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Statement of Reed Hundt
Chairman, Federal Communications Commission,
on the FCC's Fiscal Year 1998 Budget Estimates,
before the Subcommittee on Commerce, Justice, State, and Judiciary,
Committee on Appropriations,
U.S. House of Representatives,

March 13, 1997

Mr. Chairman and Members of the Subcommittee, thank you for this opportunity to testify on the Federal Communications Commission's Fiscal Year (FY) 1998 Budget Estimates. The Telecommunications Act of 1996 updates the FCC's charter first granted in the Communications Act of 1934. Congress sought to establish a pro-competitive, deregulatory national policy framework for communications. This framework reflects a bipartisan consensus that introducing competition and deregulation in America's telecommunications marketplace offers numerous potential benefits for consumers, business users, communications companies, and the economy as a whole.

If our competition policy is a success, then the market, not government, will declare industries or firms winners or losers. And, as The New York Times observed recently, if competition succeeds, customers used to squabbling with their local telecommunications service provider over installation, service repairs, or rates can do more than fight. They can switch. Accordingly, implementation of the Telecommunications Act remains the FCC's day-to-day agenda.

We also remain committed to the goal of public benefits from communications. Market forces alone will not always adequately meet all of society's public interest goals, such as addressing public safety needs. Consumer education and outreach is also an integral part of our mandate.

Finally, we are working to make the FCC's operations as smart, simple, and streamlined as possible. The payoff is that our productivity is up. Even as we project the return of FCC staffing to pre-Telecommunications Act levels, our workload continues to grow.

Telecommunications Act Implementation
Implementation of the Telecommunications Act remains the FCC's day-to-day agenda. We have been able to meet or beat every deadline Congress set for us while continuing to carry out all of our other responsibilities. So far, we have completed 43 implementation-related rulemakings and adopted 134 individual items. We have also held 18 public forums on issues related to Telecommunications Act implementation, including interconnection, access charge reform and universal service, national wireless facilities siting policies, and market entry barriers for small businesses. We are in the process of completing 24 proceedings, and the Telecommunications Act requires us to initiate at least 12 additional proceedings.

As we continue to implement the Act, we are discovering a number of things we did not realize previously. One is that the process of introducing the competition envisioned by the Act is increasing our workload in ways that are difficult to predict and to plan. We have been inundated with filings in the various proceedings before us. For example, we have reviewed 75,000 pages of comments and other filings by parties in the universal service proceeding alone. On access reform we received a three-foot stack of comments that does not include over 300,000 e-mail comments concerning charges that Internet Service Providers and similar companies pay to local telephone companies. In both proceedings, we have spent hundreds of person hours in meetings with interested parties. We have also spent almost $450,000 in overtime electric bills during the past year, more than triple what we spent the year before, just to keep our buildings open to support the longer staff hours.

With respect to Bell Operating Company (BOC) entry into the long distance market, we now know that the 49 anticipated filings by BOCs under §271 of the Act may not be as neat as the process suggests. Earlier this year, for example, Ameritech filed twice before withdrawing its application, which resulted in over 17,000 pages of filings. In fact, for FY 1997 we project filings received in all docketed proceedings will increase 88% over FY 1996. Additionally, while Telecommunications Act implementation has required us to increase Full Time Equivalents (FTEs) devoted to policy and rulemaking activities by 50% since FY 1995, filings received for review in docketed proceedings have increased by 227% during the same period. We are required to, and do, give consideration to every one of the filings and comments received by the agency.

Additionally, how many new broadcast license transfers will be filed as the industry continues to benefit from the new structural freedom the Act affords? How many complaints will be filed concerning over-the-air-reception devices? How many §253 preemption cases will the FCC be called upon to address? Five of the ten largest U.S. business mergers in 1996 were between telecommunications companies, and each one required FCC review. With the digitization of communications, the entire computer industry has become part of the communications sector of our economy, and has a number of issues before the FCC. Moreover, each action we take has advocates and opponents. Many decisions will be challenged in court. The subsequent workload from implementing the Telecommunications Act's changes is very large. Being prepared to handle this growing workload, like implementation of the Act itself, requires that we have sufficient resources.

