[House Hearing, 108 Congress]
[From the U.S. Government Printing Office]



 
    DIGITAL DIVIDENDS AND OTHER PROPOSALS TO LEVERAGE INVESTMENT IN 
                               TECHNOLOGY
=======================================================================

                                HEARING

                               before the

          SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 19, 2003

                               __________

                           Serial No. 108-50

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________





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                   COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                      Ranking Member
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio                RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania     RICK BOUCHER, Virginia
CHRISTOPHER COX, California          EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina         SHERROD BROWN, Ohio
  Vice Chairman                      BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia             BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois               BART STUPAK, Michigan
HEATHER WILSON, New Mexico           ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING,       GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JAN SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho

                   Dan R. Brouillette, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

          Subcommittee on Telecommunications and the Internet

                     FRED UPTON, Michigan, Chairman

MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                      Ranking Member
CLIFF STEARNS, Florida               BOBBY L. RUSH, Illinois
  Vice Chairman                      KAREN McCARTHY, Missouri
PAUL E. GILLMOR, Ohio                MICHAEL F. DOYLE, Pennsylvania
CHRISTOPHER COX, California          JIM DAVIS, Florida
NATHAN DEAL, Georgia                 RICK BOUCHER, Virginia
ED WHITFIELD, Kentucky               EDOLPHUS TOWNS, New York
BARBARA CUBIN, Wyoming               BART GORDON, Tennessee
JOHN SHIMKUS, Illinois               PETER DEUTSCH, Florida
HEATHER WILSON, New Mexico           ANNA G. ESHOO, California
CHARLES W. ``CHIP'' PICKERING,       BART STUPAK, Michigan
Mississippi                          ELIOT L. ENGEL, New York
VITO FOSSELLA, New York              ALBERT R. WYNN, Maryland
CHARLES F. BASS, New Hampshire       GENE GREEN, Texas
MARY BONO, California                JOHN D. DINGELL, Michigan,
GREG WALDEN, Oregon                    (Ex Officio)
LEE TERRY, Nebraska
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Kelly, Eamon M., Professor of International Development, 
      Payson Center for International Development and Technology 
      Transfer, Tulane University................................    15
    Lew, Ginger Ehn, Chief Executive Officer, Telecommunications 
      Development Fund...........................................    23
    Minow, Newton N., Senior Counsel, Sidley Austin Brown & Wood.    11
    Welbourne, James, Director, New Haven Free Public Library 
      System, c/o American Library Association...................    20

                                 (iii)



    DIGITAL DIVIDENDS AND OTHER PROPOSALS TO LEVERAGE INVESTMENT IN 
                               TECHNOLOGY

                              ----------                              


                      WEDNESDAY, NOVEMBER 19, 2003

              House of Representatives,    
              Committee on Energy and Commerce,    
                     Subcommittee on Telecommunications    
                                          and the Internet,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:36 a.m., in 
room 2322, Rayburn House Office Building, Hon. Fred Upton 
(chairman) presiding.
    Members present: Representatives Upton, Cox, Whitfield, 
Shimkus, Walden, Terry, Markey, McCarthy, Towns, Stupak, Wynn, 
and Green.
    Staff present: Jaylyn Connaughton, majority professional 
staff; Will Nordwind, majority counsel and policy coordinator, 
Neil Fried, majority counsel; Will Carty, legislative clerk; 
Turney Hall, minority staff assistant; and Gregg Rothschild, 
minority counsel.
    Mr. Upton. Well, good morning everyone. Today's hearing is 
entitled ``Digital Dividends and Other Proposals to Leverage 
Investment in Technology.'' Specifically, we will be exploring 
proposals to put spectrum auction proceeds in special trust 
funds dedicated to the enhancement of technology in education.
    As chairman of this subcommittee and as a member of the 
House Education and the Workforce Subcommittee on 21st Century 
Competitiveness, I visit a school every week in my district and 
have seen firsthand the tremendous impact which technology can 
bring to a student's learning experience. In today's global 
marketplace, we must equip our kids and workers of all ages 
with the high tech skills they need to remain competitive with 
the rest of the world's workforce and marketplace. Moreover, we 
need to make sure that our Nation remains on the technological 
cutting edge to maintain its educational and commercial 
leadership role in the world.
    Today we are going to look at two concepts which are 
similar to the extent that they both would need Congress to set 
aside at least some proceeds from spectrum auctions into a 
special dedicated fund. In the case of the Digital Opportunity 
Investment Trust proposal, a significant amount, 30 percent, 
would be dedicated to digital, educational and technology 
programs among other things. In the case of the 
Telecommunications Development Fund, TDF, enhancement proposal, 
interest off a portion of winnings, bidders' down payments 
would be added to TDF's existing funding for investment in new 
technology ventures.
    I would add I am the original cosponsor of Mr. Town's bill 
to do exactly that.
    Both proposals have worthy goals, and I commend both Mr. 
Markey and Mr. Towns for focusing our attention on them. Under 
each of these proposals, we are generally talking about walling 
off spectrum auction proceeds from the normal budgetary 
process. It is through the normal budgetary process which those 
auction proceeds would otherwise flow to the Congress for use 
in our annual appropriations process.
    In examining the Digital Opportunity Investment Trust 
proposal, we need to think hard about whether the worthy 
programs which would be funded through the Digital Opportunity 
Investment Trust might preclude funding for other worthy 
programs which might not otherwise get funded through the 
normal appropriation process such as veterans benefits, highway 
construction, homeland security, agriculture disaster support, 
among other things. Also I think we need to look at the 
entirety of Federal assistance to education and technology in 
whatever form it takes, whether it be grants, tax credits, loan 
guarantees or programs like E-rate to get a better sense of 
where we are in that regard.
    Having said all that, I look forward to working with Mr. 
Markey and Mr. Towns and other members of this subcommittee to 
examine those issues, and look forward to hearing from today's 
distinguished witnesses, long-time friends.
    And at this point, I yield to the distinguished minority 
member, ranking member of the subcommittee, Mr. Markey from 
Massachusetts.
    Mr. Markey. Thank you, Mr. Chairman, and I very much 
appreciate your having this hearing that sets the table for 
future discussion on this issue. And I want to thank our 
witnesses for coming here today for this very important 
discussion. And obviously there is a lot of member interest in 
this subject.
    When the Federal Communications Commission decides to 
proceed with auctions as a means of granting licenses to the 
public airwaves, I believe the public deserves to reap the 
benefits. These benefits should manifest themselves not only in 
the more rapid offering of new competitive commercial wireless 
services or the deployment of technological innovations, but 
also in the dividends that can be reaped by reinvesting the 
auction money wisely.
    The legislation I have introduced, the Spectrum Commons and 
Digital Dividends Act proposes taking auction revenue and 
creating a permanent trust fund in order to fund grants for 
public interest telecommunications and educational technology 
initiatives. I believe harnessing this resource and reinvesting 
it for such initiatives will be vital to our national economic 
security, our homeland security and for leaving to the next 
generation the cultural and educational assets of our great 
country in an accessible digital form.
    Economic security: United States is now in a post-NAFTA 
post-GATT world of fiercely competitive global markets, where a 
knowledge-based economy is the clear future for our country. 
Whether it is the training of teachers, retrainingworkers, 
supporting after-school computer literacy programs or other 
educational technology initiatives, we have to ensure that our 
future workers have the skill set necessary to compete for and 
create the jobs America needs in order to succeed in a new 
global economic environment.
    Homeland security: Moreover, in a post-September 11 world, 
our homeland security is tied to an educated and prepared 
military. After 9/11, we live in a world where local first 
responders and national law enforcement now have the task and 
must have the capability to fight sophisticated terrorists. In 
addition, our country will need its best minds to develop high 
tech tools to screen airliners, to test for biological or 
chemical toxins in the air or to thwart the designs of any 
cyber thugs who threaten our key infrastructure.
    In civic cultural and educational legacy: Our Nation's 
libraries, museums, universities, are great repositories of 
information and possess the tremendous wealth of our cultural 
heritage. These treasures can and ought to be digitized in a 
way that makes them accessible to all our citizens, both on-
line and over the air, using our National Public Broadcasting 
system. This will help to ensure that we have an informed and 
skilled citizenry for our civic institutions. Putting these 
great educational resources at the heart of the technological 
transformation our society is undergoing will strengthen our 
democracy in fundamental ways.
    For all of these reasons, I believe we must rise to the 
challenge of funding advanced research and development for 
education and technology training in a way that reflects the 
urgent need to do so and the current and adequate resources 
being put to these efforts. Telecommunications technology has 
an awesome potential to effect change positively by driving 
economic growth, preparing our citizens for the tough 
challenges ahead and enriching our democracy. Yet without a 
plan, it will remain just that, merely the potential and 
promise, but not the reality. That is why I believe we ought to 
reinvest the auction resources we obtain from winning bidders 
in the public's airwaves. A permanent trust fund built from 
these funds will go a long way in meeting the need, and that is 
what my legislation is designed and intended to do.
    I want to commend Mr. Newt Minow for his stellar work in 
this area, along with Mr. Larry Grossman who--working with Ann 
Murphy, each of them has played a role before this committee in 
the past. I also look forward to hearing from Dr. Eamon Kelly 
and Mr. James Welbourne in support of legislating such a trust.
    In conclusion, allow me to also mention that I strongly 
support the Telecommunications Development Fund which was 
spearheaded by Representative Ed Towns and which I helped put 
into law in the Telecommunications Act. There is a program 
which creatively takes revenue from auction deposits before an 
auction is fully concluded and puts it to good use as seed 
money for small entrepreneurial companies.
    And I commend Ginger Lew for her great work as well.
    Again, I want to thank you, Mr. Chairman for calling this 
hearing and I look forward to hearing from our witnesses.
    Mr. Upton. I will remind my colleagues that under the rules 
of the committee, if you defer your opening statement from this 
point on, you will get an additional 3-minute incentive for 
questions.
    Mr. Shimkus.
    Mr. Shimkus. I cannot be bribed, Mr. Chairman. But let me--
and I am going to be short.
    First of all, to my friends here on the committee, December 
4 will be the 1-year anniversary of signing of Dot-Kids. I 
never want to miss the opportunity to talk about Dot-Kids.us. 
We now have Smithsonian on; the State of Minnesota has the Dot-
Kids.us site. Disney and PBS are moving to have sites on the 
Dot-Kids site. And I just use the bully pulpit to always talk 
about what I think is a great piece of legislation that is 
going to help in protecting kids.
    And with that I turn to my chairman here and really the 
ranking member who was helpful in spearheading this, and I want 
to continue to do that. And I want to commend the two Eds on 
the other side of the aisle, Ed Markey and Ed Towns, for their 
vision and hard work on what to do when we move to auctions and 
where the money should go. I think it is a great debate. These 
issues need to be addressed in a public forum and I encourage 
them to continue to work diligently to help us work this 
through.
    Mr. Upton. We are likely to have an oversight hearing on 
Dot-Kids probably early next year.
    Mr. Shimkus. Mr. Chairman, if I may, we are moving for the 
House server to make it available for members to get their own 
Dot-Kids sites up. Technologically, we are not there, but we 
are close. And then I would expect and encourage all Members of 
the House to have their own specific member site on the Dot-
Kids.us server.
    Mr. Upton. No toy guns.
    Mr. Shimkus. Maybe 1 or 2.
    Mr. Upton. Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman. I would like 
to commend you and Ranking Member Markey. I thank you for 
holding this hearing today on innovative plans to invest in 
technology projects.
    I would like to welcome the witnesses today, especially my 
friend Ginger Lew, the CEO of the Telecommunications 
Development Fund. Welcome.
    Long before my career in Congress, I attempted to bridge 
what I call the economic opportunity gap in this country 
between the rich and poor, whether those rich or poor were in 
rural or urban areas. Throughout my tenure on this Commerce 
Committee and with the Information Age in full swing, I shifted 
much of my efforts to bridge the digital divide through 
programs that would increase minority ownership, put modern 
computers and equipment in schools to ensure that people in all 
parts of this Nation have access to the Internet.
    Now that the spectrum and the proceeds from the spectrum 
seem to be growing by the day, there should be a healthy debate 
as to how best those moneys should be invested. I, for one, am 
for making sure that any leftover dollars are used for 
telecommunication projects such as education, increasing access 
to capital and broadband deployment in our schools. We put 
proceeds from the gas tax to the highway fund, so why not put 
money from various spectrum auctions toward improving our 
information highway? Makes sense to me.
    Back in 1996, when the Telecommunications Act was being 
rewritten, a bipartisan group of members, including the current 
chairman and ranking member of the full committee, along with 
others, founded the Telecommunications Development Fund as a 
way to assist those entrepreneurs in rural and underserved 
areas whose ideas showed promise, but lacked the capital to 
succeed in the modern day business environment. I am proud of 
the work that the TDF has done and continues to do, and want to 
thank my friends, Mr. Upton and Ms. Wilson specifically, for 
all their work on behalf of the fund, along with Congressman 
Markey from Massachusetts.
    I would be remiss if I didn't mention that if H.R. 1320 
were to be signed into law, it would be an incredible boon to 
the fund by lifting the burden of the Fair Credit Reporting Act 
from its shoulders. This is a common-sense bill that the Senate 
should enact promptly without the extraneous provisions added 
in the markup.
    While it is not heard about as much today as it was a few 
short years ago, the digital divide is alive and well in this 
country. It knows no color or creed, but continues to separate 
the haves from the have-nots. Our constituents deserve better. 
And I hope, in addition to the ideas already on the table, that 
today some new ones will come forward as well. We need to focus 
on this digital divide, Mr. Chairman.
    On that note, I yield back.
    Mr. Upton. Mr. Cox.
    Mr. Cox. Thank you, Mr. Chairman, and in particular for 
holding this important hearing on a very important topic. And I 
want to welcome our witnesses. Having read your testimony as 
you have submitted it, we are appreciative of your contribution 
to our understanding.
    The Internet already is a very valuable educational 
resource, and it can become even more valuable, as can the 
attendant computer technology, if we simply encourage it in the 
right ways. This ought not to be simply a playground for 
grownups. This ought to be an opportunity for children and for 
students as well.
    Roughly 150 million Americans live in homes with Internet 
access. That means that about 140 million Americans live in 
homes without Internet access. No matter how hard we work to 
enhance the value of educational resources on-line, those 
resources aren't going to do anything for those Americans who 
don't have access. Therefore, the top priority, increasing 
access to the educational resources on the Internet, has to be 
increasing access to the Internet.
    The Pew Internet and American Life Project found that the 
major barrier for getting people on-line is the cost of 
Internet access. I hasten to point out that although the House 
of Representatives and this committee and the Judiciary 
Committee have done a splendid job in renewing the ban on 
special discriminatory taxes, such as Internet access taxes 
that threaten to expand the digital divide, that is now locked 
up over in the Senate, and we need to do everything we can this 
year to get the Internet Tax Nondiscrimination Act passed into 
law. That is the No. 1 thing we can do to expand educational 
opportunities for kids and for all Americans on the Internet.
    We need to do the same thing to allow students, especially 
young ones, with the Dot-Kids proposal that Mr. Shimkus 
described, to access the wealth of educational information and 
services that are already on-line, weed out those materials 
which have no educational value, no cultural benefits and no 
redeeming virtues. That means encouraging the development of 
technology that permits people who control the portal--not the 
government--people who control the portal--to make those 
decisions and working, for example, to achieve what is now the 
mere raw potential of Dot-Kids. That is the technical challenge 
for the hardware industry, the software industry and it is a 
legislative challenge for us.
    As for the specific question of channeling spectrum auction 
proceeds to educational ventures, I think we would be wise to 
have a sense of humility here. As much as we all wish for a 
more education-oriented Internet, the money collected in 
spectrum auctions doesn't belong only to those of us who care 
about on-line education, only the companies that wish to deploy 
broadband or only the foundations focused on education or 
specific agencies of the government. These funds belong to all 
American taxpayers. So the potential uses of these funds must 
win out in competition with other priorities such as national 
defense, health care and the environment.
    Government venture capitalist, government as the arbiter of 
technological winners and losers will succeed only in using 
taxes to distort marketplace competition and impede improvement 
in computer technology. We must do everything we can to improve 
the ways in which our schools and our students take advantage 
of the promise of technology. That means encouraging it in 
every way that we know how to improve as fast as it can. And it 
means keeping the cost down so the digital divide closes and 
more and more people have access.
    Thank you, Mr. Chairman.
    Mr. Upton. Mr. Green.
    Mr. Green. Thank you Mr. Chairman. I would like to ask 
unanimous consent to put the full statement in the record and 
just paraphrase it for the sake of time. I want to thank you 
and our ranking member for holding this hearing. And I would 
like to welcome our distinguished panel of witnesses, 
particularly Ms. Lew, to our committee.
    Both the major proposals discussed in the submitted 
testimony aimed to make better use of our spectrum auction 
revenue for supporting technology investments, a goal I 
wholeheartedly support. Clearly, to free up the spectrum for 
auction, we have to be able to compensate government users, 
particularly the Pentagon, or else or we are going nowhere, as 
we have learned. Our committee in the House was able to pass 
the Commercial Spectrum Enhancement Act to do just that.
    Revenues from spectrum auctions by the Federal 
Communications Commission in excess of compensation for 
government users should remain in the telecommunications field. 
We have already heard from other members about the success of 
the E-rate. There is continuing pressing need for public 
technology in our schools and libraries, and we need to 
continue to look at that.
    The E-rate using universal service fund has been a primary 
source for lower income and rural schools and libraries to 
update their education resources so that school children have 
the skills necessary to succeed in today's economy. And I see 
this in every school in my district. The demand for this 
program has more than doubled its current funding cap. For year 
5, last year's E-rate funding cycle, $5.7 billion in 
applications was received for only $2.25 billion in available 
funding; and many poor and urban and rural school districts 
would greatly benefit from the ability to use Federal 
technology for both products and services outside the current 
E-rate program.
    It is great to be able to wire for telecommunications 
services and Internet access, but other information services 
and the equipment necessary to take advantage of them are too 
often out of the reach of millions of school children in our 
country. Maybe the future spectrum revenues can help fill the 
gap here and improve our future workforce, technology skills 
and, eventually, competitiveness in a global economy.
    With that, Mr. Chairman, I yield back my time.
    [The prepared statement of Hon. Gene Green follows:]
  Prepared Statement of Hon. Gene Green, a Representative in Congress 
                        from the State of Texas
    I want to thank Chairman Upton and Ranking Member Markey for the 
hearing we are having today on proposals to leverage investments in 
technology.
    I look forward to hearing the various ideas from our distinguished 
panel of witnesses here today.
    Both of the major proposals discussed in the submitted testimony 
aim to make better use of our spectrum auction revenues for supporting 
technology investments, a goal I whole-heartedly support.
    Clearly to free up this spectrum for auction we have to be able to 
compensate government users, particularly the Pentagon, or else we are 
going nowhere.
    Our Committee and the House was able to pass the Commercial 
Spectrum Enhancement Act to do just that.
    Revenues from spectrum auctions by the Federal Communications 
Commission in excess of the funding necessary to compensate government 
users should remain in the telecommunications field.
    There are certainly plenty of pressing public technology needs at 
our school and libraries that we should be looking to meet.
    The E-rate program using Universal Service fund has been a primary 
funding source for lower-income and rural schools and libraries to 
update their education resources so that their schoolchildren will have 
the skills necessary to succeed in today's economy.
    Demand for this program is more than double its current funding 
cap. For Year 5, last year's E-Rate funding cycle, $5.7 billion in 
applications were received for only $2.25 billion in available funding.
    And many poor urban and rural school districts would greatly 
benefit from the ability to use federal technology support for products 
and services outside the current E-Rate program.
    It is great to be able to wire for telecommunications services and 
internet access, but other information services and the equipment 
necessary to take advantage of them are too often out of the reach of 
millions of school children in our country.
    Maybe future spectrum revenues can help fill the gap here and 
improve our future workforce's technology skills and eventual 
competitiveness in the global economy. I look forward to hearing from 
our witnesses on that topic.
    I also look forward to hearing from our witnesses the number of 
ways we can also leverage funding for technology investments in small 
start-up businesses in underserved areas.
    If we want to move the technology revolution in our economy across 
the digital divide, it won't be enough to invest in just in the schools 
and libraries, we need to find innovative ways to invest in 
entrepreneurs also.
    Chairman Upton, Ranking Member Markey, I appreciate the hearing and 
yield back the balance of my time.

