Transcript of Panel Discussion.
The Washington Scene: The Year Ahead in Telecommunications.
ComNet 99 Conference.
Date: January 27, 1999.
Moderator: Richard Wiley, Wiley Rein & Fielding.
Panelists: Kevin Martin, Ivan Schlager, Justin Lilley, Bernadette Revera, Kathryn Brown.

Richard Wiley.  This is the traditional Washington Scene program in which we try to take a look at the major policy and regulatory issues in the year ahead, as seen by, you know, five top staff, government staff personnel, drawn from the administration, the Congress, and of course, the FCC. As always, we are going to employ a very fast moving all question and answer format. I am going to start with the question, but I hope that a little latter you all will also join in the fun and examine our experts. Without further ado, let me introduce our all star cast for this morning. I am going to do very briefly, because they are all pretty well known here in government.

First, on my far left, is Kathryn Brown, who is, of course, the Chief of Staff at the FCC. She is the right hand person for Chairman Bill Kennard. Kathy is a former Chief of the FCC's Common Carrier Bureau, the former Associate administrator for Policy Analysis and Development for the National Telecommunications and Information Administration, Department of Commerce, and a former Director of the New York State Public Utilities Commission's Consumer Services Division.

Next is Ivan Schlager, on my medium left here. He is the Chief of Staff to the Senate Commerce Committee on the minority side of the aisle. As such, he is Senator Fritz Hollings' primary advisor on telecommunications policy and legislation. He formerly practiced law in Los Angeles.

On my immediate left is Kevin Martin, who is a common carrier legal advisor to FCC Commissioner Harold Furchtgott-Roth at the FCC. He formerly practiced law in Washington DC with what I would naturally regard as a very prestigious law firm. He also clerked in a federal court in Miami.

On my far right is Justin Lilley. Justin is a telecom counsel to the House Commerce Committee. He is the key advisor to Chairman Tom Bliley. He also formerly practiced law in Washington DC following a clerkship on the 5^th Circuit Court of Appeals.

And finally, on my immediate right is Bernadette McQuire Revera, who is a primary advisor to Larry Irving, the Assistant Secretary of Commerce, and the head of NTIA. She formerly served as Vice President of the National Association of Broadcasters. And for those of you who follow the FCC closely, she is married, if I may say so, to a good friend of mine, a former FCC Commissioner, Henry Revera.

All of these folks, with the exception of Kevin Martin, who has just entered his job in the last year, have been with us before, and it is a pleasure to have them back with us once again. They are all very busy people, and we are very much in their debt for having been here.

I would like to start out, if I could, with you Justin. The 1996 Telecommunications Act is now three years old. How would you evaluate its success or failure, its effectiveness to date?

[071] Justin Lilley. I think we would regard it as a success to date. And I think as the years go by it will be universally recognized as a huge success. And we are looking forward -- in fact, to tomorrow, you will see evidence of it when the Commission issues a report that is required under the Telecommunications Act to examine the extent of deployment of broadband infrastructure. And, I think that that report will strike a positive tone. At least, I hope that Kathy indicates today that that report is going to strike a positive tone because all the evidence is there that there is a fair amount of deployment. And that a lot of companies exist today that exist but for the Act. In other words, the Act enabled them to enter markets that were otherwise legally closed to them. And that, so you will get a tangible piece of evidence tomorrow as to the success of the Act. And I think as the years go by it will become more and more apparent to people that this was the landmark and monumental legislation that Chairman Bliley indicated when it was enacted.

Richard Wiley. With the benefit of hind sight, Ivan Schlager, would there be any changes that you would now, here in 1999, would propose to the Act?

[084] Ivan Schlager. That is a tough question. I think that we got it pretty much right. I think the one thing that I would change, is not so much in the Act, is just the hubris that surrounded the Act. I think the third anniversary is the death of hubris. And the fact the public interest, and shareholder interest don't always diverge, or don’t always converge. Actually, diverge.

Richard Wiley. What about the FCC's implementation of the Act. The Commission was given a really tough assignment by Capital Hill, that to perhaps initiate as many as eighty different proceedings. Kathy, how would you assess the Commission's success rate to date. If you want to take the mike, if you can, we are going to have to pass the mike around because we only have one on each side. And I know you have got a cold. And we really appreciate you being here, for the kind of job that you've got.

