Statement by FCC Chairman William Kennard.
To: CJS Subcommittee of Senate Appropriations Committee.
Re: FCC FY 1999 Budget.
Date: March 19, 1998.
Source: FCC.  This document has been edited for html, but not for content.

Statement of

WILLIAM E. KENNARD

CHAIRMAN
FEDERAL COMMUNICATIONS COMMISSION

Before the

SUBCOMMITTEE ON COMMERCE, JUSTICE, STATE, AND THE JUDICIARY
COMMITTEE ON APPROPRIATIONS
UNITED STATES SENATE

on the

FEDERAL COMMUNICATIONS COMMISSION'S FISCAL YEAR 1999
BUDGET ESTIMATES

March 19, 1998

Mr. Chairman, Ranking Member, and Members of the Subcommittee, thank you for the opportunity to review with you today the Fiscal Year 1999 Budget Estimates of the Federal Communications Commission. I am especially pleased to be here, as this is my first appearance before the Subcommittee since I became Chairman on November 3, 1997.

This morning I would like to: summarize the highlights of our FY 1999 Budget Estimates; discuss what the Telecommunications Act of 1996 has accomplished so far to achieve competition and what remains to be done; note some examples of our other ongoing work responsibilities; highlight our plans to streamline and deregulate the FCC through the first "biennial review" of all of our regulations; describe our "Year 2000" computer upgrade plans; and, finally, share with you my hopes and plans for the rest of this year to implement the Communications Act and the other statutes entrusted to the FCC.

Competition and Conversion

Before I discuss these matters, however, I think I speak for all of us at the FCC in saying that we feel privileged to be working at the Commission at this important time in the history of communications law and policy. When the history of communications policy in this decade is written, I believe it will largely be about two transforming events: the move to embrace competition as an organizing principle in the law and the conversion from analog to digital technology.

First and foremost, there is competition. Competition has been a goal of communications policymakers for many years. With the 1996 Act, it has become our national policy and the organizing force of much of our work. The 1996 Act gives us the tools to accelerate the pace of competition and, with your support and sufficient resources, I am confident we will.

Second, there is digital conversion. Virtually every sector is undergoing this transition: analog to digital radio; analog to digital cellular networks; analog to digital telephone networks; and analog to digital broadcast and cable television. The almost infinite versatility and capacity of digital technology is giving consumers awe-inspiring products and providing communications companies new ways to deliver those products.

Together, these two transforming forces -- competition and digital conversion -- challenge the FCC to accommodate unprecedented change. With your support for the resources we are requesting today, I am confident we can meet the challenge.

Recent Accomplishments

In fact, I am very proud of what we have already accomplished in my first four and one-half months as Chairman of the FCC. Here are some highlights of our recent accomplishments:

o In November 1997, at my first meeting as FCC Chairman, the Commission revised its rules for foreign entry in light of the World Trade Organization Agreement on Basic Telecommunications Services, which took effect last month. We did so by adopting companion telecommunications and satellite entry orders liberalizing entry into the U.S. market for foreign-licensed service providers while retaining competitive safeguards. Implementation of the WTO Agreement will fundamentally alter the competitive landscape of the global market in telecommunications services, providing vast opportunities for American industry. Increased competition in the international market will also hasten the decline in international calling rates. In November, we also proposed rules to implement the Commission's new authority to auction certain mutually exclusive broadcast licenses; streamlined the process for reviewing and resolving formal complaints against telecommunications carriers; and adopted policies that permit non-U.S. licensed satellites to provide services in the United States.

o In December 1997, we adopted a Notice of Proposed Rulemaking (NPRM) to strengthen our program access rules in order to boost competition with cable in the multichannel video marketplace; we approved an order to ensure that 911 emergency calls will work nationwide on all cellular telephones; we conducted the first in a series of special en banc presentations, this one on the status of competition in the multichannel video marketplace; we launched a proceeding to determine the appropriate methodology for assessing fees for ancillary and supplemental services provided by digital broadcasters in implementation of the Communications Act; and we announced our first ever "biennial review" of the FCC's rules and regulations in a common sense, comprehensive fashion.

