[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




 
                    BROADBAND ACCESS IN RURAL AREAS

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON REGULATORY REFORM
                             AND OVERSIGHT

                                  and

                   SUBCOMMITTEE ON RURAL ENTERPRISES,
                       AGRICULTURE AND TECHNOLOGY

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                   WASHINGTON, DC, MAY 17 & 24, 2001

                               __________

                            Serial No. 107-9

                               __________

         Printed for the use of the Committee on Small Business


                    U.S. GOVERNMENT PRINTING OFFICE
73-403                      WASHINGTON : 2001

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                      COMMITTEE ON SMALL BUSINESS
                  DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
ROSCOE G. BARTLETT, Maryland             California
FRANK A. LoBIONDO, New Jersey        DANNY K. DAVIS, Illinois
SUE W. KELLY, New York               WILLIAM PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio               DONNA M. CHRISTIAN-CHRISTENSEN, 
PATRICK J. TOOMEY, Pennsylvania          Virgin Islands
JIM DeMINT, South Carolina           ROBERT A. BRADY, Pennsylvania
JOHN THUNE, South Dakota             TOM UDALL, New Mexico
MIKE PENCE, Indiana                  STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California          DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri                 GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia          BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York       MARK UDALL, Colorado
TODD W. AKIN, Missouri               JAMES R. LANGEVIN, Rhode Island
SHELLY MORRE CAPITO, West Virginia   MIKE ROSS, Arizona
                                     BRAD CARSON, Oklahoma
                                     ANIBAL ACEVEDO-VILA, Puerto Rico
                  Phil Eskeland, Deputy Staff Director
                  Michael Day, Minority Staff Director
                                 ------                                

            Subcommittee on Regulatory Reform and Oversight

                     MIKE PENCE, Indiana, Chairman
LARRY COMBEST, Texas                 ROBERT BRADY, Pennsylvania
SUE KELLY, New York                  BILL PASCRELL, Jr., New Jersey
SAM GRAVES, Missouri                 CHARLES GONZALEZ, Texas
ROSCOE BARTLETT, Maryland            DAVID D. PHELPS, Illinois
TODD AKIN, Missouri                  JAMES R. LANGEVIN, Rhode Island
PAT TOOMEY, Pennsylvania             ANIBAL ACEVEDO-VILA, Puerto Rico
                Barry Pineles, Professional Staff Member
                                 ------                                

     Subcommittee on Rural Enterprises, Agriculture, and Technology

                   JOHN THUNE, South Dakota, Chairman
ROSCOE BARTLETT, Maryland            TOM UDALL, New Mexico
FELIX GRUCCI, New York               DONNA M. CHRISTIAN-CHRISTENSEN, 
MIKE PENCE, Indiana                      Virgin Islands
VACANT                               DAVID D. PHELPS, Illinois
                                     BRAD CARSON, Oklahoma
                 Brad Close, Professional Staff Member




                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 17, 2001.....................................     1

                               Witnesses

Nolley, Robert, Founder & President, Tubesock.Net................     5
Reich, Gene, Telehealth Coordinator, Avera St. Luke's Hospital...     8
Imus, Marvin, Owner, Paw Paw Shopping Center.....................     9
Linkous, John, Executive Director, The American Telemedicine 
  Association....................................................    12
Stark, Nancy, Director, National Center for Small Communities....    14

                                Appendix

Opening statements:
    Pence, Hon. Mike.............................................    65
    Thune, Hon. John.............................................    68
    Udall, Hon. Tom..............................................    71
Prepared statements:
    Nolley, Robert...............................................    74
    Reich, Gene..................................................    82
    Imus, Marvin.................................................    84
    Linkous, John................................................    92
    Stark, Nancy.................................................    98
Additional Information: Letter to Congressman Pence from 
  Congressman McInnis............................................   106

Hearing held on May 24, 2001.....................................    31

                               Witnesses

Cook, Michael, Vice President & General Manager, Spaceway & 
  Hughes Network Systems.........................................    36
Kelly, Thorpe, Sr. V.P., Western Wireless Corp...................    38
McAdams, Susan, V.P., New Edge Networks..........................    41
Houdek, Randy, Sulley Buttes Telephone Cooperative...............    43
Campbell, Kirby, CEO, Armstrong Group of Companies...............    46

                                Appendix

Opening statements:
    Pence, Hon. Mike.............................................   114
    Thune, Hon. John.............................................   117
Prepared statements:
    Cook, Michael................................................   121
    Kelly, Thorpe................................................   127
    McAdams, Susan...............................................   138
    Houdek, Randy................................................   142
    Campbell, Kirby..............................................   150
Additional Information:
    Prepared testimony of Thomas Cohen, Coordinator, Americans 
      for the Digital Bridge.....................................   169
    Prepared testimony of Bob Phillips, President & CEO, National 
      Rural Telecommunications Cooperative.......................   174
    Press Release of OPASTCO.....................................   179
    Letter to Chairmen from David Stephens, Chairman & Co-
      Founder, OnSat Network.....................................   182


    ECONOMIC DEVELOPMENT IN RURAL AMERICA, SMALL BUSINESS ACCESS TO 
                               BROADBAND

                              ----------                              


                         Thursday, May 17, 2001

        House of Representatives, Subcommittee on 
            Regulatory Reform and Oversight, Subcommittee 
            on Rural Enterprises, Agriculture and 
            Technology, Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 2:07 p.m., in 
Room 2360, Rayburn House Office Building, Hon. Mike Pence 
[chairman of the subcommittees] presiding.
    Chairman Pence. I would like to call to order this joint 
hearing of the Subcommittee on Regulatory Reform and Oversight 
and the Subcommittee on Rural Enterprises, Agriculture and 
Technology of the Committee on Small Business. This joint 
hearing is entitled Economic Development in Rural America--
Small Business Access to the Broadband. And I will be welcoming 
our guests individually, but as Chairman of the Subcommittee on 
Regulatory Reform and Oversight, I have a few brief remarks, as 
does my colleague and friend, Chairman of the other 
Subcommittee that serves as a host today, and then we will hear 
also from the Ranking Member of that Subcommittee before we 
receive testimony.
    Our hearing held jointly today with my good friend from 
South Dakota's Subcommittee on Rural Enterprises, Agriculture, 
and Technology addresses the new economy and the technology 
needed to ensure that rural areas can share in the global 
business opportunities that arise from continuing penetration 
of the Internet. This is the second in a series of hearings 
that the Subcommittee on Regulatory Reform and Oversight has 
held on the Internet-based economy. Today's hearing focuses on 
the so-called digital divide, the lack of high-speed or 
broadband access to the Internet currently plaguing rural small 
businesses and the importance that broadband access will play 
in the continued economic prosperity of rural small businesses. 
Next week, the Subcommittees will examine the technologies and 
providers who will help bridge the urban and rural digital 
divide. I would like to thank the gentleman from South Dakota, 
Chairman Thune, for agreeing to cochair these very timely and 
important hearings.
    Since the advent of the Industrial Revolution in England in 
the late 1700s, infrastructure development has been a key 
component of economic development. Location always has been a 
critical component for building infrastructure. Villages in the 
late 1700s that were not located near a stream that could be 
used for steam generation often missed the prosperity of the 
early Industrial Revolution. Towns in the late 1800s that were 
not served by railroads faced economic stagnation. Counties 
bypassed by interstate highways lost substantial growth 
opportunities as the economy moved from rail transportation to 
cars and trucks. Cities without adequate air transportation 
links cannot attract companies in a national and even global 
economy.
    Today communities that do not have broadband access to the 
Internet face the same barriers to economic development that 
communities, mostly rural, faced in previous generations when 
the mills, railroads, highways and airports passed them by. 
Without broadband access, rural communities will be unable to 
entice businesses that rely on the Internet to relocate and 
take advantage of the many qualities that rural communities 
offer. The other benefits, low crime, inexpensive housing, lack 
of traffic, clean air and a connection with one's neighbors are 
things that are missing in the booming metropolises of this 
country. All these things taken together are the competitive 
advantage of our small towns and of rural America at large.
    Broadband access also provides small businesses with new, 
more efficient ways to conduct their operations. There are some 
great examples of how technology is changing business in 
unexpected ways. Who would have predicted that ranchers would 
be transmitting bids in cattle auctions over the Internet? 
Finally, broadband access will provide rural communities with 
access to information and resources that at one time would have 
necessitated visiting or locating in metropolitan areas. 
Ultimately broadband access will invigorate rural economic 
development and not force young people in rural areas to leave 
home in search of the American dream.
    Rural areas and businesses should not be deprived of their 
opportunity to prosper because they do not have access to high-
speed Internet connections. The witnesses at this hearing will 
explain the vital role that broadband access plays or can play 
in their businesses. Furthermore, they will discuss the 
importance of broadband access to economic development in rural 
areas.
    I look forward to hearing from all of the witnesses today, 
particularly my own constituent Robert Nolley, the founder of 
the ISP Tubesock.net, who provides a valuable service to the 
residents and businesses of Shelbyville, Indiana, by bringing 
them access to the Internet.
    I will now recognize my cochair for this hearing, the 
gentleman from South Dakota, Mr. Thune, for his opening 
statement. After his opening statement, I will then recognize 
the Ranking Member of Mr. Thune's Subcommittee Mr. Udall. I 
would also take note that the Ranking Member of my Subcommittee 
Mr. Brady had a death in the family and could not be with us 
today.
    So with that I recognize my co-Chairman Mr. Thune for his 
opening remarks.
    [Mr. Pence's statement may be found in appendix.]
    Chairman Thune. I thank the gentleman from Indiana for his 
openings remarks and want to say good afternoon. It is a 
pleasure to welcome our panelists to this joint hearing between 
the Subcommittee on Rural Enterprises, Agriculture and 
Technology, which I chair, and the Subcommittee on Regulatory 
Reform and Oversight, which is chaired by my colleague from 
Indiana Mr. Pence. I also want to acknowledge Mr. Udall, 
Ranking Member of our Subcommittee, and appreciate his 
participation here today and am looking forward very much to 
the testimony we have before us.
    We want to thank those of you who have traveled long 
distances to be here to participate in this hearing.
    Today's hearing is the first of two hearings that will 
focus on the issue of broadband telecommunications access to 
rural America. This afternoon we plan to examine a critical 
role that small business access to broadband services will play 
in maintaining the economic health of our rural communities.
    Throughout our Nation's history there have been significant 
events that help connect all of America. In the 18th century it 
was the creation of the river and canal systems. In the 19th 
century the railroad system was built, and in the 20th century 
we spent significant energybuilding a national highway system. 
All of these transportation systems served to connect rural America and 
small business owners with the rest of the population and were crucial 
in bringing economic prosperity to our communities.
    Advanced telecommunication services are just as important 
to our future. As our economy becomes more and more dependent 
on the Internet for growth, we must ensure that rural America 
is not left behind. Without high-speed Internet and 
communications access, more sparsely populated areas will find 
it difficult to improve economically. Farmer and ranchers to 
health care workers and retail store owners, people are 
realizing that if they want to maintain a viable business and 
serve their community, they must have access to advanced 
telecommunications service. In addition, for States with 
predominantly rural populations, being able to offer the latest 
technology is crucial to luring new business and providing 
jobs. It is no longer enough to offer a probusiness 
environment. Advanced technology has to be available.
    Broadband access may also help to stem population loss to 
rural areas. Citizens will no longer be compelled to leave 
their towns and communities in higher paying jobs and 
challenging careers, and telecommuting may well become a 
reality for many workers in rural areas.
    I look forward to hearing from our witnesses and thank you 
all for participating in today's hearing.
    I also have a gentleman from my home State who I would like 
to introduce at the appropriate time. But I look forward to the 
testimony and the opportunity to address this issue and 
hopefully shed some light on what I think is a very important 
issue to rural America, and certainly to all of America. Thank 
you, Mr. Chairman.
    [Mr. Thune's statement may be found in appendix.]
    Mr. Udall. Mr. Chairman. Thank you very much, and welcome 
to the panel, Chairman Thune and Chairman Pence. I am pleased 
to be here today for our first joint Subcommittee hearing to 
examine the impact that broadband telecommunications services 
have on small business in rural areas.
    Over the last decade we have witnessed how the Internet has 
revolutionized our economy, the way we teach our children, 
provide medical services and even conduct our everyday business 
from shopping to communicating. However, about 86 percent of 
Internet delivery in the United States is concentrated in only 
the 20 largest cities. Rural America and its communities are 
not a part of the information highway and instead are in danger 
of losing ground to urban areas that can attract jobs and have 
access to affordable high-speed service and a strong 
telecommunications infrastructure.
    On August 3, 2000, the Federal Communications Commission 
released a report on the availability of high-speed and 
advanced telecommunications services. The report concluded that 
advanced telecommunications capability is being deployed in a 
reasonable and timely fashion overall, although certain groups 
were identified as being vulnerable to not receiving service in 
a timely fashion. Those groups included rural Americans, 
particularly those outside of population centers, low-income 
consumers, minority consumers and tribal areas to name a few.
    It is clear that rural America is in danger of becoming the 
other digital divide. Many small business men and women in our 
rural community recognize the need to engage in e-commerce to 
compete and survive in our growing technological economy. Rural 
communities recognize without a strong telecommunications 
infrastructure, recruiting businesses and building economies 
will be hard to achieve. However, even if technologies like 
broadband are deployed, communities like our Native American 
reservations that are without even the most basic 
telecommunications infrastructure will be beyond the far 
reaches of this technological leash.
    One of the questions we need to ask ourselves is will small 
business in rural areas with high-speed Internet access be more 
likely to find new market opportunities? That question will be 
hard to answer because we would have to assume that small 
businesses in rural areas know how to use e-commerce, have the 
training and skills to make it work, and that is a whole other 
ballgame.
    There are several legislative proposals that have been 
offered in Congress that address the concerns of broadband 
access and deployment. One bill would allow the Baby Bells to 
offer long distance data and voice services in their home 
areas. However, there are no guarantees that if this were to 
occur that the Baby Bells would deploy this service to the most 
rural of rural areas.
    A second piece of legislation, which I am cosponsor of, 
H.R. 267, the Broadband Internet Access Act of 2001, would 
offer incentives for deployment of broadband service to rural 
and low-income areas. This legislation would offer a two-tier 
tax credit for investments that provide next-generation 
broadband service to all other areas of the country except 
urban business areas, and to encourage providers to act 
quickly, the credit would be limited to broadband service 
deployment in the next 5 years.
    The Internet holds an endless amount of potential for small 
business as well as for parents, teachers, doctors and farmers. 
Through the use of the Internet, doctors are using telemedicine 
to help cure and save lives. For those who live in rural 
communities, telemedicine would allow rural hospitals to 
effectively treat patients and receive expert medical advice 
with no degradation of patient care.
    Beside the deployment of broadband to rural areas, we 
should make sure we address other areas of concerns that small 
businesses have with the Internet, such as security, privacy, 
construction and maintenance, intimidation, and how to fully 
participate and utilize e-commerce applications in its business 
practices.
    Thank you both, Chairmen Thune and Pence, and I look 
forward today to hear from our panel.
    [Mr. Udall's statement may be found in appendix.]
    Chairman Pence. I thank the gentleman from New Mexico Mr. 
Udall for his very thoughtful opening statement and his 
participation in our hearing today, and to Chairman Thune, the 
gentleman from South Dakota, we thank you for your comments as 
well.
    Before the Chair recognizes the first witness, allow me to 
explain as a courtesy the technology that is in front of you. 
It is fairly evident. We will ask you to keep your opening 
statement to approximately 5 minutes to allow for this panel to 
ask questions and complete our hearing in an orderly way. You 
will see the lights in front of you green from the moment that 
you start. At 1 minute that light will turn yellow, and at the 
5-minute marker the red light will appear. You need not fear 
the gavel unless you go dramatically past the 5-minute time 
frame. So when you see the red light, just try to wrap up your 
remarks, and we will move on to the next witness.
    With that, it is my privilege to introduce your first 
witness today, Mr. Robert Nolley, who is the president and 
founder of Tubesock.net, which happily is a successful Internet 
business serving individuals and businesses in the heart of 
east central Indiana's Second Congressional District that I 
serve here in Washington, D.C.
    Mr. Nolley is one of those youthful prodigies that makes 
those of us with gray hair frustrated. Rob became interested in 
computers in 1986 at the age of 16 when his father purchased a 
Commodore 64 computer for him, and since graduating from high 
school and tour of duty in theUnited States Navy, he went on to 
pursue a bachelor's degree in business administration at Indiana 
University.
    He proceeded to become professionally involved in site 
construction, Internet site construction, working with NFL 
Hall-of-Famer Joe Theismann. He developed an online chat 
program with basketball analyst Billy Packer, but in 1996 he 
left that employer to form his own Web development company, 
starting RN Media in February of 1996, and began marketing his 
services to local businesses. And in 1999 and thereafter, he 
began the company Tubesock, Incorporated, and it is currently 
the ISP of choice for small businesses in Shelbyville, Indiana, 
and across much of east central Indiana.
    Rob is married to the former Jill Drake of Shelbyville and 
comes to us under duress, having become a new father just 60 
days ago.
    The Chair recognizes for 5 minutes Robert Nolley of 
Shelbyville.

      STATEMENT OF ROBERT NOLLEY, FOUNDER AND PRESIDENT, 
                 TUBESOCK.NET, SHELBYVILLE, IN

    Mr. Nolley. Thank you. I would like to state that I do not 
have any contract with the Federal Government.
    Good afternoon, ladies and gentlemen of the Committee. I 
would like to thank you for inviting me here today. My name is 
Rob Nolley, and I am the president of Tubesock Inc., an 
Internet service provider based in Shelbyville, Indiana. 
Although Tubesock has only been offering Internet access to 
citizens of Shelby County since the fall of 1999, we already 
serve more than 900 subscribers, employ five people and deliver 
a full range of e-commerce services to our customers for both 
residential and business. From helping local businesses to 
design Web pages to providing the high-speed Internet 
connections that help citizens of Shelby County reach the world 
quickly and efficiently, we do it all.
    Like many other small Internet providers nationwide, I 
recognize that rural markets provide great opportunities, and I 
hope to be there to provide Internet access and Web development 
services for many years to come.
    Early on when we added Internet access to our Web 
development business, we realized that in order to survive and 
compete with other ISPs, we would need to offer broadband 
service. The dial-up business is a good one, but more and more 
business customers are demanding faster Internet service in 
order to more efficiently serve their own clients. In 
Shelbyville we are presently bringing high-speed access to our 
customers in two way, through DSL or digital subscriber line 
access service, and high-speed Internet over cable. In order 
for us to deliver DSL to our customers, we must interconnect 
with special DSL equipment installed at our local phone 
company's central office. We cannot install the equipment 
ourselves because we are not registered as a phone company, nor 
do we desire to become one.
    In Shelbyville, Ameritech does not employ any of this 
equipment, but a competitor of theirs, Rhythms, does. We 
approached Rhythms in order to interconnect and sell their 
product. Because of our small size, we were referred to a 
resaler of the Rhythms product, a company called Netisun. 
Offering the DSL product this way has been tough. The lead 
times are about 2 months. It is a two-part installation. The 
length of time is primarily because of the amount of time it 
takes SBC-Ameritech to configure our customers' phone lines so 
they can get their data through the Rhythms equipment. Once 
this is done, Rhythms generally gets our customers switched on 
1 day later.
    SBC-Ameritech does not offer DSL itself in Shelbyville and 
claims this is because it is under scrutiny of the State 
utility regulatory commission for the poor service it provides 
to residential consumers, and it wants to fix those problems 
first. Yet we have noticed that SBC-Ameritech offers DSL 
service everywhere in Indiana except Kokomo and Shelbyville.
    The other way for us to deliver high-speed Internet access 
for our customers is over local cable network, and I must say 
for us this is the way we prefer to do it. Dealing with the 
phone company is usually such a nightmare. In Shelbyville the 
local cable operator is Susquehanna Communications, and 
Susquehanna recognized early on that partnerships with multiple 
ISPs could be a profitable business. It ran four strands of 
fiber-optic cable to our facility at no cost in order to 
provide this service to our customers. And in contrast to the 
2-month lead times for DSL, a customer can have their high-
speed Internet over cable delivered in about a week, and we are 
informed almost immediately when Susquehanna's router is down. 
This allows us to tell our business customers quickly about 
service difficulties. Susquehanna in also local, and this makes 
them easier to deal with as well.
    We have a number of business customers who use high-speed 
connections for their business, customers in Shelbyville, like 
Prime Time Grill and Bar, that is able to upload its sales 
information to its corporate office in Indianapolis over its 
cable connection; or Martin Potts and Associates, a local CPA 
firm that is able to use its DSL connections to download IRS 
forms and accounting software updates much faster than they 
could over a dial-up operation; or Sandman Brothers, the local 
GMC-Chrysler dealership that does all of its customer financing 
through its DSL connection. We have seen the differences that 
broadband services make to these business and believe that 
broadband is an important product that we must continue to be 
able to deliver to our customers in a cost-effective way in 
order to survive as an Internet service provider.
    We have specific thoughts and real concerns regarding this, 
part of which are included in my written testimony, that I 
would like to address in the question-and-answer portion of 
this hearing. Thank you.
    Chairman Pence. Thank you, Mr. Nolley.
    [Mr. Nolley's statement may be found in appendix.]
    Chairman Pence. And before I yield to Chairman Thune to 
introduce a witness from South Dakota, I wanted to acknowledge 
the presence of the gentlelady from New York. Congresswoman 
Kelly has joined us. She is the former Chairman of the 
Subcommittee on Regulatory Reform and Oversight and has set the 
pace for our Subcommittee. So it is great to have you here. 
Thank you for being with us.
    With that I will recognize Chairman Thune to introduce our 
next witness.
    Chairman Thune. Thank you, Mr. Chairman, and it is a great 
honor for me to have someone from my State here today, Gene 
Reich, who is the coordinator for telehealth services at Avera 
St. Luke's Hospital in Aberdeen, South Dakota, and has been 
very instrumental in exploring the utilization of new 
technologies to serve the health care needs of people not only 
in Aberdeen, but also in many rural areas of my State.
    Everything in my State is kind of rural, but there are 
degrees of rural, and, frankly, Gene really spearheaded the 
telemedicine legislation that was adopted and signed into law 
last year by the President as part of the Medicare refinement 
bill. It originated in a hearing I had up there where he laid 
out some of the issues and barriers to using technology and 
being able to get reimbursedunder Medicare. As a result of that 
process, we were able to have legislation adopted last year which is 
currently in, as Gene informs me, the rulemaking stage, and we are 
hopeful that we can get the rules drafted in such a way that it will 
provide the assistance that is necessary to really make this a 
transformational technology in terms of serving the health care needs 
of people in my State of South Dakota and all across this country.
    Gene has often indicated to me that this is about 
telehealth, not just telemedicine. They are doing some 
wonderful things in patient consultation and innovative 
pioneering-type ideas when it comes to health care, but also 
when it comes to the area of education, wellness programs, 
training, those sorts of things, all of which I think he will 
talk about in his testimony.
    But it is great to have him here and very exciting to see 
the things that are happening as a result of his efforts there 
in Aberdeen, South Dakota. So with that I will yield the floor 
to Mr. Reich.

