[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

THE BUDGET AND SPENDING OF THE FEDERAL COMMUNICATIONS COMMISSION

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

OF THE

COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

FEBRUARY 16, 2012

__________

Serial No. 112-117

Printed for the use of the Committee on Energy and Commerce

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COMMITTEE ON ENERGY AND COMMERCE

FRED UPTON, Michigan
Chairman

JOE BARTON, Texas HENRY A. WAXMAN, California
Chairman Emeritus Ranking Member
CLIFF STEARNS, Florida JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania EDOLPHUS TOWNS, New York
MARY BONO MACK, California FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska ANNA G. ESHOO, California
MIKE ROGERS, Michigan ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina GENE GREEN, Texas
Vice Chairman DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma LOIS CAPPS, California
TIM MURPHY, Pennsylvania MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana JIM MATHESON, Utah
ROBERT E. LATTA, Ohio G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington JOHN BARROW, Georgia
GREGG HARPER, Mississippi DORIS O. MATSUI, California
LEONARD LANCE, New Jersey DONNA M. CHRISTENSEN, Virgin
BILL CASSIDY, Louisiana Islands
BRETT GUTHRIE, Kentucky KATHY CASTOR, Florida
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

7_____

Subcommittee on Communications and Technology

GREG WALDEN, Oregon
Chairman
LEE TERRY, Nebraska ANNA G. ESHOO, California
Vice Chairman Ranking Member
CLIFF STEARNS, Florida EDWARD J. MARKEY, Massachusetts
JOHN SHIMKUS, Illinois MICHAEL F. DOYLE, Pennsylvania
MARY BONO MACK, California DORIS O. MATSUI, California
MIKE ROGERS, Michigan JOHN BARROW, Georgia
MARSHA BLACKBURN, Tennessee DONNA M. CHRISTENSEN, Virgin
BRIAN P. BILBRAY, California Islands
CHARLES F. BASS, New Hampshire EDOLPHUS TOWNS, New York
PHIL GINGREY, Georgia FRANK PALLONE, Jr., New Jersey
STEVE SCALISE, Louisiana BOBBY L. RUSH, Illinois
ROBERT E. LATTA, Ohio DIANA DeGETTE, Colorado
BRETT GUTHRIE, Kentucky JOHN D. DINGELL, Michigan (ex
ADAM KINZINGER, Illinois officio)
JOE BARTON, Texas HENRY A. WAXMAN, California (ex
FRED UPTON, Michigan (ex officio) officio)

(ii)

C O N T E N T S

----------
Page
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, opening statement...................................... 1
Prepared statement........................................... 3
Hon. Anna G. Eshoo, a Representative in Congress from the State
of California, opening statement............................... 5
Hon. Doris O. Matsui, a Representative in Congress from the State
of California, opening statement............................... 6
Hon. Lee Terry, a Representative in Congress from the State of
Nebraska, opening statement.................................... 6
Hon. Marsha Blackburn, a Representative in Congress from the
State of Tennessee, opening statement.......................... 7
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, prepared statement................................... 83
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, prepared statement.............................. 84

Witnesses

Julius Genachowski, Chairman, Federal Communications Commission.. 7
Prepared statement........................................... 11
Answers to submitted questions............................... 86
David L. Hunt, Inspector General, Federal Communications
Commission..................................................... 32
Prepared statement........................................... 34
Answers to submitted questions............................... 107
D. Scott Barash, Acting Chief Executive Officer, Universal
Service Administrative Company................................. 67
Prepared statement........................................... 70
Answers to submitted questions............................... 111

THE BUDGET AND SPENDING OF THE FEDERAL COMMUNICATIONS COMMISSION

----------

THURSDAY, FEBRUARY 16, 2012

House of Representatives,
Subcommittee on Communications and Technology,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 9:03 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Greg
Walden (chairman of the subcommittee) presiding.
Members present: Representatives Walden, Terry, Shimkus,
Blackburn, Bilbray, Bass, Scalise, Latta, Upton (ex officio),
Eshoo, Matsui, Barrow, Dingell, and Waxman (ex officio).
Staff present: Ray Baum, Senior Policy Advisor/Director of
Coalitions; Michael Beckerman, Deputy Staff Director; Nicholas
Degani, FCC Detailee; Mike Gruber, Senior Policy Advisor;
Debbee Keller, Press Secretary; Katie Novaria, Legislative
Clerk; Roger Sherman, Democratic Chief Counsel; Hadass Kogan,
Democratic Legal Fellow; and Kara Van Stralen, Democratic
Special Assistant.

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON

Mr. Walden. Good morning, everyone, and welcome to today's
hearing on what I am sure will be a riveting subject,
especially if you are the chairman of the FCC: the budget and
spending of the Federal Communications Commission. Despite the
groans and droopy eyelids, some of us were up pretty late last
night negotiating on the final spectrum fees and the big fees,
and some of you were watching pretty intently, this is really
important. This is important work that we are doing here today.
We have an obligation as a subcommittee to review the budgets
and spending activities of every agency under our jurisdiction,
whether they get that money from rate payers or users, or from
the general taxpayers. And so I welcome the Chairman of the
FCC, Mr. Genachowski, here today.
Given the state of our Nation's finances, I think it is
time to call all hands on deck. As the committee with
jurisdiction over the Federal Communications Commission, it is
our responsibility to review how the Federal Communications
Commission collects and spends Federal funds.
We are the committee that created the FCC; although I don't
think any of us was exact--well, maybe some were around when
that happened. I don't think so, though. We are the committee
that created the FCC; we are the committee that authorized it
to collect regulatory fees; we are the committee that
authorized spectrum auctions; and we are the committee that
enabled the creation of the Universal Service Fund. It is high
time that we looked clearly and deeply at how this Commission
spends money outside of the yearly appropriations process.
Three days ago, the administration released its proposed
budget for fiscal year 2013, and the FCC has in turn submitted
its corresponding budget estimates. And I was pleased to see
some of those numbers. Last year, the FCC was given a budget of
$424.8 million, and the FCC has reported that it can maintain
current services with a budget of $421.2 million. Although that
is less than a 1 percent decrease, hey, it is a start, and I
appreciate the work the FCC is doing to keep costs down.
But the FCC's proposal still leaves some open questions
about its budget. What are the concrete results that taxpayers
and regulatees can expect if Congress funds the FCC's requested
new programs? If it consolidates its data centers, as proposed,
what will that produce in terms of savings and will those
savings be rolled into a lower base budget next year? And what
is it doing to redirect its existing resources to address and
resolve its backlogs and respond to changes in the marketplace?
Similarly, I want to explore a bit about the sources of the
FCC's funding. For example, it withholds up to $85 million each
year to cover the costs of spectrum auctions. Is that
sufficient? Does it actually need all of that money to conduct
auctions? The rest of the FCC's own funding comes from
regulatory fees, which are supposed to be assessed on the
communications industry in proportion to the benefits that
industry receives from the Commission. Given the swiftly
converging communications marketplace, I am interested in how
the Commission has reevaluated and reapportioned regulatory
fees to ensure that all are paying their fair share.
Finally, I want to better understand how the FCC's
watchdogs, the Inspector General and the Universal Service
Administrative Company, are funded and what they are doing to
combat waste, fraud, and abuse. Although the Universal Service
Fund isn't paid for with taxpayer funds, it does come out of
the pocketbooks of taxpayers in the form of consumers, and the
American people deserve to know that that money is being well
spent. What is USAC doing to streamline the universal service
funding process so that funded companies can focus on serving
their constituents and not on filling out paperwork?
Conversely, what are USAC and the Inspector General doing to
make sure that universal service funds are not wasted or
fraudulently obtained? What is the bang for the buck that we
are getting from these watchdogs, and are additional resources
needed to equip their oversight efforts?
I thank today's witnesses, Chairman Genachowski, Inspector
General Hunt, and Mr. Barash, for attending today's hearing and
helping us sort through these important budgetary issues. With
your help, we will have a better handle on what Congress can do
to reduce the costs of government and improve its efficiency
and accountability.
[The prepared statement of Mr. Walden follows:]

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Mr. Walden. With that, I would welcome my colleague from
California, Ms. Eshoo, and turn over the time to her for an
opening statement.

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA

Ms. Eshoo. Thank you, Mr. Chairman, and good morning to
everyone. Welcome, Chairman Genachowski.
The last time this committee authorized appropriations for
the FCC was in 1990, before I came to Congress, and it was when
my friend, Ed Markey, chaired what was then known as the
Telecommunications and Finance Subcommittee. At that time,
Congress authorized 109.83 and $119.83 million for fiscal years
1990 and 1991 for spending on what now seems like a
technological--technology stone age. Today, we are examining
the proposed fiscal year 2013 budget of $346.78 million for the
Commission and its operations over a complex, advanced
telecommunications sector.
The FCC is charged with a portfolio of technological
challenges. These include making broadband available to all
Americans, finding new sources of spectrum, upgrading and
reforming universal service, fostering public safety
interoperability, E-911 dependability and availability, and
reforming the internal mechanisms of an agency that has been in
continuous operation since 1934. These are not easy tasks, but
they are essential to the economic well-being of our country.
In reviewing the Commission's budget, I am sure we want to
know, first and foremost, that the Commission has made very
effort to streamline its budget while ensuring that it has the
financial resources to perform its mission. In my view, we have
to balance budget costs with smart investments. Our Nation's
advanced communications are increasingly essential for new
opportunities in almost every sector, including small
businesses, education, health care, and the government. Money
spent wisely at the Commission can give us a good bang for our
buck. Enhancements in the Agency's cloud security and upgrades
to the technical equipment used in the FCC's laboratory are two
such examples.
I can see from the FCC's budget that the Commission has a
10-year low in Federal employees, that the contracting staff
has been cut nearly in half during the past year. I wish that
were the case in the Intelligence community. The Commission is
currently operating under a budget that is lower than it was in
2009, with a 2 percent increase over the previous year's
spending level. This doesn't sound exactly like empire building
to me.
Chairman Genachowski, I look forward to hearing about where
the FCC stands today, and where you envision the agency to be
in the future. I also look forward to hearing from the FCC's
Inspector General Hunt. Inspector Generals are, in my book, a
group of the most important people in the Federal Government.
And Scott Barash--I hope I have pronounced your name correctly,
the CEO of the Universal Service Administrative Company, USAC,
on how their work and budgets compliment the mandate of the
Communications Act.
So thank you, Mr. Chairman, for holding this very important
hearing. It has been a long time since we have had one on this
subject matter, and I will yield the balance of my time to
Congresswoman Matsui.