Overview of FY 1998 Budget Request
The FCC proposes an FY 1998 budget of $219,079,000 with 2,155 FTEs. This represents an increase of $30 million over the FY 1997 appropriation level. The proposed increase is for one purpose only: to reimburse the General Services Administration (GSA) for one-time non-recurring costs to relocate FCC headquarters to a consolidated working space at the Portals project in Southwest Washington. The reimbursable costs are attributable to expenses for information systems at the Portals, as well as design requirements and systems furniture that have to be paid for in FY 1997 in order for the items to be available by the time the move begins early in FY 1998. It is anticipated that $10 million in additional funding will be required in FY 1999 to repay GSA for the remaining costs associated with the relocation. We are advised the roof will be in place at the Portals building by mid-April. The building itself incorporates design elements necessary to accommodate the specific requirements of the FCC. The schedule calls for the FCC to move in six equal phases beginning approximately November 1, 1997 and ending June 1, 1998.

With the exception of the increased funding for headquarters relocation, the FCC's FY 1998 appropriations request maintains the FY 1997 appropriation of $189,079,000 as the base funding level. We are requesting no additional funding to cover $7.3 million in anticipated uncontrollable costs, primarily to cover the cost of FY 1997 and FY 1998 locality and pay raises. Also included are inflationary costs for various non-compensation accounts including rent, mail, and service contracts. Significantly, we have assumed that these costs will be funded from the savings generated by the reduction of 100 FTEs through 1998. These staff reductions will be accomplished through attrition and a decrease in the number of employees hired on term appointments, as those appointments expire in FY 1998. Our proposal to operate at a current service baseline for FY 1998 of $189,079,000 in essence straightlines our total appropriation for two consecutive years. The amount to be collected from regulatory fees would increase from $152,523,000 in FY 1997 to $162,523,000 in FY 1998.

Public Safety Spectrum
In addition to promoting competition, the second fundamental task of the FCC is to secure the public interest in communications. One of the public's most urgent needs, which this Subcommittee has underscored forcefully, is for more public safety spectrum. As the Public Safety Wireless Advisory Committee (PSWAC) has determined, the most useful spectrum for public safety is found near the bands in which public safety agencies already operate. Based on this principle, one of the bands the PSWAC identified for immediate public safety use was the lightly used spectrum that now is allocated for TV channels 60-69. In many local areas, channels in this band that are not currently used for broadcast could be redesignated for public safety use without affecting analog broadcast or future digital broadcast operations. It is my hope that following our decision on DTV allocation and service rules we can immediately reallocate a portion of the spectrum in channels 60-69 for public safety use. Affording the public safety community new spectrum with nationwide capacity will facilitate development of network interoperability and will create new efficiencies in equipment manufacturing that can be passed on to public safety users.

Additional spectrum, however, is only one step in improving public safety wireless communications. The PSWAC identified other areas in which improvements are needed. For example, the public safety community has long been beset by the problems of operating in many different frequency bands -- meaning that police, fire, and emergency agencies in one town often cannot talk to each other because they operate on different frequencies. Past FCC policies contributed to the problems we see today. The Commission allocated spectrum on a piecemeal basis -- leading to the fragmentation that characterizes public safety communications. A significant portion of our ongoing public safety proceeding will be devoted to addressing interoperability problems.

Two additional areas identified by the PSWAC need to be highlighted. First, the public safety community is in need of additional funding to facilitate the development of an upgraded interoperable network. It needs money to buy new equipment and to upgrade systems to be more efficient. Shared systems, in which many local agencies across multiple jurisdictions band together to build one infrastructure, are an effective way to pool scarce financial resources and frequencies. This gives users better systems than they could have built individually.

One way to get the money is through the targeted use of auction revenues, something we are not permitted now to do. As noted by the PSWAC, monies raised in future auctions could be earmarked for public safety use if Congress so desired. One way to put auction revenues to work for public safety would be to create a public safety fund that could be used to finance the development of new systems and equipment. An ongoing commitment of funds from future auctions would permit public safety agencies to make better use of the spectrum they already have, and to more quickly begin to use any new spectrum that might be allocated to them.

