The Center for Public Integrity

A former Federal Communications Commission bureau chief who played an integral role in shaping policies governing local telephone competition is now a senior vice president for federal regulatory strategy for SBC Communications, helping the telecom giant reshape the rules she helped draft.

Dorothy Attwood, former chief of the FCC's Wireline Competition Bureau, quit the agency on Sept. 15 of last year and began work at SBC Nov. 1.

Attwood has met with senior FCC officials a total of four times since she's been with SBC, including meetings with FCC Chairman Michael Powell's "senior legal adviser" on Jan. 22, Jan. 28 and Feb. 3 to discuss competition-related issues. On Jan. 31, she met with new FCC Commissioner Jonathan S. Adelstein. That meeting was also to discuss competition issues, according to FCC documents.

Adelstein is considered a key swing vote in the debate over new rules on how much regional telephone conglomerates such as SBC can charge competitors for using their equipment and networks. The vote was initially scheduled for Thursday, Feb. 13, but has been delayed until Feb. 20.

SBC and the other three regional Bell operating companies have been involved in a bitter fight with AT&T and other long distance companies over rules that stemmed from the Telecommunications Act of 1996. The law was supposed to create competition in local phone markets by forcing the Bell companies to open up their systems and equipment to competitors. Once the systems are declared open, the Bell companies are permitted to enter the long-distance market.

Two of the most powerful members of Congress who oversee telecommunications issues have started investigating financial shenanigans within the government's controversial E-Rate fund.

The probes were announced following the release of a Center for Public Integrity report chronicling fraud and a lack of proper government oversight of the $2.25 billion program, which provides hefty discounts to help connect schools and libraries to the Internet. (See the Center report, which drew on documents acquired under the Freedom of Information Act and an FCC Inspector General's investigation.)

House Energy and Commerce Committee Chairman W.J. (Billy) Tauzin, R-La., has started a preliminary investigation into charges the program lacks adequate oversight to prevent fraud.

"Schools are hooked up to the Internet for free and the federal government is robbed blind," Tauzin spokesman Ken Johnson told TRDaily, a telecommunications industry newsletter. The Louisiana congressman has been a longtime critic of the E-Rate program.

On the Senate side, the incoming chairman of the Senate Communications subcommittee said one of his top priorities during this session will be reform of the program.

Sen. Conrad Burns, R-Mont., said he will lead the way on reforming the program. "We obviously have a big stake in this because of the large number of rural schools in Montana," Burns told Medill News Service.

The chief congressional architect of the E-Rate fund, Sen. Jay Rockefeller, D-W.V., said the problems were overstated and that he would stand behind the program.

Rockefeller told the Charleston Daily Mail he is much more worried the Bush administration and the new Republican Congress will seek to kill the program.

On Jan. 16, 2003, Charles Lewis, the executive director of the Center for Public Integrity, addressed the Forum on Media Ownership at the Kernochan Center for Law, Media and the Arts at the Columbia University School of Law in New York City (see Webcast of the event). Lewis prepared remarks for the event which, because of the time constraints, he had to summarize. We reprint his full prepared remarks here.

Thank you for inviting me to speak this morning about the Media Ownership Rules currently under review by the Federal Communications Commission.

The Center for Public Integrity is a nonprofit, nonpartisan research organization based in Washington. We investigate public interest, public service and ethics-related issues, including distortions to the political decision-making process, and we have produced more than 100 reports and 10 books since 1990. Our work has been honored by the Society of Professional Journalists or Investigative Reporters and Editors 11 times since 1996. Before founding and directing the Center for Public Integrity, I was an investigative reporter and producer for 11 years at ABC News and the CBS News program 60 Minutes.

The Center for Public Integrity does not advocate for or against government laws or legislation. The federal government in September proposed the most significant change ever in the rules regarding ownership today of the American media. It is not my purpose or prerogative today to substantively discuss those proposed rules or their impact, but instead to sound a cautionary note about the process itself.

A $2.25 billion federal program that helps schools and libraries connect to the Internet is honeycombed with fraud and financial shenanigans, but the government officials in charge say they don't have the resources to fix it.

A Center for Public Integrity investigation reveals the huge program, funded by everyone who pays a phone bill, is in financial disarray.

A new report to Congress on the fund by the FCC Inspector General's office says the program, known as the E-Rate fund, is virtually out of control. (The full report is available at the FCC's website.)

"It's not unfair to say we have found something wrong everywhere we have looked," says Tom Cline, an auditor in the FCC Inspector General's Office. "It appears to be both intentional and unintentional."

The Universal Service Fund was originally created to help rural areas get phone service at affordable prices. In 1996, the fund's mission was expanded to help schools and libraries connect to the Internet. The fund comes from a fee added to the phone bills of millions of Americans and controlled by a telecom industry-dominated, non-profit corporation sanctioned by the FCC.

Program officials last month began denying or delaying applications involving IBM Corp., by far the largest recipient of the fund's largesse. Program officials said they were taking the action because the schools, libraries and/or IBM had not followed proper competitive bidding procedures, rules that usually act as the first line of defense against fraud and financial mismanagement in such government programs.

"The whole program is based on a competitive bidding process," says Mel Blackwell, a spokesman for the E-Rate program. "We found many of the applications involving IBM had problems in that area."

