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Copyright 2001 Federal News Service, Inc.  
Federal News Service

March 29, 2001, Thursday


LENGTH: 28876 words



REP. FRED UPTON (R-MI): Good morning everyone. Good morning, Mr. Chairmen. What I'd like to do is try to limit members' opening statements. And if they do so, we'll give them a little extra time on the question time, if that works out. We'll find out if it works or not. But today, we're going to hear from Chairman Michael Powell. No stranger to this subcommittee, Chairman Powell has taken the reigns of the Commission at the beginning of the 21st century. And I believe it is very good news for our country. This is an auspicious occasion, since our subcommittee is the very first congressional panel which will hear from Michael Powell in his capacity as chairman.

Today, our nation is facing an economic downturn. In part, it is Chairman Powell's leadership and vision that will help us get back on course. On Tuesday, the president was in my district speaking about his plan to get our economy back on track. And he noted, quote, "in the final quarter of 2000, the American economy grew at a sluggish 1.1 percent pace. In that same quarter, there was no growth at all in new business investment," end quote. Again last week, another major U.S. high tech company announced that it will lay off 4,000 workers. This trend must change. And I think part of the formula will be reforming the FCC and lifting regulatory obstacles on the technology industry.

Mr. Chairman, this panel knows you are committed to the cause, and I can say this today, that is music to our ears. If the FCC is going to keep pace with the speed of light advances of the technology age, it is going to have to dramatically retool itself. I have full faith and confidence in you, and I plan on giving you the time and resources you need to do the job, and then assess where Congress may need to take the initiative to implement or perfect your plans.

Approving mergers more quickly and efficiently will indeed spur business. Working with industry to deploy high speed data services will bring communities together, foster innovation, and most importantly, create jobs. The technology, telecommunications and mass media sectors need to be fully realized, not to mention the incredible benefits to the consumer and job creation, which likely would accompany them. We cannot afford to have an FCC which is mired in bureaucracy and lethargic decision making, or as the case often has been, non decision making.

Ultimately, I believe Congress may need to make perspective reforms permanent to hedge against future retreat. Speaking last year, you stated this, "We at the FCC are saddled with an organizational structure that may not be adept at efficiently addressing certain developments in the market. We have limited resources, a legacy bias, and limited ability to keep pace with the technological changes and trends. Therefore, we must constantly and honestly ask ourselves whether a proposed rule can be crafted quickly enough and clearly enough to make a positive contribution to the market. For a really good rule adopted too late may as well not have been adopted at all."

Chairman Powell, I appreciate your acknowledgement of these issues, and I look forward to working with you on positive reforms. And as I look at my congressional district, I hear from business leaders about how the lack of broadband access is retarding growth in southwest Michigan. I also have grave concern about what is going to happen to my constituents if we flip the digital TV switch in 2006. What about spectrum management? Will my constituents have access to the latest wire and satellite telecommunications services? These are but a few issues which confront our nation and my district. In large part, resolution of these weighty issues relies upon FCC decision making, which makes reform of the FCC all the more essential.

Chairman Powell, we look forward to your testimony and perspective on FCC reform, and the myriad of issues which face this subcommittee and the country. And I yield to the ranking member of this subcommittee, my friend, Ed Markey, from Massachusetts.

REP. EDWARD MARKEY (D-MI): Thank you, Mr. Chairman, very much, and I want to commend you for holding this very important hearing, and I want to welcome the new chairman of the Federal Communications Commission, Chairman Powell, to our committee.

Chairman Powell, people are constantly asking me to compare you to your father. And what I always tell them is you're just as smart as your father, but you have a lot more power to affect the world, you know. And so, obviously, there are millions of people and thousands of companies, not only in the United States but all around the world, that hang on your every word and what the Federal Communications Commission decides in just about every major area that affects the Internet and the telecommunications and cable, and satellite, and on and on. So, we look forward to your hearing.

Before we launch into a discussion, however, of the Federal Communications Commission and its structure and the job which it performs, I think it's very important for us to note that the United States has the very best telecommunications systems in the world. It's the envy of the world. It's overall the most competitive. It's the most diverse. It's the most innovative telecommunications marketplace on the face of the earth. And that fact is in no small measure due to the excellent work which the Federal Communications Commission and its excellent staff has done over the last generation in implementing the laws which have been passed by this subcommittee.

I think we need to keep in mind as we look at the agency today that you have done a very good job. We must also recognize that many of the proceedings or tasks that some members of Congress find unnecessary are considered vitally important by others. And that the agency performs many of its tasks at the instigation of Congress, or pursuant to direct statutory mandate. I would also caution against pursuing a deregulatory agenda, simply for the sake of championing reform by recasting Commission substantive proceedings as reform measures.

The Congress often asks the FCC to achieve certain public policy objectives. The goal is to fulfill those objectives which Congress tasked the agency to perform. The fact that the FCC also achieves these goals efficiently is an important result of a well run agency. But efficiency itself is not the goal. Creating the proper blueprints for the United States so that it continues to have the lead -- looking over its shoulder at number two and three in the world -- is the objective. So, I believe that there are certainly things that the agency can do itself to streamline its operations.

And I know, Chairman Powell, that you are looking at those things that the agency can implement to ensure that it is more efficient, that it deals with the new issues that are constantly confronting the agency. And I look forward to hearing from you so that we can help you to build upon the reform ideas and actions that you have in your mind, building upon your predecessor's changes. So, I look forward to hearing from you and I thank you, Chairman Upton, for calling this very, very important hearing.

REP. UPTON: Thank you.

Mr. Tauzin, chairman of the full committee.

REP. W. J. "BILLY" TAUZIN (R-LA): Thank you, Mr. Chairman. I realize you do want to limit opening statements today, but I think it's important that, as chairman of the full committee, I spend a few moments welcoming the new chairman of the Federal Communications Commission, Michael Powell. And I want to thank you, Mr. Powell, for joining us today and for sharing with us your vision of the new FCC under your stewardship. I'm reminded, by the way, of the Kennedy years, when the theme of that administration was to bring the best and the brightest to service of our country, and I think President Bush has done that in the selection he has made in terms of your appointment as chairman of the Commission.

The other members of the committee, I'll remind you that Chairman Powell is extraordinarily well qualified for this position. Not only does he bring extraordinary intelligence, and foresight, and vision to the job, but he has military command experience and he has strong political skills we've seen before. And those are going to be very important as we go forward. He's also watched how not to run the Commission for the last several years. In my strong opinion, the agency has been adrift. It's drifted from its designated mission, and it's drifted from the law. And it's my profound hope that Chairman Powell will sail the FCC back into safe waters, and I have every confidence that he is going to be able to do that.

Chairman Powell, I look forward to working with you in your efforts to reform the FCC, and to finish the deregulation begun by the '96 act that was so important a piece of legislation produced by this committee. I think under your leadership, the FCC will become an agency that fosters innovation again and investment, rather than one that inhibits the deployment of new services, and that's good news. I think it's becoming an agency that unleashes market forces, rather than managing competition, and that's good news. And I think it's going to be an agency that shakes the competitive landscape free of regulation, rather than facilitating the shake down of companies on behalf of special interests, and that will be an important change. In particular, Chairman Powell, I want to work with you to rationalize the structure of the FCC, so that the type of service, rather than the service provider, dictates the regulatory or deregulatory frame. We're frankly tired of watching disparate treatment of broadband services -- disparity that has eschewed the deployment of broadband services, and I think deprived many constituents -- my own -- of access to high speed Internet services. I realize that some of that disparity stems from the different way we treat CLECs, and ILECs, and cable companies, and satellite companies, and wireless companies in the law. But I intend to work with my colleagues and Mr. Dingell, and Mr. Markey and Mr. Upton, to see to it that this committee tries to fix that.

I also want to work with you to streamline the approval process so that applications do not languish in bureaus for years on end, and I notice that you've already begun that process, and I thank you for that. I want to work with you to end the merger review process in which companies are shaken down and prevented from having judicial recourse from outlandish Commission requirements of voluntary conditions on every approval. Congressman Burr and Pickering worked hard last year to put some reasonable restraints on the FCC merger review process, and I intend to help them this year to enact a bill in this Congress.

Mr. Chairman, I'm confident that we have before us a man with a real vision that's going to take the FCC into the 21st century. I think he knows, like Mr. Markey has pointed out, that the high tech sector is now driving this economy, both up and down, and that the FCC regulations or its deregulations are going to have a profound effect on our economic viability, both today and into the future. I've got a great sense of optimism as Chairman Powell takes the reigns of this important agency, and I look forward to his describing the new vision to this important committee as we work together to help this economy continue to grow.

Thank you, Mr. Chairman.

REP. UPTON: Thank you, Mr. Chairman.

Recognize for an opening statement, my friend from the great state of Michigan, the ranking member of the full committee, Mr. Dingell.

REP. JOHN DINGELL: Mr. Chairman, I thank you and as you wisely observed, you and I do serve a great state. First of all, thank you. Second of all, welcome to this new chairman of the FCC.

Chairman Powell, we're delighted you're here today and we wish you great success in your undertakings. I have expectations, and they are high, that you will impose a more disciplined approach to the management of the agency's business. Specifically, I expect one that will require judicious use of the agency's delegated authority, fair treatment of all agency and industry participants and above all, an abiding appreciation that the public interest is paramount. The public interest standard is, of course, the guiding principle of all the Commission's activity. It is at the heart of FCC's grant of authority, and carries with it broad powers to regulate and to also forebear from regulation. The breadth of this power can be used to accomplish many worthy goals. But it can be just as easily abused, as it has more recently in the past. My hope is that the new chairman will avoid using this authority as a means to justify a particular agenda, but rather to establish clear standards, objective guidelines that will govern the Commission's use of its broad authority.

In his prepared testimony, the chairman has established a specific four-pronged agenda for the Commission that appears to me to be right on the money. The FCC clearly needs a new vision that takes into account the rapid technological changes occurring within the industry. Convergence of technologies is more than just a clichi. It is real. It is here. And more than anything else, it is the key to breaking down traditional monopolies. The FCC can try with all its might to regulate its way to a competitive marketplace, but it won't succeed until all the companies have the proper incentives to use these new technologies to compete freely in each other's markets.

The current regulatory approach is to treat companies based not on the service which they provide, but on the technology they use to provide it. Clearly, this is an old fashioned, unwise and unworkable approach. This approach to regulation causes a fundamental disparity between companies competing to provide the same service. Left unresolved, it will result in less effective competition, less innovation, less investment, fewer choices for the American public, and poorer service. The most obvious example of this regulatory disparity exists in the broadband market. But it is a growing problem for other services as well.

It makes to me no sense whatsoever for broadband services offered by a cable company to be regulated differently than broadband services offered by a telephone company, a wireless provider, or any other telecommunications company. And I will ask the chairman about his views on this matter. The FCC must address this problem across the board, and the sooner the better. The chairman should be commended for his commitment to improving management efficiency at the agency. This has been one of the regrettable failures of the agency. While none of these changes will happen overnight, I hope there will be a concerted effort, amongst other things, to streamline Section 271 application processes.

This area is particularly important to achieving a key telecom objection sometime before the next millennium. I would note that the Bell Company entry into long distance was designed to serve two distinct, but equally important, goals. One was to encourage more facilities-based long distance competition. The other was to facilitate and to stimulate facilities-based competition in the local market. In my view, these goals are flipsides of the same coin, and we have seen compelling evidence that they are inextricably linked. One only need check AT&T's website to see how Bell Company long distance entry has the effect of stimulating local competition.

I believe that is more than mere coincidence that the only two places AT&T advertises the offering of local telephone service is in New York and Texas. These happen to be the first two states for which Bell Company entry into AT&T markets was permitted. I would also note that the rates for local service in these two states have dropped significantly. The FCC process for approving these applications has been exceedingly slow -- as a matter of fact, distressingly so -- in part due to an over reliance on state commission and DOJ recommendations.

I would note that we carefully put in the statute when we wrote it that these two agencies were to be consulted. We did not give them veto, nor did we make them participants beyond consultation. The statute provides, then, that these get consultative roles. They are entitled to it. But in many cases, state proceedings have been interminably long -- some lasting five years or more. In my view, it is intolerable that consumers should be held hostage to the slow role of the regulatory process, waiting years for the green light from government to get the benefits of greater choices and lower prices.

I cannot explain why the state agencies have behaved this way, but it is indeed, to me at least, a source of curiosity. And I hope, Mr. Chairman, it would be a source of curiosity to you. I would note that the Department of Justice has never been a friend to this legislation -- has always sought extra special privileges in dealing with a telecommunications policy, utilizing slow and inefficient antitrust mechanisms to address the business of your Commission. I hope you will take a hard look at their behavior, Mr. Chairman.

At the same time, Bell companies must be held accountable for their obligations to comply with market opening provisions contained in the act. You do have the enforcement tools in the Commission at your disposal, Mr. Chairman, to ensure compliance. These tools must be used in a fair and consistent manner to assure that the anticompetitive consequences can be prevented. I would note, however, that these tools, according to the testimony of your predecessor, were rarely, if ever, used. I am delighted, Mr. Chairman, that you have committed to making enforcement of these and other FCC rules a top priority.

I want to thank you again, Mr. Chairman, for appearing here, and I look forward to hearing your testimony.

Thank you, Mr. Chairman, for your kindness.

REP. UPTON: I would note that all members, under unanimous consent -- I'd ask unanimous consent that all members have their full statements as part of the record, and would again advise members if they could limit their opening statements or pass, it would be terrific. Mr. Barton.

REP. JOE BARTON (R-TX): Thank you, Mr. Chairman. I want to welcome Chairman Powell. I'll put a formal statement in the record. It's been a pleasure to work with you in the past as a commissioner. It's going to be a pleasure as the chairman. I've been surprised how many new friends I've gotten since I got back on this subcommittee. I'm sure you've been surprised about how many new friends you've gotten since you became chairman. Yeah. What are friends for, right? So, we look forward to working with you.

And, Mr. Chairman, I would ask if I could submit some questions for the record to Chairman Powell. I'm going to have to leave to do some meetings on the energy situation. So, welcome to the subcommittee and we look forward to working with you.

REP. UPTON: All members will be able to submit questions. We'll make that part of the record. Thank you.

Mr. Sawyer.

REP. TOM SAWYER (D-OH): Thank you very much, Mr. Chairman. I join my colleagues in thanking you for this hearing, and Secretary Powell for taking part in this way -- Secretary Powell. Thank you. Somebody had to do it, it might as well have been me. It probably won't be the last time today either. It's kind of like Tom Sawyer jokes in that way. I'm going to submit a longer statement for the record. Let me simply observe, along with Mr. Markey, that your opportunity to change the world really is an extraordinary thing.

I've watched over the last few years as the E-Rate has worked in effect in our schools in ways that I think go far deeper and have far more lasting effect than we might ever have anticipated when we put it in place. And, so, I just want to mention a continuing interest of mine to you, in that while we talk very much about increasing the number of hours in a day at which children devote to education, and perhaps even the number of days in a year, it seems to me that the unexplored dimension for doing what we did at the end of the last century -- that is to say, elevating the skill levels of an entire nation -- that the unexplored dimension is more deeply into life, so that an entire adult working population that is effectively illiterate today, in terms of the kind of technology that has been promoted by e- rate, represents an avenue for exploration that offers enormous promise, not only within those who provide the technology, but across our entire population.

With that, I will yield back the balance of my time and hope to explore that question further.

REP. UPTON: Recognize the vice chairman of the subcommittee from Florida, Mr. Stearns. REP. CLIFF STEARNS (R-FL): Thank you, Mr. Chairman, and let me congratulate you for having this hearing and, of course, welcome Chairman Michael Powell to our subcommittee.

Chairman Powell, as the good ship Michael Powell starts off, there's going to be lots of storms here. And the fact that you have all these people here and are waiting out in the hallway would indicate there is a problem and they'll be looking to you for guidance. When we passed the Telecom Act in 1996, we thought we'd be a lot further along, I think, than we are in many areas. I'll just give you sort of a litany of some of the problems that exist. You know them better than me. But these storms are out there, and when you come back year after year to our subcommittee, it's my hope that a lot of these will be solved. Some of these should have been solved under the previous administration.