OPENING STATEMENT OF HON. DORIS O. MATSUI, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA

Ms. Matsui. Thank you, Ranking Member Eshoo, for yielding
me time. I also thank Chairman Genachowski for being with us
here today.
The FCC, under the Chairman's leadership, has been dealing
with important issues, head on, many of which were difficult to
address. The FCC's funding is essentially flat, and has had
limited staff movement since 2008, yet the FCC has moved major
policy reforms forward. Just over the past few months, for
instance, some of the important reviews to the Universal
Service Fund. While not perfect, the reforms that the FCC put
forth to both the high cost fund and to low income fund are
both attempts to bring the USF into the 21st century.
The FCC maintains its commitment to restrain any
uncontrolled growth within the Universal Service Fund. I also
support USF reforms aimed at addressing duplication and abuse
within these programs. These reforms will likely require
additional, yet effective, resources to properly certify
households and enforce necessary requirements. The FCC's
Lifeline proposal to develop a pilot program to extend lifeline
for broadband will enable Americans living in both rural and
urban areas to access affordable broadband services. After a
viable pilot is conducted, it is my hope that the program
becomes permanent and available to millions of Americans.
Lastly, I look forward to your continued leadership, as
Congress seems poised to provide the FCC authority to conduct
incentive auctions and supporting the continued use of
unlicensed spectrum for American innovation.
Thank you, Mr. Chairman, for holding today's hearing, and I
yield back the balance of my time.
Mr. Walden. The Chair recognizes--thank you. The Chair
recognizes the gentleman from Nebraska.

OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEBRASKA

Mr. Terry. Thank you, Mr. Chairman, and I thank our
witness, Mr. Genachowski, for being here today, and we have had
a good working relationship, and I really appreciate that.
The FCC, this last year, has tackled many of the toughest
issues, particularly high cost USF, and while I think maybe the
screws were ratcheted a little too tightly and we may have to
review that order, that is not the subject of why we are here
today. It is to review the budget, see where you see the FCC
going forward. Like all of Congress and committees and our
individual offices who have received 12 percent cuts and
cutting staff and really focusing to be lean and financially
lean. We are seeing where you see the FCC doing the same thing,
and that is what we want to hear.
On issues of USF overall, while you were able to get some
controls in place on the high cost, we see lack of controls and
explosion in other areas of USF, particularly in Link Up and
Lifeline, and want to see how you are going to control that,
what your plans are in that area.
So I look forward to your testimony, and with that, I will
yield to the gentlelady from Tennessee.

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TENNESSEE

Mrs. Blackburn. I thank the gentleman, and Mr. Chairman, we
welcome you. We appreciate that you are here and you are going
to give us the opportunity to talk with you about this budget.
You know, at a time when the Defense Department is taking a $32
billion cut and looking at that right on the table, we are kind
of curious as to why the FCC would say we need a 2 percent
bump. And we want to make certain that we review that with you.
As others have said, you know, part of this focus is on your
agenda. Some of us think that you have supported or have moved
toward an agenda that is restricting free markets and
innovation, and that sometimes you are getting into issues that
we don't--places where we don't think you should be going. And
you do it because you say you can.
Section 706, your interpretation on that, the same language
that you used for net neutrality regulations, data roaming
mandates, things of that nature, you and I have discussed that
and so maybe this is a time for us to see some regulatory
humility and restraint and pull those issues, and say is that
the proper use of your time?
And so I appreciate the chairman of the subcommittee
allowing us to work with you and have the time to review this
purpose that you have in your budget, and then the means that
you go through in using the dollars that are given to you.
I yield back.
Mr. Walden. Do any of our other members want to--Mr.
Scalise, Mr. Latta, do you want to use any of the remaining
time, or should we get on with the hearing? OK.
Mr. Dingell, would you like to offer an opening statement?
Mr. Dingell. Mr. Chairman, defer just briefly, if you
please.
Mr. Walden. I don't believe we have any other speakers on
our side, or I would.
Mr. Dingell. Then at your suggestion, I will proceed.
I don't have an opening statement, so I will defer on that.
Mr. Walden. All right, thank you.
Then I don't see any other members who have not had a
chance to say something, so Mr. Genachowski, the microphone is
yours for a limited duration. We will take it back later, but
we do appreciate your being here and we look forward to your
testimony. Welcome.

STATEMENT OF JULIUS GENACHOWSKI, CHAIRMAN, FEDERAL
COMMUNICATIONS COMMISSION

Mr. Genachowski. Thank you, Chairman Walden and Ranking
Member Eshoo, the other members who are here, for the
opportunity to appear today. Before taking your questions, I
would like to make two overarching points about the FCC's
budget.
First, the FCC creates tremendous value for our economy and
the American people. Indeed, few, if any, Federal agencies
deliver a high return on investment than the FCC. Spectrum
auctions have raised more than $50 billion for the U.S.
Treasury, and economists regard the economic value created by
FCC auctions as being about 10 times that number, $500 billion.
The U.S. has long led the world in developing policies to
unleash spectrum for mobile investment and invasion. The FCC
was the first agency to develop spectrum auctions, and also the
first to free up so-called junk bands for unlicensed use, such
as Bluetooth, cordless phones, and Wi-Fi. As Wi-Fi plays an
increasingly important role in the spectrum ecosystem, the
economic benefit created by unlicensed spectrum is estimated at
up to $37 billion a year.
Because of the work of this committee and the Senate
Commerce Committee, the voluntary incentive auctions proposed
in the FCC's National Broadband Plan could become the next big
value creating breakthrough in spectrum policy, leading to very
substantial new auctions of spectrum and freeing up unlicensed
spectrum for white spaces and other higher-powered unlicensed
use holds tremendous promise to become another value-creating
breakthrough on the order of magnitude of Wi-Fi.
Spectrum policy is just part of the FCC's overall efforts
to create value by promoting private investment, innovation,
competition, and job creation. Through our Broadband
Acceleration Initiative, the FCC has removed barriers to
broadband deployment and accelerated broadband buildout. For
example, we have adopted orders to ease access to utility poles
and established a shot clock to speed cell tower and antenna
siting.
As the FCC does its work under the Communications Act, more
than 95 percent of our decisions have been bipartisan and our
policies are working. Investment, job creation, and innovation
are up across the information and communications technology
sector, the broadband economy. These metrics are up both when
looking at broadband absent services and when looking at
broadband providers and networks. In 2011, the U.S. tech sector
grew three times faster than the overall economy. Broadband is
helping create new jobs all across the country, and not just
for engineers, but also for construction workers, salespeople,
and small business owners who are increasingly using the
internet to increase sales and lower costs. The apps economy,
which barely existed in 2009, has already created almost
500,000 new jobs, according to expert estimates.
The U.S. has regained global leadership in mobile
innovation. We are also now ahead of the world in deploying 4G
mobile broadband at scale. These next generation 4G networks
are projected to add $151 billion in GDP growth over the next 4
years, creating a project 770,000 new American jobs.
Broadband providers invested tens of billions of dollars in
wired and wireless networks in the first three quarters of
2011, a double digit increase over the same period in 2010.
Internet startups attracted 7 billion in venture capital in
2011, almost double 2009 levels, and the most investment since
2001.
The value contributions I have identified would be enhanced
even further by closing broadband gaps, and so the agency is
focused on bringing universal service into the broadband era.
Today, approximately 18 million rural Americans live in areas
with no broadband infrastructure. Our plan adopted in October
to modernize the Universal Service Fund will spur wired and
wireless broadband buildout to hundreds of thousands of rural
homes in the near term, and put us on a path to universal
broadband by the end of the decade without increasing the size
of the fund. The major overhaul of USF and intercarrier
compensation was done on a unanimous basis at the Commission,
and with bipartisan support by this committee, and I thank you
for that.
In addition to the broadband deployment gap, we are making
strides on the broadband adoption gap. Nearly a third of
Americans, 100 million people, haven't adopted broadband. Our
Connect to Compete Initiative enlists government, nonprofit,
and private sector leaders to tackle the barriers to adoption,
one of several public private partnerships driven by the
Commission to promote solutions to major challenges.
We have adopted smart reforms to the successful E-Rate
program, helping schools and libraries, and working with this
committee, the FCC is also implementing the recently enacted
legislation, such as the Communications and Video Accessibility
Act, and the Local Community Radio Act.
The agency is working to harness the power of
communications to make our public safer. We granted waivers
authorizing more than 20 jurisdictions to begin development of
an interoperable public safety broadband network, and we
support bipartisan congressional efforts to fund such a
network. We are working with multiple stakeholders to advance
next generation 911, an issue that Ranking Member Eshoo and
Congressman Shimkus have championed, along with others on the
committee. And we accelerated the launch of PLAN, a reverse 911
alert system that allows local, State, and Federal authorities
to send targeted alerts to mobile devices during an emergency.
The FCC also provides value by protecting and empowering
consumers, as we have done with our bill shock, text alert
initiative, and our small business cyber planner, as well as
our enforcement activities.
The FCC provides value to our economy and the American
people in many ways. That is point one. Point two is that the
FCC is committed to smart, responsible government, and we have
taken significant steps to modernize our programs and ensure
that they are efficient and fiscally responsible, saving
billions of dollars.
Our work to modernize USF and Intercarrier Compensation
will not only spur broadband buildout, it also eliminates
billions of dollars in hidden subsidies on consumers' phone
bills. Our work to reform the Lifeline program is expected to
save up to $2 billion over the next 3 years, and includes an
elimination of link up. Even before the order was adopted, we
made changes that eliminated 270,000 duplicate subscriptions,
saving $33 million in 2011. We have reformed our Video Relay
Service Program, which provides vital communications for people
who are deaf or hard of hearing, saving about $250 million
without reducing availability of service.
In addition to our programmatic changes, we have also
reviewed the agency's rules and processes, asking tough
questions to make sure the agency is operating efficiently and
effectively. In connection with this review, we have already
eliminated more than 200 outdated rules and five unnecessary
data collections. We have identified two dozen more data
collections for elimination, including seven voted on at
yesterday's Commission meeting. We have significantly reduced
backlogs, including, for example, a 52 percent reduction in
satellite licensing applications, and increased the inclusion
of proposed rules in NPRMs from 38 percent to 86 percent. We
have made it a priority to move information and processes
online, for example, revising our rules to the filing of all
tariffs electronically, decreasing burdens on carriers and the
Commission. We estimate that internal reforms like consolidated
IT maintenance and new financial system have already saved the
agency $8 million. And we have been able to do everything I
have listed and more with the lowest number of full-time
employees in 10 years.
Harnessing 21st century communications technology to
deliver value to the American people, and doing so in a smart
and fiscally responsible way, that is the FCC's record the past
3 years and that is our plan for the year and years ahead as
reflected in our fiscal year 2013 requested budget.
Because we are funded by fees, the budget is deficit
neutral. Though of course, we are sensitive to those regulatory
fees. The budget reflects a 2 percent increase in spending. It
is flat on dollars adjusting for inflation. We plan to be flat
on the number of full-time employees. The budget includes a few
new initiatives, primarily technology investment designed to
save money, and public safety investments aimed at saving
lives. The budget includes proposals to reauthorize the
Commission's auction authority, which expires in September
2012, and to provide incentive auction authority, which I hope
Congress will grant, in a way that enables the FCC to maximize
the amount and benefit of recovered spectrum for our economy.
The budget lays out strategic goals for the FCC, such as
promoting innovation, investment, and America's global
competitiveness. This will keep the agency focused on policies
that will yield a substantial return on investment for our
economy and the American people.
I look forward to continuing to work with this committee.
We have incorporated many of your suggestions over the last 3
years. I look forward to continuing constructive engagement
with each of you.
[The prepared statement of Mr. Genachowski follows:]

