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Statement of Kathleen M.H. Wallman, Wallman Consulting, LLC

Before the U.S. House of Representatives Committee on Small Business

Subcommittee on Regulatory Reform and Paperwork Reduction
June 8, 2000

Chairwoman Kelly and Members of the Subcommittee:

Thank you for the opportunity to participate in today’s hearing addressing the quality of federal agency analyses concerning regulatory impacts on small businesses and whether Congress needs additional tools for sound oversight of the Executive Branch and independent agencies. It is an important subject. How agencies implement the laws Congress has enacted, whether the law’s purposes are being fulfilled, and the costs and burdens that result, all indicate the effectiveness of our democratic processes.

My statement addresses the experience of a particular kind of small business — rural telephone companies — and offers some observations about regulatory impact analyses based on my work with them in different capacities. I have worked on these issues most recently as an adviser to small companies and their Washington representatives, and while in government as Chief of the FCC’s Common Carrier Bureau and at the White House at the National Economic Council. With the expanding telecommunications industry and reforms enacted by the Congress in 1996, the regulatory environment, a great deal of which is shaped at the FCC, is of critical importance to both the companies involved and their customers. Circumstances over the past years have imposed significant challenges and strain upon rural telephone companies.

Rural telephone companies provide critical telecommunications services to their customers. Their role in bringing advanced telecommunications services to all Americans is vital. Provision and access to advanced telecommunications holds a pivotal place in enhancing the quality of life in education, healthcare, and the overall economic well being of a region. Serving small towns and rural areas, many rural telephone companies are family owned, some cases for multiple generations. Most rural telephone companies fit easily into the category of small businesses and do not have resources devoted exclusively to federal regulatory matters.

The Regulatory Flexibility Act, passed in 1980 and amended by the Small Business Regulatory Enforcement Fairness Act in 1996, requires federal regulatory agencies to consider the impact of proposed regulations on small businesses and their customers, as well as to propose alternative rules for small companies. The RFA, as amended, was designed to change the culture of rulemaking, to assure that the interests of small businesses are considered at all stages in the rulemaking process in a substantive way. The question is how well is it working? My own view is that it is starting to work in some ways, that its implementation can be improved, and that some greater congressional involvement in oversight could be beneficial.

Rural Telephone Companies, the Telecommunications Act of 1996, and the Federal Communications Commission

There are inherent difficulties in trying to implement regulations that affect rural telephone companies in a way that is sensitive to the burdens that new regulations impose. One such difficulty is the inescapable complexity of common carrier regulation. Today’s common carrier regulation is the result of decades of federal and state legislative and regulatory action. There are few people in the country who really and truly understand it. There is some hope that this area will become less complex as competition diminishes the need for regulation, but that is unlikely to happen very quickly. A topic for another day would be to consider what dramatic deregulatory and "de-complexifying" steps regulators and Congress could take. But that is for another day.

Another inherent difficulty is the fact that many of these complex regulations were adopted, at least in principle. to help rural telephone companies and their customers. In assessing the impact of regulation on these small businesses, one thing that weighs on the plus side of the progress that has been made is that some of the additional regulations adopted that have an administrative impact on rural telephone companies actually benefit these businesses. One wants to criticize only very carefully a process that produced a useful result.

Another difficulty is the reality of the enormous workload of the FCC and the challenges that rural telephone companies, as small businesses, face in making their voices heard. In 1996, Congress enacted fundamental reforms in the regulation of telecommunications. The Telecommunications Act of 1996 established a national policy of competitive markets for telecommunications services, a dramatic change from the historic regulated monopoly environment. The law committed substantial responsibility to the FCC to implement a competitive environment in all markets, including local and interstate service. While embracing competitive markets, Congress also recognized that there were areas where investment in service would not otherwise be possible except for the various support mechanisms, commonly referred to as universal service, that had existed. The Congress instructed the FCC to reform and make explicit the universal service regime.

Congress recognized that many of the provisions of the 1996 law should not be applied, at least not initially, to rural telephone companies. Yet many of the provisions are general, and leave to the FCC the responsibility to implement and structure how and to which entities the provisions would be applied. The law’s direction of competition, and the steps necessary to implement this important goal, often conflict with the circumstances rural telephone companies face, where competition has been unevenly introduced, if at all. At the same time, provisions of the law, most significantly those encompassing universal service, were directed specifically to the needs of rural telephone companies and their customers.

The FCC is an agency of highly capable individuals, who take seriously the public trust committed to them. The energy and competence of those who work at the FCC reflect that which is envisioned of an expert independent agency. Regrettably, the agency has limited resources; there are not enough individuals to carry out its numerous responsibilities. This is one element that any examination of whether the necessary analysis is being fulfilled must include. In other words, Congress must weigh alternatives such as specifically targeting resources to help the agency do a better job of implementing regulatory analyses or making clear where the agency need not regulate.