[093] Kathryn Brown. I apologize. It has been a good couple of weeks I think, for the American people, the Congress of the United States, and for the Federal Communications Commission and I think we are feeling very good about have what I think is a piece landmark legislation with both a federal and state regulatory regime in place that is going to ensure that all of these markets are open. I think that the Commission, as well as the state commissions have taken important critical steps in the last two and one half years to open these markets. I think the Supreme Court yesterday affirmed the wisdom of Congress, affirmed the wisdom of the FCC, that markets will and should be open, and that we will continue to push as hard as we can to ensure that more competitors enter the market so that the American consumer has better and more choice, and we are seeing that, we're seeing that.

[105] Richard Wiley. Well let me pursue you just on, on the being constructive, being critical here. There is one segment that would say that, "market haven't been so open," and that is the RBOCs have been trying to get into long distance for a long time. There have been critics on the Capital Hill that says, "When is the commission going to approve one of those long distance applications. When are we going to see the dream of integrated service competition realized?"

[110] Kathryn Brown. As soon as a 271 application gets to us that conforms to the checklist that Congress put forward it will indeed be approved. I just want to say how optimistic I am. I have been on this panel for three years, and for three years people sort of wring their hands on this issue. And I think that it is time for the hand wringing to stop. I was very encouraged this week by some of the responses to the Supreme Court decision, clearly saying, "We know, we get it, we've done it, we're there, we're working on this." The major incentive that Congress wrote into this Act, the entry into long distance, is one that I think is the right incentive. It is working. Companies of good faith are working very hard before the state commissions to make sure that the meet the requirements of the Act. And I am encouraged that the nuts and bolts of market entry are actually happening. That the interfaces that have to be in place for these companies to be able to interact with each other ensure that there is a seamless process in place so that customers are not falling off as they move between competitors is happening. It has been very hard work. It has been hard work on the part of the companies. It has been hard work on the part of the regulators. But it is happening.

[126] Richard Wiley. Kevin, your boss helped to write the Act, but as I say, we have not seen a 271 hurdle yet achieved, in light of those of those favorable optimistic comments that Kathy just made, do you think that we are likely to see one of these applications granted in the near future?

Ivan Schlager. Kevin, when you asked for Kevin, and your boss ran the [inaudible word]. I assumed that you wrote the act.

Richard Wiley. No no. [Laughter.] Harold Furchtgott-Roth was an economist with Tom Bliley, and was pretty active. [Laughter] I know.

[132] Kevin Martin. The question of when a 271 will be granted at, I am not sure. The Commissioner has certainly been hopeful that there would be more applications coming in than there have been over the last year, and he has encouraged parties to try to get the applications in as quickly as possible. I think that one thing that should be pointed out though is that, while the Commission's authority certainly was affirmed this week to be doing, to be involved in these issues, that does not mean that the merits of any, some of its decisions were affirmed. It does not mean that necessarily, got the right answer, just because it has the authority to do something. And, I know the Commissioner has been concerned that in some of these areas that they have taken an excessively regulatory approach, and they have set the bar up so high, that it makes it more difficult. I know, his view of the 271 checklist, for example, is just, it references back of the points of 251, that all of the incumbent LECs are required follow, and that to the extent that we can, we should not be trying to over-regulate something, even if we have the authority to do it. And I think that that's, that will be the challenge that will be facing the Commission.

[144] Richard Wiley. Kevin, one of your colleagues, one of your boss' colleagues, Commission Powell, called for a sort of a consensus interactive program in which there would be more discussion between the Bureau and the RBOCs to try to reach one of these 271 achievements. Has that process been working?

[148] Kevin Martin. Well, I think that, I mean, I guess, before we even talk about whether it has been working, we should say that Commissioner Furchtgott-Roth has real concerns about it. It is one thing to be responsive, as the agency to questions that there are about how our rules are going to be applied, but it is another to be prejudging something that is going to be coming before us in more of an adjudicatory fashion. The 271 process is unlike other rule making processes, an adjudication, somewhat more similar to an adjudication than a review of an individual application. And so the, you know, Commission has limitations on how much feedback it can give on the facts that someone might be presenting before it. So, I think that there has been an attempt though to be more open in the process, but I think there are concerns about how, the extent that you can do that.

