SPEAKERS CONTENTS INSERTS
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63–867
2000
FAIRNESS IN TELECOMMUNICATIONS LICENSE TRANSFERS ACT OF 1999, TAXPAYER'S DEFENSE ACT AND JUSTICE FOR MAS APPLICANTS ACT OF 1999
HEARING
BEFORE THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
ON
H.R. 2533, H.R. 2636 and H.R. 2701
NOVEMBER 3, 1999
Serial No. 43
Printed for the use of the Committee on the Judiciary
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For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR S. SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
LINDSEY O. GRAHAM, South Carolina
MARY BONO, California
SPENCER BACHUS, Alabama
JOE SCARBOROUGH, Florida
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DAVID VITTER, Louisiana
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
THOMAS E. MOONEY, SR., General Counsel-Chief of Staff
JULIAN EPSTEIN, Minority Chief Counsel and Staff Director
C O N T E N T S
HEARING DATE
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November 3, 1999
TEXT OF BILLS
H.R. 2533
H.R. 2636
H.R. 2701
OPENING STATEMENT
Hyde, Hon. Henry J., a Representative in Congress from the State of Illinois, and chairman, Committee on the Judiciary
WITNESSES
Binz, Ronald, president, Competition Policy Institute, Washington, DC
Hayworth, Hon. J. D., a Representative in Congress from the State of Arizona
Kennard, William, chairman, Federal Communications Commission, Washington, DC
Lassman, Kent, deputy director for Technology and Communications Policy, Citizens for a Sound Economy Foundation, Washington, DC
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McIntosh, Hon. David, a Representative in Congress from the State of Indiana
Neel, Roy, president, United States Telecom Association, Washington, DC
Ryan, Robert, Multiple Address System Applicant, Glen Ellyn, IL
Weening, Richard, executive chairman, Cumulus Media, Inc., Milwaukee, WI
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Binz, Ronald, president, Competition Policy Institute, Washington, DC: Prepared statement
Conyers, Hon. John, Jr., a Representative in Congress from the State of Michigan: Prepared statement
Gekas, Hon. George W., a Representative in Congress from the State of Pennsylvania: Letter to William Kennard dated November 3, 1999
Hayworth, Hon. J. D., a Representative in Congress from the State of Arizona: Prepared statement
Hyde, Hon. Henry J., a Representative in Congress from the State of Illinois, and chairman, Committee on the Judiciary: Prepared statement
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Letter to William Kennard dated January 6, 2000
Kennard, William, chairman, Federal Communications Commission, Washington, DC: Prepared statement
Letter to Hon. George W. Gekas dated December 2, 1999-
Letter to Hon. Henry J. Hyde dated April 13, 2000
Question from Representative Graham
Lassman, Kent, deputy director for Technology and Communications Policy, Citizens for a Sound Economy Foundation, Washington, DC: Prepared statement
McIntosh, Hon. David, a Representative in Congress from the State of Indiana: Prepared statement
National Federation of Independent Business: Letter to Hon. George W. Gekas dated November 2, 1999
Neel, Roy, president, United States Telecom Association, Washington, DC: Prepared statement
Ryan, Robert, Multiple Address System Applicant, Glen Ellyn, IL: Prepared statement
Sensenbrenner, Hon. F. James, Jr., a Representative in Congress from the State of Wisconsin: Prepared statement
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Weening, Richard, executive chairman, Cumulus Media, Inc., Milwaukee, WI: Prepared statement
APPENDIX
Material submitted for the record
FAIRNESS IN TELECOMMUNICATIONS LICENSE TRANSFERS ACT OF 1999, TAXPAYER'S DEFENSE ACT AND JUSTICE FOR MAS APPLICANTS ACT OF 1999
WEDNESDAY, NOVEMBER 3, 1999
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to call, at 10 a.m., in Room 2141, Rayburn House Office Building, Hon. Henry J. Hyde (chairman of the committee) presiding.
Present: Representatives Henry J. Hyde, Bill McCollum, George W. Gekas, Charles T. Canady, Bob Goodlatte, Steve Chabot, William L. Jenkins, Asa Hutchinson, Edward A. Pease, John Conyers, Jr., Howard L. Berman, Jerrold Nadler, Robert C. Scott, Melvin L. Watt, Zoe Lofgren, William D. Delahunt, and Robert Wexler.
Staff present: Thomas E. Mooney, Sr., general counsel-chief of staff; Daniel M. Freeman, parliamentarian-counsel; Joseph Gibson, chief antitrust counsel; Sheila F. Klein, executive assistant to general counsel; Amy Rutkowski, staff assistant; Samuel F. Stratman, communications director; Michael Connolly, press secretary; James B. Farr, financial clerk; Julian Epstein, minority chief counsel and staff director; Perry Apelbaum, minority general counsel; Cori Flam, minority counsel; and Anita L. Johnson, minority clerk.
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OPENING STATEMENT OF CHAIRMAN HYDE
Mr. HYDE. The committee will come to order. This morning the committee holds a legislative hearing on three bills: H.R. 2533, the ''Fairness in Telecommunications License Transfers Act of 1999;'' H.R. 2636, the ''Taxpayer's Defense Act;'' and H.R. 2701, the ''Justice for MAS Applicants Act of 1999.''
[The bills, H.R. 2533, H.R. 2636 and H.R. 2701 follow:]
106TH CONGRESS
1ST SESSION
H. R. 2533
To amend the Clayton Act and the Administrative Procedures Act.
IN THE HOUSE OF REPRESENTATIVES
JULY 15, 1999
Mr. HYDE (for himself, Mr. GEKAS, and Mr. GOODLATTE) introduced the following bill; which was referred to the Committee on the Judiciary, and in addition to the Committee on Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned
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A BILL
To amend the Clayton Act and the Administrative Procedures Act.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ''Fairness in Telecommunications License Transfers Act of 1999''.
SEC. 2. REPEAL OF CLAYTON ACT PROVISION.
Section 11(a) of the Clayton Act (15 U.S.C. 21(a)) is amended by striking ''in the Federal Communications Commission where applicable to common carriers engaged in wire or radio communication or radio transmission of energy;''.
SEC. 3. PROCEDURAL DEADLINES FOR INDEPENDENT REGULATORY COMMISSIONS.
(a) AMENDMENT.—Section 558 of title 5, United States Code, is amended by adding at the end the following new subsection:
''(d)(1) Each independent regulatory commission shall promulgate rules of administrative practice and procedure for consideration in a reasonable time, as required by subsection (c), of all applications for the transfer of licenses, or the acquisition and operation of lines for which the commission grants authority. Such rules shall specify—
''(A) procedures for submitting to the party or parties covered by the application requests for documents and information necessary for consideration of the transfer of licenses or acquisition and operation of lines, addressed in the application;
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''(B) the period of time following an application for transfer of licenses or acquisition and operation of lines during which the commission may submit such requests;
''(C) the period of time following an application for transfer of licenses or acquisition and operation of lines during which the commission shall approve or deny the application;
''(D) procedures limiting ex parte communications pertaining to the application for transfer of licenses or the acquisition and operation of lines and requiring all ex parte communications pertaining to the application for transfer of licenses or the acquisition and operation of lines to be placed in a public record; and
''(E) such other procedures as will ensure that the commission's processes for consideration of all applications for transfer of licenses or the acquisition and operation of lines are fair, predictable, timely, open to public scrutiny, and subject to judicial review.
''(2) Each independent regulatory commission shall promulgate rules defining the terms 'public interest', 'public convenience and necessity' and 'public interest, convenience, and necessity' as used in the statutes governing the proceedings described in paragraph (1).
''(3) If, in considering an application for transfer of license or acquisition and operation of lines, an independent regulatory commission does not comply with the rules such commission has promulgated under paragraph (2), the application shall be deemed approved, without conditions, by such commission.
''(4) If an independent regulatory commission has not promulgated rules as required by paragraph (2), or has not followed such rules, any person that has applied for transfer of licenses or acquisition and operation of lines affected by such failure may bring an action in the United States District Court for the District of Columbia seeking a declaration that the application is deemed approved, without conditions, by the commission.
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''(5) For purposes of this subsection, the term 'independent regulatory commission' means an 'agency' within the meaning of section 552b of this title, but unless otherwise expressly provided by amendment to this subsection includes only the Federal Communications Commission.''.
(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall be effective upon enactment, except that the actions authorized by paragraph (4) of section 558(d) of title 5, United States Code, as added by such amendment, may not be brought with respect to any failure by an independent regulatory commission to prescribe rules as required by such section unless such failure continues after one year after the date of enactment of this Act.
106TH CONGRESS
1ST SESSION
H. R. 2636
To amend title 5, United States Code, to provide for Congressional review of rules establishing or increasing taxes.
IN THE HOUSE OF REPRESENTATIVES
JULY 29, 1999
Mr. GEKAS (for himself, Mr. HAYWORTH, Mr. BACHUS, Mr. BALLENGER, Mr. BARCIA, Mr. BURTON of Indiana, Mr. CALLAHAN, Mr. CALVERT, Mr. CHABOT, Mr. COLLINS, Mr. DELAY, Mr. DEMINT, Mr. DICKEY, Mr. EHRLICH, Mrs. EMERSON, Mr. EVERETT, Mr. GOODLATTE, Mr. GUTKNECHT, Mr. HERGER, Mr. HOSTETTLER, Mr. ISAKSON, Mr. LARGENT, Mr. LEWIS of California, Mr. MANZULLO, Mr. METCALF, Mr. MICA, Mrs. NORTHUP, Mr. PITTS, Mr. ROGAN, Mr. SALMON, Mr. SAXTON, Mr. SCARBOROUGH, Mr. SCHAFFER, Mr. SHADEGG, Mr. SMITH of Texas, Mr. STUMP, Mr. SUNUNU, Mr. TALENT, Mr. TERRY, Mr. WATTS of Oklahoma, Mr. COBLE, Mr. LAHOOD, Mr. FOSSELLA, Mr. DEAL of Georgia, Mr. TANCREDO, Mr. HANSEN, Mr. ARMEY, Mr. BAKER, Mr. LEWIS of Kentucky, Mr. ROYCE, Mr. SOUDER, Mr. SWEENEY, Mr. REYNOLDS, Mr. MCCOLLUM, Mr. STEARNS, Mr. CUNNINGHAM, Mr. SAM JOHNSON of Texas, Mr. DOOLITTLE, Mrs. KELLY, Mr. LINDER, Mr. BRYANT, Mr. KINGSTON, Mr. GIBBONS, Mr. JONES of North Carolina, Mrs. MYRICK, Ms. DUNN, Mr. TIAHRT, Mr. BONILLA, Mr. TAYLOR of North Carolina, Mr. HILLEARY, Mrs. BONO, Mr. GARY MILLER of California, Mr. ENGLISH, Mrs. CUBIN, Mr. SESSIONS, Mr. ADERHOLT, Mr. WATKINS, and Mr. FLETCHER) introduced the following bill; which was referred to the Committee on the Judiciary, and in addition to the Committees on Ways and Means, and Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned
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A BILL
To amend title 5, United States Code, to provide for Congressional review of rules establishing or increasing taxes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ''Taxpayer's Defense Act''.
SEC. 2. MANDATORY CONGRESSIONAL REVIEW.
Chapter 8 of title 5, United States Code, is amended by inserting after section 808 the following:
''SUBCHAPTER II—MANDATORY REVIEW OF CERTAIN RULES
''§815. Rules Subject to Mandatory Congressional Review
''A rule that establishes or increases a tax, however denominated, shall not take effect before the date of the enactment of a bill described in section 816 and is not subject to review under subchapter I. This section does not apply to a rule promulgated under the Internal Revenue Code of 1986. For purposes of this section, the term 'tax' means a non-penal, mandatory payment of money or its equivalent to the extent such payment does not compensate the Federal Government or other payee for a specific benefit conferred directly on the payer.
''§816. Agency Submission
''Whenever an agency promulgates a rule subject to section 815, the agency shall submit to each House of Congress a report containing the text of only the part of the rule that causes the rule to be subject to section 815 and an explanation of it. An agency shall submit such a report separately for each such rule it promulgates. The explanation shall consist of the concise general statement of the rule's basis and purpose required by section 553 and such explanatory documents as are mandated by other statutory requirements.
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''§817. Approval Bill
''(a) INTRODUCTION AND REFERRAL.—
''(1) INTRODUCTION.—Not later than 3 legislative days after the date on which an agency submits a report under section 816, the Majority Leader of each House of Congress shall introduce (by request) a bill the matter after the enacting clause of which is as follows: ''The following agency rule may take effect:''. The text submitted under section 816 shall be set forth after the colon. If such a bill is not introduced in a House of Congress as provided in the first sentence of this subsection, any Member of that House may introduce such a bill not later than 7 legislative days after the period for introduction by the Majority Leader.
''(2) REFERRAL.—A bill introduced under paragraph (1) shall be referred to the Committees in each House of Congress with jurisdiction over the subject matter of the rule involved.
''(b) PROCEDURE.—
''(1) CONSIDERATION IN THE HOUSE OF REPRESENTATIVES.—
''(A) COMMITTEE OR MEMBER ACTION.—Any committee of the House of Representatives to which a bill is referred shall report it without amendment, and with or without recommendation, not later than the 30th calendar day of session after the date of its introduction. If any committee fails to report the bill within that period, it is in order to move that the House discharge the committee from further consideration of the bill. A motion to discharge may be made only by a Member favoring the bill (but only at a time designated by the Speaker on the legislative day after the calendar day on which the Member offering the motion announces to the House his intention to do so and the form of the motion). The motion is highly privileged. Debate thereon shall be limited to not more than one hour, the time to be divided in the House equally between the proponent and an opponent. The previous question shall be considered as ordered on the motion to its adoption without intervening motion. A motion to reconsider the vote by which the motion is agreed to or disagreed to shall not be in order.
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''(B) HOUSE ACTION.—After a bill is reported or a committee has been discharged from further consideration, it is in order to move that the House resolve into the Committee of the Whole House on the State of the Union for consideration of the bill. If reported and the report has been available for at least one calendar day, all points of order against the bill and against consideration of the bill are waived. If discharged, all points of order against the bill and against consideration of the bill are waived. The motion is highly privileged. A motion to reconsider the vote by which the motion is agreed to or disagreed to shall not be in order. During consideration of the bill in the Committee of the Whole, the first reading of the bill shall be dispensed with. General debate shall proceed, shall be confined to the bill, and shall not exceed one hour equally divided and controlled by a proponent and an opponent of the bill. After general debate, the bill shall be considered as read for amendment under the five-minute rule. At the conclusion of the consideration of the bill, the Committee shall rise and report the bill to the House without intervening motion. The previous question shall be considered as ordered on the bill to final passage without intervening motion. A motion to reconsider the vote on passage of the bill shall not be in order.
''(C) APPEALS.—Appeals from decisions of the Chair regarding application of the rules of the House of Representatives to the procedure relating to a bill shall be decided without debate.
''(2) CONSIDERATION IN THE SENATE.—
''(A) REFERRAL AND REPORTING.—Any bill introduced in the Senate shall be referred to the appropriate committee or committees. A committee to which a bill has been referred shall report the bill without amendment not later than the 30th day of session following the date of introduction of that bill. If any committee fails to report the bill within that period, that committee shall be automatically discharged from further consideration of the bill and the bill shall be placed on the Calendar.
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''(B) BILL FROM HOUSE.—When the Senate receives from the House of Representatives a bill, such bill shall not be referred to committee and shall be placed on the Calendar.
''(C) MOTION NONDEBATABLE.—A motion to proceed to consideration of a bill under this subsection shall not be debatable. It shall not be in order to move to reconsider the vote by which the motion to proceed was adopted or rejected, although subsequent motions to proceed may be made under this paragraph.
''(D) LIMIT ON CONSIDERATION.—
''(i) VOTE.—After no more than 10 hours of consideration of a bill, the Senate shall proceed, without intervening action or debate (except as permitted under subparagraph (F)), to vote on the final disposition thereof to the exclusion of all motions, except a motion to reconsider or to table.
''(ii) MOTION TO EXTEND.—A single motion to extend the time for consideration under clause (i) for no more than an additional 5 hours is in order before the expiration of such time and shall be decided without debate.
''(iii) TIME FOR DEBATE.—The time for debate on the disapproval bill shall be equally divided between the Majority Leader and the Minority Leader or their designees.
''(E) NO MOTION TO RECOMMIT.—A motion to recommit a bill shall not be in order.
''(F) DISPOSITION OF SENATE BILL.—If the Senate has read for the third time a bill that originated in the Senate, then it shall be in order at any time thereafter to move to proceed to the consideration of a bill for the same special message received from the House of Representatives and placed on the Calendar pursuant to subparagraph (B), strike all after the enacting clause, substitute the text of the Senate bill, agree to the Senate amendment, and vote on final disposition of the House bill, all without any intervening action or debate.
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''(G) CONSIDERATION OF HOUSE MESSAGE.—Consideration in the Senate of all motions, amendments, or appeals necessary to dispose of a message from the House of Representatives on a bill shall be limited to not more than 4 hours. Debate on each motion or amendment shall be limited to 30 minutes. Debate on any appeal or point of order that is submitted in connection with the disposition of the House message shall be limited to 20 minutes. Any time for debate shall be equally divided and controlled by the proponent and the majority manager, unless the majority manager is a proponent of the motion, amendment, appeal, or point of order, in which case the minority manager shall be in control of the time in opposition.''.
SEC. 3. TECHNICAL AMENDMENTS.
(a) HEADING.—Chapter 8 of title 5, United States Code, is amended by inserting before section 801 the following:
''SUBCHAPTER I—DISCRETIONARY CONGRESSIONAL REVIEW''.
(b) REFERENCE.—Section 804 of title 5, United States Code, is amended by striking ''this chapter'' and inserting ''this subchapter''.
(c) TABLE OF SECTIONS.—The table of sections for chapter 8 of title 5, United States Code, is amended by inserting before the reference to section 801 the following:
''SUBCHAPTER I—DISCRETIONARY CONGRESSIONAL REVIEW''
and by inserting after the reference to section 808 the following:
''SUBCHAPTER II—MANDATORY REVIEW OF CERTAIN RULES
''815. Rules subject to mandatory Congressional review.
''816. Agency submission.
''817. Approval bill.''.
106TH CONGRESS
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1ST SESSION
H. R. 2701
To amend title 28, United States Code, to provide remedies for losses occasioned by unreasonable delay in the processing of certain Federal Communications Commission licenses.
IN THE HOUSE OF REPRESENTATIVES
AUGUST 4, 1999
Mr. HYDE introduced the following bill; which was referred to the Committee on the Judiciary
A BILL
To amend title 28, United States Code, to provide remedies for losses occasioned by unreasonable delay in the processing of certain Federal Communications Commission licenses.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ''Justice for MAS Applicants Act of 1999''.
SEC. 2. COURT OF FEDERAL CLAIMS REMEDY.
(a) IN GENERAL.—Chapter 91 of title 28, United States Code, is amended by adding at the end the following:
''§1510. Certain claims against Federal Communications Commission
''The United States Court of Federal Claims shall have jurisdiction to hear and determine any claim for interest on monies held by the Federal Communications Commission (hereinafter in this section referred to as the 'FCC') in connection with a Multiple Address System application filed for the use of the 932–932.5/941–941.5 MHz band under General Docket No. 82–243 and eventually dismissed by FCC WT Docket No. 97–81, and reimbursement for any direct expenses incurred in connection with the application. The Court shall award such interest at the rate established by the Secretary of the Treasury pursuant to Public Law 92–41 (85 Stat. 97) and shall also award such expenses as the court determines were so incurred.''.
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(b) CLERICAL AMENDMENT.—The table of sections at the beginning of chapter 91 of title 28, United States Code, is amended by adding at the end the following:
''1510. Certain claims against Federal Communications Commission.''.
These bills deal with three quite different topics: license transfer reviews, administrative taxation, and the allocation of electromagnetic spectrum. However, they all involve the Federal Communications Commission and they also involve matters within the jurisdiction of this committee.
With respect to the H.R. 2533, I am concerned about the course the FCC has taken in its recent review of license transfers. First, they raise a substantive question: Is the FCC legally authorized to engage in a broad review of a merger as such? The statutory language authorizes a review of a license transfer, not a merger. They are not the same thing, although a license transfer may be an integral part of a merger. In addition, the Department of Justice performs an antitrust review of telecommunications mergers under the Hart-Scott-Rodino Act, and I question whether the law authorizes any additional competitive review by the FCC.
Aside from the substantive questions, I want to raise a procedural question. I am all for flexible procedures, but if they become too flexible, they lead to an environment that is so uncertain that transfer applicants have no idea what to expect, nor is there fairness as between one license transfer proceeding and another.
As Commissioner Harold Furchtgott-Roth testified before the Subcommittee on Commercial and Administrative Law, the FCC currently has no written rules that specifically govern license transfer reviews, and different reviews go forward under quite different procedures. Some are reviewed extensively and others receive hardly any scrutiny. There is nothing inherently wrong with that, but the difference in treatment ought to arise from some neutral principle that is open to all in advance.
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So H.R. 2533 addresses these issues in two ways. First, it clarifies that the FCC is not an antitrust enforcement agency. Second, without dictating any particular rule or procedure, it requires the FCC to write some procedural rules and set some deadlines for license transfer reviews and to abide by them.
With respect to administrative taxation, I am concerned about the course the FCC has taken with respect to its universal service tax. The Telecommunications Act of 1996 contemplated comparable rates between urban and rural areas for the same services and it authorized contributions from telecommunications carriers to equalize those rates.
I believe the FCC has gone well beyond the boundaries of what was contemplated in the act. In doing so, it threatens to take the congressional taxing power into its own hands. If that happened, it would undermine our carefully balanced constitutional structure.
H.R. 2636, which Chairman Gekas has introduced and I have cosponsored, would require any agency that imposes a tax, however denominated, to get prior approval from Congress. Such approval could be obtained under expedited procedures similar to those in the Line Item Veto Act. This seems to be simple constitutional sense to me.
With respect to the allocation of spectrum, I have introduced H.R. 2701 to address one particular injustice that has occurred. We will get into the details later but for now it is sufficient to note that my constituent, Mr. Bob Ryan, lost a considerable sum of money because of the FCC's inaction and delay in a spectrum proceeding. The loss arose through no fault of his. Thus I believe that he and others who are similarly situated ought to have some form of compensation for their loss. I am concerned that Mr. Ryan's situation may just be one of many in which spectrum applicants have lost money through bureaucratic delay.
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So I am concerned about what is going on at the FCC. Citizens ought to be treated fairly and legally by their government. I know that we all want to ensure that the FCC and all other government agencies do so.
I am especially pleased that Chairman Kennard is here today to help us as we grapple with these issues. This is his first appearance before this committee during his tenure and we welcome him.
[The prepared statement of Chairman Hyde follows:]
PREPARED STATEMENT OF HON. HENRY J. HYDE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS, AND CHAIRMAN, COMMITTEE ON THE JUDICIARY
This morning, the Committee holds a legislative hearing on three bills: H.R. 2533, the ''Fairness in Telecommunications License Transfers Act of 1999''; H.R. 2636, the ''Taxpayer's Defense Act''; and H.R. 2701, the ''Justice for MAS Applicants Act of 1999''. These bills deal with three quite different topics: license transfer reviews, administrative taxation, and the allocation of electromagnetic spectrum. However, they all involve the Federal Communications Commission. They also all involve matters within the jurisdiction of this Committee.
With respect to H.R. 2533, I am concerned about the course the FCC has taken in its recent reviews of license transfers. First, they raise a substantive question: is the FCC legally authorized to engage in a broad review of a merger as such? The statutory language authorizes a review of a license transfer, not a merger. They are not the same thing, although a license transfer may be an integral part of a merger. In addition, the Department of Justice performs an antitrust review of telecommunications mergers under the Hart-Scott-Rodino Act, and I question whether the law authorizes any additional competitive review by the FCC.
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Aside from the substantive questions, I also want to raise a procedural question. I am all for flexible procedures, but if they become too flexible, they lead to an environment that is so uncertain that transfer applicants have no idea what to expect. Nor is there fairness as between one license transfer proceeding and another. As Commissioner Harold Furchtgott-Roth (pronounced FURCH-got-roth) testified before the Subcommittee on Commercial and Administrative Law, the FCC currently has no written rules that specifically govern license transfer reviews and different reviews go forward under quite different procedures. Some are reviewed quite extensively, and others receive hardly any scrutiny. There is nothing inherently wrong with that. However, the difference in treatment ought to arise from some neutral principle that is open to all in advance.
So, H.R. 2533 addresses these issues in two ways. First, it clarifies that the FCC is not an antitrust enforcement agency. Second, without dictating any particular rule or procedure, it requires the FCC to write some procedural rules and set some deadlines for license transfer reviews and to abide by them.
With respect to administrative taxation, I am concerned about the course the FCC has taken with respect to its universal service tax. The Telecommunications Act of 1996 contemplated comparable rates between urban and rural areas for the same services, and it authorized contributions from telecommunications carriers to equalize those rates. I believe that the FCC has gone well beyond the boundaries of what was contemplated in the Act. In doing so, it threatens to take the congressional taxing power into its own hands. If that happened, it would undermine our carefully balanced constitutional structure.
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H.R. 2636, which Chairman Gekas has introduced and I have cosponsored, would require any agency that imposes a tax, however denominated, to get prior approval from the Congress. Such approval could be obtained under expedited procedures similar to those in the Line Item Veto Act. This seems to be simple constitutional sense to me.
With respect to the allocation of spectrum, I have introduced H.R. 2701 to address one particular injustice that has occurred. We will get into the details later, but for now it is sufficient to note that my constituent, Mr. Bob Ryan, lost a considerable sum of money because of the FCC's inaction and delay in a spectrum proceeding. The loss arose through no fault of his. Thus, I believe that he, and others who are similarly situated, ought to have some form of compensation for their loss. I am concerned that Mr. Ryan's situation may just be one of many in which spectrum applicants have lost money through bureaucratic delay.
So I am concerned about what is going on at the FCC. Citizens ought to be treated fairly and legally by the government. I know that we all want to ensure that the FCC, and all other government agencies, do so. I am especially pleased that Chairman Kennard is here today to help us as we struggle with these issues. This is his first appearance before this Committee during his tenure, and we welcome him.
With that, I will turn to Mr. Conyers for his opening statement.
Mr. HYDE. Now I am pleased to turn to Mr. Conyers for his opening statement. Mr. Conyers.
Mr. CONYERS. Thank you, Mr. Chairman. I welcome my colleagues here today and the chairman of the FCC who is present. We think this is an important hearing, although I don't share the same view about these bills that we have in front of you. I am still glad to see you here anyway. I want to hear about the H.R. 2533, the Fairness in Telecommunications License Transfers Act, as we are seeing wave after wave of mergers that make the FCC's role in reviewing these mergers more important than ever. Those reviews of telecom mergers under the public interest and necessity standard is vital to ensuring that corporate consolidations won't harm consumers and won't lead to an anticompetitive atmosphere.
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Now, what I am getting at is this: There are so many mergers; I keep thinking—and maybe this will be corrected at this hearing—that FCC is swamped with so many activities and challenges and time limitations and is, perhaps, underresourced as a result of decisions of the Congress that appropriates, that we need to look at it from that perspective. I think that the Department of Justice and FCC each have an important role to play in mergers as the communications industry goes through incredible changes at a very rapid pace.
In addition, I am looking at H.R. 2701. And as one who sympathizes with parties whose multiple address system applications were in limbo for a number of years, there is some concern that we will be opening the floodgates if we authorize the reimbursement of interest and cost to such applicants. This unprecedented provision could lead to similar requests by other FCC applicants who currently do not receive the special treatment sought by the bill.