  STATEMENT OF GENE REICH, TELEHEALTH COORDINATOR, AVERA ST. 
                 LUKE'S HOSPITAL, ABERDEEN, SD

    Mr. Reich. Thank you, Congressman. My name is Gene Reich, 
from Aberdeen, South Dakota, and I am the coordinator for 
telehealth services at Avera St. Luke's in Aberdeen, South 
Dakota. And on behalf the Presentation Sisters and the 
Benedictine Sisters, the sponsoring groups of our network 
family called Avera Health, I would like to thank you for the 
opportunity to present our input on this critical subject 
certainly to rural America and to rural health care.
    I would also like to publicly thank Congressman Thune and 
this body for its support of telehealth legislation passed last 
year that will benefit the future growth of telehealth services 
nationwide. I commend this Committee for taking up the matter 
of access to broadband technology in rural America. This is an 
important issue for the economic development in our State as 
well as the delivery of quality health care services in our 
region of northeastern/north central South Dakota.
    Avera St. Luke's is celebrating its centennial year in 
meeting the healthcare mission of the Presentation Sisters in 
the city of Aberdeen and the surrounding region. We are proud 
that we have used the latest technology to meet the sisters' 
cherished health care mission and would be interested to know 
what some of the early members of the order might think about 
some of the methods we have used to meet that mission. There 
are not many members of the order left with us, only about just 
a handful less than the age of 50, so all of us at Avera St. 
Luke's feel a strong commitment to continue the mission, and 
pledge to do so in any way possible.
    We feel that advanced technologies will be a key to our 
survival as a rural health care provider. At Avera St. Luke's 
we use interactive video conferencing to provide valuable 
health care services to 15 rural hospitals and clinics. We 
built and equipped these facilities with videoconferencing 
technology with the help of two Federal grants and a 
significant investment by Avera St. Luke's.
    We use the technology to deliver quality health care 
services in a variety of ways. We provide regular continuing 
medical education programs to rural providers and staff. We 
provide frequent training sessions for rural health care staff 
in a variety of disciplines. For example, in the month of June, 
we have already scheduled a workshop for hospice volunteers, a 
workshop on mentoring and a session on caring for the urology 
patient in a rural health care setting. We also use 
videoconferencing for corporate meetings, partner meetings, 
association meetings.
    In this time of cutting programs in health care to meet 
budget concerns, Avera St. Luke's and Avera Health are using 
innovative technologies such as videoconferencing to cut travel 
costs by thousands of dollars a year in order to keep our 
current level of services intact. Like most similar projects 
around the country, we also use the technology for telemedicine 
services. It allows our medical specialists to be available to 
rural providers and patients in a videoconference setting, 
saving patients and families travel expenses and time away from 
work. Risk of travel is also a consideration, especially in our 
part of country during the winter months.
    While CME programs, trainings, meetings and telemedicine 
are all part of the offerings of Avera St. Luke's telehealth 
services, the area we are most proud of and the area of service 
that I think separates our project from many others around the 
Nation is our education and wellness programs. We offer classes 
in lowering your cholesterol, quitting smoking, eating right, 
and even a support group for diabetics. We also offer regular 
health forums featuring physicians and other health care 
professionals presenting valuable health care information on a 
variety of subjects. And last December we also made Santa Claus 
available over our videoconferencing network. As it turns out 
Santa Claus was high-tech. We are proud of the wide diversity 
of our programming which makes our project one of the true 
telehealth projects in the country.
    One thing we have learned about access to technology, when 
people are exposed to new and innovative technology, they learn 
to use it to benefit their way of life. We have certainly been 
a witness to that premise in the health industry. We currently 
use ISDN service to deliver our programming at Avera St. 
Luke's. Many experts feel that ISDN is an outdated technology, 
that it has served its purpose, and we are certainly very aware 
of that and are exploring new and more efficient ways to 
communicate, and we are constantly looking for new equipment 
designs that will serve us better. Staying on top of the 
developing technology is nearly impossible, but in our field of 
telehealth, it is essential to our survival to cut costs in 
order to keep our now coveted telehealth services in place.
    We feel the availability of advanced and affordable 
networks and infrastructure are critical to the survival of our 
project and projects like ours across the country and also to 
the survival of rural America. Thank you.
    [Mr. Reich's statement may be found in appendix.]
    Chairman Pence. The Chair now recognizes Mr. Marvin Imus, 
who is an owner/manager for over 20 years of a family-owned 
single store that was founded 47 years ago.
    Mr. Imus. 1947.
    Chairman Pence. A degree in economics from Western Michigan 
University, currently you are the Chair of the Wholesaler 
Technology Advisory Board, a member of the Wholesaler 
Independent Retailer Task Force and the NAWGA's Category 
Management Certification Committee, and you have been involved 
in developing and implementing a card-based marketing program 
for the last 5 years, and your own customer card base is 6 
years old. He is owner of the Paw Paw Shopping Center in Paw 
Paw, Michigan.
    Mr. Imus.

 STATEMENT OF MARVIN IMUS, OWNER, PAW PAW SHOPPING CENTER, PAW 
                            PAW, MI

    Mr. Imus. Thank you.
    Good afternoon, Chairman Thune, Chairman Pence and members 
of the Subcommittee. I would like to thank you for this 
opportunity to speak to you on behalf of my business and also 
for all retailer single-store operators that are supported by 
FMI, the Food Market Institute.
    Let me take a moment to tell you have about my business and 
my community. Paw Paw, Michigan, is a small town in Michigan 
just outside of Kalamazoo, about 10 miles west. We started the 
business in 1947 with 1,000 square foot of retail space. 
Currently we have 41,000 square feet. We have 30,000 products 
on our shelves, but we have a database of 75,000 items and a 
historical data base of every item sold to every customer for 
the last 6 years. This is probably our most important asset as 
we go to our marketplace and as we try to use the data from our 
sales to market back to the consumer, information and the 
products that they desire. We rely on this information, and it 
is all based on broadband technology to give us the 
profitability aspect of it.
    We have a Website which currently offers weekly specials, 
wine ordering, gift baskets, weekly recipes, and meal 
solutions, as well as household tips and consumer alerts. We 
have a weekly newsletter that we e-mail to our customers that 
request it. Approximately 10 percent of our customers visit the 
Website. We see the Internet as being the facilitator of 
communications for our commerce in the future and potentially 
providing for competitive advantage for a small business like 
ours.
    Broadband access is important for small businesses and 
consumers in rural America. Broadband access is not currently 
available in Paw Paw. If it were available, we would use it to 
enhance our business. Currently we utilize a frame relay 
connection for our Internet usage. This is provided to us 
through our wholesaler out of Grand Rapids, Michigan, and 
basically provides us an ability of communicating back and 
forth. We exchange information, orders, products back and forth 
between our store and the headquarters of our supplier.
    There is an analogy I would like to use that seems to work 
very well. If you are on an escalator at the bottom level of a 
building, and you want to get to the third floor, with a 56k 
modem you have a one-person escalator going up to the second 
floor. As you go up to the second floor, you have to get off 
because the escalator has to reverse to go back down, and you 
have to get back on the escalator to go up to the third floor. 
This is a 56k modem.
    A broadband technology has the ability of putting three or 
four persons or more on a step of the escalator. That escalator 
can go up or down, so you have access both ways. It has a TV-
like quality that the consumers are demanding before we can get 
to a point where the information that we are delivering to the 
consumer is impactful enough for us. With dial-up technology 
today, it is too slow. They don't have the time nor the desire 
to want to wait for a page to be drawn on our site. Textual 
information that is available quickly is basically boring. They 
are looking for TV-quality access.
    As you can see in my statement here, which included a chart 
that highlights the number of years it has taken from major 
technologies that we depend on each day to reach mass market 
over the years, electricity took 40 years, telephones 30, and 
Internet access has reached over 25 percent of the population 
in 10 years, yet in rural America we are not seeing that type 
of access yet.
    One other analogy I would like to use is my mother-in-law. 
She goes south for the wintertime, and we use telephones to 
keep in contact. But we bought her a small Web TV system just 
so we can e-mail back and forth with her. It cut my phone bills 
down dramatically. In fact, it really overkilled it because she 
is online so much now that we cannot call her anyhow, which is 
great. But that aspect that the elderly are getting access 
outside of their own community and gives them the broad world 
aspect is tremendous, but we need to have quicker access with 
more TV-like quality to get to that.
    Certainly the work of the Committee in conjunction with the 
Commerce Committee is important to ensuring that broadband 
access is available in the near future to businesses and 
customers in rural areas at a reasonable cost. I understand 
that this is no easy charge, but I for one feel the 
competitiveness of our business depends on it.
    Thank you for the opportunity to testify, and I will be 
pleased to answer questions later.
    Chairman Pence. Thank you, Mr. Imus.
    [Mr. Imus' statement may be found in appendix.]
    Chairman Pence. And you mention questions, and for those of 
you new to being witnesses on Capitol Hill, we will have time 
for questions by this panel of members for this panel of 
witnesses at the conclusion of Mrs. Stark's presentation.
    I would also remind Mr. Imus and others that in view of 
your mother-in-law analogy that all your testimony here is a 
public record.
    Mr. Imus. Can I see that before you publish it?
    Chairman Pence. If it gets back to your mother-in-law, it 
is your fault.
    I would like to recognize Jonathan Linkous, who is the 
executive director of American Telemedicine Association, the 
largest membership-based organization in the world focusing 
exclusively on providing health and medical care through 
telecommunications technologies, and Mr. Linkous has over 20 
years experience in the Nation's capital working in corporate 
and public sectors. For 5 years he was a leader in the aging 
services community as the executive director of the National 
Association of Area Agencies on Aging. His principal interest 
in this position was in using telecommunications and adaptive 
technology to assist older Americans and their caregivers.
    Mr. Linkous was also involved for many years in the 
regional planning and economic development field, serving as 
the deputy executive director of the National Association of 
Regional Councils and at the Appalachian Regional Commission as 
director of the district.
    Mr. Linkous holds a master's in public administration from 
American University in Washington, D.C., and also degrees from 
Franklin University in Columbus, Ohio, with postgraduate work 
at the LBJ School of Public Affairs in Austin.
    The Chair recognizes Jonathan Linkous for 5 minutes.

  STATEMENT OF JONATHAN LINKOUS, EXECUTIVE DIRECTOR, AMERICAN 
            TELEMEDICINE ASSOCIATION, WASHINGTON, DC

    Mr. Linkous. Thank you, Mr. Chairman. I appreciate the 
opportunity for testimony today, and I am testifying on behalf 
of the American Telemedicine Association. ATA is a nonprofit 
membership-based organization promoting telemedicine and 
working on ways to resolve barriers to employment. Members of 
ATA include representatives of an important small business in 
rural America, and that is health care clinics, physicians' 
offices and small hospitals.
    Telemedicine represents a marriage of advanced 
telecommunications technology and new approaches to providing 
medical and health care. Be it through online consultations 
between rural clinics and specialists at major medical centers, 
telehomecare for homebound frail patients or homebound mothers-
in-law, access to comprehensive databases of health and 
medicalinformation for consumers over the Internet, telemedicine holds 
the promise of using telecommunications to improve the lives of all 
Americans.
    The deployment of telemedical links to rural medical, 
centers requires communications networks that are affordable 
reliable and capable of handling large amounts of data in a 
very small time.
    When I was at the Appalachian Regional Commission, we 
recognized the importance of opening up the isolated areas of 
Appalachia through a construction of a network of highway 
systems throughout the Appalachian Mountains. The highways of 
today are located on the telecommunications infrastructure. The 
telecommunications infrastructure opens up the isolation of 
rural America to the opportunities for education, commerce, and 
health care.
    For rural hospitals, medical clinics and other health-
related small business, access to broadband networks means 
being able to treat patients through a local health facility 
rather than losing those patients and the revenues to distant 
communities. It means improved health care for rural residents. 
It means being able to keep a local clinic open. It means 
reducing public and private employer costs for health care, and 
finally, it means hope for small and rural towns and villages 
struggling to survive and grow.
    I would like to share one example as to how access to 
broadband technologies can make a substantial difference to 
improving patient care. That is in the area of teleradiology. 
Teleradiology allows medical clinics in rural areas to gain 
access to services of a qualified radiologist you may not get 
otherwise. An X-ray or other image is transmitted to a 
radiologist for an assessment or service they provide. For 
almost all radiology services there are several images to be 
viewed in the area in question from two or more angles. If 
anybody has had a broken arm, you know you go in, you get two 
or three X-rays. If you digitize those X-rays and send them 
over a communications line as is needed for teleradiology, the 
amount of information provided in that can be enormous, up to 5 
megabits of data, for example.
    If you are transmitting that over a plain old telephone 
line, you are talking about several hours of waiting. If there 
is a glitch in the line, you have to resend the data because it 
is a medical image. So, therefore, you are talking about double 
the amount of time. In emergency situations this can happen, 
and many medical clinics in rural, isolated areas, that amount 
of waiting time is just totally unacceptable. For other 
situations it is at best inefficient.
    Despite the recent growth of alternative bandwidth choices 
such as wireless or terrestrial communications lines, rural 
communities are still limited to the availability of high-speed 
telecommunications where available and have problems with the 
reliability and costs. Other countries, notably Canada and 
Finland and Sweden, have established specific national goals 
towards universal deployment of high-speed telecommunications 
to every home throughout that country. The United States has 
not done that. Congress should consider establishing a national 
public-private commission to look at establishing similar goals 
incorporating similar incentives and programs that will 
accelerate the availability of broadband telecommunications to 
every business and every home throughout the United States. The 
provision of such policies in Canada and Scandinavia, I 
believe, is accelerating those countries in the battle for the 
telecommunications market in the future.
    There is a small but very important program authorized 
through which the Federal Communications Commission assists 
rural health providers in obtaining access to broadband 
services. Congress established this program under the 
Telecommunications Act of 1996 to provide improved broadband 
access by rural health care providers. Recent improvements by 
the FCC in the program create hope that the program can provide 
major benefits to rural America, and I urge Congress's support 
for that program.
    Finally, I want to join the other members of the Committee 
in thanking this panel and particularly thanking Representative 
Thune for your support for telemedicine and your support this 
last year of the telehealth bill that provides very important 
incentives for telemedicine, particularly rural America. So I 
publicly want to thank you, sir, on behalf of the association 
for your leadership and support.
    Thank you, and I will be glad to answer any questions.
    Chairman Pence. Thank you, Mr. Linkous.
    [Mr. Linkous' statement may be found in appendix.]
    Chairman Pence. Lastly, the Chair is pleased to recognize 
Nancy Stark, the director of community and economic development 
at the National Center For Small Communities here in 
Washington, D.C. With 24 years of experience in community and 
economic development in telecommunications, Ms. Stark has 
directed research, designed and conducted training programs, 
written guidebooks and provided technical assistance to small-
town leaders across America.
    Currently Ms. Stark directs a U.S. Department of Commerce-
funded research project to identify, describe and evaluate the 
most effective technology-led economic development strategies 
for distressed rural communities.
    Recently Ms. Stark authored Getting Online, a Guide to the 
Internet for Small-Town Leaders, and Harvesting Hometown Jobs, 
a Rural Economic Development Primer.
    Ms. Stark created and led the AOL Rural Telecommunications 
Leaderships Awards, a digital divide initiative and partnership 
with the AOL Foundation. The awards recognized and promoted 
outstanding achievement in rural community development 
resulting from the deployment and use of advanced technologies.
    Ms. Stark hold an M.S. in financial management from 
American University and a B.S. from Cornell, and the Chair 
recognizes Nancy Stark for 5 minutes. Thank you for being here.

