

A second vehicle that I believe has been under-utilized is our forbearance authority under Section 10 of the Communications Act. 47 U.S.C. 160 (West 1998). I have criticized many of our recent decisions in which the Commission declined to forbear from our rules. The merits of those forbearance petitions have been less my concern, for reasonable minds can differ. My dissatisfaction is with the standard we apply and our analysis, which seems to place the entire burden of forbearance on the moving party. I believe Congress expected the Commission to accept more responsibility for demonstrating a continued need for regulation in the presence of a healthy, competitive market. Indeed, I believe the Commission ought to employ a burden-shifting device similar to that employed in civil rights cases.

In operation, once a petitioner demonstrates that the market in which it operates is competitive (i.e., no competitive firm or entity enjoys market power, price trends are checked or downward, innovation is occurring) the burden would shift to the FCC to demonstrate why regulation is still necessary. And, in making that judgment, the Commission should not be able to simply rest on the grounds that the rule served a public purpose and petitioners have failed to prove that purpose is no longer worthy. The question should be whether the rule at issue is in fact superior to competition for serving that purpose. We should have to undertake a substantive and factual examination of the rule and its effects to determine if its purpose truly must be achieved through regulation instead of market forces. This approach presumes that healthy competition will normally maximize consumer welfare. Congress could explicitly adopt such a burden-shifting approach to forbearance.

B. Shift To Enforcement

A second way for the Commission to become more efficient is by shifting away from pre-approval, "by-the-grace of us" regulation and toward enforcement. Telecommunications regulation has traditionally developed along the lines of the broadcast model. That is, parties need advance approval for initial operation, changes and deployment of new innovations. This has become a real impediment to timely decisions. A regime in which there are more presumptions of good faith on the part of competitors, backed up with strong enforcement by the Agency, would greatly enhance our efficiency.

In this regard, I applaud the Chairman's initiative to assemble under one bureau the Commission's enforcement functions. Similarly, the initiative to create an expedited complaint resolution process, dubbed "the rocket docket," is a positive step in this direction. The shift to enforcement, however, needs to be more than a consolidated bureau. It needs to be a shift in thinking as well. The FCC, as a whole, must become more comfortable with enforcement as a means of regulation and must address our speculative fears about deregulation through enforcement, rather than let those fears paralyze our willingness to deregulate.

C. Need For Better Internal Process

The Commission structure is inherently inefficient. Because it is a deliberative body with independent Commissioners who each have a vote, it is very difficult to keep things moving along at a pace demanded by the market. In contrast, organizations that are more hierarchical generally have better success with moving more quickly. Nonetheless, for the Commission to keep pace, it needs the benefit of management professionals dedicated to managing our agenda and keeping our substantive items on track.

I would urge the Congress to consider creating a professional management directorate to accomplish this purpose. There are examples of similar activities in other government institutions. The court system has long employed a clerk's office that keeps the caseload moving, rather than leave this responsibility to the sitting Judges. Similarly, many divisions of the Department of Justice (such as the Antitrust Division) have a Directorate of Operations, headed by a substantive professional who helps keep the pipeline to the decision-makers flowing. These functions at the FCC are presently managed by the Chairman's personal office.

III. The FCC Is Not Aligned Structurally With Market Trends

It is regularly observed that the Commission is organized around industry segments that increasingly are less relevant as convergence strains and eliminates their unique technical distinctions. Many commentators have urged that Congress consider consolidating bureaus along competitive lines. I agree that it would be useful to consider such structural changes, though I believe there are limits to how much can be gained by such an effort.

The balkanized structure of the Commission makes it difficult to re-deploy employees to address urgent tasks. Attorneys currently analyzing policy issues for the Mass Media Bureau, for example, cannot easily be moved to work on issues in other bureaus, even though the subject area may be similar. Thus, even though there is a need for attorneys in the Cable Services Bureau, separation of these bureaus prevents ready reassignment of personnel. Within larger bureaus, the Commission would have the opportunity to maximize its use of employees. It could, for example, cross-train the workforce through rotations and training. In this way, the Commission could maximize employee flexibility and enhance its ability to reallocate resources to match priorities.