Now, the E-rate at work, we have got a digital divide here that I don't need to tell anybody about. I would like to hear more about it from my witnesses. Closing the digital divide for urban and rural school children around the country is very, very important. And to that extent, I welcome Mary Wills' civics class from Roland Intermediate School in Harrisburg, Pennsylvania, who are here listening via the Internet on computers and with Web access made possible by universal service funding of the Telecommunications Act of 1996.
Before the E-rate was adopted by Congress, the schools in Harrisburg and other urban centers did not have computers. Now, as a direct result of E-rate, they do. And the $2 million has now given the Roland School four to six computers in every classroom as well as two full computer labs. They are working at full steam, but there are many other schools that are not.
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I am trying to get to how we can make more equitable this tremendous opportunity that is before us.
I have other comments, but I will put my statement in the record so my colleagues can make their statements. Thank you, Mr. Chairman.
[The prepared statement of Mr. Conyers follows:]
PREPARED STATEMENT OF HON. JOHN CONYERS, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
I first would like to thank the FCC Chairman, Mr. Kennard, for appearing before the Committee today. It is always a pleasure to have the opportunity to hear his views on a range of FCC matters, as we have before us in this hearing.
I am particularly looking forward to the Chairman's testimony on H.R. 2533, the ''Fairness in Telecommunications License Transfers Act.'' As we're seeing wave after wave of mergers in the telecommunications industry, the FCC's role in reviewing those mergers is more important than ever.
The FCC's review of telecom mergers under the ''public interest and necessity'' standard is vital to ensuring that corporate consolidations will not harm consumers and will not lead to an anti-competitive atmosphere. I believe that the Department of Justice and the FCC each have an important role to play in mergers as the communications industry changes and adapts to 21st Century technologies.
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I would also like to welcome the eighth grade students in Mary Wills's civics class from Roland Intermediate School, in Harrisburg Pennsylvania. They are listening to this hearing via the Internet, on computers and with web access made possible by the universal service funding of the 1996 Telecommunications Act. Before universal service or the ''e-rate'' was adopted by Congress, the schools in Harrisburg and other urban centers did not have computers. Now—as a direct result of the e-rate—they do.
Because of the $2 million e-rate investment in the Harrisburg schools, the Roland Intermediate School now has 4 to 6 computers in every classroom as well as 2 full computer labs. And all of their computers are Internet-capable. Ms. Wills's classroom does not have a working television—much less cable-access. But because they have Internet access, they and other students all over the country can ''attend'' this hearing through cyberspace. This is the e-rate at work, closing the digital divide for urban and rural school children around the country.
I think it bears mentioning that the e-rate is something all of us in Congress can be proud of. It was Congress that mandated universal service in the '96 Telecom Act, and the FCC has properly effectuated this Congressional mandate. It is therefore puzzling to me why opponents call the e-rate an unconstitutional ''tax.'' Just recently, this past July, the United States Court of Appeals for the Fifth Circuit expressly held that the universal service contribution is not a tax, but is instead a program to support the expansion of—and increased access to—the public telecommunications network. I agree wholeheartedly with the court's reasoning, and I believe its decision is correct.
Finally, I look forward to the testimony on H.R. 2701, the ''Justice for MAS Applicants Act of 1999.'' While I sympathize with parties whose Multiple Address System, or ''MAS,'' applications were in limbo for a number of years, I am concerned that we will be opening the floodgates if we authorize the reimbursement of interest and costs to such applicants. This unprecedented provision could amount to a significant drain on the treasury and could easily lead to similar requests by other FCC applicants, who currently do not receive the special treatment sought by this bill.
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Again, I thank all of the witnesses who are testifying before us today, and I know this will be an informative and enlightening hearing.
Mr. HYDE. Thank you, Mr. Conyers. Does anyone else have an opening statement?
[The prepared statement of Mr. Sensenbrenner follows:]
PREPARED STATEMENT OF HON. F. JAMES SENSENBRENNER, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN
I would like to thank you for having this hearing on various telecommunications issues. My particular interest lies in the Universal Service Tax. As we are all aware, the Telecommunications Act of 1996 included provisions to secure the continuation of ''universal service'' as our nation's telecommunications markets were opened to competition. Ensuring that all American's have access to telephone service is an important component of the Act and I support it.
The 1996 Telecommunications Act also expanded the beneficiaries under universal service. However, the Federal Communications Commission took this provision and convoluted it in a way to impose a tax to create a new government program. This program, known as the e-rate program, is a multi-billion dollar a year subsidy with a bloated federal bureaucracy to oversee it. In addition, funds from this program have been used for non-telecommunications related projects, such as painting classrooms rooms. The goal of the 1996 Act was to reduce rates and increase choices for all Americans. What we got was a FCC imposed tax.
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The e-rate program is, in effect, a tax imposed on American consumers as a result of the actions of the Federal Communications Commission (FCC)- not the United States Congress. The FCC used the schools and libraries provisions as a pretext for additional taxes without the consent of Congress. The Constitution vests the power to tax solely with our elected representatives. Federal bureaucrats do not have this power and the 1996 Telecommunications Act said nothing about granting this power to the FCC. If the Vice President feels so strongly about his initiative, he should send legislation to Congress to authorize and pay for the program. This is a bureaucrat-imposed tax, and it must be repealed post haste. Last Congress, I introduced legislation to do just that and this year Representative Tancredo introduced similar legislation of which I am a cosponsor.
I am appalled that on May 27, 1999, the FCC agreed to increase funding for this program to $2.25 billion. Because of this decision, consumer phone bills will not realize the FCC-mandated price reductions that were to take effect. The savings consumers should have received will instead go to fund the e-rate program. Instead these savings will not benefit consumers, but rather go to fund this program. The Internet is an important learning tool, but its availability must go hand-in-hand with fiscal responsibility and constitutionality.
I also have serious concerns about how the program is being administered. On October 80th, the Federal-State Joint Board on Universal Service announced that through its standard audit and review processes, that it awarded discount funding to a number of year one applicants in violation of federal statutes, Commission rules pertaining to the schools and libraries discount support mechanism, and a Universal Service Administrative Company procedural rule that applies to the discount mechanism's application process. The program obviously needs better administration and more accountability. As I see it, the e-rate program is an illegal tax to fund a poorly run, bloated bureaucracy.
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Mr. HYDE. Our first panel consists of two of our colleagues, Congressman David McIntosh and Congressman J. D. Hayworth. Congressman McIntosh will speak primarily to H.R. 2533 and Mr. Hayworth will speak primarily to H.R. 2636. Congressman McIntosh represents the Second District of Indiana and is a graduate of Yale University and the University of Chicago Law School. Before coming to Congress he served as a special assistant to President Reagan, special assistant to Attorney General Meese and as Vice President Quayle's executive director of the Council on Competitiveness. He also has worked at the Hudson Institute and Citizens for a Sound Economy. He was first elected to Congress in 1994.
Congressman J. D. Hayworth represents the Sixth District of Arizona. He is a graduate of North Carolina State University and before coming to Congress he worked as a public relations consultant, insurance agent, a radio news commentator, and a local television sports anchor. He was first elected to Congress in 1994.
We welcome both of you and look forward to your testimony. And we will adhere to our usual practice of not questioning these congressional witnesses.
I understand that you have another commitment, and so we will go to you, Mr. Hayworth, first.
STATEMENT OF HON. J. D. HAYWORTH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARIZONA
Mr. HAYWORTH. Chairman Hyde, members of the committee, distinguished guests, thank you for inviting me here today to testify in support of the Taxpayer's Defense Act.
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It is an honor to join with you in an effort to end taxation without representation. My friend from Pennsylvania, Mr. Gekas, and I were pleased to introduce this bill earlier this year and we now have 83 other cosponsors, including some very prominent members of this esteemed committee and the chairman himself.
The Taxpayer's Defense Act will establish a system to allow Congress, and only Congress, to approve new administrative taxes before they take effect. Under our bill, no Federal agency will be able to impose a tax on the American people by itself. If an agency wanted to propose a tax, it would submit its proposed taxing regulation to Congress, and, by request, majority leaders in both the House and Senate would introduce a bill to allow the tax to take effect. The bill would be considered under expedited procedures and the tax could take effect only if the bill were passed by both Houses and then signed by the President.
The bill would not affect existing programs and settled expectations, Mr. Chairman, only future increases and new taxes. I believe the constitutional precedent for this legislation is clear. Article I, section 8 of our Constitution gives Congress the ''power to lay and collect taxes.'' It doesn't give unelected, unaccountable bureaucrats this power. It only gives this power to Congress.
The Constitution's ''separation of powers'' doctrine seeks to ensure that each branch of government should have specific duties. By delegating legislative powers to unelected officials, Congress has sometimes allowed the executive branch to become the maker and enforcer of our Nation's laws, which is in direct violation of the Founders' intent. By enacting the Taxpayer's Defense Act, Congress would once again restore accountability to Federal taxation and reduce the hidden taxes being imposed upon the American taxpayer.
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While administrative taxation hasn't been used often, it is used increasingly to circumvent the legislative process. One of the most troubling administrative taxes is the Federal Communications Commission fee or tax on telecommunications service, also known in my district and around the country as the Gore tax. Every telephone caller in the U.S. is subjected to this tax, which raises approximately $2.5 billion a year. Other regulatory agencies are also getting an end run around Congress. For a period of time, the National Science Foundation authorized a $30 tax on registration of Internet domain names. Fortunately, a Federal judge ended this illegal tax, but not before taxpayers shelled out $60 million.
But let me focus briefly on the Gore tax because I know the chairman of the FCC will soon testify. This tax appeared out of the FCC's implementation of the Telecommunication Act of 1996. The Gore tax stole the benefits of the Telecom Act from consumers and diverted them to big government. At the same time the FCC reduced its access charge, it raised the Gore tax.
Because it seems to be in question, let me address the issue of what a tax is. The precisely worded definition we adopted in our bill is, ''a non-penal mandatory payment of money or its equivalent to the extent such payment does not compensate the Federal Government or other payee for a specific benefit conferred directly on the payer.'' That is a fancy way of saying if you have to pay in and you don't get something right back in exchange, it is a tax.
Our definition of tax is based on numerous cases where courts have had to address what a tax is, including the U.S. Shoe case decided by the Supreme Court just last year.
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Various parties have suggested that the Gore tax is a fee of some kind because you get access to a nationwide telecommunications network. They say it is a fee because you get that managed and regulated network. Mr. Chairman, if those are direct benefits, then the gas tax is a gas fee and the Federal income tax is a Federal income fee.
Mr. Chairman, you may hear today that a court decision in the fifth circuit has found the universal service tax to be a fee. Let me quote to you directly from that case. ''Celpage, the petitioner, does not raise a taxing clause claim until its reply brief. Therefore, we will not consider it.''
That sounds to me like a court declining to rule. In a footnote, the court guessed that the tax would be a fee if the court were to consider the issue. The court is wrong and this is a good example of why the Constitution prevents Federal courts from giving advisory opinions. If anyone tells you the fifth circuit found the tax to be a fee, Mr. Chairman, give them a sharp pencil and send them on to law school as penance.
The point is simple. Americans cannot hold unelected executive branch employees accountable for administrative taxation. Americans can hold their representatives elected to this body accountable for these taxes if we require Congress to vote on all of these administrative taxes. The Taxpayer's Defense Act would achieve this goal.
Mr. Chairman, I thank you for the time and the courtesy and thank you for listening to my testimony.
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Mr. HYDE. Thank you, Mr. Hayworth.
[The prepared statement of Mr. Hayworth follows:]
PREPARED STATEMENT OF HON. J. D. HAYWORTH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARIZONA
Chairman Hyde, members of the committee, and distinguished guests, thank you for inviting me here today to testify in support of the Taxpayer's Defense Act. It is an honor to join you in your effort to end taxation without representation. Mr. Gekas and I were pleased to introduce this bill earlier this year, and we now have 83 other cosponsors, including some very prominent members of this esteemed committee.
The Taxpayer's Defense Act would establish a system to allow Congress—and only Congress—to approve new administrative taxes before they take effect. Under our bill, no federal agency would be able to impose a tax on the American people by itself. If an agency wanted to propose a tax, it would submit its proposed taxing regulation to Congress. By request, the Majority Leaders in both the House and Senate would introduce a bill to allow the tax to take effect. The bill would be considered under expedited procedures, and the tax could take effect only if the bill were passed by the House and Senate and signed by the President. The bill would not affect existing programs and settled expectations, Mr. Chairman, only future increases and new taxes.
I believe the constitutional precedent for this legislation is clear. Article I, Section 8 of the Constitution gives Congress the ''power to lay and collect taxes.'' It doesn't give unelected, unaccountable bureaucrats this power; it gives only Congress this power.
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The Constitution's ''separation of powers'' doctrine seeks to ensure that each branch of government should have specific duties. By delegating legislative powers to unelected officials, Congress has sometimes allowed the executive branch to become the maker and enforcer of our nation's laws, which is in direct violation of the Founders' intent. By enacting the Taxpayer's Defense Act, Congress would once again restore accountability to federal taxation and reduce the hidden taxes that are being imposed on the American taxpayer.
While administrative taxation hasn't been used often, it is used increasingly to circumvent the legislative process. One of the most troubling administrative taxes is the Federal Communications Commission (FCC) tax on telecommunications service, which is also known as the Gore Tax. Every telephone caller in the United States is subjected to this tax, which raises approximately $2.5 billion annually. Other regulatory agencies are also doing an end run around Congress. For a period of time, the National Science Foundation authorized a $30 tax on registration of Internet domain names. Fortunately, a federal judge ended this illegal tax, but not before taxpayers shelled out $60 million.
But let me focus briefly on the Gore Tax, because I know the Chairman of the FCC will soon testify. This tax appeared out of the FCC's implementation of the Telecommunications Act of 1996. The Gore Tax stole the benefits of the Telecom Act from consumers and diverted them to big government. At the same time that the FCC reduced access charges, it raised the Gore Tax.
Because it seems to be in question, let me address the issue of what a ''tax'' is. The precisely worded definition we adopt in our bill is ''a non-penal, mandatory payment of money or its equivalent to the extent such payment does not compensate the federal government or other payee for a specific benefit conferred directly on the payer.'' That's the long way of saying, ''If you have to pay in, and you don't get something right back in exchange, it's a tax.'' Our definition of tax is based on numerous cases where courts have had to address what a tax is, including the U.S. Shoe case decided by the Supreme Court just last year.
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Various parties have suggested that the Gore Tax is a fee of some kind because you get access to a nationwide telecommunications network. They say that it's a fee because you get a managed and regulated network. If those are direct benefits, Mr. Chairman, then the gas tax is a gas ''fee'' and the federal income tax is a federal income ''fee.''
Mr. Chairman, you may hear today that a court decision in the 5th Circuit has found the universal service tax to be a fee. Let me quote to you from that case: ''Celpage [the petitioner] . . . does not raise a Taxing Clause claim until its reply brief. Therefore, we will not consider it. . . .'' That sounds to me like a court declining to rule. In a footnote, the court guessed that the tax would be a fee if the court were to consider the issue. The court is wrong, and this is a good example of why the Constitution prevents federal courts from giving advisory opinions. If anyone tells you that the 5th Circuit found the tax to be a fee, Mr. Chairman, give them a sharp pencil and send them to law school.
The point is simple: Americans can't hold unelected executive branch employees accountable for administrative taxation. Americans can hold their representatives accountable for these taxes if we require Congress to vote on all of these administrative taxes. The Taxpayer's Defense Act would achieve this goal.
In December 1773, American colonists boarded three British ships in Boston harbor and emptied chests of tea into the sea. This event, which we all know as the Boston Tea Party, celebrated American opposition to taxation without representation. That is why the Constitution specifically states that only Congress shall have the power to tax. I urge this committee to once again make Congress accountable for all taxation by passing this important legislation.
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Thank you again, Mr. Chairman, for the opportunity to testify in support of the Taxpayer's Defense Act.
Mr. CONYERS. Mr. Chairman, could we depoliticize this just a trifle? I know this is the season for all of that stuff, but couldn't we lighten up a little bit? This is the Judiciary Committee.
Mr. HAYWORTH. I thank my good friend from Michigan, and let us simply celebrate the fact that honest disagreements and honest differences of opinion, honestly put forth and held, are absolutely the truth. The nomenclature in the Sixth District of Arizona with reference to what you call the E-rate, sir, is the Gore tax.
Mr. CONYERS. Well, the taxes are not taxes. They are fees specifically authorized by—guess who—the Congress. The fifth circuit expressly held that the E-rate is not a tax. I am sorry.
Mr. HAYWORTH. To the ranking member, thank goodness J. D. comes before my name. I am not a lawyer nor have I ever played one on TV, and I think that is an asset because we don't need to miss the forest for the tress. The Constitution's intent is clear and I thank you for the courtesy of the testimony and raising your voice of concern in a deviation from the accepted practice of the committee.
Mr. HYDE. Well, I think you have someplace to go.
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Mr. HAYWORTH. For the record, I am double booked. I have testimony in the Resources Committee this morning, too.
Mr. HYDE. Wreak some havoc in another room. Thank you, J. D.
Now, we turn to Mr. McIntosh.
STATEMENT OF HON. DAVID MCINTOSH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF INDIANA
Mr. MCINTOSH. Thank you, Mr. Chairman. Thank you especially for this opportunity to appear before your committee and testify on H.R. 2533, the ''Fairness in Telecommunications License Transfer Act.''
I want to applaud Mr. Gekas and Mr. Goodlatte for their leadership in introducing this legislation. I am a strong believer and have long been an advocate of free market solutions and the ability of businesses to merge when it creates benefits for their customers in superior products and services and lower cost.
We are seeing that happen in the telecommunications industry, and we are seeing it happen very rapidly. The customers are the ultimate beneficiary of this. Now, Congress intended the government's role in the FCC to be at best limited, confined to a timely review of a very clearly-defined criteria that the chairman mentioned in his opening statement.
Frankly, the Federal Communications Commission is not meeting that goal. The public interest is paramount, but the public interest is clearly not being served by a merger approval process with no fixed rules and no fixed timetable. The FCC's apparent inept handling of the SBC-Ameritech merger, which affects citizens in my State since Indiana Bell is part of the Ameritech system, demonstrated that no customer benefits from a merger process which is completely arbitrary.
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The problems with the FCC's lack of standards is manifest. Regulated entities have little basis for knowing how their applications will be treated. Frankly, I would agree wholeheartedly with the chairman's substantive point that Congress didn't intend the FCC to enter into a separate review on the merits of these mergers, but was limited in a very narrow process under the Hart-Scott-Rodino Act. The problem with the system the way that the FCC is running it is it that it makes it far too easy for decisionmakers to discriminate among industries or companies. The lack of clear rule decreases the ability of real judicial review, resulting in an undermining of the statutory rights of aggrieved parties.
Finally, without any fixed guidelines, the FCC's impartiality will be consistently challenged. I concur with your remarks, Mr. Chairman. It is difficult to ascertain why the AT&T–TCI license transfer was approved in less than 6 months, which by the way should be applauded. I am pleased the FCC was able to do that in that short time frame. But at the same time, the SBC-Ameritech transaction took over a year and a half.
Now, with the tremendous changes in our telecom industry and the e-commerce that is being built into that, timing is everything. When we see our economy in those areas rapidly changing in 6 to 12 months, the effects on competition between companies of the slower, imprecise, arbitrary review process makes competition between the various players impossible and distorts the marketplace.
This process needs to be overhauled, and frankly the FCC needs to get out of the way. The Fairness in Telecommunications License Transfers Act is the right medicine for what is ailing the FCC. This legislation requires them to develop and publish clear and consistent rules that will guide future telecommunications merger decisions. This will alleviate all of the problems that I mentioned above.
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H.R. 2533 is an effort to clarify that the FCC must comply with current law which it is now not adhering to. The Freedom of Information Act requires each agency to, ''separately state and currently publish in the Federal Register for the guidance of the public rules of procedure; substantive rules of general applicability formulated and adopted by the agency; and each amendment, revision, or repeal of the forgoing.''
The Administrative Procedures Act plainly states that rules and procedures, substantive rules and general applicability formulated and adopted by an agency and any amendments, revisions, or repeal under those rules must be printed in the Federal Register. We don't see those rules in the Federal Register, and it has become an arbitrary position that the FCC's claim that the GAO report lays it out for the parties frankly is not satisfactory in our regulatory process, where it is important that they have complete and full transparency.
In closing I want to emphasize my strong support for the bill. It is a great first step toward greater government accountability, and I believe our ultimate goal should be to remove the FCC from the decisionmaking process altogether, but let's start with greater transparency and then we can allow the free market to work. Thank you, Mr. Chairman.
Mr. HYDE. Thank you, Representative McIntosh, very much.
[The prepared statement of Mr. McIntosh follows:]
PREPARED STATEMENT OF HON. DAVID MCINTOSH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF INDIANA
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Thank you, Mr. Chairman, for the opportunity to appear before your committee and testify on H.R. 2533, the ''Fairness in Telecommunications License Transfers Act.'' I applaud Mr. Gekas and Mr. Goodlatte for their leadership in introducing this legislation.
Mr. Chairman, I believe strongly in the free market and the ability of businesses to merge if it will allow them to offer superior products and services, at lower costs to consumers. Government's role should be at best limited—confined to a timely review of clearly defined criteria. The Federal Communications Commission is not meeting this goal.
The public interest is paramount, but the public interest is clearly not served by a merger approval process with no fixed rules and no fixed timetable. The FCC's apparent inept handling of the SBC-Ameritech merger demonstrated that no one benefits from a merger process which is completely arbitrary.
The problems with the FCC's lack of a standard are manifest. Regulated entities have little basis for knowing how their applications will be treated. This makes it far too easy for decision makers to discriminate among industries or companies. The lack of clear rules decreases the viability of real judicial review, resulting in the undermining of the statutory right of aggrieved parties.
Finally, without fixed guidelines, the FCC's impartiality will be consistently challenged. I concur with your remarks, Mr. Chairman, that it is difficult to ascertain why the AT&T–TCI license transfer was approved in less than six months while the SBC-Ameritech transaction took a year and a half. That affects competition between these companies and distorts the market place. This process needs an overhaul.
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''The Fairness in Telecommunications License Transfers Act'' is the right medicine for what's ailing the FCC. This legislation requires the FCC to develop and publish clear and consistent rules that will guide future telecommunications merger decisions. This will alleviate all the problems I mentioned above.
H.R. 2533 is an effort to clarify that the FCC must comply with current law which it is now violating. The Freedom of Information Act requires each agency to ''separately state and currently publish in the Federal Register for the guidance of the public . . . (C) rules of procedure . . .; (D) substantive rules of general applicability formulated and adopted by the agency; and (E) each amendment, revision, or repeal of the foregoing.''
Mr. Kennard has defended the FCC's practices, arguing that the Commission's review process is outlined in a GAO report and that there is ample opportunity for aggrieved parties to seek redress through the courts. He states that if the Commission contemplates any rule changes, it will provide opportunity for public comment. But he ignores the fundamental fact that the FCC has no such rules to change! The Administrative Procedure Act plainly states that rules of procedure, substantive rules of general applicability formulated and adopted by an agency and any amendments, revisions or repeals of those rules must be printed in the Federal Register. The FCC is clearly not following the law, and this must change.
In closing, I want to emphasize my strong support for the ''Fairness in Telecommunications License Transfers Act.'' This bill is a great first step toward greater government accountability. I believe our ultimate goal should be to remove the FCC from the decision making process altogether. Let's allow the free market to work.
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Mr. HYDE. Our second panel consists of one witness, Chairman William Kennard. He is chairman of the agency responsible for many of the matters we are considering here today; namely, the Federal Communications Commission. Mr. Kennard is a graduate of Stanford University and Yale Law School. Before becoming chairman, he was a partner with the Washington law firm of Verner, Liipfert, Bernhard, McPherson & Hand. He joined the Commission first as an assistant general counsel, became its general counsel in 1993, and became chairman in 1997. His term runs until June 2001. Chairman Kennard, we are very happy to have you with us and we look forward to your testimony.
STATEMENT OF WILLIAM KENNARD, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION, WASHINGTON, DC
Mr. KENNARD. Thank you, Mr. Chairman, Ranking Member Conyers and members of the committee. It is a great pleasure for me to be here today. It is my first appearance before this committee, as the chairman mentioned, and it is an honor to be here.
Let me begin by stating that these are truly extraordinary times for consumers of telecommunications services in America. We are literally seeing before our very eyes the restructuring of the entire telecommunications industry and it is happening very, very quickly. Companies that were previously separated into discrete little regulatory boxes by law and regulation have been liberated to compete, as a result of the act that you passed, the 1996 Telecommunications Act. We are seeing glimpses of a very bright future for consumers, where phone lines will carry movies, and cable television operators will carry phone calls. And, the many wireless carriers that we have in this country will be able to carry both. It is all happening now.
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These changes also are unleashing a tremendous amount of economic activity in our economy. All of the economic indicators in the telecommunications marketplace are way up. Over the past 3 years alone, revenues in the communications sector have grown by over $140 billion, climbing to a revenue level of $500 billion in 1998. With these profits, businesses have been creating numerous jobs at a very fast clip. Over 160,000 jobs have been created over this time period.
In the wireless industry, capital investment has more than quadrupled since 1993, for a cumulative total of over $60 billion. Now, over 80 million Americans have a mobile phone. It is becoming an accepted appliance in American life. In every sector, consumers are benefiting from this growth.
In the long distance area, there are over 600 competing providers of long distance service in America today. You can hardly have dinner in America today without somebody calling you and offering you yet another package of long distance services, and that is a result of competition. Prices have dropped 35 percent since 1992 in the long distance sector. That is competition at work. Costs for international calls have been reduced by about 50 percent.
In the wire-line phone sector we are also seeing tremendous growth. At the time that the 1996 act was passed, the competitive local exchange carrier industry, the smaller companies that compete against the incumbent Bell Companies for the most part, had a total market cap of $1.3 billion. Today, that market cap has increased to $33 billion. Money is literally pouring into that industry. The cable sector is scrambling to upgrade their systems so they can go digital and provide consumers with high-speed Internet access and a lot of wonderful new digital services. Now, in the midst of all of this change, the FCC has been called upon to review more mergers than we have ever had to review in the history of the agency. We are literally inundated with companies coming before us, wanting to consolidate and transfer licenses and assets.
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Some of this consolidation is good for Americans and good for consumers. These companies are able to aggregate their capital to compete in markets that they were foreclosed from competing in. But at the same time, we have to be careful that consolidation doesn't put the brakes on this wonderful new competitive dynamic that is developing. That is why it is important that those of us in government intensely scrutinize mergers that have the potential of squelching competition in this vibrant market.
An important part of the core responsibilities of the Commission is to process these licenses. We have two operative provisions of the Communications Act, section 310 and section 214. Under those provisions, the applicants must come before the FCC and seek approval before their licenses can be transferred. Now, it is important to put this in perspective. We transfer tens of thousands of licenses per year. Most of them are routine licenses. For example, a private radio company proposing to transfer just a handful of licenses.
What has caught the attention of people in recent months is we are seeing mega-mergers of breathtaking size and scope. The SBC-Ameritech merger, which was mentioned today, involves a third of the telephone lines in the United States. The 1996 act unleashed these possibilities, but it is important that we scrutinize these transactions carefully to make sure that the competitive dynamic does not get squelched.