And you have a unique opportunity now to break the Gordian knot on some of these problems. High definition television. Within that area, interoperability. Deployment. Consumer demand and must carry. Spectrum management. Dealing with caps. The auctions. The budget. The commercial versus government. The FCC reform. This is something that you can initiate and not wait for Congress. We have harped upon this for years. Third generation. Wireless. European Union is overtaking us in the competition. There's no reason for that in this great country. Roll out dealing with the third generation. And competition -- opening up the local line.

Here we are in the year 2001, we don't have competition in the local line, and we want to ensure there's competition in the long distance. Broadband. Availability and access. These are just a few of the areas that are on your plate that we need some action, and not every year just keep talking about them. Many feel in this room that the problem has been that there's an inefficient and regulatory morass at the FCC. So under your leadership, we hope this will change. I trust you will work with Congress to do away with these inefficient regulations. And just for example, there's two clear examples of the Commission's rules on spectrum aggregation limits and broadcast ownership and cross ownership limitations -- areas in which I introduced legislation in the 106th Congress and intend to do again this year.

The FCC's recent decision to reexamine a spectrum aggregation limit is a step, I believe, in the right direction, and I appreciate more insight into the Commission's actions. I look forward to your ship as it leaves the harbor. I wish you well. Any time this committee can help out, we'll be here. But in the end, we'll need your leadership and your ability and perseverance to break these regulatory problems.

Thank you, Mr. Chairman.

REP. UPTON: Thank you.

Mr. Green. REP. GENE GREEN (D-TX): Thank you, Mr. Chairman, and I'll put my total opening statement into the record. But I want to welcome Chairman Powell. And as I said before in visiting, it's good to see you. In our past dealings with the FCC, our committee and as an individual, we had difficulties. And I appreciate both the follow through of your staff on two particular issues that were brought to your attention and your staff's attention just recently.

So, I think we have a good working relationship, or building on that.

I share my colleague's concern. The FCC and this committee has a lot of issues to deal with. The transition to high definition TV, the roll out of 3G services, reciprocal compensation, the continuation of addressing the digital divide, increased access to broadband services are just a few. And I know we'll have that opportunity today, and I welcome you to the committee and look forward to working with you.

Thank you, Mr. Chairman.

REP. UPTON: Thank you.

Mr. Gillmor.

REP. PAUL GILLMOR (R-OH): Thank you, Mr. Chairman. I'm not generally a big fan of opening statements in subcommittee hearings, as I think it's important we move as quickly as possible to our witnesses. I did today want to take just a moment though to both congratulate and to welcome Chairman Powell, and to especially convey my personal interest in the issue of reforming and reauthorizing the Federal Communications Commission. I've been involved in this issue in one form or another since 1995, and our subcommittee has done some splendid work examining the structure of the FCC through the creation of informal task forces.

I'm under no illusion about the difficulty of enacting legislation to reform the FCC, particularly if telecommunications policy issues are rolled into a larger bill. But I would like to indicate to Chairman Powell my deep interest in such an undertaking in this Congress, and I know that the committee members look forward to hearing your views, and that all of us look forward to working with you in the weeks and the months ahead. And I yield back the balance of my time.

REP. UPTON: Thank you.

Ms. Harman.

REP. JANE HARMAN (D-CA): Thank you, Mr. Chairman. I appreciate the chance to speak for less than one minute to welcome a friend, Michael Powell, before us. The issues that have been ticked off by many here affect real people and that's just the point I would like to make in my one minute. I represent a district that in 1992 when I was first elected, was probably called the aerospace center of the universe. Nine years later, it is the tech coast. There are all sorts of new industry sectors -- entertainment, green technology, biotechnology,'s. There are new technologies -- broadband Internet, video streaming. There are new services -- web design, systems engineering.

And the task obviously is for the FCC to appreciate that human beings work there in these new industries, and to figure out ways -- and I know Chairman Powell has already said he intends to do this -- to reinvent the FCC so that it can interact effectively with these new work places and the new employees of the new workplaces. This will be a hard job. And to invent a digital FCC will take someone with the skills of Chairman Powell. Let me just conclude by saying that the Aspen Institute, a place I know well, picks a group of leaders called Crown fellows. Michael Powell was a Crown fellow recently. They made a good choice.

Thank you, Mr. Chairman.

REP. UPTON: Mr. Deal.

REP. NATHAN DEAL (R-GA): Mr. Chairman, in the hopes that I will impress this committee more with what I don't say than what I do say, I'll take your suggestion and yield back my time.

REP. UPTON: Extra time for you.

Ms. McCarthy.

REP. KAREN McCARTHY (D-MO): Thank you, Mr. Chairman, and I will be brief. Welcome, Chairman Powell. We're delighted that you're here. We look forward to working with you. I'm particularly interested in hearing your views on the implementation of the act, and the enforcement of its provisions. I also would welcome your thoughts on some of the bumps in the road that we've experienced with regard to competitive local exchange carriers. I have Birch Telecom in my district, and they've used the unbundled element platform to provide local phone and broadband service.

The ability to lease Southwestern Bell's switching facilities to serve residential and small business customers has enabled this four-year old company to thrive and consumers to save. So, I'd like to know if you view the unbundled network element platform as a legitimate vehicle for providing competitive service to residential and small business customers. Also, the Telecommunications Act codified the deregulation of national ownership caps in radio. And KCUR, the city's sole classical station, as a result of this, had to close. And the deregulation resulted in a great deal of consolidation in the industry.

So, I hope you'll explain what the FCC is doing or will do to ensure a diversity of voices are being heard over broadcast airways, because I understand throughout the country, stations that are diverse, but obviously not as great a revenue producer as some of the stations now playing the N'SYNC and Back Street Boys music, are being done away with. And I really feel that's a loss to a community and I'd welcome your thoughts on that too.

Mr. Chairman, I'll put my full remarks in the record, and I thank you for being here.

REP. UPTON: Thank you.

Mr. Shimkus.

REP. JOHN SHIMKUS (R-IL): Thank you, Mr. Chairman. I'll just yield back my time.

REP. UPTON: Mr. Brown.

REP. SHERROD BROWN (D-OH): Thank you, Mr. Chairman. I'll also enter my statement into the record, but I'd welcome Chairman Powell also. I have some concerns about the FCC proposal to reduce the amount of information companies are required to report on service quality with local phone service, and hope that you would address that and rethink that. And also stress the importance of E-Rate, which has been an enormous success for communities in my state of Ohio and in other states across the country, and my concerns about low power FM and what that means to our community, and would like to emphasize that there are many of us on the committee that care deeply also about that.

I yield back the balance of my time and thank you for joining us.

REP. UPTON: Ms. Cubin.

REP. BARBARA CUBIN (R-WY): Mr. Chairman, I will save my conversation for later on and yield back.

REP. UPTON: Thank you.

Mr. Engel.

REP. ELIOT ENGEL (D-NY): Thank you, Mr. Chairman, and good morning, Chairman Powell. I want to congratulate you on your appointment and look forward to working with you on a range of important issues. I would briefly like to take this opportunity to deal with one of the major issues facing my district, the digital divide. The fact is that many of the schools in New York, in the Bronx, where I grew up and your dad grew up, are too old to be wired, do not have adequate funds to buy computers, and are too concerned with teaching children the basics in overcrowded schools that have leaking roofs and falling plaster.

But in our world today, we must provide our students with access to not just computers and word processors, but the Internet. These are skills obviously they'll need just to get a job. I'm supporting efforts to quickly roll out broadband Internet access to enable the young people of the Bronx and Westchester to benefit. I support legislation that provides a tax incentive to roll out broadband services to rural and low income communities. I also support the chairman and ranking member's bill to alter regulations to make it easier to introduce broadband services.

We all now know how vital it is for our students and our economy to close the digital divide.

I look forward to hearing your comments on this issue, and to learn what the FCC plans to do to close the digital divide. Again, I welcome you. I think it was a marvelous choice to make you chairman, and I look forward to working with you. Thank you.

REP. UPTON: Thank you.

Ms. Wilson.

REP. HEATHER WILSON (R-NM): Mr. Chairman, I'll reserve my time for questions.

REP. UPTON: Ms. DeGette.

REP. DIANA DEGETTE (D-CO): I'll reserve my time also.

REP. UPTON: Mr. Terry.

REP. LEE TERRY (R-NE): Welcome. Yield.

REP. UPTON: Wonderful.

Mr. Stupak, from the great state of Michigan.

REP. BART STUPAK (D-MI): Thank you, Mr. Chairman. I'd just like to welcome Chairman Powell. I'll be interested to see what you have to say about rural areas and how we get the new technology there and make sure we have competition in rural areas. So, I look forward to questions later.

REP. UPTON: Mr. Cox.

REP. CHRISTOPHER COX (R-CA): Thank you. I just want to thank Michael Powell for the time that he's already spent with members talking to us about the future of the FCC, and the future of the industries and the technologies, and the information services that are the subject of your jurisdiction. (Buzzer sounds.) As Chairman Tauzin has pointed out before, that only goes off when you're not telling the truth.


REP. UPTON: Or yielding back?


REP. COX: I particularly want to commend you for your early emphasis on examining the structure of the FCC and of our statutory framework for regulation in light of changing technology and the convergence of existing technologies. The way that the FCC approaches this and has approached it as a result of congressional mandate during the 20th century probably is not well suited to the 21st century. Cable isn't just cable anymore. Wireless isn't just wireless anymore. Telco's aren't just telco's anymore. Everybody is getting into everyone else's businesses in similar ways to what we have seen in financial services. And in similar ways, we have to change regulation to meet that new reality.

There is something else going on and that is Shumpaterian (ph) destructive creativity in the very best sense. Congress and regulation, and the states, are usually enemies of that process, because that is where buggy-whip manufacturers go to stop progress. And we, all of us in our offices, are constantly met with firms who wish us to enact a law or they perhaps will go to you so that you will enact a regulation to make sure that their competitors don't take away their business.

We have to make sure that we resist that temptation in restructuring the FCC, and presumably for those of us sitting on this side, restructuring the statutes, in order to make sure that our regulatory system of the future achieves the great potential that we know the Internet and other video and voice communications have, is really our main aim. So, thank you for placing your emphasis early on, on that precise topic, and I look forward to hearing your testimony and response to members' questions on those very points.

Thank you, Mr. Chairman.

REP. UPTON: Thank you.

Mr. Pickering.

REP. CHARLES "CHIP" PICKERING (R-MS): Mr. Chairman, thank you. I know that we have limited time before our vote. I just want to welcome Chairman Powell, and look forward to working with you on the important issues before you from FCC reform to spectrum reform, to advancing competition, addressing issues in rural areas. I do think you have a tremendous opportunity to have a great legacy as a reformer, and someone who values the staff at the FCC. And we want to work with you to make sure that you have all the resources that you need to carry out your duties.

And I also look forward to a new era of cooperation between the FCC and the Congress, and I think we can have a very productive relationship. I look forward to working with you. REP. UPTON: Mr. Davis.

REP. THOMAS DAVIS (R-VA): Mr. Chairman, I want to commend you for giving us the opportunity today to listen to Chairman Powell discuss his vision for modernizing the FCC. For too long, I think we've seen the FCC position itself more as an obstacle to the deployment of new technologies, rather than an enabler for economic growth. I know that you too, Chairman Powell, share our concerns that the FCC reexamine its organization and mission in order to play an efficient and effective role in encouraging innovation.

Thanks for coming here today. I look forward to hearing your testimony and continuing to have a dialogue with you on these issues.

REP. UPTON: Thank you. That concludes our opening statements. I would note that we have two votes on the House floor -- this vote and another one -- so we will reconvene as close to 11:10 as possible.


REP. UPTON: If we could take our seats, please. Let's get started.

Chairman Powell, I would note that there are a number of subcommittees and committees meeting today. Most of us are on -- all of us are on multiple subcommittees. Some of us on multiple committees, as well. So, individuals will be coming in and out throughout the hearing. I would make unanimous consent to -- I'd ask unanimous consent that all members' opening statements are made part of the record, as well as questions that they may submit for the record. And without objection, that is now the case.

Chairman Powell, welcome. Your statement is made part of the record in its entirety. The time is now yours. You might just pull that just a little closer.

MR. MICHAEL POWELL: -- In my capacity as a commissioner on the Federal Communications Commission. I'm particularly humbled and honored and privileged, and some days daunted, to appear as its new chairman. I feel privileged that the president of the United States felt enough confidence in me to designate me as such. And I'm honored to have an opportunity to continue the very positive working relationship I've had with this committee and members of Congress generally, and I really look forward to continuing that sound relationship.

I think we will need it. I think that we are facing, collectively as a government, a dramatic and important period in our history in which communications and communication policy will directly affect. If you think about it, the FCC is facing something, in some regards, it has never faced before. That is, that every segment of its portfolio is in some form of revolution -- the most profound change facing that industry that it has ever faced. Whether it be competition, deregulation, and the context of the telephone system. Whether it be the transition to digital television for television broadcasters. Whether it be the deployment of cable modem services and interactive services in cable -- and on and on and on. This is a daunting period for our industry, and it's a daunting period for the Commission.

Suddenly, the Commission finds itself blown into a position in which its decisions have far reaching impact, not only on the industry, but increasingly on the whole of the American national economy and that of the world. It's profound responsibility. And this new environment is not linear. It is one that will be marked by chaos and dynamism. And the FCC, in the context of reform, will need a new business plan, if you will, to address and interact with that world.

Mr. Chairman, I would ask that my full statement be included in the record, as you mentioned earlier. I'd rather just speak with you about those challenges now. The way I envision reform is that it's a comprehensive exercise of retooling and redirecting the activities of the agency. I am working to build a plan that is built along principally four dimensions. The first is to ensure that the Commission has a very clear and substantive policy vision in which to guide its deliberations with at least some predictability.

Secondly, a pointed emphasis on operations and management. An agency must be effective and responsive in Internet time. Third, it is becoming critical that the agency have independent technological expertise and economic expertise. And, fourth, it is time to consider seriously organizational restructuring of the Commission. And I'd like to say a little bit of something about each of these points before I yield to your questions. Policy vision -- it's not just the subject of Law Review articles. It's the way an institution stakes its flag and drives and guides its deliberations. I believe one is sorely needed.

As we mentioned many times earlier, I believe communication policy in the government and in the Commission finds itself between two worlds. The first world is one that has been relatively matured -- the legacy networks and communications systems we're all accustomed to -- the mature public switch telephone network, cable systems, the mass market delivery systems of television and cable and, increasingly, DBS. These systems are relatively well known to us. We understand their technologies. We understand their cost characteristics. We understand what consumers want out of those services and what the right prices are generally for those services.

And in a sense, that world stands aside to us and to our back. But we look ahead and see a cresting wave of a dramatically new communications systems evolving as a consequence of revolutions in technology and economics. We see a world marked by broadband infrastructure using, and deploying, and experimenting with, multiple new technological platforms of fiber optic, coaxial cable as a broadband infrastructure, systematic improvements in public switched copper that allow it to provide high speed service, the airways, airwave delivered through space -- are all vying for the Internet future and a way to provide services in a more efficient way.

These worlds and these systems are known much less to us. They are in their infancy. We are struggling with what the cost characteristics of new technology that operates substantially different than twisted copper wire. We are still trying to understand what the products are, and what it is consumers will actually want, and probably more importantly, be willing to pay for in the new future. This puts us at an extraordinary crossroad of both having the responsibility to carry out the will and the wishes of Congress with the deregulation and competition of that legacy world, as well as facing new and unforeseen and previously unseen questions in the context of the new world.

What kind of policy is needed in the context of that position? I hope to follow a policy that's built around the notion of incubation, innovation, and investment. And I hope to be guided by several distinct guideposts. First, I think it's important to state at the outset, it should be our objective to facilitate the timely and efficient deployment of broadband infrastructure and promote a wide variety of technologies in that deployment, not embracing any one as a winner or loser, neither any technology or any particular industry. I think we need to pursue the ubiquity and affordability of that infrastructure to all Americans, but to challenge ourselves to attempt to do so in creative ways and not simply assume the extension of the methods that worked miraculously in the context of the phone system.