    Mr. Upton. Mr. Terry.
    Mr. Terry. Thank you, Mr. Chairman, and I do appreciate 
your holding this hearing. And welcome to our panel.
    The digital divide in Nebraska is an interesting paradox in 
a sense, because in our one urban area that I represent, Omaha, 
Nebraska, in our core urban area, the poor area of town, they 
are wired. And the digital divide isn't accessed to the system 
per se. It is hardware. They can't go to Best Buy or Nebraska 
Furniture Mart and buy a computer for $1,000.
    That is why a community group--myself, Cox Cable, the Omaha 
Chamber--started a program where Omaha citizens and businesses 
can donate their PCs to our organization called Connect Kids; 
and then we work with the public schools, the Boys and Girls 
Club, Chicano Awareness Center, and so far we have been able to 
place hardware donated from businesses in 500 children's homes 
so they can access the Internet.
    Once you get outside of the Omaha urban area, it is access 
to a system, especially advanced systems.
    And so I think it is important for us, when we discuss the 
digital divide, to include not only urban areas, because I 
understand Omaha is a unique city in that it is a completely 
wired city. But we look at rural areas and wonder if we are 
going to leave those folks behind economically, educationally, 
if we do not have access to a more advanced system.
    In that regard, I would associate myself with Congressman 
Cox's remarks about the importance of the Internet for 
educational use. I would add economic use. I would also say 
that I think it is incumbent upon this subcommittee, in 
particular, especially when we have two major RBOCs that have 
said they will roll out voice-over Internet protocol in order 
to take advantage of the ``no taxes over the Internet'' and 
avoid universal service. So I wonder if telephony in those 
types of communication and advanced systems will become the 
norm in a society but leave out core urban areas and rural 
areas if we don't get ahead of that curve as a Congress.
    That is why today's hearing is important. It starts us 
thinking in that direction. It starts us thinking about the 
future. So I welcome the panel and yield back.
    Mr. Upton. Mr. Stupak.
    Mr. Stupak. Thanks, Mr. Chairman. I will be brief. Thanks 
for holding this hearing and thanks to Mr. Markey for his 
efforts on this issue.
    As a member from a rural district, I wholeheartedly agree 
that the Internet offers opportunities that cannot be equaled 
in making education, culture, medicine and services available 
to all parts of the country and all segments of our population. 
For this reason, we must ensure that we maximize the 
availability of broadband, the utilization of the Internet and 
the education and training of all members of society to take 
advantage of this important tool.
    I also share the belief that the FCC spectrum auction 
proceeds should be directed toward useful and rewarding 
purposes rather than being returned to general Treasury 
revenues. As a matter of fact, my colleagues, Vito Fossella, 
Eliot Engel and I, have introduced H.R. 3370, which would 
allocate a portion of the spectrum auction proceeds from the 
FCC to create a public safety trust fund.
    I know many of my colleagues on the subcommittee have 
expressed strong support for assisting public safety with 
achieving interoperability and the ability to communicate with 
each other, with the hope that as we work in the future on this 
important digital divide proposal that we can also incorporate 
the worthy goal of aiding public safety with their important 
lifesaving needs. There is much good that can be done with the 
spectrum auction proceeds and I look forward to legislative 
action on these proposals in the future.
    With that, Mr. Chairman, I yield back the balance of my 
time.
    Mr. Upton. Ms. McCarthy.
    Ms. McCarthy. Thank you, Mr. Chairman. I am going to put my 
remarks in the record. And I thank you for the hearing and 
thank Mr. Markey and Mr. Towns for their interest in this. And 
I am thrilled, as a former educator, that we can explore how to 
use technology to fund arts and cultural programs through the 
grants and funds that you promote in the legislation and that 
will really stimulate learning.
    So I am excited that we have expert witnesses to speak to 
those changes in our policy, and I will yield back.
    [The prepared statement of Hon. Karen McCarthy follows:]
Prepared Statement of Hon. Karen McCarthy, a Representative in Congress 
                       from the State of Missouri
    Mr. Chairman, thank you for convening this hearing. I want to 
express my appreciation to the expert panel here today and I look 
forward to their testimony.
    I commend my colleagues, Mr. Markey and Mr. Towns, for their 
continued interest in the important issues before us, and for their 
leadership in drafting legislation.
    As a former educator, I am deeply interested in how technology can 
improve our schools by funding arts and culture programs that stimulate 
learning.
    Perhaps most urgently, I want to know how to use technology 
training to get this economy moving and to teach people the skills they 
need to not just earn a living, but to build a life.
    Mr. Chairman, I welcome the panel's input on the creation of a 
national trust fund to make the nation's art, humanities and culture 
available to all Americans for lifelong learning. Let us all try to 
look at this issue with the shared goal of delivering the benefits of 
technology to our citizens, from young to old, from the classroom to 
the factory floor.
    Thank you, Mr. Chairman, once again for convening this hearing and 
I look forward to today's testimony.

    Mr. Upton. I would announce all members of the subcommittee 
will have an opportunity to put their opening statements in the 
record.
    Mr. Whitfield, do you wish to make a opening statement.
    Mr. Whitfield. No, Mr. Chairman.
    Mr. Upton. You get the 3-minute bonus. You made it just in 
time. No brownies for anybody else.
    [Additional statements submitted for the record follow:]
    Prepared Statement of Hon. Paul E. Gillmor, a Representative in 
                    Congress from the State of Ohio
    I thank the Chairman for the opportunity to examine spectrum 
management policies and the potential for greater technological 
development.
    In one of the proposals before us today, we find the goal of 
allowing the Telecommunications Development Fund (TDF) to make loans in 
furtherance of the objective of enhancing small business and support 
services. Of particular interest to rural Northwest Ohio, this proposal 
would provide capital for small companies to foster growth and 
development in the increasingly important sector of broadband and 
wireless technology.
    The second measure also serves as a worthy goal, promoting the 
continued advancement of opportunities to personnel at schools and 
libraries. The purpose of this proposal is to fund computer literacy 
programs, offer telecommunications services to individuals with 
disabilities, and fund educational software, among others.
    I welcome the well-represented panel, look forward to hearing the 
testimony of the witnesses, and anticipate a positive debate regarding 
these and other proposals that would further the impact and reach of 
telecommunications on our society.
    Again, I thank the Chairman and yield back the remainder of my 
time.
                                 ______
                                 
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming
    Thank you, Mr. Chairman.
    I would like to thank you for holding this hearing to examine a 
different ``state of telecom,'' not the health of the industry that we 
analyzed earlier this year, but through a more granular focus, we are 
going to hear testimony about ways to avoid a gulf between technology 
haves and have-nots.
    As our nation continues its evolution toward a fully wired and 
``paperless'' economy, and where a great deal of government-related 
services have now migrated to an electronic platform, the need for an 
Internet-savvy citizenry is increasingly important. After all, the 
speed and efficacy of the Internet in disseminating information creates 
efficiencies that millions of federal workers cannot duplicate. This, 
of course, translates to substantial future fiscal savings and improved 
federal services.
    I'm somewhat dubious, however, as to what role Congress in general 
and the Committee specifically, play in this matter. Some of my 
colleagues endeavor to have a cradle-to-the-grave government care 
model, and think everything is a federal responsibility, while I and 
others believe in the preservation liberty and self determination. 
Somewhere in there lies the mutual obligation of taxpaying Americans to 
fund initiatives for the public good.
    There is no end what folks would like to do, only if they had 
federal money with which to do it. I know because I see them all the 
time here in Washington, and it makes me wonder sometimes how anything 
got done prior to federally-funded programs like the National Endowment 
for the Arts (NEA). Clearly there are no instances of masterpieces 
created prior to 1965 when the government came to the rescue with the 
creation of the NEA.
    Nevertheless, as a Member representing rural Wyoming, where the 
Internet keeps us connected to the rest of America, I have a great deal 
of interest in ensuring e-commerce is a vibrant and accessible 
component of our economy. Also, I look to our educational institutions 
and job training programs such as the Workforce Investment Act as the 
vehicles to provide lifetime education and other services, not creating 
more self perpetuating, often duplicative and forever growing federal 
programs.
    We have the opportunity in today's hearing to determine the proper 
place and funding mechanisms for digital outreach and hear from this 
distinguished panel their assessment of where we are, and where we need 
to go.
    Thank you Mr. Chairman, I yield back the balance of my time.

    Mr. Upton. We are delighted to have the panel that is with 
us today. And I looked at the testimony last night. I would 
note that the testimony is part of the record. We will allow 
you each to summarize it in a 5-minute period. There is a 
little clock, that should be working, in front of you. Is that 
actually on? Because the lights on this side are not on.
    We are delighted to have Mr. Newt Minow, former Chairman of 
the FCC and Senior Counsel with Sidley, Austin, Brown & Wood 
from Chicago; Dr. Eamon Kelly, Professor of International 
Development at the Payson Center for International Development 
and Technology Transfer at Tulane University; Mr. James 
Welbourne, Director of the New Haven Free Public Library 
System, the American Library Association here in Washington; 
and Ms. Ginger Lew, CEO of the Telecommunications Development 
Fund, also here in Washington.
    Mr. Minow, we will start with you.

