COMMISSIONER ROBERT M.
MCDOWELL BUDGET HEARING – FEDERAL COMMUNICATIONS COMMISSION
Thank you, Chairwoman Emerson, Ranking Member Serrano, and Members of
the Subcommittee for inviting me to join you today. This is the first
opportunity I have
had to testify before your Subcommittee, and I am honored to be here. I
have served as
an FCC commissioner for nearly six years, and every day has been a
privilege.
The Federal Communications Commission (FCC) was created by Congress in
1934, and today its influence reaches far beyond the radios, telephones
and telegraphs of
the 1930’s. By some estimates, the FCC holds sway over one-sixth of the
American
economy – or a slice of the economic pie that is the same size as the
health care sector.
Our actions touch the daily lives of all Americans. During my time at
the FCC, I have
advocated for market-based solutions to public policy challenges, or
toward the lightest
regulatory touch possible and only when absolutely necessary.
It is also important to note that while all of the Commissioners
ultimately vote on
a budget proposed by the Chairman for delivery to Office of Management
and Budget, I
have never been involved in the development of the agency’s budget
request. With that
context in mind, I am happy to provide insight in response to any
questions you may
have.
The FCC is always a busy place and this year is no different. Among the
many
important issues we are examining are: review of our media ownership
rules,
implementing a new statute governing low-power FM radio and FM
translators, review
of program access exclusivity agreements in the pay TV market, and
review of the sports
blackout rule, among many others.
Today, however, I would like to focus on three additional policy
initiatives
currently before the Commission: implementing the new spectrum incentive
auction law,
adopting universal service contribution reform, and examining the
complexities, legalities
and burdens of proposed rules governing the maintenance of online
political advertising
files by television broadcasters. Lastly, I’d like to address the
spectre of possible
regulation of Internet governance by the International Telecommunication
Union (ITU).
Each of these matters involves expending Commission resources and,
therefore, taxpayer
dollars.
SPECTRUM POLICY
As Americans have become accustomed to using sophisticated mobile
devices in
their everyday lives, increased wireless activity has put new demands on
our overall
spectrum availability. Recognizing the need for spectrum to flow toward
its highest and
best use, a month ago, Congress passed legislation1 that some estimate
could place up to
an additional 80 megahertz of prime television broadcast spectrum into
American
consumers’ hands. Congratulations on that bipartisan achievement. As a
result of this
law, the FCC will conduct the most complicated spectrum auction, or
auctions, in history.
1 Middle Class Tax Relief and Job Creation Act of 2012, Pub. L. No.
112-96, §§ 6402-6404, 126 Stat. 156
(2012). The Senate and House of Representatives voted on the conference
report accompanying H.R 3630
on February 17, 2012. H.R. REP. NO. 112-399, at 69-76 (2012) (Conf.
Rep.).
Meanwhile, a debate continues over whether or how the FCC should shape
the
outcome of this process. History has proven that regulators’ attempts to
over-engineer
spectrum auctions often result in harmful, unintended consequences.
Thus, I hope all of
us can apply the lessons learned from the Commission’s past missteps as
we implement
this new legislation.
I am committed to working with my colleagues to ensure that our auction
rules
are minimal and “future proof,” allowing for flexible uses in the years
to come as
technology and markets change. Furthermore, I am optimistic that we can
create band
plans that offer opportunities for small, medium and large companies to
bid for and
secure licenses without having to exclude any player from the auctions.
I am confident that the FCC can get it right this time. And “getting it
right”
means avoiding regulatory hubris by keeping the government’s hands off
of the
marketplace’s steering wheel as much as possible.
UNIVERSAL SERVICE REFORM
Last fall, the Commission accomplished the complicated task of
modernizing the
high cost portion of the Universal Service Fund (USF). Historically, the
high cost fund
only supported traditional telecommunications services and did not
directly support the
deployment of broadband. Also, the program has grown tremendously over
the years
without promoting efficiency. For example, the high cost fund subsidized
multiple
providers in the same area while other parts of our nation still
remained unserved.