o In January 1998, we released our fourth "Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming," as required by Section 628(g) of the Communications Act. A major finding of the report was that cable still controls approximately 87 per cent of the multichannel video marketplace. I directed our Cable Services Bureau to undertake a review of our cable rate regulations and an investigation of the nature and causes of rising cable rates and programming costs. We released our annual survey report on cable industry prices pursuant to Section 623(k) of the Communications Act. We also adopted price disclosure requirements for away-from-home public telephone calls to help end telephone price gouging by operator service providers.

o In February 1998, we adopted an NPRM to help us implement our new Universal Licensing System for wireless radio services. This initiative will automate our licensing and application functions for these services with state of the art technology. We are consolidating and streamlining our current 11 wireless databases into one unified, integrated system, and reducing or eliminating many of our existing rules. We also adopted final rules, policies and channel assignments for the new video age of digital television (DTV); adopted an order to further the privacy rights of telecommunications customers; and proposed to simplify and consolidate our service rules governing the Direct Broadcast Satellite (DBS) service as well as sought comment on whether we should impose alien ownership restrictions on the DBS service, and possible DBS-cable cross-ownership restrictions.

o In March 1998, so far, we have approved the revised voluntary industry system for rating TV video programming and adopted technical rules to implement the accompanying "V-chip" program blocking technology. These actions will help put these important tools in the hands of American parents. We also adopted a Notice of Inquiry to examine all of our major broadcast ownership rules as part of our "biennial review."

I would like to turn now to our FY 1999 budget request and our future plans and policies.

Overview of FY 1999 Budget Estimates

The Federal Communications Commission proposes a Fiscal Year 1999 budget of $212,977,000, and a staffing level of 2,105 full-time equivalents (FTEs). This represents an increase of $26,463,000 over the FCC's FY 1998 funding level, but with no increase in staffing. Approximately 51 per cent of the increase, or $13,615,000, would cover mandatory, uncontrollable cost increases for salaries and benefits ($4,153,000), rent payments to the General Services Administration (GSA) for the FCC's new headquarters in the Portals Building ($8,412,000), Federal Protective Service increases ($527,000), and inflationary increases to other contract services ($523,000).

The FCC's request also includes a request of $5,756,000 (22% of the increase) for critical upgrades to the Commission's FCC's information technology infrastructure. These resources are vital to ensure that all of the Commission's information technology infrastructure and licensing systems operate smoothly through the transition to the Year 2000. Failure to make these upgrades would seriously jeopardize Commission operations on January 1, 2000 with some disruption occurring earlier.

We have also requested $975,000, or 4% of the fund increase, to complete the implementation and maximize the effectiveness of the FCC's National Call Center ("NCC") in Gettysburg, Pennsylvania, and to establish a satellite Call Center facility in Washington, D.C. These resources will provide substantial cost savings by centralizing much of the FCC's call handling into a central Call Center, as well as provide improved FCC customer service through one centralized information service.

An additional $6,117,000, or 23% of the requested increase, represents the first installment repayment to reimburse GSA for its costs in relocating FCC headquarters employees to a consolidated building. In July 1997, the GSA agreed to provide funds to the FCC so we could relocate to the Portals. This agreement stated the FCC should seek reimbursement for GSA of all funds provided to the FCC under the agreement during Fiscal Years 1997 through 2007. If appropriated, the repayment of these funds to GSA would take place over a 10-year period beginning in FY 1999 and continuing through FY 2008. This 10-year plan for reimbursement covers expenditures by GSA for building design and buildout, design and installation of information systems architecture, and purchase of systems furniture.

The amount to be collected from regulatory fees would increase from $162,523,000 in FY 1998 to $172,523,000 in FY 1999. The President's FY 1999 Budget, however, proposes a change to our current appropriations language. This change would prevent the FCC, as it would other regulatory agencies funded largely from regulatory fees, from offsetting its total FY 1999 appropriation through regulatory fees. Instead, the Administration proposes in FY 1999 that the FCC appropriation would be fully funded on a one-time basis from the General Fund of the Treasury. The regulatory fees, although collected in FY 1999, would be unavailable for use by the FCC until October 1, 1999 (FY 2000).

With these requested resources, here are some examples of what we hope to accomplish during the coming fiscal year in each of the FCC's four primary activity areas: 1) authorization of service; 2) policy implementation and rulemaking; 3) enforcement; and 4) public information services.