[156] Richard Wiley. Kathy, what's the, just coming back to you for a moment, what's the, is the OSS, the backroom, sort of, so to speak, of the RBOCs? Is that the remaining hurdle in these 271s from your standpoint? Is that the primary one would you say?

[160] Kathryn Brown. I think it is, it is certainly at the center of the discussion and dialogue right now. Let me just say something about what Kevin has said. I think this Commission, and certainly the Bureau, has tried very hard, and consistently to be open about its processes. In the BellSouth Louisiana order I think the Commission rightly did a full order trying to give as much guidance as it can to the industry on these issues. And central in that order was the OSS issues. And, I point to Georgia, and I point to New York, and I point to Texas, and other states that are looking very carefully at this issue, and not just adjudicating it, but actually having the parties trying to figure out what the, the interfaces between them need to be, and how they can make it work, and how that is very encouraging.

[170] Richard Wiley. OK, how, where is the Administration coming on this how issue of RBOC entry? Bernie, you want to have any comment on that? You want to use this mike? They are going to record this session.

[172] Bernadette Revera. We are very much looking forward to it. The applications that we have seen coming in have gotten closer and closer to a point where an RBOC should be able to compete locally, and we are hoping, and from what we have see we're hoping, and we think it will happen soon, maybe within the next year.

[176] Richard Wiley. OK. On the Supreme Court's decision, I'd have to ask this question. You know. It is now that the states have largely followed a forward looking costing methodology. You have to ask the question, "Is this decision really going to any major impact?" What is your guess on that Justin?

[179] Justin Lilley. I don't know. I think that from our perspective this, Chairman Bliley released a statement the other day hailing the decision, and I think from his standpoint, this should remove any excuses now for the Commission to place the development of local competition as its highest priority. This decision removes a cloud over the Commission's authority. And I think that for the Commission, and hopefully for the industry participants, to put this aside, in addition to -- remember this decision came down within a week of the same decision by the court to not hear the appeal from the Fifth Circuit on the, the whether Section 271 constituted a bill of attainder. Chairman Bliley's view is that this removes clouds over the substance and constitutionality of these key provisions of the Act, and it is his hope that the Commission will spend more resource, more time, and more attention to the issue of promoting local competition.

[192] Richard Wiley. There was one cloud though that seems to still be there, or a court did overrule the Commission on the unbundled network element issue. Kathy, do you want to say anything about that? Is that, the trade press today was speculating that that's going to be perhaps a very major issue in the future, and a concern.

[195] Kathryn Brown. I think that is important to read this opinion in its entirety. Justice Scalia, writing for the majority, gives deference to the Commission on its interpretation of the Act, straight down the line. This one particular issue, as I read this opinion, says, "look, you need to give us a rational basis for determining this necessary an impairment standard." I believe it is a standard issue. I think it is one that we will address very quickly. And I think it is one that the Court, at least as I read this decision, if rational, will be upheld.

[204] Richard Wiley. OK. Let's turn away from Court decision and the Act to something that is another big factor that is pending at the Commission, and that is the whole question of consolidation. The fact that there are three major mergers pending: AT&T TCI, and two RBOC mergers, along with the Bell Atlantic GTE situation. Ivan, what, from the standpoint of the Hill, taking a look at this, you know, is this consolidation consistent with what Congress foresaw when they passed the 1996 Act? Does it create any concerns on your part?

[211] Ivan Schlager. I think, number one, yes it is creating concerns. Judiciary Committee is holding hearings, I believe this week, on mergers and consolidation. I don't think that it was anticipated, but it is I think a natural reaction to the market in the sense that these companies are now global players and the consolidation is happening because they are competing against not just each other but against Deutche Telekom and France Telecom and British Telecom and, you know, one obvious market strategy is only the biggest players are going to survive in an era where we hope to have tremendous price competition. I think it is troublesome in particularly, even on the media side, it is troublesome to a number of people on the Hill who have a more populist bent.

