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U.S. SENATE,
COMMITTEE ON THE JUDICIARY,

Washington, DC, March 24, 1994.
Mr. CHARLES A. BOWSHER,
Comptroller General,
General Accounting Office, Washington, DC.

DEAR MR. BOWSHER: I am writing as Chairman of the Senate Judiciary Subcommittee on Technology and the Law to request that the United States General Accounting Office review the Federal Bureau of Investigation's (FBI's) proposal to amend current wiretap laws to ensure law enforcement's capability to conduct courtauthorized electronic surveillance in light of advanced telecommunications technology. A copy of the FBI's proposed amendments is enclosed. This proposal differs from proposed legislation circulated by the FBI in 1992 that your office evaluated in a report, dated July 17, 1992. As part of your review, please evaluate the following aspects of the proposal: 1) Effect of Proposal on Embedded Telecommunications Systems—Under the pro

posal, common carriers must ensure the government's ability to isolate and get concurrent content information "notwithstanding the mobile nature" of the targeted communications or other features used by the subscriber. Please evaluate the extent to which this requirement may force redesigns of the cellular telephone system and current designs for emerging personal communications services (PCS) and other radio frequency-based mobile communications services to permit court-authorized wiretapping. Please include in your evaluation whether redesigns of these systems and services to guarantee

wiretapping capability will be as efficient and cost-effective for consumers. 2) Cost-Under the FBI's proposal, the government will reimburse common car

riers for reasonable and cost-effective charges incurred to comply with new requirements within three years after enactment. The FBI estimates that the cost of retrofitting current telecommunications systems and equipment to meet the proposed requirements is about $500 million, but industry disputes

this figure as too low. Please evaluate the estimated cost of modifying existing networks, services, and features to comply with the FBI's proposed requirements over the next three years, and the costs of incorporating these requirements into future designs for networks, services, and features. 3) Enforcement Mechanisms—The FBI's proposal empowers the Attorney Gen

eral to enforce law enforcement's wiretapping requirements by seeking injunctive relief, $10,000 per day in civil penalties, and by consulting with the Federal Communications Commission for additional sanctions or fines. The proposed requirements are absolute and contain no flexibility for reasonable efforts to comply. Please evaluate whether, because of the penalties, this proposal will effectively give the Attorney General the ability to veto new tele

communications systems or features. If you have any questions, please do not hesitate to contact Beryl A. Howell at 202-224-3406. Thank you for your prompt attention to this matter. Sincerely,

PATRICK J. LEAHY,

U.S. Senator. Senator LEAHY. I would note regarding the cost estimates for switches, that we should not lose sight of the fact that as technology changes, and it is changing very rapidly in telecommunications, some of these switches would change anyway. It is not simply a case of assuming that under the bill every single switch has to be replaced overnight.

Ms. EDWARDS. That is right.

Senator LEAHY. I think you made that point clear, that as technology changes and switches are being replaced for whatever reason, such as changes in technology, wear, or anything else, this should be taken into consideration.

Mr. Neel, I am delighted to have you here. You and I have worked on telecommunications, privacy and other issues for a long, long time. I am glad to have you here. STATEMENT OF ROY M. NEEL, PRESIDENT, U.S. TELEPHONE

ASSOCIATION Mr. NEEL. Thank you, Mr. Chairman.

Like Director Freeh and others, I want to thank you and Chairman Edwards and your able staffs in working so hard on this. There has been a lot of time devoted to it. It has been a difficult balancing act and your staff has really done a Herculean job trying to figure all these things out.

It is true that this legislation that you have introduced is a significant improvement over the original administration proposal, particularly in the areas of extending the transition period to 4 years, requiring that the Government reimburse carriers in perpetuity for the costs of expanding capacity to meet law enforcement's needs, improvements in the reasonableness standards, and a number of the privacy considerations. These are all important improvements and we appreciate that.

But as I testified in March, we are still not sure that this kind of legislation is really necessary, beyond, of course, appropriating the kinds of funds that will be necessary for law enforcement to purchase the technical capacity and capabilities from the telecommunications carriers.

Law enforcement authorities already tell us they have the authority to force communications carriers to make these transmissions wiretappable, and as many have said, we have been working with Government to try to figure out these technical solutions. In fact, whether this legislation becomes law or not, this kind of cooperative effort will have to continue.

I think it is important to remember the history of this relationship. We understand there are only about 1,000 court-ordered wiretaps a year, about half of these in New York City's metropolitan area alone, and about a quarter of them involving cellular technology, and half of those in only two States. So the incidence of the demand here is somewhat isolated.