And, if you look at the history of what the Commission has done since the 1996 act was passed, I think that we have managed comparatively well in handling this onslaught of mergers and transactions. The Wireless Telecommunications Bureau alone, that is the bureau at the FCC that handles wireless license transfers, handle about 30,000 license transfers a year. Even so, it was able to process the MCI-WorldCom acquisition of SkyTel in 9 weeks, ALLTEL's acquisition of Liberty Cellular in 10 weeks, and AT&T's acquisition of Vanguard in 3 1/2 months. The transactions that get more scrutiny, and appropriately so, are the mega-mergers that are presenting the FCC with questions of first impression. For instance, how do we reconcile these mergers with the pro-competitive thrust of the 1996 act that you passed which directed us to promote more competition in these markets and prevent a time when we will have ultimately less competition. I do not want my legacy as chairman of the FCC to be that I presided over the reintegration of the Bell system. I think it would be irresponsible if in a few years we looked at the telephone marketplace and we had just one or two companies providing telephone service to all Americans. That would be going in the wrong direction.
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That is why we carefully scrutinize the large transactions to make sure that we can reconcile them in the public interest with the competitive thrust of the 1996 act. Now, I did want to note that the public interest inquiry that we undertake at the FCC is not a broad, vague, and subjective inquiry. It is one that has been developed at the agency over 65 years. It has been developed in the context of these transactions when parties come before us proposing a merger. Under those circumstances, the FCC is acting in its quasi-judicial role like a court. We develop a record, we determine what additional record evidence must be presented, and we make a determination of whether the transaction is in the public interest.
Now, I look forward to working with members of this committee to ensure that this process works well for consumers, for the industry, and for the public. That is why I want to make it as transparent and predictable a process as possible. But we do have rules. We have numerous rules on the books that govern these tractions. If you file an application involving any sector of this industry, you look in title 47 of the Code of Federal Regulations and there are rules that govern the filing of various applications and rules that govern ex parte communications with the agency. There are rules that govern the production of documents and the confidential treatment of documents. So this is not an amorphous area.
Before I came to government, I practiced before the FCC for 12 years as a practitioner of communications law. If you walk on the street and ask most communications lawyers today, they understand how this process works and their clients understand. There is a fair amount of predictability with most of these license transfers.
What is unpredictable mega-mergers that the antitrust authorities and the FCC have never seen before—that generates a great deal of interest with the public. We as a public interest agency charged with protecting consumers must develop a record and we must make sure that everyone is heard and that their issues are addressed on the record. In the SBC-Ameritech transaction we developed a record of about 50,000 pages of documents. Everyone who had an issue had an opportunity to put it on the table and be heard. That is the way the process should work.
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Now, in order to address many of the concerns that you have raised in your bill, I have asked our general counsel to establish a merger review team. This team will address large merger processing, so that we can have better procedures for determining how to deal with these mega-mergers so that there is more predictability and internal processing guidelines. But as we handle more of them we are gaining experience. I am confident that we will come up with a procedure that will be even more predictable and transparent in the future.
With that I will be happy to answer your questions and, of course, any other questions that you have about the other legislation pending before this committee, H.R. 2701 and H.R. 2636. Thank you, Mr. Chairman.
Mr. HYDE. Thank you very much, Chairman Kennard.
[The prepared statement of Mr. Kennard follows:]
PREPARED STATEMENT OF WILLIAM KENNARD, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION, WASHINGTON, DC
Thank you Chairman Hyde and Members of the Judiciary Committee. I appreciate the opportunity to testify before the Committee on the ''Fairness in Telecommunications Act,'' the ''Justice for MAS Applicants Act'' and the ''Taxpayer's Defense Act.'' Let me begin first by addressing some of the issues raised in the ''Fairness in Telecommunications Act.''
THE FAIRNESS IN TELECOMMUNICATIONS ACT
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H.R. 2533
Background
For the past 65 years, the Federal Communications Commission (FCC) has been ensuring that the American people have a ''rapid, efficient, Nation-wide and world-wide wire and radio communication service with adequate facilities at reasonable charges.'' American families who collectively spend billions of dollars on communications services have a huge stake in how this industry develops. When Congress drafted the landmark Telecommunications Act of 1996, it understood this concept, and that is why competition is at the heart of the 1996 Act. Congress knew that through a robust, open marketplace, consumers would benefit from more choices, better services and lower prices.
As an important part of its core responsibilities to the public, the Commission processes many transfers and assignments of licenses, authorizations and telecommunications lines each year. Firms that hold spectrum licenses, or other types of authorizations to provide interstate and international services, are required by sections 310 and 214 of the Communications Act of 1934, as amended, to seek Commission approval before consummating a transfer of ownership or control. During the past fiscal year alone, we completed processing of several thousand transfer and assignment applications filed pursuant to section 310(d) of the Communications Act.
The Commission's approach to evaluating transfers and assignments of licenses and authorizations is well established. After determining whether the proposed assignee/transferee is eligible to hold the licenses or authorizations, and that approval would not violate any provisions of the Communications Act or the FCC's rules, we must determine whether the public interest is served by approval of the request. Mergers are but one of the many types of transfers and assignments of licenses or authorizations that the Commission is charged to consider. The necessity of obtaining Commission approval to complete communications mergers is not new; nor is the Commission using new procedures or applying new standards of review to the applications before it.
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The new development that has caught the attention of so many people is the number and size of transactions involving communications firms in the late 1990's. We are witnessing unprecedented numbers of communications mergers, and many of them are breathtaking in size and scope. A single communication merger often involves transfers of thousands of licenses and lines, and the Commission has handled a number of these complex transactions. Others are currently before the Commission. Still more are likely to be filed in the future.
The Public Interest Test is Predictable and Deregulatory
The Commission has dealt comparatively well with the increased volume and size of transfers of control. Most are routinely and quickly handled. The Wireless Telecommunications Bureau, for example, handles around 30,000 license transfers and assignments a year. Even so, it was able to process MCI-WorldCom's acquisition of SkyTel in nine weeks; ALLTEL's acquisition of Liberty Cellular in 10 weeks; and AT&T's acquisition of Vanguard in three and one-half months.
A few of the big transactions that have been presented to the Commission since passage of the 1996 Act are truly cases of first impression. The market-opening changes inspired by the Act made possible many kinds of mergers that would not have been legally permissable before. Naturally, the public has raised many questions about these new mergers. For example, over 10,000 pages of comments were filed by over 50 commentors and thoroughly reviewed by Commission staff in the SBC-Ameritech transaction alone. As required by the Administrative Procedure Act, the applicants, opponents, and the public have the opportunity to make known their views and have their perspectives taken into account. The process is open, the Commission explains its decisions in writing, and all decisions are subject to judicial review. If the Commission were not already following adequate procedures and adhering to consistent legal standards, the courts would have reversed its decisions.
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It is important to note that there is considerable risk to adopting a uniform ''shot clock'' approach to the review of license transfers. When so many difficult issues are presented, a ''shot clock'' can deny applicants the opportunity to amend their filings to address problems. More importantly, the Commission is overworked and has too few resources, so a uniform short time period for review could lead to substantial mistakes under current funding levels. If the 1996 Act is to succeed, the Commission will need more resources to ensure that the restructuring of communications industries does not thwart the development of competition. (The Senate recognized this need when it appropriated the funding requested by the Commission; the House did not, however, leading the President to veto the bill in part because it failed to provide sufficient funds for the continued operation of the FCC.)
The Commission's review is very transparent. The rules covering applications to transfer control of licenses and telecommunications lines are found in the relevant parts of the CFR governing the various types of licenses, such as broadcast licenses. For every spectrum license or authorization issued by the Commission, there are specific rules governing the submission, consideration and processing of applications for their transfer or assignment. Section 1.77 of our rules (47 CFR Section 1.77) provides a general cross-reference to certain of the rule parts that contain specific procedures for the prosecution of applications to transfer or assign Commission licenses. In addition, there are other provisions of our rules setting forth procedures for transfer or assignment of interstate or international lines or other facilities, and transfers of interests in affiliated routes or affiliated entities.
Like the common law—the law of property or contracts—the public interest test proceeds on a case-by-case basis. This is more efficient, and much less regulatory, than writing extensive rules attempting to anticipate every way in which any possible transaction might violate any part of the Communications Act or the Commission's rules. The public interest is a fundamental legal concept, akin to ''good faith,'' ''reliance,'' ''negligence,'' and ''compensation.'' As such, its meaning is inherently fact specific and can only be defined based on the circumstances of each individual case.
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The public interest test is not a broad, vague inquiry into all possible aspects of a transaction, such as possible effects on the securities laws or automobile consumers. Instead, it is an inquiry into the extent to which a particular transaction may affect the principles served by the Communications Act. Congress directed the Commission to execute and enforce the provisions of the Act consistent with the principles set forth, particularly the pro-competitive, de-regulatory public policy framework of the 1996 Act.
In its review, the Commission must consider whether the proposed transaction would violate individual provisions of the Communications Act and the Commission's rules. For example, if a local exchange carrier and cable company were to attempt to merge in an area where such a buyout is prohibited, the Commission would have to deny the requested transfer of licenses.
Similarly, a transaction may violate the Communications Act if it prevents enforcement of one or more of the Act's requirements. In particular, the ''public interest'' standard requires the Commission to take into account the likely effect of the transfer on other provisions of the same Act and on Commission rules promulgated under the Act. Were this not the case, we could find a transaction to be in the public interest under one provision of the Communications Act, even if the transferee of the licenses in question intended to use those licenses to violate another provision of the Communications Act.
The same public interest standard applies to all transfers of licenses or lines, and the standard of review is the same in every case. The fact that some transactions are considered at greater length or with more resources does not indicate that the public interest standard is different in those transactions. Instead, it simply means that some transactions require more analysis to determine whether the standard is met. This method is no different than when a judge grants summary judgment rather than conducting a full trial.
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The Commission is Revising Its Procedures and Standards to Implement Unprecedented Clarity and Speed of Review
In the future, the application of the public interest test will be even more clear and predictable than today. I have asked our General Counsel, Christopher Wright, to organize an inter-agency transaction team that will be in place by January 3, 2000 to streamline and accelerate the transaction review process. The new inter-agency transaction review team will establish deadlines for rapid processing of transfers of control associated with transactions. The new team also will work to make the transaction review process even more predictable and transparent, so that applicants know what is expected of them, what will happen when, and the current status of their application. This is consistent with the focus of the restructuring of the Commission to operate in a flatter, faster, and more functional manner. Finally, the team will look into supplementing the case law explicating the application of the public interest test with written guidelines.
The Commission also will be establishing a merger conditions oversight team comprising of members of the Common Carrier Bureau and the Enforcement Bureau. Its purpose will be two-fold. First, the team will actively monitor compliance with the merger conditions and ensure that companies subject to conditions are executing the conditions consistently with the Commission's stated intent. Second, the team will serve as a point of contact for state commissions, competitors, and other interested parties to report any instances of noncompliance. In this manner, there will be an informal process, in addition to our formal enforcement mechanisms, by which parties can resolve quickly disputes that arise surrounding compliance with the conditions.
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The review of transfers of control is inherently quasi-judicial in nature—it must be a case-by-case process because the object is to apply existing rules to individual sets of facts. Accordingly, Commission procedures will naturally continue to resemble those used by courts. Therefore, the information needed, the questions presented, the specific deadlines for filings, the timing of the decision, and the ultimate decisions will ultimately differ from case to case. Each determination, however, will continue to be fully consistent with the Administrative Procedure Act and reviewable in an appropriate court of law.
Expedited processing also depends on the parties seeking approval for their transfers of licenses and lines. Applicants can have a major impact on the timing of the license review process. When the Commission receives a complete application that contains the information that is needed for review and fully addresses the public interest concerns, the review naturally proceeds more quickly than it does when parties file minimal applications that require the Commission and other parties to expend considerable effort to develop a record of the facts and rationale. Similarly, where there are public interest concerns, such as where the transfers will violate the Communications Act, applicants can greatly speed the processing of their applications by acknowledging the problem and proposing viable solutions at the outset.
JUSTICE FOR MAS APPLICANTS ACT
H.R. 2701
You have asked me to address the issues raised in H.R. 2701, the ''Justice for MAS Applicants Act.'' Multiple Address Systems (MAS) constitute narrowband frequencies in the 900 MHz band that originally were envisioned to be utilized by private businesses to support data, paging and alarm services. The nature of this service, and the regulatory framework for licensing this band has evolved over time as Congress has changed our licensing authority under the Communications Act.
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The Commission originally decided to award MAS licenses in the 932/941 MHz spectrum band on a first-come, first-served basis and utilize lotteries to resolve ''mutually exclusive'' (i.e., equally meritorious) applications. In the early 1990's, the public expressed a tremendous amount of interest in acquiring these licenses. So much so that in January and February of 1992, when the Commission opened five, two-day application filing windows for parties proposing to use newly allocated channels pairs in the 932/941 MHz bands of MAS spectrum, we received 51,183 applications and $7,987,155 in license application fees. Since these licenses were awarded on a ''site specific'' basis, reviewing these applications to determine which applicants were mutually exclusive as an engineering matter represented an enormous task.
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was enacted. The Act authorized the Commission for the first time in its history to employ competitive bidding, i.e., auction procedures, for certain classes of licenses, in order to choose among mutually exclusive applications for initial license grants or authorizations. The principal criteria for employing competitive bidding was whether users of the spectrum would provide subscriber-based services and whether auctioning would promote the public interest. The Commission had authority to use either auctions or lotteries as a means to award licenses for subscriber-based services.
In response to the Act, the Commission initiated a proceeding to review the licensing schemes of many FCC services, including MAS, to determine whether certain services would be subject to competitive bidding under the new statute. Based on the information the Commission had on the nature of MAS, it preliminarily concluded that the band was not subscriber-based in nature and would not be subject to auction. Later, upon further evaluation of the applications received in response to the 1992 filing windows, the Commission determined that the majority of the applicants proposed to use their licenses principally to provide subscriber-based services. As a result, the Commission initiated a rule making proceeding in February 1997, among other things, to revisit its licensing approach for MAS and reexamine the uses of, and demand for, MAS spectrum. Among the licensing issues under consideration at that time was whether to license for service on a geographic area basis rather than a site-specific basis.
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Congress subsequently eliminated the Commission's authority to use lotteries in the Balanced Budget Act of 1997. Because the Commission no longer had authority to use lotteries, the Commission's Wireless Telecommunications Bureau in 1998 dismissed the pending MAS applications received in 1992, indicating that applicants were free to re-file under the new licensing approach for this service. Recognizing the hardship imposed by the lengthy decision-making process, the Commission established a process for applicants to seek a refund of the application filing fees paid to the FCC. On October 1, 1998, the Office of the Managing Director released a Public Notice informing applicants about the procedures that would expedite the processing of the refunds.
Additionally, the Balanced Budget Act required the Commission to award all mutually exclusive licenses, with certain exceptions, by using competitive bidding procedures. One of those exceptions exists for ''public safety radio services,'' which include radio services used by utilities, pipelines, and railroads. Because of the changes contained in the Balanced Budget Act, the Commission released a Further Notice of Proposed Rule Making on July 1, 1999 to build a sufficient record and fully examine the impact of the Act on the MAS Service. The comment period closed on October 19, 1999 and we are acting swiftly to resolve all outstanding issues concerning spectrum allocation and licensing for this service.
As of October 28, 1999, the Office of the Managing Director has processed requests for refunds from 795 applicants representing half of the original license applications (i.e., 25,294) and funds constituting more than half of the amounts originally deposited with the FCC (i.e., $ 3,928,425). Indeed, there are no pending requests for refunds at this time. Significantly, only four of the 795 refund requests received included a demand for the payment of interest or ''other costs.'' All four were for ''private'' and not ''commercial'' applications. For example, three of the four requests for ''other costs'' appear to be from related parties. In the three cases, the ''other costs'' requested represent 50 percent of the cost of the license application fees. The fourth applicant requested payment of interest ''at the rate which the IRS would collect on money owed to the Government.''
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The Commission lacks the legal authority to pay interest to the dismissed applicants and has not compensated applicants in the past for either interest or ''other costs.'' In many cases, interest or ''other costs,'' which would include items such as legal fees, engineering fees, and application preparation fees, could be very substantial. As an example, the Commission does not pay interest on deposits made in advance of an auction. It is also important to note the costs associated with filing an application could include fees to third party ''application mills.'' An ''application mill'' is an entity whose sole purpose is preparing and filing FCC applications for a fee. Compensating applicants for such third party filing costs might encourage consumer scams involving FCC applications and could significantly increase the government's financial liability.
If the Commission had authority to compensate MAS applicants for interest from January 1992 until the fall of 1998 (when the applications were officially rejected), at the rate the United States Treasury Department has approved for payment of late invoices, the amount to be paid would be approximately $2.7 million. Using the only requests for ''other costs'' received to date, if the Commission were granted the legal authority to reimburse applicants up to 50% of the application fee for ''other costs,'' then the payments would total an additional $4 million. It is important to note, however, that these three were ''private'' use applications and ''commercial'' use application costs would likely be much higher. In any case, the interest and ''other costs'' which would total in excess of $6.7 million would have to be obtained through a subsequent request for an additional appropriation since no agency funding has been included in the FY 2000 budget for this activity.
Mr. Chairman, I look forward to working with your Committee to help fashion a result that is fair for all those involved.
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TAXPAYER'S DEFENSE ACT
H.R. 2636
The Federal Communications Commission does not impose taxes by the promulgation of rules. Moreover, if the Commission is directed by the United States Congress to perform or not perform a specific task, we will comply with that directive. I recognize that Representative Gekas specifically referred to the universal service fund as an example of an administrative tax when he introduced this measure. In the case of universal service funding, I should point out that this program is not a ''tax,'' even under this legislation's definition of the word, but a congressionally mandated fee system, which was upheld as such last summer by the Fifth Circuit Court of Appeals in Texas Office of Public Utility Counsel v. FCC, 183 F.3d 393 (5th Cir. 1999). The court specifically dismissed a claim based on the Taxing Clause (see U.S. Const. Art. I §8, cl. 1). The court explained that in light of the clear nexus between the payments made by telecommunications carriers and the program they supported, ''the universal service contribution qualifies as a fee.'' 183 F.3d at 427 n. 52.
Today's universal service programs are the embodiment of the universal service principle that has been a cornerstone of telecommunications policy in this country for decades. In 1996, Congress codified this principle so that for the first time in history it is the law of the land that we are better off when each American has access to phone services.
Our universal service program has many facets. First, universal service provides reduced-price monthly local service and phone connections to poor Americans throughout the country through our Lifeline and Linkup programs.
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Second, universal service helps pay for local service in those areas where the cost of providing phone service is prohibitive, such as rural and other high cost areas. Just two weeks ago, we took a major step in the reformation of this facet of the program for those areas served by the large phone companies. Large carriers serving rural and other high cost areas will receive funding based on the costs of building a network in high cost areas in comparison to the costs of building a network nationally. Funds are targeted to the specific communities that are high cost, and any eligible telecommunications carrier serving that customer can receive the support. Small telephone companies also receive high-cost support.
Third, universal service provides discounts to schools, libraries and rural health care providers for all telecommunications services, including advanced services like high speed Internet access. This program provides access to advanced capabilities to all communities. Students of every income and location can have the advantages of the Internet. Libraries throughout the country can connect their communities to the World Wide Web. People in rural America can improve the quality of their health care. By the end of 1999, we expect three-quarters of the nation's classrooms to be connected to the Internet.
Congress provided for the continuation and expansion of universal service in the 1996 Act, codifying for the first time a longstanding telecommunications policy. Congress recognized that competition might come in different ways and different times to residential and business customers, and to urban and rural customers. Ensuring that the benefits of the 1996 Act extend to all Americans, regardless of geography, requires a universal service program that facilitates reinvestment in the network and the expansion of benefits of an advanced network to all Americans. It further understood that all Americans, regardless of income, should be connected to the information age and that ensuring that America's children have access to the vital telecommunications tools of the future is what's best for America.
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Overall, I'm proud of the universal service fund and I feel privileged to administer Congress' mandate to fund this program.
Thank you.
Mr. HYDE. That is a vote for us to approve the Journal, one of those towering important critical votes. Is the committee disposed to go make the vote or to continue?
Mr. CONYERS. Some are and some aren't. It depends on how your voting record stacks up at the end of the year.
Mr. HYDE. Always this uncertainty. Well, let's—in view of the fact that Mr. Conyers wants to vote, we will go vote. We will recess for about 15 minutes. Thank you.
Mr. KENNARD. Thank you, Mr. Chairman.
[Recess.]
Mr. HYDE. The committee will come to order. Chairman Kennard has a busy schedule as well, so I would entreat the members to confine their questions to modest proportions. And I yield to Mr. Conyers.
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Mr. CONYERS. Thank you, Mr. Chairman. On the agreement that we will be seeing more of each other, I don't mind limiting. Five minutes to talk about a multitrillion-dollar industry is a little difficult to do. But I am glad that you are here. We have a lot of setting-the-record-straight to engage in, not from this committee, but from the Congress itself. I want to help you do that.
Let me, Chairman Kennard, just review a few questions on my plate, and you address a few of them, and we know your worthy staff, some of whom are ex-members of this Judiciary Committee staff—and we are glad to see them here—we will be in touch and begin to work this out.
But let me just ruminate here for a minute. Now, isn't all of this business about the so-called tax a way of getting out of our telecommunications commitment made in 1996 that we were going to wire all of the schools? To me, this is what this all is: a nice, neat, back-door way to get out of that big commitment. We wrote—by the way, you didn't write it, we wrote the terms and conditions as to how it would take place.
And, of course, we hear a lot of business about the fifth circuit ruling in terms of whether that is a tax or not. I am thinking about how the E-rate helps close the digital divide. I have some understanding to get from you and your staff as to just how large these mega-mergers are, impacting on the FCC itself, and whether your funding is up to speed in terms of the responsibilities. There are questions that have already been raised about whether—why you take so long on some and so little time on others. I think we might want to clear that up.
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And my friends from Detroit are asking me about the MAS licenses. They want to know if they are going to be coming up again soon and what your feelings are on that. So that will probably take up the next 35 minutes. But the chairman asked me to be brief so I am trying to expedite this as much as I can.
Mr. KENNARD. Would you like me to respond on all of those points?
Mr. CONYERS. When you see the chairman reaching for the gavel, terminate very politely. That is usually the way that we get in as much as we can.
Mr. KENNARD. I would be happy to respond. With respect to the E-rate, it was contemplated expressly in the 1996 Telecommunications Act. I must say, as I was telling Congressman Hutchinson a little bit earlier, when the FCC was charged with creating a new funding mechanism to bring telecommunications services to schools and libraries around the country, we modeled the implementation after the universal service funding that has been in effect in this country for decades to fund telecommunications services to rural and remote areas.
One reason why we have a telecommunications network in our country that is literally the envy of the rest of the world, 94 percent telephone penetration, is because we have taken care of rural and remote telephone subscribers, just like we did with rural electrification in the earlier part of the century. So when Congress said that they wanted telecommunication services in schools and libraries and rural health care centers, we basically replicated that same funding mechanism because it has worked well in our country for many years.
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In fact we are seeing that in just a year and a half of implementation of the E-rate that that has been a very, very effective program. In the first year of the program, we wired about 600,000 classrooms to the Internet, many of which are in our poorest and most rural schools. Next year we will be able to wire 528,000 classrooms. So we are well on our way to closing this digital divide to make sure that our poorest kids get access to the same technology that kids in affluent and suburban areas do—basic computer technology—so those kids will have the skills that they need to compete in an information age economy.
Now, in terms of the FCC funding, we are like many Federal agencies today being called upon to do more with less. We have gone through our appropriations cycle now. As you know, it is not yet complete. We asked for $230 million in the Senate and they actually came back to us and said that for an agency as important as you are to the economy, we don't think this is enough. So I think for the first time in the history of the agency, the Senate actually gave us more than we asked for. Unfortunately the House gave us much less than we asked for. In conference, the conferees compromised on a number that will allow us to barely get by.
But the point is we are an under-resourced agency trying to deal with a very rapidly-changing and growing sector of the economy. In terms of timing of mergers, as you mentioned, I think that much of the concern, as I mentioned earlier, revolves around these mega-mergers that are unprecedented in scope and size and affect millions of consumers. Given their impact on our economy, it is important that the FCC take its public interest responsibilities very, very seriously.
So I am committed as chairman of the FCC to make sure that when people look back on these decisions, they will say that during my tenure we developed a comprehensive record, we took the time to encourage the public to participate, not just the industry participants, but consumer groups, State regulators, civil rights organizations, unions, people who have things to say about these transactions.
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I don't think I want to address specifically your question about Multiple Address Systems licensing, because I am not exactly sure what specific questions you had. But, of course, I would be happy to address anything specifically you have.
Mr. HYDE. Thank you very much, Mr. Kennard. Mr. Gekas.
Mr. GEKAS. Yes, I thank you, Mr. Chairman. First, without objection and with unanimous consent, I would like to enter a letter into the record from the NFIB, National Federation of Independent Business, supporting the legislation before the committee.
[The information referred to follows:]
| National Federation of |
| Independent Business (NFIB), |
| Washington, DC, November 2, 1999. |
Hon. GEORGE W. GEKAS,
House of Representatives, Washington, DC.
DEAR CONGRESSMAN GEKAS: On behalf of the 600,000 members of the National Federation of Independent Business, I am writing to express our support for the Taxpayer's Defense Act. This bill would ensure that federal agencies don't impose stealth taxes on the small business without Congressional approval.
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In recent years, federal agencies have increasingly resorted to creating new taxes to fund government programs. Examples that affect our members include the Federal Communications Commission universal service tax. Internet domain name taxes created by the National Science Foundation, and a proposed tax on electricity in the Administration's electricity restructuring bill. Agency taxes such as these currently total at least $3.5 billion annually and will only continue to grow.
Your legislation would help put a stop to these hidden taxes and make sure that Congress and the federal agencies are held accountable for their decisions about when to tax. The Constitution gives Congress the power to raise revenue—not unelected agency staff. The Taxpayer Defense Act would establish an expedited process for Congress to pass legislation to decide whether or not proposed agency taxes could take effect.
At a time when the tax burden on small business owners is at an all-time high, Congress needs to do all it can to fight more tax increases. We commend you for leadership in introducing this legislation and look forward to working with you to enact it into law.
Sincerely,
| Dan Danner, Vice President, |
| Federal Public Policy. |
Mr. GEKAS. Secondly, I would like to thank the gentleman from Michigan for being so solicitous of the children in Harrisburg, Pennsylvania, and for making reference as he did to the middle school. Actually, I was a product of that school system and I attended the predecessor to the Roland Intermediate School, the Camp Curtain Junior High School. I am going to be just as solicitous of the children in Detroit, Michigan, the first chance I get, and also of the taxpayers and the telephone consumers in Detroit who are paying for some of the efforts that are now going on in Harrisburg.
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We will discuss all of that, and so I welcome the access to the Internet that the children in Harrisburg and Detroit enjoy and reiterate what has become clear, that our bill is prospective. It does not even touch upon the children of the Roland Elementary School nor the children in Detroit. But it does determine, we believe, if passed, that Congress will be the final arbiter of what taxes shall be levied. If a bill had come up for Mr. Conyers and me to vote on to determine whether or not access to the Internet should be made available by funding by general tax, we would have supported that. And that is the real criterion here: Who should levy these kinds of taxes?
But now, to the chairman. To cut short everything that has transpired between you and me, Mr. Chairman, I am still concerned about how you take the license transfer authority that is granted to you and translate that into full-blown merger authority. We will try to make that more clear as we go along.
The Clayton Act and the statutory authority for license transfers seem to have gotten lost in a mix that I am not fully aware of. I acknowledge that. I cannot see my way through that jungle very well. Here is what I am concentrating on at this moment. You stated here, and before in different ways, that you are going to have a merger task force. Now, I ask you specifically, when this task force sits down, will they—I hope they do—promulgate rules that will govern their actions on future mergers?