Furthermore, the old structure allowed providers to receive subsidies to
serve areas that
were already served by unsubsidized competitors. In part, due to these
and other
inefficiencies, the high cost fund grew from $1.69 billion in 1998 to
over $4 billion by
the end of last year.2
The FCC’s reform efforts last fall addressed these issues, among many
others, and
transformed the high cost fund into one that will support
next-generation communications
technologies, while also keeping a lid on spending. Chairman Genachowski
and
Commissioners Copps (since retired) and Clyburn should be commended for
this
accomplishment.
Although reform of the high cost fund was a monumental achievement, I
noted at
the time that making changes to that program was merely a first step
because the
Commission only addressed the distribution, or spending, side of the USF
equation.
Equally important is the need to fix the contribution methodology, or
the “taxing” side of
the ledger. In other words, how we are going to pay for all of this?
2 Similarly, the aggregate amount spent on all USF programs grew from
$3.66 billion in 1998 to over $8
billion through 2011. Sources: Federal Communications Commission and
Universal Service
Administrative Company.
To put this issue in perspective, the universal service contribution
factor, a type of
tax paid by telephone consumers, has risen each year from approximately
5.5 percent in
1998 to almost 18 percent in the first quarter of this year.3 This trend
is unacceptable
because it is unsustainable. We need to abate this automatic tax
increase, and find a way
to decrease and control the contribution factor.
In a perfect world, the Commission would have conducted comprehensive
reform
by addressing both the spending and taxing sides at the same time. While
the FCC did
not include contribution reform in its landmark order last fall, I have
urged the Chairman
to initiate, and conclude, contribution reform as early this year as
possible.
REQUIREMENTS ON TELEVISION BROADCASTERS – POLITICAL FILES
Within the next few months, the Commission may vote on a proposal to
place the
political advertisement portion of television broadcasters’ public
inspection files on a
government-hosted website. Transparency is a laudable public policy
goal, especially in
the context of political spending. Furthermore, providing broadcasters
with more cost-
effective means to comply with FCC rules is also a noble endeavor.
Congress should be
aware, however, that this particular issue brings with it many factual,
legal and pragmatic
complexities that are not obvious at first glance.
By way of background, Commission rules require the public inspection
file to
contain a series of documents, including information regarding
broadcasters’
programming of local interest, hiring practices, correspondence from the
public and the
political file. Since 1965, broadcasters have kept these paper files at
the relevant station
under the mandate that they be available for inspection by any member of
the public upon
reasonable request. The contents of the public file generally speak to
whether a
broadcaster is serving its community of license properly. The Commission
voted to
require online posting of most portions of broadcasters’ general public
inspection files in
2007, but exempted political files from the requirements because the
burdens outweighed
the benefits.4
The political file contains information for candidates seeking to
purchase political
ads and sheds light on the spending patterns of campaigns, political
committees, third-
party groups and such. Unlike other parts of the public inspection file,
the contents of the
political file do not speak to whether a broadcaster is serving its
local community of
license. The political file is a tool for examining transparency in
campaign spending
rather than broadcaster behavior. Although Section 315 of the Act has
mandated that
3 See Proposed First Quarter 2012 Universal Service Contribution Factor,
CC Docket No. 96-45, Public
Notice, 26 FCC Rcd 16814 (OMD 2011).
4 Standardized and Enhanced Disclosure Requirements for Television
Broadcast Licensee Public Interest
Obligations, MM Docket Nos. 00-168, 00-44, Report and Order, 23 FCC Rcd
1274, 1322 (2008). The
2007 order never went into effect because of challenges before the
Commission, the courts and the Office
of Management and Budget where the information collection was questioned
under the Paperwork
Reduction Act.
In October 2011, the Commission proposed to reverse its 2007 position
regarding
political file mandates with little to no evidence that candidates,
their representatives, or
members of the local communities served by broadcasters have been unable
to access the
required information, let alone that the benefits would outweigh the
costs.5 In fact, the
evidentiary record before the Commission illustrates that the proposed
new rules could
cost the TV broadcast industry $15 million in upfront expenses to scan
existing paper
files and upload them to a new government website while also forcing
each station to
incur upwards of $140,000 per year in recurring costs to maintain the
information in real-
time, or “immediately,” as the FCC has proposed. The record also shows
that these new
federally-mandated costs on businesses would likely be offset by cuts to
local
programming and newsgathering. Not only would such a rule be especially
onerous for
smaller and independent broadcasters in these challenging economic
times, but it could
also undermine long-standing federal policy to promote local
programming.