We are concerned that this legislation would create a ubiquitous demand for this technology throughout the country, affecting all manner of compliance problems for telephone companies where there have never been wiretap requests.

Contrary to the testimony, or at least somewhat different from the testimony of the Director, we don't know of any instances where our companies, where telephone companies, have refused to assist law enforcement to accomplish a legal wiretap order. His testimony indicates that they found 183 instances where there have been problems. We may just disagree on the semantics involved. We would very much like to see that list and those examples and try to help work through them, if possible.

Moreover, our companies spend a great deal of money routinely complying with law enforcement requests with no reimbursement. One of our companies alone in an area with only moderate requests spends well over $3.5 million a year routinely meeting these requests.

technologies of creating a adequate trades frankly. If inte

Our concern with the draft

Senator LEAHY. Let me just make sure I understand. The $3.5 million is spent by the company with no reimbursement from the law enforcement, Federal, State, or anybody else?

Mr. NEEL. Correct. These are just routine costs of meeting courtordered compliance.

Our concern with the draft, despite the fact that it is much improved, centers around three main issues. First of all, the scope of coverage. We still think there is a problem in exempting certain types of carriers serving certain kinds of markets. We think that represents some safe harbors for criminals, frankly. If law enforcement believes that is an adequate trade-off to make, there is still the problem of creating a kind of competitive disparity because the technologies that serve those kinds of customers essentially being exempted from these requirements incur fewer costs and represent to customers a more secure network for them. So there is something of a problem there.

We think there needs to be more clarity on the issue of reasonableness

[Interruption. Coughing by Senator Leahy.]
Mr. NEEL. It's been a tough day.
Senator LEAHY. It's not the testimony. (Laughter.]
Mr. FREEH. You're not allergic to me, are you?

Senator LEAHY. It's that stern look I was getting from Jim Kallstrom back there. (Laughter.]

He's always scared the hell out of me. (Laughter.] Mr. NEEL. Well, let me go on. We believe there still needs to be further clarity on the reasonableness standards, and essentially what I mean is while the legislation does create safe harbors to a certain extent where companies could deploy technology or consider it without facing fines, we do think there needs to be some clarity to ensure that a company won't face huge problems from law enforcement or that, in using your words, that technology will not be stifled. We think there are still some problems there.

But most important, and I think you have mentioned this, as has Ms. Edwards, we are very worried about the cost reimbursement question. We think that the $500 million estimate of the cost to build capacity and capability in every carrier's network is severely understated. As I noted in March, we believe that it will cost about $1.8 billion to solve the call-forwarding problem alone, and that is only one technology.

We also think it is unrealistic to cap at 4 to 6 years the reimbursement for capability. Essentially, the problem is this. If we take a snapshot right now, you might be able to predict, using services that are on the shelf, what it might cost to make those capable of wiretapping, but we are looking at a very volatile time. Just as if you had looked at the period from 1978 to 1982 and looked at this network, all you would have had to do is go to AT&T and ask for a cost estimate and order something to happen. In 1982, the Government broke up the telephone company and we had an explosion of new services and technologies and all the rules were thrown out.

Right now, across the street, the Senate this morning has taken one further step to blow up the telecommunications system as we know it by injecting more competition, more technological advancement into the network, and we don't have any idea what new products, services, and networks will come into existence.

What this legislation, to a certain extent, and what the administration, we think, has done is look at the nation's telecommuni. cations network using the old traditional model of a local monopoly and local carriers. We don't have that anymore. Already, there are any number of new kinds of telecommunications providers coming into communities and doing new things, some of which would escape the coverage of this.

Moreover, we don't think anyone wants to stifle the development of those things. If you have the fear of a problem, a legal problem, in deploying a new service or technology, the call forwarding of the future, if you will, you are going to be less willing to make massive investments in that if you are facing the very real legal problems of deploying it if there is no technological fix in place.

We also think that despite the belief of some that the cost to local carriers will never be de minimis, after 4, 6, 10, or 20 years. We think these costs will be incurred in perpetuity, not only to increase capacity, the reimbursement of which is covered in this legislation, but to build in the sheer capability of doing that.

We think the legislation also fails to take into account all the other issues that are at work right now in a competitive environment. We think there will be an explosion of new services and we hope those will be taken into consideration. That can essentially be fixed by taking the lid off of the time constraint for reimbursing carriers for putting capability into the networks.

We take these concerns of law enforcement seriously. We want to be part of the solution and we have some suggestions. As I mentioned, I think that the legislation should expand the coverage to include some of these private networks, hospitals, motels and hotels, and so on, the private systems that would otherwise be excluded.

