PAGENO="0001" VOLUME H---PART 3 THE COMMUNICATIONS ACT OF 1979 -~ ~o~O2~32. HEARINGS BEFORE THE SUBCOMMITTEE ON COMMUNICATIONS OF TEE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE HOUSE OF REPRESENTATIVES NINETy~SIXTH CONGRESS FIRST SESSION ON H.R. 3333 TITLE IV (PARTS A AND B) SPECTRUM USE AND LICENSING-GENERAL PROVISIONS AND LAND MOBILE AND OTHER RADIO SERVICES MAY 14, 15, 16, 17, 22, 28, 24, JUNE 5, 6, AND 7, 1979 Serial No. 96-125 Printed for the use of the Committee on Interstate and Foreign Commerce ~0 U.S. GOVERNMENT PRINTING OFFICE 51-2530 WASHINGTON: 1980 PAGENO="0002" COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE HARLEY 0. STAGGERS, West Virginia, Chairman JOHN D DINGELL Michigan SAMUEL L DEVINE Ohio LIONEL VAN DEERLIN, California JAMES T. BROYHILL, North Carolina JOHN M. MURPHY, New York TIM LEE CARTER, Kentucky DAVID E. SATTERFIELD III, Virginia CALRENCE J. BROWN, Ohio BOB ECKHARDT, Texas JAMES M. COLLINS, Texas RICHARDSON PREYER, North Carolina NORMAN F. LENT, New York JAMES H. SCHEUER, New York EDWARD R. MADIGAN, Illinois RICHARD L. OTTINGER, New York CARLOS J. MOORHEAD, California HENRY A WAXMAN California MATTHEW J RINALDO New Jersey TIMOTHY E WIRTH Colorado DAVE STOCKMAN Michigan PHILIP R SHARP, Indiana MARC L. MARKS, Pennsylvania JAMES J FLORIO New Jersey TOM CORCORAN Illinois ANTHONY TOBY MOFFETT Connecticut GARY A LEE New York JIM SANTINI, Nevada TOM LOEFFLER, Texas ANDREW MAGUIRE, New Jersey WILLIAM E. DANNEMEYER, California MARTY RUSSO Illinois EDWARD J MARKEY Massachusetts THOMAS A. LUKEN, Ohio DOUG WALGREN, Pennsylvania ALBERT GORE, JR., Tennessee BARBARA A. MIKULSKI, Maryland RONALD M MOTTL Ohio PHIL GRAMM, Texas AL SWIFT, Washington MICKEY LELAND, Texas RICHARD C. SHELBY, Alabama W E WILLIAMSON Chief Clerk and Staff Director KENNETH J PAINTER First Assistant Clerk BRIAN R. MOIR, Professional Staff BERNARD J. WUNDER, Jr., Associate Minority Counsel SUBCOMMITTEE ON COMMUNICATI9NS LIONEL VAN DEERLIN California Chairman JOHN M MURPHY New York JAMES M COLLINS Texas TIMOTHY E. WIRTH, Colorado JAMES T. BROYHILL, North Carolina MARTY RUSSO, Illinois CARLOS J. MOORHEAD, California EDWARD J. MARKEY, Massachusetts MARC L. MARKS, Pennsylvania RONALD M. MOTTL, Ohio SAMUEL L. DEVINE, Ohio AL SWIFT, Washington (Ex Officio) THOMAS A. LUKEN, Ohio ALBERT GORE, JR., Tennessee HARLEY 0. STAGGERS, West Virginia (Ex Officio) HARRY M. SHOOSHAN III, Staff Director/Counsel CHARLES L. JACKSON, Staff Engi neer (II) PAGENO="0003" CONTENTS [Contents for Volume II, Part 1, will be found in Volume II, Part I [Contents for Volume II, Part 2, will be found in Volume II, Part 2 PART 3 Hearings held on- Page June 6, 1979 1469 June 7, 1979 ~. 1621. Statement of- Baker, James H., executive vice president, Forest Industries Telecommuni- cations 1766 Booth, Robert M., Jr., general counsel, American Radio Relay League, Inc.. 1748 Bortz, Paul I., Deputy Assistant Secretary for Communications and Infor- mation, National Telecommunications and Information Administration Department of Commerce 1469, 1481 Cornell, Nina W., Chief, Office of Plans and Policy, Federal Communica- tions Commission 1621, 1675 Crosby, Mark E., president and managing director, Special Industrial Radio Service Association, Inc 1747 Franco, Don, president, Microband Corporation of America 1469, 1542 Gray, Richard E., regulator matters manager, General Telephone & Elec- tronics Corp 1469, 1560 Landreville, Ernest J., executive director, Associated Public Safety Com- munications 1577 McClure, Nathan D., III, president, Associated Public Safety Communica- tions Officers, Inc 1577 Marshall, Travis, vice president, Motorola, Inc 1621, 1652 Massie, Herbert L., chairman, radio liaison committee, Association of American Railroads 1598 Meehan, Charles M., on behalf of Land Mobile Communications Council and Utilities Telecommunications Council 1469, 1519 Roberts, Carlos V., Chief, Safety and Special Radio Services Bureau, Federal Communications Commission 1469 Steinman, Harold, Washington coordinator, American Radio Relay League, Inc 1748 Strichartz, Harvey, technical director, American Radio Association, AFL- ClO and on behalf of AFL-CIO Maritime Committee 1784 Weinberg, Louis M., director, business exchange and mobile communica- tions services, American Telephone & Telegraph Co 1621 Wiley, Richard E., Washington, D.C 1621, 1672 Williams, Val J., president, National Association of Business and Educa- tional Radio 1575 Wolf, Sherman M., on behalf of Telocator Networks of America 1621, 1676 Additional material submitted for the record by- American Radio Association, AFL-CIO, attachments to Mr. Strichartz's prepared statement: Appendix A-ARA contract provisions 1794 Appendix B-Legislative history of title III, part II of the act 1799 Appendix C-Excerpt from IEEE Journal of Oceanic Engineering, July 1977, skilled radio officer; key resource for at-sea maintainability ... 1814 Forest industries Telecommunications, letter dated June 13, 1979, from Mr. Baker to Chairman Van Deerlin re applicability of the Administrative Procedures Act to the new National Telecommunications Agency pro- posed in title VII of H.R. 3333 1782 Land Mobile Communications Council, attachment to Mr. Meehan's pre- pared statements, Land Mobile Communications Council membership list 1533 (III) PAGENO="0004" IV Additional material submitted for the record by-Continued Microband Corporation of America: Attachments to Mr. Franco's prepared statement: Exhibit A-Typical MDS metropolitan area distribution pattern . 1557 Exhibit B-MDS operating stations 1558 Exhibit C-Insuring building access 1559 Exhibit D-Requiring interconnection by all carriers 1559 Letter dated June 12, 1979, from Mr. Franco to Chairman Van Deerlin re issues raised at June 6, 1979, hearing and suggested language for the bill 1573 Motorola, Inc., addendum to Mr. Marshall's prepared statement 1670 Telecator Network of America, attachments to Mr. Wolf s prepared state- ment: Massachusetts Department of Public Utilities: 18090, February 12, 1975 1678 18090, May 13, 1977 1684 18090 (supplemental order), June 14, 1977 1719 Statements submitted for the record by- American Federation of Teachers AFL-CIO 1901 American Newspaper Publishers Association 1906 Citizens Media Task Force American Legal Advocates 1968 Cox Broadcasting Corp 1939 Electra Co division of the Masco Corp 1821 Group W, Westinghouse Broadcasting Co., Inc 1931 McGraw-Hill Broadcasting Co., Inc 1909 National Education Association 1848 New Jersey Office of Cable Television 1838 Quello James H FCC commissioner 1943 United States Catholic Conference 1950 United States Office of Consumer Affairs 1830 William M. Young & Associates 1828 Letters submitted for the record by- Anti Defamation League Justin J Finger national civil rights director 1986 North American Soccer League 1982 Political Association, Inc., Ricardo A. Callejo, counsel 1980 ORGANIZATIONS REPRESENTED AT HEARINGS American Federation of Labor-Congress of Industrial Organizations Maritime Com- mittee see American Radio Association AFL-CIO American Radio Association AFL-CIO Harvey Strichartz technical director American Radio Relay League Inc Booth, Robert M., Jr., general counsel. Stemman Harold Washington coordinator American Telephone & Telegraph Co Louis M Weinberg director business ex change and mobile communications services. Associated Public Safety Communications Officers Inc Landreville, Ernest J., executive director. McClure, Nathan D., III, president. Association of American Railroads Herbert L Massie chairman radio liaison committee. Commerce Department, Paul I. Bortz, Deputy Assistant Secretary for Communica- tions and Information, National Telecommunications and Information Administra- tion. Federal Communications Commission Cornell, Nina W., Chief, Office of Plans and~Policy. Roberts Carlos V Chief Safety and Special Radio Services Bureau Forest Industries Telecommunications, James H. Baker, executive vice president. General Telephone & Electronics Corp Richard E Gray regulator matters manager Land Mobile Communications Council, Charles M. Meehan. Microband Corporation of America Don Franco president Motorola Inc Travis Marshall vice president National Association of Business and Educational Radio Val J Williams president Special Industrial Radio Service Association, Mark E. Crosby, president and manag- ing director. *Telelocator Network of America, Sherman M. Wolf. Utilities Telecommunications Council, see Land Mobile Communications Council. PAGENO="0005" THE COMMUNICATIONS ACT OF 1979 WEDNESDAY, JUNE 6, 1979 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMUNICATIONS, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D.C. The subcommittee met, pursuant to notice, at 2 p.m., in room 2123, Rayburn House Office Building, Hon. Ronald M. Mottl, pre- siding (Hon. Lionel Van Deerlin, chairman). Mr. MOTTL. The' subcommittee will now come to order. We are very fortunate this afternoon to hear a distinguished panel com- prised of Carlos Roberts, Bureau Chief, Private Radio Bureau, Fed- eral Communications Commission; Mr. Paul Bortz, Deputy Assist- ant~Secretary, National Telecommunications Information Adminis- tration; Mr. Charles M. Meehan, Land Mobile~ Communications Council; Mr. Don Franco, president, Microband Corp. of America; and Mr. Richard E. Gray, regulatory matters manager, General Telephone & Electronics Corp. The hearings will basically be on the spectrum use, parts A and B and the three questions posed to the panel to be discussed before the subcommittee. ~The first question is, Are there current spectrum management problems.which H.R. 3333 does not. solve? Two, would the prop.osed spectrum use fee be workable and would it improve spectrum management? Three, can modern technology provide new approaches to spec- trum management? If so, does H.R. 3~33 al~kw the Commission to use such new approaches? We will start with Mr. Carlos Roberts. STATEMENTS OF CARLOS V. ROBERTS, CHIEF, SAFETY AND SPECIAL RADIO SERVICES BUREAU, FEDERAL COMMUNICA- TIONS COMMISSION; PAUL I. BORTZ, DEPUTY ASSISTANT SECRE- TARY FOR COMMUNICATIONS AND INFORMATION, NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION, DEPARTMENT OF COMMERCE; CHARLES M. MEEHAN, ON BE- HALF OF LAND MOffiLE COMMUNICATIONS COUNCIL AND UTIL- ITIES TELECOMMUNICATIONS COUNCIL; DON FRANCO, PRESIDENT, MICROBAND CORP. OF AMERICA; AND RICHARD E. GRAY, REGULATORY MATTERS MANAGER, GENERAL TELE- PHONE & ELECTRONICS CORP. Mr. ROBERTS. Thank you. Mr. Chairman and members of the subcommittee, it is a pleasure to have the opportunity to appear before you and offer my (1469) PAGENO="0006" 1470 thoughts on the spectrum management provisions of H.R. 3333. I want to emphasize at the outset that I am speaking for myself and not for the Commission. The views I express are my own. The one proposal in H.R. 3333 that has generated the most controversy and confusion and which also happens to be among the most important and innovative aspects of the bill is the authoriza tion of spectrum fees. Because of the important role that fees and other economic tools can play in any scheme for improving the use and management of the radio spectrum, I would like to focus my oral comments today on the general subject of spectrum economics. I will submit written comments on the other aspects of the bill at a later date. Let me begin by discussing why we need to apply economics in our spectrum management processes. Our present regulatory struc- ture is based substantially on decisions made on the basis of subjec- tive judgment rather than on extensive factual information. This is because it is extremely difficult to obtain accurate data on an applicant's need for use of the spectrum, on the value of the spectrum to present users, on the costs associated with reallocation, on the costs of utilizing more efficient technology and many other areas. Because of this lack of critical data, decisions made through the political and regulatory processes sometimes do not result in the most valuable use of the spectrum. Some of the types of decisions I am referring to include: When should reallocation occur within a general class of service? For example, in the land mobile services, should railroads have more frequencies than farmers? Should manufacturers have the same number of channels as power companies? When should reallocation occur between services? For example, when does television broadcasting have too much spectrum and land mobile not enough or vice versa? When should a totally new class of radio service be given spectrum and where should it come from? What should be the required standard for technical efficiency in spectrum consuming equipment? For example, when if at all, should efficient spectrum usage techniques such as trunking and single sideband be mandated? These few examples illustrate some of the difficult decisions that must continually be made in the process of spectrum management. I believe the goal of spectrum management should be to put spec- trum to its most valuable use and that use should be determined in the same way we allocate most of our other scarce natural re- sources, through the application of economics. Let me now briefly explore two types of economic tools that hold promise for improving th~ manner in which spectrum is utilized. Spectrum use fees based on scarcity are one possible option for achieving more efficient use of the spectrum. Unfortunately the fee structure provided for land mobile users in H.B. 3333 suffers from a serious structural deficiency. Since the maximum fee that a land mobile user can be assessed is tied to the revenues of the smallest local UHF TV broadcaster, there exists a critical relationship that can limit the effectiveness of any fee for land mobile operations. For example, using the formula proposed in the bill, the land mobile fee caps based on spectrum scarcity for our three largest PAGENO="0007" 1471 cities would range from $0.48 to $4.42. Clearly fees at this level would have little if any effect on improving spectrum management. A possible solution the subcommittee may wish to consider would be to sever the link between UHF television fees and land mobile fees and have each category float separately. I personally do not believe fees for land mobile would be very high even without a tie- in to television fees but any such fears could be allayed through the provision in the bill of an arbitrary dollar ceiling on the maximum fee amount. Another type of economic tool that can be effectively used to improve spectrum management is the implementation of a market- place where licenses to use the spectrum can be freely traded. To function effectively this proposal would require the following: (a) maximum loading limits would have to be set for shared land mobile channels; (b) free transferability of licenses among users of similar services would have to be assured; and (c) the elimination of block allocations and restrictive eligibility rules would have to be accomplished. Fortunately, I believe that the provisions in H.R. 3333 are ade- quate to enable the Commission to implement a system for the free trading of licenses although obviously major changes in present FCC rules would be required. Such a spectrum market would have the advantage of largely removing Government intervention in the frequency assignment process, and the resulting price signals would give a clear indica- tion to the spectrum allocation authority as to the need for spec- trum reallocation. Let me sum up this quick review of economic tools for spectrum management by stating it is my firm conviction that only through the applicaLion of economic based techniques, such as those dis- cussed above, that significant improvements in spectrum manage- ment can result. Unfortunately there does not appear to be any one technique that can be optimally applied to all bands and all radio services. I would therefore recommend that H.R. 3333 be drafted in such a manner as to provide the Commission with maximum regulatory flexibility in implementing spectrum ecônomic~ approaches. Specifi- cally, the use of fees, auctions and. marketplace mechanisms for frequency assignment and allocation should be permitted and en- couraged in the legislation. Again, it is only through the use of economic tools that I believe the goals of spectrum management can be achieved in our rapidly changing communications environment. Mr. Chairman, this concludes~my~testimony Thank you for the opportunity to appear before the subcommittee. [Testimony resumes on p. 1481.] [Supplemental statement of Mr. Roberts follows:] PAGENO="0008" 1472 SUPPLEMENTARY STATEMENT OF CARLOS V. ROBERTS, CHIEF PRIVATE RADIO BUREAU FEDERAL COMMUNICATIONS COMMISSION Carlos V. Roberts, Chief of the Private Radio Bureau of the Federal Communications Commission, respectfully submits the following comments on H.R. 3333. These are in addition to the testimony that Mr. Roberts was privileged to present to the Subcommittee on June 6, 1979. As then, these comments reflect the views of Mr. Roberts, and not necessarily those of the Federal Communications Comission, Title I -- General Provisions Findings and Purpose Sec. 101. 1 am in complete accord with the findings and purpose. Sec. 102 (2). The definition of "broadcast' may be too vague. It could be interpreted to include CB. Title III -- Telecommunications Carrier Regulation Part A -- General Provisions Declaration of Purpose Sec. 311 (b). Regulatton~ is limited to protection of consumers from dominant carriers. Regulation authority may also be needed to assure compliance with international services, (e.g., coastal stations in the Maritime Mobile Service.) PAGENO="0009" 1473 Part B -~ General Authority of Cóñnlssion Jurisdiction Sec. 321 (b)(1). There Is some question In my mind as to what, If any, jurisdiction the states should have over mobile radio. Any state authority would be particularly troublesome in the multiple licensing (community repeaters) and 800 MHz SMRS areas. An explicit statement that all private mobile radio services are exempt from state regulation would be preferable here. Location of Service Carriers Sec. 334. I heartily support this section permitting any carrier to accept and deliver maritime and general telecommunications service for international transmission at any point within the United States. litle IV -- Spectrum Use and Licensing Part A General Provisions Powers and Duties of the Comission / Sec. 413. I am in gene~ral agreement with the powers and duties of the Commission specified by Sec. 413 but I wish to offer two suggestions. In (a)(7), regarding conventions and treaties, it appears that this section gives the Commission broader authority than is intended, considering the duties and functions intended for NTA in Title VII. As presently set out, I believe there exists the possibility of unintentional and undesirable overlap of authority. The other is with PAGENO="0010" ( 1474 regard to the performance of television receiver characteristics. I concur with the need to regulate TV receivers; this could eventually make available more spectrum space for TV and other radio services utilization. Sec. 413 is silent on the subject of other kinds of receivers, however. Since the receiver is an essential part of any radio system operating in the private services, comprehensive management of the spectrum is made more difficult if there is no authority to regulate receiver performance. This is so because it is less costly to manufacture receivers that offer poor selectivity than those which are extremely selective. As a result of the deployment of receivers with poor selectivity, the Commission is often forced to assign transmitting frequencies with larger spacings between adjacent channels than current technology actually requires. This inefficient, indeed wasteful, use of the spectrum can be directly related to the Commission's inability to exercise control over receiver performance.. I believe public interests would be better served if the Commission were given the authority to develop and enforce minimum standards of receiver performance. $pectrum Resource Fee Sec. 414. Please refer~to my oral statement on this subject before the Subcomittee on June 6, 1979. Applications Sec. 415 (b). Coastal stations of the Maritime Mobile Service should be added to the list of stations requiring a public notice before being PAGENO="0011" 1475 granted a license. Sec. 416 (c)(2). Since amateur stations are mentioned elsewhere in the Bill (e.g., 549 (d)), it would be consistent to include "amateur radio station" in Sec. 102. Sec. 417. It would be expedient to have authority for the Commission to designate certain licenses to be granted upon the mailing of an application--for example; CB and non-compulsory fitted ship stations (recreational boats). Revocation of Licenses; Cease and Desist Orders Sec. 418 (d)(1)(A). Amendment would permit an interested party to file with the CRC "a petition to revoke any license granted by the Commission, under this title". The CRC would have to take action on such petitions expeditiously, even though in many instances hearings would be required. Since there are approximately 15 million CB licenses, and a substantial percentage of holders at sometime or other probably have engaged in behavior warranting revocation, it may readily be seen that the CRC could be inundated with Sec. 418 petitions. Sec. 418 should be amended to exclude most or all of the stations licensed by the Private Radio Bureau. Prohibition of Censo~p Sec. 422 prohibits censorship or regulation of transmission content by PAGENO="0012" 1476 the Commission. It is presumed that the legislative intent isaimed primarily at broadcasting, however land mobile and other radio services are included. This effectively also exempts from regulation the transmission of false distress or other improper messages. This is clearly beyond the intent of Congress. While the First Amendment basis for proposed Section 422 may be solid for the broadcast services, the Subcommittee may want to review the language of this Section with the Private Services in mind. Because these services presently depend almost exclusively on time sharing, the Commission must adopt rules that regulate the content of transmissions. Those that are considered non- essential should not be transmitted; routine messages must give way to emergency calls There are a number of rules which limit the content of transmissions to matters directly related to the activity on which the licensee's eligibility is based. The present language of Section 422 is so broad that we may find ourselves unable to require the continued use of practices which result in the ability of multiple users to share the same channel efficiently. This could be an unfortunate development, and could impair the CRC's spectrum management capability. Part B -- Land Mobile and Other Radio Services Distr~ss Signals and Communications Sec. 434 in essence states that ships, when in distress, may use their radio equipment in any possible way to attract attention to receive assistance. There is nothing, however, in H.R. 3333 regarding the compulsory carrying of radio aboard ships. The Communications Act of 1934 contains a number of specific requirements for certain types of PAGENO="0013" 1477 passenger and cargo vessels to maintain radiotelephone/radiotelegraph installations (Title III, Parts II and III). 1934 wisdom has, over the years, insured the safety of life and property aboard marine vessels. While a desire to minimize some of the detail contained in this section is understandable, it is a very different thing to eliminate altogether the requirement that ships be radio-equipped. I suggest the inclusion of language mandating the compulsory installation aboard ships of radio equipment capable of transmitting distress or emergency messages. The Commission should be free to establish regulations to this effect, but I think Congress should also establish the requirement in unequivocal terms. Should, the Subcomittee feel that the requirement for safety related equipment would be located inappropriately in the Communications Act, then legislation should be drafted giving regulatory responsibility and enforcement authority to the Department of TranspQrtation (U.S. Coast Guard). This is a matter of vital importance and I recommend that the intent of Congress be clearly stated, so that governmental responsibilities with regard to marine radio will be apparent to all. Title V -- Administrative and Judicial Procedures; Penalties Part ~ -- Administrative Procedures General Procedures Sec. 511. I support the goal of completing rule making within a one- year and 90-day period but I do question the wisdom of the self-destruct mechanism of any rule making not completed within this time limit. The Administrative Procedures Act itself has built-in delays, and many PAGENO="0014" 1478 Commission rule making procedures, including frequency coordination, require coordination with other federal agencies, often resulting in delays for scheduled meetings. This means that much of the Commission rule making process depends upon actions over which the Commission has little or no control, and it therefore seems advisable to soften the wording of Sec. 511 to allow a longer rule making period when complex issues requiring coordination with other government agencies are involved. Part C -- Penalties and Enforcement Unauthorized Publication, Interception, or Use of Communications Sec. 549. In paragraph (d), I suggest that the word "amateurs" be deleted and the words "amateur radio station" substituted therefor, and that a comma be inserted after the word "station." These amendments would resolve the problem encountered under Section 605 of the 1934 Act concerning the applicability of the privacy provisions in Section 605 to amateur stations. Another suggestion here regards enforcement monitoring. Commission enforcement monitoring capabilities most probably will never be adequate to allow proper enforcement of short range mobile communications. Therefore, third party monitoring by Commission designated Government agencies or specified facilities for use as evidence by the Commission, for enforcement purposes, should be authorized. For example, the Coast Guard has an extensive VHF network with which it monitors distress calls. Monitoring through this network could be instrumental in reducing the misuse of the maritime VHF band, PAGENO="0015" 1479 especially the distress frequency, Channel 16. Rule compliance could be ~signifiaantly.improved, with minimum additional costs, if the Congress were to authorize the Comissiorrto utilize the products of monitoring by other federal agencies. Title VII -~ National Telecommunications Agency I am in general agreement with the provisions of Title VII. Location of the entire allocation function in the NTA, an executive branch agency, does however cause some concern. I have given considerable thought to this matter and recognize the difficulties in our present system, wherein two agencies (FCC and NTIA) have allocation and assignment responsibilities, protecting their respective government or non- government all~ocations and each vying to get more from the other. The IRAC has done its best to ameliorate this dichotomy but it has not been enough. I believe that the entire allocation function should be located within a single entity in order to be truly objective in making allocations appropriate to both government and non-government uses. I will not attempt to define the nature of such an entity but I do believe it should not be a single-administrator type of agency, for the reasons presented by Chairman Ferris in earlier testimony. I believe the drawbacks of assigning the critical spectrum allocation function to a single-head executive branch agency would outweigh the advantages that would be gained by consolidating what is now a split responsibility. If the spectrum allocation functions cannot be performed by some type of collegial agency such as a commission, it would be preferable to continue the status quo rather than to run the very high risks of PAGENO="0016" 1480 misallocation and favoritism that would inure to a process controlled by a single~head agency. Additional Suggestions I would like to offer two additional suggestions which I believe would give the Commission desirable licensing flexibility along with better service to the public at less cost. The first suggestion is to include authority for the Commission to delegate station licensing authority to appropriate designated persons or entities. An example of a possible benefit under this suggested delegation is point-of--sale licensing. This could permit the issuing of licenses by equipment distributors at the time of purchase, thus avoiding current licensing delays. A second suggestion would permit the Commission to issue blanket authorizations for th~ operation of certain classes of stations, CR for example, which, due to their low power and short range, remain entirely domestic. Together with this authority the Commission would need expedited revocation procedures. The advantage here, if we again consider CR as an example, would be that blanket authority could be given for operation in tj~e CB Service, and the Commission could then concentrate action on abuses instead of licensing. Certainly, both of these suggestions, if considered for legislation, would need to be drafted carefully so as not to conflict with Article 18 of the ITU Radio Regulations. Conclusion I would like to thank the Subcommittee for the opportunity to present both oral and written statements for its consideration. PAGENO="0017" 1481 Mr. MOTTL. Thank you very much, Mr. Roberts. All statements of the succeeding speakers will be inserted into the record without objection. We will next hear from Mr. Paul Bortz, Deputy Assistant Secre- tary, National Telecommunications Information Administration. STATEMENT OF PAUL I. BORTZ Mr. BORTZ. I appreciate this opportunity to testify on the spec- trum fees and land mobile and other radio services portions of your bill. The executive branch still has this and other portions of the bill under study, so the views I present today represent those of NTIA and the Department of Commerce. I will submit the full testimony for the record and I would like to summarize three major points. [See p. 1484.] The first Concerns spectrum fee for broadcasting. The term "fee" has been used in a number of different ways. We look at it in terms of four categories in which people have used the term "fee." The first is fee to cover the cost of licensing which appears in much of the legislation. The second is to recover some portion of the scarcity value which is the principle your bill addresses. The third is the use of fees as a spectrum management tool which again your bill addresses and the fourth is the NTIA position that we have described earlier, the use of a fee in lieu of the public trustee concept. Whenever we talk about "fee," I think we should look at it in terms of those four functions and try to determine what it accom- plishes and what it does not accomplish in terms of those functions. As I mentioned, your proposal uses scarcity value as the basis. NTIA has proposed that indeed the major reason for fee would be in lieu of the public trustee obligation. As we have stated before, we have noted that enforcement of the public trustee obligation has been inefficient and has entailed substantial first amendment costs. As to the amount and the nature of the fee, I think only an auction or some similar technique could really estimate scarcity value. Clearly, this is infeasible because of the disruption it would cause for the broadcasting services. I think the judgment as to what fee is appropriate is basically a political judgment; that is, you are trying to come up with a fee which is not too disruptive and yet you want to make a significant contribution to the achieve- ment of congressional goals in broadcasting which we now seek through the public trustee concept. Whether it is 1 percent of revenues or 2 percent or the sliding kind of scale which is em- bodied in your bill, I think you have to look at it from a number of different points regarding equity and disruption and we outline that in our formal testimony. We therefore support the concept of fee in your bill but we note throughout the bill that it is based in large part on the use of a scarce spectrum resource. To that extent, then, we believe you should consider the form of the schedule' which appears in 5. 611. Let me go on to spectrum fees for land mobile and other radio services. We believe that in the regulation of land mobile and other radio services that the proposed CRC should have maximum flexi- 51-253 0 - 80 - 2 PAGENO="0018" 1482 bthty to use economic techniques in spectrum assignment and allo cation decisions, these views are very similar to those Carlos Rob erts just expressed. User charges, shadow pricing and auctions are all possible, but we do not see immediate application of these at all These tech niques are theoretical, and we do not know a lot about them in a practical situation There would certainly have to be experimenta tion and many of these might not turn out to be feasible We suggest CRC be given the power to experiment, the authority should be there, but we do not anticipate this happening immedi ately If some of these would work, I think a clear pattern of spectrum value would emerge and any significant difference in value-for example, in adjacent parts of the band-would then be an argu ment, only one argument but an argument for reallocation among services. A multipornt distribution system is perhaps a good example of a service in which really there are no noneconomic social concerns Therefore it is one that would be quite suitable to the use of a technique such as auction In talking about MDS, we also commend your incorporation of section 436(a), which essentially says the Commission should if at all possible avoid the cieation of monopolies in the allocation of services. The way MDS has been developed, has really created a monopoly and I think cellular telephone systems would result in a similar situation We think your caution and general direction there is very important Linking the land mobile fees to the broadcast fees as you have done, I think, would preclude or might preclude any effective use for spectrum management purposes of the fees derived from this service We appreciate the thrust of the provision that you have- that is, the payment of equivalent amounts per unit of spectrum used-which is the basis on which the link is established However, it might not be a linear relationship at all. We think if you can acknowledge that the broadcast fee really is imposed in lieu of the public trustee obligation, you will be able to separate the two approaches as regards fees: fees imposed on land mobile and other radio services would be for spectrum manage ment purposes, while those derived from broadcast would be in lieu of the public trusteeship Our recommendation is that the relevant subsections of 414 which deals with the linkage be eliminated and that the Commis sion be given a clearer charter for the uses of economic techniques as presently given in section 436(b)(2) This essentially is a grand fathering kind of approach We think this grandfathering approach could lead to some very awkward situations out in the field. Let me touch on my final key point, which deals with jurisdic tional uncertainties in the land mobile area particularly Both the regulated operators, radio common carriers, and wire line common carriers, and the unregulated entities, such as shared private sys tems, exist in these services Sometimes it is very hard to tell the difference between those services I think some systems require regulation I think cellular is a system that has definite monopoly characteristics-high entry PAGENO="0019" 1483 costs, significant economies of scale and limited availability of spec- trum. We believe all intraexchange services, where regulated, should be under State regulation as opposed to the Federal preemption which is in your bill. We do share your concern of unnecessary State regulation in these areas and we support the alternative put forth by Carlos Roberts just a few weeks ago to have your bill give the Commission the authority to determine whether, under certain conditions and for certain types of radio common carriers' services, there is no need for regulation. We believe where regulation is appropriate, that regulation should be at a single level for all services providing intraexchange communications. I think, if not, we could get some real anomalies in having two layers of regulation for what is basically the same service using different technologies. Let me just state two more points very briefly. We believe the Commission should not regulate the performance characteristics of receivers beyond the regulation of spurious omis- sions. I described the last time I appeared in front of your commit- tee on H.R. 13015 about the "tar baby" effect that can result from receiver performance regulation. We think the wide latitude given the Commission could be really disasterous and result in huge cost to the consumer. We also want to state our very strong support for section 549 of your bill, which deals with unauthorized interception of communi- cations. We suggest in the full testimony somewhat more rigorous standards for governing interception than is currently in section 549. These more rigorous standards are based on recent NTIA study of these particular issues. I think in summary that this section of the bill is a clear im- provement over what we have now and we look forward to its enactment. [Testimony resumes on p. 1520.] [Mr. J3ortz~ prepared statement follows:] PAGENO="0020" 1484 Statement of Paul I. Bortz Deputy Assistant Secretary National Telecommunications and Information Administration I Introduction Mr Chairman I appreciate this opportunity to appear before the Subcommittee and testify on H R 3333 The subject of these hearings today spectrum use Lees land mobile and other radio services focuses attention on the critical need for effective management of the valuable spectrum resource The Executive Branch still has this and other portions of the Bill under study, ana it has not been feasible to coordinate with all the relevant agencies Consequently I will only be able to give you the views of NTIA and the Department of Commerce Historically spectrum has been treated essentially as a "free" good.. Whenever charges have been proposed for its use, the proposals have sparked considerable controversy as to what kinds of spectrum use fees the FCC can legally charge users We believe that it is time to face the important question Can we afford to continue treating this valuable resource PAGENO="0021" 1485 as a "free good or should we introduce economic principles into management ofthe "scarce" spectrum resource? The "scarcity" we hear of today is, to a great extent, the result more of treating spectrum as a free good and as NTIA will more fully develop in our testimony on Title VII, the administrative procedures required by present law, than of a genuine scarcity of spectrum. For example, while block grant allocations are appropriate for certain services, we should, whenever feasible or appropriate, consider breaking down more rapidly the block allocation procedures--by which frequency bands or "blocks" are reserved exclusively for a specific service. A few improvements are observed in this area, but more is required. Most importantly, there are no particular financial incentives to use~ the spectrum efficiently. In fact, there is a strong counter-incentive to innovation in that a spectrum user can usually substitute the use of "free" spectrum for much of the complexity and cost of the more sophisticated efficient communications equipment. We suggest therefore a guiding principle for spectrum management: to strive to allocate this valuable national resource along lines that reflect maximum economic and PAGENO="0022" 1486 technical efficiencies consistent with other national goals. We think that H.R. 3333 would serve that end far better than does the present statute. II. Land Mobile and Other Radio Services Land mobile and other radio services play a critical but often little appreciated role in our modern society. They include such important services as the various mobile categories--land, aeronautical, and maritime mobile--as well as the private microwave services, the Citizen's Band and amateur services, and navigation systems, and even radio astronomy, to name just a few. These services are crucial to assuring the safety of life and property, for economic well-being, for promoting efficient transportation and management of resources and for allowing public access to radio for personal use. Many of those functions could not exist--or could only be performed at a much higher cost or with greatly reduced effectiveness--without the use of the radio spectrum. Moreover, the amount of spectrum allocated to a particular service is an important element in determining the cost and the quality of the service to the user. PAGENO="0023" 1487 We have already expressed our opinion that the use fee concept would be a worthwhile option. But there has been no experience in administering alternative economic techniques, or combinations thereof. Without considerable experience in using economic techniques in spectrum management decisions, we doubt that the CRC will be. able to identify the preferred techniques.. Congress should therefore give the CRC maximum flexibility to develop economic techniques for use in its spectrum assignment decisions. These techniques might include user charges, shadow pricing, auctions, etc. If Congress does allow the CRC to engage in spectrum management with therecommended flexibility, we intend to participate fully in the CRC's efforts to develop these economic techniques. We believe that these efforts can improve spectrum management in several ways. For example, a technique such as auction may be appropriate in circumstances without non-economic social concerns, and will allow for a determination of the highest value of spectrum for particular uses. This process would serve both the interests of economic efficiency and equity. This, in turn, will foster more effi'cient, future allocation and reallocation decisions. For, if a clear pattern of spectrum value emerges, such as might happen with a spectrum auction, any significant~ PAGENO="0024" 1488 difference in the value of the spectrum from one service band to another would surely be an argument for reallocation Present mechanisms to determine the relative needs of spectrum users within a class--or even the relative needs of classes of spectrum users--are demonstrably inadequate We are not saying that the auction process for a fixed term assignment is the most desirable technique under all circumstances--only that its use in certain service should be thoroughly explored and be within the CRC's discretion if found to be desirable As another example there are certain aspects of relative spectrum property rights that are best left to spectrum users to resolve by private agreement subject of course to the CRC's approval. One user might be able to improve his or her system's performance if a second user agreed to decrease transmitted power If no third parties are adversely affected technically a private agreement here would increase overall economic efficiency. Another technique to be explored is subleasing. Here a user might sublease part or all of his or her license--in either the geographic frequency or time domains This has precedent For example the office music suppliers use portions of FM radio frequencies and pay the radio station for carrying their signals. PAGENO="0025" 1489 In sum, short of a full and open market in spectrum-which we dannot advocate at this time-a number of possible approaches with varying degrees of market involvement are available to increase overall economic efficiency. A spectrum fee, determined by some administrative process, might also be a useful economic technique for making frequency assignment decisions, but it is not the only or the most effective marketplace force that might be applied to the management of the spectrum (e.g., many would argue that auctions would be more effective). The CRC thus should be allowed flexibility to employ economic techniques,, such as described above, both in making spectrum assignments and after such assignments have been made. Thus, while we approve of Section 436(b) (2) insofar as it would allow some flexibility to the CRC, we believe that greater flexibility is needed (see page 10, infra). III. Spectrum Fee for Broadcasting Services In view of NTIA's prior testimony on commercial broadcasting, no extendeddiscussion is needed. Whatever the merits ofa fee for managing the spectrum in the broadcast area, such a fee is called for, in our view, in lieu of the public trustee obligation. As we have developed, enforcement PAGENO="0026" 1490 of that obligation has been ineffectual and has entailed Considerable First Amendment costs The revenue obtained from the spectrum fee could be used by Congress to more directly accomplish its goals in this area. We urged immediate substitution of the fee for program content regulation as to radio and its examination for television after a 10-year period in which the experience in radio and the deregulatory experiments could be evaluated. As to the amount and nature of the broadcast fee, we pointed out that only an auction could establish value in these circumstances, but that auction was infeasible because of the great disruption that would occur It follows that the judgment as to the appropriate fee is a political one-that is to select a Lee that is not too disruptive and yet also makes a significant c~ontribution to the achievement of Congressional goals. We therefore support the concept of the spectrum fee, as reflected in H.L3333, assuming that~ the hearings do not establish that the schedule in Section 414 fails to meet the above guidelines We note that this schedule is based in large part on the scarcity value of the spectrum being assigned (Section 414(a)(2)) To that extent, we believe that the schedule in S. 611 merits consideration. PAGENO="0027" 1491 IV. ~ 3333 "Find inns and Purposes Title I soundly sets forth a general Congressional finding that regulation by the CRC is necessary "to the extent marketplace forces are deficient," and that the purpose of the Act is to regulate interstate and foreign telecommunications "to the extent that marketplace forces fail to protect the public interest" (Section 101 (a),(b)). This finding is properly restated in Section 411, containing the Congressional findings under Title IV--spectrum use and licensing--so as to dispel any doubts that marketplace forces are to be an essential tool in spectrum management, and regulation is to be resorted to only when the marketplace is proven insufficient. Title IV recognizes that regulation of spectrum usage has the additional purpose of resource conservation. Section 411 also provides the principle underlying spectrum fees, to increase efficiency of spectrum usage. The Section 411 findings should be expanded to make it clear that the same principle underlies the CRC's employment of other economic techniques in its spectrum management decisions, such as bidding, leasing and license modification agreements. PAGENO="0028" 1492 trum Fee f or land Mobile Rad io Se r V The fee schedules that are to be established for land mobile radio services may well be inappropriate, if their purpose is to promote efficient spectrum use The Bill provides for spectrum fees in the land mobile radio services that would be tied to spectrum fees for UHF television broadcast licensees, with the latter fees based upon a statutory formula. We can appreciate the thrust of this provision--to have UHF broadcasters and land mobile radio licensees pay equivalent amounts per Hertz of the spectrum used This appears to be aimed at notions of equity among various users. But there is another important purpose that should be taken into account--to promote efficient use of the spectrum The fees established for the UHF spectrum might not necessarily be identical to those which would efficiently allocate the land mobile spectrum The CRC should also have the flexibility to adopt a fee schedule that would promote the latter This poses a choice--to opt for the equitable linkage thu~ stressing scarcity value, or to eliminate subsections (c) (1) (B) (ii) and (c) (2) of Section 414, so that the fee will be established by the CRC based on the spectrum efficiency standard We favor the latter but recognize the difficult policy considerations in balance here PAGENO="0029" 1493 Flexibility in Spectrum Management Techniq We have set out the need for maximum flexibility to be afforded the CRC to experiment with and employ various economic techniques such as auctions and user charges in assigning spectrum. We are concerned that the Bill will not be construed to allow such maximum flexibility. Section 414(a) requires the CRC to assess spectrum fees on licensees based in large part on the "scarcity value" of the spectrum being assigned.1 Section 413 (a) (3) requires the CRC to "study and provide for an efficient system for assignment of the electromagnetic frequency spectrum," and section 436(b) (2) certainly allows flexibility but only with respect to vacant frequencies in land mobile or other radio services. This latter provision will lead to awkward situations where land mobile licensees in the same area will be treated 1 Section 414 (a) (2) (C) states that the Commission shall waive that portion of the fee representing the scarcity value of the spectrum if it determines that the license is required by a treaty or a provision of international law. The ITU Radio Regulations, which have the status of an international treaty, specifically require that all transmitters of member nations be licensed by their governments (Article 18, Provisions 725-734). An argument might be made that this would exempt all systems which use ~transmitters from the spectrum resource fee. We suggest that Section 4l4(a)(2)(C) or the legislative history be clarified to eliminate this possibility. PAGENO="0030" 1494 differentlY depending on whether they operate on new or old frequencies Most important no provision expressly authorizes the CRC to experiment with and employ a wide range of economic techniques in all situations. We strongly recommend that express authorization to do so be included in Title IV Also section 417(d) (2) and 415(d) (1) ()2 should be revised to specifically note this express authorization subject to the provision of Section V Other SJ?eCi~c.. Areas of Co over-regulat~~. Under the present Act, the FCC is unsure whether it has the clear authority not to regulate in many cases where the competitive marketplace might work very well For example the FCC has had considerable difficulty in the Land Mobile Radio (LMR) area in creating a new class of service providers--Specialized Mobile Radio (SMR) systems The CommissiOn'S construction of the broad mandate to regulate common carrier activities along with its definition of common carrier activities has made for wide regulation in this area 2 We construe Section 436 (b) (2) (D)) as permitting the use of an employee board, as discussed in our commercial broadcasting testimony PAGENO="0031" 1495 Section 322 of the Bill addresses the problem by providing the proposed CRC with broad powers to classify common carriers and thus to decide what carriers are subject to Title III regulation. We believe this flexibility should be carried over into the land mobile and other radio services, and believe the Act does so, with the broad exemption provision in Section 437. We strongly believe that competitive providers of common carrier-like services should not be regulated simply because of the definitional nature of the services offered. The key factor to be considered is the economic or social need for regulation. What purpose will it serve in the particular circumstances of the market in question and will a competitive marketplace, left to its own devices, serve those purposes? Optional "Blanket" Licensing. Generally, the FCC believes it has a mandate to license all non-Federal users of the spectrum. It has decided that it is reasonable under this requirement not to regulate very low-powered emitters such as walkie-talkies and garage door openers. There is, however, some uneasiness by the Commission in exercising this discretion. PAGENO="0032" 1496 Licensing of spectrum Users or operators should serve a useful purpose. There is, for example, considerable question whether the licensing of CB users is necessary or desirable. There are also questions in the operators field: Does the Government need to license operators and maintenance personnel? Couldn't the spectrum-using licensee be responsible for the use of his telecommunications equipment? There have been great strides made in new technology so that, in most cases, constant "fiddling" with equipment is no longer required; automatic alarm systems and/or periodic checks should be sufficient. The CRC should have the clear authority to not require licensing if no useful purpose--such as a needed control of interference--would be served in so doing. Rather, the CRC should be given the express authority to employ blanket licensing or similar approaches (e.g., a rule authorizing specific uses). Relevant, efficient and flexible management of the spectrum resource requires this. We again construe Section 437 as providing such blanket or similar broad exemption powers for the proposed CRC ("such exemption is consistent with the purposes of this Act"). If there is any doubt on this score, explicit language should be added in Section 412 (a). PAGENO="0033" 1497 Interconnection. Interconnection of private systems with common carrier facilities may best be left to the proposed CRC's discretion; its guideline could be whether or not such interconnection would be in keeping with the "purposes of this Act." Efficient use of the public's spectrum resource has been, and should be, among the conside- rations here. Clearly, the proposed CRC should have the authority to require interconnection in the absence of substantial reasons to the contrary. Jurisdictional Uncertainties. There are both regulated and unregulated entities in the land mobile radio services. The economically regulated carriers include both the wireline common carriers, that is, the telephone companies which provide radio telephone service, and the radio common carriers (RCCs), which provide only radio services but no traditional "hard-wire" telephone services. Private systems of various kinds make up the unregulated s'ystems. In order to avoid the costs of regulation but to take advantage of the economics of larger radio systems, several companies or individuals will often share a "private" 51-253 0 - 80 - 3 PAGENO="0034" 1498 systsem. These sharing arrangements are frequently made with the help or at the instigation of a third party-often a mobile equipment manufacturer or dealer. With third party involvement, the wide eligibility for some of these shared services, and the relative case of acquiring service on a monthly fee basis, these shared arrangements can begin to take on the appearance of a traditional common carrier service. Moreover, With the development of repeaters which allow large, service areas, and now with access to the public telephone network at the repeater site, these shared systems are becoming technically capable of providing service equivalent to the common carrier services-both radio telephone and paging. These so-called pseudo-common carriers often compete directly with the radio common carriers. The above raises a number of questions: (I) are there meaningful distinctfbns between the radio common carriers, the wireline common carriers, and the shared special mobile radio systems; (2) which, if any, of the land mobile radio systems require regulation a~id who should make that determination; (3) is State or * Federal regulation appropriate when regulation is required; and (4) how should interconnection to the switched telephone network be provided for? PAGENO="0035" 1499 We believe that the distinction between the land mobile radio systems is minor, and will become increasingly difficult to maintain. Further, in our view, the cellular systems, at least under current circumstances, would appear to require regulation; they seem to have definite monopoly characteristics-- `high entry costs, significant economics of scale, and limited availability of spectrum. We believe that individuals and companies who need mobile radio services should be free to acquire service by installing a private system, by sharing a private system with other users, or by acquiring the service from a common carrier. Likewise, entrepreneurs should be free to offer equipment either to users or to service providers and to assist them' in making their system operable, whether that system is designed for one company, for shared use by companies and individuals, or as a subscriber system of a common carrier service. Futhermore, there should be freedom to interconnect with the wireline telephone network. Many of these freedoms could be accomplished by deregulating the radio and wireline common carriers, and by legislatively requiring interconnection. However, in our previous testimony we expressed our belief that all intraexchange telecommunications PAGENO="0036" 1500 should be under State jurIsdiction. This approach constrasts with that inH.R. 3333 which reserves to the States ortly the regulation of "local exchange telephone service' (Section 321(b)) , but prohibits State regulation of any telecommunications service provided under a license issued by the CRC (Section 424(a)). If the State has jurisdiction over all `local' communications, the question of whether to rate deregulate any service would be the decision of the State regulatory authorities; there would be no Federal control, except for spectrum licensing and management. Not only would tate deregulation be out of Federal hands, but also questions of interconnection, front a non-spectrum aspect, between a local mobile radio entity and the local exchange telephone network would be decided by the State regulatory commission. Therefore, our desired scenario for (local) land mobile radio would he at the discretion of the States, While we thus cannot be sure that our preferences for policies governing such "local' communications will be adopted by the States, we believe that the States should have jurisdiction over such"local" communications, In our view., the proper distribution of jurisdictional authority in our Fedetal system calls for this accommodation and trust, PAGENO="0037" 1501 There is, however, an alternative to complete reliance upon the States to determine the need for regul~ftion, which does not entail regulation from Washington or a present effort to determine definitively future policy in this dynamic field. That alternative is to give the Commission the authority to determine under what conditions regulation is r~equired (as-suggested in Carlos A. Roberts' testimony before this Subcommitte on May 1). This would not give the Commission authority to determine the details of that regulation, but would prevent any tendency on the part of State regulators to regulate where regulation is not necessary. For example, the Commission might determine that- radio common carriers should he deregulated (except for radio licensing at the Federal level). While it does involve~some line-drawing difficulties for States (see testimony on common carrier, pp. 11), it would present a more flexible approach to the problem than that in H.R. 3333, -permitting judgment on the basis of evolving conditions in this dynamic~field. We believe, therefore, that it should be given thorough examination by the Subcommittee. If the States are only given the limited jurisdiction specified by Sections 321(b) and Section 424(a), that is, only ovet "local exchange telephone service", the question PAGENO="0038" 1502 becomes one of determining whether this description fits the land mobile radio services. Many systems today are not switched in the way telephone messages are switched~ and paging systems could not properly be called telephone However, the wireline radio common carriers are likely to tall under this classification of local exchange telephone and the technology is available for many more systems to become both `telephone and switched." Indeed radio systems form one important class of alternatives to the hard-wired local telephone system. The States, therefore, would claim jurisdictional control over land r~obile services but there may be lengthy determinat ions to resolve whether or not a particular system is or is not local exchange telephone service." The approach in H.R.3333 thus presents the States with some potentially difficult jurisdictional decisions. Further it may allow for State jurisdiction over a mobile telephone service, while retaining Federal jurisdiction over the local paging service offered by the same company. Most radio services, of course, are not regulated on the State level; the deciding factor is whether the service is a common carrier service. A local taxicab company, for example, that uses radio for dispatching purposes will not have its radio use regulated by state or local agencies. PAGENO="0039" 1503 Often, however, it is not clear ~whether a particular radio service is indeed common carrier in nature. In such cases, the FCC may make the determination that the service is not common carrier and, therefore, is not subject to state jurisdiction. This occurred in the 900 MHz case3 decision, Docket No. 18262, which established, a classification of specialized mobile radio system (SMRs) for ~the provision of dispatch services. The Commission's discretion to establish this service as a non-common carrier service was affirmed by the courts.4 Receiver Performance Regulation. Section 413 (a) (12) gives the proposedCRC the authority to regulate the performance charadteristics of television receivers. No other receivers are mentioned. However, Section 413 (a)(6) provides that the CRC would have the power to prescribe rules governing the interference potential of equipment. 3An Inquiry Relative to the Future Use of `the Frequency Band 806-960 MHz, 51 FCC 2d. 945 (1975). 4National Association of Radiotelephone Systems v. FCC, 525 F.2d 630 (D.C. Cir. 1975), cert. denied, 425 U.S. 992 (1976) (NARUC I). PAGENO="0040" 1504 We believe that the proposed CRC should not regulate performance characteristics of receivers. We think that *manufacturers can do a better job of satisfying consumers if they, instead of the Government, make the performance tradeoffs many of which are very complicated As an example of how complicated these issues can get, consider the recent deliberations at the FCC concerning mandated lower UHF-TV receiver noise figures. The FCC has been the recipient of strong pressures to mandate lower noise figures in. order to increase the technical comparability of UHF and VHF TV broadcasting There are many ways in which a designer could achieve the mandated result (lower noise figures in this example), several of which are at odds with what the consumer would like and, for that matter, with what the Government would consider desirable from the viewpoint of overall spectrum use. In the above example, lower noise figures could likely be achieved at the expense of other performance characteristics-- such as selectivity and other susceptibility to interference characteristics. These other characteristics also influence UHF/VHF TV technical performance comparability but they also affect the efficient use of the spectrum in general. PAGENO="0041" 1505 Thus, regulation could, easily turn into a "tar baby." Each time an attempt is made to correct a give "problem," a whole host of new problems might surface. The "corrective actions" taken to meet the new problems would in turn create still newer problems. And so on. Thus, we believe that while the all-channel law has largely served a worthwhile purpose, we would not turn to the expansive powers in 413(a) (12). Rather, Congress should reserve that authority, only exercising it when convinced that overriding considerations for so doing are present. For example, while empowering the proposed CRC to regulate consumer electronics may ultimately prove necessary to alleviate interference problems, we believe that a thorough economic analysis of alternatives should first be undertaken. One alternative to regulation would be a consumer education program alerting buyers of the need to consider interference susceptibility as a purchase criterion (particularly in the area of high radio transmitter usage) together with the voluntary adoption by electronics manufacturers of ptandards for grading their products according to their general level of interference susceptibility. This alternative offers the potential to equip consumers to make more informed decisions in purchasing electronic devices. A proposed PAGENO="0042" 1506 CRC should be empowered to regulate only if overriding considerations for using a regulatory approach are present. License Suspension (Section 432): We prefer the imposition Of fines to suspension of licenses. Economics or other harm suffered from not being allowed to operate the radio service may be unnecessarily severe. Futhermore, as a practical matter, it would be very difficult in many cases to monitor whether the operations had indeed been suspended. No such problems arise in the case of forfeitures. And the latter, if substantial, can be as effective a deterrent as suspension. No Separate Construction Permits. We commend the Subcommittee for doing away with the requirement of a separate construction permit--a pre-condition to actual licensing. This approach should ease somewhat the licensing burden to spectrum users. Also, it represents a positive approach in that it assumes the licensee will, in all good faith, meet all conditions of the li~~~; on if proven otherwise would the CRC need to intervene. Distress Signals and Communications (SectiOn 434). We suggest that these comments be broadened to include "aircraft." PAGENO="0043" 1507 Unauthorized Interception Provision (Section 549). Let me now turn to Section 549, the provisions in H.R. 3333 which would strengthen the privacy protections for communications. As you are aware, the President has recently announced a broad initiative to ensure the privacy of the individual in our evolving "information society," a society whose hallmark is the ubiquity of computerized data banks and sophisticated telecommunications systems. These new techmologies, while facilitating the delivery of many goods and services of society, have outstripped the ability of existing laws to protect information from misuse and unauthorized access. Existing communications privacy laws, intended to protect information in transit, must be changed to account for new forms of information transfer and increased sophistication of interception technology not contemplated when these laws were drafted. For example, existing Section 605 specifies "divulgence" or "use" of a communication before there is a violation. Subsequent court cases have affirmed this requirement, Bufalino V. Michigan Bell Telephone Co., 404 F.2d 1023 (8th Cir. 1968), cert. denied 394 U.S. 987 (1969). This element arises, in part, because Section 605 was intended PAGENO="0044" 1508 to apply to common Garner employees who, as part of their en~ployinent, had to read (use) ~nd se-transmit (divulge) messages in the communicationS, systems. The law was thus drafted to focus on controlling divulgence and use' (see phrases (l)-(6) of present Section 605) , but was silent with re~ard to mere interception. Interception alone may be used to collect a storehouse * of information about an individual including banking, employment, health and social h~its. It may be used to obtain sensitive business economic data in a digital form so complete and revealing that it would have astounded the `wiretapper of the 1950's. But under the present law the interception may lawfully Occur and the ~1ater use, triggering a violation, may be so far removed or so difficult to link to the interception that a prosecution becomes nearly impossible. Accordingly, society's concept of privacy has matured to the point where access to personal information through interception is viewed as an invasion of one's pnivaoy~ Report of Privacy Protection Study Commission, p.15 (July 1977). Thus, access to a communication~which may contain information on one's personal l~fe--withOUt the individual s consent is alone sufficiently repugnant to our expectatipflS of privacy that the law should b~ amended to prevent such access. PAGENO="0045" .1509 Section 605 was, in fact, amended in 1968 when the Congress passed Title III of the Omnibus Crime Control and. Safe Streets Act of 1968 (18 U.S.C. S2510 et This new law did forbid the mere act of interception in some circumstances, but the associated amendments to Section 605 actually cutback the scope of Section 605 from "radio and wire" communications, to just "radio" (1968 USCCAAN 2196). In addition, 18 U.S.C. §2510(4) defines "interception" of wire communications as "aural" acquisition of the contents. An indirect (and I'm sure unintended) result of this was to leave questionable whether any information in non-aural form communicated over a wire, e.g., pictures, print, digital computerdata, etc., may be intercepted, used., divulged, etc., without prohibition by these laws.5 In addition Section 60.5's standards, by which law enforcement agencies or others may lawfully receive intercepted communications from carrier employees, are inappropriately low for the volume and sensi.tivity of information carried in today's communications systems. NTIA, consistent with the thrust of the President's recent privacy message, believes Miller, the Assault on Privacy 161-168 (1971); Metelski, "Achieving Communications Privacy," Federal Communications Law Journal 135 (UCLA 1978). PAGENO="0046" 1510' that the ex parte subpoena requirement of phrase (5) and the `other lawful authority" catch-all of phrase (6) of Section 605 are both inadequate for protection of information carried on present communications systems. This standard is inconsistently low with respect to court cases (see, e.g., Merger v. New York, 388 U.S. 41 (1967) and Katz v. United States,. 389 U.S. 347 (1967)) and the privacy provisions enacted by Congress in Title III of. the Crime Control Act of 1968 (18 U S C §2516 §2518) In this same vein interception by carrier employees should also be limited to only that necessary for provision of service. NTIA SUPPQRTS THE COMPREHENSIVE REVISIONS IN RE-WRITE SECTION 549 NTIA is firmly committed to strengthening communications privacy laws in the light of new technologies. We believe the revisions reflected by Section 549 will go far toward insuring the privacy of many types of communications now covered ineffectively (or not at all) by Section 605. We therefore support the Subcommittee's.efforts in this urder taking. PAGENO="0047" 1511 Section 549 avoids the confusion of technological disttnction's~-by app]~yingitself to all forms of "communications" in a generic fashion through its comprehens~ive definition of this term. We believe this is a fundamental necessity for any sound communications privacy law, because whether a particular communication is "wire," "radio," "oral," "optical" or other should not be the dispositive legal issue in determining whether prinacy protections will apply. The type of communication is only one of many factors to be considered in determining whether a communication is legally entitled to claims of privacy. Whether a communication is entitled to privacy protections of law depends on the "reasonable expectation" of the parties to the communication, a standard including all circumstances of a particular communication, see, Katz v. United States; Berger v. New York, cited supra. This c~riterion is well established in the law and one which, we believe, is the only test workable given the ~variety of situations -in which different forms of communications occur. Compare United States v. Hall, 488 F.2d 193 (9th Cir. 1973); United States v. ~ 226 F.2d 281 (9th Cir. 1955); State v. Cartwrj~, 418 P.2d 822 (Ore. 1966). PAGENO="0048" 1512 Section 549~ correctly adopts this criterion, by Protecting "private communications" and by incorporating a "reasonable expectation" of privacy in its definition. This criterion would require judicial scrutiny of *the facts and áircumstances surrounding each communication for which an aggrieved party claimed an expectation of privacy. The determination would involve not only the individual's expectations, but an assessment of whether that expectation is one that society is prepared to recognize as reasonabale, United States v. Fisch, 474 F.2d 1071, 1076 (9th Cir. 1973). Thus, we would anticipate that many forms of communications such as omni-directional public service radio, etc., for which a large and established market of receiving/scanning devices. exists, might not reasonably claim to be "private communications" in contradiction of reality The Subcommittee may wish to consider specifying in the legislation certain forms of communication which would have no "expectations of privacy" and thus no protections under the law. If communicants were to employ protection devices in an affirmative effort to obtain privacy, that would also be a consideration for the court in determining whether an expectation of privacy was "reasonable." PAGENO="0049" 1513 Despite the flexibility that this case-by-case approach would provide in determining whether a particular "expectation of privacy" was reasonable, we note that the Congress and the courts have found that certain types of communications have an absolute expectation of privacy without a case- by-case examination of the circumstances (i.e., "wire' and "telephone" situations). As developed within, we would amend Section 549 to reflect these findings. More to~51 on this point the latter portioos of this testimony. Access to communications by government officials has been a major privacy concern, (see, e.g., Interception of Nonverbal Communications by Federal Intelligence Agencies: Hearings on Government Operations (Project SHAMROCK), 94th Cong., 1st and 2d Sess. (1975-76)). Following the lead of the rewritten criminal code (S. 1; S. 1437), Section 549 permits government officials access to private communications only to the extent authorized by other laws (para. (C)). It also provides explicit exemption for activities authorized under the "wiretap" and Foreign Intelligence Surveillance Acts. 51-253 0 - 80 - 4 PAGENO="0050" 1514 PROPOSED NTIA MODIFICATIONS Section 549 is a significant, major improvement over existing laws intended to insure communications privacy However NTIA believes that certain modificatiOn~' should be made to ensure that the privacy of communications would be comprehensively achieved now and in the future As I noted previously the privacy standards of clauses (5) and (6) of Section 605 are inadequate, permitting divulgence of carrier `communications by an inconsistently low standard in comparison to other laws For example Title III of the Crime Control Act establishes a probable cause standard for access by government or other third parties (18 U S C S25l6 S2518) The' recently enacted Foreign Intelligence Surveillance Act (P L 95-511) requires independent review by a court before any surveillance directed at a particular * individual may be conducted, and if that individual is a U S citizen and not also a foreign power or agent of a foreign power then the probable cause provisions of Title III would apply NTIA views this legislative activity by the Congress and the recent legislative proposals by the Administration PAGENO="0051" 1515 as reflecting the appropriateness of strengthening privacy protections for communications. Therefore, clauses (5) and (6) of Section 549(a), permitting divulgence of communications by carrier employees in response to a subpoena or on demand of "other lawful authority," should be deleted. Access standards for "carrier communications" would then become, appropriately, the same as for "private communications' `in the bill, i.e., that of a warrant issued and executed at the lawful direction of a court and implemented under pare. (c) (2) of the bill. As discussed previously, we believe that the determination of what consitutes a reasonable expectation of privacy is critical to the workability of this law. On the one hand, the party's subjective expectation at the time of communicating must be taken into account, but there also must be an objective evaluation of the facts and circumstances surrounding the communication to determine if the parties expectations are ones which society is willing to accept as reasonable, United States v. Fisch, cited~yp~. Thus, NTIA believes the definitional language for "private communication" in the bill should explicitly make clear that circumstances surrounding -the communication must also be taken- into account, as well as the reasonable expectations of the party (i.e., PAGENO="0052" 1516 by adding the phrase, "...under circumstances justifying suc1i expectatdon,"with accompanying legislative history). This expectation has been established for certain commupicatiOnS and in these instances should be written into the present law. There is an expectation of privacy for "wire" communications established by Congress in its ~enactment of Title III of the Omnibus Crime Control and Safes Streets Act of 1968 (18 U.S.C. §2510(1), 2511(a)), and a consistently held "reasonable expectation of privacy" in the telephone system, Katz v. United States, 389 U.S. 347, 352 (l9~7); United States v. Hall, 488 F.2d 193, 196 (9th Cir. 1973). However in the telephone network we are dealing with a divarse mixture of media. Some of these, especially those associated with mobile telephones, even though functionally an extension of the telephone network, are such that technical impracticalities of preventing~ifltercePtiOn militate against adopting an absolute protection from interception. We wo~ld thus. suggest that in such cases the protection against in~erceptiOfl would be based on a "reasonableness" test instead of being absolute. Yet, because we are still dealing with telephone communications, we would, at the same time, PAGENO="0053" 1517 extend to such servi~e protection from disclosure or use. We think this would reflect present expectations of society, and help ensure that those expe~ctations continue to exist in the future through explicit legal protections. With respect to authorizing interceptions by carrier personnel, we rfcognize that employeeb of the carri~ providing the service will, at times, be placed in a position which might otherwise be technically considered as intercepting ~~communications. We therefore support the exemption for this kind of common carrier activity. However, we urge that some of the orig~in~limiting language discussed in the legislative history of T~tle III of the~Omnibus Crime Control Act of 1968 be inserted to make it clear that such interceptions, besides being incidental to the business of common carriage of communications, ought to be necessary, and conducted under a controlled procedure ~nd in accordance with recognized minimization guidelines, such as those incorporated into the Foreign Intelligence Surveillance Act. That way we can be assured that the common carrier operation will not be hampered and the cüstomer~s pr~ivacy will be preserved. PAGENO="0054" 1518 NTIA believes that the exemption dealing with theft of service ought to be removed Our common basic objective in restructuring this section is to tighten the processes and conditions under which authorized interccpt~ions may occur Yet the effect of this flat exemption is to ~ilow warrantless interceptions for what is a relatively minor crime of fraud. We believe that the implicit authorization of non-federal employees to conduct criminal investigations may set an undesirable precedent While we certainly share the concern about abuse to the telephone sybtem we are not convinced that the abuse incurs a sufficiently high public cost to justify such extraordinary measures. Another area of relatively major significance is the perhaps inadvertent omission of the term letter from the exclusionarY provisions of the last sentence of the i~efinition of private communications para (f) (4) NTIA believes that Congress has already spoken to the privacy of corporeal postal matter in the postal privacy statutes (see, e g 18 U S C SS 1701-1709) and that the Communications Act should not duplicate this coverage We note that the definition of telecommunications in H R 3333 section 102(21), would not include corporeal.4iOstal matter and the commensurate exclusion in Section 549(f) (4) should PAGENO="0055" 1519 be made. (NTIA is not expressing any opinion here whether the privacy of "wire or radio' conirnunlcations under existing definitions in the Communications Act, Section 153(a), (b) would be provided by Section 605 or the portal. scatutes. Finally, NT1A believes cert.ai.n minor changes i n the text should he implemented in the interest of clarity arid `p eliminating redundancy. The reference in Section 549(a) to Chapter 119, Title 18, as an exemption from pro~isions of the bill should be expanded to include Chapter 36 of Title 50 (the Foreign lntelligence Surveillance Act). Also in Section 549(a), the terms existence" and `substance, purport, dffect or meaning" should be eliminated because they are included in the definition of the term `contents," para. (f) (2) . Section 549 (d) should be eliminated as essentially addressed in the private communications" defin~ition of Section (f) (4). Section 549(b) 2) should he re-worded for grammatical corrections to read "(2) disclose t6 any other person o~ use the ~ntents of any private communication, with knowledge that...." We hope these comments, both on general principles regarding spectrum fees and regulation of land mobile and other radio serv~ices, and on some specific elements within the Bill, will be helpful to the Committee. We appreciate this opportunity to appear before you. PAGENO="0056" 1520 Mr MOTTL Thank you very much, Mr Bortz We will hear from Mr Charles Meehan, Land Mobile Communications Council STATEMENT OF CHARLES M MEEHAN Mr MEEHAN On land mobile matters, I will be speaking for the Land Mobile Communications Council (LMCC) which is a broad based trade association representing private users, common carri ers and equipment manufacturers. I will also be touching on some microwave matters as well as land mobile and on microwave I will be speaking for the Utilities Telecommunications Council (UTC) on that area because the utili ties it represents are probably the heaviest users of private micro wave in the country I do have authority to speak for both of these organizations and the views I am expressing are not just my personal views The area I am going to concentrate on, as I understand the latitude from the letter, is "Would the proposed spectrum use fee be workable and would it improve spectrum management9" I will deal with the latter part first. In so far as land mobile and presumably private and common carrier microwave is concerned, if by "spectrum management" you mean the most efficient use of the spectrum for the highest public interest purposes, we do not see how a fee based on the profits of the least profitable UHF TV broadcaster in a given community is going to provide any incentive whatsoever for a land mobile or private or common carrier micro wave users to use their land mobile or microwave spectrum any more efficiently. The fee basis has nothing to do with their use of the spectrum Furthermore, it has no bearing whatsoever on what public interest purpose, if that exists, they use the spectrum Even as the broad casters, we question whether the spectrum use fee will improve spectrum management The operation of the fee is tied to the profits of the broadcaster not to his use of the spectrum or the amount of spectrum he uses or how he uses that spectrum Section 413(d)(1), at least in our view, imposes no obligation whatsoever on the CRC to reduce the fees even if the broadcasters would make more efficient use of their spectrum In fact section 413 may deter more efficient use Let's assume new TV "Taboos" are developed, resulting in a new TV assignment plan, making more efficient use of that spectrum If the new spectrum were allocated under the act, not by the CRC but by NTA say to public television, that allocution could result in a substantial additional number of public television stations which could have the result of reducing the revenue of the commercial broadcasters If the revenue of the broadcaster is reduced, even though it is by more efficient spectrum, I wonder whether or not the CRC would feel compelled to reduce the fees if their revenues from the fees would be reduced I would venture to say if they see a substantial drop in their revenue base from fees, the inclination of the regula tor and in this case also the collector of the fees would be to increase the fee basis. It would seem to me that unless some blockage is put into the act that it would be the natural tendency to pass the fees onto the PAGENO="0057" 1521 ultimate consumer, whether that is in price of gas at the pump or electric utility bills or telephone bills or for that matter advertising rates on television or radio. It may well be cheaper to pay the fee and pass it on rather than spend the money on the new technology unless and until that fee got greater than the new technology or the new technology brought substantial benefits which could then be converted to money. It would seem to us that where you do rely on the use of spectrum to make revenues such as in broadcast, it might well be in your best interests to continue paying the fee and not adopt new technology which might let in competitors. As far as a spectrum management tool, we have the same prob- lem here that we had with the fee before, it simply is not universal and it lets go probably one of the biggest users of the spectrum in the country, namely the Federal Government. In a way I agree, it is taking from Peter to pay Paul for the government to be required to pay fees but nevertheless, if an agency head has to include that in his budget, I would certainly think this would be an incentive for him to consider alternate means of communications. LMCC questions whether spectrum use fees, at least as proposed and I think this would also apply to auctions and bids, is really alone a spectrum management tool. It may result in only those who can afford to pay the price being the ones to get the spectrum. This may result only in fewer users. To us it is not spectrum management just to reduce the number of people who have access and are using the spectrum particularly if it is reduced to only those with the deep pocket. We feel there are no public interest considerations reflected in that method. In essence, it is not spectrum management merely to assign spectrum to those to whom it has the greatest value. To us it seems the spectrum manager has two roles. First of all he has to deter- mine what are the best uses and those should be consistent with section 101 of your bill. Namely, those affecting large numbers of the public, safety and national defense. Once he determines that, he should use a variety of methods, not just economic methods, to determine what is the most efficient use. It might be engineering. It might be marketplace demands. It could be social, legal or politi- cal considerations. For example, in the early days in the 1960's, we had an emphasis on engineering, channel splitting and this type of thing. That worked. I do not see that we can say it did not work. Later on we made a try at data processing and monitoring. I cannot say that worked. I do not think we should put all of our eggs just in one basket. I think the spectrum manager should be required to employ a multitude of techniques to arrive at the most efficient use, once he has made a decision, on the record, as to what is the best use. Instead of relying only on spectrum use fees as spectrum man- agement tools, we would suggest you have a new section dealing specifically with spectrum management and allocation matters, more or less along the lines of section 436 and establish statutory criteria consistent with section 101 of your bill which the CRC must follow in spectrum management and spectrum allocations decisions. These would include such things as I have mentioned, safety of life and property; promoting competition and reflecting PAGENO="0058" 1522 market demands, and uses which benefit large numbers of the public Then you can give the CRC sufficient flexibility again consistent with section 101, to employ various methods and techniques to make the most efficient use of that spectrum it does allocate But do not give the CRC unlimited authority to do what the CRC considers to be consistent with the act as you have proposed in sections 436(b)(1) and 436(b)(2)(D) Rather we would require that a proper record in fact be established for the decision and let Con gress and the courts determine if the action or the finding of the Commission is consistent with the act It just does not make sense to us to give the CRC or any regula tory agency the kind of authority where it determines what is consistent with the purposes of the act We feel that should always be subject to the normal checks and balances of either congres sional oversight or more likely user appeal to the Federal courts If you are going to enact spectrum use fees particularly along the lines of the bill, there are three or four areas that we feel need clarification. Section 414 speaks of land mobile Does this also include micro wave systems? I have in mind a system which I licensed which extends from Columbus, Ohio through West Virginia into the Washington metropolitan area up into the Pittsburgh area and into Delaware It goes through a multitude of communities Some times the stations are in a community and sometimes they are on a mountaintop out in the boondocks How would we apply this fee to a microwave system such as that? How would we apply the fee proposal to a wide area mobile systems? For example, I can think of a number of utilities which operate in three or four States having communities as big as Chi cago down to small towns of 1,000 and 2,000 people As to land mobile, if you would have more sharing per channel in an area than in another area, how would the fee vary? In sum, we would say if you are going to use fees, let's recognize it is either going to be a license fee to cover the costs or basically a tax on the use of the spectrum But to base all of your spectrum management on license fees or economic considerations, whether they be auctions or bids, might make it easier for the regulator but it certainly is not going to accomplish what we feel and what we expect would be spectrum management. Thank you [Testimony resumes on p 1542] [Mr Meehan's prepared statements and attachment follow] PAGENO="0059" 1523 Before The Subcommittee on Communications of the House Interstate and Foreign Commerce Committee STATEMENT OF THE LAND MOBILE COMMUNICATIONS COUNCIL ON H'. R. 3333 ~- COMMUNICATIONS ACT OF 1979 The Land Mobile Communications Council (LMCC) appreci- ates this opportunity to present Comments concerning those provisions of H.R. 3333 which affect its membership. LMCC is a non-profit association of users of land mobile radio and providers of land mobile services and equip- ment which is dedicated to securing and maintaining sufficient allocation of radio frequencies for the Land Mobile Services - both private and common carrier - to meet the immediate and long term requirements of land mobile users. As will be noted from a review of the attached LMCC roster, LMCC represents a very broad base of land mobile interest. LMCC's principal interest in this Bill is with, respect to Title IV dealing, with the land mobile and other radio services. We will also address, however, directly related provisions of Title VII. PAGENO="0060" 1524 TITLE IV CONSIDERATIOtiS License Fee Proposal Will Be Neither an Effective Spectrum Management Tool Nor Will It Be Workab~ LMCC does not believe that a fee based upon the profits of UHF-TV braodcasters will provide any incentive for land mobile users to utilize their spectrum more eff i- ciently since the fee basis has nothing to do with land mobile utilization of the spectrum Even as to broadcasters, LMCC questions whether the proposed spectrum use fee will improve broadcast spectrum management since the operation of the fee is tied to the broadcasters' profit, not to its use of the spectrum Addi- tionally, Section 413(d) (1) imposes no obligation on the Communications Regulatory Commission (CRC) to reduce fees even though the broadcasters would begin utilizing the spectrum allocated to them in a more efficient use such as by reducing TV taboos and developing ~ new assignment plan which would provide for additional spectrum for other use In fact, more efficient use through the reduction of taboos and the development of additional UHF~TV space might mean that the commercial TV broadcasters would be faced with more competition from public television, the net result being a reduction in the profits by broadcasters and thus, presumablY~ a reduction in the revenue which the PAGENO="0061" 1525 CRC would collect from broadcast fees. LMCC questions whether in such a situation, the CRC .would be likely to recommend a reduction in the broadcast fee even though more efficient utilization of the spectrum is being made by ~ Additionally, the requirement of Section 413(d) (1) that any substa~iti~l ~hanges in broadcast assignments must receive the concurrence of both houses of Congress before they will be implemented, coupled with the fact tha~ the CRC will not have any allocations authority, but rather, any reallocation must be made by the proposed National Tele- communications Administration (NTA) will tend, LMCC submits, to deter better utilization of the broadcast spectrum and may, in fact, have the net effect of freezing the existing broadcast allocations. Additionally, LMCC questions the usefulness of fees as a spectrum management tool since, in most cases, they will be passed on to the ultimate consumer in higher prices for goods and services, including broadcast advertising rates. Also, one very serious flaw in the proposed fee arrangement is that it is not universal and does not apply to one of the greatest consumers of spectrum, the Federal government. PAGENO="0062" 1526 LMCC is very concerned over the tendency in Govern- ment to rely solely on economic considerations as the principal spectrum management tool whether these economic considerations be spectrum use fees, auctions or sealed bids LMCC is concerned that all of these economic based tools may result in only those who can afford to pay the most money securing the spectrum Thus, the net effect of this so-called spectrum management will be fewer users of the spectrum Complete reliance on economic based approaches such as spectrum use fees, auctions and sealed bids lacks any reflection of public interest considerations In fact, LMCC submits that it is not spectrum manage- ment" to merely assign spectrum to those to whom it has the greatest value Rather, the role of the spectrum manager should be to first allocate and assign spectrum to those who use the spectrum in the highest order of the public interest Then, the spectrum managers should see that the persons to whom the spectrum has been assigned or allocated will use it in the most efficient manner. Fees alone, LMCC submits, will not accomplish this The only thing it accomplishes is to make the work of the spec- trum manager or regulator easier since he can rely entirely on market forces rather than attempting to develop the information needed to make sound regulatory decisions PAGENO="0063" 1527 LMCC believes that the spectrum manager should be required to take a number of factors into consideration in determining the most important and most efficient use of the spectrum. These factors would include engineering, social, legal and political considerations, Thus, instead of permitting reliance only on spectrum use fees as the prime spectrum management tool, it is suggested that a new section of H.R. 3333 be developed dealing with spectrum management which would establish the following statutory criteria: o the proposed use of the spectrum will assist in the provision of services to large numbers of the public; o the proposed use of the spectrum will promote safety of life and property; o the proposed use of the spectrum will promote competition.' While LMCC believes that the CRC should be given sufficient t~flexibility~ to employ ~`arious methods and tech- niques to improve efficient use of the spectrum, LMCC does not believe that the CRC should be given unlimited authority to do what the CRC considers to be cor~sistent with the Act as has been proposed in Section 436(b) (1) and Section 436(b) (2) (D). PAGENO="0064" 1528 Rather, LMCC urges that the CRC be required to develop a proper record and fact basis for its spectrum management decisions and then let the Courts determine if the action taken by the CRC is consistent with the Act Congressional oversight would also assist in this area. LMCC believes it is dangerous to give any regulatory agency the power to adopt what it considers to~ consistent with its own enabling act Rather, this judgement must be left in the hands of the Courts and, ultimately, the Congress During the June 6 panel presentation on spectrum management for land mobile and other services, there was considerable discussion concerning when `auctions should be utilized as a spectrum management tool While auctions may cut down the time and cost burden of comparative hearings, such as in Broadcast licensing, LMCC does not see how the concept of auctions could be applied to the private land mobile services where a given frequency in a given geographic area is already shared by a multitude of users Also, there is very great concern that the use of auctions for land mobile spectrum, even if they were only used as to new land mobile spectrum with loading standards, will result in only those with the deepest pocket securing authority to use the spectrum, which is not necessarily in the public interest Again, it would seem that the applicability of PAGENO="0065" 1529 this "economic tool" merely makes the job of the regulator easier in that the regulator does not have to develop the facts, through hearings or otherwise, to determine which among several contenders (services or individual applicants) for spectrum has the best qualifications. All that auctions do in this case is to let he who is able to pay the most money secure the license and the use of the spectrum. It does not necessarily follow that the highest bidder will also be the one to put it to the best "public interest" use or will spend the money to use the spectrum in the most efficient manner. This is hardly "spectrum management." Thus, at best, auctions should only be employed where there has already been a determination that the contenders are equally qualified from a public interest point of view and where the person who ultimately receives the license will have exclusive use of the spectrum. The most logical area of application is in the broadcast area where assignments are already fully exclusive. The fact that the broadcast licensee does not control the receivers or that additional receivers do not congest the channel does not mean that auctions for broadcast channels will not eliminate the costs and inefficiencies of broadcast comparative hearings. Also, that argument overlooks the fact that it is additional transmitters, broadcast or otherwise, not receivers that impose additional costs on other users of the spectrum. 