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So, we must deal with it, and I am of the view that it cannot be done without legislation. There are too many telephone companies involved, and for this to succeed, the cooperation of all must be obtained.

I note the administration proposes to give these companies three years to comply with the FBI's needs and that the Government should reimburse these companies for the costs incurred. I think this is only fair.

But it is not clear to me how this is going to be paid for and at what cost. The proposal itself is open-ended in this regard and, in my view, this needs to be resolved at the outset.

I also find some of the provisions penalizing telephone companies who refuse to cooperate to be unnecessarily heavy-handed. If the Government pays the costs, I do not think it should take severe punitive measures to obtain their cooperation.

Having said all this, I return to my original proposition: the ability of the FBI to do wiretaps must be preserved. It is crucial to our ability to deal with terrorists, drug dealers, organized crime, espionage, and the other serious crimes which plague our society.

PREPARED STATEMENT OF REPRESENTATIVE DAN GLICKMAN I appreciate the opportunity to offer some comments for the record of this hearing on the issue of digital telephony.

For several years, the Mouse Intelligence Committee has been advised of the increasing concern of the Federal Bureau of Investigation about its ability to continue to intercept communications in the face of rapid advances in telecommunications technology. This concern is shared by other elements of the intelligence community. Electronic surveillance has proven to be an extremely useful investigative tool, particularly in efforts to counter the activities of terrorists, reduce the flow of illegal narcotics, and conduct effective counterintelligence operations.

The advent of digital telecommunications technology and its increasing use threaten the utility of court-ordered electronic surveillance in the conduct of intelligence and law enforcement activities. I do not believe that Congress intended for statutes such as the Foreign Intelligence Surveillance Act and the Omnibus Crime Control and Safe Streets Act of 1968 to be rendered impotent by improvements in technology: A way must be found to ensure that properly approved wiretaps can be emplaced despite the development of ways to more quickly and efficiently route telephone calls.

I regret that the government and telecommunications providers were unable to reach an agreement through which access to modern telecommunications networks could be assured. A legislative response to this problem must now be crafted, and I urge that it be done so expeditiously.

While I am not endorsing a specific legislative proposal, I believe that it is clear that the current ability of law enforcement and intelligence agencies to conduct lawful electronic surveillance activities must be preserved. Technological impediments which hinder the execution of court-ordered wiretaps must be removed. This will not require an expansion of existing communications intercept authority, but rather the development of a means to ensure that the utilization of that authority is not frustrated by the advance of technology. The costs associated with implementing a technical solution must be allocated fairly, and the solution must apply uniformly throughout the telecommunications industry.

The intelligence community has made the Committee aware of many instances in which court-approved electronic surveillance has provided essential information unavailable through other ways. A lack of access to this type of information will hinder a number of essential governmental activities. I urge the subcommittees to take action to guarantee the continued availability of this important means of gathering intelligence and detecting criminal conduct.

Mr. FREEH. I would also like to, if I might, acknowledge for the record the presence here of Kevin Patrick from the International Association of Chiefs of Police; Bud Meeks from the National Sheriffs' Association; Lisa Harris from the National Association of Attorneys General; Deputy Chief Krupo from the Major City Chiefs; and Bill O'Malley will be a witness before the committee.

I thank you very much for your courtesies.

Senator LEAHY. Thank you very much. We are going to skip over just for the moment Mr. O'Malley. As I was once vice president of

the National District Attorneys Association, I will assure Mr. O'Malley he is going to get to testify, but I do want to accommodate Senator Specter, and we will go to panel 3 first.

Thank you very much, Director.

Representative EDWARDS. May I submit for the record this letter from the International Chiefs of Police?

Senator LEAHY. Chairman Edwards has a letter from the International Chiefs of Police, and that will also be made part of the record.

Mr. Neel, you are to lead off on this. PANEL CONSISTING OF ROY NEEL, PRESIDENT, U.S. TELE

PHONE ASSOCIATION; AND JERRY BERMAN, EXECUTIVE DIRECTOR, ELECTRONIC FRONTIER FOUNDATION, ON BEHALF OF THE DIGITAL PRIVACY AND SECURITY WORKING GROUP, ACCOMPANIED BY RONALD L. PLESSER, PIPER & MARBURY

STATEMENT OF ROY NEEL Mr. NEEL. Well, thank you, Mr. Chairman. I would be happy to do so. I appreciate this opportunity that you and the other chairman have extended. I would also like to echo what Congressman Hyde said about our disappointment at the retirement of Congressman Edwards. He will be missed.

