[Senate Hearing 109-647]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 109-647
 
             STATE AND LOCAL ISSUES AND MUNICIPAL NETWORKS

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 14, 2006

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation



                                 _____

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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                     TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana                    Chairman
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas
             Lisa J. Sutherland, Republican Staff Director
        Christine Drager Kurth, Republican Deputy Staff Director
             Kenneth R. Nahigian, Republican Chief Counsel
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
   Samuel E. Whitehorn, Democratic Deputy Staff Director and General 
                                Counsel
             Lila Harper Helms, Democratic Policy Director

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 14, 2006................................     1
Statement of Senator Ensign......................................    48
Statement of Senator Lautenberg..................................     2
Statement of Senator Stevens.....................................     1

                               Witnesses

Altschul, Michael F., Senior Vice President/General Counsel, 
  CTIA, The Wireless Association'.....................    25
    Prepared statement...........................................    27
Berryman, Donald B., President, Municipal Networks Division, 
  Earthlink, Inc.................................................    34
    Prepared statement...........................................    36
Boone, Douglas A., Chief Executive Officer, Premier 
  Communications.................................................    30
    Prepared statement...........................................    32
Munns, Diane, Commissioner, Iowa Utilities Board; President, 
  National Association of Regulatory Utility Commissioners 
  (NARUC)........................................................    13
    Prepared statement...........................................    15
Neff, Dianah L., Chief Information Officer, City of Philadelphia.    40
    Prepared statement...........................................    43
Perkins, John R., President, National Association of State 
  Utility Consumer Advocates.....................................    19
    Prepared statement...........................................    20
Sahr, Robert K., Chairman, South Dakota Public Utilities 
  Commission.....................................................     3
    Prepared statement...........................................     5

                                Appendix

American Public Power Association (APPA), prepared statement.....    63
Edison Electric Institute (EEI), prepared statement..............    73
Garrett, Henry, Mayor, City of Corpus Christi, Texas, prepared 
  statement......................................................    72
Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared 
  statement......................................................    59
McCain, Hon. John, U.S. Senator from Arizona, prepared statement.    59
Letter, dated February 21, 2006, to Robert K. Sahr from Craig A. 
  Anderson, Chairman, PrairieWave Communications, Inc............    60
Sege, Ronald, Chief Executive Officer, Tropos Networks, prepared 
  statement......................................................    70


             STATE AND LOCAL ISSUES AND MUNICIPAL NETWORKS

                              ----------                              


                       TUESDAY, FEBRUARY 14, 2006

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:32 p.m. in room 
SH-216, Hart Senate Office Building, Hon. Ted Stevens, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    The Chairman. Let me apologize for the Senate's schedule. I 
know it disrupted you, and many of you have come in from long 
distances, and sorry we were not able to hold the hearing this 
morning, and I thank you for coming here at this time in the 
afternoon. We've got two hearings going on in our Committee at 
the same time, so I'm afraid that some of us who might 
otherwise be here are in the other one. It concerns timber and 
is particularly of concern to the border states in the north. 
Senator Inouye has been called away and will not be able to be 
with us.
    Today's hearings will address two issues, Federal, state 
and local regulatory roles and municipal broadband. As a 
result, in today's network digital world, regional and national 
services increasingly transcend state and local boundaries. As 
a result, service providers can face a patchwork quilt of 
differing regulations that drive up regulatory costs, bifurcate 
business practices and impact consumer costs. When I was at 
your conference yesterday and spoke with a lot of good people, 
the idea of creating a joint board to work out common national 
status between states and the FCC on key issues that leave it 
to the states to enforce the standards at the local level was 
discussed.
    The joint board approach is not likely to work as well when 
you get down to the local level because there are simply too 
many municipalities. But once you get beyond pure rights-of-way 
management, it's very difficult to try to achieve consensus as 
a joint board involving 50,000 different municipalities as 
opposed to 50 states. In my view, solutions to consumer 
complaint issues must be implemented at the state and local 
level to the maximum extent possible. They are more equipped to 
handle the complaint from, and as I was just saying, an Eskimo 
in my state than the FCC. We want to hear about municipal 
broadband today. The Augustine Report that I mentioned, Rising 
Above the Gathering Storm, made clear the need for broadband to 
ensure our country's competitive position in the digital age.
    Concerned that broadband is not happening quickly enough, 
some municipalities want to build and operate their own 
broadband networks while others want to sponsor them. Some 
commercial providers have cried foul and are concerned that 
they cannot compete fairly against municipalities. And there 
are states that have prohibited municipalities from offering 
telecommunication service and are pondering prohibiting 
broadband service.
    We will hear today from all of you to help determine what 
role municipalities should play and how we should interact with 
them, and we want to hear about the Universal Service Fund and 
what impact it has on the commercial sector also. I'll be 
pleased to have your testimony. I don't know if we're going to 
have additional Senators. I may be all you've got, but we'll 
see. Oh, there's one down there.
    Senator Lautenberg. I'm here.
    The Chairman. Didn't see him.
    Senator Lautenberg. That's because you and I are the same 
age.
    The Chairman. It's generational. We keep commitments.
    Senator Lautenberg. That's true.
    The Chairman. Senator Lautenberg.

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thanks, Mr. Chairman, for calling this 
hearing. I think there's so much confusion about the vote 
schedules and so forth that it's hard to assemble a quorum of 
any size. I guess we constitute a quorum technically. We both 
disagree with one another, but on this we may be OK.
    I want to thank you for calling the hearing. Senator McCain 
and I have a bill on the issue of municipal broadband, and we 
think it's a critical issue, and I want to explain why. 
Broadband is a 21st century utility, one that improves 
communications, education, the economy. President Bush has 
called for a universal and affordable broadband for every 
American by 2007. And that's a commendable goal, one that will 
bridge the digital divide and improve economic opportunities 
for all citizens. Unfortunately, we're still far from achieving 
it. Studies rank the United States anywhere from 12th to 16th 
worldwide in the percentage of residents with broadband 
connections. And to me, that sounds like we're falling behind 
in the Internet age. Mr. Chairman, you know that I come out of 
the computer industry. Unfortunately, it's such a long time ago 
that I'm not sure it looks the same even since then.
    The Chairman. I thought you went back, but you came back 
again.
    Senator Lautenberg. Back, well, I had to have a place to 
work, Mr. Chairman. But it's incredible to me that the advances 
in technology are so vast and so essential in the world in 
which we live that the United States has fallen behind in the 
use of some of the later advanced technology. This isn't 
nanotechnology. We're talking about something much simpler. So 
many Americans don't have broadband because they live in 
smaller towns where companies won't make it available, or they 
simply can't afford broadband service.
    Communities across the country have responded by stepping 
in to create their own municipal networks. But instead of 
embracing these efforts, 14 states have passed laws restricting 
or prohibiting these networks. Now, Senator McCain and I 
introduced the Community Broadband Act to protect the right of 
local communities to make broadband available to all of its 
citizens. And our bill will protect the rights of towns like 
Scottsburg, Indiana, where businesses threatened to leave 
because broadband wasn't available. When private providers 
declined to help, the town created its own wireless network, 
and they saved jobs in the process. There are also urban areas 
where many residents simply can't afford high-speed 
connections. In Philadelphia, 95 percent of the residents in 
affluent areas have broadband, but in low-income neighborhoods 
only 25 percent of the residents have broadband service, and 
it's wrong.
    In the digital age, equal opportunities in jobs and 
education require equal access to the Internet, and that's why 
Philadelphia stepped in to help its citizens and secure its 
economic future. And two of our witnesses today are involved in 
the Philadelphia project. We look forward to hearing from them. 
Thankfully, I think the tide is shifting on the issue. Indeed, 
even Verizon, which worked aggressively against Philadelphia on 
its project, has re-examined its position and no longer opposes 
municipal networks and doesn't oppose the Community Broadband 
Act.
    And I appreciate this change of heart, and I would add that 
many of the municipal networks can be public-private 
partnerships. Mr. Chairman, municipal networks expand economic 
opportunities. They also provide an important tool for public 
safety as we saw in the wake of Hurricane Katrina when 
volunteers set up a wireless network that enabled 
communications in the New Orleans area during the disaster and 
had to do it on their own.
    So, Mr. Chairman, I congratulate you for doing this and 
getting onto this subject. It's very important. And as we work 
to reach the goal of universal broadband, we've got to open new 
doors and not slam them shut. So, I thank you very much, Mr. 
Chairman, once again.
    The Chairman. Well, thank you very much, Senator. Let me 
tell you all that we'll place in the record in full any 
statements that you have, but we hope that you will summarize 
them. I'm not going to run a clock on you, but we do hope that 
you can keep them short, and we'll get to some questions, and 
hopefully, there'll be other Senators that arrive during the 
hearing. Mr. Sahr, we'll start with you as the Chairman of the 
South Dakota Public Utility Commission of Pierre, South Dakota.

  STATEMENT OF ROBERT K. SAHR, CHAIRMAN, SOUTH DAKOTA PUBLIC 
                      UTILITIES COMMISSION

    Mr. Sahr. Good afternoon. Mr. Chairman and Senator, I 
appreciate the opportunity to come here today and talk to you 
about these two important issues. I should note that as well as 
being Chairman of the South Dakota Public Utilities Commission, 
I am also Chairman of the 14-state Qwest Regional Oversight 
Telecommunications Committee, and my opinions here today, 
though, are of my own and as an individual commissioner. I 
applaud the Committee's leadership on the issues of municipal 
broadband and the role of Federal, state and local government 
in the digital world. The United States is at a critical 
juncture in terms of how we fund our telecommunication networks 
and how we ensure every American has access to state-of-the-art 
telecommunications including broadband.
    Today's policy decisions will have far-reaching effects on 
our Nation's economy and on the health, education and public 
safety of our citizens. Broadband and telecommunications 
services are the great equalizers that can bring amazing 
opportunities to all Americans, whether they live in 
metropolitan areas or on a farm or a ranch on the prairie in my 
home state of South Dakota.
    To compete in the global marketplace, the United States 
must have a robust telecommunications infrastructure, and this 
requires Federal, state and local policies that encourage 
investment in our telecommunications networks. Municipal 
governments as well as other policymakers have legitimate 
interests in ensuring constituents have access to broadband 
networks. I applaud municipal leaders for looking to innovative 
market-enhancing ways to have broadband delivered to their 
towns and cities, especially those who have no broadband 
whatsoever.
    I myself, have worked closely with local leaders on this 
very topic in my home state. However, before pursuing a 
municipal-owned or sponsored network, we should first look to 
private solutions. Our Nation's telecommunications providers 
have made substantial investments in their systems. These 
efforts are paying off. FCC figures show that high-speed 
Internet connections increased 34 percent in 2004. Technology 
on the horizon will allow delivery of more and richer broadband 
to more and more consumers. And you can look to my home state 
of South Dakota, where more than 200 communities have access to 
broadband, and many of these are in the most rural parts of the 
state. We also have very aggressive competition in our larger 
markets, and a recent check of bundled prices in the Rapid City 
market showed that consumers are paying $72.95 for bundled 
service. So, there are definitely benefits of competition that 
we're seeing as well.
    Balancing the legitimate and municipal interests with a 
strong preference for free market solutions, we can develop a 
framework that encourages the most efficient and effective use 
of both public and private resources and that provides 
consumers access to state-of-the-art services.
    My written comments provide some possible frameworks that I 
will summarize. First, municipalities should only act where 
market failure exists. Second, where the failure exists, 
communities should ascertain whether or not providers are 
willing to serve the market immediately or in the near term. 
Third, municipalities should consider available funding sources 
and possible incentives to attract private investment. Fourth, 
municipalities should consider public-private partnerships, and 
I appreciate the Senator's remarks on that. Fifth, 
municipalities, after assessing the appropriate risks and 
benefits, may consider constructing and operating a municipal-
owned or sponsored network.
    Under this last scenario, the municipality should continue 
to evaluate opportunities for non-governmental solutions. This 
is the methodology we recently employed in South Dakota to help 
the city of Timber Lake, South Dakota, successfully apply for a 
USDA Broadband Community Connect Grant that will bring a 
wireless broadband network to the city. I thank Congress and 
President Bush's support of this and other similar programs.
    I would urge the Committee to guard against government 
ownership that usurps, prohibits or discourages private 
investment. Removing potential markets and customers from a 
private provider's pool can greatly hamper the provider's 
ability to build and maintain networks because of the loss of 
customer base. One of the most egregious cases is currently 
pending before the Federal Communications Commission and 
involves the Massachusetts Port Authority's attempt to create a 
monopoly on WiFi services at Boston's Logan International 
Airport. While this may be an extreme case, ill-conceived 
governmental networks can have a chilling effect on private 
investment and stifle competition and its consumer benefits.
    I've been asked to briefly comment on the roles of Federal, 
state and local governments in the digital world. Clearly, 
certain issues must be decided at the Federal level. And in 
some areas, national uniformity makes sense such as with truth-
in-billing. I'm concerned that unreasonable actions in other 
states can raise prices for my state's consumers or maybe waste 
resources that should be going into new infrastructure. On the 
other hand, state and local governments have active roles in 
areas like consumer protection and dispute resolution.
    In response to consumers' requests for better wireless 
services in South Dakota, I launched a statewide wireless 
initiative in 2002. This plan teamed state officials, with 
local leaders to encourage wireless providers to invest in our 
state. The wireless providers responded by putting record 
investment into our state and bringing state-of-the-art digital 
services to many underserved rural communities for the first 
time.
    As my written comments detail, the Federal/state framework 
helped make this possible and demonstrates that beyond 
traditional state regulation, there can be a proactive state 
role of facilitation and perhaps even innovation. Thank you for 
the opportunity to testify. I'd be pleased to answer any 
questions at the appropriate time.
    [The prepared statement of Mr. Sahr follows:]

  Prepared Statement of Robert K. Sahr, Chairman, South Dakota Public 
                          Utilities Commission
    Good morning Mr. Chairman and Members of the Committee. My name is 
Bob Sahr and I am the Chairman of the South Dakota Public Utilities 
Commission. My comments today are those of an individual Commissioner. 
I thank you for the opportunity to testify before you.
    I applaud the Committee's leadership on the issues of municipal 
broadband and the role of Federal, state and local government in the 
digital world. The United States is at a critical juncture in terms of 
how we fund our telecommunications networks and how we ensure every 
American has access to state-of-the-art telecommunications, including 
broadband. Today's policy decisions will have far-reaching effects on 
our Nation's economy and on the health, education and public safety of 
our citizens. Broadband and telecommunications services are the great 
equalizers that can bring amazing opportunities to all Americans, 
whether they live in metropolitan areas or on a farm or ranch on the 
prairie in my home state of South Dakota.
    Broadband and telecommunications services also give our 
international competitors similar opportunities. The stakes are high 
and the time to act is now; recent statistics showed the United States 
dropping from 13th to 16th place in terms of broadband penetration. To 
compete in the global marketplace, the United States must have a robust 
telecommunications infrastructure, and this requires Federal, state and 
local policies that encourage investment in our telecommunications 
networks.
    I have been asked to make remarks on the following topics:

        I. Whether municipal or municipal-sponsored broadband networks 
        should be restricted and what the impact on competition might 
        be; and