[222] Richard Wiley. In particular, Kevin Martin, how do you view the RBOC's contention that they have to expand beyond their regional status in order to compete against the behemoth long distance combines that don't have any restrictions? In other words the AT&T TCI, possible combination, the MCI WorldCom situation, and Sprint with its foreign partners that Ivan mentioned.

[227] Kevin Martin. I guess, two points I should try to make in evaluating some of the mergers, one is whether or not they need to be able to do that, I think is more important for the market to be deciding than for, necessary for the regulators to. And, to the extent that concerns are being raised about the consolidation, I mean, I was going to comment, it is interesting, the Judiciary, he, Ivan was talking about the Judiciary Committee looking into this, and it is because it's really a more of a central antitrust question, and the Commission has authority in the antitrust area that has been given to it by the Clayton Act, and I think that what Commissioner Furchtgott-Roth has tried to emphasize, is that to the extent that there are traditional antitrust concerns, we should be looking at them through the eyes of our Clayton Act authority, which is completely separate from the authority we usually exercise in the typical transfer of licenses. We have numerous, thousands of licenses that are transferred before the FCC, and some of them involve mergers and some of them don't, that don't get the same level of scrutiny, and the Commissioner has tried to emphasize that the Commission should be very careful in what, in its exercise of authority, and be clear to others which authority it is exercising. And so, I think that to the extent that there are concerns, the Commission should be active in that arena.

[242] Richard Wiley. Bernie, from a public interest standpoint, what benefits, what concerns do you foresee in all this wave of consolidation in the telecommunications field?

[244] Bernadette Revera. Some of the things that we look at when we talk about these, particularly these big mergers, you can't really have, I don't think, a rule of thumb, but you do need to keep your eye on the prize, and that is, consumer benefit, lower prices, and quality of service. And now I think that we have the challenge of thinking about that in a global context, but we firmly believe that as long as you keep your eye on the prize of better quality and affordable prices for consumers, even in the global context, that will be good.

[251] Richard Wiley. OK, Justin. How about Tom Bliley's -- let me ask you the same question I asked Ivan. How does Tom Bliley look at all of this consolidation? Is this something you guys really expected when you passed that 96 Act? Is it part of the program?

[254] Justin Lilley. Well, I don't think that he had any particular expectation, or had any set number in his mind as to how many players there would be. Obviously, this is going to get a lot of attention. I think his principle interest is, in a going basis, is to ensure that there is competition across all these markets. And, you know, clearly, the mergers may have an impact on that, but I think at this point it is too soon to tell. I think that as long as competition is developing at each, within each of these markets, I think that is the most important thing to him.

[261] Richard Wiley. Some people have said their vision is, you know, four or five integrated, truly integrated long distance, local, maybe worldwide carriers, and lots of niche players. You want to look, talk in the mike? Is that a realistic vision -- ?

[265] Justin Lilley. I think it is possible, yeah. I mean, you could have, you know, a, essentially, a two tiered market, where you do have your global providers, a handful, and then hundreds niche providers. But again, as long as there is competition and consumers have real and adequate choices. I think that's the most, that's the most important concern. I think that that is what Congress and regulators should be most interested in. If that is the case, then let the market go forward from there.

[270] Richard Wiley. Kathy, following up on a speech that Chairman Kennard made some months ago, the Commission has been considering proposals to allow affiliates of the LECs, the ILECs to provide advanced services, as you know, under 706 of the Communications Act, on a non-dominant, non-ILEC basis. I guess the most recent thing we've heard is that that item may have been postponed at the Commission. Can you tell us anything about that item? Timing of it, and sort of, what is being considered?

