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October 6, 2000

The Role of the FCC in the Information Age

By

Mr. Chairman and members of the Committee, thank you for inviting me here today to testify on the urgent need for reform of the Federal Communications Commission. My name is Adam Thierer, and in my capacity as a regulatory policy analyst for The Heritage Foundation, I have spent the last decade studying communications and computing policy issues.

Toward that end, I have worked on several projects related to FCC reform, both on my own at Heritage and with other public policy researchers and academic experts. I hope to present for you here today a few conclusions and proposals for FCC reorganization and reform that have come out of these efforts, the vast majority of which have still not been undertaken by the FCC or enacted into law by Congress. I should stress, however, that the views I express in this testimony are my own and should not be construed as representing the official position of The Heritage Foundation or any other organization I have worked with on this matter.

The Urgent Need for Reform

Let me begin with just a few brief words on why it is absolutely essential that Congress takes steps to reform and downsize the FCC. Let's begin with what I believe is a shocking paradox: We live in an age of deregulation, but the FCC is larger and more powerful than ever before.

Mr. Chairman, as you know, Congress took important steps under the Telecommunications Act of 1996 to deregulate this marketplace. Yet, while companies in this industry have been forced to begin a demanding transition to a competitive marketplace, nothing has been done to simultaneously ensure that the FCC reforms itself or downsizes in any way.

In fact, FCC spending and staffing are at all-time highs. The FCC has requested total gross budget authority for Fiscal Year (FY) 2001 of almost $280 million ($279,595,000) and total staffing of 1,975 FTEs. By comparison, ten years ago, FCC spending stood at $108 million ($107,550,000) and staffing was 1,734 FTEs. In other words, the FCC's budget has essentially doubled over the past decade and the agency has hired roughly 250 additional bureaucrats over the same period.

This is a situation virtually without historical precedent, both domestically and internationally. On the domestic front, when other important industries such as airlines and trucking were deregulated, the agencies which oversaw them were forced to radically downsize and in most cases were eliminated shortly after deregulation was initiated. This has not been the case with the FCC as the telecom sector has been deregulated.

On the international front, other countries pursuing telecom liberalization have tended to also greatly curtail, or even end outright, the meddling of their regulatory agencies in the affairs of industry. Again, this has not been the case with the FCC in America as our country has pursued reform of this sector.

Frankly, this situation is now becoming unbearable. There is simply no development within the communications marketplace today that is not scrutinized under the FCC's regulatory microscope. No major decision or development within this sector goes forward without the FCC's somehow casting judgement on the matter.

I would suggest that this sort of intrusive behavior is inconsistent with the intentions and framework Congress put forward in the Telecom Act of 1996. And while FCC officials will claim that the bulk of their increased workload and oversight activities are related to deregulatory activities, one must ask: Does the FCC really need to take any steps to achieve deregulation? Why can't they just step aside and stop micromanaging the day-to-day developments in this fast-paced sector?

Congress should reject the logic some FCC officials seem to put forward that only they can make this market competitive through their vigilant oversight and constant micromanagement of the affairs of industry. The logical retort to that is simple: If FCC oversight is so virtuous, why is it that the least regulated sectors, such as cellular phones and Internet services, are the most competitive and the fastest growing?

Moreover, Congress downsized and then abolished previous regulatory agencies such as the Civil Aeronautics Board (CAB) and the Interstate Commerce Commission (ICC) precisely because lawmakers knew that real competition would not blossom so long as companies could come to Washington and plead their case for special treatment with captured regulators. Real competition will develop only when companies stop competing inside the Beltway for the allegiance of regulators and start competing in the marketplace for the allegiance of consumers.

This, more than any other reason, explains why it is absolutely essential that Congress begin taking steps to reform and downsize the Federal Communications Commission.

A Simple Strategy for Reform

So what should Congress do to begin to rectify this situation? Well, a simple question deserves a simple answer. Therefore, I want to outline for you a very reasonable strategy to downsize the FCC in a sensible fashion while the industry is being deregulated. Let's call it the "cut and peel" strategy.

The first objective under the "cut and peel" strategy is for Congress to establish a few straightforward benchmarks or objectives which you hope to achieve over, say, the next three years. Let me suggest three such goals:

(1) a 30% cut in FCC funding;

(2) a 30% cut in FCC staffing; and

(3) the consolidation of FCC's 16 existing bureaus and offices into 3 streamlined divisions or units.

And again, you should demand that these goals be achieved in 3 years. With this 30-30-3-3 framework in mind, you should then demand that the FCC achieve these objectives by shedding many of its redundant or obsolete powers and transferring remaining responsibilities of importance to other agencies. This is the "peel" portion of the "cut and peel" strategy. Let me suggest 4 specific FCC responsibilities which could immediately be peeled off and given to other agencies to help achieve these objectives:

(1) Spin off all antitrust oversight functions to the Department of Justice and Federal Trade Commission, which have more expertise in these matters anyway. I should also note that the FCC has no statutory authority to be reviewing communications industry mergers, so you will be essentially returning powers to the DOJ or FTC which did not belong to the FCC in the first place.

(2) Transfer and consolidate all spectrum management authority and responsibilities to the National Telecommunications and Information Association (NTIA) within the Department of Commerce to end this unnecessary separation of federal spectrum management.

(3) Transfer all international responsibilities to the State or Commerce Department, both of which are in a better position to deal with global trade and investment matters.

(4) Devolve all universal service responsibilities and subsidy programs to state and local officials who are in a better position to target these efforts to those most in need.

Mr. Chairman and members of the Committee, may I be so bold as to suggest this is not an unreasonable plan. Indeed, I view it as a very moderate proposal in light of the fact that the FCC has been given a lengthy reprieve by Congress when it comes to regulatory reform and agency downsizing. Given the central role communications plays in today's global economy, the costs and inefficiencies of unneeded FCC regulation can ripple throughout the U.S. economy and mean higher prices, lower quality, and fewer choices for American families. The time has come to rectify this situation, and this sort of simple "cut and peel" compromise strikes the right balance.

I thank the Committee for the opportunity to testify, and I would be happy to take any questions if time permits. Thank you.

Adam. D. Thierer  is a former Alex C. Walker Fellow in Economic Policy at The Heritage Foundation.

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