        II. The appropriate role of Federal, state and local government 
        in the digital world and why.

I. Municipal Broadband Networks
A. Introduction
    Municipal governments, as well as other policy-makers, have 
legitimate interests in ensuring constituents have access to broadband 
networks. Without broadband, a community's ability to attract and 
maintain business, to offer critical public services and to provide 
opportunities to its residents is severely hampered. I applaud 
municipal leaders for looking for innovative, market-enhancing ways to 
have broadband delivered to their towns and cities. I have worked 
closely with local leaders on this very topic in my home state.
    However, before pursuing a municipal-owned or sponsored network, we 
should first look to private solutions. Our Nation's telecommunications 
providers have made substantial investments in their systems, and 
technology on the horizon will allow them to deliver more and richer 
broadband to more consumers. We must be particularly mindful of 
municipal action that displaces or discourages private investment.
    Balancing the legitimate municipal interests with a strong 
preference for free market solutions, we can develop a framework that 
encourages the most efficient and effective use of both private and 
public resources and delivers state-of-the-art services to all 
consumers at affordable prices.
B. Preference for Private Solutions
    Nationwide, our telecommunications providers are making enormous 
investments in their networks and in the research and development of 
innovative products and services. This is happening across the country 
in rural and urban areas alike and with both wireline and wireless 
technologies.
    According to recent Federal Communications Commission (FCC) 
statistics, the annual household expenditures in 2003 were $441 for 
local exchange carriers, $122 for long distance carriers and $492 for 
wireless providers. In 2002, wireline carriers spent $34.8 billion and 
wireless carriers spent $20.5 billion on structures and equipment. In 
2004, our Nation invested nearly $5.7 billion in telecommunications 
infrastructure through universal service funding including almost $3.5 
billion for high-cost support. We all have an interest in seeing these 
investments fully utilized.
    This substantial investment is paying off and delivering broadband 
to more and more consumers. FCC figures show that high-speed 
connections to the Internet increased 34 percent in 2004.
    In my home State of South Dakota, a rural state with less than 10 
residents per square mile, we have amazing telecommunications success 
stories made possible by the investment, foresight and innovation of 
our state's providers. More than 200 communities, many of them very 
small, have broadband access. The overwhelming majority of these 
communities are served by cooperatives, tribally-owned entities and 
family-owned companies that, during the past five years, have invested 
$300 million in capital improvements alone. Our larger cities have 
brisk competition with two or more providers, including incumbent phone 
and cable companies plus over-builders, offering services. This has 
resulted in lower prices--bundled voice, video and broadband services 
can currently be purchased for $72.95 per month in the Rapid City 
market--as well as innovation. Over two years, our largest wireless 
companies have invested well over $150 million in their systems and are 
in the process of building one of the best rural wireless networks in 
the Nation. Finally, a number of small, entrepreneurial ventures are 
offering wireless broadband, not just in our cities but also in some of 
the most rural parts of the state. These providers are not just content 
to serve their current customers but are constantly looking for ways to 
enter new markets and offer new services. The entrepreneurial spirit is 
alive and well in South Dakota and our consumers reap its benefits.
    If our country wants to encourage investment in private networks; 
if our providers are to have access to the necessary capital to 
adequately invest in their systems; and if our consumers are going to 
see the benefits of investment, innovation and competition, including 
lower prices and advanced services; then we must ensure government 
ownership meets appropriate criteria and does not waste or usurp 
private investment.
C. Legitimacy of Local Government Interests in Broadband
    Without a doubt, every local government has a legitimate interest 
in seeing its residents and businesses have access to state-of-the-art 
telecommunications including broadband.
    I am incredibly sympathetic to communities that lack broadband and 
have met with people from such communities within my own state and 
listened to their concerns. Their ability to educate their children, 
keep their communities safe and compete in the global economy is 
severely hampered. Every opportunity, including municipal ownership or 
sponsorship, must be evaluated. My fellow commissioner, Dustin Johnson, 
and I have pledged our assistance to look for ways to bring broadband 
to these communities. And, in some of these instances, public ownership 
or public-private partnerships may be the only option. However, on the 
policy front, we must ensure that opportunities for private investment 
are given full consideration and that municipal entry is a last resort.
    I would differentiate these communities that lack any broadband 
options from communities in which municipalities or municipally-
sponsored entities enter markets where broadband is already available. 
Without some type of market failure, municipal entry, in my opinion, is 
highly suspect.
D. Possible Frameworks for Municipal Entry
1. Guiding Principles
    How do we balance the legitimate municipal interest in broadband 
with a preference for private investment? Here are some guiding 
principles that can help answer this question.
    First, municipalities should act only where a market failure 
exists.
    Second, where market failure exists, communities should ascertain 
whether or not providers are willing to serve the market immediately or 
in the near term. One of the best possible sources for a broadband 
solution may be a provider that already has networks in close proximity 
to the underserved area. This step should also include the 
consideration of whether or not technological improvements or lower 
investment costs may yield a broadband solution in the immediate 
future.
    Third, municipalities should consider available funding sources and 
possible incentives to attract private investment. These could include 
Federal assistance through broadband loans and grants, a variety of 
state and local tools to encourage investment, and even marketing the 
area as a test market for providers or equipment manufacturers.
    Fourth, after pursuing the first three options, municipalities 
should consider public-private partnerships. This has the benefit of 
bringing private experience to the venture and helps the community 
share some of the risk of the project versus pursuing a solely-owned 
network. Additionally, the municipality may have expertise, facilities 
or other advantages that may make an otherwise unviable network 
attractive to private investment.
    Fifth, municipalities, after assessing the appropriate risks and 
benefits, may consider constructing and operating a municipal-owned or 
sponsored network. In these situations, the municipality should 
continue to evaluate opportunities for non-governmental solutions.
2. Examples of the Right Approaches
    A recent example of how these steps can work comes from Timber 
Lake, South Dakota. Timber Lake, a city of 443 residents, lacks 
broadband. Local leaders contacted our office for assistance. We worked 
with the community to formulate a plan. First, we met with the 
providers currently serving the city and those with facilities near the 
city. While all providers expressed interest in providing broadband, 
they uniformly stated the probable customer base would not justify the 
capital expenditures necessary to provide high-speed Internet. The City 
of Timber Lake then applied for a United States Department of 
Agricultural Broadband Community Connect Grant. Last fall, USDA 
selected Timber Lake for a $393,309 grant to construct a wireless 
broadband network and other improvements. It will be built and 
maintained by a private provider with assistance from the City.
    Although, as mentioned previously, my home state of South Dakota 
has many broadband success stories, we do have cities and towns lacking 
broadband. I want to thank you, the other Members of Congress and 
President Bush for supporting programs such as the USDA Broadband 
Community Connect Grant program. Where market failures exist and 
private investment alone cannot bridge the digital divide, this type of 
program can bring broadband to communities for the first time and make 
a huge difference in people's lives.
    I would offer for the Committee's consideration two other 
methodologies for evaluating the appropriateness of municipal ownership 
or sponsorship of broadband networks.
    One, in August 2005, the South Dakota Association of Telephone 
Cooperatives endorsed a proposal urging the prohibition of 
municipalities from delivering wireless or other types of high speed 
Internet unless:

        1) There is no similar service being offered in said 
        municipality,

        2) The municipality can show that no private communications 
        provider is planning to offer wireless or other types of high 
        speed Internet service in the foreseeable future,

        3) The municipality can show that the service would be 
        economically feasible without a subsidy of public funds, and

        4) The municipality can demonstrate public support by means of 
        a public vote or some other show of public support.

    Two, the State of Florida enacted a law in 2005 governing municipal 
entry into telecommunications services. Under that law, a governmental 
entity proposing to provide communications service must make available 
to the public a written business plan for the venture and must hold no 
less than two public hearings, not less than 30 days apart, in which 
the following shall be considered:

   Whether the service is currently provided in the community 
        and whether it is generally available throughout the community.

   Whether a similar service is currently being offered in the 
        community and is generally available throughout the community.

   If the service is not being offered, whether any other 
        provider proposes to offer the same or similar service and 
        what, if any, assurances that service provider has offered that 
        it is willing and able to provide the same service.

   The capital investment required by the government entity to 
        provide the communications service, the estimated operation and 
        maintenance costs, the estimated realistic revenues and 
        expenses of providing the service, and the proposed method of 
        financing.

   Private and public costs and benefits of providing the 
        service by a private entity or a governmental entity, including 
        economic development impacts, tax-base growth, education, and 
        public health.

E. Inappropriate Government Action
    In the worst cases, government ownership usurps, prohibits or 
discourages private investment. One of the most egregious cases is 
currently pending before the Federal Communications Commission and 
involves the Massachusetts Port Authority's attempt to create a 
monopoly on WiFi services at Boston's Logan International Airport.
    Seeking to create a monopoly in itself for the provision of 
wireless broadband at Logan Airport, Massport seeks to restrict the 
deployment and use of unlicensed wireless services by third parties 
(like Continental Airlines, which wants to provide free wireless to its 
customers). Massport seeks to require airlines or any other tenant of 
Logan Airport to use a central antenna installed by Massport. A third-
party vendor selected by Massport would, in turn, exclusively maintain 
this central antenna. The airlines, airline employees, airport patrons 
and customers, and service providers would be denied any right to 
utilize the provider of their choice--including ones willing to provide 
free service. So, instead of promoting a competitive marketplace for 
wireless services, Massport would grant a monopoly to a sole service 
provider of its choice and would, directly or through delegation to the 
monopoly service provider, set the price for wireless services at 
Boston's Logan Airport. Massport's actions, if permitted, would 
severely undermine the promotion of competitive wireless markets and 
the promotion of the deployment of advanced broadband capabilities for 
all Americans.
    While this may be an extreme case, municipal networks can generally 
have a chilling effect on private investment and stifle competition and 
its consumer benefits. Whether in a major metropolitan area or a small 
town in rural America or somewhere in between, municipal broadband 
removes markets and customers from a private provider's pool. This can 
greatly hamper a provider's ability to build and maintain state-of-the-
art networks across a region or across the country because of the loss 
of potential customer base. So not only are consumers in the 
municipally-served market injured because they do not receive the 
benefits of competition, but also consumers outside that market suffer 
harm because their provider has lost the ability to spread costs over a 
larger customer base.
F. Questions Raised by Municipal Ownership
    Municipally-owned or sponsored networks raise a whole host of 
questions, especially in areas where private companies exist or are 
willing to serve:

   Will municipal networks assume ill-advised technological or 
        business risks?

   Do municipal networks have advantages unavailable to 
        competitors in building networks such as access to streets, 
        rights-of-way and government property?

   Will municipal networks cover risks by using tools available 
        to them because of their non-profit or governmental status such 
        as bonding or taxing authority?

   Will a municipality cross-subsidize its telecommunications 
        network?

   Do municipal networks pay the same taxes and fees, including 
        municipal ones, as competitors?

   What happens if a municipal system wants to extend its 
        service beyond municipal boundaries, an opportunity that is 
        relatively easy with wireless networks?

    Finally, municipally-owned or sponsored networks can create 
regulatory asymmetry. At a time when we are evaluating the Federal/
state/local relationships and looking for a level regulatory playing 
field regardless of technology, municipally-run systems raise 
additional questions on the regulatory front. In particular, when do 
state and Federal rules govern another governmental entity and its 
telecommunications ventures?
    In summary, we can balance the legitimate municipal interests in 
assuring access to broadband networks with a preference for private 
solutions. The aforementioned guidelines should serve as suggestions 
for developing appropriate criteria for municipal entry. This strategy 
will encourage private investment in our Nation's telecommunications 
infrastructure, foster competition and bring more advanced services to 
consumers at lower prices.
II. Federal, State and Local Government Roles
A. Federal Roles
    I have been asked to briefly address the appropriate role of 
Federal, state and local government in the digital world.
    While I consider myself a strong state's rights advocate, there are 
some areas where national uniformity is appropriate. A good example is 
the current Federal Communications Commission's Truth-in-Billing 
docket. The docket brings consistency to the regulation of providers, 
requires that all carriers provide accurate billing information, 
clarifies what constitutes misleading charges and eliminates varying 
treatment of certain charges across state lines. These principles 
protect consumers and ensure that inconsistent state regulations do not 
adversely impact competition and the corresponding consumer benefits. 
Under these types of circumstances, consumers are best served by 
uniform national standards.
    The FCC has tentatively concluded that there is support for 
preemption of state regulations related to billing. I respectfully 
suggest that in certain areas, like truth-in-billing, a national 
regulatory framework that clearly provides for Federal oversight is 
necessary for a continued competitive wireless market.
    Undoubtedly, both the states and the Federal Government share an 
interest in ensuring that consumers are not defrauded. A uniform 
approach on issues like billing practices, however, would best serve to 
protect consumers' rights. A national framework of Federal rules would: 
provide greater uniformity to wireless bills; eliminate confusion with 
respect to consumers' rights by providing clear national standards that 
are applied similarly in every state; increase consumer choice by 
eliminating excessive state regulation which, together with the 
associated costs; and promote competition among wireless carriers.
B. State and Local Government Roles
    On the other hand, I would urge the Committee not to jump to the 
conclusion that Federal preemption should be the rule across-the-board 
for all issues. State and local governments are well-suited to address 
a number of important issues.
1. Consumer Protection
    Clearly, state public utilities commissions and attorneys general 
have essential consumer protection roles. My experience is that, in the 
vast majority of circumstances, consumers would much rather pursue 
their claims closer to home and that commissions and attorneys general 
alike show great ability to resolve disputes in a cost-effective, 
timely manner.
2. Dispute Resolution
    An interesting side effect of moving toward a competitive 
telecommunications marketplace has been the growing need for state and 
Federal policy-makers to resolve disputes among competing carriers. 
While the days of monopoly regulation and telephone rate-making are 
gone in most states, complex commercial disputes before state 
commissions has taken its place. A state commission might find itself 
busier in a ``deregulated'' or ``competitive'' world than it was in the 
``regulated'' world. Unless major changes are made to the size and 
breadth of the FCC or unless the decision is made to turn a long line 
of disputes over to courts, state commissions will continue to play a 
vital role refereeing the telecommunications providers.
3. Market Monitoring
    More complex are the boundaries for state and local government in 
areas like market evaluation, competition and franchising. State 
commissions and local governments bring a great appreciation and 
understanding of how local markets work. While occasionally needing 
limits on unfettered discretion and while respecting that certain 
issues should be decided on the Federal level, state and local 
governments have a keen ability to monitor marketplaces and to 
sometimes develop better solutions to complex problems than can be 
formulated through one-size-fits-all Federal dictates.
4. Roles for Innovative State Policies
    Beyond these principles lies a great opportunity for states and 
local governments to be innovators, often in conjunction with 
telecommunications providers. While I have heard numerous critiques of 
state and local policy-makers, many of them ill-placed but some on 
point, one that probably has merit but is rarely mentioned is our 
failure to seek out and encourage innovative solutions.
    While I firmly believe that limited government is best and that 
private industry should take the lead in most circumstances, it would 
be a mistake to preclude state and local initiatives. My state's former 
Governor, William Janklow, had the vision to wire every school in the 
state for broadband and to build a state radio network that allows 
every first responder to communicate on the same system using the same 
equipment. Although I am sure you are more concerned with regulation of 
telecommunications providers, these are prime examples of state roles 
that serve consumers and the public well.
    In response to consumer input asking for improved wireless service 
in the rural parts of my state, I formulated the South Dakota Wireless 
Initiative in 2002. Instead of erecting barriers to entry, we looked 
for ways to encourage wireless companies to invest in the state. We 
worked with local leaders to help them make their cases for better 
service, emphasized the importance of reasonable zoning and looked for 
local resources to speed the delivery of services. Governor Michael 
Rounds and our commission notified the providers that South Dakota 
wanted their investment and would look for ways to facilitate rural 
networks. Our office met with the providers and worked with them to 
evaluate options. We furnished them with traffic counts, demographics, 
local knowledge and information about existing towers and structures 
that could serve as possible sites.
    The wireless providers responded by putting record investment into 
our state. Cellular One/Western Wireless, which is now Alltel, and 
Verizon Wireless built approximately 40 towers in South Dakota in 2004. 
Many of these sites brought state-of-the-art digital services to 
underserved rural communities for the first time. The wireless buildout 
continued in 2005, and 2006 looks to be a great year for our state's 
consumers. While state government had a role, the providers themselves 
ultimately deserve the credit as they decided to invest their resources 
in South Dakota.
    This ongoing success story was made possible, at least in part, by 
the current regulatory framework. As you probably know, Federal 
telecommunications law preempts states from regulating wireless pricing 
and market entry. This approach undoubtedly has led to the tremendous 
investment in wireless networks and the industry's rapid growth, and, 
in the case of our state, gave the providers access to the capital 
necessary to build the towers. At the same time, if state and local 
government had no role whatsoever, then we may not have been as 
successful in encouraging the wireless providers to invest in our state 
and communities. In the case of Alltel, a company receiving universal 
service funds for the South Dakota market, Federal policy decisions 
that made USF available to wireless providers and that delegated states 
compliance oversight together created a framework where: (1.) a 
provider has sufficient capital to invest in rural networks and (2.) 
state government is responsible to ensure service is provided 
throughout the service territory. The South Dakota wireless success 
story demonstrates that beyond traditional state ``regulation'' there 
can be a proactive state role of ``facilitation'' and perhaps even 
``innovation.''
III. Conclusion
    In closing, I would respectfully urge you to do everything in your 
power to encourage investment in the Nation's telecommunications 
infrastructure and, as a part of this, to develop a framework that 
balances legitimate municipal interests in broadband with a preference 
for private solutions. Finally, as you grapple with these and many 
other important telecommunications matters, please keep in your mind 
the challenges faced in constructing and supporting rural 
telecommunications networks. If South Dakota and other rural states 
fall behind a digital divide, the entire country will suffer.
    Thank you for inviting me here today. I appreciate the opportunity 
to testify before you.



    The Chairman. Thank you very much, Mr. Sahr. Our next 
witness is Diane Munns, Commissioner of the Iowa Utilities 
Board, President of National Association of Regulatory Utility 
Commissioners of Des Moines. I remember my friend from South 
Gunner says Des Moines.