I will summarize my remarks. You have my entire statement, and I will try to be brief to allow some time for questions.

It is not great fun to be here opposing a proposal that Director Freeh has put forth. He is certainly one

of the major stars in this administration, and we are all pleased that he is there. But oppose it in its current form we must for a variety of reasons. I think the Director himself pointed out that there has been virtually no instance where a local telephone company has failed to cooperate with wiretap requests. Some, for technical reasons, have not been as smooth as perhaps both parties would like.

The FBI's own survey, which was obtained in a Freedom of Information request, showed, that there were “no instances in recent years” where there were problems here. In fact, Senator Specter's headline from the Inquirer I think is brilliant testimony to the fact that there has been clear cooperation between law enforcement and local telephone exchanges to pull off that success story.

It is extremely important that the public maintain confidence in the privacy of the national telephone system. You are going to hear more from Mr. Berman on that point, but just as Senator Leahy pointed out, the vast majority of Americans, telephone customers and everyone, remain concerned about the potential for a breakdown in privacy, and I think that is going to only increase.

The problem here is that this proposal does, in fact, dramatically broaden the ability of law enforcement to gain access to a much wider range of information about customers. I know the Director has noted that he does not want that information about what video rentals are being ordered and so on. But the fact is that, in part because certain providers are exempted and in part just because of technology and in part because of the FBI's expectation that they will need access to this so-called setup information that would be required under this proposal, it would be extremely difficult to fer

ret out the kinds of information that the Director says he does not want. And it is not easy to simply fix that.

One of the most disturbing aspects about this proposal is that it, in effect, forces the local telephone company to become the agent of law enforcement. That is quite a dramatic change in the relationship that we have had for all these decades in which we have had an arm's-length relationship between the local telephone company and law enforcement.

The scenario that Senator Leahy pointed out where you had a small telephone company in Vermont with five employees, the Director essentially said that a simple software fix would take care of any access problems and those employees could be at home asleep, we are not so sure that is the case. And, in fact, we believe that this proposal could very well force not only big telephone companies that do have substantial resources but also the very smallest telephone companies to maintain the kind of personnel capability that would allow law enforcement to get into a network when and where they wanted, real time, 24 hours a day.

Now, that says to me that just about any telephone company is going to have to have at least three people to maintain an aroundthe-clock access to that network at a risk of $10,000 a day fines.

I think we cannot shove the issue of cost under the table here. No one wants to put a price on law enforcement's ability to fight crime. Surely that is not your objective, and I do not think the telephone companies would want to do that as well. But an estimate of $300 to $500 million to implement this proposal, perhaps as much as a billion, as the Director pointed out, is in our estimation terribly low. We have information-and I think it has been widely discussed—that the cost of fixing only one aspect of this, which is the originating end of call forwarding, could be as much as $1.8 billion alone just in the short term. So it is important to know that this is not going to be a small drop in the bucket here.

It is also, I think, significant that this proposal would not appropriate any money for this purpose and that there is no authorization to spend money beyond 3 years. And I do not know anyone in this industry that believes that this problem can be fixed only during a 3-year window and then after that that it is a no-brainer. The fact of the matter is the lead time to develop technology that is typically deployed in the national telephone network is about 5 years or even longer. So it is hard to imagine that we could do this in the 3 years envisioned in this proposal and at the cost that it suggests.

Another very sensitive issue here is compensation. The Agency has now agreed that the local telephone company ought to be compensated for fixing these problems because, in fact, the only option there is that the local ratepayers would have to pay for these fixes. But the problem is where there have been cases where law enforcement is bound to pay these costs, getting those bills paid has been very difficult. And while a large telephone company might be able to absorb that, in fact, might even be able to write it off to avoid the public relations problem of suing law enforcement for compensation, a small company might have a very hard time meeting its balance sheet if it has to wait on a contested bill for a long period of time. And, in fact, this proposal suggests that law enforce

ment, the Justice Department, would decide what is a reasonable cost. So there would be no incentive really to pay these bills either on time or in the form they were presented. And I do believe that this would create a real hardship for smaller companies.

There are any number of cases where this has been an issue, and we would be happy to provide some of those.