As part of the longer term improvement of public safety communications, the public safety community needs to have access to the most efficient and effective technologies. In part this is a problem of funding, but it is also related to the lack of incentives for public safety to use spectrum most efficiently by using the latest equipment, as well as to the relatively small market public safety represents for manufacturers.

This leads to the second area that needs to be stressed. The public safety community needs to work more closely with commercial providers to see how commercial providers may be able to serve public safety needs. This, of course, is already happening -- pagers and cellular phones are a common tool in public safety. But more can be done. In pursuing our policies of promoting competition and allowing spectrum to be used most flexibly, new applications and services will be developed that can meet the specific needs of public safety users. And with greater competition, the public safety community will have greater access to the most advanced technologies available.

We are also working on ways to improve the features and delivery of emergency communications, for example, examining the various ways that we can increase the accuracy and reliability of wireless 911 and enhanced 911 services. To alleviate congestion on 911 circuits, the FCC last month announced the availability of a new 311 code as a means of quick access to non-emergency police and other government services. We also made available 711 for quick access to Telecommunications Relay Services, a service that allows for persons with hearing or speech disabilities to use the telephone.

Consumer Education and Outreach
Consumer education and outreach is an integral part of our mandate, and we continue to receive an increasing number of consumer inquiries, many of them forwarded to us by you on behalf of your constituents. In 1996, our Office of Legislative and Intergovernmental Affairs handled more than 7,000 Congressional inquiries, an increase of 25% over 1995. Last month alone, we received 688 Congressional letters, 27% more such letters than in February 1996 and 63% more than in February 1995.

Our Office of Public Affairs answered more than 105,000 inquiries from consumers and the media and issued over 6,000 documents. The FCC's Internet Home Page receives about 132,000 hits per day, up from 38,000 per day in February 1996. In FY 1996, the FCC responded to over 65,000 requests for reference materials as compared to 62,600 in FY 1995. Thanks to Congress' wisdom in providing us with resources for upgraded computers and modern information technology, we are able to keep pace with unprecedented public interest in matters before the FCC. Consistent with our increased productivity and following the closure of 18 FCC field offices in FY 1996, our FY 1998 budget estimates project 14% fewer FTEs for public information services than devoted to the same activity in FY 1995.

Industry and the public also continue to file complaints with us, giving rise to increased levels of enforcement activity. Our Common Carrier Bureau, for example, processed 28,381 written consumer complaints and inquiries in FY 1996, 63% more than in FY 1995. The majority of these complaints were received directly from consumers, accompanied by bills and other supporting documentation. A majority of them concerned slamming and operator service providers. While the types of complaints change over time, the total number of complaints received by the Bureau continues to rise. Similarly, our Wireless Telecommunications Bureau handled 1,239 enforcement matters in FY 1996, 71% more than in FY 1995. At the same time, the number of FTEs devoted to enforcement activity agency-wide is down 19% since FY 1995.

Improving FCC Operations
Deregulation means that we need to be sure that both incumbents and newcomers are able to innovate without being discouraged by our rules or processes. Later this Spring, we hope to commence a Notice of Inquiry into the impact of our rules on innovation and investment in telecommunications networks, including incentives to deploy advanced technologies for data networks such as the Internet.

We also continue to ask whether the FCC is doing things it should not be doing. It was this question that led us to cut the number of FCC field offices from 34 to 16 (including the first reduction-in-force in FCC history). To better serve the needs of the public, we created a new, centralized call center at 1-888-CALL-FCC to provide toll free service for information or assistance from anywhere in the United States.

In 1995, we made 37 streamlining recommendations to Congress concerning functions we no longer believed it was necessary for us to perform, 21 of which were enacted as part of the Telecommunications Act. Just one such change, removing an individual licensing requirement for domestically-operated recreational ships and aircraft, eliminated the need to track about 710,000 radio licenses.