         STATEMENT OF DIANE MUNNS, COMMISSIONER, IOWA 
UTILITIES BOARD; PRESIDENT, NATIONAL ASSOCIATION OF REGULATORY 
                 UTILITY COMMISSIONERS (NARUC)

    Ms. Munns. You say it any way you want. Thank you, Chairman 
Stevens and Senator. I am Diane Munns. I'm a Commissioner with 
the Iowa Utilities Board and currently President of the 
National Association of Regulatory Utility Commissioners or 
NARUC. NARUC represents state utility commissioners in all 50 
states in U.S. territories with oversight over 
telecommunications, energy, water and other utilities.
    We commend you for convening this series of hearings on a 
communications policy reform, and we particularly appreciate 
your setting aside time to hear from representatives from state 
and local governments. Today's telecom market faces enormous 
challenges including rampant arbitrage and restructuring that 
is sapping state and Federal Universal Service programs, the 
need to modernize the E-911 emergency calling system, fresh new 
challenges in consumer privacy and consumer protection and 
finding the proper mix of incentives to spur investment in the 
networks and innovation among users. Compounding the task is 
the sheer size and diversity of our Nation. I think we have 
some small understanding of the unique challenges in Alaska and 
Hawaii, but did you know that Iowa has over 150 incumbent 
carriers who are providing service in rural areas with a unique 
network design?
    Knowing that Congress was considering sweeping changes, 
NARUC convened its own legislative task force in November of 
2004 to examine our role and our view of the future of 
federalism in telecommunications. NARUC came up with two 
important guiding principles. The first is that any overhaul of 
the Telecommunications Act should be as technology neutral as 
possible. This is a lesson learned. Who could have envisioned 
the explosion of technology or the impact of the Internet? Many 
of our current problems stem from different treatment of 
different platforms or networks that are now capable of 
delivering the same or similar services.
    The second important principle is that in considering state 
and Federal roles, the past rule on endpoint jurisdiction, 
whether a particular service is intrastate or interstate in 
nature, is not relevant in today's environment. Rather, Federal 
policymakers should look at the core competencies of state, 
Federal and local level and ask who does what best. The 
analysis should first start to look and see if regulation is 
needed and then which level of government is best suited to 
handling the tasks.
    I'd like to talk briefly about several areas where we 
believe the states are positioned to be very effective in a 
Federal/state partnership. The first is consumer protection. 
NARUC does not object to Federal consumer protection standards. 
This is an important point to begin with in framing the 
discussion. We believe in this industry there is a need for a 
Federal framework and Federal rules. What we object to is an 
approach that makes those standards a ceiling on state action 
and fails to give those who help consumers the tools, authority 
and flexibility they need to get the job done.
    We object to gutting our Nation's consumer protection 
standards or creating an enforcement black hole. We believe the 
need for uniformity to incent businesses and cut transaction 
costs must be balanced with the ability to respond to consumer 
and competition issues. And we believe that there are creative 
mechanisms and processes that are capable of dealing with this 
tension. A recent survey found that in just 20 state 
commissions, over 230,000 consumer complaints had been handled 
in 2004. These complaints are generally resolved on a one-for-
one basis, and the majority take only a few weeks through 
informal processes.
    We are concerned however, that legislation already 
introduced before this Committee would take a one-size-fits-all 
approach when it comes to consumer protection standards without 
providing flexibility to the state agencies that enforce them. 
We believe we should look to the lesson learned after the 
passage of the 1996 Act with respect to slamming and cramming. 
States first addressed this abuse, and after experimentation, a 
Federal approach was adopted, but enforcement is a joint 
responsibility between the states and the FCC. This has proven 
to be a very effective model in handling this abuse. It was not 
a question of Federal or state jurisdiction, but a partnership 
fashion to address an abuse specific to this industry.
    Unfortunately, the same dynamism that brings exciting new 
products and services to consumers also produces a host of new 
complaints and novel misunderstandings, especially for products 
supplanting additional phone service. Another lesson learned 
should be from the National Do-Not-Call list which was enacted 
3 years ago with great fanfare. Federal enforcement of the do-
not-call list has been less than aggressive, especially when 
compared to the track records of states.
    For example, look to North Dakota, a state of only 640,000 
people. Yet, in the first two and a half years of its strict 
state do-not-call list, the state attorney general has enforced 
53 settlements totaling $64,000 and issued seven cease and 
desist orders just in this state alone.
    The entire Federal Government, despite receiving over one 
million complaints, has only issued six fines and filed 14 
lawsuits. States are better positioned to provide remedies and 
enforcements and are likely to do so in a manner that fits the 
locale and situation. NARUC would like to accept the challenge 
given to us by Chairman Stevens in his speech yesterday and 
work for approaches like joint boards that protect consumers 
while minimizing red tape. We think this is most effectively 
done by leveraging Federal and state capabilities. With respect 
to Universal Service, NARUC supports efforts to more equitably 
distribute the funding base of the Federal Universal Service 
Fund in a more technology neutral manner. Today, Universal 
Service is a joint responsibility between the states and the 
Federal Government with 26 state programs distributing about 
$1.3 billion or nearly 20 percent of the overall national 
commitment to Universal Service.
    This joint approach benefits both net donor and net 
recipient states because it lessens the burden on an already 
sizable program and permits another option when Federal 
disbursement formulas that work in the aggregate do not 
adequately serve a particular state or community.
    Our concern is that any expansion of the Federal base 
without a complementary clarification of coextensive state 
authority could create tremendous funding gaps that would fall 
disproportionately on consumers who rely on state programs and 
would raise thorny issues about the equity of Federal 
disbursement formulas. We ask for your consideration of the 
existing state funds in any changes that you consider.
    Interconnection: In a networked industry, fierce 
competitors will always have to cooperate to operate a seamless 
network of networks, but there are frequent incentives to 
frustrate interconnection. We are concerned that at least one 
bill before this Committee would move the function of 
mediating, arbitrating and enforcing interconnection agreements 
from the states to the Federal level. This is another issue of 
poor competency or charging government at the level with the 
best ability to deliver value. States that have the ability to 
decide fact specific disputes based on a record, they are able 
to make these decisions in an expedited manner to support 
commercial transactions.
    Finally, the states have the knowledge of networks and 
local conditions that sometimes are the cause of these 
disputes. The ability to interconnect seamlessly into the 
traditional phone system is the linchpin of success for 
competition in the availability of new services.
    Quickly, we also support a requirement for VoIP providers 
to provide E-911 functionality and believe states are the 
logical point for enforcement of this requirement. Seven years 
ago, I argued the landmark case of AT&T v. Iowa Utilities Board 
before the U.S. Supreme Court, a case that some scholars have 
called the beginning of the end for the old models of 
federalism. My hope with Congress in looking at rewriting the 
Telecommunications Act is to use what we've learned to maintain 
and strengthen a Federal/state partnership that has worked so 
well in recent years to build a set of policies to leverage the 
strengths of each for the benefit of both industry and 
consumers. In that endeavor, we offer ourselves as partners. 
Thank you.
    [The prepared statement of Ms. Munns follows:]

Prepared Statement of Diane Munns, Commissioner, Iowa Utilities Board; 
  President, National Association of Regulatory Utility Commissioners 
                                (NARUC)
    Chairman Stevens, Co-Chairman Inouye and Members of the Committee, 
thank you for the opportunity to testify today. I am Diane Munns, 
Commissioner with the Iowa Utilities Board and President of the 
National Association of Regulatory Utility Commissioners (NARUC). NARUC 
represents State utility commissioners in all 50 States and U.S. 
territories, with oversight over telecommunications, energy, water and 
other utilities. State commissioners are generally either appointed by 
our governors, as I was, or stand for election, as you do. As leaders 
in our state, each of us is ultimately accountable to the voters, and 
we share your commitment to promoting the opportunity for every 
community to take part in the revolution of broadband convergence, new 
technologies and intense competition--all to the benefit of the 
consumer.
    We commend you for convening this series of hearings on 
communications policy reform and we particularly appreciate your 
setting aside time to hear from ``beyond the beltway'' colleagues in 
State and local governments. Today's telecom market faces enormous 
challenges, including rampant arbitrage and restructuring that is 
sapping State and Federal universal service programs, the need to 
modernize the E-911 emergency calling system, fresh new challenges to 
consumer privacy and the proper mix of incentives to spur investment in 
the networks and innovation among the users.
    Compounding your task as Federal legislators is the sheer size and 
diversity of our Nation. Every state is unique. In Alaska, replacing a 
single broken part to restore service in Point Hope might require an 
800 mile emergency flight from Anchorage. Hawaii, on the other hand, is 
thousands of miles from the mainland and the main incumbent phone 
company was recently sold to a Washington, D.C. private equity firm. My 
own state of Iowa is served by 150 separate incumbent phone companies 
while other states have vast rural areas served by a single national 
company. All these factors have impact on how you go about protecting 
consumers, encouraging competition and preserving universal service--
and doing it all from the banks of the Potomac (surrounded by 
advocates) is, to put it mildly, a challenge.
    The good news is that while major legislation can take a long time 
to enact at the Federal level, states are also exercising leadership. 
In fact, for all the derision heaped on the Telecommunications Act of 
1996, the current framework has allowed us to respond to a number of 
the challenging issues that are the subject of other hearings before 
this Committee:

   States commissions and legislatures are examining the 
        competitiveness of every market and paring back economic 
        regulation where we find effective competition;

   State commissions, legislatures and localities have 
        vigorously encouraged broadband deployment, through economic 
        deregulation bills, municipal projects and ``E-Government'' 
        initiatives where town halls, schools and libraries have acted 
        as the ``early adopters'' to bring broadband to their 
        communities.

   States are meeting nearly 20 percent of the national 
        commitment to universal service through their own programs in 
        26 states;

   NARUC's Intercarrier Compensation Task Force has become the 
        primary forum over the last two years for all the major 
        carriers to dialogue with each other and consumer advocates in 
        search of a ``negotiated'' way to rationalize the system of 
        payments;

   States and localities are granting video franchises to 
        competitive providers, including Bell companies, overbuilders 
        and the rural telcos;

   States were the first to require VoIP providers to provide 
        911/E-911 functionality, a move resisted by the industry but 
        later followed by Federal regulators.

    The beauty of all this is that instead of relying on white papers 
and promises, Federal policymakers need only look around the Nation for 
real-life examples of what ``works'' and what doesn't in various policy 
areas. On issue after issue there is a well-worn path of good ideas 
like the do-not-call list, slamming and cramming rules and various 
approaches to universal service happening first at the State level and 
then at the Federal level.
    Just as valuable, state initiatives that haven't worked serve as 
priceless ``red flags'' to state and national leaders as they wrestle 
with new challenges. To borrow from another sector, what if the 
electric industry had nationalized the California experiment in 
electric deregulation in its zeal to avoid a ``patchwork'' and the 
entire Nation had been subject to rolling blackouts? Instead, the 
California experience has been studied endlessly and regulators in 
Washington, D.C. and every state capital have been able to draw their 
conclusions.
    With all that in mind, if I could offer one word of advice, it 
would be to retain the State-Federal partnership in communications 
policy. Look to your state commissioners as partners and honest brokers 
as you undertake major revisions to the Act, and do your state a good 
turn by keeping the partnership model in place for the next generation.
    Knowing that Congress was considering sweeping changes, NARUC 
convened our own Legislative Task Force in November 2004 to examine our 
own role and our view of the future of federalism and 
telecommunications. After internal polling, extensive discussions and 
consultation with consumers and industry stakeholders, NARUC came to 
two important conclusions:
    The first is that any overhaul of the Telecom Act should be as 
technology neutral as possible. When you talk to the luminaries of 
industry and academia, the first thing you learn is that even they 
don't know where today's wave of innovation and restructuring will lead 
or end. Will wireless broadband and broadband over power lines finally 
bring an explosion of competition to the ``last mile,'' or will the 
ever-present incentive to merge and consolidate in networked industries 
steer us into a concentrated market? That question has not been 
answered with any finality yet.
    With that in mind, we thought it was best to take policymakers and 
regulators out of the business of betting on one technology or 
another--even if all the talking heads are praising it as a the ``wave 
of the future.'' The last thing we want to do is create another wave of 
arbitrage and market distortion, and if even Bill Gates doesn't know 
what will happen next, how are we supposed to?
    The second important conclusion was that in considering State vs. 
Federal rules, Congress need not yoke itself to old rules about whether 
a particular service is ``interstate'' or ``intrastate'' in nature. 
Rather, Federal policymakers need only look to the core competencies of 
agencies at the State, Federal and local level and ask ``who does what 
best''? And that's the process we began on a number of issues. Our goal 
in each case was to go back to first principles, look at why 
regulations are there in the first place, and then decide which level 
of government is best suited to handling the task.
Consumer Protection
    A recent survey found that in just 20 State commissions, over 
230,000 consumer complaints had been handled in 2004. These complaints 
are generally resolved on a one-for-one basis and the majority take 
only a few weeks through informal processes. We are concerned, however, 
that legislation already introduced before this Committee would take a 
``one-size-fits-all'' approach when it comes to consumer protection 
standards, without providing flexibility to the state agencies that 
enforce them. This is unfortunate because the same dynamism that brings 
exciting new products and services to consumers also produces a host of 
new complaints and novel misunderstandings, especially for products 
supplanting traditional phone service.
    A particular case in point has been the National Do-Not-Call list, 
enacted three years ago with great fanfare. Federal enforcement of the 
do not call law has been less than aggressive, however, especially when 
compared to the stellar track record of states. For illustrative 
purposes, consider this: North Dakota is a state of only about 640,000 
people. In the first 2\1/2\ years of its strict state do-not-call law, 
the state Attorney General has enforced 53 settlements, totaling over 
$64,000, and issued 7 cease and desist orders just in his state alone. 
Meanwhile, the entire Federal Government, despite receiving over one 
million complaints, has only issued 6 fines and filed 14 lawsuits. Even 
more importantly from the consumer's viewpoint, telemarketers were 
quick to exploit a patchwork of loopholes and ``workarounds'' to the 
Federal rules and the calls kept coming. It fell to a handful of states 
to say that ``no means no.'' Without that state enforcement and 
flexibility, consumers would be in a much worse position. The vast 
majority of state commissioners believe two lessons can be taken from 
experiences like these.

        1.) State enforcement of consumer protection standards has 
        proven to be far more effective than Federal enforcement. This 
        Nation is too large to expect one or two Federal agencies to 
        respond to all consumer complaints.

        2.) States must retain a level of flexibility to tailor 
        consumer protection standards that consumers expect. Weak, one-
        size-fits-all, loophole ridden Federal standards will invite a 
        consumer backlash unlike anything seen before in this industry. 
        State commissions still report almost universally that 
        telecommunications complaints are the number one reason for 
        constituent complaint calls.