Authorization of Service: We will continue to promote efficient and innovative licensing and authorization of services by meeting established Speed of Disposal goals and by using auctions whenever feasible to license or authorize telecommunications services quickly and efficiently, including the auctioning of mutually exclusive broadcast licenses pursuant to the Balanced Budget Act of 1997. In FY 1999, we will complete the deployment of electronic filing capabilities for five of our largest licensing and registration systems in the Cable Services, International, Mass Media, and Wireless Telecommunications Bureaus, and in the Office of Engineering and Technology. The FCC's experience to date with the new Universal Licensing System for its wireless radio services demonstrates the benefits to both the Commission and industry from automation and electronic filing. We also intend to process applications to construct digital TV stations which conform to their original allotment sites within five days of receipt. In addition, we anticipate a significant number of applications under Section 271 of the Communications Act from Bell Operating Companies seeking authority to provide in-region long distance service, each of which must be resolved within 90 days. Finally, we will simplify and streamline the entire broadcast licensing process by reducing filing burdens, simplifying application forms, and re-engineering and integrating 13 Mass Media Bureau licensing and authorization of service databases.

Policy Implementation and Rulemaking: We will encourage competition in the telecommunications industry through pro-competitive, deregulatory rulemakings, that reduce consumer costs and increase the telecommunications choices available to consumers. For example, we must also continue to implement the local competition provisions of the Communications Act, review, revise, and eliminate rules to reflect changing marketplace conditions, including forebearing from rules that competition makes unnecessary to protect the public interest, and review requests for preemption of state and local laws or actions that create barriers to offering any telecommunications service. We will also continue working to implement the universal service provisions of the Communications Act by working to improve the connections between the Internet and this country's classrooms, libraries, and rural health care facilities, by maintaining affordable telecommunications services to rural America, by making telecommunications services and equipment accessible to all persons with disabilities, and by making emergency information carried on cable systems available to all persons with hearing disabilities.

We will continue to implement the World Trade Organization Basic Services Agreement. This Agreement will allow carriers from WTO-member nations to apply for authorization to provide competitive telecommunications services to United States customers and will open doors to United States carriers seeking to offer telecommunications in overseas markets. We will also seek to ensure that public safety groups have adequate spectrum and advanced telecommunications equipment by completing the development of operational, technical and spectrum requirements for meeting Federal, State and local public safety agency communications requirements through the year 2010. We will continue to explore all means of promoting competition in the marketplace for multichannel video programming.

Enforcement: The importance of the enforcement of the Commission's rules has increased in an era of deregulation and increased competition. Common carrier oversight, for example, is required to ensure that consumer abuses such as the unauthorized transfer of long distance carriers, also known as "slamming", are curtailed. We are also examining ways to strengthen enforcement of our cable program access rules so that new market entrants can more readily and fairly obtain access to the programming they need to become viable competitors to incumbent multichannel video programming distributors. Moreover, increased use of the radio spectrum and the marketing of new electronic equipment have greatly increased potential interference problems. There has also been an increase in unauthorized "pirate" radio stations.

Overall, it is important for the Commission to adopt a new paradigm for enforcement that relies more on companies to certify that they are in compliance with our regulations, but with increased enforcement for non-compliance. Swift, predictable, and sufficient enforcement is critical as we move toward competition.

We also intend to strengthen our enforcement program by using the latest technical and engineering techniques to improve interference and consumer complaint resolution, by partnering with the private sector and with other governmental units to resolve shared telecommunications issues, and by using industry and customer feedback to determine effective levels of enforcement and appropriate enforcement policies and procedures.

Public Information Services: Our goal in this area will be to provide information services to our customers in the most useful formats available and in the most timely, accurate and courteous manner possible. We will accomplish this goal by providing "one stop" information shopping to our customers through the consolidation of our nine public reference rooms into one, when we move to the Portals, and through attaining true nationwide coverage at our National Call Center.