51-253 0 - 80 - S PAGENO="0066" 1530 Thus, prospective broadcasters who wanted to enter the market should be willing to absorb these costs as well as any other user of spectrum. Ironically, however, proponents of auctions and sealed bids have recently indicated this economic tool should not be applied to broadcast assignments. Instead, they now seek out only the private land mobile services or the common carriers as the subject of "experimentation" with suôh economic based methods. Apart from LMCC's concerns over the validity of spectrum use fees, auctions or sealed bids as a "spectrum management" tool, there is also a serious concern over the workability of the fee basis as proposed in H.R. 3333 as it applies to land mobile. For example, in many situations licensees are authorized to utilize the same frequency over a wide geographic area, and in some cases, even on a "con- tinental United States" basis. Thus, the licensees' utiliza- tion of this particular frequency would be in a multitude of different "communities with UHF-TV." Thus, a multitude of UHF-TV profit pictures would have to be considered in trying to arrive at the spectrum use fee for such a licensee. Also, as to private land mobile, in most cases the frequencies are shared by at least several users in a given area. Does sharing of the same frequency by diffe.rent users in the same area result in a reduction of the fee paid by such licensees? PAGENO="0067" 1531 TITLE VII CONSIDERATIONS Vesting Exclusive Allocation Authority in NTA is Inappropriate Absent Proper Procedural Safeguard It is generally acknowledged that the establishment of an agency within the Executive Branch (NTA) for the pur- poses of studying telecommunications issues and developing appropriate policies is a proper legislative goal. However, LMCC is deeply disturbed that H.R. 3333 would also entrust NTA with exclusive authority for the allocation of the entire radio spectrum. In LMCC's view, the present system of shared allocation responsibility between the FCC and NTIA and its predecessors has worked reasonably well over time. The active involvement of the FCC in the overall allocation process, plus the necessary tension which occasionally is generated by virtue of the system of dual authority, provide some assurance that the interests of non-government users of the spectrum will be adequately represented. However, this valuable ,safeguard would be eliminated by H.R. 3333. Pursuant to Section 704, NTA would act as the primary spokesman for government agencies on telecommunications matters and would assist in the develop- ment and management of telecommunications systems operated by various federal agencies. LMCC is not at all confident that an agency with such a mandate could adequately and fairly represent the interests of non~~government users in PAGENO="0068" 1532 those situations where the competing demands for spectrum and other concerns of government and non-government users are in serious conflict. Moreover, the problem is accentuated by the absence in H.R. 3333 of any provisions concerning the procedures by which NTA must conduct its allocation proceedings. LMCC respectfully submits that if Congress vests NTA with any allocation authority, the legislation must also explicitly provide that NTA's decision making process be governed by the Administrative Procedures Act, or like procedures Only in this way can the interests of all users of the spec- trum be adequately protected. LMCC understands that national security considerations might require special attention, but such situations should be considered to be the extra- ordinary exception - and. specific procedures applicable to such circumstances should be explicitly provided for. Otherwise, the basic requirements of the APA should be adhered to; all allocation proceedings should be open and subject to public participation. Respectfully submitted, LAND MOBILE COMMUNICATIONS COUNCIL Charles M. Meehan Chairman LMCC Drafting Committee Suite 1000 1150 17th Street, N.W. Washington, D.C. 20036 202/457-1138 June22, 1979 PAGENO="0069" 1533 LAND MOBILE COMMUNICATIONS COUNCIL MEMBERSHIP LIST (LMCC) AMERICAN ASSOCIATION OF STATE HIGHWAY & TRANSPORTATION OFFICIALS (AASHTO) AMERICAN AUTOMOBILE ASSOCIATION (AAA) AMERICAN PETROLEUM INSTITUTE (API) AMERICAN TELEPHONE & TELEGRAPH COMPANY (AT&T) AMERICAN TRUCKING ASSOCIATION (ATA) ASSOCIATION OF AMERICAN RAILROADS (AAR) ASSOCIATED PUBLIC-SAFETY COMMUNICATIONS OFFICERS, INC. (APCO) EASTERN STATES PUBLIC-SAFETY RADIO LEAGUE (ESPRL) ELECTRONIC INDUSTRIES ASSOCIATION (EIA) FOREST INDUSTRIES TELECOMMUNICATIONS (FIT) FORESTRY CONSERVATION COMMUNICATIONS ASSOCIATION (FCCA) INTERNATIONAL ASSOCIATION OF CHIEFS OF POLICE, INC. (IACP) INTERNATIONAL ASSOCIATION OF FIRE CHIEFS (IAFC) INTERNATIONAL ASSOCIATION OF FISH & WILDLIFE AGENCIES (IAFWA) INTERNATIONAL BRIDGE, TUNNEL & TURNPIKE ASSOCIATION, INC. (IBT&TA) INTERNATIONAL MUNICIPAL SIGNAL ASSOCIATION (IMSA) NATIONAL ASSOCIATION OF BUSINESS & EDUCATIONAL RADIO, INC. (NABER) NATIONAL ASSOCIATION OF MANUFACTURERS (NAM) NATIONAL ASSOCIATION OF STATE FORESTERS (NASF) SPECIAL INDUSTRIAL RADIO SERVICE ASSOCIATION, INC. (SIRSA) TELOCATOR NETWORA OF AMERICA, INC. (TNA) UNITED STATES INDEPENDENT TELEPHONE ASSOCIATION (USITA) UTILITIES TELECOMMUNICATIONS COUNCIL (UTC) PAGENO="0070" 1534 Before The Subcommittee on Communications of the House Interstate and Foreign Commerce Committee STATEMENT OF THE UTILITIES TELECOMMUNICATIONS COUNCIL CONCERNING H.R. 3333; TITLE IV, SPECTRUM MANAGEMEW!~L PRIVATE LAND MOBILE AND MICROWAVE SERVICES The Utilities Telecommunications Council (UTC)1' respectfully submits this Statement in response to the request made by the Subcommittee Staff during the June 6, 1979 panel discussion concerning spectrum management in the land mobile and other services, to expand upon the role of *auôtions, sealed bids and license transferring as spectrum management tools. Before discussing the usefulness of these economic approaches as spectrum management tools, let us first examine the alleged need to place such heavy reliance on these economic tools. The primary justification given during the June 6 panel discussion by the proponent of such heavy reliance 1/ UTC is the national representative on telecommunications matters of the nation's electric, gas, water and steam utilities (Energy Utilities). The Energy Utilities repre- sented by UTC include in excess of 3000 investor-owned, cooperatively-owned and public-owned utilities. They range in size from large, urban utilities, each serving several million, consumers to many small urban utilities and rural electric cooperatives, each serving several thousand consumers. PAGENO="0071" 1535 on economic considerations as the major spectrum management tool is that it is "extremely difficult to obtain accurate data on an applicant's need for spectrum, on the value of the spectrum to pr-esent users, on the costs associated with reallocation, on the costs of utilizing more efficent technology and many other areas."~' More recently, the reason given for the shift to these economic tools for spectrum management was because in order to meet the public interest requirements of Section 1 of the 1934 Act or those of Section 101 of S. 611, "far more complex and detailed information is required than can, in fact, be gathered and processed centrally. First of all, as I indicated in the panel discussion on June 6, these "cannot do" reasons given by the proponents of the use of economic tools for spectrum managment are simply not valid. These arguments for the need for economic tools only reflect the inability or perhaps unwillingness of the current spectrum managers within the Federal Conuiiunica- tions Commission to make the effort to meet the admittedly hard chal]~enge tof compiling sufficient and reliable facts upon which sound regulatory decisions can be made as to allocation or frequency assignment matters. Instead, the 2/ See statemen of Carlos V. Roberts, June 6, 1979 re H.R. 3333 before the House Communications Subcommittee, page 1. 3/ See statement of Nina W. Cornell and Stephen J. Lukasik re S. 611 and S. 622, dated June 18, 1979 before the Senate Communications Subcommittee, page 7. PAGENO="0072" 1536 current spectrum managers of the Federal Communications Commission choose to take what appears to be the easier road of relying entirely on "market forces.'! The fact is, that other spectrum managers in the United States, namely those responsible for management of the spectrum used by the Federal government have found an effective method to gather and process centrally the more complex and detailed information required to make current spectrum management decisions. As was pointed out at page 25 of the Statement of Stanley I. Cohn, representing the National Telecommunications and Information Administration (NTIA), which was presented to this Subcommittee on June 12, 1979, the Federal government's spectrum regulators have already implemented two programs to enhance spectrum manage- ment through the use of analysis techniques. Under NTIA's "Spectrum Resource Assessments," an analysis is made of present and projected use of various allocated bands, deter- ~mining the potential compatibility problems and corrective actions to mitigate interference between systems, determining ::~inter~and intra- service sharing opportunities and providing recommendations on improving the efficiency and effectiveness of spectrum use in the bands studied. Similarly, NTIA's "System Review Procedure" performs an examination at the conceptual, experimental, developmental and pre-operational PAGENO="0073" 1537 stages of proposed Federal communications systems. Both of these programs, according to the NTIA witness, have proved to be very useful in Federal spectrum management and in the NTIA's spectrum planning efforts. If these spectrum management approaches can solve the "difficult" allocation and assignment problems of NTIA, why will they not solve similar "difficult" allocation problems .of the Commission? It is significant to note, UTC submits, that the Federal government's spectrum managers are still relying on more classical spectrum management approaches, rather than applying "economic tools" to solve their spectrum management problems. While the reluctance on the part of the Federal government users to even experiment in the use of economic tools may be due to legal restraints in the 1934 Act, which apply to both government and non-government users, nevertheless, the fact remains that the Federal govern- ment is not even suggesting the application of economic tools to Federal government spectrum management problems. If spectrum management programs such as those developed for NTIA for Federal government spectrum users have, in fact, proved to work for the Federal government spectrum, perhaps these same proven methods should be applied to non- government spectrum management problems, at least before PAGENO="0074" 1538 Congress subjects non-government users to the hazards of large scale "experimentation" with what are, essentially, classroom economic theories which have not been tested in the real world. Insofar as to the applicability of auctions, or, for that matter sealed bids, the only place where UTC can see such a system working is in situations such as Broadcast or Common Carrier where there are a number of contenders for anexclusive channel. Even here, however, there should first be a determination by the regulatory agency, by rule making, hearing or otherwise, that the various contenders or participants in the auction have equivalent qualifications and that the intended use of the spectrum by all contenders is essentially the same from a public interest point of view. The only real purpose the auction serves is to elimin- ate the cost and time of any further comparative hearings which would otherwise be required to determine which of the relatively equal contenders should be given the assignment. The previous testimony of the panelist from the Commissions" confirms that the concept of the auction was 4/ See testimony of Carlos V. Roberts on applicability of auctions as a spectrum management tool, pages 76-77 of Transcript of Hearings before the House Communications Subcommittee re H.R. 13015, September 21, 1978. PAGENO="0075" 1539 not intended for widespread use in the land mobile services and that there are only a limited number of circumstances in which an auction could be usable. First of all, as he pointed out in his previous testimony, one of the conditions for use of ~the~ auction would have to be that the frequency is not shared with more than one licensee buf is assigned exclusively to one entity.~1' Typically, this does not occur in most of the land mobile services. It would occur, how- ever, he noted, with the mobile telephone service provided by radio common carriers an.d other common carriers. It occurs also with public coast stations in the Maritime Service. He also confirmed in that previous testimony that the motivation behind proposing the auction is that in many cases in these services where the Commission can only license one individual on a channel and its exclusive use for one licensee, the Commission gets into very long, expensive and protracted hearings and essentially ~the auction will provide an easier method of resolving the assignment decisions, ~J This would seem to preclude the use of auctions even as to land mobile spectrum which was subject to loading standards since it is still possible to have more than one licensee on the channel. See page 21 of Dr. Cornell's June 18, 1979 Statement re S. 611 and S. 622. PAGENO="0076" 1540 It would not seem appropriate, therefore,, to apply auctions to existing Power Radio Service spectrum since that is shared. Even as to any "new and exclusive" allocations which might be available to Power Radio Service licensees, or at least available to be accessed by the Energy Utilities, auctions may not be in the public interest since, presumably, Energy Utilities would be competing for the same spectrum with other types of users and it is entirely possible that another contender, with more funds to spend in the auction, would be the "winner." It does not follow that the applicant with the largest amount of money to spend at an auction is necessarily the best recipient of the spectrum, from a public interest point of view. Thus, for these, reasons, UTC submits that auctions (as wellas sealed bids or lotteries) would probably have very little, if any, positive role to play in the spectrum management of the frequencies used by the Energy Utilities or other private land mobile users. The only place where auctions would serve any useful purpose would be in Services such as Common Carrier or Broadcast where there is an exclu- sive assignment made and the recipient of that assignment is able to generate revenue as a result of winning in the auction In the Power Radio Service there is no such "revenue generating" incentive, since the use of radio is PAGENO="0077" 1541 a tool to improve the efficiency and safety of Energy Utility operations and to enhance the provision of vital utility services to the general public. Similar considerations apply to other private land mobile services. UTC submits that it would be much more in the public interest to use procedures such as those found in NTIA's "Spectrum Resource Assessments" to make the determination as to which of many contenders for spectrum would be the best recipient, in terms of the basic goals of H.R. 3333, namely, service to large~nuxabers of the'~public, the promotion of safety of life and property and the promotion of competition. As to the concept of transferring licenses, while this might conceivably be practical on a small scale in a specific given and relatively confined geographic area, it does not seem to have any practical applicability to Energy Utility operations or other wide area or ribbon opera- tions where it would be necessary for a utility operating over aeveral states to buy up" all of the licenses on a given frequency or set of frequencies in the multiple state area so that a utility would have a compatible system-wide communi- cations net. It is for these reasons that during the panel presentation UTC's witness urged that the "economics only" approach be abandoned in H.R. 3333 and that instead, a new section on spectrum management be developed which would require the re~gulatory agency to take into consideration a number of factors such as engineering, legal, social and even political considerations as well as, of course, what is the market demand. This seems to be the type of approach being used in NTIA's "Spectrum Resource Assessments." Respectfully submitted, TILITIES TELECOMMUNICATIONS COUNCIL Charles M. Neehan Attorney for Utilities Telecommunications Council Suite 1000 1150 17th Street, N.W. Washington, D.C. 20036 202/457-1138 June 22, 1979 PAGENO="0078" 1542 Mr. MOTTL. Thank you very much, Mr. Meehan. We will next hear from Mr. Don Franco. STATEMENT OF DON FRANCO Mr. FRANCO. Mr. Chairman, members of the committee and staff, my name is Don Franco. I am president of Microband Corp. of America. I suspect most of you have not heard of Microband or have any knowledge of what we do. I think it would be worthwhile to say a couple of sentences on that point before I address the comments. We are in an industry called multipoint distribution service which has been in existence for about 8 or 9 years. It was created by the FCC to provide broadband distribution within metropolitan areas of video and data signals. We operate using the radio fre- quencies and thereby provide a very low cost method of distribu- tion. Today the industry is operating in approximately 68 major mar kets and we expect by the end of this year that number would increase to about 100 major markets. We generally support the main thrust of the legislation namely that the marketplace is a better regulator than the Government. We wish to make one or two points which we think will strengthen the overall thrust of the bill. We agree that the Commission's management of the spectrum should be guided by two overriding principles. First that the spec- trum is a limited resource and second that competition rather than Government regulation is a more efficient and effective regulator of prices and services. Consistent with these principles we believe that the legislation should make it clear that before frequencies are allocated for a given purpose, the CRC must determine that those frequencies already allocated and which could provide such service are being substantially utilized. The only exception to such a requirement would be where a service is a necessity and where additional spectrum should be allocated so as to foster competition. In addition we believe that if spectrum has been licensed for a given purpose but is in fact not being used and there is no evidence of its future development along those lines, that the CRC should be fully empowered and encouraged to revoke whatever authority has been granted and reallocate such spectrum. We are aware of at least one allocation of frequency comprising over 100 megahertz of spectrum which in its dozen year history has seen limited use and there presently exists no trend towards its further development. At the same time, a party has called for the reallocation of over 100 megahertz of other frequency for a service it intends to provide while existing frequencies available for its intended purpose are not yet fully utilized. Both cases present spectrum management problems which should be addressed in this legislation. We believe the bill should be amended to require interconnection among all carriers and not just intraexchange carriers. Such a requirement, we believe, will tend to preserve limited spectrum space. PAGENO="0079" 1543 We believe the spectrum fee provided in the bill unreasonably discriminates against small business as well as against carriers and will thereby discourage the provision of new common carrier serv- ice. This provision appears to be inconsistent with the remainder of the bill for dominant carriers by definition will be allowed only a reasonable return on their investment and nondominant carriers presumably will have their profits regulated by competition. In either case there will be no windfall profits and accordingly no reason to provide a disincentive for investment, On the other hand we support a provision which is designed to reimburse the Commission for the cost of regulation provided this is not interpret- ed by the Commission as a mandate for ever bigger budgets. We also believe the statutory scheme for spectrum fees to be unworkable with respect to new and innovative offerings. How do you determine the value of something `before it is fully developed? Moreover, the unintended result of such a provision would be to concentrate radio "frequencies in the hands of a few large compa- nies. It `would tend to prevent the small entrepreneur from taking his risk. We also believe that a provision which provides a cap on scarcity value fork certain licensees and not for others is an unreasonable discrimination especially when it is those licensees who are making the most unreasonable profits. The legislation should also provide that all carriers should have equal and ~nondiscriminatory access *to buildings. Carriers who transmit signals by radio must have access to buildings in order to install internal wiring to bring signals from the rooftops to the customers' premises. New internal distribution technologies are necessary to take advantage of the new high speed distribution systems which will come onstream in the next few years. We would like all carriers to be assured access and rights of way similar to those other utilities have. Unless this is done the imple- mentation of new technologies will be substantially delayed. We suggest the legislation make it illegal to refuse FCC licensed carri- ers access to' buildings on a reasonably compensatory and nondis- criminatory basis. The provision concerning unauthorized interception of private communications should also be strengthened. Although section 549 provides, some `protection against illegal interception, our experi- ence has been. authorities are loath to enforce these provisions because of overburdened caseloads. We suggest the establishment of an enforcement unit at the Commission and/or Justice Depart- ment whose specific ~responsibilities will be to enforce the criminal sanctions provided `in the law. individuals should be authorized to commence civil injunctive and damage actions. The Commission should be authorized to prevent manufacturers from selling or distributing equipment to unauthorized users which could clearly `be used only for that purpose. I thank you. [Testimony resumes on p. 1560.] [Mr.,Franco's prepared statement and attachments follow:] PAGENO="0080" 1544 TESTIMONY OF DON FRANCO, PRESIDENT MICROBAND CORPORATION OF AMERICA Mr. Chairman, Members of the Committee, Staff, Ladies and Gentlemen: We welcome the opportunity to appear before you today to outline the views of Microband Corporation of America on HR 3333 - a bill to rewrite the Communi- cations Act of 1934. We agree that advances in telecommunications technology require a fresh legislative approach to communications regulations. We applaud the main thrust of the legislation, namely that~open competition is a far better regulator of charges and services than is the government. The legislation you are today con- sidering will, if passed into law, have far-reaching effects on America and on every American. We believe it is one of the most significant legislative initiatives Congress has recently considered. We support legislation which seeksto eliminate cross-subsidization and encourages fair competition and deregulation. We support unfettered intercon- nection among carriers in order to foster the rapid growth of efficient and economical telecommunications services. We support the attempt to solve a present, real and very serious problem - that of overlapping state and federal regulations. We believe your efforts will result in the creation of a more efficient interconnected national communications service. This is not to say, however, that the legislation cannot be strengthened. - To this end, in the few moments allocated to us, we would like to point out those instances where we believe the proposed legislation could, if adopted, have an opposite effect from that which is intended. In a few other cases, we believe additional provisions are necessaryto achieve the worthy goals of the legislation. Our comments will be limited for the most part to those portions of HR 3333 which deal with domestic carrier operations, our area of expertise. - In order that you may gain perspective on our views, however, permit me first to provide a brief background on the Multipoint Distribution Service PAGENO="0081" 1545 (`MDS") industry and Microband Corporation of America. We believe that MDS is able to distribute broadband video, data, and facsimile within metropolitan areas more efficiently and at lower cost than other existing media. Among other things, we would like to call your attention to certain problems which may prevent these efficiencies from being realized. BACKGROUND ON MDS MDS was created by the FCC in 1963 when it set aside spectrum for the use of common carriers to provide local distribution services to the public. However, due to a typgraphical error in the rules which restricted the maximum bandwidth of any channel to 3.5 MHz (thus effectively ruling out video transmission), no construction permit applications were made until some seven years later (after the Commission had corrected this oversight). There- after the Commission adopted operating rules and began issuing construction permits. The first MDS station (Microband's Washington, D.C. facility) was licensed and commenced commercial operations in August of 1973. A typical MDS system is depicted in Exhibit A. It consists of a fixed station transmitting omni-directional~y in the 2150 MHz range to unlimited numbers of fixed receivers located around a metropolitan area. The intelligence t~ansmitted is supplied by the customer and may consist of private television, high speed computer data, facsimile, teletext videodata, slow-scan or freeze- frame video, control infonnation, or any other communication adaptable to analog or digital radio transmission. Generally, it is delivered to the MDS station via satellite and/or by point to point microwave (although it may also be originated directly at the MDS station). The MDS signal is intercepted by directional receiving antennas, down- converted from the microwave frequency to a lower frequency, and then fed (on -2- 51-253 0 - 80 - 6 PAGENO="0082" 1546 an unused channel) to a standard television set or to a data terminal or facsimile device The range of the transmission is usually 25 30 miles depending on the power and elevation of the transmitter the size and character istics of the receiving antennas and the existence of a long of sight path between transmitter and receiver. Two 6 MHz channels have been allocated for MDS in the top 50 markets, although no second channel has yet gone on the air. In smaller markets, a 6 MHz and a 4 MHz channel have been authorized. Through these channels, MDS operators are able to locally distribute information at very low cost. Microband's original market research determined that non-video business communications would be the principal source of revenue for the MDS industry. We have found, as others have since confirmed, that there exists a market for the interstate transmission of various kinds of data communications. Only recently, however, has our industry been in a position to serve that demand. There are now sufficient MOS stations built or under construction many of which are interconnected via satellite - to make an interstata data corn- municatiofls service network feasible. At the present time, the MOS industry is licensed to p~ovide service in at least 68 of the largest markets in the United States See Exhibit B In addition, i~e expect some 40 additional stations to be operational in 1979. By the end of the year we believe that MOS stations will be operational in most of the nation's top 100 markets. With this network substantially in place (only the digitizing, switching and control equipment must be installed), MOS can now serve the business communications market which is just about to explode. The MDS industry is presently distributing pay TV programs in most of the markets in which it is licensed In the vast majority of these markets (we are aware of only one or two exceptions),. ~ay-TV p~9grams_are transmitted -3- PAGENO="0083" 1547 only during evening hours (slightly earlier on weekends); late night, early morning and daytime hours have been set aside and are available for business communications. In addition, a subcarrier frequency is available for digital data communications 24 hours per day, 7 days per week and, further, MDS Channel 2 is completely unused. While most uses to date have involved televiston, MDS has also been used for data communications for more than three years at the MDS station near the University of Illinois in connection with the Plato computer- based education program developed by the University's Computer Based Education Research Laboratory and Control Data Corporation. Because the downstream channel from the central processing computer and Plato data base to the individual terminal requires high speed wideband capacity, the MDS' transmission capability has been found to be ideal. The recipient terminal responds upstream to the computer via ~the local telephone system. Reuters has also contracted to use MDS for the distribution of its financial and commodity news service. Reuters' system will feed continuously updated information from New York via satellite to a ground station in Chicago where it will be microwaved to the MDS transmission site atop the Hancock Building. The entire data base, with millions of bits of information, will be constantly transmitted via the lIDS station to all of Reuters' subscribers who will access the data base by means of "row grabber" decoders. The Reuters information is displayed on television monitors or transcribed by high speed printers. -4- PAGENO="0084" 1548 * Another use of MDS has been in the area of teletext information. The MDS licensee in Philadelphia has been conducting tests for some time using the British developed teletext system called CEEFAX Recently Microband initiated tests using an improved French system called Antiope That system is able to use digital and microprocessor technology to deliver a large volume of infor mation which can be printed or displayed on a television set. These are just some of the needs MDS has and can serve at lower cost to the consumer. Many others can be envisioned. Based on our experience, we know that MDS is able to distribute broadband video data and facsimile within metropolitan areas nore efficiently and at lower prices than can other existing media As such we have developed and nurtured an important national resource one which should be rapidly expanded in order that all of the possible benefits many of which Microband has pioneered can become generally available to the public We built our network the hard way - with relativel.y limited privately- supplied capital and a very small staff In all candor we probably survived only because at a time when our shareholders were willing to accept significant capital risks few others wished to enter an untested business Now that our network is substantially in place far larger companies than ourselves are seeking to enter the data distribution business. We welcome fair competition, the mainstay of American business We believe that HR 3333 contains many pro- posals which will foster that competition and thereby increase consumer demand. However several aspects of the proposed legisl~ation and some additional matters should be considered by the Committee as it seeks to make available to the public affordable telecommunications services which are diverse reliable and efficient SUMMARY We agree that the need is now to rewrite the Communications Act and that such revisions should facilitate the expansion of services by diverse entities -5- PAGENO="0085" 1549 to the American public and encourage competition wherever feasible. To achieve * these stated objectives, we believe the legislation should; * provide all federally licensed carriers with equal and nondiscrimi- natory access to local reception points; * provide additional safeguards against cross-subsidization and price abuse engaged in by large carriers affiliated with manufacturing and software entities; * strengthen the law and enforcement safeguards against unauthorized interception of private communications; * require interconnection of all carriers; * not contain disincentives to investment in the form of spectrum use fees. BUILDING ACCESS Section 311(a) declares that a major purpose of the proposed legislation is to assure the availability of efficient and diverse communications at reason- able rates so that the public will benefit from the continued improvement in telecommunications services. There is a major obstacle which must be surmounted if these objectives are to be realized - an obstacle that is not sufficiently addressed in the legislation. It is an issue which, is perhaps the most difficult and expensive problem faced by any non-telephone company. What we are speaking about is the ability of that Carrier to gain access to buildings for the purpose installing, maintaining, connecting and disconnecting telecommunications equipment. While Section 333 of the Bill, relating to `Pole Attachments," does address the access problem, it is primarily oriented toward telephone service and regulation by the states. Reasonable access to existing poles, ducts, conduits and rights of way are to be afforded carriers if these are not regulated by the states. No provisions are made for ri~eans of interconnection which advanced telecommunications service may require (not inolving Pole Attachments) or -6- PAGENO="0086" 1550 for guaranteeing building access when state regulation is found to be deficient Success of any electronic message service will depend on the carrier's ability to serve a sufficient number of inter and intracity locations In order to distribute communications to the ultimate user it is necessary to gain access to the building in which the potential user is located either to install antennas on the roof or install internal wiring or both. The costs of constructing internal distribution systems are enormous and may be conceivably the biggest cost element any carrier will bear in its entire system Gaining access and installing internal distribution facilities has been a constant problem for the MDS industry during the last half dozen years Often a landlord has said I 11 give you access but I want a piece of your action While this has usually been in the context of pay TV it no doubt will happen even more frequently with large-scale business communications Other obstacles also can reasonably be expected to arise if one carrier in a given market obtains exclusive rights to the roofs or ducts of major business centers thereby preventing other carriers access or making the provision of service more expensive We believe that it is in the interest of all non-telephone carriers as well as the consumer, for the legislation to deal with this problem. The Com- mission should be specifically empowered when it finds state regulation deficient, to require building access and internal distribution on a reasonable, compensatory and nondiscriminatory basis so that all carriers will be better able to serve the public Such a requirement while spurring competition in the provision of local distribution services can also be expected to spur the Bell System in its own marketing and sei-~ice developments. An analogy can be drawn to the Carter Phone decision which opened the flood gates to technological and service innovations and spurred AT & I to become more -7- PAGENO="0087" 1551 and more efficient in its marketing and service efforts. We strongly beli~ve that the legislation, at the minimum, should provide that all carriers shall be afforded the same rights of access to buildings and other locations as the local telephone companies. The EMS network of the very near future will constitute a vital pipeline in the nation's business and commerce. The maintenance of that pipeline, free from arbitrary or anticompetitive blockages, is clearly of national concern. It is an end to end service of unquestionably national interest. Just as the legislation places regulation of terminal equipment and devices at the federal level, there is a federal interest in assuring access to buildings to install such devices. Unless access is afforded all carriers, the implementation of new technologies will be substantially delayed. As mammoth as it is, even the Bell System does not possess the resources, to say nothing of the incentives, to rewire all the buildings in a metropolitan area to provide the capability of transmitting and receiving high speed, broadband communications. Other carriers should be given the opportunity to provide these facilities. Such legislation can solve th~ access problem by making it, illegal to deny building access to any FCC-licensed carrier. Suggested statutory language to that effect is contained in Exhibit C. In any case, this is an area which bears close scrutiny because the Bell System, which alone enjoys unrestricted building access, could use, and we expect will use, the status quo unfairly to its advantage. ANTITRUST ISSUES AND THE RELATIONSHIP BETWEEN TELECOMMUNICATIONS CARRIERS AND AFFILIATED MANUFACTURING ENTITIES The proposed legislation provides that'~dominant carriers" must deal with -8- PAGENO="0088" 1552 affiliated entities in an "arms length" fashion and provide to others in a in a non-discriminatory fashion products or services provided by the affiliate to the dominant carrier. We are concerned that this approach does not go far enough of the dominant carrier - The Bell System - the historical record of pricing abuse merits a more effective structure than merely requiring an arms length fair access approach. The legislation should provide, in our view, that the Communications Regulatory Commission be empowered and encouraged to adopt additional and different requirements to insure against cross-subsidization by carriers affiliated with manufacturing entities. One such approach would empower the Commission to require that a certain percentage of the outstanding shares of the non-carrier entity be held directly by the public or an in- dependent third party (preferably publicly owned). By establishing such a fidu- ciary relationship, the chances that parent and subsidiary would, in fact, deal with each other at arms length would be greatly increased. If they did not, they would be subject to shareholder litigation. This is one approach. There are doubtless others. The legislative mandate to the CRC should clearly provide that, If traditiohal arms length mechanisms do not accomplish their objectives, the Commission shall have broad latitude to fashion. others. Perhaps more importantly, however, HR 3333 does not go far~ enough in guaranteeing fair competition between big "nondominant" carriers related to equipment manufacturers or software producers and small carrier-only companies like ourselves. We are all aware that several major computer and office supply companies will soon enter the telecommunications carrier business. We have read the public statements of at least one corporate head who has repeatedly stated that the entry of his $5 billion companj' into the communications carrier business is motivated primarily by a desire to maintain dominence in the manufacturing end of the business. If its telec~mmunications entity were to -9- PAGENO="0089" 1553 be considered a nondominant carrier it will be permitted to cross-subsidize and bundle its total offering without violating any CRC regulations This will give it a big advantage over small companies like ourselves The result will be that big will triumph over small to the ultimate detriment of the con- sumer. We recognize that the new giants entering the telecommunications carrier business will not possess a statutory monopoly Because of this the incentives to cross-subsidize between the carrier and manufacturing arms of these entities will, therefore, be even more pronounced. The dominant positions which these corporations enjoy in their equipment supply business will be used as a wedge to drive out competition by companies not similarly affiliated or possessing the resources to engage in large scale equipment development This carrier- manufacturing combination could well insure the elimination from the market of small carriers like ourselves as well as small equipment manufacturers Thus the public will be left with only a few carrier equipment manufacturing giants providing EMS-type services We recognize that if market dominence were achieved bya carrier the Commission might reclassify that carrier as dominant and subject it to a full panoply of common carrier regulation It is also conceivable that an antitrust action might be instituted against such a carrier-manufacturer engaging in anticonpetitive pricing practices These possibilities will be of small conso- lation however to those driven out of business during the lengthy course of regulatory administrative and judicial deliberations Failure to anticipate these problems in your legislation will most cer- tainly lead to a repetition of the mistakes of the past There will be a closed club of a few giant corporations only partially competitive with one another It will also reverse the trend in service and facility innovation started by the Carterphone decision If we have learned anything in -10- PAGENO="0090" 1554 the last ten years, it is that technological and service innovation is not within the exclusive province of the corporate giants. Jhis lesson should be carried over in your legislation. The incentives for cross_subsidization are so palpably clear, we believe, that if legislatively mandated separations are not appropriate, the CRC should, at the very least, be given from the outset broad authority to regulate any carrier in its relations with affiliated equipment or software companies which are themselves dominant in their fields. This authority should specifically include, in addition to requiring traditional arms length dealings, the power to order full separation of carrier and manufacturing activities THEuNAuTHpzEouBC~uo~,J!i~Rc~?POii,, OR USE OF coMMuNIç~TIp~ An additional area where we believe' the legislation should be strengthened concerns the unauthorized interception of private communications. Problems surrounding the illegal interception of protected communications are with us today and may be expected to grow geometrically as the level of private com- munications, MOS, and satellite services continue to expand in the years ahead. Section 549 of the proposed legislation carries over many of the provisions of Section 605 of the present Communications Act. While the FCC has speci- fically found that MDS and private satellite transmissions are communications which *are protected under Section 605, our experience has been that federal officials have been loathe to enforce these provisions because of over-burdened case loads We believe, therefore, that the legisi~tion should be revised to provide more meaningful and effective safeguards for private communications A new Subsection 549(g) should be added authorizing persons injured by violators of -11- PAGENO="0091" 1555 Section 549 to commence civil injunctive and damage actions against the violators. A provision should also be added authorizing the CRC to prevent manufacturers from distributing equipment to unauthorized users. A separate unit at the CPC and/or the Justice Department should be established and funded whose specific responsibility would be to enforce the criminal sanctions of Section 549. I emphasize again, while this is a growing problem for the MDS industry today, it will be a far larger problem as EMS and private satellite communications expand. As more and more business communications are sent over telecommunications facilities, both the dollars involved and the incentives to engage in unauthorized reception and use of protected communications will multiply. Your legislation should address the problem by providing clear and enforceable safeguards against theft of protected communications. INTERCONNECTION Section 323(b) provides that intraexchange carriers must provide inter- connection to interexchange carriers upon reasonable request and may not discriminate with respect to rates, terms and conditions of service. We fully support those requirements and believe they should be extended to'other carriers. A revised Subsection 323(b) to that effect is found in Exhibit D. By requiring interconnection by al1 carriers, the public will benefit from the lower costs obtained from fair competition among diverse service offerings. This will allow the benefits of new business communications services to be provided to the public as soon as they have been developed by innovative carriers and not be delayed or denied by carriers whose facilities are needed for interconnection. Small companies likeMicroband will be no better off if four big companies refuse reasonable interconnection Instead of one. In. order to make this requirement meaningful, the CRC should be authorized to -12- PAGENO="0092" 1556 require carriers to unbundle their charges.* SPECTRUM FEE Microband does not object to the payment of a fee which is designed to reimburse the CRC for the costs of necessary regulation Pursuant to the proposed legislation, the CRC will perform a very limited regulatory function with respect to MDS carriers Accordingly the costs of regulation should be reasonable. We are opposed, however, to a separate `spectrum resource fee" which, we believe, provides a disincentive to investment in and development of innovative communications services. Microband is a licensee of the spectrum. An MDS station occupies 6 MHz of bandwidth the same as a UHF television station Yet unlike commercial television our business is still in its infancy The entire MOS industry has been in operation for less than 10 years Our company has only recently become marginally profitable Other smaller carriers within the MDS industry have yet to achieve that status It must be remembered that a carrier with gross revenues of $3 million is, in reality, a small business. With respect to MDS carriers the demand for our services is by no means certain The imposition of a fee on MDS carriers analogous to that proposed for broadcasters would have substantially delayed the time in which Microband became profitable and virtually eliminated the profitability of other MDS carriers Should the legislation nevertheless incorporate this ill-conceived approach we urge that more extensive reduction in fees be legislatively established *There appears to be an inadvertent error in a related section, Section 324(a), which, if uncorrected, could unravel the statutory scheme intended by the bill. While Section 324 appears to be primarily addressed to telephone companies, Section 324(a) grants authority to state commissions to establish charges for telecommunications service This is contrary to Sections 321(b) and 424(a) which prohibit state regulation of the rates and terms of telecommunications service Accordingly the words telecommunications service appearing on line 1 page 53 of the bill should be revised to read local exchange telephone service." -13- PAGENO="0093" 1557 EXHIBIT A 2I5OMI-Iz MULTIPOINT DISTRIBUTION SERVICE SYSTEMS TYPICAL MDS METROPOLITAN AREA PAGENO="0094" OPERATING STATIONS C?' C?' St. PAGENO="0095" 1559 EXHIBIT C ~NSUEING BUIWING A~ESS Tha following language gbarànteeing building access shauld be inserted after the present sentence in Section 321Cc): "In order that carriers may install, maintain, connect and disconnect facilities or equipnent for persons requesting telecorrrnunications services, carriers shall be afforded the sana rights of access to buildings and other locations as persons providing local exchange telephane services. Any person denying such access to carriers shall be in violation of this section." EXHIBITD REQUIRING IN1TEIODNNECTI(X~ BY ALL C~Z½RRIERS In order to assure interconnection anong all carriers, Section 323 (b) shauld be revised to read as follows: "(b) Every carrier shall establish interconnection with any other carrier upon reasonable request. Carriers may not discriminate anong carriers with respect to the rates, terms, or conditions of interconnection." PAGENO="0096" 1560 Mr. MOTTL. Thank you very much, Mr. Franco. We will now hear from Mr. Richard Gray. STATEMENT OF RICHARD E. GRAY Mr. GRAY. Today I am offering the views of the telephone operat- ing subsidiaries of General Telephone & Electronics Corp. GTE telephone companies utilize the electromagnetic frequency spec- trum for provision of intercity private line and message telephone service, mobile telephone service, public air-to-ground service and maritime mobile service. Accordingly, GTE welcomes the opportu- nity to present its observations on title IV of H.R. 3333. The effort you are making to reduce Government regulation is a step in the right direction. For instance, the current two step FCC procedure for construction and licensing of most nonbroadcast radio stations is a burdensome and unnecessary process. The one step process set out in sections 412 and 415 should reduce the unnecessary delays arising from procedures under the present act. Any attempt to ease these regulatory burdens should provide for a practical and efficient process for administration of the frequency spectrum so as to maximize service to the public, but should also avoid the kind of interference problems which gave rise to Federal radio regulation in the 1920's. In this connection we are concerned that H.R. 3333 gives no opportunity for an interested party to petition for denial of an application for spectrum use even on grounds of interference or potential interference. Provision for a denial procedure is necessary to prevent interruption or degradation of common carriers' services to their customers. The GTE telephone companies as providers of common carrier services are vitally concerned with the reliability of the facilities utilizing the electromagnetic spectrum. Thousands of telephone calls, broadcast programs, Defense De- partment services, among~others, may be carried on a single radio facility. There must be a provision for these facilities to be protect- ed from interference. Additional administrative burdens could be lifted by increasing to 60 days the length of time of operation under special temporary authority where no application is to be filed and 90 days where an application is to be filed for regular operation. Our experience is that the current 30- and 60-day allowances are not sufficient to permit the completion of Commission processing and public notice requirements. A lengthening of these periods will substantially reduce the need for requests for extensions of time and subsequent STA's. Another area of concern to GTE as a user of the spectrum is the proposed section 415(d)(l)(A), which would establish in certain in- stances a system of random selection for frequency assignment. Although possible alternatives to this random selection procedure are found in section 436, these provisions do not specifically take into consideration the qualifications of the potential licensee or the benefits to the public of the service to be provided. We believe that the best alternative for assignment of such dis- puted frequencies to qualified applicants is a process based on the importance of the service to be provided to the public. Only PAGENO="0097" 1561 through such a process of careful selection among competing appli- cants can the maximum benefit to the recipients of telecommunica- tions services be achieved. Certain language of H.R. 3333 which appears to apply to all users of the spectrum should be restricted at most to broadcast users only. For example, portions of section 413 deal with assign- ment of specific frequencies, power and location of stations, and zones to be served by stations. As mentioned earlier, section 415 proposes a lottery for award of unassigned frequencies for which there are multiple applicants. In our view, none of these provisions are necessary or appropriate for common carrier operations. My comments on proposed section 414, the spectrum resource fee, will be limited principally to the fee's application to common carriers. In a current FCC proceeding, GTE commented that a spectrum resource or scarcity fee for use of electromagnetic spec- trum by common carriers is not in the public interest. The basis for this in part is that the public and not the carrier is the trtie beneficiary of the use of spectrum by a common carrier. The current allocation/assignment procedures have served the public satisfactorily. A radically different environment resulting from a complete restructuring of the industry could make reexa- mination of these procedures appropriate. In our view it is premature to implement a scarcity fee concept prior to the determination of a long-run industry structure. While a spectrum resource fee might prove to be a workable means of spectrum management, there are many areas of uncertainty which must be resolved before it can be fully evaluated. Thank you. Mr. MOTTL. Thank you very much, Mr. Gray. You have heard your colleagues address themselves to these various issues. Mr. Meehan, do you have any coibments? Mr. MEEHAN. I would like to address a couple of the points which Mr. Roberts raised. First of all, the problems he has posed I would agree are difficult but I do not know that they are insoluable by methods other than auctions or speçtru4n management fees. -) It would seem to me that in a normal rulemaking process, for example, we could determine if manufacturers or utilities needed spectrum in the same area and really who had the best case. Probably it would be taking and splitting it down the middle. All of the problems he has suggested, it seems to me, can be solved by means other than a spectrum management fee or an auction. Al- though, I would agree if, for example, we had Con Ed and IBM bidding on frequencies in New York, 1somebody with the deeper pocket is going to solve that problem-' for the regulator. I do n~5t know that is going to be the best solution. The other example of whether we sliould implement single side- band or trunking,. they both may offer efficiencies for some types of licensees and for others they may b~e terrible. I think the key is the word that Paul used,. before you in~plethent these things they have to be "practical". Before you go ahead and say we are going to have trunking or you will use single ~id~and, I think it has to be 51-2530-80-7 / PAGENO="0098" 1562 demonstrated again through rulemaking, testing and any number of things like that, that these are practical solutions. One suggestion that I think does have merit for some situations is the trading of licenses. I have a couple of clients right now who would give their eye teeth to trade some licenses in the New York area. They were going to go to 800 MHz conventional systems but they cannot do it now. They are not big enough to go trunked. They only want to have 400 or 500 units per channel or 400 or 500 units. They are now negotiating with our brothers in the railroads for some of their high band frequencies. I suppose it would facili- tate if we could buy those licenses or buy those frequencies if somebody was in fact holding them. I really do not know that would be practical for wide area licensees, but for in a given community, I think that is a good idea. If somebody is sitting with the license and somebody else needs it worse, then he can buy it. I also do not think it would be practical for industry-wide appli- cations. For example, right now the utilities are seeking on a nationwide basis frequencies for load management, management of the utility loads. To go and buy up frequencies in every community in the Nation where they wanted to do this would not be practical. I think you would have to have a reallocation situation presumably based on need and band width and these types of things. I think auctions will be very helpful to the regulator in those situations where he has people of equal qualifications, say two common carriers or two broadcasters, where you know both of them will use the spectrum substantially the same in the public interest and instead of giving the money to the lawyers or to the hearing examiners, have an auction. In a lot of other areas, I do not know. For example, if you had a police department and a large wealthy manufacturer bidding for the spectrum, would the public interest really be served if he with the deeper pocket would get it. Again, auctions should be applied where they are helpful but, again, I am wondering if we are talking about easing the burden of the regulator or his hearing examiner staff or are we talking about spectrum management? It seems to me it is relieving the burden of the regulator The only other question is, and I did not realize we were going to get into section 549, we were initially somewhat concerned why we had a complete revision of what is now section 605. No. 1, in light of the fact that nothing was done in the last bill and also in 1968 the whole subject was addressed in detail in revision of the crimi- nal code. The only thing we were concerned with is when you get into including language such as "expectations of privacy," we get into a whole new area of litigation and an area that has been litigated ad nauseum. What is the personal privacy expectation? If you call me on a telephone, I do not expect you would not be recording my telephone conversation. Why not? Perhaps it would be in your interests and perhaps in the public interest that you are recording my telephone conversation. We have a number of industries where this is particularly criti- cal. For example, again in the utility industry where people have trouble calls coming in, such as wires down, people being electro PAGENO="0099" 1563 cuted, gas mains exploding, all these t~1ephone calls are recorded because a lot of times the people will blurt out what happens and hang up. The normal human being on the other end cannot take everything down. This is recorded normally with a beep tone or in fact all of the time with a beep tone. They want the people to know it is being recorded. To put any provision in where ~he utility or the police or the ambulance or whatever have to go~through notification like, "is it all right if we record" and back and fofth such as the Commission had suggested in docket 20840, it would really place a burden on the utility or police or emergency type operator who is required to recQrd telephone conversations. I would hope if we get into this substantive area of expectations of privacy, whatever that is, that we would be very careful that we do not prevent some ver~p~racticaJ uses of telephone recording or complicate them any further than they are now. Mr. MOTTL. Thank you, Mr. Meehan. Mr. Franco, would you like to respond? Mr: FRANCO. On another point an~d I do not recall whether it was Mr. Bortz or Mr. Roberts who made the comment that he disagreed with the Federal preemption of th~regi~tlation of the local portion of an interexchange communicatior4. _I I would like to suggest in terms ,of our experience that we sup- port the present measure. I do not think we as a small company would be here today testifying at a~ll if we were subject to regula- tion in 50 States on what is in essence ii~iterstate commerce. We do not have the staff to mount the various lobbying and legal require- ments in 50 State PUC's. ~Even if w~e did, the cost of providing our service to the public would be so astronomically increased. We think it is not in the public interes~t to create unnecessary regula- tion at the local level of what is i~i essence interstate or interex- change communications. Mr. JACKSON. Mr. Chairman, may I follow up on this question? Mr. MOTTL. Certainly. Mr~ JACKSON. Mr. Gray, does G.T~ &~ E.' have any position on this issue, the issue of Federal versus State ji.~risdiction over local use of radio services? - Mr. GRAY. I am really not prepared to get into that today. Mr. MOTTL. Excuse me. We with allow counsel to proffer ques- tions to the ~panel. Mr. Van DeerI~n will be back any minute. I have to make a vote so please excuse~ me. Mr. JACKSON. I am sorry. Please continue. Mr. GRAY. There was earlier testimony. I am not prepared to get into that today. I believe there is~ earlier testimony before this panel on the local versus State versus Federal jurisdiction. Mr. JACKSON. Mr. Bortz? Mr. EORTZ. On Mr. Meehan's cOmment about expectations of privacy, in our full testimony we ad~lressed that in some detail. W~- share his concern about the issue relating to expectation of privacy and have made some suggestions that we believe could meet many of those objections. It should not bq just a personal expectation of privacy. It should be a "reasonable expectation," requiring judicial scrutiny of the circumstances in which the service is delivered, involving not only the individual's ~expectation, but whether such PAGENO="0100" 1564 expectation is one that society is prepared to recognize as reason- able. We are also supportive of section 549 because it is much more broadly drawn than, for example, the 1968 act which I believe addressed wire communications only. Section 549 addresses data and nonoral communications as well. With respect to the jurisdictional issue, this is a very difficult issue as to whether there ought to be Federal preemption or State regulation of these services. We see that when you start drawing lines by technology within a given area, and you divide the regula- tion is that fashion you can get substantial differences in treat- ment of services that are really pretty much the same services. Mr. JACKSON. Would NTIA be in favor of State and local regula- tion of television broadcasters? Mr. BORTZ. No. We do not believe that is substitutable for in- traexchange telephone service Mr. JACKSON. How do you distinguish a pay UHF channel from an MDS firm, they provide analogous services. Mr. BORTZ. I think this raises issues of the use of MDS. The concept that I think was originally behind MDS was not pay televi- sion delivery, but data communications If we are talking about data communications within a given area, there might be some substitutability for intraexchange services. Mr. JACKSON. We have in several communities today the use of subcarriers of FM broadcast stations for distribution of digital sig- nals similar to the way such use is proposed for MDS Would you then turn over to the States the regulation of that function of a broadcast station? Mr. BORTZ. No. What we are proposing is that you have in the bill some flexibility to address each of these as they come along. When you begin to draw rigid lines-and I believe you have rigid lines either with the approach that you have suggested in your bill or with the approach really we have put forward earlier-which said all intraexchange communications would be regulated at the State level-j-hybrids are going to form and they are not hybrids that you can now anticipate That is why we are very supportive of Carlos Roberts' suggestion that the Commission take a look at these services and determine essentially the bounds of regulation which would be appropriate if there is to be any regulation at all. Then that regulation would occur at the State level. If it were not appropriate and if for example MDS were strictly pay TV services or some of the other examples you have cited, you could look at each of those cases and then I think you could draw a conclusion as to the extent of State regulation But by being very rigid at this point, you are going to have services whose very configuration will be designed to take full advantage of this separa tion of regulatOry jurisdiction in terms of intraexchange services. I think you want to avoid that You do not want to have services designed to fit that By having the flexibility of Mr Roberts' sug gestion, I think you will avoid that. Mr. JACKSON. Mr. Meehan, do you want to comment on this issue? Mr. MEEHAN. As you might imagine with the membership of LMCC encompassing the American Telephone & Telegraph Co., the PAGENO="0101" 1565~ independents, the RCC's and a multitude of private users, it has no position as such on preexemption. Some of the members and primarily many of the users concur with the appnoach in the bill. Others such as carrier-oriented mem- bers feel that in some areas State regulation is required. As far as LMCC is concerned, I really would not be in a position to do it. I will say the utilities wh9leheartedly support the inter- city-interexchange approach and placing Federal preemption on all intercity service. One interesting twist, I noted in your section 549, you stuck with the old language of interstate versus intrastate, unlike what hap- pened. in the Senate where I presume they intend to apply section 605 to intercity. There is an interesting complication in the Senate bill with respect to those exchange areas which encompass more than one State. - Does this mean that the Federal Government in section 605 rather than the State laws would govern in those areas? This is something you may want to consider in section 549. There is a multitude of State treatment of so-called right to privacy or tele- phone recording. As long as you are examining this, you might want to determine, do we want to preempt from the Federal point of view this tele- phone recording. Mr. JACKSON. Mr. Roberts? Mr. ROBERTS. If I could comment~ for a minute, I would like to address some of Mr. Meehan's earlier remarks. I certainly agree with him that we do not want to put all of our eggs in any one basket of spectrum management techniques, whether they be eco- nomic or otherwise. I think my point was that we do have some tools in the basket now and those tools have in some instances proven less than ade- quate, and it would be very desir~ble to add some more tools to that arsenal. I certainly am. glad he agrees on the desirability of the transfera- bility of licenses and in turn I agree with his point on fees for Government users. I think it would require a little tighter justifica- lion on the part of Government agencies of their usage of spectrum if they had to pay a fee or purchase frequencies on the open market. I differ with him a little bit when~we get to actual assignment of channels. The repeated illusion to people with the deep pockets I think is a little bit misleading, because certainly somebody that has deep pockets is not necessarily going to buy up everything they come- near. Willingness to buy and the amount of dollars in the bank account are two separate things. Certainly before a purchase is made, you have to have the money in the bank account, but having the money in the bank account does not imply that you are going to buy up all the frequencies that are around. I think perhaps there may hav~ been some misunderstanding also on the question of reallocation of frequencies between major services. I do not anticipate here that Land Mobile is going to come in and buy. up broadcast channels or for that matter that the reverse situation would take place, but rather that the price sig- nals that the broadcasters or Land Mobile interests would send up PAGENO="0102" 1566 as to how much they are willing to pay for channels within their own bands would give the regulatory authority a pretty good clue as to the need for reallocation, if that need should exist I think it is important to bear those differences in mind Mr JACKSON Mr Roberts, there was extensive discussion of section 549 and discussion of what the reasonable expectation of privacy meant and would refer to Have you looked at that section and do you have any thoughts about what the reasonable expecta tion of privacy is in mobile communications? Mr. ROBERTS. Yes, I have looked at it. It is an extremely difficult question to answer and to try to draw a line It is one of these issues which I think is really a matter of judgment My personal opinion viewed from the perspective of someone who works in an agency that might have to enforce these provi sions is the final answer to this thing is if you want privacy, you ought to take the technical steps necessary to assure yourself of that privacy As technology develops it becomes easier and easier and cheaper and cheaper to implement scramblers and other sorts of privacy assurance devices and cost is no longer, in my opinion, a valid reason for not availing yourself of those. Simultaneously as technology develops and scanner receivers and other general cover age receivers become more available, it becomes almost an enforce ment nightmare to try to keep those devices off the market or prevent people who have them from tuning in certain frequencies while they are able to tune in others Mr JACKSON Mr Bortz? Mr BORTZ Partly in response to questions you asked the previ ous time we were up here and discussed this, we have looked at some of the services in this area and at the FCC rules that apply to those services Basically in talking about expectation of privacy, it would seem to me, as to a particular link, if you go to the point of scrambling the signal that there is an expectation of privacy That would be precluded only in two services from what we can see in terms of analog scrambling That would be in personal radio and amateur radio services where essentially* there have to be clear voice transmission In the other services, analog scrambling is allowed If somebody goes to that point of scrambling, then I think there is an expecta tion of privacy. Digital scrambling is allowed apparently only in public safety services, and we believe digital scrambling may be allowed in the private operational fixed microwave There is no digital scrambling in the other areas I think that whether or not a signal is scrambled in clearly part of the expectation Mr JACKSON Mr Franco7 Mr FRANCO In the area of pay television, I think we have a slightly different situation than we are discussing here No 1, I think there is an expectation in a person that when he does not pay for the pay television programs he is receiving, he is intercept- ing these programs illegally. You cannot say otherwise I do not believe. One of the problems we have faced in this area is that there is a real cost of implementing scrambling and other protective cures. The cost is you have to go out and retrofit everything that has PAGENO="0103" 1567 been done before. It is not as in a point-to-point service where you today can decide tomorrow to go into a scrambled mode. When you have thousands of receivers out in the field, it is almost an impossi- bility to decide tomorrow to switch over to a scrambled mode. How do you do it? The cost is a cost that would be passed onto the public. It is a very real cost. What we have faced as an industr~y-and I do not know that the STV broadcasters have yet but I suspect they probably will-is there are people that go around selling the equipment so that others can get the programs for nothing. When we go to the var- ious administrative agencies which are charged with enforcing the law, no one. from the FCC to the Justice Department really wants to do it. One of~our customers caught a person manufacturing and install- ing an illegal box. He caught him by having a detective order the service. The man came to his home and installed the equipment. All of this was presented in evidence to the court and the court basically because as I believe because the agencies of the Govern- ment did not give it full support for very good reasons, because of caseloads and other more pressing things, it really did not come to anything. What happens is you encourage more and more of this. I think there is a real expectation when somebody is stealing a pay televi- sion signal that he knows what he is doing and he should be punished to the full extent of the law for it. Mr. MEERAN. Again we are dealing with practicalities and I think this is the proof of the pudding to support what Carlos has suggested, that if you have a problem with interception and you have a reasonable expectation normally based on money or other considerations, you take technical means. For example, in the pe- troleum industry all your drilling logs when transmitted are scrambled. That is highly proprietary information. Paul mentioned digital. Up to ~now utilities have not used digital. As a result of some recent events involving electric utility generation facilities and concern that two-way radio transmissions were monitored, I think you will see the Power Radio Service coming in very rapidly to have the rules change to apply digital to that service. You have a need that may not have existed 10 years ago. In today's world with different values and different outlooks on what is best for this country and access to equipment that can monitor, you are going to have a changing thing but I think everybody has to row his own boat. If you have a problem instead of running to the Government for a solution, have a little bit of self-help and go the technical route. Mr. JACKSON. What I hear you and Mr. Bortz and Mr. Roberts saying is that it is so hard to police and control the use of intercep- tion equipment, it is so cheap and easy to make such equipment and all the components of such equipment have legitimate uses elsewhere in the economy, and you can buy the parts at places like Radio Shack or electronic parts distributors, radio amateur supply stores, the enforcement burden is overwhelming, and therefore it is better just to let people know ~what the rules are and to tell them that there is other technology to protect their privacy. PAGENO="0104" 1568 Is that a fair statement of your positions? Mr. MEEHAN. I would personally concur with that. Mr BORTZ I concur Mr ROBERTS Yes Mr. VAN DEERLIN. When you were talking about the pay televi- sion signals, were you talking about both over the air subscription and pay cable? Mr. FRANCO. I was talking about MDS pay. I suppose the same problem will apply to the other services as well, pay cable as well as STV. I had reference specifically to the provision of pay televi- sion via MDS which is in an unscrambled mode. The point I was trying to make was MDS receivers are tuned to a particular channel, a particular frequency, 2150 megahertz. There is no other use for this particular equipment other than to receive a signal from our station or from another licensee's station. To permit the manufacture and distribution of this equipment for the purpose of committing an illegal act, it seems to me it should be addressed. Mr. VAN DEERLIN. Somewhat comparable to gasoline siphoning equipment? Mr. FRANC0. Yes. Mr. MEEHAN. Am I permitted one point of surrebuttal? I certain- ly do not want to tangle with Mr Roberts on anything, but in our discussion of auctions and their uses and so forth, what I am concerned about if you apply auctions say in the spectrum alloca tion or spectrum management area, is not that somebody may not have the willingness and a deep pocket, I am concerned that I have somebody with less than a deep pocket who has a real legitimate need for spectrum bidding against somebody who has a deep pocket who might have an equally legitimate concern. It just does not seem to me to be fair just because somebody has more bucks than the other fellow that he should get the spectrum. I think auctions are a nice way to eliminate lawyer fees in cases where you have people where they have equal public interest rights and uses It is just the matter of mox nix who gets it Use an auction there. I am concerned and in talking with user groups they are saying, who has all the money in the telecommunications business, the dominent carrier or I certainly do not want to go up against IBM or something like that. Then they say, look at all those little pizza guys down there, they do not have the bucks that I do and maybe that is not such a bad idea. This utility I was mentioning, for example, it could go and outbid someone and that would be a lot easier than the agony they are going through right now, although I must say the railroad people are very accommodating. I am concerned that the auction will bring about a lot of rnjus i~ ices and I do not think you can dismiss it by saying just because ~somebody has a lot of money does not mean they are going to go up and buy spectrum. I am not concerned about that. I am concerned ~wKere you have two or three people all contending and maybe that ~littie police department and maybe it is a big police department in New York, they only have a certain budget and maybe they need that spectrum just as well as IBM or whatever the corporation PAGENO="0105" 1569i~ might be. They certainly do not have the economic wherewithal to compete in an auction or sealed bids or what have you. Mr. VAN DEERLIN. It was never envisioned that the spectrum fee would be used to exclude public and social uses of the spectrum. Mr. MEEHAN. I know that. I am not talking of the fees. I am talking of the use of auctions to determine who gets a specific frequency. I realize the public safet~r people are exempted from. fees in your bill. I am not clear they would be exempted from any auction program~ that the Commission might implement. Mr. BORTZ. They certainly could be exempted. Mr. JACKSON. I think it is very clear in the language of H.R. 3333 that the Commission could choose to exempt them and to treat them differently. I read H.R. 3333 as allowing auctions to be used and encouraging auctions to be used exactly in the situation you described as being desirable, where you have three applicants alike and there is no point in wasting money or delaying the delivery of service through a comparative hearing. When they are different and they serve different public interest values, the Commission has discretion under H.R. 3333. Mr. BORTZ. This would not be a free-for-all in terms of the fees. There are allocations. I assume auctions, if they were to be held, would be so within an allocation, which is defined for a particular service. You would have a homogeneous group of bidders, so you could use the values obtained from those auctions as one piece of information in reallocation decisions, in which case you might shift from one industrial use to another or from one service to another but I do not think it would be wide open to any service that wanted that frequency. Mr. MEEHAN. I would hope not. I do think it is a concern and it was a concern of the people we represent and we think it should be addressed. Clearly we do not intend the bad result to come by, but I do think it should be addressed and if not in the language of the Act, at least in the report. Mr. JACKSON. Would you be willing to supply the subcommittee with language which would articulate both the values and the constraints that are needed to make sure that they do not bring harm? Mr. MEEHAN. Yes, sir. We will file within the time limit provided in the written statement addressing that point. Mr. VAN DEERLIN. Mr. Moir, full committee counsel? Mr. M0IR. Thank you, Mr. Chairman. I have a few quick questions. Mr. Gray, in your testimony at pages 2 and 8, you talk about longer periods of time for an STA. Is it not pretty much a matter of course that valid STA requests are granted extension and the actual work effort of the Commission's staff is actually milliseconds and yet the value of not giving carte blanche long periods of time in the initial grant is that STA's are for only special purposes. If you need a CP, you go ahead and apply for a CP; and many longer time requests have actually been an abuse of the construction permit process or license process? Mr. GRAY. In our experience as to the purposes to which an STA is used, as you say, they are special purposes, emergency situations and whatnot. In most cases we have found the necessity for an STA extends beyond the 30-day period. PAGENO="0106" 1570 I think the problem comes in those cases where an application is to be filed. To get an STA for say 60 days and file an application and have that meet the preliminary processing, public noticing and whatnot, and expect to get a system up to speed in that length of time is very difficult. The main problem comes in knowing when an application is to be filed. Mr. MOIR. In that situation, an STA is not used as a vehicle to initiate a speedy process for a new project at the Commission? Mr. GRAY. No, it is not. Mr. Morn. Mr. Bortz, in your testimony, you discuss the proposed section 549 or the existing section 605. I note and well understand, that on page 1 you talk about your statement merely being an expression of NTIA's views and not the executive branch's views. In your circulation of this testimony did you receive any comments back or were there comments made by the Justice Department on this portion in your testimony? Mr~ BORTZ. We have not received any comments in the circula- tion of this that have not been taken into account in the editing of the testimony. Mr. Morn. None were received? Mr. BORTZ. There were comments from some agencies. Mr. M0IR. Not the Justice Department? Mr. BORTZ. We had no comment from Justice. Mr. M0IR. Thank you. One further question. For any of the witnesses here today who might not have an opportunity later, the bill before you in section 3331(d) addresses a prohibition basically on the entry of dominant carriers into cellular communications. There has been some men- tion of this in the testimony. So any of you have any comments on how the subcommittee should address the monopolistic aspects of cellular communication; some people have said the mere prohibi- tion of an A.T. & T. type of license is sufficient; and other people have talked about splitting up the licensing of the radio spectrum. Other people have discussed the possibility of allowing one individ- ual, or one entity, to be the licensee and sell service time to other carriers. Are there any comments from any of the panelists here? We will be getting some testimony, possibly tomorrow, on this matter, but it might be helpful to get your views. Mr BORTZ I think the provisions of section 436(a) which suggest when at all possible that there be at least three businesses partici- pating in delivery of the services is the best way to avoid monopo- listic endeavors. Then, you do not have to prohibit the participation of a dominant carrier from competition. There might be some significant service advantages in that case but there would be competition. I think this kind of guidance to the Commission will be very important in cellular, MDS, and other services. Mr. M0IR. Would you include in that the present proposal for cellular as proposed by the Commission in docket 18262? It would have one entity be the licensee of the 40 MHz; from your com- ments, I assume it would not be desirable to have that, but in one example, split it in thirds. PAGENO="0107" 1571 Mr. BORTZ. This has to be considered. There are a number of spectrum issues too, and I am not really prepared at this point to comment specifically on the particular proposals before the Com- mission. Requiring at least three operators, though, is a feasible way. I think to give consideration to avoidance of monopoly situations is important. Mr. FRANCO. I would like to make one additional point. We believe in order to create competition to the dominant carrier in that area of communications, namely the local distribution of sig- nals, that it is necessary to keep the dominant carrier out of that business for a period of time, at least until there can be a foothold gained by some other entities. I think it is especially so in respect to the point I made earlier in the day concerning the access to buildings. We are talking about broadband communications and right now the dominant carrier really is the only entity that can get into customers' premises easily. If you allow the dominant carrier to add on to that so-called monopoly which is the unlimited access to customers' premises which the rest of us do not have and give it the ability to bring in these cellular systems at the same time, I think you are going to find in the long run, you are going to be eliminating the possibility of really having a competitive atmosphere. You are going to enable it through its monopoly of those premises to drive out the competi- tion. Mr. MOIR. The reason I raised the point is that the Commission, in its docket, had as a premise the concept that cellular service had to be offered as a monopoly service because of spectrum efficiency reasons. There has been considerable discussion since that pro- nouncement as to whether that is in fact valid reasoning. It is basically that cellular concept that I am mentioning, and maybe Mr. Roberts could comment on that cornerstone of the docket 18262 proposal. Mr. ROBERTS. I think the Commission decision, made in light of the prevailing philosophies and policy perspective of that time, is probably correct, but I would hazard a guess that if that decision were to be made today, it might come out a little differently. I am somewhat concerned that we not waste just about a decade of effort and tens of millions of dollars that have been poured into the cellular development and have to start all over simply to introduce competition. My position is somewhat in the middle. I would say let's in the future look, as the provisions of H.R. 3333 specify, to having compe- tition in the provision of these services but we are so far down the road in cellular that I think we probably ought to consider some other solutions that might not exclude the monopoly, at least as a base on which perhaps some minimal competition could be added on. I think to start over now would involve too much delay in the provision of this valuable service. Mr. MOrE. Some of the proposals we have heard would not in- volve the scrapping of that docket, but allow for the actual provi- sion of service to be spread over a multiplicity of individuals. PAGENO="0108" 1572 Mr. ROBERTS. I think those deserve very careful scrutiny and we are certainly doing that at the Commission as well Mr. Morn. In your later comments you mentioned you would be filing, will you address this issue? Mr. ROBERTS. I believe the panelists from the Commission who will be here tomorrow are probably going to concentrate more on that area. Mr. Morn. Thank you. Mr. Bortz? Mr. BORTZ. I just wanted to express some concern, if I under- stand Mr. Franco's proposal correctly, about access to buildings; this is going to make pole attachment look like playing in a sand- box. It is a very different situation. Regarding access to buildings, I would assume you can arrange to have access with building owners. I hear there is a flourishing business in New York City and other urban locations where business managers apparently make a tidy profit in terms of access to buildings. I just do not think it is an area of Federal regulation and unlike poles, it is not controlled by someone who can be viewed as a competitor but rather by a multiplicity of private owners. I think that should be a private agreement between the supplier of the service and the building owner. Mr. FRANCO. On the other hand the statute I think contemplates regulating the terminal and regulating the local aspects of inter- state communications. The only thing we are not regulating is that little piece of wire or optical fiber or whatever that comes down from the roof that attaches to the terminal. I am saying if the intent in this legislation is to bring to the public the great benefits of a new broadband technology, how are you going to get those technologies down to the terminal? Right now the buildings in this country are wired for narrow band services. If we and other carriers like ourselves who want to bring these broadband technologies into the building and are thwarted by the dominant carrier because only it has the ability to create the State laws that give it the monopoly in the building so to speak, how do we bring in these technologies? To me there is no difference between having the ability to regu- late the terminal and the ability to regulate the wire that connects to the terminal. Mr BORTZ I think substantial freedom for on premises' wiring is contemplated and it is not going to be an area of detailed State regulation. Mr. FRANCO. I think even in the pole attachment language that is in the bill, I think you can read some of that language as saying the phone company must provide, if it has a conduit in the build- ing, it must provide an attachment to that conduit. I am not sure that goes as far as we would like it to go. We would like it to say that anyone who forbids access to federally licensed carriers would be in violation of the act Mr. BORTZ. I would be concerned about getting into regulation of MATV systems which would be included under that. I think the line has to be drawn somewhat substantially on the other side of that. Mr. M0IR. Thank you, Mr. Chairman. Mr. VAN DEERLIN. I thank all of you for this very helpful panel discussion. [The following letter was subsequently received for the record:] PAGENO="0109" 1573 MICROBANO June 12, 1979 Congressman Lionel VanDeerlin Chairman House Communications Sub-Committee B333 Rayburn House Ofice Building Washington, D.C. 20510 Dear Chairman VanDeerlin: I wish to thank your committee for the opportunity afforded our company on June 6, 1979 to present its views with respect to certain aspects of the proposed new Communications Act. The overriding purpose of your legislative initiative, as we see it, is to spur competition so as to bring to the marketplace technological innovation and to eliminate regulation wherever possible. We agree that these are worthwhile goals. We believe, however, that an issue we raised in our testimony is not fully addressed in the legislation and we are concerned that failure to solve this problem could tend to defeat these worthy purposes. We would like to take this opportunity to amplify on that point here. Whether provided by us or by others, communications services of the future will tend to be increasingly broadband in order to satisfy the public demand for high speed data distribution. The number of broadband `pipes" available to the public today is growing quite rapidly and the rate of growth will increase dramatically in the years ahead. A great deal of "rewiring" is involved with respect to these broadband pipes because the existing plant (including the interstate and local portions as well as the internal building distribution systems) is not sufficiently wideband to accommodate these new services. It is with respect to the internal building distribution systems that we perceive the problem to lie. In most cases today, internal building wiring is not adequate for broadband signals. Therefore, unless this wiring is changed, introduction of new broadband services to the buildings in question will be prevented or delayed. In order to make these installations, carriers such as ourselves need to obtain access to buildings. At the present time, only local telephone companies have the unrestricted right to obtain access to all buildings. We believe that this fact will delay the introduction of new and competitive services to the ultimate detriment of the American public. In short, the purpose of the legislation - the introduction of competitive and new technology - will be thwarted. We believe that it is in the interest of all non-telephone carriers, as well as the consumer, for the legislation to deal with this problem. The law should specifically permit all federally-licensed carriers to obtain access to buildings for the purpose of installing internal distribution systems. Such a requirement, while spurring competition in the provision of local distribution services, can M~CROBAND .655 T HIRO AVENUE, `NEW YOF~K N.Y 10Q17. (212) 867.9580 PAGENO="0110" 1574 also be expected to spur the Bell System in its own marketing and service developments. An analogy can be drawn to the Carter Phone decision which opened the flood gates to technological and service fiiñövations, and spurred AT & T to become more efficient in its marketing and service efforts. Forthis reason the legislation, at a minimum, should provide that all carriers shall be afforded the same rights of access to buildings and other locations as the local telephone companies now enjoy. When we presented these views to you at the hearings, a point was raised that while access may be an important issue, it is one that should be addressed at the state and local level. We strongly disagree with this approach. Your legislation preempts for federal regulation the local portion of interexchange communications as well as the terminals themselves. It seems logical that it should also preempt the wiring to the terminal. In point of fact, there would appear to be an overriding federal interest in seeing to it that the Carrier could gain access for the purpose of installing the equipment. Just as the Congress has seen fit to require mandatory access to pole attachments in the cable television industry, carriers must be granted access to buildings where such is absolutely vital for the provision of their services. Clearly, the EMS type networks of the near future propose end to end systems provided by communications carriers on a national basis. They are of overwhelming national interest. Moreover, the costs, delays and uncertainties of pursuing a remedy in fifty local jurisdictions - fighting the telephone company at every turn - will substantially delay the provision of new services by all carriers, including Bell. The result of allowing Bell to maintain the sanctioned status it now has, will be a reduction in competition which is totally inconsistent with the purpose of the legislation. Unless this problem is remedied in your legislation, we are most certainly bound to repeat the mistakes of the past. It requires no stretch of the imagination to believe that the Bell System will use its governmentally sanctioned monoply with respect to building access to frustrate the efforts of its competitors. Attached hereto is our suggestion of the type of language which we believe is necessary to be included in the bill. We wish to have this letter and attach- ment included in the record of your hearings. More importantly, we respect- fully request that you favorably consider our views when reevaluating the proposed legislation. Thank you for your interest in our industry. If we can ever be of assistance to you or your staff please do not hesitate to call upon us. Respectfully 5 mitted, Don Franco, Presiden Microband Corporation of America cc: Dr. Chuck Jackson Staff Engineer MICROBAND.655 THIRD AVENUE, NEW YORK, N.Y 10017.