Third, I believe that we need to be directed at innovation and investment. These are objectives specifically identified in the act, but often misunderstood or ignored in policy. If money will not flow to business plans, if regulatory uncertainty creates risk for capital investment, things will not be invented and they will not be deployed, and we will not be taking about divide, we'll be talking about only a glimmer of the bright future that we envision for ourselves. We're trying to understand those concepts better and facilitate policies around them.

Fourth, we need to harness competition and market forces to help drive these changes and be humble enough to admit that we don't make the market in our image, or in a vision, or a straw man that I develop, but the one that is developed between a healthy dialog between consumers and producers, so that what is built and deployed, maximizes their value, not the one that I might have envisioned sitting in my office. And it's just important to say also not to attempt to build an image in the like of any particular competitor. Increasingly we find, in a period of anxiety and innovation and change, that competitors are fearful too.

And it's often the case that we're asked, and compelled, and pushed, and cajoled to develop rules and regulation in order to stem the pace of those changes or protect regulatory advantage, and we must be reluctant to do that as well. We owe fairness to all, but allegiance to none. Fifth, very critical in an era of convergence, we need to work to rationalize and harmonize regulations, to the extent the statute will permit, across technological lines. It has been historically true that we have regulated industries fundamentally premised on the technologies they use in deploying those services.

As I've said often, it's as simple as this. If you use twisted copper wire, you're entitled to common carrier most of the time. If you use coaxial cable to deliver one-way video services, you're what we call a cable service provider and you live in the bucket of Title VI. And if you provide something called Internet or information services, you don't seem to be in anybody's bucket. We're at a loss to know what an AT&T is when it provides all of those services over a single infrastructure demonstrating each and every one of those characteristics.

Increasingly, regulatory challenge is definitional challenge. What bucket do you belong in by virtue of your new and creative services, and is our attempt to label you in a legacy rearward-looking system, distorting the efficient development of those new markets. I also believe that deregulation means simply this: validate the purpose of a rule in modern context, or eliminate it -- as simply as that. Resist regulatory intervention absent the evidence of persistent trends that can be understood, or evidence of clear abuse.

And, finally, as I've heard mentioned a number of times in opening statements, enforcement becomes more critical than it has ever been in our period. It is simply a necessity, not an ideology. Historically, the agency has operated by what I'm fond of calling "by the grace of us" regulation. You want to do this, get my permission. You want to do that, I'll have to give you my permission. That permission might take nine months, but you still have to obtain it. And increasingly, 98 percent of the time, we give it. That is an inefficiency we can't afford.

But I am also cognitive of the fact that if you're going to put less emphasis on upfront prophylactic regulations, you have to have a response to consumer harm and dangers of marketplace failure. I believe that response is enforcement. I might give you a better benefit of the doubt. But when you cheat, I'm going to hurt you and hurt you hard. And that's what enforcement means. And I think to do that seriously, we will need the help of Congress. I believe the enforcement tools made available to us are inadequate with billion dollar industries. Our fines are trivial. They're the cost of doing business to many of these companies.

The statute of limitations conspires to limit our ability to get someone before the clock runs out. If we're serious about enforcement, we'll need to be serious about the tools to execute it. Secondly, the second dimension on which I've placed a great deal of emphasis -- many of you have eluded to -- which is operations and management. I don't want my legacy, if there's any such thing, to be about this rule or that rule. I want it to be to leave an institution that has embedded in it the efficiency, the talent, and the abilities of an operation and management team that can take on any challenge, no matter what it might be.

We intend to actively manage the agency. To my mind, indecision, inaction, and avoidance are absolutely illegitimate government policies. We have to reduce backlogs, and we have to do everything in our power to ensure they don't reoccur. Our anxieties don't justify sitting on something indefinitely. I believe and we are developing an annual strategic planning process in which we'll integrate the natural cycle of the budget process, and the performance of our institution, and the performance of our individuals, such that our mission is tailored to the activities and our own measurement of performance, so that I can stand before you a year from now and proudly march off the metrics of how we're doing.

One of the first things I discovered is we do measure productivity. We do it different in each and every bureau. That's no help to someone who is trying to make sure that it works across the board, and we're trying to develop those uniform productivity measures. Additionally, the Commission needs much work in the area of its own internal procedures to govern its operations. Remarkably, the Commission has no set agreed on procedures for voting or deliberation. It doesn't have internal processes for security of documentation. It is shocking to me at times what we don't have when we often reach loggerheads. Rules like that are not for when we agree, they're for when we disagree. And I am pushing and urging my colleagues to support efforts to build those kinds of rules to increase our ability to operate.

And we need to modernize our own IT infrastructure. The third dimension is becoming perhaps the most critical. The Commission desperately has to have first-rate technological and economic expertise. It is becoming an increasingly challenge for the Commission to sit on the other side of tables like -- with companies like America Online and Steve Case, or Microsoft and Bill Gates, and have them provide us on-the-job tutorials at the same time we're trying to make decisions that affect their industry. Our capability has to be solid and independent, but we face a grave situation here. We, in the last four to five years, have lost 20 percent of our engineering talent. In the next four years, we will have -- 40 percent of our engineers will be eligible for retirement.

And we're competing for them in the same tight labor pool as America Online, as Microsoft. And, by the way, up to now we hire them at GS- 5, at GS-7 entry levels. That's not going to work for much longer. Doesn't work now. But I'm convinced that people come to work for the government for reasons other than salary, and we have to be prepared to provide them, for we will never match introductory income. So, we've begun a program agency-wide that we refer to as, "Excellence in Engineering." There will be attempts to find greater personnel and pay flexibility. We find that members of a guild need to ensure that they continue to stay current with their profession. We have not done an adequate job of providing both the formal internal training, so that an engineer continues to develop, or to provide and subsidize their participation in professional organizations and professional development opportunities. This is often the most principle reason cited by technical experts as why they're not interested in a job at the Commission.

The government at the FCC owns a laboratory -- a laboratory where every piece of electronic equipment is usually type tested. If you have a palm pilot or a Rim (ph) in your hand, if you turn it over, I assure you, you'll see our smiling logo facing you. Increasingly, though, that lab is backing up. It's facing challenges in being able to get equipment type certified and out on the market. Many of that is due to the fact that the lab itself is in growing disrepair. Increasingly, with advanced technologies, we don't have the equipment that will even measure at the levels of some of the introduction of equipment that we've seen.

It is not unusual to understand that in the context of low power FM or ultra wideband, or many of the areas that many of the members here have expressed interest in, that one of the problems in debate is over technical interference that we increasingly have a great deal of difficulty arbitrating because we don't have an independent capability to test. This is something that also needs to be rectified. And I make this point clear, an agency doing this kind of work has to drive technical fluency much deeper than its engineers. Every attorney, and every professional, and I daresay, even every administrative support person needs to increasingly have basic fluency in technological concepts if we're to be relevant.

We've begun something we colloquially refer to as the FCC University. We do have academics in house that are able to develop curriculum and formalized training programs and we've begun that. We're an agency that has access to the world's finest technical talent. We may not be able to hire them, but we normally can convince them to hold seminars, and courses, and programs that would aid the development of our first rate and professional staff and we're working to do that.

The fourth and final dimension is the one that garners sometimes most of the attention. It is organizational restructuring. As I mentioned at the outset, and as many of the members have mentioned, one of the challenges to operating efficiently is that technology -- both the statute and our rules are generally developed along technological lines. So are we organized. We have a cable bureau for cable, and on and on and on. We recognize that this problem creates some great inefficiencies that could be avoided, so we're undertaking a very systematic review of the agency. It will be guided by three simple principles. We hope to develop an organization that is designed mostly along market lines, not technological ones.

We hope for a flatter, substantive bureau structure. And, third, we hope to more carefully consolidate key support functions. We will proceed first by doing a systematic review, which is underway, of all of our functions and services to see what works and what doesn't. After that, we hope to produce a plan of reorganization that will include two phases -- a Phase I that will be short-term change, and a Phase II that will be longer term, more lasting change. These changes will be significant and they'll require a great deal of buy-in support and interaction, both with the Congress, who will have a critical role in this. There will be areas that require legislative change and approval.

It will require buy in and understanding from the industry, our clients, and the consumers, our clients, and the employees themselves, who rightfully understand the anxieties of any reorganization and need to understand clearly the purposes of change and the reasons why they are initiated. We hope to do much of this in realistic timeframes that are aggressive. I hope a year from now or within the year, we have completed a substantial portion of this effort.

Finally, let me just conclude with this point. I can't predict the future. No one at the FCC can predict the future, and the tools of this new market economy are such that very few people anywhere are able to reasonably predict the future. So, in many ways, the question of what kind of organization you are is how do you manage against uncertainty -- a world that you don't know and can't predict. The lessons I take from that might be the way an army does or a basketball team does.

What you do is you build and recruit first-rate talent. You train them in all the fundamentals of tactics and strategy. You make sure they're disciplined and effective. And you make sure they're innovative and creative. And when you take the court or you take the battlefield -- no two games are the same -- but if you're able to adapt, and change, and redirect, and stay efficient, you'll win more of those games than you lose. And it's that kind of organization I sincerely hope and intend to build at the Federal Communications Commission. It's a pleasure to be with you and I really look forward to your questions.

REP. UPTON: Sounds like the winning attitude for the Wolverines over BC.

REP. MARKEY: Well, in basketball, Mr. Chairman, our players weren't tall enough. That's an important --

REP. UPTON: Again, Mr. Chairman, thank you for spending so much time with us this morning. We're going to have questions from members in five minute segments back and forth. What are your views on the progress of the transition to digital TV and what we will be facing by 2006? It's pretty clear, I think to all of us, that we are not going to reach the 85 percent goal by then. So, what do you think specifically do we need to do to put the transition back on track?

MR. POWELL: I start with the premise that it depends on how we want to choose to measure success. Candidly, I believe that our expectation about how rapidly the deployment would occur are somewhat exaggerated. It requires the coming together of multiple industry segments, some of which are competitors, in the context of cable or DVS delivery, content providers, broadcasting, and the consumer electronics industry. And I also think that it requires a dramatic transition on the part of the people who matter most, which are consumers.

And a rushed transaction, in my mind, is one that runs the risk of pushing upon consumers before things are ripe, dramatic changes in a service that they value at a very high level. So, I always feel compelled to start out with, we are a success or a failure depending on what we think a reasonable timeframe for transition are. I've made no secret that I believe 2006 has always been an extremely optimistic assessment of 85 percent penetration. You'd be hard pressed historically to find any technology, no matter how killer in its application, that ever reached anything like those sort of numbers on that timeframe.

I'm bullish about DTV. I think it's a great service. I think consumers will embrace it. But I think it will take longer than we had imagined.

What can we do? The first thing we need to recognize is that most of the solutions are out with the industries and in the marketplace and not in government. On the margins, there are things we need to do and have done. The Commission has engaged in an effort to remove some of the ambiguities and questions associated with the deployment, so that at least those aren't contributing to the risks and anxiety.

For example, we took a position, finally settled the debate over the transmission standard between 8VSB and (COFDM ?). We made clear, which was less than it should have been for reasons I don't understand, that there is a must-carry right for a digital signal, at least in the final product, when that's the only signal you're providing. We've taken a number of other steps that we hope would facilitate that, and we're constantly examining whether there will be more. There are tough questions that we believe are outside our legal authority that the Congress and this committee may have to examine.

I would cite as examples the possibility of multiplexing on a single channel on cable. It was our sincere belief that we did not have that flexibility in the way the statute was written. I will tell you that many of us believe that it might be a viable way to provide service, but simply had to remain faithful to the statute.

REP. UPTON: What are your thoughts on the future of 3G deployment in the U.S., specifically if the Pentagon is unwilling to relocate from the 1755 to 1850 megahertz band? And, second, is it prudent to auction the 1710 to 1755 megahertz band and the 2110 to 2165 megahertz band by September of '02 before we resolve whether mobile carriers can use the 1755 to 1850 megahertz band for 3G?

MR. POWELL: I am one who is bullish about the prospects of 3G, which I hope means advanced Internet-type services over wireless devices --

REP. UPTON: I saw that arrow go up on CNN.

MR. POWELL: Did they? What power. I like to emphasize, though, there are two dimensions to this problem. The one gets most of the attention, understandably, which is more spectrum -- the ability to have a bigger highway if the highway is congested. But as we know with highways, that's not the only dimension to the problem. One of them is the efficient use of spectrum. The Commission has tried to emphasize the importance of continuing to incent the development of technology and handset solutions and network solutions to get more out of what exists.

Spectrum will always have a certain scarce dimension to it, just as any economic good does. And there always should be two efforts -- one to provide more, but also to provide greater efficient use of what we do have. And I think that will have to be, if we're realistic, part of the solution to 3G, particularly if, as you say, Mr. Chairman, DOD ultimately cannot, for national security reasons, yield or is unable, or we are unable to refarm a sufficient amount of spectrum, we will have to look for other solutions. It's important to remember, it's a little bit of a zero sum game. What is given to one is taken from another, and those represent conflicting values that we'll have to reconcile.

REP. UPTON: Just as a quick follow up, though, is it prudent to do some of that spectrum before we resolve it with DOD?

MR. POWELL: This is an area where I would have to confess the Commission finds itself in a rock and a hard place, between statutory mandates. Through the budget process, we have been commanded to auction spectrum that will nonetheless remain encumbered through its auction. From my perspective, I don't take a position as to whether that's good congressional policy, but it is the one that we're commanded to follow. We have tried to facilitate, as greatly as possible, incentives that would cause people to yield spectrum that's otherwise encumbered.

We did so in the 60-69 spectrum proceeding. We're looking at ways in the 52 to 59. But, ultimately, we have a legal obligation to auction the spectrum which -- upon dates that were specified in statute, which was clearly known to be encumbered. So, I think it is a problem. It will affect the value of the spectrum at auction. It will affect its effective deployment in the future. And I think it's just a messy thing that we'll have to work through.

REP. UPTON: Thank you.

Mr. Markey.

REP. MARKEY: Thank you, Mr. Chairman, very much. Recently, Mr. Chairman, there was an important court decision addressing the horizontal ownership limits for cable systems. As you know, the FCC had, pursuant to the Cable Act, established a 30 percent limit. The court generally said two things of importance. First, it said they seem to be looking askance at diversity as an important criteria for establishing a particular cap. Second, the court indicated that the FCC had not provided sufficient detail to substantiate setting the cap where it did.

Now, in the aftermath of this decision, you announced that the Commission would suspend AT&T's obligation to sell certain systems in order to meet the requirements in the AT&T merger order from last year, in order to review the court decision and gage its relevance to the AT&T merger order. Now, the AT&T merger order, perhaps in contrast to the general 30 percent cap, was the result of serious work by FCC staff and attorneys, and represented the collective judgment of the Commission that concentration was a concern, that the cross investments of AT&T -- that is TCI and Media One with Time Warner -- could have negative consequences for competition.

That order, as you know, was quite detailed, in fact, from the Commission. Now, you've had a couple of weeks to think about that court case. What are your thoughts on that decision now, Mr. Chairman?

MR. POWELL: Sure. Let me -- there are two parts to it. The court case clearly is significant. I agree with you, the two bases on which it made its decision, which are also interrelated, which are the court considered our belief that Congress' intent was both to facilitate diversity and competition and concentration policy as an error. That in the opinion of the court, the statute's sole purpose was competitive considerations and concentration, and that any limit we selected had to be premised on a competition analysis or one that considered concentration effects, and not one premised solely or substantially on diversity as a rationale.

I will state candidly I don't particularly, and did not when we promulgated these rules, agree with that interpretation of that congressional provision. But I'm now presently bound by the interpretation afforded to it by the court. So, any further justification, which we will be required under the statute to now try to offer for a new rule, will have to be faithful to the court, premised on concentration, competitive concerns, which often lead to higher number caps than the kind that could have been justified on diversity grounds.

REP. MARKEY: Let me follow up on that then, Mr. Chairman. Let me ask if you think that that decision has any relevance to the 35 percent audience reach cap that the broadcast industry is subject to.