In FY 1999, we hope to complete the final phase of this ambitious project which provides information on every aspect of the FCC through a toll-free number that can be accessed by anyone within the United States, 1-888-CALL FCC (225-5322). Since the FCC began limited operation of the NCC in June, 1996, it has responded to more than 485,000 telephone inquiries. Establishment of the NCC has already saved the FCC approximately $3.0 million dollars per fiscal year in salary and benefits costs and allowed for the reallocation of 40 FTEs to other critical work assignments. The NCC, along with the FCC's Internet Website, www.fcc.gov, forms the backbone of the FCC's educational and information outreach programs. (During January and February 1998, the FCC's Home Page received an average of 227,000 hits per day, up from an average of 135,000 hits per day during the same period in 1997.) It is therefore essential for the FCC to complete the final phase of its implementation of the NCC in FY 1999. To do so, we request your approval of our $975,000 FY 1999 budget request item.

Telecommunications Act of 1996

I turn now to what the Telecommunications Act of 1996 has accomplished in its first two years to achieve telecommunications competition and what work remains to be done to achieve still more competition. Some critics have already declared the 1996 Telecommunications Act a failure. I think they are wrong. For in my judgment, Congress got it right in 1996: competition beats monopoly every time as the best way to deliver the best telecommunications services to the American public. And the evidence is growing that competition is indeed on its way. As was amply demonstrated during the Commission's January 29, 1997, en banc hearing on the status of local telephone competition, the Telecommunications Act of 1996 has successfully moved us in the right direction -- toward greater competition.

Competition will happen, eventually. The debate about competitive issues is really a debate about when it will happen, and for whom. It will come faster, of course, if we have rules that favor competition. Such rules would allow competition as fast as technology and financing allow.

As you can see from the chart attached to my testimony entitled "Market Shares of New Entrants to an Industry", it has taken time for competition to develop in other markets we today regard as competitive. For example, in the long distance and residential cellular service markets, it took years between the introduction of competition into the market, and the time that new entrants had gained appreciable market share.

For the reality is that moving a monopoly market to competition is hard work: for the incumbent, the new competitors, and the policy makers. Those within companies charged with creating and meeting competition need to resolve complex operational issues. They need to design system interfaces and write software. They need to negotiate contracts, arbitrate differences, sign agreements and implement them. For policy makers, we must insist that this hard work be done and that the parties create or have available swift, meaningful ways to enforce obligations under these agreements.

All this takes time. And while some call it "regulatory," it is actually deregulatory. That's because competition and choice won't exist unless local telephone companies create this competitive infrastructure and unless they are forced to keep this infrastructure well-maintained and running smoothly.

Development of Competition: Slow But Steady

To get a true picture of the development of local competition, we should not be looking for dramatic, sudden upsurges in local competition, but instead for the type of steadily increasing momentum that we saw with the introduction of competition into the long distance market. As illustrated by the chart, we are still in the very early stages of the development of local exchange competition. I have no reason to expect, however, we will not see the same type of acceleration of competition in this area that we have seen in other markets, especially long distance and cellular.

In fact, that's exactly what we are seeing. Illustrative examples are many and varied. We see growing competition in the hundreds of state-approved interconnection agreements between incumbents and competitive local exchange carriers ("CLECS") entering the local telephone market. The top 10 CLECS have switches in 132 cities spanning 33 states and the District of Columbia. Approximately 2400 interconnection agreements have been created under the 1996 Act's framework. And over the past two years, $14 billion has been invested in CLECS, and their combined market capitalization has risen to over $20 billion.

We also see competition in New York City where over 20% of the local business market is being served by carriers other than the incumbent Bell Company. We see competition in the investment going into cable modems and the restructuring of the high speed data segment of the cable industry. We see growing competition in the increasing interest on the part of the wireline industry in Digital Subscriber Line technologies, which allow you to get expanded capacity similar to fiber from a copper loop. We see it in the fixed wireless service providers, like Winstar and Teligent which have begun to offer service that competes with traditional wireline. And we see it in the hundreds of satellites being put up for narrowband access and also for nationwide, even worldwide broadband wireless data access.

The country is seeing many other benefits of the 1996 Act. For example, wireless telephone prices are dropping rapidly and the number of subscribers now tops 50 million nationwide. In the nine months from April to December 1997, prices for cellular and PCS services dropped over 12% for low volume customers and over 31% for high volume customers. In fact, the Wall Street Journal reported on March 3, 1998 that Bell Atlantic's recent decision to reduce by 15% its rates for digital wireless phone service may well spark a "price war" among cell phone service providers. Long distance rates, meanwhile, fell 5.3% between January 1996 and November 1997.