    NARUC doesn't object to Federal consumer protection standards, but 
we do object to an approach that makes those standards a ``ceiling'' on 
state action and fails to give those who help consumers the tools, 
authority and flexibility they need to get the job done. Gutting our 
Nation's consumer protection standards and creating an enforcement 
blackhole must not be the outcome of a process that should, rather, be 
bringing more regulatory parity and investment certainty to the 
important telecommunications sector.
Universal Service
    NARUC supports efforts to more equitably distribute the funding 
base of the Federal Universal Service Fund (USF) in a technology-
neutral manner, although we believe such efforts must be accommodated 
by similar efforts to ensure the long-term sustainability of state 
programs. Today, universal service is a jointly shared responsibility 
between the states and the Federal Government, with 26 state programs 
distributing about $1.3 billion, or nearly 20 percent of the overall 
national commitment to universal service. This joint approach benefits 
both ``net donor'' and ``net recipient'' states because it lessens the 
burden on an already sizable Federal program and permits another option 
when Federal disbursement formulas that ``work'' in the aggregate do 
not adequately serve a particular state or community.
    Our concern is that any expansion of the Federal base without a 
complementary clarification of co-extensive state authority could 
create tremendous funding gaps. The impact of those gaps would fall 
disproportionately on consumers who rely on state programs, and would 
raise thorny questions about the equity of Federal disbursement 
formulas.
    NARUC also supports a permanent exemption of Federal universal 
service programs from the Antideficiency Act. We commend you for 
securing this year's exemption and we look forward to working with you 
to make it permanent beyond 2006.
Interconnection
    In a networked industry, fierce competitors will always have to 
cooperate to operate a seamless network of networks, but there are 
frequent perverse incentives for one carrier or another to frustrate 
interconnection for anti-competitive reasons.
    We are concerned that at least one bill before this Committee would 
federalize the traditional state role of mediating, arbitrating and 
enforcing those interconnection agreements. Current law already 
includes a provision for the FCC to arbitrate interconnection 
agreements when the state commission does not act, but the isolated 
instances where this has been necessary have not generally gone well. 
In one case, a cable company in the competitive phone business had to 
spend 3 years and over $2 million to arbitrate an interconnection 
dispute at the FCC, even though it was eventually vindicated on every 
issue. Sending such disputes to Federal courts or another forum would 
be even more onerous, with discovery rules and a multi-year process for 
resolving disputes that could be adjudicated in a matter of weeks at a 
state commission. We are concerned about the ripple effect that a 
backlog of such cases would have on the entire industry, especially 
when some traditional phone providers have already sought to deny 
interconnection altogether to new competitors. The ability to 
interconnect seamlessly into the traditional phone system is the 
linchpin of success for many VoIP services.
Connectivity Principles
    We applaud the Committee for convening last week's hearing on 
network neutrality. Many broadband providers are under tremendous 
investor pressure to drive as many customers as possible to their 
proprietary voice, video and data products. While consumers can benefit 
from competing networks and compelling proprietary products, we hope 
the network owners' competitive strategies will turn on price, quality 
and features--not impairing or degrading competitors' products or 
imposing artificial bandwidth limits on consumers.
E-911/Public Safety
    NARUC supports a requirement for VoIP providers to provide E-911 
functionality, and believes states ought to be able to enforce it. 
However, this is an area where access to facilities and state 
mediation, arbitration and enforcement of interconnection agreements 
are particularly important. We should all take the E-911 obligation 
seriously enough to provide a fast, effective interconnection process 
like the one found at the state level. In most cases, the incumbent 
provider has a complete monopoly over the trunk lines to 911 call 
centers. Without a referee to ensure interconnection, the incumbent 
becomes the de facto referee and can use that role to thwart 
competitive entry by denying access to a functionality most consumers 
find to be a basic necessity.
Video Franchising
    NARUC is not prepared to make a policy recommendation on this 
issue, but we are in the midst of an intensive consultation process 
with consumers, local governments, industry and other stakeholders to 
gather information. To that end, we recently completed a survey of what 
some of our states are doing on franchising. Some of them offer 
statewide franchising, such as Texas, Alaska, Hawaii and Vermont. 
Others oversee a local process. All share substantial responsibility 
with localities, especially on issues like right-of-way.
Conclusion
    Seven years ago, I argued the landmark case of AT&T v. Iowa 
Utilities Board before the U.S. Supreme Court, a case that some 
scholars have called the beginning of the end for the old models of 
federalism. Since then I've watched with some amusement as the state 
commissions and the concept of federalism have gone in and out of style 
with nearly every industry segment--ILEC, CLEC, cable, wireless, VoIP--
you name it. Even the dot.com companies readily avail themselves of 
state remedies when they want a change to the Uniform Commercial Code, 
articles of incorporation in Delaware or an anti-spam statute like the 
one they sought in Virginia and other states.
    To those with a bottom line, federalism is a doctrine of 
convenience in many ways, and I don't even fault them for it because 
they have a fiduciary duty to their investors. My hope with Congress 
and my plea to you today, however, is to maintain the Federal-State 
partnership that has worked so well over the years in so many facets of 
society and the economy, and to take your time to build a set of 
policies you can be proud of. In that endeavor, we offer ourselves as 
your partners.

    The Chairman. Thank you very much, Ms. Munns. The next 
witness is John Perkins, the President of National Association 
of State Utility Consumer Advocates, also from Des Moines.

 STATEMENT OF JOHN R. PERKINS, PRESIDENT, NATIONAL ASSOCIATION 
              OF STATE UTILITY CONSUMER ADVOCATES

    Mr. Perkins. Thank you, Chairman Stevens, Senator 
Lautenberg. My name is John Perkins. I am the consumer advocate 
for the state of Iowa, and I am also the President currently of 
the National Association of State Utility Consumer Advocates. 
Our organization is comprised of state-appointed officials 
generally appointed by our Governor or our state attorney 
general, and our statutory responsibilities are to represent 
consumers in our states before matters over which our public 
utility commissions have jurisdiction--telephone, gas and 
electric.
    And I'm here today in my position as President of NASUCA to 
speak to you on this important issue of telecommunications. 
It's no surprise to members of this committee that the 
telecommunications industry, even in the last 10 years since 
Congress last made a major overhaul of our telecommunications 
laws, has changed drastically. What hasn't changed in that 10-
year period is the need for vigorous enforcement of consumer 
protection laws by both Federal and state agencies.
    I understand that within the past several years, members of 
the telephone industry, and when I say telephone industry, I am 
including wireless, wireline, voice-over-Internet providers, 
any of the new methods of telephone communication that have 
developed, that members of that industry have lobbied both this 
body and the FCC long and hard to preempt states from enforcing 
unique consumer protection laws that apply to that industry. 
Their argument has been that they're national industries, that 
as national industries, they have to operate in every state, 
and it's simply too hard and too difficult for them to have to 
comply with consumer protection acts in 50 different states. 
They can't possibly do that and make a profit.
    The FCC, in the last year, entered a declaratory ruling and 
likewise set up a further notice of public rulemaking, and the 
FCC apparently has unfortunately bought into this argument and 
basically has held that any state consumer protection statute 
that deals with rates or non-rates of billing issues has been 
preempted and only the FCC can be the enforcement agency for 
consumer protection actions in that regard.
    The problem with the FCC's position and the problem with 
enacting any kind of legislation that would put that into 
effect by Congress is first of all, we contend, that the FCC 
simply doesn't have authority to do that. Congress has gone as 
far as it's going to go and has told the FCC what it should do 
in terms of state preemption, and it doesn't include preempting 
us from everything involving rate and non-rate involved in the 
billing. That's Congress's decision to make, and Congress has 
not yet spoken on that. The second problem is, and Ms. Munn's 
alluded to it, it's how is the FCC going to enforce this. 
They're an overworked, understaffed agency as it is. They have 
thousands and thousands of complaints as it is on cell phones 
and wirelines. They need the assistance of state attorney 
general and state public utility commissions. And if the states 
are preempted in this matter, you've cut out probably 75 to 80 
percent of the enforcement personnel available to keep citizens 
protected in these matters.
    The thing that I would ask this Committee to ask the 
telephone industry during these deliberations is why are you so 
different than the insurance industries, the securities 
industry, beer and liquor industries, trucking industries. Name 
an industry, and most of them are regulated both by the Federal 
Government and by individual state statutes including consumer 
protection state statutes that have a unique bend to them to 
protect the citizens of that state. Those industries have been 
able to get along just fine. They've been very profitable for 
the most part, and they haven't had any problem in that regard 
with a dual Federal/state law enforcement. We've asked this 
industry why it is that they're so different that they have to 
be regulated only by the Federal Government and consumer 
protection laws enforced only by the Federal Government. We've 
never gotten a satisfactory answer, and I would urge the 
Members of this Committee, as they look at legislation in this 
regard, to ask those same questions and satisfy yourself of the 
reasonableness of their position on that. Thank you.
    [The prepared statement of Mr. Perkins follows:]

Prepared Statement of John R. Perkins, President, National Association 
                  of State Utility Consumer Advocates
    Chairman Stevens, Co-Chairman Inouye, thank you for this 
opportunity to appear before your Committee to discuss the important 
topic of the sharing of responsibilities between Federal and state 
agencies responsible for enforcing consumer protection laws in the 
telecom industry. My name is John R. Perkins. I am the Consumer 
Advocate for the State of Iowa and am currently serving as the 
President of the National Association of State Utility Consumer 
Advocates. NASUCA is an association whose members are, for the most 
part, the statutorily authorized state officials responsible for 
representing their citizens in utility matters before their state 
public utility commissions, as well as before state and Federal courts, 
Federal agencies and Congress. They operate independently from their 
state PUCs. NASUCA currently has members from 43 states and the 
District of Columbia.
    No one knows better than the Members of this Committee of the vast 
changes that have occurred in the telecommunications industry since the 
enactment of the Telecommunications Act of 1996. Technology that was 
barely, or not at all foreseeable in 1996--save possibly by a few 
science fiction writers--is or will soon become a reality in this 
industry. Cell phones that take pictures, play songs, allow us to view 
our e-mail, websites and favorite television shows, even navigate for 
us in unfamiliar cities and telephones using the Internet are all 
recent and still nascent technologies.
    What is not new in this industry is the need for consumer 
protection laws and the vigorous enforcement of those laws by state and 
Federal officials to protect the purchasers and users of these devices.
    The telecom industry is no different than any other industry in the 
world. As long as there is a buck to be made by cheating unsuspecting 
individuals, there are a few unscrupulous operators who will do so. 
Others simply feel the doctrine of caveat emptor is a perfectly 
acceptable and legitimate creed to follow in doing business and if 
people don't protect themselves, they have no one to blame but 
themselves if they fall prey to someone smarter. Cramming \1\ and 
slamming \2\ are two of the most prevalent forms of consumer scams in 
the telecom industry. While slamming is not so much of a problem with 
cell phones, certainly cramming continues to be an issue. Furthermore, 
long and complicated cell phone contracts routinely used by the 
carriers setting out a consumer's obligation to the cell phone company, 
usually for several years, are the norm and provide fodder for 
mischief, intentional and unintentional.
---------------------------------------------------------------------------
    \1\ ``Cramming'' refers to ``charging a consumer for services that 
were not ordered, authorized or received.'' Brittan Communications 
Int'l. Corp. v. Southwestern Bell Tel. Co., 313 F.3d 899, 902 n. 2 (5th 
Cir. 2002).
    \2\ ``Slamming'' is ``generally recognized as `the illegal practice 
of changing a consumer's telephone service without permission.' '' 
Lovejoy v. AT&T Corp., 111 Cal.Rptr.2d 711, 714 n. 1 (Cal. App. 2001), 
citing FCC Consumer Facts.
---------------------------------------------------------------------------
    NASUCA has become increasingly concerned with the efforts of the 
wireless and VoIP industries to persuade the FCC that it should assume 
total enforcement authority over all business practices of its members 
and totally preempt states that enact or enforce consumer protection 
laws applicable to the way those same companies do business in those 
states. NASUCA is even more concerned with the apparent success those 
industries have had as evidenced by the FCC's recent unilateral bold 
assertion it is to be the sole enforcer of consumer protection laws in 
the telecom industry, to the exclusion of the states. See, I/M/O Truth-
in-Billing and Billing Format: National Association of State Utility 
Consumer Advocates' Petition for Declaratory Ruling Regarding Truth-in-
Billing, Second Report and Order, Declaratory Ruling, and Second 
Further Notice of Proposed Rulemaking, CC Docket No. 98-170 & CG Docket 
No. 04-208, FCC 05-55 (Rel. March 18, 2005 (``Second FNPRM''). A 
summary of the Second FNPRM was published in the Federal Register on 
May 25, 2005. See 70 Fed. Reg. 29979.
    The FCC asserts it has the authority to preempt states from 
enacting and enforcing industry-specific laws passed to protect that 
state's consumers from the various scams and schemes imaginative con 
artists will always devise. Assertions that are based on the FCC's 
agreement with the wireless and VoIP industries that cell phone and 
VoIP providers are nationwide in their scope of business (which is 
true) and it is too cumbersome for these nationwide providers to have 
to comply with numerous and allegedly different state laws governing 
their conduct (which is not true). \3\ Assertions, we feel, that do a 
grave disservice to consumers.
---------------------------------------------------------------------------
    \3\ See, e.g., Second FNPRM at para. 52 ``We believe that limiting 
state regulation of CMRS and other interstate carriers' billing 
practices, in favor of a uniform, nationwide, Federal regime, will 
eliminate the inconsistent state regulation that is spreading across 
the country, making nationwide service more expensive for carriers to 
provide and raising the cost of service to consumers.''
---------------------------------------------------------------------------
    In fact, the FCC's position is that not only does it have the 
authority to preempt states from regulating wireless rates, it also has 
the authority to preempt state consumer protection statutes dealing 
with ``non-rate'' items on the ground ``there are clearly discernable 
Federal objectives that may be undermined by states' `non-rate' 
regulation of CMRS carriers billing practices.'' Second FNPRM at para. 
50. This assertion by the FCC contradicts Congress' clear statement 
otherwise.
    It is our concern the FCC has unilaterally attempted to take its 
authority to a place Congress has not yet been willing to go--uniform 
national standards applicable to all of the business practices of 
wireless and VoIP carriers that will virtually eliminate the states' 
traditional consumer protection role as to these telecommunication 
technologies. This attempt not only intrudes on traditional rights of 
the states to determine their own consumer protection laws, but also 
intrudes on this body's right to balance the various and diverse public 
interests and to determine whether uniform national standards in these 
areas are, as a matter of public policy, necessary. A solitary Federal 
agency should not have that authority.
    The courts have held the states have an important interest in 
enforcing their consumer protection statutes, an interest that has been 
recognized by the Supreme Court of the United States. See, e.g., Cedar 
Rapids Cellular Telephone, L.P. v. Miller, 280 F.3d 874, 880 (8th Cir. 
2002), citing Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n 
of New York, 447 U.S. 557, 563, 65 L.Ed.2d 341, 100 S.Ct. 2343 (1980). 
The courts have also observed that Congress has given the states ``some 
latitude to `protect the public safety' and `safeguard the rights of 
consumers.''' Cedar Rapids Cellular, 280 F.3d at 800, citing 47 U.S.C. 
Sec. 253(b).
    The broad constitutional underpinning of preemption is the 
Supremacy Clause of the United States Constitution. Clearly, laws 
passed by Congress preempt conflicting state laws. Where there is no 
conflict, however, dual sovereignty allows complementary state and 
Federal laws to exist. Furthermore, the presumption is that Congress 
does not intend to preempt state law, unless it speaks with clarity 
otherwise.
    Nothing in the Constitution, the Act, judicial precedent or the 
telecommunications industry supports the broad preemption asserted by 
the FCC in the Second FNPRM. State commissions have long regulated the 
billing practices of local, interexchange and wireless carriers, in 
order to ensure that those practices are fair, reasonable, lawful, 
nondiscriminatory, etc. under terms of state law. These regulations 
have existed alongside Federal regulatory, or deregulatory, policies 
and rules.
    According to the FCC, such state regulations must now be preempted 
in order to achieve its goal of promoting competition. The FCC does not 
discuss what changes in the law compel this sweeping change in 
regulatory policy. The FCC cites no expression of Congressional intent 
or any particular provision of the Act in support of its conclusions. 
In fact, the expressions of Congressional intent in the 1993 amendments 
to 47 U.S.C. Sec. 332(c)(3)(A) contradict the FCC's conclusions. 
Section 332(c)(3)(A) expressly preserves to states jurisdiction over 
``other terms and conditions'' of wireless service. The legislative 
history of the section provides strong evidence of Congress' intent 
that preemption of state jurisdiction over commercial mobile services 
was meant to be limited, and that the reservation of jurisdiction to 
the states should be widely, not narrowly interpreted. Nothing has 
changed the legal backdrop against which the FCC's order was issued.
    In fact, the FCC's stated rationale for the desirability of a 
uniform national standard--wireless is an national industry and 
therefore should not be subject to a myriad parochial state interests--
is a rationale without substance. The question is not whether the 
wireless industry is a national industry--it is, as is the banking 
industry, the insurance industry, the trucking industry, the drug 
industry, the tobacco industry, the credit industry and a host of 
others. The question is, do states have a legitimate interest in 
crafting their own consumer protection laws regarding wireless and VoIP 
in areas not otherwise reserved by the Federal Government, such as 
rates and entry into the market as explicitly reserved in 47 U.S.C. 
Sec. 332(c)(3)(A)? Clearly, the answer is yes. States have long 
protected their citizens in whatever unique ways they desire, ranging 
from contract terms that were, in their judgment, onerous or necessary 
or from business practices they deemed not desirable. For instance, 
most states have unique laws governing credit terms of national 
companies and unique franchise terms that must be in (or out of) 
national franchise agreements in their states.
    Those requirements exist alongside Federal laws governing the same 
fields--federal laws that are usually a floor. Yet Congress, or the 
Federal agencies regulating those areas, have not felt the need to 
preempt the states from enacting those laws, even though they usually, 
to some degree or another, force ``national'' industries to craft their 
dealings with one states' citizens in a manner different than their 
dealings with those of another state. And, if asked, most executives in 
those national industries would undoubtedly say they also would prefer 
not having to deal with 50 different state laws. Yet they do and they 
survive and make a profit, usually. If they don't, it's not because of 
the difficulty with complying with different state laws by the national 
headquarters.
    The manner in which a person makes a telephone call should not be 
dispositive of whether that person's state consumer protection laws 
apply to the carrier providing the service. If that person enters into 
a contract with a wireless, wireline or VoIP provider, the state has a 
legitimate interest in assuring that its citizens will be treated 
fairly and not taken advantage of--just like the state has a legitimate 
interest in assuring its citizens will be treated fairly with respect 
to their need to have insurance, banking, credit terms and the like.
    Not only is the FCC's unilateral assumption of power 
constitutionally suspect, there are very real and practical negative 
considerations flowing from its unilateral preemption fiat. Those 
problems were summed up by FCC Commissioner Michael Copps in his 
separate statement in the FCC's rulemaking in this matter:

        In the six years since adoption of our truth-in-billing 
        requirements, I cannot find a single Notice of Apparent 
        Liability concerning the kind of misleading billing we are 
        talking about today. . . . Yet in the last year alone, the 
        Commission received over 29,000 non-slamming consumer 
        complaints about phone bills.