We think you should clarify this reasonableness standard so local carriers, especially small telephone companies, won't fear massive fines and not be forced to install very expensive technology in the out years that they would otherwise not do.

Finally, we think that if you are going to have legislation, that it ought to provide adequate funding and extend the authorization of that funding beyond the 4 to 6 years. Those will make major improvements in legislation that has already improved considerably from the original proposal. Thank you. [Mr. Neel submitted the following:) PREPARED STATEMENT OF ROY NEEL ON BEHALF OF THE U.S. TELEPHONE

ASSOCIATION USTA, which represents more than 1,100 small, medium and large local exchange telephone carriers throughout the United States, commends Senator Pat Leahy and Congressman Don Edwards for their considerable efforts in working with industry, privacy organizations and law enforcement on this important legislation.

USTA has been an integral force in negotiations leading up to the introduction of this bill. In this regard, members of Judiciary Committee staff, particularly Jim Dempsey and Beryl Howell, have been remarkable for their patience and skill in brokering the many improvements over earlier drafts of this legislation. And we remain fully committed to working with Congress to develop a bill that will stand the test of time.

While this legislation is a considerable improvement over earlier versions, the legislation does not fully satisfy these criteria.

By exempting certain telecommunications providers and networks, the bill is biased against the public switched network. It lacks sufficient protection against unreasonable government requirements. It imposes new cost burdens on the nation's telephone companies, and may curtail investment in and deployment of new network services at a time when investment in the National Information Infrastructure (NII) is a matter of national policy.

IS THIS LEGISLATION NECESSARY? It is important to note that law enforcement authorities conduct about 1,000 wiretaps a year in the nation. Of those, roughly half are conducted in the New York City metropolitan area. About a quarter are cellular-based, and half of these occur in just two states.

As I testified earlier this year, the New York Times reported on March 1, 1994, that documents obtained through the Freedom of Information Act indicated that a survey of several FBI offices found "no instances in recent years in which FBI agents had encountered any technology-based problems in conducting wiretaps.” Indeed, where any difficulties have arisen they have been quickly and satisfactorily resolved. (See Digital Privacy and Security Working Group Interim Report, March, 1994, which outlines current law-activities in meeting law enforcement requirements.)

The area of most concern to law enforcement authorities is not in technological barriers to interception, but in capacity limitations in the wireless/cellular environment, where tremendous demand growth has limited the number of ports available to law enforcement for conducting wiretaps.

USTA maintains that legislation is not necessary. Telephone companies consistently have cooperated in good faith with law enforcement, and currently participate in a joint industry and law enforcement standards-setting body which already is addressing surveillance challenges posed by technological advances in telecommuni. cations.

USTA's concerns with this legislation are focused on three areas of the bill: 1) scope of coverage; 2) deployment of new services; and 3) cost recovery. 1. Scope and the Issue of Competitive Neutrality

ALTERNATIVE TELECOMMUNICATIONS PROVIDERS NOT COVERED BY THE BILL The bill covers only "common carriers," a term which is losing its traditional definition. The term also has different definitions in different states. The concept of limiting the bill to common carriers neglects significant classes of service and service providers who do not fall under the common carrier definition and yet provide competitive alternatives to the services offered by common carriers.

Competitive access providers, shared tenant services, and dozens of other telecommunications service providers compete directly with traditional telephone companies to offer services that look, smell and walk like "plain old telephone service (POTS)."

Every major metropolitan area contains dozens of these alternative telecommunications networks. (See the attachment, “New York City Buildings Connected to Competitive Telecommunications Service Providers.") The World Trade Center, New York Port Authority, University of Michigan, the State of Iowa, office buildings, and hotels-not to mention Internet-are but a few examples of such competitive communications networks. Many of these networks dwarf most of USTA's members' networks.

The millions of users of the Internet could in some cases escape the bill, too, because the bill exempts "free" (i.e., taxpayer financed) private networks. Nearly half of all data traffic in the nation travels over Internet networks. The service is growing by nearly a million users worldwide each month, but significant portions of this traffic are outside the scope of this legislation.

Another class of exempted telecommunications service providers is shared tenant services, which, as described by the FCC, "provide their users with local and interexchange basic service." (Policies Governing the Provision of Shared Telecommunications Services, CC Docket 86–9, Report and Order, 3 FCC Rcd 6931. December 6, 1988.)

Yet, they are exempt from coverage under this bill. We can identify who our competitors are and what their services are today. We cannot predict what new technologies and services will be developed in the future. Nor can we determine exactly how these existing services or their applications will

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