Speaking before the Subcommittee on Financial Services and General Government of the House Committee on Appropriations yesterday, Republican FCC Commissioner Robert M. McDowell laid out his agency’s plans for three different initiatives this year: spectrum policy, Universal Service Fund reform and the spectre of international governance over the Internet.

The following are snippets of his testimony:

>> Spectrum Policy

"Recognizing the need for spectrum to flow toward its highest and best use, a month ago, Congress passed legislation that some estimate could place up to an additional 80 megahertz of prime television broadcast spectrum into American consumers’ hands. As a result of this law, the FCC will conduct the most complicated spectrum auction, or auctions, in history.

"Meanwhile, a debate continues over whether or how the FCC should shape the outcome of this process. History has proven that regulators’ attempts to over-engineer spectrum auctions often result in harmful, unintended consequences.

"I am committed to working with my colleagues to ensure that our auction rules are minimal and ìfuture proof,î allowing for flexible uses in the years to come as technology and markets change. Furthermore, I am optimistic that we can create band plans that offer opportunities for small, medium and large companies to bid for and secure licenses without having to exclude any player from the auctions.

"I am confident that the FCC can get it right this time. And ‘getting it right’ means avoiding regulatory hubris by keeping the government’s hands off of the marketplace’s steering wheel as much as possible."

>> USF Reform

"Last fall, the commission accomplished the complicated task of modernizing the high-cost portion of the Universal Service Fund (USF). Historically, the high-cost fund only supported traditional telecommunications services and did not directly support the deployment of broadband.

"Also, the program has grown tremendously over the years without promoting efficiency. For example, the high-cost fund subsidized multiple providers in the same area while other parts of our nation still remained unserved. Furthermore, the old structure allowed providers to receive subsidies to serve areas that were already served by unsubsidized competitors. In part, due to these and other inefficiencies, the high-cost fund grew from $1.69 billion in 1998 to over $4 billion by the end of last year.

"Although reform of the high-cost fund was a monumental achievement, I noted at the time that making changes to that program was merely a first step because the commission only addressed the distribution, or spending, side of the USF equation.

"Equally important is the need to fix the contribution methodology, or the ‘taxing’ side, of the ledger. In other words, how we are going to pay for all of this?

"To put this issue in perspective, the universal-service contribution factor, a type of tax paid by telephone consumers, has risen each year from approximately 5.5 percent in 1998 to almost 18 percent in the first quarter of this year. This trend is unacceptable because it is unsustainable. We need to abate this automatic tax increase, and find a way to decrease and control the contribution factor.

"In a perfect world, the commission would have conducted comprehensive reform by addressing both the spending and taxing sides at the same time. While the FCC did not include contribution reform in its landmark order last fall, I have urged the Chairman to initiate, and conclude, contribution reform as early this year as possible."

>> International Regulation of the Internet

"The Internet has historically flourished within a deregulatory regime not only within our country but internationally as well. In fact, the long-standing international consensus has been to keep governments from regulating core functions of the Internet’s ecosystem.

"Unfortunately, some nations, such as China, Russia, India, Iran and Saudi Arabia, have been pushing to reverse this consensus by giving the International Telecommunication Union (ITU) regulatory jurisdiction over Internet governance.

"In 1988, delegates from 114 countries gathered in Australia to agree to a treaty that set the stage for dramatic liberalization of international telecommunications. As a result, the Internet was insulated from government control and quickly became the greatest deregulatory success story of all time.

"Today, however, several countries within the 193 member states of the ITU want to renegotiate the 1988 treaty to expand its reach into previously unregulated areas. A few specifics are as follows:

• Subject cyber security and data privacy to international control;
• Allow foreign phone companies to charge fees for ‘international’ Internet traffic, perhaps even on a ‘per-click’ basis for certain Web destinations, with the goal of generating revenue for state-owned phone companies and government treasuries;
• Impose unprecedented economic regulations such as mandates for rates, terms and conditions for currently unregulated traffic-swapping agreements known as ‘peering;’
• Establish for the first time ITU dominion over important functions of multi-stakeholder Internet governance entities such as the Internet Corporation for Assigned Names and Numbers, the nonprofit entity that coordinates the .com and .org Web addresses of the world;
• Subsume under intergovernmental control many functions of the Internet Engineering Task Force, the Internet Society and other multi-stakeholder groups that establish the engineering and technical standards that allow the Internet to work; and
• Regulate international mobile roaming rates and practices.

"These efforts could ultimately partition the Internet between countries that live under an intergovernmental regulatory regime and those member states that decide to opt out. Such a legal structure would be devastating to global free trade and rising living standards. It would also create an engineering morass."

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