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Commissioner Pai Statement Before the Appropriations Committee

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Released: September 11, 2013





SEPTEMBER 11, 2013

Chairman Udall, Ranking Member Johanns, and Senators Durbin, Coons, and Moran, it
is a privilege to appear before you today. Thank you for inviting me to testify on the work of the
Federal Communications Commission (FCC). We have been busy, and today I’d like to share
with you my views on several important issues that we are confronting, namely: freeing up
spectrum for commercial use, removing regulatory barriers to infrastructure investment,
revamping the E-Rate program, and reforming the agency’s processes.


.—Given this Subcommittee’s focus on appropriations, it is worth noting that
the FCC is one of few agencies that can generate a profit for the federal government. By
auctioning off spectrum, the Commission has raised tens of billions of dollars for the Treasury
over the last two decades. Between 2005 and 2008, for example, the Commission’s spectrum
auctions raised over $33 billion that was used for deficit reduction, and the FCC’s auctions
program was a net contributor to the Treasury each year.
Over the last four-and-half years, however, the Commission’s record on this front has
been disappointing. Since January 2009, the Commission has raised a paltry $72 million in
auction revenue, or about two-tenths of one percent of the amount raised in the prior four years.
Indeed, when you account for the Commission’s spending on auctions, our auctions program has
actually lost money in each of the last four years. This is bad news not just for the Treasury but
also for American consumers, whose demands for bandwidth increase as their use of tablets and
smartphones proliferates.
That is why, since joining the Commission last May, I have concentrated on trying to
accelerate the allocation of spectrum for mobile broadband and rejuvenate the Commission’s
auction program. I am pleased to report that we recently have made real progress on both of
these fronts.
For example, thanks to the leadership of Chairwoman Clyburn, the Commission will be
ready to auction 10 MHz of H-Block spectrum for mobile broadband in January 2014. This
auction would push badly needed spectrum into the commercial marketplace. It is also projected
to raise at least one billion dollars—money that could be devoted to important national priorities
(more on those shortly). Furthermore, a successful H-Block auction will signal to the
marketplace that the FCC still has both the capacity and the will to hold major spectrum
I recognize that some would prefer that the Commission delay the H-Block auction, but I
believe doing so would be a serious mistake. For one thing, this spectrum will be ready to be
auctioned in just a few months; as the saying goes, a bird in the hand is worth two in the bush.
For another, we should not run the risk of linking the auction of spectrum that is ready to be
released into the commercial marketplace with other spectrum that poses much more difficult
policy and technical challenges. In short, we cannot and should not go six years without a major
spectrum auction. The time for action has arrived.

Auctioning the H Block is just one of the many directives and responsibilities that
Congress entrusted to us last year in the Spectrum Act. The Act requires the Commission to
bring additional spectrum into the commercial marketplace to address the imminent spectrum
crunch. The proceeds of the resulting auctions will be used to establish a nationwide,
interoperable public safety broadband network, to reduce the deficit, and to hasten the
deployment of next-generation 911 services. Since today is September 11, the first of those
priorities merits special mention. Twelve years after the terrorist attacks against our nation, we
still do not have a nationwide, interoperable public safety broadband network. However, that
goal could be achieved if the Commission is able to raise the necessary funds for the First
Responder Network Authority, as Congress directed. As we implement the Act, our top priority
must be to adopt sound spectrum policies that allow us to meet our statutory duties.
A successful broadcast incentive auction is critical to accomplishing this task. And for
the incentive auction to succeed, I believe five principles must guide our work. First, we must
be faithful to the statute. Second, we must respect the laws of physics as we design the band plan
and the repacking algorithm. Third, we must be fair to all stakeholders. Fourth, we must keep
our rules as simple as possible. And fifth, we need to complete this proceeding in a reasonable
If we hew to these principles, I remain optimistic that the incentive auction will prove a
success. But there is much to be done. We must hammer out band plans that are technically
feasible and correspond to the amount of spectrum we clear. We must determine how much
market variation, if any, is appropriate. We must nail down how to optimally repack
broadcasters who choose not to participate in the reverse auction. We must design an auction
that maximizes net revenues and lets the market determine which bids will be accepted and how
much spectrum will be cleared. We must continue efforts to coordinate with the governments of
Canada and Mexico. And we must continue to do aggressive and comprehensive outreach to all
affected constituencies.
Given all these tasks, I hope we can avoid unnecessary complications that may drag out
our deliberations and delay the start of the auction. For example, some have suggested that we
base the reserve prices offered to broadcasters on their enterprise values or on the populations
they serve. Others have suggested that we restrict who may participate in the forward auction—
in effect, set quotas that determine in advance who wins and who loses. But rules such as these
will make an already complex process more complicated and will make the auction more likely
to fail. We need to have a free and open auction where market forces determine the outcome.
The prices paid to broadcasters should be determined by the auction process, not by government
fiat. And participation in the forward auction should be open to all. A contrary approach will
distort not only who may purchase spectrum, but also how much spectrum will be available for
auction. And such an approach will reduce net revenues and impede our best chance to satisfy
the many funding priorities Congress set out in the Spectrum Act.
Of course, the broadcast incentive auction and the H-Block auction aren’t the only
auctions the Commission has on its plate. The Spectrum Act requires us to reallocate and
auction another 55 MHz of spectrum by February 2015, including the 25 MHz of spectrum
adjacent to the so-called AWS-1 band (2155–2180 MHz). To maximize the value of this
spectrum—for consumers who want their devices to work around the world, for wireless
providers and manufacturers who seek economies of scale, and for the Treasury, which could