 STATEMENT OF NANCY STARK, DIRECTOR OF COMMUNITY AND ECONOMIC 
DEVELOPMENT, NATIONAL CENTER FOR SMALL COMMUNITIES, WASHINGTON, 
                               DC

    Ms. Stark. Thank you, Chairman Pence and Chairman Thune, 
members of the Subcommittee. Thank you for the opportunity to 
testify before you today. I am Nancy Stark, director of 
community and economic development with the National Center for 
Small Communities here in Washington. The National Center for 
Small Communities is the only national, nonprofit research, 
training and technical assistance organization devoted 
exclusively to serving the public servants of America's small 
and rural communities.
    On the topic of telecommunications, rural 
telecommunications we have directed several initiatives that 
were mentioned recently. One is a guidebook called Getting 
Online, a Guide to the Internet for Small-Town Leaders--
actually several Members of Congress have distributed this to 
their constituents; the AOL Rural Telecommunications Awards; 
and most recently now a research project on technology-led 
economic development strategy.
    As I am sure you know, our Nation is a Nation of very small 
communities. The latest Census of Governments reports that of 
the 36,001 subcounty and local governments, meaning 
towns,cities, villages, all the rest, approximately 90 percent have 
fewer than 10,000 residents; 82 percent have less than 5,000 residents; 
51 percent have fewer than 1,000 residents.
    Much has been reported recently about the apparent 
narrowing of the urban-rural digital divide. For instance, a 
recent U.S. Department of Commerce report said that the gap 
between rural households and the others that access the 
Internet had narrowed from 4 percentage points in 1998 to 2.6 
percentage points in 2000.
    However, these statistics mask the real urban-rural digital 
divide. More and more rural households and businesses have 
Internet access, but few have high-speed broadband 
telecommunications services. While nearly all users can now 
ramp on to the information highway via a local dial-up 
connection, although there are certainly places in this country 
where you have to make a long distance call to connect to the 
Internet, but saying that most of them can get dial-up, the 
deployment of high-speed services has been slow and limited. 
For example, the April 2000 joint report of the U.S. Department 
of Commerce and the U.S. Department of Agriculture showed that 
less than 1 percent of residents in communities with fewer than 
10,000 residents have access to DSL, in contrast with 86 
percent for cities with populations above 100,000. Similarly, 
approximately 1 percent of residents in communities of 10,000 
population or less have access to cable modem compared to 72 
percent of residents in cities above 250,000 population.
    Without state-of-the-art communications, rural businesses 
are at a severe disadvantage. Nearly all businesses need 
connection to the Internet. Small and midsized enterprises are 
being forced to migrate their business to the Internet by 
bigger companies they are affiliated with. In this symbiotic 
relationship, most small businesses are either suppliers to or 
distributors of bigger businesses. Businesses need high-speed 
broadband to download files, submit and receive orders, view 
graphics, access databases, participate in videoconferencing, 
basically to participate in the modern economy.
    Without state-of-the-art telecommunications, businesses are 
far less productive. Consider the time it takes to download a 
10-megabyte file using dial-up versus high-speed Internet 
access. This is kind of my version of the escalator motif. 
Those are some statistics from the FCC. If you took this 
guidebook, for example, which is principally text and a few 
graphics, and you had 12\1/2\ of these, that would be a 10-
megabyte file. If you downloaded that using a 14.4 modem, which 
is not uncommon in rural areas, it would take 1\1/2\ hours. If 
you downloaded it with DSL, a 4-megabit cable, it would take 20 
seconds; or with an 8-megabyte DSL, it would take 10 seconds. 
So we are looking the difference between 1\1/2\ hours and 10 
seconds.
    There are signs the deployment of broadband 
telecommunications services to rural America is increasing, but 
it is increasing very slowly. Our observation is that despite 
the demand, and there is lots of demand kicking and screaming 
from local and residential and business markets, it is chiefly 
the small local telephone companies or cooperatives that are 
providing DSL, and sometimes cable, to small communities, not 
the larger companies. It is also our observation that the 
market forces in many small, especially very remote rural 
communities may not be sufficient to inspire the development of 
high-speed services, and that Congress may need to consider 
market-based incentives to spur deployment.
    Because of the critical influence of broadband 
telecommunications services on rural economic development, the 
National Center For Small Communities hopes that Congress will 
explore strategies for helping communities to remain on the 
right side of the digital divide.
    Thanks for this opportunity, and I welcome your questions.
    [Ms. Stark's statement may be found in appendix.]
    Chairman Pence. Thank you, Ms. Stark, and, witnesses, we 
are going to move to the question-and-answer portion. The Chair 
has a few questions for each of the witnesses, and we will then 
recognize Chairman Thune and Ranking Member Udall and Ms. Kelly 
and those who can remain to participate.
    We encourage you to keep your answers fairly brief so we 
can get as much participation as possible, but we will refrain 
from any blinking lights.
    The Chair would like to congratulate each of the witnesses 
on very good and informative and particularly plain English 
presentations which those of us that do not have Chairman 
Thune's background in this area are particularly grateful that 
you spoke in plain English.
    With that said, the question for Mr. Nolley, on a very 
practical level SBC is the employer in Shelby County, Indiana. 
What is the time frame right now when you ask SBC to provide 
Tubesock.net with a T-1, ISDN or other telecommunications 
service? Is that rapid deployment; is it acceptable? In 
practical terms how does it work?
    Mr. Nolley. It is real slow. The current lead times are 
about 2 months, so we have to kind of time--keep on top of time 
to make sure we ordered ahead of time before we actually need 
it. We have to order it ahead of time. And sometimes we may be 
off on our timing, and we get it a little bit too soon, so we 
are paying for something we do not really need. Their lead 
times are off, and they keep getting further and further out.
    Chairman Pence. The effect on your ability to interact with 
your clientele, encouraging them to go to more advanced 
communications technology when they have to wait for that, the 
period of time would be what?
    Mr. Nolley. We often make ourselves look pretty bad because 
we will get the lead times from Ameritech, relay those lead 
times to our clients, and then our clients end up asking us 
where is the product, where is the product. We look bad, and, 
of course, trying to get through to Ameritech to get answers 
you never get anywhere. That is why we have been pushing cable 
Internet service because it doesn't touch Ameritech at all. It 
is local cable company, local people who are working in the 
community. We already have good rapport with them, good 
conversation. It is quicker. You don't have to worry about 
getting a suspect voice mail system and trying to leave a 
message for somebody. So we are moving towards cable.
    Chairman Pence. A question for Mr. Imus. The Paw Paw 
Shopping Center. You describe the Internet as a facilitator for 
your business. Could you elaborate for these Committees in this 
joint hearing how it would facilitate your business? Do you 
expect to use the Internet principally for marketing, or do you 
expect online shopping to become a large part of your revenue 
stream?
    Mr. Imus. Well, yes. All of the above. Actually what we 
have with our wholesaler right now is an intranet, which is a 
closed Internet loop where it is just communication between us 
and the wholesaler, and all the other retailers are part of it. 
But the Internet gives us the ability of having effective 
marketing abilities that we can use very cost-effectively.
    As consumers get more and more online, we achieve a 
critical mass. We have not achieved that point yet. We have 
online shopping. Again, because of the speeds of the access 
that the consumers have in our area, it has not been overly 
well-received. I foresee it to be a key component of our future 
plans for survival.
    Chairman Pence. Mr. Linkous, a couple questions. First, I 
wonder if you might elaborate on the significance of technical 
clarity that comes with broadband access in terms of 
diagnosing. Inplain English is there a health benefit, a 
diagnostic benefit to expanded broadband access in telemedicine?
    Mr. Linkous. Well, if I were a patient, I would like to 
have a physician who may need an eyeglass prescription to wear 
his glasses; and with broadband, you do have a guarantee of 
certain clarity of images. There are a few medical specialty 
groups, radiology being one of them, that actually have come up 
with some specific clinical guidelines regarding clarity of 
image. The American College of Radiology has a requirement now 
that you have an image, radiology image, that is 2k by 2k, 
2,000 dots by 2,000 dots. That is a fairly high-definition 
image that is required, because, again, if you are looking at 
an X-ray, it is a very minor change in the bone that can make a 
completely different diagnosis, and the soft tissues would be 
the same.
    So, yes, I think it would--broadband is absolutely critical 
for certain types of applications. Now, there are applications 
in telemedicine that probably can get by with lower, but 
absolutely. But for a lot of what you see, certainly for 
emergency situations, certainly for specialty referrals, the 
higher the speed, the better. It is not only going to be an 
image that you have that is going to be arriving at the 
destination quicker, but also the quality of the image is going 
to be significantly improved.
    Chairman Pence. Mr. Linkous, you also propounded today 
before these Subcommittees the idea of a national commission of 
sorts. I wonders if you might elaborate on the jurisdiction of 
that commission, the goals of that commission, and so we might 
consider that.
    Mr. Linkous. Certainly, and certainly I would be available 
to talk to staff about it in more detail. But if you look at 
the experience in a couple of other countries, I think, 
frankly, they are putting the United States in the dust in some 
of the things that they are doing. Using an urban example, if 
you look at Helsinki in Finland, they have made a commitment 
that every single home in Helsinki is broadband-wired. When you 
talk to a neighbor, when you talk to your mother-in-law or 
children, you are seeing your children over the phone lines. 
Canada has made a similar commitment in the process of 
deploying it.
    Now, in the United States we have a little bit of a 
different system where we have a private sector that is 
involved more so than other countries, but it seems to me that 
in the United States, it is high time particularly for rural 
America to have a commission of public and private companies to 
talk about ways that we can deploy broadband throughout--not 
only to every business, but as I mentioned, to every home, 
using things like tax incentives, regulatory relief, building 
on programs that are available in many, many States that are 
deploying broadband networks throughout the State, and as well 
as volunteerism that is going on throughout the country.
    So it seems to me there is a lot of solutions available, 
and it is probably an appropriate time for this country to have 
some kind of a national body that is starting to set forward 
some goals and a specific timetable to get things deployed.
    Chairman Pence. Mr. Reich, thanks again for your wonderful 
presentation. You are breaking new background for me and my 
understanding this area.
    You used some pretty strong language today about the 
Internet, and you said that it was the key to the survival of 
the rural health care provider. As someone who represents an 
area that is largely rural and has seen a real shift in the 
delivery of health care services--one county that I serve, Rush 
County, Indiana, announced, sadly, 2 years ago--said that they 
would no longer be delivering babies at Rush County hospitals. 
Is the power of the Internet and broadband technology powerful 
enough to reverse the trend towards regionalism, or we are 
talking about the survival of regional health care providers?
    Mr. Reich. I think there is an evolution certainly. That is 
not going to change. But I think we can do a lot with broadband 
capabilities to keep that rural physician and rural provider in 
place. We have several examples of communities and health care 
facilities on our network that aren't very big. A community in 
extreme--north central South Dakota, maybe a community of 3- or 
400 people has one rural physician, but he has access--he has 
access to broadband videoconferencing technology, so he has 
been able to resolve a lot of the isolationism which he has 
faced. He is all out there by himself, but he is not anymore. 
He has access to consultations. He can talk to the surgeons 
about a patient he might want to send in. He can present that 
patient. And he takes advantage of continuing medical education 
programs that he needs to stay certified and to keep his 
license intact by staying at home during during lunch hour, not 
missing any time away from his clinic, not being gone for 2 or 
3 weeks wherever to get the credits that he needs. He can get 
all of those credits by staying in his own clinic, and he has 
access to so many different things.
    I think in his current situation he will probably end up 
retiring there. Not too long ago he had considered leaving this 
community in north central South Dakota, and the community 
encouraged him and came to him and got he and his wife to stay. 
And it is really a cool story because part of that, I think, 
really is the reason he was staying is because he has access.
    And there are others. There are other stories on the 
network, too, not necessarily physicians, but PAs. I think we 
solved a lot of isolationism. I think we feel like there is 
some connection even though we are not a huge medical center 
hub site. We are a relatively small medical center in 
northeastern South Dakota, but still just having that 
connection and that relationship I think is going to help. I 
really do.
    Chairman Pence. Last question before I yield to my 
colleague Mr. Thune.
    Ms. Stark, you are a recognized national expert in the area 
of economic development in small communities. Do you have any 
data or do you have any comparison of communities that have 
broadband access, relatively small, versus ones that haven't 
and the impact that can--that may have on the economic 
development over the last 5, 10 years?
    Ms. Stark. No, I don't have any absolute data to share with 
you. I think most of what is going on is anecdotal. Even what 
we are doing for the Department of Commerce, this project on 
technology is primarily collecting data, in the process of 
collecting data. However, we are looking at 14 very rural 
distressed communities that were recognized as having a 
leadership role in technology-led economic development. We are 
not finished yet. We administered a survey to them, and we are 
looking at what have been the impacts in terms of economic 
development and also things that are a little bit less tangible 
perhaps, citizen participation, youth engagement, lots of 
things that make a rural community survive or not survive.
    So I would love to share that with you once we have 
finished that, which will be in a few months, but there are 
some wonderful case studies. I have mentioned a few communities 
in here, Abingdon, Virginia, which is not that far from here, 
which has had high-speed broadband access in many public access 
places as well as residential use since 1996, which is really 
remarkable. So there are examples out there. They are just few 
and far between.
    Chairman Pence. The Chair recognizes Chairman Thune for any 
questions.
    Chairman Thune. I thank the Chairman, and I thank the panel 
for all the good testimony. This all helps us build a record 
and establish a foundation which points to not only the 
successeshappening out there today, but certainly highlights 
where we need to go in the future in order to make this an online 
society that doesn't know a digital divide, where you have rural areas 
that are benefiting from the same technology that the urban, more 
populated areas are.
    Mr. Imus, by the way, your mother-in-law called, and she 
heard what you said, and she wants you to stay with your 
escalator story. She is very well-connected down there. I 
commend you not only for your entrepreneurship in taking on the 
challenges that you have in your business, but also your 
bravery in using illustrations that pertain to your mother-in-
law. Most of us probably would not dare to go there.
    Just a couple of questions, and I will direct these around 
a little bit to a couple of different areas.
    Mr. Reich--and I know in conversations with you, and having 
seen firsthand the things that you are doing, the various 
innovations that were out there, and really what that is doing 
to change the way that we do business, to change the way we 
meet health care needs in rural areas, to enhance and improve 
the quality of life for people that live not only in Aberdeen, 
which, by South Dakota standards, is a population center, but 
those who live in more remote outlying areas, those towns of 
5,000 people that are served by your facility there, but I 
guess I would be just curious to know how broadband technology 
could further enhance your ability to provide telehealth 
services and telemedicine services to South Dakota residents. 
How does that improve what you were already doing?
    Mr. Reich. I have lots of ideas. Everybody that has been 
involved in technology for a while comes up with ideas and new 
ideas. And I think for access to broadband technology, high-
speed Internet access for us, I think, would be really 
something that would open up a lot of doors for us in education 
and wellness.
    We do a lot of education wellness programs on our network. 
The folks in those communities have access to those programs in 
rural health facilities, whether it is a clinic or hospital. I 
believe in the future with access to broadband technology in 
small farm homes, in communities all across our State and all 
across the country, we feel like that we can eventually archive 
the program eventually on the Internet, maybe place them on the 
Internet, put them on our Website, and people can have access 
to a variety of health care issues. They can have access to a 
class on cholesterol. They can access a diabetes-type 
information if they had access.
    And right now I don't think a majority--I don't think there 
is a whole lot of high-speed Internet access to the rural farms 
and communities in much of North and South Dakota and the 
western parts of the State, but I see that as a real 
interesting step for ourselves in telehealth and telemedicine 
in the future, kind of what these guys are talking about with 
the use of the Internet.
    Right now we have same broadband access to rural areas. We 
have to bring it to more rural people, and we think we can do a 
lot more in delivering health care services.
    Chairman Thune. I would like to tie into a point that, Mr. 
Linkous, you made earlier on, and either of you can respond to 
this question, in dealing with reliability. One was quality of 
transmission, which I think you referenced, and you got an 
interactive patient consultation, and I am thinking--looking 
at, say, for example, some sort of a skin condition, and being 
able to make a diagnosis in an interactive setting like that. 
And the question is about liability and whether or not you 
diagnose it accurately, and if you don't have the good quality 
of transmission, is that an issue?
    And then secondly, the reliability question having to 
pertain more to if you were doing emergency-type care of the 
equipment itself--I am talking about the infrastructure 
itself--do you have enough confidence--at that point is there a 
confidence level in treating, say, a trauma situation if you 
had to rely on that technology? I mean, do we have the sort of 
confidence in the reliability of the technology now that it 
would enable us to use it in that kind of a context where you 
are talking about an emergency situation, a trauma-related-type 
situation?
    Mr. Reich. I think we are close. We have had--and, in fact, 
I have talked to a gentleman. Who happens to be a rural 
telecommunications worker who also works on the community 
ambulance. And he told me, he said, boy, we would like to have 
access to ERs. And, boy, I think the technology is close. I 
don't know if Jon would agree or not, but I think it is really 
close. I think we can do a lot of things that would be 
acceptable for an ER doc.
    Mr. Linkous. Yeah. A couple of examples of things that are 
under way in Texas. At the Houston Medical Center they are 
working on an ambulance that has the ability to forward, send 
live images from the ambulance directly to the emergency room. 
I don't think we are quite there yet on reliability, but we are 
getting close, I agree.
    The second example is there is a new company that has 
formed that provides intensive care services; that they have a 
contract right now with several hospitals in the Norfolk area 
where there is actually intensive care docs, intensivists as 
they call them, that were wired into the intensive rooms for 
the small hospitals that cannot afford an intensive specialist 
before this. But because it is a very dangerous situation where 
you have immediate emergency care that is needed, they use 
multiple T-1 lines going into the facility, to their clinic, 
using different providers, because it is very important for 
them to have redundancy built into the system.
    So that is one way they are using it now. They are getting 
there. We are not quite, but we are getting there.
    Chairman Thune. Any comment on the quality? It seems to me 
at least broadband, where you have the interactive, the ability 
to interactively telelink, are there any questions with quality 
of transmission, when a doctor, for example, might be seeing--
and I will just use my State as an example again--a specialist 
at St. Luke's Hospital might be looking at a situation, say, in 
Miller or Highmore or Gettysburg, and somebody has a skin 
lesion or a lesion of some sort and is trying to make a 
diagnosis.
    Mr. Reich. How comfortable is the physician in that 
respect?
    Chairman Thune. Yes.
    Mr. Reich. I hate to say, but it depends on the physician. 
Some physicians are more cautious than others. I like to call 
them open-minded physicians. As far as liability is concerned, 
I don't know if we have had any real test cases as of yet, and 
I would assume they are coming somewhere along the line, but we 
have not seen any yet.
    I think it depends on the physician. I think some 
physicians are really accepting. Others see it as a follow-up 
tool rather than maybe a primary diagnosis-type tool. But it 
depends. I think that there are physicians that are very 
comfortable. There is equipment out there for--in dermatology 
that I think we can do it. I think we can project the image 
that is acceptable if the dermatologist is open enough to--and 
it takes some time. They just don't--I think you just don't 
come into a medical consult and do it for the first time. When 
we start out a physician in telemedicine, we try to train them 
a little bit, and these guys are busy people, and we need a 
little bit more open-mindedness and cooperation from these 
people, and I think we are going to get it as we educate them 
better.
    And I think that is maybe the brunt of all we are talking 
about here. We have a need to educate people on what broadband 
technology means to them. Some people don't really understand 
whatwe are talking about today. This is an issue that is 
incredibly important for us in rural South Dakota.
    Chairman Thune. In a follow-up to that, are you having any 
problems getting new communities to accept and utilize 
telehealth, the types of technology that are there? You have 
addressed sort of the physician side of it, but how about that 