  STATEMENTS OF NEWTON N. MINOW, SENIOR COUNSEL, SIDLEY AUSTIN 
   BROWN & WOOD; EAMON M. KELLY, PROFESSOR OF INTERNATIONAL 
 DEVELOPMENT, PAYSON CENTER FOR INTERNATIONAL DEVELOPMENT AND 
   TECHNOLOGY TRANSFER, TULANE UNIVERSITY; JAMES WELBOURNE, 
 DIRECTOR, NEW HAVEN FREE PUBLIC LIBRARY SYSTEM, c/o AMERICAN 
   LIBRARY ASSOCIATION; AND GINGER EHN LEW, CHIEF EXECUTIVE 
          OFFICER, TELECOMMUNICATIONS DEVELOPMENT FUND

    Mr. Minow. Mr. Chairman, Mr. Markey, members of the 
committee, my statement is submitted for the record.
    Coming here this morning and walking into the Rayburn 
Building reminded me of the day I started as Chairman of the 
Federal Communications Commission many years ago. I went to see 
the then-Speaker of the House, Mr. Rayburn, whom I had met, and 
we talked; and he said, Young man, son, he said, you and I will 
get along just fine if you remember one thing. I said, What is 
that, sir? He said, You work for me. And I never forgot it, 
because the FCC, as you know, is an arm of the Congress, and I 
testified before this committee so many times.
    There was a Congressman in the 19th century who served 43 
years in the Congress and the Senate. He was a Republican from 
Vermont. He was an uneducated farmer. His name was Justin Smith 
Morrill. He made a major contribution to this country because 
he suggested in the 1860's what became the Land Grant College 
Act. The Land Grant College Act was defeated time and time 
again in Congress, but finally during the Civil War, it was 
passed. And Abraham Lincoln signed it as President. The Land 
Grant College Act, unlike the laws Congress passes today, was 
as big as my hand. That was the entire law. But it changed 
American history, because the law said that each State would 
receive 30,000 acres of federally owned land for each Member of 
Congress and each Senator on the condition that the State would 
create a land grant college.
    At that time the people who went to colleges and 
universities in America were white males studying to be a 
lawyer, doctor or minister. Nobody else. No women, no 
minorities. And the result of the land grant college law, which 
now has 105 land grant colleges in the United States, the whole 
California system, great universities like Cornell and MIT, all 
got their start as land grant colleges because in the midst of 
the Civil War the Congress decided that an investment in 
education in the form of land would benefit the country. That 
was in the 19th century.
    In the 18 century we did the same thing. When this country 
first started, we created public schools by using land. The 
Northwest Ordinance provided that Federal land would be set 
aside for schools.
    In the 20th century, by a one margin vote in the House of 
Representatives--let me emphasize that, a one margin vote in 
the House of Representatives--in the midst of World War II, the 
GI bill was passed, one vote. The GI bill enabled millions and 
millions of Americans who would never have gone to college, who 
would never have had a higher education, to go to school to 
become productive citizens of our society. Those are the 18th, 
19th, 20th century precedents.
    What are we going to do in the 21st century? The 21st 
century, I would submit, is the equivalent of land today, 
federally owned land, as something we can't see. It is in the 
airwaves. And as Congressman Cox said, it belongs to every 
single one of us. It doesn't belong to the people who use it. 
It belongs to every single one of us.
    And we started, and Congress provided, to auction off the 
airwaves years ago and it provided a enormous amount of money 
nobody thought was possible, billions upon billions of dollars. 
The money, however, was not designated for any particular use, 
unlike the Northwest Ordinance, unlike the Land Grant College 
Act, unlike the GI bill, the money simply went into the Federal 
Treasury where it evaporated in a matter of hours. Instead of 
going for investors' lifetimes, it was gone, poof, in a matter 
of hours.
    That is why, we think--Larry Grossman and I were asked 3 
years ago by a group of foundations to address the question, 
what does this revolution, this digital revolution, what 
opportunities are there for the not-for-profit sector, for the 
schools, for the libraries, for the universities. And we 
developed and we went around the country and talked to a lot of 
people, interviewed many people and talked to many scholars, 
people who weren't scholars; and we wrote a book and we came up 
with this proposal, the Digital Opportunity Trust.
    We think that it is imperative in the world we are going 
into that everybody have an opportunity to participate in this 
communications revolution, this digital revolution, this 
technology revolution. I happen to chair an advisory committee 
for the Department of Defense on privacy and modern technology. 
In fact, we are meeting here, and our meetings are in the 
Senate tomorrow and Friday. And I have learned a lot about 
technology as a result of that.
    There is no question that we are only at the beginning. We 
are only at the beginning of what this is all about. And I 
believe--and am very grateful to you, Mr. Chairman, and I know 
you have a deep interest in the area of technology and 
education. Think what it would mean at Benton Harbor if these 
kids all had a chance to participate in this.
    And to you, Congressman Markey, who has taken a lead in 
this, we are very grateful, because we think--and there is 
legislation pending in the Senate as well as the House--we 
think this is a magnificent opportunity.
    I was very discouraged with the economic situation, and we 
realized after 9/11 that the problems of the budget would be 
greatly affected, but we still say that this investment, just 
like the Land Grant College Act, just like the GI bill, just 
like the Northwest Ordinance, is going to make history for this 
country; and we ask you to be the makers of that history.
    [The prepared statement of Newton N. Minow follows:]
                 Prepared Statement of Newton N. Minow
   digital opportunity investment trust: progress toward the promise
    Thank you Mr. Chairman, Congressman Markey and distinguished 
Members of the Committee. Thank you on behalf of myself and my friend 
and Co-Chairman of the Digital Promise Project, Larry Grossman who 
spoke before the Committee on this subject last spring. We are both 
very appreciative of this opportunity to be here today to give you 
information about current developments in the work we have been doing. 
It has been a pleasure working with the excellent members of your 
staff. We hope that this hearing engenders a comprehensive discussion 
of the Digital Opportunity Investment Trust and we look forward to your 
comments and questions.
    First, let me summarize our proposal. We seek to create a Trust for 
the American people that will transform teaching, learning and training 
for the 21st Century. This Trust that we call the Digital Opportunity 
Investment Trust or DO IT, draws inspiration from several sound and 
highly successful examples. DO IT will be an incubator for ideas, 
research and development of advances in education and training in the 
same way that the NSF functions for science or the NIH functions for 
health and medical science. My esteemed colleague and former Chairman 
of the National Science Board, Dr. Eamon Kelly will elaborate on the 
parallels we have drawn with the NSF. What is clear is that the 
disciplines of education and training must be given the same level of 
priority and benefit of raw American ingenuity and academic genius if 
we are to remain at the vanguard of competitiveness as a nation and 
retain a healthy and just society.
The Need
    Let me take a step back first, to how the concept of a Trust to 
transform teaching and learning for the 21st Century came about. Three 
years ago Larry Grossman, whom you know as a former president of NBC 
News and the Public Broadcasting Service, and I started talking about 
the information and revolution through digital technology. Larry and I 
have spent the measure of our careers embroiled in the issues of 
communications technology and helping to create and oversee the content 
that technology provides to millions of Americans. We looked at the 
information revolution taking place in our society over the past twenty 
years and we saw that the fruits of the new digital era were not 
automatically shared widely by non-profit, public service, educational 
and cultural institutions. The institutions in question are those 
charged with being the repositories for the scientific, cultural and 
historical DNA of our country.
    In addition, we saw that education and training, rather than being 
at the epicenter of this technological revolution, were suffering from 
inadequate resources and too often playing ``catch up'' to the 
commercial marketplace. The long-term effects of continuing to give 
education and training a back seat in the digital era would only grow 
more staggering with time. We envisioned the creation of the Digital 
Opportunity Investment Trust that would serve as a venture capital fund 
dedicated to innovation and research in using new technologies to 
transform education, training and lifelong learning for all Americans.
    While our country struggles to get Democracy to thrive in other 
places; I submit that we should also take a profound look at what we 
need to keep our Democracy thriving right here at home. The answer is 
that Democracy thrives when an educated citizenry has access to 
information and the critical thinking skills to make informed choices. 
Education is the cornerstone of our Democracy, and technology is 
rapidly becoming the primary vehicle for education and lifelong 
learning. We must use technology for improved education and training or 
we will pay a price we cannot afford.
    In the global knowledge economy of the 21st Century, education and 
training equals jobs. As the manufacturing and manual labor base of our 
workplace erodes, the jobs that allow people to be productive and self-
reliant members of society rely on the proficient use of information 
technology. Other nations are quick to exploit the transient nature of 
global labor markets and now some of America's largest companies employ 
IT service workers in other countries or end up importing special visa 
holders because they cannot recruit qualified American IT workers.
    DO IT would ensure that our education system provides all students 
with a world-class education system that fully integrates technology 
and learning. And, DO IT would develop a structure for the delivery of 
training materials to workers in all fields so that Americans would be 
technologically capable to fill those high-paying IT jobs even at the 
mid-points in their careers. DO IT would also make America's growing 
population of seniors a priority. As life expectancies grow for a 
greater-than-ever portion of the population we must ensure that 
productivity and self-reliance is possible for seniors as well. 
Technology is the key to life-long learning and productivity which will 
be fundamental for our society to remain economically viable as more 
than 70 million Americans will be over the age of 65 by the year 2030.
    Another staggering need that must be addressed through the kinds of 
education research and training that DO IT would provide is that of 
national security. Here, I quote the report titled The U.S. Commission 
on National Security in the 21st Century, chaired by former Senators 
Warren Rudman and Gary Hart. Now known as the ``Hart-Rudman Report'' it 
warns that, ``the inadequacies of our systems of research and education 
pose a greater threat to U.S. national security over the next quarter 
century than any potential conventional war that we might imagine. 
American national leadership must understand those deficiencies as 
threats to national security. If we do not invest heavily and wisely in 
rebuilding these two core strengths, America will be incapable of 
maintaining its global position long into the 21st Century.'' And this 
dire warning, I will add, was issued prior to September 11th 2001 and 
the imposing array of challenges revealed for training first-responders 
and citizens in the face of far-reaching emergencies.
    I could also quote from various reports such as Congress's 
bipartisan Web-based Commission, President Bush's Technology Advisory 
Commission, the Department of Commerce's ``2020 Visions'' Report, the 
Business-Higher Education Forum, among others, that all point to the 
same thing: we must put advanced research and development for education 
and training at the vanguard of our priorities if America is to remain 
competitive in the world, and our current systems and resources are 
inadequate. The question is: when will we act? When will we streamline 
and coordinate all of the disparate federal initiatives currently 
taking place and apply research gains where appropriate and bring 
programs to scale? When will we make the kind of investment that 
matches this enormous and imperative need?
Status of our Proposal
    We have a clear mission that is supported by a broad coalition of 
respected public and private entities including hundreds of 
universities, corporations, museums, libraries, civic and cultural 
organizations, labor unions, organizationss for senior citizens and 
leading members of the education, arts and workforce development 
communities, and the Conference of Mayors. (A list of our coalition 
members has been submitted with this testimony). Our research has been 
conducted and corroborated by individuals and entities from across the 
political spectrum, including a major summit hosted by the Secretaries 
of Commerce and Education at the Department of Commerce last fall. We 
also went to the next generation of leaders to get their ideas. I am 
submitting for the record the winning papers in a call issued by the 
Digital Promise and the Learning Federation. These papers written by 
students from Florida and Hawaii expand on but two of the kinds of 
proposals that could be developed by DO IT. In the spring of 2003, 
through PL 108-7, Congress asked us to produce a detailed report on our 
recommendations for the creation of DO IT. This report includes a 
detailed rationale, a proposed structure and governance plan as well as 
a specific research and development roadmap that will lead to the kind 
of innovations in scientific applications for teaching and learning 
that are so vital to the improvement of education in our country. We 
formally presented the Report to Congress last month. Senators Dodd and 
Snowe, along with Senator Durbin, have subsequently introduced S-1854 
titled ``The Digital Opportunity Investment Trust Act.'' Today, we are 
called to discuss legislation pending before this Committee that has 
been introduced by Congressman Markey and calls for the creation of a 
Trust that provides ``digital dividends'' for many of the same critical 
purposes outlined in our report.
Our Nation's Legacy
    Congress has made this kind of investment in the past. We have 
history to lean on to understand, that even in times of great 
adversity, Congress has had the farsighted wisdom to fortify our 
society for future generations by investing in education.
    In the period following the American Revolution, Congress passed 
the Northwest Ordinance that set aside public land whose revenues would 
support the creation of public schools in every new state. This was the 
genesis of the nation's pioneering system of public education.
    During the darkest days of the Civil War, again using the valuable 
asset of public land, Congress passed and Abraham Lincoln signed the 
Land Grant Colleges Act of 1862. It provided for the sale of public 
lands to support the establishment of a public college and university 
in every state, so that higher education would be accessible to farmers 
and workers, not just to the elite and wealthy few. Today, the nation's 
system of 105 land-grant colleges provides the foundation of American 
higher education, and its creation heralded America's economic 
ascendancy into the industrial age.
    In the midst of World War II, Congress made its third 
transformative public investment in education. It passed, and President 
Roosevelt signed the GI Bill which sent millions of American service 
men and women to college. The prosperity and security that followed in 
the wake of the GI Bill helped America become the world's economic and 
political leader. The wisdom of the nation's innovative investments in 
education in times of crisis has been borne out in each century of the 
nation's history.
    Today we stand at another crossroads. It is a time of great 
uncertainty in our history, and we face the sweeping changes of the 
information age. The citizens who are best equipped to meet the 
challenges of this new age are those who have access to information 
technology and who have dexterity in using technology as a working and 
learning tool throughout their lives. It will be costly to ensure that 
all of our people are ready to meet those challenges--how can we pay 
for it?
    As we developed the Digital Promise proposal, we looked to history 
for the precedent of how to fund such an intensive investment in 
education, and there is a sound model that has been accepted and 
supported by the American people. In the cases of the Northwest 
Ordinance and Land Grant Colleges Act, Congress enabled major 
investments in public education to be made through the proceeds from 
the public asset of land.
    Today, the public asset in question is the highly valuable 
electromagnetic spectrum. It is the equivalent of the bountiful public 
lands of times gone by. We recommend that the Digital Opportunity 
Investment Trust be created through a portion--a percentage only--of 
the revenues from the sale, auctions and/or fees from the public asset 
of the public airwaves. Even a small percentage of such revenues over a 
specified and reasonable period of time would allow for an endowment 
that would secure enormous benefit for future generations.
    The model for a Trust from spectrum revenues is also not new. The 
Minorities in Telecommunications Fund that is also under review in this 
hearing was created through an initiative by Congress to ensure equal 
access to capital for minority held telecommunications businesses. The 
creation of this trust proved that revenues from the spectrum could be 
Congressionally mandated to be moved into a trust for a higher purpose 
within the parameters of the annual budget and appropriations cycles. 
The Digital Opportunity Investment Trust would be created through this 
same tested financial mechanism that would allow for a portion of 
spectrum revenues to be placed in an interest bearing account. This 
Trust would be governed by a Board appointed with the advice and 
consent of Congress and the President and Congress would examine and 
evaluate the Trust's performance and approve its budget and activities.
The Opportunity for Leadership
    In closing, I respectfully submit that yours is the helm as we face 
this next great task. We have worked diligently with the members of our 
coalition and a small staff to move this vision forward. But the true 
opportunity for leadership lies in your hands. You will be in very good 
company; President Thomas Jefferson, Senator Justin Morrill, President 
Lincoln and President Franklin Roosevelt saw to fruition the 
investments in education that enabled previous generations to prosper 
and to move America into a position of leadership in the world. The 
Digital Opportunity Investment Trust is the next such great and pivotal 
investment to be made for the sake of generations to come. It is clear 
that these ideas have been given serious thought by Congressman Markey, 
and I know that you, Mr. Chairman, have a dedication to using 
technology to improve education. We look forward to working with you 
and your staffs in developing proposals that will transform learning 
environments in this country and worldwide Thank you again for inviting 
me to testify today. I would be happy to answer any questions at this 
time.