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Mr. Walden. Chairman, thank you. I can't help myself. We
had been here until one o'clock in the morning negotiating some
of these things. Part of your testimony is so like 10:38 p.m.,
you know, others like--thank you for being here.
I want to ask you about the Universal Service Fund.
Obviously there is a lot of discussion about that and Jerry and
others have spent a lot of their life trying to help improve
this system, and I am sure you will hear more from them. But
the contribution factor at 17.9 percent this quarter projected
to stay above 17 percent so it is coming right off the phone
bill. When will the Commission take a hard look at
contributions reform?
Mr. Genachowski. We will be doing that in the near future.
Our strategy was to first tackle the spend in the programs, get
those under control, direct them to where they should be
directed. Having done that, the next step is to look at the
contribution base and get that in a healthy place. We thought
it made sense to sequence them, and the next step in sequence
is contributions.
Mr. Walden. So are you thinking 6 months, 3 months, next
week, a year?
Mr. Genachowski. I would say starting the process certainly
within the next 6 months.
Mr. Walden. OK. I noticed in the Commission's budget there
is a proposal for $1.1 million for eight new vehicles along
with equipment that can be used to detect sources of radio
interference. Can you explain to us how these eight vehicles
end up costing $1.1 million? I know that is pretty specific and
granular, but it does stand out.
Mr. Genachowski. These are vehicles that are used to detect
and prevent interference across the spectrum, so to speak, from
aviation interference to pirate radio. It does require
sophisticated equipment. They are also used in times of
disaster to help with early assessment and recovery efforts. We
certainly insisted that the professional staff at the agency
responsible for this keep those numbers as low as possible. In
many cases, they are replacing equipment that objectively
should have been replaced 10 years ago.
Mr. Walden. All right. We may follow up a little bit on
that.
The Commission's budget proposal is half a million dollars
for a study on the link between the identity of broadcast--a
broadcast station owner and that station's ``service, including
important content to all Americans.'' Do you know what is about
and what the link is? Is that to something regarding ongoing
media ownership?
Mr. Genachowski. There are several statutory provisions
that in order for us to implement we need data, and this is
agreed upon by everyone at the Commission. There is Section
257, which requires us to understand what is going on with
small businesses, there are the ownership provisions and there
are the EEO provisions. We are also under a directive from the
Third Circuit to improve our data in this area. As you know, we
are starting small with an initial essentially study of studies
so that we can make sure that what we do in this area, what we
need to do under the Communications Act is done as efficiently
as possible.
Mr. Walden. It just seems like $500,000 is a lot of money
for a study of studies.
Mr. Genachowski. No, well the study of studies will cost
much less than that, under 100,000. The 500,000 is a budget
amount for what would be the next step. I will tell you that
the prior studies of the sort have cost closer to a million
dollars, and in the spirit of fiscal responsibility, what we
have said to our team at the agency is we are just going to
have to figure out a way to do it for a lot less.
Mr. Walden. So this is a link between media ownership and
content, or what? What are you really looking at?
Mr. Genachowski. The media ownership provisions in the
statute are one area where the studies will help us exercise
our responsibilities. They are not the only area, small
businesses and EEO. So this will--it is part of what we need to
do to have the data that we need to be able to take whatever
steps are appropriate.
Mr. Walden. The Commission opened a docket to consider
reclassifying broadband as a Title II service, as you all know,
back in '09. That docket remains open today. How many employees
are currently working on that docket and why is it still open?
Mr. Genachowski. I am not aware that any employees are
working on the docket now.
Mr. Walden. Well, why not close it?
Mr. Genachowski. I am sorry?
Mr. Walden. Why not close it, then, if nobody is working on
it? It has been open since '09.
Mr. Genachowski. It is something that we will consider. It
is not--we have been focused on----
Mr. Walden. Well, you are here. We could consider it now,
you know.
Mr. Genachowski. It is something I will discuss with our
staff and colleagues.
Mr. Walden. All right. Finally on my questions, you note in
your written statement the Commission is allowed 20
jurisdictions to start deploying interoperable communications
in the 700 MHz public safety spectrum. My understanding is that
30 more applications are waiting in the wings, but that the
review process has stalled. If States are ready to go,
including--we have heard from Oklahoma--and already have the
funding to deploy their own networks at their own costs, why is
the Commission holding them back?
Mr. Genachowski. Well, I will say that assuming Congress in
the next--in the near term adopts the legislation before
including funding in the Public Safety Broadband Network, that
will make it very easy for us to complete this very quickly. We
have had a certain amount of humility and caution here because
we don't want to start things going that then will be different
from what Congress instructs us to do. So I think we are at a
point where I understand the frustration, and at some point we
have to go ahead and do the waivers, even if Congress doesn't
act. But I am hoping that Congress is on a path to make this
easy. Certainly if Congress does pass the legislation we will
move forward very, very quickly because it is very important.
Mr. Walden. All right, thank you. My time is expired. I
turn to the gentlelady from California.
Ms. Eshoo. Thank you, Mr. Chairman.
I think that you raised the point about the $85 million in
auction proceeds in your--I think you did in your opening
statement, but I would like Chairman Genachowski to elaborate
on how the FCC uses the 85 million.
Mr. Genachowski. Sure. In many different ways, you know.
Auction is a constant activity at the FCC, preparing for
auctions, licensing post auction, and we conduct many more
auctions than people realize, because many auctions are not
high profile auctions. We conducted----
Ms. Eshoo. How long do they usually take? What is the
average length of time for an auction?
Mr. Genachowski. Weeks would be the average, but the work
that goes into all the auctions and the work that comes in
implementing auctions is really very significant. The--we
receive as an agency internally requests each year to spend to
what would amount to more than the $85 million figure, because
we do think that there is more and more work we could do that
would generate a positive return on investment, but we work
within the $85 million cap and there are things that we say no
to because they hit the cap.
Ms. Eshoo. Under the 2013 budget request submitted to
Congress earlier this week, the agency requested $2.5 million
to consolidate agency data centers. It is not a huge amount of
money, but do you have an estimate on the agency's long-term
savings from the decision?
Mr. Genachowski. Yes, for the various data initiatives that
we have included, we have run ROI analyses for the data center
consolidation. Our analysis shows that we would save a little
over a million dollars a year, about $1.1 million a year once
it is completed. So it is a $2.5 million investment to save a
million a year on an ongoing basis, so it should pay for itself
in 2 years. We expect that to be complete in the next 12 to 18
months.
Similarly on the actual cloud updates, we expect that to
yield a savings of about almost $1.5 million a year, so again,
it pays for itself in the first year or two, and then on an
ongoing basis we expect it to save 1.4 over time.
And these are both the kinds of things that private
companies are doing and they know that they need to do to save
money.
Ms. Eshoo. Right. It is my understanding that there are
increasing bottlenecks in the FCC's laboratory in terms of
reviewing new advanced hand-held devices, like smartphones and
tablets that use LTE technology. What is the FCC doing to
expedite the device approval process, and does this require
additional engineering staff?
Mr. Genachowski. Well this is something that I am concerned
about, and your question is right on target. We have had an
unbelievable proliferation of devices in the last few years,
and each device has more antennas inside of it than it used to.
And so the work of--to certify devices has gotten a lot
greater, and that process is under pressure. We launched an
internal review of this a few months ago. This is handled out
of our Office of Engineering and Technology, and they are
working on recommendations on how we can meet this new world
where the volume of devices that have to be certified is going
way up.
Ms. Eshoo. Do you have any outstanding issues relative to
the IG that have not yet been fully implemented by the FCC?
Mr. Genachowski. Not that I am aware of. We take the role
of the IG very seriously. He has independence and a track
record of savings prosecutions over the last few years has been
very significant.
Ms. Eshoo. Thank you. I will yield back.
Mr. Walden. Gentlelady yields back her time. Chairman
recognizes the vice chairman of the subcommittee, Mr. Terry.
Mr. Terry. Thank you, Mr. Walden.
I want to thank you again for coming to Nebraska and coming
to a couple of our great cities like Liberty and Diller, towns
of what, 50 people or something like that, and 290, so it was a
great event and hopefully everyone learned a little bit.
Speaking of high cost fund, though, as Greg mentioned--
asked a question about the contribution side and the bill that
Rick Boucher and I did paired the two, and on the contribution
side there was always a thought that you needed legislative
support for that area. Do you feel that you need legislative
support to be able to change or adopt different ways to bring
new revenue in, or not new revenue, but make everyone that does
primarily voice pay into the Universal Service Fund as it was
intended? Do you need us?
Mr. Genachowski. I am not sure yet. Our general counsel's
office has looked at this. This will be something that we look
at in the proceeding. Certainly we come to you and ask for help
if we need it, and we will work together to make sure that we
understand the authority that is there.
Mr. Terry. All right. Well, I appreciate the work that has
been done so far, but keep us up to date.
The second part is on the other part as I mentioned in my
opening statement of Link Up and Lifeline. You mentioned that
Link Up is going to be phased out. I would like you to comment
further on that, time, are you just going to merge the two into
Lifeline? And then how do we control the exploding costs in
Lifeline, specifically, is there a plan set out and--well, go
ahead and answer that.
Mr. Genachowski. So we took this reform very seriously, and
we reviewed all aspects of the program. We eliminated Link Up
completely. It wasn't eliminated over here and put in over
there because we thought that the mechanism of providing, I
believe it was a $30 bounty for every Lifeline customer that
was signed up, created incentives for waste, fraud, and abuse,
and as the market changes it simply couldn't be justified. And
there were some people who came to us and said why don't you
just reduce the amount? We looked at it and said we can't
justify that part of the program at all and we eliminated it,
and I think--as a sign of our seriousness. With respect to the
rest of the program, we tackled in a systematic way the
problems that we saw. There were problems with duplicates,
people receiving Lifeline support twice when they shouldn't. We
have taken steps on that, including moving toward a database
that will make it much, much easier for States and companies to
enforce or to prevent duplicates. We tackled--we identified and
tackled other unscrupulous practices.
It is an important program. We have a history in this
country of making sure that the lowest income among us have
access to basic communication services, so we wanted to make
sure that the program is on a strong foundation, and we were
highly motivated to make sure that anything in the program we
couldn't defend, we got rid of.
Mr. Terry. I appreciate that.
You mentioned 2 billion over 3 years. I want you to get
into that a little more granular. Where is that 2 billion
coming from?
Mr. Genachowski. It is the status quo increases that we
inherited if we had done nothing. We are on a curve. I think
both Chairman Walden and you mentioned it. That curve was going
up at a rate that was very hard to defend. Now in a bad
economy, it is not surprising that this particular program goes
up because low income people are eligible for it. In a bad
economy there are more people who qualify, so it is not
surprising that this program would go up in bad times, and it
should go down in good times. Also, communications services are
becoming more essential. But it was going up too fast and our
goal was to remove from the, you know, the up all of the
wasteful, inefficient, unjustified spending. And so what we
believe we did is turn this line into this line, and over the
next 2 or 3 years, that is a $2 billion difference in the
program.
Mr. Terry. My next question will take more than 25 seconds
to answer, so I will just submit it in writing.
Mr. Genachowski. Thank you, and thank you for inviting me
to Nebraska. That trip was very valuable and informed in a
positive way our reform only the things that you liked. The
other things we got from other States.
Mr. Walden. Wow, and you said that under oath, right?
The Chair now recognizes the gentleman from California, Mr.
Waxman.
Mr. Waxman. Thank you, Mr. Chairman.
Since the 20 years that Congress last reauthorized the FCC,
this subcommittee has held oversight hearings to look at your
budget and to also review how the agency is functioning. I want
to say that by all accounts, the FCC under your leadership is
well-managed and it operates in a transparent and open manner.
Since you became chairman, the agency has reformed the way
dockets are managed. The number of notices in proposed
rulemaking that contain the full text of rules has increased
from 38 percent to 85 percent. The amount of time between a
vote on a Commission decision and the release of the full text
of the decision has decreased from 14 calendar days to 3
calendar days, with a majority of actions released in 1
calendar day. The ex parte rules underwent significant reform.
The FCC has closed 999 dormant dockets, which represents
approximately 1/3 of the agency's open proceedings, while
reducing the number of pending broadcast applications by 30
percent and the number of pending satellite applications by 89
percent. In addition, the FCC has removed or streamlined
unnecessary requirements. One hundred and ninety obsolete
regulations have been removed since November 2011, and the
Commission is working to eliminate unnecessary data collections
and exempting small businesses from certain reporting
requirements.
The FCC has also made great efforts under your leadership
to work on a bipartisan basis. Ninety-five percent of agency
actions over the past 2 years have been bipartisan. And
finally, staff morale has improved so much that the FCC was
named the most improved Federal agency. This was accomplished
despite a flat budget and flat staffing levels.
On the issues, FCC has been greatly ambitious. The