receive billions in revenue from this auction—we will need to pair it with the 1755–1780 MHz
band now occupied by federal incumbents.
Unfortunately, federal incumbents do not have much incentive to consolidate their
spectrum holdings or use their spectrum more efficiently (without impairing their ability to carry
out their missions). That’s why Congress passed and amended the Commercial Spectrum
Enhancement Act and established the notification-and-auction process for auctioning federal
spectrum. Once the FCC commences that process, federal incumbents and the National
Telecommunications and Information Administration have 18 months to put together plans to
transition federal spectrum into commercial hands. It’s a process with little downside because if
the auction does not raise more than 110 percent of the estimated costs of transitioning, auction
participants and federal users are held harmless.
I’m pleased to report that shortly after I proposed the use of this process in March, the
Commission invoked it.1 As a result, we are slowly proceeding towards licensing and auctioning
the 1755–1780 MHz band. As we do so, we should aim to clear and reallocate the band rather
than forcing federal users and commercial operators to undertake the complicated, untested task
of spectrum sharing. It’s not only the best policy. It’s also the preference Congress codified in
Before moving on to another topic, I should note that licensed spectrum is not the only
game in town. Unlicensed spectrum has been a boon to consumers and innovators alike. For
instance, virtually everyone with a smartphone or laptop has benefited from WiFi, and myriad
other applications like garage door openers and baby monitors rely on unlicensed spectrum as
well. Accordingly, increasing the amount of spectrum available for unlicensed use has been an
FCC priority. In February, the Commission teed up the expansion of unlicensed use by a full
195 MHz in the 5 GHz band.2 That’s more than three times the amount of licensed spectrum
we’re hoping to recover from federal users, and it’s spectrum located adjacent to existing
unlicensed allocations. That means fatter pipes—in the spectral sense—for next-generation
technologies like the IEEE 802.11ac standard. This will allow higher-speed, higher-capacity
connections and will also reduce congestion in apartment buildings, schools, libraries, and
offices. To keep the ball rolling on this project, we should tackle some of the less contentious
issues this year—such as adding 25 MHz to the U-NII-3 band and creating a more unified set of
rules for the 5 GHz spectrum—and aim to finish the rest by next July.

Infrastructure Investment

.—Turning to infrastructure investment, we have come a long
way since the passage of the Telecommunications Act of 1996. Back then, copper was king, and
consumer choice was minimal. Today, almost every segment of the communications industry is
competing to offer newer, faster, and better broadband services. Telecommunications carriers
are upgrading DSL with IP-based technology and fiber. Cable operators are deploying

1 Statement of Ajit Pai, Commissioner, Federal Communications Commission, Hearing Before the Committee on
Commerce, Science, and Transportation of the United States Senate, “Oversight of the Federal Communications
Commission at 2–3 (Mar. 12, 2013),; Letter from the Honorable Julius Genachowski,
Chairman, FCC, to the Honorable Lawrence E. Strickling, Assistant Secretary for Communications and Information,
U.S. Department of Commerce (Mar. 20, 2013),
2 Revision of Part 15 of the Commission’s Rules to Permit Unlicensed National Information Infrastructure (U-NII)
Devices in the 5 GHz band
, ET Docket No. 13-49, Notice of Proposed Rulemaking, 28 FCC Rcd 1769, 1825 (2013)
(Statement of Commissioner Ajit Pai), available at