    Mr. Upton. We appreciate your testimony and your interest 
and remember it was one of the first discussions you and I had 
several years ago at length in my office.
    Mr. Kelly. Welcome to the subcommittee.

                   STATEMENT OF EAMON M. KELLY

    Mr. Kelly. Thank you, Mr. Chairman, Congressman Markey and 
distinguished members. I appreciate the opportunity to testify 
before you in support of the Digital Opportunity Investment 
Trust. I previously have served as Chairman of the National 
Science Board from 1998 to 2002, and I would like to begin by 
thanking the committee for its long-term commitment to ensuring 
that the citizens of our country can share equally in the 
services made available by advanced telecommunications and have 
an opportunity to participate in the development of a strong 
and vibrant economy.
    I have been a supporter of the Digital Opportunity 
Investment Trust or DO IT from the beginning. As alluded to by 
the digital promise report to the Congress, the DO IT will do 
for education and training what NSF does for science.
    Let me explore from my vantage point as past Chairman of 
the National Science Board some of the parallels between the 
National Science Foundation and DO IT and explain why DO IT is 
so vitally important to our Nation at this point in time.
    In the past two decades, our knowledge has expanded at a 
rapid rate. Our world has grown more complex. Knowledge is now 
the principal source of wealth creation and new jobs in the 
U.S. And globally. This new knowledge-based economy has brought 
significant changes with profound implications for society. It 
has placed new demands on education and training for all of our 
citizens, not just K through 12 schooling, but throughout a 
person's lifetime. There is a critical need for an educational 
paradigm that reflects the needs of a diverse population and 
addresses all aspects of lifelong learning. DO IT will address 
this important need.
    The overarching objective of DO IT is one vital to our 
Nation's prosperity, to encourage, educate and enlist citizens 
into jobs and professions that drive the new knowledge economy, 
contribute to social well-being and safeguard the basic values 
of our society. DO IT will be an incubator for innovation 
playing a role similar to that of the National Science 
Foundation to nurture the people, ideas and tools needed to 
generate new scientific knowledge and new technologies. Federal 
investment in the basic sciences through the National Science 
Foundation have produced many benefits, including new 
industries such as E-commerce and biotechnology, new medical 
technologies, such as MRI and genetic mapping, new discoveries 
in areas such as nanotechnology, cognitive neuroscience and 
biocomplexity. Similarly, DO IT will intensify and focus 
research and development to harness the power of advanced 
technology to improve learning.
    This is an area of R&D that is greatly underfunded given 
its importance to our Nation. Unfortunately, the practices 
recommended by educational psychologists and cognitive 
scientists are not pervasive in our country's classrooms and 
training centers. Individualized instruction, subject matter 
experts and rich curricula activities are often simply too 
expensive.
    Emerging technologies make it practical now to approach 
learning in ways that learning scientists have advocated for 
many years. But we can achieve this goal only by undertaking a 
long-term, large-scale effort to develop tests and disseminate 
tools for building advanced learning systems.
    The R&D supported by DO IT will lead to a wide range of 
learning content and software tools that can lower the cost of 
entry for educational materials and assistance. This will 
enable vastly improved learning systems to become routinely 
available to all Americans inside and outside of the classroom 
in both urban and rural communities.
    The funding programs supported by DO IT will develop a 
pipeline of well-educated researchers to contribute to this 
important field. Some of these researchers will become faculty 
members and help educate future generations of researchers. 
Many others will join the workforce to develop next-generation 
products and services to contribute to U.S. Leadership in the 
education and training sector in areas such as E-learning 
services and educational software.
    Mr. Chairman, I am convinced that the 50-year-plus legacy 
of the National Science Foundation has been the driving force 
in the overall leadership of the United States in the fields of 
science and technology. The nature of the world we face today 
requires that the same kind of incubation of ideas and 
innovation in the areas of education and training if we are to 
remain competitive on a global level.
    My experience as past Chairman of the National Science 
Board gives me every confidence that an entity such as DO IT 
can be effectively governed and structured to achieve these 
goals and to be thoroughly accountable to Congress and to the 
public trust.
    At this point, I would like to close my formal remarks. I 
thank the committee for allowing me to comment on the Digital 
Opportunity Investment Trust. I look forward to future 
opportunities for discussion of this highly important national 
initiative. Thank you.
    [The prepared statement of Eamon M. Kelly follows:]
Prepared Statement of Eamon M. Kelly, Former Chairman, National Science 
                                 Board
                              introduction
    Thank you Mr. Chairman, Congressman Markey, and distinguished 
Members of the Committee. I appreciate the opportunity to testify 
before you in support of the Digital Opportunity Investment Trust. I am 
Eamon Kelly, President Emeritus and Professor in the Payson Center for 
International Development & Technology Transfer at Tulane University. I 
served as Chairman of the National Science Board from 1998-2002.
    I would like to begin by thanking the Committee for its long-term 
commitment to ensuring that the citizens of our country can share 
equally in the services made available by advanced telecommunications--
enhanced ways to communicate, learn, do business, and be entertained. 
The strength of our democracy has rested from the start on the 
principle that we are a land of opportunity enabled by an 
extraordinarily diverse citizenry. But in our technologically 
sophisticated society, fast-paced change often puts the most expansive 
opportunities out-of-reach for many. The Committee's groundbreaking 
work on legislation that provides for innovation in and expanded access 
to high speed Internet services has contributed greatly to assuring 
that all Americans have an opportunity to contribute to the development 
of a strong and vibrant economy.
    I have been a supporter of the Digital Opportunity Investment 
Trust, or DO IT, from the beginning. As alluded to by the Digital 
Promise report to the Congress, DO IT will do for education and 
training what NSF does for science. Let me explore from my vantage 
point as past National Science Board Chairman some of the parallels 
between the National Science Foundation and DO IT and explain why DO IT 
is so vitally important to our Nation at this point in time.
the need for an equivalent education and training effort as for science
    As the members of this Subcommittee know so well, something new and 
exciting is happening in the 21st century. We are in the midst of a new 
era of discovery, learning, and innovation. In the past two decades, 
our knowledge has expanded at a rapid rate; our world has grown more 
complex. Knowledge is now the principle source of wealth creation and 
new jobs in the U.S. and globally. This new knowledge-based economy has 
brought significant changes with profound implications for society. It 
has transformed the way we live and work.
    These truths of our times and our broader national values demand 
that we embrace the imperative of preparing people to take advantage of 
these opportunities. We are talking about opportunities not only for 
individuals. We are also talking about ways to create expanded 
opportunities for the U.S. to compete and prosper.
    Education and training have always been vital to the success of 
individuals. In today's knowledge-based economy, it is also an 
investment in our collective future as a nation and a society. The 
knowledge-based economy has placed new demands on education and 
training for all our citizens--not just K-12 schooling, but throughout 
a person's lifetime. There is a heightened sense of urgency to the task 
of identifying new learning and institutional strategies that will open 
the door to economic prosperity and improved well-being to the full 
diversity that is the face of America.
    The National Science Foundation (NSF) focuses on building and 
sustaining a competent and diverse scientific, mathematics, 
engineering, and technology workforce. The scientific and technological 
leadership enjoyed by the U.S. today, is due in large part to the 
funding and programs of the NSF. There is also a critical need to for 
an educational paradigm that reflects the needs of a diverse population 
and addresses the humanities, the arts, workforce training, and all 
aspects of lifelong learning. DO IT will address this important need. 
The overarching objective of the Digital Opportunity Investment Trust 
is one vital to our nation's prosperity--to encourage, educate, and 
enlist citizens into jobs and professions that drive the new knowledge 
economy, contribute to social well being, and safeguard the basic 
values of our society.
                  do it as an incubator for innovation
    The NSF plays a vital role in nurturing the people, ideas, and 
tools needed to generate new scientific knowledge and new technologies. 
Federal investments in the basic sciences through the National Science 
Foundation have produced many benefits, including:

 New industries, such as E-commerce and biotechnology,
 New medical technologies, such as MRI and genetic mapping,
 New discoveries with great future promise in areas such as 
        nanotechnology, cognitive neuroscience, and biocomplexity.
    NSF has accomplished this by funding innovative, peer-reviewed 
science and engineering research, educating a highly skilled science 
and engineering workforce, and building partnerships with other federal 
programs, non-profits and industry to foster transfer of knowledge, 
methods and tools.
    DO IT will play a similar role to foster a community of researchers 
and developers. DO IT will give academia, non-profits and industry the 
resources to develop learning content, methods, and models that will 
provide learners, teachers, and instructors with new tools. Some tools 
will be as basic as interactive digital aids to reading, writing, math, 
and languages, and some will be as sophisticated as simulations, 
visualizations, and distributed collaborative projects. Given an 
aggressive and successful program of research, computer simulations 
could let learners tinker with chemical reactions in living cells, 
practice operating and repairing expensive equipment, or evaluate 
marketing techniques. Simulations could make it easier to grasp complex 
concepts and transfer this understanding quickly to practical problems. 
New communication tools could enable learners to collaborate on complex 
projects and ask for help from teachers and experts from around the 
world. Learning systems could adapt to differences in student 
interests, backgrounds, learning styles, and aptitudes. They could 
provide continuous measures of competence, integral to the learning 
process. Such measures could help teachers work more effectively with 
individuals and leave a record of competence that is compelling to 
students and to employers.
    The gap in student achievement is a major challenge before us and 
one that is central to the new No Child Left Behind legislation. 
Without new models and tools for teaching and learning, we are stuck in 
classrooms that haven't changed much since the turn of the last 
century, educating our children on an agrarian calendar schedule, with 
methodologies that do not fully integrate and utilize the technology 
that permeates every other sector of our lives. Imagine the impact that 
the ability to refine teaching techniques could have in truly changing 
outcomes when each child has a personalized learning plan, customized 
through technology, to meet his or her specific learning style. High 
student to teacher ratios, often the case in failing schools, would 
then not be such an impediment and testing would become much more 
capable of aiding learning. And new tools could allow continuous 
evaluation and improvement of the learning programs and systems.
    DO IT will intensify and focus R&D to harness the power of advanced 
technology to improve learning. This is an area of R&D that is greatly 
unfunded given its importance to our nation. President's Committee of 
Advisors on Science and Technology (PCAST) in its Report to the 
President on Educational Technology (1997) reported that in 1995 the 
U.S. spent about $70 billion on prescription and nonprescription 
medications, and invested about 23% of this amount on drug development 
and testing. By way of contrast, our nation spent about $300 billion on 
public K-12 education in 1995, but invested less than 0.1% of that 
amount to determine what educational techniques actually work, and to 
find ways to improve them.'' 1
---------------------------------------------------------------------------
    \1\ Report to the President on the Use of Technology to Strengthen 
K-12 Education in the United States, President's Committee of Advisors, 
on Science and Technology, Panel on Educational Technology, March 1997
---------------------------------------------------------------------------
    Emerging technologies make it practical now to approach learning in 
ways that learning scientists have advocated for many years. 
Unfortunately, the practices recommended by educational psychologists 
and cognitive scientists are not pervasive in our country's classrooms 
and training centers. Individualized instruction, subject-matter 
experts, and rich curricular activities are often simply too expensive. 
Expense and related challenges often cause both formal education and 
corporate training to rely on strategies that ignore the findings of 
learning research. For the first time in history, technology exists 
that can make vastly improved learning systems routinely available. 
Furthermore, networking bandwidth capacity, computational power, and 
graphics capability will improve dramatically in the next few years. We 
will have even more powerful, less expensive technologies available to 
support teaching and learning. But we will not be able to take 
advantage of these advances unless we undertake a long-term, large-
scale effort to develop, test, and disseminate tools for building 
advanced learning systems. The R&D supported by DO IT will lead to a 
wide-range of interoperable, well-performing, extensible software tools 
that can lower the cost of entry for educational materials and systems. 
This will enable the types of learning I just described to become 
routinely available to Americans, both inside and outside of the 
classroom, in both urban and rural communities.
    The funding programs supported by DO IT will develop a pipeline of 
well-educated researchers to contribute to this important field. Some 
of these researchers will become faculty members and help educate 
future generations of researchers. Many others will join the workforce 
to develop next-generation products and services to contribute to U.S. 
leadership in the education and training sector, in areas such as e-
learning services and educational software publishing.
                     do it structure and governance
    I feel very confident endorsing the structure and governance model 
proposed in the Digital Promise's Report to Congress. It is important 
that the management structure provide ultimate accountability to the 
Congress, but also ensure that the management enjoys the stability and 
independence from political interference needed to guarantee the 
highest-quality product. The NSF provides a model for meeting this goal 
and the governance proposed for DO IT is, in general, modeled on this 
sound and very accountable structure. The NSF Director is appointed to 
a six-year term and reports to a strong, independent board. Similarly, 
DO IT would be overseen by a Board of Directors whose members would 
serve with the advice and consent of the Senate. The DO IT governing 
board would function much like the National Science Board, the 
governing board of the NSF. Like the National Science Board, the DO IT 
Board would be responsible for setting direction and budget guidelines 
and providing oversight of DO IT. The DO IT Board would be available to 
Congress whenever needed, just like the National Science Board. The 
Director of DO IT would be selected by, and serve at the discretion of, 
the Board of Directors.
                               conclusion
    Mr. Chairman, I am convinced that the fifty-year plus legacy of the 
National Science Foundation has been the driving force in the overall 
leadership of the United States in the fields of science and 
technology. The nature of the world we face today requires that same 
kind of incubation of ideas and innovation in the areas of education 
and training if we are to remain a competitive global leader. My 
experience as a past Chairman of the National Science Board gives me 
every confidence that an entity such as DO IT can be effectively 
governed and structured so as to be thoroughly accountable to Congress 
and to the public trust. At this point I would like to close my formal 
remarks. I thank the Committee for allowing me to comment on the 
Digital Opportunity Investment Trust. I look forward to future 
opportunities for discussion of this highly important national 
initiative.