An IBM spokesman says the action caught the company off guard.

When the Shays-Meehan campaign finance bill came up in the House last month, the 19-hour debate included no fewer than 14 amendments, designed for the most part to weaken or kill the campaign finance reform package. Supporters of the bill fought off 11 of them.

The amendment stripped language from the bill that would have cost broadcasters millions of dollars in revenue. It passed by an overwhelming 327 to 101 margin.

The vote ended an attempt to mandate discounted rates for political advertising, and to prevent broadcasters from bumping political advertisements to other time slots when a commercial advertiser makes a better offer.

The cost of campaigns has skyrocketed over the last decades in part because of the high costs of television advertising. Some have claimed that television stations force a candidate's campaign to pay outrageous rates so it can be assured its spots run during the evening news, as opposed to the 3 a.m. time slot when few viewers are watching.

Television broadcasters—both network and local stations—reaped a record $606 million from political advertising in 2000, a 34 percent increase over what was spent in 1996, the previous presidential election year. Those figures, prepared by Competitive Media Research, are released by the Television Bureau of Advertising, a not-for-profit trade association of the broadcast television industry. On its homepage, the bureau advises members that, "2002 promises to be a big year for political dollars."

As the new chairman of the Federal Communications Commission, Michael K. Powell can draw on his experience as an FCC commissioner in trying to navigate the arcane world of telecommunications policy and the closely knit group of high-powered, multibillion dollar companies that dominate the industry.

Powell has had the opportunity to witness and regulate some of the biggest mergers in the history of American industry, as well as to develop regulatory guidelines for cutting-edge technologies, such as broadband Internet access and a new high-speed wireless Internet bandwidth.

But Powell has another experience from which to draw: On-the-job training with one of the biggest players in the game.

According to Powell's personal financial disclosure reports and a company spokesman, one of Powell's major clients at his old law firm of O'Melveny & Myers was GTE Corp., an "incumbent local exchange carrier" that held a monopoly on local phone service in various communities across the country. GTE merged with Bell Atlantic to form Verizon Communications, now the nation's largest local phone company. FCC spokesman David Fiske told The Public i that, as an FCC commissioner, Powell never recused himself from matters relating to GTE or Verizon, including the merger that was completed in 2000.

A key Commerce Department official could face frequent conflict-of-interest issues because her office controls high-tech policies that affect a number of telecommunication and wireless firms for which she and her husband have worked.

As the new assistant secretary of commerce for communications and information, Nancy J. Victory also serves as chief of the Commerce Department's National Telecommunications and Information Administration. NTIA is responsible for a number of key policy issues affecting telecommunications companies, including what is known as "spectrum management."

Meanwhile, her husband, Michael Senkowski, remains the lead telecom and Internet partner at Washingtons premier communications law and lobby firm, Wiley Rein & Fielding, where Victory was also a partner. Many of the firm's largest clients are keenly concerned with how the Bush administration chooses to address spectrum management issues.

According to a federal conflict-of-interest statute regarding personal financial interest for employees of the executive branch, an employee who "participates personally and substantially as a Government officer or employee" in a "particular matter in which, to his knowledge, he, his spouse, minor child, general partner . . . has a financial interest," can be subject to criminal penalties, says Title 18, U.S. Code, section 208.

There are a number of ways by which Victory or any political appointee can avoid such penalties, including making the government agency aware of personal financial interests and being cleared by the agency should those interests prove unlikely to affect the integrity of the person's decisions.

In addition, Senkowski, a member of the District of Columbia Bar, might violate conflict-of-interest rules set by the bar, as his and his firm's clients could be heavily affected by federal legislation on spectrum issues about which his wife will be advising.

A pilot Internet voting project to encourage voter participation by Americans abroad cost the Pentagon $6.2 million and received high marks from its director, although it delivered only 84 votes in the November election and failed to address a key security concern, the Center for Public Integrity has learned.

Details about the two-and-a-half-year project come as the concept of cyberspace voting is taking a beating. A cadre of experts, including a national commission charged with improving the federal election process and the Pentagon itself, is questioning its feasibility because of the inherent lack of security on the Internet.

The "Voting Over the Internet Pilot Project" was overseen by the Defense Departments Federal Voting Assistance Program. It was an effort to improve voter participation for soldiers and overseas workers. Approximately 6 million Americans live overseas but are eligible to cast votes in the United States, according to an estimate by the Federal Election Commission.

Americans overseas vote by mailing in absentee ballots, a time-consuming and, at times, frustrating process. A 1996 post-election survey showed that approximately one-fourth of all military voters said they did not vote because their ballots did not arrive in time to be counted.

Votes cast in four states

The Voting Over the Internet Pilot Project was used in four states: South Carolina, Okaloosa and Orange counties in Florida, and in Dallas County, Texas, and Weber County, Utah.

In Florida, where overseas ballots were a critical issue in deciding the presidential election last November, there was more interest than in any other participating states. Of the 84 votes cast, 52 were from the Sunshine State. Okaloosa County received the most e-ballots of all the voting locations with 38 and Orange County was second with 14.

Pilot project volunteers were members of the U.S. armed forces.