    Second FNPRM, separate statement of Commissioner Michael J. Copps. 
How is the FCC going to investigate the thousands of complaints it will 
receive concerning wireless business practices? I can't say it anymore 
eloquently than did Commissioner Copps: ``I'm afraid consumers will 
remember that when they called this Commission for help understanding 
their bills, we hung up.'' Id.
    States play a vital role in protecting their citizens from the 
unscrupulous in ways they deem appropriate for that state. No doubt, 
wireless and VoIP providers would prefer not to have to deal with 50 
separate state attorneys general or public utility commissions 
enforcing their statutes protecting their consumers. \4\ They would 
much prefer to deal with a single understaffed and overworked Federal 
agency. However, allowing that to occur is a policy decision for this 
body to make--not the FCC.
---------------------------------------------------------------------------
    \4\ In fact, in a 1996 survey, it was noted 19 state PUCs 
(subsequently raised to 22 states), had no authority over wireless. In 
addition, attached to the printed testimony is a spreadsheet of a 
NASUCA survey of complaints filed with the FCC's Consumer and 
Government Affairs Bureau that reveals the majority of wireless 
complaints involved rates, which states are explicitly prohibited from 
regulating.
---------------------------------------------------------------------------
    In your deliberations on this important issue, I hope you will not 
heed the false siren song sung by these industries that only uniform 
Federal laws will allow them to prosper and profit, as did the FCC. 
They should be asked over and over, as has NASUCA: why are your 
industries so different from all the other national industries that 
must comply with dual Federal and state consumer protection laws 
governing their conduct, that you should be treated differently? They 
have had no reasonable answer for us and, I feel confident, they will 
have no reasonable answer for you. Once you ask that question and 
receive the expected answer (more likely nonanswer) I am also confident 
Congress will deem it not advisable to preempt state consumer 
protection laws applicable to these industries.
    Thank you for this opportunity to testify. I would be happy to 
address any questions.



    The Chairman. Thank you very much. Our next witness is 
Michael Altschul, Senior Vice President, General Counsel of 
CTIA, The Wireless Association of Washington, D.C. Mr. 
Altschul.

         STATEMENT OF MICHAEL F. ALTSCHUL, SENIOR VICE 
         PRESIDENT/GENERAL COUNSEL, CTIA, THE WIRELESS 
                    ASSOCIATION'

    Mr. Altschul. Thank you, Chairman Stevens and Senator 
Lautenberg for holding this hearing. I am Michael Altschul, the 
Senior Vice President, General Counsel of CTIA, The Wireless 
Association'. We represent all sectors of the 
wireless communications industry which includes carriers, 
manufacturers and the companies that provide wireless data 
services. We appreciate the opportunity to discuss the 
industry's views on municipal networks and the role of Federal 
and local government in connection with communications 
regulation.
    With your permission, I'd like to submit my written 
statements for the record and focus my remarks on a few key 
points. While CTIA has taken no position on the issue of 
whether municipal-sponsored networks should be restricted, we 
strongly believe that local governments should not be allowed 
to impede competition through discriminatory regulations, 
discriminatory taxes and discriminatory access to rights-of-way 
and other facilities needed for wireless antennas. No 
municipality or state or other local government should be 
allowed to favor one wireless broadband services competitor 
over another, especially their own. Commissioner Sahr pointed 
out that before the FCC at the moment is a dispute involving 
Logan Airport which seeks to create a monopoly on WiFi 
provision and prevent other service providers from providing 
broadband service to the facility. That simply should not be 
permitted.
    Today, wireless broadband service is being provided 
competitively using both licensed and unlicensed spectrum with 
typical speeds of 400 to 700 kilobits per second, which is 
approximately ten times faster than dial-up Internet access. 
While municipal-sponsored broadband networks are focused using 
unlicensed spectrum and WiFi technology, the Nation's wireless 
carriers have used their licensed spectrum to deploy third 
generation services called 3G services offering DSL-like speeds 
in hundreds of markets, and they're aggressively expanding 
their broadband coverage to hundreds more.
    While CTIA's members have deployed these broadband 
technologies in the Nation's largest cities, many small towns 
and communities across America also have this service. Alaska 
Communications System offers its ACS mobile broadband and EV-DO 
service everywhere that it provides a wireless voice coverage 
in the state of Alaska. Midwest Wireless, headquartered in 
Mankato, Minnesota, provides broadband wireless Internet 
services to more than 20 small communities in the upper 
Midwest.
    Another CTIA member, Cellular South, offers EV-DO service 
in Starkville, Mississippi, a town of approximately 20,000 
citizens. It is clear from these examples that competitive 
wireless broadband services can be provided to large and small 
communities by multiple service providers using licensed and 
unlicensed spectrum and different technologies. Congress's goal 
should be to facilitate the efficient employment of competitive 
broadband services. Accordingly, we support adoption of a 
uniform national deregulatory framework as the best means to 
achieve this goal. Unlike copper loops, radio waves can't be 
made to stop at a state's border. Cellular and PCS licenses 
typically encompass more than one state in a single area. And 
as the FCC already has determined, packets race through the 
Internet without regard to the geographic endpoints of the 
communication.
    Because these broadband Internet services are interstate in 
nature, and because wireless services are provided to consumers 
without regard to geographic boundaries, the national framework 
will best allow the facilitation of consistent protections for 
consumers of broadband services. We believe that all providers 
of wireless broadband service should be subject solely to 
Federal regulation because a balkanized regulatory framework 
with as many as 51 different sets of rules and requirements 
would frustrate consumers and needlessly burden carriers.
    Courts have long recognized that where it is impractical or 
impossible to identify traffic as interstate or intrastate, 
Congress and the FCC may regulate such services as interstate. 
In the past, the FCC found the traffic bound for information 
service providers as properly classified as interstate because 
the intrastate component cannot be separated from the 
interstate. The same rationale applies to wireless broadband 
services provided by CMRS carriers.
    State rules make no sense when wireless bills are sent via 
the Internet to electronic mailboxes and not to a brick and 
mortar location with a state and local address. And how do any 
one state's rules apply when wireless consumers subscribe to 
family plans that offer all members of a household wireless 
service for a single monthly bill? In many households, the kids 
are in college across the country, and the parents are often 
away from home. What state has jurisdiction over a complaint 
involving a child at college that's in a different state than 
the location where the bill comes?
    Moreover, IP-based services do not have geographic 
endpoints, nor do consumers care that the information they are 
accessing over the Internet may be stored on servers and 
computers in another state. For competitive services that 
operate without regard to jurisdictional boundaries, exclusive 
Federal regulation makes the most economic sense. Allowing 
state and local governments to regulate national markets 
increases the cost associated with advertising, pricing and 
regulatory compliance and accordingly can hinder deployment and 
consumers' access to the benefits these services offer.
    Increasingly, CMRS carriers have announced dual-mode 
devices and services that allow customers to use either 
licensed CMRS spectrum or unlicensed WiFi spectrum to connect 
to the Internet using a single wireless device. In this hybrid 
environment, consumers will not know or care whether their 
wireless applications are being provided over a cellular or PCS 
network or through an unlicensed WiFi or WiMax link to the 
Internet. Just as broadband services will be provided 
seamlessly to wireless users, consumers need a seamless 
regulatory structure that provides uniform rights and 
expectations regardless of whether their broadband applications 
are delivered over licensed or unlicensed spectrum.
    The growth of these hybrid-converged services also 
highlights the need for a national framework. Where a service 
provider offers a converged service that allows customers to 
access the network over a variety of technology platforms using 
a single device, consumers should be provided a seamless 
experience by a policy of regulating down to the least 
regulated element of that service. This approach will minimize 
consumer confusion about the rights and responsibilities that 
attach to the services they purchase. In instances like this, 
the technology or spectrum band being utilized to offer the 
service makes no difference to the user.
    CTIA firmly believes that regulating a converged service on 
the basis of a more heavily regulated technology will 
needlessly burden and deter the development and deployment of 
innovative more efficient services. On the other hand, adoption 
of a ``regulate down'' uniform national framework will 
facilitate the rapid deployment of these new devices and 
services. With that, Mr. Chairman, I thank you for the 
opportunity to testify.
    [The prepared statement of Mr. Altschul follows:]

   Prepared Statement of Michael F. Altschul, Senior Vice President/
      General Counsel, CTIA, The Wireless Association'
    Good morning Chairman Stevens and Co-Chairman Inouye, and 
distinguished Members of the Committee. I am Michael Altschul, Senior 
Vice President and General Counsel at CTIA, The Wireless 
Association'. CTIA is the international organization that 
represents all sectors of the wireless communications industry: 
wireless carriers, manufacturers, and data companies. I am privileged 
to appear before you today to discuss the wireless industry's views on 
municipal networks and the role of Federal, State, and local government 
in connection with communications regulation. While CTIA has taken no 
position on the issue of whether municipal-sponsored networks should be 
restricted, I appreciate this opportunity to discuss the appropriate 
role of Federal, State, and local government in the digital world.
    Given the clear social and economic benefits of ubiquitous 
broadband Internet access, we need a regulatory environment that will 
facilitate the continued growth of these broadband networks. Wireless 
broadband is poised for explosive growth. To avoid hobbling this 
growth, Congress must ensure that wireless broadband is subject to a 
Federal regulatory framework that is deregulatory in scope, regardless 
of the technology used. Broadband providers should be subject solely to 
Federal regulation because wireless broadband services are consumed 
without regard to geographic boundaries. A balkanized regulatory 
framework will only burden this nascent industry, frustrate consumers 
and dampen the deployment of new and innovative technologies. CTIA 
strongly believes that broadband providers should be regulated with a 
light regulatory touch, if at all.
    It is inappropriate to impose burdensome regulations upon wireless 
broadband providers at this time. The goal of broadband regulation, if 
needed at all, should be to facilitate the efficient deployment of 
broadband Internet access services and policymakers must ensure they do 
not discourage the deployment of wideband technologies. A uniform 
deregulatory framework should be adopted which will allow new and 
innovative broadband services to flourish. Moreover, because broadband 
Internet access services are inherently interstate in nature, they 
should be regulated only at the Federal level, if regulation is deemed 
necessary. CTIA firmly believes that regulation of broadband services 
market should be limited to instances of market failure, and specific 
consumer protection standards should be mandated only where it is clear 
the market has not produced satisfactory results.
Wireless Broadband Services Are Being Deployed At a Rapid Pace
    Over the past few years, wireless licensees have made significant 
investments to deploy next generation technologies across the country. 
The rise of IP-based networks and the proliferation of wireless data 
services has changed the dynamics of the telecommunications market. 
Broadband services, especially wireless broadband, are exploding across 
the country. Specifically,

   Verizon Wireless has launched a broadband network based on 
        evolution data only (EV-DO) technology available in 171 
        metropolitan markets covering more than 140 million people;

   Sprint Nextel began to roll out its EV-DO technology in mid-
        2005 and now offers wireless broadband services in 208 markets;

   In December, Cingular Wireless announced that subscribers 
        could access its BroadbandConnect service through Cingular's 
        new 3G network;

   Alltel offers its Axcess Broadband service, which provides 
        data rates comparable to wired broadband, in nine metropolitan 
        areas;

   In addition to its extensive network of wireless hotspots, 
        T-Mobile offers mobile Internet access though its GPRS service; 
        and

   According to CTIA's semi-annual wireless industry survey, as 
        of mid-2005, half of all wireless customers had mobile devices 
        that were capable of web-browsing.

    Wireless companies are also deploying broadband technologies 
designed for ``fixed'' devices. These developments illustrate the rapid 
pace at which the wireless industry is moving to expand the benefits of 
broadband services to all Americans:

   Clearwire and Intel have teamed to deploy devices based on 
        Wi-MAX technology that will allow for city-wide wireless 
        broadband Internet access; and

   Sprint and Samsung are working on next-generation wireless 
        networks that use the IEEE 802.16e standard (Wi-MAX).

    Cable and other wireline broadband providers are deploying 
broadband as well:

   In the third quarter of 2005, cable modem service and 
        wireline DSL had increases of 1.2 and 1.4 million subscribers 
        respectively;

   In December, BellSouth introduced its new FastAccess DSL 6.0 
        Internet service with download speeds of up to 6 Mbps;

   Verizon is currently offering its new FiOS Internet Service 
        over its fiber to the premises (FTTP) network, which provides 
        download speeds of up to 5, 15, and 30 Mbps; and

   Comcast announced a 24.2 percent increase to its high-speed 
        Internet subscribers in the third quarter of 2005, resulting in 
        a 19.9 percent penetration rate among its cable subscribers.

    Because radio waves don't stop at a state border, and because 
packets race through the Internet without regard to the geographic end 
points of the communication, wireless broadband services are provided 
to consumers without regard to geographic boundaries, and are, 
therefore, inherently interstate in nature. A deregulatory national 
framework will allow for the facilitation of consistent protections for 
consumers of broadband services, thus maximizing the benefits for 
customers.
    IP networks are not typically configured to identify the 
originating or terminating point of a data packet. Broadband services 
offer end users the benefit of mobility and the ability to utilize a 
service or application from any point on the public Internet. Consumers 
are able to access information from servers and computers that often 
are in other states and countries. Additionally, IP networks generally 
do not send data packets over the same routes; rather the information 
is sent over multiple paths and compiled at the end-point.
    Where it is impractical or impossible to identify traffic as 
interstate or intrastate, Congress and the FCC may regulate such 
services as interstate. In the past, the FCC found that traffic bound 
for information service providers is properly classified as interstate 
because the intrastate component cannot be separated from the 
interstate. The same rationale applies to broadband Internet access 
traffic, particularly CMRS broadband traffic.
    National CMRS carriers have announced plans to introduce dual mode 
CMRS/WiFi devices and services. For example, Qualcomm has announced 
that it is teaming up with networking silicon vendor Atheros 
Communications on a reference design for dual-mode cell and WiFi 
phones. T-Mobile is also launching two styles of WiFi phones: the SDA 
and the MDA. Both devices offer speeds around 70 to 135 kilobits per 
second, have Bluetooth connectivity, a 1.3 megapixel camera and MP3 
players, and both use the Windows Mobile 5.0 operating system. In this 
hybrid environment, consumers will not know, or care, whether their 
wireless applications are being provided over a licensed CMRS network, 
or an unlicensed WiFi or WiMax link to the Internet. Just as broadband 
services will be provided seamlessly to wireless users, consumers need 
a seamless regulatory structure that provides uniform rights and 
expectations regardless of whether their broadband application was 
delivered over licensed or unlicensed spectrum.
A Deregulatory National Framework Will Facilitate Consistent Consumer 
        Protection
    For services such as broadband that operate without regard to 
jurisdictional boundaries, exclusive Federal regulation makes the most 
economic sense. This is best illustrated by Federal regulation of the 
CMRS industry. Under a deregulatory Federal framework the wireless 
industry has experienced explosive growth. Since 1985, the total number 
of CMRS subscribers has increased from roughly 200,000 to over 200 
million while the average monthly bill has dropped from $95 to under 
$50. This growth and resulting consumer benefits have occurred in an 
environment free from cumbersome and inconsistent state-by-state 
regulations.
    Professor of Law & Economics, Thomas W. Hazlett has said that 
decentralized regulations are not effective ``[w]hen economic realities 
dictate that production of goods is efficiently done across 
jurisdictions (i.e., economies of scale stretch beyond state 
borders).'' Allowing states and local governments to regulate national 
markets increases the costs associated with advertising, pricing, and 
regulatory compliance. Thus, a balkanized regulatory framework 
increases the costs of deploying new and innovative services and can 
hinder consumers' access to the benefits of technical advancements.
    In order for America to remain competitive in an increasingly 
global economy, the United States must work to promote the deployment 
of broadband services across a multiplicity of technological platforms. 
Broadband penetration in the United States is growing, but that growth 
would be threatened by an uncertain regulatory regime, especially a 
regulatory regime with multiple state regulations or state 
interpretation of Federal regulations. Congress can best facilitate the 
advancement of emerging broadband technologies by facilitating the 
development of a consistent national framework for broadband Internet 
access services.
The Broadband Market Should Be Regulated With a Light Regulatory Touch
    Consumers have multiple choices for their broadband needs. They may 
choose to obtain access to the IP network over DSL lines, cable modem 
service, or wireless providers that have deployed a variety of 
technologies in both licensed and unlicensed spectrum bands. The 
ability of consumers to choose their broadband provider from a variety 
of technology platforms and from different carriers within those 
platforms has provided the appropriate competitive incentives for 
broadband providers and facilitated the deployment of broadband 
services. Although there is a legitimate interest in protecting 
consumers, sound public policy requires that intervention is necessary 
only where the market has not sufficiently protected consumers.
    Instead of using different devices for different voice, data, or 
video services, many consumers increasingly demand one-stop access to 
voice, data, and video services of their choice over the same device or 
a set of integrated devices utilizing the best available network 
infrastructure--whether that is, for example, mobile wireless or WiFi 
connectivity. The growth of these hybrid converged services highlights 
the need for a deregulatory national framework for all broadband 
services. Where a service provider offers a converged service that 
allows customers changing locations to access the network over a 
variety of technology platforms, consumers should be allowed a seamless 
experience by a policy of ``regulating down'' to the least regulated 
element of that service. This approach will minimize consumer confusion 
about the rights and responsibilities that attach to services they 
purchase. From the consumer's perspective, the technology utilized to 
offer service does not make a difference. Thus, seamless regulation 
across multiple broadband platforms should be allowed.
    For example, if a consumer were to use a handset with CMRS voice 
capabilities along with WiFi technology, that handset could work 
seamlessly between the consumer's cellular or PCS service and a 
broadband service provided over a wireless router and a wireline 
broadband connection in the home. From the consumer's perspective, as 
he or she steps five feet from the house, and switches from a WiFi 
network to a cellular network, there is no difference in the service 
that is being offered. Consumer electronic manufacturers are working to 
develop such technologies, which will allow for customer equipment to 
use the most efficient system available to provide service. The 
adopting of a ``regulate down'' framework will facilitate the rapid 
deployment of these devices. CTIA firmly believes that regulating a 
converged service on the basis of the more heavily regulated technology 
will often burden and deter the development and deployment of seamless, 
efficient services.
Competition Is Providing the Incentives for Broadband Providers to Meet 
        Consumers' Needs
    A competitive market is the best tool for promoting social policy 
goals, and the broadband industry is poised for an explosive increase 
of competition among and between technology platforms. Robert W. 
Crandall of The Brookings Institution has said that competition between 
cable companies and incumbent telephone companies ``has a statistically 
significant positive effect on overall broadband penetration in the 
United States.'' Added to this, wireless broadband services, whether 
fixed, mobile, or satellite, are emerging as viable competitors for 
broadband subscribers. Telephone companies are investing heavily in 
fiber to the home (FTTH). At the same time, the wireless industry is 
investing in new technologies such as Orthogonal Frequency Division 
Multiplexing (OFDM), Wideband Code Division Multiple Access (WCDMA), 
EV-DO and others, to increase the potential for new and beneficial 
services for consumers.
    Heavy handed regulation of the broadband market will deter 
investment in new technologies and thus delay the consumer benefits 
that flow from innovative services and technologies. Analysts have 
estimated the benefits of universal broadband to Americans to be as 
high as $300 billion a year. Beyond the every day benefits, ubiquitous 
broadband services have great potential to help the elderly and those 
with disabilities. If the deployment of broadband services are delayed 
or reduced by burdensome regulations, the benefits of universal 
broadband service will be drastically reduced.
    Congress has established that it is the policy of the United States 
to promote the development of the Internet and preserve the ``vibrant 
and competitive'' Internet market. The FCC has recognized that it can 
best serve the public interest by allowing market conditions to drive 
the development of the broadband industry. CTIA has urged the FCC, and 
urges Congress to continue to promote a competitive market for Internet 
services by developing a deregulatory national framework for broadband 
Internet access services.
    There are many benefits that competition brings to the protection 
of consumer interests. The deregulatory approach Congress and the FCC 
established for the CMRS industry has promoted competition and 
benefited consumers. A light regulatory framework for the broadband 
industry could achieve similar results. Like the wireless industry, the 
broadband industry is a nascent market and highly competitive, within 
and across multiple technology platforms. Although growth of broadband 
services in the United States has been impressive, there remains 
significant room for additional growth in the coming years. Just as 
with the CMRS experience, broadband service growth has occurred in an 
environment of minimal regulation. Now is not the time for cumbersome 
and overlapping regulatory mandates. A light regulatory touch will spur 
competition and best ensure that consumers will continue to have a 
variety of carriers and innovative new services to choose from in the 
expanding broadband marketplace.
Conclusion
    CTIA and the wireless industry support a uniform national 
deregulatory framework for all broadband Internet access services, 
regardless of the underlying technology. This legislative and 
regulatory approach will ensure the continued deployment of new and 
innovative services utilizing the most efficient technologies 
available. Thank you for this opportunity to discuss the effects of 
Federal and state regulation on broadband networks and the potential 
impact on competition and consumers.