    Mr. Upton. Thank you.
    Mr. Welbourne.

                  STATEMENT OF JAMES WELBOURNE

    Mr. Welbourne. Good morning, Mr. Chairman and members of 
the subcommittee. My name is James Welbourne, and today I 
represent the American Library Association. I am also the 
Director of the New Haven Free Public Library in New Haven, 
Connecticut. And I am very pleased to be here to speak in favor 
of the Digital Opportunity Investment Trust, or DO IT. I love 
that acronym.
    Today's libraries are dynamic, modern community centers for 
learning, gathering information and entertainment. At the New 
Haven Free Public Library, we are proud of the many community-
based activities we offer our citizens, from book clubs and 
author talks to infant and toddler literacy resources to 
technology access and job training.
    Information has become the great equalizer in today's 
society and libraries play an increasingly critical role in 
leveling the playing field by providing communities with no-fee 
access to technology and information resources. DO IT would 
allow libraries to bring technology and information resources 
to an even greater population in both urban and rural 
communities across the country.
    A chain is only as strong as its weakest link, and DO IT 
would be another important link in building a strong chain to 
close the digital divide and to meet our Nation's 
opportunities. Coupled with programs such as the E-rate and 
Library Services and Technology Act, as well as other local, 
State and national programs, we can provide equitable and 
affordable access. We need all these links to meet the needs 
for accessibility for all.
    Modeled after Abraham Lincoln's Land Grant Colleges Act, 
which authorized the sale and use of public lands to support 
the establishment of public colleges and universities, DO IT 
would create an education trust fund by using the billions of 
dollars in revenue from auctions of unused, publicly owned 
telecommunications spectrum. The trust fund would support 
research and development of new educational models and 
prototypes, taking full advantage of the Internet and other new 
digital telecommunications technologies. It would support a 
more robust Internet, where people can find tools for job 
training and retraining, for education training and more.
    At the New Haven Public Library, funds from this trust 
could be used to help establish a technology and development 
fund, which would support the triennial replacement of library 
personal computers. Funds could extend technology access 
centers to remote community-based locations such as public 
housing centers, youth development organizations and police 
substations, and funds could go to updating hardware and 
software accessories in providing critical technology support 
services to the public and library staff. The trust fund would 
enhance public participation in civic activities and could be 
used to invest in new technologies and promote lifelong 
learning.
    The American Library Association is working to ensure that 
libraries take the lead in providing equitable access to 
library services and materials for everyone, regardless of age, 
ethnicity, physical ability, income, language, geographic 
location or the type of library they are using.
    Both rural and urban libraries face barriers to providing 
equitable services because of both geographical and 
technological barriers. School, college and university 
libraries struggle not only with providing basic access to 
students, but also with the need to provide skill-building and 
training opportunities for staff. DO IT funds would provide 
opportunities to enhance staff development and training, break 
down geographic barriers to access and promote new educational 
opportunities.
    In my system, technology is regularly used to help out-of-
work adults search for new sources of employment, provide the 
tools and expertise needed by job seekers in developing 
effective resumes or for preparing for occupational testing. We 
are the first resort for homework assistance by young people 
using the Internet and CD ROM technology. We provide local 
businesses with remote access to electronic data bases and 
commercial information services, and we provide health 
information and on-line consumer health advice through the 
electronic health information network.
    In each of our neighborhood branch libraries, citizens have 
not only access to the Internet and e-mail, but are also 
offered skill training on word processing, spreadsheet 
applications, World Wide Web searching, Internet and computer 
basics. These services have proved critical to average citizens 
trying to keep current with the demands of the technology-
driven society.
    DO IT can also provide the means for libraries to digitize 
special collections. Many libraries, like the one at Yale 
University, have unique collections and materials that should 
be accessible to the general public, via the Internet. With new 
capabilities, patrons will be able to view interactive 3-D 
versions of each item in the special collection without having 
to travel outside of their own community. A student could visit 
the Library of Congress from any State in the country and be 
able to virtually walk through the doors of the library into 
the Great Hall, to page through the Gutenberg Bible and to 
graph the maps in the Hammond collection.
    I would like to thank Chairman Upton, Mr. Markey, Mr. Towns 
and other members of the subcommittee for presenting me the 
opportunity to speak with you today. And I also would like to 
thank the National Science Foundation for their generous grants 
to support workshops and research and collaborative 
opportunities for libraries in advanced networking.
    [The prepared statement of James Welbourne follows:]
    Prepared Statement of James Welbourne, Director, New Haven Free 
                          Library, Connecticut
    Good Morning Mr. Chairman and Members of the subcommittee.
    My name is James Welbourne. I represent the American Library 
Association (ALA) and am the Director of the New Haven Free Public 
Library in New Haven, Connecticut. I am very pleased to be here to 
speak in favor of the Digital Opportunity Investment Trust, or ``DO 
IT.''
    The American Library Association is the oldest and largest library 
association in the world. Among its 65,000 members are public, 
academic, and school librarians, library trustees, members of the 
library business community and friends of libraries. Today, there are 
more than 124,000 libraries in the United States. In addition to public 
libraries in almost every community, there are thousands of libraries 
in schools, colleges and universities, hospitals, law firms, 
businesses, the armed forces and more. Because libraries offer free 
access to information for all, they bring opportunity to all.
    Today's libraries are dynamic, modern community centers for 
learning, gathering information, and entertainment. The New Haven Free 
Public Library is proud of the many community-based activities we offer 
our citizens--from book groups and author talks to infant and toddler 
literacy resources, to technology access and job training. Information 
has become the great equalizer in today's society, and libraries play 
an increasingly critical role in leveling the playing field by 
providing communities with no-fee access to technology and information 
resources. DO IT would allow libraries to bring technology and 
information resources to an even greater population in both urban and 
rural communities across the country.
    A chain is only as strong as its weakest link and DO IT would be 
another important link in building a strong chain to close the Digital 
Divide and to meet our Nation's Digital Opportunities. Coupled with 
programs such as the E-rate and the Library Services and Technology Act 
as well as other local, state and national programs, we can provide 
equitable and affordable access. We need all these links to meet the 
need for accessibility for all.
    Modeled after Abraham Lincoln's Land Grant Colleges Act, which 
authorized the sale and use of public lands to support the 
establishment of public colleges and universities, DO IT would create 
an education trust fund by using the billions of dollars in revenue 
from auctions of unused, publicly-owned telecommunications spectrum. 
The trust fund would support research and development of new 
educational models and prototypes, taking full advantage of the 
Internet and other new digital telecommunications technologies. It 
would support a more robust Internet where people can find tools for 
job training and retraining, for education training, and more.
    At the New Haven Public Library, funds from this trust could be 
used to help establish a Technology Development Fund, which would 
support the tri-annual replacement of library personal computers. Funds 
could extend Technology Access Centers (TAC) to remote community-based 
locations such as public housing centers, youth development 
organizations, and police sub-stations; and funds could go to updating 
hardware and software accessories and providing critical technology 
support services to the public and library staff.
    The trust fund would enhance public participation in civic 
activities and could be used to invest in new technologies and promote 
lifelong learning.
    The American Library Association is working to ensure that 
libraries take the lead in providing equitable access to library 
services and materials for everyone regardless of age, ethnicity, 
physical ability, income, language, geographic location or the type of 
library they are using. Both rural and urban libraries face barriers to 
providing equitable services because of both geographical and 
technological barriers. School, college, and university libraries 
struggle not only with providing basic access to students, but also 
with the need to provide skill-building and training opportunities for 
staff. DO IT funds would provide opportunities to enhance staff 
development and training, break down geographic barriers to access, and 
promote new educational opportunities.
    As Director of the New Haven Free Public Library, I oversee a 
library system that serves a resident population of 123,000, and a 
daily commuting population averaging around 72,000 individuals. In my 
system, technology is regularly used to help out-of-work adults search 
for new sources of employment; provide the tools and expertise needed 
by job seekers in developing effective resumes or preparing for 
occupational testing. We are the first resort for homework assistance 
by young people using the Internet and CD-ROM technology; we provide 
local businesses with remote access to electronic databases and 
commercial information services, and we provide health information and 
online consumer health advice through our electronic Health Information 
Network. In each of our neighborhood branch libraries, citizens not 
only have access to the Internet and e-mail, but are also offered 
skills training on Word Processing, Spreadsheet applications, World 
Wide Web searching, Internet, and Computer Basics. These services have 
proved critical to average citizens trying to keep current with the 
demands of a technology driven society.
    Imagine a scenario where the hospitals and medical systems in the 
city use a network to share MRI images over the Internet while also 
videocasting views from surgery. Or imagine researchers, located at 
various geographical sites, using the system to hold a videoconference 
to discuss the latest research on genetically modified organisms where 
computer generated models are viewed at all sites simultaneously.
    At the same time, a student studying a foreign language connects 
with a class in Europe learning English. ``Listening in'' at the 
nearest local library branch is the student's instructor--there to 
assist in the learning process. Or, a student travels to the local 
library and logs on to the library's computer to access an online tutor 
with whom she works in real time, manipulating computer generated 
images in order to complete the student's report.
    These scenarios envision linking institutions together to benefit 
both the city and its citizens. These are the types of advanced 
networking opportunities the DO IT fund can provide for cities like New 
Haven as well as for rural communities where, with new technologies, 
even the most geographically isolated patrons could be participants in 
a collaborative virtual environment they would otherwise be unable to 
afford.
    DO IT can also provide the means for libraries to digitize special 
collections. Many libraries, like the one at Yale University, have 
unique collections and materials that should be accessible to the 
general public via the Internet. With new capabilities, patrons will be 
able to view interactive, 3-D versions of each item in the special 
collection without having to travel outside of their own community. A 
student could visit the Library of Congress from any state in the 
country and be able to virtually walk through the doors of the Library 
into the Great Hall, to page through the Gutenberg Bible, and to graph 
the maps in the Hammond Collection.
    Many scenarios are possible with investment in research and with 
the development of new tools, systems, and content based on digital 
technologies. DO IT will leverage the use of private funds in pursuit 
of new information technology developments in the public interest. It 
will stimulate ideas and models designed to enhance the use of 
technology for teaching and learning. If we are all connected to 
resources and linked together in a collaborative environment, we can 
erase digital divide issues, bring down virtual and physical barriers, 
and unify public and private institutions, businesses, government and 
citizens.
    I would like to thank the Chairman and Members of the subcommittee 
for presenting me the opportunity to speak with you today. I would also 
like to thank the National Science Foundation for their generous grants 
to support workshops and research into collaborative opportunities for 
libraries in advanced networking.

    Mr. Upton. Thank you.
    Ms. Lew.

                   STATEMENT OF GINGER EHN LEW

    Ms. Lew. Mr. Chairman, members of the subcommittee, my name 
is Ginger Lew. I am the CEO and Managing Partner of the 
Telecommunications Development Fund.
    TDF is a private, nonprofit corporation based in 
Washington, DC. Congress established us with bipartisan support 
as part of the Telecommunications Act of 1996 to promote access 
to capital for small businesses, to strengthen competition in 
the communications industry, to stimulate new technologies and 
to enhance delivery of communication services to rural and 
underserved markets.
    We receive our funds--in fact, our funds are nontaxpayer 
dollars. Actually, we receive our funds from a private 
financial institution that now pays interest on the spectrum 
auction upfront deposits, an innovative funding mechanism 
developed through the innovative mind of Congressman Towns and 
others who sponsored this legislation.
    TDF has two key missions first to provide education and 
training to entrepreneurs in the communications industry; and 
second, to make investments in small, early stage 
communications companies. We cast a wide net to find these 
opportunities by participating in entrepreneurial outreach 
activities and programs throughout the United States. We 
believe that there are smart, bright entrepreneurs with 
innovative technologies and promising businesses in places in 
addition to the traditional venues that we hear about all the 
time--Silicon Valley and the Northeast Corridor which 
collectively receive 73 percent of all venture capital. We have 
been to Maine, Illinois, New Mexico, Florida, Georgia, Kansas, 
Oklahoma and elsewhere in urban and rural communities in search 
of these companies.
    The sad fact is that there continues to be a significant 
lack of capital for small businesses in nontraditional 
communities. If you are a first-time entrepreneur, trying to 
find that first half million dollars, and perhaps even up to $3 
million, that is a Herculean effort especially for the 
communications sector.
    At the height of the Internet bubble, communications 
investments received about 39 percent of all the venture 
capital invested. Today, it is less than 6 percent. According 
to the National Venture Capital Association, during the past 
four quarters, the venture capital industry invested 
approximately $18 billion. Unfortunately, the National 
Association of Investment Companies, a trade association for 
minority-led investment funds, estimates that less than one-
half of 1 percent of all venture capital are invested in 
companies led by people of color.
    And the Kauffman Foundation estimates that less than 5 
percent of all venture capital is invested in companies led by 
women. This is despite the fact that women own more than 26 
percent of all the small businesses in the United States, and 
minorities own 15 percent of all the small businesses in the 
United States.
    While TDF is race and gender neutral in our investment 
criteria, we cast a wide net to look for people-of-color- and 
women-led companies. I am pleased that more than 60 percent of 
the companies that we have invested in have founding members 
who are people of color and women.
    TDF believes that it provides essential seed capital to a 
significantly underserved small business segment. For example, 
in 2001, TDF made a investment in a company based in rural 
Kansas. The company had developed some very interesting 
wireless technologies. The company was being looked at by a 
number of small investors who were very reluctant to make the 
investment because they lacked industry expertise.
    When TDF got involved, we pulled together an investment 
group. Over the course of the past 2\1/2\ years, we have worked 
closely with this company, served on its board and brought new, 
experienced management to the company. Today, the company is 
getting ready to launch its products in a number of industry 
verticals and has working partnerships with well-known PDA 
manufacturers.
    This is an example of a company that would not have 
received any investment moneys had TDF not participated. These 
jobs would not have been created and this technology would not 
have been launched.
    Starting new businesses can be a challenge. Recent studies 
show that 24 percent fail in their first 2 years; 53 percent 
fail in the first 4 years. Investing in early stage 
communication companies face similar challenges. While capital 
is a component to success, another is entrepreneurial training.
    This brings me to TDF's second critical mission, to provide 
educational training and outreach to entrepreneurs and would-be 
entrepreneurs. In 2002, our six-person investment staff 
participated in more than 400 events and more than 22 States 
that reached a estimated 10,000 entrepreneurs.
    Last year, via TDF's Web site, we launched a self-guided 
course on the basics of corporate governance geared toward 
entrepreneurs. It explains why corporate governance is 
important and why an entrepreneur should include this in their 
business. It was the first of its kind and we received praise 
from such organizations as the National Association of 
Corporate Directors.
    We have worked with organizations, such as the National 
Science Foundation, to help them develop a matchmaker program 
to introduce SBIR grantees to outside private investors. The 
key point here is that we have been able to reach many 
entrepreneurs with a small staff by leveraging limited 
resources and forming partnerships with many organizations. 
These are just a few examples of what TDF has done.
    Thank you for the opportunity to testify. I would like to 
express my appreciation to Chairman Upton, Congressman Markey, 
especially Congressman Towns and Mr. Wynn for their continued 
support of TDF and for H.R. 747.
    [The prepared statement of Ginger Ehn Lew follows:]
    Prepared Statement of Ginger Ehn Lew, CEO and Managing Partner, 
                  Telecommunications Development Fund
    Mr. Chairman, Committee Members, Ladies and Gentleman, my name is 
Ginger Lew and I am the CEO and Managing Partner of the 
Telecommunications Development Fund (TDF), a private, non-profit 
corporation based in Washington, DC that provides education and 
training for entrepreneurs in the communications industries, and makes 
equity investments in small, early stage communications businesses.
    I thank you for the opportunity to testify today regarding your 
important topic, ``Digital Dividends and Other Proposals to Leverage 
Investments in Technology.'' Because TDF has been intensely involved in 
promoting the growth of technology in the communications sector since 
our inception, I would like to tell you about our background and 
mission, and describe our goals for the future and how they may be 
affected positively by currently proposed legislation, H.R. 747.
    The Telecommunications Development Fund (TDF) was established by 
Congress with bi-partisan support as part of the Telecommunications Act 
of 1996. It was the brainchild of Congressman Edolphus Towns of New 
York. Congressman Towns conceived TDF as a means of expanding the reach 
of our telecommunications system for the benefit of all Americans, and 
as a way to assist new entrepreneurs who have the talent to develop 
brilliant technology but are hampered by a lack of access to capital 
and the management tools they need to succeed.
    As defined by Congress, TDF's mission is to act as a catalyst for 
the creation and enhancement of a first-class communications system for 
all Americans, by