(212) 867.9580 BUILDING ACCESS The following language guaranteeing building access should be inserted after the present sentence in Section 321(c): "In order that carriers may install, maintain, connect and disconnect facilities or equipment for persons requesting telecommunications services, carriers shall be afforded the same rights of access to buildings and other locations as persons providing local exchange telephone services. Any person denying such access to carriers shall be in violation of this section." PAGENO="0111" 1575 Mr. VAN DEERLIN. Our first of the individual general witnesses will be Mr. Val J. Williams, president of the National Association of Business and Educational Radio. STATEMENT OP VAL J. WILLIAMS, PRESIDENT, NATIONAL ASSOCIATION OF BUSINESS AND EDUCATIONAL RADIO Mr. WILLIAMS. My name is Val J. Williams, president of the National Association of Business and Educational Radio, better known as NABER. NABER represents the more than 125,000 busi- ness radio users licensed by the FCC and also and very important for this discussion the thousands of two way mobile radio dealers and service stations which sell and provide maintenance for land mobile radio systems. On their behalf, each of these two elements, I am grateful for the opportunity to testify briefly on a couple of issues in H.R. 3333 that are of keen interest to our members. Generally speaking, NABER's membership consists of small busi- nessmen who face competition every day. They thrive on the chal- lenge. In an era of regulatory redtape, it is encouraging that this bill advocates marketplace. forces as the basic regulator instead of Government intervention. Therefore NABER supports the pro-com- petition thrust of H.R. 3333. Awhile later I am going to discuss this aspect in conjunction with recent Commission action. We are also pleased that the bill recognizes, at least in the. land mobile area, that to be effective competition must genuinely exist. It is our belief that if the dominant carrier, A.T. & T., were allowed in the land mobile marketplace, it would capture the lion's share of the market and the inevitable result would be no competition rather than the intensely competitive environment that exists today. We support the exclusion provision set forth in section 331(d). Let me explain the adverse impact that would befall our members if this section were deleted and this primarily applies to the service stations and independent dealers. A.T. & T. as it has done historically, undoubtedly would provide its own in-house service and maintenance of its radio equipment. Since we believe that because of its very bigness, A.T. & T. would acquire a dominant share of the land mobile market, a substantial portion of the maintenance business would be no longer available to our members. We are talking about small businessmen who can ill afford to be shut out from a substantial portion of the market they service today. Even if for some unknown reason A.T. & T. were to contract out service/maintenance business, its leverage would allow it to obtain such service at low, noncompetitive prices. Similarly some of our members who have elected to become licensees of the third party for hire SMR systems would have a rocky road to say the least, trying to survive against identical systems owned and operated by an A.T. & T. subsidiary. As an investment for the small businessman, these systems represent a substantial risk and for A.T. & T., the amount of money involved would be petty cash. PAGENO="0112" 1576 To summarize, it seems to us that this bill endeavors to establish the ground rules for fair competition and where this is not attain able as in the land mobile field, the bill wisely has elected to retain the highly competitive environment that now exists. Briefly, we also congratulate the authors of H.R. 3333 for pre- empting interexchange services and land mobile from State juris diction. May I say parenthetically you have saved me about 50 trips a year around the country fighting with these State regula- tory commissions. If the goal of competition as the regulatory yardstick is to be obtained, it is essential to prevent States from imposing their own form of regulation Even under today's regulatory framework, all too often these local entities establish rules contrary to FCC find- ing It is appropriate for Congress to end that practice once and for all. Finally, I must raise the possibility of another problem that may frustrate the marketplace goals of H R 3333 from being realized That is the FCC or the CRC itself. As the subcommittee knows, the concept of competition and de- regulation is not new. The White House has ordered all adminis- trative agencies to follow this policy. Yet recently the FCC has made decisions and initiated proceedings that will without question reduce the system choices available to the land mobile user and particularly to the small business user even though and again parenthetically the FCC in the 18262 proceedings in the early 1970's and in the middle 1970's said options to users was the primary thrust of 18262. The FCC uses all the right language about how it intends to promote competition and let marketplace forces be dominent. In reality, what the Commission is doing is changing the marketplace to fit what the FCC thinks it ought to be. In our opinion the FCC is wrong. Less rather than more competition will result at a higher cost to the user. Right or wrong is not the issue. The point is that if an administrative agency can on its own decide that the marketplace is not working then we will end up with just as much regulation and Government intervention and the only difference will be the words the FCC will use to rationalize its actions I hope the Congress and this committee will address this situa- tion and somehow compel the FCC to follow the mandates of H.R. 3333 Regulation is necessary only to the extent marketplace forces are deficient I added the word "only" and perhaps section 101(a) needs that word added also Thank you very much, Mr. Chairman, for allowing me to speak. Mr VAN DEERLIN Thank you Mr. JACKSON. I have one question, Mr. Williams. In the third of your three points, you referred to current FCC activities that you felt created problems for users Could you be a little more specific9 I know it puts you in a difficult spot since your organization has to work with the FCC but as diplomatically as you can, could you try to explain what this problem is that you are referring to? Mr. WILLIAMS. I am really not delicate about it, Mr. Jackson, and I do not have any problem with being at odds with them because I PAGENO="0113" 1577 have been for years on many issues. We are very good friends incidently. The specific that I am referring to of course is the most recent action by the staff and the Commission, not all of the Commission- ers, I might add, in which they in effect closed off private systems applications in the 800 MHz band by denying any further release of the reserve pool frequencies for private systems and insisting that trunk systems be developed before any more private consider- ations would be made. This is arbitrary and capricious because first of all there is a tremendous amount of spectrum available for private systems by the very action of 18262. Second, to force everybody to go to a one offering when the whole thrust of the issue of the proceeding was choice of services is just really going out of the context of what I think a regulatory commission is allowed to do. What they have done is impose more regulation than less. Mr. JACKSON. Thank you. Mr. VAN DEERLIN. Thank you very much, Mr. Williams. Our next witness is Mr. Nathan B. McClure, president of Associ- ated Public Safety Communications Officers. STATEMENT OF NATHAN D. McCLURE III, PRESIDENT, ASSOCI- ATED PUBLIC SAFETY COMMUNICATIONS OFFICERS, INC., ACCOMPANIED BY ERNEST J. LANDREVILLE, EXECUTIVE DI- RECTOR Mr. MCCLURE. Thank you, Mr. Chairman and members of the subcommittee and members of the staff. My name is Nathan B. McClure III. I am the coordinator of the Winnebago County Emergency Services and Disaster Agency in Rockford, Ill. I am the president of the Associated Public Safety Communications Officers, Inc., APCO, on whose behalf I am ap- pearing before you today to discuss H.R. 3333, the Communications Act of 1979. I am accompanied today by Mr. Ernest J. Landreville, APCO's executive director. Last September I had the honor and the privilege of appearing before this committee to discuss APCO's views on H.R. 13015, the proposed Communications Act of 1978. Mr. Chairman, you can be assured that in reporting to APCO's membership on my appear- ance, I stressed your stated concern and support for public safety use of radio, in suggesting that APCO members maintain their active involvement in this historic legislative process. My appear- ance today is representative of that continuing commitment to your committee's efforts by the APCO membership. I might add, Mr. Chairman, that we are particularly pleased you have accepted our invitation to be our keynote speaker at our annual conference in Sacramento next August. We expect that public safety communications organizations from all across the country will be present to benefit from your statement. One will quickly recognize on even a cursory reading of H.R. 3333 that substantial modifications and, in APCO's view, improve- ments have been made to the provisions of the bill which will govern the use of the radio spectrum by land mobile and other radio service licensees. On the other hand, despite your express 51-253 0 - 80 - 8 PAGENO="0114" 1578 concerns for the public safety radio services sector, APCO must regretably note the lack of any clear and specific directive to the Commission to recognize and provide for and assure that public safety needs for effective, reliable, and economical telecommumca tions services will be met Underlying my previous testimony to this committee and APCO's general position on any communications legislation, is our concern that the standards for access to and use of the radio spectrum and other telecommunications services applied generally to all other users should not be applied to State and local govern ment agencies and other public safety service organizations There is nothing in the bill which would assure that channels reserved for emergency use would be continually available even when other licensees might desire their use to meet such contingencies There is also no direction in this new legislation which assures that the authority allocating or assigning the spectrum will take into ac count the planning and budgeting delays generally encountered by public safety service users in determining which of several compet ing services will be provided with spectrum In our submitted written statement APCO has suggested appro priate language which could be used in section 101 in the bill as a clear statement of direction by the Congress with regard to the public safety communications services APCO strongly urges that the committee consider the use of this additional language for inclusion in the legislation which is finally adopted Such language would govern not only the proposed Communications Regulatory Commission but also the National Telecommunications Admrnistra tion APCO would also urge the committee to consider the need for additional language in section 436, which contains the primary provisions dealing with the spectrum management standards of the new Commission Requiring the Commission to encourage competi tion in the provision of public safety radio service systems would wreak havoc, on an interjurisdictional and intrajurisdictional basis, among the providers of public safety services Requiring public safety services providers to compete on an economic basis for avail able channels or subjecting the availability of channels for public safety services to the uncertainty of a lottery or other random selection basis would obviously be totally unacceptable To cure this problem APCO urges the addition of pertinent language to section 436 SO that the congressional recognition of and concern for the differences in use of the radio spectrum by the public safety radio services will be clearly reflected in the bill APCO is pleased to note that the provisions of section 414 deal ing with the spectrum resource fee have been changed in line with our earlier testimony so that the Commission must waive the scar city value factor of any spectrum resource fee if the user is a State or political subdivision of a State This is certainly an improvement over the earlier provisions This modification has not resolved other serious concerns raised in our earlier testimony APCO is greatly concerned that the waiver of the spectrum resource fee mandated in the bill extends only to State and local government licensees Many licensees in the public safety radio services would not qualify as subdivisions of PAGENO="0115" 1579 State or local governments. They are often quasigovernmental or voluntary nonprofit organizations which supplement or substitute for the Government in providing safety services. The imposition of such fees could significantly impact the ability of such volunteer organizations to provide public safety services to their local communities. A modification to the exemption contained in section 414(a)(2)(A) can and should be made which would limit the availability of the waiver to those providers of public safety services who act on a nonprofit, noncommercial basis. APCO also believes that it is inappropriate to charge a license fee to licensees who gain no personal benefit from their use of the radio, that is, those whose use of the radio license is for the public benefit in providing public safety services, even a fee based only on the processing costs. You, Mr. Chairman, have recognized in a letter to one of APCO's members that "there seems to be little value and much loss if such agencies were to be included among those who must pay a spectrum license fee and essentially the Government would have been taking money out of one pocket and putting it into another." We would hope that the committee would exempt public safety radio service licensees from all spectrum re- source fees. Mr. Chairman and members of the subcommittee, the value of radio systems in providing public safety services cannot be meas- ured in dollars. Local governments must be assured that the re- sources necessary to provide services to their communities will be available as needed. This is an historic opportunity for this com- mittee to assure that the radio spectrum will be used in the public interest. On behalf of APCO I urge that you consider such provi- sions in the final legislation. Mr. Chairman, to perhaps answer a question before it is asked, we feel the exemption in section 436 from the economic factors is not clear enough. We are asking that Congress direct the Commis- sion to exempt public safety from economic based considerations. Mr. Chairman, I thank you for the opportunity to appear before you today. APCO looks forward to continuing to work with you and the subcommittee, and with Congress, in the continuing efforts to review and update the Communications Act. [Testimony resumes on p. 1598.] [Mr. McClure's prepared statement follows:] PAGENO="0116" 1580 STATEMENT OF ASSOCIATED PUBLIC SAFETY COMMUNICATIONS OFFICERS, INC. ON H.R. 3333 BY NATHAN D. McCLURE, III Mr. Chairman, members of the Subcommittee, and members of the staff, my name is Nathan D. McClure, III. I am the Co-ordinatOr for Winnebago County Emergency Services and Disaster Agency in Rockford, Illinois. During the past year, I have had the pleasure of serving as the President of the Associated Public Safety Communications Officers, Inc. -- APCO -- on whose behalf I am appearing before you today to discuss H.R. 3333, the Communications Act of 1979. Last September, I had the honor of appearing before this Committee to discuss APCO's views on, and suggested changes to, H.R. 13015, the proposed Communications Act of 1979. Mr. Chairman, I was truly gratified by your stated concern and support for the public safety sector's use of the radio spectrum. You can be assured that in reporting to APCO's membership on my appearance, I stressed this sup- port in suggesting that APCO members maintain their active involvement in this historic legislative process. My appearance today, and this written statement, are repre- sentative of that continuing commitment to and support of your Committee's efforts by the APCO membership. PAGENO="0117" 1581 One will quickly recognize, on even a cursory reading of H.R. 3333, that substantial modifications and, in APCO's view, improvements have been made to the provisions of the Bill which will govern the use of the radio spectrum by Land Mobile and other radio service licensees. Certainly, by creating a distinct section of the Bill with separate provisions to govern Land Mobile Radio Services, many of the problems which arose from the provisions of H.R. 13015 which were relevant to the broadcasting services, but which were also nad~ applicable to Land Mobile radio services, have been cured. On the other hand, despite your express concerns that radio spectrum should be available for use by the pub- lic safety radio services sector, APCO must regrettably note the lack of any clear and specific directive to the Commission to recognize, provide for, and assure that the needs of public safety radio service users for effective, reliable, and economical telecommunications services will be met. APCO has made an in-depth review of H.R. 3333. In the pages that follow, I would like to discuss with you APCO's proposals for revising those areas where modifications are necessary beyond those already included in this rewrite of the earlier legislation. PAGENO="0118" 1582 The Communications Act Must Recognize the Requirements of Public Safety Licensees for 1~iIiable Telecommunications Services Underlying my previous testimony to this Committee, and APCO s general position on any communications legis- lation, is our concern that the standards for access to use of the radio spectrum and other teleco'nmunica~iorb ~ ~ices anplied generally to all other i~er~ ~no~i~ n t be applied to state and local government agencies and other public safety service organizations. Unlike most other radio services, where full channel occupancy is a sign of full utilization APCO has noted that some channels allocated to the public safety radio services are fullj utilized with very low occupancy being reserved for use in emergency situations, during civil disorder/natural disasters. No one would suggest that these channels he available on a competitive basis with other licensees when they are needed durinq an emergenc~ -- yet there is nothing in the Bill which would assure that such channels would be continually available even when other licensees might desire their use to meet such contingencies. Public Safetj radio users also face significant planning and budgeting delays in attemoting to implement new or improved system designs No group should understand the delays inherent in funding government projects better than PAGENO="0119" 1583 Congress Yet no direction is included in this new legis- lation which assures that the authority allocating or assigning the spectruip will account for such delays in deter- minincr which of several competing services will be provided with spectrum Pwo oertinent examples of these unique problems can readily illustrate APCO s concern for the need for further direction in the Bill Recent events have brought to bear the unpredictability of the need for emergency communications. Snoi storms in the North floods in the South and civil ciisorder in a major cty on the TA7est Coast all increased the requirement for immediately available communications channels The near-catastrophe at t-xe mhree Mile Island nuclear facility focused this need onto a four-state area, as contingent plans for evacuating hundreds of thousands of residents were being formulated by responsible governmental authorities Channels allocated for such uses might not be utilized for days weeks or even months in between actual or potential disasters yet the need to have such area-wide coordination channels availab]e to governmental public safety agencies cannot be seriously questioned The problems of lono-term planning are graphically demonstrated by the Commission s experience in creating pool rather than block allocations for frequencies allocated to Land Mobile services in the 800 MHz Band APCO stated PAGENO="0120" 1584 the concerns of the public safety sector that channels would be quickly gobbled up by other services, particularly in those urban areas where funds night be more readily available to take advantage of the new technology. Thus few, if any, public safety organizations would be able to move their operations to 800 MHz The Commission nevertheless decided to abandon its block allocation process and make channels available on a first-come/first-served basis The results are, not unexpectedly, that a significantly smaller percentage of those channels have been assigned to public safety service licensees, than to other radio services. APCO has contributed to the development of a trunked communi- cations system for use by public safety agencies at 800 MHz Yet it is not unlikely that public safety organizations in wany cities which could benefit from use of this new technology will be foreclosed for lack of available channels at the time that the planning, design and budgeting stages of the imple- mentation process are sufficiently complete to allow appli- cation for station authorization In fact without assurances that channels will be available few jurisdictions will under- take even the initial stages of development of such a system The Commission s Private Radio Bureau recoonizing this problem has recently announced its intention to recommend to the Commission the initiation of a proceeding designed to finally PAGENO="0121" 1585 set aside some frequencies at 800 MHz as a block allocation solely for the use of public safety services. As we have continually noted, public safety operations entail a responsibility for the protection of life and Dropertv, a public responsibility provided on a governmental or quasi-governmental basis. Such operations simply cannot he likened to commercial, nongovernmental user operations for purposes of regulations. A different motivation for using the spectrum is inherent in the public safety sector, and local governments are entitled to assurances that the resources necessary to provide services to their citizenry will be available to meet documented needs. Congress apparently intends that the spectrum will be regulated to provide for public safety services. It is stated in Section 101 of the Act that Congress finds that the regulation of interstate and foreign telecommunications is necessary in order to "advance. . .the safety of life and property. ` Yet, as APCO has previously recognized, while the Bill contains this statement of purpose in providing for spectrum regulation, there is nothing in the balance of the Bill which expressly recognizes the need, or otherwise provides, for a regulatory approach which would assure the availability of necessary radio services for use in advancing the safety of life and property. This lack of clear direction in the new regulatory scheme is of major concern to the public safety community. PAGENO="0122" 1586 In APCO s earlier testimony and bub~equent correspondence regarding H R 13015 APCO suggested appropriate language which could be used in the Bill as a clear statement of direction by the Congress with regard to the public safety communications services kPCO suggested that the additional language should be added as a third finding under Section 101 which would read as follows 3 Promote the advancement of public safety communications services and in this connection assure the availability of radio spectrum necessary for public safety services used in protecting life and property in accordance with their unique needs APCO strongly urges that the Committee consider the use of this additional language for inclusion in the legislation which is finally adopted Such language would govern not only the proposed Communications gegulatory commissior but also the National Telecommunications Administration To the extent that the Committee believes that inclusion of such language at that part of the Bill is not acceptable then Z~PCO would urge the Committee to consider the need for such additional lanquage in Section 436 which provides the new Commission with statutory guidance as to spectrum allo- cation standaras and management for the land mobile radio services As presently written Sectiom 436 is particularly troublesome to the public safety community It provides that PAGENO="0123" 1587 the Commission, in any rulemaking dealing with spectrum allocation standards and management, shall give substantial weight to the preservation and furtherance of competition in interstate commerce. The Section also provides that in 1/ developing rules and technical standards for radio systems,~ the Commission must prescribe rules and standards which are designed to ensure that at least three business organizations will be in competition for the provision of radio systems services in each relevant market. Section 436 also requires that if there is more than one applicant for a newly available frequency, the Commission must establish rules for selection among applicants, including selection systems based on the use of frequency coordinating committees, the use of economic- based methods of selection, random selection methods, or any other method or procedure which the Commission considers to 2/ be in furtherance of the Act. 1/ The term radio systems has general usage in the land mobile services to connote systems of private or common carrier licensees which include base, mobile and relay stations. However, the Committee's explanation of this section only discusses proposed new common carrier systems. The use of this term in the Bill should be clarified by adding the words common carrier' or `commercial" before the term "radio system'. 2/ This section presents an apparent conflict with the general provisions of Part IV, Section 415 (d) (1) (a). Both Sections would appear to govern the standards for granting new licenses; 415(d) (1) (a), however, limits the Commission's authority to using only a system of random selection, while Section 436(b) gives the Commission broader latitude. Section 415 (ci) (1) (a) should be clarified to indicate that it does not apply to the land mobile and other radio services. PAGENO="0124" 1588 It is easily apparent that this Sectirn whic~i contains the primctry provisions dealinc with the spectrum management standards of the new Commission contain'~ no directions to or provisions for the Commission to deal with the distinct, noncommercial and noncompetitive needs of the public safety radio services for radio spectrum Requiring the Commission to encourage competition in the provision of public safety radio service systems would wreak havoc on an inter-jurisdictional and intra-jurisdictional basis among the providers of public safety services Requiring public safety services providers to compete on an economic basis for available channels or subjecting the availability of channels for public safety services to the uncertainty of a lottery or other random selection basis would obviously be totally unacceotable APCO believes that an additional sentence must be added to Section 436 so that the Congressional concern for the use of the radio spectrum by the public safety radio services will be reflected in the Bill A phrase must be added to Section 436(a) at the end of the first sentence so that the sentence reads as follows The Commission shall give sub- stantial weight to the oreservation and furtherance of competition in interstate commerce and to assuring the availability of radio spectrum necessary for use by public safety communications services in the protection of life and property PAGENO="0125" 1589 With this addition, other provisions of Section 436 are acceptable, since the Commission's discretion to implement particular selection methods must be exercised within this directive. Additionally, since spectrum allocation authority is placed in the Bill under the NTA, similar language should be included under Part VII of the Bill to the extent that allocations would extend to particular radio services rather than to land mobile services generally. Only by providing such specific direction can Congress be assured that the needs of the public safety radio services will be met. APCO believes that unless this or similar pro- vision which mandates recognition of the different treatment necessary in spectrum allocation and management standards between public safety and other radio service licensees is included in this Section, the quality and availability of public safety services which utilize the radio spectrum will be significantly impaired. The Scope of the Exemption from Spectrum License Fees for Public Safety Service Users Should be ~xpanded and Clarified. In our earlier testimony, APCO noted what we considered to be two problems with the spectrum license fee suggested by H.R. 13015. First, we were concerned by the imposition on PAGENO="0126" 1590 public safety licenses of fees based on the cost of processing licenses Second and of no less importance we were con- cerned that the Commission was only permitted rather than required to waive the spectrum value portion of the proposed fee for state and local government licensees We also noted at that time that suc~' a waiver would not necessarily apply to all public safety radio service u'~ers and could therefore impact to a substantial degree the use of radio services by other public safety licensees APCO is pleased to note that the provisions of Section 414 dealing with the spectrum resource fee have been changed so that the Commission must waive the scarcity value factor of any spectrum resource fee if the user is a state or political subdivision of a state This is certainly an improvement over the earlier provisions However this modi- fication has not resolved other serious concerns raised in our earlier testimony. APCO is greatly concerned that the waiver of the spectrum resource fee mandatel in the Bill extends only to state and local government licensees As APCO has previously explained many licensees in the public safety radio services would not qualify as subdivisions of state or local governments Rather they are often ouasi-governmental or voluntary non-profit organizations which supolement or substitute for the government in provid~ng safety services For example it is not unusual PAGENO="0127" 1591 for the fire-ficThting unit in some areas to be a voluntary non-profit organization which receives part of its funding from a local government and part from outside contributions. Similarly, in many areas of the country, the local emergency medical services organization is a voluntary, non-profit group which is only partly supported from tax funds. Under the provisions of the Bill these licensees, upon whom the payment of spectrum fees could fall hardest due to their limited sources of funding, would be required to pay a spectrum resource fee. We do not overestimate the problem when we state that the imposition of such fees could signifi- cantly impact the ability of such volunteer organizations to provide public safety services to their local communities. In attempting to manage the spectrum through economic" incentives then, the Bill may instead result in a contraction of public safety services available to many communities. APCO believes that a modification to the exemption contained in Section 414 (a) (2) (A) can be made which would limit the availability of the waiver to those providers of public safety services who act on a non-profit, noncommercial basis. APCO would urge that the Committee revise this exemption to read as follows: (A) the user is engaged in a governmental, quasi-governmental, or nonprofit public safety activity. PAGENO="0128" 1592 A~CO also believes that the FCC's findings with regard to imposing fees, based on the cost of processing a license, on public safety licenses are noteworthy. Notwithstanding the apparent authority to impose such fees t]~e Commission has consistently found that collection of fees from licensees in the police fire local government and other public safety radio services would be inappropriate. The Commission has determined that requiring licensees to pay a fee for the right to u~e radio to engage in public safety radio services woLld discourage participation in these worthwhile activit~es on this basis the fees have always been waived. You, Mr. Chairman, have recognized in a letter to one of APCO's members, that there seems to be little value and much loss if such agencies were to be included among those who must pay [a spectrum license fee], and essentially the government would have been taking money out of one pocket and putting it into another APCO appreciates the Committee s determination to require parties who may obtain a service from the government in the form of processing of a license to pay for the value of that service. However, APCO believes that it is inappro- priate to charge a license fee to licensees who gain no personal benefit from their use of the radio license ie those whose use of the radio license is for the public benefit in providing public safety services even a fee based PAGENO="0129" 1593 only on the processing costs. Any monies which are taken to pay license fees will necessarily reduce the amount available to public safety agencies to implement and enhance their radio systems. APCO simply does not find any justification for inposing such a fee. We would hope that the Committee would recognize the validity of the FCC's earlier findings, and exempt public safety radio service licensees from all 3/ spectrum resource fees. Provisions Should Be Modified In Order That the Bill Fully Meets ~ There are three sections of the bill which, APCO believes, can with minor modification be improved to more closely reflect Congressional intent as to spectrum use and 3/ APCO gains no consolation from the well-intended limitations imposed under the Act on the spectrum resource fee applicable to land mobile radio service licensees. ~ifee, regardless of its size, drains resources from the limited amount avail-- able under budgetary constraints well-known to this Committee for use in public safety radio systems. Such imposition of fees would fall particularly hard on those public safety organizations who have already begun the long, and often arduous process of planning, desi~niiig and budgeting a public safety radio system, since such design and budgeting would not have accounted for the imposition of fees, based on the present exemption which has been granted by the Federal Communications Commission. It is not unlikely that fees for large area-wide systems could significantly impact the ability of such systems to implement their proposed designs as scheduled. 51-253 0 - 80 - 9 PAGENO="0130" 1594 spectrum management. The first is Section 422, which generally prohibits the Commission from censuring or otherwise regulating the content of any transmission by any person using or operating any equipment in the broadcast or land mobile or other radio services. The only exceptions. to this broad prohibition relate to certain broadcasting practices. As pointed Qut by APCO in its earlier testimony, the Commission must have the power to regulate the content of transmissions in the land mobile radio services in two regards First the Commission rnu~t be able to regulate obscene or annoying and harassing transmissions in the land mobile services area. This is particularly important in the case of shared radio services, where the length and/or types of trans-- missions could greatly influence the ability of different licensees to use the shared channel. Perhaps more importantly, however, in making assignments and allocations among radio services, the Commission limits certain channels to certain types of uses. Thus, for example, the Commission may reserve certain channels in the public safety radio services solely for dispatch; other channels nay be reserved solely for telemetry, and. still others for low powered command/control operations. To the extent that this broad prohibition on censorship and regulation of content.. PAGENO="0131" 1595 could he read to prohibit the Commission from limiting a licensees use of an assigned channel in this manner, the ability of the Commission to properly regulate the radio spectrum would be significantly abrogated. it is arguable that Section 413(a) (9) gives the Commission the authority to continue to manage the spectrum on a service-by-service basis by providing the Commission with the power to classify stations and prescribe the nature of service to be rendered by each class and by each station within a class. APCO believes that Section 422 should he clarified to ensure that the power granted in Section 413(a) (9) ~is not so severely restricted by Section 422 as to be meaningless. The next section of concern is Section 453 (a) (1). This Section is generally a restatement of the first phrase of Section 325(a) of the 1934 Act. However, Section 325 applies to all radio licensees, while Section 453(a) (1), found under Part C of the new Act, would appear to govern only broadcast services, in view of the importance of this provision, APCO believes it should be moved into the general section of Part iv of the Bill. Finally, APCO notes with interest the extension of the license term for land mobile and other radio services to a term not longer than ten years (Section 432(a)). APCO does not object to the expansion of the license terms to ten years. Our concern, however, is that the CRC will not be able to PAGENO="0132" 1596 maintain an adequate and accurate data base on the state of use of stations in any particular service if the license term is extended for such a lengthy period. During a ten- year license term, many licensees may change their mode of operation1 or simply cease doing business. However, unless the Commission is notified of such changes, which will not necessarily be the case, the Commission's data base will not be accurate, and the potential availability of new assignments would not be known. Under present regulations ~ licensee is required to apply via postcard for renewal of his license, generally every five years ,~hile postcard renewals are not totally acceptable to APCO, since they often deter licensees from reviewing and improving their systems to include the latest available technology, they at least maintain a more current data base than the Commission could possibly be expected to attain with a ten-year license period. APCO would urge the Committee's consideration of this problem in determining the license term which will be allowed in the land mobile radio services. Conclusion. Mr. Chairman and members of the Subcommittee, the value of radio systems in providing public safety services cannot PAGENO="0133" 1597 be measured in dollars. Local governments must be assured that the resources necessary to provide services to their communities will be available as needed. Requiring public safety service users to compete for, or justify their use of, channels on the same basis as a commercial business radio service user ultimately must result in the overcrowding or unavailability of channels to the police, fire or local government organization and the inability of these organi- zations to meet their public responsibilities. Rather than encouraging the use of radio in advancing the safety of life and property, the provisions governing land mobile radio services could, in fact, result in the unavailability of the radio siDectrum for such advancement. Unless, and until, the provisions of the Bill are amended to ensure that the different and distinct needs of the public safety radio communityare considered in any spectrum assignment and allocation procedures, Congress' intent in providing for regulation will not be met. This is an historic opportunity for this Committee to assure that the radio spectrum will be used in the public interest. On behalf of APCO, I urge that you consider such provisions, in the final legislation. Mr. Chairman, I thank you for the opportunity to appear before you today. APCO looks forward to continuing to work with you and the Subcommittee, and with Congress, in the continuing efforts to review, and update, the Communications Act. PAGENO="0134" 1598 Mr. VAN DEERLIN. Thank you for a very skillful abstracting of a report or statement that will be included in full in the record. Mr. Jackson? Mr. JACKSON. I have no questions, Mr. Chairman. Mr. VAN DEERLIN. Mr. Wunder? Mr. WUNDER. On page 11 where you talk about the breadth of the exemption and certain public safety users may not be included because of the fact that they would not be State or Governmental licensees, what type of activity do you have reference to? Volunteer fire departments? Mr. MCCLURE. In many cases the volunteer fire departments or, probably more commonly, the emergency medical services, the local ambulance service is a voluntary, not-for-profit corporation that has no tax base. They exist solely on contributions from the public and in some cases charges but the charges, certainly for the service does not cover the cost of providing the service. These are the types of organizations that would flLOt be exempted the way the bill is currently written. We suggest on page 12 the language that would correct that. Mr. WUNDER. Thank you, Mr. Chairman. Mr. VAN DEERLIN. Thank you. I will see you in Sacramento with a completed legislative package I trust. The final witness for today is Mr. Herbert L. Massie, superin- tendent of communications of the Atchison, Topeka, & Santa Fe and chairman of the Radio Liaison Committee of the Association of American Railroads. Welcome to the subcommittee. STATEMENT OF HERBERT L. MASSIE, CHAIRMAN, RADIO LIAISON COMMFfl'EE, ASSOCIATION OF AMERICAN RAILROADS Mr. MASSIE. Thank you, Mr. Chairman. I presume it was a coincidence that the railroad industry be given the caboose position today. My name is Herbert L. Massie, superintendent of communica- tions system, Atchison, Topeka & Santa Fe Railroad Co. appearing today on behalf of the Association of American Railroads. I have submitted for the record a comprehensive statement of the railroad industry on H.R. 3333. While H.R. 3333 has more nearly brought into focus the private land mobile/microwave segment needs than did H.R. 13015, there are still some concerns which I am glad. to have this opportunity to briefly express. Allocation and assignment of radio frequencies are important issues. While title IV of H.R. 3333 would have CRC responsible for assignments, title VII places the prime responsibility for alloca- tions with NTA. As there appears to be no avenue for user public input to the NTA allocation process, it is recommended H.R. 3333 provide that input perhaps by bringing NTA under the Administra- tive Procedures Act. The impact of an assessment of annual spectrum resource fees on a national/international scoped industry is unclear. License application process fees are reasonable. Incorporation into these fees of scarcity value charges is worrisome. Access to spectrum, now used for railroad land mobile and fixed microwave operations through payment of added fee charges of unknown and PAGENO="0135" 1599 possibly exorbitant amounts based on scarcity value would be of dubious public benefit. While H.R. 3333 ~does provide a degree of gradiency in its commu- nity~ land mobile fee criteria one should consider that radios used for terminal and en route train communications employing a single radio frequency will operate in congested~urban yard areas, smaller *cities and towns as well as vast uninhabited and rural areas. Likewise parallel microwave systems are used in these same areas. In view of the foregoing and because railroad land mobile frequencies are coordinated nationwide with Canada and are shared by multiple users in the same geographical area, the con- cept of resource fees appear to the AAR as being extremely compli- cated if not impossible to apply equitably. Private radio microwave systems are now basic tools for enhanc- ing the safety and efficiency of railroads. The railroads role in our Nation's economic health and welfare in these times of energy crisis should not be overlooked. Ultimately these resource fees would have to be passed onto the public in increased costs for goods and services as the railroads are a transportation common carrier. AAR questions as a matter of public policy the use of monetary criteria in deciding private radio spectrum matters or the use of economic strength for deciding by whom radio frequencies will be used. Section 413(d)(1) by requiring congressional concurrent resolu- tion, could have the effect of freezing the broadcast spectrum in place. To AAR, this would favor one user excessively. As there are many other users of the spectrum whose interests are vital, we recommend this section be deleted. AAR recommends H.R. 3333 be amended to provide for the Com- mission to make greater use of coordinating ~committees. This could reduce time required by Commission staff for processing applica- tions and would fit in with the general theme of deregulation. S. 622 provision for industry coordinators might be studied for inclusion in H.R. 3333. Mr. JACKsoN. Excuse me, Mr. Chairman, if I may interrupt, how could the Commission use frequency coordinators more than is allowed under H.R. 3333? Mr. MASSIE. How could the industry coordinators be used more than they are today? Mr. JACKSON. No, more than is allowed for in H.R. 3333. Mr. MASSIE. Basically H.R. 3333 merely touches o~ the use of it but it really does not give them any particular status as to how they can be used in the process of licensing or how they can be used in the culmination of the licensing process. Mr. JACKSON. It leaves to the discretion of the Commission the role of the industry coordinating committees, is that correct? Mr. MASSIE. What we are looking for is a little more positive direction toward the use of the industry coordinators, a little more definitive back-up to the Commission for their use. Mr. JACKSON. You are saying the bill mandates their use rather than permits their use? Mr. MASSIE. Maybe "mandate" is a little strong but at least provide for a broader use and a little more incentive for them to use these coordinators more broadly. PAGENO="0136" 1600 Mr. JACKSON. Would the Commission as H.R. 3333 is written, be able to use industry, coordinating committees in the fashion you feel is desirable? Mr. MASSIE. It is unclear as to how much they could use them. That is our concern. We feel S. 622 has a little more definitive language as to just how they will be used. Mr. JACKSON. Thank you and excuse me for interrupting. Mr. MASSIE. AAR is concerned with section 422 of H.R. 3333 dealing with prohibition of censorship and that it is so sweeping that there is a possibility that essential radio operating require- ments could be barred. Mr. Chairman, thank you for the opportunity to appear before your subcommittee. [Testimony resumes on p. 1619.] [Mr. Massie's prepared statement follows:] PAGENO="0137" 1601 STATEMENT OF HERBERT L. MASSIE, CHAIRMAN, RADIO LIAISON COMMITTEE, ASSOCIATION OF AMERICAN RAILROADS My name is Herbert L. Massie. I am Superintendent of Communications, System, of The Atchison, Topeka and Santa Fe Railway Company and, in addition, I am Chairman of the Radio Liaison Committee of the Association of American Railroads (AAR). The AAR is a non-profit organization recognized by the Federal Communications Commission (FCC) as the national radio frequency coordinator for the Railroad Radio Service. This includes (1) the line haul railroads, such as the Santa Fe, Union Pacific, Southern Pacific, and CONRAIL, (2) the short line railroads, such as the Northwest Pacific and the Central of Vermont, and (3) the urban rail mass transit and commuter systems, such as the Long Island Railroad, Chicago Regional Transit Authority, the METRO in Washington, D.C., and BART in the San Francisco area. I am glad to submit this Statement as a contribution to the Subcommittee's deliberations on H.R. 3333. The AAR was privileged to appear before this Subcommittee to contribute to the discussions that eventually led to draf t- irig H.R. 13015 and again privileged to appear to testify on H.R. 13015. Since those earlier views and recommendations of AAR are already on record with the Subcommittee, I propose not to repeat them in their entirety in the interest of saving time. However, I would reiterate that the interest of the rail- road industry in telecommunications is extensive. The over PAGENO="0138" 1602 400 separate Class I, II and II railroads in the U.S., operat- ing on 324,000' miles of track, virtually interlace and blanket the entire nation with their private telecommunication net- works. Together, railroads operate many, many thousands of locomotives cabooses on-track and off-track units of work equipment and other types of vehicles, virtually all of which are radio equipped. A number of urban rail rapid transit systems, e.g., `New York City and Washington, D.C. subway systems, are also radio equipped under the Railroad Radio Service portion of' the FCC Rules and Regulations. Addition- ally, tens of thousands of portable and hand-held radio units are provided to railroad and rail rapid transit personnel to carry on tasks incident to safe and efficient operations. It probably would be of interest to the Subcommittee that, as the railroads of the U.S. and Canada are operation- ally integrated, there is extensive shared use of VHF radio communications spectrum by the two countries to facilitate traIn "run-through" operations and coordination of train move- ments along the border. VHF radio frequencies shared by the U.S. and Canadian railroads are assigned from a common block allocation. Specific assignments in the border areas are coordinated by the Communications and Signal Section of the AAR, which serves as frequency coordinator for the railroads of both countries. -2- PAGENO="0139" 1603 Management of radio frequency spectrum resources is, I believe, a large and important task. As a part of its continuing overview of telecommunications, and in its delib- erations on H.R. 3333, the Subcommittee should, in the view of the railroad industry, assure itself that the Commission always has the necessary statutory authority and resources to do high quality spectrum management. The use of industry radio frequency coordinators can be of significant assistance and the Commission should be provided with the authority to use those coordinators. In this regard, AAR recommends that appropriate parts of Section 336 Senate Bill S.622 be consid- ered for inclusion in H.R. 3333. There has been in the past much discussion of the proper applications of "block allocations" of spectrum. Certainly block allocations cannot be justified in all cases, but there are some where it remains essential. This would appear to be the case of the public safety services and is definitely the case of the railroads. Because the latter industry is made up of a nationwide network of railroads, a group of closely re- lated frequencies must be available on a national basis and this is best achievable certainly through a block allocation. Very much involved in current radio frequency issues are the proposals of the United States for the 1979 World Admini- strative Radio Conference (WARC). The railroads have a unique -3- PAGENO="0140" 1604 interest in the 1979 WARC because the continued availability of one-third of the spectrum used for their mobile communica- tions is tied to Footnote 287 of the International Radio Regulations. The continued availability of spectrum for fixed microwave communications, on which the railroads are so depen- dent, is likewise involved in the 1979 WARC actions. Having made these general observations and incorporated by reference the AAR views already on file with the Subcom- mittee, the following commentary on H.R. 3333 is submitted in the spirit of helpfulness. CONCEPT OF REGULATION "TO THE EXTENT MARKETPLACE FORCES ARE DEFICIENT" SHOULD NOT BE EXTENDED TO THE PRIVATE ~ The railroad industry depends heavily upon the intercon- nection with the common carriers f Or much of its communica- tions and upon the manufacturers for its telecommunications equipments. Therefore, in these areas the AAR concurs with the concept of Section 101 that regulation is necessary "to the extent marketplace forces are deficient." However, the extension of "marketplace forces" or "market" concept to land mobile and private microwave communi- cation spectrum is, as a regulatory tool, questioned. When it -4- PAGENO="0141" 1605 comes to spectrum for private land mobile and private micro-P wave telecommunications, "marketplace" criteria should not prevail. In the case of the railroads, spectrum is u~sed for safety and efficiency in their operations. Both are very much in the public interest. It is not considered prudent in.the view of AAR, that the Congress should permit railroad telecommunications to become embroiled in the proposed "marketplace forces" concept. Telec~mmunicatjons is a complex technical field in which technology is frequently the crucial issue in matters coming before the Commission for decision. Yet there seldom has been a Commissioner with a telecommunications and/or electrical engineering background. It is recommended that specific pro~ vision be made in H.R. 3333 that at all times there be at least one "engineering" Commissioner serving on the new Corn. munications Regulatory Commission (CRC). Section 212(e) paves the way for this by calling for "balance among professional backgrounds." Because engineering is such an important ingredient to telecommunications, Section 212(e) should, in the view of AAR, be specific on the point. Section 212(c) provides that Commissioners shall serve only one term of ten years. This provision has two disadvant.~ ages in that the CRC can be burdened with a poorly performing -.5.. PAGENO="0142" 1606 Commissioner for ten years and at the same time a star per- former cannot be retained. The present tenure of seven years with potential fori reappointment seems to be the best compro- mise It would permit new blood to come on to the CRC and concurrently permit reward for outstanding achievement. AUTHORITY FOR ALLOCATION AND ASSIGNMENT OF RADIO FREQUENCIES NEEDS CLARIFICATION With access to the frequency spectrum being essential to radio communications, authority for the allocation and assign- ment of that resource is a substantive matter. The language of Title IV refers to "assignments" as a function of the CRC, but that under Title VII, the NTA is responsible for "alloca- tions." This division of authority has been carried over from H.R. 13015 and is still viewed with alarm. As drafted, H. R. 3333 provides in Section 413(a)(8) that the CRC will "assign" radio frequencies with no reference as to its input to the "allocation" process under the purview of NTA. Last year AAR and others expressed their concern for the lack of provision for public input to the NTA allocation process. However, since H.R. 3333 contains essentially the same provisions, as did H R 13015 AAR concludes that there is an overriding interest in concentrating the allocation authority in one office. Assuming this is the case, AAR then would urge that the spectrum allocation actions of NTA be subject to the -6-- PAGENO="0143" 1607 Administrative Procedure Act so all interests, public and / private, could be heard. SPECTRUM RESOURCE FEE Section 414(a) states that "The Commission shall assess an annual spectrum resource fee in accordance with this sec. tion for all users of the electromagnetic frequency spectrum licensed by the Commission under the Act. Such fee shall take into account -- (1) the cost to the Commission of processing the license; and (2) the scarcity value of the spectrum being assigned -~---." The Commission is authorized to waive the fees under certain specific circumstances. Section 414 goes on to provide a formula for assessing land mobile fees based on the fees assessed to television broadcast stations. As stated last year. the AAR has never opposed paying a fee for processing its applications. There is, therefore, no objection to the fee schedule proposed in Section 4l4(a)(1). However, the introduction of a fee based on "scarcity value" is a cause for concern as it would require payment of fees of an unknown and possibly exorbitant amount based on the scar.. city value of spectrum now used for hundreds of thousands of land mobile and fixed microwave radio operations. How "scar~- city value" will be applied to all these railroad radio operations is not understood because the criteria used in H.R. -.7- PAGENO="0144" 1608 3333 is related to communities. Radios used for enroute train communications employ the same frequencies when they depart from a congested urban yard area, pass through smaller cities and towns, cross uninhabited and rural mountain areas and then arrive in a distant congested urban area. Likewise, microwave frequencies are used in areas where there is no scarcity at all in some cases and in urban areas where there is great spectrum congestion. The concept is further complicated because land mobile frequencies are often shared by multiple users in the same geographic area. The application of resource fees appears to AAR as being unrealistic from a practical implementation standpoint. Certainly the intertwin- ing of railroad land mobile operations with multiple UHF television economies would render the computation of annual resource fees an onerous task. In any event, the resource fee assessed would have to be passed ultimately on to the public because the railroads are a transportation common carrier. AAR QUESTIONS CONCEPT OF TREATING SPECTRUM AS A RESOURCE TO WHICH AN ECONOMIC VALUE CAN BE ASSIGNED The introduction of the concept of basing fees upon eco- nomic considerations such as `!scarcjty value" or "fair market value of the benefit conferred" raises several questions of a legal and practical nature. There seems to bea tendency by some to compare radio frequencies with natural resources such -8- PAGENO="0145" 1609 as oil, gas or coal. This would be an attempt to compare tang- ible and measurable resources with an intangible that does not even exist until a transmitter is switched on. The radio frequencies have so many variables that comparison should not be made with a fixed asset. Oil can be measured in barrels, coal in tons and gas in cubic feet, but frequency usage in- volves many technical considerations, e.g., (a) the order of frequency -- different parts of the spectrum have different characteristics; (b) location and type of antenna -- whether on a tall building or at ground level and whether beamed or omnidirectional; (c) emissions -- pulsed emissions differ from voice. These technical considerations alone indicate how unrealistic it would be to identify frequency usages into individual, neatly defined units such as tons, barrels or cubic feet. To railroad users, radio/microwave systems are tools for enhancing the safety and efficiency of their activities. The spectrum they use is heavily shared. Private land mobile us- ers range from small businesses to large corporations. Even among railroads, use ranges from the small short-line rail- roads of only a few miles to large railroad corporations having thousands of miles of track. Under a "scarcity value" situation, the large railroad corporations could possibly pay what is necessary to obtain radio frequencies. What if the small short-line railroads lose out and the "benefit" they -9- 51-253 0 - 80 - 10 PAGENO="0146" 1610 could have from the use of radio spectrum was lost? How about the well-known situation of the bankrupt railroads that the government is tt~ing so hard to keep going? `SCARCIfY VALUE' APPROACH AS BASIS FOR ESTABLISHING A FEE PROGRAM IS UNSOUND AS A SPECTRUM MANAGEMENT TOOL The railroads h~ve unique situatiofls that preclude fixing a scarcity value on the frequencies they use The railroads are one of several industries whose rates charges and activi- ties are regulated by the Federal Government At times these regulatory bodies require the use of radio. In the case of the railroads the Federal Railroad Administration has promul- gated radio rules and has funded a study of the industry's use of radio frequencies. The railroads of the U S and Canada share the same radio frequency spectrum. Spectrum usages are very carefully co- ordinated because of the extensive interface of the U S and Canadian railroads throughout the border areas As one example the Canadian railroads ~iave ri~,hts-of-way across the State of Maine to reach the Fastern Provinces of Canada These cross-border spectrumsharing arrangements are based on proce- dural agreements between the U S and Canadian governments Injection of "scarcity values" into the ne~tiation and coordination of frequencies on an international basis is -10- PAGENO="0147" 1611 unrealistic. While the railroads are not involved as much as other telecommunications interests, in the same vein, the Subcommittee should not disregard effects of international agreements and treaty obligations upon spectrum usage. The International Table of Frequency Allocations is subject to review and updating from time to time, such as will be done by the 1979 WARC. National frequency usages then must be brought into accord with the international agreements. Such spectrum adjustments must be made regardless of "scarcity value." In summary, international considerations mitigate against re- source fees and should be taken into account in deliberations on the use of a "scarcity value" concept. As can be seen from the discussion just above, "spectrum management" is affected by certain considerations that apply regardless of economic considerations. AAI~ questions, as a matter of basic public policy, whether a monetary criteria in deciding spectrum matters is in the best interest of the pub- lic, particularly where the private radio services are in- volved. The use of economic strength for deciding by whom radio will be used can be self-defeating from the standpoint of benefit to the public. In the view of AAR, new technology that enhances effi- ciency in the use of radio frequencies should be encouraged. The opportunity to use radio through improved technology -11- PAGENO="0148" 1612 should be available In the case of the Railroad Radio Seri~ice, frequency channels were split on three different oc- casions with a resulting benefit to the industry and to the public. If Section 414 is retained in H R 3333 another category should be added to the list of exceptions in Section 414(a)(2) that would read: (d) Where the licensee is engaged in an activity serving the public pursuant to rates subject to approval or to being established by the Federal Government.~' OTHER SPECTRUM MANAGEMENT MATTERS Before leaving the subject of radio frequencies there are some other provisions in H R 3333 that I would like to address. Section 413(d)(1) proposes that any substantial change in the assignment of spectrum used by broadcast stations must be referred to the Congress and rules to effect such a change are not to take effect unless approved by concurrent resolution To AAR this appears as overkill in favor of one user of the spectrum. There are many other users of the spectrum than broadcasting whose interests are vital too The disadvantage of Section 413(d) (1) is that it has the effect of freezing the -12- PAGENO="0149" 1613 broadcast spectrum in place regardless of changing require- ments and technology. Accordingly, deletion of Section 413(d) (1) is recommended, Reference is made to the use of "random selection" sys- tems in the granting of licenses in Section 415(d)(1)(A)(ij) and Section 436. While the use of "random selection" is optional in Section 436, it appears to be required in Section 415(d)(1)(A)(ii). From the standpoint of AAR, an industry- arranged solution is preferable to "random selection." AAR, as the frequency coordinator for the railroad industry, could handle railroad matters. Furthermore, it is felt the ef- fective use of industry radio frequency coordinators would preclude the need for "random selection" in the private radio services. The term "newly assigned frequency" is used at least in Section 415(d) and in Section 436. Apparently, the term is intended to have a special meaning in regard to coordination and licensing. A more meaningful term should be used or a de- finition provided. Section 436(b) (2) makes reference to the use of frequency coordinating committees. AAR believes this is a step in the right direction and recommends further that H.R. 3333 provide greater status to the industry coordinating committees. The -13- PAGENO="0150" 1614 provisions in Senate Bill S 622 for industry coordinators could be used as a guide for amending H R 3333 The coordi- nating committees could. do much to decrease the burdens upon the Commission staff and if used properly could cut down the long delays that now exist in processing private land mobile and fixed microwave applications PROHIBITION OF CENSORSHIP Section 422 of H R 3333 provides that `- - - - nothing in this Act shall be construed to give the Commission the power to censor or otherwwise regulate the content of any transmission by any person using or operating any equipment for the provision of broadcast services or land mobile or other radio services ` Essentially the same provision was included in H.R. 13015, to which AAR had expressed its con- cern. While the AAR understands the worthy motives of the Subcommittee in drafting Section 422 its language is so sweeping that it excludes essential radio operating regula- tions the use of call signs and the types of transmissions permissible in land mobile radio Such regulations assure good communications and they should be retained Section 326 of the Communication Act of 1934 contains wording that the Commission shall not interfere with the .right of free speech AAR recommends that the Subcommittee carry -14- PAGENO="0151" 1615 forward the language of the present Section 326. It appears to the AAH that the drafters of Section 422 in H.R. 3333 inad- vertently curtailed an essential provision when the language was changed. The present Section 326 appears to accomplish the purposes of the proposed Section 422. N~IONAL TELECOMMUNICATIONS AGENCY AAR concurs with the concept of Title VII of H.R. 3333 that an independent establishment to be known as the National Telecommunication Agency should be established. There are three points in Title VII that we would, address, i.e., (1) allocation of electromagnetic spectrum, (2) preparation for U.S. participation in international telecommunications confer- ences and (3) public input to the development of policy. The role of NTA in the allocation of spectrum was a mat- ter of concern when AAR commented last year on H.R. 13015. Those concerns appear to be alleviated somewhat in the text of H.R. 3333 if, through the linking of Sections 704(4), 707(a) (3) and 435(a)(1) the scope of NTA is limited to the Federal Government. However, this is not clear. If this interpreta- tion is incorrect, then the AAR concern remains that NTA is to have virtually total or overriding authority in spectrum allocation matters without direct public input. -15- PAGENO="0152" 1616 AAR concurs with Section 704(5) which provides that NTA shall "manage" the preparation for U S participation in in- ternational telecommunication meetings This is a substantial improvement over H R 13015 which provided for NTA to pre- pare and manage' the aforementioned U S participation U S participation in international telecommunications conferences is important to industry as well as to government AAR notes that in Senate Bill S 622 a provision is made for U S industry participation on U S Delegations to interna- tional telecommunications conferences A parallel provision in H R 3333 is suggested and Section 704(5) would appear to be the appropriate place The railroad industry is an example of direct U S industry interest in an international telecommunications conference The railroads are probably effected more modestly than some other U S interests with big international telecom- munications operations - - yet the railroad interest is great in for example the forthcoming 1979 WARC and in telecommuni- cations agreements worked out by the U S with the Canadian and Mexican governments This interest is primarily in the radio frequency area and is substantial because use of VHF radio on the U S (and Canadian) railroads rests to a substan- tial degree on authority contained in Footnote 287 of the International Radio Regulations agreed on at the 1959 WARC -16- PAGENO="0153" 1617 Retention of Footnote 287 by the 1979 WARC is an important issue for the railroads, as well as certain other land mobile users. The situation of Footnote 287 is a good example of why some means of public participation in international conference preparatory work, such as the 1979 WARC, is essential. The AAR would like to develop this further for the Record. The VHF frequencies now in use by the railroads were included originally in a band of frequencies that was available for "mobile" communications. At the 1959 WARC three bands were carved out of that mobile band for international maritime mobile use. Included in those bands are 33 of the 91 railroad channels. However, a special footnote (Footnote No. 287) in the 1959 WARC agreement makes it possible for the railroads of the U.S. (and Canada) to continue to use all of their assigned channels. Consistent with Footnote 287, both the FCC and the Canadian government have licensed a quantum growth of railroad VHF communications during the 1960's and early 1970's. In the meantime, however, maritime interests, including the U.S. maritime interests, would like to see the provisions of Foot- note 287 withdrawn to release the frequencies involved for maritime use. The foregoing is cited an an example of an issue involved in international conference preparation that is important to a -17- PAGENO="0154" 1618 significant segment of the American public. Another good example is the treatment of spectrum for private fixed microwave operations The railroads along with many others utilize literally thousands of miles of fixed microwave circuits derived from fixed microwave bands that are essen- tially saturated in a number of urban areas So far the U S proposals for the 1979 WARC have not only not proposed in- creased spectrum allocations for the important private microwave service but in fact have eroded those allocations There are ominous indications of even further erosion to those allocations. As indicated, the foregoing cites two examples of how international telecommunication conferences can have an ultimate impact on the American public. Section 706(b) (7) of H R 3333 provides that the Director shall assure appropriate consumer representation in connec- tion with the development of policy by the agency." While the AAR understands the objective of consumer representation, telecommunications policy has broader ramifications than "consumer" interest. Accordingly, AAR would recommend that Section 706(b)(,) be expanded to include other interests from the general public and industry * * * * * On behalf of the MR and the railroad industry, I thank you for the opportunity to make this Statement for the Record on this most important proposed legislation -18- PAGENO="0155" 1619 Mr. VAN DEERLIN. Thank you. Your prepared statement will be inserted into the record. The subcommittee will resume at 9:30 a.m. tomorrow in the Rayburn Building. [Whereupon, at 3:55 p.m., the subcommittee adjourned to recon- vene on Thursday, June 7, 1979, at 9:30 a.m., room to be an- nounced.] PAGENO="0156" PAGENO="0157" THE COMMUNICATIONS ACT OF 1979 THURSDAY, JUNE 7, 1979 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMUNICATIONS, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D.C. The committee met, pursuant to notice, at 9:30 a.m., in room 2322, Rayburn House Office Building, Hon. Lionel Van Deerlin, chairman, presiding. Mr. VAN DEERLIN. Good morning. We will start today's session with a panel of experts who will make up, I am certain, in the expertise they bring to bear any lack in the little signs that are in front of them, which look as if I had hand-printed them. We will be privileged to hear, in order, from Mr. Louis M. Weinberg, who directs business exchange and mobile communica- tions services for A.T. & T.; Mr. Travis Marshall, vice president of Motorola; Mr. Richard Wiley, former FCC chairman, now engaged in private practice; Ms. Nina W. Cornell, Chief of Office of Plans and Policy for the FCC; and Mr. Sherman M. Wolf, President of Zip-Call in Boston, appearing on behalf of the Telocator Network of America. They have been asked to address themselves to such questions as: Do new technologies and services get adequate access to needed spectrum today? Does H.R. 3333 provide any improvement for spec- trum access for new technology? Should H.R. 3333 treat radio operations of dominant carriers different from radio operations of other business organizations? Would the proposed spectrum fee be workable? Would it improve spectrum management? Mr. Weinberg, would you care to lead off? STATEMENTS OF LOUIS M. WEINBERG, DIRECTOR, BUSINESS EXCHANGE AND MOBILE COMMUNICATIONS SERVICES, AMERICAN TELEPHONE & TELEGRAPH CO.; TRAVIS MAR- SHALL, VICE PRESIDENT, MOTOROLA, INC.; RICHARD E. WILEY, WASHINGTON, D.C.; NINA W. CORNELL, CHIEF, OFFICE OF PLANS AND POLICY, FEDERAL COMMUNICATIONS COMMISSION; AND SHERMAN M. WOLF, ON BEHALF OF TELOCATOR NETWORK OF AMERICA Mr. WEINBERG. Thank you, Mr. Chairman. Members of the subcommittee, my name is Louis Weinberg. I am employed by A.T. & T. as director of business exchange and mobile communications services. In that capacity 1 am responsible for the (1621) PAGENO="0158" 1622 land mobile services provided by the Bell System to the general public, including the Advanced Mobile Phone Service, or AMPS, presently in developmental operation in the Chicago metropolitan area I would like to begin by thanking the subcommittee for this opportunity to be here today I have filed a rather complete state ment with the subcommittee and I ask it be put in the record. Mr VAN DEERLIN Of course it will be Mr WEINBERG With that in mind, I would like to spend the brief time allotted to me in describing an exciting advancement in tele- communications technology Since the end of World War II, futur ists have envisioned a communications system that would release one from his or her home or office Dick Tracy, of course, has had his wristwatch communicator for many, many years, and as far back as the early fifties, Bell asked for a spectrum allocation to provide a high capacity mobile telephone system But it was not until 1968 that a chunk of spectrum was returned from Government use to the private spectrum and we could sen ously begin to think about meeting the needs of the public on the move Bell Laboratories scientists at that time came up with a new spectrally efficient approach called cellular communications I have outlined a brief history of the ensuing years in my filed statement, but the punch line is, "we now have an actual system under developmental trial in Chicago and it will meet the needs of the public on the move" Frankly, it is great The quality ap proaches that of your home or office When I am using it, people I call usually do not recognize that I am in a car User reaction has surpassed even our great expecta tions, and after spending the time and money to meet this pressing need, you can imagine our surprise and disappointment at the provisions of section 331(d) That provision prohibits the Bell companies from offering the service we pioneered, developed, and are prepared to implement With the long list of waiting customers, it makes little sense to exclude the supplier who has developed the most promising tech nology to fulfill the public's needs Furthermore, the continued presence of the Bell System in the market for new radio services will encourage, not discourage, corn petition Last, I believe that if the goal of section 331(d) is to achieve competition in the cellular market, better alternatives are availa ble Let me explain When Jim Olson, our A T & T vice chairman of the board, appeared before this subcommittee, Mr Moir requested us to comment on two possible alternatives First, whether the cellular carrier selected for each market area could serve as a system manager, providing cellular facilities to multiple competing carriers who would offer the service to the public, and second, whether the existing 40 megahertz allocation for cellular service could be subdivided in each market area to allow for multiple competing supplies of both facilities and services My written testimony briefly discusses each of Mr Moir's alter natives, with the conclusion that they may be feasible to imple PAGENO="0159" 1623 ment and that we are willing to consider them as well as the many possibilities which may be suggested by others. I would like to emphasize, however, that this is a matter which involves many complex technical and economic tradeoffs and many diverse interests, and all of these diverse interests must be consid- ered. Those interests can best be accommodated, we think, through the regulatory process where there is full opportunity for the par- ties to exchange and discuss their views and proposals. Certainly the FCC could, without any additional statutory au- thority, undertake an inquiry in this regard, and we pledge our- selves to be as helpful as possible in assuring that such an inquiry would result in a solution acceptable to all parties. The question remains, nonetheless, what should this subcommit- tee do in terms of legislative effort to achieve this goal. Certainly, section 331(d) is not the best approach. Instead, we suggest that a clear statement of legislative intent to foster competition, such as is found in section 436(a), would provide ample assurance that the subcommittee's goals are realized. In addition, I would urge the subcommitttee to encourage the parties to discuss alternatives under the auspices of the FCC and to arrive at an approach which permits competition in the provision of cellular service while keeping the cost to the public as low as possible. I would be happy to try to respond to any questions, and I did bring with me today an exhibit that we had put together for the users in Chicago to demonstrate how the system would be used. That is the system under developmental tests now. There is a 8-minute canned spiel which sort of explains what a cellular system is, with a car running around showing how i~ would be used. I would invite the subcommittee to either see it now before this discussion or at your convenience afterward. I have someone here who could turn it on for you. Mr. VAN DEERLIN. Well, that seems fortuitous. Sure. Shall we identify the voice for the record? Mr. WEINBERG. John Nicholas. I think you will have to walk over here, Mr. Chairman, to see it. There is a little car running around down here [indicating]. [There was a demonstration.] Mr. WEINBERG. Thank you, Mr. Chairman. Mr. VAN DEERLIN. Would it work in Cleveland? Mr. WEINBERG. Yes; we think it will work in Cleveland and in almost any location in the country. [Testimony resumes on p. 1652.] [Mr. Weinberg's prepared statement follows:] PAGENO="0160" 1624 STATEMENT OF LOUIS M WEINBERG, AT&T DIRECTOR OF BUSINESS EXCHANGE AND MOBILE COMMUNICATIONS SERVICES Re House Bill 3333 - Subcommittee panel on Land Mobil General Sum~a~y The purpose of my testimony is to provide the Subcommittee with the Bell System s comments on those portions of House Bill 3333 which concern land mobile services, spectrum resource fees and spectrum allocation In my testimony, I will respond, first, to the possible alternate market structures for cellular service which Mr Moir, of the Staff of the Committee on Interstate and Foreign Commerce asked AT&T to comment on during the testimony, on May 8, 1979, of James E Olson, AT&T Vice Chairman of the Board of Directors In addition, I will comment on: (1) Section 331(d) which would, in effect, prohibit Bell System companies from holding licenses for new radio systems involving the distribution of signals directly to customers (2) Section 414 which would authorize annual spectrum resource fees 3 (3) Section 424 which would deregulate land mobile services except apparently, for those offered by a dominant carrier and ~/ Included in my discussion of this Section will be certain comments on Section 436(a) which requires the Communications Regulatory Commission (CRC) to prescribe rules and standards which are designed to ensure that at least three business organizations may be in competition in the provision of radio system services in each relevant market. . . PAGENO="0161" 1625 (4) Title VII which, among other things, concerns spectrum allocation. Cellular Service: Market Structure We recognize that the existing monopoly market structure for cellular services could be viewed as inconsistent with the competitive principles underlying House Bill 3333. Moreover, even under the 1934 Act and the existing FCC rules, the process of selecting a monopoly supplier through comparative hearings could unreasonably delay implementation of the service. Thus, we are willing to work toward alternative market structures, and we believe that those suggested by Mr. Moir may be feasible. We suggest, however, that.such an alternative structure could be best accomplished through the regulatory process and we encourage the Subcommittee to use its good offices to promote such a process. Sections 331(d) and 436(a): Competition in Land Mobile We oppose Section 331(d) because the exclusion of the Bell System from providing new mobile services through technology that we have developed would delay and in some cases preclude customers from receiving the benefits of urgently needed service. Moreover, we believe that the continued presence of the Bell System in the market for new land mobile services is necessary to promote competition and technological innovation. Further, we suggest that the goal of insuring continued competition in land mobile, and the goal of achieving a competitive market structure for cellular service, can be achieved under the FCC's existing powers and that the only needed legislative action is a statement of intent to foster competition such as in Section 436(a). We believe, however, that the statement c~f intent should not include a fixed minimum number of competitors because such limits tend to be applied arbitrarily even when not in the best interests of the consuming public. 51-253 0 - 80 - 11 PAGENO="0162" 1626 Section 414: Spectrum Resource Fees We oppose the spectrum resource fees proposed in Section 414 of th~ House Bill. Such fees are not needed for spectrum efficiency. They could add substantial costs to the provision of common carrier services and tend to promote further litigation. Instead we suggest a cost~-based approach to fees, or if there are to be fees based on factors other than cost, the fee limit for land mobile should also be made applicable to other nonbroadcast licensees with each such licensee paying the same fee on a per transmitter basis. Section 424: Deregulation of Land Mobile Services We have no objection to the provisions of Section 424 which would deregulate common carrier land mobile services. We believe, however, that deregulation should be applied to all land mobile carriers. Title VII: Spectrum Allocation In general, we do not object to the provisions of Title vii. We do, however., suggest that in order to insure that all interested parties have an opportunity to present their views on spectrum allocations, the NTA's allocation powers under Section 707 should be made subject to the rulemaking procedural requirements of the Administrative Procedures Act. PAGENO="0163" 1627 Introduction Mr. Chairman, Members of the Subcommittee, my name is Louis M. Weinberg. I am employed by American Telephone and Telegraph Company (AT&T) as Director of Business Exchange and Mobile Communications Services. In that capacity, I am responsible for the land mobile services provided by the Bell System to the general public, including the Advanced Mobile Phone Service (AMPS) system presently in developmental operation in the Chicago metropolitan area. I want to begin by thanking the Subcommittee for this opportunity to appear before it and present the Bell System's comments on those portions of House Bill 3333 which concern land mobile services, spectrum resource fees and spectrum allocation. In my testimony, I will respond, first, to the possible alternalive market structures for cellular mobile telephone service which' Mr. Moir, of the Staff of the Committee on Interstate and Foreign Commerce, asked AT&T to comment on during the testimony, on May 8, 1979, of James E. Olson, AT&T Vice Chairman of the Board of Directors. In addition, I will comment On: (1) the provisions of Section 331(d) which would, in effect, prohibit Bell System companies from eligibility to hold radio licenses for new PAGENO="0164" 1628 *radio systems involving the "distribution of signals directly to customers";1" (2) Section 414 which would authorize the CRC to impose annual spectrum resource fees; (3) Section 424 which would deregulate land mobile services except, apparently, those offered by a "dominant carrier"; and (4) Title VII which, among other things, concerns spectrum allocation decisions by the National* Telecommunications Agency (1'~TA). Cellular Service: Market Structure Regulatory Background and Existing Rules: At least since 1949, the Federal Communications Commission (~FCC) has sought to respond to a growing public need for land mobile services. These services, such as radiotelephone service to and from persons in automobiles, have been offered to the public for many years by many firms, including Bell System operating telephone companies, independent telephone companies and Radio Common Carriers (RCCs). In recent years, however, limited spectrum 1/ Included in my discussion of this Section will be certain comments on Section 436(a) which requires the Communications Regulatory Commission (CRC) to "prescribe rules and standards which are designed to ensure that at least three business organizations may be in competition in the provision of radio system services in each relevant market. . . PAGENO="0165" 1629 space and other problems have prevented the accommodation of all those who desire such service, resulted in inadequate service quality, prevented the .completion of calls, and created other difficulties. As early as 1958, the FCC described such services as suffering from spectrum "congestion"; by 1962 it found that there was "extreme congestion"; and in 1964 it concluded that there was "acute frequency shortage."V As a result of these problems, many members of the public who desire land mobile services have been unable to obtain them. For example, in most metropolitan areas there are long waiting lists of customers who cannot be served on existing systems and the. Bell System alone has a. waiting list of over 25,000 potential land mobile customers. In addition, there have been increasingly frequent instances of poor service quality and servibe blockages. Despite these substantial problems, the FCC was, until the appearance of cellular technology, unable to find a solution which it regarded as suitable..V The FCC's current efforts to respond to the "widely-voiced"i" concern about the deficienci~es of land V Final Report of the President's Task Force on Communications Policy, Chap. 8 at p. 8 (1968). V Notice of Inquiry and Notice of Proposed Rule Making, 14 F.C.C.2d 311, 313-314 (1968). .i/ Final Report of the President's Task Force on Communications Policy, ~ Chap. 8 at p. 40. PAGENO="0166" 1630 mobile radio began in 1968, when it issued a Notice of Inquiry and Notice of Proposed Rule Making to consider the allocation of additional frequency spectrum to satisfy the "burgeoning needs" for such services.~ The FCC reiterated that there was already "serious congestion" in such services in major metropolitan areas, and stated that even greater congestion would develop before 1980. It particularly emphasized the importance of developing new systems that could utilize more efficiently the limited spectrum space that could be made available. On May 21, 1970, after considering extensive comments from AT&T and other interested parties, the FCC issued a First Report and Order and Second Notice of Inquiry that tentatively allocated additional spectrum space f~r land mobile services, including an allocation for the development and operation of cellular systems.~~' The FCC repeated its earlier request that all interested parties undertake detailed studies to determine the most desirable usage of the available spectrum space to meet the increased public need for improved and additional land mobile services f~J 14 F.C.C.2d 311, 313-315 (1968). !/ 19 Pike & Fisher R.R.2d 1663 (1970). PAGENO="0167" 1631 to and beyond 1980. It again encouraged the design of new systems that could more efficiently use. the limited spectrum space that could be made available. In response to the Second Notice of Inquiry, AT&T and other parties urged the FCC to confirm its tentative allocation of spectrum space for the continued development of cellular technology. AT&T and Motorola indicated that they had already completed substantial studies regarding the technical feasibility of ce1lular~ systems, and submitted detailed proposals for further developmental programs. AT&T emphasized that cellular systems could make high quality and low cost land mobile service available to a wider variety of potential users than is possible through existing systems. The new systems could be constructed in various sizes. They would offer sign~ficant advantages of quality, cost and spectrum efficiency over conventional mobile telephone systems. Compared to existing conventional systems, they would greatly reduce the possibility that a customer might be unable to complete a call because all of the channels are in use. Transmission would be clearer and more intelligible than in existing systems. Economical service could be provided to segments of'the public which are not now served. In a cellular system the mobile service area is divided into geographical units called cells. Each cell is served by its own radio and control equipment and is PAGENO="0168" 1632 assigned a set of frequencies, with neighboring cells assigned different frequencies to avoid interference. Cells sufficiently far apart, however, can simultaneously use the same frequencies, allowing reuse of each channel for - different conversations many times in a given service area. Further, as the number of customers increases and there is a need for the system to handle more calls, the size of the cells can be reduced to allow for more frequency reuse. The cellular approach eliminates the need for high-powered radio transmission by carrying the conversation over regular telephone lines from, or to, the cell site nearest the mobile customer. Using low power, the cell site completes the call by radio transmission covering only the small area where the vehicle is traveling. As a vehicle moves from cell to cell, sophisticated electronic switching equipment will transfer the call to the cell site into which the vehicle is moving. This automatic sequence maintains service quality throughout the conversation without interruption. On May 1, 1974 the FCC issued a Second Report and Order which, among other things, allocated 40 megahertz of spectrum space for the proposed new cellular systems.2" Further, to allay any possible fears regarding anticompetitive conduct in connection with the new cellular systems, the FCC imposed a series of stringent restrictions 2/ 46 F.C.C.2d 752 (1974). PAGENO="0169" 1633 upon their development and operation by telephone companies. Among other things, the FCC placed limitations upon the manufacture of mobile units and cell site radios by such companies and required them to create separate subsidiaries for the operation of cellular systems. On March 20, 1975, the FCC released a Memorandum Opinion and Order!" in which it ruled on various petitions for reconsideration in connection with its May 1, 1974 Report and Order. In this Memorandum Opinion the FCC reiterated that cellular systems are "the best way to meet the potentially large future requirements" for land mobile services. Nonetheless, it stated that "considerable additional" developmental work is necessary before it would prescribe standards for such systems "on a regular basis," and announced that "until further order, only developmental cellular systems . . . `twill) be authorized." Further, although only developmental systems were to be initially authorized, the FCC's 1975 Memorandum Opinion established the fundamental ground rules governing the market structure for futtite commercial service. Originally, the FCC had determined that only the telephone companies had the resources and technology to implement the service. Thus when the allocation was made in 1974, it was allocated solely for use by the telephone company to provide cellular service. In the 1975 Memorandum Opinion, however, Si F.C.C.2d 945 (1975), aff'd sub nom., NARUC v. FCC, 525 F.2d 630 (D.C. Cir., 1976), cert. den. sub nom., NARS v. FCC, 445 U.S. 992 (1976). PAGENO="0170" 1634 the FCC responded to the interest shown by RCCs in providing cellular service. It determined that "any qualified entity," including RCC5, could apply for cellular licenses. The FCC, nonetheless, continued to find that the service should be provided on a monopoly basis. In other words, although "any qualified entity" could apply for a cellular license, the~ FCC determined that only one carrier would be granted a license in each market area and that, in the event of more than one qualified applicant for a. given area, the ultimate licensee is to be selected by a comparative hearing. Finally, on March 10, 1977, after extensive proceedings, the FCC granted the Application of Illinois Bell Telephone Company to construct the AMPS developmental cellular system which is now in operation in Chicago.!" Together with technical work that is being conducted by Bell Laboratories in Newark, New Jersey, the Chicago trial is an essential ingredient of the developmental program as it has evolved from the Bell System's initial proposals for the evaluation of cellular technology. Likewise, the RCC industry has clearly shown that it intends to be a vital part of the cellular market. For example, an RCC is presently constructing a developmental cellular system in the Washington, D.C. area using technical advice and equipment provided by Motorola, Inc. Similarly, during the * testimony before this Subcommittee on May 4, 1979, George M. !/ See, In Re Illinois Bell Telephone Company, 63 F.C.C.2d 655 (1977), aff'd sub mom., Rogers Radio Communication Services, Inc. v. FCC, 593 F.2d 1225 (D.C. Cir., 1978). PAGENO="0171" 1635 Perrin, President of the RCC's national council, Telocator Network of America, stated that the RCC industry was desirous of obtaining licenses to offer cellular service.L~" Possible Alternative Market Structures: Notwithstanding the foregoing, the Bell System recognizes that although a monopoly structure for cellular service may be appropriate under the Communications Act of 1934, as amended, such a structure could be viewed as inconsistent withthe competitive principles of House Bill 3333. Moreover, even under the existing Act and FCC rules, we can see that the process of selecting a monopoly supplier for cellular service in each market area may be injurious to the public because of the lengthy litigation delays inherent in the adversary comparative hearing process. For example, in the air/ground service, which is provided on a monopoly basis with the suppli~r selected through comparative hearings,fl~ the FCC allocation occurred in 1970 and the comparative hearing processing is still not completed in some locations. Thus, the Bell System is willing to work toward possible alternative competitive market structures which are Consistent with the goal of a nationwide high-capacity system, provided that such structures would allow for expedited implementation of service to the public. 12/ Transcript of Proceedings at 92. fl/ See, Report and Order, 18 Pike & Fischer R.R.2d 1501 (1970) PAGENO="0172" 1636 In this regard, when James E. Olson, AT&T Vice Chairman of the Board of Directors, appeared before this Subcommittee, Mr. Moir of your Staff requested AT&T to comment on two possible alternatives: first, whether the cellular carrier selected for each market area could serve as a "system manager" providing cellular facilities to multiple competing carriers who would offer the service to the publicia" and, second, whether the existing 40 megahertz allocation for cellular service could be subdivided in each market area to allow for multiple competing suppliers of both facilities and service)~' I will begin by commenting on the second alternative. With respect to conventional land mobile services, the FCC has followed a policy of encouraging competition by assigning two separate blocks of frequency in each market area, one to the RCCs and the other to the telephone company. In 1949, when it made its first permanent allocation of land mobile frequencies, the FCC expressly stated that it was assigning separate radio frequencies to RCCs and telephone companies in order to encourage "the development of competing systems, techniques, ~/ See Transcript of Proceedings at 100. U, Ibid. PAGENO="0173" 1637 and equipment.4-i" The FCC Continued to follow this policy in subsequent proceedings for the assignment of additional frequencies for conventional mobile systems.i.