community out there? Are there any barriers?
    Mr. Reich. I think we did at first. I really do. I think it 
has gotten better. Part of what we have to do is get out there 
and to talk to them and explain to them about what this 
technology could mean to their communities. I have spoken to 
many small community groups, doing lunches, explaining to them 
what we are trying to do with videoconferencing as it turns out 
in this particular application.
    But an example, Mobridge is a community on the Missouri 
River in north central South Dakota, and we are going to put a 
couple new sites there online in the next month or so. Just the 
opposite there. While some of the early communities we worked 
with, we had to go out there and sell it, Mobridge is saying, 
hey, we see what is going on; we want to be a part of it. So I 
don't think there is going to be a big sell needed out there. 
They want to be a part of it. We have had docs out there ask 
when are we going to get this technology? We need this; we see 
what it is doing for John Ottenbacher out in Selby. We want the 
same kind of access.
    Mr. Linkous. If I can mention, in the last 10 years there 
are lots and lots of clinical trial studies done on medical 
imaging that send telecommunications versus the doctor seeing 
it as well as patient satisfaction surveys. Every single one of 
them without an exception, as far as I know, have shown that 
the images transmitted using telemedicine have been acceptable, 
assuming you have the high-speed telecommunications line that 
transmits that image. And patient satisfaction people love it 
because people do not get access to those doctors if they do 
not have telemedicine.
    Chairman Thune. It is a very real issue in many areas, the 
distances, the weather. I direct this maybe to Mr. Nolley. I 
would be curious to know what your thoughts are about the 
percentage of people out there on the main streets of this 
country who are conversant or knowledgable about DSL or 
broadband or regular dial-up modem connections. Do most people 
really understand the differences about those options and what 
kind of benefits they offer? Do people who have a standard 
dial-up connection today--and Ms. Stark utilized some of the 
statistics and percentages of people, and there are a lot of 
people who have at least some form of access, but do they 
really understand the potential of having access to a broadband 
or high-speed Internet type?
    Mr. Nolley. When we refer to businesses, they do understand 
what it is that it can bring. When you refer to residential 
consumers, they know--they don't understand the words or the 
terms ``broadband'' or any of that kind of stuff, but they do 
know what DSL is. They do know it is faster and what it can 
offer. They know what cable Internet is and what it can offer. 
But in talking with the businesses in our community and doing 
my job going around trying to sell this, they do understand 
what it can bring and the benefits, especially the 
communications aspect of bringing e-mail to the corporate 
network, Internet availability on every desktop, things of that 
nature. They understand.
    Chairman Thune. And I think Mr. Imus testified to that 
fact, too. He understands what this is about. And you said that 
in Paw Paw today you don't have access to broadband. Some of 
your competitors, the bigger ones who have the benefit of 
economies of scale, use satellite or something else. They are 
going to have that opportunity available to them.
    How ultimately are we going to get broadband access to a 
community like Paw Paw? And I mean, do you have any suggestions 
for us in terms of things that we might be able to do to 
provide incentives to get your area served? I am--certainly 
from a small business--we talked about the health care side of 
it, but certainly from a small business standpoint, I would 
think, doing business with your suppliers who are all 
connected.
    Mr. Imus. It is becoming a competitive issue, very much so. 
We are competing with chains that are doing billions of dollars 
of business instead of the millions that we do. While it is not 
the only component of our success, it is becoming a larger 
percentage. Consumers want products on the shelves quicker and 
faster. As soon as they see it on TV, they want it in the 
store. Information about products, about the health aspects of 
the product, we do not have access to that information in a 
timely enough manner. We had a conversation the other day, and 
there are areas just outside of Paw Paw that are still on 
third-party lines. You pick up a phone and you have to listen 
to somebody else's conversation.
    Chairman Thune. You want to hear your mother-in-law.
    Mr. Imus. Exactly. I am not sure how to address that issue, 
I don't know, because it is a very big issue. A lot of our 
penetration with our Website, I think, is the lack of the 
ability of the consumers to access the Internet. You can get a 
56k modem off the shelf for 20 bucks, but even the quality of 
the telecommunications in our area is so bad that these modems 
automatically adjust down speedwise for quality. So I have a 
56k modem, but I am only going to access the Internet at 14.4, 
and that is the best I can do, and that is just completely 
unacceptable.
    Chairman Thune. Hopefully next week we will get some 
suggestions, too. We will bring in some broadband providers to 
talk to about what we can do to drop those barriers. I 
appreciate very much your testimony this afternoon and your 
responses to the questions, and we hope this will help us build 
a record upon which to hopefully formulate some decisions.
    Thank you, and, Mr. Chairman, I yield back.
    Chairman Pence. Thank you, Chairman Thune, and the Chair 
with now recognize the gentleman from New Mexico, the Ranking 
Member of Mr. Thune's Subcommittee Mr. Udall.
    Mr. Udall. Thank you, Chairman Pence. I want to, first of 
all, thank the panel and tell them how much we appreciate their 
presence and for the excellent questions of both of the 
Chairmen here exploring this very important area.
    It seems to me we are at a point where--and I guess, Mr. 
Linkous, you talked about it a little bit--other places like 
Helsinki, Finland say every home should be broadband-wired. 
Canada has made a commitment. Other places in the world are 
making these kind of commitments and doing these things, and 
the challenge for us rural areas is how we figure out to do 
that as quickly as possible. And when we faced that challenge 
in terms of moving goods and moving materials a generation ago, 
we invested heavily in an interstate highway system. And 
Congress right now is considering when it comes to broadband 
looking at legislation to increase broadband access to rural 
areas. Much of this legislation would cost 2-, $3 billion over 
5 years, major commitment of resources.
    This question is really addressed to all of you on the 
panel. As taxpayers, do you believe it is a good idea for 
Congress to focus on this investment at this type of level?
    Mr. Linkous. I will take a little stab at that. In looking 
at what is needed in the suggestions I have from the national 
commission, I don't think I had envisioned or the association 
envisionsthe Federal Government paying for every last mile of 
wire that goes out there. However, there is a lot of incentives that 
Congress and the United States can use to make sure that that 
technology is out there as well as looking at the use of alternative 
technologies, because you have to look at what the advancements have 
been for wireless applications right now. We are not always talking 
about wireline applications going to every home, but it certainly seems 
to me that if we are looking at what is increasingly--what I see as a 
competitive issue, an issue of the U.S.'s position in the world, in a 
competitive marketplace, then it probably does justify some investment 
of taxpayer dollars.
    Mr. Udall. When you have say incentives, we are talking 
about using the Tax Code. We are using taxpayer dollars in a 
little different way.
    Any other panelists' thoughts on it?
    Ms. Stark. It seems that there are two kinds of communities 
out there right now. There are those communities served by 
high-speed broadband, or will be soon, and those are 
communities, primarily urban, suburban or rural areas right 
outside of metropolitan areas, where the market forces exist, 
where the demand for such services exist. And either the large 
RBOC's (Regional Bell Operating Companies) will provide that 
service, or it will be large cable, or it will be small 
telephone companies, co-ops, small cable companies.
    But there are a whole other group of communities out there 
where the market forces may not exist, and I think those are 
the communities that we should be concerned about. And they are 
in your States, absolutely, as well as in many other States. I 
think those are the communities where we need to think about 
market incentives or also just some provisions.
    You know the very controversial issue now as to whether 
local government, utilities can provide telecommunications 
services, and that is being litigated back and forth right now. 
What other things can we do, because I think the truth is--and 
we have seen this over and over again in all the research we 
have ever done--in very small, rural communities people make do 
with what they have. So if there is a community college, there 
is a whole lot of economic development coming out of that 
community college. It may only be two or three stakeholders, 
movers and shakers, whatever you want to call them, that make 
things happen in that rural community. People make do with what 
they have.
    So I think we need to think about those communities that--
sitting in situations where the conditions are such that there 
is not a profit-making motive for companies to come in and 
provide telecom, and those are the communities I am concerned 
with.
    Mr. Nolley. I would like to comment also that using 
Chairman Pence's Rushville district, we have tried to penetrate 
that area with broadband. It is in a different LATA. We are in 
the Ameritech territory. Rushville happens to be in the Verizon 
territory. A lot of businesses in Rushville, they can not even 
get ISDN service, and I think someone mentioned earlier that is 
kind of an outdated service. We have had a lot of trouble with 
the tariffs involved when you cross LATAs in getting broadband 
over there. Verizon's explanation is they don't feel like 
investing in Rushville because they do not know if it will be 
profitable. But for a small business--say the ISP had the 
incentive to do something like that, as a small business it 
would be profitable for them. So I feel that investment would 
work.
    Mr. Reich. I have a feeling that the Federal Government 
still is--granted the public sector is going to have something 
to do with this, but somewhere along the line if we are going 
to get out there and build an interstate highway system with 
broadband technology, which to me is totally realistic, it 
needs to happen in our country in the next 10 to 15 years for 
sure.
    I still think the Federal Government has to play a role in 
putting together the networks. If we want to build an ultimate 
network someday where we can all talk to each other and 
everything works out, I think if we get everybody going in 
different directions, too, all these providers going in 
different directions, we might have affordability problems, and 
we will not communicate well with the other side. So I think 
there will have to be some leadership that will come from 
Congress or somewhere to keep everything intertwined, very 
comparable to what the interstate highway system is. That is a 
very good analogy.
    Mr. Udall. Mr. Imus.
    Mr. Imus. I am just very concerned about the competitive 
nature of our industry. We are a dying breed, small single-
store retailer, market, hardware. We are impacted by the 
megachains, and any kind of regulatory issues that come to us 
are very impactful on our whole business. So I don't really 
have that much more to add to that.
    Mr. Udall. Great. Thank you. Thank you for your answers.
    Two of you talked about the use of technology and how you 
can use this technology in the area of medicine, for example--a 
radiologist looking at tests over a long distance for medical 
purposes. Can you think of other examples, either, I guess, Mr. 
Reich or Mr. Linkous, of other specialties that are also 
utilized? Are we really opening it up to rural areas which will 
have a real difficulty getting specialists in many cases, that 
all the specialists out there will be able to be plugged in 
this way?
    Mr. Linkous. I would say there is probably not a medical 
specialty around that is not involved in some way in 
telemedicine. Our membership has, I would say off the top of my 
head, 40 or so specialties and subspecialties represented by 
the memberships. And I am sure that Avera has many different 
types of applications.
    Mr. Reich. I agree, there is an application, if it is 
follow-ups, whatever, there is a value to them. And we are 
working on right now a diabetes education project. We have a 
tremendous need for diabetes education. We feel like we can 
save people a lot of travel by conducting diabetes education 
consults, using videoconferencing technology, critical for an 
aging population like we have in South Dakota. There is no 
physician involved. This is talking to diabetics and their 
families. There are a lot of other things going on for 
services, other services provided other than just the medical 
specialists.
    Mr. Udall. Now, when you talk about being able to take a 
medical record like an X-ray or any other record that we have 
just talked about and utilizing that in another place and 
transferring it across these lines, it raises a whole other 
issue that we hear a lot about from our constituents, which is 
this whole issue of privacy and how do you deal with the 
privacy issue. How do you protect a patient's privacy moving 
that kind of information around? Have you run into any 
problems? Is there another problem there? What would you tell a 
patient that is going to have to have this kind of thing happen 
to them? And, of course, the advantages you have outlined, are 
there any disadvantages in terms of privacy?
    Mr. Reich. I would say there is some education involved, 
but, boy, we really haven't had any. It would be just like if a 
patient came to our facility, we conduct a consult the same 
way. It is the same thing except it is a face-to-face video 
conversation. Everything is conducted the same way, the same 
confidentiality. I think there is no difference. We would like 
to mimic as much as we can what a patient would go through 
seeing a specialist if they traveled 2 hours to our facility 
and traveled 2 hours home.
    But to answer your question, for sure it is an issue. 
Absolutely. And in health care it is a big-time issue right 
now. But I am very conscious of that, and that is maybe one of 
our number one concerns when we work on the telemedicine 
application is that we need to make sure we protect the 
patient's privacy.
    Mr. Linkous. I will add to that every telemedicine 
application, every program has in place guidelines and use of 
encryptions, as well as specialty clinical requirements 
regarding privacy of patients' records, as well as the 
protection of the images themselves that are transmitted. I 
agree it is a very important issue, and it is a very important 
issue throughout the country on patient privacy and electronic 
medical records.
    I think it is important to point out that probably anybody 
in this room can put on a white lab coat and go into many 
medical centers right now and collect a number of patient 
records and walk out with it. So it is not limited to the fact 
that there is electronic records right now available, it is 
throughout the country in terms of patient records.
    Mr. Imus. Mr. Udall, if I might comment on that. As I 
mentioned before, we have a database of all our customers' 
transactions for the last 6 years, and privacy has become a 
very big issue for us, and we try to protect that. As you know, 
medical histories are very important as is personal shopping, 
grocery shopping is very personal to the consumer herself.
    I had a call from an attorney who wanted to subpoena my 
record for this consumer in a divorce case, and I have told 
them, no, that I would not let the record go. And he said, I am 
going to subpoena you. And I said, that is fine, you may 
subpoena me, and still won't provide the record. And he said, 
well, you will be in contempt of court, and you can serve jail 
time and have a severe fine. And I said, you do not seem to 
understand. First of all, this is Paw Paw, Michigan. The judge 
and everybody in the jury are going to be shopping in my store. 
The second is that the protection of the consumer is so private 
that it takes each of us as individuals that are guarding that 
data, we have taken on that onus of having to do that to the 
best of our extent in protecting that.
    That happens all the time. Hackers get in there. Kids are 
smarter than we are when it comes to this type of technology. 
Yet it still is very important for us to take that upon 
ourselves to protect that data so it will not become public 
record.
    Mr. Udall. Do any of you have any idea how much medical 
centers or hospitals have to spend annually to upgrade systems 
to protect privacy?
    Mr. Reich. I wouldn't have any firm numbers, Congressman, 
but it is astronomical. It is a huge issue. We have that all 
the time. We are trying to meet these new regs that are coming, 
and I deal with this in education as well as telehealth, and I 
have people clamoring for information about what we need to do, 
and it is costing us. It is going to cost the health care 
industry millions of dollars to adhere to some of these 
regulations, and, you know, we are trying to--there are a lot 
of reimbursement questions, and now you have to deal with these 
kind of issues. No firm number, but it is a big one.
    Mr. Udall. When you say regs, you are referring to the 
HIPAA regulations that Secretary Thompson has under review?
    Mr. Reich. Yes.
    Mr. Udall. Okay.
    Mr. Linkous. Certainly we hear from our members fear of 
HIPAA, particularly rural hospitals and rural clinics, those 
institutions that are operating on the margin already, as to 
what HIPAA is going to do to them in terms of costs. There is a 
lot of rumors and scared talk right now. There is hope when it 
finally comes down and we see the black and white of what is 
going to be required to be implemented, it will not be as bad 
as what we feared, but there is a lot of concern that 
implementations of HIPAA regulations will, frankly, put some 
medical centers out of business.
    Mr. Udall. And you all know that Secretary Thompson has 
said that he has opened this up for comment, and clearly 
anybody that is interested here ought to give him specific 
examples of what needs to be changed, because just like you 
were saying, I was very encouraged with his guidelines and 
principles that he was going to try to follow. He is going to 
try to protect privacy, yet at the same time try not to hinder 
the operation and--the operation with a patient and her quality 
of care. So we really need to find that right balance.
    Once again, let me thank the panelists and thank the two 
Chairmen, Chairman Pence and Chairman Thune, for your very 
strong interest on this issue and your commitment to get to the 
bottom of this and really do something about it. Thank you very 
much.
    Chairman Pence. The Chair thanks the gentleman from New 
Mexico, the Ranking Member, for his very thoughtful questions 
and kind remarks.
    The Chair would also recognize for any questions she might 
have the gentlelady from Ohio Ms. Tubbs Jones.
    Mrs. Jones. Thank you. I don't serve on this Subcommittee, 
and I was sitting here trying to figure out how I got here, and 
I told my staff member I was trying to be up on broadband. So 
she put this on my schedule, and I am glad I got here.
    I come from the rural community of Cleveland, Ohio. Very 
interesting, my hair stylist, a small businessman, and I have 
lots of conversations, and he said to me, you know, I am having 
a problem getting the type of phone lines I want in the city of 
East Cleveland to do the high-speed, the whole business. And I 
said, Mr. Black--that's his name--not in East Cleveland. He 
said, apparently it is not lucrative for them to come and wire 
this little suburb of East Cleveland.
    And I say this seriously and jokingly, but also I want to 
add that my colleague Eva Clayton from the great State of North 
Carolina said to me--I said, I am going by this, are you 
interested, and she said, yes, and go read this letter. I won't 
read the whole letter, but in essence what she says, when we 
talk about rural communities, we have tend to talk about 
farming, but more importantly rural communities need a lot of 
different things, and I will read one paragraph. She says, 
however, in spite of the many challenges facing rural America, 
the response of the United States Government has been a 
piecemeal combination of policies. While we devote resources to 
individual problems facing our rural communities, such as 
housing, there is a lack of an integrated policy that seeks to 
address the entire rich fabric of rural America. Included in 
that she is talking about infrastructure, broadband and the 
like.
    So on behalf of my friends that come from rural 
communities, I am glad I had an opportunity to hear what you 
had to say. I am enlightened more than I was previously. I have 
absolutely have no questions, but I thank you for coming here, 
and I thank the Chair and Ranking Member.
    One more thing I will say, I did have a chance to visit Mr. 
Udall's community with President Clinton 2 years ago, and we 
were discussing this very issue, the digital divide, and had a 
chance to travel up to the Navajo Nation, and it took us an 
Army helicopter and another helicopter to get there. So I 
recognize the distance and the divide that comes as a result of 
being in rural America. And thank you, Mr. Chairman, for the 
community, to be here.
    Chairman Pence. Well, the Chair thanks the gentlelady from 
Ohio and welcomes her as an ex officio member of these joint 
hearings at any time in the future. I appreciate your energy, 
your enthusiasm and encouragement to these outstanding 
witnesses.
    I will ask as a courtesy of Chairman Thune for Mr. Udall 
are there any additional questions of the panel?
    Chairman Thune. I think we have probably covered all the 
bases, Mr. Chairman, and would invite Ms. Tubbs Jones to South 
Dakota, too. There are places you can't get to with a 
helicopter. I am just kidding. But I appreciate the fact that 
we have Members from the more populated area of the country who 
feel our pain, so to speak, because these rural areas are very, 
very difficult, challenging when it comes to getting some of 
the same basic service that a lot of our brethren in the bigger 
cities expect.
    I appreciate your participation, and I appreciate the 
panel's testimony today, and we will look forward to developing 
this issue further. Thank you, Mr. Chairman.
    Chairman Pence. Mr. Udall, any additional questions or 
comments?
    Mr. Udall. No. I would just like to say that on that trip 
she talked about out to Shiprock, New Mexico, I know that 
Congressman Thune has many areas like that in South Dakota, 
many of these tribal areas and reservations. They have a hard 
time getting phone service, sometimes getting electricity 
service. So we have a real challenge there, and I think 
sometimes we may need to look at those in a little different 
way than we look at some of the other rural problems that are 
out there, but clearly everybody is in the same boat on this. 
We need that kind of broadband access, and thank you once 
again.
    Chairman Pence. With that, the Chair would like to thank 
our witnesses, Mr. Reich and Mr. Imus, Mr. Linkous, Ms. Stark 
and Mr. Nolley of Indiana. We thank you for all traveling, in 
some cases far distances, and in other cases bringing 
tremendous acumen and background to what will be the first in a 
series of joint hearings of the Subcommittee on Rural 
Enterprises, Agriculture and Technology and the Subcommittee on 
Regulatory Reform and Oversight of Small Business. And I think 
I speak for Chairman Thune when I say that it is my sincere 
hope that the remainder of our hearings will be as illuminating 
and as interesting and as well presented as this panel has 
provided in this hearing.
    With that, this joint hearing is adjourned. I thank you.
    [Whereupon, at 3:47 p.m., the subcommittees were 
adjourned.]