The 1996 Act is beginning to deliver other benefits as well. On January 30, 1998, schools and libraries began to submit applications to the Schools and Libraries Corporation for universal service support to connect our nation's classrooms and libraries to the Internet. As of March 5, 1998, 25,600 applications for universal service discounts had been received from schools and libraries. Nearly 70% of these applications are for new services. As of February 24, 50% of applications received have been from school districts, 28% from schools, 19% from libraries and library consortiums, and 3% from multiple entity consortiums. The Schools and Libraries Corporation will be processing and granting these applications later this spring, well before the start of the next school year in the fall.

This is measurable progress. Of course, we have much further to go to reap the full benefits of the 1996 Act. In particular, too few residential consumers yet have the opportunity to choose among competing providers of local exchange services. There are some promising prospects as cable companies and companies affiliated with utility companies begin to provide residential, local telephone service, but competition has yet to blossom in the residential market.

Moreover, the courts have clearly slowed the pace of development of competition. We have seen the careful statutory design of Congress disrupted by judicial rulings that have added uncertainty, slowed investment and planning, and frustrated promising market entry strategies. Without these judicial setbacks, we would be further along the road to full competition in telecommunications. These court decisions threaten to continue to hobble the development of competition and to deny our country the growth that broad telecommunications competition would create.

Nonetheless, as the FCC enters its third fiscal year since enactment of the 1996 Act, implementation of the Act's remaining provisions in a pro-competitive and timely fashion will remain the principal FCC task. Most significantly, the FCC will continue to examine how to streamline the process of evaluating Bell Operating Company petitions for entry into in-region inter-LATA toll service. As directed by our FY 1998 appropriations legislation, we have also begun a review of the statutory, definitional and universal service provisions of the 1996 Act, and will submit a report to Congress no later than the statutory deadline of April 10, 1998.

We will also work closely with the States to continue to implement the universal service provisions of the Act, commence a proceeding to delineate further operating support systems to propose performance assessment and reporting mechanisms, establish rules for the recovery of costs for long-term number portability, outline pricing flexibility for local exchange carriers as they face new competition, and address the appropriate regulatory treatment of commercial mobile radio service carriers who provide fixed or combined fixed-mobile services.

We also expect later this year to issue a Notice of Inquiry pursuant to Section 706 of the 1996 Act concerning the availability of advanced telecommunications capabilities, to commence a proceeding to identify and reduce or eliminate market entry barriers, and to conclude a proceeding on broadcast spectrum flexibility.

Other, Ongoing Workload

Our continuing, heavy workload to implement the Telecommunications Act of 1996 is a major justification for our FY 1999 budget request. But so are the Commission's other enormous and growing work responsibilities. Here are just a few illustrative examples from five of the FCC's operating bureaus:

Cable Services Bureau. As of March 1998, the Consumer Protection and Competition Division of the Cable Services Bureau had 583 matters pending before the division, including petitions, complaints, and rulemakings. These matters are overwhelmingly filed by private parties or local governments. Among these petitions and complaints, for example, are approximately 80 mandatory signal carriage or "must-carry" cases, 73 requests to modify "areas of dominant influence" to receive different television programming, and over 260 rate regulation appeals. The Financial Analysis and Compliance Division of the Bureau, meanwhile, had approximately 750 rate complaints pending. (Between September 1993 and February 1996, the division issued 4553 rate case decisions.)

Common Carrier Bureau. The Common Carrier Bureau expects to make policy recommendations to the Commission on over 60 major, Commission-level proceedings in the second quarter of 1998 alone. This figure does not include any number of Bureau-level proceedings that the Bureau will complete during the same three month period. One telecommunications area in particular that has exploded as a result of both more competition and deregulation has been informal complaints and inquiries. In 1995, for example, the Enforcement Division of the Common Carrier received 25,482 complaints and inquiries about various telephone consumer abuses and concerns such as "slamming" and disputed billing charges. In 1997, the number of such complaints nearly doubled to over 44, 000.

International Bureau. The International Bureau plans to present to the Commission 27 items between April and September 1998. Two major growth areas for the Bureau include satellite space station applications and Section 214 applications. The number of applications received for satellite space stations increased from 164 in FY 1996 to 195 in FY 1997 (a 19% increase). The number of Section 214 applications received for satellite space stations increased from 564 in FY 1995 to 637 in FY 1996 (a 13% increase). In FY 1997, the number of Section 214 applications received increased 17% to 745.