It was also this question about what we should not be doing that led us to issue a Notice of Inquiry immediately after the Telecommunications Act became law asking how we could improve our processes. In gathering suggestions responding to the NOI, we worked with the Federal Communications Bar Association. The NOI served as an umbrella proceeding under which the public could comment on FCC-wide and Bureau-specific streamlining efforts. In reply to the NOI, the FCC received numerous proposals ranging from major policy initiatives to suggestions for minor adjustments in the way we do business. Many have been adopted.

Additional streamlining actions already completed include reducing reporting requirements by more than 50 percent for the National Exchange Carriers Association, among others; eliminating our Review Board; reducing international tariff notice periods to one day from two weeks; reducing the size of the Office of Managing Director as a percentage of the agency from 16% to 9%; and providing status information on audio service applications on the FCC's website, thereby affording immediate and direct access to that information to licensees and applicants.

Electronic Licensing
Just as computers have improved our ability to respond to public requests for information, we also want to use information technology to promote electronic licensing. Electronic licensing reduces processing time by at least 25 percent, and in many instances reduces processing time from 30 days to overnight. The FCC's Wireless Telecommunications Bureau has been a leader in using electronic licensing to speed its work.

The Wireless Bureau has developed the capability to receive over 60% of its more than 500,000 annual applications electronically. To date, more than 150,000 license applications have been filed electronically. Additionally, the Wireless Bureau has developed software that will analyze and automatically determine licensing accuracy of thousands of applications annually. This electronic licensing combined with electronic filing has reduced processing time for some customers, such as Amateur Radio operators, from more than 75 days to overnight.

The FCC's other Bureaus are moving to electronic filing as well. The International Bureau has instituted electronic filing for earth station applications. The Mass Media Bureau has begun a project to provide for the electronic filing of broadcast applications. The filing software will scan for incomplete or inaccurate applications, and provide automatic computer analysis of much of the information currently processed by hand, such as interference analysis. We also hope to begin electronic payment of filing fees by credit card, so as to create an added incentive for applicants to use the electronic method of filing. We are also working on implementing a universal form on the Internet for all electronic filing and renewals. Thanks to efficiencies created by electronic filing as well as streamlining proposals such as delicensing, we project that FTEs devoted to authorization of service will decrease by 11% over FY 1996 levels.

Shifting Management Responsibility for FCC Auction Debt
In the area of what the FCC should not be doing, it is also time to assess whether it is consistent with our statutory mandate under the 1993 Budget Act to act as both the promoter of wireless competition and as banker to the wireless industry. Pursuant to the direction of Congress, as expressed in the 1993 Budget Act, the FCC adopted rules allowing small businesses to pay for their new spectrum licenses in installments over the term of their licenses. While these policies have helped hundreds of small businesses obtain spectrum licenses in our auctions, these new businesses now owe the Federal government substantial sums for their licenses. It is becoming increasingly apparent that there is tension created by the FCC's present dual role as regulator of and creditor to the wireless industry. The Commission will continue to face requests from some of these small business licensees for temporary relief from their installment payment obligations, or for renegotiation of the terms of their loans. Commercial lending institutions routinely engage in these practices, but the FCC does not have the necessary expertise or experience to perform these functions. In addition, such a function may also conflict with our statutory duty to efficiently manage the spectrum.

The responsibility for all of these creditor functions should be transferred to some other government entity with appropriate expertise, such as the Treasury Department, while the Commission would retain its ultimate authority over the licenses themselves. Treasury could work out any relief that should be granted to an auction debtor, and make appropriate recommendations to the Commission with respect to whether licenses should be retained, revoked, or transferred. The Treasury Department's assumption of these creditor responsibilities would be consistent with the fact that the auction funds are deposited in the U.S. Treasury, and the Department would be in the best position to make decisions on payment terms.

While competition and deregulation remain the FCC's mantra, the agency will continue to need the resources to do the job Congress, the telecommunications industry, and the American people are calling upon us to do. Adherence to our twin goals of private competition in communications and public benefits from communications should continue to promote significant investment in all telecommunications industries, and hasten the day when business and residential users will be afforded a marketplace choice in telecommunications services. It also means that all Americans can look forward to the benefits of modern communications.

This concludes my statement. Thank you again for this opportunity to meet with you. I would be pleased to answer your questions.