If the answer is yes, I would like to see the normal procedure for promulgation of rules and the comment period and all that goes into it, so that at long last we will have before us a set of procedures that we will be able to determine are used for the purpose of these mergers. Is the answer yes or no? Are they going to be promulgating rules of procedure?
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Mr. KENNARD. Let me address the question in a slightly different way, if you will permit me, because I think there has been some confusion. The implication of your question is that the FCC has no rules that govern this area. We have many rules that govern the transfer and assignment of licenses in title 47 of the CFR.
Mr. GEKAS. Do they appear in the Federal Register?
Mr. KENNARD. Yes, absolutely, and they are promulgated pursuant to the Administrative Procedure Act. What I have asked this merger task force to do is to ensure more consistency in the review of transactions throughout the agency. There is so much happening at the FCC now in various sectors that I want to make sure that our competitive analysis is consistent and I want to make sure that all of our bureaus have——
Mr. GEKAS. Not to cut you short, Mr. Chairman, but that very analysis, that amalgamation of all of these hundreds of rules that you are talking about and the different applications, shouldn't they be consolidated with a new set of rules to be promulgated by the FCC through its new task force that you are creating so that we can be on notice from now on on what will be applied to mergers? Then we wouldn't have to have these hearings.
Mr. KENNARD. I think that would be possible, but it would be a very regulatory approach to the area because we have rules that govern license transfers in specific areas. In addition, license transfers are governed by the Administrative Procedure Act. So anyone who files a license transfer before the agency knows that the FCC has to deal with that proceeding pursuant to the APA.
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Mr. GEKAS. I understand all of that. I am simply saying that instead of letting people remain confused as I am—maybe I am the only one who is confused on what rules apply where, because even in answer to my letter you were never able to satisfy me, because I am ignorant of all of these things as to what procedures are being followed.
I am asking whether or not you will consider—and answer me as quickly as you can, I don't mean today, but as soon as possible—whether or not this new energetic task force that you are creating will be able to promulgate a set of rules that the whole world can see that you are operating on mergers, on merger applications these rules will apply. That is a simple request from a simple-minded Member of Congress so that we will know from now on, on mergers, what procedures should be followed. Please do that for us.
Mr. KENNARD. Congressman, the task force hasn't decided whether any additional rules are necessary. If they do determine that additional rules are necessary, they will be promulgated and——
Mr. GEKAS. If they don't decide to promulgate a new set of rules, then at least we should publish for the first time what rules they will be following in seriatim order so that we can see what they are following.
Mr. KENNARD. Mr. Gekas, the rules that currently govern this area are already published in the Code of Federal Regulations.
Mr. GEKAS. That is good. Let's accept that. Now I am saying for them to pull it out and put in a document, in a white paper, of what they will be following from these various rules that you say are already promulgated and already—I am asking for information here.
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Mr. KENNARD. Certainly. I would be happy to provide you a list of rules in the Code of Federal Regulations that currently govern this area.
[The information referred to follows:]
| 106th Congress of the United States, |
| House of Representatives, |
| Committee on the Judiciary, |
| Washington, DC, November 3, 1999. |
Hon. WILLIAM E. KENNARD, Chairman,
Federal Communications Commission, Washington, DC.
DEAR CHAIRMAN KENNARD: Thank you for participating in the Judiciary Committee's hearing today. I was gratified by your willingness to accede to a request I made of you. For clarity's sake, I reiterate my two-part request here:
1. If the ''merger review team'' which you have created recommends changes to the rules governing license transfers, I ask that you issue those rules through the notice and comment procedures that we all agree are required by the Administrative Procedure Act.
2. Even if new rules are not recommended by the ''merger review team,'' I ask that you have that team collect and forward to me specific cites for all FCC rules, substantive and procedural, that apply to license transfers.
By issuing new rules as the law requires, and by collecting in one document both the procedures and substantive standards that apply to license transfers, we can restore confidence in the fairness of the FCC function. We will also enhance predictability, which will increase investment and speed the development of the best telecommunications markets technology allows. Thank you again for taking this positive step.
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Very truly yours,
| George W. Gekas, Chairman, |
| Subcommittee on Commercial and |
| Administrative Law. |
| Federal Communications Commission, |
| Office of the Chairman, |
| Washington, DC, December 2, 1999. |
Hon. GEORGE W. GEKAS, Chairman,
Subcommittee on Commercial and Administrative Law,
Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR CHAIRMAN GEKAS: This letter responds to your November 3, 1999 correspondence concerning my testimony before the House Judiciary Committee, and your follow-up questions related to my remarks. I appreciate the opportunity to provide information concerning the Commission's license transfer and assignment processes to you and the other members of the Judiciary Committee.
Your letter requests that, if my ''merger review team'' recommends changes to the rules governing license transfers, the Commission issue those rules through notice and comment procedures pursuant to the Administrative Procedure Act (APA). As I have noted to you in previous correspondence, if any of the Commission's rules are changed as a result of the review process, we will follow the standard guidelines for doing so under the APA. At this time, the review process is in its preliminary stage and no rule changes are contemplated. I will continue to keep you apprised of any developments in this area.
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You also request a comprehensive list of specific citations for FCC rules, substantive and procedural, that apply to license transfers. You will find attached to this letter a list of sections from the Code of Federal Regulations (C.F.R.) responding to your request. Although I have provided the comprehensive list of citations requested by you. I would be remiss in providing you with this information if I did not note that Commission orders addressing specific transfer applications also provide parties and the public with applicable Commission precedent. Our application of certain substantive standards, such as the statutory public interest standard, is contained in these decisions. Accordingly, the transfer and assignment process necessarily involves the simultaneous application of the Communications Act, as well as both the Commission's rules and adjudicatory precedents. In this way, the Commission follows the well-established judicial model of applying statutes, rules and precedents during its adjudicatory processes.
In addition to the list of rule citations, I have provided references pertaining to the transparent nature of the transfer and assignment application processes. Specifically, this list contains Internet and web site information readily accessible by the public.
I trust that you will find this information valuable in your continued study of merger issues. Please do not hesitate to contact my staff or me if you have further questions.
Sincerely,
Attachment
cc:
The Honorable Henry Hyde (w/attachment)
The Honorable John Conyers (w/attachment)
The Honorable Jerrold Nadler (w/attachment)
63867a.eps
63867b.eps
63867c.eps
63867d.eps
63867e.eps
91
63867f.eps
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Mr. GEKAS. That is good. But more than that, when the task force, even if it should decide not to promulgate rules—I hope they do, but if they don't, to at least compile for our regular use in predicting what new mergers will have to undergo. That is what I am talking about.
Mr. KENNARD. I think that is feasible.
Mr. GEKAS. I yield back the balance of my nontime.
Mr. HYDE. Mr. Watt.
Mr. WATT. Thank you, Mr. Chairman. I just wanted to apologize to the chairman for not being here for his testimony. We are in the Banking Committee marking up a debt relief bill, and those of us who serve on both of these committees find ourselves in kind of a difficult position. So I am going to have to leave again to go back over there. I do want to applaud the tremendous work that Chairman Kennard has been doing at the FCC and encourage him to continue that magnificent work.
With that, Mr. Chairman, I will yield the balance of my time to Mr. Conyers.
Mr. CONYERS. I thank the gentleman from North Carolina. Let me throw out a few more questions on the record that you may or may not be able to address within the time frame that we are here.
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Chairman Kennard, it is 4 years after the passage of the 1996 Telecommunications Act. I am interested in your assessment of the state of local competition. What have you been able to do by way of imposing conditions on mergers to enhance competition? How do you assess the state of broadband competition, which hasn't been remarked on here so far at this hearing? Do we need to allow the Bells into data transfer, notwithstanding the long distance restrictions to encourage that? Some Bells want to get into high-speed data without opening up their local activities.
Another question that is swimming around up here is, wouldn't we be backing out of a commitment we made in the 1996 Telecommunications Act if we undercut the E-rate in the manner contemplated by one of the bills that is before us? And if there were to be an increase in the E-rate, wouldn't this fall under the scope of the bill and would be required to be reauthorized by Congress?
So that, plus all of these questions about—well, I don't know if I am hearing this correctly, but it seems to me that some are questioning even whether you have the authority to pass on mergers. I don't know if I heard that or not. But at any rate, these are a few more questions that you can answer now and send me any additional comments that you might have about them. Thank you.
Mr. KENNARD. Thank you. I would be happy to take a stab at these questions and if you need any additional information I would be happy to supplement the record of this proceeding.
The first question is about the status of local competition. We have a lot of work to do in that area. By local competition, I mean competition in the provision of local telephone service. If you survey the communications landscape today, we see competition flourishing in the wireless area. We see more competition developing in long distance, consumers with lots of competitive choices in those sectors.
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When you look at the local telephone market, however, we have a lot to do, particularly to get competition into the residential marketplace. Most Americans today still only have one choice for local phone service, and that is from the incumbent provider, usually one of the Bell Companies. A major thrust of the 1996 act was to remedy that situation by providing more competition.
We are working very hard at the FCC on that challenge. In the context of some recent mergers that we have seen, we have attempted to reconcile our merger review with the mandate that we increase competition in local phone service. So, for example, in the recent SBC-Ameritech transaction, the FCC could not determine that merger would be in the public interest absent some conditions to promote local competition. The proponents of that merger worked cooperatively with the FCC, we rolled up our sleeves and sat down and figured out how we could come to a resolution of that proceeding that would promote the ends of the Communications Act.
So that merger, when ultimately approved by the FCC, included conditions that would require the newly-merged entity, SBC, to promote competition within its region—to compete outside its region so that consumers would have more competition.
I was very pleased to see in the last week or so after the FCC approved the merger, that the company made a commitment to invest $6 billion for improving broadband for its consumers in its region. That is a wonderful development for competition. You asked me about broadband competition: Should we let the Bell Companies into long distance for their data business? I know that there are a number of bills pending in the Congress that address this issue. Obviously, it is Congress's prerogative.
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As head of the expert agency in this area, my own view is I do not think it would be a good idea. I don't think that it is lawful, first of all, under the 1996 act. And were Congress to change the act, I think that we would see the lessening of the incentives to get into long distance by the Bell Companies if they could provide long distance in the data world.
Your question about the E-rate, again if Congress wanted to do away with the E-rate—and it is certainly Congress's prerogative—it would be disastrous for the children of America. Thirty-eight million children have been touched by this program, many of them the poorest children in this Nation. To do away with a program that has been so successful, I think would be devastating for those kids and their ability to compete in our economy in the future.
You have one other question about our merger authority. Again as I indicated in my opening statement and also in my statement for the record, the FCC's review of mergers is not an antitrust review that is sort of cloaked in public interest rhetoric. We have a different approach to looking at these mergers. We have a different statute from the Department of Justice Antitrust Division, we have a different legal standard and a different burden of proof.
Just to give you an example, if the FCC were not to exercise this review, it is quite easy to conceive of mergers going through unconditionally, and you could have conceivably one local telephone company serving this entire Nation because the Department of Justice only looks at mergers that would lessen competition, unlike our review which looks to see if mergers would promote competition. And so it is a very different standard and a very different outcome, in fact, if you look at recent cases.
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Mr. CONYERS. I want to thank you very much.
Mr. HYDE. Mr. Chabot.
Mr. CHABOT. Thank you, Mr. Chairman. In the 1996 Telecommunications Act, Congress recognized the unique position of local telephone companies that serve fewer than 2 percent of the Nation's subscribers. One of these companies, Cincinnati Bell, happens to be in my district. Because of the unique circumstances and challenges facing the smaller companies, would you support a more expeditious review for mergers involving these companies who are obviously in a much different situation than the larger carriers, and would the so-called merger task force take this special status into account?
Mr. KENNARD. Congressman, we always try to be sensitive to the needs of small business when they have to appear before the FCC. There are many instances that I could cite when the FCC has attempted to be sensitive to the fact that not all telephone companies are the same size and a-one-size-fits-all approach to regulation doesn't necessarily work.
To your specific question, though, I don't think that it would be appropriate to categorically state that mergers involving smaller companies should be expedited because, again, when we review mergers we are acting in our quasi-judicial role. We have to make sure, first and foremost, that the public is protected. We have to develop a record, and we have to look at all of those issues so that we can ultimately write an order that satisfies the Administrative Procedure Act and will be upheld in the courts.
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And so I would suspect that a merger involving smaller companies would not present as many difficult and novel questions as some of these mega-mergers that we see. As a practical matter, I think they would be handled more quickly because they would be less complex. But I don't think that it would be prudent or in the public interest to categorically say that any merger involving small companies should just be rushed through.
Mr. CHABOT. Also I have serious concerns about the so-called Gore tax which the FCC has levied upon long distance customers throughout this country. I do not support this tax and I know that many of my colleagues oppose the tax as well. I believe that the FCC exceeded its authority in that particular area. Right now I would like to focus on the ever-increasing costs of the E-rate program.
As the FCC continues to increase the amount it taxes the telecommunications providers to pay for this program, these costs have obviously been passed on to the American consumer. But the FCC, in an attempt to hide the vastly expanding costs associated with this program, have criticized the disclosure of these taxes on consumer phone bills.
Chairman Kennard, I am very concerned about this and I know many of my colleagues are concerned as well. Don't you believe that the consumers have a right to know that Federal taxation has caused an increase in their phone bills? Don't consumers and taxpayers have a right to know that they are being forced to contribute money to this government program?
Mr. KENNARD. First, with due respect, I have to take issue with a couple of the premises of your question. First of all, we disagree. This is not a tax. The courts have so held. Universal service funding in America has never been considered a tax, either as a matter of policy or a matter of law. I just want to make sure that the record is clear on that point, at least from my perspective.
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Mr. CHABOT. The record is clear to the extent that you say it is not a tax and I and many others say it is a tax. I believe it is a tax, but go ahead and continue.
Mr. KENNARD. I would also take issue with your statement that we are attempting to hide how this program is funded. I believe fervently that consumers should be given as much information as possible about what they are being asked to pay on their phone bills. In fact, the FCC under my tenure has adopted rules what we call truth-in-billing policies that require full disclosure on phone bills.
I talked to a lot of consumers and they are quite confused and concerned about the fees and charges that appear on their phone bills. We are trying to resolve that for them and make it easier for them. There has been no effort to get carriers to hide the charges that they assess for universal service.
Now, I have had some problems with carriers who have taken advantage of this program and we have—in fact, we have an ongoing review now of one carrier that we think is using universal service as an excuse to charge consumers more than is required to fund the program. So there are no attempts to try to hide these fees. Consumers have a right to know and should know, and as long as I am chairman, I will do everything that I can to ensure that they have that information.
Mr. HYDE. The gentleman from Massachusetts, Mr. Delahunt.
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Mr. DELAHUNT. Mr. Kennard, when it comes to consumers and taxpayers in the American public, have you as Chair, or has the FCC ever considered letting the public know the benefits that this universal service provision provides to American children in terms of their opportunities in the future?
Mr. KENNARD. I think it is an excellent question and I think millions of American children are enjoying the benefits of this program every single day.
Mr. DELAHUNT. Can you give us the figures again for those children, particularly in those underserved areas where it is making a real difference?
Mr. KENNARD. Certainly. In the first year of the program, we invested $1.7 billion to wire our schools and libraries. That resulted in about 600,000 classrooms getting Internet access for the first time. We are a part of the way through the second year. We anticipate that we will wire an additional 528,000 classrooms. That will touch millions and millions of America's school children. I have been in many of these schools, some of our poorest schools in the country, and I have sat down with kids who have learned to boot up a computer for the first time because of this program. It is all over——
Mr. DELAHUNT. Let me ask another question, because in your statement you have indicated that the work of the Commission has become significantly more important than it might have been years ago. But given the relationship it now has with our total economy, in this information age, would you accept the premise that educated workers who understand the Internet, who are trained in the Internet, are absolutely essential to the future of our economy and to continue the prosperity that we are currently enjoying?
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Mr. KENNARD. Absolutely. I think your question will be far more eloquent than my response, but I couldn't agree more with the premise of your question. By the year 2000, about 60 percent of the jobs in America will require some skills with computers. I am not talking about white collar jobs but all jobs. Whether you are delivering for FedEx or working in a department store or in a government agency, computers are essential to the way that people process information in our society. That means that if we do not train our young people to use these devices, we will lose our competitiveness worldwide. It is vitally important for the next generation——
Mr. DELAHUNT. Absolutely essential for the worker of today, and particularly the worker of tomorrow, to be technologically literate. Is that a fair statement?
Mr. KENNARD. That is absolutely true.
Mr. DELAHUNT. If we eliminated this E-rate program, would we be putting our—not just our children, but our economy and our Nation at a disadvantage?
Mr. KENNARD. That is absolutely right. We are so privileged in this country because—we invented the Internet in this country——
Mr. DELAHUNT. I didn't intend to go this route, but how many mergers has the Commission denied that you would describe as of some significance and consequence?
Mr. KENNARD. To date, the FCC has not—let me just address the question since the 1996 act when the world sort of changed.
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Mr. DELAHUNT. With that qualification.
Mr. KENNARD. The FCC has not outright denied any mergers. Some mergers that have been discussed with us were not filed, because it was clear that they would not be procompetitive or consistent with the act. But the major mergers, we have not denied any, although we have proposed some market opening procompetitive conditions on some of them to reconcile them with the public interest.
Mr. DELAHUNT. Mr. Chairman, could I have an additional 30 seconds?
Mr. HYDE. Without objection.
Mr. DELAHUNT. I would suggest that you continue, Mr. Chairman, to accept gratefully whatever largesse may come your way because members of this committee in the past have asked Mr. Klein whether he is sufficiently funded. I think it is absolutely essential. I hear some of the concerns that others have expressed about the timeliness of your decisions. I have no doubt, given what I presume to be the funding level that has probably remained maintained a steady in the face of increasing demands, and given the role that you play, we have got to provide adequate resources to deal with the issues that you are faced with.
You mentioned earlier that the Senate gave you more than what you were looking for. We have done that in the House when it comes to the Defense Department. We give the generals as a rule a lot more than they are looking for. So don't be shy. I yield back. Thank you.
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Mr. HYDE. Thank you. The gentleman from Arkansas, Mr. Hutchinson.
Mr. HUTCHINSON. Thank you, Mr. Chairman. I want to express my appreciation for your testimony today and I wanted to follow up. You indicated that you and the Commission had approved some license transfers in 9 weeks, 10 weeks, 3 1/2 months, but the mega-mergers get more scrutiny. I noted that the SBC-Ameritech merger received 15 months of scrutiny from the FCC. Obviously, one question is, why did it take so long?
But even more significantly, whenever there is a 15-month review of a merger of that magnitude, the signal is sent to future industry leaders that might consider a merger that it is going to take a long time, and it may be a negative factor in their consideration, as well as the fact that there are not any standards that are specific that would guide in the review by the FCC. So my question to you is: Was the time for review itself developed by the FCC to send a negative signal to potential industry giants that might consider a merger in the future?
Mr. KENNARD. Absolutely not. In fact, the timing of merger review at the FCC has not seemed to deter any of these companies from merging, because you can hardly pick up the business pages these days without reading about yet another telecommunications merger. I think that is because most of them do go through quite quickly. I would like it to be even quicker, but the average merger goes through in less than 6 months. The SBC-Ameritech transaction was phenomenal. We have never seen a merger of that size and scope before. It covers about a third of the phone lines in the U.S.
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There came a point in that merger where we had developed a record and had public hearings, and based on the record before us we would have said no, this merger is not in the public interest. So I decided that we would take another stab at it——
Mr. HUTCHINSON. Let me go on. You have answered my question. I just want to make an additional comment that in reference to the standards review, I know you made the case that title 47 has certain rules. You refer to applications, communications, treating of documents; those are really administrative procedure type regulations that you have adopted.
I certainly think it would be appropriate that you do adopt standards for review if you are going to engage in this extensive review of these potential mergers. I know that you are waiting on your task force, which is wise, but I can't imagine somebody coming back and saying that we shouldn't have any guidelines. In fairness to anyone considering this, whether you intended it or not, 15 months is a discouraging factor for industry. I am not saying they should go through. I think they should have great scrutiny, but they have to have standards by which they need to operate.
I did want you to comment, though, on one thing. I was reading the preparatory material and there was a reference to a letter by Representative John Dingell, who wrote you and was somewhat critical of the review process and said, ''The proper course of action is to commence an enforcement proceeding to compel that company to do so. Any such action taken by the Commission should be wholly independent of the merger approval process which requires a qualitatively different standard of review.''
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And so if you compare what you have done in the review process versus the Department of Justice, which one took longer, for example, in the SBC-Ameritech?
Mr. KENNARD. The Justice Department gave its approval before we issued our approval. We coordinated with the Justice Department and we do work together to the extent that they have—they develop a record so that we don't duplicate the production of documents and whatnot.
I would like the opportunity to respond to your question about establishing rules, if I may. It is absolutely true, we do have procedural rules that govern the processing of these applications that are put before us. That is completely appropriate. One of the things that the merger task force will do is take a look at those to make sure that they are relevant in light of these novel mega-mergers. But the underlying substantive standard itself has been developed through case law over many years.
Again, we are acting in our quasi-judicial role in reviewing these transactions. I can't even conceive of a process for developing a public interest standard and incorporating it in a set of rules, because we used the common law tradition of stare decisis in developing a record there. I think that would be a very cumbersome rulemaking and very regulatory process, notwithstanding the fact that it would probably be unsuccessful because we haven't been able to predict the issues that have arisen in these mega-mergers. They are questions of first impression that are very novel. We couldn't have predicted all of the public interest questions that have arisen in SBC-Ameritech or AT&T–TCI or MCI-Worldcom. These have never happened before. So to try to write a rule or a Napoleonic Code, if you will, for this area of the law, would be very cumbersome.
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Mr. HUTCHINSON. I thank you for your comments, but I think that you can still broadly word some standards that would, if nothing more, codify the case law that has already been developed so that it is clear. I suppose they could look back at the cases but I don't think that since the 1996 Telecommunications Act there has been an extraordinary amount of case law that would give that guidance. I think it would be appropriate to have some standards. I thank the chairman.
Mr. HYDE. The gentleman's time has expired. Chairman Kennard, do you support H.R. 2701? I couldn't tell from your presentation.
Mr. KENNARD. Yes. I am sorry, Mr. Chairman, I didn't elaborate on that. First, let me say that I am quite sympathetic to the predicament that the MAS applicants found themselves in as a result of the licensing process at the FCC. If the Congress believes that these applicants should be compensated above and beyond what we have already given them, refund of their license fees, then that is certainly your prerogative and we would implement it as faithfully as we can.
Mr. HYDE. You take no position for or against it?
Mr. KENNARD. That is correct. All I can say is we do not have clear statutory authority to compensate those folks.
Mr. HYDE. The most overused word in Washington is ''outrageous.'' it just is. Maybe there is a reason why it is so apropos so often. But when you submit $15,000 to your government in fees for certain services and the government hangs onto it for around 7 years and then returns it and you not only—they have held your $15,000 for 80 months but you are out another $12,000 in legal fees and engineering fees to get ready to make the applications, and your government just says, sorry, we just didn't get around to having the lottery or the auction or whatever it was.
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I am surely not blaming you, Chairman Kennard. This happened before you were there, although you were at the very end, I am happy to say. But the government—the big old government pushes little people around and we ought to do something about it. This was a pushing around of little people, and maybe some not so little, but it was an abuse. It was morally deficient, it seems to me, to hold onto people's hard-earned money and then give it back to them without interest. I don't know what that money was used for while the government had it, but I am sure it was put to good use. So I just—I think this is one way to make up for an abuse that really is inexcusable. So I was interested in whether you supported or not.
Just one more comment. We have heard that the fifth circuit has found that these are fees and not taxes. I have got the case here. And not to be too—to set too fine a point on it, the actual case doesn't reach that question. It does in a footnote which is dicta. I have it right here and what the case says, ''In its initial brief, however, Celpage raises only the origination clause challenge and does not raise a taxing clause claim until its reply brief, therefore we will not consider it.''
Then in the footnote it says, ''We don't consider arguments raised for the first time in a reply brief.''
Then they go on to say in dicta that it is a fee. ''at least insofar as paging carriers, the universal service contribution qualifies as a fee because it is a payment in support of a service.'' but that is a footnote, it is not binding and it is dicta and the case doesn't reach that question. That is a point proving nothing other than that we tend to claim too much sometimes for cases. I think that is what has happened here.
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I have other questions but we have five more witnesses. It is approaching high noon.
Mr. WEXLER. Mr. Chairman, may I just have an opportunity?
Mr. HYDE. Surely. I didn't see you there. I apologize. Surely you may have an opportunity.
Mr. WEXLER. I will be quick.
Mr. HYDE. Mr. Wexler.
Mr. WEXLER. Thank you, Mr. Chairman. I just feel compelled to compliment you. I think the job you do is terrific. I think your zest for the public interest is really quite refreshing. I was wondering if you could help me out. I am privileged to represent some of America's most patriotic senior citizens.
To give you a sense of it, I think the per capita use of Viagra is bigger in my district than any other place in the world. These people have seen it all. They have seen the world wars, Korea, Depression, everything. When I go into the club houses and by the pools I am not hearing about duopolies or transparency or a lot of the words that are used here. What I am hearing is hey, Wexler, they—they—they broke up the phone company and now it seems they are putting back all of the other companies, so what are they doing?
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I would like to ask you two questions, if I could. What do I say to that 78-year-old lovely grandmother who is not calling dozens and dozens of people every month? She is calling her kids and grandchildren in New York or Philadelphia and a couple of friends. What do I tell her is in this for her in terms of the mega-mergers? How does she benefit from the mega-mergers?
And based on your responses to Mr. Delahunt's question, and that based on past performance once the applications are filed for the mergers—and I am not suggesting with respect to MCI and Sprint that the mergers should or should not happen—but just assuming that past performance is what happens here and that merger is ultimately approved, even with changes or whatever, that it is approved, would it seem that in order not to the have a duopoly that we should have a triopoly, if that is the right word? Would a triopoly with the Bell companies having basically some broad-based entrance into the long distance market, would that enhance or decrease competition for that 78-year-old lovely grandmother?
Mr. KENNARD. Everyone's situation is somewhat different in the way they use telecommunications today. The big picture is that people in America today have many more services than they had even 5 years ago. That is a good thing. For your particular constituent, the 78-year-old grandmother, she is paying less for long distance today than she did 3 years ago, no question about that.
We have a problem with some low-volume users of long distance who are finding in some cases their charges going up, which we are addressing in an open proceeding. But for the enterprising consumer, the person who shops around, maybe uses a dial-around service or calling card, you can always get a better deal today than you could 3 or 5 years ago.
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The main challenge that we have is to make sure that we don't create too much consolidation so that we start to turn the clock back on competition, because right now we have a lot of money pouring into this field and companies getting started up—and that is a good thing. That is why it is so important that we scrutinize these transactions carefully to make sure that consumers are going to be benefited.
To answer your other question about whether it is a monopoly, duopoly, or something else, as a general rule we like to see at least three, and preferably four competitors in every product market because that is when things get most interesting and good for consumers. That is what we are striving to do. It gets complicated because you have to look at various geographic and product markets, but that is our ultimate goal.
Mr. WEXLER. Thank you very much. Thank you, Mr. Chairman.
Mr. HYDE. Thank you very much, Mr. Wexler, and certainly thank you, Mr. Kennard, for a most stimulating and illuminating presentation. I hope that you will come back and see us from time to time.
Mr. KENNARD. I would be delighted to. Thank you, Mr. Chairman.
Mr. HYDE. Some members could not be here and had to leave, but would like to ask questions. May we submit them in writing to you and, at your convenience, expect answers?
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Mr. KENNARD. I would be delighted to do so.
Mr. HYDE. Thank you very much.