In addition to the increase in the number of applications over the years, there is more complexity involved in processing International Bureau applications. Service providers are developing innovative services, requiring significantly more bandwidth, and at the same time seeking to co-exist with established services while sometimes also requiring global coordination.

These new services additionally require the Bureau to initiate licensing rounds, develop service rules and, in most instances, coordinate with other domestic users of the spectrum. Just getting one new service off the ground is extremely time and labor intensive as it invariably raises new legal issues and poses technical challenges. The Bureau currently has four new services -- 2 GHz, 28 GHz, 40 GHz and the Skybridge FSS LEO system -- for which proceedings must be initiated and completed prior to commercial satellite use of the spectrum. Finally, the International Bureau also must develop methods for implementing the recent commitments made to open the United States market to foreign satellite systems.

Mass Media Bureau. In the Mass Media Bureau, the elimination of radio ownership limits by the Telecommunications Act dramatically increased the volume of radio sales applications. For example, in 1995, we received 2300 such applications. In 1996 the number increased to 3700. In 1997, it was more than 4100. During the first three months of 1998, radio sales applications have continued to come to the FCC at a higher rate than even in 1997. In another mass media area, political programming regulation, because this is a mid-term election year, during the next six months we expect to receive approximately 1000 phone calls a month from broadcasters, political candidates and their media buyers.

Wireless Telecommunications Bureau.

Finally, the Wireless Telecommunications Bureau

intends to bring to the Commission for its decision approximately 56 items over the next six months. The Bureau also plans to conduct six auctions during the rest of 1998, assuming the Commission completes the pending policy and rulemaking items. As of February 28, 1998, the Wireless Bureau has pending 448 informal complaints and 13 formal ones. The enormity of the "Universal Licensing System" noted above is also worth noting in more detail.. The "ULS" is simply a complete change and redesign of the Wireless Bureau's entire licensing theory and process. It will directly affect the literally millions of wireless licensees, applicants, and the public who need access to our wireless data. Under the ULS: 41 forms will be collapsed into 5; 800,000 person hours annually will be saved by licensees due to electronic filing of applications; 11 databases will be reduced into one, affecting over 2 million licensees; on line data access and computer mapping of service areas will be available to the public from anywhere in the world; and perhaps most significantly, the FCC will be able to delete over 200 wireless regulations from the Code of Federal Regulations.

Streamlining and Deregulating: The "Biennial Review"

In fact, the FCC has begun a comprehensive "biennial review" of all of its existing regulations, including telecommunications and broadcast ownership regulations, as directed by the 1996 Act. Section 11 of the Communications Act, as amended by the Telecommunications Act, requires the FCC, in every even-numbered year, to review all of its regulations applicable to providers of telecommunications services to determine whether they have become unnecessary to advance the public interest as the result of meaningful economic competition between providers of the services and whether such regulations should therefore be repealed or modified. Section 204(h) of the Telecommunications Act also requires the Commission to review its broadcast ownership rules biennially as part of the review conducted pursuant to Section 11. The Commission, however, determined that this first biennial regulatory review presented an excellent opportunity for a serious top-to-bottom examination of all the Commission's regulations, not just those required to be reviewed under the statute.

Thus, on February 5, 1998, Commission staff released a list of 31 proposed proceedings to be initiated as part of the 1998 biennial regulatory review aimed at eliminating or modifying regulations that are overly burdensome or no longer in the public interest. The list, which is attached to my testimony, was compiled following a broad, comprehensive internal review of all existing FCC regulations and informal input from the industry and the public through various public forums such as brown bag lunches with the practice groups of the Federal Communications Bar Association. The Commission will continue to solicit public input as the process continues.

The list includes a review of all broadcast ownership rules that are not already the subject of a pending Commission proceeding and a wide array of common carrier rules, such as the Part 32 uniform system of accounts rules, Part 41 telegraph and telephone franks(or free service) rules, Part 43 reporting rules, Part 61 price cap rules, Part 62 interlocking directorate rules, Part 63 international certificate rules, Part 64 customer premises equipment bundling rules, and Part 68 equipment rules.