equipment based on the DOCSIS 3.0 technical standard to increase bandwidth tenfold. Satellite
providers are offering 12 megabit packages in parts of the country that never dreamed of such
speeds. Communities are reforming their laws to attract gigabit deployments from new entrants
and incumbents. And millions of Americans—many of whom don’t subscribe to fixed
broadband service at home—now have access to the Internet on the go using the mobile
spectrum the Commission auctioned back in 2006 and 2008.
What are the results of all this broadband competition? More choices for consumers and
major challenges to old business models. Traditional voice telephony is a good example. In
living memory, you only had one option: Ma Bell. But now you can select among a number of
Voice over Internet Protocol (VoIP) providers, including cable operators. Or technology
companies like Google, Skype, and Facebook. Or even video teleconferencing providers.
Essentially, voice is becoming just another application riding over the Internet. It’s no surprise,
then, that today only one-third of U.S. households subscribe to plain old telephone service over
the public-switched telephone network (PSTN), and that number is dropping each year.
Underlying these changes is a technological revolution. Analog signals have gone
digital. Circuit switching is giving way to packet switching. And first-generation cellular has
been replaced with ultra-fast LTE. The common thread knitting all of these changes together is
the Internet Protocol (IP), a near-universal way to organize and transmit data.
So what is the problem? The FCC’s regulations still contemplate a world based on
fading technologies. Instead of a converged marketplace in which companies from once-
disparate niches compete against each other, the Commission too often sees silos of services and
would-be monopolists (perhaps in part because many provisions of the Communications Act
captured snapshots of the marketplace between 1934 and 1996—snapshots often yellowed with
Nine years ago, then-Chairman Michael Powell opened the IP-enabled services docket to
try to resolve this regulatory anachronism and to clarify many ambiguities in the law.3 But many
of the basic questions raised in that proceeding still remain, such as whether interconnected VoIP
is an “information service” or a “telecommunications service.” And because of that regulatory
uncertainty, companies may hold back billions of dollars in investment in IP-based technologies
as they wait to see whether that investment will be welcomed or compromised by the federal
I believe that the Commission needs to take a hard look at its regulations in light of the IP
transition, especially in light of the fact that the American people are ahead of Washington on
this issue. Consumers are sending a clear message about the superiority of IP-enabled networks.
For instance, there were over 37 million VoIP subscriptions in 2011. The number of copper
telephone lines has decreased dramatically in just the past ten years. Government should heed
the market’s message and give the private sector the flexibility to make investment decisions
based on consumer demand, not outdated regulatory mandates.

3 IP-Enabled Services, WC Docket No. 04-36, Notice of Proposed Rulemaking, 19 FCC Rcd 4863 (2004), available

I hope my colleagues will work with me to establish a modern regulatory framework for
the IP transition based on a few simple principles.4 First, we must ensure that vital consumer
protections remain in place. When consumers dial 911, they need to reach emergency personnel;
it shouldn’t matter whether they are using the PSTN, a VoIP application, or a wireless phone.
The same goes for consumer privacy protections and antifraud measures like our slamming rules.
Second, we must not import the broken, burdensome economic regulations of the PSTN into an
all-IP world. No tariffs. No arcane cost studies. And no hidden subsidies that distort
competition to benefit companies, not consumers. Third, we must retain the ability to combat
discrete market failures and protect consumers from anticompetitive harm. Fourth, we must
respect the metes and bounds of the Communications Act and not overstep our authority.
The right way to start building that framework is to start ironing out the technical aspects
of the transition immediately. And the best way to do that is with a real trial, an All-IP Pilot
Program. An All-IP Pilot program would allow companies to choose a discrete set of wire
centers where they could turn off their old time-division-multiplexed electronics and migrate
customers to a newer, all-IP platform. Moving forward with such a program would signal to
carriers that we won’t force them to invest in old networks forever. And doing so would allow
us to move closer to the day when carriers will be able to focus exclusively on investing in the
networks of the future rather than maintaining the networks of the past.
Just as we must eliminate old regulatory barriers to infrastructure investment, we must
also be careful not to establish new ones. A good example is the Commission’s implementation
of the quantile regression analysis (QRA) benchmarks from the November 2011 Universal
Service Transformation Order
.5 The QRA benchmarks apply only to rural carriers and are
supposed to create “structural incentives for rate-of-return companies to operate more efficiently
and make prudent expenditures.”6 But reality has not caught up with theory. Instead, the QRA
benchmarks have resulted in unpredictability and uncertainty, chilling the investment climate and
impeding the deployment of next-generation technologies and broadband services to rural
Americans. As the Obama Administration’s Department of Agriculture told the Commission in
February, “demand for [Rural Utility Service] loan funds dropped to roughly 37% of the total
amount of loan funds appropriated by Congress in [fiscal year] 2012.”7
Here’s one problem with the QRA benchmarks: Rural carriers must carefully plan their
infrastructure over a five-, ten-, or twenty-year timeframe if they are to recover their costs.
Congress recognized this by embedding within section 254 of the Communications Act the
command that universal service support be “predictable.” But the QRA benchmarks change
annually, with no necessary connection between the benchmarks from one year to the next.