[The information referred to follows:]
| 106th Congress of the United States, |
| House of Representatives, |
| Committee on the Judiciary, |
| Washington, DC, January 6, 2000. |
Hon. WILLIAM E. KENNARD, Chairman,
Federal Communications Commission, Washington, DC.
DEAR CHAIRMAN KENNARD: I appreciate your appearing before the Committee on the Judiciary to testify at the legislative hearing on H.R. 2533, the ''Fairness in Telecommunications License Transfers Act of 1999''; H.R. 2636, the ''Taxpayer's Defense Act''; and H.R. 2701, the ''Justice for MAS Applicants Act of 1999'' on Wednesday, November 3, 1999.
A Member of the Committee has asked that you answer additional written questions for the record. I have attached a copy of the questions. I would appreciate your answering the questions in writing and returning your answers to the Committee for inclusion in the hearing record at your earliest convenience.
If the Committee can provide you with any additional information, please do not hesitate to have your staff contact Joseph Gibson by phone at (202) 225-3951 or by fax at (202) 225-7682. I appreciate your participation in our hearing.
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Sincerely,
cc: Hon. John Conyers, Jr.
QUESTION FOR CHAIRMAN KENNARD
QUESTION FROM REPRESENTATIVE GRAHAM
I've heard speculation that the MCI WorldCom/Spring merger is good for the shareholders of the two companies on the theory that it creates an effective duopoly in the long distance market (with AT&T and WorldCom having nearly 90% of the long distance market). Long distance relief for the Bell companies would alleviate this duopoly and decrease cost to consumers by increasing the number of long distance providers. What are the prospects for broad-based, long distance relief for the Bell companies prior to this mega-merger closing?
| Federal Communications Commission, |
| Washington, DC, April 13, 2000. |
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
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DEAR CHAIRMAN HYDE: This letter responds to Representative Graham's question for the record from the November 3, 1999 Judiciary Committee hearing. Representative Graham asks the following question:
I've heard speculation that the MCI WorldCom/Spring merger is good for the shareholders of the two companies on the theory that it creates an effective duopoly in the long distance market (with AT&T and WorldCom having nearly 90% of the long distance market). Long distance relief for the Bell companies would alleviate this duopoly and decrease cost to consumers by increasing the number of long distance providers. What are the prospects for broad-based, long distance relief for the Bell companies prior to this mega-merger closing?
Answer:
As you know, the Commission recently approved Bell Atlantic's section 271 application for New York and is currently considering an application from SBC for Texas and it is expected that a few more state-specific applications will come in during the year. As soon as BOCs sufficiently open their local markets to competition in accordance with section 271, they will become powerful competitors to all existing interLATA carriers, and we look forward to that time.
I trust that this answer will allow you to close the record on your hearing. If you have any further questions, please feel free to contact me.
Sincerely,
cc: The Honorable John Conyers
Mr. CONYERS. Mr. Chairman, could I thank Chairman Kennard as well for a very expansive description of your duties and how you see things happening. I think it was a very helpful hearing.
Mr. KENNARD. Thank you very much. I appreciate that.
Mr. HYDE. Our third panel consists of five witnesses with various perspectives on the three bills that are before us today.
Our first witness is Mr. Roy Neel, president and chief executive officer of the United States Telecom Association. He is a graduate of Vanderbilt University and Harvard University. He served in the Navy during Vietnam before returning to Nashville to become a sports writer. Beginning in 1977 he served as a top aide to Vice President Gore during the Vice President's congressional career. During the Clinton administration he served as the Vice President's chief of staff as well as President Clinton's deputy chief of staff. He took his current position in January 1994.
Our next witness is Mr. Richard Weening, executive chairman of Cumulus Media, a company which owns radio stations. Mr. Weening is a graduate of St. John's University in Minnesota. He has owned and invested in numerous media companies over the past 20 years and launched his current business in 1989.
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Next is Mr. Ron Binz, the president of the Competition Policy Institute. He is a graduate of St. Louis University and the University of Colorado. Mr. Binz has been active in telecommunications and electricity issues for many years, serving as Colorado's consumer counsel for 11 years and as a private consultant. He also owns a winery in Colorado and took his current position in 1995.
Our next witness is Mr. Kent Lassman, the deputy director of Technology and Communications Policy for Citizens for a Sound Economy. Mr. Lassman is a graduate of Catholic University. Before coming to CSE, he worked at the Progress and Freedom Foundation. He has written and spoken widely on a number of technology issues.
Our final witness is Mr. Bob Ryan, a constituent of mine from Glen Ellyn, Illinois. In 1992, his partnership paid a $15,500 filing fee and applied for a license to use radio spectrum for a multiple address system in an FCC lottery. That system would have performed credit card verifications through wireless technology. After 6 1/2 years waiting, the FCC refunded the original filing fee and informed him they would not be holding the lottery. Mr. Ryan received no interest on his money nor any recompense for the costs he incurred in preparing the application, which I understand was approximately $12,000. He is here today to testify on behalf of H.R. 2701, a bill I have introduced to help him and many other MAS applicants to recover their losses. So we shall begin with Mr. Neel.
STATEMENT OF ROY NEEL, PRESIDENT, UNITED STATES TELECOM ASSOCIATION, WASHINGTON, DC
Mr. NEEL. Thank you, Mr. Chairman. The local exchange carriers throughout the country support H.R. 2533, the Fairness in Telecommunications License Transfers Act, for two basic reasons. First, there have been inordinate delays in approving mergers, critical mergers in the telecom industry. These delays have several effects that are really important. The first thing they do is they freeze corporate planning, and that has a very insidious effect. It makes these companies less competitive in global markets; it makes these companies and their employees more vulnerable to international competitors who come into our markets with none of these merger issues when they put together giant conglomerates overseas. It stalls investment decisions. That means jobs, because when a company like Ameritech or SBC or GTE or Bell Atlantic is not able to make those investments in a timely basis, then jobs are not going to be created, families are going to be put at risk, and communities are going to suffer.
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The next issue that is absolutely critical here is that the FCC has, in fact, used this very narrow merger authority that you have given it to extract expansive concessions on nonmerger issues. Let me just give you one example. In the SBC-Ameritech merger, the FCC basically said we are not going to approve this merger unless you do a whole variety of things in your local markets. Now, SBC and Ameritech are required to do this under the Telecom Act which the Congress passed in 1996. The FCC has expansive authority under that act to bring about the emergence of local competition throughout that act. But instead of pursuing it through those venues, they used the merger application to extract massive concessions. Most companies basically had no choice.
Here is the FCC order on that merger approving it. It is full of conditions that have absolutely nothing to do with the merger. They are all done under the narrow definition or under the expansive definition the Commission uses on the public interest standard. That is really the issue that you have to deal with today.
In the 1996 act, you, Mr. Chairman, in particular, were very active and vocal on restraining the FCC's authority to move into these nonmerger areas. You repealed that. The authority the Commission has is very narrowly limited to considerations related to the transfer of radio licenses. But the Commission is able to use the public interest standard as leverage to open up a whole range of nonmerger issues. What this does is it slows this merger process down, it is duplicative with the Department of Justice, it adds a whole new layer of issues that these companies have to consider before they do merge. It vastly extends the yardstick or the goal line for the other local competition questions.
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And I am compelled to take issue with something Mr. Conyers said earlier. With all due respect, Mr. Conyers, these Bell companies are not seeking to get into the long distance market without opening their local markets. They are the only telecommunications providers that are required to open their markets. They have every incentive to do it to get into the long distance business.
They can't do it. Just look at the applications that have rolled up to this Commission through the States and have been denied because they haven't met those requirements. They are required to do that, they know they have to do it, they have spent a billion dollars to open those markets to competitors, even though it cost them customers and it cost them a great deal within their companies. Ameritech in Michigan is a great example of this. So I would just respectfully differ with that suggestion.
But just to summarize, you should narrow the FCC's authority. You should require the Commission to very clearly define what it means by the public interest standard as it considers these mergers, so as to restrict an agency from using that very narrow term to moving to all kinds of areas that the Congress didn't intend.
One other thing, briefly. We would strongly urge you to place specific time limits on the consideration of these mergers in your bill and not simply leave it to the Commission to determine how long it should take. We believe it is good legislation. We urge you to move on this legislation and we will do everything to help you. Thank you, Mr. Chairman.
Mr. HYDE. Thank you, Mr. Neel.
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[The prepared statement of Mr. Neel follows:]
PREPARED STATEMENT OF ROY NEEL, PRESIDENT, UNITED STATES TELECOM ASSOCIATION, WASHINGTON, DC
SUMMARY
USTA's Position
USTA believes that, at a minimum, the FCC merger review process ought to be statutorily shortened or even quite possibly eliminated altogether, except for spectrum management issues, as the review by the FCC has become truly duplicative of the review by the DOJ. FCC merger review of telecommunications mergers in an era of no barriers to entry and competition is an anachronism with all of the trappings of the legislation from which the Communications Act was derived—the Interstate Commerce Act, written for railroad regulation in 1887.
Delay is our principal and most compelling concern. USTA has developed a legislative proposal that gives the FCC a maximum of 180 days to review a telecommunications merger from start to finish for larger companies and 90 days for smaller companies. This is important because everyone in the business world today operates at rapid Internet time, except the FCC. These merging companies need certainty and prompt action in an era where technological advances are measured in weeks and months, not years.
USTA's View of H.R. 2533
USTA believes that H.R. 2533 is a positive contribution to the legislative debate regarding the reevaluation of the FCC's role in the telecommunications merger review process. First, it repeals the FCC's remaining and unneeded Clayton Act authority. Second, it requires the FCC to establish Administrative Procedure Act Merger Review rules which must include a definition of the public interest standard. Third, it requires the FCC to establish in these rules the period of time the FCC has to approve or deny an application.
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Although this piece of legislation is a positive development, USTA strongly urges that H.R. 2533 be modified in several important ways. First, the legislation infers that the extant FCC authority to review telecommunications mergers is appropriate, with the only problem being the absence of prescribed rules of procedures, by which to conduct the review. USTA would urge that the legislation codify what we believe to be Congress' original intent when it repealed Section 221(a), prohibiting the FCC from using its ministerial license and line operation transfer authority to replicate what the DOJ does in the merger review process thus resulting in a lengthy, expensive and second comprehensive merger review. No other industry that we are aware of is subjected to two such comprehensive reviews.
Second, USTA urges that the legislation not leave the time period for FCC action up to the FCC itself. We believe that the legislation must specify that the FCC process, from start to finish, should not exceed 180 days, with a shorter time of 90 days or less for mergers that do not result in companies providing more than two percent of the nation's access lines.
STATEMENT
Thank you, Mr. Chairman, for giving me, on behalf of the United States Telecom Association (USTA), the opportunity to testify on telecommunications mergers and particularly on your legislation H.R. 2533 ''Fairness in Telecommunications License Transfer Act of 1999.''
I am President and CEO of USTA which has for 102 years represented local exchange carriers. Today USTA has over 1100 members. USTA is extremely interested in your legislation and the issue of telecommunications mergers. The current telecommunications merger review process takes far too long in large part because of the duplicative and redundant roles of the Federal Communications Commission (FCC) and the Department of Justice (DOJ).
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We read in newspapers and magazines, see on television and hear on the radio extensive coverage concerning the merger of large telecommunications companies such as MCI/Worldcom, AT&T/TCI, SBC/Ameritech and MCI/Worldcom/Sprint, but I would also like you to be aware that there are many other telecommunications mergers between smaller telephone companies that also get caught up in the maelstrom of this byzantine telecommunications merger review process. These smaller company mergers are not mergers between Fortune 100 companies that will move markets or affect significantly the competitive telecommunications landscape globally, nationally or even regionally. These smaller company mergers, such as Alltel's acquisition of Aliant, achieve only efficiency and cost savings. Yet they must also go through two comprehensive federal agency merger reviews. No other industry must have their mergers comprehensively reviewed by two federal agencies plus the state agencies in the state where they provide service.
The House Judiciary Committee and staff played a key role in the passage of the Telecommunications Act of 1996. I remember full well that after the House had passed H.R. 1555 and the Senate had passed S. 652, the House, included as Conferees members of the House Judiciary Committee. I also vividly remember one day late in 1995 while the Conference Committee was resolving differences between those two bills discussing with my industry colleagues a proposal being advanced by Chairman Hyde and the other House Judiciary Conferees to repeal Section 221(a) of the Communications Act of 1934 (47 U.S.C. 151 et seq.).
Section 221(a) from the time of its passage in 1934 to the time of its repeal on February 8, 1996, had given the FCC the authority to review mergers and to give the FCC the authority to make inapplicable any other law (e.g., antitrust laws) that would make the proposed transaction unlawful. Section 221(a), prior to its repeal, was the FCC's statutory merger authority and provided as follows:
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FCC MERGER AUTHORITY REPEALED BY THE 1996 ACT
SEC. 221. (a) Upon application of one or more telephone companies for authority to consolidate their properties or a part thereof into a single company, or for authority for one or more such companies to acquire the whole or any part of the property of another telephone company or other telephone companies or the control thereof by the purchase of securities or by lease or in any other like manner, when such consolidated company would be subject to this act, the Commission shall fix a time and place for a public hearing upon such application and shall thereupon give reasonable notice in writing to the Governor of each of the States in which the physical property affected, or any part thereof, is situated, and to the State commission having jurisdiction over telephone companies, and to such other persons as it may deem advisable. After such public hearing, if the Commission finds that the proposed consolidation, acquisition, or control will be of advantage to the persons to whom service is to be rendered and in the public interest, it shall certify to that effect; and thereupon any act or acts of Congress making the proposed transaction unlawful shall not apply. Nothing in this subsection shall be construed as in any wise limiting or restricting the powers of the several States as now existing to control and regulate telephone companies. (Emphasis Added)
As a consequence of its role in reviewing telecommunications mergers, the FCC in 1996 also had complementary authority under Sections 18 and 21 of the Clayton Act.
The Telecommunications Act of 1996 Merger Review Provisions
On February 8, 1996, the Telecommunications Act of 1996 was signed into law by President Clinton. This Act repealed Section 221(a) as the House Judiciary Committee Conferees had been seeking during Conference Committee consideration.
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We at USTA believed at the time of enactment that the DOJ would as a result of the repeal of Section 221(a) become the dominant agency in telecommunications merger review, with the FCC's role being diminished to that of administratively reviewing the transfer of radio licenses from the entity to be acquired to the acquiring party. I do not recall any of us thinking then that the repeal of Section 221(a), the FCC's only specific statutory merger authority, would result in two comprehensive telecommunications merger reviews by two separate agencies of the federal government. I also do not believe that this was your intent either.
Section 601(b) of the 1996 Act, to refresh our mutual recollection, was entitled ''Antitrust Laws'' and provided as follows:
(b) ANTITRUST LAWS.—
(1) SAVINGS CLAUSE.—Except as provided in paragraphs (2) and (3), nothing in this Act or the amendments made by this Act shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws.
(2) REPEAL.—Subsection (a) of section 221 (47 U.S.C. 221(a)) is repealed.
(3) CLAYTON ACT.—Section 7 of the Clayton Act (15 U.S.C. 18) is amended in the last paragraph by striking ''Federal Communications Commission.''
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Please take particular note of paragraphs ''(2) Repeal'' and ''(3) Clayton Act.'' These provisions we believed were intended to repeal the FCC's statutory merger authority. So the FCC's continuing, uninterrupted and unchanged, but possibly even more aggressive role in the merger review process, even after the passage of these two cited paragraphs, comes as somewhat of a surprise to us, and I will wager to you and this Committee, as well. The recent set of conditions, such as penalty payments of up to $1.125 billion dollars to the U.S. Treasury for failure to meet performance goals; unbundled loop discounts; resale discounts; access to cabling in multi-unit properties; and DSL rollout plans, imposed by the FCC in the SBC/Ameritech Merger Order obligate that company to meet requirements that are well beyond anything that the Communications Act or FCC rules currently require. The FCC is now using merger reviews as a policy making vehicle when their role is supposed to be review of license transfers.
If the FCC's review of mergers was not intended to be in any way altered or diminished, why were these two paragraphs quoted above enacted? Just to eliminate the FCC's ability to grant antitrust immunity? I did not think so at the time of passage. Page 201 of the Conference Report for the 1996 Act (H.R. Conf. Rep. 104–458 at 201) seemed to us to clearly capture the purpose of these changes when it said:
The new language contains a conforming change to clarify that these mergers will now be subject to Hart-Scott-Rodino review. By returning review of mergers in a competitive industry to the DOJ, this repeal would be consistent with one of the underlying themes of the bill—to get both agencies back to their proper roles and to end government by consent decree. The Commission should be carrying out the policies of the Communications Act and the DOJ should be carrying out the policies of the antitrust laws. The repeal would not affect the Commission's ability to conduct any review of a merger for Communications Act purposes, e.g., transfer of licenses. [Emphasis added]
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Does it not seem clear what your Congressional intent was here? Section 221(a), which was being repealed by Section 601(b)(2) of the 1996 Act, had authorized the FCC to determine whether any ''. . . proposed consolidation, acquisition or control will be of advantage to the person to whom service is to be rendered and in the public interest . . .'' In other words from 1934 to 1996, the FCC had a clearly specified statutory role in reviewing mergers of telephone companies from a public interest perspective, but the 1996 Act repealed that authority. Section 221(a) was, in other words, the FCC's merger review authority. As the Conference Report indicates, the Congress appears to me to have intended ''returning review of mergers in a competitive industry to the DOJ . . .'', leaving only license transfer review to the FCC.
Concurrently, Section 601(b)(3) of the 1996 Act also repealed the FCC's authority under the Clayton Act section [15 U.S.C. §18] dealing with ''Acquisition by one Corporation of Stock of Another.'' The FCC's role after the repeal of Section 221(a) and the Clayton Act repeal was intended, as we understood it at the time of passage and as the Conference Report seems to indicate, to reduce the FCC merger review role to a review of ''the transfer of licenses.'' The FCC's current merger review surely goes well beyond the review of the ''transfer of licenses.'' The merger reviews conducted by the FCC today are even more extensive than they were prior to the passage of the 1996 Act which repealed the FCC's merger authority. This new expanded review trend began with the Bell Atlantic/NYNEX merger, and each successive merger simply adds new appraisals, analysis and demands to the process, as the recent SBC/Ameritech Order amply demonstrates.
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The FCC merger review today is, at a minimum, the same as it was prior to the passage of the 1996 Act. The FCC uses, in lieu of Section 221(a), its Communications Act authority under the Section 214(a) with respective to the acquisition and operation of lines, Section 310(d) regarding the transfer of radio licenses and Section 4(i) authorizing the FCC to ''perform any and all acts . . . as may be necessary in the exercise of its functions.'' These three Communications Act provisions have more than compensated the FCC's loss of its direct merger review authority under the former Section 221(a) and some of its Clayton Act authority. Finally, the authors of the 1996 Act eliminated the FCC's authority under 15 U.S.C. §18, but not under 15 U.S.C. §21 which has to be an inadvertence because 15 U.S.C. §21 cross references 15 U.S.C. §18, the FCC role that was deleted by 601(b)(3) of the 1996 Act. H.R. 2533 corrects this Clayton Act inadvertence.
Last week no less an expert on federal agency telecommunications merger reviews than FCC Commissioner Michael Powell, who had been Chief of Staff at the Antitrust Division of the DOJ before going to the FCC, testified along with Chairman Kennard and the other Commissioners before the Subcommittee on Telecommunications of the House Commerce Committee. Commissioner Powell testified that the DOJ's merger review and the FCC's merger review are analytically the same. Was this what you intended when you repealed Section 221(a)? I think not.
USTA's Position
USTA believes that, at a minimum, the FCC merger review process ought to be statutorily shortened or even quite possibly eliminated altogether, except for spectrum management issues, as the review by the FCC has become truly duplicative of the review by the DOJ. FCC merger review of telecommunications mergers in an era of no barriers to entry and competition is an anachronism with all of the trappings of the legislation from which the Communications Act was derived—the Interstate Commerce Act, written for railroad regulation in 1887.
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Delay is our principal and most compelling concern. USTA has developed a legislative proposal that gives the FCC a maximum of 180 days to review a telecommunications merger from start to finish for larger companies and 90 days for smaller companies. This is important because everyone in the business world today operates at rapid Internet time, except the FCC. These merging companies need certainty and prompt action in an era where technological advances are measured in weeks and months, not years.
USTA's View of H.R. 2533
USTA believes that H.R. 2533 is a positive contribution to the legislative debate regarding the reevaluation of the FCC's role in the telecommunications merger review process. First, it repeals the FCC's remaining and unneeded Clayton Act authority. Second, it requires the FCC to establish Administrative Procedure Act Merger Review rules which must include a definition of the public interest standard. Third, it requires the FCC to establish in these rules the period of time the FCC has to approve or deny an application.
We would strongly urge you to modify your legislation in several ways. First, your legislation infers that the extant FCC authority to review telecommunications mergers is appropriate, with the only problem being the absence of prescribed rules of procedures, by which to conduct the review. We would urge you to codify what we believe to be your original 1996 Congressional intent when you repealed Section 221(a) by prohibiting the FCC from using its ministerial license and line operation transfer authority to replicate what the DOJ does in the merger review process thus resulting in a lengthy, expensive and second comprehensive merger review. No other industry that we are aware of is subjected to two such comprehensive reviews.
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Second, we urge you not to leave the time period for FCC action up to the FCC. We believe that you must specify that the FCC process, from start to finish, should not exceed 180 days, with a shorter time of 90 days or less for mergers that do not result in companies providing more than two percent of the nation's access lines.
Mr. HYDE. Mr. Weening.
STATEMENT OF RICHARD WEENING, EXECUTIVE CHAIRMAN, CUMULUS MEDIA, INC., MILWAUKEE, WI
Mr. WEENING. Thank you, Mr. Chairman. I appreciate the opportunity to testify here today. I need to ask the committee to suspend the focus for a moment on mega-mergers and consider what is going on in the radio industry.
My company, Cumulus Media, is a radio broadcasting company. We are based in Milwaukee, Wisconsin. We are focused on mid-sized radio markets in small cities, cities of markets 50 and smaller, really. We are a company that was created really because of the Telecommunications Act of 1996 which in its vision allowed a single owner or operator to operate multiple radio stations in the same market. This change has really made a major difference for radio in ways that I want you to understand.
Prior to the Telecommunications Act, radio, particularly in the smaller markets, was really struggling for survival. I mean, we are fond of saying that a lot of independent operators were really trying to save their way to prosperity. The act itself and the vision of the framers of the act that focused on radio specifically has allowed multiple stations to come together and enjoy synergies and infrastructure, while at the same time investing considerably in improved programming variety for listeners.
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What it has meant—and Congressman Conyers mentioned this earlier when he asked Chairman Kennard about the state of competition in local markets. I realize, Congressman, you were focused on the telephone industry. But in the radio business in the small communities across this country consolidation has allowed radio to become a viable competitor to newspaper and television. This is important because I don't know if any of you have ever focused on this, but radio only gets about 10 percent historically of the advertising dollars in the market, even though it commands 45 percent of our time, while newspaper monopolies get about 10 percent of our time and get 45 percent of the revenue. Radio as a single station, or two stations, can't really compete. Now that we can own four or five stations in a market, they can.
Now, as I said, we believe that we are substantially enhancing competition in the markets and we think there is considerable evidence of that fact. We also believe that we are substantially enhancing the listener experience. Now, about a year ago—first of all, let me say that we put 80 transactions through the FCC and another 20 pending. By and large, the Commission has handled them very efficiently. But as a consequence of the concern of two commissioners in particular, the FCC about a year ago started looking at small radio transactions and larger transactions—ours are small—for purposes of concentration, and examining them as they would a larger merger review.
We think that there are several things wrong with this. First of all, the Telecommunications Act specifically excluded the FCC from any responsibility or role in reviewing mergers. In fact, it was an item in the conference committee between the Senate and the House and it was specifically deleted.
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Secondly, we believe it is simply not a sensible use of the FCC resources when the Department of Justice is really the specialist in this area and the Department of Justice has reviewed several of our transactions and ultimately approved them.
Third, and this is the most insidious part of all, there is a sort of peculiar arrangement between the Federal Communications Commission and the Department of Justice, DOJ, about these merger reviews. The FCC will not approve a license transfer, even for a small radio station, if the Department of Justice is reviewing it. And so it has the effect of turning the Hart-Scott-Rodino Act on its head because our transactions are sufficiently small but they do not meet the Hart-Scott-Rodino threshold so there is no time limit. So, the Department of Justice can review them forever and the Federal Communications Commission can wait until they are done. After Department of Justice approves it, the FCC can then, under their current practice, engage in a further review.
We think it is wrong and very detrimental to the seller. Let me explain why. Radio stations are very delicate mechanisms. Once you announce that a radio station has been sold, the staff, the creative people within the station, realize that they are working for a lame duck. A station transfer that can take a year or more, as many of ours have, really depreciates the value of the asset and destroys the asset for the seller. It is a very serious problem.
We certainly support your efforts to cause an orderly administrative process to go on with the FCC and we hope that in doing that you will communicate to them that they have a responsibility to review mergers in the radio industry, a responsibility that is nowhere found in the statute. Thank you.
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Mr. HYDE. Thank you, Mr. Weening.
[The prepared statement of Mr. Weening follows:]
PREPARED STATEMENT OF RICHARD WEENING, EXECUTIVE CHAIRMAN, CUMULUS MEDIA, INC., MILWAUKEE, WI
Good Morning, Mr. Chairman and Members of the Committee. I am Richard Weening, Executive Chairman of Cumulus Media Inc. Thank you for inviting my testimony. Based on its experience with radio station license transfers since the passage of the Telecommunications Act of 1996, Cumulus is keenly interested in the subject matter of H.R. 2533, the ''Fairness in Telecommunications License Transfers Act of 1999''.
Cumulus Media Inc. is a radio broadcasting company based in Milwaukee, Wisconsin and Chicago. We are focused on the acquisition, operation and development of radio stations in mid-sized U.S. cities. Arbitron ranks markets by size from 1 to 275. We generally focus on markets ranked 50 or smaller. Including acquisitions somewhere in the FCC approval process, we own 261 radio stations serving 48 cities across the United States. By number of stations, Cumulus is now the third largest radio station owner in the U.S, and assuming Clear Channel and AM/FM merge as planned, Cumulus would be the second largest.
This morning I would like to describe for the Committee the experiences of my own Company and how those experiences illustrate the need for the type of legislative action you are considering.
BACKGROUND
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The Telecommunications Act of 1996 and Its Positive Impact on Radio
In Section 202(b) of the Telecommunications Act of 1996, Congress changed the rules as to the number of radio stations that one person or company could own or control in a city of a given size. The two-station ''duopoly'' limit was replaced with a new rule that allows ownership of five to eight stations depending on the total number of stations providing service to the city. In making the new rules, Congress attempted to balance the urgent economic and competitive realities that dictated multiple-station ownership with the avoidance of undue concentration of control. To achieve this balance, the revised ownership limits were designed to help owners create ''clusters'' of multiple radio stations that could operate for less, while delivering more to listeners and advertisers within their service areas, and at the same time become or remain viable businesses.
Subsequent experience under the Act has confirmed the wisdom of Congress's judgment on this issue. Our experience shows that five or more stations operated as a cluster is not only critical to achieving operating economies of scale, but essential to making radio competitive with other media. These multiple radio station clusters can afford to operate live and local programming on each station, while sharing facilities and support personnel to reduce operating costs up to 20%. More importantly, multiple radio clusters can offer advertisers a range of choice and flexibility in demographic targeting that was previously only available from newspaper and television.