We have outlined here a very ambitious agenda for the Commission that should result in a substantial amount of further deregulation and streamlining. The Commission is in a position to ensure that its first biennial regulatory review will, consistent with congressional mandate, produce concrete results in many areas of the Commission's operations.

I would also note that, in addition to those proceedings to be initiated as part of the 1998 biennial regulatory review, the Commission has numerous ongoing proceedings that are consistent with the deregulatory and streamlining policy embodied in Section 11 of the Communications Act. For example, the Commission has ongoing proceedings to review and possibly reconsider its rules governing jurisdictional separations procedures under Part 36, extensions of lines under Part 63, cost allocations under Part 64, and access charges under Part 69. The streamlining and simplification of the broadcast licensing process noted above is another example of the extensive deregulatory "housecleaing" now underway at the Commission.

"Year 2000" Plans

It is well known that computer systems throughout the world may well have difficulties transitioning from the year 1999 to the year 2000. The FCC has completed a thorough analysis of our institutional systems, end-user applications and database infrastructure. We have concluded that we must complete a major upgrade and replacement of many of our computer systems, including both hardware and supporting software, if the agency is to be Year 2000-compliant.

The FCC systems which have been identified as having significant Year 2000 compliance issues include our applications processing, fees collection, tariff tracking and public comment filing systems. For each of these systems, we have completed requirements studies to replace them with restructured and, in many cases, integrated, state-of-the-art electronic filing and relational database systems. The restructured Year 2000-compliant systems will offer the added benefit of allowing the FCC's customers to view electronically and transmit data over the Internet. The FY 1999 funding request of $5,765,000 is required to ensure that all of our computer systems are fully tested and operational before December, 1999. In addition, we will need to use $3.4 million in excess FY 1997 regulatory fees carried over to FY 1998 for this purpose.

While we replace our non-compliant systems, we must also replace our aging and obsolete desktop hardware and software systems. In FY 1999, many of our personal computers will be over six years old, twice the age of their expected usage lives. Our current desktop configurations can neither accommodate the larger, faster computer applications available, nor are they, in many cases, Year 2000-compliant. Moreover, it is currently either impossible or exorbitantly expensive to maintain them and it is imperative, operationally and fiscally, to replace them.

With the requested resources, the FCC will be able to develop and implement Year 2000- compliant electronic filing systems and associated support technologies that will result in several benefits: continued system functionality beyond December 31, 1999; accurate calculations of date-dependent algorithms; enabling the public to transmit and view application, licensing and other needed data electronically over the Internet; and increased public availability and ease of obtaining and receiving docket, rulemaking, and tariff information.

1998 Agenda

For the rest of this year, our agenda will be dominated by our efforts to implement the 1996 Act's "pro-competitive, deregulatory national policy framework," to bring greater competition to all communications markets, and to ensure that universal service and other public interest provisions of the Act are fully implemented in a manner that, consistent with congressional intent, yield the best results for the American people. At the head of my priorities will be the effort to deliver choice in telecommunications, especially local telecommunications, to the American people. We must especially strive to see that choice among local telephone providers becomes a reality for more residential subscribers.

Giving consumers the opportunity to enjoy the lower prices and expanded choice that flow from competition requires that we continue to review carefully the applications by the Bell Operating Companies under Section 271 of the Communications Act requesting authorization to provide in-region long distance service. Our on-going dialogue with the BOCs and other interested parties is intended to expedite the opening of local markets, thus leading to competition not only for local phone service, but also BOC entry into the long distance market under Section 271. But it is crucial that a BOC satisfy the statutory checklist contained in Section 271 before it is permitted to enter the long distance market. For if a BOC is permitted to offer long distance service before it has opened its local market to competition, then merger and consolidation will be the only avenues into the local market available to the long distance carriers and other potential competitors. Giving the BOCs a free pass into long distance would thus produce fewer, not more, competitors, and be contrary to Congress' legislative intent in enacting Section 271, one of the most significant provisions of the Telecommunications Act of 1996.