Kathryn Brown. The item we had to pull back yesterday because we need to conform it, and one of the other items on the agenda as well, to the latest decision of the Court. And so, we have had to take a look at the analysis. The, um, and I guess I want to make it clear that, um, I am not thinking that, at least in the Chairman's mind, that there is a shift in direction on those items, but rather a need to take a look them in light of the decision. This particular issue has been under discussion now, I think, since last June. I think it was the first item that I presented as a Bureau Chief, and was a real effort by the Commission to take a look at. What are the existing hurdles to entry into the advanced services market, and in very particular to DSL. And central to this item is the need for competitors to have collocation space and loops. At the same time it was clear that, as the Chairman said, it was not up to us to pick winners and losers in the market, but rather to ensure that all players could get in on fair terms. And so this notion that there might be a way for the incumbent providers to be relieved from some of the regulations through a separate affiliate was proposed and discussed. It is still very much alive, that discussion. There is still a lot of, um, interestingly now it will continue, a lot of discussion on what kind of protections should be necessary should that kind of structure be allowed. There are some who say it should not be allowed. There are others who say, well, it makes sense, so long as the incumbent is on the same playing field as the new entrants. I should add that the thought here, at least at the Bureau level, was that when the incumbent and the competitors each have to compete equally, that is, that they are seeking access to these loops, to colo space in the same way, that that kind of parity would help level the playing field.

[306] Richard Wiley. Kevin, now, without signaling where the, where your boss is going to vote, because the vote is not there yet. Do you have concerns? Are there some different views on this whole item, surfacing on the eighth floor? What can you tell us about that?

[309] Kevin Martin. Of course, as Kathy indicated, the item is going to have to undergo some minor revisions because of the earlier decision this week. But, I guess, again, a couple of points to make. The first is that whatever we decide, whenever we are trying to, provide some regulatory relief, which the Commissioner Furchtgott-Roth is always in favor of trying to do, we have to do it within the bounds of the law that was given to us, and we're, the FCC is implementing the law, and I know he has real concerns when we start talking about things that might be providing regulatory relief, but would violate what Congress certainly intended the restrictions to be on the RBOCs. And then, the second point to make is, as far as the, I think when we start really having to rethink what we are trying to do there is that the Supreme Court, one of the things it told us to do is go back and look at unbundled network elements, and try to determine whether or not they were act--, what services needed to be provided, and if they weren't being able to be provided through the RBOCs, would competitors be impaired? And a lot of the, in some of the area in 706 we are talking about new services that companies are just starting to role out, and I think it will become a somewhat more difficult argument to make that they would be impaired from, others would be impaired when this is something that the, that the incumbent competitors are just rolling out the same as the CLECs would the similar opportunities to go and get in the marketplace.

[329] Richard Wiley. OK, now, there is a couple of other key FCC future proceedings. And, I just want a look from the Hill, looking at this. Justin, what are you hoping to see from the Commission as far access charge reform?

[332] Justin Lilley. Get rid of them.

Richard Wiley. Get rid of them? [Laughter] Ivan, do you agree with that?

[334] Ivan Schlager. I made the slashing …

Richard Wiley. Into the mike.

Ivan Schlager. I made this slashing motion. Yes, we are hoping that there will be a significant reduction in access charges.

[336] Richard Wiley. Kathy, possible?

Kathryn Brown. Let me tell you.

Richard Wiley. Why don't you take the mike? I am sorry about this, that we only got one mike, but since it is being recording, we got to pass it back.

[339] Kathryn Brown. I have been in fancier digs with you.

Richard Wiley. Well, yes, this is the Renaissance. No no. I am sorry about that. [Laughter] Just joking. Just joking. Go ahead.

[341] Kathryn Brown. Let me tell you procedurally where we are at. About two months ago the Commission issued a notice to refresh the record on access, both on issues around price gaps formulas, and also, with respect to any other issues that the parties would want to raise. That record now is being built. It is now on course at the same time as our whole universal service inquiry.

Richard Wiley. And when you say "course," what are we talking about? Spring? Summer? I mean…

Kathryn Brown. Well, we need to have an order out on universal service in July, so I, I don't want to, say that by July we will have everything all done. I am saying however, that at the same time we're looking at universal service, at the same time we're looking at flexibility, price flexibililty …

[353] Richard Wiley. For the ILECs, right?

Kathryn Brown. … for the ILECs. We are also looking at whether indeed a market has developed for access charges, and then, if so, where? If not, then what, if anything should the Commission do about that?

Richard Wiley. Kind of interesting to see both a Republican and a Democrat in the Hill, isn't it Kathy, saying [Schlager laughs] "and access charge reform, universal view there." How do you respond to that? Is there any reality to what they are suggesting, somewhat jocularly here perhaps?