Commission has tackled difficult topics from universal service
and intercarrier compensation reform, open Internet
protections, and numerous measures to promote broadband
deployment. These efforts require a tremendous amount of time
and dedication from the FCC staff, as well as agency resources.
Based on my experiences over the past few years working closely
with the agency, I am convinced that the FCC employs a
disproportionate number of the most talented, experienced, and
dedicated public servants in government.
Now while you deserve a great deal of credit for all these
accomplishments, I am confident that these accomplishments
would not happen unless you realize you have to come before
this subcommittee and answer our questions. But I do want to
pay tribute to the work that you have been doing.
Since this is an opportunity to ask you a question and the
hearing is on the FCC's budget, you are going to be overseeing
one of the most innovative and complex spectrum auctions ever.
I want to know from you what sense of expertise is going to be
required to administer this process, and could you provide us
with a sense of what skills the Commission's staff requires to
do the work that they do overseeing the communications
marketplace? You have talented people with a great deal of
expertise. You have got to be able to pay them adequately, give
them a sense of job satisfaction, and as we look at the budget
for the FCC, we have to recognize your needs. So if you could
give us some sense of this?
Mr. Genachowski. Well first of all, thank you for those
very generous comments, and I particularly appreciate the
comments about the staff. It is a great staff. They work very
hard every day to deliver value to the American public. And as
you know, in addition to honoring the staff, the career staff
that was there, we focused on bringing in new people
representing the full range of skills that the agency needs.
And so lawyers obviously, but not just lawyers. We need very
strong economists. We need very strong engineers. We need very
strong business analysts. We need to understand the landscape
in a very sophisticated way. I do spend a lot of my time on
talent. I think we have recruited terrific people to the
agency. It has to be an ongoing job, and you are right that
implementing the auctions will require the very best of the
agency, and may well require us to add to our expert resources
to make sure that we get it right.
Mr. Waxman. Well, I think the FCC is government at its
best, and I commend you and your staff for doing the excellent
work that you have been doing. That is why we are going to give
you more work to do.
Mr. Genachowski. Thank you.
Mr. Waxman. Thank you very much, Mr. Chairman.
Mr. Walden. Thank the gentleman.
The Chair recognizes the gentlelady from Tennessee, Ms.
Blackburn.
Mrs. Blackburn. Thank you, Mr. Chairman.
Chairman Genachowski, as we are talking about budget and I
was getting ready for the hearing, I saw some data from the IRS
that suggests that there is a growing trend with regard to FCC
employees failing to pay their Federal taxes. Were you aware of
this?
Mr. Genachowski. No.
Mrs. Blackburn. You were not, OK. Well it seems that with
the majority of your employees making over $125,000 a year, and
with there being a growing percentage of them not paying their
taxes, I would think that since the President has as one of his
goals for people to pay their fair share that we would
appreciate if this is an issue that could be addressed. I would
like to have your commitment and maybe something in writing
that you are going to address this and that we are going to get
in behind it and get it cleaned up.
Mr. Genachowski. I haven't heard that. We will certainly
look into it.
Mrs. Blackburn. And will you respond back to me on that?
Mr. Genachowski. Yes.
Mrs. Blackburn. Thank you. I appreciate that.
Looking at regulations that we have got out there, did--
have you paid attention to the Canadian radio and TV service,
and they have just gone through a process where they are
eliminating and streamlining 60 percent of their rules. And I
think that that is certainly something that--it caught my eye.
I hope it is catching the eye of you and your employees. Now,
you are going to ask for 140 new employees, is that correct?
Mr. Genachowski. That is not correct. I would be happy to
explain.
Mrs. Blackburn. OK, what is the number of new employees
that you are requesting?
Mr. Genachowski. The number of employees that we expect to
have next year based on the appropriations we are requesting is
flat to this year. There is a higher number that appears that
is essentially a ceiling for flexibility, but our
appropriations are targeted and in fact, the budget says that
we are planning on being flat for the next year.
Mrs. Blackburn. OK, so you have got the flexibility in case
you need to add people?
Mr. Genachowski. In the circumstances where that could
theoretically arise, because it doesn't change our
appropriations. If, for example, we determine that we could
save money by in sourcing contractors--we have reduced
contractors by about 50 percent over the last year, so
conceivably we might say we might save money if we took
contractors, made them FTEs, so under our budget we could do
that because----
Mrs. Blackburn. OK, well let me ask you this. In your
budget, you had stated a top priority was to, and I am quoting,
``conduct a review of rules and regulations within each FCC
bureau and office with the goal of eliminating or revising
requirements that are outdated.'' With what the Canadian radio
and television agency has done, I hope that that is going to be
a top priority.
My question and my curiosity was if you were going to bring
in people to make that stated objective a deliverable and an
outcome that a year from now, we can say the FCC has indeed
done this? So my question is what is the degree of priority
that you are going to--budgets are about priorities, and we
would like to see removing outdated rules and regulations a
priority.
Mr. Genachowski. So if I may, this has been a priority from
day 1. One of the first hires that I made was a special counsel
for government reform and she was tasked with exactly this. We
have someone again who is in that role now who is accountable
for ongoing review, ongoing elimination of rules. I would be
happy to look at the Canada situation. I know that other
agencies around the world have looked at our reforms. But I
agree with you that one, it is a priority, and two, that if--
that one has to organize for it and set goals in order to
achieve them.
Mrs. Blackburn. Well, and there is a lot of outdated things
we would like to get off the books.
One more question. I understand that Section 9 of the
Communications Act requires regulatory fees to be apportioned
among industries based on full-time equivalent employees. Here
is what I don't understand. Your budget proposal suggests that
the wireless bureau and the media bureau each have more
employees than the wire line bureau, and wire line providers
pay more in regulatory fees than their competitors, so how do
you reconcile this with the Act?
Mr. Genachowski. I would like to get back to you on the
specifics. In general, I do think it is possible that a--I
don't know if rebalancing is the right word, but looking at the
way we do the fees to make sure that they are fair as the
markets change is an appropriate goal and that is something
that we are looking at.
Mrs. Blackburn. OK. I think that, as you know, one of the
things we would love to see is for the reach and the scope to
come down, your costs to come down, see you go through the type
of reduction we have done in Congress. We have cut our budget
11 percent. We would like for you to do the same.
I yield back.
Mr. Walden. Chair recognizes the gentleman from Michigan,
Mr. Dingell.
Mr. Dingell. Mr. Chairman, I thank you.
I have some questions, Mr. Chairman Genachowski. I ask that
the questions be responded to by yes or no.
I note your fiscal year 2013 budget requests cuts in the
wire line bureau's funding by 9 percent, while increasing the
budget of your office and that of the other commissioners. Now
am I correct in assuming that the wire line bureau is heavily
involved in the implementation of the Universal Service and
Intercarrier Compensation Order? Yes or no?
Mr. Genachowski. Yes.
Mr. Dingell. Mr. Chairman, does the 9 percent increase in
the wire line budget mean that the Commission will complete by
the end of this fiscal year all work associated with the USF
and ICC Order, as well as the necessary follow on reforms of
the USF contribution system? Yes or no?
Mr. Genachowski. Yes, that is our goal, I believe.
Mr. Dingell. I am sorry?
Mr. Genachowski. I believe that is our goal. We have a time
table for the implementation.
Mr. Dingell. So it is a yes, or hopefully yes?
Mr. Genachowski. Hopefully yes.
Mr. Dingell. Hopefully. Is that--is the cut that you are
making in the budget there going to expedite or retard the
completion of that responsibility?
Mr. Genachowski. We sought to--neither. We sought to make
sure that we have the resources we need to move efficiently.
Mr. Dingell. Now, Mr. Chairman, I would like to discuss
Executive Order 13589 issued by President Obama November 15,
2011. The order seeks to promote fiscal responsibility amongst
the sundry executive agencies. Now this strikes me as
imminently sensible; however, Section 8(c) of the order
requests independent agencies to adhere to it. Does the
Commission intend to adhere to Executive Order 13589? Yes or
no?
Mr. Genachowski. Yes, and we have announced that
previously.
Mr. Dingell. Now, Mr. Chairman, Section 2 of the order
instructs agencies to reduce their travel, technology printing,
and certain other costs by 20 percent, compared to 2010, 11. I
commend you for reducing yours and the other Commissioners
travel budget by 10.6 percent. Will similar cuts agency-wise
help achieve the order's 20 percent reduction goal? Yes or no?
Mr. Genachowski. I am not sure I completely understand the
question, but we are focused on operating efficiently, meeting
our obligations with respect to international treaties like the
WARC, but reducing travel budget is something that we are
certainly looking at.
Mr. Dingell. I will ask, Mr. Chairman, that you provide
documentation for the record to confirm this. You will have a
chance to look at it and give it perhaps to your purposes a
more satisfactory response.
Mr. Genachowski. Thank you.
Mr. Dingell. Now, Mr. Chairman, Section 3 of the order
encourages agencies to devise strategic alternatives to
government travel, including local technological alternatives
such as teleconferencing and video conferencing. Has the
Commission begun any analysis on this particular matter and
compliance here?
Mr. Genachowski. Yes, we have begun to implement that and
we would like to implement--we would like to take advantage of
it more. It will require resources to be able to conduct
effective teleconferences.
Mr. Dingell. Thank you, Mr. Chairman. Would you please
provide a copy of the preliminary results for the record?
Mr. Chairman, I note Section 3 of the order directs
agencies to designate a senior level official to be responsible
for the development and implementing policies and controls
related to travel costs. Has the Commission complied with that
mandate?
Mr. Genachowski. I believe we have.
Mr. Dingell. Would you tell us the name of the senior level
official, if you could insert that for the record who will have
that responsibility?
Mr. Chairman, if so, which official has been--well, I have
asked that question already. Now on a different topic, Mr.
Chairman, are you familiar with the voluntary incentive auction
legislation this committee approved last year? And I assume you
are, are you not?
Mr. Genachowski. Yes.
Mr. Dingell. Mr. Chairman, do you recognize the strong
possibility of interference in border areas of this country
with Canadian and Mexican television stations which might be
associated with repacking the markets along border areas? Yes
or no?
Mr. Genachowski. We recognize that that is an issue.
Mr. Dingell. Now, Mr. Secretary, this is a matter of very
special concern to me and a number of other members from border
States. Can you assure me that as a result of the repacking
process, none of my constituents in Michigan will lose access
to over the air television signals? Yes or no?
Mr. Genachowski. That is the goal and of course, we will
faithfully implement the provisions of the law that is adopted.
Mr. Dingell. Now, Mr. Secretary, can you give me and my
colleagues on this committee the same insurance--assurances,
namely that none of their constituents will lose access to an
over the air television signal? Yes or no?
Mr. Genachowski. Again, that is the goal and we will be
guided by the act that is adopted.
Mr. Dingell. Now, Mr. Chairman, you understand that there
are two problems that plague us all. One here is that we will
have loss of access to over the air television signals, but the
other is that there will be the creation of significant
interference, which will cause trouble to all manner of
services if that is not addressed. Are we going to have the
service continuing but somewhat defaced by interference? Yes or
no?
Mr. Genachowski. I think yes. I didn't hear the last part
of the question, but I----
Mr. Dingell. Well, let us find what that yes means. The yes
means that we are going to have the service, but we are also
going to have interference. Is that right?
Mr. Genachowski. Well, the yes means that we are aware of
these concerns and an important part of our work will be to
address them consistent with the provisions in the statute.
Mr. Walden. And Mr. Chairman----
Mr. Dingell. I have used more time than I am entitled to.
For your courtesy, Mr. Chairman, I thank you.
Mr. Walden. Thank you. And we are going to go now to Mr.
Scalise. You are up next.
Mr. Scalise. Thank you, Mr. Chairman, and thank you,
Chairman Genachowski for coming before us to talk about your
budget.
I want to follow up on some questions Mr. Terry was asking
on the free cell phone program, as I know a lot of my
constituents refer to it. What is the actual amount of the tax
that people pay to provide that service?
Mr. Genachowski. Well as the Chairman mentioned, there is
an overall contribution rate that funds several things, high
cost fund for rural areas, schools, libraries----
Mr. Scalise. Right. Do you have any kind of a breakdown,
though? Is it just as it relates to the free cell phone
program, because that--we have seen a mushrooming, a 1,000
percent increase in that program over the last 15 years, and it
just seems like that specific program has been rife with waste,
fraud, and abuse. I know you said you are looking into it and
hope to achieve $2 billion in savings. I mean, the fact that
over a 3-year period you feel you can get 2 billion in savings
says there is tremendous waste, fraud, and abuse, and you know,
especially in tough economic times you have got people that are
struggling, they are maybe working two jobs, and they are
struggling to pay their cell phone bill, and yet they are
paying an increased tax to provide somebody else with a free
cell phone. In some cases, you might have a family with four or
five free cell phones in the household that they are paying
for. A lot of people find that real offensive, and it just
seems like can we quantify how much in taxes are people paying
for that particular program that has mushroomed over the last
15 years.
Mr. Genachowski. So a couple of points. I completely agree
with your point that in looking at these programs, we both have
to look at the recipients and the consumers who are paying into
it. And that has been a core part of our work and it is why we
have been so serious about removing any waste or inefficiencies
from the program.
Mr. Scalise. Can you get me or the full committee the
actual costs to consumers, how much people are paying for