 Promoting access to capital for small businesses;
 Strengthening competition in the telecommunications industry;
 Stimulating new technological growth and development;
 Promoting universal service; and
 Enhancing the delivery of telecommunications services to rural and 
        underserved areas.
    In accordance with its statute, TDF has a seven member Board of 
Directors appointed by the Chairman of the Federal Communications 
Commission (FCC). The statute specifies that the Board consists of 
seven members, four from the private sector and three from the public 
sector, with one representative each from the FCC, the Small Business 
Administration (SBA) and the Department of the Treasury (Treasury). 
Members of the Board serve for a term of five (5) years.
    The Board of Directors was empowered by statute to determine the 
best ways to carry out TDF's mission. In furtherance of the mission, 
the Board formed TDF, Inc., a 501(c)(4) corporation that would provide 
education and outreach to emerging entrepreneurs. To fulfill the 
funding side of its mission, the Board thoroughly reviewed a number of 
options and concluded that making equity investments in early stage 
communications companies would be the best course to follow. Therefore, 
the Board created an investment entity, TDFund, LP, an early stage 
venture capital firm, wholly owned by TDF, Inc., that makes equity 
investments in small telecommunications businesses and provides them 
with ongoing management guidance. TDFund, LP is an ``evergreen'' fund, 
which means the return on its investments comes back to TDF, Inc. and 
to be reinvested in new companies.
    Our Board provides guidance to TDF in matters of corporate 
governance, financial and investment policies and general industry 
expertise. The Board members provide guidance about overall investment 
policies of TDF. However, in order to ensure that no actual or 
perceived conflicts of interest or compromise of regulatory 
independence occur, the representatives of the FCC, Treasury, and SBA 
do not receive any investment-specific information. TDF continues to be 
very fortunate to have dedicated Board members who give freely of their 
industry and corporate expertise. All TDF Board members serve without 
compensation, and have declined any reimbursement for out-of-pocket 
expenses.
    The members of the Board and the dates on which their terms expire 
are listed below.
                         private-sector members
    W. Don Cornwell, Chairman, Chairman and Chief Executive Officer, 
Granite Broadcasting Corporation, New York, NY.
    Thomas A. Hart, Jr., Vice-Chairman, Partner, Shook, Hardy & Bacon, 
Washington, DC.
    Richard L. Fields, Managing Director, Allen & Company, 
Incorporated, New York, NY.
    Debra L. Lee, President and Chief Operating Officer, BET Holdings, 
Inc., Washington, DC.
                         public-sector members
    Michael Powell, Chairman, Federal Communications Commission, 
Washington, DC.
    Melanie Sabelhaus, Deputy Administrator, U.S. Small Business 
Administration, Washington, DC.
    U.S. Department of the Treasury, Washington, DC, vacant.
    Congress created a unique funding mechanism for TDF. Section 
309(j)(8) of 47 U.S.C. was amended to state:
        (C) Deposit and Use of Auction Escrow Accounts--Any deposits 
        the Commission may require for the qualification of any person 
        to bid in a system of competitive bidding shall be deposited 
        into an interest bearing account at a financial institution . . 
        .''
    Despite the statutory language and the intent of the authors of the 
legislation, the FCC chose to interpret the phrase ``deposit'' to apply 
only to the ``up front'' money portion of the deposit moneys.
    The upfront payments are those initial bids that private companies 
submit, along with their spectrum auction applications. The funds are 
placed in an interest-bearing account in a private banking institution 
and the interest is passed on to TDF after the winners are named. 
Previously, this ``up front'' money was placed with the U.S. Treasury 
Department and earned no interest.
    This is how the bid process works:
          The FCC announces a Spectrum License Auction. Companies that 
        wish to bid submit an application that states the amount they 
        intend to bid. Included with the application is 5% of the 
        amount of money they intend to bid as an ``up-front'' payment. 
        These up front payments are placed in an interest-bearing 
        custodial account in a private financial institution.
          Within 45 days of the closing of the auction, the up-front 
        payments of unsuccessful bidders are returned to them. The up-
        front deposits of successful bidders are transferred to the US 
        Treasury and no further interest is earned. All the interest 
        accrued on the up-front payments held during the auction 
        process is transferred by the private financial institution to 
        TDF.
          Successful bidders are required to make an additional down 
        payment on their winning bid for a spectrum license to the US 
        Treasury, for a total of 20% of the successful price. At this 
        stage the initial up front deposit and the additional down 
        payment are held by the US Treasury in a non-interest bearing 
        account.
          TDF does not receive any interest from money held at this 
        stage. There is no interest on these deposits.
          Pursuant to negotiations, successful bidders are required to 
        pay the full price of the spectrum pursuant to the terms of an 
        agreement reached with the FCC. Once agreement is reached on 
        payment terms, licenses may be issued.
    Since 1996, TDF has received a total of $49.9 million in 
contributions from the interest earned on the upfront payments for 
spectrum license auctions.

                        Contributions breakdown:
1996....................................................    6,515,700.00
1997....................................................   14,457,285.00
1998....................................................    3,314,995.11
1999....................................................    2,557,584.47
2000....................................................    3,052,324.34
2001....................................................   19,710,639.27
2002....................................................      267,647.77
2003....................................................        9,249.06
  TOTAL:................................................   49,885,425.06
 

    TDF officially began its operations in 1998 by undertaking certain 
organizational and start-up activities such as leasing office space and 
hiring staff. When these basics were completed, we embarked on working 
to fulfill our mission through entrepreneurial outreach and education, 
investments and portfolio management. Our first investment closed on 
December 31, 1999, and TDF is therefore characterized as a vintage 2000 
fund.
                  investments and portfolio management
    TDF's investment activities are guided by the statutory mission of 
the Fund, by the size of the Fund and by established investment 
industry management principles. Consistent with its mission to promote 
competition in the communications industry and catalyze the development 
of new communications products and services for consumers and 
businesses of all sizes, the Fund strictly limits its investment 
activities to the communications sector. Within this sector, however, 
the Fund seeks to operate broadly, entertaining investment 
opportunities related to the transmission of voice, data and/or video 
in wireline, wireless or ``casting'' environments through software, 
hardware or services mediums.
    Also consistent with its mission, TDF casts a wide net in search of 
high quality entrepreneurs and businesses. As a result, the Fund seeks 
investment opportunities from a highly diverse group of entrepreneurs 
with widely varying degrees of past entrepreneurial experiences, 
including first time entrepreneurs.
    These emerging business leaders operate enterprises headquartered 
in urban, suburban, ex-urban and rural areas. In addition to providing 
capital, TDF commits valuable advisory services that assist new 
entrepreneurs in building the corporate infrastructure necessary to 
operate successfully.
    Because of the early-stage characteristics of investment 
opportunities in this sector, the Fund invests its capital in exchange 
for equity in the portfolio company. Before such an investment is made, 
each opportunity is subjected to extensive and rigorous review. 
Initially, the Fund establishes that the opportunity matches TDF's 
overall investment criteria and that an investment in the company is 
consistent with TDF's mission. Before funding is forthcoming, TDF 
pursues in-depth due diligence review on many decision factors. These 
factors include, but are by no means limited to, the background of the 
management team, the strength of the company's core technology, the end 
user value proposition, the size and segmentation of the market, the 
relative strength of current and potential competitors, and 
characteristics of the distribution channel. Overall, the Fund seeks to 
create a portfolio of communications investments consistent with 
prudent investment principles. As a result, the amount of capital 
committed to any single portfolio company is generally limited to 10% 
of the funds under management. Given the current size of the Fund this 
translates to a maximum of $5 million. The Fund typically invests this 
capital in stages as the portfolio company progresses in its 
development.
    The Investment Team, which consists of the CEO, Chief Investment 
Officer, a Vice-President, two Associates and a Market Analyst, 
conducts the due diligence and business plan review. TDF's investment 
criteria and the review process are described through the Website 
homepage, creating transparency and offering guidance.
    TDF has continued to be very active in its deal-sourcing efforts 
through the economic downturn of the past few years, which saw a steep 
decline in overall private equity investing, and especially in early 
stage investing.
    To date, TDF has invested approximately $12 million in 12 start-up 
communications companies and $25 million is available for investment.

  Telecommunications Development Fund Geographic Diversity of Portfolio
Northeast..................................................       2
Mid-Atlantic...............................................       4
Southwest..................................................       1
Midwest....................................................       3
Southeast..................................................       0
Pacific....................................................       2
      Telecommunications Development Fund Portfolio Distribution by
                          Communications Sector
Wireless...................................................       4
Wireline...................................................       3
Internet...................................................       2
Media......................................................       3
 