Though I do not take a strong position on any particular proposal, I would recommend considering consolidation in a few areas. The first would be the formation of a multi-channel competition bureau. Such a bureau would administer our rules with regard to what are currently the mass media, cable television and direct broadcast satellite (DBS) industries. Regulation of each of these mediums presently rests in a separate bureau. A single leadership structure overseeing these fields would allow for greater harmonization of rules and decisions in furtherance of a merged and increasingly competitive industry segment. With the elimination of some cable rate regulation at the end of this month, and increased attention being given to the inter-relationship between broadcast and DBS, the time may be ripe for considering such a proposal.

A second area worthy of some thought is complete or partial consolidation of the Common Carrier and Wireless Telecommunications bureaus. There has been a great deal of discussion about wireless technologies competing with and serving as a substitute for traditional wireline service. Indeed, some have suggested that over time most voice communications will be carried by wireless carriers, while the wireline infrastructure will be used more for data. These trends may argue for a single bureau dedicated to these currently separate industries.

I do note, however, that there is a limit to the value of this functional realignment. Because the statute is organized along industry lines our rules necessarily do as well and functional consolidation may be more form than substance. Additionally, many industries support industry organization because they enjoy having a "champion" to tussle over policy.

IV. Administration Of Duplicative Functions

A fifth area on which Congress may choose to focus is where Commission authority overlaps with that of other government agencies. Because communications is so fundamental to virtually all human activity, there is almost always some connection to FCC authority (no matter how tangential). Yet, the core expertise of the FCC should truly be considered in assigning to it, rather than some other agency, a central role on a given issue. While such governmental overlaps may be desirable, they at least should be complementary (or supplementary) rather than simply duplicative. A few suggested areas of inquiry are outlined below.

A. Merger Review

The debate over the value of FCC merger review in addition to review by one of the antitrust agencies is well-worn. Clearly, as the keepers of the Communications Act and its policies, the FCC has some unique expertise that it can bring to telecommunications merger review that probably advances the public interest.

Our review, however, is not generally limited to those areas in which we can claim primary expertise. Very often, we undertake a classic antitrust analysis, applying the same principles, precedents and guidelines as those employed by the antitrust authorities and rarely does it produce different results. Such reviews can be quite burdensome on the parties. For example, the FCC often requires voluminous filings that are duplicative of those made to the Department of Justice or the Federal Trade Commission. They often must incur the expense of outside counsel to prove their case to both agencies. I have come to doubt whether the marginal value of full blown merger review by the Commission is justified by its cost in time and resources. Moreover, with all due respect to our hard working staff, we do not really possess enough personnel schooled in antitrust and competitive economics to do the job well consistently. The antitrust authorities do.

I believe that there is room to preserve a complementary role for the FCC in the review of mergers, while limiting it to its areas of expertise. Perhaps, consideration of the legislation recently introduced by Senators DeWine and Kohl would be a good place to start.

The Commission engaging in simultaneous review with the antitrust authorities could improve efficiency. Under such a scheme, the parties would be required to file most documents only once and to one agency. The Commission would consider issues such as whether the merger would violate an express provision of the Act, or would otherwise undermine the congressional scheme. Furthermore, it would consider the merger's impact on other communications policies such as media diversity and universal service that are not appropriately considered by antitrust authorities. But the Commission would defer (either substantially or completely) to the antitrust authority's competitive analysis.

B. Consumer Affairs

An important function of any branch of government is to safeguard consumers. Undoubtedly, because of our regulatory authority over certain industries and our intimate understanding of the industry, we are uniquely positioned to administer certain consumer affairs. Nonetheless, there are other agencies that have similar authority and some judgment might be made as to which is best positioned to administer certain issues. For example, the FCC has occasionally jumped into issues that relate to advertising under its public interest authority. The Federal Trade Commission, however, has specific authority in these areas. The same is true of other issues such as consumer fraud (e.g., "cramming" and "slamming.") Congress should evaluate the benefits of such overlapping jurisdiction.