that----
Mr. Genachowski. Yes.
Mr. Scalise (continuing). That component, and you know, of
course we can see if we can break it down for how much an
individual would pay, but definitely the broad costs or what
the total cost of the program is. And then if you were to
achieve that $2 billion in savings by rooting out the waste,
fraud, and abuse, which unfortunately should have been done
years ago, but if it is done tomorrow or over the next 3 years,
would your Commission actually reduce the amount of taxes
people are paying under that program to accommodate for the $2
billion in savings?
Mr. Genachowski. Yes, we don't--the contribution rate is
set by the payouts, and so these savings will translate into
lower contributions that otherwise we would have----
Mr. Scalise. Is that automatic, because it seems like an
open-ended entitlement as the program has mushroomed by 1,000
percent increase, basically just forces an increased tax on
what folks were paying.
Mr. Genachowski. The savings are--and the reflection of
contribution rate are automatic. We can't control things----
Mr. Scalise. So it is not at the discretion of the
Commission? If the usage goes down by $2 billion, the tax will
go down by 2 billion, or does your Commission have to actually
do something to lower it?
Mr. Genachowski. My understanding is that the answer is
yes. Whether or not technically the Commission has to do
something, I don't know, but there is a direct----
Mr. Scalise. And we will take a look, because clearly if it
is not automatic, I surely would like to see us bring
legislation forward that would ensure that the taxpayers would
get that 2 billion in savings, it wouldn't just be spent in
other places.
Looking at your budget, you have 12 full-time employees
requested in the wire line bureau under the goal to maximize
the benefits of spectrum. That seems like a duplication of--
between wire line and wireless. Is there any reason why that
request is there to do something that looks like it is
duplicated somewhere else?
Mr. Genachowski. I would like to get back to you on that.
In general, we see more and more overlap between what happens,
for example, for a healthy and successful wireless
infrastructure. The wire line back haul is very important,
because of course the signals go into a tower and then they go
into the wires. So that could explain what you are pointing to,
but we will get you a specific explanation.
Mr. Scalise. I appreciate that.
Switching gears, I want to talk a little bit about video
regulation. I would just like to get your take on the
marketplace when you have got MVPDs negotiating between
broadcasters. Would you consider the current relationship a
true free market, or is there some government intervention
there?
Mr. Genachowski. Well as you know, we have exercised
humility, regulatory humility in the area of retransmission
consent negotiations. Certainly some have argued that there
isn't a true free market there, that there are advantages that
one side has over the other. We have opened a proceeding to
monitor it. We haven't yet seen a strong enough case for
government intervention.
Mr. Scalise. But there is--I mean, there are rules right
now for channel placement, basic to your must carry. Those are
government mandates that interfere with a pure free market. I
don't know if you would agree with that or not.
Mr. Genachowski. I think there is certainly the argument is
that provisions like that distort the market when it comes to
retransmission consent negotiations. That is the subject of an
open proceeding that we have right now.
Mr. Scalise. And a final question. I know this is something
that Congress would have to decide, but if Congress were to
repeal compulsory copyright license and retransmission and go
to kind of a broader free market, in that relationship
between--with the satellite and the cable carriers and the
broadcasters, wouldn't there still need to be a negotiation
over a copyright license? If we were to repeal those laws,
would the carriers just be able to get it for free or would
they have to have still some negotiated agreement to carry that
signal from a broadcaster?
Mr. Genachowski. I presume there would have to be an arm's
length negotiation in any situation.
Mr. Scalise. Yes, because there would still be traditional
copyright laws that would be in effect, wouldn't that be the
case?
All right, I appreciate it. I yield back the balance of my
time.
Mr. Walden. The gentleman yields back, and I am sure he
doesn't know anybody that has a bill that would do any of those
things, but we----
Mr. Scalise. We could sure get one out there and have a
hearing on it, if you would be so gracious, Mr. Chairman.
Mr. Walden. We now go to the gentleman from Illinois, Mr.
Shimkus, for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman. Thank you, Chairman,
for coming here. I was talking to some colleagues before I was
moseying over, and I just told them, you know, you were going
to be appearing before us. I said a lot can be learned about
friendliness, returning phone calls, gracious smile. I mean,
even though I am public policy, there is always fights. You
handle yourself with great decorum, and I just--I appreciate
that and I think that helps us in the bipartisan nature in
trying to deal with some of this stuff, so----
Mr. Genachowski. Thank you.
Mr. Shimkus. This is--Congresswoman Blackburn and actually
Congressman Scalise kind of hit on this, and you answered a
little bit about the employees in the landline, as I would use
the vocabulary, and how, you know, everything is moving to
cellular technology. And of course, you know, my interest in
broadband applications to rural America. You did mention how
there is a backbone so there is still a need, but is there--I
guess in looking through the budget, seeing the number of full-
time employees that are dealing in the wire line, is there a
plan to be able to shift full-time equivalent positions while
keeping what you need for the backbone, but also there is still
more of an explosion in the area of broadband and wireless
technology.
So I guess that is the question is how many--not exactly,
but this shifting of that, is that a possibility in what you
have got planned?
Mr. Genachowski. Well these are exactly the kinds of issues
we talk about in the budgeting process, and we run it as a
company would run it, and different bureaus make their case for
what they need, and we regard our job as doing capital
allocation as against overall targets. So it is--I would say
that, you know, no one--none of our specific areas are
completely satisfied with their budget, but we also think at
the end of the day they have what they need to get their work
done.
Mr. Shimkus. And again, obviously the turf fights that are
involved in government and also in private sector, trying to--
we would hope to see that move and that a new technology area
maintaining enough to maintain, like we talked about, they need
a backbone, but we want to make sure that we have the people on
the ground. And of course, we are not in a growing government
mode, as everyone agrees, so that--the shifting would be a
better aspect of being able to do that.
Following up on last July, the Commission promised to open
a further rulemaking on rebalancing the regulatory fees before
the end of 2011. Can you give us a status report on where that
is at?
Mr. Genachowski. I asked about this, and the status report
that I got is it is being actively worked on. We recognize that
it is something that we should move forward on, and I have
asked the team to accelerate that.
Mr. Shimkus. And the final question I have is really the
fees used to manage the spectrum auctions. Obviously based upon
what may happen pretty soon, that is going to be really
important. We have seen some years where there is a big need,
and some years may not be as big. But you can correct me if I
am wrong, but there seems to be a consistent $85 million per
year every year. And the concern is, is that really an
evaluation of the costs needed to do the spectrum auction,
ramping up or ramping down, some years that may not be enough.
We may be coming to one. Some years it may be way too much, so
can you give me some analysis on that pot of money and the
whole spectrum debate?
Mr. Genachowski. Yes, of course, a few thoughts. One is the
auction work is very active all the time, even when it is not
in the newspapers. For example, we held several auctions last
year. They were not super high value auctions, but they require
the machinery, they require the expertise, and they require
them to be professionally handled. And then the auction teams
are always getting ready for the next auction and licensing and
implementing the last auction.
We do find that almost every year the requests from the
auction team for funding are higher than the $85 million cap,
and I have mixed feelings about it because on one hand,
auctions have proven to be such a high return on investment for
the country. If we could put more resources into it, could we
move faster on auctioning spectrum? Possible, although given
fiscal constraints, we are working within the cap that is
there, and yes, we will have a challenge next year assuming
incentive auction legislation passes to do what we need to do,
but we will burn all the candles, the midnight oil, whatever it
is that one has to burn to get it done.
Mr. Shimkus. So you are basically saying the 85 is really a
ceiling that really is accounted for every year, regardless of
what the perception maybe is the real value of an auction? You
are saying that that is a pretty good baseline for what you
need every year?
Mr. Genachowski. Yes, and we have internal processes to
make sure that it is appropriate, yes. And we didn't go back
and look at what the value would be if we increased that by 10
or 20, you know, in this fiscal climate we think our obligation
is to work with what we have to be efficient everywhere.
Because we are working through assuming the legislation is
passed. We are working through it. If issues come up, you can
be sure I will be back and we will work on it together.
Mr. Shimkus. Thank you. Thank you, Mr. Chairman.
Mr. Walden. I now recognize the gentleman from Ohio, Mr.
Latta.
Mr. Latta. Well thank you, Mr. Chairman, and thank you, Mr.
Chairman, for being with us today. I appreciate it, and also to
hear your testimony.
There has been a lot of discussion, first, with the USF and
I might change gears just a little bit here and might get back
to it, but I find in your testimony it is kind of interesting.
You were talking about the small business cyber planner, and to
ward off cyber tax. I served on the Republican Cyber Security
Task Force not too long ago. It is an ongoing problem.
I guess a couple of the questions are how are you getting
that information out to businesses, that they know they should
be contacting, who they can contact? Who--is it someone
specifically at the Commission that is in charge of it? Are you
working with other departments and agencies so you are not--
once again, like sometimes we do in government, reinvent the
wheel each time someone touches it, then somebody else does it,
instead of having it all put together?
Mr. Genachowski. It is a great point, and I feel very
strongly about this. In the cyber planner, we did that together
with the Small Business Administration, the Chamber of
Commerce, the National Urban League, some other companies. We
wanted to start with a base of people who said listen, here is
one piece of paper. You don't have to look at a lot of
different pieces of paper. Since then, we have been working to
extend the distribution. We just met 2 days ago and I asked my
team for a game plan to take distribution to the next level.
What agencies, can we work with members of Congress and ask you
to distribute it in your communities? What else can we do? We
did something similar with FEMA and emergency communication
tips, where I approached Craig Fugate at FEMA and said let us
work on this together. We put out a joint tip sheet to help
consumers prepare for disasters, and we are now putting in a
place--a plan in place to get other agencies, Federal, State,
and local to look at those, work on having a common set of
advice for consumers, and then use all our collective
distribution capacities to get it out. And I very much enjoy
working with you on this.
Mr. Latta. Well, that is important, because I know the more
that I have talked with a lot of my constituents there is just
little--you know, they are not really aware of it. They--it
happens to somebody else, it never happens to me, or they don't
even know it happened to them, you know. They are hit by
someone from another country and we just had hearings in this
committee last week, a week ago Wednesday it was, and how fast
these cyber attacks occur. I think it is really important that
we make sure that these small businesses--but also I think that
we always talk in some cases about the small businesses. I
think some of the larger businesses out there don't realize
what risk they are at. So I think it is incumbent on us also to
make sure we get that information out to everybody out there to
make sure they understand that there is a real problem.
But I am sorry, did you say that you do have somebody at
the Commission that is designated as the point person so you
will be all coordinating and working together like with
Homeland Security or whoever else?
Mr. Genachowski. Yes----
Mr. Latta. OK, thank you.
And going back to the gentlelady from Tennessee and her
line of questions and talking to you had mentioned your
testimony about that you eliminated more than 200 outdated
rules and five unnecessary data collection. Now this is going
in the reverse way whatever we were just talking about.
We hear from a lot of different businesses, and again,
small and large, that there is a lot--one of the things that
really costs them a lot of money and a lot of time is they have
six agencies or departments that they have got to comply with.
Is that something that you all are looking at within the
Commission to make sure all of a sudden that, you know, there
are other agencies and departments out there that are trying to
do the exact same thing that are incurring more costs on these
individuals out there, small businesses, to prevent them from
going out and making a profit?
Mr. Genachowski. Yes, I will give you a bit of what we did
yesterday. We found that--yesterday--the way that the landscape
works--different circles. So in doing now what was yesterday--
essentially the same over what they did----
Mr. Latta. Mr. chairman, I see my time is expired, and I
yield back.
Mr. Walden. Gentleman yields back his time.
Mr. Chairman, thank you for being here today. We look
forward to continuing our good work together, and if all comes
to fruition on the spectrum bill as part of the overall
agreement. I have no reason to doubt it won't. We will be
spending a lot of time, because I don't think anybody has ever
done an incentive auction before and we want to make sure we
are in partnership with you to get it right, so thank you very
much.
Mr. Genachowski. Thank you.
Mr. Walden. We will call up our second and final panel of
witnesses, the Inspector General for the Federal Communications
Commission, Mr. David L. Hunt, and the Chief Executive Officer
of the Universal Service Administrative Company, Scott Barash.
I will just give you the microphone guidance here. The
closer you can get to them, the better they work, and the light
needs to be on, so then we will be able to hear you. You really
have to get close to these microphones.
Mr. Hunt, thank you for being--well, thank you both for
being here. Mr. Hunt, thank you and we will start with your
testimony today, sir. I am not sure that microphone is on. Push
the button there. No.
Mr. Hunt. Is that OK?
Mr. Walden. That is much better, thank you.
Mr. Hunt. Oh, the light was on before.