MR. POWELL: Sure. I think it has relevance, though I don't believe it's directly on point, which is part of the reason at the same time we issued the suspension you speak of, we also rejected a petition by a major broadcasting group to suspend the obligation of the 35 percent cap on the same basis. My judgment was -- the judgment of the majority, was that the 35 percent national broadcast ownership cap is specifically stated in the statute. The number is specifically stated in the statute.

Now, while the statute does give the Commission discretion to modify that provision in the context of its biannual review, we believe that at least at present, that the statutory basis, which was the key underpinning of the court's decision as to the cable rule, was different. REP. MARKEY: May I ask, what is your intention in terms of the AT&T case now? How are you going to proceed?

MR. POWELL: Well, we are considering -- I would like to emphasize, as you correctly noted, that it was a suspension of the condition, and not a limitation. I believe, as did the majority, that suspension was very much warranted, because while there was a different basis on which the condition was reached, the analysis just was not defensibly any different than the one we had just used to defend the rule. And, in fact, specifically imported the rule as the basis of the number it selected, and believed quite seriously that if we had failed to do so, a court would rightly say that that was being flaunted in the context of the mandate.

But, we have an obligation to return to the question, which we are looking for a proper vehicle to do, to raise whether the AT&T condition is in fact itself in any way undermined by the court's opinion.

REP. MARKEY: Let me ask one final question, and that would be -- I think you should be very careful, by the way, in this area because without question, diversity is a proxy that ensures that there is competition in marketplaces that took it long time for Congress and the regulators to break down. You know, there's a lot of ralling that goes on, Mr. Chairman, about legacy regulations. And people, by definition, don't like the term. It doesn't sound good -- legacy. It's the past, whereas they're looking to do something towards the future.

But as soon as the discussion of legacy regulations is joined with the subject of legacy subsidies, people stopped backing off, because now you have to do away with unwarranted, historical subsidies that go in large measure to monopolists. And, of course, that makes the whole subject so much more complicated. What I'd like to do, if you could, is just to tell me what you think we can do for new service, so that we can save it from legacy subsidy structure, and that is Internet telephony. What recommendations would you make to us on what things the FCC can do to make sure that it's not saddled with this legacy subsidy system that makes it hard for newer entrants to get into the traditional telephony business?

MR. POWELL: Sure. Of course, as you would expect, I'm not prepared to commit to the exact regulatory treatment that should be afforded to IP telephony. But that said, at the outset when I listed a number of the substantive principles that I thought were important when considering the future, one of them was the commitment to ubiquitous and affordable service. But I also say in the statement that we should look for creative ways to do that, rather than assume or lightly advance the regime that works successfully in the context of the telephone system.

And I'll expand on that briefly. The key should be the first principles of universal service, which are ubiquity and affordability. And I think that as we get into that infant world where the questions are less clear, we should be committed to that goal, but we should be very rigorous in looking for ways to ensure it, that don't come with it necessarily, the same kind of enormous subsidization or market intervention that in some ways is characteristic of the phone system. One of the things that I think we should all be excited about is there are certain natural cost characteristic benefits in a lot of the new technology that should give us cause for excitement that it will be deployed widely and it will be largely affordable.

Now, I expect that there will be market failures, and there will be parts of the country and populations to which this does not happen naturally. But, I think the government would be better served if it attempts to, in this iteration, be very pointed and focused about where it attempts to provide governmental assistance as opposed to assume it in a broad brushed way.

REP. MARKEY: Thank you very much.

REP. UPTON: Thank you.

Mr. Tauzin.

REP. TAUZIN: Thank you, Mr. Chairman.

Chairman Powell, I want to follow up on Mr. Markey's question about the cable caps and also the national broadcast ownership caps. Am I to read from your testimony that you're really going to do biannual reviews at the Commission now?

MR. POWELL: You bet.

REP. TAUZIN: And in that biannual review, is there an opportunity under the law for the Commission to review the 35 percent national broadcast ownership cap, and to adjust it if you find it necessary?

MR. POWELL: Yeah. I would say it's more than an opportunity, it's a legal obligation. In many ways -- if I recall correctly, in the biannual last year, I dissented in part because I believed that we had not been willing to fully tackle some of the ownership questions -- not presupposing the outcome, but that we hadn't really seriously evaluated their continuing validity. And I think that that's important and a legal obligation to do --

REP. TAUZIN: In fact, in a world where there are increasingly more diverse sources of information and a great deal more competition, as you point out, isn't it the obligation of the FCC to continually review these caps?

MR. POWELL: I think so, and that's at least also my interpretation of what Congress had in mind by directing an institution to continually reevaluate its structural ownership rules on a biannual basis. I interpret it to be the recognition that there will be changed circumstances, particularly bought about by the objectives of competitive services and diverse services, that the Congress had in mind in the 1996 act.

REP. TAUZIN: Yesterday, Mike Armstrong of AT&T wrote an op-ed piece in the Wall Street Journal calling for breaking up the Bell's on a wholesale/retail basis. To my thinking, that would be an extraordinarily overly regulatory approach to addressing some of the service quality issues regarding the -- brought up by the CLECs. Do you think that this kind of a plan would be wise, or would it be a step backwards from the '96 act pushing deregulation and open competition?

MR. POWELL: Well, I think that at a minimum would introduce yet another extraordinary period of disruption and uncertainty that would likely proceed for another multiple of years, just like the wake of the '96 act produced a period of unsettlement and uncertainty through litigation and lack of clarity about the terms and conditions of the provision. And there would be a cost to that. I don't know whether I believe that the benefits would outweigh the costs, but I do think that we would find ourselves in another long period of confusion and anxiety that might further delay --

REP. TAUZIN: Speaking of those periods, you've also recently announced some changes in the rules governing Section 271 processes. Could you walk us though quickly the changes? Specifically, would you describe how an RBOCs would now file multi-state applications for interlateral relief under 271?

MR. POWELL: I think what you're referring to isn't specifically our approach, but instead the ones that have been adopted by principally the western states through a regional testing of operation systems in an attempt to, in a more efficient way, reach consensus and uniform systems so that those applications could be brought in some combination or a package, and that the question -- the regulatory questions and operating systems questions would be the same in that context. And I think that we have generally supported any effort that tries to harmonize, streamline, and make more efficient the 271 --

REP. TAUZIN: Are there other reforms than 271 that you're contemplating? I mean, let me be specific. One of my concerns with the 271 process from day one has been that the Commission has consistently told state commission-approved plans that they were deficient, but never laid down a clear explanation of what needed to be done to make them sufficient. And that this shell game of simply saying, "no, you don't meet the standard today and come back later," without telling you what you really needed to do to meet the standard, has unfortunately created a lot of that confusion and delay in the 271 process.

Do you agree with that and do you plan any changes in the way the Commission will approach these applications?

MR. POWELL: I agree with it for some years and a little less so in other years. I do believe that in the first couple of years of implementation that was a serious problem. But I think in fairness to the Commission, there was a lot of its own misunderstanding and learning curve as to exactly the nuts and bolts of these systems and the complexities of the interactions. And it took us a good bit of time to understand in our own mind what precisely were the subject of the focus.

And, so, I do believe we have gotten better through a number of things, and I'm very optimistic that we'll be better in the coming years. One thing that we recognize that we should do, is to get out and get on the road, and to be actively out there prior to the filing of applications to try to advise. We can't precommit to whether this will do it, but we can advise state commissions, who particularly are often resource constrained and expertise constrained, to telling them the kinds of ways that they might want to pursue the matter and develop their applications so that it has a higher probability of success.

You know, in the first year I was at the Commission, we wrote a paper talking about the collaborative approach -- an attempt to really be in partnerships so that we get a higher probability of succeeding. And I also think the companies need to bring them in. We are constrained in that we have a 90-day window to make a decision. In many ways, the precedents we set are what guides the next one. And so I think we also get better the more we see and the more we're able to have an opportunity to write about what we expect.

We've only done that now in handful of instances, and I think that this year there will probably be an increased opportunity for that.

REP. TAUZIN: I think my time has expired. I simply want to piggyback on to something chairman -- former Chairman Dingell said about the operation of 271, and that is that it is our common observation that competition in the local market has increased dramatically once 271's are approved. And that until that point, I think until that point, I think there's a natural reluctance for competition because it makes the case for a 271 approval.

And if that is true -- if that observation is correct, obviously improving, streamlining, expediting a system whereby state commissions and RBOCs know precisely what needs to be done in order to achieve approval, will probably lead to the two things Mr. Dingell pointed to, which is more competition and lower prices for local telephone service, which was the game after all in 1996. And I share that observation by Mr. Dingell, as well as your own observation of his, it's time for us to functionally regard how we treat services delivered by different technologies.

And I thank you for your statement. I almost wanted to applaud, Chairman Powell, after your statement. Thank you very much for being here today.

REP. UPTON: Thank you, Mr. Tauzin. Mr. Sawyer.

REP. SAWYER: Thank you, Mr. Chairman. All of us up here have listened to a lot of testimony over the course of our time in the Congress. And I just hope that my colleagues would agree with me, this has been an absolutely virtuoso performance. It has been superb. MR. POWELL: Thank you.

REP. SAWYER: If you carry out your goals with the clarity with which you've explained them, we're into a new era in terms of communications regulation. Let me return to a topic that Mr. Markey touched on in the abstract. I'd like to touch on it a little more in the specific. You talked about you plan to pursue worthy universal service goals of ubiquity and affordability as new networks are deployed, but the challenge there to do it in new and creative ways.

It seems to me that as telecommunications technologies merge, that the question of how the FCC administers the universal service charge becomes a question, which is now of course just for voice and long distance. If we took a look at Internet telephony or wireless, would it be your view that the universal service charge might expand into that, without regard to technology, but rather with regard to the way in which the service is structured?

MR. POWELL: If I understand -- I think I understand the question. It is probably the $64 billion question, literally. Part of the answer to that depends on a pretty fact specific evaluation of whether IP telephony can fairly be evaluated and categorized as a telecommunications service as defined by Congress such that the provisions that would be implicated by your question would be applied to them. If the factual analysis were to suggest it was something else, for example an information service -- or as many of the Internet services have been categorized -- it would largely fall outside of at least the traditional application of those kinds of subsidy programs.

There is a limited amount of discretion the Commission has for extending service. But I think you still have a sort of touchy legal against factual determination to see whether you can do that. The point about creativity -- IP telephony is potentially a great example. At present, and there are some big ifs and I'm cognizant of them -- but if you are on the Internet, you're talking about the ability to communicate right now for a piece of software that's absolutely free, using the public Internet, which nobody owns, to talk to your friend in New York City without any per minute or service charges.

Now, that's pretty ubiquitous and pretty affordable. I think that my only challenge in these areas to ensure that we find the exact problem we're attempting to cure before we talk about the extension of the traditional program to them. One of the reasons I tend to resist prematurely intervening in a context of IP telephony is because it is engaged in a wonderful period of innovation, experimentation -- is being deployed widely, such that it was a critical issue, major merger recently, and consumers are really reaping the benefit of its deployment.

REP. SAWYER: In the few seconds that I have left, let me share with you my predisposition on this. I really believe that the Land Grant Colleges Act since the end of the 19th century changed America in critical ways and took the growth of the technology, in terms of railroad transportation, and used it for the task of more broadly building that skill level that we needed as a nation. It seems to me that the genius of the E-Rate is that it has the potential, wisely applied, to do many of those same kinds of things -- not just for putting equipment into schools, but for elevating the skill levels of an entire population -- something that we're challenged to do in ways that we probably never imagined before.

So, with that, I will be revisiting the questions with you, and thank you for your response.

MR. POWELL: Thank you, sir.

REP. UPTON: Mr. Stearns.

REP. STEARNS: I thank you, Mr. Chairman. Chairman Powell, the FCC's January decision pertaining to the quote, "carriage of digital television broadcast signals," end quote, has led many broadcasters and cable operators to visit my office on a number of occasions, and you and I talked about that. My question is specifically focusing on the multicast, must-carry provision. What impact will the rule have on small, independent broadcasters, Christian broadcasters, Spanish, language, and emerging network broadcasters, who have strong concerns here about this rulemaking?

MR. POWELL: The decision will probably have a disproportionate impact, but it'll have the same impact it has on all broadcasters, which it is going to limit at least one pliable business opportunity to effectuate the transition, at least with a government right to access. It's important to emphasize that nothing we said precludes any broadcaster from reaching a negotiated carriage agreement for those kinds of services. It's only that we can't interpret the must- carry statute to provide a government-conferred absolute right to that carriage because of the statute's use definitionally of the idea of a primary video signal.

REP. STEARNS: Yeah, but if the cable network shuts them down and says, we'll accept your high definition signal, but we're not going to do the multicasting. There's no negotiation, so how can they negotiate.

MR. POWELL: They might not be able to. And I think that if that's a critical desire for transition, that statutory change would be warranted. This was the area I was eluding to briefly. I sincerely believed our decision was one of those tough ones that we believed was just compelled by the only honest reading of the statute.

REP. STEARNS: You're still taking comments, too, as I understand. I mean, I'm not saying you're going to revise it, but you are in the process of --

MR. POWELL: I think you're referring to two things. There's a further notice. REP. STEARNS: Further notice.

MR. POWELL: And there are two things potentially implicated there. One is the carriage of both signals. There's still a question about whether we would confer or interpret the statute to allow the carriage of both an analog and a digital signal simultaneously. That's different than the issue you're referring to. That's teed in the notice, though we raised pretty significant constitutional concerns about dual carriage.

The other issue is whether -- there's part of the statute that allows you to carry, in addition to your primary video signal, program- related material.

The statute defines program-related material, but we provided another round of comment as to what that might include. And that also has an effect on what a broadcaster may be able to do over its must- carry signal in the vertical blanking integral (?) and other ways. It's a pretty narrow statutory provision, but we are seeking comment on whether there are ways to do more.

REP. STEARNS: Okay. Let me follow up on Chairman Tauzin's question. I introduced legislation easing the duopoly rules and grandfathering of existing local marketing agreements, and elimination of the one-to- a-market rule. And the Commission's actions in this respect has been appreciated. Shouldn't the next step be to perhaps eliminate or at least relax the national ownership caps on broadcasters, as well as repeal the broadcast cable and broadcast newspaper cross ownership rules? Yes or no, if possible.

MR. POWELL: I can't do that.


MR. POWELL: I think it's absolutely --

REP. STEARNS: Do you think we can --

MR. POWELL: My effort is to always go back to my substantive points. Validate or eliminate. The 35 percent national ownership rule, if I remember correctly, is promulgated in the 1970s with an entirely different media environment than the present one, and should be validated if it has any merit at all in the current context. The biannual review will provide the vehicle for that. The newspaper cross ownership is similar. We already have directed that we will have an item to examine that question very shortly in the next month or so.

REP. STEARNS: So, the repeal or relaxing of the broadcast cable and broadcast newspaper cross ownership rules are to be decided when?

MR. POWELL: There will be a proceeding that initiates the examination of those rules in the next month or two. It's being slated for May.

REP. STEARNS: Okay. Let me talk about ownership caps in this respect. The Commission generally seems to set ownership cap-type rules well below the kind of threshold that might be expected if the affected industries were simply governed by the antitrust laws. In cases where you lack a clear direction from Congress as to where to set a cap, just give me an idea of the principles that you might use with respect to matters of ownership or concentration -- maybe some just principles.

MR. POWELL: Communication policy has always been affected with two principles that are not always consistent. One is competition or concentration concerns -- the anticompetitive effects of concentration in markets. That's also the historical gravamen of antitrust policy. The trickier one is the notion of diversity of program voices that may or may not bear direct resemblance to concentration levels that are impermissible. The horizontal cable rules are a perfect example of that. The 30 percent, in all likelihood, couldn't be justified as a national cap for purely competitive purposes.

That number would probably, in all likelihood, be lower than what antitrust would suggest or the typical HHI kind of economic analysis would suggest. Diversity is a harder thing to decide whether you believe this limit or that limit is too much or too little, and I think that's where the problem is most difficult to address. Worthy policies, but very difficult to articulate and promulgate rules for, because it's very easy to be subject to the accusation that, you know, why not this number, why not that number. And that's a very difficult thing to do.