~' Moreover, in General Tel~~one Co. of California, the FCC reviewed its policy of licensing both RCCs and telephone companies and concluded that its policy had "proved, to be salutary. . . . We do not, however, believe that it would be feasible to implement a similar allocation and licensing policy for cellular service by merely subdividing the existing 40 megahertz cellular allocation among two or more competing carriers in each market area. Such a subdivision would greatly increase the cost to the customer, reduce the potential markets and make it virtually impossible to achieve the goal of nationwide availability of high-capacity service. Because of the substantial investment needed to construct and operate a cellular system, the system must have a broad band of spectrum, such as that allocated by the FCC, in order to provide service at a reasonable cost. With less spectrum, cell sizes must be smaller and reduction 14/ In Re General Mobile Radio Service, 13 F.C.C. 1190, 1218 (1949) L~/ See, ~ Second Report and Order on Channel Splitting, 16 Pike & Fischer R.R.2d 957, 963 (1963) 21 Pike & Fischer R.R.2d 957, 963 (1963). PAGENO="0174" 1638 in cell size occurs earlier, thus substantially increasing the equipment and other costs for a system. Further, although these costs ca~ have less effect on an individual customer if there is a large enough base of customers over which to spread the costs, a reduced allocation tends to restrict the carrier to those markets which have such a large base, thus substantially reducing the areas in which service can be made available. Nonetheless, we note that under the FCC's existing rules there is a 45 megahertz allocation in reserve for land mobile. Further, our experience to date with the Chicago AMPS trial indicates that it may be possible for a cellular system to provide economically viable service with an allocation in the range of 30 megahertz, albeit at a somewhat higher cost to the public. Thus, it may be feasible, by removing 20 megahertz from the land mobile reserve and increasing the 40 megahertz cellular allocation to 60 megahertz, to have a competitive cellular market structure consistent with the FCC's allocation and licensing policies for conventional systems, ~ 30 megahertz for a RCC cellular system in each market area and 30 megahertz for the telephone company cellular system in that area. Furthermore, in order to enhance the economic viability of such a market structure and to foster free PAGENO="0175" 1639 entry into, the ~mazketing and distribution of cellular service, we believe that it may be technically feasible to meld the first ~alternative suggested by Mr. Moir into this structure. In other words, the telephone company's cellular system could, in addition to providing service directly to customers, offer ~faciiities to RCCs who do not choose to participate in the ownership of the RCC system..LY Such facilities would of course be offered to such carriers at a price which reflects the reduced cost to the telephone company's cellular operations brought about by the other carriers undertaking the marketing and distribution of the service to its customers. In such an arrangement it would, of course, be necessary for telephone company cellular operations to be allowed to serve customers as well as other carriers. First, the customer should be given the option of being served by a carrier who has total end-to-end responsibility for the facilities and service. Second, the investment needed for a cellular system is such that carriers are flI Similarly, the RCC's system could, in addition to providing service to customers, offer facilities to RCCs who do not choose to participate in the ownership of that system or to obtain facilities from the telephone company system. PAGENO="0176" 1640 unlikely to undertake it if they are required to depend totally on others for marketing and distribution. Third, the dangers of cross subsidy and anticompetitive conduct that are perceived when a carrier offers both service to the public arid facilities to competing carriers, can be avoided by requiring that carrier to offer facilities to other carriers on the same terms and conditions as provided to its own marketing and distribu~tiOfl division. Further, it could be required to separate its marketing and distribution functions with an appropriate accounting system or separate subsidiary, if such subsidiary is necessary, economically viable and able to operate as an integral part of an overall telecommunications operatiOn)~ Thus, we suggest that it may be feasible to implement the alternative market structures suggested by Mr. Moir and we are willing to work toward those alternatives as well as any others which may be suggested. We want to emphasize, however, that this is a matter which involves many complex technical and economic issues and many diverse interests. There may also be other possible alternative structures which deserve consideration. Thus, 2!/ See the Testimony of Edward Goldstein on May 2,1979 before the Senate Subcommittee on Communications of the Committee on Commerce,, Science and Transportation. Transcript of proceedings at 906. PAGENO="0177" 1641 we do not want, at this time, to prejudge the issues by endorsing any particular alternative market structure. We suggest, instead, that this matter, and the diverse interests involved, can best be resolved through the regulatory process where there is a full opportunity for the parties to exchange and discuss their views and proposals. Certainly, the FCC could, without any additional statutory authority, undertake an inquiry in this regard and we are hopeful that such an inquiry would result in a solution acceptable to all parties, including this Subcommittee. Accordingly, we support such an approach and encourage this Subcommittee to use its good offices to encourage the various interests involved to discuss possible alternatives under the auspices of the FCC and to arrive at a market structure which introduces competition in the cellular field while at the same time keeping the cost to the public as low as possible. Sections 331(d) and 436(a): Competition in Land Mobile I have shown earlier that there is, at present, an established public need for new and improved land mobile services. Moreover, we are confident that technology will 51-253 0 - 80 - 12 PAGENO="0178" 1642 soon make it possible for mobile service to include not only vehicular telephones but also the largely untapped market for portable telephony, a telephone in your pocket for example. Nonetheless, because of the severely limited amount of spectrum allocated for existing land mobile systems and the limited capacity of those systems, the public's present and future landmobile service needs cannot be met without the implementation of new, spectrally efficient technology. We in the Bell System have developed such a technology in the form of the AMPS cellular system which the FCC has found to be ". . . the only proposal now before us which offers the service compatibility and spectral efficiency needed to achieve out objective of a nationwide, high capacity radiotelephone service Further, the Bell System AMPS developmental trial is now in operation in Chicago and has proven that the cellular system is technically feasible and responsive to a large public demand for mobile service Thus we believe that the system is the harbinger of a truly exciting and dynamic future for land mobile Indeed, cellular systems may someday become competitive with basic exchange service. Certainly, cellular service could free the consumer from his dependency 12/ In Re Illinois Bell Telephone Company, 63 F.C.C.2d 655, 657 (1977). PAGENO="0179" 1643 on a stationary telephone location, and through the evolution of portable telephony, would enable him to carry his personal telephone wherever he goes. In view of the foregoing, we in the Bell System are puzzled, and indeed disappointed, by Section 331(d). which would, in effect, prohibit our operating companies from offering new land mobile services such as AMPS. We oppose the Section because, first, the exclusion of tF~e Bell System from offering new radio services would delay an~ perhaps in some cases preclude the public from receiving the benefits of improved land mobile service. Certainly, where there are presently long lists of waiting customers, it makes little sense to exclude the supplier who has developed the most promising technology to fulfill the public's needs. Second,. the Sectiori is not needed to promote competition in the conventional, i.e., non-ôellular, land mobile market. In that market, which has been in existence for 30 years, RCCs have, if anything, proliferated, to wit: they have over 50 percent of the two-way mobiletelephone market and approximately 80 percent of the one-way paging market. Third, the continued presence of the Bell System in the conventional and cellular land mobile markets is necessary in order to insure continued competition and technological innovation. As Charles A. Zielinski, Chairman of the PAGENO="0180" 1644 New York State Public Service Commission, stated in his Testimony before this Subcommittee on May 4, 1979 "Our whole effort with the radio common carriers recently, therefore, has been one of trying to make them compete more. The entrance of a telephone company into a market that is characterized by that kind of attitude may be quite healthy. The telephone company may turn out to be the real competitor and the one who helps drive rates down towards marginaL costs in that kind of a situation And from my position I wouldn't want to give that kind of opportunity up lightly 2~/ Thus, we do not believe that Section 331(d) is the best approach to insuring competition in land mobile services Indeed, if it is enacted, it may actually have the opposite result, and it would certainly delay implementation of new and improved services and technology We suggest, instead, that a clear statement of legislative intent - such as is found in Section 436(a) would provide ample assurances that regulatory policies would continue to promote competition in land mobile and that efforts would be made by the appropriate regulatory agency to develop a competitive market structure for cellular services We do, however, suggest that such a statement of intent should not include a minimum number of competitors, such as is presently in Section 436(a) Such fixed limits are 2~/ Transcript of Proceedings at 46 PAGENO="0181" 1645 arbitrary and tend to create artificial market structures despite the fact that their application may not be in the best interests of the consuming public, or, indeed, not even attainable in many markets. Section 414: Spectrum Resource Fees Section 414 would authorize the CRC to impose an annual spectrum resource fee on certain licensees who utilize the spectrum. Th~ fee is to be based on: (1) the cost to the Commission of processing the license; and (2) the "scarcity value" of the spectrum assigned under the license. Further, in the case of broadcast and land mobile licenses, the Section includes specific formulas for establishing a limit on license fees. The Section, however, contains no such formula for the fee which would be applicable to other licenses such as common carrier point-to-poir~t microwave authorizations which are used for, among other things, message toll and private line telephone service. The concept of a fee schedule based in part on "scarcity value" appears to create many more problems than it can solve. First, it is proposed only for certain users of the electromagnetic spectrum thereby suggesting that PAGENO="0182" 1646 spectrum efficiency is not the driving force involved In fact scarcity in a given frequency band is not a simple marketplace phenomenon but rather one that is a function of frequency allocation, technology, location, and other variables Second, the fees are unnecessary to achieve spectrum efficiencies Such efficiencies can and have been achieved by carriers who have voluntarily developed technology to optimize their investments in communications equipment and to compensate for the natural limitations of spectrum resources Further, the FCC's existing rulemaking powers have been utilized effectively to impose spectrum efficiencies through rigorous technical and operational standards. Third, the proposed fees would add costs to the provision of common carrier services and eventually be reflected in the rates paid by the public No benefit will have been rendered to the public by this, especially in view of the fact that the effect of fees on spectrum efficiency is, at best, problematic. Finally, the regulatory history of spectzum license fees is filled with extensive litigation concerning "value to the recipient"~~' and we foresee more of the same should scarcity value become a basis for fees 21/ See, NCTA v. FCC, 415 U.S. 336 (1976), EIA v. FCC, 554 F.2d 1109 (D.C. Cir., 1976) and NAB v. FCC, 554 F 2d 1118 (D C Cir , 1976) PAGENO="0183" 1647 Instead of spectrum resource fees, the Bell System suggests frequency license fees based solely on the regulatory costs incurred by the FCC in the licensing process. Such fees should be clearly easier to determine and implement and less subject to controversy. If, however, the Subcommittee believes, albeit we think it erroneously, that fees should be based on "scarcity value" as well as cost, we suggest that the fee limit defined for a land mobile transmitter be extended to' microwave and other nonbroadcast licensees with each such licensee paying the same fee on a per transmitter basis. Such a limit per transmitter would insure against any abuse of the legislation such as the imposition of excessive fees on some users of the spectrum. Section 424: Deregulation of Land Mobile Services The provisions of Section 424 of House Bill 3333 appear intended to accomplish a twofold purpose: first, to preempt all state regulation of common carrier land mobile service and, second, to al]~ow the CRC to regulate such services only if such regulation is consiLtent with "the limitations on regulatory authority" imposed in the other portions of House Bill 3333. Presi~mably, the latter purpose PAGENO="0184" 1648 is designed to limit the CRC's regulatory authority to the powers conferred over `dominant carriers" under Section 322 et seq. of the Bill. We believe that rate and tariff deregulation of common carrier land mobile services may be appropriate provided that corresponding changes are made to the 1956 Consent Decree so as to allow Bell System land mobile services to be offered in a deregulated mode. In most significant markets there are numerous RCC5 competing with each other and with the telephone company s land mobile services. Further, the competition has, as we have already shown, been vigorous and effective. Thus, marketplace forces can be relied on in lieu of regulation in the land mobile market. It is our position, however, that deregulation should be applied to all carriers who provide the services, and not applied selectively on one carrier or on a particular class of carriers The provisions of Section 424 which apparently allow for regulation only of dominant carriers appear to be intended to protect other carriers from cross-subsidy or predatory pricing We suggest, however, that the result achieved by this Section ie selective regulation is unfair and inequitable It would impose heavy burdens on the ability of the regulated PAGENO="0185" 1649 entity to compete effectively against unregulated entities For example, while the unregulated entity could offer new services at its unrestricted option, the regulated entity would have to await the lengthy proceedings often incident to tariff approval Moreover, selective regulation is unnecessary to protect against misuse of monopoly power and anticompetitive conduct. The provision of House Bill 3333 which guarantee fair interconnection, together with an appropriate accounting system or separate subsidiary, will, we believe, more than adequately protect against cross subsidy and predatory pricing Thus we suqgest that deregulation of land mobile services should be made applicable to all carriers and that the CRC should not be given the power to impose regulation selectively on one or a particular class of carriers Title vii Spectrum Allocation Under Title VII the power to allocate spectrum which has heretofore been exercised by the FCC is transferred to the NTA We have no objection to such transfer, although we do believe that the FCC has exercised its allocations powers effectively and that such powers could continue to be exercised by the FCC or CRC PAGENO="0186" 1650 In any event however, we want to emphasize that spectrum allocation is a matter that has a direct and vital impact on users of the spectrum. Thus, they have a legitimate right to have their views heard and considered by the allocation authority. Moreover, users often have important technical information that can benefit the allocation agency. Thus, regardless of which agency has the power to allocate spectrum, its~decision-making process should be made subject to the notice and comment rulemaking provisions of the Administrative Procedures Conclusion Although the Bell System believes that all of the comments in this testimony ~deserve consideration, I want to conclude by emphasizing, once again, the urgent need for the Subcommittee to reconsider its proposed exclusion of the Bell System fromoffering new radio services. We have shown that if enacted, the exclusionary provisions of Section 331(d) will ha~~ adverse consequences to the public. In parti~cular, it will delay and perhaps in some cases preclude customers from obtaining new and improved services. Moreover., instead of promoting competition in land mobile, .~/ 5USCA § 551 et~q PAGENO="0187" 1651 the enactment of the Section may have the opposite result, i.e., less competition and technical innovation in this field. We understand, and indeed support, the Subcommittee's goal of fostering competition in the conventional and the cellular land mobile markets. We believe that there are feasible alternatives to the present monopoly structure for cellular service, but neither these alternatives, nor increased competition, will result from Section 331(d). Instead, we suggest that, through the regulatory process, such alternatives, and the continued existence of vigorous competition in land mobile services, can be accomplished without exclusion of the Bell System from this market. PAGENO="0188" 1652 Mr VAN DEERLIN Thank you, Mr Weinberg Next Mr. Marshall. STATEMENT BY TRAVIS MARSHALL Mr MARSHALL Thank you, Mr Chairman I want to apologize. I have a bit of an allergy and my voice is not what I would like it to be My name is Travis Marshall and I am vice president of Motorola Motorola is pleased to have the opportunity to present its views on H.R. 3333 and to participate in this panel. Since our written testimony discusses in some detail our position on many of the specific sections of H R 3333, I shall comment briefly on those areas of vital concern to Motorola and the land mobile community We support the concept of relying on marketplace forces to pro vide the telecommunications needs of the citizens of the United States, invoking regulation only when marketplace forces are defi- cient. The thrust of H.R. 3333 is that competition vying to serve the market will with certain exceptions serve these needs and that competition will regulate itself to insure proper pricing and will be more dynamically responsive to the public than Government regu lation can be. Implict in the pro-competitive thrust of H.R. 3333 is that compe- tition must be fair and that it must be real In the land mobile radio market, there will be three types of systems Individual, private dispatch systems operated by the user himself~ third-party for hire dispatch systems, called specialized mobile radio systems, which will usually be trunked; and for the general public there will be cellular systems, which were just described by Mr. Weinberg. They will offer mobile radio telephone service interconnected into the wire line network. The committee recognized that to permit entry by the dominant carrier into any facet of this market would, in fact, result in no competition. The individual private land mobile systems, which comprise more than 97 percent of today's mobile radio users, are well served by a host of competitive suppliers Their service and maintenance needs are handled by thousands of independent serv- ice stations. Many of these would not survive if the dominant carrier were allowed access. The potential for domination also exists in the newly established specialized mobile radio systems called SMR's. These SMR's are operated by third party for hire licensees who in turn serve eligible licensees in the private land mobile services. SMR's were construed by the Commission and affirmed by the courts to be non common carriers Thus, today SMR's could not be licensed to A.T. & T. or its subsidiaries because they are nontariff services Without section 331(d), which excludes the dominant car rier, small entrepreneurs who attempt to operate such systems could certainly be swept away. A third area of potential domination exists in the 40-megahertz set aside for nationwide compatible common carrier mobile radio telephone systems utilizing a cellular system configuration The suballocation increases common carrier spectrum by 1,000 percent, or tenfold The lure of a 40 megahertz allocation which could be PAGENO="0189" 1653 dominated by A.T. & T. because of its vast resources could surely emasculate the small radio common carriers. Section 331(d) properly assures this continued competitive ënvi- ronment for land mobile by excluding the dominant carrier. In our opinion, this is the only viable remedy. The various other safe- guards the bill proposes to protect against such abuses as cross- subsidy will not be effective to prevent the incursion into and inevitable domination of a heretofore highly competitive market. This provision of H.R. 3333 will make it possible for thousands of small businesses to compete in rendering communications and pro- viding equipment maintenance fully responsive to the needs of all land mobile users. We also believe that for competition by deregulation to be effec- tive in the land mobile market, there must be preemption to ex- clude States from enacting legislation or issuing decisions that will thwart the purposes of H.R. 3333. Certainly in the past these jurisdictions have acted contrary to FCC rules and policies, fre- quently for the purposes of bringing under regulation land mobile systems which the Commission has determined ought to be free from regulation. It would be regrettable if competition, the cornerstone of H.R. 3333, were allowed to be undermined by individual local decision. We believe that H.R. 3333 properly preempts, leaving only to the States jurisdiction over local exchange rates. We must point out that the Commission, whether it be the FCC or the CRC, has a basic responsibility to let marketplace forces control, intervening only when those forces are shown to be defi- cient. While espousing competition and deregulation, the Commis- sion has recently embarked on rulemaking that could restructure the marketplace, creating competition not as it is contemplated in H.R. 3333 but rather as the FCC deems it ought to be. H.R. 3333 implicitly assumes that in general, a competitive mar- ketplace exists and thereby puts the burden of proof on those who allege that these forces are deficient. We believe this approach is valid and in the public interest. As evidenced by these recent FCC actions, however, there is a danger that a commission might constantly tinker with existing market- place forces to produce regulation that reflects its own view of how the marketplace should be structured. We hope the committee will reexamine this bill in light of this problem and will endeavor to place appropriate constraints on the agency. A spectrum access fee could be acceptable under appropriate conditions. If, for example, such a fee were applied to all users in a manner that could cause unused or inefficiently used spectrum to be reallocated to growing services such as land mobile, then the fee would have a meaning and purpose through improved spectrum efficiency. It is clear that spectrum efficiency has not been accomplished in major portions of the spectrum. If a fee structure could accomplish this, it would, I believe, be in the public interest. It would appear that H.R. 3333 leads in this direction. That concludes my prepared remarks, Mr. Chairman. [Testimony resumes on p. 1672.] [Mr. Marshall's prepared statement and attachment follow:] PAGENO="0190" 1654 TESTIMONY OF TRAVIS MARSHALL VICE PRESIDENT MOTOROLA INC GENERAL Motorola Inc is a leading systems designer and manufacturer of land nobile radio equipment for both private users and conmon carriers In the common carrier narket we serve both wireline and radio common carriers In addition our conpany manufac- tures CB equipment AM-FM radios for autonobiles systems for the Federal Governnent and seniconductor devices used in a broad variety of electronic and telecommunications systems One of our subsidiaries is actively engaged in providing data processing and communications equipment Thus our ~nterest in the ramifica- tions of H R 3333 is substantial Motorola strongly supports the avowed purpose of H R 3333 to protect the public interest by government regulation only when marketplace forces are demonstrably incapable ~f performing this function (Section 101 (b)) The Bill is a welcome step toward an era of greater reliance on competition and the marketplace in determining the development of our nation s telecommunication policy Competition has already proved to be an effective and cost-efficient regulator in those portions of the communications industry where government intervention has been minimal and in other sectors of the economy such as the recently deregulated airline industry Where true competition exists and is allowed to operate without government imposed restrictions both the public and business benefit from the resulting variety of choices in terms of superior quality of products and lower prices Additionally we feel that this provision as modified is superior to the equivalent section in H.R. 13015 as it properly recognizes protection of the PAGENO="0191" 1655 public interest as the primary goal of this legislative reform. We anticipate that the CRC and the communications industry, acting within the framework of H.R. 3333, will create an environment in which full and fair competition among equals will prevail with concomitant rewards to the public. RECOGNITION OF PRIVATE LAND MOBILE Motorola is especially pleased to note the Bill's explicit recognition of private land mobile as distinct from the common carrier land mobile service as an integral segment of the tele- communications industry. This delineation is both overdue and necessary. Private land mobile systems, which provide internal communication among employees of a business or organization now comprise approximately 97% (over 7 million) .of the total of licensed land mobile transmitters. This is an area where compet- ition, rather than regulation, has served the public interest well. Each individual user is a licensee who has control over his own system; each purchases or leases equipment from one of dozens of highly competitive suppliers; his assigned frequencies are shared by other similar licensed users. This situation pertains even when more than one licensee shares common equipment and facilities. Thus, the FCC has imposed virtually none o~ the restrictions on private land mobile which haveheretofrjre been required in the common carrier services such as closed entry or tariff regulations. One of Motorola's primary concerns with H.R. 13015 was its lack of distinction between private and common carrier land mobile, a PAGENO="0192" 1656 fear which has been substantially alleviated by the language of the Bill before us. There remain, however, a few areas in which this delineation must still be made or clarified. Section 412 (b) (1) requires a granted CRC license before an applicant to provide broadcast, land mobile or other radio services may construct his facility This prohibition has been inapplicable to private land mobile users for many years FCC clearance, if necessary, is the sole requirement before construction may commence Imposing a construction permit rule would serve no discernible purpose 2 Section 413 (a) (8) ,~ (10) and (11) are also inappro- priate for private land mobile licensees The user, generally with the assistance of a frequency coordinator, determines the frequency, location and area of operation to be served We doubt that the public, the Commission, or the licensee would profit from increased Commission involvement in this area 3 Sections 415(d) and 436(b) create an apparent discre- pancy The first is a general provision applicable to all services including private land mobile It requires mutually exclusive applications for a single frequency to be disposed of on the basis of random selection Section 436(b) on the other hand only applies to mutually exclusive applications in the land mobile or other radio services (excluding PAGENO="0193" 1657 broadcast) and allows the Commission substantially greater leeway in selecting among competing applicants. We suggest, therefore,that section 415(d) be specif- ically limited to applications in the broadcast service. 4. A final concern in this area is Section 422 which pro- hibits the Commission from regulating the content of any transmission. Congress is understandably sensitive when dealing with First Amendment rights, yet the block allocations on which the private land mobile service is premised necessitate limitations on trans- mission content, Without such requirements, the private land mobile radio services will inevitably lose their unique identities to the ultimate detriment of the radio user and the public. ROLE OF DOMINANT CARRIERS The primary thrust of H.R. 3333 is toward deregulation of the telecommunications industry whenever competition is sufficient to protect the public interest. Motorola agrees that this phil- osophy can and should be applicable to the common carrier land mobile service. When carriers are permitted to vie for a share of the market, the public reaps the benefit of the resulting lower costs and better quality of service. An entirely different sit- uation pertains when one of the carriers is AT&T. An entity which for years has been insulated from competition because of virtual monopoly power granted by the Government must not be unleashed on 51-253 0 - 80 - 13 PAGENO="0194" 1658 an unregulated market without stringent, enforceable safeguards. While we would have preferred a Bill prohibiting this communica- tions giant from engaging in ~ unregulated, competitive segment of telecommunications we believe that H R 3333 takes important steps toward ensuring viable competition in both common carrier and private land mobile services without denying AT&T opportunity for continued growth. For example, AT&T will still be a principal supplier to cellular systems even if it does not operate them. Section 31(d) is the key section of this Bill for the land mobile industry. Absent this provision, AT&T would be free to penetrate and inevitably dominate this market because it would no longer be bound by the terms of the Consent Decree, (Section 331(b)). It may be well to clarify further today's land mobile structure. We have already described the individually-licensed system that characterizes the private land mobile market. This situation, however, may undergo marked modification if trunked s~stejns designed for private land mobile use became ascendant. Certainly1, this is the direction that the FCC is endeavoring to force o~i the private land mobile community in the 800 MHz band. According to the Com- mission's decision in Docket No. 18262, these trunked systems, when utilized to serve a multip]icity of eligibles, will be operated by a third-party licensee (these systems are titled "Special Mobile Radio Systems" or SMRS). This third party, the SMRS operator, is permitted to charge for rendering service, but under FCC regula- tions, affirmed by the Circuit Court of Appeals, is not subject PAGENO="0195" 1659 to common carrier regulation. Today, AT&T is not permitted to enter non-tarjf fed markets, and is effectively precluded from operating SMRS. We should point out that manufacturers such as Motorola are also effectively foreclosed, under FCC rules, from entering this market as SMRS licensees. While trunked systems are in the embryonic \stage, hundreds of applications for SMRS authorizations have been filed by entrepreneurs, mostly from individual businessmen and small companies. If H.R. 3333 were to be enacted without Section 331 (d), AT&T would be free to dominate this potentially large private land mobile market. Ironically, AT&T would then have more freedom than the competitive equipment suppliers, yet its assets exceed by a wide margin their combined total. The result would be that private land mobile manufacturers will find themselves with drastically fewer potential customers. The monopoly power of AT&T will inexorably wither away competition. The small manufacutrers will be the first to fail; diminution of competition will, of course, adversely affect all suppliers. The consequences of such an incursion will also fall heavily on the small entrepreneur licensee of an SMRS system. He is investing high-risk capital on the hope that not only will private dispatch trunked systems prove to be technically feasible but that they will attract sufficient customers at affordable rates to be economically viable. It is difficult to be salutary about the prospects for survival of most of them if in addition to the present substantial risks, they must also combat the might of AT&T. PAGENO="0196" 1660 Another group that would suffer greatly' because of AT&Vs presence would be those small radio dealers who service and main- tain private land mobile equipment. The individual SMRS entrepreneur will lack the wherewithal to have his own' service facility and will turn t.c~'the small independent to keep his system and the equip- ment of his customers' properly functioning. AT&T, on the other hand, will undoubtedly have its own service and maintenance capability. If it dominates this market as it surely could do absent Section 331(d) these service shops cannot survive. The current situation in the common carrier land mobile radio market is somewhat different although it demonstrates equally the need for Sedtion 331(d). First, today's market is quite small - serving only about 250,000 mobile telephone subscribers. Secondly, the radio common carriers and the wireline" carriers compete for this bi~tsiness in most areas but on a regulated, certificated basis whereby only enough entrants sufficient to serve market demand are authorized. Thirdly, prior to Docket No. 18262 there was scant spectrum available for common carrier mobile radio service, an amount inadequate to warrant more than token attention from AT&T. Docket No. 18262, however, has provided the spectrum and calls for the establishment of highly-sophisticated cellular systems to provide radio-telephone serivce tothe public Motorola is both a believer in and developer of cellular technology; however, we recognize that such systems will be expensive, and considerable time will be needed before a sufficient base of customers will become subscribers so that the systems will be economically sound. PAGENO="0197" 1661 Although the Commission's Rules allow any qualified common carrier to apply for a cellular system, it is plain that the typical radio common carrier is at such a marked disadvantage vis a vis AT&T that competition cannot be real. Lest one fear that AT&T's growth would be stunted in this area, Motorola's projections on the Costs of operating a cellular system indicate that the largest expense will be to the telephone company to pay for the needed wireline interconnections and network switching. The telephone company will, of course, realize substantial revenues as well for toll calls emanating from or into the system. It shoul~be noted that prohibitions against cross-subsidi- zation or other limitations proposed to be imposed on the dominate carrier will not make the land mobile mark~ts described above competitive. Dominance by AT&T will occur, whether it be in providing equipment, gathering subscribers or ser4icing the equipment, the prospects for real competition are bleak. The only viable alternative is the enactment ~f Section' 331(d). CROSS-SUBSIDIZATION Because we believe that markets other than land mobile will be similarly dominated by AT&T, we testified previously that the dominate carrier should be excluded from all "competitive", non-regulated areas. We questioned whether fair competition would be achieved if a monopoly-based enterprise were permitted to penetrate markets served by competition. Since `the authors of H.R. 3333, apart from Section 331(d), opted otherwise, the prohibitions against cross-subsidization take on increased significance. PAGENO="0198" 1662 H.R. 3333 does not require divestiture of either Western Electric or the Bell operating companies. Other provisions of the Bill, however, give assurances that cross-subsidization will not be permitted and that, if discovered, will trigger severe penalties. Under H.R. 3333, only dominant carriers are required to file tariffs for inter-exchange telecommunications services (Section 325). Section 326(b) (1) authorizes the Commission to require a dominant carrier to maintain separate accounts for amounts received under any rate filed. Thus, the Commission will be able to determine whether the funds received originated from appropriate sources. This section also impowers the CRC to determine whether the rate involved is just and reasonable. This determination will vary depending upon the degree of com- petition in the market involved. Obviously, cross-subsidization is a greater concern when a dominant carrier is operating in a competitive market and could utilize revenues accrued from monopoly activities to subsidize its rates and therefore under-price those without such a base. This possibility is substantially minimized by the stringent penalties of Section 326(e) (2) which allows for awards of treble damages to a complaining carrier if a rate is determined to be less than just and reasonable. The CRC is required, under Section 326 (b) (2) to conclude hearings on tariffs within one year. We would hope that the Commission views this deadline, not as the norm, but as a maximum period which should be shortened whenever possible. Suits by PAGENO="0199" 1663 competitors to enjoin these illegal cross-subsidizies and/or co1]-ect~damages historically drag on for several years. Plaintiffs who ultimately are awarded compensatory judgments often find that it is too late to resume their attempts to be competitive. Such a result could obtain in spite of a one-year deadline since the administrative process is frequently followed by judicial review. Sections 325 and 326 protect against cross-subsidization in inter-exchange telecommunications services. Protection against this sane practice in other unregulated telecommunications activities must be established under Section 331(c). Here, H.R. 3333 mandates arms-lengths dealings between a dominant carrier and its affiliates, and among affiliates. It also requires products, services or facilities which are offered to othér~ affiliated organizations, to be offered to all other persons on a non-discriminatory basis at comparable rates and on comparable terms. Motorola hopes that this provision, in conjunction with Sections 325 and 326, amd the severe criminal sanctions set forth in Section 545 for violation of any of these provisions, will guard against the~ anti-competitive practice of cross/subsidization~ We also anticipate that, should those restrictions ~prove ineffective, the Commission will take further appropriate actions such as requiring divestiture as authorized under Section 331(d) (3). AGENCY INTERVENTION As the Subcommittee is aware, the present Administration has espoused a policy of deregulation which it has urged Admin- istrative Agencies to follow. In a positive sense, this would PAGENO="0200" 1664 seem to be a forerunner of H.R. 3333 as far as the FCC is concerned and would seem, thereby, to ease any transition for the FCC (or the CRC as the successor organization proposed in this legislation). Recent actions by the FCC, however, under the guise of letting competition govern give rise to a concern that the agency will all too quickly conclude that marketplace forces are deficient unless the market conforms to the Commission's precon- ception. For example, in Docket No. 18262, a reserve of 300 channels was set aside to be authorized for ~ither conventional or trunked operations to be ". . .drawn upon to meet demands as they arise." (Memorandum, Opinion, rand Order, `M~rch 19, 1975). In fact, in Los Angeles, Chicago, and New York, the supply of conventional channels has proven to be inadequate to satisfy the demand. Yet, attempts to draw as few as 50 channels from this reserve to satisfy the market need for conventional systems were rebuffed because the current Commission (only three Commissioners remain who participated in the 1975 decision) concluded " . that it would be unwise to do so now because the frequencies in reserve could better be used for the more efficient trunked systems." (Docket No. 79-106, Notice os Rulenakin9,. Nay 3, 1979). Leaving aside serious questions as to the factual accuracy of the Commission's conclusion, it is plain that the Commission has substituted its own rationale for the demonstrated preference of the marketplace. PAGENO="0201" 1665 In reality, the Commission has gone further. It has restructured the marketplace by, de facto, forcing some private land mobile users to employ trunked systems, usually operated by SMRS entrepreneurs on a for-hire basis. Whatever the ultimate efficacy of these systems, it is incontrovertible that today they are more expensive than conventional systems; their applicability for private dispatch uses is untried, and their hoped-for spectral efficiency awaits real-world proof. This action appears to be the antithesis of permitting competition to be the regulator: a competitive environment in which conven- tional and trunked systems would compete for users has been superceded by Government intervention. Thus, while we - and, we would assume, this Subcommittee, - would not expect similar action if H.R. 3333 were enacted, we are concerned since the Commission appears to be unconcerned about flouting the mandate of the Chief Executive. We would hope, therefore, that to the extent possible in the statutory language itself - and certainly in the accompanying legislative report - it will be set forth in no uncertain terms that in the absence of clear proof to the contrary, marketplace forces should be deemed to be working satisfactorily. PRE-EMPTION In spite of our misgivings about potential Federal Agency tinkering to structure the market to suit its own concepts, we believe that competition as the regulator can succeed only if PAGENO="0202" 1666 there is Federal pre-emption. Thus, Motorola is pleased to note that no ambiguity exists in H.R. 3333's position on pre-emption. Both SMctions 321(b) (1) and 424(a) clearly prohibit the states from stepping in and regulating the void created by a federal policy of deregulation for inter-exchange telecommuni- cation services. Such a step was mandatory, as we testified last summer before this Subcommittee, if competition is to flourish. Government constraints at the state level on use of the radio spectrum by non-common carriers have proved in the past to be often more onerous than those imposed by the Federal Government. They have also, on occasion, created an untenable situation whereby the freedom to operate certain types of private land mobile systems was circumscribed on a state by state basis. We feel, that H.R. 3333 establishes once .and fo~t all the `appro- priate paraneters.for federal and state regulation of the electro- magnetic spectrum. This is essential if the objeátive of competition is to succeed. SPECTRUM FEES Another area which will directly affect Motorola and its customers is the spectrum resource fee proposed in Section 414 We are still reluctant to endorse any scheme whigh would place a value on use of the spectrum by private land mobile licensees as they, unlike broadcasters or common carriers, derive no direct financial benefit from the use of radio However! assuming that such a fee will be minimal for these users so tha/t potential licensees are `not priced out of the speOtrum "ma~két"., we much ` prefer the method proposed in H R 3333 to that Set out in either 5 611 or Docket No 78-316 PAGENO="0203" 1667 Section 414 states that private land mobile licensees would be assessed a fee based on the cost of the Commission of processing the license and the scarcity (fair market) value of the spectrum being assigned. The first factor is certainly an appropriately recoverable cost. The second, although we maintain some reservations both about its feasibility and legality, is preferable I to earlier proposals for several reasons. First, while an undetermined scarcity value coula be assigned to private land mobile frequencies, it could not exceed a specified per- centage of the fee charged for UHF-TV broadcast spectrum. This should ensure that the private land mobile industry will not provide a disproportionate share of the revenues collected by the Commission. This method of pegging private land mobile fees to broadcast fees also eliminates the complicated, convoluted spectrum value analysis that would have been required in several of the other proposals. We also concur with the Subcommittee's decision to eliminate indirect costs to the Commission from the fee formula. Such an approach would have been an open invitation to the CRC to seek additional budget, secure in the knowledge that fees could be raised to match such increases. Cost efficiency could be ignored, contracts for unneeded studies might have proliferated, because licensees would inevitably have paid the tab, no matter how high. A further concern peripherally related to the spectrum resource fee is Section 413(d) which requires the CommissiQn to obtain Congressional approval before making any substantial change in the assignment of broadcast spectrum. We are unclear whether PAGENO="0204" 1668 such a re-allocation would appropriately fall under the auspices of NTA or the CRC. In any event, we suggest that this passage be clarified to eliminate any possibility that spectrun allocations are made dependent on spectrum fees, rather than the reverse. The Coxnmisèiofl is obligated under this Section, not only to explain the rationale for the proposed change, but to analyze its inpact on the operation of the spectrum resource fee provisions for Section 414. We urge the Subcommittee to clearly indicate that any re-allocation proposal would be evaluated *on its own.merits, irrespective of its potential impact on the fee provisionS NATIONAL TELECOMMUNCIATIONS AGENCY A final area we wish to address is Title VII which established the National Telecommunications Agency (NTA) and sets out the duties with which it is charged. As this Title is virtually identical to that proposed in H.R. 13015, the position that. Motorola took before this Subcommittee last summer has not changed. The Bill entrusts NTA with all spectrum allocations, both Government and non-Government. While Motorola recognized that this is an attempt to increase the efficiency of the spectrum allocation process, we feel the approacih outlined would deal, a serious blow to all users of the radio spectrum. It would appear on the surface that holding one agency responsible for all spectrum allocations would make it more responsive to the full gamut of prospective users. However, to empower NTA with both the functions of allocating Government PAGENO="0205" 1669 spectrum needs and then arbitrating when those needs conflict with civilian spectrum demands would create an imbalance. The FCC has developed an expertise over the years in dealing not only with non-Government allocations, but also in representing this sector in disputes between civilian and Government spectrum demands. The FCC now provides a forum when Government and non- Government demands are at issue; this arrangement should continue to exist to ensure fairness for all. To transfer this task to the NTA, when the expertise on the needs of the non-Government services will reside in the CRC, is not in the public interest. In addition, the Bill fails to specify the procedures which NTA would employ to perform its spectrum allocation function. Whether the Administrative Procedures Act applies here is yet to be determined. A possible result could be the creation of a "spectrum-czar", wherein the director would have final authority in allocation decisions. Further, even assuming the applicability of the APA, certain Government allocations, relating to national security, will not be subject to public proceedings, even though they may seriously affect non-Government allocations to the possible detriment of the civilian user. Entrusting the CRC with civilian spectrum allocations would obviate the need for any coordinating body between the two agencies while maintaining the efficiency of one governmental agency executing these responsibilities. PAGENO="0206" 1670 ADDENDUM TO THE TESTIMONY OF TRAVIS MARSHALL VICE PRESIDENT MOTOROLA INC. The spectrum fee proposed for land mobile is in part based on a numeric ratio of 360. This ratio appears to reflect that the assignment of a UHF TV channel in a given area precludes the use of spectrum beyond that needed for the TV channel itself, i-e. 6 MHz. This additional spectrum is the result of the impact of what are popularly known as the TV receiver taboos. These include: Adjacent Channel Oscillator Picture Image Sound Image Intermodulation IF Beat. Thei.r quantitative impact in terms of causing idle unassignable spectrum in a given community is dependent on the number of assigned channels and their numeric relationship in the community. For example, if only a single assignment were made, then 18 channels would be idled and unusable for from 20 to 65 miles out- side the community with the specific mileage limitation based on the type of taboo. These 18 idle channels correspon.d to 108 MHz of spectrum in addition to the 6 MHz for the assigned channel. At the other extreme, if all assignable channels were placed in a community, up to 11 channels could be implemented c'r 66 MHz of spectrum out of a total of 336 MHz of spectrum (806-470)~ On this basis each TV assignment would idle 24.5 MHz beyond that needed for the channel. A further factor in the fee ratio that should be considered is that for each 1 MHz of spectrum in the UHF region 20 `two-way )and mobile channels can be establishet. With this as amultip~ier, PAGENO="0207" 1671 the fee ratio could vary between (108 + 6) x 20 down to (24.5 + 6) x 20 or 2,280 to 610 as opposed to the figure of 360 proposed in H.R. 3333. Based on the above and the future possibility that these taboo impacts could be reduced by improved TV receiver design, it is recommended that any fee ratio reflect accurately the actual idled spectrum resulting from TV receiver taboos as well as the 6 MHz corresponding to the TV channel assignment. In addition to the consideration of TV receiver taboos is the substantial co-channel mileage protection afforded a UHF TV station. Depending upon the specific area of operation of a UHF TV station, the co-channel protection to another station is 155 to 205 miles. Private land mobile stations on the other hand ht'u no equivalent protection from other land mobile stations, ~ven in the same community. Time and geographic sharing of a channel is widespread. In those cases where a licensee is protected, such as a common carrier, the typical protection is 70 miles. Thus a fee based on spectrum use should also reflect the amount of geographic area and tine availability of a channel available to a licensee. This would act to assure greater equity between disparate licensees. PAGENO="0208" 1672 Mr. MARSHALL. I would like to point out that I have a portable telephone which will be part of a cell system, and I would like to have the committee see this at your convenience, whether that be now or afterward. That would be totally up to you. I would be glad to show it to you now. You can sit where you are and I will bring it to you. Mr. VAN DEERLIN. It is not in a car? Mr. MARSHALL. It is not in the car. It is in the hand. Mr. VAN DEERLIN. You better have a demonstration, Dick, when we get to you. Mr. WILEY. I am going to flash my cards. Mr. MARSHALL. This is the unit I would like to show you. This particular unit can be operated in an automobile or as you walk down the street, or anyplace where you might need a telephone. If you call a number on it-what is your number, 5672? Mr. VAN DEERLIN. Well, we can see if there is anyone up there. Mr. MARSHALL. You first have to be accurate in your dialing. I got a recorded message which says that the number you have reached-- Mr. MARKS. His number is up. Mr. MARSHALL. It has got to be 5-5672. Mr. MARKS. If you would like to try an office that is open-- Mr. MARSHALL. Just one moment. I believe I have someone who would like to speak with you. Mr. VAN DEERLIN. We are just testing. Thank you. Go back to work. Mr. MARSHALL. This unit will be part of a cellular system. It will definitely be a part of the cellular system that is being installed in the Baltimore-Washington area. It will have both portables and mobiles in it, and I believe it will be used in the Chicago system also. Mr. WEINBERG. If we can get them, Travis, I will take them. Mr. MARSHALL. Thank you. If you want to give me an order right now, Lou-- Mr. WEINBERG. Where is your contract? Mr. VAN DEERLIN. Mr. Wiley. We turn now to a noncommercial source. STATEMENT OF RICHARD E. WILEY Mr. WILEY. My name is Richard Wiley and I am a partner in the law firm of Kirkland & Ellis. Thank you for inviting me to partici- pate in this panel discussion concerning management of the non- broadcast portions of the radio spectrum. While spectrum management problems have attracted relatively little attention, they represent an important part of the overall rewrite of the Communications Act. The comments and opinions which I express here today are my own, formed by my experience of the FCC. However, a spirit of candor requires me to point out that I have now been engaged in the private practice of law for nearly 2 years and that some of my present clients have tetified before this subcommittee. Indeed, Motorola has long been a client of my firm, Kirkland & Ellis, and accordingly, let me say that I found Mr. Marshall's comments to be particularly compelling and logical. At the outset, Mr. Chairman, let me commend you and your cosponsors for dealing with a number of highly important and PAGENO="0209" 1673 difficult issues in H.R. 3333. In responding today to the specific questions posed for this hearing, I `want to raise some areas of uncertainty concerning the bill's provisions. I hope that my com- ments will be of assistance to the subcommittee in concluding its significant lesislative efforts. The first question you have asked is whether new technologies and new services receive adequate access to radio spectrum under the Communications Act of 1934, and in addition, whether adoption of your bill would improve upon past performance in this regard. A related question asks whether the proposed spectrum fee would bring about an improvement in frequency management. In addressing issues of spectrum management, I believe that two separate functions must be considered: First, the allocation of spec- trum to general services such as satellite, land mobile or in aero- nautical; and second, the method of assigning licenses to individual users within these services. With regard to the allocation of spectrum to general services, my view is that the present act in most instances has been sufficiently flexible to accommodate new services and technologies. Generally, such developments come within one of the preexisting categories and no allocation is necessary. However, in those cases where a new spectrum allocation must precede introduction of an innovative service or technology, the regulatory delay associated with the rulemaking will be encoun- tered. While H.R. 3333 could provide some improvement by directing the head of the National Telecommunications Agency to perform continuing analyses and monitoring of radio spectrum usage, it would not substantially alter the procedural mechanisms employed in the allocation and rulemaking proceedings. Thus, even if your bill became law, substantial delay in the rulemaking process can still be anticipated, unfortunately. Even beyond the question of regulatory delay, it must be recog- nized that certain substantive problems are inherent in the use of Government policymaking to allocate economic resources. Under any such system, political factors will result in situations in which valuable spectrum is allocated to less efficient uses, or even al- lowed to lie fallow for some period of time. In this regard, a substantial portion of the valuable spectrum is already allocated to established services, and regulatory inertia, combined with a reluctance to obsolete existing equipment, will often make reallocation a practical impossibility. / I do not pretend to have an answer to this difficult problem. However, we should all recognize that it will continue to be with us unless some market base method is developec~' to reallocate spec- trum from lightly usec~ services to those where demand is greater, as Mr. Marshall has st~ggested. Turning now to the related question of the potential for im- proved spectrum management as a result of the institution of spectrum fees, certain problems again may remain after enactment of a new law. First, it could be argued that such fees are undesira- ble as a revenue raising measure because they increase the costs of doing business for all radio users, in the same manner as would a tax. As such, the increased costs simply will be passed on to the consuming public without any apparent comcomitant public benefit. 51-2530-80.14 PAGENO="0210" 1674 While the fees for narrow beam point-to-point operation may be nominal, fees for omnidirectional services like land mobile or MDS could be substantial. In addition, spectrum fees would lessen the publicly beneficial incentive to use radio in innovative ways by artificially decreasing the cost effectiveness of radio in comparison to wire lines. Thus, if we are to find a public interest value in fees, it must be based on the assumption that they will increase the efficiency of spectrum management. In this regard it has been suggested that an auction or lottery would eliminate the expense and delay inherent in the present comparative licensing process. Moreover, in the case of auctions, such a system would tend to assign licenses to those companies which would utilize the frequencies in the most economically effi- cient manner. While this suggestion has considerable appeal, particularly to those of us who have long been critical of the comparative hearing process, it should be recognized that the cost of a newly allocated channel may be artificially inflated by limits which the Commis- sion places on the number of channels allocated to that particular service. This artificial increase in the price of channels could cause some new uses of radio technology to be less attractive and thus discour- age their development. For this reason, the utility of an auction scheme would be dependent upon the soundness of an underlying allocation decision. As we have noted, this decision is made in the political process rather than in the marketplace. The other question presented today concerns a prohibition or delay in the entry of A.T. & T. into new radio services for direct local distribution. Committee members, aware of the problems caused by the Bell System's dominant position in wire line local distribution, are certainly justified in their concern that A. T. & T. not be allowed to extend this monopoly into the relative competi- tive field of local radio distribution. While there may be other methods and measures which could solve this problem in some radio services, the question of a tempo- rary or permanent ban is certainly worthy of serious consideration. Finally, I would like to make one additional comment on the bill. Under H.R. 3333, the States would be divested of all authority over interexchange local distribution facilities not also used for local exchange telephone service-section 321(a)(2)-as well as authority over rates and terms for local services provided under a license issued by the Communications Regulatory Commission-section 424. As I read those provisions, the States would have no authority to regulate use of intraexchange networks for local origination or termination of nontelephone interexchange communications. Simi- larly, they would have no power over rates or terms for intraex- change communications where such service is provided by radio and does not include local exchange telephone service. If that result is the intent of the bill, I believe it would be helpful to clarify section 324_intraexchange access charges-to reflect that intent. Without such a clarification, some confusion may arise concerning State jurisdiction over the rates and terms for radio local distribution and intraexchange communications. In addition, section 424 should be clarified to indicate explicitly whether it permits State regulation of market entry. PAGENO="0211" 1675 This concludes my oral testimony. Once again, thank you again for permitting me to appear before the subcommittee. Mr. VAN DEERLIN. I thank you, Mr. Wiley. We will hear next from Ms. Cornell. STATEMENT OF NINA W. CORNELL Ms. CORNELL. Thank you, Mr. Chairman. I am Nina W. Cornell, Chief of the Office of Plans and Policies of the Federal Communica- tions Commission. I appreciate this opportunity to appear. I wish to say I am speaking for myself alone and not for the Commission, and unlike the people who have preceded me, I did not make a prepared statement. As I said to Mr. Jackson, I would not have time from the time I was invited, but I have the letter and am prepared to address briefly at this time the three questions you asked. In some senses, it is an anticlimax. Everyone has said a bit of what I want to say already. I think, as Mr. Wiley says, that new technologies and new services do have trouble getting access to needed spectrum under the present system. The problem arises from the fact that we are using administrative procedures to make economic allocations. Improved information that would come from monitoring as called for by H.R. 3333 would help, but it probably will not solve the problem. Changing the location of where that activity takes place may or may not temporarily improve things, but basically the problem stems from doing it administratively rather than where it is being done. The second question of should H.R. 3333 treat radio operations of dominant carriers differently than radio operations of other busi- ness organizations, I approach that tentatively saying it seems to me that may be a good idea~ There is still a lot that needs to be learned about the public benefits of the dominant carrier being involved in radio operations. But there are two concerns that get raised. One is that of dominant carriers being involved in radio operations that are potentially competitive with their other serv- ices, and second, getting involved in acquiring radio licenses in ways that might serve to further cross subsidize. Both of those situations need to be taken into account in allowing dominant carriers access to radio licenses like other businesses. The third is the spectrum fee question. Would the proposed spectrum fee be workable and would it improve spectrum manage- ment? The spectrum fee as written in the bill does have some workability problems. It is difficult. We have done some quick calculations as to how hard it would be to administer the fee as actually proposed in the bill, and there are problems with it. I would like to say, however, in my opinion a spectrum fee could be devised and it would help spectrum management. It would improve it. It would improve the way spectrum gets used both by changing the way people make decisions about when to apply and how to use it, and it ought to help improve the management process by the Commission, whichever Commission. As information is garnered about how fees are moving, if they are truly based upon scarcity, it ought to help send signals for the need to reallo- cate; signals that are more concrete than signals we get from today's purely administrative process. PAGENO="0212" 1676 That, Mr. Chairman, concludes my opening statement. I would be happy to answer any questions the subcommittee has. Mr. VAN DEERLIN. Thank you, Ms. Cornell. Mr. Wolf. STATEMENT OF SHERMAN M. WOLF Mr. WOLF. Thank you, Mr. Chairman and members of the sub- committee. I am Sherman Wolf, president and principal owner of Zip-Call, a radio common carrier based in Boston, Mass. and providing pocket paging services to more than 15,000 subscribers throughout eastern Massachusetts and portions of Connecticut, New Hampshire, and Rhode Island. I am also chairman of the Landline Liaison Committee of the Telocator Network of America, the national council of the RCC industry, on whose behalf I am appearing today. The Landline Liaison committee is responsible for all Telocator activities relating to the interconnection of RCC facilities with the telephone net- work. I have had personal involvement, both on behalf of Telocator and on behalf of my own company, in the continuing struggle of the RCC industry to obtain interconnection with the telephone net- work, to obtain it on reasonable and equitable terms and condi- tions, and to combat the predatory and other anticompetitive prac- tices of the telephone companies in operating their own mobile services. As a result, I would like to use my time this morning comment- ing on the second question posed by the subcommittee in its invita- tion to testify: "Should H.R. 3333 treat radio operations of domi- nant carriers differently than radio operations of other business organizations?" Our answer to this question is an emphatic "Yes", and we be- lieve that the approach taken by H.R. 3333 in section 331(d) is precisely the right one. My statement essentially focuses in the problem areas I have experienced over the past years as a businessman in attempting to provide innovative services to the public, and the problems that I have had in being stifled by Bell's unwillingness to provide those types of interconnection arrangements. We believe it is important to clarify for the record what section 331(d) does and what it does not do. Contrary to what some wit- nesses would have the subcommittee believe, section 331(d) does not exclude Bell from participating substantially in the mobile radio services. Rather, it channels the way in which Bell can participate so as to minimize the possibility of a conflict of interest by Bell and of the pressure for anticompetitive conduct against RCC's which such a conflict necessarily creates. The telephone company is one of the largest, if not the largest, suppliers of equipment and facilities to every RCC radio network. In the case of my own company in Boston, for example, we lease some 230 local loops, 77 voice grade private line circuits as well as a substantial block of central office outpulsing facilities which tie our network together internally and to the telephone network, and which enable our computer terminals to determine which of our subscribers is being paged at any given time. In all Zip-Call's PAGENO="0213" 1677 telephone bill is more than $28,000 per month, one of its largest single operating costs. So long as the telephone company's role is that of a monopoly supplier of these facilities, its incentive toward the RCC's is the same as any normal business person-for example, to be responsive to the RCC's facility requirements, to provide good service, and to earn a fair profit on the facilities and services provided. But when the telephone company is also a direct competitor of the RCC in the retail or radio portion of the business, it has every incentive to abuse its role as a monopoly supplier of facilities for anticompetitive purposes. I assure you that I speak with some authority on this subject because of my personal experience. I do not have time today to catalog what Zip-Call has been through, but insight to one aspect of its struggles can be gleaned from the orders of the Massachusetts Department of Public Utili- ties which I have attached to my testimony. In that case the department of public utilities found that Bell's paging rates were noncompensatory and ordered them to be raised by 40 percent over the level Bell originally established. I ask that the attached orders be printed in the record with my statement. [See p. 1678.] My company alone has spent more than $200,000 over the last few years for legal fees and related expenses fighting Bell's preda- tory conduct. Bell's outlays on the other side have to be equally great, if not greater, and this does not count any of the costs directly paid by monopoly telephone ratepayers in the form of cross-subsidies. It is an enormous burden for a small company like mine to have to shoulder in order to stay in business, and it is equally an onerous and unnecessary burden on the monopoly telephone rate- paying public. Bell profits handsomely on the telephone facilities it supplies as a wholesaler to my company and other RCC's but it is still losing money on its competitive paging services in Boston. I suspect that system wide, Bell's radio services also lose money and must be subsidized by the public ratepayers at large. The fact is that if Bell's efforts in the mobile radio services were channeled into doing what it does best, that is, being a telephone company, everyone would profit, the public, Bell, and the RCC's. But so long as Bell clings to its "all things to all people" philosophy which dictates its current actions, the extensive and costly fights that have been necessary in the past will continue unabated in the future, regardless of any techniques like separate subsidiaries or accounting systems which the Congress and the regulators may mandate. Section 331(d) would require Bell not to withdraw from the mobile service market but properly to channel its participation in that market until such time it could be a normal competitor in the ordinary course of events. Telocator believes that this provision poses precisely the right solution, and we strongly support and urge its adoption. Thank you for allowing Telocator Network of America this op- portunity to express its views on H.R. 3333. [Testimony resumes on p. 1727.] [Attachment to Mr. Wolf s prepared statement follows:] PAGENO="0214" 1678 -com VMS. 205.313-075374 ~ ~rt~ ~a~ft11 ~f ~ad~uze1t~ DEPARTMENT OF PUBLIC UTILITIES February 12 1975 DPU 3.8090 Investigation by the Department on its own motion as to the pro- priety of the rates and charges set forth in M.D.P.U. No. 13 - Mobile Supplement No 2 - Title Page - Page 1 - Original filed with the Department by the New England Telephone & Telegraph Company On July 2 1974 to become effective on August 1 1974 Appearances C Duane Aldrich Esq and Robert D Bruce Esq 185 Franklin Street Boston Massachusetts for the New England Telephone & TelegI~aph Company Hei~be~rt Baer, Esq One Boston- Place Boston Massachusetts,~iOr D.P.R.S.,. Inc.., Cplgan Communications-, lnc. ,~ Ram of Massachusetts, Inc Charles P Amyot Esq 100 Cambridge Street Boston, Massachusetts, for the Department of Public Utilities On ~July 2 1974 New England Telephone `Company (herein nailed company ) filed with-the Department rates and charges for Bell. Boy_ to become effective August 1 1974 These were suspended until June 1 1975 Hearings have been held on the entitled matter on August 20, 1974; September 24, 1974; October 7, 1974; October 11, 1974 January 27 1975 January 28 1975 January 30 1975 and February 3 1975 Intervention was allowed by Colgan Communications Inc and others Rulings have been made by the Commission as to the proprietary status of certain marketing data and non-proprietary status of other information There was presentation and cross-examination of some of New England Telephone s cost study data at the beginning of the pro- PAGENO="0215" 1679 ceedings, but due to requests from the Commission and the Intervenors, New England Telephone agreed to do a new cost study. This was done and filed with the Commission and Intervenors and a presentation by the Company was made, but only some cross-examination has occurred on this. By agreement of the Commission and the parties, this cross- examination was interrupted and a presentation by New England Telephone of marketing data, study and projections was made. There has been some cross-examination of this data but it has not been concluded. The Intervenors. have expressed their Intention to produce their own witness-e3:.and evidence, along-i~,jth. further, cross-examination of New Engiapd. T~elephone.s witnesses~and -data. Severa1~conferences-.-have -been~hel-d- between the- Commission, Intervenors, New England Telephone, the Department of Public Utilities' consultant and its Chief Accountant. Several issue.s -remain yet to be finally determined; however., there was. & ban: imposed -on New England `Telephone, first -voluntarily by *New England *Telephone.:and `later by the"Commi~sion's Order., which *ban - (one of the ititervenors) prohibits both New England Telephone -and ZipCall/from selling their 2-signal units. There was also a further ban imposed on New England Telephone from actively marketing Bell Boy at the filed tariff of $18.00. Continuation of the ban does not seem to be in the best interest of the ratepayers of New England Telephone due to the investment "in plant" made by New England Telephone on Bell Boy. How- ever, from the evidence received thus far, it appears that the second cost study produced by New England Telephone could justify a $3.00 additional cost over that evidence presented when the tariff for $18.00 was filed on July 2, 1974. Furthermore, the market survey relied upon by New England Telephone for projections of sales were PAGENO="0216" 1680 /~ based on studies that were conducted approximately 3½ years ago in areas of the United States in the west and mid~west where there was no competition and where the penetration of the potential market was markedly different from the situation presented here in Massachu setts The Intervenors here have greatly penetrated what appears to be the potential market Without having heard all the evidence this Commission is going to attribute an additional 75~ at this time to allow for a differential in the Company s projections and what appears to~be..a weakness.in.the data and projections due to New England Telephone"S 1ack~.of~actual.exPer4eflCe 4n-a simUar.~market situation as presents Itself in Massachusetts The Commission beli-eves that an interim ardev~ of $21 `75 ~ou~d1enab1ë New England Telephone to recover its costs sooner than it would by an $18 00 tariff This Order is conditional upon a further order being issued by this:Commi~ssiOfl~after receiptof~:.monthlY~reports~frOmNeW~En9lafld ~ Information Month1~ Reports Required from New England Telephone & Telegraph Co ~ of Sales I of Customers Listed by SIC Code I of Units Sold ~~pair Data I of Units Type of Repair Cosmetic Mechani cal Removal Data I Units Removed Date Returned Date Sold I of Bell Boy Calls to Base Unit by Hour and Date Average Length of Call to Base Unit PAGENO="0217" 1681 Time Sheets - for all employees Servicing or maintaining Pager Units or Base and Transmitter Units. Separate and Complete Figures for Official Units. The data obtainted from these monthly reports is to be used along with information to be obtained from a continuation of these proceedings so as to make It possible for the Commission to make a final order on the rates and charges to be set for Bell Boy. The Commission in setting those final rates shall not be bound by the tariffs that will be filed in conformity with this interim order but should consider all options in determining the rates it deems proper, including the -review, of -the proprie.ty~~if ~the original tariff filing in M.D.P1J. No.-.l3 MobileS-up'pl-ement--~. -~Titi'el~age~.-Page I -- Original-filed ~n ~July2, 1974.~.: If t4e.&om,njssrjom.fail.s to order final rates by an extended deadline of September 24, 1976, then the Company's original tariff referred to herein, which is further suspended by this deci3~on,::shai]~go into eff.ectas -ori.gina-ll~y f,ileTi.:.The C~ommissiiyn shall recommence hearings on -this matter -during the week of March 29, 1976, in order to continue.Jo receive more infbrmatio~ on the record. Evidence shall be received fron'botfr-the -Company--and the -Intervenors---t,kn1'ess-.t~e parties themselves decide to do otherwise. It is deemed not to be in the best interest of the public for the Commission to fell to act affirmatively in this case. This order is further conditioned by New England Telephone's agreement to extend the deadline for a decision in this matter to September 24, 1976 SO as to allow for sufficient time to gather relevant marketing data on which the Commission can base its final order. In addition, this interim order shall apply to quantity sales wherein the monthly charges shall be: PAGENO="0218" 1682 #Recei vers Rate & Service Comb nedd - 3 $21.75 4 - 9 $20.25 10 or more $18.00 There shall also be an added charge of $2.50 for an additional number, per receiver, as well as any appropriate non-recurring charges. We determine that this order will have no environmental impact. Accordingly, after due notice, public hearing and consideration, It is, ORDERED: That the rates filed in M.D.P.U. No. 13 Mobile Supple- ment No. 2 - Tie Page - Page 1 filed July 2, 1974 to become effective August 1, 1974 b~ Li L5U5PCfl,,cA~.~ in accordance with the terms of this' ---decision, and' 1t-4~s~ ~--- - - ` FURTHER ORDERED: That rates and charges be filed in conformity with this order, if an agreement is also filed by New England Telephone to extend the dea'd-llneto Septemb-er24, 1976, and itis, FURTHER ORDE D'~-~That the-~i'ates filed in compliance with the decision hereifl~ all ~TéiLfeUJii. no less than two days after filin9 with the Department, and ltls, - FURTHER ORDERED: That the New England Telephone file monthly reports as provided for herein, and it is, PAGENO="0219" 1683 FURTHER ORDERED: That upon the taking effect of the new rates, this Investigation shall continue In compliance with the decision herein, and It Is, FURTHER ORDERED: That this investigation shall be terminated as of September 24, 1976 and rates will go into effect in compliance with the decision herein, unless otherwise ordered by further order of this Commission. By Order of the Department, /s/ FRANCIS J. HICKEY, Jr. Franc-lsJ. Hlokey,-Jr. Sec~retary A true copy ATTEST: Sec reta-ry Appeal as to matters of law from any final decision, orderor ruling of the Commission may. be taken to the. Supreme Judicial Court by an aggrieved party In interest by the filing of a written petition pray- ing that the order of the Commission be modified or set aside in whole or in part. Such petition for appeal shall be filed with the Secretary of the Commission within twenty days after the date of service of the decision, order or ruling of the Commission, or within such further time as the Commission may allow upon request filed prior to the expiration of the twenty days after the date of service of said decision, order or ruling. (Section 5, Chapter 25, G.L. , Ter. Ed. as most recently amended by Chapter 485 of the Acts of 1971). PAGENO="0220" 1684 tOM 03 SM 055 MAY 1 8 1977 ~` Z~I1Ie mnfut~aliti d ~ DEPARTMENT OF PUBLIC UTILITIES ~I~9 May 13 1977 DPU 18090 Investigation by the Department on its own motion as to the propriety of rates and charges set forth in schedule M D P U No 13 - Mobile - filed by the New England Telephone and Telegraph Company APPEARANCES Robert D Bruce Fsquire Christopher H Bennett Esquire and C Duane Aldrich Esquire 185 Franklin Street Boston I~1assachusetts FOR New rngland Telephone and Telegraph Comoany Maloney Williams & Baer (By Herbert Baer Esquire) One Boston Place Boston, Massachusetts FOP D P R S Inc Colgan Communications, Inc., and R A N of MaesachuSettS PAGENO="0221" 1685 I. BACKGROUND On July 2, 1974, New England Telephone and Telegraph Company ("NET" or "the Company") filed with the Department an amendment.to its tariff for the Bellboy radio paging service ("Bellboy" or "the service") to become effective August 1, 1974. By Order dated July 22, 1974, the Commission suspended these rates and charges until June 1, 1975. The Company's motion for reconsideration of the suspension order was filed on August 8, 1974 and was denied by the Commission on August 14, 1974. Because of the unforeseen intricacies of the matters under consideration, the Company has agreed to further extension of the suspension period until May 15, 1977. The Order of July 22, 1974, also gave notice of a public hearing to be held in this matter on August 8, 1974. At the request of the Company, the first hearing was postponed until August 20, 1974. Intervention was granted to Colgan Communications, Inc., D.P.R.S., Inc., trading as Zip-Call, and R.A.M. of Massachusetts, Inc., ("Intervenors"). Subsequent hearings in the first phase of these pro- ceedings ("Phase I") were held on September 24, October 7 and 11, 1974, January 27, 28, 30, 31, and February 3, 1975. The Commission issued an Interim Order on February 12, 1975. The proceedings were reconvened in a hearing on April 8, 1976. Additional hearings in the second phase of the investigation ("Phase II") were held on October 13, 22, 26 and 29, November 2, December 17, 21 and 22, 1976, and January 6, 1977. -1- PAGENO="0222" 1686 This service offered by NET involves a portable paging device called Bellboy The Bellboy receiver is small, lightweight and rectangular and may be clipped to a belt or pocket By carrying this device, a customer within the service area may be paged by radio signal The service is used pre- dominantly in the course of business by persons who remain mobile and need a medium by which they may be contacted quickly For instance many radio paging service customers are doctors who must receive emergency messages while away from the office or hospital Each customer is assigned a telephone number through which his receiver can be activated In order to signal the receiver someone dials the assigned number The call pro- gresses through the telephone network to a control terminal which identifies the number and causes a radio signal to be transmitted to the corresponding customer receiver Upon receiving the signal the receiver emits a tone The customer knows by prearrangement, what action to take upon being signalled For fourteen years from the time of its inception in 1960, Bellboy service utilized the 35MHz-AM portion of the frequency spectrum The system was expanded in 1970 to double its subscriber capacity, but it soon experienced serious service limitations and lost many of its customers The existing receivers could not be modified to resist the increasing interference in the 35MHz-AM band, and they were technologically PAGENO="0223" 1687 outmoded by lighter, more compact and more reliable models In response to these problems NET obtained authorization from the FCC to build a 150MHZ-FM system Considerable changes in plant and equipment were made The old transmission facilities were replaced by transmission equipment located and designed to meet the needs of a 150MHZ-FM system The new system included a control terminal which could be programmed to resnond to either one or two telephone numbers for a single receiver. New receivers with a corresponding capacity to receive two distinct paging signals as well as other technological improvements were purchased by the Company to replace the old 35MHz-AM receivers A customer who reccived important messages from two separate locations in the course of his business c~uld now receive two distinguishable paging tones. For instance, doctor could arrange to have his office signal him through one number and his hospital through the other. If the customer di not choose the second signal option only one telephone number would be assigned and only one signal transmitted All customers would, however carry the new receivers with the two-signal capability It was with respect to the optional second signal feature that NET filed the amendment to its rates and charges for the~~ Bellboy service The proposed change was to add a $3 00 second number charge to the existing basic rate of $18 00 which had been filed in 1972 under the old 35MHZ-AM system Because of the system-wide revisions and extensive additional investment in -3-. PAGENO="0224" 1688 plant in the Bellboy service the Intervenors urged the Commission not to confine its investigation to the second signdl charge According to the Intervenors the existing tariff and the amendment taken together constituted the Company s rates and charges for an entirely new service offering and must therefore be reviewed as a whole They contended that a continuation of the basic rate from the discarded AM system would not compensate the Company for the costs associated with the current offering In answer to the Intervenors suqgestion that the scope of the investigation be expanded the Company asserted that there was no material change in the Bellboy offering, with the exception of the two number service feature and that the current rates were reasonable and compensatory It further contended that the IntervenorS who held a ninety percent share of the paging market because of their own more modern equipment, were seeking to frustrate NET s efforts to modernize its own system Finally NET argued that a broadening of the investigation to include other Bellboy charges, along with the probable suspension of the second signal offering until resolution would unreasonably burden the Company and would allow competitors to continue to grow at its expense The Company suggested that if NET were to be restrainted from offering the new feature competitors should be similarly restrained Because of the serious question raised as to the possibility that cross-subsidization from the general body of ratepayers would result if non-compensatory pricing of the new competitive Bellboy -4- PAGENO="0225" 1689 service were allowed to exist, the Commission found it appropriate to expand the investigation. The Commission directed NET to demonstrate that all the costs attributable to the new Bellboy service would be recovered at the existing $18.00 rate. In the course of these hearings, the examination of the two cost studies offered by the Company in support of the then proposed $18.00 tariff failed to produce a satisfactory indication of the actual costs under investigation. To allow time for the Company to gather actual data in support of its cost and marketing projections, the Commission temporarily interrupted the pro- ceedings. In its Interim Order issued on February 12, 1975, the Commission rejected the proposed $18.00 rate for the new Bellboy system. The Commission noted that it was not in the best interests of the ratepayers to preclude the Company entirely from marketing Bellboy, because this could render the large investment in new plant non-revenue producing. Based on the evidence in Phase I, the Co~nmission set a temporary rate of $21.75 at which the Company could market Bellboy pending final disposition of the investigation. To assist it in determining the proper rate, the Company was ordered to file monthly reports, incorporating actual sales, repair and removal data, and other specific information relating to cost of service. Hearings were resumed the week of March 29, 1976. -5- 51-253 0 - 80 - 15 PAGENO="0226" 1690 II. PHASE II The proposed NET tariff for Bellboy is based upon a monthly rate of $22.75, an increase of one dollar over the rate set in the Interim Order. For this amount, a customer requiring one to three receivers would get the basic Bellboy service, including the use of the receiver and the initial telephone number. A declining rate scale is provided for customers pur- chasing service for larger numbers of receivers. Since the evidence and arguments presented by the parties have been predominantly addressed to the charge for the first rate step, we will focus on that figure in summarizing the arguments and stating the essential issues of this case. NET contends that in adopting its most recent tariff it has made every effort to propose a rate which will result in the greatest possible contribution to the overall revenue needs of the Company. In support of this approach, the Company relies substantially on the contribution analysis developed by Mr. Arthur Silyia, NET Marketing Staff Supervisor-Pricing. In his contribution analysis, Mr. Silvia compared the projected annual revenues and levelized annual costs over a ten year period for the interim rate and for hypothetical monthly charges. within two dollars in either direction. For each rate, the comparison was made twice, once assuming that competitor's rates would be adjusted in parity with changes in the Bellboy tariff and a second time assuming no such corresponding change. Conceding, however, that he could not predict the response of the competitors PAGENO="0227" 1691 or of the Commission which must approve their tariffs, Mr. Silvia testified that his recommendations would not depend on either assumption as to parity. He then went on to conclude that the Company could expect the greatest improvement in the contribution from Bellboy at a rate of $22.75. While relying heavily on the contribution analysis, the Company acknowledges that the positive contribution to common overhead costs shown in that analysis is not sufficient to establish that the proposed rate is compensatory. It insists, however, that it is a strong indication of a compensatory price level. The contribution analysis employed by the Company does not necessarily mean that revenues generated by the service are sufficient to recover all necessary costs and expenses. In both phases of the proceeding, NET has offered cost of service studies in support of its proposed tariff. The basic format has been to divide the costs reflected in the rate into two parts. The first element is a monthly carrying charge per receiver in service, which is independent of the number of units 1n service ("unit cost"). As developed by the Company, this amount includes the various expenses of putting the unit in service, retrieving it upon termination of service by the customer, maintaining it during its service life and salvaging the unit at the end of that tine. The second element comes from the common costs, primarily the carrying costs of the fixed plant equipment which is common to all receivers ("common cost"). Also included -7- PAGENO="0228" 1692 are miscellaneous common expenses)' This component of the charge is originally determined for the service as a whole and then divided by the projected number of receivers in service. It is clear that the share of common costs assigned to each unit depends significantly on the number of units over which these costs can be spread. This means that the market forecast for sales is very significant in the allocation of common costs. The Company used a study of this type in support of the initial $18.00 rate proposal. In Phase II, Mr. Paul Keane, Planning Engineer, introduced a new cost study with the same general format, but using updated actual cost figures obtained in the interim period. These are the costs which Mr. Silvia used in his contribution analysis and which NET claims form the basis for a conpensatory rate of $22.75. The InterveflOrs continued to conduct extensive cross- examination of the Company's case throughout Phase II. For purposes of controverting the Company's studies, the Intervenors introduced their own cost exhibits. For the nost part, the Interveflors parallelled the Company's cost study format in their evidentiary presentationa' but Intervenors cost study purported to show a rate of $26.50. In this manner, they purported to show the effect of the specific cost adjustmentS~ for which they argued, on the Company's development of its rate. Finally, the Intervenors produced two witnesses, Mr. Arthur Peters and Dr. ~JMarketiflg-promOtiOfl, sales, service order and miscellaneous labor expenses. PAGENO="0229" 1698 Myron Scholes., for their direct case. The Contentions of these witnesses will be addressed in connection with the ~ of the~substantjve issues in this case. III. DISCUSSION This record is indeed heavy with `studies" which purport to support various positions and conclusions. The validity of the conclusions hinge on the accuracy of the underlying assumptions. The difference between the position advanced by the Intervenors and that advanced by the Company centers in three areas: unit costs, common costs and market forecast. The Interv~nors conclude that unit costs are at least $13.28, while the Company concludes that they are $11.27. The difference is attributable to a number of proposed adjustments for costs which the Intervenors, contend were not adequately accounted for by the Company. -9- PAGENO="0230" 1694 Common costs, according to the Company are $23,394 but according to the Intervenors they are $27,135. Receiver cost per unit according to the Company is $11 27 but according to the Intervenors it is $13.28. If the Company's common cost is spread over the Company's projections of units in service in the fifth year,a' initially projected at 3,291 and revised to 3,997, the resulting cost would be $18.38, or $17.12: (($23,394 + 3,291) + $11.27]; (($23,394 ~ 3,997) + $11.27]. If common costs are spread according to the Intervenors fifth year projection of 2,943 units, the result is a cost of $22.50 (($27,135 , 2,943) + $13.28], without considering official units or the time value of money. If the calculation is repeated at respective fourth year unit in service projections, the result is a cost of either $18.83, or $17.83 from the Company's projections: (($23,394 + 3,095) + $11.27]; (($23,394 + 3,564) + $11.27]. The Intervenors' fourth year projections, show a cost of $23.49 (($27,135 + 2,657) + $13.28], without considering official units or the time value of money. Thus, the Company would argue that the $22.75 proposed rate is compensatory1 while the Intervenors would argue that, even without considering inter alia, official units (discussed infra) or the time value of money, the $22.75 rate is not compensatory. Recognizing these and other items discussed infra shows, according to the Intervenors, that a rate of $26.50 must be charged. ~4rhe Company also proposed a ten year contribution analysis, but as is discussed elsewhere in this Order, five years may be overlong. PAGENO="0231" 1695 In reviewing the evidence presented in this extensive record, the Commission feels compelled to once again reiterate certain policies and guidelines which have been established repeatedly by previous decisions. Simply stated, the Commission has endorsed the concept of fully distributed costs as a basis for pricing telephone services. That is, ratesinust cover costs so as not to require cross-subsidization from other classes of service.Y Accordingly, all arguments advanced by the Company that the Bellboy service here in question should somehow be excused from the costs incidental to its service must be rejected. The Company has variously argued that Dimension ~nx case, D.P.U. 18403, ~ is not applicable in this case and that Bellboy service should be priced without regard to unit costs. In our view, the Dimension PBX decision is directly applicable to this case. This case involves a competitive service offering and, as the Comar.issjon said in Dimension PBX, In setting rates for the competitive service offering of the Company, the Department does not seek to set rates at excessively high levels so as to overcharge customers of these conpetitive services. Excessive rates would artificially encourage the entrance of ~"See: Dimension PBX, New En land Telephone & Tele ra h Co., D.P.U. 18403 (1976); DATAPHONE 209A, NewEn91andTee~hone&Te~,h Comp~~, D.P.U. 18463 (1976); Public Announcement Service, New E~g~and Telephone & Telegraph Company, D.P.U. 18713 (1977); DATAPHONE RESTRUCTURING, New England Telephone & Telegraph Conp~y, D.P.U. 18766 TI~1~). -11- PAGENO="0232" 1696 additional vendors.... [Wihen revenue requirements for an individual equipment item such as Dimension PBX are deter- mined in such fashion as to leave a revenue deficiency, the deficiency is recouped through rates earned from other services and service classifications. It is precisely this question which confronts the Department in the present proceeding. NET has a positive incentive to engage in anti- competitive and cross-subsidy pricing practices. This incentive arises as a result of the traditional revenue requirement method of regulation followed by the Department. Such a method is oriented toward an overall rate of return for all NET services. It is possible under present regulatory methods for NET to engage in cross-subsidy practices without suffering any loss in its overall level of return. That reasoning is directly applicable in the present case. Bellboy is a competitive service offering. The Company has a positive incentive to engage in anti-competitive cross-subsidy pricing practices because it can recoup any revenue difficiency on Bellboy services from other ratepayers under the existing ratemaking methodology. The Company's posture with respect to Bellboy service does ~differfrom its position with fespect to Dimension PBX service in one significant aspect In the PBX market the Company is the :t ttdominant market supplier, commanding approximately 95% of the market. In the radio pocket paging market, the Company is comparable to the market entrant, striving to obtain a greater share of the market dominated by the Intervenors. Thus, in evaluating the arguments advanced by the Company ~in support of the proposed Bellboy rates, it is important to recognize that the Company's incentives for anti-competitive / -12- PAGENO="0233" 1697 (under) pricing this service are greater than the Dimension PBX case because the Company is here striving to build a share in a market dominated by competitors. In that light, any argument that the Company be allowed to price a service without regard to unit costs, so that the Company can meet competition, does not stand regulatory scrutiny. If the costs of a competitive service are not covered by rates for that service, some other class of ratepayers is required to pick up the difference. Those other ratepayers are monopoly service ratepayers who have no alter- native supplier. The Commission's position is that monopoly service ratepayers ought not be required to pay the piper for the music enjoyed by others. As an alternative to their argument that Bellboy should be priced irrespective of the unit costs, the Company advances extensive cost data which it contends shows that the proposed rate adequately covers costs and makes the so-called "optimal" contrjbution to Company revenue. The Intervenors have challenged that data on a number of bases which are discussed below. 