      ELIMINATING THE DIGITAL DIVIDE: WHO WILL WIRE RURAL AMERICA?

                              ----------                              


                         Thursday, May 24, 2001

        House of Representatives, Subcommittee on 
            Regulatory Reform and Oversight, and 
            Subcommittee on Rural Enterprises, Agriculture 
            and Technology Committee on Small Business,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, 10:06 a.m. in Room 
2360 Rayburn House Office Building, Hon. Mike Pence and Hon. 
John Thune [chairmen of the subcommittees] presiding.
    Mr. Thune. This joint hearing will come to order.
    Good morning. It is my pleasure to welcome you this morning 
to the joint hearing between the Subcommittee on Rural 
Enterprises, Agriculture, and Technology, and the Subcommittee 
on Regulatory Reform and Oversight chaired by my colleague from 
Indiana, Mike Pence.
    I would especially like to thank those of you who have 
traveled over a long distance to participate in this hearing 
today.
    Today's hearing is the second of two which are focusing on 
the issue of broadband telecommunications access in rural 
America. This morning we plan to examine how we can connect 
rural America to ensure it is not left out of the Internet 
revolution.
    Here to discuss this challenge with us today are five 
witnesses representing a broad array of telecommunications 
companies. The committee will hear from Sulley Buttes Telephone 
Cooperative from my home state of South Dakota; from New Edge 
Networks; Armstrong Cable Company; Western Wireless 
Corporation; and Hughes Network Systems. These companies range 
in size from large corporations to small local businesses and 
utilize very different technologies but they all have one goal 
in mind, and that is to provide broadband access to rural 
America.
    We heard at last weeks' hearing that one of the biggest 
obstacles to rural broadband access is affordability. Because 
of the sheer cost of new technology and the associated access 
costs, the vast majority of small business owners find 
themselves unable to obtain services that other parts of the 
country take for granted. So when faced with the question of 
how to provide high speed connections to all Americans, those 
of us who represent rural areas understand how important the 
information highway is to the future prosperity of our 
constituents.
    Just as the national highway system has been crucial to the 
economic prosperity of rural America during the last century, 
broadband Internet technology will be equally important this 
century.
    Small business owners in rural America are becoming 
increasingly aware of the importance of broadband access to the 
future viability of their businesses. To continue to serve 
theircommunities and remain competitive with large companies, 
small business owners must have reliable and affordable high speed 
Internet access.
    Congress is looking at different solutions to the problems 
of access and affordability. One promising bill, H.R. 267, the 
Broadband Internet Access Act of 2001, has been introduced by 
Representative Phil English from Pennsylvania. The bill uses 
tax credits as incentives for companies who are interested in 
providing broadband access in rural and low income areas. As a 
cosponsor of this legislation, I believe H.R. 267 uses a 
balanced approach to federal tax dollars and free market 
solutions to reach our goal of broadband access for all 
Americans.
    I again want to thank all of our witnesses for 
participating in today's hearing, and I look forward to hearing 
your testimony. At this point I would like to yield to the 
chairman of the other subcommittee, my colleague from Indiana, 
Mike Pence for an opening statement.
    Mr. Pence. Thank you, Mr. Chairman.
    I thank you for agreeing to co-chair these very important 
and timely hearings.
    Our hearing held jointly today with my good friend from 
South Dakota's Subcommittee on Rural Enterprises, Agriculture 
and Technology addresses the rise of the new economy and the 
technology needed to ensure that rural areas can share in the 
global business opportunities that arise from the continuing 
penetration of the Internet.
    This is the third in a series of hearings that the 
Subcommittee on Regulatory Reform and Oversight has held on the 
Internet-based economy. Last weeks' hearing, as the Chairman 
indicated, focused on the so-called digital divide--the lack of 
high speed or broadband access to the Internet currently 
plaguing rural small communities. Today's hearing examines the 
various technologies for eliminating the digital divide, be it 
cable, satellite, DSL, fiber-optic, or wireless. The businesses 
testifying today have decided that it makes good business sense 
to provide broadband to rural areas, and I look forward to a 
very informative session from all of our witnesses.
    Again, I would like to thank the gentleman from South 
Dakota, Chairman Thune, for agreeing to co-chair these hearings 
and also would like to acknowledge the ranking member of our 
subcommittee the gentleman from Pennsylvania, Mr. Robert Brady, 
who joins us and who while from a very large city, 
Philadelphia, still is demonstrating a genuine commitment to 
seeing to it that the opportunities that are available over the 
Internet are available to all Americans. I thank you for your 
interest and participation.
    The evidence of the digital divide is pretty clear. While 
urban areas get broadband access, rural areas are left behind. 
A relevant illustration is that today's hearing is being 
carried live by Hearings.Com on the worldwide web. That is 
accessible in most major metropolitan areas, as our discussion 
will be today, but is not accessible to adults or to students 
in rural America that might be even more interested in our 
discussion today.
    As the Federal Communications Commission noted in August of 
2000 in their report on deployment of broadband services, 
``Consumers in Los Angeles County have a rich variety of 
choices of advanced services while there are no providers of 
advanced services for residents of rural West Virginia.''
    Given the benefits of broadband service and the importance 
it can play in maintaining the vitality of America's rural 
communities, that disparity must change. Inroads are being made 
to reduce this disparity as the witnesses at today's hearing 
will demonstrate. More investment will be required as the 
National Exchange Carrier Association estimates that it may 
cost as much as $11 billion to make telephone lines in rural 
America broadband capable.
    My primary concern is that the investment will not occur 
quickly enough to stimulate the economies of rural America, and 
of Indiana particularly. The only favorite I seek to play in 
the debate over broadband is to ensure that businesses in rural 
America have the same access to advanced telecommunication 
services that are available in Los Angeles, New York, and 
Washington, D.C. and Philadelphia. I have no preference 
concerning technology or providers. All I am interested in is 
making sure the government gets out of the way or otherwise 
adopts policies that ensure that all businesses interested in 
serving rural America have that opportunity.
    I look forward to the testimony from the witnesses and the 
problems that they see in delivering broadband to rural 
America. The businesses at today's hearing represent the entire 
spectrum of technologies for delivering broadband access. We 
will hear from a company that provides satellite service, a 
cable operator focusing on serving rural America, two 
competitive local exchange carriers that started to serve rural 
America after the enactment of the Telecommunications Act of 
1996, and a very small telephone cooperative that serves rural 
South Dakota.
    Conspicuously absent today are the largest incumbent 
telephone companies serving rural Indiana, South Dakota and 
rural New Mexico. Let the record show that invitations were 
extended so the joint subcommittee members could inquire about 
these companies' plans for broadband deployment in rural areas. 
The invitations were turned down due to the press of business. 
I might note that a number of the small businesses represented 
here today were able to attend even though they clearly do not 
have the resources or the flexibility of the companies that did 
not wish to participate. I know that I am disappointed in not 
being able to create a full and complete record on the 
potential providers of broadband service for rural America and 
the problems they face in eliminating the digital divide as I 
am sure all of my colleagues on this panel are as well.
    Again, let me thank the gentleman from South Dakota for 
agreeing to co-chair this hearing. I look forward to working 
with him and other members interested in addressing the 
critical need for telecommunications infrastructure in rural 
America.
    I thank you, Mr. Chairman.
    Mr. Thune. I thank the gentleman from Indiana for his 
statement, for his leadership on this issue.
    We are joined by the ranking members of the two 
subcommittees, and I would first like to yield to the gentleman 
from the great state of New Mexico, the ranking member on the 
Subcommittee on Rural Enterprises, Agriculture and Technology, 
Mr. Tom Udall.
    Mr. Udall. Thank you very much, Chairman Thune.
    Chairman Thune, Chairman Pence, and ranking member Brady, I 
also find it particularly discouraging that Qwest would not 
attend today and come and tell us about their plans to expand 
into rural areas of New Mexico, and I think all of us feel the 
same way on that.
    I am pleased to be here today for the second joint 
subcommittee hearing to examine the impact of broadband 
telecommunication services on small business in rural areas. 
All of us recognize that the Internet has revolutionized the 
way people communicate, students learn, and the way in which 
business is conducted in America and throughout the world. 
However the fact of the matter is that while just about every 
apartment and city school and suburban home are wired and 
connected with high speed Internet access, there are many 
people in America who have not benefitted from this 
technological revolution either because service is too costly 
or non-existent.
    This is especially the case in rural areas where the 
Internet along with high speed access remains just a concept, 
not a real tool as it is in more urban areas.
    The Internet possesses limitless potential to bring 
technology, information and jobs to our rural communities. In 
my state our small business communities accounted for nearly 90 
percent of all net new jobs last year. High speed Internet 
access must be an essential and basic service that all 
Americans are entitled to. I believe that Internet access must 
become a basic service everywhere for every American.
    Yesterday Qwest announced that broadband Internet access 
will be coming to parts of rural New Mexico. Two of the four 
cities where digital subscriber line equipment, otherwise known 
as DSL, will be installed are located in my district. In 
addition to New Mexico, Qwest will expand its DSL service in 10 
other western states. Even though communities I represent are 
not like Los Angeles or Phoenix, they are significantly 
populated and personally it is astonishing to me that this 
service was not offered earlier.
    Many areas of my district remain technologically isolated 
and some of my constituents face the threat of never acquiring 
the computer skills that we have come to consider basic and 
essential in today's technological economy.
    One piece of legislation which I believe will assist in the 
deployment of broadband to rural areas such as in my district 
is H.R. 267, the Broadband Internet Access Act of 2001 which is 
designed to offer incentives for deployment of broadband 
service to rural and low income areas. I have joined Chairman 
Thune, Congressman Bartlett, Congresswoman Christensen, and 149 
other members from both sides of the aisle in co-sponsoring 
this legislation. The broad support for this legislation is an 
indication that Congress is committed to seeing the deployment 
of high speed and affordable Internet access that will reach 
all Americans.
    I hope that you share our concern and that we can work 
today towards greater understanding and a common goal.
    Thank you, Mr. Chairman. I look forward to hearing from our 
panel today.
    Mr. Thune. I thank the gentleman, and I would at this point 
yield to the distinguished ranking member of the Subcommittee 
on Regulatory Reform and Oversight, Mr. Brady, from the state 
of Pennsylvania.
    Mr. Brady. Thank you, Mr. Chairman.
    I represent urban districts. I do not always get the chance 
to hear the concerns of rural areas in obtaining Internet 
access. I am very happy to have this opportunity to hear these 
concerns and offer my support for the rural communities in 
their endeavors to gain broadband access. Because broadband 
technology has the potential to transform the Internet, there 
has been a great deal of debate in Congress on how to ensure 
timely deployment, fair competition and service to all sectors 
and geographical locations of America.
    I look forward to learning more about these issues. And 
just to let you know, South Dakota, Indiana, New Mexico, 
Philadelphia. [Laughter.]
    It sounds strange, but I thank the two chairmen and my 
ranking member also, my dear friend from New Mexico for 
allowing this city slicker here to learn a little bit more 
about the rural areas and to pledge my support to you.
    Thank you.
    Mr. Thune. And I want to thank the gentleman for his 
hospitality last summer. We were in your fine city of 
Philadelphia for a national convention. I did not see you at a 
lot of those events, but we enjoyed the greatest hospitality of 
your district.
    Mr. Brady. I was in so much seclusion.
    Mr. Thune. Okay.
    We have been joined also by a gentleman from Illinois. Mr. 
Phelps, welcome to the committee.
    Mr. Baird from the state of Washington has joined us, and I 
believe he is here to introduce the witness from New Edge 
Networks.
    Do you want to make an opening statement?
    Mr. Baird. I can do that now, Mr. Chairman, or when----
    Mr. Thune. Do you want to get a minute to catch your 
breath? We can catch up with you.
    Mr. Baird. Sure.
    Mr. Thune. Terrific. Good.
    Before we begin receiving testimony from the witnesses I do 
want to remind everyone that we would like to keep each of the 
witnesses, to keep their oral testimony to five minutes. Your 
written statement will be included in the record.
    In front of you on the table you will see an array of 
lights. Green, red, and yellow, which I guess is fairly self 
explanatory. But when the red light is on, the committee would 
like to have you, if you could, wrap up your testimony. But 
there are no trap doors there. If you are not finished by then 
we will not----
    [Laughter.]
    But without further delay--And I might add, too, that we 
are scheduled to have a vote on the journal here at some point 
in the very near future. So we will get underway but we may 
have to break just to make you aware of that.
    So without further delay I am going to introduce our first 
witness. That is Mr. Michael Cook of Hughes Network Systems. He 
is the Vice President and General Manager of the Spaceway 
Business Group of Hughes Network Systems. In this role he is 
responsible for the establishment and operation of the new 
Hughes Spaceway Broadband Satellite System. Mr. Cook has more 
than 20 years experience in telecommunications, having worked 
previously for cable and wireless and Alcatel Business Systems. 
Mr. Cook holds a first class or honors Bachelor of Science 
degree in Mathematics from Exeter University.
    Mr. Cook, if you would please proceed.

   STATEMENT OF MICHAEL L. COOK, VICE PRESIDENT AND GENERAL 
   MANAGER, SPACEWAY AND HUGHES NETWORK SYSTEMS, BETHESDA, MD

    Mr. Cook. Thank you very much. Good morning.
    I am Vice President of Hughes Network Systems and General 
Manager of Spaceway. Spaceway is Hughes' next generation 
broadband satellite system, and that is going to provide 
broadband service coverage to the whole of the United States 
including Alaska, Hawaii, South Dakota, Indiana, New Mexico, 
Illinois, Washington State, and of course Pennsylvania.
    I would like to thank the committee for the opportunity to 
speak to you today and to commend the members of both 
committees for reviewing the issue.
    In the satellite industry we are inspired by the prospects 
and promises of broadband service, but at the same time we are 
deeply frustrated with the apparent lack of awareness of the 
critical role that satellites will play in the provision of 
advanced broadband services--particularly to small businesses 
and consumers in rural areas.
    We hope the Congress in drafting legislation to support the 
deployment of broadband and in reviewing the FCC allocation of 
spectrum will take into account and support this essential 
rolethat satellites will play both in the provision of broadband 
service and indeed in the competitive landscape across the whole of the 
country. I am going to come back to those two issues in a few moments.
    Firstly, I would like to review the role that Hughes 
Network Systems, or HNS as I will probably refer to it, is 
playing in providing high speed communications. HNS was a 
pioneer in the very small aperture terminal VSAT industry which 
is the provision of satellite delivered data communications 
services using small dishes.
    H.N.S. was also the first to offer true broadband service 
over satellites when it introduced its direct PC service in 
1996.
    Today HNS provides broadband satellite services to 
approximately 300,000 consumers and businesses in the United 
States through its DirecPC and DirecWay services using today's 
operational Ku-band satellites.
    What is more important than that is that we continue to 
invest heavily to significantly advance the technology and 
service quality. HNS' efforts have led to significant price 
reductions in both equipment and services while simultaneously 
increasing the power and the effectiveness of these systems.
    Historically small business has been underserved by 
terrestrial broadband service providers. HNS considers that 
small businesses are one of the most important components of 
our future broadband services. In fact we already provide 
satellite broadband services nationwide to thousands of small 
businesses through DirecPC and DirecWay.
    Using current satellite technology we are involved today in 
a number of initiatives that are aimed specifically at serving 
the small business community. These initiatives are things like 
on-line livestock auctions, streaming video and Internet 
content to family-owned businesses, data multicasting, remote 
worker training, and briefing such as for the health care, 
financial, agricultural and insurance industries.
    In the not too distant future small businesses, no matter 
where they are located geographically, will require broadband 
access. Not merely to be more competitive, but in order to 
survive.
    As part of our dedication to the continuing development of 
advanced broadband services, we have committed $1.5 billion for 
the U.S. portion of a new, advanced, broadband satellite system 
called Spaceway.
    When it is fully deployed Spaceway will consist of a global 
network of geostationary satellites offering broadband service 
in the new Ka-band frequency spectrum. Three satellites will be 
dedicated to serving North America with launches beginning at 
the end of next year.
    Spaceway satellites are quite unlike any that exist today. 
The satellites have roughly five to ten times more capacity and 
will be capable of much higher data, voice and video 
communication speeds than today's Ku-band systems.
    Spaceway satellites will be capable of transmitting data at 
over 400 megabits per second, and with custom software and 
equipment individual Spaceway users will receive services 
individual services at downlink speeds of 30 megabits per 
second or 30,000 kilobits per second to each terminal.
    This downlink speed is about 1,000 times faster than the 
speeds available today on a typical telephone modem, and 
depending on the particular terminal chosen, users will be able 
to send data up to the satellite at speeds from 512 kilobits 
per second to 16 megabits per second.
    Spaceway is perfectly designed to meet the burgeoning 
demands of small businesses everywhere, and using standard 
Internet protocols from low cost satellite terminals, its data 
rates will support high speed Internet access, high quality 
full motion videoconferences for businesses and residential 
applications, and point to point applications of streaming and 
large amounts of data.
    In the Spaceway world there will be no have's and no have 
not's. There will be no differences between rural and urban 
communities' access to broadband. And with broadband satellite 
solutions there is no digital divide.
    One key issue has been spectrum allocation. In order to 
provide a high quality service, Spaceway needs clear spectrum 
that is not simultaneously used by terrestrial services. In our 
view, the FCC, which has the primary responsibility for 
allocating spectrum, has sometimes placed a higher priority on 
short term terrestrial deployment rather than on long term 
provision of competitive satellite services. As a result, 
broadband satellite systems operating in the Ka-band such as 
Spaceway, have not been allocated sufficient spectrum to 
operate as efficiently and effectively as possible.
    We would like to encourage the committee to examine the 
crucial role of spectrum allocation and the most effective way 
it can be used to serve small businesses and underserved 
communities, particularly in rural areas.
    Secondly, there are a number of bills before Congress, and 
we have talked about some of them already, that would offer tax 
and other incentives to companies to build out their broadband 
infrastructure to rural areas. We believe it is essential that 
any legislation enacted by Congress be truly technology neutral 
and recognize the needs of users throughout the country.
    Unfortunately, we sometimes find that proposals do not take 
into account the unique characteristics of broadband satellite 
technology, but instead tend to favor terrestrial technologies. 
We believe that that will be counterproductive since it will 
diminish the potential availability of broadband services in 
rural areas by discouraging the most promising solution for 
these areas.
    In conclusion, I would like to say very clearly that 
through the development of interactive broadband satellite 
technology, Hughes is eliminating the digital divide. With the 
services we are deploying today--DirecPC and DirecWay--and with 
the significantly enhanced capabilities we will have when we 
deploy Spaceway at the end of next year, small businesses, 
wherever they are, will be within easy reach of the broadband 
universe without service discrimination, and very particularly, 
without financial disadvantage.
    I would like to thank the subcommittee members for your 
time this morning, and I will be delighted to answer any 
questions that you have on the subject.
    [Mr. Cook's statement may be found in appendix.]
    Mr. Thune. Thank you, Mr. Cook.
    Next we will move to Thorpe ``Chip'' Kelly with Western 
Wireless Corporation. He is the Senior Vice President for Sales 
and Marketing for Western Wireless in Bellevue, Washington. Mr. 
Kelly started as General Manager in 1989, working for 
predecessor entities of Western Wireless including Stanton 
Communications and Pacific Northwest Cellular. Over the years 
he has held a variety of positions in sales and marketing for 
the company.
    Mr. Kelly, please proceed.

STATEMENT OF MR. THORPE ``CHIP'' KELLY, SR. V.P. FOR SALES AND 
         MARKETING WESTERN WIRELESS CORP., SEATTLE, WA

    Mr. Kelly. Thank you very much.
    Good morning Congressman Thune, Congressman Pence, and 
members of the subcommittees. I commend you and your colleagues 
for highlighting the advanced telecommunication needs of rural 
America.
    My company, Western Wireless, successfully provides 
wireless telephone services in areas of the country long 
neglected by others.
    The company serves customers in 19 western states with a 
state of the art network infrastructure capable of providing 
both basic and advanced telecommunications services for rural 
businesses and residential customers. Our system covers 800,000 
square miles which is 30 percent of the continental United 
States, and our average population density in our markets is 11 
people per square mile.
    For Congressman Brady, that would be probably the area of 
Philadelphia with about 500 people in it. So it is rural.
    Our mission statement is that we endeavor to be the premier 
communications provider to rural America.
    About seven years ago we began providing wireless local 
loop service to small businesses and residential customers in a 
remote area of Nevada that had never been served by local 
telephone companies before. In the last year we have launched 
competitive wireless local loop service in more than 70 rural 
communities in Minnesota, Kansas, Texas, and South Dakota.
    In South Dakota, for example, we are providing wireless 
service on the Pine Ridge Indian Reservation, which as 
Congressman Thune knows all too well, is a remote and depressed 
area. For almost half of our tribal customers we provided their 
first ever telephone service.
    Many have questioned the viability of cellular telephone 
service in rural America, and now it is widely recognized that 
wireless service holds the key to the availability of advanced 
telecommunications services in rural America.
    The centerpiece of Western's three year old effort to bring 
the benefits of competition to the local telephone market in 
rural America is our petitions, pursuant with federal law, for 
designation as eligible telecommunications carrier status or 
ETC. Western Wireless has been designated as an ETC in 12 
states.
    Despite national policy to the contrary, rural areas have 
in many cases been effectively excluded from the benefits of 
the competitive telecommunications market because of incumbent 
local telephone companies which have historically monopolized 
the access to universal service support necessary to provide 
affordable telecommunications in these rural and high cost 
areas.
    For example, the cost of providing telephone service in 
many rural areas exceeds $100 per line per month, and yet 
consumers pay as little as $10 or less per month with the 
Universal Service Fund making up the bulk of the difference.
    Clearly, a competitive carrier that does not have access to 
Universal Service Funds would not choose to enter that local 
market and compete with incumbent carriers who do have 
universal service support.
    The Telecommunications Act of 1996 was supposed to 
eliminate the historical barriers to local competition in rural 
areas by requiring the FCC and state commissions to open the 
universal service market to competitive entry. Five years have 
now passed since the passage of this Act and rural consumers 
are still waiting for the promised benefits.
    The problem is that the FCC and state commissions have not 
completed the transition to a competitive universal service 
system, which I believe is critical to competitive entry in 
rural markets and to the closing of the digital divide in rural 
America.
    Western's entry into the universal service market allows us 
to serve the basic and the advanced communications needs of our 
rural customers.
    In December, Western successfully demonstrated the 
capabilities of next generation wireless digital technology in 
a trial in Windom, Minnesota where speeds of 153 kilobits per 
second were received over wireless local loops. And Western is 
now in the process of deploying this technology into its 
network and will commercially launch high speed data services 
later this year.
    Further, as third generation wireless technology becomes 
widely available in 2002, data rates of more than 600 kilobits 
per second will be supportive.
    In order to resolve the digital divide the government must 
take steps to reform current universal service support 
mechanisms so that competitive carriers and incumbent carriers 
alike have access to the same levels of support.
    This means that implicit support mechanisms such as access 
charges must be replaced with explicit portable universal 
service funding mechanisms, and that explicit portable 
universal service funds are established to provide support to 
carriers that serve rural, high cost areas.
    Second, the government must expeditiously grant competitive 
carriers ETC status and prevent incumbent carriers from 
delaying and preventing competitive entry into the global 
market.
    For the past three years, incumbent local exchange carriers 
have engaged in anti-competitive tactics aimed at delaying or 
preventing Western from entering the local market. One 
incumbent local exchange carrier in North Dakota went as far as 
to cut off Western Wireless' interconnection to the public 
telephone network. A court order ultimately ordered the 
incumbent telephone company to restore service and pay damages.
    In conclusion, competition holds the key to the deployment 
of advanced telecommunications services in rural America.
    The federal government should foster competition by 
establishing a competitive universal service system and by 
taking enforcement actions against anti-competitive behavior by 
incumbent carriers.
    The government should also end the limitations on spectrum 
aggregation by crafting a comprehensive spectrum allocation 
policy, and these two points are elaborated upon in my written 
statement.
    Thank you, Mr. Chairman, and I am happy to answer questions 
later.
    [Mr. Kelly's statement may be found in appendix.]
    Mr. Thune. Thank you, Mr. Kelly.
    At this point I am going to yield to the gentleman from 
Washington, Mr. Baird, who would like to introduce his witness 
and I believe any statement you would like to make, Mr. Baird.
    Mr. Baird. Let me thank the Chairman for assembling this 
panel. I think it is a critical topic particularly for areas 
such as yours and mine where a number of rural areas do not 
have access to high speed Internet.
    Fortunately, however, companies such as those we are 
hearing from today are making real progress in this area. One 
company that has made particularly progress is a company 
located in Vancouver, Washington, New Edge Network.
    With us today is Susan McAdams, the Vice President for 
Regulatory and Public Affairs. Ms. McAdams has more than 23 
years of experience in the telecom field. Before coming to 
NewEdge she worked for the Washington State Utilities and 
Transportation Commission, the National League of Cities, the National 
Telecommunications and Information Administration of the Department of 
Commerce, and the North Carolina Task Force on Public 
Telecommunications.
    I want to thank Ms. McAdams for making the trip here to 
testify. I believe we could not have a better person to talk 
about this issue.
    Mr. Thune. Thank you, Mr. Baird.
    Ms. McAdams, please proceed.