It's also difficult because when it involves diversity, it usually means it involves media, which usually means you have to defend the rule against first amendment scrutiny, which is higher than our rules would be defended in concentration context. So, the Time Warner case was hard in part because the court said you have to pass constitutional scrutiny in defending the selections that you make. And, so, the long and the short of it, those are the objectives. I am not the biggest fan of prophylactic caps generally, just because I believe -- as I learned in law school -- rules tend to be almost always over-inclusive and under-inclusive at the same time. People you wish you got, get away. People you don't want to get, get caught.

And I think a lot of times those judgments are very case or fact specific, and it's very difficult to pronounce that a level is too little or too much. But I think if they're warranted at all, they're probably more warranted if your convinced by diversity concerns than they are usually by competition concerns, and it's many of the reasons why antitrust policy is a case specific doctrine. It's not a prophylactic one.

REP. STEARNS: Thank you, Mr. Chairman.

REP. UPTON: Thank you.

Mrs. Harmon. REP. HARMAN: Thank you, Mr. Chairman. I apologize for being slightly distracted, but I've just learned from Mr. Boucher that our colleague, Norman Sisisky, passed away this morning, which I find truly upsetting. He was a wonderful and decent man, with whom I served on the Armed Services and Intelligence Committees for many years. A marvelous sense of humor. It reminds us all how fleeting life is.

Pulling myself back together a bit, I'd like to join Mr. Sawyer in his comments about your testimony, Chairman Powell. I thought it was extraordinary. And if you bring those skills to reforming the FCC, the rest of the federal government should come next. Let me associate myself particularly with your comments on enforcement -- the need to enforce the law. As one who threaded her way through the difficult votes on the Telecom Act of 1996, it is my personal bias that we should let that law work and we should enforce its provisions.

I'd like to just ask you a few questions. First, to bring to your attention two disputes involving the Los Angeles region, and to hope that your agency will intervene to resolve them short of litigation and rulemaking. One involves something I just learned about, which is your approval for the construction of a new broadcast tower on Mount Wilson in Burbank, California. That broadcast tower is beginning to be built by Univision and it is extremely close to another broadcast tower which exists, that was built by ABC. And the issue is, how high will the Univision tower go, because if it is too high, it will block the signal from the ABC tower.

This should be a resolvable issue. People are talking to the agency. I just wanted to be sure you personally knew about it, and hopefully there will be a satisfactory resolution soon. That's one. The second one involves the allocation of emergency radio frequencies, which are the lifeline of effective police and fire services. El Segundo, California -- another city in my district -- was part of something called the South Bay Regional Public Communications Authority, which owns a number of frequencies, some of which are unused. El Segundo is no longer part of this group, and would like to reclaim some of these frequencies it previously owned. I am again hopeful -- I'll be writing you about this -- that your agency will try to intervene, work this out short of some prolonged dispute that is avoidable and that will disrupt police emergency services.

My question is on a different issue. You know, we started out joking about basketball and football teams and so forth. One of the other things that local areas get incensed about is changes in zip codes and the area codes for telephone numbers. And, of course, there's a dispute in Los Angeles about this. There is an answer that could alleviate a lot of this regional tension and that I hope you will consider as you move your agency toward one that operates across technologies. And that answer is called technology-based overlays. A bill passed in California last year, S.B. 1741, which requires California's public utilities to adopt technology-based overlays. And this legislation cannot be implemented without your approval -- your agency's approval. What it would do is require that the new technologies -- data lines, ATM machines, pay point machines, and possibility pager and cellular phones -- move to new area codes so that the businesses and homeowners wouldn't have to change theirs. This seems to me to be a logical idea. It would sure help neighbor- to-neighbor relations in the Los Angeles area and all over California, and probably in other states. And I'd just like to know your view of this concept.

MR. POWELL: Sure. The numbering issues are becoming quite serious.

The explosion -- the revolution has created an extraordinary demand for unique identifiers to reach devices and new services, and that's leading to the big exhaustions of a number system that was principally designed around -- this is one of those legacy -- historically around the common carriage system. The Commission's prior rules were opposed to service-specific overlays, principally because they evolved from the fear, once upon a time, that if you had them, they would benefit the monopoly incumbent, who would deny the availability of numbers to new innovative entrants.

Oddly enough, now we almost have the reverse of that problem as new technologies come into the market. The Commission recently undertook a proceeding to reexamine and to look again at whether service- specific overlays make sense. And so, I think we are at least convinced that it's an idea that requires pretty serious attention. It may be the original rationales for the prohibition are not or are no longer justified. And we've worked very well with California and other states trying to provide as much relief. We know how sensitive it is to consumers in states. We know how sensitive it is politically in states. And we've really been trying to increasingly do everything we can to give states the flexibility they need to better deal with that problem.

REP. HARMAN: I thank you for that comment. And just conclude on the point that California needs your attention to the three issues I mentioned, and you can be very helpful to us. And speaking for me, I'm very excited about the fact that you are bringing to this job the enormous energy and vision that you obviously are bringing to it.

Thank you, Mr. Chairman.

REP. UPTON: Mr. Deal?

REP. DEAL: Thank you, Mr. Chairman. I want to thank you for being with us today. And one of the themes that you will probably hear from many of us who represent rural areas is our concern about universal service. And I would like to revisit that, just briefly, with you. I have recently introduced a bill that would remove the caps on the high cost rural areas that have been imposed, I believe, since 1994, under a FCC rule. And some would estimate that that has cost these high service providers some $350 million over the course of that timeframe.

I would just like to ask, briefly, what your opinion is about the possibility of removing those caps to those service providers that are in those high cost rural areas?

MR. POWELL: Sure. The caps have a convoluted history as to what their purposes were. But there are actually two or three dimensions to which they go to: the cost of the actual loop or line infrastructure, which we call the high loop cost and to which there are caps are on; there are also caps on, sort of, corporate expenditures -- travel, lodging associated with the operation of the telephone company; and another one, which I won't even pretend to remember. (Laughter.)

So I think that I don't know the answer to the question at present, other than this is ripe and teed up, in the context of our rural access reform and rural high cost proceeding that's presently underway and to which we hope to have final decision by May, so that changes can be implemented in the July 1 timeframe. The rural task force that worked to develop a recommendation to the Commission has filed some proposals that include modifications of the cap, in a way that the rural companies believe would be beneficial to them. And those are very much alive and on the table for examination.

The problem in my job, always, about subsidies is that they are not cost-free. That is, they do have a reverberating impact on other consumers, who will have bill increases as a consequence. Removing the cap, we estimate, just on high loop is probably a $128 -- a $198 million addition to the system. The corporate cap would be another $40 million addition to the system -- not that they might not be justified, but that money comes from somewhere. And it comes from consumers who will then have line charges.

So it's not always easy to reconcile. But I think we're committed to making sure that rural Americans and rural companies have the subsidy that's critical to continue the provision of service. And this is just where we get paid -- or don't -- the big bucks to balance those different decisions.

REP. DEAL: Thank you. Well, we look forward to working with you on that. Let me change subjects just slightly with you and that's DBS. My district is one of those unique ones that borders four other states. And because of the current rules as to the service provider areas, many of my constituents that are close to the borders are considered within the range only of television stations that are outside of our state; and therefore, DBS is not allowed to provide them as the local channels that they would prefer.

I would simply ask if you would look at that issue because it is certainly one that affects many of our constituents. They would prefer to have, for example, the television stations broadcast from Atlanta, Georgia, the capital of our state, rather than from Chattanooga, Tennessee, on the western side of my area, or from Greenville, South Carolina, on the eastern side. It is a concern for those DBS subscribers in some of those rural areas. And I would look forward to working with you as we can try to solve that problem.

MR. POWELL: Absolutely.

REP. DEAL: Thank you.

Thank you, Mr. Chairman.

REP. UPTON: Mr. Green.

REP. GREEN: Thank you, Mr. Chairman. And it's been a long morning, Mr. Chairman. But I have really two questions, if I can do it in the five minutes. One of them is a local situation in Texas. NorthPoint Communications has had a pending application to offer digital television services and high speed Internet access, in direct competition with cable and DBS providers. And I want to see more competition in cable and DBS -- and we're talking both in terms of price and service.

And an innovative wireless technology developed in the state of Texas by NorthPoint Technology could provide a real competitive boost to the marketplace. And their service, which would include 96 channels, including local stations, could be marketed to consumers for just about $20 a month. Not only could they deploy it in Houston, but also in other television markets in the country. I understand NorthPoint first came to the Commission in 1994 and that license application has been pending -- and that a license application has been pending for over two years. The Commission concluded NorthPoint's signal would not cause harmful interference. So I wonder why the licenses haven't been granted. And I know you may not be familiar with this particular one. But if you could get back with us?

And do you believe the satellite broadcasters can meet their looming requirement to meet local communities -- to provide local communities with a full set of local signals? And also is -- whether it's NorthPoint's technology or someone else's technology, is there a solution to that particular problem?

MR. POWELL: Yes, actually this is a perfect set of issues that highlight the problems of lack of harmony in different regimes. The NorthPoint service, which technically is a terrestrially delivered use of wireless technology, but will be competing principally with direct broadcast satellite, which is delivered by satellite, are regulated, arguably, in two different ways. One is a wireless terrestrial provider and one is a satellite provider. In the satellite provider context, for example, under the orbit statute, we're prohibited from auctioning spectrum. But in terrestrial wireless, we are specifically required to auction spectrum.

NorthPoint, quite innovatively, filed for a license in a satellite window. And it has an innovative and interesting and hopeful technology. But it has presented a number of challenges to policy of reconciling a spectrum that is in a satellite window, that has specific process of licensing and service rules -- it's very different from terrestrial -- and in which we work to eliminate mutual exclusivity by trying to balance interference concerns.

It's been too long. We are working hard on it. We have been directed by Congress to conduct, recently, independent tests to determine the interference issues.

That has been somewhat challenging because not everyone is always happy with who you choose to do the testing. But that's underway. And we are very hopeful that, pretty shortly, we will have an aggregation of the results and be able to proceed.

REP. GREEN: Do you have any kind of timeframe?

MR. POWELL: I can get that to you. I don't feel comfortable advancing one right now.

REP. GREEN: I appreciate it. After reading your testimony, I get the feeling that you favor an industry solution to the HDTV transition. Do you believe we ought to wait for the industry to come together on the issue, no matter how long it takes?

MR. POWELL: Well, not necessarily. It depends on what you believe to be an impediment of the condition. And the government, for the entire history of the transition, has been very involved in that process. And to the extent it continues to take responsibility for the transition, I suppose there are issues of government focus. We talked about must-carry regimes. If people are convinced that those are critical to transition, it's an issue that would require a governmental act, I suspect.

Similarly, there are issues about copyright and intellectual property protections that are rights conferred and granted by the government. If that were a serious and continuing obstacle, one might not be prepared to wait forever for them to reach mutual agreement on those terms and conditions. I would point out that most of those issues are outside the specific jurisdictional context of the Commission.

But I suppose that my only caution is it sort of depends on what -- which specific issue and whether it has a natural government component. But there are a lot of issues here about finding a sweet spot for consumers. I don't know what, specifically, to do about the development of high definition creative content, so that they have something to see when the TV turns on, or the natural product cycles associated with driving $3,000 sets down to levels that normal Americans -- average Americans -- can afford. Many of -- much of that takes product cycle time. The average family in America owns three to four television sets. That's a lot of swapping to go on for 85 percent of the population.

And so, you know, usually my challenge is let's identify specifically where the rubs are. Let's see which ones involve what institutions. And let's get those institutions focused on those problems.

REP. GREEN: Thank you, Mr. Chairman. And one of the questions we'll submit is an update on reciprocal compensation. And I know that's an issue our committee has dealt with, but also the FCC. Thank you.

REP. TAUZIN: Mr. Chairman? Point of personal privilege. I have just had staff check out the announcement about Norm Sisisky. And the announcement is correct. Norm Sisisky passed away today. The information we have is that he was recovering very successfully from surgery yesterday. And the reports we had was that he was expected to make a full and complete recovery. But obviously, it didn't work out that way. And maybe we can all join in a moment of silence, as we remember a dear friend and an extraordinary servant of the American people, Norm Sisisky.

Thank you, Mr. Chairman.

REP. UPTON: Thank you.

Mr. Shimkus.

REP. SHIMKUS: Thank you, Mr. Chairman.

And Mr. Chairman, welcome. I think many of us, the members of Congress, especially on this committee, would, if we ran for the presidential office, would get the same type of results that Senator McCain did when someone said, "You wrote a letter to the FCC, asking them to rule on an issue." All of us have probably written at least one letter to that. And so, it probably -- it's very -- I know that you, in your short amount of time, have really moved the Commission to get stuff out the door. And we would encourage you to continue.

And I think most of the people I deal with who ask me to intervene, or at least address the FCC, they just want some legal certainty. And I think that's my buzz word of this Congress -- legal certainty -- whether it's Superfund or whether it's small business, liability protections or actually in results and decisions made by the FCC. We just need some legal certainty. Win or lose, up or down, then we can move on. I will just throw that out as a comment.

I don't have any pamphlets for NorthPoint Technology. Maybe my colleague, Gene Green, can get me some of the pamphlets, then I could add to his advertising. But I am a supporter of it.

REP. GREEN: Mr. Chairman, does the gentleman yield?


REP. GREEN: -- teaching how to shoot a basketball shot, I'll share it with him.

REP. SHIMKUS: That's right. We do work together on a lot of issues. But I do also want to echo and support from an issue, which is the small broadcast companies, particularly KHQA in Quincy, Illinois and this whole direct satellite, local into local. And many of us feel -- and there's a letter that we have. You mentioned the rulemaking. The reality is we see this as the only way to get local into local in the competitive markets in many of the unserved areas. And if rulemaking is delayed, we fear it could be years before this new service is deployed. In your estimation, timeframe -- when do you think a decision could be rendered?

MR. POWELL: Congressman, I'm not sure I'm clear on what specific rulemaking you're referring to.

REP. SHIMKUS: Well, I guess, really, how quickly can you all make a determination of this, of NorthPoint, with all the things you had mentioned -- my colleague, Mr. Green from Texas -- is a suitable transmitter of the digital signal that would be in the satellite spectrum? That's pretty good for someone who's still having trouble taking care of this vocabulary here.

MR. POWELL: The only reason I'm hesitant to say exactly the timeframe is because it requires the submission, completed evaluation of the technical requirements from an independent tester, that we were required by statute to undertake. I just am not sufficiently confident to know how much is involved there before I put my engineers in hell, suggesting it will be next week.

REP. SHIMKUS: And that's fine. Again, it just speaks to the whole legal certainty, not just from this company's ability, but also the small local broadcasters who are in areas that they don't really see local to local going without -- I mean, there's a lot of people who are waiting, patiently.

Let me skip to another issue because of time. We passed our E- 911 bill that initially was a lot of people have had a piece of the action on. And Chairman Tauzin allowed me to carry it in the last cycle. And we're excited about it. What is your perception of the status of the E-911 implementation, you know, throughout the whole industry -- through the folks who are making the equipment, the handsets, the network solutions? And what about the Phase II requirements that kick on the E-911? Where do you think we stand on the implementation of that law?

MR. POWELL: I think the Phase II requirements to require a greater degree of granularity in identification and require handset identification technology is set for this fall. And we continue to believe that that date should be -- and are hopeful that will be -- met by the vast majority of providers. That said, there are a lot of issues starting to creep in that are creating some churn and anxiety, that are implicated by location-specific technology, not the least of which is growing concern about handset privacy and whether we are ensuring that location-specific challenges don't create the kinds of privacy quagmire that are associated with some forms of Internet services.

The other thing I'm less concerned about, there's also a lot of churn in the industry as it changes and adapts standards, in preparation for advanced services.

And whether any of those things, I'm not sure, but whether any of those network re-engineerings will have an impact, I think is less clear. But the privacy issue may be one that the Congress will be concerned about in time.

REP. SHIMKUS: All right. I'm glad you addressed that because that was a follow-up is what are the privacy concerns? We're hearing the same thing. And there's got to be a way. And technology can master a lot of the difficulties or if there is an emergency and a person has access to turn it on, I mean, that addresses the privacy location information.