Competing with newspaper and television is a major sea change for radio. Here's why: Radio has always had a disproportionately small, 10% share of the total advertising pie. I say ''disproportionately'' because radio actually commands over 40% of the total time consumers spend with media. The conventional wisdom is that this anomaly is due in part to the fact that any single radio station format is targeted to reach only a single demographic target, while the sections of a newspaper and different television programs offer advertisers the choice of many targets. In short, for many advertisers, television and newspaper offered more flexibility and was simply easier to buy. The multiple-station clusters can offer different stations like the sections of a newspaper, putting radio on a level playing field with entrenched newspaper monopolies and broadcast television. And to the extent that these new multiple-station clusters can access a share of the relatively much larger budgets historically allocated to newspaper and television, the radio business model becomes viable and everyone wins. The advertiser gets a real alternative to newspaper and TV. The listener gets a better programming product with live and local on-air personalities. The community gets a viable business.
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In the mid-size markets we serve, the economic problems of radio are more severe and the positive impact of the Telecommunications Act is even more plainly evident. In the mid-size markets, multiple-station ownership is driving a renaissance for local radio giving small communities greater choice and diversity in music and sources of information. Local advertisers also stand to benefit from the diverse formats and broad reach of the stations, and the ability to negotiate competitively priced advertising buys.
I did a little research into whether the members of Congress who framed the Telecommunications Act understood the unique economics of radio in the mid-size and smaller markets. In fact, they did. They appreciated the special challenges facing radio in the smaller markets and addressed these needs with structured tiers in the statutory ownership limits to permit consolidation of station ownership in both smaller and larger markets. As Senator Burns observed when considering that legislation, radio ownership restrictions in mid-size and smaller markets ''handcuff broadcasters and prevent them from providing the best possible service to listeners in all of our States.'' 144 Cong. Rec. 92, S7904 (June 7, 1995). Similarly, Senator Pressler noted that, following earlier FCC liberalization of radio ownership restrictions, ''economies of scale kicked in, stations gained financial strength in consolidation, and competition for advertising improved.'' 141 Cong. Rec. 94, S8076 (June 9, 1995). The legislation's proponents thus accurately foresaw an ''immense resurgence and burst of energy from new companies'' following the further ownership deregulation in the Telecommunications Act. 141 Cong. Rec. 95, S8198 (June 12, 1995) (statement of Senator Pressler).
The Telecommunications Act has had exactly the effect intended by Congress. In all markets, but particularly where help is needed the most—the smaller markets—radio is undergoing a renaissance characterized by more live and local programming, more advertisers, more revenue and more service to the community. This has resulted in significant new competition for newspaper and television.
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The Cumulus Model
Our Company, Cumulus Media Inc., is the poster child for the pro-competitive benefits of the Telecommunications Act. Our rapid development of radio station clusters in 48 mid-sized markets over the past two years aptly illustrates the ''immense resurgence'' and ''burst of energy'' envisioned by that Act.
The Cumulus strategy is exactly what the Act envisions. We acquire independently owned radio stations and combine them into a cluster to share infrastructure resources like engineering, accounting, physical facilities and the like. This allows us to reduce operating costs anywhere from 10% to 20%. We are then able to use the cost-savings and efficiencies gained through consolidation to help fund increased investments in research, programming and sales. Our general approach is to enhance the quality of radio for listeners, which in turn strengthens the power and utility of the radio medium for advertisers.
Specifically, we replace the satellite-delivered programming that was all that the individual small station owner could afford with locally-originated content and live on-air personalities, thus dramatically improving the quality of each station's programming. We also employ sophisticated research techniques to ensure that each station is delivering the product the listeners want, ''brand'' each station as a separate entity, and substantially upgrade and expand the sales organization. Each station also has its own programming director to manage the product and its own sales manager to coordinate the sales team, as we increase employment opportunities on the programming and sales side by hiring many people without prior radio experience.
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In addition, an information technology infrastructure is being employed that allows Cumulus stations in one market to benefit from innovations developed by Cumulus stations in other markets. For example, a frame relay network is being installed throughout Cumulus's stations that allows market managers, engineers and programming staff to communicate and exchange ideas. Other information management systems provide for better control of advertising inventory and assist sales staff in tracking accounts.
Because of economies of scale, we also have the ability to access the public capital markets to help pay for these improvements. The result is a revitalized group of radio stations capable of increasing market share against newspaper, television and other media by delivering more choice to advertisers and a better product to listeners.
We also know that, contrary to the understandable fears and expectations expressed by some FCC Commissioners, consolidation in radio means more, not less, localism and more, not less, diversity in programming. I am pleased to say that we are making this happen every day in 48 cities across the nation.
FCC and DOJ Reviews of Radio Transactions
In the initial period following passage of the Telecommunications Act, most radio consolidation activity was occurring in the larger markets, and the FCC did not play a significant role in reviewing market concentration. The Department of Justice (''DOJ'') reviewed many of these transactions under the Hart-Scott-Rodino (''HSR'') Act because they were generally large mergers involving multiple markets that met the HSR size thresholds. The HSR statute required advance notice to the DOJ, but also required the DOJ to conduct its review promptly, within the specified statutory time periods. In a number of these large merger cases where DOJ had competitive concerns, the parties agreed to spin-off several stations in one or more cities to satisfy those concerns. At the same time, the FCC would generally grant the license transfer applications in a timely manner.
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As the Telecom Act moved into its second and third years (1997 and 1998), radio consolidation moved to mid-size markets, with Cumulus and several other companies leading the way. Cumulus began making its acquisitions in mid-1997, and we accelerated our activity rapidly over the next two years. Initially, the DOJ was not active in investigating mid-size market transactions, as most were not reportable under the HSR Act. The FCC also was acting fairly promptly on license transfer applications. In fact, Cumulus alone has completed over 80 radio acquisition transactions, and by and large the FCC's Mass Media Bureau staff has processed these very efficiently and promptly. I believe the FCC staff should be commended for its diligent efforts to keep up with a sharply increased workload in this area.
Beginning sometime last year, however, FCC applications for a number of transactions, including some filed by Cumulus, began to slow down considerably due to some internal agency debate regarding the proper role of the FCC in reviewing these transactions for market concentration concerns. Cumulus and other firms maintained that the Act had already specified the number of radio stations that could be owned in any one market, and thus that the FCC did not have a proper role to play in formulating a different policy. But the FCC did not agree with this position.
What eventually developed is the current FCC practice of issuing ''special'' public notices regarding certain license transfer applications, based primarily on levels of radio advertising revenue shares, even where the license transfer applications fully comply with the numerical station limits set forth in the Telecom Act These notices invite public comment on market concentration issues whenever a license transfer application would result in the buyer's acquiring 50% or more, or the buyer and another radio owner acquiring 70% or more, of the radio advertising revenues in a local Arbitron Metro (as measured by the standard industry revenue estimates compiled by BIA Research, Inc.). To date, however, the FCC has not issued any rule or formal policy statement on this practice, and the FCC has not articulated exactly what policy objective it is trying to achieve.
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During the same period, the DOJ became more active in investigating radio acquisitions in the mid-size and smaller markets. Cumulus alone has responded to DOJ inquiries concerning radio station acquisitions in at least seven different markets. All but one of these transactions fell below the reporting thresholds of the HSR Act; some of these transactions were as small as $1.5 million and occurred in radio advertising markets as small as $5 million in total revenues. In each transaction, Cumulus has fully cooperated with the DOJ in providing information to address its competitive concerns, with the result that the antitrust investigation has been concluded or the DOJ otherwise has not challenged the transaction.
The FCC has stated that its policy is not to act on license transfer applications while a DOJ investigation is pending, regardless of whether or not the DOJ files comments in response to one of the FCC's ''special'' public notices. The current administrative process thus effectively postpones FCC action on any license transfer until the DOJ completes its separate antitrust review, which in the case of smaller transactions below the applicable HSR thresholds are not subject to any mandatory timetables. At the same time, the FCC reserves the right to revisit a competitive analysis of the transaction in acting on the license transfer application after the DOJ is finished with its work. The FCC may then come to the same, or a different, conclusion based on its own analysis of the market and ''other relevant economic criteria.'' Great Empire Broadcasting, Inc., FCC 99–142 (June 11, 1999), at 4–5, 10).
PROBLEMS WITH THE CURRENT REGULATORY PROCESS
Cumulus has three primary concerns with the way in which some applications for transfers of radio licenses are currently being handled by the FCC. First, we and other firms believe that the Act already specifies the number of radio stations that could be owned in any one market, and thus that the FCC does not have a proper role to play in formulating a different policy that would shrink the ownership limits of the Act. When the FCC begins to decide, on a case-by-case basis, that particular applications will not be approved on the ground that the number of stations results in too much market concentration, the FCC is second guessing the policy judgment that Congress has already made. We do not think the FCC's authority to implement the ''public interest'' standard allows the Commission to substitute its judgment for that of Congress on a subject specifically dealt with in the statute. Nor has the Commission offered any criteria for deciding how, when or under what circumstances the public interest should dictate that approval of a particular acquisition should not be granted because of undue market concentration, even if it is within the numerical limits specified by Congress.
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Second, it simply is not a sensible use of government resources for the FCC to review acquisitions based on the same market concentration and antitrust concerns that the DOJ already considers. As Commissioner Powell stated last week before the House Telecommunications Subcommittee, the FCC's review of mergers and acquisitions ''should be generally limited to those areas in which [the FCC] can claim primary expertise.'' (Opening Statement of Michael K. Powell, Commissioner, FCC, Oct. 26, 1999, at 8). However, when one looks at the recent FCC decisions evaluating the competitive implications of radio station transactions, it is striking how much the FCC's ''competitive analysis'' seems to duplicate the role of the Department of Justice. The FCC appears to examine many of the same factors that are set forth in the Horizontal Merger Guidelines adopted by the DOJ and Federal Trade Commission (''FTC''), and looks to the levels of revenue shares permitted by the DOJ in previous consent decrees. See, e.g., Great Empire Broadcasting, Inc., at pp. 4–8. This largely duplicative approach is also reflected in recent FCC staff requests for detailed competitive information from Cumulus in connection with certain of its license transfer applications.
We believe that it would make more sense for the FCC to defer to the primary expertise of the antitrust enforcement agencies, as it has in other situations where allegations of competitive harm are raised against broadcast licensees. With all due respect to the FCC's hard working staff, I agree with Commissioner Powell that the FCC simply does not possess the same personnel, experience and process as the DOJ in terms of antitrust and competitive economics, and thus is not as well positioned as the DOJ to conduct meaningful competitive reviews of mergers and acquisitions in the communications industry on a consistent basis. Moreover, even in those situations where the FCC is permitted to consider competitive factors, the courts have emphasized that competition measures adopted under the FCC's general ''public interest'' authority must relate to the agency's specific statutory charge.
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What this means to me is that—assuming any competitive inquiry at all is permissible in light of the Telecommunications Act provisions on radio station ownership—the FCC's inquiry must be carefully focused on how competition affects the interest of the public in receiving quality service from the particular FCC-licensed communications facility at issue. Thus, I very much agree with Commissioner Powell's admonition that, if the FCC is to have any complementary role in the review of mergers as part of its license transfer authority, it needs to have some ''disciplined procedures and limiting principles to ensure the rapid processing of such transactions, to preserve the rights of the parties and to avoid duplication with other authorities.'' (Statement of Commissioner Powell, Oct. 26, 1999, at 9). H.R. 2533 would certainly be helpful in this regard.
In our segment of the industry, Cumulus strongly believes that service to radio listeners—which should be the primary concern of the FCC—is adversely affected by the blocking or delay of efficient consolidation transactions. Indeed, one clear sign that such transactions actually serve to increase, not decrease, competition is the fact that every single petition that has been filed against a Cumulus license transfer to date has been filed by a competing radio owner, rather than by a consumer (i.e., a listener or advertiser).
Third, the unusual combination of the small size of the typical Cumulus radio acquisition and the need to obtain FCC approval for the acquisition means that the Hart-Scott-Rodino Act has effectively been turned on its head: Not only does the Government (through two separate agencies) now investigate small radio acquisitions, but it faces no time deadline in doing so. Let me explain what I mean. The Hart-Scott-Rodino Act suggested that acquisitions below the ''radar screen'' of the statute, by virtue of their size, were not of sufficient antitrust concern to warrant pre-merger notification. The HSR Act imposes time limits for large acquisitions by which the DOJ or the FTC must take certain steps or request additional information if either agency intends to challenge a merger before it is consummated. But no acquisition of a radio station, no matter how small, can be consummated without the approval of the FCC. And no time limits constrain the DOJ in radio acquisitions that are not subject to the HSR limits.
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The peculiar arrangement between the FCC and the DOJ that I outlined above—whereby the FCC will first await the outcome of a DOJ investigation and then sometimes proceed with its own second-level review—combined with the inapplicability of the HSR time deadlines, means that either agency can take as long as it chooses to investigate whatever it wants regarding a pending transaction. The result is that the parties to these relatively small transactions often must endure very lengthy and costly regulatory reviews that are not applicable to much larger transactions, without clear standards or certainty of outcome.
While we see these significant problems, Mr. Chairman, we also agree with your comment in introducing H.R. 2533 that, by and large, the Department of Justice has performed its role in reviewing these radio transactions in the manner intended by Congress in the Telecommunications Act. While I too may not always agree with the DOJ's substantive decisions in every respect, in most cases they have reviewed these transactions in a reasonable procedural manner and in a reasonably prompt fashion (even where not subject to the tight HSR time deadlines). And as the DOJ has gained more experience with smaller-market radio transactions, I believe they have been able to act more quickly in identifying any transactions where they may have questions and in resolving any potential competitive concerns, while also appreciating the unique efficiencies and pro-competitive benefits of these transactions.
At the same time, I want to thank Chairman Kennard for reaching out to try to work with us on these issues and to try to expedite the FCC staff's review of license transfer applications. I also have no doubt that the FCC Commissioners and staff involved in these efforts have acted diligently and in good faith, consistent with their available resources and their view of what the FCC's proper role should be. However, we do respectfully disagree that the FCC should be engaged in detailed competitive reviews of radio mergers and acquisitions as part of its license transfer approvals. We believe that this adds a duplicative layer of antitrust review that is inconsistent with the specific terms of the Telecommunications Act. And we believe that this problem is made worse by the fact that no time deadline applies and that no clear rules or standards appear to exist.
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CUMULUS'S EXPERIENCES
A few examples of Cumulus transactions that have been caught up in this uncertain regulatory process for extended periods of time may help illustrate the problem to this Committee.
1. One case involved the consolidation of several small radio stations in Florence, South Carolina and surrounding areas that had not been viable on their own. Cumulus filed license transfer applications with the FCC beginning in February 1998 to acquire the stations. None of these applications was contested before the FCC by any listener or advertiser, or any other party, and the grant of these applications did not require a waiver of any rule or published policy of the FCC. Nevertheless, the FCC staff informed Cumulus that action upon the license transfer applications was being deferred due to potential concerns relating to the percentage of radio advertising revenues involved, and because the DOJ had opened an investigation into the proposed acquisitions. Persistent efforts for more than a year to obtain FCC action on the applications were unsuccessful.
We were first contacted by the DOJ in July 1998, five months after the application was filed. At that time, we voluntarily provided various requested information to assist the DOJ in reviewing the transactions. Several months later, the DOJ issued civil investigative demands to Cumulus and the various sellers seeking additional information. During this period, despite repeated requests by the applicants and by members of Congress, the FCC staff indicated that it would continue to defer action on the license transfer applications pending completion of the DOJ's investigation.
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While working hard with the sellers to keep these deals together, we continued to cooperate with the DOJ in its review, submitting considerable information and documents and meeting with the DOJ staff. After approximately seven months of inquiry, the DOJ closed its investigation and informed the FCC that it had done so in February 1999. Approximately six weeks later, on March 24, 1999, the FCC finally granted the license transfer applications, with no explanatory statement. This was over 13 months after the first application had been filed (on February 26, 1998), and nearly ten months after the last of the three applications had been filed (on June 2, 1998).
2. In another case, Cumulus is proposing to acquire one FM station and one small AM station to combine with an existing group of three stations in one city. The FCC license transfer application was filed in February 1998. The DOJ first asked the parties for information about the transaction in September 1998, six months after the application was filed. The DOJ investigation has finally been resolved a year later, but during this entire time, FCC action on the license transfer application has been deferred. It remains pending, nearly two years after it was filed.
3. More recently, the FCC has requested detailed competitive information concerning Cumulus acquisitions in three small radio markets. In each case, there is no petition or objection by any listener or advertiser, and no DOJ investigation is pending. Nevertheless, the applications were ''red flagged'' by the FCC for ''additional analysis of the ownership concentration in the relevant market''.
In one of these cases, Cumulus proposed to acquire a single AM radio station in Midland-Odessa, Texas that derived less than $50,000 in advertising revenues in 1998. This station was very poorly operated out of dilapidated facilities and was fraught with technical problems, including a collapsed tower. Not surprisingly, the DOJ never raised any competitive concern regarding this transaction. The FCC's desire to explore in depth non-existent competitive issues not only imposed an undue burden on the applicants, but it was hard for Cumulus to understand why the FCC would want to prevent Cumulus from using its resources to upgrade the station and thereby enhance service to listeners, which should be the FCC's primary concern. (Ultimately, the FCC granted this application following Cumulus's submission of the required information.)
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In the other two cases ''involving stations in Toledo, Ohio and Augusta-Waterville, Maine'' the FCC has requested similar detailed competitive information concerning acquisitions that were specifically reviewed and not challenged by the DOJ months earlier. Both of these license transfers are still pending.
All told, by my calculation, the FCC has now ''red flagged'' nearly 200 proposed radio license transfers—including about 25 applications filed by Cumulus—for additional analysis of competition issues, citing its authority to review such applications under its undefined ''public interest'' standard. If Cumulus's past experience holds true, we can expect further FCC requests for detailed competitive information in many of these cases, regardless of whether the DOJ raises any competitive concern under the antitrust laws and regardless of whether any advertisers or listeners complain.
Delays and unnecessary regulatory burdens of this sort inevitably disrupt these transactions and cause serious financial hardship to the parties, especially to the small independent operators who are trying to sell their stations and realize a return on their many years of hard work and investment. In addition, the delays often end up causing further deterioration of the radio stations due to the extended period of uncertainty regarding who will own the stations and employ the professionals working in these stations, and due to FCC rules prohibiting buyers from prematurely acquiring control of the stations.
Radio stations are delicate businesses that must be very carefully managed if they are to be competitively viable and provide the services that listeners and advertisers demand. This cannot be accomplished where ownership changes are accompanied by long and uncertain regulatory delays. Moreover, like many of the telecommunications carriers, Cumulus also is engaged in intensely competitive markets, and the timing of its transactions is often important from both a strategic and financial perspective.
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H.R. 2533 AND ITS OBJECTIVES
H.R. 2533 appears to be designed to solve many of the problems I have described by requiring the FCC to construct an orderly administrative process and timetable. While Cumulus believes that it would be preferable for Congress to establish a specific timetable for FCC action on license transfer applications—similar to the approach taken by S. 467 (which has been reported by the Senate Judiciary Committee), and by the recently introduced H.R. 2783—Cumulus supports the goals of H.R. 2533 and believes that it would be an important step in the right direction. This legislation would help clarify the role of the FCC in reviewing license transfers by requiring the FCC to adhere to reasonable time periods and to adopt specific, identifiable ''public interest'' standards to govern this process. Appropriate standards would ensure that the FCC does not simply duplicate the competitive analysis performed by the antitrust enforcement agencies, and clear rules would help to ensure procedural fairness and predictability in license transfer proceedings.
In addressing these problems, we hope the Committee's action will not be misperceived as endorsing the FCC's authority to conduct case-by-case reviews of the competitive implications of radio license transfers that fully comply with the ownership limits of the Telecommunications Act. This would only frustrate the intent of the Act by recognizing, in the case of radio station transactions, an authority on the part of the FCC that Congress in 1996 very specifically decided not to grant.
While some FCC Commissioners believe that the FCC has an obligation to review market concentration issues pursuant to its mandate to ensure license transfers are in the ''public interest,'' H.R. 2533 would require the FCC to promulgate rules defining the term ''public interest'' in a manner that is relevant to the FCC's limited statutory mission. For example, as Commissioner Tristani recently suggested in her testimony before the House Telecommunications Subcommittee, it might well be appropriate for the FCC to define the ''public interest'' as contemplating the provision of local programming oriented toward the needs and interests of listeners in a station's community—which goal would be promoted by radio license transfers that enhance these capabilities. Cumulus would welcome such a standard because we believe that our station consolidation transactions overwhelmingly support this policy objective. However, the FCC should not simply undertake the same type of economic competition analysis engaged in by the DOJ.
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I therefore support the provisions and objectives of H.R. 2533, but urge the Committee to consider appropriate clarifications or modifications to the bill that would (1) mandate reasonable time frames for FCC action on license transfers, and (2) ensure that the FCC does not continue to duplicate the proper role of the DOJ.
I thank you again for the opportunity to testify at today's hearing.
Mr. HYDE. Mr. Binz.
STATEMENT OF RONALD BINZ, PRESIDENT, COMPETITION POLICY INSTITUTE, WASHINGTON, DC
Mr. BINZ. My name is Ron Binz. I am president of the Competition Policy Institute. CPI is a nonprofit organization that advocates policies to bring competition to energy and telecommunications markets in ways that benefit consumers.
We appreciate the opportunity to testify on H.R. 2533. We think that one of the most important factors determining whether consumers are going to see the benefits promised by the Telecommunications Act of 1996 is how the FCC handles mergers among telecommunications providers. Mergers can either hold great promise for consumers or threaten great harm to their interests. Some mergers actually spur competition by putting together industry players with complementary resources that are needed to break into markets dominated by an incumbent provider or small groups of providers. Consumers benefit when merged companies reduce costs by spreading fixed costs over more unit sales.
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On the other hand, some mergers can hurt consumers by retarding the development of competition. This happens when mergers strengthen the existing fortresses of dominant providers or remove would-be competitors from the field.
To understand why the way in which the FCC handles mergers is so important right now, you need to understand that local competition is in a very critical stage of its growth. Right now, competing local exchange carriers have claimed only about 3 1/2 percent of the local telephone market. My organization just did a survey in New York of telephone consumers. About 3 percent of residential consumers in New York are choosing competitors, but outside of New York City that is only about 1 1/2 percent.
Even more disturbing, when we asked them do you have a competing carrier, two-thirds said no, or they didn't know; and of the one-third that said they had a competitor, half of them could not name one. So we are at a very early stage.
The lesson is that at this critical stage, Congress must tread very carefully if it alters the authority or the processes used by the FCC to review mergers. But whether the FCC approves or denies to merge, both consumers and companies proposing the merger deserve an answer, hopefully the correct answer, in a timely fashion.
Regulators today must accommodate a dynamic marketplace that no longer resembles the industry that existed when these regulatory agencies were created. In short, regulators must put themselves under pressure to speed up the decisionmaking process so that it assists, and does not hinder, the development of competition.
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Regulatory delay is a blunt instrument. While it might arguably sometimes delay the effect of bad things, it also delays the implementation of beneficial effects and creates uncertainty in markets. It is far preferable for consumers and companies alike if regulators make hard choices and make them expeditiously.
For that reason, we endorse one of the major elements of H.R. 2533; namely, the requirement that the FCC adopt time lines within which it must decide merger cases. But an expeditious review cannot mean an inadequate review. If Congress acts to modify the law in this area, as this legislation proposes to do, it should not result in lowered review standards.
We strongly support the FCC's continued public interest review of telecommunications mergers. In cases where a merger will hinder competition, we hope that the FCC will begin to say no to such mergers and say it quickly.
We have two concerns about provisions of the legislation which may limit the FCC's authority in ways that damage the consumer's interest. We think that the legislation should preserve the flexibility needed by the FCC to conduct thorough reviews under its public interest statute. Congress should not tie the FCC's hands by requiring it to attempt to define every detail of the public interest analysis in advance. I agree with Chairman Kennard; we think ultimately that exercise would be so cumbersome that it would fail.
It is also a mistake to think the Commission is not constrained by court decisions. The courts have said over and over again that the public interest review must produce a result consistent with the purposes Congress had in enacting the legislation. That is certainly true in the case of mergers. The FCC wants these mergers to be procompetitive, and I think Congress wants the telecommunications industry to be competitive, as it said in the 1996 act.
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Finally, Mr. Chairman, we believe strongly that the Congress should not eliminate the FCC's concurrent authority under the Clayton Act. We realize the Commission has not used this authority, preferring to use its public interest authority. But as the industry changes from regulated monopoly to competitive, we think that the Clayton Act may become much more relevant to the FCC's analysis in the future.
Thank you for the opportunity to testify.
Mr. HYDE. Thank you, Mr. Binz.
[The prepared statement of Mr. Binz follows:]
PREPARED STATEMENT OF RONALD BINZ, PRESIDENT, COMPETITION POLICY INSTITUTE, WASHINGTON, DC
Mr. Chairman and Members of the Committee, my name is Ronald Binz. I am President of the Competition Policy Institute (CPI). CPI is a non-profit organization that advocates state and federal policies to bring competition to telecommunications and energy markets in ways that benefit consumers. Since 1996, CPI has participated in numerous cases before the Federal Communications Commission (FCC), state regulatory commissions and the courts. In three and a half years, CPI has made over one hundred filings at the FCC in more than sixty different matters.
My background is consumer advocacy. For eleven years until 1995, I was the state utility consumer advocate in Colorado, representing consumers before state regulators and the courts. I have served on the Network Reliability Council to the FCC and I currently serve as co-chair of the North American Numbering Council, which advises the FCC on telephone numbering policies. With this background, I am very familiar with regulatory processes and how they affect consumers and the competitive marketplace. Thank you for the opportunity to testify today on H.R. 2533, the ''Fairness in Telecommunications License Transfer Act of 1999.''
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I. INTRODUCTION
I wish to begin by congratulating the Committee for holding this hearing to examine the process by which the FCC considers mergers of telecommunications providers. This is a most important issue for consumers. In the testimony that follows, I describe the state of local telephone competition and explain how significant mergers between telecommunications companies may affect the health of local competition. We know that such mergers can either hold great promise for consumers or threaten great harm to their interest. Some mergers can actually spur competition by putting together industry players with the complementary resources needed to break into markets dominated by an incumbent or small group of service providers. Some mergers can also benefit consumers if companies are able to spread fixed costs over more unit sales, reducing costs to consumers. Such cost advantages are at the root of competitive pressure on prices. On the other hand, some mergers can hurt consumers by retarding the development of competition in telecommunications markets. This happens when mergers strengthen the existing fortresses of some dominant incumbent providers and remove would-be competitors from the field. It is no exaggeration to say that the FCC's decisions about mergers determine whether consumers see the promise of the Telecommunications Act of 1996.
But whether the FCC approves or denies a merger, we must agree that both consumers and the companies proposing to merge deserve an answer (and hopefully the correct answer) in a timely fashion from the FCC. State and federal telecommunications regulation must today accommodate a dynamic marketplace that no longer resembles the industry that existed when these regulatory agencies were created. In short, regulators must put themselves under pressure to speed up the decision making process so that it assists, and does not hinder, the progress of competition.
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But an expeditious review must not mean an inadequate review. Let me be clear: we do not advocate less scrutiny of mergers by the FCC, only that the agency focus on getting the job done quickly and efficiently. If Congress acts to modify the law in this area, as this legislation proposes to do, this should not result in lower review standards. Instead, legislation should focus on ways to streamline the review process so that companies proposing to merge get timely answers from regulators. Indeed, we are deeply concerned about the rapid consolidation of major players in the telecommunications marketplace and strongly support the FCC's continued ''public interest'' review of telecommunications mergers through their authority over license transfers. In cases where a merger will hinder competition, we hope that the FCC will begin to say ''no'' to such mergers and say it quickly.