    The Chairman. Thank you very much. Our next witness is 
Donald Berryman, President of Municipal Networks, EarthLink, 
Inc. of Washington, D.C. Oh, you're first, Mr. Boone, pardon 
me. Douglas Boone, Chief Executive Officer, Premier 
Communications, Sioux Center. Pardon me.

STATEMENT OF DOUGLAS A. BOONE, CHIEF EXECUTIVE OFFICER, PREMIER 
                         COMMUNICATIONS

    Mr. Boone. Thank you, Chairman Stevens and Senator 
Lautenberg and Members of the Committee. I am Douglas A. Boone, 
Chief Executive Officer of Premier Communications headquartered 
in Sioux Center, Iowa. I appreciate the opportunity to appear 
before you today, both in my capacity as the CEO of Premier as 
well as on behalf of the United States Telecom Association.
    Mr. Chairman, thank you for holding this hearing today and 
for your strong support for companies serving rural America. 
While we recognize the concern and sometimes the perceived need 
for government-owned networks, we are concerned about the 
ramifications of a one-size-fits-all solution across the 
country. This is an issue that should be left to the states and 
local government to work out between themselves. I hope the 
testimony I offer here today will serve as a cautionary note to 
those who would use Federal legislation to provide local 
governments with a blank check to enter lines of business 
traditionally served by the private sector.
    I would like to spend a few minutes describing a situation 
we are facing in Sanborn, Iowa, a community we have well served 
for almost 40 years. In this rural community of 1,300 people, 
Premier has experienced firsthand the effects of a local 
municipality building a network redundant to ours and then 
being forced to compete with that municipality for the same 
customers. The simplest way to measure this impact is that over 
the past 4 years, we have lost nearly 50 percent of our 
subscribers. Did we lose these customers because we were not 
providing the voice and data services customers wanted or 
because we were overpricing our services? Absolutely not. The 
services we provided at the time and continue to provide are 
second to none, and the rates charged were fair and well below 
the rates being charged in surrounding communities. However, 
that did not stop local government representatives from making 
insinuations of raised taxes if the citizens did not take the 
municipal services. Obviously, this would be very persuasive to 
many customers.
    I understand that competition is good. We are seeing its 
effects in every sector of the industry. However, for 
competition to be truly effective, the playing field must be 
reasonably level. This is extremely difficult when setting the 
private sector networks against the government-funded networks. 
The most obvious inconsistency between private and public 
sector networks is in the area of taxes. As a private company, 
we pay the local, state and Federal taxes. These account for 
more than 40 percent of our profits. Our taxes support the 
workings of government, law enforcement, social programs, 
education and national defense. We accept that as our corporate 
responsibility. Local governments do not pay taxes. It is 
difficult to compete when the local municipality starts out 
with a 40 percent discount.
    Another major inconsistency between private and public is 
in the geographic areas they serve. For 100 years, Premier 
Communications has served all customers, whether in the city or 
in the rural areas surrounding our communities. The government 
networks have stated they have no intention of serving the 
rural areas because of the high cost of providing service. We 
have accepted that responsibility, but will not be able to 
continue to do this if we lose the customer base in our 
communities to local government networks. At the Iowa State 
Legislature, there is always a great deal of debate on economic 
development. I find it interesting that with all this talk of 
economic development and wondering how we can support small, 
rural communities, the city of Sanborn would prefer that we 
exit the market and leave millions of dollars in stranded 
network investment.
    It is somehow forgotten that Premier has employees that 
have lived, worked and shopped in Sanborn for decades. The 
reality is that local government has no real choice. Once a 
local network is built and the investment has been made, they 
must do whatever it takes to make it financially viable no 
matter whom it may harm. Rural Iowa has witnessed tremendous 
growth in telecommunication services in recent years thanks to 
private providers like Premier who have invested and risked 
millions of dollars to upgrade their networks and technology. I 
believe private companies are committed to investing in the 
networks, but may be reluctant to do so if the threat of local 
government network overbuilding continues.
    I understand there are legitimate questions about providing 
broadband service in rural and underserved areas. In place of 
legislation that simply waives any state rule in these 
decisions, let me offer three recommendations. First, promote 
broadband in rural and underserved areas by strengthening and 
stabilizing Universal Service making broadband investment 
eligible for USF support. Second, ensure adequate resources are 
available to USDA rural utilities programs that help private 
communications carriers enhance the services they provide to 
rural communities. Last, where government entity enters a 
market served by the private sector, ensure it cannot do so in 
an anti-competitive manner that discourages private investment. 
Thank you.
    [The prepared statement of Mr. Boone follows:]

   Prepared Statement of Douglas A. Boone, Chief Executive Officer, 
                         Premier Communications
    Mr. Chairman, Co-Chairman Inouye and Members of the Committee, I am 
Douglas A. Boone, Chief Executive Officer of Premier Communications, 
headquartered in Sioux Center Iowa. I appreciate the opportunity to 
appear before you today both in my capacity as the CEO of Premier as 
well as on behalf of the United States Telecom Association (USTelecom), 
regarding government-owned networks and their impact on rural companies 
like ours.
    USTelecom is the premier trade association representing service 
providers and suppliers for the telecom industry. USTelecom's 1,200 
member companies offer a wide range of services, including local 
exchange, long distance, wireless, Internet, Internet Protocol video 
and telephony and cable television service. Our membership ranges from 
the smallest rural telephone companies to some of the largest 
corporations in the U.S. economy.
    Premier Communications is the communications leader of voice, video 
and data services in northwest Iowa. We have the privilege of providing 
services in 18 rural communities throughout northwest Iowa. Our 
extensive fiber optic network allows Premier Communications to offer 
the best in cable television programming, high speed Internet services, 
local and long distance telephone and high capacity data and voice 
circuits.
    Mr. Chairman, thank you for holding this hearing today, and for 
your strong support for companies serving rural America. The 
familiarity of you and other Committee Members with rural America is 
particularly important on this issue. You know that ``examples'' from 
major cities are not always relevant in rural America.
    While we recognize the concern, and sometimes the perceived need, 
for government-owned networks, we are concerned about the ramifications 
of a federally imposed standardized, one-size-fits-all, solution across 
the country. This is an issue that should be left to the states and 
localities to work out between themselves. I hope the testimony I offer 
here today will serve as a cautionary note to those who would use 
Federal legislation to provide local governments with a blank check to 
enter lines of business traditionally served by the private sector.
    Government owned networks are not akin to other public utilities. 
In fact, government networks are more akin to City Hall opening a chain 
of grocery stores or gas stations. They typically require heavy 
taxpayer subsidization, which minimizes any net benefit to local 
residents. They also benefit from tax advantages and regulatory 
exemptions that do not apply to private firms. Because they are not 
subject to the pressures and stresses of the marketplace, they often 
neglect innovation, which leads to technological stagnation over time. 
As a general principle, bear in mind that building out existing 
networks is far more cost-effective than building an entire network 
from the ground up and maintaining and upgrading it over time.
    I would like to spend a few minutes describing a situation we are 
facing in Sanborn, Iowa, a community we have served for almost 40 
years. In Sanborn, Premier has experienced first hand the effects of a 
local municipality building a network that was redundant to ours and 
then being forced to compete with that municipality for the same 
customers. In this case, a very small customer base of 1,000.
    The simplest way to measure this impact is that over the past 4 
years we have lost almost 50 percent of our subscribers. Did we lose 
these customers because we were not providing the services customers 
wanted or because we were overpricing our services? Absolutely not. The 
services we provided at the time and continue to provide are second to 
none and the rates charged were fair and well below the surrounding 
communities. However that did not stop local government representatives 
from making insinuations of raised taxes if the citizens did not take 
the municipal services. Obviously this would be very persuasive to many 
customers.
    I understand that competition is good. We are seeing its effects in 
every sector of the industry. However, for competition to be truly 
effective the playing field must be reasonably level. This is extremely 
difficult when setting the private sector networks against the 
government funded networks.
    The most obvious inconsistency between the private and public 
sector networks is in the area of taxes. As a private company we pay 
local, state and Federal taxes. These account for more than 40 percent 
of our profits. Our taxes support the workings of government, law 
enforcement, social programs, education and national defense. We accept 
that as our corporate responsibility. Local governments do not pay 
taxes. It is difficult to compete when the local municipality starts 
out with a 40 percent discount. As a matter of fact a representative 
from the City of Sanborn said local government does not need to show a 
profit as long as they can pay off the debt on the network they built. 
That attitude may work for a short while but it will not serve the 
customer very well in the long run because deployment of new 
technologies and upgrades to infrastructure must come out of profits.
    Another major inconsistency between private and public is in the 
geographic areas they serve. For 100 years Premier Communications has 
served all customers, whether in the city or in the rural areas 
surrounding our communities. The government networks have stated they 
have no intention of serving the rural customers because of the high 
cost of providing service. We have accepted that responsibility but 
will not be able to continue to do this if we lose the customer base in 
our communities to local government networks.
    At the state legislature in Iowa there is always a lot of debate on 
economic development. I find it interesting that with all this talk of 
economic development and wondering how we can support small rural 
communities that we face a situation in Sanborn were we are being told 
we are not wanted. The municipality would prefer that we would just 
exit the market and leave millions of dollars in stranded network 
investment. It is somehow forgotten that Premier has employees that 
have lived, worked and shopped in Sanborn for decades. We have a 
staffed business office in Sanborn that has been open for decades. 
These are things most small rural communities say they want when 
drawing a business into a community. The reality is that the 
municipality has no real choice--once a local network is built and the 
investment has been made they must do whatever it takes to make it 
financially viable--no matter who it may harm.
    Rural Iowa, as in rural areas all across the country, has witnessed 
tremendous growth in telecommunications services in recent years, 
thanks to private providers like Premier who have invested and risked 
millions of dollars to upgrade their networks and technologies.
    Customers will continue to require higher capacity networks to grow 
and adapt to the exciting new personal, entertainment and business 
services that use broadband technologies. Private companies are 
committed to investing in their networks but may be reluctant to do so 
if the threat of municipal network overbuilding continues.
    Many who promote the idea of municipal-owned broadband networks are 
touting their plans as ``no-risk,'' but numerous municipalities around 
the country who bought into the ``no risk'' idea have found themselves 
unable to support and finance the continual and expensive upgrades 
needed to maintain a local network.
    A recent study in my home state of Iowa further confirms Premier's 
experience. Ronald Rizzuto, professor of finance at the University of 
Denver looked at the financial performance of three municipal 
communications systems operating in the areas of Cedar Falls, 
Muscatine, and Spencer, Iowa. Dr. Rizzuto looked at the annual 
financial reports of the three systems to determine whether they were 
paying their debts, if they could function as stand-alone entities, and 
the return on investment that each community achieved on the systems. 
He concluded ``not one of them has generated a positive return on the 
investment.'' Nevertheless, many, if not most, municipal communications 
systems continue to assert that they are cash-flowing. I would also 
note that the state built Iowa Communications Network is struggling 
financially, constantly putting pressure on state government for 
additional funding for continued network upgrades with no hope of a 
reasonable payback.
    In addition, too many local governments are diverting funds away 
from education, public safety, and public works. Marietta, Georgia, 
spent $34 million on its municipal network, only to sell it for a $23-
million loss. Ashland, Oregon, incurred millions in cost overruns. Due 
to these and other concerns, many states have passed legislation 
barring government entities from unfairly competing in the 
communications marketplace. These networks are built at extraordinary 
public cost and often in areas where private networks already exist. 
This deters private investment in local communications infrastructure 
and burdens taxpayers with a large, ongoing expense for a service they 
can obtain in the marketplace.
    There are legitimate concerns about providing broadband service in 
rural and underserved areas. There may be communities, even regions of 
the country, where a stronger government role is needed. Let me offer 
three recommendations in place of legislation that simply waives any 
state role in these decisions:

   First, promote broadband in rural and underserved areas by 
        strengthening and stabilizing universal service, making 
        broadband investment eligible for USF support.

   Second, ensure adequate resources are available to USDA 
        rural utilities programs that help private communications 
        carriers enhance the services they provide to rural 
        communities. I must note the FY07 proposal for the broadband 
        loan program suffered a significant cut, to $356.4 million from 
        a current level of $500 million.

   Lastly, where a government entity enters a market served by 
        the private sector, ensure it cannot do so in an anti-
        competitive manner that discourages private investment. 
        Specific unfair advantages would be unilateral regulatory 
        exemptions, cross-subsidization or tax breaks.

    On behalf of Premier Communications and my fellow members of 
USTelecom, I urge this Committee to avoid inserting itself into 
contentious debates occurring in states and communities across the 
country. There are no easy answers when it comes to promoting broadband 
deployment, and there are many hazards associated with putting 
government into competition with private network operators. The best 
solution is to ease the regulatory burden on private providers so they 
can continue to upgrade and improve their services.