MR. POWELL: That's where a lot of them are going. I just got back from the wireless show. And a lot of the solutions do have technology which are activated only when you dial 911 and are turned off or the phone is defaulted to not cover you. But the wireless industry also filed petitions with us recently to examine certain self-determined rules about privacy that we'll consider in the context of this, as well.

REP. SHIMKUS: Thank you very much.

Mr. Chairman, I yield back. Thank you.

REP. UPTON: Thank you.

Mr. Stupak?

REP. STUPAK: Thank you, Mr. Chairman. I apologize. I've been in and out between two different hearings here.

Mr. Chairman, as I said, I come from a very rural area and a lot of different telephone companies, small telephone companies and things like that. But the question I'd like to get your thoughts on is local residential competition seems to be working in some states and not others. Maybe in the Midwest, we might -- at least, I believe, we may be a little better with competition in Michigan and Illinois and Pennsylvania. But what decisions were made -- that were made or weren't made -- where you don't see the same type of competition from state to state?

MR. POWELL: I think there are a whole lot of explanations for it, but all driven by the same recognition, which is companies enter markets when there is a viable economic base case to be made for entering those markets. And even when they believe there's a viable economic base case, there's a limited amount of capital and resources, so that they prioritize where they go first, even if they have an intention of going elsewhere or everywhere eventually. That is, you know, it is not uncustomary that carriers enter markets where they get the largest economic return for their investment in the beginning, even if, ultimately, their plans will include or should include or there are even good economic cases for entering other parts. Regrettably, that often is in many of the areas that you're talking about. And I think, in some ways, the capital crunches over the last year make that even more challenging in some regards.

The other thing I think that, in all candor, is a matter of policy, which is a tradeoff of some tension, is local competition, local rates are set by regulation. They are subsidized by government policy. they do not naturally reflect -- as we wouldn't want them to in some states, I suppose -- they don't naturally reflect the economic costs associated with them. So many carriers look at the economic case for entering a high cost market and believe that the retail prices they'll be able to afford will not be sufficient to recoup investment and to operate viably because those rates are not only sometimes below cost, but are subsidized. So in many ways, they look at the decision as a huge capital investment to compete for below cost rates and hope the government keeps subsidizing you, which comes up short to a lot of companies and a lot of markets.

I think it's the tradeoff Congressman Markey was talking about. There is tension between a competitive model that's genuinely economic based and universal service or federal subsidies because the two can be in tension with the economic incentives. So I think that's part of our problem in America, across the board, and I would say principally in the residential markets. And it's even more acute in geography in situations like those that you represent.

REP. STUPAK: Well, certainly Michigan and Illinois, we're Bell Companies. And you know, when you take a look at it, the Bell Companies will insist that their markets are open, even to their competitors. But yet, we haven't seen where there has been competition in each other's turf, except where there has been required under a merger condition. Is it the policy? Or shouldn't the FCC also consider whether the out of the region Bells have entered into the local market when determining whether to permit the 271 relief?

MR. POWELL: I would submit that we're constrained in that regard, as to the way Section 271 is written.

REP. STUPAK: Constrained in what way?

MR. POWELL: For example, the prerequisite to 271 is something referred to as "Track A" and "Track B." It is legally possible that someone could gain long distance entry without any local competitors, if you accept that Track A provides that somebody could have what we call an SGAT, which is essentially a local tariff filing that suggests what the prices of interconnection would be. The statute contemplates that a person could satisfy that track, a company, and nonetheless, gain 271 relief.

Similarly, the second track, which requires an interconnecting carrier, only requires, at a minimum, one to technically satisfy the prerequisite to at least going through the examination. So in many ways, there are many alternatives to the way you could grant long distance entry through local market opening measures. You could have required, you know, that there be a certain percentage of local competition before obtaining approval, many of which, in our evaluation were rejected in the Congress. So we feel somewhat constrained about the degree that we can import additional factors, particularly when the end of the checklist has the provision that states squarely, "The Commission shall not add, in any way, to the checklist."

So we try our best. But I do believe, to be faithful to the statue, we're limited in some of those.


One more for me, Mr. Chairman? The telecommunication industry, more than any other business, continues to be dominated by companies that pretty much all but enjoy impregnable monopolies in key markets. If the FCC steps back in certain cases or certain areas, won't state regulatory agencies be forced to then step in, leading to not less regulation, but rather more of a hodge-podge rules of regulations and different rules that will ultimately benefit no one, especially the consumers?

MR. POWELL: I certainly don't submit that we're stepping back. I don't think the statute lets us step back. I think the statute carefully lays out respective roles for both state and federal authorities. I think there is always a debate over degree, to which extent the statute inures to a more intrusive approach and a less intrusive approach. But I do believe that we sometimes -- well, I do believe that that's relatively cabined within the statute language. And there is some variation and flux. But we wouldn't -- even if we wanted to -- be able to walk away from that level of involvement. And indeed, Section 271 specifically says, "The Commission is not permitted to forbear."

REP. STUPAK: Thank you. Thank you, Mr. Chairman.

Thank you, Chairman Powell.

MR. POWELL: You're welcome.

REP. UPTON: Ms. Cubin.

REP. CUBIN: Thank you, Mr. Chairman.

And thank you, Mr. Chairman. It is delightful. It's refreshing to hear your view of where the Commission can go. And I'm sure that even the problems that we face with technical shortcomings in personnel can be solved when we work together to do that.

I'm primarily interested, as you know, in rural issues. We just passed -- out of this committee and off the floor -- H.R. 496, which helps to cut regulations on small and mid-size telephone companies.

The FCC notified the CBO that when deregulatory efforts are made, that it cost money. And in the case of H.R. 496, the FCC advised CBO that it will cost $3 million in the first year, $2 million in the second year and then their costs would be incurred thereafter. Why is that?

MR. POWELL: I honestly don't know. I'm not familiar with the assessment that you're speaking of. My only educated guess would be that some aspect of the relief would result in greater -- potentially greater -- universal service subsidy costs that have a net increase in cost to either other consumers or the government fund. Other than that, I'm not so sure at all what those numbers refer to.

REP. CUBIN: That just --

MR. POWELL: I'll check.

REP. CUBIN: Thank you. And you know, I just have to laugh because Chairman Tauzin and I just exchanged a few comments a minute ago. And he said I had remarked about how pleased I am with your presentation and the future. And he said, "There isn't anybody on this panel that can ask him a question he can't answer." (Laughter.)

So I apologize for that. I do want to get into some other rural issues. Rural areas have indicated a willingness to --

MR. POWELL: Does it count if I answer late? (Laughter.)

REP. CUBIN: That will make the chairman exactly correct. The chairman is always correct.

Rural carriers have indicated a willingness to make significant investments in the delivery of competitive rural exchange services in underserved areas. But rural carriers also have indicated to me that they have postponed new competitive projects because of the uncertainty and the delay in FCC decision making issues surrounding changes for competitive carriers. Under your chairmanship, when do you think we can expect a decision on the access charge issue?

MR. POWELL: Our goal, because of the annual tariff cycle, is to be able to have it voted -- these provisions voted -- and implemented in time for the July 1 start of the tariff filing change, which would, as a practical matter, really require the Commission to be finished by May or June.

REP. CUBIN: Thank you. Again going back to dealing with the impact that regulation has on small and medium-sized carriers. Are there any other measures that you might have under consideration to expedite deployment of services in rural America that can be weighed against the responsibility for filling out forms and, you know, the cost, the regulation on small companies?

MR. POWELL: I believe that -- and I wouldn't enumerate them now -- but that the Commission has started to become quite aggressive about the streamlining of regulatory processes and procedures and with particular attention to smaller rural carriers, understanding the greater burdens that they face, as opposed to some of the major incumbent carriers. And we continue to do that. We think that those represent pretty significant cost to their operations.

REP. CUBIN: They do.

MR. POWELL: But the challenge is that a lot of it is for naught if states don't engage in a similar concomitant effort because the real bulk of regulation, candidly, on local phone companies comes from state regulatory authority and state telecom statutes, and not the federal component of their operation. I mean, if we walked away from all of them tomorrow, they would not be unregulated in any way, shape or form. And so, I think it's important to make your concerns equally aware to the state authorities because I think that's where most of the most significant obligations come from, I believe.

REP. CUBIN: You are absolutely correct. And lots of times, I think, those folks like to punt the responsibility -- or the blame, if you will -- to us. And so I absolutely agree with you on that.

One last question. The Rural Independent Competitive Alliance filed an emergency petition in February 2000 regarding the non-payment of access charges. It's now 14 months later. So, you know, the word "emergency" becomes an oxymoron at this point. But can you give the status of that petition?

MR. POWELL: The petition implicates the access charge regime with CLECs. And we have an item on just that subject that will be, we hope, in parentis with the reciprocal compensation item, both of which will be on the floor for voting this week. The reciprocal compensation item, if I'm -- I hope I'm not lying -- is on the floor, as we speak, for voting. And as my colleagues make their decisions, we'll be finished.

REP. CUBIN: Thank you very much, Mr. Chairman, and you, Mr. Chairman.

REP. UPTON: Mrs. Eshoo. Ms. Eshoo.

REP. ESHOO: Thank you, Mr. Chairman and to Chairman Powell, welcome back. I believe this is your maiden voyage here at the committee. I welcome you and congratulate you on your appointment by the president to this prestigious position. And I look forward to working with you. and I think that you're off to a great start today before our committee.

I have three questions and I'm going to ask them and then leave the rest of the time for you to answer. I know that you've been very supportive of new broadband wireless technologies, particularly those that have the promise of being low cost and, therefore, being widely, you know, available to consumers, to educators, to healthcare professionals, amongst others. One such technology is ultra wideband, which I think really holds great promise.

Based on recent reports from the NTIA and some ultra wide band technology saying that some ultra wide band -- excuse me -- technologies may interfere with GPS-based public safety services and while there are other UWB technologies that present less of a concern on this interference, I'd like to know what your view on the potential of the technology is and also how we can best bring its benefits to the marketplace. That's my first question.

And very quickly, on the E-Rate, I think that the committee heard testimony very recently -- I thought it was an excellent hearing -- on the benefits. It was really quite a panel of people that came from different parts of the country to talk about how so much of this has reached out into the community. And I'd like to know how you plan to build on the successes of that program. My congressional district is the home to Silicon Valley. And no matter what community I go into, they are eager to build on what we have already put in place. So I'd like to hear some of your ideas about that.

And also, I had offered a bill on E-911 after making the determination of some of, really, the horror cases that had taken place in our country. And as a result of that legislation and my continuing to remind commissioners and the previous chairman about that, it was taken up at the FCC. And I know that you're in Phase II. Is there a Phase III? Do you think Phase II is on time? Do you think that it can come in under time -- you know, the time that's set? I think that there are still too many people in the country that are waiting for the full promise. In fact, I think that the promise was made and kept a long time ago.

So if you could comment on those questions, again? Thank you for being here. And I look forward to working with you on behalf of the magnificent people I represent. But in a broader sense, that we, in this new century, move telecommunications and all that we are jointly responsible for, to truly make it shine, make America shine. And you'll be key in that.

MR. POWELL: Thank you. Be happy to address your questions in turn. Ultra wide band technology, we think, is exciting and promising. It is a truly unique technology that's able to operate over top of other radio frequencies. But therein lies also its challenges, which is it creates an enormous amount of significant anxiety about the degree to which it interferes with other services, particularly some critical services like GPS, which even implicate some of the things you too are concerned about, about the use of those GPS frequencies for navigation and public safety purposes.

So it is one of those classic technical questions, which is that I don't think there is any lack of enthusiasm for the technology.

It has to do with the nitty-gritties of the technical interference. We presently have before us many -- maybe too many -- technical studies that attempt to reconcile UWB interference, both with GPS and, as you mentioned, with other services and from very reputable sources. We are in the, sort of, midst of digesting and evaluating what our next steps might be. We would love to proceed expeditiously with the next step, which would likely be a report and order, unless -- which is an important caveat -- as we finish sorting through data, we find reasons to be of significant concern.

I think your question about whether you could split from GPS concerns about other radio frequencies if they had different characteristics might be possible, depending on what the data actually reveal, whether that proposition is correct. But we'll keep you informed. And I think that we'll probably be moving pretty soon on some of those questions.

The E-Rate program, which is set out in congressional statute, has been, as measured, truly successful. The last time I saw statistics, some 95 percent of schools -- public schools -- in America had some form of Internet access. And we've reached close to the 63 to 67 percent range for actual individual classrooms across the country. Certainly, if that alone is the objective, it's been tremendously successful.

I consider ourselves principally the steward and administrator of your program and will continue to administer it effectively so that it continues to have those results. I also think that we have a duty and obligation to, sort of, be its diligent watcher for abuse, which I think could endanger the program. I mean, like with any large program, you will customarily run into incidents of people making abusive use of it. And we have, on occasion, and have treated those intrusions seriously and significantly. And I think it will be important to do so if we hope to continue to protect its purpose and its validity in any real measure.

REP. ESHOO: I hope you'll be a champion, and not just a steward. As important as the steward is and enforcer is, I think a champion -- nothing takes the place of a champ. (Laughter.)

MR. POWELL: Well, I don't know if I'm a champ, but I'll do my best.

REP. ESHOO: I'm inviting you to be one. (Laughter.)

MR. POWELL: Okay. E-911, I think, similar to the question that came up earlier, I think that we continue to be optimistic about meeting Phase II E-911. We will, very soon, start to have a more appreciable understanding of whether that's true, as we get closer and industry more thoroughly reveals where they are or they aren't. But I think, for the moment, we're pretty hopeful and optimistic that we'll substantially get there, with some of the caveats I alluded to earlier, which is there may rise public policy questions around privacy and around other issues that may have to be, sort of, balanced against that objective, as well. But I think we can certainly expect that Americans will very soon start to see and appreciate the benefits of those wonderful hand-held devices actually coming to their aid in a time of need.

REP. ESHOO: Great. Thank you, Mr. Chairman.

REP. UPTON: Thank you.

Mrs. Wilson.

REP. WILSON: Thank you, Mr. Chairman. I want to join my colleagues in saying that I thought that your testimony was refreshing. And I think it will make a big change. I have to say that it was particularly thoughtful for a former Army officer. (Laughter.)

MR. POWELL: We're not so bad.

REP. WILSON: I was very impressed. A few questions on some things that I think are kind of important to New Mexicans, as well as to the country. I've been kind of watching local competition and thinking about why things work in some places and why they don't work in others. And I'd be interested in your thoughts about why local residential competition seems to be working in a handful of states -- like Michigan, Illinois, Pennsylvania -- and what decisions were made there that weren't made in most other states?

MR. POWELL: It's a very hard question, mostly because there are certainly two regulatory environments that can affect that decision. In the context of, say, Michigan, many of the -- the regulatory environment and the telecommunications statutory environment in that jurisdiction may have a lot to do with the ease of entry or the regulatory costs or the rights of everything from rights of way to whether you're able to dig up streets without opposition, to whether you are able to access incumbent networks at different prices. States have varying prices on which many services can be offered by a competing incumbent. Some states are more aggressive about that than others. And so there is a real difference in regulatory and political environment in different locations.

There's also -- what I was alluding to before -- real differences in the economic viability of certain models. Residential customers are always going to be the hardest. And the simple reason is their rates across the country, due to our historical commitment to universal service and the subsidization of local rates, those rates are largely at or below cost in lots of parts of the country. And so, an entrant who has to make major capital investments is often wary or last to offer a competitive alternative to compete for relatively low return, low volume -- it's mostly high volume, low margin service. You have to have a whole lot of customers to make low margin individual customers work for you economically. And when you're going up against an incumbent, and that's a lot of growth to achieve, it's either a slow process or, in some instances, probably a difficult or impossible process.

So those are some of the reasons. It's also why I think that we ought to be very thoughtful and creative about universal service, going forward -- not because the goals are unassailable as an American society, but because we should understand that, if we can achieve ubiquity and affordability, without similar intervention, or at least the same sort of thing, we might preserve more economic rationality in advanced services, so that they stay competitive. You know, if $10 a month flat service can be achieved in a competitive market without subsidization or you might achieve a $7 price with subsidization and below cost aid, you might take the former as more maximizing the welfare of both those consumers and consumers across the country because people will be able to viably compete for those services.