    STATEMENT OF SUSAN MCADAMS, V.P. FOR EXTERNAL AND LEGAL 
           AFFAIRS, NEW EDGE NETWORKS, VANCOUVER, WA

    Ms. McAdams. Thank you very much, Mr. Chairman, members of 
the committee, and Congressman Baird for that most gracious 
introduction. Thank you very much.
    I am especially pleased to have the opportunity to testify 
here today because New Edge Networks is proud to in fact be 
bridging the digital divide by bringing broadband communication 
services to hometown USA. New Edge Networks is the largest 
national broadband services provider focusing on small and mid-
sized cities and towns. We generally serve communities with 
population ranges between 5,000 and 250,000. These include 
towns like Rapid City and Sioux City, South Dakota; Bedford, 
Michigan City, Indiana; Decatur, Illinois; Farmington, Santa Fe 
and Albuquerque, New Mexico; and of course Battleground, Camas, 
Longview and Vancouver, Washington.
    We were founded less than two years ago and believe that we 
are in fact a success story of the 1996 Act. To date, New Edge 
Networks offers services, broadband Internet access services to 
customers in 400 smaller cities and towns in 29 states.
    Today, gentlemen, there is a new economic revival in small 
town USA and information is the driving force behind that 
revival. Chairman Pence, Chairman Thune, and other members of 
this committee have spoken eloquently about the vital role of 
broadband in supporting small business development, and our 
marketplace experience bears this out.
    Let me tell you about the comments of one small 
businessman, Marcus Wilcox, whose company, Cascade Energy 
Engineering, is located in the small town of Walla Walla, 
Washington. He had this to say. ``Our engineering firm makes 
heavy use of the Internet from e-mail to transferring large, 
computer-aided design files and spreadsheets. With our choice 
to set up shop in a small, eastern Washington town, slow 
Internet access was assumed to be a way of life. When New Edge 
Networks and our Internet service provider, Blue Mountain 
Internet, offered us DSL, it seemed to be too good to be true. 
Going to DSL actually saved us money.''
    A moment ago I referred to an information-powered economic 
revival in small town USA. Unfortunately, the revival tent in 
which this miracle is taking place is currently listing in the 
wind and is in danger of toppling over. Some proposals before 
this Congress, if enacted, threaten continued competitive 
deployment of advanced telecommunications services, especially 
in smaller markets.
    The 1996 Telecommunications Act did something conceptually 
very simple. It set in motion a framework for competition in 
the telecommunications marketplace. The promise of the Act was 
to bring further deployment, competitive prices, increased 
innovation, and improved customer service to telecommunications 
markets across the nation. To achieve these objectives Congress 
carefully crafted the transition from monopoly to a competitive 
market structure. And central to this design is the requirement 
that new entrants be allowed to interconnect with traditional 
networks that were financed over the last 100 years by monopoly 
rate payers.
    In fact in only the few short years since the Act, 
competitive providers have produced astonishing results. Fifty-
six billion dollars invested since 1997 in new network 
infrastructure; 16 million access lines served by CLECs; 8200 
central offices DSL-equipped; 500,000 DSL lines provided; and 
in fact today about half of Americans can access CLEC provided 
DSL.
    What the committee is probably most interested in is what 
we feel the Congress can do today to continue to address the 
issue of broadband development in rural America. I suggest the 
following in conclusion. Stay the course that Congress charged 
with the Telecommunications Act. Make monies available for 
targeted subsidies, for further deployment in rural areas. Give 
the FCC stronger enforcement tools such as Chairman Michael 
Powell has requested. Urge timely FCC action on pending 
petitions that would set clear performance intervals and 
standards for loop provisioning by the incumbent telephone 
company. Consider requiring full structural separation of the 
major incumbent telephone companies into retail and wholesale 
companies. And finally, send a clear message to Wall Street 
that Congress continues to support the important pro-
competitive policies of the '96 Act.
    Unlike some in the industry, we believe that the House 
Small Business community has a critical stake in this debate, 
and that is why I am here today. We applaud you for holding 
these hearings. We urge you to continue to monitor 
telecommunications developments. You are in a unique position 
to assure that any legislation before Congress empowers small 
businesses as full participants in today's information economy.
    Thank you very much.
    [Ms. McAdams' statement may be found in appendix.]
    Mr. Thune. Thank you, Ms. McAdams.
    At this point we have a vote on, so members have gone. We 
are going to keep rolling here, and they will come back and we 
will turn it over.
    But I would like to introduce, and I will take these out of 
order if it is okay with the witnesses.
    It is my pleasure to introduce Randy Houdek of Sulley 
Buttes Telephone Cooperative in Highmore, South Dakota from my 
home state. Mr. Houdek is a graduate of Northern State 
University of Aberdeen, South Dakota and has been employed by 
Sulley Buttes for 15 years, spending the last four years as 
General Manager. He and his wife Deb are the proud parents of 
three boys--Derrick, Carsten, and Hayden.
    Sulley Buttes' telephone is a small rural incumbent local 
exchange carrier that is owned by the members of the 
cooperative and run by a board of directors elected by the 
membership and has been serving customers for over 40 years in 
central and northeast South Dakota. And I might add, has very 
much been on what I would call the cutting edge of extending 
broadband service, DSL, to a lot of small, rural communities 
across South Dakota.
    So we are very delighted and pleased to have Randy with us 
today. Thank you for coming to Washington. Please proceed.

STATEMENT OF RANDY HOUDEK, SULLEY BUTTES TELEPHONE COOPERATIVE 
                          HIGHMORE, SD

    Mr. Houdek. Thank you very much for allowing me this 
opportunity. I am honored.
    Again, my name is Randy Houdek. I am the General Manager of 
Sulley Buttes Telephone, SBCT, of Highmore, South Dakota. Our 
system serves a substantial portion of central and northeast 
South Dakota. We are a small local exchange carrier, an ILEC, 
that is owned by the members of our rural communities.
    Sulley Buttes currently is serving more than 13,600 
customer in rural areas of central and northeastern South 
Dakota. According to the 2000 census, South Dakota has 
approximately 754,000 people or roughly the same number of 
people as the city of San Francisco. However, our population is 
disbursed over more than 77,000 square miles with fewer than 
ten people per square mile. In areas served by Sulley Buttes, 
we have fewer than two customers per mile of line.
    In contrast, the average customer density in the urban 
areas is closer to 100 per mile of line. Several other 
incumbent carriers in South Dakota have less than one customer 
per mile.
    The U.S. Department of Health and Human Services classifies 
more than 60 percent of South Dakota as not rural, but 
frontier. Yet even in the face of these obstacles we have 
managed to grow and thrive as a company thanks in part to the 
federal government's policy of universal service. This policy 
has brought basic telephone service to rural locations like 
Highmore in the early parts of the 20th Century, and now the 
policy of universal service is helping bring advanced services 
to communities in rural South Dakota.
    At Sulley Buttes we are proud of the fact that we offer our 
customers many of the latest and most advanced technologies 
available in the market today. Currently we have deployed 
digital subscriber line, DSL technology, in seven of our 
exchanges, and we plan to deploy DSL in the remaining 19 before 
the end of the year. We offer the latest call-in features 
including voicemail, caller ID, call waiting, and most of the 
other services offered in urbanized areas. Moreover, we provide 
advanced services including high speed, always on Internet, 
cable television, centralized equal access to long distance 
carriers. This progress has largely been made possible by the 
various financing programs and support mechanisms made 
available to companies like mine over the past several decades. 
More recently we have acquired wireless licenses including PCS 
and LMDS licenses to use as tools in providing advanced 
services to our subscribers.
    Programs like the Rural Utility Service or RUS and the 
Rural Telephone Bank have helped finance major portions for 
rural companies like ours that are just not feasible for many 
commercial lenders. Thanks to these entities and the universal 
service concept, Sulley Buttes and other ILECs in South Dakota 
have deployed broadband services in more than 40 small 
communities with plans to increase to more than 100 by the end 
of the year.
    The subject of your hearing today is eliminating the 
digital divide--Who will wire rural America? I am here to tell 
you this morning for the record, that the job is already being 
done to a large degree by Sulley Buttes and its colleagues from 
around the nation. We approach our work from an integrated 
perspective using wire as well as fiber, radio, and all other 
available technologies.
    Sulley Buttes is a member of National Telephone Cooperative 
Association or NTCA, an association representing more than 540 
small rural ILECs. Much of what I talk about today is 
representative of what other rural ILECs are doing as well.
    Sulley Buttes and our rural ILEC colleague surveyors that 
are viewed as economically unattractive to the industry's 
largest carriers. We have relied on loans from the Rural 
Utility Service telephone program as well as cost recovery 
through federal universal service program. Both programs have 
been critical to our ability to provide service of a price and 
scope that are comparable to those anywhere else in the nation.
    Because of our commitment to serving these communities, 
rural telephone companies accept an area-wide coverage 
commitment. In other words, we take on the responsibility of 
serving every customer in our market regardless of their 
economic desirability.
    The push for Internet access came primarily from our 
business customers which includes farming and ranching 
operations that have interest in commodity pricing and other 
market information, and retail operations that wish to interact 
with their customers. On the residential side we have helped to 
ensure that the school-age children are able to access many 
educational offerings available via the Internet. In South 
Dakota we have what is known as the Digital Dakota Network, a 
state-initiated project that provides broadband access to most 
of the educational classrooms within the state.
    I am proud to say that Sulley Buttes already provides 
broadband service to the native American community in the 
Sisseton exchange. We have fiber in place on the Coal Creek 
Reservation and soon will be providing broadband service in 
this area as well.
    Finally, for the past five years we have provided the 
technology that has enabled telemedicine applications and are 
taking steps to move these services to higher speeds in the 
near future.
    Regardless of the technology used to provide advanced 
services, cost will always be a major factor. It is critical 
that policymakers here in Washington understand this fact and 
remain willing to support programs such as the rural utility 
service or universal service system.
    There will always be upgrades and new technologies that are 
necessary to ensure consumers are receiving the most advanced 
services of the era.
    Recently NTCA conducted surveys on the provision of 
advanced service deployment nationwide in rural America by the 
ILEC community. The results should be of interest to this 
subcommittee and are summarized at the end of my written 
presentation. Contrary to popular perception, dial-up Internet 
access is widely available to the areas served by the rural 
telcos and actual usage is growing significantly. Almost 90 
percent of the schools and libraries and other public 
institutions have access to broadband service. Meanwhile, rural 
companies who are seeking to provide broadband service face 
economic and technical challenges including extremely high 
costs.
    The bottom line is continued support will be necessary.
    We are cognizant that certain wireless carriers are seeking 
to gain access to the universal service funds in the name of 
bringing competition to rural communities. Congress and the FCC 
must recognize the sensitivity of the rural ILECs and changes 
to the revenue streams, particularly in USF funding. Rural 
ILECs like Sulley Buttes have taken on the responsibility of 
being the carrier of last resort and we have a decades-long 
track record of being committed to serving the rural 
communities. Competition in this arena must coexist with the 
concept of universal service. This requires regulators to 
engage in a balancing process. Rural America does not benefit 
from competition for the mere sake of competition. California 
has learned this lesson the hard way with regard to its 
electric utilities.
    The '96 Act is pro-competitive but recognizes that one size 
does not fit all. Competition must be tempered with universal 
service considerations in high cost, hard to serve rural areas. 
As discussed above, Sulley Buttes and our fellow rural ILECs 
are already eliminating the digital divide in a lasting way by 
providing broadband service to the communities we have served 
for decades and will continue to serve for decades to come.
    The current universal service funding mechanism is not 
broken. It may require updating. The FCC is going in the 
correct direction with its USF reform effort.
    In this regard we hope the FCC adopts the complete MEG 
plan. The FCC must focus more on the USF impact when it 
considers policy matter related to the ETC status such as those 
represented by Western Wireless.
    Thank you again for this opportunity.
    [Mr. Houdek's statement may be found in appendix.]
    Mr. Thune. Thank you, Mr. Houdek.
    We have, Mr. Pence has returned. I am going to turn the 
chair over to him so I can get over to vote. He will introduce 
our last witness.
    Mr. Pence. [presiding]. Thank you, Mr. Chairman. I thank 
our witnesses for accommodating the vagaries of a congressional 
voting schedule. It is my understanding that that will be our 
last recorded vote for some time so we should be able to 
complete our business this morning without any additional 
interruption.
    Our next witness this morning is Kirby Campbell with the 
Armstrong Group of Companies. Mr. Campbell is the CEO of the 
Armstrong Group of Companies based in Butler, Pennsylvania. As 
CEO he provides advice on all financial decisions, and assists 
in Armstrong's continued growth and diversification efforts. 
Prior to joining the Armstrong Group in 1972 he worked for 
PriceWaterhouse for three years. Mr. Campbell graduated from 
Geneva College in 1969.
    The chair recognizes Mr. Campbell for five minutes.