1. Premature Obsolescence In 1973, the Company replaced a 35MHz-AM system with a 150MHz-FM system. A question has been raised as to whether the undepreciated balance of the obsolete 35MHz-AM system was accounted for properly. The Company argues that retired and junked plant cannot be considered as plant investment for the PAGENO="0234" / 1698 pricing of an existing service. It contei~ds further that the accounting for the 35MHz plant was entirely consistent with the Uniform System of Accounts, and that alternative accounting treatments such as an extraordinary retirements' or a direct charge to surplus~' (shareholders) are not appropriate. In short, the Company's position is that any such undepreciated balance should not be assigned to the current Bellboy service. The Dimension PBX decision, ~pra, spoke extensively to the question of premature obsolesence, recognizing that the life- shortening effect of technological advancement is a cost of doing business. In the Dimension PBX decision, the Commission ordered that the Company's cost of service study be adjusted to reflect premature obsolescence of existing PBX equipment resulting from the introduction of Dimension PBX. The Company argues that this procedure is not applicable to the Bellboy case because there is no cross-elasticity between different types of Bellboy service. Introduction of Dimension PBX, a technologically advanced PBX, rendered prematurely obsolete some existing PBX services. The Company's argument, that the Dimension PBX reasoning is not here applicable, is wrong. The replacement of plant rendered ~`ExtraordiflarY retirements are appropriate under FCC Rule ~ 31.02-83 when such retirement would unduly deplete the depreciation reserve. In such instance, the item is set up in a separate reserve and amortized over an appropriate period of time. ~"The Company says that this harsh result could be imposed by the Commission if the Commission found that this loss resulted from "poor management or could have been reasonably anticipated by management." PAGENO="0235" 1699 obsolete by technological advancement in order to continue to provide that type of service is a cost of doing b~iness irrespective of whether there exists cross-elasticity between types of that service. Accordingly, the un- depreciated balance of Bellboy plant rendered obsolete by technological changes is attributable to the plant invest- ment of the existing service. Accounting consistent with the Uniform System of Accounts does not foreclose other treatment for regulatory purposes. Once again, as we pointed out in Dimension PBX, Id., at 26 While all of [Western Electric Company's] contentions with respect to its cost accounting methodology may be correct, the fact is that costing and pricing are distinct functions. Such distinction is made all the more pronounced by the monopoly/competitive dichotomy present in this case. Hence, cost information accumulated in a manner which is consistent with generally accepted accounting principles and industry practice nay still generate costs which are an inadequate -~ foundation for pricing in accordance with the regulator~r standards discussed above. (Footnotes omitted) When pressed for numerical data on this question, the Company presented evidence which purports to show that the investment in receivers was overdepreciated by $35, 640 while the investment in transmitters and control terminal equipment was underdepreciated by $46,853; therefore according to the Company, the net undepreciated balance of the 35MHz-AM system, -15- PAGENO="0236" 1700 if any, was only $11,213, (corrected addition shows $ll,223).Y A large proportion of investment in receivers was under- taken shortly prior to the abandonment of the 35MHz system operation and its replacement by the 150MHz system. Recovery of this investment through depreciation charges hardly appears tenable. Notwithstanding group accounting accruals, the Commission finds that it is highly unlikely that prematurely obsoleted plant would be overdepreci.ated. Accordingly, we find that the net undepreciated plant investment for the 35MHz- AM system of $11,213 has not been adequately documented. The common costs of Bellboy service must be adjusted to reflect the undepreciated balance. On the basis of the current record, the Commission finds that the undepreciated balance is at least $46,853. 2. Market Growth The forecasted market growth for Bellboy is a critical factor in determining the base over which to spread commo*n costs, so that each unit bears a fair proportionate share of such costs. Transmitters & Control Receivers Terminal Equipment Investment $798,993 $275,657 Reserve (834,633) (228,794) Balance ( 35~4~) ~46, 86~ NET UNDEPRECIATED Balance $11,223 PAGENO="0237" 1701 Here again, the record is heavy with market forecast data. As might be expected the data advanced by the Company purport to show tremendous growth while those advanced by the Intervenors purport to show more moderate growth. Each challenges the reliability and credibility of the other. What becomes evident upon scrutiny of the differing data is the threshold assumption advanced by each party. The Company contends that future growth in the radio pocket paging market will be shared on a fifty-fifty basis between the Company and the Intervenors. That is, according to the Company's premise, if 10 pocket paging devices are sold, 5 will be Bellboy units and 5 will be competitors' units. To the contrary, the Intervenors ~contend that future growth in the radio pocket paging market will be shared according to current market share, on a ninety-ten basis. This means 9 of 10 new units sold will be competitors' units and I will be a Bellboy unit. Both premises appear to be unwarranted. Questions of market saturation, sales effort, referral sales, technological advancement, and service quality all bear on market growth and its disposition. Clearly, the dominant market supplier will enjoy some marketing benefits which would render unlikely, at least initially, a fifty-fifty split of future growth. Further, such a split would not be indicated by the Company's experience even when selling the Bellboy at the pre-Interjm order rate of On the other hand, Intervenors' assumption that their 21Bellboy's market share increased 4% in a 12 month period. The Intervenors attribute such increase to the low, $18.00 price. -17- PAGENO="0238" 1702 market share will continue at present level fails to recognize the competitive dynamics of the radio pocket paging business. Accordingly, it is our finding that the market forecasts of both parties represent the opposite extreneS for projected sales. Forecasts of competitive sales are subject to more than the usual vagaries and uncertainties of projections because they are not an extrapolation from historically verifiable trends, but rather the product of a dynamic industry and marketing effort. In rendering a judgment, we view the parties opposing proposals as defining the range of reasonably forecasted sales. On the basis of the current record, we find that for purposes of developing a proper rate for Bellboy service a sales base must be determined over which to spread common costs. On balance, considering the relative market strength of Intervenors in the radio pocket paging business as compared with the relative overall marketing strength of the Company, we find that foreseeable market growth for this service depends on many factors. The longer the period used for forecasting such growth the more speculative the forecast becomes. Accordingly, as discussed elsewhere in thisOrder,a period of less than five years seems more appropriate in deriving a sales base over which to spread common costs. Further, we find that such market growth is more likely to be shared on an approximately seventy-thirty basis than either a fifty-fifty or a ninety-ten basis. The market forecast should be adjusted accordingly. -18- PAGENO="0239" 1703 3. Cost of The Company employs a novel concept in developing its ~cost of money for Bellboy service. A twelve percent factor is applied to the investment in customer receivers; an eleven percent factor is applied to the common equipment. This differential, says NET, is "to reflect the fact that the common equipment was built a few years ago and does not require additional capital at today's cost." The objective rate of return should reflect economic risk. The risk applies to the service, not the equipment or the vintage thereof. The Company's position is basically that the proposed Bellboy rate is compensatory and reasonable notwithstanding the use of eleven and twelve percent as costs of money in developing cost data. The Company contends further that under the fully distributed cost methodology endorsed by the Commission, use of the lower overall rate of return would be appropriate. To the contrary, the Intervenors contend that to the extent that an eleven percent return~" is applied to a certain portion of plant, there is a cross-subsidization from other classes of ratepayers. In the Commission's view, the vintage of plant employed in the service is not a factor which contributes to variation in capital costs; the risk of the service is, however, such a factor. The risk criteria with respect to Bellboy service are separate and apart from the fact that a substantial portion of return factor which is less than the current cost of money. PAGENO="0240" 1704 common equipment was newly installed with the changeover to 150MHz-FM system. While NET is not a new entrant to mobile radio service, it clearly is, and has for several years, been supplying 10 percent or less of the market for radio paging The Commission views this service as one of high economic risk; and therefore, it should earn a return of at least 12 percent on net investment. This is consistent with the Company's and Commission's treatment of Cost of Money with respect to Dimension PBX. In that case, the Company voluntarily applied a twelve percent cost of money to average net investment, and we said, The Department approves an objective level of return for competitive products, despite its departure from the overall return prescribed in D.P.U. 18210. Differential earnings appear to us to be proper in view of the higher degree of business risk, the pressure of market competition and the potential technological obsolescence in the competitive PBX market. D.P.U. 18402, ~ at 16. Cost of money and the associated income taxes for Bellboy service should be adjusted accordingly. 4. Location Life The Company has assumed an average location life of 2 years. A review of the Company's monthly reports to the Department for the period October, 1975 to September, 1976, shows that the. average location life of units removed during that period was approximately six months. Extrapolation from this shows that in order to achieve an overall 2 year average location life, the -20- PAGENO="0241" 1705 receivers not removed during this illustrative time period would have to remain in service for more than five and a half years. The number of units in service as of October, 1975 and October, 1976 was 1,216 and 1,800 respectively. The average number of units in service for that period was 1,508. The total number of units removed from service during this period was 1,073. These removed units showed a cumulative in-service period of 6,700 months or an average in-service period of 6.2 months per unit. If we assume that the overall average location life of units is 2 years (24 months), then the above data would indicate that the average location life of the units remaining in service would have to be 5.7 years to compensate for the shorter in- service experience of those units removed from service.2' Such an extended life for those receivers seems unlikely in view of the technologically advancing pace of this industry, as well as the contentions advanced in support of a more limited revenue producing life as discussed elsewhere in this Order. Accordingly, a two year location life would appear to be unsubstantiated by the actual outward movement demonstrated by the data reported to the Department. 21This may be calculated as follows: let x the average location life of unreturned units. (1073) (6.2) + (lSO8-l073)x = (1508) (24) x ~ 68 months or 5.7 years -21- 51-253 0 - 80 - 16 PAGENO="0242" 1706 The location lire attributable to a service is important in determining the recovery of the non-recoverable costs incident to initiation of service with a particular subscriber.~' The Commission has recognized that there are costs incident to service initiation which should properly be recovered from that subscriber. In this connection, we have articulated a policy that at least one- half of the cost of non-recoverables be recovered in a one-time non-recurring charge. The Commission has further recognized that it may be appropriate to impose a termination charge in order to reduce the adverse effect of premature discontinuation of service. See: Public Announcement Service, New En9land Teiepçe ~ _______ D.P.U. 18713 (1977) p. 7. The Intervenors contend that the Company's failure to require a security deposit or minimum service period ignores costs of pro- viding Bellboy service. The Intervenors point out that they require a three-month security deposit. The Company says that it requires a minimum thirty-day subscription period. There is no evidence presented which indicates that a minimum thirty-day subscription period assures the Company recovery of the costs incident to placing a Bellboy unit in service. The Company ~5, therefore, directed to amend and/or supplement its filing to reflect the recovery of such costs together with supporting documentation. ~"The Commission has defined non-recoverable costs to include non-reusable material, total labor and engineering incident to installation of equipment, cost of removal, salvage, and the Western Electric tax deferral. -22- PAGENO="0243" 1707 5. Revenue Producing Life The Company has assumed a revenue producing life for its receivers of at least five years. Intervenors' witness Peters characterized the use of a five year revenue producing life as "highly risky," and testified that a reasonable estimate of the revenue producing life of the Bellboy receiver would be no more than 4.5 years, without considering lost units.11' In support of his conclusion, Mr. Peters set forth the principal factors which he considered to affect the revenue pro- ducing life of paging receivers in general and of the current Bellboy receiver in particular. Mr. Peters divided his analysis into consideration of: (1) economic life (the period during which the receiver can continue economically to be repaired and refurbished), (2) regulatory factors (the potential effect of regulatory agency decisions on technology and competition within the industry), (3) historic and current practices in the radio common carrier industry (particularly the tendency to rapidly adopt improvements in receiver technology); and (4) competition and changing technologies (including dangers of technological obsolescence and the system-wide costs of adopting major technological changes). The Company insists that in deriving his estimate of revenue producing life, Mr. Peters did not consider anything which NET's own depreciation engineers did not also consider. Each party challenges the other's expertise in the paging receiver field. 111Lost units are Bellboy receivers placed in service but lost by a subscriber. See discussion infra. -23- PAGENO="0244" 1708 The IntervenOrs argue that NET s depreciation engineers are expert only with respect to telephones and not with respect to competitive non-telephone equipment In response the Company characterizes Mr Peters testimony as speculative and vague It asserts that the factors mentioned by Mr Peters would apply to any piece of electronic equipment In our view Mr Peters does have the requisite expertise to give an opinion in this field Although we observe incon- sistencies in Mr Peters~ testimony which go to the weight of his analysis we are not convinced that his testimony should be discounted to the degree urged by the Company We note that many of the primary factors enunciated by Mr Peters as con- tributing to the shortened revenue producing life of a receiver actually occurred with the old 35MHz-1~M Bellboy system Based on the evidence presented, it appears that the Ccmpany s use of a five year revenue producing life is excessive 6 Lost Units The foregoing discussion of revenue producing life does not take into consideration the impact of lost units Mr Peters would reduce the revenue producing life by 1 8 years to reflect lost units Mr Peters overall revenue producing life of Bellboy receivers would be 2 7 years nearly half the service life assumed by the Company NET has not attempted to explain or demonstrate the magnitude of its adjustment for lost units ~~NET also suggested that Mr Peters examined the wrong receiver in the course of his investigation -24- PAGENO="0245" 1709 it simply asserts that its depreciation engineers took this cost into account in deriving a five year life for the receiver. The Intervenors contend further that the expense of lost units should be a current cost. In the alternative, they argue that the Company has not seriously considered the impact of lost units in its depreciation rate. The Intervenors point to sub- stantial losses experienced by the Company during the interim period. NET contends that the rate of losses is not as great as it appears because the collection of cash from the subscribers responsible for the lost units has lagged behind the reported losses. It does not appear in the data reported to the Depart- ment that cash recoveries have had any significant offsetting effect on the loss rate. Absent increased collection efforts, for which the Company would also incur an expense, it can be reasonably assumed that the reimbursement pattern for such losses is representative of the cost of lost units. The Company's monthly reports to the Department during the interim period do show a considerable cost from lost units for which the Company was not reimbursed. This is clearly a cost of doing business for which the Company must account)2! We do not ~~The reports show that between March, 1975 and September, 1976, there was an unreimbused expense of $36,654. Using the Phase I receiver cost of $216 for 146 receivers lost, divided by the average receivers in service during that period (1,551), there is a cost per receiver of $20.33, or about $.34 per month over the 60 month life which the Company has used [(146 x $216) + 1,551) + 60. By the outset of Phase II, the receiver cost being used by the Company has increased to $267. If this higher cost per receiver were to be substituted in the forcoing example, the monthly cost would be about $.42 per month. [(146 x $267) ~ 1,551] * 60. -25- PAGENO="0246" 1710 adopt the Intervenors argument that the cost of receiver losses should be expressed as a current expense; nor do we adopt the proposed reduction of 1 8 years in the revenue producing life of 4 5 years On the other hand we believe that the Company has not adequately reflected its lost units experience The costs of lost units should be borne by revenues from the service We leave to the Company's discretion the mechanism for recovering these costs Tariff language should be adopted which affirms customer liability for return of the paging units 7 Official Unit~ In addition to offering Bellboy service to the public NET provides certain Company employees with Bellboy units so- called official units The Company has 475 official units in service and anticipates that the number will remain constant In its studies the Company treats the official units as generating revenues at a rate equal to the average price of all public units in service As the Company $ monthly reports show the vast majority of the units sold to the public fall into the first step (one to three units) Therefore the average public price would tend toward the single unit rate The Intervenors object to this treatment of official units They contend that the attribution of revenues to officia] units should be not exceed the price per month that a customer demanding such a large number of units would pay Although the Intervenors ~`These units are aside from the ones used for Bellboy purposes such as sales or replacement -26- PAGENO="0247" 1711 suggest that the lowest fair price for 475 units would be that established by competitive public bidding, they do not press for this treatment. Instead, they ask that the Company be made to account for the official units at the same step that would apply to a large outside customer. The result would be that most of the 475 official units would fall into the lowest rate step. The Intervenors have attempted to show the impact on the NET studies of accounting for official units at the proper steps, using the interim three step rates. They point out that by using a five step structure, the revenues attributable to official receivers would be further reduced. The Commission believes that the Intervenors' objection with regard to the treatment of official units is valid. It is inappropriate for the Company to treat its own units as generating revenues in excess of those which would result from a comparable large public customer. In the absence of sales, marketing and commercial expenses applicable to official units, the third rate step should apply. 8. Other Adjustments a. Spare Parts Inventory Mr. Peters testified that, in light of the current repair experience for Bellboy receivers, a three months' spare parts inveatory is required to maintain adequate service levels. The cost of maintaining a spare parts inventory was not considered by the Company in the development of its proposed rates. In response, NET's witness, Mr. Silvia, testified that all defective PAGENO="0248" 1712 parts or components are sent back to the manufacturer Motorola for repairs The Company asserts that its practice of maintain- ing an inventory of complete receivers to replace the defective ones during repairs obviates the need to keep a stock of spare parts The Intervenors respond that the costs of a spare parts inventory cannot be avoided notwithstanding NET's practice of sending out all units for repairs They note the considerable expense involved in avoiding all local repairs including the costs of storing defective receivers and the administrative and handling expense connected with the incoming and outgoing component parts The IntervenorS claim that the costs associated with NET 5 large start-up inventory of unused receivers will be continued if a large stock of excess receivers must be retained for repair purposes Whether NET chooses to do its own repairs in-house or opts for the return and replacement method there are expenses incident to the repair and replacement of defective receiver parts which NET has failed to include In order to insure the service is not underpriced, the Company must make adjustments in its cost data to reflect the cost of a spare parts inventory or the alternative large "start-up" inventory. b Telephone Number Inventp~ In order to provide radio pocket paging service telephoae numbers must be assigned to the receiver/subscriber The ImtervemOrs -28- PAGENO="0249" 1713 must reserve a block of such numbers, an inventory, for pro- spective sales. Bellboy, because of its position as a NET service, has immediate access to telephone numbers and need not make a specific reservation. However, for intra- Company purposes, a block of numbers has been reserved for Bellboy service. This inventory of Bellboy telephone numbers represents a cost of doing business which the Company recognizes and admits it has inadvertently omitted. The cost data should be adjusted to reflect this item. c. !~~Costs In the cost study for the five year period beginning March 1, 1975, Mr. Keane used actual costs incurred for the time that had passed (approximately one and a half years) and costs currently being experienced for the balance of the period, some three and a half years into the future. The Company contends that it is proper to use current wage costs unadjusted for future wage increases in setting the Bellboy rates. The Company's approach assumes that future rate increases will offset future wage increases, and that it is inappropriate to estimate the effect of future inflatjon.]~' In past cases the Company had sought and the Commission has allowed adjustments for so-called "known changes." Such a wage adjustment would reflect the fixed and determinable increases in the wage rate. If, in one context, the Company ~1Compare the Company's position here with that which it took In New En land Tele hone & Tele ra h Corn an v. De art- 9 6 Mass. Mv. Sh. 2 46. PAGENO="0250" 1714 can benefit from the inclusion of expected wage increases for ~atemaking purposes in a general rate proceeding, consistency requires that the Company recognize such cost in the pricing of a competitive service. d. Other In their Brief, the Intervenors summarize a number of other cost adjustments which they ask the Commission to con- sider. Most of these items are raised for the first time in the Brief and are characterized by the Intervenors themselves as back-up arguments in the event that the Commission should be inclined to discount or. rej~ect any of their principal adjustments. The largest of the adjustments is the proposed attribution of $125,000 for theoretically foregone revenues. The IntervenOrs argue that these revenues were "lost" by the Company between August, 1974 and February, 1975 when Bellboy service was priced at $18.00. The IntervenorS also variously propose adjustments for increased repair labor,.cOlleCtiOn and administration expenses, as well as an adjustment to the Company's so-called "PHI" factor. On the basis of the evidence, we are unable to evaluate these items and accordingly order no such adjustments at this time. -30- PAGENO="0251" 1715 9. Variable and/or 5-Step Rate In its Brief, the Company requests that the Commission authorize a range in which the approved rates for Bellboy service might vary in order to be responsive to the sensitive competitive environment in which Bellboy exists. The Company further requests that the Commission approve a 5-step rate for large users instead of the 3-step rate approved in the Interim Order. The Intervenors have a 5-step rate with a declining monthly rate based on number of units in service.l&/ The Commission views refinements of the tariff structure as progressive, and encourages the Company to pursue such detail. See: ~~phone Restruct~, ~~~ngland Telephone and ~a~flçoma~, D.P.U. 18766 (1977). However, the Commission is constrained to point out that this record is barren of cost data which would support either a variable rate range or a 5- step discount rate. In the absence of such data, the Commission cannot evaluate the Company's proposals, and hence the proposals cannot be approved. 10. ~l~o~s In response to the directive of the Interim Order, the Company has been filing monthly reports with the Department. The Company has requested that the n~nthly reporting be reduced ~"The Zipcall rates effective October 25, 1975 exclusive of batteries,show: $21.75 (1-3 receivers); $20.25 (4-9 receivers); $18.00 (10-49 receivers); $15.25 (50-99 receivers); $13.25 (100 or more receivers). -31- PAGENO="0252" 1716 or eliminated. The Intervenors contend that the Company should be required to account separately for Bellboy service, and periodically report: official units in service, public units in service, inward and outward movement, and lost units experienced. The reporting suggested by the Intervenors is less extensive than that currently required by the Commission. The Commission is concerned that meaningful data be accumulated tracking the experience of competitive services. The current reporting criteria were established to accumulate an information base on which to evaluate Bellboy experience. Information has been accumulated. Therefore, the extensive monthly reports are no longer required. However, quarterly reports setting forth the items mentioned above will be required for the next twelve month period, through and including May, U/A similar reporting requirement will be considered for other companies subject to the Cornmiss~On'S regulat3.Ofl. PAGENO="0253" 1717 IV. CONCLUSION After reviewing and analyzing the evidence presented in this case, the Commission is confronted with a dilemma. The existing rate for Bellboy, $21.75, is unacceptable. The Company proposed rate, $22.75, is also unacceptable. The Commission could disallow the existing tariff pending compliance with this Order. Such action would temporarily preclude the Company from marketing Bellboy at all. However, considering the economic consequences which would follow from such action, the Commission determines that the Company may continue to market Bellboy at a rate of $25.00 per month until such time as the Company files new rate schedules witI~ appropriate supporting documentation which fully comply with this Order. -33.. PAGENO="0254" 1718 V ORDER Accordingly after notice public hearing and consideration it is ORDERED That the rates and tariffs filed in this case with respect to Bellboy service be and hereby are disallowed and it is FURTHER ORDERED That the Company nay file new rates and charges for Bellboy service in accordance with this Order together with the supporting data for such filing such rates and charges shall not becone effective earlier than thirty days after the date of their filing and it is FURTHER ORDERED That within seven days of the date of this Order the Company shall file new rates and charges for Bellboy service set at not less than $25.00 per month. Such rates and charges shall become effective not earlier than seven days after the filing thereof and shall remain in effect pending further com- pliance of the Company with this Order By Order of the Department /s/ HAROLD 1 KEOHA~E Har~Id 3 Keohane Chairman /s/ EUNICE P HOWE Eunice P~Howe A true copy Commissioner attest /s/ REGINALD C LINDSAY Chairman ñ~inald CLiñdsay -_______________ Commissioner Appeal as to matters of law from any final decision order or ruling of the Commission may be taken to the Supreme Judicial Court by an aggrieved party in interest by the filing of a written petition praying that the order of the Commissiom be modified or set aside in whole or in part Such petition for appeal shall be filed with the Secretary of the Commission within twenty days after the date of service of the decision order or ruling of the commission or within such further time as the commission will allow upon request filed prior to the expiration of the twenty days after the date of service of said decision order or ruling (Sec 5 Chapter 25, G. L., Ter. Ed. as most recently amended by Chapter 485 of the Acts of 1971 PAGENO="0255" 1719 00cm tiM 03, 0cM 373 073074 ~i~e mmtntftica1t1~ iif xøøad1u~eit~ DEPA1ITMENT OF PUBLIC UTILITIES ~ 1.4 1.9.7.7 D.P.U. 18090 (Supplemental Order) Investigation by the Department On its own motion as to the propriety of rates and charges set forth in schedule M.D.P.U. No. 13 - Mobile filed by the New England Telephone and Telegraph Company. APPEARANCES: Robert D. Bruce, Esquire Christopher M. Bennet, Esquire; and C. Duane Aldrich, Esquire 185 Franklin Street Boston, Massachusetts FOR: . New England Telephone and Telegraph Company Maloney, Williams & Baer (By: Herbert Baer, Esquire) One Boston Place Boston, Massachusetts FOR: D.P.R.S., Inc., Colgan Communications, Inc., and R.A.M. of Massachusetts On May 13, 1977, the Department iss~iecl its Opinion and Order ("Order") concerning the tariff proposed by New England Telephone and Telegraph Company ("NET' or "Company") for its Bellboy radio paging service (`Bellboy" or "the service"). That Order disallowed both the existing ($21.75) and the Company proposed ($22.75) rate for Bellboy service, and fixed a rate of $25.00 until such time as the Company filed new rates in compliance with the findings and rulings therein. PAGENO="0256" 1720 On May 19, 1977, the Company filed a petition for appeal and moved that the Supreme Judicial Court ( Court stay the effect of the Order pending the Court's review Argument was heard from all parties on the Company's Motion for Stay. On May 20, 1977, a Single Justice of the Court denied the Company's motion without prejudice to its renewal as provided in the Single Justice's accompanying Memorandum Memorandum The Memorandum addresses the question of whether the rate of $25 00 provided in the Order was set purbuant the statutory provisions of section 14 or section 20 of General Laws Chapter 159. As the Single Justice found, the Department has not purported to fix a rate under 8 20 It merely exercised its authority to permit an interim tariff to be used while NET presents a new tariff If the Depart- ment had not followed this course of action, the Single Justice observed that the consequence ~ould be that NET would have no interim rates and would be obliged to cease its Bellboy service MemOrandum p 4 In responding to the Company's current motion before us the Depar ment will also respond to the Single Justice's concern about the absence of explicit analysis of the impact PAGENO="0257" 1721 of the Order on NET.~' The following discussion is intended to supplement the Order and clarify the Department's findings. The Department found an interim rate of at least $25.00 to be appropriate after considering the economic ramifications of the available alternatives. Order p. 33. Implicit in that finding was the Department's conclusion that the $25.00 rate would not unduly handicap the Company in the competitive market. In reaching the conclusion that the $25.00 rate was appropriate, the Department considered many factors and attempted to assess the interests of the monopoly ser:ice ratepayers in the light of competitive market dynamics. In that analysis, the Department considered price as but one factor bearing on competitive achievement in the market place. A~ter analyzing the relative overall market power of the Company, the Department concluded that a split of f1uture~ growth was more likely to be shared on a seventy-thirty basis than either the fifty-fifty or ninety-ten proposed by the Company and Intervenors respectively.a' Order, p. 18. 111n the course of argument on~this motion, the Company made a further motion, orally, that the Department reconsider its Order. That motion was untimely made but the issues it raised are in any\event treated in this Supplemental Order. ~The Intervenors' proposed ninety-ten split of future growth of paging service was based upon a rate of $26.50 for Bellboy service. 51-253 0 - 80 - 17 PAGENO="0258" 1722 The Order recognizes that there are many variables which bear on market performance. Many of those factors, other. than price, are within the control of the Company. The Company alone determines the degree of sales effort and promotion devoted to the service as well as the continuing level of service quality and customer service.~'1 The Court has recognized that price is not the single determinant of demand curta~ilment. See: New England Telephon~_Telegraph Con~pany vs. Department of Public Utilities, 1976 Mass. Adv. Sh. 2246, 2257. In our view, variables other than the $25.00 will control the future success or failure of Bellboy in the paging rm~irket. The Company suffered an erosion of customer base and confidence because of deficient service qtiality under its 35MHz-AM system. Such confidence must be regained. At this juncture it is important to note that even when the Company enjoyed the unduly preferential (low) rate of $18.00, its market share did not climb dramatically. See: Order, p. 17, footnote 7. The Department cannot and does not seek to guarantee Bellboy a competitive share cf the market. Rather, after review and consideration, the ~"The Court has explicitly stated that advertising expenditures are, in the first instarice,within the discretion of management. New Ensiland Telephone and Telearaph Company~ vs. Department of Public Utili~ie~, 360 Mass. 443 (1971) PAGENO="0259" 1'723 Department has concluded that Bellboy service has the present potential to claim a 30 percent share of future growth considering its relative overall market position. Whether Bellboy achieves that degree of market penetra- tion depends on many factors, only on~ of which is price. It is our view that the. $25.00 rate is not so high as to be an absolute deterrent to subscription relative to competitive services. As has been argued at length, Bellboy service is not exactly the same service as that offered by the competitors. There are distinctions between the services. This is not a case of identical services offered for different prices. Notwithstanding all of the foregoing, it is important that the Department's criteria for setting the rate be reiterated. If no rate had been set, the service could not be offered at all. That would preclude the Company entirely from the market. The rate proposed by the Department was proposed to obviate that harsh result, As we discussed in the Dimension PBX, D.P.U. 18403 (1976), recently affirmed by the Court in 1977 Mass. Adv. Sh. 1195, our regulatory purpose with respect to evaluatinç~ the prices proposed for competitive services is at least two-fold: to avoid cross-subsidization from the general monopoly service ratepayers, and not to unduly PAGENO="0260" 1724 handicap the Company in the competitive market. That is our purpose with respect to Bellboy. We have specifically found in this case that at a rate of less than $25.00 per month, cross-subsidization from other ratepayers has and will continue to occur. We have further found that a rate of $25.00 per month will not unduly handicap the Company in the competitive market. While the Department cannot guarantee the Company success in the competitive market because of the numerous other variables, it is our view that our responsibility requires that we protect the monopoly service ratepayers from a continuing financial burden which the Company admits existS and is on-going. The Company has argued that at the interim price we have established aggregate revenues may, in fact, decline and thereby increase the possibility of cross- subsidization of this service. This argument again assumes that pricing is the only determinant of market- place acceptance of Bellhoy--~i proposition which we have, both in our original Order. and here, rejected. Dut even if we were to assume that at the $25.00 price net revenues will decline we think it preferable that cross-subsidization occur because of elasticity of demand than that it occur because of articifical pricing which fails to recover PAGENO="0261" 1725 costs.~' It is our view that the service should be priced properly on the basis of sound regulatory principles which have been upheld by the Court in Dimension PBX, su~~ Thus, we cannot adopt the Company's pricing system which is premised upon price parity amongst competitors irrespective of cost and other factors. It is clear that the competitive viability of Bell-. boy is the crux of the arguments advanced by the Company in support of its Motion for a Stay. The Department's Order requires continued monitoring of Bellboy perfor~a~:e. If such monitoring indicates increasing losses, the Department will then addressthe question of minimizing the losses and eliminating Bellboy service. In the meantime, th~ Department will not compromise the pricing principles of the Dimension ~i~x decision by allowing a stay of its Order concerning Bellboy. After hearing, consideration and deliberation, it is 4"Artificial pricing along the lines propos~J by the Company ~ cross-subsidization. There is only a ~4bili~y that cost-based pricing may result in cross-subsidization depending upon, among other things, the product and how it is marketed. PAGENO="0262" 1726 ORDERED: That the Motion of New England Telephone and Telegraph Company to Stay the Department's Order of May 13, By Order of the Department, is! HAROLD J. KEOHANE ._. ~ _. .._* ---- --- Harold J. Keohane Chairman Is! EUNICE P. HOWE Eunice P. Howe commissioner /s/ REGINALD C. LINDSAY ~ Reginald C. Lindsay Chairman Commissioner * Appeal as to matters of law from any final decie ton, order of ruling of the Commis eton may be taken to the Supreme Judicial Court by an aggrieved party In interest by the filing of a written petition praying that the order of the Commission be modified or set aside in whole or in part. Such petition for appeal shall be filed with the Secretary of the Commission within twenty days after the date of service of the decision, order or ruling of the Commis ston or within such furt'ier time as the Commission will allow upon requcet filed prior to the expiration of the twenty days after the date of service of said decis ion, order or ruling. (Sec. 5, C)iapter 25, C. L., Ter. Ed. as most recently amended by Chapter 485 of the Acts of 1971. 1977, be and hereby is denied. A true copy; Attest: PAGENO="0263" 1727 Mr. VAN DEERLIN. Thank you, Mr. Wolf. Before we go into any subcommittee questioning, what do you have to say to one another on the basis of what you have heard? Mr. Weinberg. Mr. WEINBERG. I would just like to comment, Mr. Chairman, on Mr. Wolf's last statement. For the record, the facts belie somewhat the statement. There is full and free competition today. I am responsible for Bell mobile operations and I am not saying this with any great pride, but the radio common carrier industry does have over a 50 percent share of that two-way mobile business today and has over an 80 percent share of the one-way paging business. So we are really not the dominant carrier in the radio business today. As I say, I am not saying that with any great pride, but those are the facts. And I would also deny any allegation of any cross-subsidy that Mr. Wolf alleged. Mr. WOLF. I would just respond to Lou's comments in the sense `that what exists' in the marketplace today has been created by a restricted allocation of spectrum. Bell has been stifled from aggres- sively expanding its mobile services because the resources are so limited there has been no economic incentive for them to do it, whereas the RCC's have taken a very small resource and by inno- vation and novel services has significantly expanded them to the benefit of the public. For that reason, it has outpaced Bell in that particular market- place. But it is a bias and distortion which has been created for a ~constraint of Bell of significant radio resources which will be over- come totally by the cellular allocation. Mr. WEINBERG. Again, I would say that past witnesses, before the Senate, anyhow, have remarked that the RCC's are interested in the cellular allocation, and I feel they will enter that business and it will be highly competitive, just as today's are. Mr. VAN DEERLIN. Do the rest of you have, anything additional to offer? [No response.] Mr. VAN DEERLIN. Mr. Marks. Mr. MARKS. Thank you, Mr. Chairman. Perhaps, Mr. Wiley, you might answer this question first, fol- lowed by the other members of the panel. I suspect, however, that I have a pretty good idea what the answer will be. Under section 331(d), which would restrict the ability of A.T. & T. to operate new radio systems, the question I have is whether or not an order should be promulgated to protect competition, and whether or not this ban or this restriction should be temporary or permanent. I am curious, particularly in light of your comments on page 5, toward the end of the second to the last paragraph, if your feeling is that the restriction should be a permanent one or a temporary one, and if a temporary one, for how long. The question of a temporary or permanent ban is certainly worthy of serious consideration. Mr. WILEY. Mr. Marks, from a philosophical standpoint, I sup- pose I am always troubled by the idea of banning anyone from any market in a free enterprise society. However, if the record demon- strates predatory practices or a strong potential for predatory prac- PAGENO="0264" 1728 tices-and I am not here to express an opinion on that specifical- ly-I think some remedies are required. Now, you can run the gamut from separate subsidiaries, account- ing procedures and the kinds of things Mr. Moir suggested, which I construe as a cell carrier's carrier or the possibility of competition in cell areas, all of which are certainly helpful. The committee has suggested the concept of a ban, and I suppose if that ban were to be permanent and the possibility of predatory practices were to fade away, then it might be overkill. But on the other hand, if you were to try to pick a time for the temporary ban to expire, I am not sure just what you would put in legislation, because you do lock it in and we don't know what the situation is going to be 10 years from now. It may not be improved. So I think this is going to probably be an area, unfortunately, where Congress will have to have continu- ing oversight, as well as the Commission, to insure that we have a free marketplace operating without a dominant carrier exercising predatory practices if that happens to be the case Mr MARKS Does anyone else care to comment on that? Mr. WEINBERG. Mr. Marks, I think even a temporary ban would ill serve .the public. I think a temporary ban of Bell in providing cellular service would mean long delays in the public's getting cellular service. I agree with Chairman Zielinski, who appeared before this committee and felt that the presence of the wire line carriers in this market really had a very salutary effect on the radio common carrier industry and that it might well urge them to enter this field of cellular service and other radio services. I think a temporary ban would ill serve. Mr. WOLF. As an engineer I would agree with Mr. Weinberg that the tremendous effort that Bell has put into the cellular systems certainly is worthy of being offered to the public, and I would feel distressed if it were not successfully implemented sometime in the near future. However, Bell has operated in a very, very favorable environ- ment over the past 50 years, which essentially enabled it to attain this very dominant position it now occupies as the biggest telecom- munications vendor in the United States. It seems to me that Congress has to consider something akin to the civil rights legisla- tion which essentially gives new business entities the opportunity to grow and nurture in a climate which preserves the American principle of small business activities. It may be somewhat abhorrent to the engineering viewpoint, but I think from the standpoint, of observing the American ability for small businesses to operate and provide service on a local basis, it is important that Congress recognize that element of necessity in inhibiting Bell for some period of time. Mr. MARKS. Thank you, Mr. Chairman. Mr. VAN DEERLIN. Mr. Jackson. Mr. JACKSON. One or two questions. Mr. Weinberg, you seem very upset and distraught and con- ~cerned about section 331(d), but~ I really wonder what would you .~replace it with in H.R. 3333? ~Would you replace it with public interest, convenience and necessity, that is, language which said the Commission shall license ~adio systems to a dominant carrier PAGENO="0265" 1729 only if it finds it serves the public interest, convenience and neces- sity? Mr. WEINBERG. I think today's system, Mr. Jackson, of licensing radios, as far as taking the public interest into consideration, is appropriate. Mr. JACKsoN. OK, but there is a clear component in the public interest of the antitrust concepts. The courts have so held. Allow me to read you something, "It is settled that practices which pres- ent realistic dangers of competitive restraint are proper considera- tion for the Commission in determining `the public interest, con- venience and necessity.'" Judge Bazelon, writing on a radio licens- ing case for a unanimous panel at the court of appeals. If that is the case, if someone else besides Bell is ready, willing and able to offer cellular service, and if dangers of competitive restraint are an aspect of the public interest, then is section 331(d) any different than current law today? Mr. WEINBERG. Yes, I think section 331(d) totally excludes the dominant carrier from even trying to fill the public need. Mr. JACKSON. No. There is a condition in section 331(d) which says if service will not be provided to the public-that is, if there is not someone else ready, willing and able-the dominant carrier can get the license. But if there is someone else ready, willing and able, the dominant carrier does not get the license. Is that different from the status quo today? Mr. WEINBERG. I believe it is, Mr. Jackson. I think the status today is that two eligible carriers go before a public interest body and present their case, and the body looks at it and determines where the public will best be served, taking into consideration all the facts, including the ones you have mentioned on antitrust. I think with this legislative intent the burden of proof would be on the dominant carrier; that even with better service, perhaps, more economical service, they would be excluded from the market. Mr. VAN DEERLIN. We must stop now briefly. I was hoping Mr. Mottl would be back to preside. I must go over and catch a vote. It will not be more than 10 minutes. [Brief recess.] Mr. VAN DEERLIN. Mr. Collins. Mr. COLLINS. I did not have the opportunity to completely review all of the material you have brought up, but the subject is very interesting and I wanted to go into two or three phases of it. We have talked about the question of A.T. & T. getting into this field. Is it the fact that you believe that A.T. & T. would completely dominate it entirely? Or do you object to them having more than 49 percent? What would Motorola think? Mr. MARSHALL. Thank you, Congressman. I would like to point out as I start this, two things. First, A.T. & T. is our largest customer, so I certainly don't want to offend them. Second, I would like to point out that Motorola is restricted from going into the mobile telephone service or the specialized mobile radio service by the FCC. So this is not the first time there has been a restriction. The restriction is on us right now, and we are a considerably smaller company, by a factor of probably 40 to 1. As we see it, the thrust of this bill is one of competition. We think if there is to be PAGENO="0266" 1730 competition, it would be es'sentially impossible if A.T. & T. is p~rticipating in the mobile field, Mr. COLLINS. You wouldn't want them in for 5 percent, 10 per- cent or 49 percent. Mr. MARSHALL. If you could limit them to 5 percent, that might be something, but I don't know how you would do that. But I think a couple of things further with it. They are not really totally eliminated from the cellular system business. Just as was pointed out a while ago by Zip-Call, I think Mr. Wolf said the phone company is one of his major suppliers. In the case of the cell system that will be installed in Baltimore-Washington, which will not be installed by A.T. & T. but by a radio common carrier, the pro fOrma shows that the largest supplier to that system as you get out a few years will be A.T. & T., or Chesapeake and Potomac, as the case may be. So you are not really totally excluding them from the field if they cannot provide cellular systems. They will benefit from them substantially even if they do not pay for the developmental costs of them. Mr. COLLINS. I get your general view. Let me see what Mr. Wolf thinks. Mr. WOLF. My experience has been if Bell has any share of market that is not absolutely controlled, ultimately they will find some way of abusing it. The problem is that you have both direct and indirect competition, and what we have found is if we innovate a service which competes with toll revenues, for example, as op- posed to competing with the direct paging and mobile radio serv- ices, that that also tends to create stresses that Bell reacts to with predatory behavior because they see those toll revenues as a sig- nificant revenue aspect to them. For example, we wanted to expand our paging service access arrangement, telephone access arrangement, so that the calling area would be much broader than the local central office area, that the free calling area would be much broader than just the local central office, and that meant less revenue to Bell. They resisted that type of access arrangement for a significant period of time. Mr COLLINS Ms Cornell, do you think we have any problems on this from an FCC regulatory viewpoint? Ms. CORNELL. I am not fully certain that I understand what you mean by an FCC regulatory viewpoint. Mr. COLLINS. Well, they talk quite a bit about the practice they just brought out initially, that it is a hard problem to control A.T. & T. Some of us think it is a hard problem to control the FCC. Ms. CORNELL. I would have to say, frankly, it is a tough problem. As I said in opening, there is still a lot to be learned about the benefits of having the Bell system in in terms of technology and some other things. But there is some skepticism. One needs to look very closely when you are asking them to own or are thinking of allowing them to own the competition to their own wire line serv- ices, because ultimately, mobile telephone, if it has the same qual- ity of signal as the wire line signal, really is a competitor to the wire line, with the adv&ntage, of course, of freeing people from being attached to the wire. Mr. COLLINS. Mr. Wiley, you have had experience. PAGENO="0267" 1731 Mr. WILEY. Mr. Collins, before you came in, I had mentioned that what we are really trying to guard against here is the possibility of a dominant carrier engaging in predatory practices. Some people do believe that safeguards against cross-subsidation, such as sepa- rate subsidiaries or accounting procedures, are not going to be totally effective in this particular instance and therefore a tempo- rary ban of some period of time, or perhaps a permanent ban, should be given some consideration. I am not here to testify as to whether or not those predatory practices are being engaged in. I do say that if the subcommittee considers that such a risk exists, the concept in section 331(d) is certainly worthy of consideration. Mr. COLLINS. Mr. Weinberg. Mr. WEINBERG. Mr. Collins, I mentioned before you came in that I think if A.T. & T. is excluded from this business, the public will not get the type of service, the quality of service nor the cost- effective service they would get, and that I shared Chairman Zie- linski's comments that the presence of the wire line carriers in this market is, in fact, a competitive urge to help competition rather than hinder it. I pointed out we presently today have less than a 50-percent market share in the two-way business, and the radio common carriers have over an 80-percent share in the one-way paging busi- ness-very effective competition today. I think that will remain. We do have possibilities with cellular service to eliminate the monopoly allocation. There are alternatives available to the Com- mission now, I think, to look at cellular in a somewhat different light and come up with other solutions to the problem of injecting competition into this field. Mr. COLLINS. I want to go on one other subject which concerns me in this account. Were you the one who brought this up in your testimony, Mr. Wolf? Who brought this up? Mr. WOLF. I believe I did. Mr. Wiley did, also. Mr. COLLINS. It has been my experience that regulatory authori- ties do not understand normal business practice, that they just do not understand accounting. And with the increased technology and constantly changing needs to move and move fast, we have got to depreciate and charge all of the stuff off quickly. What has been your experience for you and the associates in your particular trade association? Mr. WOLF. I think there are several aspects to your question. I think that our industry is much more like the computer industry in terms of the relatively short writeoff periods. Mr. COLLINS. How much are they allowing? Are they allowing enough writeoff quick enough? Mr. WOLF. It is more a matter of individual business practice than regulatory climate at this point. The RCC's do not come under any set of defined rules. Mr. COLLINS. So all you have got to do is take care of Internal Revenue? Mr. WOLF. Exactly, yes. Mr. COLLINS. How realistic are they? Mr. WOLF. They are flexible. The writeoff periods run anywhere from 3 to 7 years, depending upon the types of facilities. PAGENO="0268" 1732 Mr. COLLINS. They do. Well, that is good. Mr. WOLF. But the FCC is not regulating the rate of return of the RCC's because they are considered to be operating in a compet- itive environment where the marketplace forces, as far as intra- RCC competition is concerned, essentially establishes a reasonable price level. State jurisdictions in many cases established the ac- counting practices to be applied to RCC's. But in general, those activities are relatively insignificant at this particular point in time. But on the other hand, on the flip side of the coin, in dealing with Bell on interconnection issues in terms of the facilities that we require to offer the services we provide, they exercise allocation activities and pricing policies which are based upon allocation, which essentially in the competitive situation quite often works a disadvantage to the RCC. Mr. COLLINS. I noticed in one statement-I think it yours-there was a suggestion made by someone to charge it off against surplus That is kind of a socialist idea Has that come up in business practice? Mr. WOLF. That was not in my statement. Mr. COLLINS. You said you feared that that might be suggested or some regulator said it or something? Mr. WOLF. That is an interesting point vis-a-vis-- Mr. COLLINS. You can't charge off against surplus and stay in business without charging off against business. Mr. WOLF. One of the concerns of the cellular system is how those development costs were paid for. In effect, those developmen- tal costs were paid for by the ratepayers throughout the country. In other words, Bell's licensing fees to the operating companies funded Bell labs' research and developmental costs for the cellular system. So from my limited perspective, the cellular system should really be in the public domain, rather than as a Bell proprietary system, because of the way it was paid for. Mr. COLLINS. If that is true, if they did it, they should still keep it, in the parent company, shouldn't they, if you followed your argument further9 You said the parent company did it, therefore the parent company should retain the benefits. I am more and more favoring the idea of a subsidiary arrangement. I would rather they were not in the parent company, but if the parent company developed it, they should be the one to gain from it, and in turn let the public have lower telephone rates. Mr. WOLF. That is one, approach. But I also think you have to look at how that was funded by the parent company. It was funded by the parent company by licensing fees to the operational compa- nies, which in turn were derived from operating revenues from the general public And I agree with you that the only valid approach at this point would be a completely separate subsidiary. Mr. COLLINS. Do any of the rest of you have accounting prob- lems? You don't hear many people say that IRS is pragmatic. I was glad to hear him say that. That does sound realistic from three to seven. I think A.T. & T. has plenty of accounting problems. PAGENO="0269" 1733 Mr. WEINBERG. Yes, we do. I am not an expert in that area and I cannot speak to our problems, but I recognize we come under the uniform system of accounts and it is quite difficult. Mr. COLLINS. Your statement is an overloaded capitalization. I know that is because of the way the rate structure has been set up and you have never basically resisted it, but it is an archaic system. Thank you, Mr. Chairman. Mr. VAN DEERLIN. It all sounds pretty socialistic to me. Mr. JACKSON. Earlier, I was asking a question about the connec- tion between the public interest standard we have today and the standard in section 331(d). Mr. Weinberg has answered that ques- tion but I wonder if anyone else on the panel wanted to contrast the current standard with section 331(d). Mr. WOLF. Mr. Jackson, I think it might be useful to look at the historical activities of the FCC in the broadcast area. It seems to me the comparative criteria which I used almost universally in a comparative broadcast hearing would be essentially a diversity of ownership and a control of local ownership, integration of manage- ment ownership, avoidance of the concentration of media power, and the character qualifications. In effect, in 18262, the cellular system, the FCC essentially con- ferred on Bell the qualifications as being the most qualified opera- tor of those systems, and in fact, section 331(d) does just the oppo- site. It says we are going to allow other operators to provide the service, and in the absence of their capabilities, we will permit Bell in the marketplace. It seems to me that section 331(d) very precisely takes care of the comparative issues which would normally be looked at by the FCC under their current standards in terms of the broadcast criteria, because certainly the local operator would meet the basic criteria that is normally looked at in the comparative broadcast hearing. Mr. WILEY. My experience at the Commission was that a lot of the regulations we attempted to fashion would work for everyone except when you got to the Bell System. There was a recognition that things did not quite function the same way when you had someone with a huge share of the marketplace. I think implicit throughout H.R. 3333 is the concept that Bell is going to be treated in a somewhat different fashion because of its overall dominance. I think that that is a responsible and intelligent way to approach the regulation of the telecommunications industry at this point. Now, whether or not that implies that you need a total ban in keeping them out of a particular area or not is, I think, something Congress in its wisdom will have to decide. But I think the concept of a dominant carrier being treated in one fashion and the competi- tive marketplace another does make some sense. Mr. VAN DEERLIN. At least in a given period of time. Mr. WILEY. Yes. Mr. VAN DEERLIN. Obviously it presents a problem which was not present in the airline deregulation where there was no such dominant carrier. Mr. WEINBERG. Again, Mr. Chairman, I do feel that even a temporary delay, particularly with the cellular technology, as such, PAGENO="0270" 1734 because of the heavy capital investment, would not be appropriate. I think you would probably end up with a dominant carrier or a monopoly carrier at a point where a second carrier could not possibly enter. And if the purpose of the bill is to foster competition, I think there are better ways of doing that. I would be prepared to go into that if the subcommittee so desired. Mr. VAN DEERLIN. We so desire. Mr WEINBERG This is sort of in response to Mr Moir's question to Mr Olson I have a chart because I was fairly certain the question would be repeated, since Mr. Olson said I would cover it when I came before the subcommittee If I may take a minute to lay out the cellular system as you saw over there, it really has been divided into two distinct networks One is the electronic and switching network you saw over there, and that has the switching office. It also has the cell sites and all of the equipment involved, the technical equipment. And the other part is the distribution network. That has the customer contact, the sales, the installation, the service, the billing, any kind of customer interface. And really, under the present rules of cellular, as I am sure the committee knows, there is a single eligibility for all of that There would be a monopoly carrier covered by docket 18262 of the Com- mission. Mr Moir asked that we look at two possibilities or two alterna tives. The first alternative was to come up with something which I guess you referred to, Mr. Moir, as a system manager, which is a single eligibility over here [indicating], if you will, under the equip- ment itself. And over on the sales end, there would be others, vendors of equipment, that would obtain the service at a certain price from the manager of the system. There would be a number of entities, including the manager of the system if so desired, to provide the distribution network The second alternate, is whether you split the 40 megahertz and come up with more than one competing system, head-to-head, toe- to-toe competition. And what happens in the system you saw over here [indicating] is that as you split the frequency and get down to, let's say, two 20- megahertz systems, the cost to the customer for this portion of the network almost doubles, so that the cost to the customer is signifi- cantly greater than for a 40-megahertz system. There is 45 megahertz of reserve spectrum that is to be allocated either to cellular, private, SMR's, or whatever It is undesignated in the land mobile band today It was designated as reserve in docket 18262. One possibility might be to take, let's say, 20 mega- hertz of that 45 megahertz and bring it over to cellular and split it into two 30-megahertz systems rather than into two 20-megahertz systems. I think 30 is a point where you could probably do it-it is not a straight line cost so that when you go from 40 megahertz to 30, it is really about a 20- or 30-percent increase in price. But there is a possibility of having two 30-megahertz systems toe to toe with dual eligibility down here [indicating], and that way you could maintain the same kind of market structure you have today, wire line common carriers and radio common carriers PAGENO="0271" 1735 Another alternative would be to sort of combine those two alter- natives and have the dual eligibility of the two systems for this network [indicating], and have multiple vendors at the end. You could have five or six who would take the service from either one of these vendors and package it any way they wanted to. For example, if they bought service for $20 a month here and 20 cents a minute, or whatever it may be, they may want to sell it for $25. One may want to sell it for $25 a month and 20 cents a minute. Another may want to sell it for $50 a month and 15 cents a minute. They can repackage it ~any way they want to, plus some of the radio common carriers or the wire line carriers may want to have a telephone answering service or other vertical services they would offer on that. I think there are a lot of other alternatives, but there are so many economic and technical tradeoffs that all of the parties have to really get together-the privates, the radio common carriers, and the manufacturers-and they have to sit down under the aegis of the FCC or some other regulatory body. I really think these problems can be worked out. I think it is a different environment than it was when docket 18262 was written. I think the bill recognizes that and we recognize it. Things have changed. Mr. JACKSON. Why does this conversation have to occur under the aegis of a regulatory commission? Why can't you just get together and have a discussion? Mr. WEINBERG. I think when potential competitors get together, Mr. Jackson, there are some questions about the antitrust laws. We would prefer to have someone from a regulatory body assure all that it is open and that whatever is said is said in an open environment under proper regulatory jurisdiction, if you will. Mr. JACKSON. Is Bell relaxing its opposition to the provision of H.R. 3333 which would require notification to a member of the Department of Justice for network planning meetings that might involve competitors dealing together in the provision of facilities and services? Mr. WEINBERG. No, I think this is basically potential competitors getting together to discuss the basic service itself and the approach to be taken. Since this would require, Mr. Jackson, regulatory action-for example, some of the alternatives could require regula- tory action-it would be very appropriate to have the regulators there. Mr. JACKSON. But that is exactly the case under network man- agement. It might require applying for a satellite license or a microwave license. So it would be perfectly appropriate. It seems to me it is a perfect parallel. Your positions are different at different times. Mr. WEINBERG. I cannot comment on that, Mr. Jackson, really. I do feel in this particular case that it would be `appropriate to have the regulators present. As far as day-to-day planning for the network, it seems to me to be somewhat of a different kind of problem because this has to go on day to day. This is the establishment of really a kind of business structure, if you wilL We are talking about the basic structure of a business. PAGENO="0272" 1736 Mr. JACKSON. But again, to go back to H.R. 3333, the language in H.R. 3333 allows network planning to occur if a Government repre- sentative is present, and if it does, it is granted antitrust immuni- ty. You are saying that when you get in this mobile area and you want to deal with a potentially competitive issue that involves antitrust issues, you want the Government present; but when you are in your traditional areas, you don't. Mr. WEINBERG. I think network planning is done more on a day- to-day basis and it is important that it be done very quickly. What I am talking about is really a one-shot kind of thing that estab- lishes a market structure, if you will. Mr. JACKSON. Again, I was trying to emphasize the connection with antitrust immunity, not the day-to-day nature of network planning. I think the point is clearly made and I have no more questions. Mr. VAN DEERLIN. Mr. Wunder, minority counsel. Mr. WUNDER. I would like to ask Mr. Weinberg. The philosophy of this bill is that competition, when it can function, serves the public interest better than regulation. I was wondering, on the basis of your comments, about the restrictions upon A.T. & T. in section 331(d). Are the problems that you foresee more long-term problems or are they short-term problems? You are suggesting that the public would be ill-served by this restriction. Are you thinking near-term or are you thinking long-term? Mr. WEINBERG. I am thinking both, Mr. Wunder. We have been trying to implement a brandnew, exciting technology that has been under development for 10 years I think the exclusion of Bell would delay that implementation significantly, if not prohibit it complete- ly. I think the presence of Bell, the presence of the wire line carriers in this field, competitively, if you will, will enhance the public getting the service more quickly and will enhance getting a more economical service. And I think that goes for the short term as well as the long term. Mr. WUNDER. You see them as both being equally acute? Mr. WEINBERG. Yes, sir. Mr. WUNDER. How do you deal with the argument, however, that the dominant carrier should be treated differently than all others, just as the dominant carrier in the interchange market under the bill is treated differently than all other carriers? Mr. WEINBERG. I believe, again, if possible the competitive mar- ketplace ought to be the guiding light rather than either legislative or regulatory prohibitions. And I think the fact that if you are looking for competition and you take one of the large competitors out, you are in essence decreasing competition rather than increas- ing competition. I just cannot understand it. Mr. WUNDER. Thank you, Mr. Chairman. Mr. VAN DEERLIN. Mr. Moir. Mr. M0IR. Thank you, Mr. Chairman. A couple of brief questions before I get to some of the questions which were unanswered in May when I addressed some questions to Mr. Olson. On the background to section 331(d), we have heard from various witnesses today and in some of their testimony that the rationale or reasoning behind prohibiting A.T. & T. from fur- PAGENO="0273" 1737 ther involvement in the mobile telephone business is because of their size. If that is the case, is it just that unmanageable entities shouldn't be allowed in the business? Why should some of the members of this subcommittee continue to endeavor to look at designing new systems of accounts? Why should the Commission waste hundreds of thousands of man hours, contract money, and agenda time? Why should companies waste millions of dollars look- ing for new systems of accounting, if the end result of a system of accounts has no effect at all in alleviating these types of problems? I just wonder if we could get some input on that from the panelists here today. Why don't we start on my left. Mr. Wolf. Mr. WOLF. I think one of the things which has become evident to me is the changing complexion of the FCC from lawyers and engi- neers to economists. There is increasingly an acute awareness of the limitations of the accounting process in determining costs. Mr. Mom. The reason I mention it is if you are going to have as proposed in H.R. 3333 or as we have heard from a number of spokesmen down at the Commission or NTIA, a complete market- place-~some people call it laissez-fair economics-type of situation; then the need of a system of accounts for those types of companies seems to escape me. Mr. WOLF. I think your question suggests another alternative which is somewhat consistent with what Mr. Weinberg discussed this morning. Mr. M0IR. I am merely trying to get an answer to that question because it is intertwined. Mr. WOLF. I think you have to make a clear line of demarcation between the systems and the services and the competitors in order to avoid the problems of allocations, cross-subsidy and so forth. And perhaps, for example, with the cellular approach, if the line of demarcation were made at the switch, for example-Bell provides everything up to the switch-on a monopoly basis, which is, in effect, where their expertise lies, then the operators, whoever they may be, compete in the radio services area. You would then perhaps achieve the objective of H.R. 3333 more rapidly and more effectively. Mr. MOm. For all services or mobile? Mr. WOLF. I am thinking of mobile services. Mr. M0IR. Why draw the line on mobile? Mr. WOLF. That is my area of expertise and where we have had the greatest interaction. But I would* argue that there is a natural line of demarcation between the licensed services which the regula- tory body is concerned with and a switched landline network, which is essentially a component of both services. By drawing the line at that point, you can create the proper climate for competi- tion without the threat of these other allocation problems. Mr. MOrn. All right. Ms. Cornell, I think you are ready to grab the mike. Ms. CORNELL. I would argue that in a sense, accounting and separation devices, bans, and other kinds of techniques are really complementary. There are some things accounting can do for you and there are some things it cannot. It is important to have a system of accounts. It is important to start looking at it in a 51-2S3 0 - 80 - 18 PAGENO="0274" 1738 different way than it has always been looked at in terms of think ing about depreciation and its effects Mr M0IR The reason I ask is because if marketplace forces will be the moving force for most carriers, it seems to me the only logical reason for the system of accounts would be for monopoly carriers Ms CORNELL You have the simple problem that it goes back to saying can you treat the dominant carrier differently from other carriers I must again go back and say it seems to me you have got to Because even if marketplace forces predominate ultimately, under the world that would be created by H R 3333 if enacted-it is not going to happen overnight You are probably talking 10, 20, even 30 years before that transition is complete In the meantime, you do have a concern about monopoly rate payers and what they are paying for There are some things ac counting systems can do and some things they cannot There is a need to put in both tools, to be able to put in separations where you cannot do accounting, to then let accounting work But we do not have right now a uniform system of accounts that can do even what accounting can do for you, which is why I don't think it is wasting money to try to do it But it can't do everything Mr Morn So you see the new system of accounts as merely a way of assisting the Commission in reviewing the rates of monopo lies9 Ms CORNELL I would Mr Morn Not in allowing it to get into competitive services9 Ms CORNELL I don't see any reason why you need a uniform system of accounts that applies to a carrier who has no monopoly services But I speak for myself, I do not speak for the Commission as a whole Mr Morn Mr Wiley Mr WILEY I think it is possible you could have predatory prac tices even in a competitive environment, so I think the uniform system of accounts may be useful in other areas as well And I would agree with what Dr Cornell said I think it is useful to attempt to try to improve that system It may not be the whole answer in many areas, but I think it is one part of the response I think the dialog between Mr Wunder and Mr Weinberg nicely stated the problem This bill, as I understand it, seeks a competi tive marketplace Mr Weinberg suggests that therefore Bell ought to be a competitor, and I think the basic question you have is can you have true competition if you have the dominant carrier corn peting with other entities9 I do not know the answer to that question in all arenas Apparently in the cell area, in the radio distribution area, the subcommittee tentatively has determined you may not be able to do that for a period of time and they have suggested section 331(d)'s solution I think that is at least one intelligent and rational answer There may be others And I think we ought to attempt to pursue and improve those other regulatory techniques as we can, and certainly the uniform system of accounts is one Mr MOIR Mr Marshall Mr MARSHALL I think that the uniform system of accounts may have application or better application in other areas I do believe PAGENO="0275" 1739 the thrust of the bill is competition, and if that is what is really desired, section 331(d) in itself will make it possible for literally thousands of small companies to be competing in the mobile radio business I think without section 331(d), that is not likely to happen. Mr. M0IR. I guess there is no point in your commenting, since earlier witnesses have commented. One other question. We have had considerable discussion on the spectrum fee today. I noticed in your testimony, Mr. Wolf, that you addressed question No. 2. Do you have any comments on question No. 3, which really went to the substance of the spectrum fee? Mr. WOLF. Very limited comments, Mr. Moir. Mr. M0IR. From your own perspective as a licensed radio common carrier or on behalf of your organization. Mr. WOLF. I believe if the licensing fee could be properly con- structed to encourage the more effective use of the spectrum in an equitable and fair manner, it would have applicability in this land mobile area. I think the present design as it now exists would be probably acceptable to the RCC industry. Mr. M0IR. Mr. Wiley. Mr. WILEY. I believe my statement expresses my View that the spectrum -fee probably won't do much for you in the allocations area-deciding whether spectrum will be allocated to UHF televi- sion as against land mobile radio. Those decisions are going to continue to be made in the political environment, as I understand it. It may have some effect in the area of assignments. You have to look, I think, to the basic question I point out as to whether or not there is a public interest value in attempting to utilize lotteries, auctions, or what have you, in order to make assignments rather than the comparative hearing process. Mr. Mom. Does it concern you that some of the licensees would not be involved in that type of process? Mr. WILEY. That is one of the problems, I think-the fact that part of the spectrum is government oriented. And you have certain exemptions under H.R. 3333; and then you have the situation, of course, which I point out in my statement, that some of the spec- trum is already allocated and assigned, and other spectrum is not. Suppose you have a new service coming in and the Commission allocates a very small amount of spectrum to that new service. That could artificially inflate the value of the spectrum. I think the subcommittee has to keep those problems in mind as it attempts to fashion an appropriate legislative solution for a difficult area. - Mr. MOIR. Would any of the other witnesses like to add any additional comments on the spectrum fee other than what has been said already within the testimony? Mr. MARSHALL. I would like to emphasize one point Mr. Wiley touched on. I believe that if the spectrum fee is merely to raise money, it is not going to accomplish a lot. It will raise a few tens of millions of dollars, perhaps, and receive a lot of complaints. If it can be used to overcome the political problems of allocation, of interservice use, then I think it has tremendous possibilities and tremendous merit. I believe that can be done the way the spectrum fee was structured in H.R. 3333 although it does not specify it. It would seem as though it is leading to it. PAGENO="0276" 1740 Mr M0IR So it is your opinion and your company's opinion that the House's language or the H R 3333's language will do that which you hope it will do Mr MARSHALL It doesn't spell it out exactly, but it would appear that is the direction it is going I arrive at that conclusion, maybe inaccurately But I would look at the land mobile fee, which is 1/3 6oth of the fee for a television station in any given area I assume that was based upon the fact that a UHF TV station uses, with its protection, approximately 36 megahertz, and I also believe it was incorrectly assumed there are 10 land mobile channels per megahertz, which got the 360 divisor We submitted an addendum to our testimony on this particular subject, by the way There are 20 land mobile channels per mega hertz, so that would be a divisor of 720 rather than 360 Also, land mobile does not receive the 150 mile degree of protection that a TV station does The difference between land mobile and TV are certainly not the only areas in which this could come into play I think there are others We arrived at the conclusion that you must have in mind a relativity of fee to show the value of UHF spectrum versus others, one service versus another If that is the case, then H R 3333's provisions could lead to an economic solution rather than a political solution Mr WEINBERG I would agree with Mr Marshall I can't under stand how the proposed fee schedule could help out in the alloca tion end, and I think there are some serious problems along this line Mr Morn Mr Marshall, clients of yours or business associates of yours are planning, as your testimony discusses, a similar cellular system in the Baltimore Washington area Is that experimental system behind schedule9 Mr MARSHALL Yes, it is Mr M0IR Could you explain why that is the case and about how far behind schedule it is9 Mr MARSHALL There are two reasons One, the license was granted some time after the Illinois Bell license, many months after And another reason is the extreme amount of zoning prob lem in Montgomery County We got our last clearance of zoning for Montgomery County about 2 weeks ago We have gone ahead and erected several 500 foot towers which is a very expensive invest ment But some of them were held back because a change of the locations in Montgomery County could cause change of the loca tions of many other transmitter sites So that is a partial reason Also, a third reason, I guess, would be that we are developing concurrently cellular, trunked and conventional 900 and 800 mega hertz systems, and that is just one heck of a lot of development I might add this, though, that we are developing in conjunction with this an electronic switch so that we will not be dependent upon the switch of the phone company This switch has a substantial export market and has already been sold in the export market Mr M0IR I asked the question because in previous hearings this subcommittee has received considerable testimony from your com pany and others in regard to this system, although I cannot read PAGENO="0277" 1741 into the minds of the authors of H.R. 3383, it is possible they were significantly relying upon your technology, assuming that A.T. & T. is prohibited from offering its own. If the delays in your systems are more than merely zoning, then there could be serious doubts whether your technology would even be available, but for the resi- dents of the Chicago area, short of A.T. & T. supplying it to people. Mr. MARSHALL. Naturally, the challenge you throw out is one I must rise to. There is no question in ~y mind or, I think, anyone in Motorola that Motorola will install a cell system in the Balti- more-Washington area. It is running about 1 year behind the Illi- nois Bell system, primarily because of the startup time being later, and perhaps a not as great resource factor came into it also. We are participating in the Illinois Bell System to some degree, as are others. Mr. M0IR. Through the use of your portables and mobile units? Mr. MARSHALL. Yes, and some of the base station work. There is no question but that we will have the system in the Baltimore- Washington area and that it will work equally well as the other system. I also believe that section 331(d), were in effect today, that Gen- eral Electric, RCA, Collins Radio, et cetera, would be in there pitching for this sort of business and designing similar systems also, and it would not be just Motorola. Mr. WEINBERG. Mr. Moir, I would just add I think if section 331(d) were in, you might see even more substantial delay rather than having others in the market. I think the impetus of Bell there proceeding and being ahead is a very nice competitive force. Mr. Mom. I would like to go to the last question; one which was asked last month of Mr. Olson. As a preface, the reason those questions were asked of Mr. Olson, was because there has been an obvious expression of dissatisfaction from the Bell System with the language in section 331(d). I myself have had some of those very questions actually present- ed to me by Bell employees and they were not my views but rather an attempt on my part to get them on the table so that these potential alternatives were discussed on the record as opposed to off the record. With that, I wonder if any of the other witnesses have had a chance to hear Mr. Weinberg's solution or suggestions as to alter- natives to section 331(d). Do any of the other witnesses want to comment on that? Mr. Wolf? Mr. WOLF. I think it is important to recognize that the thrust of this discussion this morning has been with respect to cellular. But when you are looking at a time frame of 10 or 20 years, there are going to be many, many new technologies develop which will com- pletely encompass or supersede what is happening today. Mr. MOIR. That is true, but with 40 megahertz proposed and some 25 in reserve, and considering the existing allocation for mobile services, .60 megahertz is a fairly significant amount of impact on the mobile system. Mr. WOLF. Exactly the point. And I think it is important, to establish the climate which will encourage diversity of develop- ment of that kind of resource to assure the public of being able to take advantage of the technological developments. I think that one PAGENO="0278" 1742 of the dangers in putting a lot of emphasis on the cellular consider ation at this point is other technological advances may be discour aged if it is allowed However there is no question we want a uniform nationwide system having universal applicability through out the country, primarily to drive down the cost of the mobile telephone But other forms of innovation should be encouraged to partici pate in this area, and perhaps if going back to putting the line of demarcation at the switch level as far as Bell is concerned-if you do that, you in effect could encourage other forms of radio system development I am an engineer by background I have seen the Chicago system and observed this operation and was very much impressed by it But the thing that struck me as most remarkable was that there was a little bit of genius in the Commission's order which required Bell to go to outside vendors for the base station hardware Every single item in that system is essentially today an off the shelf primary item So it would not be impossible for a competitive operator to put together a system from buying these hardware items from other vendors Bell's only area of exclusive expertise today is the switch, and a competitive switch is rapidly being developed by Motorola I agree with Travis With section 331(d) in the rules, you would see a lot of major switch manufacturers, in addition to radio manufactur ers working to fill that gap in the marketplace Mr Moni Let me throw out one other thing while we move down the line on this question You talked about the genius of the Commission in docket 18262 One of the other premises involved in that document was that you needed to have this maximum block of licensed frequencies in order to reach the proper degree of user cost efficiency I would like Mr Wolf to address this if he can Is it your view that as cells increase or decrease in size, that the cost per user remains the same, assuming that you do not increase or decrease the size of the cell unless you have sufficient users to wai rant that2 And I will preface that so that it is all on the table We had expressed in the options paper that as the cell is decreased in size and the system is forced to become more efficient, that there is an increase in cost to users We had a response from A T & T to that reference on page 291, which on page 4 of your response to the options paper says that the user costs remain approximately constant as the number of cus tomers increase because the added on costs of smaller cells and more transmitters are spread out over a larger group of customers And yet this morning you said that by changing the size of the cells, the cost would double, cutting the spectrum in half, cost would double Mr Wolf, do you feel that by, let's say, cutting the spectrum in half, that their costs would double7 And while this may seem a very technical question, at the same time it goes to the heart of potential solutions to this problem Mr WOLF I am troubled by that observation, not in the context of having a clear understanding of just what the costs are going to do, but I am troubled by it in the sense that it almost precludes the PAGENO="0279" 1743 opportunity for having a small cell system in a small community, which really runs contrary to a fundamental-- Mr. MOLE. I think in that situation, considering the number of users, you could probably figure that. But let's take a major market. Let us take a Chicago situation or a New York situation; if your spectrum is cut in half, probably your potential for serving customers is cut in half also, so your customer per spectrum ratio is still approximately the same. Mr. WOLF. Well, based upon my knowledge of the two systems currently in development, it seems to me that a significant factor would be the basic philosophy of the switch. I think the cell sites basically represent a relatively precisely defined cost factor that is determined by the number of channels in each cell, which presum- ably the investment costs would be related to. What we would propose is that the investment costs be related to the subscriber volume or the subscriber size so as to keep the revenue streams and the costs essentially in match, so that the subscribers are not penalized by excessive front end investment in the system. I think the switches are where the major cost factor comes in. In order to provide the handoff and the potential for cell size reduc- tion, it may be appropriate for Bell or it might have been appropri- ate for Bell to build a very large switch in the initial phases to allow for that eventuality. I think Motorola has attempted to do it in a different perspective by building the switch to realize a certain amount of capacity which could be expanded as the need arose. To draw a brief parallel in our paging business, if we attempted to put in a central office facility that would serve 15,000 or 20,000 subscribers, the 15,000 we are now serving and the 20,000 we anticipate over the next few years, we would have been losing money from day one. But what we have done is put in a small terminal to serve the first 1,000 subscribers, and when we ran out of capacity we threw that away and put in another one which served 8,000, and when that capacity was exceeded, we threw it away and put in one that would serve 20,000. Mr. MOLE. Granted, if you use a 40-foot semi to carry a 2 by 4, it would be very expensive. Maybe you could carry it by hand and do it at a cheaper rate. Mr. WOLF. Exactly. I think there is a philosophy that Bell has practiced over the years of making significant fixed plan invest- ments where it could be justified in the long term because that builds the rate base up and allows them to create higher charges and so forth. It can be justified on the basis of rate of return, whereas the competitive businessman might be much more in- clined to make a minimum investment to develop the marketplace in a proper way and then expand upon it. I think if you create the climate with section 331(d) to allow that to happen, it will happen. Mr. MOLE. Then, if I can sum it up, it is your opinion that by cutting the spectrum back per licensee, the cost per user is not affected. We had one example of 50 percent by Mr. Weinberg. Are you saying it is miniscule? Mr. WOLF. I believe it would be. I think as long as the reserves are available potentially to expand it to that additional resource, that problem could be minimal. PAGENO="0280" 1744 Mr M0IR Ms Cornell, do you have any comments on the dia logue or on Mr Weinberg's testimony where he lays out alterna tives to this blanket prohibition? Ms CORNELL I do want to comment on that I don't know enough about the technology to answer the cost effectiveness, al thotigh I think some people at the Commission are looking at that But the one problem that I see that I think has to be considered in going to an approach where basically cutting back to the switch, as near as I could see-I wasn't the beneficiary of the full view of the chart, but it seemed to be cutting back to the switch-that the monopoly provision, if you will, and then the sales and the mobiles and so on, were to be offered competitively, is that it continues a situation in which a technology that is a potential competitor to the wire line local loop for local distribution remains in the hands of those that own that wire line local distribution system and is therefore potentially precluded from being an active competitor for local service As I say, there are a lot of factors which must go into seeing whether that is good or bad, but that is slid past That decision gets made if one adopts the kinds of suggestions that have been made by Mr Weinberg Mr Morn Thank you Mr. Wiley. Mr WILEY Mr Moir, I have had no opportunity to examine Mr Weinberg's specific proposals or the economics of cellular land mobile sytems As you know, I have filed a petition with the FCC on behalf of the Xerox Corp which involves another use of cell systems for local distribution of electronic message services. That petition did favor the concept of competing cellular carri ers I cannot tell you today whether that is feasible from an eco nomic standpoint in a land mobile arena Also, of course, as section 331(d) suggests, there may be other problems beyond economics in competing with Bell in that area Mr Morn Thank you Mr Marshall Mr MARSHALL Thank you I think we have a very complex situation going here Mr MOIR I hope you will also address the cost aspect per user Mr MARSHALL I will get to that first, but there are so many issues out on the table The cost aspect, as I see it, is this You can, without frequency reuse, serve about 500 mobile customers per megahertz That is 25 per channel, 20 channels per megahertz, so it is 500 per megahertz Now, if the market is 1,000 mobiles, and if you could serve it with one central station, you could have 2 megahertz serve the 1,000 without having frequency re use and the additional cost that comes about by having these transmitters located all around the countryside If there were two companies supplying this, you could still do it without frequency re use if you had the 2 megahertz If spectrum is dear and all you can have is 1 megahertz, then you will have to have two times frequency re use, which must mean at least 15 or 20 transmitter sites to obtain this frequency re use PAGENO="0281" 