    The Chairman. Thank you very much. And now Mr. Berryman, 
Mr. Donald Berryman, President of Municipal Networks, 
EarthLink, Inc., Washington, D.C.

STATEMENT OF DONALD B. BERRYMAN, PRESIDENT, MUNICIPAL NETWORKS 
                   DIVISION, EARTHLINK, INC.

    Mr. Berryman. Thank you, Mr. Chairman, and Members of the 
Committee. My name is Don Berryman. I am President of 
EarthLink's Municipal Networks Division. EarthLink is the 
Nation's largest independent Internet service provider and a 
publicly traded company headquartered in Atlanta, Georgia. We 
are proud to provide Internet access and services to more than 
5.3 million customers throughout the country.
    Thank you for the opportunity to testify today. I ask that 
my full statement be made part of the record, and I'll 
summarize. EarthLink Municipal Networks was created to design, 
develop and implement new and revolutionary wireless broadband 
services relying on cutting edge WiFi technologies. EarthLink 
will provide affordable high-speed wireless Internet access to 
the citizens, first responders and employees of municipalities 
throughout the Nation, and it will do so at EarthLink's cost, 
at EarthLink's risk and without encumbering cities with the 
cost of the network. President Bush captured the promise of 
this technology in June 2004 when he stated: ``Imagine if 
you're the head of the chamber of commerce of a city and you 
say, our city is a great place to do business, to find work. 
We're setting up a WiFi hotzone which means our citizens are 
more likely to be more productive than the citizens from a 
neighboring community. It's a great opportunity.'' And 
EarthLink agrees. WiFi networks are a great opportunity for 
consumers, municipalities and entrepreneurs.
    And I respectively urge the Members of this Committee to 
embrace policies such as those embodied by S. 1294, the 
Community Broadband Act authored by Senators McCain and 
Lautenberg, that give this new technology a chance. EarthLink 
has already partnered with the city of Philadelphia to build, 
own and manage, at our cost, a wireless network to provide 
broadband to the entire 135 square miles of Philadelphia which 
will be the Nation's largest municipal WiFi network. This is 
not a case of taxpayer-funded competition. It is not funded by 
tax free bonds. EarthLink is not getting special breaks. 
EarthLink is bearing the risk of constructing this network.
    It's most like a cable franchise agreement with the city, 
but instead of TV, EarthLink is providing broadband access. 
EarthLink's partnership with Wireless Philadelphia will help 
bridge the digital divide by subsidizing affordable high-speed 
Internet. EarthLink, after approval by the Philadelphia City 
Council, plans to break ground on a 15-square mile Proof of 
Concept area in April and be fully deployed by spring of 2007. 
Powered by the equivalent of just 600 light bulbs, all 135 
square miles of Philadelphia will be lit by the promise of 
affordable broadband access.
    EarthLink is proposing that we unwire a number of 
municipalities at our cost across America including Anaheim, 
Milwaukee, Houston, Honolulu, Hawaii, and many others. 
EarthLink's approach should also be harnessed to expand 
broadband options in small cities. In rural areas across 
America, EarthLink has developed a Network Alliance program 
with just this goal in mind. Local entrepreneurs know best the 
local consumer and business needs for broadband access and 
services. EarthLink's Network Alliance program will aid these 
local businesses to help expand affordable broadband as far and 
as fast as possible.
    More than a decade ago when commercial wireless networks 
were just starting to get off the ground, this Committee took 
some very smart actions. For example, more spectrum was made 
available ending what had been a wireless duopoly in allowing 
more competitors to enter the marketplace. Your wise actions 
were rewarded with a vibrant, competitive marketplace that 
commercial wireless is today. As a businessman trying to build 
the next generation of wireless networks, I respectfully urge 
this Committee to take the same wise, proactive pro-competition 
course today. Give us the chance to compete. Recognize that in 
this startup phase, there needs to be a strong public-private 
partnership. EarthLink welcomes the entrepreneurial risk. We 
look forward to the challenge of unwiring America's cities and 
towns, and I welcome your questions. Thank you for the 
opportunity to testify.
    [The prepared statement of Mr. Berryman follows:]

Prepared Statement of Donald B. Berryman, President, Municipal Networks 
                       Division, Earthlink, Inc.
    Mr. Chairman and distinguished Members of the Committee, I'd like 
to thank you for the opportunity to testify before you today.
    My name is Don Berryman, and I'm President of EarthLink's Municipal 
Networks Division. EarthLink is a public company headquartered in 
Atlanta, Georgia, we are the Nation's largest independent Internet 
Service Provider. We are proud to provide Internet access to more than 
5.3 million customers throughout the Country.
    EarthLink Municipal Networks was created to design, develop and 
implement new and revolutionary wireless broadband services relying on 
cutting edge WiFi technologies. We will provide affordable high-speed 
wireless Internet access to the citizens, first responders, and 
employees of municipalities throughout the Nation--and we will do so at 
EarthLink's cost, at EarthLink's risk and without encumbering cities 
with the cost of the network.
    President Bush captured the promise of this technology in June 
2004, when he stated: ``Imagine if you're the head of a chamber of 
commerce of a city, and you say, our city is a great place to do 
business or to find work. We're setting up a WiFi hot zone, which means 
our citizens are more likely to be more productive than the citizens 
from a neighboring community. It's a great opportunity.''
    EarthLink agrees. WiFi networks ARE a great opportunity for 
consumers, municipalities and entrepreneurs. And, I respectfully urge 
the Members of this Committee to embrace policies, such as those 
embodied by S. 1294, the Community Broadband Act, authored by Senators 
McCain and Lautenberg that give this new technology a chance, and 
reject those policies that stifle this innovative opportunity before it 
gets a chance to compete.
Municipal WiFi Network Case Study--The Philadelphia Story
    EarthLink was recently selected by Wireless Philadelphia to develop 
and implement what will be the Nation's largest municipal WiFi network. 
Much of my testimony will examine the specifics of our agreement with 
Wireless Philadelphia, but let me also emphasize, that Philadelphia is 
only one example of the many localities EarthLink is working with 
across our Nation.

   EarthLink will deploy and manage a 135 sq. mile wireless 
        network providing broadband Internet to the entire city and 
        county of Philadelphia. Powered by the equivalent of just 600 
        light bulbs, 135 square miles will be lit by the promise of 
        affordable broadband access.

   EarthLink will build, own and manage the wireless network, 
        at no cost to the city, while providing Wireless Philadelphia a 
        revenue share to fund its operation. And, EarthLink has 
        guaranteed network upgrades on an ongoing basis. This is not a 
        case of ``taxpayer funded'' competition, and will not lead to 
        taxpayer funded bailouts. Nor is it funded by tax-free bonds. 
        EarthLink is bearing the risk of constructing this network.

   EarthLink's partnership with Wireless Philadelphia will help 
        bridge the Digital Divide, subsidizing affordable high speed 
        Internet access to low-income households in overlooked 
        neighborhoods.

   This network will serve all the citizens of Philadelphia by 
        providing a competitive alternative to current Broadband and 
        dial-up Internet services--at retail rates at or below the 
        common price of premium dial-up Internet access, with a special 
        rate of about half that for low income households.

   The initial service offering will be a symmetric One Megabit 
        per second (1 Mbps) service, which is about fifty times as fast 
        as a dial-up connection. It's nearly as fast as a typical DSL 
        line for downloads, and is actually faster than most of today's 
        broadband services when uploading data. Once we have the 
        initial service deployed, we expect to offer higher tiered 
        services up to several times that fast, and we will upgrade the 
        network over time so that ever higher speeds are enabled as new 
        technology becomes available.

   EarthLink supports Open Access to third-party Internet 
        service retailers and ``Net Neutrality.'' So, the project will 
        provide opportunities for many local companies to resell 
        broadband access service that they purchase at competitive 
        wholesale rates. As the third broadband entrant in this market, 
        we embrace competition as a way to make use of our network more 
        attractive. And the same is true for ``Net Neutrality.'' We 
        view this as the best way to ensure that our platform is viewed 
        as the most consumer and innovation friendly platform.

   Earthlink, after approval by the Philadelphia City Council, 
        plans to break ground on a 15 square mile Proof of Concept area 
        in April and be fully deployed by spring 2007.

    This agreement catapults Philadelphia into a worldwide leadership 
position in technology and will enable officials to meet the needs of 
their residents as well as enhance the visitor, tourism and business 
climate of that great city. But, EarthLink is already taking the 
Philadelphia Story on the road! EarthLink has (or soon will) proposed 
that we UNwire municipalities--at our cost--across America, including:

   Anaheim, California;
   Milwaukee, Wisconsin;
   Portland, Oregon;
   Arlington, Virginia;
   Minneapolis, Minnesota;
   Long Beach, California;
   San Francisco, California;
   Honolulu, Hawaii.

Bringing Municipal WiFi to Rural America
    We believe that the EarthLink approach of partnering private sector 
expertise and capital with municipalities should also be harnessed to 
expand broadband options in small cities and rural areas across 
America. EarthLink is developing a ``Network Alliance'' program with 
just this goal in mind.
    Local entrepreneurs know best the local consumer and business needs 
for broadband access and services. EarthLink's Network Alliance program 
will aid these local businesses in partnerships providing:

   EarthLink's technical expertise in network design, 
        deployment and specifications;

   EarthLink's volume pricing for equipment and services--so 
        even the smallest companies will get the best prices; and

   EarthLink's ordering, billing and other back-office 
        services--so these local businesses can put full focus on 
        building out networks and signing on customers.

   EarthLink's Network Alliance program is being finalized over 
        the next several weeks, and we hope to soon begin beneficial 
        partnerships with local entrepreneurs who share EarthLink's 
        vision of broadband competition throughout America.

Municipal WiFi Networks--Technology Overview
    Municipal Wireless service is a new use of WiFi technology (Short 
for wireless fidelity ) that is already extremely widespread and 
proven. WiFi is based on a technical protocol that allows many users to 
share access to a network without blocking each other. Because of its 
robustness, WiFi has been a tremendous economic success, finding its 
way into millions of hands and homes. Because of this widespread 
adoption, volume pricing makes it far less expensive to build a new 
broadband service using WiFi than with any other technology. And 
because radio waves don't discriminate and the equipment is affordable, 
access to this technology can be consistently available to everyone. 
The low cost of this technology and its wireless mobility aspect enable 
WiFi-based broadband networks to reach new audiences not served by 
traditional fixed broadband Internet services. (A photograph of a WiFi 
antenna is attached to my testimony.)
    To provide the Committee with some of the background of how the 
municipal wireless technology will work, the diagram below highlights 
the multiple technologies involved:


    Building a robust wireless network is not a simple or intuitive 
exercise. The Municipal Wireless network is a relatively new idea and 
there are many possible approaches to building one. EarthLink won't 
claim to have the only formula for a successful network, and there are 
bad approaches as well as good ones. But, Municipal Wireless is a model 
that can work, and deliver cost-effective broadband service to 
consumers without a significant risk to municipalities or their 
taxpayers.
Consumer Security and Encryption
    As WiFi HotSpots have proliferated over the past few years, the 
need for robust encryption and security protocols has become 
increasingly apparent. This is especially important in light of the 
rising rate of Identity Theft by more and more sophisticated means. 
Unfortunately, most WiFi HotSpots are not designed to use native 
security, and early efforts at defining encryption standards for WiFi 
networks resulted in poorly designed protocols which provided little 
protection and would have been useless in a public access network. 
There are, of course, several simple methods such as Virtual Private 
Networking that an Internet user can employ to keep their data well 
protected, but most users still don't feel the need to use them.
    Fortunately, members of the IEEE and the WiFi Alliance have 
responded to these concerns by creating robust new standards for 
wireless network security, and the networks EarthLink builds will be 
designed around these options right from the start. The WPA and WPA2 
standards that our networks enable will allow any user with the 
appropriate client software to surf the net with complete confidence in 
their security. And EarthLink will be, to the best of our knowledge, 
the first wireless Internet company to provide secure client software 
to all users for free--even users in public parks and community centers 
where we will charge no access fees.
Open Access and Federal Legislative Proposals
    EarthLink has long recognized that consumers are not best served by 
exclusive-access Internet networks. We believe that consumers are best 
served by an Open Access model--where network owners offer fair, 
reasonable and non-discriminatory wholesale rates to others who seek to 
bring customers to that network. EarthLink's municipal networks will 
follow the letter and spirit of that commitment. Any qualifying ISP 
will get the same low wholesale rate, and we welcome them to bring 
consumers to our network. And, we welcome the competition that ensues--
it will ultimately deliver the best service and experience to 
consumers.
    In 1993 and in 1996, the Committee faced similar issues at the 
beginnings of the commercial wireless business.
    When the FCC licensed only two cellular carriers in each market, 
wireless resale had to be mandated through regulation. But after this 
Committee enacted spectrum auctions and opened up additional spectrum 
for PCS service, we were able to see the third, fourth, and fifth 
wireless carriers enter the market. And as that happened, wireless 
resale went from something that had to be mandated to a service every 
facility-based carrier provides. Indeed, the FCC allowed the mandatory 
wireless resale rule to expire in November 2002.
    The same will hold true for ``Net Neutrality.'' It is undisputable 
that the reason the Internet has been a transformative engine for 
economic growth and innovation is that the Internet is an open 
communications platform. As Vint Cerf, the father of the Internet, told 
this Committee last week, the open Internet allowed companies like 
EarthLink, Google, Yahoo!, e-Bay, and Amazon to grow from an 
entrepreneur's dream to successful Internet businesses. Small companies 
and entrepreneurs can use the Internet to prove the worth of their 
ideas without having to convince a bureaucrat at a cable or telephone 
company of their economic merit--or having to pay a ``success'' fee to 
those network duopolists.
    As a network investor and operator, EarthLink rejects the argument 
by the telephone and cable duopolists that networks must be closed and 
applications subject to a ``success tax'' in order to promote network 
investment. We embrace ``Net Neutrality'' because it is both consumer 
friendly and economically right. We will succeed by adding users and by 
providing our (and our wholesale customers') users better service, not 
by throttling web-based innovation and business models. When EarthLink 
and our local government partners expand the number of facilities-based 
networks providing Internet access, the marketplace can better police 
and ensure ``Net Neutrality.''
    The Community Broadband Act, S. 1294, introduced by Senators 
Lautenberg and McCain appropriately recognizes the fact that local 
governments need the flexibility to develop the broadband solutions 
that work best for their citizens.
    I recently testified before the Pennsylvania State Senate as they 
examined legislation that established a cut-off date for municipal 
broadband systems. Unfortunately, the ``shot clock'' approach taken by 
the Pennsylvania state legislature could have forced a variety of 
unintended consequences as local governments rushed to decide among the 
technical options before fully examining all approaches. This is but 
one practical example of the potential problems with a one-size-fits-
all approach taken at the state level to dictate solutions to local 
officials.
    This Committee proved a fundamental lesson more than a decade ago 
when you examined the beginnings of the commercial wireless industry--
namely, that encouraging competitive alternatives is not only possible, 
but it is also the best answer to the most difficult policy questions. 
As such, I respectfully suggest that this Committee take all steps it 
can to encourage the growth of Municipal Wireless networks.
Conclusion
    Thank you for your time today and for inviting me to share our 
views as this Committee undertakes its comprehensive review of our 
Nation's telecommunications laws and policies. I look forward to 
answering any questions.



    The Chairman. Thank you. Our last witness is Dianah Neff, 
Chief Information Officer of the City of Philadelphia, 
Philadelphia, Pennsylvania.