Furthermore, the proposed rules would require broadcasters to reveal
proprietary
and competitively sensitive advertising and rate information online.
While the original
goal of such disclosure may have been to create more transparency in the
political
spending process, the unintended consequence could be to encourage price
signaling and
other anti-competitive conduct by broadcasters that could produce
harmful market
distortions.
Before venturing further down this regulatory road, policy makers should
be
thoughtful and deliberative when examining the implications and nuances
that could arise
as a result of their potential actions. I still see many unanswered
questions:
• If the public policy goal of new rules is to produce more transparency
in
campaign spending, is the FCC the best agency to achieve such ends?
• As a threshold
matter, does the FCC possess the legal authority to require these
political advertising disclosures be posted online?6
• Didn’t Congress intend through the
Bipartisan Campaign Reform Act of 2002 for
the expert agency on campaign finance disclosure matters, the Federal
Election
Commission (FEC), to be in charge of implementing campaign finance
disclosure
requirements?
• If so, would FCC
requirements that are duplicative to FEC rules violate the
Paperwork Reduction Act?
5 Even if such evidence exists, the Commission has enforcement
mechanisms to handle matters of non-
compliance.
6 Broadcasters also have additional political disclosure requirements
beyond what is in the Commission’s
political file rule. 47 C.F.R. § 73.1943. In 2002, the Bipartisan
Campaign Reform Act of 2002 (BCRA)
amended section 315 of the Communications Act to require disclosure of
purchases of broadcast time on
behalf of a candidate or that communicates a political message of
national importance. Bipartisan
Campaign Reform Act of 2002 § 504, 47 U.S.C. § 315(e) (2002). The text
of BCRA was not incorporated
into the Commission’s rules through a rulemaking proceeding.
• In the wake of the Supreme Court’s decision in the Citizens United7
case, is it not
the role of the legislative branch to debate and craft new laws in the
campaign
finance arena that would focus on the entities spending the money rather
than
having an agency, which has no expertise in campaign finance, regulate
in this
area?
• Where are the
equities in singling out only television broadcasters for such
disclosure requirements when political campaigns spend money on a
plethora of
outlets to contact and influence voters including, but certainly not
limited to,
advertising expenditures on: radio, newspapers, the Internet, direct
mail, outdoor
ads, cable television, satellite radio and TV, paid activists to knock
on doors, and
many, many more avenues for voter outreach?
Furthermore, the Supreme Court reiterated in its Citizens United
decision that
political speech is core protected speech under the First Amendment;
therefore, as a
threshold matter, the government’s ability to regulate in this area is
severely curtailed.
As a consequence, administrative agencies and Congress alike should
think carefully
before imposing new laws and regulations that could be construed by the
Court as de
facto, or “backdoor,” inhibitions on political speech.
I am hopeful that we as policy makers can comply with all relevant laws
while
finding the right balance between protecting core political speech and
encouraging
transparency without disproportionately burdening one of many outlets.
INTERNATIONAL REGULATION OF THE INTERNET
Finally, all of us should be concerned with a well-organized
international effort to
secure intergovernmental control of Internet governance. The Internet
has historically
flourished within a deregulatory regime not only within our country but
internationally as
well. In fact, the long-standing international consensus has been to
keep governments
from regulating core functions of the Internet’s ecosystem.
Unfortunately, some nations, such as China, Russia, India, Iran and
Saudi Arabia,
have been pushing to reverse this consensus by giving the International
Telecommunication Union (ITU) regulatory jurisdiction over Internet
governance. The
ITU is a treaty-based organization under the auspices of the United
Nations.8 As Russian
Prime Minister Vladimir Putin said last June, the goal of this effort is
to establish
“international control over the Internet using the monitoring and
supervisory capabilities
of the [ITU].”9
7 Citizens United v. Fed. Election Comm’n, 130 S. Ct. 876 (2010)
(prohibiting the government from
limiting communications spending for political purposes by corporations
and unions).
8 History, IThttp://www.itu.int/en/about/Pages/history.aspx">U, http://www.itu.int/en/about/Pages/history.aspx
(last visited Dec. 7, 2011).