4 Remarks of FCC Commissioner Ajit Pai, “Two Paths to the Internet Protocol Transition,” Hudson Institute,
Washington, DC (Mar. 7, 2013),
5 Connect America Fund; High-Cost Universal Service Support, WC Docket Nos. 10-90, 05-337, Sixth Order on
Reconsideration and Memorandum Opinion and Order, 28 FCC Rcd 2572, 2600 (2013) (Sixth Recon Order)
(Statement of Commissioner Ajit Pai, Approving in Part and Concurring in Part), available at
6 Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order and Further Notice of Proposed
Rulemaking, 26 FCC Rcd 17663, 17742, para. 210 (2011), available at
7 Letter from John Charles Padalino, Acting Administrator, Rural Utility Service, to Marlene H. Dortch, Secretary,
FCC, WC Docket Nos. 10-90, 07-135, 05-337, GN Docket No. 09-51, CC Docket Nos. 01-92, 96-45, WT Docket
No. 10-208, at 2 (Feb. 15, 2013), available at

To be sure, the Commission gave rural carriers some relief back in February when we
decided that carriers should be able to balance their capital investments against their operating
expenses (rather than analyzing each—and possibly penalizing carriers for either—separately).8
And the Wireline Competition Bureau recently recognized that implementing a whole new
regression model in 2014 would be infeasible given our slow progress in collecting accurate
maps of each carrier’s study area.9
But I still have my doubts about the utility of the QRA benchmarks as implemented. It is
important to remember that they do not save money for the Universal Service Fund, but merely
redistribute support from one set of carriers to another. The 2014 benchmarks are likely to
impact significantly more carriers than the 2013 benchmarks, all of which are based on flawed
data and inaccurate maps. And rural carriers still cannot know whether they will be able to
recover investments made today since the relevant benchmarks for those investments won’t be
known until 2015. In short, the Commission needs to think long and hard about the QRA


.—Speaking of the Universal Service Fund, I was pleased that we launched a
proceeding to reform and revamp the Schools and Libraries program, better known as E-Rate,
this summer.10 Established at the direction of Congress 16 years ago, the E-Rate program is
intended to bring advanced services to schools and libraries across America. And in many ways,
the program has been a success. Internet access in public schools has almost tripled, and speeds
have grown alongside availability. Indeed, a 2010 FCC survey showed that 22 percent of
respondents were “completely” satisfied and another 58 percent were “mostly” satisfied with the
bandwidth they’re getting.
But like all federal programs, E-Rate has had its share of difficulties. For applicants, the
funding process from start to finish can stretch for years. Additionally, the process too often
requires the assistance of specialized E-Rate consultants to navigate arcane steps like Form 470
competitive bidding, Form 471 Program Integrity Assurance review, and the Form 500
commitment adjustment process. For parents, the process is so opaque that they cannot know
ahead of time how much funding their school might receive and cannot track whether it is
actually spent on enriching the education of their kids. For school boards, the priority system
(under which things like paging and Blackberry services for administrators get prioritized over
connecting a classroom to the Internet) distorts their spending decisions since some services are
discounted by up to 90 percent while others may or may not receive any discount in a given
funding year. And for everyone with a phone line, and who hence contributes to the program,
it’s hard to tell what bang we’re getting for our universal service buck—although we do know
that an average of $600 million is spent each year on basic telephone service and other last-
generation technologies.
There is a better way—one which would focus the E-Rate program on children. To
create a student-centered E-Rate program, we need to fundamentally rethink how we structure

8 Sixth Recon Order, 28 FCC Rcd at 2583, para. 29, available at
9 Connect America Fund; High-Cost Universal Service Support, WC Docket Nos. 10-90, 05-337, Order, DA 13-
1656 (July 26, 2013), available at
10 Modernizing the E-Rate Program for Schools and Libraries, WC Docket No. 13-184, Notice of Proposed
Rulemaking, FCC 13-100 (July 19, 2013) (Modernizing E-Rate NPRM), available at

the program. That means starting each school with an upfront, per-student allocation of funding
so they know how much they can spend. That means cutting the red tape so that the initial
application is just one page and there’s only one other form needed before funds are disbursed.
That means targeting funding at next-generation technologies like broadband and Wi-Fi while
still letting local schools set their own priorities. And that means publishing all funding and
spending decisions on an easily accessible, central website so that every parent, every journalist,
every government watchdog, every American can see just how E-Rate funds are being spent.
The student-centered E-Rate program I have outlined11 would fulfill E-Rate’s statutory
mission of bringing advanced services to schools and libraries across the country. It would free
an extra $1 billion for next-generation services in its first year, all without collecting an extra
dime from the American people. And it would reduce waste, fraud, and abuse in the program
and increase transparency and accountability.