[360] Kathryn Brown. I like to be careful here, because there a huge, it seems to me, issues on the table with respect to pricing structure and pricing levels, both around universal service now, frankly with this decision this week, with access charges. And I don't want to be flip about this at all. I think this has to be a very careful careful consideration, which I think you will see the Bureau starting to work through in the next two months, and then the Commission taking up in earnest some place around, you know, April May time period.

Lilley. Dick, the Commission can be as careful as it wants, as long as these access charges continue to go down, and that they also …

[370] Brown. They are by the way.

Justin Lilley. … that they also get passed through to the consumer.

Kathryn Brown. It is important to understand, by the way, that access charges are coming down, at a fairly, sort of steady rate, and I think, you know, if you looked at the charts and all, and I have one to show you, you'll see that under the price caps formula these things are coming down. The question is beyond the price caps formula, the productivity allowance is now in the formula, "should any more be done to them?"

[377] Richard Wiley. OK. Let me turn to another subject. Back to the 96 Act. But one area in which we said, "could you think of any changes that might be made, or anything like that?" Let me suggest, Ivan, to you, it raised the question, "Did Congress make a mistake in 1996 when they suggested that deregulation of cable rates [Schlager groans] after all congress had in mind that we were going to see a lot more competition in the broadband, in the multichannel video world, than perhaps has developed to date. What is your view on that? If you were writing that Act again today, would you have taken off the changes that are going to occur in March?

[387] Ivan Schlager. You mean if I had known that rates were going to go up at four times the rate of inflation?

Richard Wiley. Well, you said it. I didn't. But go ahead.

Ivan Schlager. We never make mistakes. Look …

Richard Wiley. Well, tell me about the Republicans then.

Schlager. I, I, am I happy with what is going on in the cable industry as far as pricing? No. But, I think that you have to step back and take a look at everything that we did in the Act, and, go back to what I said about the death of hubris. You know, it is just taking a lot longer than we expected. I think that we underestimated how fast the technology was moving, how expensive it was for everyone to get into each other's business, and the fact that shareholders were going to be resistant to huge capital expenditures so that these guys would get into cross industry competition. Everything we did was part of a delicate balance, so I not sure I would say we made this mistake, and we have to rectify the mistake. I think it is in the cable industry's interest in the next few months to be reasonable on pricing. And then we are going to have to do something to satellite home viewer, to be sure that we have a viable competitor to cable. On the other hand, the AT&T TCI deal is in line with what we were expecting in the Act. And you see, if they cut a deal with Time Warner, you are going to have, you know, a viable facil--, hopefully a viable facilities based competitor to the local exchange, and you are going to have the vision of telephony, Internet access, and cable access. So. The New York Times itself did an interesting column in the Times, I guess last week, about the RBOCs and the problems that they have between where the executives wanted to turn them into growth companies, and the shareholders hold Bell shares for a reason. They want a steady stream of dividends. They want a reasonable rate of return. And, I think that just goes to the point of, back to what you would have changed in the Act. We were operating under a set of circumstances where, I think, executives probably got ahead of their shareholders. So.

[422] Wiley. Justin, just to play off Ivan has just said. Weren't you operating under the assumption that the telcos were really going to go into video in a big way, through wireless cable, or through one of the other means that you made possible in the Act, and that just did not happen. The telephone industry has been intent instead on providing an integrated telephone service, long distance, local, and video is way on the back burner. And if you had known that, maybe you would not have made the same decision you made in the 96 Act. How about that?

[430] Lilley. No. I disagree entirely. That wasn't our only assumption. Our assumption was that the evidence was clear that direct broadcast satellite was emerging, and continues to emerge as a competitor. Remember, the market is not defined here as cable, in and of itself. The is market is multichannel video programming. And, the Commission itself came out with a report a couple months ago that shows that cable's share of this market is dropping. But still …

[436] Wiley. What is it? It is still extremely high.