We must continue to find ways to ensure that rates remain affordable, and to ensure that telecommunications services remain comparable in all areas of the country. This is a critical issue. Universal service has been a hallmark of our telecommunications system since the invention of the telephone. We must continue to preserve and enhance universal service as competition increases. We cannot allow rural America to become a "have not" zone in the telecommunications age. To help ensure this does not happen, and to help ensure universal service for all, in early January, 1998, I appointed an "ombudsman" for the Commission on rural issues. She will help us make sure that rural issues receive the focus and attention they deserve from the Commission. In addition, we will address universal service high cost issues for non-rural telcos in two steps, with an order on a mechanism for estimating forward looking costs in the very near term, and with an order on input for that mechanism and other implementation issues by the end of the third quarter.

We will also continue to work to deliver universal service to our nation's classrooms and libraries, and to connect these centers of learning to the Internet. We must also finish implementing ways to provide rural health care providers access to modern telecommunications facilities to allow better, faster diagnoses and treatments.

We will continue to seek ways to increase competition with cable television, and to assess the nature and causes of cable programming cost increases and whether they indicate a need to revise our cable rate regulation. As I noted on January 13, 1998, when we released our fourth annual cable competition report, I remain concerned that competition will not arrive in time to provide a true marketplace restraint on cable price increases by March 1999, when all cable rate regulation is scheduled to end pursuant to the Telecommunications Act of 1996.

We must also finish the implementation of digital television. This includes the establishment of not just the service rules and allotment plans, but also must-carry rules, public interest obligations, and fees for ancillary and supplemental services.

We will also continue to work closely with our Local and State Government Advisory Committee to address Federal-state-local issues such as preemption, placement of transmission towers for wireless and DTV services, public rights-of-way, and removal of state and local governmental barriers to telecommunications market entry.

We must also continue to streamline our licensing procedures and to act as expeditiously as possible to ensure that innovative new technologies using satellites can enter the marketplace quickly. For example, the first wave of new global satellite systems capable of providing high speed voice, video and data on-demand are scheduled to start providing service this fall.

Along with its appetite for ever-increasing computing power, our nation will have an ever more voracious appetite for data transmission capacity or "bandwidth." The key to satisfying this appetite will be to create real opportunities for companies to compete to deliver high bandwidth services over the "last mile" to consumers. Competition in our backbone networks today is driving backbone providers to keep increasing the capacity and speed of the backbones. We need to bring that competitive drive to expand capacity and improve service to the final links to consumers.

Finally, throughout all of our proceedings, we must seek to ensure that our booming communications markets are creating opportunities for participation by all Americans. We must move forward to ensure that we are providing opportunities for employment, access and ownership, especially for those who remain underrepresented in the ownership and employment ranks of communications businesses-- minorities, women and the disabled. The communications and information industries represent the fastest growing sectors of our economy -- over $800 billion last year. We should seek to create and expand opportunities in every sector of the communications marketplace and do all we can to make sure that no one is left behind.

With regard to the disability community, for example, last August, the Commission adopted rules to increase the amount of closed captioned video programming available to the 22 million Americans with hearing disabilities, regardless of whether they receive their television signals from cable, DBS, wireless cable or through over-the-air broadcasting. This is a vitally important step in making sure that disabled Americans get access. I also intend to initiate soon a major rulemaking proceeding under Section 255 of the Communications Act to facilitate access to telecommunications equipment by disabled persons.

Conclusion

I'd like to conclude my testimony with these thoughts. It has been only two years since President Clinton went to the magnificent Reading Room of the Library of Congress and signed his name to the Telecommunications Act of 1996. It was a very appropriate location for such a signing ceremony. For here was a bill Congress had just passed that could eventually help make every book in the Library of Congress available to every American with a few clicks of a computer "mouse."

Not everyone was confident that the President was doing the right thing. Not everyone was confident that Congress had done the right thing. Not everyone was confident that the FCC could handle the job of implementing such ambitious legislation.

But now, after 25 months, I think it's clear that we should have been confident on all counts. For after these 25 months, the Telecommunications Act of 1996 has produced important, tangible results. Yes, there is much left to be done. But if we work together, we will accomplish it. We will succeed in fulfilling the promise of the Telecommunications Act to bring competition and choice to American consumers, to bring advanced services at affordable rates to all Americans, to bring new economic opportunity that can unite our Nation and narrow the gaps that divide us, and to improve our country in fundamental ways unimagined just two years ago. Your support of the Commission's Fiscal Year 1999 budget request will help this vision become a solid reality.

This concludes my testimony. I will be happy to answer your questions.