1745 Mr. M0IR. So you don't agree with the formal response we had from A.T. & T. on the option papers where we made the very point you are making now, and in response, A.T. & T. said that as you cut the size of the cells, the cost per user remains the same, even though you are granted your gross cost, increase. The cost per user remains the same because you have not increased the number of users. Mr. MARSHALL. You are getting into another point there. I have started at a very basic. If you have something that already has a three or four times re-use, if we get to that point, and then want to add to it, for every voice channel you are going to be adding another transmitter. And as you cut the size of the cells, you are adding more antenna sites, so that the costs-in other words, you are not saving in costs the way you would if you only had one central antenna site. The more antenna sites you have, the more you are raising your-- Mr. MOIR. Your gross costs. But theoretically, you wouldn't add more antennas unless you had a proportionate number of custom- ers to increase that investment. Mr. MARSHALL. So per customer, this may remain constant, right, once you get a cellular system going. There will not be a reduction in cost per customer, I think. It will be relatively con- stant per customer. The initial thing of going into a cell system, though, is where you make your big step, where you go from one central antenna site to maybe 25 antenna sites to get frequency re- use. Mr. Mom. Mr. Weinberg. Mr. WEINBERG. I am still not clear. I think Mr. Marshall said, as I would say, that what happens as you have a demand above a certain point-let's say you have a 20-megahertz system. You must start splitting the cells when you reach that demand in order to serve other customers earlier than if you had a 40 megahertz system, certainly much earlier. Mr. MARSHALL. That is correct. Mr. M0IR. Certainly as you start out on day one, the cost per user is very high because you only have a handful of users. Mr. WEINBERG. Sure. Mr. Mom. But that is only a short-term situation, and you wouldn't make the decision even of a 20-megahertz system to split a cell unless you knew you could rapidly-I thean you would not split the cell for one additional user. You would split it for a projection which would make it cost effective. Mr. WEINBERG. I believe-and again, I would ask Mr. Marshall's response. I am not clear on it but it seems to me, if you had 40 megahertz and you started splitting when you had to split at 40 megahertz, and developed the line on out, the cost per, customer would be less than if you had 20 and had to split the 20 on out. Those are two different cost curves. Mr. M0IR. So you are saying that for 20 megahertz, if you had the optimal use, with no cell splitting, of 20 megahertz, that system is going to be twice the cost of the optimal use? Mr. WEINBERG. No, no. I am sorry. Mr. M0IR. No channel split? Why is channel splitting running more expensive, twice the cost in a 20 megahertz system than in a PAGENO="0282" 1746 40, since your premise on page 4 here in response to the option paper says if you split cells, the cost per user remains the same2 That is A T & T `s own language Mr WEINBERG But you do it earlier, Mr Moir Mr MOIR Whether it is earlier or later, the relationship between customers and cost is the same Mr WEINBERG Depending upon when you get the fill, you can't take those costs until you at least can predict when that customer fill is going to come in, I believe Mr Mont Mr Marshall Mr MARSHALL I believe what we are saying is, given a set amount of spectrum, as you increase the number of users, the number of base stations, the cost per customer remains fairly con stant If you change the amount of spectrum so that you have to have more reuse for the same number of customers then the cost per customer is higher Mr WEINBERG I think this points out these are extremely com plex technical and economic issues Mr Morn That is very true, except say you have 20 times reuse Regardless of whether you have a million times reuse-your own written comments to this committee said regardless of how many times you split the cell, the cost per user remains the same What you are saying here today on the record is that is not the case We have been trying to drive at this issue for 2 years Mr WEINBERG As you reach a certain point, for example, with 20 megahertz, Mr Moir, and you keep getting smaller and smaller cell sites, as you mentioned before, you do exhaust That is true I guess you theoretically could come up with a half mile or a quarter mile if you had to, but the costs do keep going up and you have four cell sites for each one cell site before Mr Morn So I would assume that the author of the statement 2 years ago was merely in error and not specific enough Mr WEINBERG I would have to review both, Mr Moir, and I will Mr M0IR You sire welcome to read it afterward Mr WEINBERG I will Mr MARSHALL I would like to add a comment to this too I think the real question is, What is the market7 How many mobile tele phone users will there be in a given market2 It is quite possible that 40 megahertz will be far more than is ever needed In some markets it certainly will be The fact is some towns don't have 40,000 people in them, and that would be a mobile telephone for every car, or more Mr Morn But you see, Mr Marshall, a number of us relied upon statements of experts in the fact that as you split cells, the cost per user would remain the same And when we get data conflicting with that at a later date, it is confusing Mr MARSHALL I understand Mr MOIR That is all, Mr Chairman I am sorry for this lengthy question and answer period Mr VAN DEERLIN We do hope to complete this morning's hear ing this morning, and that is now a forlorn hope. But we certainly appreciate the participation of all five of you You have contributed greatly V PAGENO="0283" 1747 Our first individual witness will be Mr. Mark Crosby, president of Special Industrial Radio Service Association, all the way from Rosslyn, Va. STATEMENT OF MARK E. CROSBY, PRESIDENT AND MANAGING DIRECTOR, SPECIAL INDUSTRIAL RADIO SERVICE ASSOCI- ATION, INC. Mr. CROSBY. Mr. Chairman, in that we are running a little late, my remarks will be limited to the spectrum resource fee proposals that are contained in H.R. 3333. My name is Mark Crosby. I am president and managing director of the Special Industrial Radio Service Association, Inc. Regarding the concepts that are proposed in sections 411 and 414(a) which establish the spectrum resource fee, SIRSA wishes to express its concern again that we simply fail to see how an eco- nomically based spectrum management program will result in greater spectrum efficiency in the future for land mobile users. We agree that land mobile radio users do indeed receive benefits when issued a license by the FCC to operate radio communicaiton facilities. These benefits are economic in nature, with both man- power and energy savings realized in addition to the contributions of mobile radio for safety objectives. The public at large also directly benefits from land mobile spec- trum utilization, however, through the attainment of these safety goals and business economies that for competitive reasons are passed along to consumers in the form of reduced costs for goods and services. In a similar manner, then, it would be anticipated that the additional inflationary costs created by a spectrum resource fee program would be passed on to the consumers and public at large. Additionally, SIRSA questions the effect that an economic fee incentive program will have if a major segment of users are ex- cluded as proposed in section 414(a)(2), which exempts major users of spectrum from paying a spectrum resource fee. We understand the reasons as to why, yet the reliability of an economically based spectrum management program which excludes users of a large portion of the spectrum may significantly affect the reliability of such a program. These concerns do not address the major decisions that the Com-. mission would have to make when attempting to administer an annual spectrum resource fee program to well over 100,000 land mobile radio users in an equitable manner. We agree with the subcommittee's method, however; that if a spectrum fee were to be implemented for both broadcast and land mobile licensees equita- bly, it would have to be done in the manner proposed or by a similar method. That is, such a program would have to be based upon the amount of the spectrum utilized by each class of licensee or service. Over a period of time we anticipate it would become evident, as a result of such a program, that land mobile utilization in the public interest was being stifled and that additional UHF allocations would be beneficial to the public at large. What is still disconcerting, however, is the fact that prior con- gressional approval would have, to be obtained before such a reallo- PAGENO="0284" 1748 cation could take place as specified in section 413(d)(1). While we understand that such a reallocation would necessarily impact the spectrum resource fee charged, having to further justify the reallo- cation to Congress for its approval would appear to diminish the possibility of a significant reallocation for land mobile use. I thank you for this opportunity to present SIRSA's views. Mr. VAN DEERLIN. Thank you, sir. Are there questions for Mr. Crosby? Mr. JACKSON. I have just one question on that last point, Mr. Crosby. Mr. CROSBY. Yes, Mr. Jackson. Mr. JACKSON. You refer to t e undesirability of having any change in the television allocati n be referred back to the Con- gress. Would you prefer to see so e sort of mechanism where the Commission could change television allocations and then reflect that change of allocations, the change in the resulting scarcity, increase or decrease in scarcity, and a change in the television license fees? Would it be better to have that all at the Commission? Mr. CROSBY. Yes. Mr. Jackson, I would prefer to see that deci- sion, any shift in allocation, to be made at the Commission and not at the congressional level. I believe this was specified in section 413(d)(1)(A). I agree with (b), (c), and (d), that is, if changes impact the spectrum fee program, congressional approval would be neces- sary. Mr. VAN DEERLIN. That is an interesting suggestion. Do you have any questions, Mr. Wunder? [Mr. Wunder nods negatively.] Mr. VAN DEERLIN. Thank you very much, Mr. Crosby. Our next witness is Mr. Robert M. Booth, Jr., who is general counsel to the American Radio Relay League. Good morning, Mr. Booth. STATEMENT OF ROBERT M. BOOTH, JR., GENERAL COUNSEL, AMERICAN RADIO RELAY LEAGUE, INC., ACCOMPANIED BY HAROLD STEINMAN, WASHINGTON COORDINATOR Mr. BOOTH. I am Robert M. Booth, Jr. In addition to being general counsel of the American Radio Relay League, which is the national amateur radio organization in the United States, I am a registered professional engineer and have been an amateur for more than 50 years. I bring that background to the committee. Had I known that Mr. Marshall was going to have a hand-held radio station here through which he could access the telephone system, I would have brought one which was one-half or one-third the size of that which would accomplish much the same thing through amateur facilities, our repeaters and what is known as autopatch. Mr. VAN DEERLIN. You just didn't know it was show and tell day. Mr. BOOTH. I didn't know. That system, incidentally, is described very briefly in the prepared statement which has been distributed and which I would like to have incorporated in the record, please. Mr. VAN DEERLIN. Unless Mr. Collins objects, it will be done. Mr. BOOTH. The approach that the American Radio Relay League has taken in various hearings before the subcommittee on the rewrite of the Communications Act has been largely one to try to PAGENO="0285" 1749 be constructive, to help the agency, whether it be the Federal Communications Commission, a communications regulatory com- mission or some other agency, to operate more effectively and efficiently in administering the amateur radio service. The amateur radio service traditionally has been largely self- regulating in that we have done our own policing to a great extent. We are not assigned specific frequencies for operation but frequen- cy bands on which we are able to operate. We have various classes of licenses which require us to operate in certain frequency bands depending upon the class of license and so forth. The Commission's annual reports over the years have stated in their reports to Congress that they have devoted less time and have less problem with the amateur radio service than any other service. So that our comments, basically, are intended to improve and increase the efficiency of the agency in its work. For example, recently-and this was touched upon in the testimony of Mr. Dan- iels, president of the league, Harry Daniels, in September of 1977 and again in 1978 before this committeee-the Commission has found it necessary to discontinue the issuance of licenses for cer- tain classes of stations such as repeaters and special event station licenses simply because of the time required to process such appli- cations in relationship to the number of applications received. The Commission now proposes to eliminate special licenses for club stations which are widely used and are in existence at most of the major universities in the country-some of these stations are more than 50 years old-and to eliminate special licenses and call signs for one of the most important disaster services rendered by amateurs, the Radio Amateur Civil Emergency Service, commonly known as RACES. One of the proposals we have submitted before and we resubmit in the light of what is not contained in H.R. 3333 is a renewed request that specific authority be given to the Commission to con- tract for not only the services in administering examinations but to contract for even processing applications and issuing these distinc- tive call signs. It can be done at very nominal cost to the Commission by private contract. There are many amateurs who are skilled in computer techniques who have the facilities available to handle some 4,000 or 5,000 separate licenses which would be outstanding at any one time, and to administer the service in a speedy manner. The league is just one such organization, and that is one of the suggestions we have in our written statement. Another suggestion is that the provisions of the Secrecy Act, presently section 605 of the act, be broadened again to permit other services to become more or less self-regulating. We pointed this out in earlier testimony and we have again in our written statement; that, for example, the Citizens Radio Service, Citizens Band Serv- ice, has developed along lines other than originally intended. It is not a business service, primarily, for small businesses as was the original intent. It has become considerably a hobby class, a hobby-type operation. However, the secrecy provisions of section 605 of the present act apply to the Citizens Radio Service, with the PAGENO="0286" 1750 result that that service cannot really be self policing as the ama teur service has been as long as those obstacles stand in the way We have recommended certain changes in those Finally, we do appreciate very much the attention that the corn rnittee and its staff have given to the various comments which the league has filed in the earlier hearings We appreciate the state ment and the explanation of H R 3333 that nominal fees would not be charged or collected in many instances, and this would undoubt edly apply to the amateur and citizens radio ser zice too But we see no reason why that just cannot be written into the act, and we would urge that that be done I think that concludes my statement I know that you are run ning short of time, and I would be glad to answer any questions that you have. [Testimony resumes on p 1766] [Mr Booth's prepared statement follows] PAGENO="0287" 1751~ Before the SUBCOMMITTEE ON COMMUNICATIONS ofthe COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE *House of Representatives Washington, D.C. 20515 June 7, 1979 STA'tEMENT OF R BERT M. BOOTH, JR On H. R. 3333 The American Radio Relay League is the nationwide and binational non-profit organization of amateur radio operators of the United States and Canada, with a membership in excess of 166,000. I have served as its General Counsel for almost 18 years. This is the third appearance of spokesmen for the League before this Subcommittee on the proposed rewrite of the Communi- cations Act of 1934, Harry J. Dannals, the League's President, submitted a written statement on September 15, 1977, and he and I participated in one of the panel discussions held at that time. A year later, on September 22, 1978, Mr. Dannals submitted a written statement commenting upon H. R. 13015, and Harold Steinman supplemented the statement by oral testimony in the absence of Mr. Dannals. PAGENO="0288" 1752 The League is extremely pleased that a substantial number of its suggestions have been incorporated in H.R. 3333, either directly or in the explanation prepared by the staff which bears Committee Print 96-IFC 11 and which we hope will become part of the legislative history. Nevertheless, several proposals not specifically adopted by the draft of H.R, 3333 now under consideration bear repeating and other proposals warrant support Volunteer Assistance To The Commission Section 242(b) (7) would give the Commission authority to accept gifts and voluntary and unCOmpenSdted services notwithstanding the provisions of Section 3679 of the Revised Statutes (31 U S C 665(b)) In his statement of September 22 1978 on H R 13015 President Dannals expressed the League s support of the proposed section and urged its adoption However his proposal that volunteers be author] zed to issue temporary authorizations but not licenses to qualified appli- cants for Amateur Radio licenses was not included in H R 13015 and does not appear in H R 3333 The following is quoted from pages 4 and 5 of President Dannals statement of September 22 1978 on H R 13015 However I have been unable to find that the second part of the League s recommendation that voLunteers he authorized to issue temporary authori- zations but not licenses to qualified applicants for amateur radio operator licenses has been included in H.R. 13015. The reason authority to issue "temporary PAGENO="0289" 1753 authorizations, but not licenses," is suggested is to permit complete implementation of the "instant upgrading" program recently adopted by the Commission. Under that program an amateur who has passed an examination administered by a Commission employee to upgrade to a higher class of operator license with additional operating privileges need not wait several weeks and often longer for receipt of an amended or new license before operating with the new and additional privileges. "Instant upgrading" has been one of the most practical and popular procedural changes adopted by the Commission in recent years. Unfortunately, "instant upgrading" is unavailable to the Novice Class, which is the lowest and usually entry class to Amateur Radio, The dropout rate of Novice Class licensees has been substantial, because they must wait several weeks after having taken the examination to learn the results and, if successful, to obtain a license, Investigation has disclosed that one of the causes of the high dropout rate has been loss of interest and momentum during the several weeks between taking the examination and receiving the license, By authorizing "the issuance of temporary authorizations, but not licenses", by the volunteers who administer the Novice examinations, the delays in obtaining permission to operate will be eliminated, In addition, the issuance of temporary authorizations, but not licenses, is consistent with the provisions of the Administrative Procedure and Judicial Review Act, 5 U.S.C. 555, et ~ The number of applications received and processed by the Commission's Private Radio Bureau has continued to increase significantly in the nine months since the League's last appear- ance before this Subcommittee, The ever-increasing workload, coupled with the restraints placed upon the Commission's budget by Congress, makes even more imperative the granting of authority to issue "temporary authorizations, but not licenses" to amateurs who have passed an examination administered by a volunteer examiner, PAGENO="0290" S 1754 The League suggests that the following subsection be added after Subsection 7 of Section 242(b): (8) Have authority to'delegate to qualified per- sons, by contract or otherwise, the preparation and administration of examinations for amateur radio operator licenses and the issuance of temporary authorizations, but not licenses, to qualified applicants. Contracts For Services Section 245(a) would grant the Commission authority to "enter into and perform such contracts, leases, cooperative agreements or other similar transactions with.. ,private organi- zations and persons. . . as it may consider necessary or appropriate to carry out functions now or hereafter vested in the Commission." The League supports this provision. Within the last eighteen months, primarily for the purpose of making better use of its limited funds, the Commission has discontinued the issuance of licenses and distinctive call signs for repeater stations, special events stations, and secondary stations. In Docket 21135, the Commission also is considering the elimination of separate licenses and call signs for club stations and amateur stations operating in the Radio Amateur Civil Emergency Service, more commonly known as RACES. These proposals have been widely opposed by the Amateur Radio community. The amateur stations of universities, colleges and high schools PAGENO="0291" 1755 throughout the country and their associated radio clubs, some more than fifty years old with well known call signs, and stations established and maintained primarily for emergency communications in cooperation with Civil Defense and other governmental agencies would lose their identity should club station licenses and call signs be discontinued, The ability of RACES networks to function effectively in times of disaster would be greatly impaired, should the Commission's plan become a reality. The number of licenses issued to repeater, club, RACES, and special events stations is less than one percent of the more than 370,000 amateur licenses outstanding. However, the Commission's processing procedures are being so computerized that applications, and particularly the assignment of distinctive call signs,to such classes of stations will be hand processed. There appears to be no reason why the Commission could not con- tract at nominal cost with any one of many private organizations or persons, of which the League is one, to provide such services. For this reason, the League supports Section 245(a), Telephone Terminal Equipment And Connections Section 321(c) provides that "[n]o State shall have any authority to regulate the provision of terminal equipment or terminal devices" used in the telephoneservice. Amateurs make wide use of an interconnection or terminal device known as a "phone patch", by which voice communications received and PAGENO="0292" 1756 transmitted by an `amateur station can be relayed over the tele- phone lines. Phone patches to and from military and other personnel overseas with their families and loved ones are extremely important in sustaining morale and in times of emer- gencies. Senator Goldwater's amateur station in Phoenix, Arizona, K7UGA, is an outstanding example of the public service rendered by amateur stations through interconnections with the domestic telephone system. In recent years, amateurs have developed highly effective two-way communications systems employing repeater stations which automatically relay transmissions to and from mobile stations installed in automobiles and miniature hand-held stations, commonly known as "walkie-talkies." A substantial percentage of the more than 2500 VHF and UHF repeaters now in operation in the United States have what are known as "auto-patch" capabilities. An amateur desiring to communicate with a non-amateur by a combi- nation of radio and telephone need only transmit a sequence tone identical to those generated by touch-tone telephones to obtain access to a telephone circuit. For example, a radio amateur with a VHF or UHF transceiver in his car can alert police to a serious accident merely by "punching up" a predetermined access number and, when the dial tone is heard, punching the police emergency number "911". Auto patches have made possible greatly expanded emergency capability and have been widely used in every flood, tornado, hurricane and other disaster in the last five PAGENO="0293" 1757 years. Countless lives and millions of dollars of property have been saved by this unique and exclusive service of Amateur Radio. There have been several instances in the last few years in which state regulatory commissions, supported by the local telephone companies, have attempted to prohibit or unreasonably restrict terminal equipment such as phone patches and auto patches used by amateurs. Adoption of Subsection (c) would eliminate this potential threat to the amateur service. Fees Section 411 refers to "marketplace forces", Frankly, the League does not understand how "marketplace forces" might be applied to amateur and other non-commercial users and how such users would be protected from "marketplace forces". The League strongly recommends specific exemption of all non-profit services from any consideration of "marketplace forces". Section 414 appears to be similar, insofar as amateur radio is concerned, to the fee proposal in Section 413 of H.R. 13015. The following statement submitted by President Dannals on September 22, 1978, continues to be the position of the League with respect to fees: Proposed Section 413 [of H.R. `l3015} would require payment of a license fee by "all users of the electro- magnetic frequency spectrum" based upon "the cost to the Commission of processing the license", and "the scarcity value of the spectrum being assigned". The PAGENO="0294" proposed Communications Re~,ulatory Commission would be authorized to waive the fee if it determines that (a) the value is minimal (b) the user is a State or political subdivision (c) the user is a oublic telecommunications entity, or (d) a license is required by a treaty or provision of international law, ~~m~osit ion of a s~p~c trum feqgives thej~~e some concern ~ trum is not 6Tthe Unitcd States_Covernment or any ot.h~~gpvernment orcom~iatioiT~v~i~nments it is as extensive as our unive3 se as recently demonstrated by transmission of pictures and telemetry from the moon, Jupiter, Mars and even farther in outer space MObt of the fre- quencies are assigned on a worldwide basis and the League respectfully suggests that further scud) be given to this proposal (Fmphasis suppliec) Insofar as Amateur Radio is concerned, the League first opposed but later supported the imposition of fees to cover the cost of processing applications. However under the fee schcdule used in the past there was no teasonable relationship to the cost of administering the amateur service The fees collected from the Amateur Radio Service exceeded by many times tFe cost of admini- stering the service and imposed an unfair and unreasonable burden upon the service The League ca'rnot envision how the concept of scarcity value could be applied to amateur radio which operates on unassigned freooencies within scveral frequency bands. Nor can the League envision how the value of an amateur license might be determined because by definition an amateur is a person who is interested ii radio technique solely wth a personal aim and without pecuniary interest The Ariateur Radio Service does not use the spectrum to make a profit noi as a means to mak. a profit Amateur Radio s payment for use of the spectrum is the service iendered to the pubLic as summaiized in Section 97 1 of the Commission s Rules which reads as follows .97 1 Basis and Purpese The rules and regulations in this part are designed to provide an anriteur radio serVice having a fundamental purpose as expressed in the following principles: 1758 PAGENO="0295" 1759 a) Recognition and enhancement of the value of the amateur service to the public as a voluntary noncommercial communication service, particularly with respect to providing emergency connnunicatio~s. b) Continuation and extension of the amateur's proven ability to contribute to the advancement of the radio art. c) Encouragement and improvement of the amateur radio service through rules which provide for advancing skills in both the coamun.ication and technical phases of the art. d) Expansion of the existing reservoir within the amateur radio service of trained operators, technicians and electronics experts. e) Continuation and extension of the amateur's unique ability to enhance international good will. The League recommends that the matter of fees be re- examined and more specific proposals be submitted for comment. The Staff Report on H.R, 3333, in explaining the intent and scope of Section 414, states: The fee may be waived whenever it is minimal and it must be waived for government users such as police departments and fire departments and public broadcast stations. Clearly, the fees for such users as amateur radio or citizens band radio would be minimal and should be waived. There appears to be no reason why the intent of the drafters of H.R. 3333 should not be clearly stated in the form of specific exemptions for the Amateur Radio Service and government users. PAGENO="0296" 1760 Susceptibilitj Of Devices To Unwanted Signals Section 413(a) (5) would continue the authority under which the Commission conducts certification, type acceptance, and type approval of devices which emit electro-magnetic radiation. Section 4l3(a)(6) empowers the Commission to regulate the "interference potential" of equipment and, according to the Staff Report, "allows the Commission to regulate susceptibility to interference as well as the creation of interfering signals." The Report states that the section "is similar in legislative aims and goals to several bills offered in the 95th Congress, including H,R, 8496 by Mr. Vanik, H.R. 8079 by Mr. Benjamin, H.R. 11812 by Mr. Fisher, and S. 864 by Mr. Goldwater." The League has been urging the adoption of such legislation for several years The opponents, including the Electronic Industries Association (EIA), have offered no factual data to support their contention that manufacturers of home entertain- merit devices such as TV receiverc AM and F~1 receivers hi-f i :amplifiers, tape and record players, and electronic organs, have voluntarily incorporated protective devices and designs in their equipment In the League's opinion, the Notice of Inquiry issued the present Commission November 21, 1978, in Docket 78-369 was essentially a holding action which very probably will not bring about positive, forceful action by the Commission. Section 707(c) would direct a two-year study of the suscept- ibility of consumer electronic devices to interference caused by PAGENO="0297" 1761 the transmission of radio signals. In commenting upon a similar provision in H.R, 13015, President Dannals said as follows in his statement of September 22, 1978: Section 707(c)(l) of H.R. 13015 would have the Director of the National Telecommunications Agency "conduct a study of problems and issues relating to the susceptibility of consumer electronics to inter- ference which is caused by the transmission of radio signals", and to submit a report, with recommendations, to the Congress within two years. Dozens of such studies have been conducted in recent years by the FederalCom- munications Commission, by manufacturers, and by radio amateurs. Corrective measures are well known and readily available at almost infinitesimal cost. Action is needed now, not another study. The League strongly urges that the substance of the Vanik Bill, H.R. 8496, and the Goldwater Bill, S. 864, be incorporated in H.R, 13015, Why "fiddle while Rome burns?" The need for legislation is greater than ever before to pro- tect the consumer from purchasing devices which are susceptible to interference. Adoption of Section 4l3(a)(6) is urged by the League as strongly as possible, Point of Sale Control of Transmitting quipmmnt The ready availability of transmitting equipment, including transceivers (a transmitter and receiver with some common com- ponents and circuits in a single package), capable of operation on unauthorized frequencies has been the direct cause of tens an4 perhaps hundreds of thousands of stations operating in direct defiance of the 1934 Communieations Act. The following is quoted from President Dannals' statement on H.R, 13015: PAGENO="0298" 1762 The Commission has been deluged by tens of thousands of complaints of interference to television reception from transmitters operating in the 27 MegaHertz Citizens Band Service. A high percentage of the complaints are brought about by the illegal use of external radio frequency power amplifiers to increase the transmitted~ power from a maximum authorized power of four watts to several hundred watts. A lesser hut substantial number of television interference complaints have arisen from the illegal operation by Citizens Band operators or unlicensed individuals of relatively high power amateur transceivers on frequencies adjacent to the 27 MHz Citizens Band allocations. Over the objections of the League and amateurs generally, the Commission has recently modified its rules for external radio frequency power amplifiers to prohibit the manufacture, shipment, offer- ing for sale, or sale of amplifiers which (1) are not type accepted, (2) are capable of operation between 24 and 35 MHz. That action was taken in Dockets 21116 and 21117. The League submitted as a counter proposal that the present Act be amended to add the following to Section 303: (t) Have authority to prohibit the delivery by sale, lease, gift or otherwise, of transmitting and associated equipment and components to a person not then possessing a valid authorization or license for operation of such equipment or compo- nents. * * * * Point of sale control also is needed for other than amateur-type equipment. The purchase and illegal operation of VHF marine transceivers for private land-mobile communi- cation systems is becoming quite widespread, For example, a person may purchase without question or challenge a transceiver capable of operation on marine frequencies in the 152-174 mHz mobile band, install the unit in his automobile, and operate on frequencies assigned to the marine service. The Staff Report of H. R. 3333 states that Section 413(a) (6) "also allows the Commission to impose point of sale controls on the sale of equipment". Without access to the Staff Report, the intent and scope of Section 413(a) (6) is not clear. The League suggests that the paragraph submitted by President Dannals in 1978 be incorporated into H, R. 3333. PAGENO="0299" 1763 License Terms Section 431(a). would give the Commission the power to issue licenses for periods up to ten years and renew licenses. It would not, however, require the Commission to grant licenses for ten-year terms. In earlier appearances before this Subcommittee on rewrite of the Communications Act of 1934, League spokesmen have recom- mended that license terms longer than the present five-year maximum be permitted so as to reduce the Commission's workload in processing applications in the Amateur Radio Service, The League supports the ten-year maximum period, ~ Section 432(b) would provide that "any suspension., .shall not take effect until fifteen days after the Commission gives written notice of a proposed suspension to the licensee", and that the licensee "shall have fifteen days in which to mail a written application for a hearing upon the suspension order," Fifteen days is not sufficient time for notification of many amateur stations and operators. Until a few years ago, amateurs were required to keep the Commission advised of the address at which they would be operating and could be reached when operating either portable or mobile away from their home location. As part of its deregulation program, the Commission PAGENO="0300" 1764 deleted this requirement from the rules. Now all that an amateur must do is arrange to have any communications received at his permanent address forwarded to him within a reasonable period of time, irrespective of where he is actually located. When an amateur is operating portable or mobile, fifteen days is not sufficient time for a notice sent to his permanent address to be forwarded to his qemporary address. In addition, many amateurs are located in remote places, such as the bush country of Alaska, where mail service is poor. The League recommends that the time period in this subsection be increased to 45 days. Secrecy Of Communications Section 549(d) of H,R, 3333 is identical to Section 547(e) of H.R. 13015, to which President Dannals commented as follows: The Amateur Radio Service has enjoyed the reputation of being largely self-regulating. The amateurs have kept their house in order with but minimal enforcement activity by the Commission. This has been made possible to a large extent by the exemption of amateurs from the secrecy provisions of Section 605 of the Com- munications Act. Nevertheless, questions have arisen from time to time because of a literal interpretation of the last sentence of that section. In addition, many responsible Citizens Band and General Radio Ser- vice operators have attempted to bring self-regulation to the CB service, only to be met by the obstacle that the exemptions of Section' 605 apply only to amateur and broadcast stations. To provide clarification and enlargement of the exemption of Section 605, the League recommended that the last sentence of that section. be revised to read as follows: PAGENO="0301" 1765 This section shal.l not apply to the receiving, divulging., publishing, or utilization of the contents of any radio communication which is transmitted by a broadcast, amateur, citizens band or personal radio station, or by any other station for the use of the general public, or which refers to ships, aircraft, vehicles, or persons in distress, The last sentence of Section 605 of the present Act would become Section 547(e) of the new Act: (e) This section shall not apply to the receiving, divulging, publishing, or utilization of the contents of any radio communications which is broadcast or transmitted by amateurs or others for the use of the general public, or which relates to ships in distress. The League once again respectfully requests that all non- commercial communications of Citizens Band Radto, General Radio~ and Personal Radio Stations be exempt and that the wording recommended by it in the earlier hearings be adopted. The League appreciates the opportunity to submit these comments and suggestions and hopes that they will be of assistance to the Committee, Respectfully submitted, Robert M. Booth, Jr. General Counsel The American Radio Relay League, Incorporated June 7, 1979 PAGENO="0302" 1766 Mr. VAN DEERLIN. I am not a legislative draftsman, Mr. Booth, but if that is not clear in the present language that amateur radio operators would not be subject to a fee assessed on commercial use, I can assure you that it will be made clear Mr. BOOTH. Thank you, sir. Mr. VAN DEERLIN. And if I didn't, Senator Goldwater would make that clear. Mr. BOOTH. Well, we hope so; but in any event, as I read the language here, you have to go back to the staff report for a legisla- tive history to make it clear, and I think that is undesirable if it can be avoided. Mr. COLLINS. Mr. Chairman, could I ask how many people are involved in this country as amateurs? Mr BOOTH Somewhere close to 375,000, and it is increasing at a rate of about 15 percent per year Mr. COLLINS. That is a real good segment of our population. Mr. BOOTH. Yes, it is, and that is one of the reasons that the amateur service has been so effective in times of disaster. We have amateurs in every city, in every part of the country, and while you may not be able to communicate, say, from Texas up to where you have tornadoes, up to Kansas City or for emergency supplies be- cause of propagation conditions, you can certainly communicate into New York and get back by established commercial facilities. That is one of the reasons the amateurs have been so highly effective There are just so many of them and they are basically trained and set up to operate under such conditions. Mr. VAN DEERLIN. Are there staff questions for Mr. Booth? [No response.] Mr. VAN DEERLIN. We certainly do thank you, Mr. Booth, for being with us today. Mr. BOOTH. Thank you very much. Mr. VAN DEERLIN. By the way, it said you were accompanied by Mr. Harold Steinman. Mr. BOOTH. Well, Harold is here. Stand up, Hal. In view of the length of the time, I thought I would hog whatever time he might have. Mr. VAN DEERLIN. Thanks to both of you. Our next witness is James H. Baker, executive vice president of Forest Industries Telecommunications in Eugene, Oreg. STATEMENT OF JAMES H. BAKER, EXECUTIVE VICE PRESIDENT, FOREST INDUSTRIES TELECOMMUNICATIONS Mr. BAKER. Good morning. For the record, my name is James H. Baker, executive vice president, Forest Industries Telecommunica- tions, better known as FIT. FIT is an organization of approximately 1,200 member companies that are users of two-way radios, licensed in the Forest Products Radio Service under part 90 of the FCC rules. I have already submitted a separate comprehensive statement for the record on the interests and concerns of FIT membership in H.R. 3333. I am glad to say that FIT feels much better about H.R. 3333 than it did about the previous bill. However, we still have some concerns and I appreciate this opportunity to state our views PAGENO="0303" 1767 As seen by FIT, spectrum-related matters are believed to be the key. issue for the private land mobile interests in considering the Act of 1979. Availability of adequate spectrum is important to the forest ~industries because most of their activities are located in rural and mountainous areas where no other form of communica- tions are available. Accordingly, the FCC or its successor should be provided with the authority needed to manage the Nation's spectrum usage efficient- ly and in a manner responsive to our requirements. One step which can be taken is to authorize the Commission to make greater use of the existing frequency industry radio coordinators. This would place much of the burden of working out detailed frequency coordi- nation matters. on the users themselves in lieu of the Commission staff sitting in Washington, D.C. Senate bill S. 622, section 366, proposes to do this. The addition of a similar provision in~ H.R. 3333 is recommended for considera- tion by this subcommittee. Procedures for the allocation and as- signment of radio frequencies is one of the important current issues. Title IV of RE. 3333 indicates that the CRC is responsible for assignments, whereas in title VII, the NTA has a principal responsibility for allocations. There appears to be no way for the user public to input the NTA allocation processes; It is therefore recommended that H.R. 3333 provide for that input, perhaps by bringing the NTA under the Administrative Procedures Act. Section 413(d)(1) proposes that any substantial change in the assignment of spectrum use by broadcast stations must be referred to Congress, and rules to effect such a change are not to take effect unless approved by concurrent resolution. To FIT, this appears to be overkill in the favor of one. user of the spectrum. There are many users of the spectrum other than broad- casting whose interests are vital, too. The disadvantage of section 413(b)(i) is that it has the effect of freezing the broadcast spectrum into place regardless of changing requirements in technology. Its deletion from H.R. 3333 is recommended for your considera- tion. FIT is concerned over the emphasis on economic factors as they would be applied to private land mobile interests. The use of mar- ketplace forces and resource fees based on scarcity value over- looked the realities of private land mobile communications even though they might well be applicable to broadcasting and common carrier industries where communications is the business. Forest industries use of radio for safety and as a tool to enhance efficiency of operations is an example. Without radio, more lives would be lost, property destroyed, and the general public would pay in the end for inefficient operations. In short, the public interest is `of a nature that economics should not be the criteria for deciding who among the private land mobile users gets access to the spec- trum. Resource fees for spectrum are a particular concern. As I stated last year, there is no objection to paying a fee for processing the license application. However, the introduction of a fee based on scarcity value is a cause of concern as it would require payment of fees of an unknown and possibly exorbitant amount based on the PAGENO="0304" 1768 scarcity value of the spectrum already in use for thousands of private land mobile operations How scarcity value would be applied to such operations is not understood because the criteria used in H.R. 3333 is related to communities, and radios used in the forest industries move about and the spectrum is shared by multiple users, often in the same geographical area. Computation of equitable resource fees would appear to be unre- alistic from a practical standpoint Additionally, FIT is concerned that the small businessman logger could be squeezed out of radio usage; and further still, resource fees would ultimately be passed on to the consumer and the public in the form of higher prices Leaving the subject of frequencies, I would make two additional comments The prohibition of censorship provisions in section 422 is so sweeping that FIT is concerned that much needed operating regulations will be barred as well Carrying forward the language of section 326 of the 1934 act seems preferable as seen by FIT. Finally, FIT feels that the Commission should have authority to prescribe regulations with regard to transmitter and receiver char acteristics Improvement in receiver characteristics can enhance efficiency in spectrum usage, and it appears logical that both ends of a radio communications system should be under the Commis sion's purview On behalf of the members of FIT, I thank you for the opportuni ty to appear today, and if there are any questions, I will attempt to answer them to the best of my ability. [Testimony resumes on p. 1781.] [Mr. Baker's prepared statement follows:] PAGENO="0305" 1769 STATEMENT OF JAMES H. BAKER, EXECUTIVE VICE PRESIDENT, FOREST INDUSTRIES TELECOMMUNICATIONS My name is James H. Baker and I am the Executive Vice President of Forest Industries Telecommunications (FIT). FIT is a non-profit asso- ciation recognized by the Federal Communications Commission (FCC) as the national coordinator of radio frequencies for the Forest Products Radio Service. The FIT membership consists of two-way radio users licensed in the Forest Products Radio Service by the FCC under Part 90 of its Rules and Regulations. Approximately twelve hundred companies situated through- out the United States make up the PIT membership. Those companies range in size from very small logging operations using only two or three radios to large corporations using thousands of radios. The forest industry is a large and diverse one, vital to the national interests of our country. FIT is interested and involved extensively in matters that affect the two-way radio telecommunications of this industry. The opportunity to submit this Statement for the Record with regard to "The Communications Act of l979"(kI.R. 3333)is appreciated. The principal interests of FIT in H.R. 3333 involve radio frequency spectrum matters for land mobile use and how this subject is dealt with or not dealt with, primarily in Title IV of the proposed legislation. Provisions of Titles II and VII are related and will be addressed as well. The comments that follow are intended to be constructive and of help to the Subcommittee in preparing a legislative proposal responsive to the needs and best interests of the American public. GENERAL COMMENT The interest of the FIT membership, as with most other land mobile users, is in the continued availability of radio as a tool to assure the safe and efficient conduct of operations and the provision of adequate spectrum for that purpose. The principal business of the FIT membership is, for example, logging, log handling, operation of saw mills, manufacturing paper and paper 51-253 0 - 80 - 20 PAGENO="0306" 1770 products and, in general, the production of things that depend upon wood. Tree planting, fighting forest fires, and conservation are important addi- tional activities. In a~l of these, radio is an essential tool. While empha- sis in telecommunications in the eyes of the general public is generally on broadcasting and common carrier issues, where communications itself is the business, the importance of radio in industries where the primary business is other than communications should not be downgraded. The number one concern of most land mobile radio services, including the Forest Products Radio Service, is spectrum congestion due to inadequate allocations in the VHF and lower UHF bands. This problem has been facing the Commission since the 1960's. It is FIT's opinion that the FCC (or its successor) must in the future look seriously at the VHF/UHF bands and come forth with a bold plan for reallocating spectrum to those Services that can only communicate via radio. For instance the vast amount of spectrum currently allocated for UHF-TV ~needs to be re-examined. Considering that one TV channel will provide 240-400 two-way radio channels, it seems logical that the need for TV to use the spectrum should be carefully scrutinized by the Congress. The foregoing underscores the importance of effective radio frequency spectrum management. The FCC (or its successor) should be provided with the authority needed to manage the nation's spectrum usage efficiently and in a manner responsive to requirements. One step that can be taken is to authorize the Commission to make greater use of the existing industry radio frequency coordinators. This would place much of the burden of working out detailed fre- quency coordination matters on the users themselves in lieu of the Commission staff sitting in Washington. Semate Bill S.622 in its Section 336 proposes to do this. The addition of a similar provision in H.R. 3333 is recommended for consideration by this Subcommittee. PAGENO="0307" 1771 It seems to FIT that the Commission is focusing its attention at present on urban radio frequency problems. Trunked and cellular systems, while great for the urban areas, will not alleviate frequency congestion in the Forest Products Radio Service or other rural and small town oriented radio services. These type systems can alleviate congestion where they are economi- cally feasible such as in the large metropolitan centers throughout the United States. And, of course, the spectrum that is made available for these type systems (800-900 MHz) would be, in any case, unsuitable in the wOods where radio wave energy in these bands is absorbed by trees. In other words, frequencies in this order would tend to "warm up the trees" instead of delivering messages to the men in the woods. Having made these general comments, I would point out that the views of FIT on many of the issues involved in telecommunications legislation are already on file with the Subcommittee through my testimony over the past two years. In the interest of saving time, information that is already on file with the Subcommittee will not be repeated in this statement. Proceeding now to H.R. 3333, the comments that fofiow are submitted with the objective of assisting the Subcommittee in its deliberations. CONCEPT OF REGULATION: "TO THE EXTENT MABI(ETPLACE. FORCES ARE DEFICIENT"SHOULDNOT.BE APPLIED TO THE PRIVATE RADIO SERVICES Sections 101 and 411 of H.R. 3333 refers to the public interest be- ing served by government regulations only when "marketplace forces are def i- cient". FIT is concerned over the concept of extending "marketplace forces" to private land mobile spectrum matters. In the Forest Products Radio Service, spectrum is used for safety and efficiency of operations. Under such circum-. stances the decision on who should Shave or not have land mobile radio should not be dependent upon the ability to "pay". The public interest in safety PAGENO="0308" 1772 of life, firefighting, and production of wood products would appear to be such that Congress should not relate the essential role of radio in that interest to economics. ESTABLISHMENT OF A COMMUNICATIONS REGULATORY COMMISSION FIT does not feel strongly about establishing a Communications Regulatory Commission and would not oppose the Subcommittee on the matter. However, some comment is offered on the subject, for example, the extension of the Commissioners terms to ten years and limiting them to only one term. This means that the Commission would be "stuck" with a poor Commissioner for an extra three years over the present seven years and concurrently unable to retain a competent one beyond one term. We understand the term of seven years under the 1934 Act was agreed upon only after considerable deliberation and perhaps it would be just as well to retain it. Another point FIT suggests to make is that at all times at least one of the Commissioners should be an engineer with a background in telecommunications. H.R. 3333 in Section 212 would require a balance among professional backgrounds -- FIT suggests that the Act be speci- fic and require that at least one of the Commissioners be an engineer knowledgea- ble in telecommunications. The Commissioners thus would not be totally depen- dent upon the Staff for engineering knowledge. AUTHORITY FOR ALLOCATION AND ASSIGNMENT OF RADIO ~~~NCIES NEEDS CLARIPIC With access to the frequency spectrum being essential to radio communi- cations, authority for the allocation and assignment of that resource is a substantive matter. The language of Title IV refers to "assignments" as a function of the CRC, but under Title VII, the NTA is to exercise principal responsibility for "allocations." This division of authority has been carried over from H.R. 13015 and is still viewed with some concern. As drafted, H.R. PAGENO="0309" 1773 3333 provides in Section 4l3(a)(8) that the CRC will "assign" radio frequencies with no reference as to its input to the "allocation" process under the pur- view of NTA. Last year FIT commented on the lack of provision for public in- put to the NTA allocation process. However, since H.R. 3333 contains essen- tially the same provisions, FIT must conclude that there is an overriding interest on the part of the Congress in concentrating the allocation authority in one office. Assuming that to be the case, FIT would urge spectrum allocation actions be subject to the Administrative Procedure Act so that all interestsT public and private, could be heard. In short, bring NTA under the afore- mentioned Act when it deals with spectrum allocation matters. SPECTRUM RESOURCE FEE Section 414(a) states that "The Commission shall assess an annual spectrum resource fee in accordance with this section for all users of the electromagnetic frequency spectrum licensed by the Commission under the Act. Such fee shall take into account -- (1) the cost to the Commission of process- ing the license; and (2) the scarcity value of the spectrum being assigned ." The Commission is authorized to waive the fees under three speci- fic circumstances. Section 414 goes on to provide a formula for assessing land mobile fees based on the fees assessed to television broadcast stations. FIT does not oppose paying a fee to cover the costs for processing its applications and, therefore, does not object to the fee schedule proposed in Section 414 (a)(l). However, the introduction of a fee based on "scarcity value" is a different matter as it would require payment of fees of an unknown and possibly an exorbitant amount based on the scarcity value of spectrum used for hundreds of thousands of land mobile radio operations. How "scarcity value" will be applied to all these Forest Products Radio Service operations is not understood because the criteria used in H.R. 3333 is related to communi- ties. Radios used for logging operations are generally in remote rural areas PAGENO="0310" 1774 but where trucks are involved the same frequencies could be used in urban areas as well. Finally industrial plants that use frequencies in the Forest Products Radio Service are frequently situated in the environs of urban areas From a practical implementation standpoint the application of resource fees appears to FIT as being unrealistic in the Forest Products Radio Service The relating of UHF television station economics with those of wide ranging forest products activities would be a frustrating exercise in paperwork. CONCEPT OF TREATING SPECTRUM AS A RESOURCE WITH A MEASURABLE ECONOMIC VALUE IS QUESTIONED FIT has in the past expressed skepticism over proposals that would attach an economic value to radio frequencies used in private radio services That skepticism is reiterated Likewise the comparison of radio frequencies with drilling mining and grazing rights is viewed as gross over-simplifica- tions To begin with the spectrum is not a standing resource such as coal oil, or real estate. Until someone turns on a transmitter, there is no radio frequency (which is actually electrical energy radiating off an antenna) More importantly, radio frequency characteristics have so many variables, particu- larly those in mobile communications that FIT does not see how they can be compared with other natural resources A frequency used from a mountain top has greater range than a frequency used in a valley The same frequency used in airplanes at 35 000 feet can cover thousands of square miles while at ground level it is only useful for line-of-sight Grazing land is a fixed identifiable and tangible asset capable of being measured in acres -- likewise coal which can be measured in tons and oil in barrels Spectrum particularly in the mobile service does not have those clear delimttations hence radio frequencies cannot be packaged for sale auctioned or otherwise measured practicably for an economic value PAGENO="0311" 1775 Spectrum is not only a reusable resource, but it can be used con- currently by several users at the same time. The same coal cannot be used in several furnaces at the same time, nor can the same oil be put in several different tanks. However, frequencies can be and are shared extensively in the mobile services and particularly in the land mobile service. FIT recog- nizes that there seems to be a momentum in some circles for the application of economic principles to the radio frequency spectrum, bj.~t believes the effort will fail in the end due to the realities of communications operations. For this reason, it is felt that the concept of utilizing "economics" to determine fees for the mobile services, particularly land mobile, should not be pursued. "SCARCITY VALUE" CONCEPT POSES PROBLEMS FIT feels that, in addition to the technical and operational consi- derations that preclude a realistic "fair market value" or "scarcity value" approach to spectrum management and determination of fee schedules, there are other considerations that should be e,mined. When the Federal Government en- ters into, a business arrangement ~f6~the lease of lands for mining, drilling, or grazing, it is acting in a private capacity as born~\out by Circular No. A-25 of the Office of Management and Budget which provides that charges are to be determined by the application of sound business management principLes, and so far as practicable and feasible in accordance with ~omparable commercial prac- tices. To date the radio frequency spectrum has not been treated as a natural resource to be rented or leased. It has always been FIT's understanding that-~" the government does not own the spectrum or the right to use it. Instead, the Commission is charged with regulating the use of radio. (See Communications tp~f 1934, Sections 301 and 302). Such regulation is derived from the inter- state commerce clause in the U.S. Constitution and is intended to benefit the "public" and not licensees. (See NBC v. United States 319 U.S. 190 (1943). PAGENO="0312" 1776 Noting the foregoing should there be a decision at some future time to go forward with a scarcity value approach f or the right of access to radio frequencies there are still special problems to consider Broad- casters and common carriers are different from private land mobile because communications is the business of the former They derive economic benefits because they have access (generally exclusive access) to a radio frequency as the result of a grant by the FCC The private land mobile users are in a different category To them radio is a tool for enhancing the safety and efficiency of their activities The spectrum they use is often heavily shared Private land mobile users range from small businesses to giant corporations which is certainly the case in the Forest Products Radio Service Scarcity value" of a frequency used by a small logger in the mountains of Idaho that is based on the success of a UHF television station is not comparable to that of a large logging corporation whose activities cover several states To the former the one frequency he may have is critical whereas the large corporation with extensive communications resources will have more flexibility Under a "scarcity value" situation, the large corporation could easily afford to pay what is necessary to obtain radio frequencies. The small logger would lose out and the benefit he could have from the use of radio would be lost FIT questions seriously that Congress intends or would want for members of the public and for the public interest to be treated in such a cavalier fashion A substantial number of the land mobile operations of the FIT mem- bership are close to t1~e Canadian border Frequencies for those operations are coordinated by the FCC with Canada pursuant to international agreements and vice-versa on the part of Canadian users. Making radio frequency usage depen- dent upon scarcity value in such circumstances is considered totally unrealis- tic because of the give-and-take of Governmental negotiations at an interna- tional level PAGENO="0313" 1777 In sum, FIT would recommend that the "Spectrum Resource Fee" con- cept be dropped from H.R. 3333, at least as regards its application to pri- vate land mobile communications. The application of an economic value, whether based on "scarcity value" or otherwise, is unrealistic to implement, is unfair to the many small businesses and less well-off members of the public, and finally, since the government's charge from the Congress is to regulate the spectrum for the convenience of the public, it would be inconsistent to reduce the subject to a commercial activity as for mining, drilling, or graz- ing. Other means are available for managing the spectrum than resource fees. OTHER SPECTRtHf RELATED ITEMS While the "Spectrum Resource Fee" is our major concern in the radio frequency area, there are some other points in H.R. 3333 on which FIT offers the following comments: (1) Section 4l3(d)~j~) proposes that any substantial change in the assignment of spectrum used by broadcast stations must be re- ferred to the Congress and rules to effect such a change are not to take effect unless approved by concurrent resolution. There are many other users than broadcasting who have a vital interest in the spectrum. The disadvantage of Section 413(d) (1) is that it has the practical effect of freezing the broadcast spectrum in place regardless of changing requirements and techno- logy. Accordingly, FIT recommends the deletion of Section 413(d) (1). (2) Section 4l5(d)(l)(A)~ii) and Section 436 refers to the use of "random selection" systems. While the use of "random selec- tion" is optional in Section 436, it appears to be required in Section 4l5(d)(l)(A)(ii). From the standpoint of FIT, in the private land mobile services, an engineered or coordinated solu- PAGENO="0314" 1778 tion is preferable to random selection As the frequency coordinator for the Forest Products Radio Service, FIT would be in position to handle such problems for that Service Fur- thermore it is felt that if effective use were made of the industry radio frequency coordinators the need for random selection in the private radio services would be unnecessary (3) The term newly assigned frequency is used at least in Sec- tion 415(d) and in Section 436 Apparently the term is in- tended to have a special meaning in regard to coordination and licensing A more meaningful term should be used or a defini- tion provided (4) Section 436(b)(2) makes reference to the use of frequency coor- dinating committees As indicated earlier in this statement FIT recommends strongly that H R 3333 provide greater status to the industry frequency coordinating coutmittees The provisions of Senate Bill S.622 for the~ use of industry, coordinating committees could be used as a guide for amending H R 3333 The coordinat- ing committees could do much to decrease the burdens upon the Commission staff and if used properly could cut down the long delays that now exist in processing private land mobile applica- tions Familiarity with the detail of their member a operations and places the coordinators in position to act effectively and expeditiously PROHIBITION OF CENSORSHIP Section 422 of H R 3333 provides that - - - - nothing in this Act shall be construed to give the Commission the power to censor or other- wise regulate the content of any transmission by any person using or operating PAGENO="0315" 1779 any eSuipment for the provision of broadcast services or land mobile or other radio services," Essentially the same provision was included in H.R. 13015 and to which FIT expressed concern to the subcommittee last year. The wording of Section 422 in the proposed legislation is so broad that it would exclude essential radio operation regulations, e.g., the use of call signs, the types of transmissions. The present FCC Rules in Part 90 Subpart N set forth general operating requirements, including "permissible communications" for the Private Land Mobile Radio Services. These Rules are essential to good communications and their retention should be provided for in the proposed legislation. The basic objective behind Section 422 is supported, however, because it is believed that the intention was to prohibit the Commission from interfering with the rights of free speech. Unfortunately, the wording in Section 422 is so broad that it prohibits regulations essential to effective private land mobile comihuni- cations. It is suggested that the intended objective can be achieved by carry- ing forward the language of Section 326 as contained presently in the Communica- tions Act of 19~4. TRANSMITTER AND RECEIVER ~zuteituinitjnij~ Sections 4l3(a)(5), (6), and (12) give the Commission authority to prescribe rules with regard to design of transmitting equipment interference potential of equipments, and performance characteristics of television re- ceivers. Paragraphs (5) and (6) refer to "interference" as the criteria for transmitter design. It is recommended that the concept of improving efficiency of spectrum usage be included in (5), (6), and (12) as well. While concurring with the reference in (12) to the regulation of the performance characteristics of television receivers, it is suggested that this be broadened to include all receivers. Improvement in receiver character- istics, particularly in television, will enhance efficiency in spectrum usage. Further, it is logical that the Commission be given authority to regulate both PAGENO="0316" 1780 ends of a communications system, i.e., both the transmitter and the receivers, since the characteristics of one depends to a certain degree on the other, and particularly as regards spectrum. Extending the Commission's authority to include design and performance characteristics of both transmitters and receivers is therefore suggested. NATIONAL TELECONMUNICATIONS AGEN~ FIT does not oppose the concept of Title VII of H.R. 3333 for the estab- lishment of an independent agency to be known as the National Telecommunication Agency. There are two points in Title VII on which I would comment, however, i.e., (1) allocation of electromagnetic spectrum, and (2) public input to the development of policy. The role of NTA in the spectrum allocation process in the United States is a matter of concern. Section 704(4) states that NTA shall "exercise principal responsibility for allocation of electromagnetic spectrum - - - - Since there appears to be no reference as to the Commission's role in the allo- cation process nor to the manner in which the public would participate, FIT is concerned that NTA may end up with virtually total and overriding authority in spectrum allocation matters without direct public input. FIT accordingly recommends that some provision be made in H.R. 3333 for the Commission and inter- ested public to participate in the allocation process. Section 706(b) (7) of H.R. 3333 provides that the Director "shall assure appropriate consumer representation in connection with the development of policy by the agency." While FIT understands the objective of consumer re- presentation, telecommunications policy has broader ramifications than "consumer" interest. FIT would recommend that Section 706(b) (7) be expanded to include "other interests from the non-government sector". On behalf of the FIT and those involved with the Forest Products Radio Service, I thank you for the opportunity to make this Statement for the Record of this most important proposed legislation. PAGENO="0317" 1781 Mr. VAN DEERLIN. Thank you, Mr. Baker. Mr. Jackson. Mr. JACKSON. I just didn't understand one point. You seemed to indicate it was your perception that NTA would not come under the Administrative Procedures Act, and I wondered if you could explain why you perceive that to be the case. Mr. BAKER. Well, it was my understanding that the NTA is the allocator of the spectrum. Mr. JACKSON. Wouldn't their allocation decisions be in formal rulemakings under the APA? Mr. BAKER. I am not sure. From the way I understood it, that would not be the case. Mr. JACKSON. Could you supply us with a legal memo analyzing that? We would be very interested. Mr. BAKER. Yes, I would be glad to. Are there any other questions? [No response.] [The following letter was subsequently received for the record:] PAGENO="0318" 1782 The Honorable Lionel Van Deerlin Chairman, Subcommittee on Communications Committee on Interstate and Foreign Commerce 2408 Rayburn House Office Buildfng Washington, D.C. 20515 Re: Communications Act of 1979 (H.R. 3333) Dear Chairman Van Deerlin At the June 7, 1979 hearing of the Subcommittee on Communications the question of the applicability of the Administrative Procedures Act to the new National Telecommunications Agency (NTA) proposed in Title VII of H R 3333 came up in connection with my testimony as a witness for Forest Industries Telecommunications. As a result I was requested by Mr. Jackson of the Subcommittee Staff to provide the Subcommittee with a legal opinion on the point. This letter is in response to that request and is based to a great extent on legal advice provided by the Washington counsel for Forest Industries Telecommunications The question of the applicability of the Administrative Procedures Act came up at the hearing in the context of NTA s proposed function under Section 704(4) of H R 3333 to exercise principal responsibility for alloca- tion of the electromagnetic frequency spectrum for various uses and study I had expressed concern that under Section 704(4) as written NTA could exercise its allocation responsibility without input or comment from the public It was my suggestion that H R 3333 be amended to assure that there would be input and comment from the public perhaps by bringing NTA under the Administrative Procedures Act. This led to Mr. Jackson's ob- servation that the Act would apply to NTA and thus his request for a legal opinion. - - ~TJ~ ~ JSTR1ES ~iuth~~i 3025 HILYARD ST. * P.O. BOX 5446 * 503-485-8441 EUGENE OREGON 97405 June 13 1979 PAGENO="0319" 1783 Based on the views of our counsel, I am of the opinion and have little doubt that the NTA, when established, would be subject to the Admin- istrative Procedures Act. As far as our counsel or I can determine there is nothing in the wording of Title VII of H.R. 3333 that could be construed as exempting NTA from the aforementioned Act. As I see it, there is a legitimate concern, however, that authori- ties in the NTA in the future might not always regard spectrum allocations as a rulemaking function and apply the Administrative Procedures Act. This con- cern could be resolved easily with some indication of legislative intent, pre- ferably in Section 704(4) itself, that spectrum allocations are to be effected only after the public has been put on notice and has had a chance to be heard. FIT offers two suggestions to resolve the matter: -- Amend Section 704(4) by adding the words "through rulemak- ing" at the beginning of Line 14 page 205 of H.R. 3333 so that it would read - - - -" (4) uiemaki~g exercise principal authority for allocations - - - -~-". -- Include a statement in the Report forwarding H.R. 3333 to the House that it is intended for the NTA to follow provi- sions of the Administrative Procedures Act in exercising its functions with regard to allocation of the electromagnetic spectrum. Certain military and foreign affairs functions are to be excepted at the discretion of the Director NTA (See 5 USCA §553(a) (1)) Without some indication of legislative intent along the lines suggested above, litigation would be required, as I see it, to resolve the i~ssue should some future NTA Director regard spectrum allocations as being an intra-Federal Government function. I trust the foregoing clarifies the suggestion made in my testimony and, at the same time, is responsive to Mr. Jackson's request-. If there are any questions or if I can be of further assistance to you, the members of the Subcommittee, or to the Subcommittee staff, please do not hesitate to ask. truly H. Baker tve Vice President JHB/skp PAGENO="0320" 1784 Mr VAN DEERLIN Thank you, Mr Baker Our final witness, going on at 1202, Mr Harvey Strichartz, technical director for the American Radio Association STATEMENT OF HARVEY STRICHARTZ, TECHNICAL DIRECTOR AMERICAN RADIO ASSOCIATION, AFL-CIO AND ON BEHALF OF AFL-CIO MARITIME COMMITTEE Mr STRICHARTZ Thank you, Mr Chairman As in the past, I would like to submit my formal statement for the record and simply summarize it as briefly as I can so that we can get out of here by 1205 or 12 06, hopefully Do I have your leave9 Mr VAN DEERLIN Oh, absolutely There is no one else here to object Mr STRICHARTZ I am sure the contents of our statement will be, as in the past, carefully examined I am Harvey Strichartz, technical director of the American Radio Association, appearing here today for the American Radio Associ ation, AFL-CIO, whose members are radio officers and radio elec tronic officers on oceangoing vessels of the U S merchant marine We have heard from foresters, common carriers, and now we hear from the men who go down to the sea in ships and sail in deep waters We also appear on behalf of the AFL-CIO Maritime Committee Our statement identifies who we are and what our interests are We are addressing an aspect of this legislation which is some what different from what you have been considering It concerns primarily safety at sea, and when safety at sea is mentioned, it is our people, our members, and our shipmates whose lives are involved. We are also interested in the efficiency of communications be cause it is our livelihood as well as our lives that depend upon the efficient as well as safe operation of vessels The problem is that the act of 1979 as redrafted in the instant bill has a very serious and what could be a devastating omission We refer to the omission of title III, parts 2 and 3, of the Communi cations Act of 1934 These are now the only provisions in U S law that regulate radio for the safety of life and property at sea The failure to maintain these provisions intact in the new act could be very destructive In 1977 your subcommittee held overview hearings on the Com munications Act We testified I have ascertained that there was no testimony adverse to title III, parts 2 and 3, and no one testified adversely to the manner in which the FCC has regulated in the area of maritime radio for sea safety FCC has been exemplary in this respect Whatever else this legislation before you would do in other areas, and we do not comment on them, its enactment with the deficien cy-that is, the lack of title III, parts 2 and 3-would be a disaster to the men and ships of the United States. We earnestly urge you take intO account the following important matters. First of all, there was no testimony on the record adverse to the existing provisions Second, radio is exceedingly important because it is the means by which vessels are knit together in a PAGENO="0321" 1785 network of great and seaworthy lifeboats for each others mutual assistance. Third, there is a substantial legislative history and we have appended a summary of that legislative history, to our statement, which goes to the validity and necessity of those provisions. Fourth, there is a new environmental concern that is quite serious. Let me give you two recent examples. Large vessels, when they fall victim to the perils of the sea, especially large tankers, can spill enough petroleum products into the sea to wipe out an entire fishing ground, destroy the coastline of a whole State. The recent Argo Merchant oil spill threatened the Georges Banks fishing grounds. The oil spill in the recent Amoco Cadiz off France cost over $300 million to remedy, and the remedy was not complete. As we have pointed out, the deficiency of omitting these provi- sions would leave radio regulated only to the extent of internation- al treaties, which would mean that the lower level of regulation arrived at through international compromises is all that would apply to ships on international voyages. As to domestic voyages, there would be no regulation whatsoever. The purpose as stated in the act of 1979 is that there shall be "regulation to the extent that the marketplace forces are defi- cient." It must be recognized that there is no market for safety and that marketplace forces, the law of the market and the underlying concept of the market all act to bring costs down. One cost which is never factored in and cannot be factored in is the value of human life. The value of the environment is just another such new cost which cannot be factored in. We think the language on the purpose of the proposed act has to be changed to provide for regulation for safety irrespective of mar- ketplace forces. Our prepared statement offers language to do this. We have listed, in addition to carrying forward title III, part 2 and 3, some other sections which should be carried forward, and this should be done because there is effective, valid and meritorious regulation in this area, based upon them, that has been working well to preserve life and property. Finally, we would like to urge that the regulation of radio be done by the FCC or whatever radio agency the new legislation brings forth. The Coast Guard, DOT, has expertise on naval archi- tecture, lifeboats, navigational lanes and so forth. The FCC has the radio expertise and has provided regulation over the years and provided it well. There is a very fine skein of regulation in this area. There is staff. There is a great deal of know-how, and it is all working well for U.S. ships. It should be kept doing just that. Finally, the whole world is looking at the grounding of the DC- 10's. The history of regulation has been one of reacting to disasters. Ships first had radio compulsorily required in 1912, after the Titan- ic. The act of 1934 was amended by title III, part 2, in the light of a whole series of disasters, such the SS Mohawk and the SS Morro Castle, in the 1930's. This is really not the way to legislate. The way to legislate is to recognize that there is a continuum of forces and factors that work 51-253 0 - 80 - 21 PAGENO="0322" 1786 for safety and to preserve them, and not simply pour them out on the ground, and say that maybe somebody else will pick them up. No one else can pick them up. No regulatory agency can pick up and regulate in this area unless title III, part 2 is carried forward. There is no need to reinvent the wheel. The wheel is working and turning well. We ask that it not be cut off the wagon. Thank you, Mr. Chairman, and pardon me for mixing metaphors. [Testimony resumes on p. 1820.] [Mr. Strichartz' prepared statement and attachments follow:] PAGENO="0323" 1787 STATEMENT o~ THE AMERICAN RADIO ASSOCIATION, AFL-CIO, IN ITS OWN BEHALF AND IN BEHALF OF THE AFL-CIO MARITIME COMMITTEE, SUBMITTED BY HARVEY STRICHARTZ, ARA TECHNICAL DIRECTOR ?4R. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE; I am Harvey Strichartz, Technical Director of the American Radio Association, AFL-CIO. The members of the ABA are Radio Officers and Radio Electronic Officers serving aboard the ocean-going vessels of the United States Merchant Marine. This statement is also made on behalf of the AFL-CIO Maritime Committee. ABA shares with other ship officers and crew members, and with all of the American people, a deep interest in the advancement of maritime telecommunications technology, to enable our U.S. Flag vessels to operate safely and efficiently. This is so be- cause, in the first instance our lives are at stake when safety Is the factor, and our livelihoods are involved in the efficiency of U.S. Flag shipping. A further interest of ABA may be summarized In. the fact that our members, Radio Officers and Radio Electronic Officers serving on the vessels of the steamship companies operating In the U.S. Merchant Marine with which our organi- zations has contractual relationships, constitute the personnel who have been designated, In those contracts, to operate, maintain and repair all radlocommuni- cationa equipment, and to maintain and repair all radlonavigatlon devices. (These activities are described in the excerpts from our working rules, attached as Appendix A). We are therefore closely Involved In the precise activity to which our statement here today addresses itself, providing for the safety, of life at sea through radio. As you know, the Communications Act of 1934, Title III, Parts II and III, coatain the only existing provisions of United States law that require vessels of various tonnage groups, (1) to carry radio equIpment, (2) be manned by radio officers or operators, (3) to maintain radio safety watches, (4) to maintain this": vital equipment, and to do other things for the safety of life and property at sea through Radio, both on coastwlse, Intercoastal, other non-contiguous domestIq~ voyages, and on international voyages. This is valid and effective law,' and under it the Federal Communications Commission has regulated ship radio in PAGENO="0324" 1788 exemplary fashion A major problem arises in that the legislation under consideration H R 3333 would if enacted in the process of repealing the Act of 1934 and re- placing it with a new Communications Act of 1979 also repeal Title III Parts II and III In their place H R 3333 contains noth~~ on maritime radio safety that corresponds to these provisions For this reason irrespective of whatever else H R 3333 does in any other area its enactment would be a disaster for U S ships and the officers crew members and passengers whose safety during voyages at sea is presently well provided for through the use of radio as well as for the public interest in the safety and efficiency of U S ships and of world shipping We therefore earnestly and respectfully urge that the Committee in its deliberations take into account the following considerations 1 Prior to the introduction of H R 3333 (and its predecessor Bill H R 13015) your Subcommittee reviewed maritime communications as part of an overall review of the Communications Act of 1934 during the Fall of 1977 Your Subcommittee reviewed the role of the Federal Communications Commission as an independent regulatory body that had been created by the Congress to implement the legislative will of the Congress in the area of communications In the course of those hearings, there was absolutely no testimony~ adver~ to the manner in which Title III, Part II has operated to serve its safety objectives nor adverse to the manner in which the FCC has applied and enforced Title III Parts II and III to serve safety The testimony which the ABA gave was that Title III Part II has indeed served safety and that the FCC has enforced it in exemplary fashion As you know historically much of the impetus for the early growth of the radio art came from the use of radio as the means by which the large seagoing ships of the world, sailing the great open ocean spaces, could be knit together into a mutual self-help network. Radio made it possible for every ship to become a potential lifeboat for each other, able to rescue the passengers and crews of every PAGENO="0325" 1789 other ship, should it fall victim of storm, fire, collision, stranding or any other of the perils of the sea. This is why Title III, Part II is so important, and should survive intact any change of the Act, These provisions were adopted as Public Law 97 of the 75th Congress, which in 1937 amended Communications Act of 1934 to make provisions for safety at sea. In enacting Public Law 97, Congress made its radio requirements at least equal to, and in some respects greater than those of the Safety of Life at Sea Convention of 1929. In considering what was to become Public Law 97, the Committees and Members of the 74th and 75th Congress had before them, not only the 1929 Safety Convention, but also the then recent tragic experiences of a large number of severe sea casualties involving United States citiaens and vessels, such as the Morro Castle and the Mohawk disasters. The legislative history of Title III, Part II is worthy of careful study, because the philosophy embodied in this legislation was valid when It was adopted, and is essentially valid today. There is neither time nor need to go into detail on that legislative history here today. We have, however, attached as Appendix B, a detailed study of the legislative history of Title III, Part II, and will confine ourselves to simply listing the main points of its provisions and underlying philosophy. These are: First, that U.S. ships should meet the highest attainable standards of safety radio equipment, personnel and practices, not just equal the international provisions. This was In recognition of the fact that international requirements are necessarily compromises between those countries desiring to provide the best and those who want to require the least, but who nevertheless have votes at international conferences, and in the ratification of International Conventions. Second, the Congress noted that the sea can destroy a ship navigating in the open sea, regardless of the type of voyage on which it is engaged. Therefore, the Act not only applies its radio requirements to vessels engaged on international PAGENO="0326" 1790 voyages (from a port in one country to one in another) but it also applies these requirement to U S ships that engage in domestic (or coastwise) voyages between one port of the United States and another U S port Parenthetically it should be noted that coastwise voyages have recently assumed increased importance to the American people now that environmental concerns have come to the fore The average size of tankers carrying petroleum products has vastly increased from an average of 12 000 to 15 000 tons in 1937 to today when tankers of 90 000 tons are commonplace and sizes of 250 000 to a half million tons are now not at all unu3u~l. This means that destruction of a single large tanker can not only pollute the environment of an entire state and wreak economic destruction on hundreds of miles of coastal cities and resorts but such a diseaster can destroy an entire fishing ground as when the ARGO NERCHANT oil-spill threatened the Grand Banks Or as another example consider the fact that clean-up costs resulting from the oil spill in the loss of the L~N0C0 CADIZ off the French Coast in March 1978, approximated 300 million dollars The United States with approximately 6 500 miles of coastline has one of the worlds biggest environmental stakes in the safe operation of ships in its coastal waters If H R 13015 were enacted without including in it the provisions now contained in Title III Part II and III in it the following would result (1) A ~ plete void would exist as to radio safety provisions for all cargo and passenger vessels irrespective of tonnage that engage in domestic ~pyages (including the Alaska Hawaii Puerto Rico and Virgin Island trades) This would include ships of a quarter million and more gross tons (2) No reQuirement whatsoever would cover vessels carrying passengers for hire in the open sea or in any tidewater to the open sea (so-called party boats ), (3) 9~ the most minimal radio requirement (those that are found in internat- PAGENO="0327" 1791 ional treaties), would cover cargo and passenger vessels engaged in international voyages, gg~g~s ~ (4) The repeal of Title III, Parts II and III, and the consequent removal of the legislative basis for the valid and effective regulations on Shipboard radio now promulgated by the FCC, would leave the new Communications Regulatory Commission, or ~ other U.S. ~ powerless to act in the area of radio for maritime safety. H.R. 3333 would leave U. S. vessels engaging on international voyages covered only by the provisions of international treaties, which necessarily embody the low common standards other nations, both advanced and undeveloped, are willing to accept. (The least advanced nations usually have no radio law of their own, but use only the international treaties since they desire the absolute minimum.) The U. S. has always met and çe~gded international requirements, to provide the highest level of safety. * H. R. 3333 would permit regulation of maritime radio safety provisions only "to the extent market place forces are deficient." (H.R. 3333, Section 101). Un- fortunately, marketplace forces act to diminish costs and safety, and this could result in sacrificing human life to economic gain. Radio cab contribute to that safety. How does Title III, Part II of the Act make provisions for it now? First, they mandate radiocommunication and radionavigation equipment that is capable of providing for safe communication and for timely assistance to your own or other vessels in distress, by the most reliable equipment and modes. For t~helarger, over 1,600 gross ton vessels, this is specified as radio- telegraph equipment since it is the ~ ~gg~ and reliable, Second, they require that when this equipment fails, corrective maintenance (or repairs) be provided so that the equipment will be available at all times for the purposes Just mentioned. This they do by requiring that experienced Radio Officers be carried on the larger, over 1,600 gross ton ships. (How well this PAGENO="0328" 1792 requirement has worked is described in the article attached as appendix C.) The provisions of Title III Part II of the Act are most appropos and wise indeed in that they include the requirement that before a Radio Officer may be permitted to act as the only Radio Officer providing these vital safety services to a vessel he must have at least six months seagoing experience j~ they provide for practices and procedures such as safety radio watches that effectively knit vessels together into the great lifesaving network discussed earlier, ensuring thereby that vessels will be aware of each others plight and able to help each other in distress They have great wisdom in another respect; they require that the FCC consider all of the hazards of the route or the conditions of the voyage before the Commission may exempt any vessel from participating in this sea-safety radio network They provide, in Sec. 352 (C), flexibility for unforseen circumstances. All of these requirements, for radiotElegraph equipment, for safety radio watches and for Radio Officers with six months seatime, have served well, and should be carried forward intact, to protect lives and the environment. That is why we propose the following Irrespective of whatever else may happen to H R 3333 all of Title III Parts II and III the fruits of wisdom of the Congress over the past years should continue ~. In éarrying them `forward, no ~ should be made in their ~ since it embodies ~a~.cMAc provisions that underly specific regulations which are now working well to provide maritime radio safety The opening section of H R 3333 on its purpose (101) should be modified to provide for maritime radio safety regulation !~e~i~e of rnarketp],~ç,~ ~s as an absolute need. This would be accomplished by including the following as 101 (c): "(c) It is the purpose of this Act to provide for regulation, irrespective of marketplace forces, for the purpose of safety of life and property at sea through the use of radiocommunicatiOns In addition to Title III, Parts II and III, the following provisions of the Act of 1934 should also be retained intact PAGENO="0329" 1793 Section 303, on powers of the Commission as to licensing. Section 318, operation of transmitting apparatus. Section 320, on avoiding interference with d~stress signals. Section 321, on distress signals and communciations. Section 322, on intercommunication in mobile safety. Section 324, on use of minimum power. Section 325, forbidding false distress signals. Finally, we urge that the regulation of radio for sea safety continue to be the function of the Communictions Regulatory Commission contemplated by H.R. 3333, or whatever agency the legislation designates to regulate radio. We are aware that such safety matters as ship construction, lifeboat requirements, radar, etc., are now regulated by the Department of Transportation. This is so because the D.0.T. agency involved has the expertise in respect of the specific areas involved. However, the regulation of radio for safety at sea has in the past been well performed by the FCC, which has the radio ~çp~tise. We would therefore urge that the FCC, CRC or the whatever new radio regulatory agency might be set up by the new legislation, be assigned the authority to regulate radio for safety of life at sea, in the same manner as the FCC now is. And, *as we have said above, the new agency should begin with the text of Title III, Part II and III and the regulations promulgated thereunder, carried forward intact. Thank you for your attention, and for the opportunity to appear before you today. I hope we have been helpful, and look forward to contributing whatever I can to the Panel discussion. PAGENO="0330" C ~ ~L:: ~ ~ I ~ H H 0 C) `-d o H ~ H ~ ;~ C-~ o t-3 ~ i H ~ 0 ~H1 ~ CD H OQ ~ H ~ ~ 0 CD ~ Z CD C) U) H CD %%~ Cf 0) H CD H z H ~? ~ PAGENO="0331" 1795 Section 22 (a) Radio Officers and/or Radio Elec- tronics Officers shall perform all duties incident to the o eration and maintenance of all radio and/or electronic Co munica tons evices oirV.~T~operat~lTtcy the Company. A radio an or electronic external com- munications devices, described in Sections 2 and 3 in- cluding Radiotelephone, Radio Facsimile, Radio Tele- type, communications computers or any other such dev- ices, when carried shall be located only in the Radio Room and shall be o erated, maintained and repaired oni b the Radio Ofticer an or a to ecti~~øI- icer. ( aviga i n computers and o~i~?'~l~ctr&iic naviga- tional e M~rrrstl"tc~1ocated in or in the vicinity of the Radio Room including bridge, but regardless of loca- tion shall be maintained and rep~ed onl b the Radio Offi~~Zl7öflaiL[é~ètronics Officer. (b) Radio Officers and/or Radio Electronics Officers shall not be required to perform any duties other than those required for the operation and maintenance and re- pair of the vessel's licensed radio station and other equipment and devices as outlined in Sections 2, 3 and 22(a) except in an emergency involving the safety of life and/or property. Emergency shall be defined to mean a bonafide distress situation. Radio Officers and/or Radio Electronics Officers may also be required to maintain and make repairs to the Radio Compass when the services of Radio Compass experts are not available; provided that under such cir- cumstances, they shall not be held responsible for the ef- ficiency or accuracy of the Radio Compass. Radio-Electronics Officers a be r uired to main- tain and make repairs to other~j tci~gic. evtces, c - ~ Section 23(b)~fl, prôv- ided that the necessary tools, instruments and spare parts are carried. PAGENO="0332" 1796 AUTOMATION Section 51. The Company agrees that plans for auto- mation of existing or future vessels shall not involve a manning scale of less than one Radio Officer or Radio Electronics Officer on freight vessels and not less than the manning scales provided in this Agreement on pas- senger ships. On the contra ath,iUL~L0 Officers and/or Radio~EI ~j~jç,s~QJficers fro~.~,Lyessel, ~Fi~j~1~iuire that siiëlflhTen trai~iT5~y thé~.AB.