Process Reform

.—Finally, just as we need to reform the E-Rate process, we also need to
reexamine our own administrative processes.12 The FCC must strive to be as nimble as the
industry we oversee. For all too often, proceedings at the Commission needlessly drag on for
years, with predictable consequences. For example, an unanswered consumer complaint might
mean that consumers are subject to telemarketing calls during dinner. An unadjudicated waiver
deters a rural carrier from deploying broadband to its unserved customers. And an unfinished
rulemaking leaves capital on the sidelines as companies weigh the regulatory risk of moving
Fortunately, we have made some progress on this front. Commissioners are voting on
items more quickly after they are placed on circulation. The time between adoption and release
of items has decreased. And we have reduced the FCC’s backlog. My colleagues, aided by the
hardworking Commission staff, deserve much credit for these improvements. But we still have
much to do.
To start, we should become more accountable to the public and to Congress about how
long it takes the Commission to do its work. We need to establish more internal deadlines, such
as a six-month deadline for acting on waivers and a nine-month deadline for ruling on
applications for review and petitions for reconsideration. We should also codify our informal
180-day shot clock for reviewing transactions—a deadline we too often honor in the breach. We
should handle applications for review akin to the way the U.S. Supreme Court handles its
certiorari process; this would help the FCC dispose of pleadings more efficiently. Additionally,
we should report to Congress and the public about how we are doing in meeting those deadlines.
I support the concept of creating an FCC Dashboard on our website that would collect key
performance metrics about these deadlines—as well as our processing of consumer complaints—
so that anyone can see just how well we’re doing. This measure would bring some much-needed
transparency to the agency.

11 Remarks of Commissioner Ajit Pai, “Connecting the American Classroom: A Student-Centered E-Rate Program,”
American Enterprise Institute, Washington, DC (July 16, 2013),; Modernizing E-Rate
, FCC 13-100 (Statement of Commissioner Ajit Pai), available at
12 Remarks of Commissioner Ajit Pai before the Federal Communications Bar Association (Feb. 21, 2013),

With greater accountability, I’m confident we would act with more dispatch. My
emphasis on acting promptly is not just about good government. It is also about the impact the
FCC’s decisions (or lack thereof) have on our economy. The pace of change in the
communications industry will only continue to accelerate. So too must the pace at the
Commission. We can’t let regulatory inertia frustrate technological progress or deter innovation.
As for existing deadlines, I am happy to report that we are doing better in meeting our
statutory reporting requirements. This year, for the first time since 2006, the Commission
adopted its annual video competition report one year after adopting the previous such report
thanks to Chairwoman Clyburn and the staff of the Media Bureau. But we have many statutory
reporting deadlines each year, and these reporting requirements mean we spend a substantial
amount of time each year reviewing and writing about individual silos of the communications
marketplace rather than reforming our regulation of it. Just this week, the U.S. House of
Representatives unanimously passed legislation that would cure this problem. The FCC
Consolidated Reporting Act13 would replace our disparate reporting obligations with a single
biennial Communications Marketplace Report. This would make better use of limited
Commission resources and would be more valuable to Congress as it undertakes its legislative
responsibilities. I would draw your attention to that bipartisan legislation, and I stand ready to
work with you in the hope that it will soon be signed into law.
* * *
As you can see, even though we have not had a full complement of Commissioners
during the past few months, the FCC nonetheless has been quite active. Through collaboration
and collegiality, we have been able to accomplish a lot. For example, in addition to the issues
discussed above, we have approved a second round of Connect America Phase I funding to
expand broadband deployment in rural America, reformed the Video Relay Service program for
people with disabilities to enhance competition and promote fiscal responsibility, and approved
transactions that strengthened our nation’s third largest wireless carrier.
Working together within the agency and with Congress, I’m confident that we will
continue to discharge our responsibilities in a way that will serve the public interest well. I thank
you again for holding this important hearing and for allowing me the opportunity to testify. I
look forward to answering your questions.

13 H.R. 2844 (1st Sess. 2013), available at

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