An interesting example in Internet, the National Academy of Sciences recently reported that 90 percent of Americans now have at least access to narrowband Internet service with 10 competing ISPs or more. Nobody has yet offered a specific -- there are some indirect benefits ISPs have that could be called subsidies -- but they have not yet received any direct subsidization yet. We have a very aggressive ISP competitive environment. And for most of us, ISP service is an enormous deal, as compared to the cost of even my local phone bill. And so I am always cautious and careful about, yes, let's pursue the goals. But let's try to do it this time, as much as we can, by preserving competitive and economic rationality so we won't have to do this 30 years from now, arguing why local broadband competition didn't work in your state either.

REP. WILSON: Let me follow up on that, if I can. And you've said it a couple of times in answers to questions and you also say it in your testimony, about the importance of ubiquity and affordability as principles in pursuing universal service and that we should do that in creative ways. Color outside the lines with me here a little bit. What are the creative ways that you're thinking about? Does that mean just no regulation? I mean, what does it mean?

MR. POWELL: Not necessarily. I mean, you know, I'm still creating, so I have my Crayola with me. But --

REP. WILSON: You can borrow mine.

MR. POWELL: The first principle, I would say, is we have very significant differences, as we move to advance infrastructures and broadbands than we did from the original phone experience. Example one, broadband is going to be built on top of infrastructures that are largely already deployed; that is, telephone service reaches over 90 percent of homes in America -- 94 percent. Cable is even higher in its reach of homes in America. Those are the leading broadband infrastructures.

We will not start from scratch in laying out those infrastructures. We will overlay on them to provide advanced services.

That provides a huge cost advantage. So you might look at policies designed to incent systematic upgrade, as opposed to the advancement of policies that were originally designed for the building from scratch and preservation of that model.

Technology also is our huge friend in this regard. As I think members from rural states have already realized, the challenge of the phone system was that it was a ground-based, wire infrastructure that required enormous geographic sensitivity and demographic sensitivity. If you were in a rural area of Montana, 600 miles apart, that's a lot of wire for two customers. But we're starting to see technological solutions that may be agnostic about some of those things, which is why I think that there is reason to be excited about satellite- delivered services. And we should, at a minimum, be looking for policies that incent the continued innovation deployment of those services as a universal service policy.

I also think it's not unusual why, in the continent of Africa, there are no wired phones in many parts of it, but there are wireless systems all over the place. They are solutions that are very applicable to environments in which wired infrastructure would be difficult. And as those technologies reach speeds that provide advanced services, they may be very good tailored solutions for other environments.

And I just -- I guess my creative notion is that it's a desire to be skeptical and dynamic about what we want to incent, as opposed to just rotely assume that universal service means what it meant in the public switch telephone context.

REP. WILSON: Thank you. One final question, since I didn't use my opening statement time. You talked about the efficient use of spectrum. And that's very important in rural New Mexico, particularly the East Side, where places like the Lea County telephone system is in the mobile market for Dallas, Texas. They can't compete to get any part of that spectrum for their some very, very rural customers. But they can't get them to subdivide it either. And you can put a lot more in the bowl if the marbles that you're putting in are smaller, if you see what I mean. And do you envision any kind of effort to yield unencumbered spectrum or to, kind of, use it or lose it, with respect to spectrum in different parts of the western geography?

MR. POWELL: I don't know if I have examples of specifically they're western geography. But we do have any number of policies and licensing requirements that are designed to ensure that you use it or lose it. We often have build out benchmarks. We have payment obligations. We have other service rules that say, you know, if certain things don't happen by a certain time, other things will happen. For example, particularly in the satellite context, you know, there is a whole series of build-out and construction milestones. And when they're not met, you have often forfeited your license so that we can auction it again.

The point you're making, we have started to realize, is an absolutely critical one, which is the government has to have a way to quickly recover and get back out a spectrum that gets encumbered or fails for a given reason. And it's one of the reasons the Commission has increasingly been quite aggressive about protecting its rights to revoke rights to use spectrum when we believe that it's no longer being used productively and we can make better use of it. And I think we're going to have to start looking at that a lot harder, or we're going to have to look at ways to create a very different kind of allocation scheme that provides freer floating flexibility so that uses can be adapted and changed easier than they are now.

REP. WILSON: Thank you.

And I thank you, Mr. Chairman, for your endurance.

MR. POWELL: It's quite all right. That's the Army officer part. (Laughter.)

REP. UPTON: Mr. Rush.

REP. RUSH: Thank you, Mr. Chairman.

Chairman Powell, first of all, congratulate you on your recent appointment as the chairman of the FCC. And I look forward to working with you on issues as it relates to telecommunications during this tenure. And I'm also pleased to hear that you envision a Federal Communications Commission that will operate in an efficient and expeditious manner and faithfully that will implement the Telecommunications Act of '96.

And, as you know, one of the issues that I'm critically concerned about is the E-Rate. And under the administration of your predecessor, this came under some pretty vicious attack by individuals both inside of the House of Representatives and outside of the House of Representatives. And I know that you've stated -- well, let me just ask a question, if you would restate it here. You might have stated it in previous testimony. But what is your position on the E- Rate?

MR. POWELL: Interestingly enough, my position as a regulator is to do exactly what Congress has instructed me to do with regard to it. And I intend to and have always attempted to faithfully apply it as robustly as it is set out in the statute. And whether my view as a citizen is for or against it, candidly in my own mind, is absolutely irrelevant. Now even that said, I'll offer it partially. I think there are enormous benefits to technology to our children and to our schools. And that is a legitimate focus of government attention.

We can debate -- honestly and above board -- how much, how fast, which pieces, which parts, which I think we do and probably will continue to. But I think the objective and the purpose is absolutely worthy. And I believe that my role as a government official is not what my social view is about the legitimacy of that kind of activity versus another. It's to administer Section 254, which carefully instructs me. The program is in place. It's operating. It will continue to operate. And any debates or decisions about where it belongs or doesn't belong are way above my pay grade, to which I don't really participate.

REP. RUSH: You've been -- you made a lot of headlines recently in your comments referring to a Mercedes divide, as opposed to a digital divide. Can you explain, what is the Mercedes divide?

MR. POWELL: Well, I'm glad someone asked this question finally.

REP. RUSH: Good.

MR. POWELL: It gives me an opportunity to correct what I think is a widely held misperception of what I said and didn't say. If you'll indulge me? It will just take a second.

REP. RUSH: Sure. Absolutely. Please.

MR. POWELL: The first thing, you know, in response to a question about the digital divide, you have to worry about when you're in my position is what do you mean by it? The term is extraordinarily broad and involves everything from notions of social justice to gaps in computer deployment to infrastructure to educational curriculum. One of the first points I was making is that it involves many of those components, only a handful of them directly implicate my responsibilities. And I need to be careful about what you're referring to.

The second point I was making is that we need to recognize that any new technology, any new product or service, in its infancy, will tend to be adopted earlier by some communities than others because, for example, it wouldn't be surprising to find that, as we go through the digital TV transition, that as we speak, $3,000 television sets are only being purchased by people I would call a "have." They're also buying probably the more inferior product, which is those earlier purchases help drive down the cost of service and the reliability of them so that, as it becomes a mass market product, it is actually cheaper and more reliable than it was at its early adoption. My only caution was that many of the broadband and advanced technological products are in that early phase and that snap-shooting and telling me that there is a gap or a divide isn't, in and of itself, in my opinion, an answer or even a basis on which I need to understand what needs to be done because the gap itself is not particularly remarkable.

Now, that is not to express a lack of empathy or commitment to the objective.

My view is to be rigorous about it, which is to say, "Don't tell me," to the reporter -- don't tell me about gaps. But let's push through the gaps and actually, specifically focused on what you're talking about, what the problems are and whether there is an efficient solution to it. Want first, by market forces, and alternatively, by government forces. I'll be the first person to implement and execute a program that's carefully focused to market failure or an unacceptable level of lack of ubiquity and affordability. But my caution was that it is in my experience with product service and economics that the gap itself isn't a good basis on which to build the solution. You have to pierce through that and find out where the breakdowns are.

The regrettable comment about Mercedes -- because I think it wrongly implies that I was suggesting luxury -- was not that at all. My point merely was that many technologies, in their early period, were perceived as going to dramatically damage or create inequities, including the automobile at the turn of the century. And my point was that, over time, the automobile would be deployed in a manner that the critical functionality is widely available to Americans. Not everyone will own the highest version of that product in a capital economy. I mean, there are people who are sold luxury. And some of us will drive less expensive cars. But the functionality of transportation and the critical way that it reorders and helps our lives is pretty widely available.

And my only view was that don't count markets out too early in their ability to incent ubiquitous and affordable deployment. And finally, I said there was a danger that worries me just as much as the digital divide, which is making sure it's built at all; that is, as the patent laws recognize and IP property and copyright recognize, a capitalist is not going to invest heavy in infrastructure, build and deploy services, if it believes the minute it does so, it will be required to deploy immediately in a ubiquitous way that is not economically viable. And I said I want to make sure that we're all not have-nots, so that we preserve enough of the incentives to invent and deploy, so that the stuff will actually come into the homes of Americans.

It really is important to note that most of us are have-nots in broadband world. And we should absolutely be driving to closing any divides that persist. But I do think -- it's back to my Crayola, creative point -- we should be very rigorous and focused on where our attention is needed, as opposed to just, kind of, linger around the idea of the gap.

REP. RUSH: Do you agree that technology -- information technology -- is changing so rapidly that if we waited for any -- for the markets necessary to correct the problem, that some people would just be so far behind that they would be -- they would not be able to catch up because the technology is changing just so rapidly?

MR. POWELL: Well, the technology does change rapidly. But speed and rapidity are also one of the reasons for being hopeful about what we all want to achieve. If you compare the deployment of narrowband Internet first and then broadband Internet second, it is one of the remarkable paces of distribution in the history of any technology. I've looked at the figures on telephones, television, electricity, any of the services we would consider indispensable -- many of which we consider indispensable today -- and none of them are even close to the pace of penetration that we're finding with narrowband and broadband technologies.

Broadband, in terms of advanced speeds, really didn't even arrive until 1998. Six percent of the entire country today is subscribing to such service. If you look at phones, it took eight years to reach 10 percent, 15 years to reach 50 percent. And I could tell a similar story to television broadcasting. This is all not to pooh-pooh -- and I really want to emphasize this -- the criticality that these services may play in our lives, only to suggest that we are riding a tiger that's exhibiting a lot of extraordinary characteristics. And one of which that I'm hopeful about is that it is racing its way around the country.

Now you're right. There are -- I don't deny the existence of gaps along economic conditions. And you will find some correlations in urban and rural. But surprisingly, many of the ones that are assumed aren't actually accurate. But if we identify incumbencies or breakdowns in its natural evolution, I'd be the first there to execute a tailored solution to fixing that.

REP. RUSH: Thank you, Mr. Chairman.

REP. UPTON: Thank you.

Mr. Terry.

REP. TERRY: Thank you, Chairman Upton, Chairman Powell. Your statement focused on, I think, a philosophy of reform where you talked about visions and statements, structural reforms, enforcement type reforms. Have you -- can you present to us today how much of the elements of reform that you envision are a matter of legislation? And I mean it in both the positive and the negative way -- legislation that would be required to enable your vision of reforms and current legislation that, perhaps, blocks, prevents or makes difficult some of the reforms, where you allow apples to compete against apples, where the current regulation and laws are barriers to that, as opposed to other elements of reform that are strictly management or dollars.

MR. POWELL: Yeah. I would --

REP. TERRY: You have five minutes. (Laughter.)

MR. POWELL: I'll need an hour for that. In the development of our approach, we will absolutely and specifically identify where that's the case. I can tell that, in almost each of those dimensions I outlined, there will probably be some component that is probably a legislative component. For example, if you talk about the substantive policy vision thing dimension and you talk about enforcement, if we're serious about the ability to really make a difference to enforcement, including penalties, our penalties are set by statute and probably haven't been revised since 1934. If you're talking about the statute of limitations, that's a statute that we couldn't modify without congressional action.

There are probably other substantive policy areas where there is some dimension of internal reform, but there is also dimensions of legislative reform because things that are curtailed in the statute are implicated. All of it takes money, which only comes from the Congress. And the organizational changes in structures often have to, by law, be approved congressionally, both through the appropriation process and other processes. So there is no way you're off the hook, I don't think.

REP. TERRY: Don't want to be.

MR. POWELL: And we will try to, in working with you, carefully try to align the mutual objectives. And candidly, I'll try to assume as much of the problem and the responsibility as I can, consistent with the statute. And if there are areas where that's not going to work, but I think the goal is still worthy, I will have to come back to this committee and the Congress.

REP. TERRY: I think, for consumer's sake, we need to reform, especially the structural regulatory aspects. So I'll be glad to work with you in that respect.

One area that, the gentleman from Illinois, Shimkus, had brought up a point. When we met with various groups, obviously differences of opinions amongst them, but one theme that's consistent is the regulatory -- or is the backlog. As you said during your statement, if you want that, you need the approval. If you want this, you need the approval. But yet, it's taking an extraordinary long time and there is a backup. Is there an immediate plan that you have thought of or written to clear this backlog and to assure the finality? Is there a plan in place? And what is it?

MR. POWELL: There is a plan and directive in place from the minute we arrived. The backlog situations vary from bureau to bureau. The reasons vary from issue to issue. But I think my bureaus would back me up that they have been pointedly and aggressively directed to attack backlog and to very early on propose plans of operation to eliminate them. This issue became serious over a year ago. And I think many of the most heinous ones were eliminated, like the wireless -- backlogs in the Wireless Telecommunication Bureau and others. And we have already begun to take actions on them.

There were a substantial number of radio license transfer applications that had been sitting, many of which for two and three years.

And we challenged ourselves that we either had a policy and a process for their disposition that affected -- that was able to effectuate the purpose, or they were out of here. And I think we released 75 percent of them on the same day. And we are rapidly working through the remainder, consistent with our policy obligations.

But, you know, one of my favorite phrases is, "Inaction and avoidance are not legitimate government policies." I don't care what the original reason for hesitation was. And I take moral responsibility that if I can't figure out what to do, then you're done. I need a reasonable amount of time to figure out if I don't know what to do. But we really have to be guided by that fundamental principle. And we do have very strict management guidelines that we're working on and that are in place for backlog.

REP. UPTON: Thank you, Mr. Terry.

Mr. Dingell.

REP. DINGELL: Thank you, Mr. Chairman.

Welcome, Mr. Chairman. I note only four states have been approved so far for Section 271 entry. The act is in place for five years. Is it possible, Mr. Chairman, that local markets in every other state are not open to competitors who choose to enter?

MR. POWELL: I doubt that's possible. We certainly are prepared to receive 271 applications from any state, from any company that's prepared to make the case that its markets are open. As you are well aware, we can act only when we're given an application. But I am excited at the prospects that we will see an increase in that this year.

REP. DINGELL: I think your presence in the chair might have a useful impact on that set of events. However, is it possible, though, that companies choose not to enter or have chosen not to enter up until now?

MR. POWELL: Well, certainly.

REP. DINGELL: Would that reason be the conditions that have been imposed by the Commission on entry, which go well beyond the authority of the Commission in connection with those matters? And is it possible that the companies chose not to enter because of the enormous profusion of paper that they had to submit to the Commission, in some instances stacks this high from the floor and the fact that it took so long and so much money for those events to come to ripeness? Is that a possibility?

MR. POWELL: I think it's fair to say it's possible that those things would have dissuaded decisions to apply for entry. Sure.

REP. DINGELL: Would have, most assuredly, dissuaded me. I'm not going to ask you to tell me whether it would have dissuaded you.

But you're a very sensible fellow, too, Mr. Chairman. Is there something in the offing that the Commission could do to streamline the 271 process, for example, dealing more expeditiously with the application, addressing the questions that might be raised by the state commissions or that are raised by the Department of Justice, which have led to some rather prolonged and prolix discussions between those agencies and the Commission and the applicants?