~ ~ wi~j~ç.jiffded ~ ~ lirtifIs Agreement SAFETY AT SEA Section 52. In the interest and for the purpose of pro- moting safety of life and property at sea, and in the in- terest of National Defense, the Company agrees that all freight vessels owned or operated by the Company which have a gross tonnage of 1600 or more and all passenger vessels owned or operated by the Company irrespective of size shall be equipped with properly authorized licensed radiotelegraph and/or radiotelephone stations and shall be manned with Radio Officers and/or Radio Electronics Officers duly certified by the Federal Communications Commission to act as commercial first- or second-class radiotelegraph operators and that all such vessels shall re- main so equipped and manned throughout the life of this Agreement. Ths section only applies to self-propelled craft, and, is intended to cover oceangoing vessels engaged in coast- wise, inter-coastal, nearby foreign, and foreign voyages. `%hei any of the equipment in the jurisdiction of `he U'uon s operating improperly or is inoperative and re~ quires repairs, said repairs shall not be delayed until reaching port if the neces sary spa~e~arts are available and the Radio Officer or Radio Electronics Officer has a Radar Endorsement, if radar equipment is involved and is qualified otherwise `When repairs are being done to the ship's licensed radio station, including the radio direction finder, ship's radar or other equipment in the jurisdiction of the Radio Officer or Radio Elec- tromcs Officer, `i ~atho O5ficer or Radio Electronics Officer ~v~ho isiè~ qmred to supervise such ripairs be tween ` the hours of 8 AM to 3 PM, Monday to Friday, shall not be dis- missed, while such repairs are being performed and until they are corn- pleted, provided that he may be dis- misser at or after 8 PM. PAGENO="0333" 1797 P~DDEND1JM 1 RULES ON RADIOTELEPHONE OPERATION To be posted in Radio Room and on Bridge on ves- sels equipped. with radiotelephone. Operation of Radiotelephone equipment shall be in accordance with the following rules which both the Company and the Union agree do not supersede, but are in accordance with the terms of the collective bargaIning Agreement between them relating to such operation. .1. air and maintenance at sea-Only the ship Ra- dio fleer an or ~E1~ctroiics Officer shall be assigned to or perform duties necessary for maintenance, repair and operation of Radiotelephone equipment at sea, (Section 22 (a)). 2. OPERATION-(a) Radio Officers and/or Radio Electronics Officers shall perform all duties incident to the o eration maintenance and repair ~lfla io an or. e ectronic comm es vessels operated by the Company. All radio and/or electronic communi- cations devices, described in Section 2(a), including Ra- diotelephone, when carried, shall be located only in the Radio Room and shall be operated and maintained only by the Radio Officer and/or Radio Electronics Officer. (Section 3(b) and 22(a)).' /WDE4DUM 3 (m~ The parties recognize mat VHF and other types of communication for: (1) meteorology, (2) data trans- mission, (3) oceanographic, (4) radiofacsimile, (5) prin- ter, (6) navigation, and (7) public or other correspon- dence to and from vessels via satellite relay Mll . be tested shortly, and jointly stat g&~.en and. un- derstanding that pursuant to and subject to Section 3 of the parties' agreement I es and steps of such~ munications as prove to be feast e to o~ from me vessel ~ ~m~ronics ~FF rs,an no other personnel, not- ~antn~nyo1itcrOviSiOflS made herein. (e) All radio and/or electronic communications equipment other than the portable units described in 2. (a) above shall be located only in the Radio Room and shall be o2erated, rna~ntained a~cliçt~ai~.,only by the Radio Officer or I Iio [ectronics Officer. The porta- ble equipment described in 2. (a) above shall be ~ d and re aired only by Radio Officers and/or Ra- dio Cs ic rs. PAGENO="0334" 1798 7. M~tintcnance and repair of all the equip-. ment~crrctoj~tijsAcic1endum No.4 shall continue to be performed only by the Radio Offi~,er 0. P.idio LlecLi.onjcs Officer 8 a Maintaining inventory of spare parts and requisitioning ot spare parts as may be required for the ship's Licensed Radio Sta- tion, R~cLo clelyoe, Loran, cø11i~ion course computers associated with Radar and On) other equipment in the maintenance re- cpon.,. bil ity oL thc Radio Officer or Radio Electronics Officer, and reventative main- tenance thereof ~ 3. shall he ~rfoi~~~t sea on a ~reek- 1 basis (procedures~~flcfonn- ul'ile by the AR~ UHF PLogr~m `ind ag~.eed by the Union `ma the Compan-. ~s) ,,~ b ~ thafl be deemed to be those procedures performed on. a normally functioning device, to maintain it in, such normally functioning condition, and may include, as applic'ible, ie~ular inspecLion, cleaning, tightening, lubricating and test- ing of such devicxs, including spares,.as. well `is align-'eat, caUbraLio~-t, adjust `ent (at frequencies appropriate to the particu- lar device), and any other necessary pro- cedures. c ~1~" shall be deemed to be those procedures performed on a non-func-.. tioning oi m'i) funLtlonlng device, 10 restore it to nor~"al tunc t o-~ing condition, and may include any o C the procedures us ted in (h) above ~h~n performed on a non functioning or n'ilfunctioinng unit PAGENO="0335" 1799~ APPENDIX B E. Legislative History of Title III,, Part II of the Aät. I. ~eeariy leg ativ! history. 1. Senate Resolution No. 7~ (74th Cong~~J: It ordered an investigation of the ~rro Castle and Rohawk disasters, and auth.. orized the investigating committee to reccinmerid necessary remedial legislation: "The Norro Castle and the Mohawk disasters moved the senate of the United States to adopt a resolution requesting the Committee on Commerce of the Senate or a subcomfttttee thereof to conduct a study ~f the causes of' these disasters, to make studies which might throw light on the question of safety of life at sea, and to make recommendations to the Congress for greater security of persons and property at sea.,,'! Senate Report No. 196 (on 5.595, * . Public Law No. 97, 75th Congress, 1st Session), p. 2, March 17, 1937. . 2. te Biil~5~, This legislation was passed to add Title III, Part XI, to the Communications Aót of 1934, as amended, and, * 0 - "As a result of this study of the problem * the bill which the Commerce Committee now report, * with certain modifications, was prepared and intro- duced by Senator Copeland,.." Senate Report No. 196, above, p. 3. 3. ~lio Law No. 97 (75th Congress, 1st Sessi~: Its object was to lricrease.safetyat sea. This legislation received bi- partisan support, mince the members of both parties were unwilling to play politics ~witb human lives. (a) pose o~ the law was to increase safety at sea: "...Section 1 of the Communications Act of' 1934 is hereby amended by inserting after the words `for the * purpose of the national defense' a comma and the words `for the purpose of promotin~ safety of' life and proper t brough. the use of wfrè andradio communication." - ection 1, P.L. 97, 75th Congress, C. 229 - 1st Session, 8.595, approved Nay 20, 1937 (emphasis supplied). (b) Senate Renort No. 196 stressed that safety was to be the aim of the Commission in enforcing this law: "The Committee feels that it 8hould be the aim of the~Commission to assure itself, within practicable limits, that the radio installations required by law to be installed upon ships are at au times in operating conditions, manned by competent operators, and available to give the greatest assurance of protection to life and property on the ~high seas ,.." - Senate Report No. 3.96, (on. Public Law 97, 5, .595), March 17, 1937, 75th Congress, 1st Session, p. 4. Cc) Method: Coastwise and international voyages were similarly treated for the purposes of' safety at sea. Congress ~P~)1led the same p~inciples to coastwfse shipping as it applied to PAGENO="0336" 1800 vessels making international voyages, and imposed the same radio re- quirements for ~ vessels over 1600 tons: * "In this bill, therefore, an endeavor has been made to apply the requirements of the convention to our domestic shipping so far as ~ !!~~Jl ~ into. th~ * sea are concerned and to restore some of ~he lost prestige which has cone through our failure to keep abreast of modern developments in this important feature of safety at sea "Today, there are probably 600 or more ships of the United States of substantial tonnage carrying many persons as passengers and crews, which neither by our law nor the Convention are required to carry radio. No more pointed illustration of the danger and of the tragedy of this inadequacy of law can be found .jthan in the fact that there was an Pmerican ship not required to be equipped with radio within 30 miles of the Vestris and which sailed away because it did not receive the SOS signals of that doomed vessel. We are told that that ship was so near to the Vestris that* it might have saved all.. ." - Senate Report, No. 196, p. 2 (Emphasis supplied.) (d) The reason Congress took this approach is obvious. Vessels entering the ~ sea face the sane dangers and can provide the same contribution to a common network of vessels, knit together by radio, for mutual assistance in emergencies. The House Report on the sane legislation noted that: "...a considerable number of ~ 2p~t~g in * coastwise service which at present are not required by * either theTiàw or the treaty to be equipped with radio. These ships ~ to sea, face the same ~ ~ * available as liThboats to distressed vessels, in the sa~ñ~e manner as those required by law to carry radio. This bill remedies this inconsistency... "These ships cruise in ~ ~ face the same dan~rs as those in interna14PP~i yo~~s7 - ~i~se Report No. ~6(~Ii P. L. No. 97, S595~J i~pril 23, 1937, pp. .2, k, 75th Congress, 1st Session (emphasis * supplied). * (e) Coveragq~ or ~ from the radio requirements were based on the hazards encountered on the ~ of ~ ~ the circumstances of the voyage, and other conditions of the same nature; thus voyage considerations, not the nautical mileage limita- tions, were p~mary in the exemption provision Cortgresa placed In the Act, since the Congress had before It the facts of the Morro Castle disaster which had occurred well within the 20 and 150 mile limits, and in fact within ~jg~ o~ land: "The proposed legislation provides - * * "(a) That the Comnission may exempt ships or make blanket excnptlons ~ clarses of ships If It considers that the reute or the condItions of the * ~ or other circums~p~ are such as to render a radio insta11at~ unreasonab~ or ~ ... - PAGENO="0337" 1801 * House Report No. 686 (on Public Law No. 97,S595) April 23, 1937 p. 5~ 75th Congress, 1st Session (emphasis supplied). ~F. ernatiorial ~ standards were met - and raised: The Safety of Life at Sea Convention, London, 1929, had provided * Congress with guidance on tlie coverage, (to commence with 1600 gross tons and up) and had indicated conditions relevant to exemption. (Safety Convention, London, 1929, Articles 26 and 28. Congress, however, had taken these Convention requirements * fox' international voyages, and in P.L. 91 ~ppLied them to coastwis~ yç~yages, as well: "The 1929 Convention (Safety of Life at Sea Convention, London, 1929) applies only to vessels employed on international voyages... Senate Report No. 196, p. 1. "This bill has taken from the 1929 Convention on Safety of Life at Sea the part thereof relating to radio and has sought to adapt it to our circumstances and our requirements. Your committee assert generally that we have written into the bill the standards of the world, that in some pects we fl~ raised such ~.~ndard~, and we assert, unqualifiedly tE~i~~ have immeasurably lifted the standards of present United * States Law. - Senate Report No. 196, p. 3.' .5. During the floor debate in the Senate on this bill, Senator Copeland underscored two points:.. a) the bi-partisari nature of the legisla- tion, and b) the safety purpose of the bill: "MR. COPELAND.. .A full agreement was reached by all parties in interest; and by unanimous vote of the Committee it was recommended that ttiibfll be re- ported for the calendar and be passed. "The bill provides, as the Senator from Arkansas has said, for carrying out the conclusions of the *i International Convention for the Safety of Life at Sea. It provides for radio on ships, so that in case of disaster or distress there may be cornmunication.The L~I~ in t~ public interest and certainly is in the interest of the preservation of.human life..." - 81 Cong. Record - p. 2k65 (1937). (emphasis supplied). 6. The floor debate in the House concerned itself, among othet' matters, with the exemption and coverage ot various classes of vessels.. House Merchant Marine Committee Chairman, Congressman Bland, replied to an inquiry as to just which ships were referred to in the coastal trade, as follows: * "MR. BARDEN. Mr. Speaker, reserving the right to object, may I ask the gentleman from Virginia to explain just what boats this refers to in the coastal * trade? * - 51-253 0 - 80 - 22 PAGENO="0338" 1802 SP~ BLAND As to ~fj~ht vessels they must be of ~ ~oss tons and as to passenger ves.~els affected It~~s not affect any boats on the bays or `inland waters." - 81 Cong. Record - p~ 4134 (1937). * (emphasis supplied). XI. The `more recent_legis)a~j~ehi5tq~ - Public Law No. ~B3~~iss 2nd ~essi.onJ reveals the following * factual history: i) As to Senate Bill 211.5~ A recent session of Congress the 83rd Congress 2nd Session had before it S 2453 Amendments to Lommunications Act Requiring Radio Equipment and Radio Operators On Board Ships (aporoved August 13 1954 Publ4.c Law ~84 83d Congress Chapters 7 to 9 2d Session 50 Stat 192 ) During the course of consideration of 5 2453 Congress reviewed again found valid reaffirmed and further extended the previously expreszs~ Congressional intent relative to ship radio requirements of P L 97 as to a) purpose - safety b) method - through covering coastwise voyages as well as international voyages c) reason - sane hazards faced in common safety network needed by ships in open sea d) coverage or exemption - voyage conditions route circumstances e) Treaty standards - met and raised t) Bipartisan rature - passed unanimously in both House and Senate This is amply explained in identical wording in both Senate and house Renorts on S 2453 "In 1929 an International Safety of Lire at Sea Conference was held in London at which time a com- pulsory s'iip radio formula was developed covering cc tam classes of ships engaged on international voy~e "The convention was ratified by the United States in 1936, and in 1937 the Congress amended the Communications Act (mainly the addition of pt. II to title iii) so as to implemer~t the provisions of the convention This amendm'~n~ also we~i~ be~~ the radio provisions of the convention of p~yj~ higher techni- cal radio standards to United State, vessels and to foreign ships o~ nonconvention countries ~hen departing from ports of he United states for a vo~age in th'~ s~a ~egardless of whether such vo~age wrs int~r- natio'~al or not In con eq~ence the new leg_slation covered vessels on coastcn.se done&1.c ~ as eli those engaged on mnternationaI~voyages The amendments contained in this bill (S 2453) are similarly designed to raise ship raaio safety re- quirements for United St tea ships on~prrestic o,g~çap, 3Lcyagca. and for foreign noncor;en~ion siips departing fron United States ports by bringing them in line with those mow specifically internationalized by the 1948 Safety of Life at Sea Convention The principal effect PAGENO="0339" 1803 of the legislation would be to insure that vessels en- gaged in domestic ocean y.9~&es would comply with safety radio i~~irements no less effective than those applicable to ships engaged in intérnat'iónal voyagos. - Senate Report No. 1583 (June 11, 1954), p. 2, and House Report No. 2285 (July 19, 1954), p. 2. 2) ~?453 ~ lemented and exceeded'theprovisionsof1~, Lofldon Convention of 1948: The 83rd Congress adopted 5.2453 amend- ing the Communicat4ons Act of 1934 to implement and to exceed the International Convention on Safety of Life at Sea, London, 1948, which had previously been ratified by the Senate. How does this 1948 Safety Convention approach exemptions? a) Regulation 3 of Chapter III - "Life Saving Appliances, etc." of the 1948 Ôonvention states: "Exemptions - (a) Each Administration, if it considers that the sheltered nature and conditions of the voyage are such as.to render the application of the full requirements of this Chapter unreasonable ~ necessary. may to that extent exen~pt from the require- inents ofthis Chapter individual ships or classes of ships belonging to its country which, in the course of their voyage, do not go more than 20 miles from the nearest land." (emphasis supplied). b) R~gulátion 5 of Chapter IV.. "Radiotelegraph and Radio- telephone" of the 1948 Safety Convention reads: "Exemptions from Regulation 3 "(a) The Contract- ing Governments consider it ~ desirable not to deviate from the application of Regulation ~, neverthe- ~~i~ch Administration may grant to Individual passen- ger and cargo shins belonging to its country exemptions of a partial and/or conditional nature, `or complete ex- * emption from the requIrements of Regulation 3. (The Regulation 3 referred to is the 1948 Safety Convention requirement for radiotelegraph.) "(b) The exemptions permitted under paragraph (a) of this Regulation, shall be granted only to a ship engaged on a voyage where the maximum distance of the ship from the shore, the length of the voyage, the * * absence of general navi~ational hazards, and other condi&ons affecting~fety are such as to render the full application of Regulation 3 unreasonable or un- necessary. "(c) Each Administration shall submit to the Organization as soon as possible after the first of January in each year a report showing all exemptions granted under sub-paragraphs (a) and (b) of this Regu- lation during the previous calendar year." (emphasis supplied). It is well to observe the general principle that it is highly desirable not to exempt from safety at sea requirements, as set forth in sub-paragraph (a) above. PAGENO="0340" 1804 Note also that though mileage limitations here dropped in the Convention (though not ~n the Communications Act as shown hereafter the absence of general navig~~onal hazards along the route of the voyage is retained 3) S 2453 specifically deals with the classes of vessels embraced within the requiremend of law The very question of what clesses of vessels shall be equipped with radiotelephone and what classes with radiotelegraph was considered and Congress met forth precise provisions in that regard in ~S 21453 The Bill as adopted made the following provisions a) Radio requirements were extended by amended Section 351 (a) (1) to cargo vessels of 500 gross tons and over which `leave or attempt to leave any harbor or port of the United States for a voy- age in the open sea b) Section 3514 (a) renumbered as new Section 355 (a) was reworded so that the radio installation required by Section 351 (a) (1) was required to corsr~ise a riain a~id an emergency or reserve radiotelegraph installation reaffirming the previous meaning and intent of the law that radiotelegrap1~ equipment operators and watches provides the firmest foundation for safety at sea through radio c) For Cargo ships between 500 and i6oo gross tons the radiotelegrat'h requireme~its were made optional and such vessels were per~nit;ed to carry a radiotelephone installation in lieu of radiote.i.egrapn ~Section 356) d) These provisions were enacted to carry out the follow- ing obligations of the 1948 Safety Convention The change in paragraph (1) of section 351 (a) of the act is designed to carry out the requirerient contained in re~ulation 4 Radiotelephone ir~tallation of Chapter IV Radiotelegraph~r and radiotelephony of the 1948 Conve'ition - Senate Report No 1583 83rd Congress 2nd Session (1951) p 12 That regulation reads am follows `Radiotelephone Installation - Cargo ships of 500 tons gross tonnage and upwards but less than 1600 tons gross tonnage unless fitted with a radio~elegraph in- stallation compl~,ing with the provisions of Regulations 9 and 10 shall provided they are not exempted under Regulation 6 be fitted with a radiotelep~tone installa- tion complying with the provisions o~ Regulation 15 - Reg 14 Chapter IV o~ the Safety of Life at Sea Con- vention London 1948 PAGENO="0341" 1805 It is thus clear that neither the Congress nor the International Convention is silent on ~,hich class of vessels shall operate with radiotelephone and which shall be required to carry the full radio- telegraph installation and a qualified Radio Operator. It.is quite obvious that Congress was well aware of both the advances claimed for radiotelephony as well as its continuing limila. tions that prevent it from replacing radiotelegraphy as a safety system for ocean-going vessels~. It is ob- vious, too, that while extending the classes of vessels requiring communication equipment, Congres refused to weaken the existing scope of the radio network for safety at sea to appease the economic appetites of certain shipowners anxious to eliminate the cost of the Radio Officer, as set forth in the Hearings on S. 2453 (see Section H below.) Congress thus recognized that the most precious commodity is human life. Bythe specific wording of Public law 584 (83rd Congreon, 2nd Session) it extended communications coverage, while fully re- taining and strengthening the existing coverage for cargo vessels above 1600 gross tons as radiotelegraph requirements. In the case of cargo vessels of above 1600 gross tons, the amended Act now eliminates all doubt as to the nature of the required radio installations. ~ must be radiotelegr~ph. It is therefore respectfully submitted that this specifically excludes from the Jurisdictional power of the Commission the right of choice or selec- tion between radiotelephone and radiotelegraph, in the case of ships of the gross tonnage covered by the Termant application (pver 1600). The consideration by the Ccmmlssion of the instant voyage conditions, route, and circumstances cannot therefore result in a substitu~tion of radiotelephone for the radiotelegraph requirements of the Act, to participate in the international radiotelegraph sea-safety net- work. The ~inited exertiption provision of Sec1~1on 352 (b) is certain- ly not a power of substitution, since Congress has expressly limited such power of substitution to vessels in the 500 to 1600 ton class. PAGENO="0342" 1806 o Section 352 (b) of the Act --- Recent Legislative Developments 1) This amendment attempting to eliminate (from Section 352 (b) (2) exe'iption provisions) specific numerical limitations and replacing them with general widely flexible tents would have weak- etied the Corgressional intent to moose these numerical limitations as minimal limitations to be considered after the general considera- tions of route conditions of voyage and other circumstances were to be satisfied 2) ARA and RCU asked that any flexibility that the Commission might require to exercise its limited exemption powers, be specif~.cally spelled out Similar domestic vessels could be specifically exempted by including the exact list given in that letter (from F C C Chairman Paul A ~salker to the Vice President, March 5, 1953) without. further flexibility as they call it being necessary In this zay the broad powers to set standards can be retained b~, Congress and the minimum standards Congress had already set can be kept." - Testimony of H. Stnichartz, S.2~53 Rearing p 13 PAGENO="0343" 1807 3) The Congress had before it A -ROPs request to * "...de].ete the proposed change to Section 352(b) and permit that section to remain as an influence for raising world standards as well as maintaining * our own."- Testimony of ~ Stricharts, S.2453, Hearing, p. 13. 1&) Congjess also had before it the statement by Commission- er B. N. Webster thaj the Commission needed a provision that would "...permit the Commission, after consideration of * all relevant factors, to take, care of special hard- ship mases in a practical way without sacrificir.g essential safety reguir~ments ~ ~S .2453, Hearing, p. 35. * 5) After hearings and conferences on S. 2~53, Congress * recognized the validity of the ARA-ROTJ request that Section 352(b) be left intact and, in Senate Report No. 1583 and House Report No. 2285, 83d Congress, reaffirmed previously expressed Congressional intent relative to coverage. (See Sections., as toPL 58k, this Statement and ~rief). * 6) Congress did make provision for the Commission's ex- pressed need, by providing a specific and limited authority, in a new subsection 352(c): * !`If, because of unforeseeable failure of equipment, a ship is unable to comply with the equipment re.. * quirements of this part, without undue delay of the ship, the mileage limitations, set forth in paragraphs (1) and (2) of subsection (b) shall not apply; Pro- vided, that exemption or the ship is found to be reasonable or necessary in accordance with subsection (b) to p~git the ~ to proceed to a nort where the equipment d~Tlciency ~ be renedi~."~ ~~lT~1~w 5d4, 53d"~Congress, 2d Session (l95J4~J. (emphasis * upplied). * .7) Such exemption was deemed necessary because Congress desired to give a strict int~rpretation to the exemption provision.' In making the specific provision for this type of exemption, Congress reiterated its intention to petain the' broad power to set safety standards and to grant only limited, power to the Commission in' matters of exemptions from the provisions of. the Act; this limited power to be exercised "without sacrificing essential safety require- ments." * 8) In applying such limited exemption authority, the Commission must perforce apply it in conformity with the plain im- port of the law, and the intent of Congress as revealed by the legislative history,'ineaning and application of the Act. PAGENO="0344" 1808 In applying that limited exemption authority the Commission in the past has recognized the above 8 considerations This is revealed by the analysis below in Section U of prior decisions by the Commission on applications under Section 352(b) ~ The Applicable Law Shortly after the passage of Public Law 97 the Commission was flooded with applications which sought a `loose' interpretation of Section 352(b) Exemptions were sought front the radio provisions of the Act for vessels ~f over i600 gross tons in the coastwise trade 1) In Matter of Atlantic Refining~ Docket 1~856 5 FCC Rep. io4 (1938), p. 105, the Commission recognized the "limited dis- cretion given us by Congress The headnote of the official report states that where no material showing is made to distinguish the operation of the vessel from the * operation of the whole group of vessels to which the laws apoly the Commission has no basis for the exercise of its limited authority to grant exemptions' p. i~J4 ~ (emphasis supplied). The Commission found that all the norn'al hazards of ocean navigation are present in this coastwise operation and it was there- fore precluded from granting the exemption sought * "For the purposes of this application, then, we' nust consider that the route navigated bj this * vessel lies along practically the entire length of the east coast o" the Uni~ed States from Miami to Boston The operation over this route is not seasonal but is corducted at anj time of the year so that the vessel tray be expected to encounter any weather conditions that occur along this coast We do not feel that it is necessary to enter into a discussion of the hazards inherent in coastwise navigation along the Atlantic Coast other than to state that the record discloses that at least all normal hazards of ocean navig~ tion are p~s~p~ over tie route navigated by this V~i~eTnor do we~1~zn it necessary to dwel.. upon the value of a radio installation as a measure of safety to other shipping The applican' has offered not1~ing to distinguish tie operation of its vessel from the operation of the g~at nurrber of vessels normally plying in the coasti~ise trade, and we thene ore Iaje no basis for the exorcise of the limited discretion gIven us by Congr~ss p 105 (er~phasis supplied) In denying the application, the Commission concluded; It is our conclusion that the applicant has not presented facts sufficient to warrant this Commission in finding that the route and condi- tions of the voyage, or other circumstances, are * such as specified in the Convention and in the Act.' p. 106. * * PAGENO="0345" 1809 2) inNatter of Bouchard Transportation Co.,~tnc., 5 FCC Rep. 163 (1938, Docket No. 11887, the Commission again acknowledged the Congressionai intent to include coastwise. vessels in the inter-. national radiotelegraph safety network. In doing so, it stated: * "With respect to assistance to other vessels, it was p'ainly the intentions of Co~g~ess to increams satet of life at sea by increasing the effectiveness o ra io. To accomplish this purpose, Congress not only provided f hr the installation of satisfactory radio equipment, but provided for the necessary corollary, namely, maintenance of a continuous listen-. ing watch on vessels so equipped. Therefore, the exemption of any vessel operating in normal ocean ~áde removes one unit from the total of vesseIt ~~ng up the potential~safety.ract~ c~ntemplated * . ~ p. 164. (emphasis supplied). The Commission then found that it could not grant an e~emp- tio~.to a vessel which sails in the normal~ hazardous conditions of * a coastwiae run: "We find that kia;ardous conditions frequently * - occur in this area - (Atlantic Coast). * "From a full consideration of the Examiner's Report, the record, and the exceptions and oral argu- * ment of counsel, we have reached the conclusion that the operations of this vessel are not substantially different from those to which Con_gress intended the Act to app~, and, that E1~Foii¾e and~conditioii ~ ~~iyages, or other circumstances~ are not Such as warrant an exemption of the vessel.' p. 165. (emphasis supplied). 3) ~ of Eastern Steamship Lines~, Inc., 5 FCC Rep. 166 (1938), Docket #4857, is another case in which the Commission reached the conclusion that Congressional intent was to ex~p~but to ~id!~ coastwise shipping, within the radio requirements of Treaty and statute. In concluding that the Applicant in that case failed to make a sutficient showing that the requirement of a radio installa- tion on the Applicant's vessels was unnecessary or unreasonable for the purposes of Part II of. Title III of the Act, the Commission stated: "The principal contentions of the applicant was that the coast is well supplied with aids to navIga- tion; that harbors of ~ frequent; that the tine s ent in t1~e o en sea is donnara~i~jl short; * an , ha the radIo installation is unnecessary as an aid to other shipping for the reason that the vessels follow well travelled steamer lanes where other craft could be of more assistance because of their superior - speed and accommodations. PAGENO="0346" 1810 We do not see that these conditions or circurt- stances are peculiar to the vessels in question and if they were to be adopted by this Commission as the basis for exemptions, the result would be to remove the requirement of radio in respect to a lar~enur~bIT~ of coas~wisesteamsh~p~ This~ we are cert _n~w~ iiot the intzmtion of. Congress.' p. l67, (emphasis supplied) In the Oliver J Olson Comp~py~(applications X-549x-554) the Commission had before it exemption applications in which the same trade similar ships carrying the same cargoes on voyages with the same conditions route and other circumstances were involved as are involved in the instant application In denying these applica- tions the Commission noted `2 The applications show that the vessels carry lumber products and wood pulp between ports in Washington Oregon and Cali- fornia that their routes are rarely more than seven miles and never more than 25 miles from land (enphasis~supplied~ "6 Vessels such as the instant vessels engaged in the West Coast coastwise lumber trade have heretofore been the subject of applications for exemption In Matter of Uestern Transoort,~~ al Docket No 4774 et al 5 FCC l6~ tl~3~3) the Commission denied exemption tb such ;essels aLter finding that the routes and condi- tions of the voyages of the vessels were no less hazardous than in the case of any other coastwise vessels and stating at p 173 that these groups of vessels should be `~equi~ed to fill thei~ places in the general scheme to provide increased safety by increasing the number of vessels instantly available as potential lifeboats "8 The applicant has not made or attemoted to make any showing that the conditions and circumstances of the voyages or the ships are so exceptional that despite compliance since 1937 by four of the vessels and co-rnliance s1~ce 1947 and 1948 respectively by the remaining t~o vessels with the radiotelegraph requirements of Title III Part II of the Act such compliance has now become ~.n- reasonable o~' un'iecessary MEMORANDUM OPINION AND ORDER adopted March 16 1955 When the Oliver S Olson Co requested reconsideration and hearings jn denying Olson's request the Commission shed consid- erable light on the history and philosophj of the provisions fron which Applicant seeks exemption in stating 8 It appears that Olson has misconstrued the philosoohy underlying the provisions of Title Ill Part II of the ~ct and the basis for the Corirnission's denial of its auplications `9 Th'~ Morro Castle and MDI-awk marine disaster~ occurred sho~t distanceS o'~f the New Jersey coast (the M'rro Castle was within sight of l~. d ~nd the ~ohawk wa~ appro~imate1y 8 miles off the coast) A senato lal investigation of the.e disaster~ resUlted among other things in a recor~endation by the sub omm.~tte'~ of the Senate Committee on Corm'~rce for amendmeit of the Communications Act by in effect adding Part II to Title III of the Act (Serate Report 776 Part 2 714th Congress 2nd Session pursuant to S Men 7 74th Congress 1st session) Ttis recomm'~ndation finally e~entuated in S 595 which was enacted into law in 1937 a. Part II of Title III of the Communications Act of 1934. In Senate Report No.. 196, 75th Congress accompanying ~ 595 it was made very clear that one of the purposes of the bill was to assure the aeplication of radio require- PAGENO="0347" 1811 merits to certain vessels engaged incoastwise voyages in the open sea as well as those engaged on ii~ternationai voyagei~ Vessels on the latter types of voyages were already required by reason of the International Convention for the Safety of Life at Sea, 1929, to comply with specified radio requirements. Thu3, the report stated: " `In this bill , . . an endeavor, has been made to apply the requirements of the Convention to our domestic shipping so far as vessels which go Into the open sea are concerned . . . . (emphasis supplied), "The' report goes on: `Today there are probably 600 or more ships of the United States of substantial tonnage carrying many persons as passengers and crews, which, neither by our law nor the Convention are required to carry radio. No more pointed illustration of the danger and of the tragedy of this inadequacy of law can be found than in the tact that there was an American ship not required to be equipped with radio within 30 miles of the Vestris and which sailed away because it did not receive the SOS"sig- nals of that doomed vessel. We are told that that ship was so near to the Vestris that it might have saved all.t "10. The House Report (Report No. 686, 75th Congress, let Session) on 5. 595 stated the proposition concisely as follows: " `The 1929 Convention applies only to vessels em-. ployed cm international voyages. The United States has a very large and important merchant marine engaged in purely domestic shipping. There remain, therefore, a con- siderable number of ships operating in coastwise service * which at present are not required by either the law or the treaty to be equipped with radio. These ships go to sea, * face thesame dangers, and are available as lifeboats to distress vessels, in the sane manner as those required by law to carry radio. This bill remedies this inconsistency, "Thus the Congressional intent was clear that ships over 1600 gross tons sailing in the open sea whether on coastwise voyages or Ori international Voyages should constitute a pool of mutual assist- ance whose effectiveness would be in dIrect ratio to number of yes- sels ~ii~fl~ormity in~'~'Fiéradio equipment of these vessels was necessary if the plan of mutual assistance was to be carried into force. So far as direct response of one vessel to another vessel's distress signal is concerned, it does no good for the distressed vessel to transmit the distress signal by radIotelegraphy on one channel, when its poten- tial rescuer is listening on another radio channel for a radiotele- phone signal, and by the same token, a distress signal transmitted by radiotelephone on. one channel will .not be heard by another ship ha- teriing for a radiotelegraph distress signal on a different channel. "11. Title III, Part II of the Act expressly recognizes this principle ~f minimum equipment uniformity and specifies that vessels of 1600 grqss tons and over nuist be uniformly equIpped `fOr partIcipa~ tion in a radiotelegraph safety system. The Commission has consist- ently applied this principle of minimum uniformity to all ships which are members of the radiotelegraph safety system. Each such ship, which is regularly navigated in the open sea; is compelled to meet re. quirements so long as circumstances indicate that its permanent parti.. cipatior, in summoning or rendering assistance would be of substantial- ly normal value to the system and so long as inherent Size, space or design limitationa did not render its participation peculiarly im- practical or impossible. The necessity for a priniople of equaltreat.. merit for all such ships similarly situated is obvious in the absence of any method of determining in advance which ship in the system might at any given instant be required to give or receive assistance." "18, In the light of foregoing precedonts, explanation and `legislative history, we turn to the Olson allegatIons. The Olson vessels are over 1600 gross tons; they are engaged in.coastwise voy- ages in the open sea; they navigate in waters also navigated by other PAGENO="0348" 1812 ocean-going radiotelegraph ecuipped vessels they are vessels which now constitute a part of ~ which eongress contemplat~'d In the enact1nen~ of' Title III Part II There is no showing or ibdeed allegatLon that other radiotelegraph equipped vessels cannot or should not depend upon the Olson vessels for direct response to distress signals in the same way as other large vessels subject to Title III Part II Co-iversely Olson has not shown or alleged that the safety of its vessels a-id their crew members would not be enhanced by reason of its ability to summon ~ d directly from other large vessels also equipped with radiotelegraphy In short although fully ex~laining the usefulness to it of radio- telephony Olson has failed to show why the effectiveness of the Congressiona~.ly created radiotelegraoh safety sjstem which depends upon universality would not be unreasonablj and unnecessa~'ily im- paired if its vessels were excepted therefo'm 20 Olson's petition for rehearing remedies none of the defects of its original request for e~cemption Instead it makes clear its failure to;comprehend the statutory scheme of'~marine safety created by Title III Part II for ships like its own 21 Thus the only facts it again alleges in support of its request for exemption are `(i) the vessels operate at all tines within 25_ miles of the Pacific coast along which an efticient network ~T'~astal harbor radiotelepho'-ie stations is maintained But it has been demonstrated that one of the primary pur- poses in enactment of TItle III Part II was to en ure direct participation in the radiotelegraph safety system of vessels of 1600 gross tons or over which engage in coastwise voyages (emphasis supplied) MEMORANDUM OPINION AND ORDER Adopted Nov 25 1955 In Matter of Western Transport Co et als 5 FCC Rep 168 (1938) Docket #~774 et als twenty-eight shipping companies filed application in behalf of 57 vessels plying the Pacific Coast for exemption from the requirements of Treaty and S~atute Six of the vessels here used In the t~'ade o~' fish reduction Fifty-one o~' the vessels were lumber schooners (like the vessels involved in the Tennan~ oetition) In the Western Transport case the same trade same or similar ships carrying the mane cargoes on voyages with the same conditions route and other circumstances were there involved as are involved in the instant application The Co-mission denied the applications for exemptions The decision stated as follows Held that the route or conditions of the voyages or other circumstances were not shown to be such as to re'mder a radio installation unnecessary or urireaso~ab1e in the operation of the vesse..s along the Pacific Coast p 170 At page 172 the CommL~sion fourd relative to the 6 fish- reduction vessels that "During most of the'. operations the vessels lie at anchor between the conver~,ing ~hip lanes entering the Gold~'n Gate This area is in the vicinity of PAGENO="0349" 1813 Point Reyes, which is the point of maximum fog on the Pacific Coast and one of the foggiest localities in the United States, averaging some thirteen hundred hours of fog per year. The records show that there is an average of 21 days of dense fog at this point during the month of August. Wind velocities of 91 miles per hour have been observed at Point Reyes, and on 142 days of the year the winds blow with a velocity greater than 31 miles per hour. During the winter the coast is subject to periodic gales of great severity.' The lumber schooners covered by the Tennant application for exemption, sail regularly through the area described above. The Commission then discussed the facts as to the 51 "lumber sohooners" involved in the Western Transport case, as follows: "The remainder of the vessels here considered are of a type known on the Pacific Coast as lumber schooners". They operate in a general cargo and lum- ber trade between San Diego and .Puget Souhd, with the southbound movement of lumber being the principal source of revenue. The vessels are comparatively slow and of a shallow-draft to enable them to cross sandbars and enter small rivers and inlets to pick up lumber at or near the places where it is cut. All of the ships are over 1,600 tons and the average is well over 2,000 tons. In the course of their voyages they are never more than 150 miles from shore and are therefore eligi- * . ble.to be considered for exemptions." * "On the southbound voyages the vessels are * heavily laden and carry very high deck loads. In this * condition their speed is greatly reduced and they have little maneuverability, although they are said to be* * practically unsinkable. Nevertheless, there is danger of capsizing, and the vessels are of course subject to all normal hazards of ocean navigation such as colli- * sion, breakdown, fire, and running aground. The * course of the southbound voyage follows the regular * coastwise steamship lanes some 20 to 30 miles off shore. Northbound, the vessels are more lightly loaded with miscellaneous car~o, but even then it is frequently necessary for them to `hug" the shore line and avail themselves of the protection of the capes in order to * make reasonable progress against the prevailing winds and currents. Although the masters of the ships have * attained unusual ability in this type of navigation, * we cannot but consider it a hazardous operation in view of the ~g_condit1ons, heavy winds, ~certai~~. of Pacific Ocean curr~O~ unchartered~pinnac1e~ocks, ~ ~ppp~ratively few places of refuse alon~ the coast.' p. 172. (emphaSis supplied). Although Applicants in the Western Thansp~~ case stated that if the "exemption" application were gratited, they would continue to maintain existing radio installations and to employ qualified operators, the Commission, in 4~g the application, nevertheless stated: "We have not been convinced that the routes or * conditions of the voyages, or other circumstances, have been shown to be such as to make the operations materially less hazardous than might be expected in the case ~ * ~ ~O~f /&ttels~shcñflc~ not be * required to fill their_places in the general scheme to ~ of vessels, instantly available as potential life- * boats.' p. 173. (emphasis supplied). PAGENO="0350" 1814 APPENDIX C ~EF~ OURNAL O~ OCFAN(C ENGINFERING VOL OF 2 NO 3 JULY 977 223 The Skilled Radio Officer Key Resource for At Sea Maintainability HARVEY STRICHARTZ Ab -La g I f ft g h p fm d tn d mm t impact of new technology in the area of marine services d h 5 Ii 5 5 t 5 g d di q pm 5 f and quantitative estimates of impact of new technology mm S d d g 5 q as f S bit ~ new equipment needs e g navigation communications Sty for rest-time continsosS operation undee the wide range of physi- cal stresses encountered by maeitime mobile units in the hostile ocean meterology, and oceanography [1]. m t A S b sty f t f th b I ty/maa I b sty In responte to this request the RTCM submitted a Report of such apparatus. Sssce 100-percent reliability cannot be assured at . this sfate of the technological art, the maintainability side of the for- to the Presidents Task Force on Communications Policy (en- meta must necessarily provide that the avaitabiiity will be 100 percent, dorted June 13, 1968). Positing an era of "substantial new b f th larg p tal I set lb 1 It t p l-d y sh p con truction ffo t the RTCM Report anticipated that merchant marine units, can depend on these modern sophisticated de- cot f lb f ly g t d b us tI mm t the new ships themselves will reflect novel concepts and be Ma I b Sty S en it f m lb ppl t fm y geared to more sophisticated communications cqu pment (p t t t m ts toot I h at d m t t I h and systems [2] p I t ) ~ t-s mat t b th p t d t Th k y f lb ppl t C all th lb lb I h Among its conclusions the RTCM noted that lb lull 4 d rr wh m t p sets I g d b I ty pth sly f mall I th I se d pta t at mat t basic radio requirements of ocean goingvessels particularly d p kilt th t b d d 4 p1 hI o gb to rv th as related to safety are firmly rooted tn international con ss d ty f w d o-el I d as lb y ftt d Th ventions and other treaties [3] development of such a technirian-seafaree type, known as the radio- electronic officer, is discussed both historically and functionally; inter- Its final conclusion spelled out the interrelationship be- at Ct 5 lb I h b I ii d 1 1 d and mpl tween the new technology the martttme environment and d personnel standards requirements thus PERSONNEL: The ability, to use more sophitticated I TSE BY ocean gosn shipping among the earliest applies mo~les of communtcatson (including satellite and other ~_) lions of the new radio art dramatically publicized the techniques herein mentsoned) on a continuous and reliable young scsence asssstsng in its rap d de elopment and leading basss under the wide range of phys cal stresses and strains to its dsverssficatson snto radionavtgatton as well as radio encountered in maritime mobile units in deep sea trano communication. In the two decades since the appearance of portation requires that peroonnel standards, i.e., training the radio dsrectson finder (Kolster) in 1916 to World War II and FCC licensing requirements be kept abreast of these the growth of the maritime radio art was steady, if relatively changes in equipment and practices. The importance to ship slow and undramatic operations of more sophisticated communications equip The rapid development of high frequency radar loran and ment will increase with the trend toward automation Such other applications during and immediately following World equipments can not be expected to serve their purpose at War II, produced another "spurt" in the growth of the mars- the necessary high level of efficiency unless properly opec- time mobile sec ice (MMS) As to she nonmilitary MMS It ated and maintained While FCC license requirements have mostly ssvolved civilian applications of what had been secretly kept abreast of the changing technology in the past, a de eloped for naval and air combat craft in the maritime whole sew genre of changes so now in the offing [4] environment RELIABILITY/MA1NTAINABIL1TY/AVAILABILITY PRESIDENT S TASK FORCE This conclusion was entirely in accord with classical ccli Early in 1968 the newly dynamic tempo of developments abilsty/matntasrsab lsty/avarlabtlsty theory the problem in a in maritime rad ocommunicatson and rad ona igation resulted capsule may be formulated thus n the in ration by the Pres dent s Task Fo cc on Communsca lions Policy to she Rad o Technical Committee for the Marine the relat onshrp between reliability (mean time b iween Services to provide it with estimates t tteralra as to failures MTBF) and maintamabslsty (mean time to repair MTTR) is availability as follows hi Pt dM h14 1977 MTBF Th It w lb Ii Am R d A 5 AFL-CIO K w Availability = Y k NY 10016 MTBF + MTTR C py ght 01977 by Th I it I f El t cal d El i E e I P I d iSA An I N 7570E004 PAGENO="0351" 1815 IEEE JOURNAL OF OCEANIC ENGINEERING, JULY 1577 This equation establishes the equipment's availability over the course of time [5]. Further to this concept, an RTCM paper, "Resources neces- sary for on.board preventive and corrective maintenance of radar equipnsent" (approved February 19, 1977) notes further tlsat operational availability is defined as MTBF MTBF MTI3F MDT MTBF MTTR MTAR where MTBF (Mean Time Between Failures) = average elapsed (meter) time commencing when the system meetu specifi- cation and ending when a fault is recognized; MTTR (Mean Time To Repair) = average clock (calendar) time to complete diagnosis and repair of a fault and make a performance check, given adequate teat equipment, tpare parts, technical literature, and an available qualified tech- nician; MDT (Mean Down Time) = average clock (calendar) time commencing when a fault is recognized and ending when the system meets specification; MTAR (Mean Time Awaiting Repairs) = MDT - MTTR. The MTBF and hence the reliability (of which it is a meas- ure) is initially influenced by the quality assurance meaturet used by the manufacturer [61. Maintainability of radio equipment, and indeed of the entire spectrum of radiocommunication and radionavigation equipment, it dependent upon the on-board resources of the vessel, both in materials and in trained personnel which are brought to bear upon faulted equipment, This involvea the following. a) A program of preventive maintenance, to be regularly scheduled and performed at the necessary intervals, is needed to maximize the availability of the system. Since the occasions when preventive maintenance is due will rarely coincide with vessel availability in those ports where this service may be provided, a capability for preventive maintenance at sea is necessary on board. b) Also needed is corrective maintenance, occasioned by the recognition of faults in the equipment, which may be de. fined as performance outside of or not in accordance with the equipment specification. The moat rapid and economical meant to accomplish re- pairs and restore a malfunctioning equipment to operation, is to be able to replac~ the part that has failed, whether it be an individual component or a replaceable module. Judgment must be exercised as to where the distinction is made between the two. Repatr by module replacement can be overemphasized. If it is, superficial nossolusions may result, and expeditious repair capability be diminished. The probability is great that the replacement modules wilt also fail because the root cause of the initial failure has not been determined and corrected. Root cause removal can beat be accompltslsed by in-depth analysis of the malfunction by the personnel involved. In this connection, it must be noted that the advetit of fast loading/discharging, versatile, barge.carrying, and roll.on/roll. off ships (equipped with their own ramps), the proliferation of tanker off.thore oil pipeline facilities, and the practice of ore ships frequenting remote mining areas, has resulted in a situa- tion where a growing number of these larger newer vessels do not make use of the facilities of major worldwide porta for the purpose of loading or diacisarging their cargoes, but utilize countless remote bays, inlets, sounds, river entrances, and offshore loading/discharging facilities in almost every part of the world. These newer ahipa can load, or discharge within extremely short time frames, sometimea in as little as only an hour or two. Therefore there could be circumstances where service and/or spare parts would not be available at these locationa and perhaps not even at regular global port service depots. Shortages of trained service personnel, spare parts, or modules would be even more acute at the thinly spread out depots of authorized service agents whose stock will contain only a mini~ mum supply', if any, of more expensive components. Even where personnel and replacement parts are available, time may not permit completion of repairs prior to the nhip's scheduled sailing. Thit situation can result in long delays in obtaining service and replacement parts, such units being shipped long distances at great expense in order to bring malfunctioning equipment back into aervice. Thus maintenance time and costs would be increaned, and the operational availability of the apparatuu severely reduced, unless in-depth analysis and correction of malfunction can be performed on board by qualified personnel. Repaira mutt begin an soon as possible after a failure it recognized, which, more often than not, is at sea, Where efforts to correct faults are postponed until the veasel'a'next availability in a port where a service capability is provided, the availability of the device will be lost, or its performance degraded, precisely when it it most needed: during approach to a port. The key to at-sea maintenance is she skilled person. nd factor. How has this problem been addressed? MAINTENANCE/REPAIRS ASSIGNED TO RADIO OFFICERS Steamship companies operating approximately 92 percent [7] of the U.S. flag merchant fleet have formally attd specifi- cally assigned maintenance and repairs at sea of radiocommu- nication and radionavigation apparatus exclusively to the vessels' radio officers and radio.electronic officers. They have alto agreed that repairs shall not be delayed until reaching port if the ne cessary spare parts are available and she radio officer or radio.e!ecsronics officer han a radar, endorsement, if radar equipment is involved [8]. Admiralty courts have held that in the face of serious de. fects in navigation equipment, the mauler of a vessel is not, PAGENO="0352" 1816 STRICHARTZ SKILLED RADIO OFFICER 225 except in extenuating circumsta ices at liberty to postpone datd transnstssion slow scan television facsimile printer attempts to undertake corrective action. He is obligated to and satellite devices selective cathode ray tube display, ensure that an effort is made employing the resources avail ser o mechan sms read out devices with particular refer able to h m to correct faulty equipment which has a potential ence to maintaining the equipment in 5cr ice [9] negative influence upon safe vessel operation. A decision not The reasoning behind the US. V/ARC proposal was stated to attempt repairs on such equipment would place a presump- as follows. tion of negligence and consequent liability upon a vessel subse- quently involved in a casualty in which the faulty equipment Major chan es in maritime radio and electronics technology was or would have been an iIwredient. ~ have occurred and are occurring iii radiocommunications and The maritime industry requirement that radio officers radionavigation equipment, techniques and modes, with much (or specially trained radio officers known as radio-electronic of the nesv equipment of increased complexity. Ships of half officers) be assi"ned the task of preventive and corrective million gross tons have made their appearance, and the average mainten nce results from a) a realistic factor and b) an evolu s ze of maritime craft has really increased creating safety tionary factor both of which a e interrelated economic and environmental considerations of greater In wei,,hing these factors it must first be noted that it magnitude would be unrealistic to assume that the maritime industry "As technology has advanced, aniricrease inboth theoretical could compete with the big glamorous corporate names in and practical coo vledge is required of holde a of operator the shoreside engineer ng per o net ma ket Few engineering certificates in order to produce a higher standard of practical graduates would be attracted by shipboard employment performance than has hitherto bees necessary Maritime tele offering as it does to the landlubber, great inconvenience communications can enhance safety, economic and environ- deprivation of the normal social life and pleasures of civiliza: mental considerations if the holders of certificates possess the lion and bea ing a measure of personal risk as eli as eco higher qualifications set forth in this proposal nom c insecurity For those few who m ght be attracted the A general understandmg of theoretical principles must be practical back round and the seafarers makeup would be possessed by operators as the basis for greater skill in both absent in too many cases and an unacceptably high personnel effic cot operation and repairs at sea provid ng maximum utili turnover rate would result. zation of the new, more complex devices. It must necessarily Considering then, candidate groups to be retrained and ~s- be of a higher order, since the rapidly changing technology graded among existing vessel personnel who are already sea- involves continual introduction of new devices; and practical farers, what group was and is better fitted to go on doing maintenance and repair skills for such changing devices will what they have been doing and to refine their skills to do require an adaptability of technical skills that can only come more of the same, and do it better and on a higher skill level, from the type of requirements set in this proposal. than the ship radio officer? Has~ing spent years in acquirin' "At this time it is necensar~' not merely that the new general the education, skill, and experience in maritime mobile radio certificate shall maintain these [existing] standards, but that electronics, having lived and worked with it, and adjusted to they shall be increased to the exteat necessary by the current its changes having grown with its growing needs the radio and developing technology [101 office vas clearly the man to be reconverted metamorphosed The United States ach eyed creation of a technically superior into the sk lied radio electron c o~f cer the new maritime tech certificate for use aboard ships in the adoption by the ITU nob y requires WARC of the radiocommunication operator s general certificate (maritime) In two respects the proposal n language but not ITU CERTIFICATE CHANGES its substance was modified a) First where the U S proposal had requited theoretical U S government recogn lion of th s need for ship radio and practical knowledge of a number of specific types of officers to possess greater electronic ma ntenance skills s modern radiocommunicalion and radiona atson equipment found in the Proposals of the United States of America for the new radio re ulalioss provision as adopted in RR 870D the World Administratis'e Radio conference for Maritime uses instead list general all-inclusive terns "modern radio- Mobile Telecommunicat ens (Geneva S itzerland 1974) sub comma nication equipment to descr be the equipment in misted to the Intern'iiional Telecommunications U on in vol ed Since all the items listed by ii e U S proposal vere September 1973 by the U.S. Department of State after con. subsumed in that general term, and since ITU RR 9 defines siderable consultation wills various maritime iiidusiry interests "Radioco,nmunicatiOii: Telecommunication by means of radio invol ed waves md ITU RR 2 defines Telecommunication Any The specifc propos I the Un ted Sirtes made to ITU was I ansm sian emission or recept on of ii ns signals I ng n I Ily to s ppl meat and later to replace the I st nd ima es and so ads or intell ence of any nature by ire ad o second lass ridiotelegraph cc r f cats held by th si p r d o sual or other elect oma n I c systems this Ian us e modifi off ce vith a rad ocommi n c lion ope ato s general certifi citron as ens ely in accord iii the U S propo al Iris clear tate equr in h gher technical and p ofess onal knowledge tb-it the leim r diocom nun cat on e nbraces all the items levels inch din knowledge of modern ridiocommunications lb e Un ted States Is d listed in its p oposal and includes radio cc pm nI such s na igation equipment as well PAGENO="0353" 1817 IEEE JOURNAL OF OCEANIC ENGINEERING, JULY 1977 b) Second the adopted text strengthened site U.S. intent for effective shipboard maintenance by requiring practical knowledge necessary for the location and remedying (using appropriate testing equipment and tools) of faults which may occur during a voyage [11]. The intent and substantial requirement of thia text is clearly to implement the technical maintenance duties of the certificate holder by mandating "appropriate testing equip. mens and tools" on board, while requiring that the certificate holder shall have the knowledge necessary to use them to per- form these duties. Thus the ITU Radio Regulations now authorize a new class of certificate, generally referred to as the ITU general ctrtifi- rate, creating it technically superior to the previously existing ITIJ first and second class radiotelegraph certificates. One of these three types of certificates must be held to perform the duties of radio officer aboard a vessel compulsorily fitted with radiotelegraph installations, as a consequence of Chapter IV, Regulation 2(c) of the International Convention for the Safety of Life at Sea, (SOLAS), which reads as follows: (c) "Radio Officer" means a person holding at least a first or second class radiotelegraph operator's certificate, or a radiocommunication operator's general certificate for the maritime mobile service, complying wish the provisions of the Radio Reguissions, who is employed in the radiotele- graph station of a ship which is provided with such a station in compliance with the provisions of Regulation 3 or Regu- lation 4 of this chapter. SAFETY CONVENTION CHANGES Chapter IV, Regulation 6 of the International Safety of Life at Sea Convention (SOLAS, 1960) has set forth certain limita- tions on the duties of the radio officer, jilts requirements that he stand listening watches of at least 8 h a day on cargo vessels. (On passenger vessels, 24 h of listening watches have been required, but few passenger vessels now remain in the world's merchant fleets.) The Intergovernmental Maritime Consultative Organization (IMCO), a,United Nations body, is charged with the adminis- tration and amendment of SOLAS. IMCO's Subcommittee on Radiocommunication (11CC) has been assigned Chapter IV, the radio chapter, as its responsibility. Discussion of the listening watch on board radiotelegraph. equipped ships during the fifth session of the Subcommittee on Radiocommunications led to the following tentative con- elusion is that session's report. "The existing listening watch requirement on 500 kHz is regarded as satisfactory and should be retained for the time being. As, however, reliable selective calling equipment could become available consideration should be given at a later stage to a relaxation of the human watch, in order to allow the skilled radio officer to carry out repairs on radar and other electronic equipment" [121. The master was reopened at the sixth session of RCC. In a Note by the Government of the Utsited Kingdom, the view was presented that consideration of changes in the provisions for watchatanding on 500 kHz should be given at once. The United Kingdom argued the following. "The electronic equipment on ships is becoming more and more sophisticated. Much of it is in the interests of nafe navi- gation and maintenance of such equipment is necessary in the interests of safety at sea. Radio officers during their normal training acquire a useful knowledge of electronics and are often the best qualified officers on board to maintain the various pieces of electronic equipment. The time available for such maintenance is, however, very limited. Regulation 6(d) of Chapter IV of the International Convention for the Safety of Life at Sea, 1960, requires an eight hours listening watch in the aggregage, and this watch may only be broken to perform other essential radio duties" [131. The United Kingdom proposed that consideration be given "to the possibility of making more time available to Radio Officers for the maintenance of electronic equipment ..." [141. In a note submitted to the seventh session of RCC, the government of the United States stated its ".,. agreement for the end objective of reallocating tome of the radio-electronics officer's wstchstanding tinse for dec. Ironic equipment maintenance and repairs having to do with the safe navigation of the vessel and the overall interest of safety at sea. However, the U.S. does not believe isis in the interest of safety to reallocate for this purpose, any of the hours of watchssanding now required until such time as the ship involved has an internationally agreed selective calling device installed and operating as part of the radiotelegraph station "The U.S. views technical maintenance and repairs to radio and electronic equipment, used for safety at tea and for the safe navigation of the vessel as an important safety activity. Certain duties are now internationally required to be per- formed by skilled radio officers. Is it the intent of this pro- posal to release the skilled radio-electronics officer for such additional' technical duties as are required by changing tech- nology, when and as necessary" [141. This matter was considered at the aeventh and again at the eighth sessions of the RCC, where the United Stales pressed for the amendment of Chapter IV, Regulation 6, which was finally adopted at the eighth session and subsequently ap- proved by thE Maritime Safety Committee, the Council, and the Assembly of IMCO. The text of amended Regulation 6(d) provides, among other conditions, that the radio officer whose watch duties are being relaxed, at tlse discretion of the administration concerned, must be appropriately qualified to perform the duties of maintaining rsdioconsmunicstion and radio-electronic navigational equipment, and that she vessel is fitted wish receiving selector meeting the requirements of the ITU Radio Regulations. Upon the coming into force of these amendments (when the 1974 SOLAS, in which they are incorporated, is ratified), the U.S. Federal Coinmunicationa Commission will isatse appropriate domestic regulations to ensure that the ship is 51-253 0 - 80 - 23 PAGENO="0354" 1818 STRICFIARTZ: SKILLED RADIO OFFICER fitted with a recEivu~g selector which meets the requirements to utilize nesv devices and modes; most of all, ii benefits the of the Radio Regulations (such selectors are now under devel- maritime industry and the nation it serves in peacetime corn- opnsent and testing is under way). and that the radio officer merce, and in maintaining the nation's strength to keep the is properly qualified to perforni the nsaintenance duties. (The peace. FCC is currently considering appropriate qualifications for the Late in 1958, an outside training consultant was engaged skilled radio officer, to insplement the 1974 (TU \~`ARC to survey the nature and extent of ARA radio officers' previ- provisions at to Radiocommunication Operator General ous training, the amount of time the men svere willing to Certificate.) devote to correspondence and resident-type training, the needs Adoption of these amendments to SOLAS constitutes of the indastry, the scope of the training required, and the international recognition that the maintenance of equipment tssaterials, facilities, and costs of developing and operating used for radioconsmuflicatiOn and radionavigation is a safety such a program. Based on the survey data, the general conclu- activity on a par with' the standing of safety radio watches, sions of the consultants were and that the possessiots by the radio officer of the additional ARA radio officers are a stable group who seek professional skills necessary to perform such maintenance on the more advancement and who may be expected to remain in the complex sophisticated equipntent likewise serves safety of industry They have a fairly good academic background and life at sea. To further the acquisition by radio officers of such the capacity to absorb trainin~ materials, and they are over- skills, Es'ICO reconsnsended in its policy document on the whelmingly interested in devoting time and effort to development of the nsariiime distress system, the training of improve their technical skills. radio officers as measures to be implemented both for the nçar future distress system and the distance future distress in the fall of 1959, the ARA Technology Institute for Marl- systens. (Extract's from IMCO Resolution A.283(VIlI) are time Electronics (ARA TIME) commenced correspondence attached as Appendix I) and resident training courses, on a progressive basis, Starting with a refresher in nsathematics and electronics foundation theory, going on through test instruments, receivers, transmit- TRAINING PROGRAM FOR RADIO OFFICERS ten, direction finders, auto alarms, single-sideband techniques, radiofacsitisile, radioteletype, and ott up to radar, loran, logic Paralleling the domestic and international developments circuits, computers, and automation instrunsents, the training discussed above, initiatives in this areawere takenby the Amen- given applies advancitsg electronic developments to radio- can Radio Association (ARA), an AFL-CIO affiliated organiza- consmunication auth radionavigation. tion representing radio officers professionally, as well as in col- The ARA TIME Prograits us conducted with the most lective bargaining on thteirbehsalf with the steamship companies. modern adaptations of educational material and methods. At its fifth conventiots in May 1958, ARA adopted what is Training curricula and devices developed for use of similar called its "TIME" Program. It was a comprehensive proposal, programs of the U.S. government and for other industries in whicls ilse initials TIME stood for four different things. have been reworked for merchant marine application. Ample First, TIME stood for Technical Investigation of Maritime mathematical groundwork is provided. On the practical side, Electronics, a research and developtssetst program to st~rvey the laboratqry bench work approach Is used to produce and and evaluate existing electronic installations, operating/tech- reinforce the technical know-how, and do-how, needed niques, atsd the latest available materials and methods ~vith a aboard ship. The objective of ARA TIME is to update and viesv to their itttprovements. upgrade the radio officer to the point where he is familiar Secomsd, TIME stood for Technical Information on Man- not only whIr the circuitry of modern electronics, bst also time Electronics, a program to promulgate widely to those with the logic and ratiotsale of circuit analysis, to make it itsvolved, both on ships and ashore, the findings of such possible for hitss to service any number of devices where investigation. these circuits are used to electronically achieve the various Third, TIME stood, hopefully, for Technical Innovatioti its contnsunication, nseasurement, and control effects. \laritirsse Electronics, a program of orderly progress of replace- time school is work, intense and concentrated. From tlse liens and ittspi'ovensent that could britig the frtiits of the simple to the complex. the training proceeds. Beginning with elrctronic age to tIme service of tile industry, test instruments, it goes ois up through various components of Fourth, TIME stood lot' Training its Maritime Eheciroisics, eqtiipnsettt such as receivers, transmitters, auto alarms, and on to keep radio officers abreast of technological changes and to the nsost complex and sophisticated circuits and devices. t tsp o steers n t mu tie electit i cs TI ese are tested adju ted md repaired The trainees learn to his thin sumisser of 1958. the major shipowtser groups agreed analyze the probletst first, tlsen to solve it, svot'king first on test witls ARA that a jointly administered ARA \Vehfare Plan could chassis, then on uusits of tisoderis equipment that thse school consnsence to implement tire fourths point, training, since it has acquired. was a pivotal elenuent in such a program. Agreement to ttsove Flow effectively has the prograns been svorkiisg? Ilow has alsead ors training svas an important step, for radio officers participation in the prograns been progressing? As of March 31, svlro were aided in keeping their skills abreast of the changes 1977, 91 percent of the ARA radio officers active in the nsari- in tIre nsar'itissre electrotsic techiusohogy, and for mite comsspanies time inclsmstry had completed tIre courses necessary for certifi- whim were betrefired by their increased efficiency and emsabled cation as radio.electromsic officers. PAGENO="0355" 1819 IEEE JOURNAL OF OCEANIC ENGINEERING, JULY 1977 ESTABLISHMENT OF THE RADIO.ELECTRONIC OFFICER As maritime electronics has developed, the title and status of "radio operator" uvas changed to "radio officer." Now, again as maritime electronics comes of age, through the joint efforts of the companies and the unions, a new category has been designated: the radio.electronics officer. This it how it evolved in the U.S. Merchant Marine. On the one hand, the technology of shipboard electronics has btoadened as it has evolved into the complex of devices, systems, modes, and applications described earlier. This proc- ess has created the need for men with the broad and high level of knowledge and professional qualifications required to service and maintain the modern electronics apparatus, and to expedite the introduction of even more advanced electronic applications. On the other hand, radio officer personnel aboard the ships has been growing, as the profession has grown in scope and responsibility. First on their own, later through participation in the ARA TIME Program, they have moved along with the times. By the summer of 1964, a small but growing number of men had completed all the ARA TIME training courses, thus qualifying themselves to take their places as the trained and skilled men to expedite maritime electronic progress. Early in 1964, in negotiations between ARA and major Organizations representing steamship companies, the parties consideted all of the factors involved in the recent develop- ment of men and technology. They agreed that this willingness to retool their qualifications and competency merited recog- nition, and that, at the same time, the needs of the new mari- time electronic technology called for the establishment of a nesv shipboard category to expedite it. The new category of. radio-electronicn officer wan thereupon established by agreement of ARA and thene companies operating a majority of the freighters, tankers, and passenger ships under U.S. flag registry. The agreement that established the Radio-Electronics Officer (REO) was subsequently consumated with other com- panies that dealt with the Radio Officers Union (ROU); as a result, she companies involved operate a total of 92 percent of the U.S. flag merchant ships. Radio-electronics officers were defined by this agreement as men who have all the qualifica. lions of radio officers, and, who in addition, are certified by the ARA TIME (or successor institution) as having satisfac- torily completed all correspondence and resident training courses and/or otherwise fulfilled the requirements of the training program, and certified thereby as being qualified to maintain radiocommunicationu and radionavigation devices used aboard ship. Preference in shipboard employment was given radio: electronics officers in assignment to specially equipped vessels, nesver vessels, and one-third of the position on passenger ships. A requirement was also set requiring nesvcomern into the industry to qualify as radio-electronics officers during their first three years of sailing. In the emergence of the radio-electronics officer, maritime radio personnel and their organizations are nseeting the chal- snge of the future, in cooperation with steamship company management. In the most profound sense, they have all stepped out to meet the future, to seek solutions to its prob- lems. With the radio-electronics officer a reality, the future of all radio-electronics officers and of the nsaritime industry are tied necurely together, wills electronlc progress an the binder. These skilled radio officers (radio-electronics officers) face the future of electronics afloat, confident that they are part of the future, contributing and sharing in the progress of the maritime industry. Their organizations (ARA and ROU) are ready to participate in the development and tenting of new electronic apparatus and techniques and to assist in the evalu- ation of these tests. Not the leant, REO'n are proud of the deserved recognition for a job well done. They have come of age professionally, as maritime electrotsics has come of age. The ARA TIME Program is the nsodern radio officer's link to the future; more than that, it is also the maritime industry's link to the future, APPENDIX I-EXTRACT FROM IMCO RESOLUTION A. 283(VIII) RECOMMENDATION ON THE DEVELOPMENT OF THE MARITIME DISTRESS SYSTEM II. Near Future Distress System 3.2-It iS recommended as a matter of urgency that (g) the training of radio officers and radio operators be expanded. Radio officers and radio operators should be given appropriate training, according to their differing technical backgrounds, in maintenance and repairs at sea of the telecommunications and other electronic navigation equipment involved in thC safety of life at sea. In addition, all crew members should be trained in the use of lifeboat and survival craft radio equipment. III. Distant Future Distress System 5,7-The training of radio officers and radio operators should be further expanded, as appropriate, to ensure con- tinued and adequate maintenance and repairs at tea of the tele- communications and other electronic navigation equipment involved in the safety of life at sea. REFERENCES Ill RTCM Report to Task Force, June 13, 1968. 121 -`p.4- 131 -`p-3. 141 -p.6. 151 Final Eseineeeing Report for Marine Equipment Environmental Study, Phase I, prepared for National Maritime Research Center, Department of Commerce, Maritime Administration, p. 55, 1974. 161 RTCM Paper 21-77/EC-214/SC 65-232. 171 This 92-percent figure is taken from data droetoped by the Os- lice of Maritime Manposuee, US. Maritime Administration, U.S. Department of Commerce. 181 CB Aereement effective June 16, 1977, ARA and ROU with various Companies. 191 Proposed ADD 885C, U.S. WARC Propouat, p. 57~ 1101 Ibid., pp. 57-58. 1111 ITURRR7ejF, [12) IMCO RCC, Report of 5th seusion. 1131 IMCO RCC Document COSI V1/3/22. 114) IMCO RCC Document COM VH/2(a)/t. PAGENO="0356" 1820 Mr. VAN DEERLIN. No; I think you mix them very well. And I recall a very lively testimony that you rendered during our ad hoc panel sessions going back 2 years on the subject. If we are reacting to disaster, it is only that we view so much of the 1934 act in other fields as a disaster, and I assure you that we will be darn careful to preserve that which has worked. Mr. STRICHARTZ. Thank you, Mr. Chairman. Mr. VAN DEERLIN. Are there other questions for Mr. Strichartz? [No response.] Mr. VAN DEERLIN. We surely do thank you. I am sorry to have kept you here, but it is not too late for a three martini lunch. The subcommittee will reconvene on Tuesday of next week at 9:30 in room 2123, the main room downstairs. And if anyone cares, we are going to start marking up a bill on the second day after the Fourth of July recess, Wednesday, July 11. We have scheduled at least 7 days for markup, going through July 23. The full committee is not expected to be in session then. We will schedule however many additional days as necessary to produce a completed bill before the August recess, which begins on August 2, and we expect to have major legislation ready for the full committee as soon as the full committee is equal to facing it after the August recess. I hope that all schedules will be adjusted, and if there is any last minute red hot catchup lobbying to be done, everyone knows what the dates are now. Thank you very much for your attention. [The following statements and letters were received for the record:] PAGENO="0357" 182~1 TESTIMONy OF ELECTRA COMPANY DIVISION OF THE MASCO CO~ATION By Alan Krauss Vice President and General Manager Electra Company 300'East County Line Road Cuxnberland, Indiana 46229 317-894-1440 Electra Company ("Electra") appreciates this opportunity to submit written testimony to the Subcommittee with regard to H.R. 3333, entitled the Communications Act of 1979. Electra is a division of The Masco Corporation. It manu- factures communications receivers, in particular the Bearcat brand line, which includes so-called "scanners" which can be used to monitor one or more discrete frequencies or an entire band of frequencies. Scanners have enjoyed wide pop- ularity through the country, with over four-million sets in use, and annual sales currently in excess of one million units, Electra wishes to focus its testimony on Section 549 of the bill generally, and Section 549(b)(l)' in particular. The apparent intent of Section 549 `is to broaden the scope of Section 605 of the Communications Act of 1934, to make it easier to act against unauthorized interception of private communications without the need, in simple terms, to prove that the information intercepted was divulged or used for the interceptor's benefit. PAGENO="0358" 1822 The desirability of protecting legitimate expectations of privacy in communications is recognized and appreciated by Electra, particularly in the area of wireline communica- t~ons, where the law protecting privacy is well developed. However, care must be taken not to enact statutory language which inadvertently prohibits many legitimate radio reception activities or which is impractical and unforceable. In this regard, Electra supports the suggestion of the National Telecommunications and Information Administration ("NTIA"), at pages 32-33 of its written testimony dated June 6, 1979, that the words "under circumstances justifying such expectation" be added to the phrase "communication which is *sent with a reasonable expectation that such communication is not subject to being intercepted or read" in Section 539(f) (4) of the bill. The addition of this language will conform the bill to 18 U.S.C. § 2510, imposing criminal penalties for unlawful interception of communications thereby avoiding possible conflicting interpretations of the two laws and em- bracing a long line of judicial precedent as to what consti- tutes a legitimate expectation of privacy in communications which the law should protect. The Congressional reports on the legislation should also make it clear that the congress.understaflds that the public at large knows that radio receivers of all kinds are readily PAGENO="0359" 1823 available and that members of the public regularly listen mon radio communications which are transmitted generally over the air and can be received on conventional receiving equipment. Those engaged in communications of this nature do not. and should not expect. that no one but the person to whom a message is directed is listening in. Listening to non-broadcast radio communications is a practice as old as the radio art itself. In the early days of radio, when public service and other two-way radio users operated on "short wave" bands, many hobbyists and others obtained or built themselves radios which could receive these bands. In later years, as radio operations moved up in frequen- cy to VHF and then to UHF bands, receivers became commercia~lly available for those who wanted to listen to the new bands. At first, these receivers were controlled by variable tuners, later by crystals., Now new technology allows synthesizing of frequencies and the "scanning" of as few or as many frequen- cies as the listener desires. These developments have made communications receivers increasingly popular, which is why we estimate that more than four-million scanners, and many millions of tuneable or multi-band receivers, are in use in the United States today. Communications receivers play an important role in the lives of many Americans in their every day activities. In areas which rely on volunteers for public service activities, PAGENO="0360" 1824 such as fire, rescue, and auxiliary police, members of these forces may purchase receivers to keep track of activities of their organizations and to know when their help is needed. Medical personnel can learn of medical emergencies, businessmen can keep track of their company operations while off company. premises or at home and hobbyists can enjoy listening to the "pulse" of their communities. Many public safety officials, such as police and fire departments, have found that members of the general public listening to their communications learn to appreciate the efforts of the agencies involved, and they have endorsed the use of receivers by the general public. The large number of receivers being used and their general availability make it apparent that no one may legitimately expect that listening to his communications by an unknown party will not occur. Moreover, users of communications equip- ment must know that their messages will be intercepted, because monitoring of one kind or another is required in any situation where more than one transmitting unit shares the use of a radio channel, both as a practical matter in terms of success- ful radio operations and also to comply with FCC rules Any time that a transmitter is activated on a channel, a check must be made, in one way or another, to make sure that the channel is free; otherwise, intolerable interference will result. This is true on the shared Business Radio channel, with perhaps dozens of users in the same community, as well PAGENO="0361" 1825 as the police, fire, or taxicab channel, where, even with only one or two users in a community, mobile units must coor- dinate to avoid interfering with one another. Monitoring of other people's transmissions is the rule, not the exception; and it has never been suggested, nor could it be, that such monitoring is a violation of anyone's privacy or should be prohibited. In other words, in any situation where more than one transmitter shares time on a single radio frequency, monitoring of one kind of another is legitimate and appropriate and should be expected by radio users. While there are certainly situations where the ability to transmit communications by radio on a confidential or pri- vate basis is desirable, regulation of conventional receiving equipment is a poor way to attain this objective. A flat prohi- bition on reception of radio messages by any person other than the intended recipient of the message being transmitted would be impractical and impossible to enforce and would entrap innocent members of the public. Communications receiving equipment is easy to obtain, either by purchase or by home construction. Changing the fre- quency of a radio is not difficult -- even in the case of an FM broadcast receiver, which can be altered to receive VHF communications in commonly used bands just above the FM PAGENO="0362" 1826 broadcast band. A heavily used band lies between television channels 6 and 7, and `reception is within the capability of a television receiver. Television receivers are intended to receive the 470-512 and 806-890 MHz bands (TV Channels 14-20 and 70-83), which are shared by television and land mobile operations; and they can pick up land mobile communications in this band. In other words, there is no practical way to prevent anyone who wishes to do so from using an existing receiver, or altering one, or constructing one, to receive non-broadcast radio communications in almost any band. Any attempt to legislate against such activity would be an attempt at futility. The fact that non-broadcast radio users expect that mem- bers of the public may hear their messages is underscored by the universal agreement among witnesses appearing before the Subcommittee on June 6, 1979, including representatives of the FCC's private Radio Bureau, NTIA, and the Land Mobile Communications Council. All agreed that if complete privacy is desired, the burden is on the party transmitting to take. steps to protect his signal. The most obvious step is to use a scrambler or other encoding device to prevent reception by conventional receivers, protective devices of this nature are becoming more and more commonplace and less and less expen- sive. They are within easy reach of anyone who wishes to use them. The witnesses before the Subcommittee were specifically questioned by Dr. Charles L. Jackson, the Subcommittee's Staff PAGENO="0363" 1827 Engineer, and all agreed on the appropriateness of using pro- tective devices if privacy is desired and on the fact that those not using such devices cannot reasonably expect that their communications will not be heard by others. In view of~the large and established market for communica- tions receivers and scanners, the millions of units now in the hands of the public, the need for. monitoring of radio communications to avoid interference, and the ease with which receiving equipment can be obtained or built, it is readily apparent that those who desire privacy when using radio to communicate should be expected to take affirmative steps to achieve that privacy by installing scrambling or coding cir- cuitry in their equipment. Otherwise, they should not have any reasonable expectation of privacy. Electra again endorses the proposal of NTIA that the bill be amended to conform with the language of 18 U,S.C. S 2510 regarding "circumstances justifying. . . expectation" of privacy and that the legislative history make it clear that such "circumstances" require affirmative steps by the sender of a communication to prevent reception by conventional receiving equipment. Electra again thanks the Subcommittee for this opportunity to present this statement in behalf of the scanning monitor- receiver industry, and the many millions of users of other radio receiving devices. PAGENO="0364" 1828 My name is Dr. William M. Young, and I am President of William M. Young and Associates, Oak Park, Illinois. Our firm specializes in media consulting for public interest organizations. Our company designed and manages the National PTA campaign against television violence. Other clients include educational and medical organizations. After review of HR 3333, I would like to submit the following observations. Under HR 3333, it would be required that: "No person shall rebroadcast or otherwise retransmit any program or portion of a program by a broadcast station without the express authority of such a station or the person who owns or controls the exclusive rights to the programs involved." At the present time, about 14.5 million households are able to receive cable television. Cable has demonstrated that consumers can have choice and variety in programming, as opposed to many houses that only receive the three network programs, and perhaps an independent station. In these homes, oftentimes the consumer doesn't have choice because of the effects of the networks' use of counterprogramming. Both program suppliers and broadcasters favor retransmission consent as a basis of reducing competition for the broadcaster and increasing revenue for the program suppliers. The cable industry cannot compete effectively with the broadcast industry. The average cost per 1,000 homes to a network is about $3.40, utilizing the cost of a typical sitcom. Using the same pricing mechanism, the costs of the cable industry to support network programs would be approximately $18.00 per household. There is no doubt that the cable companies could not compete -- and secondly, even if they could compete, the broadcasters and/or program suppliers could refuse retrans- mission consent to cable companies. A form of program retransmission was adopted by the FCC in 1968, and later abandoned because it was apparent that the cable operators PAGENO="0365" 1829 could not receive transmission consent. In the Young and Rubicam study of cable, it was demonstrated ~that cabl virtually no impact on broadcas~-~idience. This findiiig was additionally substantiated by the FCC's Economic Inquiry Study. As a result of negotiations between the National Cable Television Association and the Motion Picture Association of America, ~agreement was reached that the cable industry would pay certain copyright charges. The substance of this agreement was incorporated in the Copyright Act of 1976. Payments next year are expected to total $20 million by cable operators under this agreement. The Copyright Act also stated that the Copyright Tribunal could review every five years the rate schedule, and alter the rates. This can still be done without the retransmission consent section of HR 3333. Cable television is being used effectively in providing for specific demographic needs, i.e. children's programming, educational shows, and instructional programs. If. the basis of cable, which is retransmission, is hampered, then these other program services will be denied to the American public which will then be forced to accept the limited choice of the three mega-giants, the networks. In the past, the FCC and the Justice Department have expressed concern over the power possessed by AT&T, and indeed, have regulated the activities in which this company could engage. HR 3333 would open the door for AT&T. and the major independent telephone companies entering the cable field. This action could lead to a monopoly in the cable industry, and would not serve the public interest. Cable offers the hope of diversified services. No action should be taken by the United States Congress which would alter the variety of services which American consumers could receive. PAGENO="0366" 1830 STATEMENT OF ESTHER PETERSON DIRECTOR, UNITED STATES OFFICE OF CONSUMER AFFAIRS ON THE BROADCASTING ASPECTS OF H.R. 3333 BEFORE THE SUBCOMMITTEE ON COMMUNICATIONS COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE UNITED STATES HOUSE OF REPRESENTATIVES JULY 5, 1979 Mr. Chairman and members of the subcommittee, I appreciate this opportunity to appear before you today to express my concerns about the broadcasting aspects of H.R. 3333. I should emphasize at the outset that I am speaking in my capacity as Director of the U.S. Office of Consumer Affairs; I am not speaking for the Administration. As Henry Geller has previously indicated to this subcommittee, the Adminis- tration has not yet taken a position on H.R. 3333, and it does not do so with my testimony today. In my view, deregulation of broadcasting, as envisioned by H.R. 3333, would be a serious mistake.