9 Vladimir Putin, Prime Minister of the Russian Federation, Working Day,
GOV’T OF THE RUSSIAN FED’N,
http://premier.gov.ru/eng/events/news/15601/ (June 15, 2011) (last
visited Dec. 7, 2011).
In 1988, delegates from 114 countries gathered in Australia to agree to
a treaty that
set the stage for dramatic liberalization of international
telecommunications.10 As a
result, the Internet was insulated from government control and quickly
became the
greatest deregulatory success story of all time.
Today, however, several countries within the 193 member states of the
ITU11 want
to renegotiate the 1988 treaty to expand its reach into previously
unregulated areas. A
few specifics are as follows:
• Subject cyber security and data privacy to international control;
• Allow foreign phone companies to charge fees for "international"
Internet
traffic, perhaps even on a "per-click" basis for certain Web
destinations,
with the goal of generating revenue for state-owned phone companies and
government treasuries;
• Impose unprecedented economic regulations such as mandates for rates,
terms and conditions for currently unregulated traffic-swapping
agreements known as "peering;"
• Establish for the first time ITU dominion over important functions of
multi-stakeholder Internet governance entities such as the Internet
Corporation for Assigned Names and Numbers, the nonprofit entity that
coordinates the .com and .org Web addresses of the world;
• Subsume under intergovernmental control many functions of the Internet
Engineering Task Force, the Internet Society and other multi-stakeholder
groups that establish the engineering and technical standards that allow
the
Internet to work; and
• Regulate international mobile roaming rates and practices.
These efforts could ultimately partition the Internet between countries
that live
under an intergovernmental regulatory regime and those member states
that decide to opt
out. Such a legal structure would be devastating to global free trade
and rising living
standards. It would also create an engineering morass.
These latest attempts to regulate Internet governance have rallied
opposition on a
bipartisan basis. Chairman Genachowski has also been working to raise
awareness on
this important issue.
CONCLUSION
In sum, while serving as a commissioner, my focus has been to support
policies
that promote consumer choice offered through abundance and competition
rather than
regulation and its unintended consequences, whenever possible. In the
absence of market
failure, unnecessary regulation in the name of serving the public
interest can have the
perverse effect of harming consumers by inhibiting the constructive
risk-taking that
produces investment, innovation, competition, lower prices and jobs. I
will continue to
examine the FCC’s public policy challenges through this lens.
Thank you again for the opportunity to appear before you today. I look
forward
to your questions.
Wall Street Journal
February 21, 2012
By Robert M. McDowell
Top-down, international regulation is antithetical to the Net, which has
flourished
under its current governance model.
On Feb. 27, a diplomatic process will begin in Geneva that could result
in a new treaty
giving the United Nations unprecedented powers over the Internet. Dozens
of countries,
including Russia and China, are pushing hard to reach this goal by
year's end. As Russian
Prime Minister Vladimir Putin said last June, his goal and that of his
allies is to establish
"international control over the Internet" through the International
Telecommunication
Union (ITU), a treaty-based organization under U.N. auspices.
If successful, these new regulatory proposals would upend the Internet's
flourishing
regime, which has been in place since 1988. That year, delegates from
114 countries
gathered in Australia to agree to a treaty that set the stage for
dramatic liberalization of
international telecommunications. This insulated the Internet from
economic and
technical regulation and quickly became the greatest deregulatory
success story of all
time.
Since the Net's inception, engineers, academics, user groups and others
have convened in
bottom-up nongovernmental organizations to keep it operating and
thriving through what
is known as a "multi-stakeholder" governance model. This
consensus-driven private-
sector approach has been the key to the Net's phenomenal success.
In 1995, shortly after it was privatized, only 16 million people used
the Internet world-
wide. By 2011, more than two billion were online—and that number is
growing by as
much as half a million every day. This explosive growth is the direct
result of
governments generally keeping their hands off the Internet sphere.
Net access, especially through mobile devices, is improving the human
condition more
quickly—and more fundamentally—than any other technology in history.
Nowhere is
this more true than in the developing world, where unfettered Internet
technologies are
expanding economies and raising living standards.
Farmers who live far from markets are now able to find buyers for their
crops through
their Internet-connected mobile devices without assuming the risks and
expenses of
traveling with their goods. Worried parents are able to go online to
locate medicine for
their sick children. And proponents of political freedom are better able
to share
information and organize support to break down the walls of tyranny.