Under these circumstances, rural telephone companies have faced formidable challenges. The resources needed to monitor and advocate each pending proceeding, which during the FCC’s initial implementation of the Act reached across each bureau of the agency, were far beyond the resources of most companies to do so individually. Virtually every proceeding affecting rural telephone companies, involved not only all other telephone companies, both local and long distance, but the range of interests constituting the entire telecommunications industry, whether it be manufacturers, cable operators, Internet Service Providers, television and radio stations, or satellite companies. When rural telephone companies advocated, they competed with the largest of the Nation’s corporations.

These factors, as well as the fact that many of the proceedings had statutory timeframes, tempered significantly the ability of rural telephone companies to have their views heard and considered. It is a problem not only of the agency being aware of an issue, but more importantly, having the rural telephone company interest saliently recognized and prominently considered throughout a rulemaking process. This is not always easy to achieve and sustain for the full range of issues that are of interest to rural telephone companies.

Obtaining Substantive Advocacy

Efforts taken to enhance opportunities for small business to participate actively in rulemaking proceedings are often viewed as having fallen victim to the breadth and range of interests involved in even the smallest of these rulemaking proceedings. It is a legitimate concern that the analysis the RFA requires of the agency has become more of a process than a substantive examination of the costs and benefits a particular rule has on small businesses. Yet, even here, the FCC must be credited with good faith and some real progress. The FCC’s analyses are now acknowledging the status of rural telephone companies as small businesses; previously, there had been a more general treatment of rural telephone companies as incumbents, which are not necessarily small businesses.

It is, however, a problem of more than an agency not articulating adequately what small businesses are involved in a proceeding and taking steps to give these entities notice of an action. Even if the entities involved are enumerated, the goal should be for the agency to engage in a substantive examination of whether policies behind a particular rule should be applicable to the small business, in light of the costs and burdens that will be imposed. Ideally, comprehension of the issues should be present before a rulemaking is initiated. The agency must be in a position to have sufficient information when it frames issues surrounding a proposed rule. It then becomes an easier task to assess the effect a rule will have, and make a decision as to whether it is worth the burdens and costs associated with it.

I am inclined to think that the goals of the RFA, as well as that of H.R. 3669, would more likely be met if the agency confronted the policies and the burdens, and made a determination, even if it is contrary to the interests of rural telephone companies. Congress’ oversight role would be fulfilled by its examination of the balance that is chosen and can then determine if the law should be changed. Instead, what generally has evolved, is that the policies behind the rule are often weighed against the industry in general, and not particular entities such as rural telephone companies.

With substantive examination of the cost and burdens imposed on small businesses the goal, the question is one that in view of the limited resources of both small business in general, and to some degree the agencies themselves, how can the rulemaking process approach such substantive debate thereby enhancing the rulemaking process and better informing Congress what decisions are made and how.

There is a danger in searching for a solution that results in the rulemaking process being lengthened. It is important to consider that virtually all rulemakings of many agencies, but particularly those of the FCC, meet any minimum impact standard, and frequently cross-over to other proceedings. Any agency that is called upon to review a regulatory proceeding and the rules that are promulgated will face a challenge in terms of its own resources, to keep abreast of what is transpiring. A more significant issue is whether the review will provide Congress, or the agency, a better insight into the issues that need to be addressed. The greatest challenge is not an agency deciding contrary to the advocacy of rural telephone companies, but not deliberating at all over the issues that are of concern. The goal is to assure not only that entities such as rural telephone companies have an opportunity to advocate their interest, but also that the agency starts with a comprehension of their concerns.

The short answer is to ask the entities most impacted. On some ongoing basis, the agency should advise representatives of particular interests, what actions are pending and the timing of the proceedings. While the Federal Advisory Committee Act provides a formal means, more flexible and less formal structures would serve more effectively. The goal of the agency would not be to obtain positions on an issue, but to communicate the substance and direction of its rulemaking so that interested entities can react and provide views.

The FCC has undertaken some efforts in this regard. Representatives from state, county and local governments meet on a regular basis at the FCC to discuss with the Commission staff pending proceedings and issues. The Rural Task Force has provided a useful forum for the productive exchange of ideas. Ultimately, such effort will engender a better comprehension of the interests and concerns from the start, thereby allowing the agency to comprehend and articulate the issues more effectively. This, in turn, will also allow opportunity for more substantive comments and debate.

The Subcommittee should be commended for its actions in this area. It is a difficult area, where the balance must instill enough accountability in an agency to carry out Congress' intentions, yet not do so in such a degree that the rulemaking process is delayed or the significant debate that already pervades most rulemakings is undermined.


© 2002 Wallman Consulting, LLC