~ I do not say this lightly. I recognize the widespread feeling in our country today that government has been doing too much regulating and that it is time to cut back. But we should be selective about deregulation. Just as we. should regulate only when it does some good) so we should deregulate only when it does some good. PAGENO="0367" 1831 H.R. 3333, if passed, would immediately eliminate public trustee .regulation of radio. Public service programming obli- gations, periodic license renewals and assessments of performance, the fairness doctrine, equal time requirements - - all these would fall by the wayside. And as to television, these same steps would be taken at the end of ten years. What I would like to discuss with you today are the implications of such deregulation - - which I believe are both serious and adverse - - for the distribution of information and power in our `society. Before `turning to' thos.e points, I would like to make some `initial observations. The test of.a regulatory framework in this area -- indeed, in any area -- should be whether it serves the public well. This country now has, under the Communications Act of 1934, a thriving broadcasting industry that presents a good deal of news and other programming designed to serve the public interest more than the interests of profit. I would urge the members of this subcommittee to assess the broadcasting provisions of H.R. 3333 from the standpoint of the blic's interest. At the same time, the subcommittee should avoid making the mistake of basing its evaluation of the public trustee concept on its assessment of the FCC's administrative competence over the years. Much of the benefit derived from the public trustee concept is ~ function not of formal FCC inyolvement, but of the prospect or possibility of such involvement. Thus, the PAGENO="0368" 1832 public trustee concept provides a basis for community and citizen group negotiations with broadcasters, who are more responsive to t'he concerns expressed because of their public trustee obligations and the FCC's power to enforce them. Even in the absence of direct citizen group pressures, broad- casters must be on their guard; would-be licensees (and nascent citizen groups) are not in short supply, and present licensees have every incentive to avoid giving them grounds for going to the FCC, rn large measure, then, the public trustee concept is self-enforcIng, it serves as. a spur to responsive- ness and a deterrent to irresponsibility. I should add here that whatever the FCC's administrative shortcomings may be, they are not inherent in the public trustee concept - - or in Its administration. I recognize the desira- bility of streamlining FCC processes, clarifying and strengthen- ing FCC standards, and reducing FCC discretion. To these ends, I would be inclined to support, for example, a legislative pro- vision that prohibited the FCC from renewing the license of any broadcaster whose station presented less than some set percentages of news, public affairs and local programming. I emphasize, however, that while a case has been made for administrative reform, one has not been made for scrapping the public trustee concept. If the public trustee obligations of broadcasters were to be elininated, what would happen? I think that the answers are rather clear - - and rather disturbing, PAGENO="0369" 1833 First, some broadcasters, absolved of their fairness doctrine responsibilities to present contrasting viewpoints., would use their access to the public airs~raves to promote their own private interests and viewpoints on public issues. Indeed, I would anticipate that some major corporations and other wealthy entities and individuals would try to buy stations for precisely that purpose. Second, if broadcasting were to be deregulated, members of the public would be exposed to substantially less infor- mational programming then they are now, Many broadcasters would drastically reduce their public service programming. The reason is very simple: much of the programming that is now required by the public trustee bargain between government and broadcast licensees is less profitable to broadcasters than conventional entertainment programming. Public trustee regulation seeks to assure that all listeners and viewers, regardless of which stations they tune in, are exposed to at least a modicum of news and other public affairs programming. The objective here is to increase the knowledge and understanding that members of the public have of current issues and developments so that they may more intelligently function as citizens. The proponents of deregu- lation seem to assume that this goal would be served so long as listeners and viewers who wanted to absorb some public affairs programming, and were willing to track it down 51-253 0 - 80 - 24 PAGENO="0370" 1834 assiduously were able to find it somewhere on the dial Many listeners and viewers would not be so zealous in their search for edification at least not on a regular basis - and as a consequence the overall civic literacy of the broadcast audience could be expected to decline The goal of informing the public is best served when all stations are obligated to contribute to its advancement Third many broadcasters would be less responsive to minority and other citizen groups within their communities Without the fairness doctrine and other avenues of FCC involve ment as a backdrop the ability of these groups to negotiate with broadcasters for programming directed at their needs and concerns would be sharply diminished It has been suggested that this loss could be offset at least for certain racial and ethnic minority groups by taking steps to increase minority ownership of broadcasting stations However even if as a result of those steps the number of minority owned stations were to increase considerably what basis is there for assuming that the new owners would present more minority oriented informational programming than the old ones9 If such programming is less profitable than say mass audience entertainment programming i~hy should we suppose that minority owners would be more willing to sacrifice profits than non minority owners9 In effect the government would be releasing non minority owners from the obligation to present programming responsive to the needs and concerns PAGENO="0371" 1885 of minorities, and then expecting minority owners to take up the slack. Public trustee regulation - by imposIng on licensees the obligation to present programming that deals with the major concerns and issues in their communities, and *by providing avenues for citizen involvement in broadcasting policy and negotiation with broadcasters - - encourages all stations to~provide programming that is responsive to minority needs and interests. As ~. result, those needs and interests are communicated to all segments of communities; this contributes to greater'rnutual understanding and communitycohesiven~ss. These benefits could be largely lost if non-minority-owned stations were no longer expected to present programming responsive to and reflective of minority concerns. Fourth, moi~eftd interests would take advantage of the absence of a fairness doctrine to distort to their own ends a process that was designed to promote democratic decision- making: the referendum. Let me illustrate this point with an example. In Miami, tobacco companies recently spent more than $700,000 advertising against a proposition that would have banned smoking in public places. The Media Access Project, a public interest law organization, contacted sixteen Miami broadcasting stations regarding the resulting imbalance of their coverage of the referendum. Fifteen of the stations promptly took remedial action that was satisfactory to the citizen groups that MAP was representing. A complaint was PAGENO="0372" 1836 filed with the FCC regarding the one station that did not. If the fairness doctrine had not been available as a tool for the citizen groups to use in seeking additional coverage of con- trasting viewpoints, the public's perceptions of the issues involved would have been bought by the side with more money. I should note that a weakened fairness doctrine that did not obligate broadcasters to cover, and cover fairly, ~j~c issues would be of no help in the context of a referendum like the one in Miami in which one side can afford to outspend the other by double-digit multiples. Many citizen groups do not last as long as a broadcaster's license period; they coalesce around particular issues and then disband for lack of resources or because the issues they were formed to deal with have receded or been resolved. Such groups cannot be expected to show up in a license renewal proceeding long after the occurrence of a fairness doctrine abuse topresent documentation of apattern of flagrant irresponsibility by the station over the preceding several years. Moreover, the possibility of Commission action at license renewal time is no substitute for the opportunity to obtain rectification of a fairness doctrine abuse soon after the abuse occurs and while the subject matter involved is still a live issue. Retention of the current fairness doctrine, which gives citizens a context in which to seek contemporaneous remedies, is vital, especially given the growing frequency and importance of referenda. There is one other aspect of H.R. 3333 that I would like PAGENO="0373" 1837 to comment on briefly' today. 1~he bill would eliminate current limits on the number of broadcast licenses that can be held by ~~any one individual or entity, That, in my view, would be a step in the wrong direction - a step toward concentration, rather than diversification, of media control and, with it, of social amd political power. In closing, I would just like to say this: Congressman Van Deerlin and I are good friends of long standing. But even good friends have to disagree sometimes. And, Van, although we disagree about broadcasting regulation, I want you to know that I admire your having raised these difficult issues with your customary thoughtfulness, tenacity, good humor, and grace. And I commend you for your sensitivity, reflected in the bill, to the need for a program of public participation funding to assure that communications policy decisions are made on the basis of more complete and balanced records, That concludes my statement, I would be glad to answer questions about the matters that I have discussed. PAGENO="0374" 1838 STATEMENT OF JOHN P CLEARY DIRECTOR hEW JERSEY OFFICE OF CABLE TELE~ISIO~1 Mr Chairman ~nd embers of the Subcommittee My r me is John P Cleary Director of the New Jcrse Office of C~ble Television Bo.rd of Public Ltilitie~ wtich is the regulatory agency responsible for cable television franchising ~nd for the regulation o~ cabin television generally within the State. I am also Chairman of the Conference of State Cable Agencie ~hich is an associ~ on o~ Sti~te t~mclcs ~aich regulate cable television It is in my capacity as Director that I mate the statement herein hew Jersey shares the near consensLa opinion that the tech- niogical advancements within the corsaunicationS irmdm_stry during the last forty-five years mandate the revision of the Communications Act of 1934 The State commends the Subcoroaittee on CoranuricatiOnS in drafting this vital legislntion House Resolution 3333 premised toon the Congressional finding that re~,ulation is nece~sary to the extent rarl'etplace forces are deficient constitutes a major breakthrough in the regulation of interestate and foreign telecommunications ~~ithin this regulatory frariewori ~ew Jersey anticipates that the mri~c of emerging and e~cisting technologies in a com- petitive atmosphere will further the public interest in the development of technologically diverse and financially independent telecommunications mediums Federal Cable ~yisiom ~~io~g In the above contest hew Jersey strongly supports the elimina- tion of outmoded Federal regulation of the cable televisior industry We believe any fears that the lack of Federal restrictions will encourage the blossoming of ever more abu~ive rt.ste and local limitations to be entirel) unfounded Paranoia of State regulation is actually a fear that the most ppropriate regulator) tier the State night becore the primary regul~ntor PAGENO="0375" 1839 The State is big enough to establish a regional policy with the necessary expertise, while at the sane time small enough so that it is close to those who are affected by the regulation. Federal authority is remote to the public. Remoteness can also be expressed in terms of geo- graphic distance and travel inconvenience. There is no way that people in Uash~ngeon can deal with local needs, particularly when we are discuss- ing an essentially local industry such an cable. Decentralization of cable television regulation will not create confusion, increase the size of bureaucracy, nor be too c~stly. Initially, we note that a fear of bureaucracy is more justifiable when the Federal government tries to take on all responsibilities instead of placing then in the proper channels. Federal regulation encourages complexity and unmanageable administration. By limiting the role of the Federal govern- ment and by scattering the authority to fifty States, management is reduced in scope. There would be no need for a substantial increase in personnel because there should be a reallocation of job to accompany the reallocation of functions. In fact, the trend in recent years in New Jersey at both the State and local level has been against more comprehensive regulatory struc- tures and toward the gradual deregulation of cable television service on a competitive basis. In this regard I point to ~ew Jersey's Common Tariff for the regulation of basic subscriber rates for cable television reception service. Put simply, it is the opinion of New Jersey that State regula- tion is the best tier in which to regulate the cable industry. The State is large enough to handle the regulatory load, while small enough to have the necessary expertise to be aware of local problems. PAGENO="0376" 1840 The termination of local regulatory au hority will substantially impair both existing and future contract rights between local entities and cable operators.. This effectively renders if difficult, if not impossible, for ideal communities to have significant input as to the type and quality o~ services provicied bj cable operators "nus Tew Jersey opposes tFe N P 3333 proposed elimination of currert state regulation of cable In this context to the extent H R 3333 eliminates outmoded Federal regulation New Jersey supports it Of course any such deregula- tion rust recognize and protect appropriate areas of Nederal concern While attempting to lessen its regulatory burden the Subcommittee rust acknowledge cable television's status as an important facet of the "rapid, efficient, nationwide" communication system sought in the Communications Act of 1934 HoT.e~er while we agree ~ith both the F 1 3333 intended expansion of marketplace effects on regulation and cable television's r~gbt to compete therein government rust not impose itself on the marketplace in such a manner as to give one communications entity a competitive ad- vantage over others absent an overriding pi_blic interest An example of such an area is that of pole attachxnents~ As recently as 1978 Congress recognized the co~~petitive disparity irposed by the marketplace and enacted the Corinunic~t~~nS Ac' Aendmep~~ of 1978 (47 USC 224 Pub L No 95-23A) These Amendments provided for a Federal rcgulatory authority over pole attachments in those instances s~here States failed to enact appropriate regulatory legislation While "dew Jersey continues to advocate State regulation in ratters of local corcern to avoid restoration of the historically uncompetitive, unregulated. relation- ship between utility pole owners and cable television companies it is urged that the 1078 Amendments be retained PAGENO="0377" 1841 While technical standards for cable television systems say be viewed as local in nature, both protection of the public safety and the national interest in having compatible telecocnuunications networks demand. a Federal presence. New Jersey believes that, whez~ possible, Federal standards should be eliminated. However, where appropriate, the Act should establish minimum and maximum technical standards within which States may set their own standards. This minimal degree of federalization will serve the public interest better than if technical standards were the sole responsibility of the Federal government, for then we would be subject to a "lowest~common~denominator" standard. In the structure sugg ~sted, subject to minimal Federal restrictions, the industry can strive for the best pos- sible 1 Federal restrictions, the industry can strive for the best pos- sible technical standards which the State feels will not impede the growth of cable in its region. Another area that should be subject to a dual regulatory author- ity is that of access channels. Cable has traditionally been "sold" to municipal and state officials on the basis of its seemingly limitless availability of outlets for public access. As such, access is an inpor-~ tant part of that which makes cable unique from other communications mediums. The right to local expression, regardless of ones opinion of the type of programming provided, is still diversification.. Elimination of this right to access will be a disservice to those unsuccessfully seeking access and to thosewho will never receive the degree of local diversity in programming that they were promised, that they exepecu and that they deserve. Accordingly, New Jersey advocates a degree of regulation ade- quate to secure access. As access services are, by their nature, matters of local concern, New Jersey advocates State regulation thereof. }iowevar, the interest of the public and the cable indus~ry are such that, should a PAGENO="0378" 1842 State fail to enact appropriate regulator) legislation then Federal regula- tory authorit) over access should commence Further matters of traditional interstate corcern within the correunications indr.stry should remain the subject of Federal concern Specifically ~ew Je~se) ~dvocates Fedar_l retulation of (`) cable equal employment opportunity (2) access for political candidates (3) equal time and the fairness doctrine and (4) antisiphoning rules to protect broadcast sporting events of nationwide interest such as the World Series the Super Bowl and the Olympics To the extent P R~. 3333 is intended preclude all governmental regulation of cable distant signal importation ~ew Jersey supports it The First Amendment encourages the widest possible distribution of and access to all forms of communications free of governmental pro- cription of an) type Although signal carriage rules do not seek to preclude communication of any particular viewpoint their effect is to limit the total ` olume of information which ~ould otherwise be available Thus viewer access and the public's right to available expression is curtailed Clearly such artificial quotas are strong evidence of the arbitrary type of censo'ship that directly contravenes both the ~plrit and intent of our First Amendment With the eceptiofl of the prohiol ion against the regulation of pay cable services in ackriot ledgement of market place competitive forces the present regulation of cable television under the 1934 ~ct contains dis- criminatory prohibitions and inhibitions designed to litait the diversity of television programming and services which cable television may provide to the public Such regulation is anticomsumer and anticompetitive PAGENO="0379" 1843 - Retention of network non-duplication rules, precluding a cable television system from offering a program shown by network affiliates, is merely artificial support for a local broadcasters' programming monopoly. Clearly, this is contrary to the Subcommittee's reliance on a competitive marketplace. The promise of cable television is that it makes it possible for television stations in one locality to éornpete with those stations in another, while, at th~~ame tine, optimizing the full range of available programming services. A traditional objection to extending the concept of open com-~ petition to the importatioi~'of distant signals by cable television systems has been the absence of copyright liability for such activity. Without such liability, competition was thought to be unfair. The General Revision of the Copyright Law by the 94th Congress imposed such liability on cable television companies. This eliminated the need for both distant signal importation rules and syndicated exclusivity rules. R.R. 3333 provides, as a trade off for the elimination of distant signal importat3on rules, that a cablecaster be required to obtain consent either of broadcasters or program owners prior to retransmitting a program.. While we support protecting the property rights of producers and broad- casters, we feel sane could be accomplished through a relook at the Copy- right Law to provide a more equitable accounting for use of products and Admittedly, satellites have made the conpulsory copyright fee required tinder current law outdated, but retransmission consent is not the answer. To require such consent in light of existing syndicated exclusivity contracts would effectively eliminate viable programming available for satellite users. PAGENO="0380" 1844 It is t±e position of ew Jers~y t1at ~hile the present copyright fee schedules may deli'~ered programming to the ration a cable s)sterns has not resulted in under compensat on to programsera Pather the public~ is given access to diverse prograrn~ing and television stations get a profit opportunity since cable syster~ a~e required to carry their advertisements Copyright holders get comoensation by chargi'~g higher prices to stations who benefit from distant carriage ard by collecting a reasonable copyright fee from the cable industry Of course local broadcaster e~calusivity contracts ~ould be adjusted to reflect possible importation of signals Fair market vali~e for programming would ultimately be worked into the contracts In that regard it should be noted that cable is not the only bar to absolute exclLsivity Overlapping television markets have always done this While it would appear on the surface to be fair to allow a cable operator to approach either the cop)right bolder or broadcaster for consent to carry a particular program over his system such is based on false assumptions about the marketplace and is totally contrary to the public interest. Petransiliss_on consent ~vill recessitata large scale regotiation between the cable operators individual stations and copyright holders As the araller operators will be entering in o direct competition ~ittt the smaller broadcasters they will be placed in a take it-or-leaveit po~.itiori be foreclosed froti' any effective bargaining position and will ultimately be forced to cease operation Further retransmission consent ill place the cable operator in the untenable position of having to seek the permission of the p~rty with ~hich it would ha'e to co'pe e in order to obtain the progr r'-ing to of fLr in competition The corpulsory license s ster w~.s a cr~a ccl to ivoid such a r diculoiS situ~tion PAGENO="0381" 1845 New Jersey is in favor of fair conpetitior, but where there is no competition we need regulation. There are no real marketplace competi- tive forces in effect today. A comparison of the cable industry's marginal profits when compared to those of the broadcast industry clearly under~- scores that point. At least in the short term, high tranrmissj~~ costs and long tern exclusive contracts might result in full cable retransmis- sion consent becoming the practical equivalent to a total prohibitjon of distant signal carriage. Requirement of such consent would curtail the industry's ability to offer unique programming option'; including all day chidren's channels, movie and sports channels, and all day news and religious channels. Because operators ~do not have to compete in the cur- rent market they can specialize by appealling to individual levels of the community. In order to offer such diverse services cable operators must -have an economic base from which to build. *Such a base would be denied by a retransmission consent requirement. None of the fees collected under the current copyright law have yet been distributed. No harm has yet been shown. It should be noted that under the present Copyright Act, if the F.C.C. were to authorize retransmission of additional signals, the copyright tribunal could, upon petition by a copyright owner, establish a new formula for the new signals Since the F.C.C. is now in the Process of deregulating cable, we may anti- cipate that new signals will be added and that there will be a new formula to cover them. The Copyright Law has been in effect only since January, 1978. The fee schedule therein, approved by Congress, was the result of negotia- tions between the National Cable Television Association and the Motio~i Picture Association of America. It is not based on empirical economic justification. If modification is necessary, same should be accomplished PAGENO="0382" 1846 under procedures in the Copyright Law Ix a new schedule more closely balancing rarktplace r~a1ities as to corpetition xth i rore equitanle co-persaticn for product ~s rece~sary retransmission consent is not the way to accow- plish such a balance Cable Televsion System ~~y~hi H H 3333 in effect permits telephone company ownership of cable facilities sub3ect to certain qualif_cations as to program content Additionally the Bill would leave it to the Justice Department to decide whether broadcast crossownership of cable systems should be prohibited Ne~ Jersey submits that the historical separation (2 coasnon car- rier transmission facilities and content thereof should be maintained The technologic~d developments which nay lead to cable television usage of comron carrier facilities necessitates that the de facto monopolization of both facilities and content be avoIded. To allow otherwise could foster the inequitable result of requiring "conpetition' between a common carrier and a cable television company over the use of the comv~o-i ctrrier's facili- ties Unified control over common carrier facilities and content would ultimately lead through attrition in the nutsber of cable television companies to a reduction in the availability of telecomnunicatioos ser-~ vices to the public Such a reduction in services not resulting from a true competitive situation is in con~lict wito the cortceut that regulation is necessary to the extent marketplace forces are deficient Directives to prevent ronconpetitive practices while admirable sill not prevent the de facto monopolization anticipated herein P separation of facilities and content will PAGENO="0383" 1847 Thus, New Jersey supports a prohibition against all common carriers, including telephone companies from offering video entertain- ment services. Any such service in rural areas should be allowed only on a case-by-case waiver basis. All waiver requests should be viewed in light of creating possible anticompetitive conditions. In that regard, New Jersey supports broadcaster ownership of cable systems with one excep- tion. It is felt that, ~to avoid the monopolization of communications media in one geographical area, broadcasters should be prohibited from owning cable facilities in the same zone in which their broadcast facili- ties operate. Conclusion The New Jersey Office of Cable Television believes the 1979 * revisions provide a good approach to the necessary. and overdue re- write of the Communications Act of 1934. b~hile its shotgun approach to the deregulation of cable television needs revision, the competitive tenor incorporated in the proposed Act should guarantee the future avail- ability of telecommunications services. * Thank you very much for this opportunity' to express the. views of our Office. John P. Cleary PAGENO="0384" 1848 STATEMENT BY TERRY HERNDON EXECUTIVE DIRECTOR Mr. Chairman and Members of the Communications Subcommittee: I am Terry Herndon Executive Director of the National Education Association representing 1 8 nillion teachers and other educators from preschool through higher education NEA is truly national in scope because its members are everywhere-- in every Congressional District in each hamlet town suburb and city Wherever there are children going to school, there are NEA members in their midst We have a special interest in the legislation before this Subcommittee We thank you for this opportunity to share the concerns of our members about H R 3333, the first revision of the Communications Act of 1934 I would like to commend Chairman Van Deerlin for taking a leadership role in rewriting and updating the nation's communications law We think this congressional action is long overdue, in light of the revolution in telecommunications technology in the 45 years since the Act was passed (In fact, new developments can be expected to render H.R. 3333 obsolete before it is even enacted.) NEA s relationship with the nation 5 broadcast industry continues to be a unique one Our members primarily public employees do not exercise any ownership of mass media Our state and local affiliates seek access to airtime they do not control On the other hand we support the industry by promoting quality shows for children and their families We assist broadcasters by developing and distributing materials related to these shows In this sense we are partners-~the NEA and the broadcast industry--in making commercial radio and television programs a constructive learning experience Our views on H R 3333 flow out of our recognition that the ownership of media be it electronic or print provides a powerful opportunity to shape public opinion. Anyone who possesses such tremendous power has PAGENO="0385" 1849 a profound obligation to exercise it in the public interest. It is the government's obligation, in turn, to provide the statutory framework and administrative wherewithal to ensure that broadcasters do in fact act in the public interest. We believe Congress can best approach this task by strengthening and reinforcing the current requirements for equal time, fairness, and ascertainment of community needs. We believe congressional attention is also needed in two other critical areas: equal access of minorities to media ownership and employment, and the impact of broadcasting on children. I would like to address each of these broad topics briefly, beginning with the public interest question. Even under the current law, with a regulation designed to remind and require broadcasters to use their great powet and influence in the public interest, our surveys have found evidence that they do not always do so. The problem is most serious in small or medium broadcast markets where the newspaper company owns a radio and/or TV station (or vice versa), presenting an almost unlimited opportunity for media control. In Tacoma, Washington, last fall, after teachers called a legal strike and the school board closed the schools, two broadöast facilities and a major daily newspaper, all owned by the same company, editorialized against the teachers. The radio and television stations claimed they couldn't find a teacher representative to interview, although a teacher representative placed a call each morning to both stations and a teacher telephone hotline was updated daily. Meanwhile, twenty miles away, Seattle's. major daily newspapers offered balanced coverage. Teachers in Illinois, Ohio, and other states have reported similar violatjons of the Fairness Doctrine, which we have shared with the FCC 51-253 0 - 80 - 25 PAGENO="0386" 1850 in earlier comments .~ Two radio stations in Peoria and Decatur refused to air public service spots, editorial opinions, or any views whatsoever provided by our Illinois affiliate. The two station managers were quite candid in stating that they personally opposed the teachers' positions and in fact made certain that their communities knew where they stood. A year ago, the National Broadcasters Editorial Association articulated the following principle: "Replies to editorials should be solicited vigorously. As a means of stimulating public dialogue on issues and in the spirit of fairness, replies should be afforded scheduling and placement equivalent to editorials."2 Unfortunately, this is a voluntary standard adhered to by only a small percentage of broadcasters. NEA has had many complaints from its associations in small and medium markets that they were denied the opportunity to reply to unfavorable editorials. We feel strongly that the Fairness Doctrine must be maintained and vigorously enforced for both radio and television. A repeated argument against maintaining the Fairness Doctrine is that it is misinterpreted by broadcasters and the public, or that it is confused with equal time. That is not a valid reason to eliminate these regulations. It is an excellent reason to. improve their implementation. In 1970 in Comrnitt~ For the Fair Broadcasting of Controversial Issues3 the FCC, citing the celebrated. Red Lion case, stated that the Supreme Court had indicated 1First at an en banc meeting in May of 1977, and then in February of this year in response to the Commission's inquiry on Public Issues Un4a~ the Fairness Doctrine and the Public Interest Standards of the CommunicatiO~4 ~.L. (BC Docket No. 78-60). 2Statement from the code of ethics adopted by the NBEA at its annual convention, June 1978. 3Vol. 25, FCC Reports 2d. Page 283, 293 (1970) PAGENO="0387" 1851 the Fairness Doctrine is not only constitutional but may well be constitutionally required.' It went on to say the 1959 amendments "codified" the doctrine.4 There is no question that there is a legal mandate for the Fairness Doctrine. We believe there is an ethical one as well. We also feel that the legal mandate for broadcasters to ascertain community concerns should be maintained for both radio and television. The traditional argument against ascertainment has been that a broadcaster in a small market has no need to ask questions of the community to ascertain issues of concern, because a small market broadcaster already knows all the answers. From the report of our affiliates in small communities, we're not convinced that these broadcasters necessarily know even some of the answers. Maybe they don't even know the questions. A number of TV stations, including outlets in Hartford, Miami, the District of Columbia, Raleigh, and Hoston, have developed innovative public affairs shows around the concept of ascertainment. In all cases, the "community needs topic list" required by the FCC was successfully used to generate timely, interesting, and useful programming. Iwour surveys we have also learned of many commendable uses of public access to the airwaves. We have discovered that stations on the West Coast, as well as here in Washington, are using Free Speech Messages: short, one-minute spots repeated five or seven times throughout the week on current controversial issues. Another creative use of access is telephonically recorded public opinions from listeners on controversia11~sues which play in short segments one~ right after another. As an organization with a firm commitment to affirmative action, NRa endorses the Equal Employment Opportunity requirements that now cover 4lbid., page 293. PAGENO="0388" 1852 broadcast employees. If anything, more aggressive action is needed to ensure minority involvement in radio and television. As Chairman Van Deerlin noted this winter in the Christian Science Monitq~, "out of 755 commercial television stations only one is owned by blacks and only 41 of the some 8,000 radio stations are owned by minorities." The question of children's programming is one of very special concern to NEA members, who are well aware of the enormous amount of time children spend watching television and listening to the radio. Broadcasting has tremendous influence on the behavior and the opinions of young people. Teachers see this every day in their classrooms. We are well past the stage where teachers view their students' electronic playmates as irrelevant. Teachers are interested in helping children learn how to use television, so that they can. be critical viewers of what they watch and better consumers of what they buy. We agree with the comment made this winter to the FCC by our New Jersey Education Association: "The industry does not have apositive precedent f or policing itself, and there is no background to assume that the industry will begin to do so without standards regarding children's programs."5 Only one of the networks has anyone assigned specifically to manage broadcast standards and practices for children's programs. Even in that one case, the person still has no jurisdiction over the prime time programs which make up the majority of children's television viewing. We remind this Committee that there is a clear precedent for congressional action in this area. Recognizing the profound impact television can have 51n the Matter of Inquiry on Children's Television Programming and Advertising Practices, BE Docket 19142. PAGENO="0389" 1853 on children,~the Emergency SchooL Assistance Act (P.L. 95-561) has provided some~$52 million over the past six years for "the development and production of integrated children's television programs" aired free of charge to help change attitudes toward school desegregation. Commercial broadcasting too, at its best, has demonstrated that it can be an educational tool of great force. In recent years NEA has given its recommendation to many outstanding programs on all four major television networha. ABC's Teacher's Guide to "Roots: The Next Generations," endorsed by NEA,~played a~major role in that program's educational success, as some 500,000 NEA teachers and 20 million students shared a nationwide learning experience. NBC has also discovered the value of study guides. For the "Holocaust" broadcast, NEA helped develop materials for children and adults to extend the valuable lessons of this program into millions of homes, classrooms, and civic, community, and religious groups. NEA has likewise participated in the CBS network's Reading Program, which has sparked hundreds of students to discover the excitement of the printed word as they read real television scripts of special prime time programs. Nor, of course, is prime time entertainment the only source of `creative education' on commercial television. News and public affairs programs have brought the lunar landing, China, a solar eclipse, and other remote places and events into our living rooms. Families have confronted difficult issues such as drug abuse, human sexuality, delinquency, and vandalism through hard-hitting and timely television documentaries. They have learned about health, nutrition, and even critical TV viewing skills through innovative public service announcements. It is clear, then, that teachers and broadcasters can support one PAGENO="0390" 1854 another in developing that well-informed and educated constituency which Thomas Jefferson said is vital to making democracy work. But as broadcasting expands its influence, we feel the need for continued federal regulation to ensure that the gains teachers and broadcasters have achieved together are not reversed. This brings us back to H.R. 3333. We sincerely appreciate the long and diligent effort put forth by this Committee and staff in the massive task of rewriting a 45-year-old law that is clearly out of sync with current technology. There are certain elements in the bill with which we can concur. We are pleased that at long last the importance of ensuring that New Jersey and Delaware each have at least one VHF station has been recognized. We feel that the proposed spectrum fee for broadcasters, given the economic advantages of the industry, is both valid and long overdue. We applaud the concepts of a minority ownership investment program and - minority loan guarantee program, although we question their real impact in the proposed absence of EEO requirements. Unfortunately, however, H.R. 3333 does not measure up to what we believe is needed in the areas of public interest, affirmative action, and children's programming. We have grave concerns about its proposed deregulation of the broadcast industry--deregulation which the broadcasters claim is necessary to protect their First Amendment rights. It is our contention that the First Amendment is rooted in the public's right to know-- to be presented with accurate information or, in the absence of facts, with a fair and balanced spectrum of opinion The First Amendment protects the very same public interest standard that the broadcast industry is opposing-- a regulatory standard embraced by the 1934 Communications Act but dangerously diluted in H.R. 3333, at a time when the increasingly pervasive influence PAGENO="0391" 1855 of the media would seem to call for strengthening, not weakening, this public protection. Another provision of LR. 3333 which we view as absolutely dangerous is the proposed lifting of the prohibition on cross-ownership of media outlets. The FCC has made real progress in limiting such cross-ownership over the past several years. Now is not the time to retreat from a stand so clearly in the public interest. Likewise, in light of the many complaints NEA has received from teachers denied the right to respond to unfavorable editorials, we believe that what is needed is regulation to encourage fair editorial policies, not legislation that would eliminate all requirements for editorials, as H.R. 3333 would. NEA is also concerned that H.R. 3333's lifting of requirements for news, public affairs, and..other types of radio programming, coupled with its proposed elimination of the ascertainment mandate, would relieve broadcasters of the obligation to reflect any community concerns at all. We are equally alarmed at the proposed elimination of the equal time provision for radio and all television except paid time. This would clearly give a broadcaster an unfair advantage in influencing any political election. A case in point: The state of Wyoming, which sends only one member to the U.S. House of Representatives, has only three TV stations, one of which covers 75 percent of the state. This station has been charged with several cases of unfair editorial practices. Without equal time requirements for broadcasters, we are concerned about the scenerio in Wyoming and elsewhere during the 1980 political campaigns. H.R. 3333 also falls short on the test of minority involvement guarantees. In a clear step backward, it proposes to eliminate--immediately for radio PAGENO="0392" 1856 and eventually for television-the current Equal Employment Opportunity requirements for broadcast employees. Its provision ending the competitive license process for radio renders growth in minority ownership unlikely. We do not believe that the random selection process for assigned television frequencies, with a double chance for minority applicants, is any more than a double dose of useless medicine--a placebo. It insults the existing gains for minority involvement in radio and TV throughout the country. Turning to our final concern, we believe it is imperative that children's programming not be deregulated. It was only after considerable public outcry that the FCC finally decided to reopen the inquiry into the need for further regulation of this critical area. Both the Federal Trade Commission and the FCC are currently studying the effect of TV commercials on children. We fear that under LR. 3333's deregulation, whatever progress has been made would be wiped out in the return to an uncontrolled marketplace that sacrifices quality programming to economic profit. Our conclusion is a simple one. LR. 3333 does not adequately protect the public interest. It moves backward on affirmative action. It does nothing on children' s programming. As written, H * R. 3333 ought not to become law If it cannot be improved we would be better off to remain under the Act we have now. Thank you. PAGENO="0393" 1857 Definition of Tare ~eg~4atory Standard. The public interest, convenience, and necessity. Licensees are "public trustees" who are subject to regulation by the Federal Communications Commission. Mcertainment. Under the public interest standard, the FCC has required stations to survey the taste~ needs, . and desires of their comnumities and present programe to meet them. Access. Access to ownei~ship and employment from within. Access to the airwaves from without. Fairness Doctrine. Under the Act, FCC has developed policy requiring each broadcaster to air controversial issues and to offer balanced treatment of questions that are raised. EEO Requirements. FCC has developed Equal Employment Opportunity rules under the public interest standard. ~qual Time. All legally qualified candidates for a public office must be offered equal opportunity if one candidate for that office uses station time. PAGENO="0394" 1858 Revision of the Communications Act Currently and during the 96th Congress the National Education N A T I 0 N A L E D U C A T I 0 N A S S 0 C I A T I 0 N Association shall actively lobby and OF THE UNITED STATES OF AMERICA worktoseekchangesintheproposed revision of the Communications Act of 1934. The Association opposes those sections of the proposal which would severely limit and inhibit access to the airwaves of radio and television by public interest groups. The proposed revision would change the system of license renewal and the process of I challenge to broadcast licenses by R eso ut' transferring the burden of proof of whether a station is acting in the p public interest from the broadcaster to the public. It would unduly restrict B , the funding process for public broad~ e w usiness casting programs. The Association be. lieves that broadcasters must continue 10 serve community needs and in- terests. It is imperative that those legal relate directly.to NEA goals-such as d requirements currently in effect which the fairness doctrine, equal time re- quirements, ascertainment, and affirm- ative action regulations-be included in ~ any revision of the Communications IITnflr Act U LI 151 The Representative Assembly directs NEA to act immediately to re- vise responsibly the Communications Actions Act of 1934 and urges all states and local affiliates to communicate their concerns to congressional representa- tives and candidates for the United States Congress. 11978-171 (New Business Item) 1978-79 RESOLUTIONS 78.18. Media Legislation in the Public Interest The National Edscstion Association opposes legislation so release the broad- casting indusssy from the requiremests of serving the public interest. The Associatios su~rports those public interest groups that work for responsible reform of the Communications Act of 1934 and foe media legislation in the public interest, It urges its state and local affiliates to express their concerns to their - representatives in the United States Congress, 78.15. Television Programming TIre National Education Association recognizes that children are an especially vulnerable audience who mast be protected from violent television programming, race and sex stereotyping of the medium, and enploitatinn by advertisers, It encour- ages advertisers and broadcasters to promote a variety of programs of the highest calibre for chi5dren of alt ages. The Association urges its affilIates to establish television study comndtlces to monitor television activities, to provide research material on television to teachers, and to promote positive, edscational programming. PAGENO="0395" 1859 ABC SALUTES THE NATIONAL EDUCATION ASSOCIATION FOR ITS INNOVATIVE USE OF TELEVISION AS A TEACHING TOOL. In 1969, the National Education Association, America's largest organization of teachers, recognized the educational possibilities of quality television programming. It was the first educational organization to endorse a television documentary and has continued to be a leader in the endorsement of quality television programming to motivate dassroom learning. The Next Generations" as ~s endorsed by the NEA, e was produced and cussionund was used ~portantgoal.-.to enrich the ica's youth. ~ortant educational ~rward to future ABC ThNgfwoRK~ PAGENO="0396" 1860 Tim N~~tiona1 Educatiou Association Before time Federal. ComneinicaLions Commission ~!ashington, i).C. 2O5~4 In the Matter of the Inquiry ) on Children's Television Programming ) BC Docket: 19142 and Advertising Practices ) Comments Filed by the National Education A~;sociation :1: Office of Communications .mj ~- February 12,1979 Susan Lowell Director Staff: Karen Klass Communications Specialist PAGENO="0397" 1861 The National Education Association is a professional organization of 1.8 million teachers located in every state and congressional district in the country, in Puerto kico and in the Department of Defense schools around the world. The goals of the NEA specifically include three objectives which relate to the impact of television and radio upon students: 1. to stimulate educational research that is responsive to problems of classroom teachers. 2. to provide information that will enable Association and affiliate leaders to influence developing public policies on education. 3. to provide information systems which support individual members in their professional practices. The NEA is very pleased that the FCC has provided us with the opportunity to comment on the children's television programming and advertising practices of the commercial networks and local stations around the country. We have participated, through our state affiliates, in the four FCC work- shops on Public participation which included a session on the "Children's Inquiry." As a result of these workshops and subsequent notices to our members we have received many specific responses from teachers which we will attempt to summarize in our comments to Docket 19142. The first issue of concern which was mentioned consistently by every teacher who contacted us was. the definition of children's programming as adopted by the Commission in 1974. It is quite clear to us that a revised definition should take into account the percentage of ehildren in the viewing audience in determining whether the program should include considerations for children. One survey of teachers conducted by the Garden Grove Education Association, from a 812 student school district PAGENO="0398" 1862 in Orange County California found that more than 75% of children watch adult entertainment after 8:30 p.m. Less than 1/2 experience full supervision; more than 1/2 the homes involved had more than 1 TV set; and several teachers noted that there were "no limits on viewing, parents go to bed and children watch what they want." A statement from the New Jersey Education Association cOmments to this docket states that "the TV industry does not have a positive precedent for policing itself, and there is no background to assume that the industry will begin to do so without standards regarding children's programs (ref. second notice p. 5 #14),A case in point, only one network, ABC has someone assigned specifically to manage broad- cast standards and practices for children's programs. Again, this person oversees weekend, Sunday evening, and prime time and after school specials; all of which make up the minority of children's TV viewing. Although we will address some of the question' $ presented by the Commission in terms of current standards for children's television, we believe that the one overriding issue at hand is t~e total affect that TV in all time periods has upon our nation's children. Many of our teachers voiced concern about the subject of age - specific programming (second notice p * 8 #23). The Iowa State Education Association conducted a. survey of 31 teachers representing the entire state. The figures. showed that although most respondents felt there were more shows aimed at specific age groups, the biggest problem is that there is not sufficient information available to the public as to what age groups really are being targeted for specific shows. The NJEA (New Jersey) felt that statistics should be compiled of programs aimed at separate groups of children i. e. pre-school (1-5); through seventh grade (6-12); youth from 13-17. The California teachers added that this PAGENO="0399" 1863 lack of information made parental guidance very difficult. The Iowa survey asked whether "the rights of children t~ diversity of programming designed for them is being adequately provided for by the television networks and their local stations?" (Second Inquiry, p. 13 #41) The largest difference in answers was to this question. 75% said ,no. Of the.25% who answered yes, all said diversity was met on the national level not the local level. They also said that quality was most often sacrificed for quantity on both the local and national level. The Iowa survey followed up with a question as to whether the FCC should adopt requirements concerning children's programming for local stations and networks to meet. Again, the overwhelming answer, 70% was yes. The most often stated comments concerned the elimination of commercials (though respondents were doubtful as to the real feasibilty of this action) and elimination of jui~ik food ads. Many teachers (and all of the 30% who opted for no requirements) stated the importance of parent responsibility in children's TV viewing. Three specific comments are unique and noteworthy. 1. "If all advertising goes - there will be more of a need to establish requirements to assure quality programs." 2. "Local stations should do shows with local talent and artists. 50% of a show should be entertainment without cartoons prepared by local artists in lieu~~ of live talent. 3. A requirement should be made of broadcasters to assure the portrayal of local values in a community, This could be done on the network level with more PAGENO="0400" 1864 diverse characterization; as one teacher states, "few * $ew Yorkers know anything about rural agricultural values and they tend to portray midwesterners as hicks, let the rural ghetto be heard from." Or requirements could be made (with the help of local ascertainment procedures) to make sure that these values are reflected in local children's * shows. One teacher from the state of Maryland provided a formula for use in determining how many hours should be programmed for children. "To suggest how to measure compliance with the requirement that licensees make a "meaningful effort" to serve the child audience with an adequate amount of overall programming is a difficult charge. A meaningful effort is open to wide interpretation. The formulation of a percentage of total air time which must be devoted `to children's programming may be the fairest method. This at least would set minimum standards. A percentage of 5% per week would mandate approximately 7 hours. This percentage could start at 5% in 1980, rise to 6% in'l982, and 8% in 1984. This phase-in period would allow for stations to grow in expertise in children's programming. A report on this should be part of the ascertainment procedure." On the question of the amount or appropriateness of advertising in children's programs the opinions from the Iowa survey varied greatly. The results were fairly evenly divided between reducing the number of commercial minutes beyond the current 9½ and 12 minute limitation and doing nothing About 2% of the respondents hoped for total commerical elimination. Another 2% wanted a control of the quality and type of commercial material (repeats of concern over junk food ads) `Judy Lonning, a teacher in Des Moines Iowa says, "ads directed toward children are unfair and deceptive. PAGENO="0401" 1865 Children lack the maturity of judgment, the full ~apacity for individual choice and the perspective needed to deal adequately with commercials. Children are a special category deserving special protection such as they are accorded in other ways: school requirements, work, laws, prohibition of sale of certain products. Children are a valuable resource and should be nurtured and protected rather than ruthlessly targeted as consumers." Teachers repeatedly emphasized, as they did in the area of programming, the necessity for parents to help their children in becoming discriminating viewers, especially when the children "are not the primary consumer" (Diane Davis, Ames, Iowa). Another teacher from Iowa 4 suggested that schools should have "media education" as part of their curriculum opportunities. Many teachers were concerned about the content of the commericals more than the number of commercials. One teacher supported commercials because they, "provide tine for parents to take a break from the program and discuss the show with their children." The comments from NJEA reflected considerable doncern in the area of commercials on children's programs. New Jersey felt that, "There must be stronger emphasis on the separation, of reality and unreality on radio/ TV. Children are too susceptible to these seductions and are totally unable, especially at early ages, to separate.the two. They must have more help in this matter from adults. (ref. p. 3. #7.) "Why the differentiation between weekday commercial time limits from weekend commercial time limits? Children are not consumers, their parents are." "Commercials which urge children to purchase items not in their best interests, i.e. regarding health, personal safety, etc. are not defensible." (p. 16 #45, footnote 52) :6 PAGENO="0402" 1866 NJEA also felt that the ideas of PSA a for consumers would greatly of f- set some of the negatives of TV commercials They suggested that the FCC should encourage the networks to solicit child-oriented PSA s For example ABC produced a PSA based on the Action for Children's Television guidelines Westinghouse has produced PSA's for their stations and the ,Television Information Office in New York has produced some PSA s for their members Clearly this is possible With a stronger incentive - broadcasters could provide children and adults with much in the way of consumer information relating to children. The NJEA comments state: With further regard to Public Service Announcements geared for children one strong advantage is to get messages to them such as those geared to their health and welfare i e against sociai abuses junk foods etc The physician members of the New Jersey Coalition for better TV viewiig have spoken of these numbers of tines These need not be only against abuses but positive things such as reading physical exercise outdoor play It is appropriate to mention some exawples of positive uses of television which we feel indicate the potential for additional progress in this area The networks have provided materials on special shows NBC developed a study guide for the Holocaust which was distributed to their affiliates Through Prime Tine school TV a non-profit publisher ía Chicago ABC distributed a 16 page study guide for Roots II CBS has established a very successful reading Program by making scripts and study guides available for certain prime time television .~pecials Community organlzations such as United Council of Churches and the B'Nai Brith Anti Defamation League have provided educational materials on certain programs PAGENO="0403" 1867 Citizen's groups and teachers associations have formed coalitions and have begun to establish projects on the topic of children and television. The NEA already has samples of programs from its affiliates in Massachusetts, Iowa, Colorado, Maryland, New Jersey, New York, Pennsylvania, ~nd California. The business community has also participated in this endeavor. The Associated Press distributed scripts from Roots II to member. newspapers. Many sponsors of programs on prime-time as well as afternoon programs have published educational materials in conjunction with their shows. Research (copy synopsis attached) indicates that instruction combined with TV viewing does make a difference in attitudes children learn from TV (such as anti or pro-social messages or absense and the presence of lex-role stereotypi..~). One local teacher's association in Maryland has designed a TV literacy curriculum which has been very successful in the Baltimore County Schools. Even the U.S. government under the Office of Education has provided grants to develop critical viewing skills on television. If the networks were required to provide more educational materials, both on their programs and in conjunction with their programs - they would receive plenty of help. As an extensjou of the concept of ascertainment an Advisory Board representing teachers, parents, civic, religious groups, cultural organizations, etc., could provide assistance to the broadcasters in the area of program ideas, ancillarymaterjajs, and PSA's. They could help the broadcaster with data on age specific programs and assist ~n monitoring where the needs are in this area. They could even assist in distributing information and materials about programs of educational value. Many teachers have suggested topics which they wish would be addressed on TV ranging from ecology, exploration of self and the world, PAGENO="0404" 1868 and the rights and well being of others Ideas and resources could be available to the broadcaster that could generate different and exciting quality programs Already there have been a number of new and creative ideas to address the needs of children and television The President of Quaker Oats, a major. sponsor of children's television programs, suggested the creation of a single television network that would bring high quality shows to child audiences In Los Angeles a coalition of writers directors and producers of television programs who have a commitment to children have been meeting to address the issue of improving the 4uality of television especiaUy as it affects children They are investigating a revolutionary concept of an hour each week on each network, called the `family quality programming hour On January 5, 1979, at a meeting of the Public Relations Council in San Diego California (representing NEA PR Directors from every state) a resolution was passed relating to the FCC Inquiry on Children's Programming and Advertising Practices Recognizing ,that television greatly affects the education of the nation's children and can severely inhibit or appreciably assist teachers in their instructional efforts the PR Council applauds the FCC Inquiry on Children's Programs and Advertising Practices and pledges its cooperation to the NEA and the FCC in their efforts to improve programming and to enhance teachers' and childrens' benefits from television ` The NEA plans to continue to investigate the subject of children and television in order to provide teachers parents conununity groups and the broadcast industry with assistance in achieving more positive affects of TV on children We will seek out more known resources to facilitate the educational values of the television medium PAGENO="0405" 1869 I~ the coining year the NEA is planning to establish a children' a TV clearinghouse for local prograns. Any station that wishes to see examples of local qi~iality television prograns for children may request a sample tape of programs reconainended by NEA state affiliates. Each station with a nominated program will receive a certificate of nerit. We are encouraged by the increased awareness of educators, the general public, the industry, and the FCC to the concerns of the impact of television upon children. We must all make a major. commitment to the development of the positive relationship between television and children and we will encourage parents and teachers to cooperate with the broadcast industry to develop positive aspects of children's TV viewing. PAGENO="0406" 1870 Apocrd iC t ~ 11' 1 LFFC S O~ Co r~r PC .LAI ~T I 10 OLI c !Tt1Jtr~ b, I Jjnn~ `fun Bj uirc ~ ociuL three or ~`or jnform.~tion .~c~rvice-~ NJTA 3. By ago 16 toe avc~agc. child will have pan~ 15 000 hou.i vatchin~ t~levisio1 The impact of thi~. volume of expo ure to one form of nas., reclia i~ of concern to many parents, educators, and other professional groups. A Washington, D.C. media reform group has been given a $25,000 grant by the American Medical Association to study television violence The National PTA has initiated a project to combat violence on television and will hold eight public hearings to gather testimony from e~perts to support its thesis that television violence results in child violence The trend of research evidence suppo~s toe association s theory ~ha~ violent television entertainment heightens aggressiye motivation and increases the probability 2 of subsequent aggressive behavior by some children and youths. This might affect classroom discipline and control Imuortant studies on ~his aspect of television influence on children include U S Surgeon General s Scientific Advisory Ccnmittee'on Televisicri and Social Behavior Reports `tnd Papes edited by George A Coustock and Eli A Rabinstein 5 volumes Washingto'i, D C , Government * Printing Office, 1972. Volume I Media Content and Coitrol Research focused on (a) amount and charaCter of television violence; (b) the circumstances and milieu in which violence is created; and (c) formal and informal influences which affect the selection and prohibition of televi ion content Conclusions arrived al wore that since violence seems to be fevorably r.eeived by the general vic~ring public and i~ also the solution to problems related to dramatic e\]5'- encie~ of television prouuction, coitcexcial bionclcas e.~ mU co~inue to u&o violcn~e in tneir progi.ams Alberta I Sic~el Ccnurtunicating mrith th~ Ne\t Coneintion, Journ49~ Communications 25,~: ?2, Aulustn, 1975. 2 Sic~el cii cit p 10 Cooi~c Com~tocI' The E~idenco so Pa , Jouinml of ~ :27, Autumn, 1975 PAGENO="0407" 1871 Volume II: Telovln;.on awl ~oc~1. Tearnin;~. Revicw~ research :u.tes~ii~re on ch:i ldccn recpon:~es to television violence and contains reports on five studies conducted for t},e cor2niLtec. Again, findings indicate that intorpersonsi. aggre scion in. children will increase for a short period or time after the viewin, of violent television programs. Volume III. Television and Adolescent Agr~rca~jon~. Contains reports of eight I~icld s~~ioc ~f~fect of adolescent exposure to violent television programs upon aggressive social behavior and fee1in~s. Findings: viewing television violence can account for no more than 10 per cent of the total variance in measures of adolescent agressions. Volume IV: Television in Day-to-Day Life: Patterns of Use. The'eight research projects reported in this volume include a study on children's use of television and other media, children's television behavior and viewing as perceived by the child and his/her mother, and effect of television advertising on children and adolescents. Findings include: amount of time spent watching television increases throughout the elementary years, peaks at early adolescence, and decreases in the high school years; brighter children show more variation in their program preferences; viewing of violent programs is lower among girls than boys; amount of television news watching is positively related with news- paper reading; children. copy behavior of characters on programs they're watching; and very heavy television viewers are the most likely to have problems of social adj~stment. Volume V: Television's Effects: Further Exulorations. Investigations concluded that the amount of violence a child views, and his/her acceptance and feelings about violent behavior are related to a child' a economic background and age. ` . Addendum Volume: Television and Social Behavior: An Annotated Biblio~amhy * of Research Focusing o~Televisions Impact on Children. - McCarthy, Elizabeth B. et al. "Violence and Behavior Disorders." Journal of Communications. 25,~:7l-85, Autumn, 1975. Conclusions of this study are: (a) children with the lengest viewing hours score highest in variables of regressive anxiety, mental problems, depression, fighting and delinquency; (b) children who piefer the most violent programs evidence more aggressive behavior, i.e. conflict with parents, fighting and delinquency; (c) the lower the family' a economic status, the greater the like- lihood of the child' s preferring violent television programs; and. (d) children whose mothers are either not highly educated or are single parents tend to prefer violent shows. PAGENO="0408" 1872 I c ~. rLher.~ tic' I md n~ mdi C tI, 0 tf~J.CvJ ion C fl a! 0 CO iriUnicai/' ~ocm~mlly v~mlucd bch vmor and ~tLm uk Poulos, Rita Wicks, Eli A. Rubinotcin, and Robert U. Liebert. "Positive Social Learninf." Journal of Coxmunicat.~on~~ 25,1~:9O~~97, Autunn, 1975. Aspects of televisions effects on social behavior in children were studied: analysis of positive social examples appearing on cosinercial television; demonstration of possible ini'luences of actual tele\ised po it_se behavior and scrutmn! of datar~unan+~ of children's attention to progrenseing. Findings include: (a) children ~ho saw the prowcial pcoEv~.r1 helii.~1 signi~'ican ly more than those who view the n utral pro,~r~m (b) tee proseci~.l program `.~as attendrd to more b~r bo~h se> e tnan the neuLraJ. prozram ~nd Cc) the amount of action and. background are important determiners of child's attention to either prosocial or neutral programs. Collins U Andrew et `ml Asyects o~ Te1evi.~io~Co'itePt and Childrei~s Social B"h'wior Minneapolis ilinri Institute om Child Develop- ment Minnesota Universi~y, l971r Studied ixapwt of different types nm television cootent on ~he soci~.l behavior of children of various ages. Results indicated that the hero who uses constructive coping strategies to solve the problem may have more effect on young viewers than the violent hero. If the hero has both good and bad characte~'isties the imp..e~ of any aggression is greater than if he is definitely evil Walling, James I The Effect of Interactio'i on Learning from Television CosimunicationEdttCati~2p 25 1 l6~2I ~an~.ry 1976 This study found tha" children who watched. t~x. experimentally selected. television shows were better able to answer questions about the social roles and functions of such parsons as paramedic~, lawyers and private detectives. Children whose parents watched,and discussed the programs with them were better able to solve problems similar to those presented in the selective shows they had seen. Nbnviewers and children who viewed the shows alone were equally poor in solving these problems. Research also shows that televised persons provide an example or a model for 3 vie~er behavior Unfortunately television can reflect the social and cultural stereotypas of society McGhee, Paul F Telcvi'mo'i as a Source of Le'mrnmn Se~~Ro1.e'~t~yPqS Paper pre.~eneed `mt the Biennial teeting of the Socaetr for ?cs~.aac1i in Child Develop'n.flt Denvem Colorado, Api il 10 13 1975 (LD 111 526) The amount of time chmlthen in giac es K 2 1~ and 6 sp..n~ ateth ng telex msmon was determined by a telvision program checklist;. Each child was given 3 Siegel, .2R ~ p.23 PAGENO="0409" 1873 MeGhec (~ontinu.c:u) a tc&;t to :neaaurc his/her preference for ccx ntercotypecl toys or activj,tins. Children who watched the moat television acored snif- icantly hi~hcr in the test than isv televiajon viewere. Results ifldicate that television affects children's acquisition of ccx role typing. Women on Words and Images. Channsliivr. Children: Sex Stereot~~' in PrJmm-TiraeTclevj~on. Princeton, I~.J.: Wornen~n ~!o~ds and Images, 1975. Contains a statistical survey of sex stereotyping in dramatic, family-oriented programs fro.m the 1973 television season and plot `, summaries of popular l97t~ programs. Results include: (a) more men than women appear on all the analyzed shows and the male/female ratio increases in adventure programs; (b) men were shown in twice the number of occupations womsn were employed in and male ocàupations were more diverse and "professional" than women's jobs;. and (c) women are shown in more instances of negative or incompetent behavior than men. Research seems to indicate that only if parents and teachers combine home entertainment viewing with follow-up activities, does television have signif- icant impact on a student's learning in language arts and reading. Also, television can be viewed as a motivational device to interest children in books. Becker, George 3. Television and the Classroom fleadin~ Program. Newark, Delaware: International Reading Association, 1973. Discusses how teachers can use home television viewing to improve reading/language arts instruction. Gives practical examples. Fasick, Adele M. "Television Language and Book Language." Rice entary English, 50,1:125-131, January, 1973. The gap in language development between middle-class and lower-class preschoolers has not lessened with exposure to commercial television (as distinct from positive effects of educational television's "Sesame Street'~ and "Electric Company"). Reasons for this include: (a) language heard on television must be understood at first hearing or not at all; (b) child has no control over pace of speech or content; and (c) no interaction with child and person speaking on television can occur. PAGENO="0410" 1874 Ikuculton -c.c3cn JJcrnh~irlt Thc~ F ] c~o hin I ic n 5r~1 ii. rin~ ~_~I~L J J~_L~_~ ~LLL~__W_ U Doe Di. t Liort BC) tort Un yes t cho'si a i U Lj.o'c 1973 Tested the comprehen~ton rind reacts en of students to books with teicvision. tic-me and to otkor types of books read voluntarily by the students durin~ç a six week ps~iod.. Conclusions indicated that telcvi ion t_c-in rcre pce~rr_d o'~er nori tcl~vi~ioa i.e tine pent ~atching telr~vi ia-c ~ three tirw~ len~r thin tn~ tine spent re~cii1c~ ~nd paient.~ ex~r U ii tie or no control over th~ telev~sioi how tncir chiid~-n ~ ccl Starkey John D and Helen L~e Sir nfo~d Peaciin~ Do~ Telein Sian V3 ciri.nr~ T_ae Af~hctIt? Dc ~lb I o the~'n I1lirco~. Un_v In this stuo~r of 220 fifth nd i/b gr-iies bct~er readc~s iui cocci less television than poor re~ci~rs A lair p.rcent_re of parenal supervision of television hoc s ua~ reported lb rel~~tionshio as shown bet men a child o min5 his/her pe~sona1 tel~vision et ~nt viewing time or reading ability. The authors conclude that children shouldbe.taught to be discriminating television viewers. Studies on the effects of coecmercial television on coilciren are continually being ~one Dr Cldrence Bergeson of SIJNY is still correlating data fras his research es'oeriments studying children in six dif~erent states and living in -urban suburban and rural areas A~ Harvard University the Center for Research in Children s Television ha~ been established and has ju~t issued a report on sex stereotyping of o~.cup~tions p~esented th children on television programs and toe effect on career education programs PAGENO="0411" 1875 The National Education Association Before the Federal Communications Commission Washington, D. C. 20554 In the Matter of The Handling of Public Issues Under the Fairness Doctrine ) BC DOCKET No. 78-60 and the Public Interest Standards of the Commur)ications ) Act * ) Comments Filed by the National Education Association Office of Communications June 28, 1978 Susan Lowell Director Staff: Karen Kiacs Communications Spc~cialist Tonyn Allen 1~1VT~ TnIr.~*,~ PAGENO="0412" 1876 We are pleased that the Federal Communications Commission has granted us the opportunity tp present comments on. ±he issue of public access to the broadcast airwaves and specifically in regard to the Fairness Doctrine. The Fairness Doctrine and access procedures are important to the National Education Association because as a public interest organization representing specific views of the education community, we believe that there is a strong need ~or legal support to main- tain "fairness" in broa~dcazting. Based on our experiences, we are convinced that broadcasters must have a legal obligation to search out community views. . . The NEA is a professional organization of 1.8 million teachers located in every state and congressional district in the country, in Puerto Rico and in Department of Defense schools around the world. From our Headquarters in Washington, in every state, and in every school district across the nation, teachers are deeply involved in, and concerned with the information which is. broadcast on radio and television. Teachers, like any other citizen's group, have thoughts, ideas, and information to com- municate. We are anxious for greater participation by teacher leaders with their local broadcast stations. Last May, Susan Lowell, NEA Director of Communications Services, issued a statement to the FCC cx~banc, in support of improved broadcast access. By survoying NEA affiliates, we ob- tained an "establi~hcd record of opinion" on the subject of broad- cast accessibility and the Fairness Doctrine in particular. PAGENO="0413" 1877 -2- Mrs. Lowell presented to the FCC results of this informal na- tional study which included examples of successes and failures among some of our local associations working with broadcast outlets. Continuing our informal poll this year, we .have still found severe misuse and misinterpretation of the Fairness Doctrine. Most problems occur in small markets in rural areas where, for example, formal ascertainment requirements are not required. One radio station in Peoria, Illinois and another in Decatur, Xllinois refused to ai~ any public service spots, editorial opinion. responses, or any views whatsoever held by our . I*llinoi~ affiliate. The two station managers were quite candid and open in stating that they personally opposed the positions held by Illinois teachers and, in fact, made certain that their communities knew where they stood. * * In Northwest Ohio, the former owner of a radio station happened to sit on a local school board. His station's news stories ~ere biased against teachers. His interviews, for example, would turn into debates on all kinds of teacher matters, often quite un- related to the topic of the interview. The teachers' point of view was, of cour~e, never aired. It is.clear to us that if the Commission decreases fair- ness regulation~ and continues to require no formal ascertainment procedures in small markets, the problems which currently exist can only increase. It is in small market stations that unfair representation of community mattors occurs most often. PAGENO="0414" 1878 We do noL feel that all hroec1cd.~ters arc inhcrc~ntly evil and that they therefore maliciously spew the vie is rcprcsenLc~c1 on their air Thu problem is one of priorities If the govern- ment lessens the federally mandated guidelines for presenting controversial issues of public importance, then the control and monitoring of `fair access" to a particular station becomes mini- mal. Quite simply, what isn't required often does not get done. The station has no real incentive, given the responsibilities of running a business operation to regulate access to its air waves Our problems aren t always with small markets however Two years ago in Central']. Ohio, an impending school strike was a manor issue in the community A large radio station conducted a talk show in which only members of thL school administration were invited to participate The station refused to allow teach- ers on the program stating that the show would oml~ deal with technicalities such as school hours transportation of students what parents should do etc On the contrary the program turned out to be a full-blown discussion of the issues st~rrounding the impending strike which directly and specifically involved teachers Moreover, listeners were deprived of `hearimg the teachers' very important views about the strike views as impoitant and as valid as that of school administrators. On the matter of ascertainment which allows community input to the broadca~ter,nany radio and television stations in a !.a~c~ mctropolitin area approach the needs of the community from very different perspectives In one of our srn~e~ed nrtikets one stat3On updttes it.~ checklist twice a week one st-~tion upd-itcs PAGENO="0415" 1879 its list monthly, and another updates the list yearly. While three stations update every three years (for license renewal) one station confessed that their list is updated "rarely." While we recognize the importance of allowing different interpre- tations of community problems - we are concerned that the p~cess by which these problems are discovered is too flexible to be valid. If, for example, a station doesn't update a `community needs' topic list annually, how relevant can that list be? A significant point was made by an assistant in Community Affairs at one of our s,,urveyed stations: "Renown community lead- ers are always ascertained, whereas., lesser known citizens may be overlooked." This major problem which exists around the country and which seems to allow for input from `established lead- ers' who may or may not reflect current community opinions, won't be solved by eliminating formal ascertainment procec~ures for radio and television stations. One often-stated criticism of ascertainment is that it is a meaningless waste of time. Broadcasters interview community leaders, file the reports, and continue blindly programming the Same information to the public. This doesn't have to be the case. More varied guidelines as to the ascertainment forms which the broadcasters must fill out could be provided by the FCC. A simple suggestion, such as carbons of the interviews (if the inte~viewee agrees) could be distributed to key people at the station. At the very least, a summary of the interview could be circulated to these people. The station staff person in charge of ascertain- ment could solbct a representative number of those interviews for PAGENO="0416" 1880 di~tribuU.on (poo.~ibly choo.ing differc-nt onc~ for diffcrent broadcast pcr~onncl depending on the topic) so th tt the procc~so does not become ineffcctivc~ due to a paper overload Names organizations eiamples which are brought out in an ascertain- ment interview can prove to be a valuable resource to a broad- cast producer reporter, editoLialist or public service or public affairs director. The FCC currently has a primer on the Fairness Doctrine - but it is not much easier to understand than the legal doctrine itself We strongly suggest that some wor1~ be cone to clarify the obligations of the broadcasters and the rights of the public Then, this clarification would be understood and utilized by broadcasters and by the public NEA recommends that the Commission possibl~ through its Consumer Assistance Office prepare a simpl.e and cox~cise brochure on the Fairness Doctrine and on ascertainment for the average citizen that serves several purposes. First, the brochure might mention examples of ways that stations have successfully and creatively e~pandcd their community leaders list Second, the brochure could detail pertinent regulations and guidelines con- cerning access and fairness Third information -tbout what sta- tion departments are likely to deal with - issues like fairness and ascertiinment should be included Above all this material should be uride widcly available to community gioups as a souice of assistance to them ts well as to st itions This riaterial will not only tnsst the iublic but should sc'i'.e to enlighten the st-ition We feel th-~t one of the siqntficmt pioblcm ieguding PAGENO="0417" 1881 `fair access' to the airwavec COritinUOS to be failure of the broadcaster to clearly understand the concc'pt of `fairness~' Many stations totally avoil controversial issues, clearly a violation of the legal u~andate, because they fear the complexi- ties of representing opposing points of view. We firmly believe that the `Fairness Doct~jn~' is quite ].0050 enough to allow for dontrasting opinions without unduly and unrealistically burdening the broadcaster. We also have some concerns regarding the current system of broadcast editorials, and editorial responses. Recent surveys of our state associatjo)~~ indicate specific problems regarding editorial policies. One of our midwest affiliates is frequently attacked by stations through unfavorable editorials and, in most cases., is not given sufficient time to respond. Moreover, the station has the option to accept or reject responses~ rendered by the association. Time being a vital factor in responding to editorials, the station usually has the last word. We strongly support the recommendation of the Nati6nal Broadcasters Editorial :Association (NBEA) made at a meeting in Philadelphia this year, in which they suggest improvements in their code of ethics, standards, and practices. Their suggestion Which provides better public access to editorial opinions states that "replies to edi- torials should be solicited vigorously as a means of stimu~.ating public dialogue on issues. And in the spirit of fairness, replies should be afforded scheduling and placement equivalent to edi- torials." 51-253 0 - 80 - 27 PAGENO="0418" 1882 `rho W~A cuppw: t:s sevc3:al ropo:a1_ :; I: ted in tAils 3CC inquiry_ which arc currently before the Ccmninsi.on arid ~,hi.ch are aimed zit a trciicjthcnincj the 1'airries:; Dec triro and as cc:r tainmcrit procedures. One proposal by henry Gcllcr recommend:; a `teri-insu~ approach' requesting television liccnsee~ to forme).iy list, on an annual basis, ton issues that have received the most coverage on the air. This annual list would hckcigon file at the station and available for public inspection. The FCC would review this list as part of the license renewal process. This policy would allow the licensee to review each year its overall activities in meeting the obligation of presenting `controversial issues of importance.' We agree with some of the proposals nade by the United Church of Christ, notably: that "quantitative and other standards be set to determine whether the license has rendered a substan- tial informational program service to its area of li~ense and acted in a meaningful way as a local outlet for expression of diverse views on issues of public importance. that formal ascertainment procedures should be followed by all broadcasters to ascertain the problems, needs, and interests of all significant segments of their service areas. - that broadcasters should make a "good faith" effort to design programming that reflects these problems, needs, and interoats.~ and: to make sure that programming is current and up-to-date ifl rc~prC!Cfl L.tiicj coimsulu. ty c~C~Th * and views, we feel that annual ascertainment: reporL. should be filed with tA~ Commin~:ion. Thus ~Jua3:an t:ecinçj tisi I. t)ie~.:c procj ram ar.a,5 are m~ci~ ta med PAGENO="0419" 1883 Also in agreement with the United Church of Chrjct, we suggest that these programs be aired in times that best reflects the licensees' audience. By encouraging stations to use "access information" in its news programs, public affairs programs, and locally originated prog~ams, this information will more ade~ quately reach the public. At the same time, the NEA still maintains the right and responsibility of the broadcaster to decide the frequency and formality of information disseminated on their air. Therefore, we take certain suggestions from the United Church of Christ proposal to encoutage 1~roadcasters to devote time, for example, to educational informational needs of children, and issues from special interest groups in the community., if these issues are considered relevant to the licensees.', audience. It goes without saying that stations should make tine ayailable, without charge, for public service annourmcements and access messages allocated t~ requesting individuals and groups representative of significant community segments or concerns. NEA suggests that more stations become. involved in using ~the concept of public access creatively. A proposal by the Con- mittee for Open Media recommends the use of Free Speech Messages (FSM), short, one-mii~ute spots repeated five or seven times throughout th~ week on a current controversial issue. Through this strategy, the public could be presented opposing vicw~ of an issue, free from biased attitudes. We believe that Free Speech Messages should be a vol~mt~~ option to allow broadcasters another link to community opinion. PAGENO="0420" 1884 Two exnrnples in Washington, D.C. of effective uzuacjo of access include WRC Radio's(WaZh., D.C.) `Direct Line," and "Speak Out" on WMI~L-TV(Wa5h., D.C.) "Direct Line" begins with confrontation, an open question `rendered by one of the stations commentators. In turn, another commentator presents an opposing view of the same issue After the program is over the public is invited to call in and voice their opinions which are aired later that same day. "Speak Out" is an issue-oriented program pionéered'bY a station on the WestCoast. A person is granted a 22-second and 42-second Public Service Announcement Ofl any 7 topic whidh meets the legal PSA requirements. Each announcement is aired four tines a day; at prime-time - morning, afternoons, and a sign-off These exariples of creative access not only allow for the presentation of opposing views of controversial im- portance, they allow on-going input from the public as well An ~rinovative and extensive use of `ascertainment' information was done in the fall of this year by the Post-Newsweek television stations in Hartford, Conn., Miami, Fla., Jacksonville, Fla. arid Washington, D.C. WTOP-TV (in Washington) produced a three hour progrtm which aired in prime-time entitled, Nobody Evei Asked `Me." Over 60 community leaders were interviewed via live cameras on location (in Maryland, Virginia, and the District of Colwubia) and in the stuc~io by WTOP news reporters. In the months to follow the station has aired several 30-minute follow-up programs, ad- dressing new issueS Ofl the `community needs' list. In Raleigh, North Carolina WRAL-TV broadcasts "Impact" weeks sometimes as often as once a month. The entire weeks' public affairs ~nd public service programming is devoted to one PAGENO="0421" 1885 community problem. The ~orxnat includes PSiYs, editorials, public affairs programs, and often a mini-news sorics. They hove even sponsored. a special project, such as one week in which the topic was apathy; they broadcast a 12-hour live program called a Volunteer-a-thon which concluded the week. WBZ-TV in Boston, Z4ass. also schedules "Impact" weeks. They schedule one hour of public affairs time each week to a subject on the `community needs' list. WBZ usually schedules these programs from 10-11 p.m. before the news, and if the interest is still high, goes back to broadcasting live with guests in the studio after the news with open lines to the public. Some shows have gone on as lath as 2 qr 3:00 a.~t. Both WRAL-TV and WBZ-Tv promote their "Impact" weeks on their own air as well as in other media. A key `to the effectiveness of this programming is a statement by one of the statio~ managers, "continuing ascertainment deals with monitoring the changing problems in the community. This means that a station has to be `up-to-date' on issues to have interesting and relevant programs." These examples of using community access in a regularly scheduled format which has proven successful makes one important point clear. If broadcasters are given a mandate Csuch as the ~`airriess Doctrine or Ascertainment) which is firm but at `the same time broad in scope - they will find a way and can find a way to make that guideline relevant to their programming g'oals, standards, and practices, In other words, it's not too tough an as~i~nment for a major market or small m~rkot bro~dcastcr to use the concept of ascertainment or to follow thc regulations of the Pairnoss Doctrine creatively. PAGENO="0422" 1886 COMMUNICATIONS SERVICES NATIONAL EDUCATION ASSOCIATION 1201 15W St., LW., Wo~hm~tOfl, DC 20035 * 232~ 333-.~4~ JOHN RYOR. P~cRdR'~t i,.~. ~ C WILLARD H. McGUIRC, ViCR.PWd~~I JOHN 1. MCGAIIIGAL, SecetaryT~C3CWC~ $TATENENT OF THE NATIONAL EDUCATION ASSOCIATION IN SUPFORT OF IMPROVED BROADCAST ACCESS BEFORE THE FEDERAL COMMUNICATiONS COMMISSION PRESENTED BY SUSAN LOWELL `DIRECTOR COMMUNICATIONS SERVICES NATIONAL EDUCATION ASSOCIATION MZsY 31, 1977 PAGENO="0423" 1887 Good morning, my name is Susan Lowell, Director of Communications Services of the National Education Association. I would like to thank Chairman Wiley and his lady and fellow Commissioners for the oppo-tunity to address you this morning. As I am sure you know -- the NEA is a professional organization of 1.8 million teachers, most of whom are.classroom teachers representing the entire nation, Guam, Puerto Rico and the Department of Defense schools around the world. You may wonder wh&t a teachers association would have to say to the FCC? Here in Washington- our national headquarters has a communications staff of 39 persons. We serve our members through many areas of communications services including the field of broadcasting. For years the National Education Association has recommended to its memb~rs certain radio and television programs (both commercial and public) which it felt were of educational value to students. As outstanding example of this endeavor was the ABC presentation of "Roots." In 1972 Alex Haley addressed our Representative Assembly at the annual NEA convention. We followed-his progress closely and alerted our members to the television series based on his book. As a result of ~this suggestion -- we rereived hundreds of letters from teachers around the country tel-ling us how they used "Roots' in the classroom. The network has also acknowledged our contribution to the utilization of the series among school children and their families. A very new program developing f~r our members is a "teacher-training project on childrej~'s radio and television programs. We have contacted broadcasters, public interest groups, and teachers, who ore interested and imvolved'in children's Programming -- as well as your own Task Force PAGENO="0424" 1888 on Children's Television -- in order to put together a broadcasting resource kit for teachers. We plan to include guidelines for using programs of educational value in the classroom, ways to encourage parental involvement in children's viewing and listening, resource information on supplementary materials related to the programs, and basic information and bibliographies pertaining to ch-ildren's programming. The purpose of this project is to do all that we can to encourage good programs for children and -- accepting the enormous amount of time which our children spend watching television ana listening to radio -- we turn that experience to their educational advantage as much as possible. We hope to have the opportunity to share more with you about that project at a later date. I would also like to mention another project in which we are involved. The NEA is a member of a coalition called .Arne~ican5 For A Working Economy. We have been working, unsuccessfully to date,to ob- tain access on the national television networks, (the two networks inparticular which ran the Advertising Council's `Economy~ Public Service Announcements) for our own PSA's regarding the economy. We are hopeful that the generally positive response to our spots on local radio and television stations around the country will eventually be reflected by the networks' decision to run our spots. The most signigicant involvement which we have with the broad- casting community is the subject about which I would like to deVote the rest of my time this morning. There are 12,000 local affiliates of the NEA, each a member of a state association. These local asso- ciations vary in size from as little as one to as many as 10,000 members -- all adding up to 1.8 million teachers. PAGENO="0425" 18S9 Our story beings in the Fall of 1976. For one week in November all across the country, in large metropolitan areas and small rural com- munities -- teachers, parents, and students celebrate American Education Week, a cooperative project of the U.S. Office of Education, the National Congress of Parents and Teachers, the American Legion, and the National Education Association. We had been asked by many of our local associations for new and creative ideas for American Education Week. We decided to design a model project here in the Washington area. If it was successful it could be repeated in other cities, we planned a campaign utilizing broadcast media which we felt would reach students and parents and teachers as well as the general public. We looked for radio and TV stations that would be willing to involve several aspects of their programming. This in- cluded involving sponsors as well as listeners and viewerh. The television station which participated in our project was WMAL-TV, Channel 7. They ran a series of editorials on educati~n during American Education Week. They also ran special PSA's all during the week. The radio station, WMAL-A~M produced an extremely innovative and comprehensive campaign. They ran a series of editorials -- all' generated by their own editorial board and relating to local educa- tional issues. They ran PSA's, and a special four-part public affairs mini-documentary on the subject of `reading and writing' in the school. They aired a contest among their listeners for parents who are most hepful with their childrens' education. Over 300 nominations were submitted by students and twenty winners received $25 gi'ft certificates from one of the sEations' sponsors -- Giant rods. The supermarket chain also displayed posters promoting American PAGENO="0426" 1890 Education Week throughout their stores in the metropolitan area The radio station assembled material which we supplied on various subjects to help parents work with their children -- ar1ded their own bibliography -- and offered their own American Education Week packet free to their listeners Needless to say this campaign drew many follow-up responses in the form of letters print and broadcast editorials and was considered extremely successful In January of this year we took our success story to an NEA conference of state public relations directors What ~e found was very interesting Many of our state representatives were enthusiastic about a comprehensive broadcast project Many had already produced their own very successfully But just as many-related stories of frustration, confusion, and despair regarding the use of radio and television for educational goals We returned to Washington armed with a long list of questions from small markets to large With the help of the FCC Consumer Assistance Office the chief of that office having attended and addressed our conference, a member of our staff met with three people here at the Commission. Interviews were con- ducted with individuals from the Fairness and Political Broadcast Branch the Complaints and Compliance Branch and the Renewal Branch Our questions basically dealt with the areas of the fairness doctrine and Section #315 Public Service Programming and Ascertainment Procedures We found the staff at the Commission extremely cooperative and willing to spend as much time as necessary to answer our questions We decided that we needed a compr~hens~y~ Broadcast Access Project Something we could use to train our teacher leaders PAGENO="0427" 1891 The project consists of three parts: A pilot workshop for teacher leaders to find out how much they knew about their rights to broadcast accessj -- a survey of broadcasters to find out what they felt their responsibilities actually were to the public, and therefore to our teacher organizations; -~ and finally, a survey of our state ~ommunicati~ns directors to determine actual examples of problems and successes with radio and television stations around the country. The purpose of this project would be to eventually supply our local and state associations with enough information so that they would have realistic expectations regarding their participation on radio and television. After we conduct a final survey of more broadcast markets, we plan to share this informatior~ with~ our members through our publications and through seminars, workshops, and con- ferences which we conduct throughout the country. The pilot workshop was held in Austin, Texas in February 1977, where local teacher leaders were meeting to learn about communicatioms, A staff member from our Washington Communications office discussed some of the questions which were asked at the FCC. A video tape highlighted some of the most common problems which teachers (and the public in general) have in dealing with broadcasters. Ideas for this script had cone from the January Public Relations conference. The "WMAL American Education Week" success story was also explained in detail. The Texas teachers had a chance to ask their own questions and share their own experiences. Phase two of our project meant interviewing broadcasters. A PAGENO="0428" 1892 member of our staff interviewed e'