The Internet has also been a net job creator. A recent McKinsey study
found that for
every job disrupted by Internet connectivity, 2.6 new jobs are created.
It is no
coincidence that these wonderful developments blossomed as the Internet
migrated
further away from government control.
Today, however, Russia, China and their allies within the 193 member
states of the ITU
want to renegotiate the 1988 treaty to expand its reach into previously
unregulated areas.
Reading even a partial list of proposals that could be codified into
international law next
December at a conference in Dubai is chilling:
• Subject cyber security and data privacy to international control;
• Allow foreign phone companies to charge fees for "international"
Internet traffic,
perhaps even on a "per-click" basis for certain Web destinations, with
the goal of
generating revenue for state-owned phone companies and government
treasuries;
• Impose unprecedented economic regulations such as mandates for rates,
terms and
conditions for currently unregulated traffic-swapping agreements known
as "peering."
• Establish for the first time ITU dominion over important functions of
multi-stakeholder
Internet governance entities such as the Internet Corporation for
Assigned Names and
Numbers, the nonprofit entity that coordinates the .com and .org Web
addresses of the
world;
• Subsume under intergovernmental control many functions of the Internet
Engineering
Task Force, the Internet Society and other multi-stakeholder groups that
establish the
engineering and technical standards that allow the Internet to work;
• Regulate international mobile roaming rates and practices.
Many countries in the developing world, including India and Brazil, are
particularly
intrigued by these ideas. Even though Internet-based technologies are
improving billions
of lives everywhere, some governments feel excluded and want more
control.
And let's face it, strong-arm regimes are threatened by popular outcries
for political
freedom that are empowered by unfettered Internet connectivity. They
have formed
impressive coalitions, and their efforts have progressed significantly.
Merely saying "no" to any changes to the current structure of Internet
governance is
likely to be a losing proposition. A more successful strategy would be
for proponents of
Internet freedom and prosperity within every nation to encourage a
dialogue among all
interested parties, including governments and the ITU, to broaden the
multi-stakeholder
umbrella with the goal of reaching consensus to address reasonable
concerns. As part of
this conversation, we should underscore the tremendous benefits that the
Internet has
yielded for the developing world through the multi-stakeholder model.
Upending this model with a new regulatory treaty is likely to partition
the Internet as
some countries would inevitably choose to opt out. A balkanized Internet
would be
devastating to global free trade and national sovereignty. It would
impair Internet growth
most severely in the developing world but also globally as technologists
are forced to
seek bureaucratic permission to innovate and invest. This would also
undermine the
proliferation of new cross-border technologies, such as cloud computing.
A top-down, centralized, international regulatory overlay is
antithetical to the architecture
of the Net, which is a global network of networks without borders. No
government, let
alone an intergovernmental body, can make engineering and economic
decisions in
lightning-fast Internet time. Productivity, rising living standards and
the spread of
freedom everywhere, but especially in the developing world, would grind
to a halt as
engineering and business decisions become politically paralyzed within a
global
regulatory body.
Any attempts to expand intergovernmental powers over the Internet—no
matter how
incremental or seemingly innocuous—should be turned back. Modernization
and reform
can be constructive, but not if the end result is a new global
bureaucracy that departs
from the multi-stakeholder model. Enlightened nations should draw a line
in the sand
against new regulations while welcoming reform that could include a
nonregulatory role
for the ITU.
Pro-regulation forces are, thus far, much more energized and organized
than those who
favor the multi-stakeholder approach. Regulation proponents only need to
secure a simple
majority of the 193 member states to codify their radical and
counterproductive agenda.
Unlike the U.N. Security Council, no country can wield a veto in ITU
proceedings. With
this in mind, some estimate that approximately 90 countries could be
supporting
intergovernmental Net regulation—a mere seven short of a majority.
While precious time ticks away, the U.S. has not named a leader for the
treaty
negotiation. We must awake from our slumber and engage before it is too
late. Not only
do these developments have the potential to affect the daily lives of
all Americans, they
also threaten freedom and prosperity across the globe.
Mr. McDowell is a commissioner of the Federal Communications Commission.