With this important caveat, CPI supports one of the major elements of H.R. 2533. We think it is appropriate for Congress to ask the FCC to act on mergers within reasonable time frames. Ultimately this will benefit both the industry and its consumers. For that reason, we endorse the provision of H.R. 2533 that requires the FCC to adopt and abide by rules that set out a schedule for the review of license transfers that occur in the course of a merger.
However, we think two other provisions of H.R. 2533 could potentially weaken the FCC's authority to review telecommunications mergers, to the detriment of consumers. First, Congress will err if it eliminates the FCC's concurrent authority under the Clayton Act. Although the Commission has preferred to use its general statutory authority over the transfer of licenses instead of its Clayton Act authority, it may become more appropriate to use the provisions of the Clayton Act as the telecommunications industry moves away from a regulated monopoly structure. Repeal of this authority may also provide an argument against the Commission's authority to review the competitive effects of mergers. Second, we have concerns about the H.R. 2533 requirement that the Commission define by rule what it will consider in its public interest review of a license transfer. While the Commission's public interest review should not be an ad hoc exercise, neither should it be made inflexible and ineffective by being shoe-horned into a detailed definition designed to cover all cases. To effectively protect consumers by promoting competition, the Commission's public interest review must be able to evolve with changing telecommunications technologies and markets. It should be, in the words of the Supreme Court, ''a supple instrument for the exercise of discretion by the expert body which Congress has charged to carry out its legislative policy.''
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Following a review of the state of local exchange competition and the effect that mergers might have on the growth of competition, I make three points about H.R. 2533:
It is reasonable to require the FCC to create time lines to ensure prompt consideration and resolution of merger applications.
This legislation should preserve the flexibility needed by the FCC to conduct thorough merger reviews and impose conditions that serve the public interest. Congress should not require the FCC to specify every detail of its public interest analysis in advance since mergers vary in design and importance to competition, as will the remedies.
Congress should not eliminate the Commission's authority under the Clayton Act, an effect of H.R. 2533 as presently drafted.
II. THE STATUS OF LOCAL TELECOMMUNICATIONS COMPETITION
Before turning to the specifics of H.R. 2533, I would like to review the status of local exchange competition. To see why the review of telecommunications mergers is important to competition and consumers, we must size up the emerging competitive markets. Consider these facts:
Number of CLECs: The number of competitive local exchange carriers (CLECs) entering the market has grown significantly since passage of the 1996 Act. As an example, the FCC reports that there are now 158 CLECs holding telephone numbering codes, compared with only 13 at the end of 1995.
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Access Lines Served by CLECs: Merrill Lynch estimates that the number of access lines served by CLECs grew from 1.9 million at the end of 1997 to 6.2 million in July 1999. This equates to a market share of 3.4%. The FCC's industry analysis division reports similar estimates of market share.
CLEC Revenues: At the end of 1998, the FCC estimates that CLECs had revenues of approximately $3.6 billion, constituting 3.5% of the local exchange market. On a different basis, Merrill Lynch estimates CLECs have won about $3 billion of the $109 billion local market, or about a 2.75% share of local exchange revenues.
There is good news and bad news in these numbers. Local telephone competition is growing steadily and it appears that it will continue to expand in the next few years. This means that the local competition goals of the Telecommunications Act of 1996 are beginning to be met, albeit slowly. On the other hand, these statistics show that competitive carriers have just barely made a dent in the local exchange market. Despite the encouraging growth, it will be at least several more years before the local telephone market can be said to be competitive; collectively the CLECs serve a small percentage of the local telephone market, primarily business customers.
Local competition has an especially long way to go for residential customers. For example, in New York state, arguably among the most competitive local markets in the country, competitors today serve only about 3 percent of the state's residential access lines. Outside the New York City metropolitan area, this percentage plunges to about 1.5%.(see footnote 1) Here is a graphical presentation of that data:
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63867v.eps
Another indication that the residential market does not yet offer consumers a competitive choice for local service comes from results of a survey of 1000 New York consumers conducted recently by CPI. In that survey, nearly two-thirds of New Yorkers reported either that they have only one choice of local carrier or that they did not know if a competitive carrier was available; of those who said they had a choice of more than one local carrier, 40% could not name a competitor to Bell Atlantic. These results are even stronger outside of the New York City area: 81% of New York residents outside of the New York City area were unaware of a CLEC in their area; of those who said that a CLEC served them, more than half could not name a competitor to Bell Atlantic.(see footnote 2)
Another way to illustrate the pace of local competition nationally is to consider how many access lines competitors will have to gain each day in order to make significant inroads into the incumbents' market share. CPI estimates that CLECs will need to win 42,000 new customer lines every business day for the next five years simply to capture just 30% of the nation's access lines. This is a tall order. According to Merrill Lynch, CLECs added an estimated 920,000 lines in the second quarter of 1999, or about 14,000 lines per business day. This means the CLECs are far behind the 42,000/day pace needed to secure just 30% of the local market within five years.
III. CONSUMER CONCERNS ABOUT MERGERS
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These statistics paint a picture of nascent competition in the local telecommunications market. At this early stage, competition in the local market is still relatively fragile and depends upon the actions of regulators to keep markets open. New entrants must grow in order to survive and they must have continued non-discriminatory access to many features of the incumbents' network in order to attract customers.
But mergers among large incumbent telecommunications carriers can affect the ability and the incentive of merged companies to discriminate against their new competitors. Further, mergers affect the ability of state and federal regulators to effectively enforce market-opening conditions. For these reasons, such mergers must be closely examined to determine their effect on the growth of telecommunications competition. It is entirely appropriate that the FCC and state commissions use the occasion of a proposed merger to ensure that competitive conditions are strengthened, and not threatened, by a merger of incumbent local carriers.
Since passage of the 1996 Act, the FCC has been presented with four major mergers among large incumbent local telecommunications providers: SBC/Pacific Telesis, Bell Atlantic/ NYNEX, SBC/Ameritech and Bell Atlantic/GTE. This last merger is now pending; the FCC approved the first two mergers with only a few conditions attached and recently approved the SBC/Ameritech merger with additional conditions.
CPI and others disagreed with the FCC's decision to approve the first two large ILEC mergers without attaching more substantive conditions. In particular, CPI asked the Commission to approve the mergers only after the merger partners had complied with the market-opening requirements of the 1996 Act:
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CPI suggests that imposing conditions to require the opening of the companies' local exchange networks as a pre-condition to the mergers will act to mitigate, to some extent, the threat to competition posed by the increase in scale and scope of these companies. In particular, CPI believes that approval of the mergers should be conditioned upon, at a minimum, the companies' compliance with the ''competitive checklist'' requirements of Section 271 of the Communications Act of 1934 in every state in which they are the incumbent provider of local exchange service. Requiring the carriers to satisfy the unbundling and interconnection requirements of Section 271 in every state, requirements that the carriers have already indicated they would implement, would give competitors the opportunity to compete in much of the region served by the RBOC. While this condition does not guarantee that competition will develop for local telephone service in every state, it does help to reduce the risks posed by the mergers by making it less likely that the RBOCs could act to delay competition in one market while continuing to take advantage of its monopoly status in other markets.(see footnote 3)
We took a similar position on the SBC/Ameritech merger, asking the Commission to deny the merger until the company had complied with the market-opening requirements of section 251 of the Communications Act. Unfortunately for consumers, the FCC chose not to require this suggested pre-condition to approval of the Bell Atlantic/NYNEX merger or the two SBC mergers. In our view, the Commission missed a substantial opportunity to pry open local markets, bringing more competitive choices to consumers.
IV. THE ''FAIRNESS IN TELECOMMUNICATIONS LICENSE TRANSFER ACT OF 1999''
In this context of a nascent local exchange market and increasingly large mergers of telecommunications companies, we now discuss this proposed legislation. H.R. 2533 would have these three major effects:
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The legislation would require the Commission to adopt time frames within which it would act on applications for transfer of licenses needed to accomplish a merger between telecommunications companies;
H.R. 2533 would require the FCC to define in advance by rule the meaning of the ''public interest'' standard used to review mergers;
The legislation would strip the Commission of its concurrent authority with the Department of Justice under the Clayton Act.
A. It is reasonable to require the FCC to adopt workable time lines to ensure prompt consideration and resolution of merger applications by the FCC.
As stated earlier, CPI supports the first feature of H.R. 2533. The changing telecommunications marketplace argues strongly for regulation that is as efficient and effective as possible. H.R. 2533 requires the FCC to adopt rules that set out time lines within which the FCC must act to approve or reject the transfer of licenses necessary to complete a merger. CPI agrees that both the merger applicant and other interested parties should have a predictable schedule on which they may assume the Commission will make its decision in the case.
State regulatory agencies typically operate under similar time lines for cases that approach or exceed the complexity of large telecommunications merger cases. Although state commissions now hear cost-of-service cases less frequently than before, it is common to find requirements that they act in such cases within fixed time lines. For example, the Colorado Public Utilities Commission is permitted 210 days to conduct investigative hearings on a utility's request to change rates. While I have not conducted a recent study, I know that similar requirements apply to many state regulatory commissions. In multi-party litigation before state PUCs, these time lines have the effect of sharply focusing the parties' attention on the rate application, shortening discovery time frames, making hearings very efficient and requiring counsel to file briefs on expedited schedules. In general, I do not think that such time frames have prejudiced either applicants or respondents. After making any necessary adjustments for any special requirements of the FCC, I think the same will be true here.
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While many state regulators conduct some of their processes under time lines, competition requires state regulators to move even more quickly to resolve issues that are central to the development of telecommunications competition. In many cases, the old deadlines are not sufficient for the realities of the competitive marketplace. Competition can be damaged substantially, for example, if new competitors must wait extended periods of time for resolution of complaints alleging discrimination in access to essential systems. Recently the Telecommunications Committee of the National Association of Regulatory Utility Commissioners solicited recommendations for regulatory ''best practices.'' CPI submitted the following recommendation:
The role of telecommunications regulators is changing from an arbiter of rates to that of an umpire on the field of competition. Because successful inter-carrier transactions are so important to competition, regulators should modify their practices for handling complaints among telecommunications providers. Commissions should modify traditional procedures to try to limit litigation and produce a decision in such cases much more rapidly.
This suggestion entails several possible elements, including: 1) a ''quick look'' process in which a complainant and respondent are advised by a settlement judge of the likely outcome of their case; 2) sharply expedited procedures to arrive at a decision; 3) mandatory mediation for complaints; 4) the ability of a commission to award litigation costs to a prevailing party; and 5) the ability of a commission to sanction parties if it determines that a complaint or response constitutes harassment.
The basic suggestion is that commissions ''think different'' about their process of these complaints. While regulatory lag might have provided some correct incentives during cost-of-service regulation of a monopoly, it is injurious to competition. Incumbents and new entrants alike prefer the certainty of a quick decision, since competitive market conditions change rapidly.
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The practice would likely unburden state commissions' dockets, speed up the resolution of certain carrier-to-carrier complaints, reduce legal costs and sharpen the incentives of regulated companies to comply with contracts, arbitrated agreements, and commission rules. Most importantly, it would provide competing companies with a timely outcome of a complaint, reducing risk and uncertainty for carriers and their customers.(see footnote 4)
Regulatory delay is a blunt instrument. While it might arguably sometimes delay the effect of bad things, it also delays the implementation of beneficial effects and creates uncertainty in markets. It is far preferable for consumers and telecommunications providers alike if regulators make the hard choices and make them expeditiously.
B. Congress should not tie the FCC's hands by inappropriately limiting its ''public interest'' standard in reviewing proposed mergers.
H.R. 2533 requires the FCC to adopt rules defining the terms ''public interest,'' ''public convenience and necessity'' and ''public interest, convenience and necessity'' when applied to proceedings in which the FCC considers the transfer of licenses or the acquisition and operation of lines necessary to accomplish a merger. While there may be some merit in the agency describing the general scope of its intended public interest review before a case is brought before the Commission, there are clear limits to the applicability and usefulness of this exercise. We are concerned that this statutory requirement might, in practice, severely limit the FCC's ability to scrutinize mergers.
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There are several reasons why a complete ''definition'' of the public interest standard may not be possible. First, mergers differ widely in their structure and their effects on competitive markets. A merger of a two wireless carriers presents different issues than a merger between two wire line carriers. Similarly, the merger of two long distance companies presents different issues than a merger of two local exchange companies. It is difficult to imagine how a single definition of ''the public interest'' can cover all such cases.
Second, telecommunications technologies are changing rapidly, causing the definitions and boundaries of telecommunications markets to change. A definition with any specificity would quickly be out of date. Third, the differences in mergers will also cause differences in the ameliorative conditions necessary (say) to promote competition in different telecommunications markets. Once again, a single definition of the public interest could not be expected to translate into a fully predictable set of outcomes for merger applicants. On the other hand, it is very easy to imagine how an attempt to operate with a single definition will lead to prodigious amounts of litigation when the FCC attempts to apply the definition in disparate fact situations.
In reviewing the Commission's application of the public interest standard in past cases, the courts have placed boundaries on the Commission's public interest consideration, but have also stressed the importance of flexibility in using this standard. First, the Supreme Court requires that the FCC implement the public interest test in a manner consistent with ''the purposes that Congress had in mind when it enact[s] legislation.''(see footnote 5) This means that Congress can be assured that the FCC will not wander too far afield when applying the public interest test to mergers. In particular, its merger reviews must promote the ''pro-competitive, deregulatory'' purposes of the Telecommunications Act of 1996. Second, the Court has stressed that the Commission must be permitted to use the public interest standard in a way that examines all factors relevant to the matter before the Commission.(see footnote 6) Further, in applying the public interest test, the FCC can accord greater weight to some factors than to others.(see footnote 7)
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While it may be argued by telecommunications carriers that ''fair play'' requires the Commission to nail down in advance what it will consider in determining whether the public interest is served, there are clear limits to the Commission's ability to set out such ingredients beforehand in detail. We agree that regulators should not use their broad public interest authority to move the goal posts or create a regulatory trap. On the other hand, this aspect of regulation is anything but mechanical and is not susceptible to a formula or algorithm. We respectfully recommend that Congress not require the FCC to define the public interest in any significant amount of detail. We think that the combination of legislative direction in the substantive law, existing administrative procedural requirements and the oversight of the courts provides an appropriate check on the Commission's discretion in applying the public interest standard in these cases.
C. Congress should not eliminate the authority of the Federal Communications Commission under the Clayton Act.
Under current law, the FCC has concurrent jurisdiction with the Department of Justice under the Clayton Act to bring an action against a telecommunications provider that it believes has violated section 13, 14, 18 or 19 of the Clayton Act. H.R. 2533 eliminates that jurisdiction, in the process restoring the concurrent jurisdiction to the Federal Trade Commission.
It would be hard for a telecommunications provider to claim the FCC has abused this authority under the Clayton Act since apparently the agency has never used that authority. For purposes of merger reviews, the Commission has preferred to use its authority granted in the Communications Act.(see footnote 8)
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There are several reasons why Congress should not act to eliminate the FCC's jurisdiction under the Clayton Act at this time:
1) Like the other agencies accorded concurrent jurisdiction with the Department of Justice under the Clayton Act (the Surface Transportation Board, Secretary of Transportation, Federal Reserve Board of Governors), the FCC is an expert agency that is best equipped to assess the state of competition in the markets it regulates.
2) While the Clayton Act authority has not been used previously by the FCC, the changing nature of the telecommunications industry may make its use more appropriate in the future. As the telecommunications industry moves from regulated monopoly structure to an unregulated competitive one, the elements of the Clayton Act may become relatively more useful to the FCC in performing its role.
3) Eliminating the Commission's Clayton Act authority may provide a telecommunications provider with a legal argument that the FCC can no longer consider the competitive aspects of mergers. This unintended effect would work against the interest of consumers in such proceedings as the Commission has just completed involving mergers of large incumbent local exchange companies. This would be especially damaging at this stage of development of local competition.
4) There has not been a problem with the concurrent jurisdiction to date and hence no reason for changing current law.
VI. Conclusion
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CPI appreciates the opportunity to testify in this hearing on H.R. 2533. We believe that it is good regulatory practice and good law for regulators to perform their functions as quickly and as efficiently as possible. While this has always been true, it is especially important now, as we move from an era of regulated industries into one in which market forces will be relied upon to constrain prices and provide consumers with choice.
Mr. HYDE. Mr. Lassman.
STATEMENT OF KENT LASSMAN, DEPUTY DIRECTOR FOR TECHNOLOGY AND COMMUNICATIONS POLICY, CITIZENS FOR A SOUND ECONOMY FOUNDATION, WASHINGTON, DC
Mr. LASSMAN. ''It is my hope and aspiration that all of us may eventually be gathered together in a heaven of everlasting rest in peace and bliss, except for the inventor of the telephone.'' After more than 120 years, the only addition I would make to this curmudgeonly comment by Mark Twain is the single word ''taxation.''
Mr. Chairman, Mr. Ranking Member, thank you for the opportunity to share my views on the E-rate tax. I present these views on behalf of Citizens for a Sound Economy, a consumer education organization that promotes free market solutions to public policy problems. At CSE I am the deputy director for Technology and Communications Policy. More than a quarter of a million strong, our members are found in every congressional district in America. They distinguish themselves as policy activists and they constantly remind us that the decisions made here in Washington, DC, are felt all across the country. And that is where we are found. We fight at the grassroots level for lower taxes and less economic regulation.
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The proposed H.R. 2636, the Taxpayer's Defense Act, is of keen interest to CSE. The act would ameliorate some of the negative effects of administrative taxation by requiring legislative action to institute a new tax. The Federal Government can conscript economic resources in one of three ways: taxation, regulation, and confiscation. As a consumer, this is a very clear issue. There is nothing complex about it. The government, through elected representatives, conscripts or takes something that was hers or something that was his. H.R. 2636 provides the following definition of a tax: A nonpenal mandatory payment of money or its equivalent to the extent such payment does not compensate the Federal Government or other payee for a specific benefit conferred directly on the payer.
This definition is a letter-perfect description of the E-rate tax. No matter what you call it, no matter how it is dressed up, and no matter the good intentions that drive it, it is a tax. The E-rate tax is a mandatory payment on select consumers without a specific benefit.
Mr. Chairman, thank you for holding this hearing to bring to light the facts, not only by my copanelists, but by the earlier panels. We have heard today that consumers hand over billions and billions of dollars every year for taxes on telecommunications. I believe that this is a problem. Communication is a fundamental, a fundamental component of individual liberty and the basis of a free economy.
As Mr. Delahunt so energetically pointed out earlier at great length, many of your colleagues share the goal of providing telecommunication services. H.R. 2636 does not speak to that issue. H.R. 2636 speaks to the issue of the means by which revenue is directed by the United States Federal Government. It is wrong to say that this tax—excuse me. It is wrong that this tax is forced upon consumers by an independent regulatory agency.
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The idea that the FCC must be independent in order to best regulate and manage a multiplicative communications market is not at issue here. However, I would argue that on no day does the FCC stand independent from the U.S. Constitution or the Federal budget process. Yet that is where the E-rate tax is today, courtesy of the FCC.
Earlier in this century Justice Brandeis wrote that, ''The greatest dangers to liberty lurk in the insidious encroachment by men of zeal, well meaning but without understanding.'' Today the E-rate tax is evidence of his wisdom. While the merits of the program could be applauded, debated or decried, that should happen elsewhere. What is sorely needed is a better understanding of our constitutional safeguards against regulatory taxation. Thank you.
Mr. HYDE. Thank you, Mr. Lassman.
[The prepared statement of Mr. Lassman follows:]
PREPARED STATEMENT OF KENT LASSMAN, DEPUTY DIRECTOR FOR TECHNOLOGY AND COMMUNICATIONS POLICY, CITIZENS FOR A SOUND ECONOMY FOUNDATION, WASHINGTON, DC
''It is my . . . hope and aspiration that all of us . . . may eventually be gathered together in a heaven of everlasting rest and peace and bliss . . . except the inventor of the telephone.''
—Mark Twain, circa 1878
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INTRODUCTION
After more than 120 years, if a single improvement could be made to Twain's curmudgeonly comment it would be the word ''taxation.'' Let us all gather together . . . except for the inventor of telephone taxation.
Mr. Chairman, and members of the Committee, thank you for the opportunity to share my views on the E-Rate and mechanisms to publicly subsidize telecommunications services. I present these views on behalf of the members of Citizens for a Sound Economy (CSE), a consumer education organization that promotes free market solutions to public policy problems. At CSE, I am the deputy director for technology and communications policy.(see footnote 9)
More than a quarter of a million strong, CSE's members are in every congressional district of America. Our members distinguish themselves as policy activists. They constantly remind us that decisions made in Washington, D.C. are felt in places far away from here. And that is where CSE is found. We fight at the grassroots level for lower taxes and less economic regulation.
The proposed H.R. 2636, ''The Taxpayer Defense Act,'' is of keen interest to CSE. The Act would ameliorate some of the negative effects of administrative taxation by requiring legislative action to institute a new tax. It would not, however, solve the broader problem of federal tax policy that is out of control.
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Under the U.S. Constitution, only legislation that originates in the House, is passed by the House and the Senate, and is signed by the President can legitimately obligate citizens to financially support federal activity. Yet recently, federal agencies have been issuing regulations that impose taxes to cover the costs of the programs they administer. The remedy proposed by H.R. 2636 for the current practice of regulatory taxation is to make the process more difficult. However, the practice of taxation through regulation should be eliminated, not simply hampered.
COMPLEXITY AND COMMONSENSE
The E-Rate program, which provides discounts for telecommunications services to schools, libraries and rural health care providers, is a subset of the federal universal service quagmire that takes resources from some consumers to subsidize the activities of other consumers. If telecommunications—an integral part of our daily lives—should be taxed or regulated, common sense suggests that it be done in the least offensive and least intrusive manner. The E-Rate tax does not meet this minimal standard.
The current means to collect and distribute government subsidies is the worthwhile object of H.R. 2636. The proposed legislation would improve the process through which the tax is determined and collected. However, the size, efficiency, efficacy, necessity, administration, and future role of the E-Rate tax are not addressed by the proposed legislation.(see footnote 10)
H.R. 2636 does attempt to limit the cumbersome regulatory tax system by creating a new process, or series of hurdles, for any tax that originates and is implemented by an administrative or executive branch body. However, the nature of regulatory bodies is to regulate and to direct—and eventually acquire—economic resources. While procedural hurdles may slow this inevitable slide, they are not likely to change the fundamental nature of a regulatory agency.
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Indeed, the experiment with a legislative veto and the resulting Chadha decision suggest that procedural remedies to excessive administrative power suffer from two great handicaps. First, the same bureaucratic pressures that created the excessive power will continue to exist. Second, the contemporary separation of powers doctrine retains a healthy skepticism toward significant changes.
The most powerful means to eliminate regulatory taxation like the E-Rate tax is already at the disposal of Congress. Namely, legislation must be crafted with an eye toward clarity so that bureaucratic discretion is limited. Vague, general, and politically popular goals—such as the goals found in the Telecommunications Act of 1996—are a recipe for an aggressive and overreaching regulatory regime. Rather than allow such a regime to interpret congressional intent, Congress should make its intent explicit in the original legislation.
DELEGATION
The Telecommunications Act of 1996 did not give the Federal Communications Commission (FCC) the power to tax. In fact, had the Act attempted to delegate that power, it would have been clearly unconstitutional.
The current administration of the E-Rate is similar to a limited entitlement. It is like an entitlement because certain classes of consumers—schools, libraries, and rural health care providers—are promised an economic good, in the form of discounted telecommunications services. The FCC limited the amount of funds available to $2.25 billion annually.
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Imagine if the Department of Health and Human Services and the Social Security Administration determined Medicare and Social Security benefits without the benefit of careful, considered statutory instruction that contemplates the entire set of federal priorities. Working in a void that does not incorporate all of the other issues and programs that are important determinants of fiscal policy, the agencies might easily misallocate resources. That is precisely where we are today with the E-Rate. And it is also a reason why the Founding Fathers established specific procedures and responsibilities in the Constitution to guide tax policy.
A power delegated in the Constitution cannot be re-delegated. This is the starting point of a legal theory called the non-delegation doctrine. The non-delegation doctrine is not a musty relic from history. On May 14th, 1999 the 10th Circuit struck down air quality regulations promulgated by the Environmental Protection Agency (EPA) on the basis that the agency was implementing regulations not expressly approved by Congress. In American Trucking Association v. United States Environmental Protection Agency(see footnote 11) the court held that without a clear standard from Congress, the EPA could not constitutionally create and mandate rules and regulations. And, just recently, the Supreme Court denied the EPA's appeal.
The need for a clear statutory standard is consistent with Supreme Court decisions such as Industrial Union Department v. American Petroleum Institute(see footnote 12) and J.W. Hampton v. United States.(see footnote 13) As in these cases, there is no clear statutory standard by which the FCC can create or increase taxes to fund the E-Rate program. It is imperative that a clear statutory standard is established to provide guidance to, and legal authority for, the implementation and administration of the E-Rate.
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Ideally, federal statutes provide the standard to guide agency actions. Central to the recent American Trucking ruling is the idea that the regulatory body must provide an ''intelligible principle by which to identify a stopping point,'' to the extent of the delegated power. Presumably, an agency could cite statutory language for this principle or, create its own.
One might reasonably wonder if there should be a ''Citizens'' Defense Act to require that legislation to delegate authority include a clear standard for the cut-off point for the delegation. However, currently an agency is granted the discretion to determine this standard. In fact, an agency must determine such a standard or be subject to legal challenge well founded in precedent.
While the Supreme Court has not ruled on the question of a clear statutory standard for the E-Rate, a hint of the Court's opinion might be gleaned from the opinion in AT&T Corp. v. Iowa Utilities Board.(see footnote 14) Justice Scalia, writing for the majority, declared that ''It would be gross understatement to say that the Telecommunications Act of 1996 is not a model of clarity. It is in many important respects a model of ambiguity or indeed even self-contradiction.''
CONCLUSION
Taxes, to the extent that they are necessary, should be levied only in a fair, honest, easy-to-understand manner by elected officials. Telecommunications taxes imposed by unelected bureaucrats in the form of extra charges or tolls on certain services, or on certain providers, are a hidden tax on consumers that does little to promote additional telecommunications availability—the goal of universal service and the E-Rate.
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If the E-Rate program is justified, then there is no reason for the Congress—or the FCC—to hide its funding mechanisms behind complicated subsidies. Funds for the E-Rate should go through the annual budget and appropriations process like other federal programs.
H.R. 2636 is an adequate and welcome improvement to the present situation, where the E-Rate program is funded by arbitrary and hidden taxes on telecommunications services. However, more enthusiastic support is reserved for a proposal that would address the more fundamental problem of an E-Rate tax that is imposed by unelected officials rather than through the appropriate process established by the U.S. Constitution.
Thank you.
Mr. HYDE. And as the old saying goes, last but not least, Mr. Ryan.
STATEMENT OF ROBERT RYAN, MULTIPLE ADDRESS SYSTEM APPLICANT, GLEN ELLYN, IL
Mr. RYAN. Members of the committee, thank you for this opportunity.
Mr. Ranking Member Conyers, addressing your opening remarks, part of them, I am not here for sympathy. I want justice done. And justice applied to bureaucrats to me means giving them plenty of room to operate but requiring consequences for abuse. Could you accept those thoughts?
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Mr. CONYERS. I sure will.
Mr. RYAN. Thank you.
Mr. CONYERS. You are welcome.
Mr. HYDE. Mr. Ryan, we have a vote that has just been called. It is on a motion to instruct the conferees. John, shall we go over and vote and come back? If you don't mind, so you are not—so we don't press you for time, we will go vote and be right back.
Mr. RYAN. There is a rumor going around that I am retired, so obviously I have all of the time in the world.