STATEMENTS OF DAVID L. HUNT, INSPECTOR GENERAL, FEDERAL
COMMUNICATIONS COMMISSION; AND D. SCOTT BARASH, ACTING CHIEF
EXECUTIVE OFFICER, UNIVERSAL SERVICE ADMINISTRATIVE COMPANY

STATEMENT OF DAVID L. HUNT

Mr. Hunt. Mr. Chairman and members of the subcommittee, I
appreciate the opportunity to come before you today to discuss
the activities and budget of the Office of Inspector General
for the Federal Communications Commission. I have been the
Inspector General at the FCC since June of 2009, first in an
acting capacity and then a permanent role since January 2011.
Somebody mentioned to me when I first walked in, I
understand you are a veteran of these and I am not. This is my
first time at a hearing, and I really appreciate the
opportunity. I have a very well-written speech by my staff, but
as a former trial attorney I am better just going off my notes
and that is what I am going to do. The silent groan you hear
behind me is my staff who wrote my speech.
What I would like to talk about primarily because I think I
may have given you more information than you may have wanted in
my written statement, just about my staff and their dedication.
It ties to the fact that we have a very small staff looking
over a very large amount of money. In the past 2 years alone, I
have had an auditor who--we had a filing that was due at
midnight, a mandatory filing. She had suddenly gotten sick, was
sent to the hospital. She, on her own accord, ripped the IVs
out of her arm and came back to work to make sure everything
was filed on time. I have an auditor who has worked on E-Rate
for over a decade. He has spent, on average, 6 to 9 months of
his life on the road, tracking down fraud, waste, and abuse in
schools and libraries. I have an attorney who dictated an
affidavit from a hospital bed with the nurse taking notes,
running faxes to and from a judge in Texas, because he required
the affidavit before he made a filing on a motion in court. I
had sent half of my staff to Texas to support the Department of
Justice in another USF investigation because of the number of
staff that we had left, I had to send interns with them. These
attorneys and auditors, including just regular staff people,
had to crawl under wireless equipment, had to crawl under
buildings, had to pull wires and just check everything. You
would be surprised how many times you go to a school and see
all the lights on, and you go behind it and there's nothing
plugged in except a--somebody wrote a program to make the
lights go on and off. I have had an attorney who had to do a
conference call, and had to do the conference call in the
emergency room while the nurse was placing nitroglycerin under
his tongue. Our staff works very, very hard with what assets we
have.
You are asking for actually very few people to oversee
billions and billions of dollars. Any other IG office out there
would have several people, if not dozens of people, working on
the stuff that we rely on one or two people to do.
Anyway, I just want you to know that we really appreciate
the chance to come here. We work very closely with the
Department of Justice, the Department of Education, Department
of Interior. We are trying to save money all the time. We are
trying to run as efficiently as humanly possible. Financially-
wise we can't do anything less, because like I said, we are
operating on such a tight budget. But I want to let you know
that the staff you have at the FCC Office of Inspector General
are as dedicated a staff as you will ever see in the Federal
Government, and we appreciate this chance to talk. I look
forward to coming back and talking again, if I have the
opportunity.
Thank you very much.
[The prepared statement of Mr. Hunt follows:]