MR. POWELL: Yes, I think that there are certainly any number of things that could be done, one of which I'll just put under the banner of collaborative approach, which we were talking about earlier, which is prior to the filing application, we try to be available and out in states and with companies to make sure that they are preparing applications in a manner that would increase their probability of succeeding, but being careful not to commit or prejudge the merits of their submission, which we have started to do significantly more than we have in the past.

I do think that we are constrained by a 90-day clock, which means we need to have ranges of reasonableness, in which we can't completely and totally de novo review certain specifics, but can start to review more carefully whether the fundamentals of the provision are provided for and that there is a range of reasonableness that, if you're within, we won't necessarily second-guess the absolute specifics of the representation.

And I also think, finally, there is always an issue of data timeliness, which has been a problem with the 90-day clock. Candidly, in my own view, I would have preferred a provision that allowed me to extend the 90 days by, maybe --

REP. DINGELL: I was about to ask, is there something this committee could do? And perhaps, for the record, you could submit to us something that we could do on that matter.

I don't want to make you do that at this particular time, Mr. Chairman.

I'm curious about this situation. The law requires you to consult with the state agencies. The law requires you to consult with the Department of Justice. And I emphasize the word "consult." I'm curious -- what broad, sweeping powers does this confer, either on the Department of Justice or upon the state agencies? In your view, what does consultation mean? Your predecessor had the quaint idea that it afforded them the right to literally dictate terms to the Commission. I always thought that was a rather curious interpretation of the word consultation.

MR. POWELL: My view is that consultation means principally that those two institutions are afforded the opportunity to apply, file in the proceeding and offer their learned recommendation as to the outcome. I would have to note, to be fair, that the Department of Justice, at least in statute, is supposed to be afforded -- their view is supposed to be afforded substantial weight.

REP. DINGELL: And I applaud that. But that doesn't give them the power to dictate or to prolong the process, does it?

MR. POWELL: No, it certainly doesn't. And we have recently often taken directions contrary to their recommendation.

REP. DINGELL: And I'm delighted to hear that. I would hope that there is somebody here from the Department of Justice so that they can hear this more sensible interpretation of the statute. And it bodes -- I would observe, Mr. Chairman -- a great deal of good.

Now, I note that the statute makes it clear that the FCC has a responsibility to avoid mutual exclusivity in licensing and thereby, avoid auctions when possible, through the use of spectrum sharing and other engineering methods. Am I correct in my interpretation of that matter?

MR. POWELL: I believe so, under 309.

REP. DINGELL: I would note, however, the Congress has expressed a preference for non-exclusive uses of the spectrum. I would note also that, in many instances, the FCC has taken an opposite course. It has actually sought to create mutual exclusivity so that applicants would be forced to go to auction. I feel this is an unwise thing. Do you have a comment that you would feel would be appropriate on this matter?

MR. POWELL: Congressman, I'm not sure of the specific, but I certainly would, as a principle, say that it shouldn't be our business to create a situation that would command an auction if it wasn't otherwise presented.

REP. DINGELL: Perhaps, Mr. Chairman, you'd like to give us a comment on the matter after you've had a chance to review it in greater detail.

MR. POWELL: Certainly.

REP. DINGELL: I would note that mutual exclusivity in the use of the spectrum hardly confers confidence -- on me, at least -- that the best and the highest use and the wisest and the broadest use of the spectrum is being done under the leadership of the FCC. Am I correct or incorrect in that appreciation?

MR. POWELL: I'm not so sure I follow. Could you state it again?

REP. DINGELL: I tell you, it was -- I'm afraid I can't do it -- (laughter.

) I think we will submit you a little letter on that.

And if, Mr. Chairman, you would permit that to go in the record --

REP. UPTON: We're going to allow all members to do that.

REP. DINGELL: I would appreciate it. One further thought, I note that on two occasions, the FCC has proceeded to complete section 271 applications. And in those 271 applications in Texas and New York -- and our chairman has commented on this matter -- the result was that AT&T has moved to enter the long distance market -- or rather, to enter the local market -- and that we now have increased competition both in long distance and in the local market. And the costs have fallen in both places. Am I correct in that appreciation? And does there appear to be some connection between those events?

MR. POWELL: I would think that there is a connection. The threat of competitive -- the ability to respond competitively to your core services certainly is a very powerful incentive to be competing on some -- on that competitor's home turf. And I think that was the fundamental congressional design and hope that the mutual competitive obligations would create incentives for each to be in each other's markets. I don't think it's particularly surprising that the most prominent competitive entry are places where those competitors have either entered or are prepared to file for entry.

REP. DINGELL: I'm delighted to hear your comment, Mr. Chairman. I would like to address, in continuation of some earlier questions, the NorthPoint case. This is a matter now pending before the Commission. And I'm going to respect your desire to comment or not comment, as the proprieties might dictate to you. I would observe that if mutual exclusivity enters into this matter, would that be an important consideration for the Commission? Because, very truthfully, we need to be sure that interference testing is done and that all of these things take place, but that we also see that the matter moves speedily and that there is a need, both to assure that we're not going to have a wave of new interference put into the spectrum, but at the same time, we're not going to try to have exclusive use of the spectrum where none is required.

Now again, Mr. Chairman, I'm not trying to place you into a bad spot to comment on something that you feel you should not. But to the degree you can, would you give me your thoughts on this matter, please?

MR. POWELL: Yes, I'm limited in what I can say. But I would say that, certainly, the mutual exclusivity is a very important component of what will happen next because, if it fairly is said that, as you mentioned, that the situation creates one of mutual exclusivity, the statute compels auctioning of a spectrum, as opposed to any other alternative. So we do have to be careful with respect to how that question comes out.

REP. DINGELL: Now, Mr. Chairman, just one more question. And I thank you for your kindness to me. (Laughter.) I would note that the statute does discourage mutual exclusivity. It says that the Commission shall seek to avoid that. And I would assume that accompanied with that would also be an effort to assure that there would be minimal interference. Am I correct in those interpretations?

MR. POWELL: I believe you are. Yes.

REP. DINGELL: Mr. Chairman, you have been most gracious. Thank you.

REP. UPTON: Mr. Fossella.

REP. FOSSELLA: Thank you, Mr. Chairman.

Mr. Chairman, welcome, congratulations and best of luck. Following up on all the talk about reform -- and I guess a better word would probably be improvement -- is how would you see, let's call it the cultural change, that would need to occur at the FCC, given since its creation and the basis for its creation was to regulate, for the most part, monopolies. Now we're in an environment -- and, hopefully, a more pro-competitive environment -- to shift the focus overall. Not to take anything away from the good, hardworking individuals at the FCC, but how do you shift that focus to one of a regulating monopoly approach to one of establishing parameters to allow competition to flourish along the service end, instead of the way the current law applies?

MR. POWELL: I think it's a good question. You know, cultural change in any organization is a challenge. And I would submit, our challenge is similar to those being faced by many incumbent carriers who, too, find themselves dealing with the cultural challenges of becoming more entrepreneurial and innovative and responsive and effective. So our challenge is similar.

I think it starts with leadership. It's what I'm trying to do at a personal level and in those people that I entrust leadership responsibilities to and in the personnel that we hire. I also think that you don't push cultural change on people. You demonstrate the rightness of the changes you are suggesting. And I think that our efforts at training and development and giving employees and professionals an opportunity to see the dimensions of their decisions, to have an opportunity to learn from what has been developed, both in scholarship and out in the real land of companies and markets, that people will begin to see the impacts of their decisions and have a better feel for and understanding what's different and what's not just the same.

I think it's a natural human impulse to go with what you know, until you know something else. And I think that the whole emphasis on training, development, technology, interaction, customer focus -- all of those things are designed to lay out, before our talented staff of employees: a) the impact of their decisions; and b) the learning that can influence how they're made and ultimately be willing to get with the program. I'm also a person who understands some people and some will never get with the program. And they will not continue to have those responsibilities if they can't.

REP. FOSSELLA: Good luck on that front. Finally, you mentioned in your statement that you'll be shifting again the agency's focus from -- quote -- "permissive regulations to strong and effective enforcement of truly necessary ones." And you state that Congress assistance in putting real teeth in your enforcement efforts is necessary. Could you elaborate on the point? And does the current law provide you with enough enforcement authority, in your opinion?

MR. POWELL: Yeah, I think we mentioned a couple times, I think that we have a sufficient amount of authority that was used last year to create an enforcement institution. I think that we have people in place. I think we have policies in place. But I do think that we probably will need a greater focus on what are the full range of tools we'll need. And many of those tools, in my opinion, are going to have to be developed in conjunction with Congress. And I already mentioned the need for reassessing the penalties that we're able to impose. You know, if you try to fine a company, you know, $75,000 who has net revenues in the millions and billions, you know, that's just a cost of doing business. Nobody -- they'll pay that, as opposed to actually be deterred of the activity.

I also think that if you're a believer in markets and you're a believer in less prophylactic regulation, you can't throw the public interest in the toilet for laissez faire. You have to be prepared to demonstrate that you're sincere, that in allowing the additional flexibility in markets, that you will also try to act effectively and efficiently and swiftly to police when the very rules that are in place are flaunted. And I think that that's absolutely critical to an integrated policy. And I'd love to come back and talk to the committee -- formally, informally -- about a more comprehensive program and what we might need to do it.

REP. FOSSELLA: Great. Thank you. I yield back. Best of luck.

REP. UPTON: Thank you. As you know, we have votes on now. We're going to take a brief recess. Mr. Pickering has gone over to vote. He's going to come back. He's going to take the gavel. He'll do his questions and I'll come back and probably close, as we'll have another vote after this one in about 15 minutes. So we'll take about a seven-minute break before Mr. Pickering's back.


REP. UPTON: We'll get started again, as we're expecting a vote in about 10 minutes.

It could be a little bit less than that. I would just note, before I yield to my friend and colleague, Mr. Pickering, that despite giving him about a four or five minute head start to the floor, the Big 10 beats the SEC again. (Laughter.) So with that, I yield to my friend from Mississippi, Mr. Pickering.

REP. PICKERING: Mr. Chairman, thank you. and we're looking for redemption for the FCC, as well as all other things as we approach Easter, a time of renewal.

Mr. Chairman, speaking of renewal, I believe under your leadership the FCC will experience that. And I just have a few questions. I appreciate you being patient as we broke for a vote. Number of things that are before you that are of interest to me. I know many of these questions have already been covered, so I will be as quick as possible.

One in which I have an individual and particular interest is the FCC rulemaking process and implementation of the Children's Internet Protection Act. That was a part of the appropriation bill last year. Is it -- tell me, what is the status of that and the Commission's plans of implementation? Do you expect any delays? If so, why?

MR. POWELL: I, at present, don't expect any delays. I think we're in the process of implementation. I regret that I don't have, as I sit here, specific timeframes for it. We'd certainly be happy to get back with you on that. But I think that -- people are handing me notes. April 20. (Laughter.)

REP. PICKERING: And that would be when the rulemaking will be final and implementation will begin? April the 20th? Is that --

MR. POWELL: Let's ask the note hander. (Laughter.) Implementation by April 20th.

REP. PICKERING: Thank you very much. And may the record show that the FCC is meeting its statutory deadline and in a very efficient and effective way. As you also know, I have a merger bill that I introduced in the last Congress and hope to do again this Congress. And I'll look forward to your comments and input as we go forward in that process. FCC reform is going to be important to this committee and to the Commission. Look forward to working with you on that. And I know others have mentioned 3G spectrum. And I know that you're between a rock and a hard place between the choices that we have. Or maybe it's better said that Congress is between a rock and a hard place in giving the policy direction as to where we go with 3G, between the various options. But your technical counsel and advice and help will be greatly appreciated as we go forward in that debate.

Let me finally conclude with some questions about where we are now in telecommunications policy and the '96 Act and your sense of what should or could be done to accomplish the objectives that we all wanted and tried to achieve in the '96 Act. As you know, it was with the intent of having full competition in every market and the full convergence of voice, video, data services and applications. Five years after the act, both sides would say that there is not enough competition in the local market. The other side would say that the 271 process, for entry into long distance and other services, has been too cumbersome or too long. But much of that battle, over five years, was in the regulatory process and then before the courts.

And now that the FCC is poised to implement the act and to see a number of 271s come in this year, as more and more states see the competition coming, would you counsel or advise revisiting, revising, reforming the '96 Act? Or in this time of economic uncertainty, especially in the tech sector, is this the time to stay the course and to have the regulatory certainty of stability?

MR. POWELL: I think my advice, such that it's worth anything, is that I think that you -- any sort of wholesale rewriting, in my mind, is ill-advised, unless you're very clear as to what it is you think you're going to replace it with. The legal environment, which includes the statute and the regulatory environment, are critical components of the stabilization of evolving markets. And we are as much a contributor to risk and capital risk as anybody else. And I believe that it has taken us a long time to get where we are, longer than any of us wanted.

On the other hand, I think some of that might have been more fully anticipated -- the legal challenges, the uncertainty, ambiguity, new things we learn in the marketplace as we go along. But for the most part, we are kind of gotten comfortable that we sort of know the rule of the game. And yes, there are rough spots. There are things that were unanticipated. But I do believe most of those things are things that can be worked on incrementally, as opposed to the idea that we know what we would replace the 1996 statute with.

I personally am one who chalks it as a success. I mean, I think it has unleashed more than we are prepared to credit it with. And I think that the success of what it undertook is measured much more than, say, the 271 in or out question. The statute is much bigger and broader than that. And I think many of the incentives it introduced have had farther reaching implications than simply that question.

So certainly, it is the prerogative of Congress to want a different regime. But I would only advise that it would want to be awful clear about what it was it was intending to replace it with. Otherwise, I think it's the same "open bazaar" battle of trying to gain competitive advantage through law, that is very difficult to harness and control, once you, sort of, open up the box again. I think there probably will come a day. There will come a day when the technology just will not neatly fit within the context of the statute and the rules. And more wholesale changes will probably be made. I guess, in my own personal opinion, that day isn't today.

REP. PICKERING: Let me just have one other follow-up question. Given the context of the market and the capital flows right now in the tech and telecom sector, especially with the emerging competitors, would dramatic policy change possibly further destabilize and possibly harm emerging competition?

MR. POWELL: That's a little bit of a hypothetical. I think that, again, if you focus on particularly capital markets, you'd have to say it could. It depends on how, I think, a big part of the focus would be -- depend on how the capital markets viewed your decision to do so. They will handicap anything you do and make judgments about who they think are the winners and losers. And depending on how they receive it, you certainly could tip the balance, at least for the time being, in one favor or the other or in ways that might have unintended consequences.

I mean, one of the things that's fascinating about telecom policy is for so long been built around monopolies and oligopolies, many of which we sanctioned. When we introduced competition, we also need to advance our understanding of the things that go into entry of markets, including capital flows and investments. Many of these things were not paramount consideration when a monopoly could just slush it from one financial bucket to the other. Now it has very serious competitive consequences. And as so many members today have said, there is something worse than the wrong answer. It's no answer of uncertainty. And I think the time and process of completely new regulatory environment or completely new statute creates that kind of worry and ambiguity that you would want to very seriously address.

REP. PICKERING: Thank you, Mr. Chairman. And I also want to thank you for earlier in the hearing saying that you plan to move for SIPCOMP (ph). I believe that is a needed action as well. Thank you for the new spirit that you bring to the Commission. And we look forward to working with you.

Mr. Chairman, thank you.

REP. UPTON: Thank you.

Chairman Powell, I talked to a couple of members on that last vote. We're all in agreement -- bipartisan. I don't think we've had a more impressive -- I know we haven't had a more impressive witness this year and will probably not have for some time to come. We appreciate all the homework that you've done, your wonderful grasp of the issues. And certainly, I look very -- I look towards our cooperating in every which way to make sure that, in fact, we move this country forward to eliminate barriers and ensure affordability and access for all Americans working with the cutting edge technologies that we know that are before us.

I do know that, for those members that are not here now, a number of us would like to submit further questions. We'll do that within a couple of days. And if you can respond in appropriate fashion at some point in the near future, that would be terrific. And we look forward to working with you as we move ahead.

Thank you very much.

MR. POWELL: Thank you, sir.

REP. UPTON: We stand adjourned.


LOAD-DATE: May 10, 2001

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