C. Equal Employment Opportunity

I personally support narrowly tailored Equal Employment Opportunity (EEO) rules. The Commission has administered its own EEO program in certain industries for some time. Yet, in most other industries there is not an EEO authority separate from the Equal Employment Opportunity Commission and the federal, state and local civil rights authorities. I believe that there is some advantage to having the FCC involved because of its unique relationship with certain industries, particularly those that operate pursuant to a government-conferred license. However, I would be remiss if I did not point out there is some overlap that should be examined to ensure that the respective roles are complementary and not duplicative. By eliminating duplication, such an examination, in my view, would bolster support for the government's role in promoting opportunity in communications.

D. Political Rules

Finally, I would point out that the FCC has historically administered a number of rules that are designed to affect the quality of elections. These rules are focused on the obligations of the licensee and not the candidates, but they undoubtedly are intended to shape the quality and tenor of elections. Greater involvement in this area would require a more comprehensive understanding of campaigns and existing election laws than I believe this Agency possesses. Furthermore, any extension of such authority should be weighed against the role of the Federal Election Commission. I am uncomfortable, personally, as an un-elected regulator initiating policies and rules that affect the electoral process without specific congressional direction to do so.

V. The Breadth Of The FCC's Quasi-Legislative Authority

A phenomenal amount of time is consumed in this industry in fights over the FCC's jurisdiction. One major source of this ongoing battle is the tension between the statutory regime that reigned under the 1927 and 1934 Acts and that predominantly adopted by Congress in the 1996 Act. The former's hallmark is that it conferred sweeping authority in the Commission to act to ensure "the public interest, convenience and necessity." The 1996 Act, however, attempted to craft, in many respects, a detailed blueprint for the industry and the Agency. In many places, it provides highly detailed statutory provisions and instructions. There is a real tension between these two regimes, elements of which are scattered throughout the Act.

The venerable public interest standard has much to commend it. It provides a great deal of flexibility and punctuates a consumer focus. However, this standard does allow the Agency to self-initiate a broad range of government action without specific statutory direction. That is, it serves as a basis for quasi-legislative action by the Commission.

The quasi-legislative authority of the Commission has its merits, but if read too broadly, it serves to invite industry, consumer groups and special interest to seek both redress and advantage from the Agency, rather than Congress. This can lead to the Agency initiating action that Congress subsequently disapproves of, or believes conflicts with a more specific mandate in the statute.

I am not suggesting elimination of the public interest standard. I do believe, however, that Congress might consider certain limiting principles with respect to its employment as a jurisdictional basis in certain areas.

VI. Conclusion

I would like to conclude with one caution. As long as the 1996 Act is the basis for telecommunications law, Congress would be ill-advised to hollow or unduly wound the Commission. There are undoubtedly areas in which we tinker where we should not. There are certainly ways to improve our processes and our decisions. But, even controlling for all that, the FCC will remain a very important institution for dealing with the telecommunications sector and its transition to competition and its transformation in response to innovation.

Congress has the power to cut employees and even Commissioners if it chooses. But if not done carefully, rather than harm the Agency, the industry and consumers will be harmed. It is the industry that will still have to come to the Commission to get its licenses approved or have a section 271 application approved. It will still be states and local schools that have to file for universal service. Consumers will still need somewhere to have their complaints acted upon. Such redress will not be enhanced by a diminished Agency.

I look forward to continuing to work with Members of Congress and with my colleagues on the many challenges, and tremendous opportunities, that await us in implementing the 1996 Act. I trust that, by working collaboratively and by having faith in free markets, we will bring the benefits of competition, choice, and service to American consumers.

Thank you for your attention.