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Mr. Walden. Thank you, Mr. Hunt. That is very moving
testimony. We appreciate and applaud the work that you and your
people do at the agency.
Mr. Hunt. Thank you.
Mr. Walden. We might want to have some guidance here about
pulling out IVs and things, but----
Mr. Hunt. It wasn't easy, apparently. One of our staff
drove her to the hospital, Mr. Chairman, and just waited there
with her. In fact, the hospital had called wondering where she
was. She was back in her office. But thank you very much.
Mr. Walden. Thank you, Mr. Hunt.
Sir, is it Barash or Barash.
Mr. Barash. Barash.
Mr. Walden. Barash, I am sorry. Mr. Barash, thank you for
being here. We look forward to learning more about USAC and we
appreciate your testimony.

STATEMENT OF D. SCOTT BARASH

Mr. Barash. Good morning, Mr. Chairman, and good morning,
Ranking Member Eshoo. My name is Scott Barash and I am the
acting Chief Executive Officer of the Universal Service
Administrative Company, or USAC. USAC is the independent, not-
for-profit corporation created in 1997 to administer the
universal service support mechanisms. USAC is governed by a
Board of Directors selected by the Chairman of the FCC from
nominations by universal service stakeholder groups. USAC's
mission is to collect FCC-mandated contributions from
telecommunications carriers and distribute these funds to
beneficiaries in the four universal service support programs--
High Cost, Low Income, Rural Health Care, and Schools and
Libraries--in accordance with FCC rules, orders, and
directives. As a neutral administrator, USAC does not establish
policy and may not advocate for policy positions. In order to
accomplish our mission, we work very closely with the FCC,
which oversees our operations.
In 2011, USAC collected $8.4 billion in contributions from
telecommunications carriers and disbursed approximately $8.1
billion to beneficiaries. USAC spent $106.9 million to collect
and distribute these funds, generating an administrative
expense rate of 1.34 percent. In other words, 98.66 percent of
contributions from telecommunications carriers went to
universal service program beneficiaries. This percentage
compares favorably to the rate at which other Federal
assistance programs and non-profit organizations deliver funds
to their beneficiaries.
I will now briefly describe the four universal service
programs, what USAC does to administer those programs, and how
much we spent in 2011 to do so.
The High Cost Program provides support to ensure that
telecommunications rates and services available to customers
who live in rural or hard-to-serve areas are reasonably
comparable to rates and services available in urban areas. In
calendar year 2011, the High Cost Program disbursed $4 billion
to 1,903 companies in support of 110 million lines. To provide
program support, every month USAC gathers data from companies,
performs extensive calculations to derive the support they are
eligible for, and makes disbursements to them. To administer
the High Cost Program in 2011, USAC spent $16.9 million.
The Low Income Program provides support to make voice
telephony affordable to eligible low-income consumers. USAC's
role is to disburse to telecommunications carriers a defined
dollar amount each month for each eligible consumer to whom
they provide discounted service. Administering the Low Income
Program is similar to the High Cost Program: we gather data
from companies every month, performs calculations on that data,
and then makes monthly disbursements. In 2011, the Low Income
Program disbursed $1.7 billion to 2,025 companies. To
administer the Low Income Program in 2011, we spent $5.4
million.
The Rural Health Care Program provides reduced rates to
eligible health care providers for telecommunications and
Internet services necessary for the provision of health care.
Eligible participants must be a rural public or non-profit
health care provider.
USAC is responsible for processing applications for
support, confirming eligibility pursuant to FCC rules, and
reimbursing service providers for discounts delivered to rural
health care providers. We review applications, invoices, and
other program information to ensure that applicants and service
providers follow FCC rules and support FCC efforts to prevent
and detect waste, fraud and abuse. In 2011, the Rural Health
Care Program disbursed $81.5 million to 472 companies
representing 3,088 eligible health care providers, and another
$54.3 million to beneficiaries of the Rural Health Care
Program. To administer this program, we spent $12.7 million.
The Schools and Libraries Program, commonly known as E-
Rate, provides discounts of up to 90 percent to assist most
schools and libraries in the United States in obtaining
affordable telecommunications and Internet access services.
Program funds are disbursed to companies providing services to
eligible beneficiaries, in this case public and most non-profit
K through 12 schools, and all public and many private
libraries. Administration of the Schools and Libraries Program
is much like it is in the Rural Health Care: we process
applications for support, confirm eligibility, and reimburse
telecommunications companies and Internet access providers for
discounts delivered to beneficiaries. In 2011, the program
reviewed 44,651 applications and disbursed $2.2 billion to
4,165 companies providing services to tens of thousands of
schools and libraries in all States and territories of the
United States. To administer the program, we spent $71.9
million.
Universal service contributions, which we spoke of in the
prior panel, come from telecommunications carriers earning
revenues from providing interstate and international calling
services. These companies file revenue data with USAC, which we
aggregate and submit to the FCC. In 2011, to bill and collect
the $8.4 billion in universal service contributions, we spent
approximately $3 million.
An important responsibility of USAC is to support FCC
efforts to protect the integrity of the fund. We do this in
many ways, from reviewing information submitted by contributors
and beneficiaries to assessing details about individual
payments to full-scale audits of contributors and
beneficiaries. These measures are designed to verify the
accuracy of data used in calculating collections and
disbursements, the eligibility of supported goods and services,
and participants' compliance with program requirements. A
Memorandum of Understanding between the FCC and USAC defines
the roles and responsibilities, and contains detailed
operational and reporting requirements.
Once we disburse money to beneficiaries, we want to
validate that the payments were properly made. To this end,
working with the FCC and OMB, we launched in 2010 a Payment
Quality Assurance, or PQA, Program. PQA is designed to provide
estimates of improper payments in all four programs, as
required by the Improper Payments Elimination and Recovery Act,
or IPERA. Based on these assessments, an independent
statistician calculates estimates of improper payment rates for
each program and reports this information to the FCC.
We also use these results as a basis to improve internal
procedures associated with improper payments and provide
outreach to beneficiaries. Results for 2011, based on 1,600
assessments, show improper payment rates in the High Cost
Program of 0.11 percent, the Low Income Program of 0.23
percent, the Rural Health Care Program of 1.7 percent, and the
Schools and Libraries Program of 0.94 percent. We spent $1.3
million on this activity in 2011.
We have also done audits of beneficiaries and contributors.
Shortly after the PQA launch in 2010, again in close
consultation with the FCC and OMB, we launched the Beneficiary
and Contributor Audit Program, or BCAP. Under BCAP in 2011, we
completed 79 audits examining $1.7 billion in universal service
funding. When fully implemented, BCAP will give USAC the
capacity to conduct up to 343 audits each year. As with PQA,
results will shape corrective actions for both auditees and
USAC.
Outside auditors have consistently delivered clean opinions
on USAC's finances and procedures. In the last 4 years, USAC
has significantly revised and upgraded its internal controls
review program, in compliance with the principles of OMB
Circular A-123. Program staff members have incorporated these
controls into operational activities to enhance the security
and accuracy of procedures that define how we handle the
information we gather and the funds we collect and distribute.
The GAO has recommended that USAC and the FCC conduct
robust risk assessments in the Schools and Libraries Program
and the Low Income Program. We are working with the FCC to
identify independent contractors to carry out these risk
assessments and we expect to use these results as a basis for
efforts to strengthen further the internal controls already in
place.
Thank you for the opportunity to appear before you today. I
would be happy to respond to any questions.
[The prepared statement of Mr. Barash follows:]