STATEMENT OF KIRBY CAMPBELL, CEO, ARMSTRONG GROUP OF COMPANIES 
                           BUTLER, PA

    Mr. Campbell. Thank you.
    Why am I here? I am here to help in any way I can. I have 
been in the industry for 30 years. We serve rural America in 
the states of Pennsylvania, New York, Ohio, Maryland, West 
Virginia and Kentucky. Not only in cable, but small, rural 
telephone companies. What I wanted to do was identify what I 
felt were critical areas that you and your group could focus on 
and maybe make a difference going forward so that the small 
operator in rural America can continue to exist.
    There are over 1,000 cable operators in this nation right 
now, and the bulk of that 1,000 are serving rural America. They 
are, I think, being put at some disadvantage based on some of 
the unintended results of legislation and rules being 
misinterpreted.
    One of the areas that I think you could focus on if I were 
sitting in your chair that would help. Rural, small cable 
companies do not enjoy the same costs for acquiring programming 
as the large MSOs do.
    When you go out and build these facilities and plants in 
rural America you sign personally for this model and you have 
to put models together that justify the borrowing. It makes it 
hard when you have to pay more yet charge the same because of 
competitive pressures of the MSOs around you or the satellite 
providers, that if your bottom line is eroded. So I ask the 
question and I ask you to look into why are rural cable 
companies, smaller cable companies, having to pay more for 
programming?
    When those programmers realize that they force through 
these processes the small operators out of business, sometimes 
the acquirors of these small areas leave the management team 
and everything intact and do not change a thing, yet the 
acquiring large MSO immediately gets more money into the bottom 
line because they get reduced rates.
    Another area that I think is being abused and needs focus 
is retransmission. I do not think that retransmission is 
getting the results that it intended. Rural companies who have 
to provide network service to the constituents are being forced 
to carry multiple channels on their broadband. That is all 
operators have to sell is broadband width. We would like to see 
the marketplace determine who--what is carried by the 
marketplace. The subscriber will pay for what they want.
    We are being forced to carry multiple channels by the 
networks that the subscriber may or may not want. When these 
retransmissions rules were instituted, I think there was not a 
vision that these networks would be in three businesses. I 
could give you specific examples later if you want, but 
networks are in sports programming, they are in network and 
they are in satellite programming. They force the operators to 
carry multiple channels as a result of just trying to get the 
local network to the local subscriber. They do not care whether 
it is in the state that you operate or not, they make you carry 
these things all over the place. So retransmission consent, 
again, I think could be talked about for hours. I would urge 
you to look into that and see is it really doing or is it 
hindering the development? Our conclusion after 30 years of 
watching it, it is hindering it because it is thwarting the 
money available through higher costs.
    Another area that is concerning us is again with the 
networks, digital must carry. The same thing. We have 
broadband. We would like the market to determine what can be 
carried. Broadcasters are seeking legislation that will force 
us to carry not only their analog and their digital, and who 
knows what programming they will provide on those services 
going down the road.
    Open access is a big issue. Many of us in rural America 
have stepped forward, risked our capital. We put models 
together which we control our own destiny and it does not seem 
fair that after private money is put into the marketplace that 
after the fact the rules can be changed and jeopardize the very 
loan covenants that I agreed to when I signed on the dotted 
line.
    Another thing that just came across my desk this week that 
concerns me, in rural America we use rights of way. We feel 
that we have a need to pay for that right of way. Our average 
cost for pole attachment is $6 to $9. We just received an 
invoice this week which the utility is asking for $42 a pole. 
If that were to result in the way that we have to pay for these 
poles, that would mean in some of the areas that we serve that 
each subscriber each month would have to pay $10 a month just 
to cover pole rental. A huge deterrent. I would think that you 
would be concerned that if pole attachments are permitted to go 
that high, that is a huge deterrent to the construction and 
deployment of broadband going forward.
    My perspectives, like I say, are after 30 years of 
experience. To the extent that our group, I am associated with 
the ACA representing 1,000 operators, we will give you whatever 
information you need to make prudent decisions going forward. 
Thank you.
    [Mr. Campbell's statement may be found in appendix.]
    Mr. Pence. The Chair thanks Mr. Campbell for his testimony, 
and for the testimony of all of our witnesses.
    With apologies to the gentleman from New Mexico, I am going 
to exercise the authority of the Chair and recess our hearing 
for approximately 40 minutes. We on the Republican side of the 
aisle have a mandatory conference relative to the tax bill, and 
we do expect that to run about 30 minutes.
    So we will order this hearing, which you all have 
stimulated some very important questions that I know members of 
this panel are anxious to ask you. We will recess this hearing 
forapproximately 40 minutes or until such time that either 
Chairman Thune or I return to the chair. I encourage you to take 
advantage of the delicatessens and other lunch fare as we may be going 
into the lunch hour.
    [Recess.]
    Mr. Thune [presiding]. The hearing will resume.
    Let me sort of pick up where we left off. Again, we 
appreciate all the testimony of our witnesses on the panel this 
morning. Very insightful. It is exciting to see some of the 
things that are happening out there, and figure out how we can 
go about replicating some of those success stories, and then 
talk, as some of you did in your testimony as well, about 
things that the Congress ought to be looking at in terms of 
making broadband access more accessible in rural areas.
    Just a first question that I would like to pose of all the 
witnesses if you can respond to it to the degree that you have 
perhaps studied this issue, but the House Commerce Committee 
recently passed H.R. 1542 which is the Internet Freedom and 
Broadband Deployment Act, probably more commonly known as 
Tauzin-Dingell. The bill seeks to ease restrictions and 
requirements on providing broadband services that were placed, 
restrictions, that is, that were placed on the Bell operating 
companies by the Telecom Act of 1996.
    I would just as a general question ask do any of you 
believe that opening up the long distance market to the Baby 
Bells would increase competition and help meet the growing 
demand for Internet access and long distance data capacity?
    Ms. McAdams. Quite the opposite, Mr. Chairman. I am 
convinced that the provisions of the Tauzin-Dingel bill both in 
terms of opening up the Interlata data market and the 
provisions which would eliminate the provision of unbundled 
network elements are the obligation of the RBOCs to provide 
unbundled network elements for broadband services, would have 
the eventual effect of condemning especially more rural 
constituents to monopoly supply of telecommunications.
    What we know today, in New Edge's case, in many of the 
central offices and small towns where we are, we are the only 
DSL provider. The incumbent has not yet even stepped up to that 
plate. They tend to roll out DSL service shortly after 
competition comes, and that is a great dynamic of competition, 
and that has been the pattern with broadband development.
    So no, I believe that is a counterproductive approach.
    Mr. Thune. Anyone else care to comment on that subject?
    Mr. Cook.
    Mr. Cook. I think, just to pick up on the issue of the 
monopoly supply. Of course from a satellite point of view we 
bypass all of the terrestrial networks and therefore because we 
are going to be providing services literally everywhere, we 
will be a competitor to whatever terrestrial networks are put 
in place. So we think that we have confidence, if you like, 
that Congress is going to make the right decisions on this 
bill. From our point of view we are relatively neutral. We 
think that competition will exist regardless of the outcome of 
that particular bill.
    Mr. Thune. Would anyone else care to comment?
    Mr. Houdek. From an independent's perspective, particularly 
in South Dakota, we are a single-Lata state. It does not have a 
lot of impact for our company. However, we are a little bit 
reluctant to open up the Act this early. There are provisions 
to accomplish what they want. So we are, I guess, in favor of 
not tearing the Act apart yet.
    Mr. Thune. Ms. McAdams, you indicated that the monopoly 
status would not be helpful. What they have argued in support 
of that legislation is that it will give them powers they do 
not currently have that will enable them to get to places that 
nobody else can--that because of their economies of scale they 
can serve and there are not providers out there. That would be 
their argument to counter yours, that it is better to have one 
than to have none.
    For those of us who come from rural areas, that is a fairly 
persuasive argument if we do not have anything going right now. 
But we are also attuned to the fact that we want to make sure 
there is a competitive playing field out there.
    I guess I am wondering, in particularly remote areas of the 
country like South Dakota I think fits that category, Randy 
described it as the frontier. It is not rural, it is frontier. 
We want to make sure that our smaller towns have that 
opportunity.
    I know that the RBOCs in coming in and making that case, 
that was the argument they made. But you disagree, obviously, 
with that position.
    Ms. McAdams. Yes, Mr. Chairman. I do agree that wireless is 
a great and appropriate technology for the very much more rural 
areas, the farms, the ranches, et cetera. But for the small 
cities and towns where DSL wire line service makes sense, and 
where the constituents have paid for that distribution plant 
through their rates, their monopoly rates for the last 100 
years, it makes equal sense in those areas to provide the 
opportunity for both the RBOC and the competitor to compete, 
and we do not mind competing with the incumbent. And in the 
case of the small companies, in fact New Edge Networks 
currently brings DSL services on a wholesale basis to some of 
the small telephone companies who then resell our service 
branded with their own name, and that is a great cooperative 
effort.
    But today the argument mounted by the large incumbents that 
the inter-Lata restriction is keeping them from deploying 
broadband, I frankly believe has very little merit. There 
certainly are a few areas in the country which we can point to 
where perhaps the Lata boundary is in a somewhat inconvenient 
place. The FCC has in place today an expedited process by which 
companies or individuals in those communities can apply for 
Lata-boundary modifications. As far as I know, none of the 
incumbents have in fact availed themselves of that process to 
correct Lata boundaries if they are in fact making this problem 
for them in some specified areas.
    Mr. Thune. There are several bills that have been 
introduced in this Congress that are designed to promote 
development of broadband technology to rural and underserved 
areas in addition to the Tauzin-Dingell legislation, and again, 
I think it is questionable as to whether that is the 
appropriate vehicle for some of the reasons that you noted.
    But some of the other legislation--tax incentives, tax 
credit, the English bill, loan guarantees. I think Mr. Houdek 
you referenced RUS in our part of the world.
    Do those make sense? Are those approaches that in your 
judgment would make a difference in terms of the incentive it 
provides for companies to come in and provide those types of 
services?
    Anybody feel free to comment on that.
    Mr. Campbell. A concern I have is that there are 
deployments of monies already out there, and to bring in 
subsidized monies that could compete with those already 
invested dollars, or how do you recognize those who did step 
forward already?
    I think it is a good idea, it helped develop telephone 
service in rural America, but it is a complex environment in 
today's world. So if you can figure a fair way to do it, that 
would be--What I have read so far, there are some inequities. 
So a fair way, yes, but subsidized monies is not always 
necessarily the solution either.
    A lot of people did the tax credits in a lot of the smaller 
coop areas do not even pay taxes so it is really not a true 
incentive to some of the rural areas that are doing this stuff 
through coops.
    Mr. Cook. I would just again like to echo some of those 
things. In building out a broadband satellite network, we have 
already made the decision to invest $1.5 billion without the 
need or the incentive of tax credits.
    While we think that tax credits are not wholly bad, there 
has got to be some benefit and incentive and it will no doubt 
encourage some additional build-out, it is not going to solve 
the whole problem because some of the areas that we are talking 
about will remain too expensive to bill out with traditional 
terrestrial technologies. So from our point of view, we think 
that if indeed there are to be tax credits or similar 
incentives, the most important thing is to ensure that they are 
truly technology neutral, that they do not have requirements 
for particular types of service or speed which would favor one 
technology against another. Under those circumstances we would 
obviously, anything which is an incentive, which will encourage 
you to take up broadband services is obviously in principle a 
good thing.
    We also wonder whether maybe the credits should be oriented 
towards the end user rather than the infrastructure builder, 
and thus allow the market to decide what is the appropriate 
technology to use in each different area, so some way of 
encouraging or motivating the end user, subsidizing the end 
user's takeup of broadband services. That in itself will create 
a level playing field for all of the technologies to build out.
    Mr. Thune. In that approach the customer basically, it 
would incent them through some sort of a tax credit to 
subscribe to whatever services might be out there?
    Mr. Cook. That is right.
    Mr. Thune. Without differentiating between types of 
technologies.
    Mr. Cook. That is exactly right. You put the power in the 
hand of the end user to decide what is most appropriate for 
him.
    Mr. Thune. A followup question with respect to your 
technology, Mr. Cook. One of the accusations that has been 
leveled I think against the satellite industry or systems is 
their lack of reliability relative to other types of 
technology. What has been your experience with respect to the 
reliability issue?
    Mr. Cook. In the end there is absolutely no difference in 
terms of reliability between satellite systems and terrestrial 
systems. With broadband satellite today and indeed tomorrow 
when we have Spaceway available, we will be offering levels of 
availability and levels of service quality that will be 
equivalent to anything that is offered by terrestrial 
technologies. We spent a huge amount of money and effort, time 
and effort, in really pushing the limits of technology and we 
believe that we have a fantastic service offering which will 
compete everywhere very favorably with anything that is offered 
terrestrially.
    Mr. Thune. I have some other questions I would like to ask 
but I will take a break here and yield to the distinguished co-
chair here, Mr. Pence, for some questions.
    Mr. Pence. Thank you, Mr. Chairman. I want to thank all the 
witnesses for their patience on what has become a fairly 
unusual day in Washington.
    First a question across the board. As someone who believes 
very strongly in state and local control, I would like to ask 
the panel generally what they would view as the proper role of 
local governments in the regulation of broadband services, 
specifically should local governments be limited to simply 
regulating the use of the right of ways, or should there be a 
greater role, and if there is a greater role does that act as a 
hindrance? Whoever wants to step up to the microphone on that 
one.
    Mr. Houdek. I think the '96 Act was written, gave specific 
powers to the state commissions to determine ETC status.
    One of the things they base it on is the public interest. I 
am afraid that without the actual states making those decisions 
they might not, some of the areas that are currently served 
only by the traditional ILEC might go unserved.
    Our industry has made a commitment to serve the entire area 
with high speed, high quality. I think that it would be very 
difficult for us if we were to lose some of the support we get 
to provide that service for less, or for a substandard product.
    Ms. McAdams. Mr. Chairman, I have been dealing with 
telecommunications public policy long enough that I remember a 
time, frankly a couple of decades ago I hate to admit, when the 
cities at their conferences of the National League of Cities, 
the Conference of Mayors, et cetera, would get together and ask 
themselves the question what can we do to attract 
infrastructure development in terms of telecommunications? It 
is important for us in terms of our economic development, in 
terms of our competitiveness in the nation and the world, and 
that, it seemed to me, was a very positive approach saying how 
can we attract this infrastructure investment.
    Unfortunately what many of the CLECs and the competitors 
today are finding is that the city's interest has changed 
somewhat and is unfortunately more along the lines of how much 
revenue can we derive from the individuals who bring in the 
infrastructure and use the public rights of way.
    Clearly the municipalities have an important role in 
managing their rights of way and reducing traffic congestion, 
in issuing permits and making sure that work in the streets is 
done safely and so forth. But that is a circumscribed role. I 
agree the Act and the history of telecommunications law cedes 
to the public utility commissions in the states the overall 
regulatory oversight of entry and pricing for local services.
    So I would agree with those who argue that the role of the 
municipality should be limited to that which is reasonably 
related to the direct use of the right of way, and that fees 
for the use of the right of way should relate to the actual 
administrative costs of making that right of way available.
    In fact the local economy stands to gain immeasurably from 
the increased transactional mass, the support for small, medium 
and large businesses as a result of that infrastructure 
development.
    Mr. Kelly. We too share the desire to keep most of the 
oversight on a state and local basis. Instead of right of way, 
we talk about tower ordinances and that certainly is something 
that is a bit frustrating on a region by region basis, but 
something that we are easily able to work with local 
constituencies.
    What has been a little discouraging though is I think the 
different speed with which different states, state PSCs, have 
taken up compliance with the Telecom Act of '96 and in 
particular, there are a lot of states that just do not seem to 
be very close at all to having their state funds or state 
universal service funds funded in any way. That is a 
frustration for us.
    Mr. Cook. From our point of view I think we think it is a 
very good thing, a healthy thing that state and local 
government takes an active interest in telecommunications. From 
the perspective of a satellite provider, for every satellite 
that we put up we are able to offer coverage across the whole 
of the United States. That means it would be very difficult for 
us to operate ifthere were differences in the regulatory or 
other environment, significant differences anyway, on a state by state 
or a local basis.
    So the most important thing, again, is to ensure that there 
is consistency of environment for us to be able to provide the 
same high quality services to everybody.
    Mr. Houdek. An experience we have is, at the local level, 
an unfair competitive advantage of different technologies, 
i.e., not having to pay local franchise fees.
    A certain percent of every dollar we collect, be it for 
broadband Internet, video, whatever services we provide is 
taxed where competitors are not. And we have equal to or 
greater investments in providing those. So I would like to see 
that leveled out somehow by the locals.
    Mr. Pence. Specifically to Mr. Campbell, in your testimony, 
your written testimony, you spoke about the irony of attempts 
being made to create incentives to RBOCs and to incumbents to 
service smaller market areas and rural areas, to close the 
digital divide saying rather obliquely that we are already 
here.
    Is it your feeling that we should not create incentives or 
mandates in the Congress that would even invite the incumbents 
in in a competitive environment under the '96 Act? I wanted you 
to amplify those remarks.
    Mr. Campbell. In a fair way, competition is good. I have 
watched with interest being in telephone and cable over the 
last 30 years the results of the larger incumbents not stepping 
forth in rural America, and I find it ironic that they do when 
the incentives are put before them. Right now those large 
incumbents are even thinking about abandoning by selling off 
some of their rural investments and concentrating in highly 
populated areas.
    So I take it from just a competitive view that if it is a 
level playing field--But why did they not step up before this? 
It is not that they did not have the resources or the money, 
they opted to go where the more dense population was and where 
they could make bigger returns. That is what I find ironic at 
this time to encourage those who have ignored, to now 
participate.
    Mr. Pence. Somewhat along those lines, Ms. McAdams, you 
made a comment during Chairman Thune's question and answer 
period about if we were to provide incentives to the RBOCs or 
the incumbents to move into the rural area that we would be, I 
think your phrase was condemning you to monopoly supply. Could 
you elaborate on that for someone very new to this area?
    Ms. McAdams. Yes, thank you, Mr. Chair. I need to perhaps 
clarify the point I was trying to make and perhaps I did not 
make myself as clear as I should have. In particular, 
incentives for development, I agree with my fellow panelists 
that direct incentives, especially if they go to rural 
businesses, rural institutions and agencies, who then can 
choose through a competitive bidding process a provider, make a 
great deal of sense, and in some of those instances the 
incumbent would win those bids and we think that is a fine 
thing.
    The point I was trying to make was that some of the current 
proposals before Congress, and Mr. Thune referenced the Tauzin 
and Dingell bill, would in fact make it impossible for 
companies like my own to have access to the existing copper 
infrastructure which by its nature is today a natural monopoly 
in terms of wire line access, and therefore if that bill were 
to pass in its current form, competitors such as myself would 
simply no longer be able to provide these broadband services to 
the rural communities in which we serve today.
    So in that sense, removing the obligation of the 
incumbents, the RBOCs, to allow access to the existing copper 
plant would result in in most instances the RBOC being the only 
wire line carrier available to rural consumers.
    Mr. Pence. One other question for Ms. McAdams, in your 
written testimony you call for, that Congress ought to or the 
FCC ought to consider full structural separation of large 
incumbent telephone companies into distinct wholesale and 
retail telecommunications providers to avoid there being a 
built-in institutional incentive for preferring their own 
provider.
    We certainly have been down this road in the courts with 
courtesy of the Justice Department and another high tech area. 
Speak to that proposal and how, whether you would see Congress 
acting or the FCC acting or legal action as appropriate.
    Ms. McAdams. Yes, thank you, Mr. Chairman, for the 
opportunity to expand those thoughts.
    The basic problem and the reason why we have to have so 
much regulatory oversight of this transition between the 
monopoly market structure and a competitive one is because of 
the need for wire line competitors to interconnect with and use 
the essential facilities of the incumbent phone company. 
Because it is the incumbent who controls those bottlenecks, 
clearly there can be an opportunity and we believe an incentive 
for the incumbents to favor their own retail operations, 
perhaps in very subtle ways in some cases. The ultimate 
solution to that problem, and in fact a fairly deregulatory 
proposal, would be to duplicate what the courts ended up doing, 
and of course Congress was also considering at the time, which 
was done in 1984 in divesting the AT&T Bell system into local 
and long distance companies.
    A divestiture of the existing RBOCs into retail and 
wholesale arms would then break that affiliation such that 
there would no longer be any incentive for the incumbent who 
owns the bottleneck facilities and provides them on a wholesale 
basis to all comers, to favor their own retail efforts. Now how 
that might come about, I think there are a number of forums. It 
has been suggested in Congress. Senators DeWine and Kohl 
presented such a proposal in the past. Today such proposals are 
pending before a number of state legislatures. Some PUCs such 
as Pennsylvania have considered and implemented some version of 
structural separation. And certainly if the antitrust 
opportunities and remedies in telecommunications are restored, 
right now there is some what I would consider to be bad law out 
there which says violations of the Telecommunications Act 
basically can't be used as evidence in an antitrust case and 
there is pending legislation before the House Judiciary 
Committee to correct that. So if the antitrust remedy were 
restored, then conceivably such a structural separation might 
end up being ordered by a court as a result of an antitrust 
case.
    Mr. Pence. Thank you.
    One other question, and I will yield to the Chairman and to 
my colleagues.
    Mr. Cook, in my former life I was in syndicated radio, and 
know just enough to be dangerous about Ku-band technology. I'm 
fascinated by your presentation about the Ka-band as a possible 
way of end-running all the challenges of terrestrial access to 
broadband and wanted just very briefly to ask you about your 
Spaceway system and I believe you said within three years you 
expect to have three geosynchronous satellites that can address 
North America and how realistic is that as an alternative to 
more traditional means of broadband access?
    Mr. Cook. The simple answer is it is a very, very real 
alternative. It builds actually on the Ku-band technologies 
that we have today, so we have existing Ku-band, broadband 
services, which are widely distributed and widely taken up.
    But we certainly intend to launch Spaceway--actually, 
again, the first satellite will be up round about the end of 
next year; the second Spaceway satellite is programmed to be 
about six months later; and then the third will come on stream 
based on the uptake of the first two.
    And the services that we will be able to provide will be 
extremely competitive. I think I mentioned in my statement the 
sort of speeds we are talking about. The speeds we are talking 
about are typically greater than you will be able to get with 
today's SDL and cable modem types of technology.
    There are some unique benefits that you can generate from a 
satellite system. It is very, very good for rural casting and 
multi-casting services, when it is saying the same information 
to lots of people.
    We have devised Spaceway with some very, very advanced 
technology to optimize now the satellite broadband capability 
for point to point traffic.
    Today's systems tend to be broadcast orientated technology 
systems. Spaceway is being pushed far more towards the point to 
point end of the spectrum. It means that we will be able to 
offer direct small dish to small dish high speed connectivity, 
so there is no need anymore for users to go into a terrestrial 
gateway or into a central hot station. Any small business will 
be able to communicate directly with any other at these high 