                  entrepreneur assistance and outreach
Virtual Educational Courses
    Consistent with its mission, TDF provides technical and management 
assistance to entrepreneurs. In an effort to reach a wider range and 
larger numbers of entrepreneurs, TDF has designed online, virtual 
courses accessible 24 hours a day, seven days a week via the Internet. 
The online educational courses continue to be a highly accessed section 
of the TDF Homepage.
Basic Venture Capital Process
    After conducting a review of available training materials and 
coursework on equity financing and finding very few quality resources, 
TDF created a virtual Equity Financing Course that may be taken by an 
entrepreneur at any time, anywhere. In order to maximize its outreach, 
TDF partnered with the Small Business Administration (SBA) as a co-host 
through SBA's online or virtual classrooms because the SBA classroom 
model already was tested and established. TDF provided the expertise on 
a new subject, equity financing, to complement the materials already 
available on other means of financing small businesses.
    The Equity Financing Course, available since late 2000 on the TDF 
homepage (www.tdfund.com) and the SBA web site (www.sba.gov), presents 
basic information on equity financing, the types of investors (angels 
and venture capitalists), and suggestions for working with investors. 
The course includes a description of the elements of a business plan 
written for investors and an example of a plan and executive summary. 
An extensive glossary of venture capital terminology is included as 
well as numerous links to other useful information sites and resources. 
Throughout the course are brief audio introductions to each section 
reflecting the diversity of successful entrepreneurs and investors 
working with TDF.
    This is a self-paced, easily accessible virtual classroom that 
provides extensive information on equity funding consolidated in one 
location that may be accessed from any location and at any time of the 
day or night. The course is available in both English and Spanish, and 
TDF remains open to inquiries for translations into other languages. 
TDF continues to receive positive feedback from entrepreneurs and 
resource providers about the Equity Financing Course.
Corporate Governance
    In 2002, TDF completed development of additional educational 
content for entrepreneurs that focused on basic facts and practices 
relating to corporate governance for young companies. This important 
text, Building Your Board: A Corporate Governance Guide for 
Entrepreneurs, was previously unavailable in any format. This 
significant course content was posted on the TDF website and has been 
available at no charge since the fall of 2002.
    TDF collaborated with the National Association of Corporate 
Directors, knowledgeable legal experts, experienced corporate directors 
and successful entrepreneurs for the development and review of the 
content. Building Your Board has also received endorsements and online 
hyper links to the course from many venture capital and corporate 
governance focused associations. Wide distribution and endorsements 
demonstrate the value of such information and the need for this ground-
breaking material.
    As a result of the interest raised with the national press coverage 
of the posting of the course, TDF staff has spoken at many meetings, 
forums, and seminars on the basics of developing sound corporate 
governance within early stage companies. Additionally, the content has 
been incorporated into appropriate materials for additional ``training 
the trainers'' courses and seminars.
Website
    The TDF Website is continually revised and refreshed as a dynamic 
information source for the general public. A Library Section containing 
helpful articles has been added, and the online, searchable database, 
which includes links to business advisors throughout the United States, 
has been expanded and refined to help entrepreneurs find useful 
professional resources in their geographic location. The database 
contains approximately 5,000 entries and is continually updated and 
expanded. By migrating to a web-enabled database, TDF utilizes the 
latest technology allowing instantaneous changes to be incorporated 
into the system. Keeping in mind that some entrepreneurs may be 
accessing the Internet at public facilities such as schools and 
libraries, TDF's Website was designed to be accessible via most 
computer and dial-up systems.
Outreach
    Our activities last year present an accurate example of outreach 
efforts. In 2002 alone, TDF participated in more than 400 events in 
more than 22 states that reached an estimated 10,000 entrepreneurs and 
would-be entrepreneurs from traditional and non-traditional 
communities. TDF reached entrepreneurs through a number of different 
forums.
    TDF was the first investment fund recruited as a continuing sponsor 
for the third year of Springboard Enterprises venture capital forums 
because TDF recognizes the growing economic impact of women-led 
businesses. Springboard Enterprises leads a series of venture capital 
forums that has showcased over 250 women-led companies to date 
including three sites during 2002; the Southwest Forum was held in 
Dallas in mid-March hosted at the Fidelity Investments Campus, the 
Southeast Forum on the campus of the University of North Carolina at 
Chapel Hill held in September, and the New England forum held in 
November at the Massachusetts Institute of Technology. Organized as 
regional events, each of the forums recruited women-led businesses from 
rural areas as well as urban environments to present their companies to 
hundreds of private and corporate investors in a daylong event.
    After ten venture forums to date, over 3,000 companies submitted 
applications, more than 250 women entrepreneurs presented to more than 
2,000 investors, and involved many more investors, financiers and 
business development professionals in screening, selection and 
coaching. The presenting companies have secured over $1 billion in 
equity financing, one company has had a successful Initial Public 
Offering (IPO), and many of the companies have completed mergers or 
acquisitions. Over 40% of the presenting companies received funding 
during a declining market period and over 80% of the presenting 
companies remain viable, operating companies.
    Recognizing the importance of developing a pipeline of companies 
preparing for high growth and the need for equity capital, TDF has 
worked closely with Springboard Enterprises to launch additional 
``products'' for developing entrepreneurs and their companies, 
particularly in second and third tier markets. The VC Tune-Up programs 
were launched in Kansas City, Missouri to assist very early-stage 
entrepreneurs. For slightly more mature companies, Springboard Boot 
Camps were designed to provide intensive interaction with investors and 
learning through interactive case studies. TDF actively sponsored and 
participated in Boot Camps held in Washington, DC (at George Washington 
University), New York City (at Goldman Sachs Headquarters) and Los 
Angeles, California (at the Milken Institute).
    Since recognizing the success of the Springboard model, TDF has 
worked closely with the Emerging Venture Network and the Emerging 
Business Forum as well as the National Science Foundation to 
incorporate lessons learned and best practices helpful for minority led 
companies and those commercializing technologies funded under the 
federal Small Business Innovative Research (SBIR) programs.
    In fulfilling the mission of TDF, we seek ways to assist new and 
emerging telecommunications businesses access to technical and 
management assistance. To that end, TDF has identified key resource 
providers throughout the United States, established a dialogue and 
working relationships to raise awareness of the needs of the business 
owners, examined key factors in obtaining capital infusion for 
entrepreneurs, and made that information readily available to 
entrepreneurs across the U. S. TDF staff continued to expand the 
training course presentations targeting groups of resource providers 
who can, in turn, expand and enhance information provided to 
entrepreneurs investigating equity financing in local business centers. 
The TDF ``training of the trainers'' seminars resumed in 2002 and have 
been recognized as a strong training and resource component by business 
advisors throughout the United States.
    TDF continues to build beneficial relationships with the expanding 
network of business specialists assisting small business owners. 
Informal public-private partnering relationships have been identified 
and fostered. Small Business Development Centers (SBDCs) and the Angel 
Capital Electronic Network (ACE-Net) Operators, originally under the 
auspices of the Office of the Chief Advocate at SBA, provide the 
backbone of the network in all fifty states and U. S. territories. 
Additional federal resources such as Small Business Investment 
Companies (SBICs), the Minority Business Development Agency (MBDA), 
National Telecommunications and Information Agency (NTIA), college and 
university entrepreneurial centers as well as resources on the state 
and local level are working with business and investment specialists 
from the private sector to assist and train entrepreneurs.
    Although many entities in the business resource network have been 
affected by the downturn in the economy, TDF continued to work with 
remaining business incubators and accelerators, professional and trade 
associations, women's business centers, online assistance sites and 
professional services providers in order to expand our outreach across 
the United States. TDF has also fostered working relationships with 
colleges and universities as they expand their interest and course 
offerings in entrepreneurship. As with federal research laboratories 
and the SBIR grantees program, the university relationships have 
extended into preliminary work on technology transfer and 
commercialization of research technologies.
    Either via telephone or through the TDF Inquiries electronic mail 
system, general requests for information or a review of a company's 
financial needs average about 250 per month. TDF receives many business 
plans that do not meet the Fund's published investment criteria and, 
therefore, the entrepreneurs are sent letters declining the opportunity 
to provide investment financing to a particular company. As much as 
possible, TDF provides feedback to those applicants, often detailing 
TDF's specific suggestions for improving the company's presentation or 
other key components needed to interest an investor. When appropriate, 
a localized, targeted list of assistance sites is provided so that 
those entrepreneurs receive an outline of suggested next steps for that 
business in finding capital.
    In building a network of resources, TDF reaches outside the 
organization to develop collegial and productive relationships within 
the venture investment community. Accordingly, TDF representatives work 
with a number of organizations such as the National Venture Capital 
Association, the Baltimore-Washington Venture Group, The Private 
Investors Network, George Mason University's Grubstake Breakfast 
Series, the Mid-Atlantic Venture Association, the Illinois Venture 
Capital Association, the National Association of Investment Companies, 
the National Association of Small Business Investment Companies, the 
National Association of Seed and Venture Funds, WomenAngels.Net, and 
other angel and industry groups. These forums enable TDF to meet other 
private investors with whom it could co-invest and leverage its funds 
while expanding resources for entrepreneurs. TDF staff members have 
taken an active leadership role particularly in coaching and mentoring 
those entrepreneurs presenting their companies to investors in a 
variety of ``forum'' settings.
    TDF reaches underserved audiences of entrepreneurs through 
organizations such as Springboard Enterprises, the Forum for Women 
Entrepreneurs, the Center for Women Entrepreneurs, the Capital Telecom 
Professionals, the Minority Media & Telecommunications Council. TDF has 
identified resources such as the Ewing F. Kauffman Foundation, the Ford 
Foundation, the National Commission on Entrepreneurship, the Northern 
Virginia Technology Council, Capital Venue as well as many 
entrepreneurial centers operating close to major colleges and 
universities. These relationships enable TDF to leverage its advisory 
services by forming a network of resource and technical advisors. TDF 
staff members have participated as moderators and panel participants 
often throughout the year sharing views on the telecommunications 
industry outlook, the venture capital climate, corporate governance for 
early stage companies, and advising entrepreneurs on a wide range of 
topics.
    TDF works closely with significant private sector resource 
providers and industry analysts to expand the resource network 
available to entrepreneurs competing in new telecommunications 
businesses. Talented and prestigious legal, accounting and consulting 
firms have established small business practices, often working at 
reduced rates for new businesses, to ensure well structured and sound 
establishment of young businesses. TDF has worked with established 
telecommunications and small business practices in the leading 
consulting organizations such as Legg Mason, KPMG, Deloitte & Touche, 
Grant Thornton, McKinsey & Company, PriceWater-houseCoopers and now 
International Business Machines (IBM).
    Additionally, TDF worked with many non-profit groups that mentor or 
nurture new businesses such as the MIT Enterprise Forum, the Center for 
Innovative Technology, the National Congress for Community Economic 
Development, and the National Association of Seed and Venture Funds. 
Technology resource relationships have been developed through the 
extensive federal research lab commercialization offices and the Small 
Business Innovation Research (SBIR) program. TDF has worked closely 
with the National Science Foundation (NSF) on the SBIR/STTR advisory 
board. Through that relationship, TDF and NSF developed the Match Maker 
project to introduce grantees to outside investors that launched in 
early 2002.
                  continuing to fulfill tdf's mission
    TDF's role in contributing to the creation of a first class 
communications system for all Americans was given added urgency with 
the events of September 11, 2001. Communications technology is 
especially needed for the military and for homeland security and these 
technologies are often developed by the kind of emerging communications 
companies in which TDF invests. Also, there are still many underserved 
areas that desire broadband services and other new communications 
technologies that are needed to enhance their safety.
    Additionally, by increasing investments in early-stage 
communications industries, TDF will play an important role in creating 
the next level of technology that will stimulate our country's economic 
growth.
    Congressman Edolphus Towns, the originator of the legislation that 
created TDF, has said that it was his intention that not only the ``up-
front'' money paid by bidders in spectrum auctions but also the ``down 
payment money'' would be put in interest-bearing accounts, with TDF 
receiving the interest payments at the conclusion of the auctions. 
However, because of a regulatory misunderstanding, the funding 
mechanism was set up so that only ``up-front'' payments were deposited 
in interest-bearing accounts. Because of this error, it is estimated 
that TDF was denied approximately $100 million.
    To correct this inequity, Congressman Towns, along with Chairman 
Upton and Congresswoman Heather Wilson, have introduced H. R. 747. This 
legislation would mandate that down payments made by winning bidders in 
spectrum auctions held after H.R. 747 is enacted would be deposited in 
interest-bearing accounts. This interest earned on these accounts would 
be passed on to TDF at the conclusion of the auctions.
    We at TDF thank you, Chairman Upton, as well as Congressman Towns 
and Congresswoman Wilson, for the confidence you have demonstrated in 
our ability to continue to fulfill our important mission. We urge your 
colleagues to join you in supporting H.R. 747.

