March 31, 1998

Thank you, Mr. Chairman for holding this important oversight hearing today. It is the first such hearing since four new Commissioners were sworn in at the FCC, and I want to welcome the Commissioners and thank you all for coming. I hope this will be the first of many more hearings, because it is critically important for this Committee and the Commission to maintain an ongoing dialogue. It is only through this process that we can best ensure a meeting of the minds, so that together we can accomplish the most good for the American public. While I am sure we will disagree at times, I have no doubt that at least we share this common goal.

While collaboration may be the best approach to solving problems, it is no secret that we begin this relationship divided on many key issues. The FCC has been the subject of intense criticism recently by myself, other Members of Congress, and the public for what many believe are serious missteps in the implementation of the Telecommunications Act of 1996.

The goal of the Act was to allow all players to enter and compete on a level playing field in every segment of the telecommunications industry. The premise was that the marketplace would replace regulation, driving down prices and improving service for all consumers. Congress recognized that making the transition from monopoly systems to a competitive market would take some time. So it created a framework for transition that was both logical and likely to succeed if implemented properly.

So how did this carefully crafted framework for transition get derailed? There is plenty of finger pointing to go around. But one thing is true. Over two years after the Act was signed into law, most consumers still don't have a choice of local telephone service providers, they are still locked into service from one cable company, and rates for these and other services continue to climb.

We've all heard the rhetoric and seen the full page ads in the daily press, each company blaming another for the current woes of the market. It's difficult to know whom to believe. Each has its own data and statistics to back up its claims. But one thing is certain. The hope and promise of the Telecom Act was that by this point in time, over two years after its passage, any remaining barriers to entry in the telecommunications industry would be eradicated. Unfortunately, this is not the case.

The long distance industry remains dominated by a handful of companies that provide little real competition when it comes down to rates and service. Chairman Kennard recently wrote the three largest long distance companies citing, and I quote, "a growing body of evidence that the nation's largest long distance companies are raising their rates when their costs of providing service are decreasing."

Even a key official with a national consumer group that has long advocated keeping the Bells out of long distance was quoted in USA Today saying, and again I quote, "the long distance market is not nearly as competitive across the board as the FCC thought." And instead of moving towards more competition in the long distance industry, we are about to witness further consolidation in the form of a merger between MCI and WorldCom, the second and fourth largest long distance carriers, respectively. Meanwhile, new entrants -- namely the Bell companies -- are barred from the market by regulatory fiat.

The Bell companies are chomping at the bit to provide long distance services, and have spent more than $8 billion in the past two years to open their own markets to competitors. But the long distance companies, while facing no regulatory barriers to entering the local market, have only done so in a narrowly targeted fashion. They have sought out highly valuable business customers while largely ignoring the residential consumer. They believe this is a logical business strategy and are not at all reticent about admitting it. The major long distance companies have publicly acknowledged their plans to abandon the residential consumer in recent weeks. MCI went so far as to say that targeting residential customers was like "throwing money down a rat hole."

WorldCom, after coming under attack for saying they planned to abandon residential customers, abruptly did an about face and proclaimed they would actively pursue the consumer market. But an ad placed in yesterday's Washington Post removes any lingering doubt that the WorldCom announcement was simply a thinly veiled attempt to assuage political concerns about their proposed merger. The company's real business plan was plastered over a full page ad touting the benefits of one-stop shopping for local, long distance and Internet services -- provided, of course, that you are a business customer.

It couldn't be more clear that the long distance companies refuse to enter the local market for fear of letting the Bells loose in their own backyards.

So what will it take to get long distance companies to offer local telephone service to all comers, no matter who they are or where they live? Clearly some incentive is needed to prod them into the market. Many of the Bells have amply demonstrated that their markets are open, their customers are ripe for the picking, if only someone would come to town. The answer is the incentive must be market driven. The FCC must stop acting as the central planner, and let the market work its magic. Once the long distance companies feel the effects of real competition in their own backyards, they will be forced to respond in kind. Then, and only then, will we all have a choice.

Another area of deep concern to many in Congress is Universal Service. The Universal Service provisions of the Act have been implemented in a way that is breaking the bank, and consumers and small businesses are feeling the pain. The Act clearly provided a directive to establish a fund sufficient to keep telephone rates affordable, but the Commission focused its attention primarily on an ancillary provision relating to schools and libraries, the so-called "e-rate" program.

The "e-rate" was intended to be a discount plan to help schools and libraries get affordable access to advanced telecommunications services. It was supposed to be a modest, though important initiative. The FCC now has transformed this idea into an extravagant entitlement program funded to the tune of more than $2.6 billion annually. The agency created an additional bureaucracy by setting up two non-governmental corporations to administer the program, with a mind- numbing process that grantees must follow in order to receive the money. If this weren't enough, the General Accounting Office recently concluded that the FCC's action in setting up these corporations was illegal.

I recently learned that some innovative libraries around the country are actually becoming Internet Service Providers. They buy T-1 lines at huge discounts and let people in the community dial in from their home computers. Do any of the Commissioners believe that Congress wanted to raise phone bills so that anyone with a home computer could get free Internet access by dialing into their local library? If local communities want to make that service available with their own tax revenues, then more power to them. But I fail to understand why a local phone customer in Anacostia or Harlem or East L.A. should subsidize Internet access for the people of McLean, Scarsdale or Brentwood.

All of this is not to say that the Telecom Act, as implemented by the Commission, is not without its success stories. Today virtually every major market in the country has four or more wireless telephone carriers competing for customers. Prices for wireless services have come down dramatically. And market penetration of wireless services continues to increase at a apace that is unprecedented when compared to other new technologies introduced in the past.

The Commission also has paved the way for digital television signals to reach every American home. By early next year over 30% of American homes will receive free, over-the-air, digital broadcasts. Six months later, the number of homes reached will increase to over 50%. This broadcasting revolution will bring superior pictures and sound into the living rooms of all Americans at a price they can afford: free.

I sincerely hope the new Commission will continue to build on these successes and learn from the mistakes of the past. The possibilities of the Communications Age are endless, and together we can play an important role in delivering its benefits to the American public. Thank you, again, for coming today.

Mr. Chairman, I yield back the balance of my time.