broadband speeds.
    We think from a pricing point of view we are also going to 
be extremely competitive. We are expecting that small 
businesses will be able to acquire Spaceway technology, capital 
costs for up to two years out, so there is no final cost yet. 
But we are expecting the capital costs can be significantly 
less than $1,000 for the equipment and the dish and everything 
necessary to receive the service, subscription rates will be 
very comparable with DSL subscription rates.
    So we expect the service to be very, very competitive from 
a technology and from a commercial point of view.
    Again, from the main subject of the hearing, from a rural 
point of view, the cost differential to us in providing service 
to a rural user compared to a metropolitan user. And therefore, 
the service will be available fundamentally at the same price 
with the same capabilities wherever the user is.
    Mr. Pence. Thank you, Mr. Chairman. I have no more 
questions.
    Mr. Thune. Thank you, Mr. Pence, and I notice when you made 
the comment about this not being a usual day in Congress that 
there really are not any what I would call very many usual days 
in Congress. This is an unusual place and I think having the 
word Congress and extraterrestrial in the same context probably 
makes a lot of sense.
    But I would like to yield to the ranking member, the 
gentleman from New Mexico, Mr. Udall for questions.
    Mr. Udall. Thank you, Chairman Thune.
    I have a couple of questions for Randy Houdek.
    I have a district that is, in my state, heavily native 
American. We have 22 tribes, we have a large Navajo 
reservation, so I am very interested in your ability to serve 
native American populations.
    To start, what specifically has your business done to 
provide broadband access to the rural areas in South Dakota?
    Mr. Houdek. Thank you.
    What we have--We have taken a system-wide approach to 
deploying as quickly as we can fiber into the local, the rural 
areas, and then to the house we will use copper.
    The part of the reservation we serve is the Coal Creek 
Reservation. We have just done that. We have got fiber-optic 
loop in and within a month we will be able to provide DSL-type 
services 30 miles out in the country on the reservation.
    We recently acquired the system exchange from Qwest which 
has a large native American population up there, the Sisseton 
Wahpeton Tribe. We are, as we speak, we have staked and are 
planning to bury fiber to that community right now. We are 
offering via sole services in Sisseton and plan to expand that. 
Within the city of agency they have a couple of hospitals and 
clinics and schools. We are going to bury fiber to all of 
those.
    There has been a very good reception from our communities.
    Mr. Udall. Can you address some of the challenges than to 
putting it into Indian country.
    Mr. Houdek. Actually the challenges that we face in 
particular are not much greater than they are in any other part 
of our service area. We are very sparsely populated. The 
technology is expensive. And in order to get the customers to 
actually subscribe to the service you have to price it 
aggressively, and that just makes for kind of a long-term 
payback.
    We are a coop. We are member owned. Maybe our incentive is 
not to much generating huge profits as opposed to providing 
service to our owners.
    Mr. Udall. What percentage of the market does SBC control 
in South Dakota?
    Mr. Houdek. Sulley Buttes Telephone?
    Mr. Udall. Yes.
    Mr. Houdek. We have about 7,000 square miles. What 
percentage, again, we are 13,600, there are 770,000 in the 
state. Geographically we are about 10 percent; actual access 
lines, I cannot do the math that quick.
    Mr. Udall. That gives me what I need, thank you.
    Mr. Kelly, can you elaborate on some of the problems your 
company has encountered in its ETC application process and in 
its general efforts to provide service?
    Mr. Kelly. Certainly. As I mentioned earlier, we have had 
problems with incumbent carriers, and what we have found, there 
has been quite a bit of frivolous activity that has been 
brought to bear by the incumbent, lots of motions, in some 
cases court challenges along the way. Probably the ultimate 
frustration was when we initiated service up in Regent, North 
Dakota, and after getting ETC status up there, and had the 
local telephone company shut our network office. Just 
completely cut the wires, took us out of the system.
    We were restored within a couple of days and were fortunate 
through court action to get that resolved in our favor. But it 
is tough going up against the incumbents. We would really 
appreciate a real smooth and orderly process, particularly at 
the state level at the PFCs.
    Mr. Udall. Am I right in inquiring and getting ETC means 
you cannot pick and choose your customers?
    Mr. Kelly. Absolutely not. When we receive ETC status it is 
for a designated study area and we are required with our ETC to 
provide service to everyone within that study area.
    Mr. Udall. And the universal service funding covers basic 
services only, is that correct?
    Mr. Kelly. Absolutely. We see----
    Mr. Udall. What is the difference between your basic 
offering and your advanced services offering?
    Mr. Kelly. If you take a look at our native American 
initiative in South Dakota on the Pine Ridge Indian 
reservation, for instance, we are providing today basic 
telephone service. I would not construe it as being broadband. 
But half the customers who we have signed up there in the five 
months that we have been in service never had a telephone line 
before. So before you can go broadband you need to get basic 
service.
    So we see universal service as the mechanism by which we 
can get good competition for basic telecom service. Then from 
there we can, on a level playing field, go out and start making 
the enhancements to both our network and to our other 
competitors' networks to get the high speed bandwidth and the 
broadband type technology that we are here talking about today.
    Mr. Udall. Thank you.
    Chairman Thune mentioned the surrealities of Washington, 
and one of the things that happens back here is we sometimes 
see television commercials that the rest of the country do not 
see that I think are designed to influence members of Congress.
    I just recently saw a commercial on Tauzin-Dingell that 
talked about, and maybe those of you here have seen it, it 
talked about how it was going to be guaranteed that rural areas 
under that bill would be provided with broadband access. I know 
that Chairman Thune asked about this but I was just wondering 
if any of you had any thoughts, or if you had seen that 
commercial or any additional thoughts in terms of the 
discussion on the bill providing that.
    Ms. McAdams. Mr. Udall, the bill as originally submitted, 
as I read it at least, did not have any assurance or guarantee 
of any additional deployment on the part of the incumbents in 
return for the end run around Section 271 of the Act that is 
also incorporated in the proposal. However, it is my 
understanding that an amendment was added during committee 
markup which purports to be a rural, a buildout provision but 
in fact is very limited. It requires within five years, which 
of course is an eternity in the telecommunications industry, 
the incumbents to outfit their existing central offices for DSL 
and make DSL available within three miles of the central 
office.
    Three miles from the central office probably does not take 
care of a lot of your constituents, Mr. Udall. I know that 
Congressman Largent argued during the markup that in his rural 
area in Oklahoma a buildout requirement more on the order of 30 
miles such as you are hearing, some of the coops, have stepped 
up on their own to do, would make more sense if there is to be 
a bill of that nature and there is to be a buildout 
requirement.
    Frankly, I think what you are hearing among the panelists 
today, the witnesses today, is that the market is working to in 
fact bring these services perhaps not as fast as any others 
would have liked, but the capital realities are such that it is 
a both expensive and time consuming process. But I think you 
are seeing services in fact brought through appropriate mixes 
of technology increasingly to rural areas as a direct result of 
the opportunities crafted in the '96 Act.
    Mr. Udall. Any other panelist--Go ahead.
    Mr. Kelly. I am not familiar with the particular 
legislation, it is not my general domain. But Randy and I were 
both talking, that it is interesting that neither of us have 
seen the ad. It is Beltway surrealism. And there is a certain 
amount of irony that the companies sponsoring it are the very 
ones in our markets who are selling off the exchanges to 
companies like Randy's.
    Mr. Udall. Okay. Thank you very much. We will keep an eye 
on those commercials and monitor that. [Laughter.]
    Mr. Thune. Three miles in South Dakota is just a short 
walk. [Laughter.]
    The distances are very real. I do not think anything in 
that bill probably contemplates what we are talking about as 
far as the dimensions.
    The Chair recognizes the gentleman from Washington, Mr. 
Baird, for questions.
    Mr. Baird. Thank you, Mr. Chairman.
    I want to in all sincerity compliment both Chairs for 
hosting this meeting. We have an awful lot of hearings around 
this place and very few, I can sincerely say, are as 
informative as this one has been, and I compliment you for 
hosting it and the panelist for their thoughtful and diverse 
presentation.
    I do want to ask my friend from New Mexico where he is 
finding time to watch TV. [Laughter.]
    Mr. Baird. Maybe your staff tapes them.
    Mr. Udall. Five seconds when I am shoving down some 
breakfast before heading to this hearing. [Laughter.]
    Mr. Baird. Oh, I remember that.
    I think part of the importance of this is many of us 
represent rural communities and we know on the Small Business 
Committee how important broadband and remote access is to our 
development of these communities. Many have been hit hard in 
our state by timber cutbacks or fishing changes, and if we are 
going to help them diversify their economy, we have got to 
provide the access to the technology to make it so.
    Years ago our country faced rural electrification 
challenges, and very analogous in the sense that the sort of 
major companies did not have the financial incentive to go out 
and provide this access. In that case the government stepped up 
to the plate and found ways to promote rural electrification.
    Let me ask each one of you to address this question, and it 
is a two-parter.
    What is the single most important and effective thing the 
federal government could do to promote broadband access to our 
rural communities? And what is the single stupidest thing we 
could do, even possibly through unintended consequences, that 
would impede the expansion of broadband?
    I will start with Mr. Cook.
    Mr. Cook. From our point of view the single most important 
thing is spectrum allocated for satellite. Spectrum is the one 
component which directly affects the amount of capacity that we 
can put up, and therefore the number of subscribers that we can 
serve. Having access to an appropriate amount of spectrum is 
essential if satellite services are to be readily available to 
rural areas.
    Our concern is that the amount of spectrum required is not 
being made available to us, and I am talking about the entire 
satellite industry. Each orbital slot that we have could 
support more satellites and therefore more subscribers if we 
were given the full amount of spectrum that we had requested 
when the licenses were being issued.
    Additionally, there has been a tendency to continue to 
nibble away at the clear spectrum that is available--in other 
words, interference-free spectrum that is allocated for 
satellite services. That is a trend that must be reversed.
    The stupidest? I guess from our point of view it would be 
to create legislation that unduly favors one technology versus 
another, one place versus another.
    As we have heard there are a lot of things going on in the 
market which are positive and which are generating improved 
broadband access to rural areas. The wrong sort of intervention 
will create distortions which could have an absolutely 
counterproductive impact.
    Tax legislation and other incentives should be absolutely 
technologically neutral.
    Mr. Kelly. I think that as the microphone gets passed down 
you are going to start hearing the answers get more and more 
similar.
    The most important thing is going to be having a technology 
neutral, competitive enhancing set of incentives out there. 
That is the most important thing that can happen.
    I think the more that we look at fostering monopolies, the 
less competition obviously you are going to get and the fewer 
the advances in broadband.
    Probably the stupidest thing right now, once again this 
kind of sounds familiar, is going to be ignoring the need for 
some comprehensive spectrum policy planning right now.
    The U.S. is behind particularly the European but also 
Japanese carriers in terms of their spectrum allocations. More 
spectrum out there in the hands of wireless providers will mean 
more broadband, plain and simple. We are under a spectrum 
crunch right now so ignoring that is probably the stupidest 
thing that I could see out of Washington.
    Mr. Houdek. Thank you.
    From the rural ILEC perspective, I guess one of the most 
important things I would like to see happen is when enforcing 
the Act, as FCC enforces the Act, we recognize the balance 
between competition and universal service. Competition is 
wonderful, but let us not sacrifice the service in the very 
rural areas just for the sake of competition. The Act was 
written fairly well so that the two prongs are competition and 
universal service and to do one without the other is I think 
going to do a disservice to the very rural people.
    Mr. Campbell. Repeating what I said earlier, I think the 
most important thing for a small rural company like ours and 
the members of the ACA is to be afforded a level playing field. 
It takes money to develop these facilities and you have to sell 
at bottom line profit to pay that money back. And there is an 
unjust, or undue disadvantage by the larger MSOs getting 
programming costs cheaper. Therefore being forced to build into 
less dense areas that we would like. We could build into more 
less dense areas if we could get more bottom line, we could got 
a little deeper.
    That falls into the retransmission rules as well. Let the 
marketplace determine how that broadband--We don't have 
spectrum, we have bandwidth. And with the rules and regs as 
they are being utilized now by the networks, they are demanding 
the use of that in a way that maybe is not behooving the best 
interest of the constituents and subscribers out there.
    I guess the thing that I would like you not to do is ignore 
history. This is a Small Business Committee, and just look what 
has made rural America what it is. It is the small businessman. 
It is not the big guys. They do not go there, and we have.
    Ms. McAdams. Thank you, Mr. Baird.
    It is absolutely clear to me that the biggest barrier today 
to further broadband deployment is the drought in the capital 
markets throughout the telecommunications industry and in the 
competitive sector in particular.
    What Congress could do that would be the smartest thing 
today in my perspective, would be to make it clear to Wall 
Street that Congress intends to stick with the very good policy 
framework and direction and pro-competitive policies that were 
set forth in the '96 Act and stay that course.
    The market is working. Everyone sitting at this table is in 
fact demonstrating that fact today.
    The stupidest thing is, you know, it is a symmetrical 
answer, Mr. Baird. The stupidest thing would be to reward the 
bad behavior of the large and incumbent telephone companies who 
frankly have done everything they can get away with to impede 
the development of competition under the Act by both legal and 
regulatory challenges, by strategic incompetence, by confusion 
of the station and egregious pricing, and reward them for that 
behavior by restoring their monopoly.
    Mr. Baird. Thank you very much for those I thought very 
thoughtful answers.
    If you could give me a list of those critiques I might use 
them later on in the floor speeches.
    But I think the points are very well taken and I certainly 
have seen first hand the challenges many of your industries 
face in the capital market, and we have seen I think elsewhere 
in the economy when regulatory uncertainty creeps in, it can 
create huge disincentives to investments and capital starvation 
can be possibly the greatest single threat to innovative folks 
like you who are really pioneers and going--Where other folks 
have not seen the great return, you have seen the need and I 
commend you for that, and I think your points are very well 
taken.
    Thank you, Mr. Chair.
    Mr. Thune. I thank the gentleman from Washington.
    I would also add that I like small words and big print so I 
am not sure all of the adjectives that you used I could stay 
with either, but I think it does make the point and I 
appreciate the very direct and candid way in which you have all 
answered the questions.
    I just have a couple of wrapup questions, and I asked most 
of the members if they had other questions and I do not think 
anybody does. You can get a chance at a closing statement here 
in a minute.
    But I am curious as to understanding, help me better 
understand the technology. How do you differentiate, Mr. Kelly 
and Mr. Cook, between what your two technologies do? Satellite 
and wireless. Mechanically speaking so I better understand it. 
I think I understand the wired side of it. But how do those 
work?
    Mr. Cook. In one sense they are very similar because we are 
using wireless techniques. There is a slight frequency 
difference in the allocated spectrum we are using, but that is 
not significant.
    The most important difference is that a satellite can see a 
lot of geography from one place. That means we can offer the 
same high quality service wherever people are in the footprint. 
So ubiquity of coverage is an inherant feature of satelite 
service. That then enables, as I think I said earlier, services 
such as like broadcasting and multicasting.
    One of the particular benefits of the sort of system we 
have, the new Ka-band technology, are spot beams. These are 
geographically oriented high power beams. There are lots of 
them together which provides the total coverage.
    But in each of those spot beams a services, such as local 
broadcasting which is very important for local communities, is 
a viable activity. Local multicasting and local connectivity--
again, very important.
    So really the issue is the source of the data transmission 
is coming from, and what is the link point? That link point is 
our capacity point.
    It does not matter where the demand for service is on the 
ground. Our capacity is available fundamentally to everybody, 
and therefore the capacity can be used to save the demand from 
wherever it originates.
    Mr. Kelly. I am trying to keep big type and small words in 
mind here.
    In essence, our technology is wire telephony without the 
wires. We also have switches and we are terrestrially based. We 
maintain towers, towers that provide coverage to the signal 
that we use to communicate to the device.
    The beauty of wireless as a technology is that you do not 
ever have to replace the waves out there. As we go through and 
add new technology, as technology advances, it is something 
that is added once at the switch. It is added to each 
individual tower as you go. The devices are upgraded, but you 
are not faced with the degradation of copper, the wires, in 
between.
    So we, in particular Western Wireless operates in the 800 
megahertz cellular frequency range. It is a technology that is 
very good for coverage, very good for capacity, particularly in 
rural America. And we believe that as we go through and make 
extra investments into 3G technology and new digital technology 
that we are going to be able to get very good data rates, up to 
20, 30 miles away from the tower. So it is something that lends 
itself very well to rural America.
    Mr. Thune. And just one followup question, because you had 
indicated earlier, and I know some of your frustrations in 
dealing with some of the reservations in South Dakota, but the 
question about the universal service fund, being eligible for 
voice transmission type services. That decision is a function, 
is it not, of the state public utility commissions? I mean in 
order to become eligible for some of that funding, is that 
where you would wage your argument, or wage your debate?
    Mr. Kelly. In general all those decisions are made on a 
state level. We have an application pending right now with the 
FCC, however, because jurisdiction over Indian reservations is 
a little less clear for Pine Ridge.
    Mr. Thune. I am aware of that. And any of the panel who 
care to comment on that subject, but I think it was referenced 
in at least a couple of the testimonies this morning about the 
universal service fund, in terms of how that might be applied 
across other areas as opposed to just its traditional use under 
the Act.
    As I understand the way that works, at least right now in 
most cases it is just limited, is that correct?
    Ms. McAdams. Yes, Mr. Chairman. It is under the purview of 
the state regulatory commissions who periodically undertake to 
evaluate what level of services constitute basic services, and 
most of the state commissions believe that that well may be a 
moving threshold over time. However, in making that evaluation 
the state commissions I believe also are taking very seriously 
the need to balance what should be subsidized with what 
essentially is a telecommunications taxation program on basic 
telecommunications bills to collect the funding to go into 
universal service.
    So while they look at whether new services should be 
subsidized, they also are balancing that benefit against the 
cost on the normal consumer's bill.
    Mr. Thune. Randy.
    Mr. Houdek. Thank you.
    If I could add, the federal universal service fund, the FCC 
makes the determination on what services are supported. If it 
is a statewide USF then the state commission makes that 
determination.
    But back to the issue of should support be given to a 
competitor in that case. In a perfect world, the fund would not 
be limited. But the way it works now is if the USF support is 
given to someone else it takes away from the incumbent who 
obviously still has that investment.
    The risk of losing a revenue stream that it takes to 
support or make those investments, you know, if that is at risk 
I feel that you might stifle investment.
    In a perfect world--the fund is capped right now. In a 
perfect world it would not be, but that is the way it is now.
    Mr. Thune. All right. Does the gentleman from Washington 
have any closing remarks? Mr. Chairman, Mr. Pence, any 
summation?
    Mr. Pence. Thank you, Mr. Chairman.
    I want to thank again Chairman Thune for lending his 
support and his subcommittee's interest in this issue. I think 
these have been, as has been said by some of our colleagues, 
very informative. As Mr. Baird said, very informative and very 
enlightening hearings over the past two weeks.
    I look forward to working together on many future occasions 
as we bring regulatory reform and rural enterprise together to 
truly promote small business development.
    In addition to commending the Chairman and the members, I 
want to commend these witnesses who have achieved a couple of 
goals in this area that this fairly high tech, illiterate 
member of Congress is grateful for. Number one, I appreciate 
that you spoke in English, and you did not use a lot of very 
big words. More importantly, I think that you very clearly 
advocated your hard earned position and credibility as pioneers 
on the frontier of the digital divide.
    You are truly representative of enterprises across America 
who have been willing to go where no RBOC has been willing to 
go. In many cases where no incumbent with far more resources 
has been willing to go.
    Having an entrepreneurial background, I admire you, and I 
respect you, and I pledge to you not only our subcommittee's 
continued interest in your challenges, but also I pledge to you 
simply as a member of Congress to be an advocate for the work 
that you are doing.
    In that vein, I feel very strongly that we should stay the 
course that Congress charted in 1996 with the 
Telecommunications Act. I also believe and will look for 
opportunities to make monies available for targeted subsidies 
and grants dealing with that capital drought that so many of 
you spoke to.
    Also, I am going to pursue the availability of stronger 
enforcement tools, giving the FCC a stronger hand simply to 
enforce the law as it is written, and ultimately as we move 
into what will likely be a lively debate over modifications of 
the '96 Act and other very worthwhile measures before Congress.
    Allow me to say that this member of Congress is committed 
to leveling the playing field, avoiding mandates to 
organizations small or large, but ultimately doing those things 
inside the context of a free market model that will achieve the 
objective of those 150 West Virginia children who flanked 
Chairman Thune and I this morning at our press conference who 
attend a small, rural middle school that does not have 
broadband access. To recognize that unless we deal aggressively 
in a public policy model, in an enforcement model, and in the 
way of subsidies and grants for capital formation, that as I 
said this morning at the press conference, I believe that 25 
years from now you will be able to tell where there is 
broadband access in America from a satellite photograph, given 
the nature of the economic activity and the population centers.
    I come from a largely rural area with medium sized cities 
that are filled with the brightest adults and the brightest 
young people in America, and I would like to keep them all 
right there and make sure that the opportunities to move into 
the new economy are there.
    I thank you for the sacrifices that you all have made, the 
capital that you have risked in bridging that divide, and I 
pledge to work with you to achieve that goal.
    I thank the Chairman, again, for cooperation in this 
hearing, and I thank all the witnesses for their outstanding 
presentations.
    Mr. Thune. I thank the gentleman from Indiana, and I would 
just say that all those young people that he talked about in 
his state, we would like to move to South Dakota, which is why 
we want to make sure that we have all these opportunities 
available there.
    But I have to admit, I am very excited to hear the things 
that are going on. I really am. I think some of the things that 
are happening are remarkable and as Mr. Pence noted, they are 
happening out there in the small business sector, 
entrepreneurial sector, as opposed to the more traditional 
deliverers of these types of services, and I want to credit all 
of you for the work that is going on and echo what Mr. Pence 
said. That is we want to work with you as partners, in making 
sure that we are tearing down barriers and providing 
incentives.
    Whatever this Congress can do to enhance the opportunity 
for better availability of high speed access, whether it is 
band-width or spectrum, depending on what your technology is, 
we want to make sure that the competitive issues, the economic 
development issues, distance learning, health care, all those 
quality of life things are available not just in our population 
centers but to people that live in rural areas. I think this is 
going to be critical in terms of seeing that accomplished in 
the same way that building the interstate highway system and 
the railroad system of the past, or rural electrification as 
Mr. Baird indicated, those are all things, models that have led 
to great progress in this country and it ought to be progress 
that extends beyond the borders of Washington, D.C. and some of 
our metropolitan areas to places more remote.
    So anyway, I appreciate very much your testimony. I hope 
that you will feel free in the future to call upon us and visit 
with us about things that we ought to be doing, insights that 
you have.
    I certainly am someone who admittedly is a novice in this 
area but want to come up to speed on the issue so that we can 
be conversant in talking away. And we can come to a formation 
of public policy that would enable us to get to the finish 
line.
    So thank you very much for your testimony and for your 
patience today. I appreciate everything that you have 
contributed.
    This hearing is adjourned.
    [Whereupon, at 12:51 p.m., the subcommittees were 
adjourned.]
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