Mr. HYDE. Okay. We are glad to hear that. We will hurry back.
[Recess.]
Mr. HYDE. Mr. Ryan, we will resume, and thank you for your patience.
Mr. RYAN. Do I get a new clock?
Mr. HYDE. You certainly do. It is the least we can do for you.
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Mr. RYAN. Well, again, members of the committee, I thank you for the time to present my story. In the fall of 1991, to supplement my upcoming retirement, I looked at the chance to become a partner of the FCC in its program to develop the multiple address system, or MAS spectrum. MAS wireless technology permits, for example, faster credit card verification and at lower cost. That is just one of the many applications.
My two partners and I applied for 100 of the top U.S. markets. Our costs were 28,000 which included 15,500 in FCC fees. The remainder was engineering and legal costs. Over 1,000 applicants filed more than 50,000 applications, as you know.
Rather than probe the unseemly twists and turns of this program right here, I will simply note that the authority to launch this program could have produced a May, 1992, start. Further, the Omnibus Budget Reconciliation Act of 1993, section 309(j), did project the authority forward. So action could have been taken, but action was never taken.
It has still not been taken these many years later. The valuable MAS plan was torpedoed by its own sponsor, the FCC. All MAS applications were summarily dismissed on September 17 of 1998. The public interest has been abused in this matter. H.R. 2701 can help redress this issue. I request your support.
I call your attention to seven points. First, partners from the private sector, acting in response to the FCC initiatives, make possible some of the great achievements of the FCC, such as today's cellular phone system.
Second, private sector partners have followed detailed FCC rulemaking, met tight filing windows, paid the fees specified. Having met the standards set, these FCC partners have every right to expect the FCC to follow its own rules and precedents.
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Third, FCC rulemaking for the MAS was precedent setting. FCC required fast build-out of the CPs that would be awarded within a very short time frame, 1 year. It prevented early sale of markets awarded; it appealed to serious builder operators, discouraged speculators—good rulemaking.
Fourth, MAS rules were finalized in late 1991. Applications were filed and fees were paid as of February, 1992. Even if delayed several months, 6 months, these lotteries could have been held and the entire system built-out and in place before the end of 1993. It did not happen; it still hasn't happened.
Fifth, a subsequent larger program, IVDS, emerged and was fast-tracked by the FCC. IVDS moved rapidly. Lotteries were scheduled and actually held for 9 of the top 10 markets by mid-1993. At that point, the new Hundt FCC was able to hold up the IVDS process and was subsequently able to convert other IVDS markets to the favored auction process. The newer PCS program was also converted to auctions. However, even the heavy-duty lobbying that did occur was unable to convert the earlier MAS program. MAS was protected by the time-honored principle of grandfathering.
Sixth, the Hundt FCC reaction was to back-shelf MAS. It gathered dust for years. After highly regarded Commissioners Barrett and Quello retired, the FCC promoted its MAS notice in April, 1997, using the open formal comment process. The effort failed.
Seventh, the FCC gave up its fully public approach. It went back-door using a rider bill to obtain the abusive authority it needed. The rider was attached to the Balanced Budget Act of 1997. A full year later, in October, 1998, the MAS applications were summarily dismissed. A rebate of the fees only was allowed, about 55 percent of an applicant's original cost at the start of 1992. There was no plan to make the applicants whole after what became 7 years of delay.
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That is a brief tracking of the sorry history of the MAS program. The facts are more fully developed in the material filed today with the committee. There are four conclusions to be drawn from the public record.
Number one, the FCC, whether intentionally or otherwise, has failed to fulfill its fiduciary responsibilities to the MAS applicants.
Number two, given provable, deceitful and improper handling of the MAS applications and so many years of time delay, a return of fees only is insufficient compensation. The applicants should be made whole. Another issue, aside from clearly negotiable costs, is loss of opportunity.
Number three, while it would be unfair to characterize these events as a conspiracy, the FCC displayed an uncommon will to resist implementation of this clearly grandfathered program. Evidence is all over the public record.
Number four, it must also be recognized that abuse of MAS applicant rights is just part of a larger abuse issue, abuse of the public interest by delaying MAS service for more than 6 years and still counting. That is beyond a readily achievable national build-out before 1994.
The FCC's handling of the MAS matter is not in the proud tradition of that Commission.
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To wrap up, again I request the support of all members for H.R. 2701. It can bring justice to hundreds of MAS applicants across the country and send an important message to all government agencies and commissions.
Thank you for your time.
Mr. HYDE. Thank you, Mr. Ryan.
[The prepared statement of Mr. Ryan follows:]
PREPARED STATEMENT OF ROBERT RYAN, MULTIPLE ADDRESS SYSTEM APPLICANT, GLEN ELLYN, IL
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Mr. HYDE. Mr. Conyers.
Mr. CONYERS. Thank you very much, witnesses. I hope you are all feeling better. You have beaten the brains out of the chairman of the FCC.
Mr. RYAN. It is not our duty at the time.
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Mr. CONYERS. I hope this makes you—that is what we hold these hearings for, so everybody is feeling good.
Now, Mr. Weening, do you know that Black Radio is in the biggest crisis it has ever been in, and they are being bought out all over the country and maybe you are part of it, right?
Mr. WEENING. When you describe Black Radio, you mean radio that's programmed for urban audiences?
Mr. CONYERS. That is exactly right.
Mr. WEENING. We have leading urban radio stations in 12 cities. In fact, we are one of the larger urban broadcasters in the country in terms of number of radio stations programmed in that format. So we think it is very healthy.
The single public company that specializes in that particular category, radio, one is owned and operated by an African American family. It is publicly traded now. It is probably the most highly valued in terms of multiple cash flow with their share price of any radio company today.
Mr. CONYERS. That is not the point. I know that one, but I know all the others that are going under, my friend. So if you think that is healthy, it may be because you are buying them up or people like you are buying them up.
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Mr. WEENING. Well, Congressman, I am not sure of the point you are making. As far as I know, the facts would support that urban radio in this country is as healthy as it has ever been. They are not going under, but in fact, prospering. So I would have to respectfully invite you to tell me what urban radio station in this country is struggling.
Mr. CONYERS. I have got a whole list of minority radio stations. They are not struggling. They are being bought out. That is my point. It is not that——
Mr. WEENING. What in the world is wrong with that?
Mr. CONYERS. Oh, it is great. I tell them all the time whenever they come to me crying about this, that—what is wrong with that? I mean, this is a capitalist society, so what is the problem, guys—if you don't like it, don't sell.
Mr. WEENING. Exactly.
Mr. CONYERS. Thank you very much.
Mr. WEENING. Okay.
Mr. CONYERS. Now, since you think the FCC exceeds its authority, have you ever heard of any lawsuits that tested them?
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Mr. WEENING. With respect to radio license transfers?
Mr. CONYERS. Yes, sir.
Mr. WEENING. Not on that particular point. We certainly haven't filed any. As I said, I think the Commission, through 80 transactions, has actually been very efficient in processing our applications. It has only been in recent months, perhaps for the last year, that what we think is a misplaced, misguided concern over the negative impacts of consolidation have caused the Commission to try to intervene and focus on concentration in radio license transfers. But no, I am not aware of anybody challenging it legally.
Mr. CONYERS. You know you can't.
Mr. WEENING. And if we are forced to, of course, we would. Right now, the problem is not that they don't get approved ultimately. The problem is that they get delayed interminably, and the loser in the delay is the seller, not the buyer. The loser in the delay is the seller whose staff knows that the radio station is going to be owned by someone else and so they are not working very hard. They are figuring out what the next chapter of their life is going to be, and the owner, themselves, is waiting for the regulatory bodies to figure out whether the license can be transferred. There is a serious problem, and it ends up diminishing considerably the value of the station being sold.
Mr. CONYERS. Well, now, we spent a long time here discussing—longer than I wanted to, but it is important—and you know, the minority radio owners who keep coming to me saying they are being wiped out of the business, I still haven't really done justice to them, and I think I will have to get with you and get some more information.
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Apparently, I know things that you don't know or that I am not able to convey to you right now, and I will be working on that.
Mr. WEENING. I will be delighted to work with you on that, Congressman.
Mr. CONYERS. Now, Mr. Neel, the time limit business, I know there are bills pending on this all over the place, but I am just a little reluctant to tell FCC that in certain of these cases, particularly the mega mergers, that they really have to do it within, I don't know what time some of the legislators have in mind, but unless I could find that there was a serious procrastination, I would be very reluctant to want to get in to giving them a time limit when we are in an industry now that is growing topsy-turvy, that is going to take a long time to figure out some of the economic consequences here. And so I resist those suggestions about a time limit.
And I noticed further that you—you were critical of the one big one, but the counsel for Ameritech and the assistant general counsel for SBC thought that those negotiations moved along pretty professionally. I don't know what the difference is between their experience and yours.
Mr. NEEL. Mr. Conyers, I think those companies were not exactly at liberty to be critical of the process because the FCC had the future of their company in their hands. So they obviously were going to be somewhat complimentary, and they got their merger ultimately approved.
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My concern is less with the finite amount of time allowed to review these mergers as it is the vast expansion of the terms under which they review those mergers. As I mentioned before, the Congress repealed the expansive authority, or thought it did, that the FCC had prior to the 1996 Act.
But now the FCC has taken this one narrow piece, the public interest standard, in reviewing simply the transfer of radio licenses to open up a whole, vast, new front to extract concessions that they would not likely have the authority to do if that definition of their mandate were followed strictly. And frankly, if their mandate were more narrowly followed, if the public interest standards were clarified, as the chairman's bill would do, under more narrow and specific terms, it wouldn't take them a year and a half to review these mergers, however large.
Mr. CONYERS. Well, maybe it is in the public interest that they do.
Mr. NEEL. You mean that they take so long?
Mr. CONYERS. Take as long as they need, yes.
Mr. NEEL. Well, they should take as long as they need to review the terms of the merger as expressly defined in the law, but I don't believe it makes sense to use the requests for a merger whether it be a local telephone company or even Sprint and WorldCom or some other group of companies to use the leverage they have over mergers, and on the destiny of these companies, to get into a whole range of areas that aren't even envisioned in the law.
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Mr. CONYERS. Well, suppose they are within the public interest.
Mr. NEEL. That is a very broad definition as the FCC determines it right now, and that is exactly what the Congress ought to be doing is to make that definition more explicit or force the FCC to make that more explicit, because your definition of the public interest may not be the same as the chairman's or Mr. Gekas' or anyone else's. And it is fair to disagree on this, but when the future of these companies and the whole telecom economy is at stake, then these companies need predictability and they need certainty; and frankly, they can't be held out there twisting in the wind to make these billion dollar investments because the fear of a regulatory agency might define this in broader terms than the law envisioned.
Mr. CONYERS. But we have more and more mergers, not fewer and fewer. I mean, they are coming in the windows and doors now. I mean, I don't see anybody being held up or holding back or deciding not to go forward.
Mr. NEEL. Well, what I would submit is that the use of merger authority to extract concessions as they did in the SBC-Ameritech merger goes way beyond the law, and it ties the hands of these companies and it makes them less competitive in the larger arena. I mean, I would submit that employees of those companies in your district, their future is less certain because of the conditions extracted in this merger. Now, SBC and Ameritech may have a different public view, but this is an objective view here; and it is not so much that they won't go forward. They have to go forward. You said yourself that so much is happening in this industry that they have got to get competitive, and so consolidation is one way to do it.
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So I mean, particularly now, you are going to have a massive duopoly in the long distance business; but more importantly, in the long haul, the data transmission business, the Internet backbone, is going to be dominated by AT&T and WorldCom in a few months, absolutely dominated, and there are no controls on this whatsoever, except competition, and these mergers allow a company like the new SBC to compete more effectively against that massive duopoly.
Mr. CONYERS. Well, I don't agree with that. I think under some of these bills that are floating around here, the locals are trying to get into high speed data without opening up local markets. I know that will send you off the wall, but hold on. The fact of the matter is that we have been having a little bit of difficulty in that area, and I don't know if we envision the high speed data market as part of the long distance deal in 1996.
Mr. NEEL. That is exactly right, Mr. Conyers, you didn't. There was no mention of this in the entire legislation—one passing reference to the Internet and nothing on, you know, these digital subscriber lines or cable modems. These technologies were not in place when you passed the act in 1996, which is even more of a reason to respond to this by a change in the law.
The fact is, the law addressed long distance voice services. That is absolutely the case. There is nothing in this law that should restrict the FCC from allowing these companies to compete in data markets, and the practical result of that is, as I said, you have got a massive duopoly that is going to control this Internet backbone in this country; and the only way to deal with that is probably not through divestiture or breaking them up, but through presenting some competition. The FCC has the tools to do this, and it goes way beyond the long distance voice market.
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Mr. CONYERS. Well, I am going to be following this and your comments very carefully, believe me. Do you still advise Al Gore on communication issues?
Mr. NEEL. No, sir.
Mr. CONYERS. Okay. That is a relief. Thank you very much.
Mr. NEEL. But he has my phone number.
Mr. HYDE. Mr. Neel, Chairman Kennard said the FCC has transparent, well-established procedures. Has that been the experience of your companies? Is the procedural road map for licensing transfer, is it clear?
Mr. NEEL. With all respect to the FCC chairman, who is a great public servant and was a very strong appointment by the President, I would say that it is not clear. There are procedures, and I have no doubt that they follow them by the book, as they write the book.
The problem is that they have written the book in a way that it seems to me the Congress didn't intend and, in particular, the massive use or the expansive use of the public interest standard. So the procedures may be clear that you do A, B, C and D procedurally, but the goal line keeps moving; and when you go in and seek a merger approval and you expect that fundamental issues associated with the merger would be the terms of consideration, but you are told that, well, we can't approve it unless you unbundle this or that network and charge this or that or provide this discount for this service to some, that is not so clear.
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You never know what comes next. The goal line keeps moving, and the Department of Justice itself in its recent announcement on the Bell Atlantic position to get in the long distance business acknowledged that the goal line keeps moving, and that creates enormous unpredictability and uncertainty; and frankly, it is simply not fair to these companies because they have got to get out there and compete, and if they can't have some certainty about the rules of competition, then how are they going to make massive investment decisions? So the short answer is, no, we don't believe they are clear and understandable.
Mr. HYDE. Mr. Binz, you focused on consumer harm. Because of the long delays in license transfer reviews, there has been prolonged uncertainty around several major mergers. Now, irrespective of whether the merger is approved or disapproved, doesn't prolonged uncertainty during the pendency of the license transfer review cause serious consumer harm? What about consumer harm in the MAS situation where consumers have been denied that service for nearly 10 years now?
Mr. BINZ. Mr. Chairman, in my prepared statement, I went into this in more detail.
It is my view that regulation has to change to accommodate the different marketplace that it regulates. We are moving from a system of regulated prices to a system where the market sets the prices. If we are going to do that, we have got to get the market in place as expeditiously as possible.
So we have long advocated that regulators streamline the process. But I want to emphasize, we are not suggesting that they lower their standards. That is a different issue entirely. And I disagree strongly with the suggestion that Mr. Neel's been making, that the FCC narrow its focus. I am much more sanguine than he about having somebody with a dedication to public policy telecommunications and moving a competitive market forward. I am much more sanguine than he, having someone in place reviewing these transfers, but I think they should do it quickly.
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I recite in my testimony instances where State regulatory commissions have relatively shorter time frames to decide pretty important cases, and they get the work done. Congress gave the FCC 90 days to decide the long distance entry issue. Right now, as you may know, in New York, Bell Atlantic is requesting permission to get into the long distance business in New York—massive record there—and a lot of work was done by the New York commission in advance of this, but the FCC has 90 days.
What has that done? It has made all the lawyers, all the intervenors get on their toes to get this done. I am going home tonight and writing reply comments in the New York case that are due on Tuesday of next week.
So I think it can be done. I respectfully acknowledge Mr. Conyers' point that you don't want to be arbitrary about this, but my sense is the regulators can adjust their processes. The result, if they don't, is uncertainty; you are absolutely correct. I think 15 months is too long, as a general matter, to render a decision about a merger of large telephone companies.
Our preference frankly would have been for Chairman Kennard, as you suggested earlier, to have said ''no'' at the beginning of this. If he did not think the merger was in the public interest, as proposed, then he should have said no, in our view. If the applicants had adjustments they could make to come back and make that merger in the public interest, they might well have done that. That would have given them an answer. As it turns out, they were apparently willing to agree to a bunch of conditions to get the Commission to approve it. We don't think that is necessarily the best process.
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As I said in my testimony, we think regulators should make the tough choices and make them expeditiously.
Mr. HYDE. Well, I appreciate what you are saying. You kind of like the phrase ''the public interest,'' and that seems to me to be a lifetime pass to the World Series, I mean, whatever you want, the public interest, as I define it.
The purpose of codifying law is to help people know what the law is or to get a reasonable, ballpark idea that it accounts for different interpretations by having lawyers argue and courts interpret what it means, but there ought to be some grasp on reality. It ought to be broad. The public interest, you can't always define it in every case, I understand that. But the lack of a remote ballpark specificity is a serious problem; and you know, John, I didn't hear any testimony today about the shortage of resources. I assumed that the FCC lacks that.
One of the reasons it takes such time for a lot of these things to happen is they don't have the personnel or the funds, but we didn't go into that, and I kind of wish we had.
Mr. CONYERS. You are right, Mr. Chairman, we didn't, and I think that is something that the committee should be looking into.
Mr. HYDE. We should look into it.
Mr. Binz.
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Mr. BINZ. If I could just respond slightly, this is the Judiciary Committee and I am not a lawyer, so there is a little bit of a mismatch here. But I think it is a mistake to assume that the FCC has sort of a blank canvas on which it paints when it considers the public interest. First, it has got the Telecommunications Act which Congress has gone through very carefully, and with the history of the 1996 act, I think you know what I mean by that.
The courts have said that the public interest must be interpreted in a manner consistent with the purposes Congress had in mind when it enacted legislation. It says that the public opinion——
Mr. HYDE. If I can just interrupt you there, it is my understanding that the congressional legislation was designed to withdraw broad merger review and to confine it to license transfer; and instead, the FCC has continued blithely doing broad merger review when there was a specific statutory change in 1996 that eliminated the broad merger review and focused on license transfer. And that is something that I guess we all disagree on, but I think that was the specific intent of Congress in passing the 1996 act.
Mr. BINZ. I also just note that in addition to license transfers for wireless spectrum, it has also a movement of lines and of all the access lines. So it is also the case that you merge only if you acquire all these lines and you transfer them only if you merge. So while we may wish that we—Mr. Neel may wish that he could push this into this narrow technical finding; that is not actually what the FCC is asked to review.
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Mr. HYDE. All right.
Mr. Gekas.
Mr. GEKAS. Yes, I thank the Chair.
Mr. Ryan, in looking over your documentation, specifically with the copy of the final order of the Federal Communications Commission, they are specific about the fact that an applicant—yes, I have it—the applicant could try to recover reimbursement for fees expended; and you say in your statement that you had about $15,000 in fees of some of the expense totals that you put in the record here. Did you apply for that reimbursement for the fees?
Mr. RYAN. Oh, I certainly did, and I received it.
Mr. GEKAS. You received them. That wasn't clear to me.
Mr. RYAN. I am one of 795 applicants who did file for return of their fees and have received them, and by the way, only about half of the fees have been sent back because only half of the people applied.
Mr. GEKAS. Thank you.
Mr. Lassman, the big issue in the Internet tax or fee question is the ongoing debate about what constitutes a tax. I recall that there has been a body of law, which I thought was well settled, on the definition of a tax. Do you concur that there is a body of precedents on what a tax is?
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Mr. LASSMAN. Yes, absolutely. The most recent interpretation of that body of law comes from the Supreme Court in U.S. v. Shoe.
Mr. GEKAS. Now, is that the Texas case?
Mr. LASSMAN. No.
Mr. GEKAS. But in the Texas case in which opponents, or opponent, the ones who opposed my bill, for instance, cite as authority never comes to the conclusion that this particular assessment of consumers was a fee or a tax; is that correct?
Mr. LASSMAN. That is correct. As Chairman Hyde pointed out, the Texas decision not only didn't come to that conclusion, they didn't ask the question. They wrote as part of their decision, we are not addressing whether this is a tax because it did not come up until the reply cycle.
Mr. GEKAS. Mr. Binz, do you agree that if this particular assessment was being called a ''fee,'' it is unfair to consumers?
Mr. BINZ. Congressman Gekas, the 1996 act changed the universal service system in a way that extended it to schools and libraries for this wiring. We are not taking a legal position here today on whether it is a fee or tax. I happen to think the FCC is acting consistent with the direction Congress gave it in 1996. There is disagreement about that. My understanding is that consumers are, in fact, supportive of the revenues collected in this going to universal service support.
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Mr. GEKAS. You haven't seen my mail apparently. I haven't seen my mail.
Mr. BINZ. People are split on all of these issues—for every consumer who likes competitive choices, another one doesn't like to be called at dinner. So you are going to have people on both sides.
Mr. GEKAS. But your entity does not take a position although you are consumer-based and consumer-interested; is that correct?
Mr. BINZ. That is right.
Mr. GEKAS. Could I ask your group to meet on this and render a decision from the standpoint of your membership as to whether this is fair to consumers? Could I ask for that and be denied, or could you accede to that request?
Mr. BINZ. I will be glad to get back in touch with you about this. I am relying—when I said that earlier, I am relying on results I have read about poll reports on this, that there is general support for it, but again, it is a policy call. If Congress wants this system supported through telephone fees or taxes, whatever you choose to call them, you have the right to do that. Again, it was—1995, during the negotiations in the Telecommunications Act—the committee Chair for the Telecommunications Committee of the National Association of State and Teleconsumer Advocates, and I think at that point, we did not take a position on this, believing that Congress had the prerogative certainly to decide exactly where universal service support is.
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Mr. GEKAS. Let us assume that the entire membership in the Congress felt it was a wonderful idea, as I do, to provide Internet access to all our school children. Can you answer this question: Would it not have been better for the Congress to enact a statute, a levy, a congressional mandate, to collect the revenues for that specific purpose rather than to shock the consumers with bills for telephone usage that incorporates a revenue collector that they never contemplated?
Can you at least come to a conclusion with me that it would have been better for the Congress to do that?
Mr. BINZ. Mr. Gekas, with all due respect, I think Congress did that in 1996.
Mr. GEKAS. That is an artful dodge, Mr. Binz, that you just incorporated in your presentation.
Mr. HYDE. And on that happy note, I will adjourn the meeting, and I want to thank you all for really making a contribution. Your statements will be read. The staff will go over them; we will go over them and try to move on from here. You have all helped us. We appreciate your patience.
Mr. CONYERS. Mr. Chairman.
Mr. HYDE. Mr. Conyers.
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Mr. CONYERS. May I add my compliments to the witnesses on this panel.
Mr. HYDE. You may. Praise from Caesar is praise indeed.
The committee stands adjourned.
[Whereupon, at 1:30 p.m., the committee was adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record
| Federal Communications Commission, |
| Office of the Chairman, |
| Washington, DC, November 17, 1999. |
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR CHAIRMAN HYDE: Thank you for inviting me to testify before the House Committee on the Judiciary during its November 3, 1999 hearing concerning the ''Fairness in Telecommunications License Transfers Act,'' the ''Taxpayer's Defense Act,'' and the ''Justice for MAS Applicants Act.'' I appreciated having the opportunity to respond to the issues raised by your Committee, and I look forward to working with you in the future to resolve issues related to these bills.
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I understand that following my panel, you inquired about the status of the FCC's budget request for FY 2000. As you know, the President vetoed the Commerce, Justice, State, Judiciary and Related Agencies (CJSJ) Appropriations bill on October 25, 1999. Although he cited a variety of reasons for the veto, the President noted that the bill failed to ''provide sufficient funds for the continued operations of the FCC,'' especially in the area of technological improvements and innovation. The Administration originally requested an appropriation for the FCC in the amount of $230,887,000. The Senate increased our appropriation to $232,805,000, while the House only provided for $192,000,000, and the Conference Committee settled on an appropriation of $210,000,000.
The FCC has a history of using technological solutions to improve public access to information concerning telecommunications regulatory trends and licensing requirements. Members of the public access the FCC web site at a rate of 400,000 hits a day, seeking information on licenses, applications, mergers and other information. Moreover, we implemented the Universal Licensing System last year to eliminate thousands of manual applications and allow firms to apply for some FCC licenses on-line, even paying by credit card directly over the internet. We have reduced staff as a result of increasing technological investments.
The FCC requested funds for the next fiscal year to expand the Universal Licensing System to other licensing functions within the agency. The failure to include the requested funds will hamper our ability to complete innovations and further serve consumers and licensees.
I recognize that the current budget negotiations are focussing on a wide range of differences between the Administration and Congress. When the House of Representatives reconsiders CJSJ, I hope that the new bill will contain the funding necessary for the improvement of the Commission's resources.
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Sincerely,
| William E. Kennard, Chairman. |
cc: The Honorable John Conyers
(Footnote 1 return)
These percentages were derived from information filed with the FCC by Bell Atlantic in support of its application for authorization to provide interLATA service in New York.
(Footnote 2 return)
The New York Telephone Competition Survey is available on CPI's website, www.cpi.org.
(Footnote 3 return)
Petition to Impose Conditions, filed by the Competition Policy Institute, September 23, 1996, FCC Tracking No. 960221.
(Footnote 4 return)
Presentation of Ronald Binz to the Telecommunications Committee of the National Association of Regulatory Utility Commissioners, Washinigton, D.C., February 23, 1999. (Emphasis supplied)
(Footnote 5 return)
See, NAACP v. FPC, 425 U.S. 662, 670 (1976); see also, Western Union Div. v. United States, 87 F. Supp. 324, 335 (D.D.C. 1949) (''The standard of 'public convenience and necessity' is to be so construed as to secure for the public the broad aims of the Communications Act.''), aff'd 338 U.S. 864
(Footnote 6 return)
FCC v. Pottsville B. Co., 309 S.S. 134 (1940) (The public interest ''serves as a supple instrument for the exercise of discretion by the expert body which Congress has charged to carry out its legislative policy.'' See also, FCC v. WNCN Listeners Guild, 450 582, 593 (1981)
(Footnote 7 return)
See, FCC v. RCA Comm. Inc., 346 U.S. 86,90 (1953) (''The statutory [public interest] standard no doubt leaves wide discretion and calls for imaginative interpretation.'').
(Footnote 8 return)
See, for example, the Commission's discussion of its authority in its decision approving the Bell Atlantic/NYNEX merger.
(Footnote 9 return)
CSE does not receive any funds from the U.S. Government.
(Footnote 10 return)
Please see also Kent Lassman, ''Statement on H.R. 1746, the Schools and Libraries Internet Access Act,'' U.S. House of Representatives, Subcommittee on Telecommunications, Trade, and Consumer Protection, September 30, 1999; James C. Miller III, Statement before the Subcommittee on Commercial and Administrative Law, U.S. House of Representatives, July 29, 1999; Kent Lassman, ''Taxpayer Double Whammy: ''Gore-Tax'' Expands Government, Ignores Constitution,'' Capitol Comment No. 240, Citizens for a Sound Economy Foundation, June 15, 1999; and also, Kent Lassman, ''Universal Service Reform: Benchmarks for Success,'' Capitol Comment No. 192, Citizens for a Sound Economy Foundation, June 16, 1998; James C. Miller III, Statement before the Subcommittee on Commercial and Administrative Law, U.S. House of Representatives, February 26, 1998.
(Footnote 11 return)
1999 WL 300 618 (D.C. Cir. 1999).
(Footnote 12 return)
448 U.S. 607 (1981).
(Footnote 13 return)
276 U.S. 394 (1928).
(Footnote 14 return)
119 S.Ct. 721 (1999).