There are so many other services that are going to be part of this network, and the Congress is already moving to open up these exchanges to competition. You want the local telephone company to face competition for all kinds of other providers. So we can expect a proliferation of such local providers getting into this business, private line services and so on. I think Senator Leahy asked the Director about the problem of narrowing the focus and exempting systems like PBX systems, motels and hotels, Internet was mentioned, Prodigy and so on. And the Director was very forthcoming on that, that it was narrowed and those kinds of services were exempted to avoid the kinds of problems that you might have in enacting this proposal—in other words, to take out of the picture the opposition from a number of technologies and companies and so on who might oppose this. And he said, of course, in a perfect world they would be in there.

The fact of the matter is that by exempting these other kinds of services, the ones we know now and the ones that we are certainly going to have in the future, we dramatically, I think, restrict the ability of law enforcement to go after the kinds of transactions, whether voice or data, that they will need to get at. It has been said by some in the administration I have seen quoted that criminals are stupid. But the fact of the matter is they are not so stupid that if they know they have a safe harbor to put a phone call in, to transact some sort of criminal business, if they know that it will not be tapped if they go over here and do it, then I am not so sure they are so stupid as to stay on the network where they know the conversation will be tapped.

Not only do we have all these current technologies and services, we are certain to have all kinds of new services that would be exempted from this. For instance, in addition to cable television that we have referred to, all the utility-provided services that are just expanding like wildfire, railroad communications, and the PCS equipment that has been referred to. Perhaps the Director believes that they will have access here, but the problem is the rest of the Congress is seeking to either deregulate or to make competitive these other kinds of services that would, in effect, make them not common carriers under the kind of scheme we are envisioning here. So there could be very large holes in the coverage of the Agencies' access to conversations and data. So I think that is not unimportant, and if there were to be such a plan put in place, it would clearly need to be universal in its coverage.

There has been reference to the effect on new technology here. I would certainly agree with the Director that this proposal would not stop the development of the information superhighway that you and our industry and certainly the administration want. The practical effect of this proposal would be a severe stifling of new technology and services and so on.

You have to remember that the telephone company does not just decide everything that is going to be developed, produced, manufactured, and marketed for a national telecommunications network. All of these new services we are talking about, most of them were, in fact, developed by entrepreneurs, small, medium, and large companies. So you have to consider the specter of anyone who would develop a new product, creating jobs and enhancing this network, having to make absolutely sure that this technology, this service, this product, is compatible with the Justice Department's technological requirements, which unfortunately are quite vague. It is difficult to manufacture to an ambiguous standard like this.

Turning the Justice Department into some sort of technology product certification office is not something I think that you would want, nor would we; moreover, they would have little incentive in accelerating the deployment of these technologies because of the various concerns the Agency has had.

I would not go so far as to say that it would seriously diminish our ability to export products, but it would clearly put a damper on the enthusiasm of entrepreneurs to develop products to deploy on this network if they are facing such severe sanctions if they just happen not to fit.

Now, we have talked a lot about the problems in this proposal. It is not unfair to ask what we would propose to fix this. The problem with the Agency's

proposal here seems that there is some kind of magic wand that can be waved to solve this problem simply by decreeing that the local telephone industry shall fix this problem for everyone, even for providers that they cannot legally tap into, is a little unrealistic. A year ago, the General Services Administration pointed out that this proposal, as presented in an earlier form, was simply unnecessary.

We believe that what the Congress might want to do and, in fact, what the Agency should do is simply redouble its effort with the so-called Quantico Group. The FBI now. cochairs this group and one of its major subgroups. I think that while the dialog has been going on for 4 years, this working group has only had about a year to work. So to essentially walk away from that experience, that cooperative industry-government activity, is a little bit like Michael Jordan being behind in the first quarter and saying, well, you know, we are just going to take the ball and leave the court.

The fact is you just redouble your efforts, work through these problems and go on. And I think it is not unfair to say that no matter what you do, even if this proposal were to become law, that does not fix the problems. You still have to have these kind of industry-government relationships to come up with the actual solutions. We are absolutely committed to that. [Mr. Neel submitted the following:) PREPARED STATEMENT OF ROY NEEL ON BEHALF OF THE U.S. TELEPHONE

ASSOCIATION Thank you, Mr. Chairman. I am Roy Neel, President of the United States Telephone Association (USTA).

USTA represents more than 1,100 local telephone companies ranging in size from the Regional Bell Operating Companies to small companies with fewer than 100 subscribers. Although many of the member companies of USTA have interests in a variety of businesses, USTA represents only their traditional telecommunications

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