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Mr. Walden. Thank you for your testimony. I appreciate your
testimony and the work you that you are doing to try and
continue to improve and reduce fraud and deal with all that.
I was made aware a year or two ago about a situation in my
district, and I won't get into the specifics of it, but they
had overlapping people that were on sort of both sides of some
of the USAC funding. I think it was in the E-Rate program. And
the problem, I think they may not have followed all the rules,
I don't know. That is something for all of you to figure out,
but we got these really isolated, remote communities. I am
talking one person for every 8 miles of power line. Counties
with fewer than 2,000 people and thousands of miles, and there
is very, very few people, like the main town, the county hub is
399 people, I think. And so when they go to try and take
advantage of these programs, there isn't a giant pool of people
who can be--you know, you are on the school board, you are also
the guy running the--now having said that, I have also served
on the Oversight Committee where we did a lot of looking at the
waste, fraud, abuse and all of that. We can't tolerate that.
But I hope there is some way to find a balance here for
these really remote communities where there are only--they are
very--there is only a handful of people that do everything, and
not because of collusion or anything else, there just ain't
anybody else around, you know? And so I hope maybe we can have
some general discussion about somewhere down the road, because
I think it is a problem that is unique to sort of the rural
West, perhaps, where literally you have a hospital in three of
these counties. I mean, it is just remote. No stop light for
probably 3 hours, you know what I mean? This is high desert
remote, and so I--and yet, they are trying to figure out how to
serve their communities, and so I just throw that out for your
consideration.
Mr. Barash. Well, we are very sensitive to the needs of our
customers, and----
Mr. Walden. Is your mic on?
Mr. Barash. Yes, I will get closer.
Mr. Walden. There you go.
Mr. Barash. We are very sensitive to the needs of our
customers, particularly the small rural customers, both in--for
schools and libraries and rural health care, as well as high
cost, and what we have tried to do in recent years is to really
expand our outreach and that includes training sessions around
the country, that includes our webinar presence, that includes
going out to stakeholder groups, whether it is schools, whether
it is health care providers or telecom groups. So we have
really tried to focus on that, because you are correct that one
of the problems is that you might have the same person who is
doing everything.
Mr. Walden. And they are, and they do that in everything in
these small towns.
Mr. Barash. And then in addition, there is often turnover,
so the person who knows everything and who had the files
leaves, and then someone else inherits this and they may not
understand what the----
Mr. Walden. Or they may also be on the school board and at
the phone company, and by the way, the county judge who drives
the snow plow truck. I mean, it literally happens that way.
Mr. Barash. I think you are absolutely right.
Mr. Walden. And they are just trying to figure out how to
get broadband or whatever out to their schools and their
communities and connect them, and then lo and behold, they
realize they have stumbled across some line that said oh, you
can't be on both of these. And then they get penalized--the
community gets penalized because it is like well, you don't get
any more money and by the way, we are going to take back what
you have, et cetera, and they are just going oh, all I was
trying to do here--and yet I have seen the other side of this
coin where people manipulated the system and had warehouses
full of computers they never intended to deploy and ripped off
the fund. And so----
Mr. Barash. It is a balance that we try to strike every day
in administering the program. We try to do as much up front
review as possible, and to prevent having to go back. That is
the worst of all worlds. So we are very focused on the average
piece and also on the up front review piece.
Mr. Walden. Yes, so anyway, this group is in the middle of
that and trying to dig its way out, and it is not good.
Mr. Hunt, in your written testimony you highlighted single
company that was able to defraud the FCC's telecommunications
relay service of $55 million, and you also suggest that the
work of the IG ultimately led to 26 indictments in that case.
What happened there?
Mr. Hunt. Mr. Chairman, thank you. It was a program that we
have been aware of for a while. It is something where you don't
know how bad it is until you get into it, and we were
surprised, too. I mean, the entire FCC Inspector General Office
hasn't had 26 indictments and non-USF cases ever in the over a
decade it has operated. The more we dug, the worse it got, and
again, not to be crying or bemoan my staffing situation, two
people sitting behind you who pretty much did it was apart from
the rest of our staff, but when we did the--that one raid, we
had 40 FBI agents going with us. We had to go in nine different
States. You are looking at a program that just wasn't looked at
that much, and 26 indictments was amazing for us. We had no
idea, but it is so easy on that program to defraud the
government. I could go in my home, get a computer, light it up
and I could defraud the government, frankly.
Mr. Walden. I appreciate that, and maybe you can help us
identify more areas we need to spend more time digging into as
well, and be helpful in that respect.
Mr. Hunt. Yes, Mr. Chairman, we have been working with
Congress as much as we can. We have been working with the
chairman's office, we have made many recommendations, as had
DOJ, on how to stop this fraud and stop it from occurring. We
are working both ends, stop it on the front end with the
chairman's help, and get it from the back.
Mr. Walden. And then maybe your people won't have to pull
out their IVs to go stop if we can get it stopped first.
So--and those recommendations, I am sure you have made
those available to us in past reports and all, but if there are
some specifics you think we should dig down into more and kind
of look at the policy and help shine the light on, we would be
happy to do that.
Mr. Hunt. Absolutely.
Mr. Walden. I thank you.
I turn to my friend from California, Ms. Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman, and I want to concur
with you that--on this last item that how we can help support
and advance the work that you are doing. We are eager to do
that.
I want to thank you, not only for doing what you do, but
with the--really a high level of integrity and commitment and
dedication. We are going through an era, I think, where because
of all the challenges in the country, so many people are angry.
They feel let down. You could go on and on. I was at a
telephone town hall meeting last night where 9,000 people
participated. Obviously I didn't get to answer 9,000 questions,
but if there was a common thread that went through it, it was
how people--how concerned they are about our country. I wish
every TV station in the country could have carried your opening
statement today, because it is a reflection of really
professional, good, solid people working to make the country
better and the government more accountable, so I really salute
you. I don't know if--I don't think my words are adequate to
describe all that I am sensing, but bravo to you and to your
team, and thank you.
Mr. Hunt. Thank you very much.
Ms. Eshoo. You have really restored a great deal of faith
in all of us, and as I said in my opening statement, I think
the IGs are just--if you want to know what is going on in the
government and you want a clear, unbiased, nonpartisan, hard
look at what is going on in every agency, just go to the IG
inspectors and the work and the reports that they issue. So
thank you again.
Your most recent semi-annual report indicated that the
proposed reforms of the Universal Service Fund ``will have a
significant impact on OIG planning and conduct and oversight
activities.'' Can you explain exactly what that means? What
will be the change under the reforms? Is that what you are
referring to, what you are going to have to do to track the new
program?
Mr. Hunt. Yes, Congresswoman. Whenever any change is made,
we sometimes have to tack to left or tack to the right. We
study everything. You know, I have a separate person who
studies--he is dedicated to working on Hill matters. He studies
everything that comes out, looks at everything from USAC. We
work with USAC quite a bit. But every time a rule or regulation
changes, it may change one of our cases, even civilly or
criminally. And so it is something we have to track pretty much
constantly.
A large part of what we do is----
Ms. Eshoo. Do you have the resources to do this, what you
are describing?
Mr. Hunt. Well, let me just say----
Ms. Eshoo. Well is not a good answer. I don't mean that in
a personal way. You sound skeptical.
Mr. Hunt. No, Congresswoman, I am not skeptical. We don't,
but I just want to let the Congresswoman know, we have been
working very closely with the chairman's office to try to get
additional staff, and Congress was kind enough to give us
additional monies for 2012, fiscal year 2012. We spend those
monies, if not on personnel, on contracts to do further
auditing work. But I thought about it several times, where is
the cap? I mean, how many people would you have to add to the
IG shop before it is not worth adding people, and a number
could be--I mean, you could give me 50 people tomorrow and I
could put them all to work, so I don't know how else to explain
it.
Ms. Eshoo. What my sense is is that you don't think you
have enough to do what needs to be done, but do you think you
are going to be able to fulfill your oversight
responsibilities?
Mr. Hunt. Well, Congresswoman, the staff we have is very
good, and any program this big always needs additional
oversight, could always use it. I know USAC has added
additional people to their staff to help do audits, but like I
said, you are trying to track about $10 billion with 30 people,
and when the economy goes south, the crime rate, at least in
our field, goes up so white collar crime is booming, and on one
case alone we have a single person tracing down $110 million
with no FBI support and no other support from DOJ. So they have
had to cut back as well. So as they cut back, all of a sudden
we find ourselves having to do depositions and interviews, when
normally the FBI would do those for us. Now there are not
enough FBI agents around to help us accomplish that.
Ms. Eshoo. Well, we want to be of all assistance to you,
because your work is so important.
Mr. Barash, I am sorry, I don't have time to ask you the
great questions I was going to ask you, but I will submit them
to you in writing.
Thank you, Mr. Chairman, and thank you both for your very
important work, and to your entire team.
Mr. Hunt. Thank you, Congresswoman.
Mr. Walden. Thank you. Gentleman from Ohio, Mr. Latta, is
now recognized.
Mr. Latta. Thank you, Mr. Chairman.
Mr. Hunt and Mr. Barash, thanks very much for being with us
today. I appreciate your testimony.
If I could just start off with this question maybe to both
of you that State commissions have also been out there
detecting duplication and other waste within the Commission's
Lifeline program, and what efforts have your respective offices
made to reach out to the State commissions to also address
these and related concerns?
Mr. Hunt. Thank you, Congressman, for that question.
Actually, Congressman, another one of my IGs behind me is
coordinating an effort within our office and has contacted,
literally, all 50 States. We are actively coordinating with, I
believe at last count, eight or nine, so we work very closely
with the States on low income and Lifeline issues. Primarily
what we do is basically ask for their support, because they can
offer us the most help at the local level than we can offer
from Washington, DC. But we are very much interacting with
local governments and do so frankly all the time.
Mr. Latta. OK. Let me ask this. Going back to the
chairman's testimony I am sure you heard a little bit earlier,
and you all know that in the Lifeline program, the whole idea
is in the next 3 years to be able to save up to $2 billion that
is going to be out there, and also in 2011 alone saving $33
million and eliminating 270,000 duplicate subscriptions.
Could you go through the procedures of how you find these
folks, and what happens when you do, and do you recoup payment
or what happens?
Mr. Barash. Yes, I would be happy to do that. What we do is
we collect data from the companies, collect subscriber data
from the companies. We then bump that data up against each
other in a system that we built last year to do this job. We
then identify potential duplicates. We reach back out to the
companies and say are these, in fact, duplicates. They get back
to us. We then have a final list of duplicates. We then
allocate the duplicates to one of the other companies randomly,
and then instruct the other company to de-enroll the
subscriber.
So it is a relatively cumbersome process at this point.
Mr. Latta. Pardon me for interrupting. How long does that--
you know, from point A to point B, how long does that take?
Mr. Barash. A couple months by the time the back and forth
occurs. So it is a relatively cumbersome process at the moment.
It is one that we initiated in very close consultation with the
FCC last year. What we are moving toward, and this is in the
recent order that was approved by the Commission, is a national
Lifeline accountability database that we are now working on
that we hope to have up in early 2013 that will allow companies
on a real-time basis to determine whether someone is already
receiving Lifeline service or not.
So right now we are in an interim phase where we are
identifying duplicates and saving money, but then in the future
we will be doing this up front and preventing this problem from
occurring in the first place.
Mr. Latta. OK, and then going back to my one question,
after you do identify that individual, let us just say that
they might have had three or four that might have happened. Is
there recoupment or what happens at that stage?
Mr. Barash. At this stage there is not recoupment. They are
cut off. If they have more than one they are cut off from all
of them. We have seen an instance or two where there are--
someone might be getting three and they would be cut off from
two of those.
Mr. Latta. OK. Thank you very much, and Mr. Chairman, I
yield back.
Mr. Walden. Gentleman yields back. Mr. Guthrie has no
questions.
We appreciate the incredible work you all do, and we look
forward to working with you to improve transparency,
efficiency, and accountability in the work that is done by the
agency. So thank you for being here, and with that, we will
have the usual and customary opportunity for members to submit
statements and questions. We look forward to your responses,
and thanks again.
Mr. Barash. Thank you very much.
Mr. Walden. This hearing is adjourned.
[Whereupon, at 10:47 a.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]

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