    Mr. Upton. Thank you very much.
    We will move to questions and we will rotate with 5 
minutes. Again, all opening statements will be part of the 
record for those members who choose to make one.
    Mr. Minow, I think you hit it on the head at the beginning 
when you talked about the deficit; and those of us who are 
fiscal hawks are more than alarmed at the way things have gone 
the last couple of years and different things that are tugging 
every which way.
    I just wonder if you know, as proposed, whether the DO IT 
bill is funded by the receipt of 30 percent of the revenues 
from the spectrum auctions as well as the license fees 
authorized. Have you done a back-of-the-envelope projection in 
terms of the amount that would be collected.
    Mr. Minow. Mr. Chairman, we have. But subject to the fact 
that we don't know how many auctions there will be----
    Mr. Upton. I know just two in the upcoming--the 700 
megahertz auction, and that is hoping maybe $5 billion; and 3G 
auction, triple that.
    Mr. Minow. We have used the $20 billion number based on a 
back-of-the-envelope estimate over a period of years for future 
auctions. I don't think there is any question that the demand, 
particularly of the cell phone people for spectrum space is 
intense.
    I don't think the prices that were paid in the late 1980's, 
early 1990's are going to be as much in the future as they were 
then. There were a lot of bubbles in that. But I think it is 
fair to say that a $20 billion number over a period of time and 
what we are suggesting--and obviously Congress will have to 
give this a lot of study and debate, we are suggesting that the 
interest only, the interest only on that go to DO IT, not the 
full amount; the 20 would remain in taxpayer Federal funds.
    Mr. Upton. Are there any other programs that would be 
offset, taken away, whether it be earmarks or other line item 
budget amounts, that we might be able to offset the new program 
that you have identified.
    Mr. Minow. When we started on this, Mr. Chairman, I went to 
see the CHAIRMAN of the Senate Appropriations Committee, Ted 
Stevens, whom I happen to have known long before he went into 
politics; we had a case together in Alaska. And he said, Newt, 
you don't have to persuade me. I went to college on the GI bill 
and I went to a land grant college. He said, Where is the money 
coming from? I am the chairman of the Senate Appropriations 
Committee.
    So we explained it to him, about the interest only, and I 
grant you that was before 9/11, but I do believe that there is 
enough room there if we are only talking about the interest to 
fund it.
    And I come back to what I said earlier. The precedents were 
during wartime. Congress decided in the midst of the Civil War, 
right after the Revolutionary War, and World War II you had to 
make an investment in the education.
    Mr. Upton. Mr. Welbourne, Mr. Kelly and Ms. Lew, any 
thoughts in that regard.
    Ms. Lew. Mr. Chairman, I can only comment that TDF receives 
interest paid by financial institutions that holds the upfront 
deposit moneys in an escrow account during the period that the 
auction is held. So it is a very short window, and it is a 
very--has been extremely difficult to make an estimate as to 
how much money would be generated through this process when the 
TDF legislation was first considered. The estimates were as 
high as $350 million that we could get from this process.
    In reality, it has taken us almost 6 years to gather $50 
million. So it really is a difficult process to estimate the 
impact in this legislation.
    Mr. Upton. Mr. Kelly?
    Mr. Kelly. Let me comment. When I took over as President of 
Tulane University in 1980, we purchased the first university 
computers. They were the size of the entire area here.
    That cost $8 million. I now have a personal computer that 
is about half the size of this, weighs 3 pounds. It cost $1,500 
and it has 10 times the power of that roomful of computers. 
Moore's law will continue, and the cost of computing is going 
to continue to decline. You add on to that nanotechnology, the 
technology of the molecular or the atomic, we are operating at 
that size. In the very near future, within 3 years we are going 
to have the equivalent of infinite bandwidth and infinite 
processing power. The costs are going to continue to decline. 
Everything will be moving into some form of wireless or other. 
That means that the telecommunications is going to become as 
ubiquitous as the handheld telephone. It is going to 
dramatically change all of education, and that educational 
change is going to determine the economic activity of this 
country as well as the economic opportunities for all of our 
citizens.
    This is a critical investment at a critical point in time 
that will have a leveraging effect that is simply enormous, in 
my judgment, will outdistance them all, will outdistance the 
G.I. Bill and its impact. The entire learning is going to 
change dramatically. This is a critical investment. I know you 
have difficult priority questions, but this may be the single 
most important investment that this country can change at this 
time.
    Mr. Upton. Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman, very much.
    I think that the issue isn't whether we can afford it. The 
question is, really, can we afford not to do it? You know, 
there are reports that the United States could lose 3 to 7 
million jobs over the next 5 to 10 years to countries like 
India and others that are also focusing upon this whole area of 
software and information, and more and more American companies 
are actually using those countries as places where they will do 
their work. So we have a real challenge ahead for ourselves. 
And as you said, Mr. Minow, not only did the G.I. Bill only 
pass by one vote, but President James Buchanan actually vetoed 
to the Land Grant Act the first time it came out of Congress to 
the President's desk, and then Lincoln had the vision 
subsequently to sign it.
    So my question to you is, in this age of terrorism and 
global competition increasingly, and as symbolized by the role 
that India is now playing and draining jobs out of our country 
at the high end, the information end, could you elaborate on 
the role that this fund could play in this era of terrorism and 
global information competition.
    Mr. Minow. Let me give you one specific example. 
Congressman Regula heard our story. He persuaded the Congress 
to award 750,000 to enable us to do the report, which we have 
filed with every Member of Congress. We had a little money left 
over, and we are using that, with his okay, to fund a course 
for first responders to acts of terrorism. We are creating a 
course which will be first used in New York City, but then made 
available throughout the country to firemen, policemen, 
hospital people, ambulance, to train them through modern 
technology in the needs of what a first responder has to do.
    We think this technology is so powerful that this is a 
perfect example at this time of terror in the country to use 
it, and we think that same technology can be used over and over 
again in all parts of the country for all lifetime learners. 
Not just kids, but all lifetime learners. But that is a very 
good example of what we are about.
    Mr. Markey. I would just correct you on one thing: It is 
not that Mr. Regula convinces Congress to do things; Congress 
tries to convince Mr. Regula to do things.
    Let me go to you, Mr. Kelly. What is the role of 
universities in this era? So you are saying that this could be 
even more important than the land grant? So what is the role of 
innovation, development of new ideas that you believe the 
university community can provide if we put together this kind 
of trust fund.
    Mr. Kelly. Well, first let me comment on your previous 
question briefly. I serve as a consultant to the Southern 
Defense Command. In terms of disaster prevention throughout 
Latin America, the Southern Defense Commander did an absolutely 
great job on that. Their entire approach, both their training 
approach and their research approach, was virtual. And so the 
information technology had that kind of an impact in that 
program; it would have the same or will have a similar impact 
and be the key, in my judgment, in terms of our anti-terror 
programs.
    So the universities, the universities have their 
responsibility both to participate in the training and the 
research of people that are going to be working in this area. 
And, more specifically, they have, I think, a responsibility of 
using their faculties and using their resources to work with 
the local public school systems and with the libraries in terms 
of seeing that this information technology is used to its 
highest and best potential.
    Mr. Markey. Mr. Welbourne, Mr. Shimkus made reference 
earlier to a piece of legislation which he and I passed last 
year, which is DotKids.us, which creates this kind of green 
zone, safe zone for kids on the Web, 12 and under. And the 
Smithsonian has been willing to provide its digitized content 
for this Web site. There are countless other libraries and 
museums across the country that just don't have the resources 
to digitize their assets that then can be made available to 
this DotKids site. So what role do you think this trust fund 
could play in kind of closing that divide?
    Mr. Welbourne. It is a very important contribution that 
this fund could make in that regard. Libraries are known for 
the collection sometimes at the local level, the very unique 
collections that they have acquired or developed themselves, 
but they are unable to share these broadly or cost effectively. 
Something that is designed at the national level to encourage 
libraries along with university libraries to pool this kind of 
a resource together would be responded to very effectively, 
both by boards of public libraries as well as directors. And I 
think that this is a very unique but valuable potential in this 
area of collection digitizing. And I applaud the DotKids effort 
as a great model.
    Mr. Markey. Thank you.
    Mr. Upton. Mr. Walden.
    Mr. Walden. Mr. Chairman, I have no questions at this time.
    Mr. Upton. Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me begin with Ms. Lew. Everyone knows that the telecom 
sector lost billions after the downturn in the economy. How are 
some of the companies that TDF has invested in during this 
period, recognizing that it has been a difficult period, how 
have the companies done.
    Ms. Lew. Congressman Towns, as you just mentioned, the 
telecommunications industry has undergone a seismic shift in 
its financial well-being over the last 2\1/2\ years. For 
example, the Baby Bells cut their capital expenditure budgets 
in half from $78 billion to 2003, $36 billion. Many young 
startup companies, communications companies were planning to 
sell to these Baby Bells and other large enterprises have found 
that their sales cycles have gone from 6-month to 12-month and 
as long as 18-month.
    So these startup companies are having a difficult time. On 
the other hand, they have been nimble in terms of repositioning 
themselves. They have been smart in trying to find new 
customers and new opportunities. And I think the other key 
factor that has occurred at the same time with the downturn in 
the telecommunications arena has been the significant 
withdrawal of investment monies from the capital markets. 
Again, at the height of the bubble, over $100 billion was 
invested in the year 2000. As I mentioned earlier, this year it 
has been about $18 billion, a huge, huge decline.
    So young companies are looking for new funds, are in search 
of ever more scarce resources. Had TDF had more money available 
rather than its current $50 million, we could be investing, 
providing just essential capital to many of these companies who 
need a longer runway to make it to break even on profitability. 
So it has been a challenging time for many of these companies.
    Mr. Towns. Thank you. Let me ask--is it Mr. Minow.
    Mr. Minow. Right.
    Mr. Towns. At the present time, it is my understanding, 
that there is no set time on an auction. In other words, it 
could be a year, 2 years, whatever. Do you think that a set 
time would help us to be able to determine in terms of how much 
money would actually be raised? I think when the question comes 
up as to how much money would this generate, everybody sort of 
says, well, you know, maybe this, maybe that. But I think that 
if we had a time set, we would be able to sort of predict how 
much money we would be able to generate. How do you feel about 
setting a time?
    Mr. Minow. Congressman Towns, my understanding is the FCC 
has set two auctions with dates. And as to the future, a lot 
will depend on something the FCC does not have control over. 
That is, the Department of Defense issue of whether its current 
use of the spectrum is going to be changed. I think that it is 
almost impossible at this point to tell you that there could be 
specific dates until that issue is resolved.
    Mr. Towns. I think what I am saying is that, should we 
legislate it? That is what I am asking.
    Mr. Minow. I am not sure that I know enough about that to 
give you an intelligent answer.
    Mr. Towns. Anyone else want to take a crack at it? Because 
we are trying to figure out, you know, how do we determine how 
much money, you know, that the potential here? And, of course, 
if auction goes real fast, I mean, let us face it, less money. 
So that is the reason why I raise this issue. And that may be 
something that we need to do on this side to help us to be able 
to determine. Anybody else? No? Thank you for your help.
    I yield back, Mr. Chairman.
    Mr. Upton. Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. And I want to 
apologize to the panel for coming in and going out. I do have 
my crack staffer behind me who has helped me sort through this; 
but I do appreciate the testimony, and I do have a couple 
questions. And I want to welcome Dr. Minow. I am an Illinoisan. 
I am a downstater, though. But here.
    Mr. Minow. I live in Springfield.
    Mr. Shimkus. Good. That is not downstate enough for me. But 
it is part of my district, so it is great to have you here.
    Let me start like this. I am a market-oriented, as my 
friend knows, conservative, competition-oriented Republican. 
So, in that world view, let me ask this: Do you see these 
investment plans and partnerships raising concerns of anti-
competitiveness in the business community by investing in areas 
of technology or intellectual property that will then be made 
available free to the public? Will you not run the risk of 
putting other companies who work in the same areas out of 
business, therefore possibly running the risk of stifling 
further development? And how would you minimize the chances of 
issues like this?
    Mr. Minow. The list of companies that support our proposal 
is very impressive, mostly high-tech companies who would regard 
this as totally consistent with their best interest as well as 
the public interest. So I think it is very clear that the 
business community welcomes this, largely because they know 
that the more education there is, the better they are going to 
succeed in the market place.
    Mr. Shimkus. Well, and we have success legislatively when 
we work together as, again, we know on this committee. And I 
would encourage you that, if that is the case, that you 
mobilize those individuals in that sector to help promote the 
benefits of that. And that will be helpful to many of us here.
    Mr. Minow. That is good advice. Thank you.
    Mr. Shimkus. Dr. Kelly, you wanted to add something? I saw 
some gyrations there.
    Mr. Kelly. The National Science Foundation--the Internet 
was originally started by DARPA, taken over by NSF, and in 
fact, before it was privatized, the Internet was the NSF net. 
But that has led to tremendous economic boom. The MRI is now a 
major private sector industry that came out of the scientific 
research.
    So in the same way that the National Science Foundation has 
really stimulated competition, stimulated economic activity, I 
think DO IT will have the same impact in terms of all kinds of 
electronic materials, in terms of systems, and in terms of 
increased competition.
    Mr. Shimkus. Well, let us talk about DO IT for a second 
since you brought it up, and I wanted to follow up on that, 
too. Can you provide insights in to how the NSF chose the 
programs or institutions it provides funds to.
    Mr. Kelly. Well, the NSF has set up a very firm established 
merit review system. So essentially what it has done is set out 
requests for proposals and then evaluated those proposals on a 
merit review system. And I would anticipate that DO IT would 
operate in a similar fashion.
    Mr. Shimkus. Fairly transparent.
    Mr. Kelly. Totally.
    Mr. Shimkus. That is something that, again, Congressman 
Markey and I have addressed on some other types of issues on 
the transparency issues, of the winners and losers, and the 
losers have to understand why they lost they lost.
    Mr. Kelly. Absolutely.
    Mr. Shimkus. And if there is not transparency, at least 
mischievous undertakings----
    Mr. Kelly. NSF responds to every proposal, and indicates 
the reason for success and the reason for lack of success in 
the competition.
    Mr. Shimkus. And let me move to Ms. Lew.
    What kind of incentives are in place at TDF to insure wise 
investment decisions.
    Ms. Lew. TDF has in place a due diligence procedure that 
looks at every business plan that we receive, and we make an 
assessment based on the quality of the investment management 
team, the quality--the size of the market, the quality of the 
technology, and the opportunity for seeking returns on our 
investment. Because TDF is set up to be what is referred to as 
an evergreen fund. That is, the proceeds from our successful 
investments come back to TDF so we can make new investments. So 
we are not oriented toward making, how would you say, socially 
driven investments. Our goal is to make investments that yield 
return, and hopefully additional money so you can make new 
investments.
    I might want to add that the due diligence process at TDF 
with respect to any new investment takes anywhere from 4 to 6 
months in terms of doing a thorough background check 
investigation and review.
    Mr. Shimkus. And since I told the Chairman I couldn't be 
bribed for additional minutes, I hesitate to ask. But if I 
could follow up with my colleagues for one more question? Thank 
you.
    And I want to follow up with Ms. Lew. Can you tell us a 
little bit about the companies you have funded, what areas of 
telecommunications and technologies they specialize in and why 
you chose them.
    Ms. Lew. We have invested in three broad sectors, what we 
refer to as wire line software and hardware technologies and 
services, wireless hardware, software, and services. And what 
we refer to as casting, that is, anywhere from broadcast 
opportunities to distribution of content through the Internet. 
We have looked at opportunities to, No. 1, manage the 
unauthorized sharing of content--in other words, the peer-to-
peer sharing, try and prevent the Napster issue. We have 
invested in technologies that would enable workers to remotely 
access enterprises through a secure virtual private network.
    We invested in another technology, which is a location-
based instant messaging secure service that is now being looked 
at by some Federal agencies. Why we chose these technologies 
and companies was because we thought they were great market 
opportunities led by very promising strong management teams.
    Mr. Shimkus. Thank you. Thank my colleagues, and thank you.
    Mr. Walden [presiding]. Indeed. The Chair now recognize Mr. 
Markey for another question.
    Mr. Markey. Well, I guess my--you are not going to ask 
questions? Okay. I guess what I would ask is, could each one of 
you give us a 1-minute summary of what you want the committee 
to remember out of your testimony, just so we have got your 
highlight of what, as we begin during this break to talk about 
what we will do on this issue, you know, what you want us to 
remember. Could we start with you, Ms. Lew.
    Ms. Lew. Thank you, Congressman Markey. I would ask that 
the subcommittee give serious consideration hopefully support 
to H.R. 747 that has been introduced by Congressman Upton, 
Congresswoman Wilson, and Congressman Towns. The goal of H.R. 
747 is to make a technical correction to TDF's original 
legislation. More importantly, it will delete the reference to 
the Federal Credit Reform Act, which we think was inadvertently 
placed in TDF's legislation. The Credit Reform Act applies only 
to government agencies, and requires government agencies to 
seek an appropriation before they make loans, before they can 
extend the full faith and credit in a loan process.
    Well, TDF is a private corporation. We would like to make 
loans to small businesses, but we can't because the Federal 
Credit Reform Act currently applies to us. And we certainly 
don't want to seek an appropriation. We would want to make 
loans from our own proceeds. So I hope that we can seek your 
support in this effort. Thank you.
    Mr. Markey. Thank you. Mr. Welbourne.
    Mr. Welbourne. Yes. I think as libraries, particularly 
public school and academic libraries, are situated in the 
country, I would like us to realize that access to this 
technology in the most cost-effective manner, as represented by 
those institutions, how they are placed today. We think that 
with the education of the public generally with technology, we 
will, in fact, create an economic base in this country for a 
higher investment advancement of technology simply because the 
marketplace will increase with the ability to understand and 
respond to the private sector.
    I do want the committee to realize that the private sector 
really ups its competitive advantage once the whole has 
achieved a certain level of understanding, and that we can only 
advance further as we begin to look at using these educational 
resources to do just that kind of dissemination broadly.
    Mr. Markey. Thank you.
    Mr. Kelly.
    Mr. Kelly. Education is really the creation, the 
development, the transmission of knowledge. Information 
technology is the creation, development, and transmission of 
information. They are inextricably intertwined. And in an 
information society, our education is going to be totally 
dependent on the technologies that transmit it. And so by 
making an investment in DO IT, the leverage in terms of its 
educational impact and therefore its economic impact will be 
simply enormous.
    Mr. Markey. Thank you.
    Mr. Minow.
    Mr. Minow. I would ask Congress to do in the 21st century 
what it did in the 18th, 19th and 20th centuries by having a 
visionary approach to using Federal property that all of us own 
to advance education. To be very specific, I would urge that 
the Markey bill be adopted by the Congress.
    Mr. Shimkus. What bill?
    Mr. Markey. Markey-Shimkus bill.
    Mr. Minow. Excuse me. Incidentally, Congressman Shimkus, 
when you asked me the question about the businesses involved; 
the Internet, as you know, was invented by the Department of 
Defense, not by Al Gore. But the people who developed it were 
private industry, and that is the same thing that will happen 
here.
    Mr. Shimkus. Thank you.
    Mr. Markey. Thank you. And I thank each one of you. And I 
think you are right, Mr. Minow. It is a real challenge to this 
committee and to this Congress as to whether or not we have the 
vision to put in place policies that will serve generations yet 
to come. And I hope that we are up to the challenge about it. 
We thank each of you for coming here today.
    Mr. Walden. I want to thank our witnesses. Thank you for 
your participation , your testimony. And our members for 
participating. And we are adjourned.
    [Whereupon, at 11:59 a.m., the subcommittee was adjourned.]

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