Lilley. It is not dropping as fast we would like. But remember at the same time Dick, Chairman Bliley has often said, and this was, and these were facts in evidence in 1996, at the rate of, that the history of cable rate regulation is a sad one. This is like asking Inspector Cleuseaux to stay on the job for another tour of duty. Consumer's rates have been going up under the current regulatory regime. Why on earth would Congress consider extending it. Chairman Bliley's view, and I think most members on the Commerce Committee in the House, both Republicans and Democrats, is, "look, let's try to find an alternative, and to go back to that tried and true method of competition." That is the disciplining force on cable. It is not additional rulemakings out of the Commission, which, for better or worse, have enabled rate increases to go up.

[449] Schlager. Dick, I just want to ask one thing. If you look at the cable industry two and a half years ago, and you had Murdock and Echostar, and they were calling it "deathstar" and cable stocks were at an all time low. And everybody was proclaiming the death of cable. It is very hard for us on the hill to anticipate where the market is going to go on something. Two and a half years ago cable was dead, and Murdock was going to kill it. And now cable is the hot property. It is going to be the Internet access provider. It is going to have telephony. So, you know, I don't think that we are capable on the Hill of making, you know, the type of, as Kathy talked about, picking winners and losers. I don't think we do that on the Hill any more than the FCC can do that.

[460] Richard Wiley. Yea, it's tough. I'll tell you another vision that certainly even yours truly shared, and I want to ask Bernie about it, was the vision that we heard so much about, that there would be two broadband pipes into the American home. One was to be provided by the telephone industry, one by the cable industry, that would compete, there would be some over the air services through broadcasting and DBS, and Internet, and what have you. What about that two broadband pipe dream? Is it still a possibility? A reality?

[468] Revera. Possibility, or pipe dream. [Schlager groans.] I think at this point, the time that we call it two pipes shows how different everything is. I think there will be multiple inputs into the home, and it necessarily will not, they will be both wired and wireless. And I think there will be a switch between what you see. Even now when you see that the broadcasters can provide things in digital, you may be getting certain big pieces of information that way. You may be getting, even now I know my own home, we can have three inputs coming. We'll be watching television. We'll be using a wireless Internet access. And we'll be talking on the phone. So there is three right now. And only two of them pipes, and one is a wireless. So anything, I think that you extrapolate the day that we talk about a service that's available, we'll come back next year, and we will have been wrong.

[482] Richard Wiley. One other area Kathy which, you know, of course, I'm just raising these ghost stories here. But one which maybe a lot of us did not predict properly was the auction issue. I mean, at first, the first auction was terrific. You know, we made a lot of money. We went over to the Commission. There were these checks on the wall. And a little television set that showed how much money was being raised. And then later, some of the auctions you know raised a lot less money, and you had the C block debacle. Not the Commission's fault. The marketplace reacted at, certain view. But let's look at the future. You know, what really is the future of auctions for wireless services? Have we just thrown too much spectrum out there in the marketplace? You know, what do you think is going to happen?

[495] Kathryn Brown. I get, I love, that I get to say the same thing every year Dick: that auctions were never meant to be money raisers.

Richard Wiley. Well, the Commission certainly advertised it a lot.

[498] Ivan Schleger. That's not fair, because OMB is certainly using this as money raisers. We had 26.5 billion dollar hole were going to have to fill in the budget.

Richard Wiley. Go ahead Kathy.

Kathryn Brown. The theoretical, the theoretical basis for the auctions obviously was how we were going to assign the spectrum. And that still is a valid goal. And there is a very interesting piece out this week, and I am going to show that I don't have exactly right. But there is, uh. Do you remember which university just put out a piece? Ellie's got a piece in there, and the usual folks, Haslett and all, talking about both the auction issues, and then beyond auctions. Ellie has yet another new idea.

[510] Richard Wiley. Professor Nome, you're talking about …

Kathryn Brown. … I'm talking about, yeah.

Richard Wiley. From Columbia.

Kathryn Brown. So for me it is a very good and timely issue as to how and what ways we manage the spectrum. With respect to the auction issues, I think we are still going forward with auctions as a very reasonable and reliable way to get the spectrum to market. Beyond that, we are ourselves sitting together to think and talk about our spectrum management policies.

[518]

End of side one. Side two of tape not transcribed.