STATEMENT OF DIANAH L. NEFF, CHIEF INFORMATION OFFICER, CITY OF 
                          PHILADELPHIA

    Ms. Neff. Thank you, Chairman Stevens and Members of the 
Committee. I am pleased to appear before you today in my 
capacity as the Chief Information Officer for the City of 
Philadelphia and ex-officio Board Member for Wireless 
Philadelphia, a nonprofit corporation that was established to 
provide access to affordable high-speed broadband Internet 
throughout the city of Philadelphia.
    I want to bring to your attention the municipally driven 
broadband effort and some of the historical perspectives. I 
also will describe the fully open and competitive environment 
in which we invited the private sector to bid to provide the 
kinds of services that the current incumbents have failed to 
offer at an affordable rate, services that will be financed at 
no cost to city taxpayers. A century ago, municipal leaders 
across the country knew that without electricity, their 
communities would be left behind as our Nation moved from an 
agrarian to an industrial economy.
    Today, Philadelphia's mayor, John Street, and many others 
have recognized that without affordable high-speed Internet 
access, our communities and less fortunate residents will be 
left behind as the world moves from an industrial to an 
information-driven economy.
    Wireless Philadelphia's mission is to help citizens at 
every economic and educational level connect to the 
opportunities through the use of broadband technology. Within 
the next year, we will have worked with our private sector 
partners to deploy a wireless mesh network providing low-cost, 
high-speed mobile Internet access throughout Philadelphia's 135 
square miles. In doing so, we will help to overcome the digital 
divide for our low-income and disadvantaged households, promote 
inclusive economic development and otherwise improve the 
quality of life for all Philadelphians.
    No doubt that you've heard the private sector marketplace 
could have met our needs, and thus, we as city leaders should 
have deferred to their expertise and given them just a little 
more time. We have waited for 9 years in the State of 
Pennsylvania, but we simply could not afford to wait any 
longer. We needed to foster private sector action. Broadband 
access is not universally available. And where it is, the 
incumbents are offering DSL services between $25 and $30 a 
month plus an enrollment fee, a cancellation fee, a cost that 
citizens, have to have for computers and other equipment. In 
low-income and disadvantaged neighborhoods in Philadelphia, 
only 10 to 25 percent of our families have access to the 
Internet in their homes. Less than 30 percent of those 
households have broadband service. By contrast, Wireless 
Philadelphia's initiative will enable qualified low-income 
households to receive access with as little as $10 per month. 
And for those most needy citizens, we will provide access to 
computers and have programs to get them started including 
10,000 free computers and training to be provided over the 5 
years.
    Just as municipal electrical systems proved critical to 
making access to electric services in the 20th century, 
municipal networks can make broadband access universal in the 
21st century for the economic and educational well-being of all 
of our citizens.
    For too long, the residents of Philadelphia have waited for 
access to arrive, and we are not alone. Despite this situation, 
a handful of incumbents have attempted to stop further local 
government deploying of community broadband services across the 
country. As you are no doubt aware, Wireless Philadelphia faced 
opposition from incumbent providers in Pennsylvania. They 
worked in the legislature to block municipal governments from 
providing the very services that they had declined to provide. 
Mayor Street and the city leaders successfully worked to assure 
Philadelphia retained the right to protect the interests of all 
of our residents and determine our own future, but other rural, 
suburban, and urban communities in Pennsylvania cannot do the 
same.
    In the spring of 2005, Wireless Philadelphia issued a 
Request for Proposal seeking proposals from qualified 
respondents for a city-wide wireless network and a 
communications system. After evaluating a dozen proposals, we 
selected EarthLink to finance, build and manage the wireless 
network without any city taxpayer dollars. In addition, 
EarthLink will provide Wireless Philadelphia with revenue-
sharing fees to support the Wireless Philadelphia nonprofit 
effort in overcoming the digital divide. EarthLink will work 
with Motorola and Tropos Networks to build an open access, a 
wireless mesh technology that will allow competing Internet 
service providers to use that infrastructure competition.
    Thus, we have found a way to work with leading private-
sector companies to bring affordable wireless Internet access 
to every business and into every home in our city. And to 
assure that the greatest potential public benefits are derived 
for our low-income residents, Wireless Philadelphia will work 
on a comprehensive digital inclusion program. This program will 
provide affordable hardware, self-help content, training and 
programs to maximize the potential of technology to help low-
income people improve their lives and enter the economic 
mainstream. We have already witnessed what this type of 
technology initiative can do for our city. New Foreign 
Delegation Investment Tours have added Philadelphia to their 
list because of our commitment to having a broadband 
telecommunication access universally across the city.
    We see small businesses growing in the revitalization areas 
that we have already connected through our pilot program like 
in our Norris Square neighborhood which is predominantly 
Hispanic where an individual investor is converting a former 
ice warehouse into a gallery and is offering broadband wireless 
access to successfully attract tenants because they were in our 
pilot area.
    I'd also like to make this a little more personal by 
telling you a story of the Cox family in Philadelphia and the 
power of the Internet to improve their lives. Through a 
wireless Internet pilot partnership with the People's Emergency 
Center, United Way and One Economy Corporation, this family of 
three generations of women sharing a row house in Philadelphia 
now get high-speed Internet access for $10 a month. It has 
changed their lives forever. Taah who was an unfocused third 
grader, whose father was in jail, and her mother, Maya, was 
diagnosed with needing a kidney transplant, but she had no 
means of weighing her options. Her mother, Theodora Cox, at 64, 
faced the additional uncertainty of retirement as the sole 
breadwinner for that household. Theodora was given a chance to 
purchase a computer for $120, take an 8-week training course 
and get wireless broadband access for $10 a month. How did 
something so basic, which most of us take for granted, change 
their lives? Maya and her mother were able to research kidney 
diseases and correspond with patients and doctors worldwide. 
Theodora now uses the Internet to sell her line of candles, 
bringing income into the household. And Taah, who has 
participated in our digital connectors program for young teens, 
emerged as a technical director for her third-grade class. She 
is now energized and doing well in school.
    We have won our battle in Philadelphia, but other 
communities need to help and to offer affordable broadband to 
all of their citizens. Therefore, as you rewrite the Telecom 
Act of 1996, we believe it is vital that you include bill S. 
1294, the Community Broadband Act, that would break down the 
legal barriers to entry and that will keep cities and towns 
across Pennsylvania offering the kinds of service that we will 
be able to offer in Philadelphia.
    We cannot deny citizens access to the electricity of today. 
And we know that without affordable high-speed broadband 
access, communities across the country will be left behind as 
the world moves into the industrial information-driven economy. 
We know that without new technology, we cannot achieve our 
digital inclusion objectives, and we seek to bring all of our 
citizens in every economic and educational level into the 
Internet age. We know that local government leadership can work 
creatively with the private sector to make universal access 
happen, and we know that Congress can help us to assure our 
ability to achieve these goals. Thank you for your attention.
    [The prepared statement of Ms. Neff follows:]

 Prepared Statement of Dianah L. Neff, Chief Information Officer, City 
                            of Philadelphia
    Chairman Stevens, Co-Chairman Inouye, and Members of the Committee. 
I am pleased to appear before you today in my capacity as Chief 
Information Officer for the City of Philadelphia and as ex officio 
Board Member of Wireless Philadelphia, a 501(c)(3) nonprofit 
corporation established to revitalize our neighborhoods, provide 
opportunity to our residents, and strengthen our economy by enabling 
access to affordable, high-speed wireless Internet throughout the City.
    A century ago, municipal leaders across the country knew that 
without electricity their communities would be left behind as our 
Nation moved from an agrarian to an industrial country. Today, 
Philadelphia Mayor John Street and many others across the Nation have 
recognized that without affordable high-speed broadband access our 
communities will be left behind as the world moves from an industrial 
to an information-driven economy. And we are painfully aware that 
without universal access to this new technology will leave people 
behind and cannot achieve our digital inclusion objectives as we seek 
to bring citizens at every economic and educational level into the 
Internet age.
    Wireless Philadelphia's mission is to help citizens, businesses, 
schools, and community organizations connect to the world through the 
use of wireless technology. In doing so, we will help to overcome the 
digital divide for low-income and disadvantaged households, promote 
inclusive economic development, and otherwise to improve the quality of 
life for all Philadelphians. Just through the deployment of pilot 
projects, we already have demonstrated that ability to help residents, 
generate new small businesses, and expand tourism opportunities. Within 
the next year or so, we will have deployed a wireless mesh network 
providing low-cost high-speed Internet access throughout the city's 135 
square miles of businesses and homes. And we will have made a great 
leap forward in meeting our goals.
    No doubt you have heard that the private sector could have met our 
needs and those of other communities, and thus that we as city leaders 
should have deferred to their expertise and given them just a little 
more time. But we simply could not afford to wait any longer, and we 
needed to motivate private sector action. In our low-income and 
disadvantaged neighborhoods in Philadelphia only 10 to 25 percent of 
our families have access to the Internet, with 72 percent of those 
households using dial-up access. In the most recent survey conducted by 
the Philadelphia School District, only 58 percent of all households 
with children had access to the Internet in the home and only 64 
percent had computers. Not surprisingly, we saw that our low-income 
children were being left further and further behind as technology 
advanced. The lack of Internet access has hurt our children at every 
step of the education process where those of greater means are 
advantaged--from being able to conduct research in the home to applying 
for college. Moreover, with parents forced to take their children to a 
library to get access to the most basic technology, they often cannot 
do so as needed and then have to further sacrifice spending time with 
their families. To meet this challenge head on, Wireless Philadelphia's 
goal is to provide citywide low-cost access somewhere around $16-$20 
per month and to provide 10,000 free computers with training over five 
years.
    Just as we have seen what harm the lack of broadband access can 
cause, we also have seen first-hand what good new technology can do for 
our city. As a result of Mayor Street's efforts to promote the 
availability of enhanced technology, foreign delegation investment 
tours now regularly stop in Philadelphia. For example, delegations from 
both China and South Korea recently added Philadelphia to their 
schedules, noting the wireless initiative. In addition, we continue to 
attract more tourists because our wireless program has created 
worldwide attention. I personally have spoken to groups from 15 
countries, articles about our wireless program have appeared in 25 
countries, and National Geographic Traveler magazine selected 
Philadelphia as one of the ``next great cities,'' in part because of 
our wireless program. Finally, we continue to see small businesses 
flourish in areas that we already have connected. In the Norris Square 
neighborhood, for example, an individual investor purchased a former 
ice warehouse, which he is now converting into a gallery and twelve 
artist studios. Because the building is in one of our pilot areas, he 
has been able to offer all twelve artists wireless broadband access, 
all of whom signed up for the service. In short, we are seeing the 
benefits of wireless broadband throughout our city.
    Before describing in greater detail our plans to further connect 
our citizens to the world, I want to put our efforts in historical 
perspective. I also want to describe the rigorous, fully open, highly 
competitive process by which we invited the private sector to bid to 
provide the kinds of services that the existing incumbents had failed 
to offer. And I want to talk about what the Committee can do to help 
our residents and those in communities across the country to compete in 
the increasingly information-driven world in which we live.
    Historical Context. A little over a century ago, electricity was 
available to only a small fraction of the U.S. population, principally 
businesses in major cities and individuals living in affluent urban 
communities. While private power companies gradually built out networks 
within city limits during the late 19th century and early 20th century, 
they generally ignored customers outside urban markets, especially in 
rural America, as well as in lower income and hard-to-wire urban 
locations. During the early 1900s, for example, nine out of ten rural 
homes had no electric service.
    Community leaders quickly realized that electricity was not a 
luxury--it represented a technological advancement that would be 
fundamental to the survival of their communities, a crucial component 
of their economic development, public safety, and quality of life. 
Rural and small town markets, for example, were missing out on the jobs 
dependent on electricity. Agricultural areas also were unable to 
benefit from the increased productivity associated with electricity, 
including electric barn machinery, grain crushers, water pumps, and 
crop processing. In addition, rural demands for the newest commodities 
in American life--radios, refrigerators, washing machines, hot water 
heaters, and household appliances--could not develop without access to 
affordable electricity.
    Even though most for-profit companies were not interested in 
extending service to rural or low-income areas, they still resisted 
allowing municipalities to enter the market. In fact, they vigorously 
fought to prohibit entry by public entities. And they used many of the 
same arguments that municipal leaders hear today with regard to 
broadband Internet access.
    Private utilities argued that municipalities lacked the expertise 
to offer something as complex as electricity. They posited that 
electricity was a ``natural monopoly'' and allowing municipalities into 
the market would create unwarranted competition. Some private entities 
went further, engaging in anticompetitive practices, such as denial of 
transmission access and predatory pricing, or worked actively to create 
hostile political environments at the local level.
    Small and rural community leaders recognized that their economic 
survival and the health and welfare of their citizens depended on 
wiring their communities. They understood that it would take both 
private and public investment to bring electricity to all Americans. 
Fortunately, for our Nation as a whole, those community leaders 
prevailed. By 1913, there were nearly 2,000 municipally owned systems 
nationwide. Over the next several decades, municipally-created 
utilities would expand their reach and provide millions of citizens 
with electricity, opening up manufacturing and services to these areas 
and giving rural residents the conveniences already taken for granted 
in American cities for almost 50 years. Through municipally driven 
efforts to expand access to electricity, small towns and rural 
communities finally had the technology necessary to take advantage of 
the modern world.
    Just as municipal electric systems proved critical to making access 
to electric service universal in the 20th century, municipal networks 
can make broadband access universal in the 21st century for the 
economic and educational well being of all residents--as long as they 
have the freedom and opportunity to do so. For too long, the residents 
of Philadelphia have waited for that access to arrive. We are not 
alone.
    In just the past few years, the United States has fallen to 16th 
among industrialized nations in broadband penetration. In many urban 
and rural areas of the United States, small businesses and individuals 
with low incomes continue to have difficulty obtaining reasonably 
priced broadband services. Many countries outpacing us, including 
Canada, Japan, and South Korea, have successfully combined municipal 
systems with privately deployed networks. Despite this situation, a 
handful of incumbent providers have attempted to stop further local 
government deployment of community broadband services across the 
country.
    As you no doubt are aware, we faced vigorous opposition from 
incumbent providers in Pennsylvania. They worked in the legislature to 
block municipal governments from providing the very services they had 
refused to provide. Mayor Street and other city leaders successfully 
worked to assure that Philadelphia retained the right to protect the 
interests of all our residents and determine our own future, but other 
rural, suburban, and urban communities in Pennsylvania cannot do the 
same.
    Private-Public Partnership. In the spring of 2005, Wireless 
Philadelphia issued an RFP seeking proposals from qualified respondents 
for a ``turnkey solution'' for a citywide wireless network and 
communications system. Among other things, the proposals had to include 
network infrastructure procurement, architecture and design services, 
installation services, telecommunications provisioning and services, 
network monitoring and management services, customer service and 
technical support services, software hosting services, and program and 
project management services. In July, after evaluating a dozen 
proposals, we selected AT&T, Hewlett-Packard, and EarthLink as 
potential providers, and we asked them to further develop their vision 
for helping us deploy this advanced network. In the end, we selected 
EarthLink, which will finance, build, and manage the wireless network 
without any city or taxpayer dollars. In addition, EarthLink will 
provide Wireless Philadelphia with revenue-sharing fees to support the 
Wireless Philadelphia Non-Profit Corporation.
    Working with Motorola and Tropos Networks, which will provide the 
wireless mesh technology for the entire network, EarthLink will first 
build out a 15-square-mile proof-of-concept area. After an initial 
testing phase, the network will be expanded across the city. The 
network will be ``open access'' that allows competing service providers 
to use the infrastructure. Free Internet access will be provided in 
some parks and public spaces. The network also will provide T-1 
connectivity for small business customers, and it will enable daily and 
weekly access for visitors.
    In short, we have found a way to work with leading private-sector 
companies to bring affordable wireless Internet access to every 
business and into every home in our city.
    In addition, to assure that the greatest possible public benefits 
are derived by our low-income residents, we are working on a 
comprehensive ``digital inclusion'' program with Civitium, Intel, and 
One Economy Corporation, a national nonprofit sponsored by various 
technology companies, telecommunications providers, and private 
foundations. This program will include affordable hardware, self-help 
content, and training and use programs to maximize the potential of 
technology to help low-income people improve their lives and enter the 
economic mainstream.
    Congressional Action Needed. We won our battle in Pennsylvania, but 
other communities need your help to offer something comparable. 
Therefore, as you rewrite the Telecommunications Act of 1996, we 
believe it is vital that you include S. 1294, the proposed Community 
Broadband Act sponsored by Senators Lautenberg and McCain and 
cosponsored by Senators Coleman, Feingold, Graham, and Kerry. The bill 
is important for three reasons. First, it will discourage other states 
from enacting the kinds of barriers to entry that now will keep cities 
and towns across Pennsylvania from offering the kinds of services we 
will be offering in Philadelphia. Second, it will encourage the dozen 
or so states that created roadblocks to progress to reconsider their 
earlier decisions to impose limits on what local governments may offer. 
And, finally, your action will signal to community leaders across the 
country that you understand what needs to be done to help them compete 
globally and serve the fundamental needs of their communities.
    As you can appreciate, municipal governments face a host of 
challenges today, from improving educational opportunities to enhancing 
economic development, delivering essential government services more 
effectively to providing first responder assistance in response to a 
natural disaster or a terrorist attack. Let me put in perspective what 
we face and how we can meet the challenges ahead if we are given the 
freedom to explore new ways of delivering services for our 
constituents.
    I already mentioned the powerful impact that our pilot initiatives 
had in growing small businesses in Philadelphia, and attracting the 
attention of international investors and media. Let me make it more 
personal by telling you a little bit about the Cox family in 
Philadelphia and the power of the Internet to improve their lives. 
Their story was featured last year in The Washington Post. Through a 
wireless Internet pilot project partnership with People's Emergency 
Center, the United Way of Southeastern Pennsylvania, and One Economy 
Corporation, this family of three generations of women sharing a single 
row house now gets high-speed Internet access for $10 per month. It has 
changed their lives forever.
    The youngest, Taah, was an unfocused third-grader whose father was 
in jail. Her mother, Maya, who gave birth to her at age 13, was told at 
the time that she probably needed a kidney transplant, but she had no 
means of weighing her options. And her mother, Theodora Cox, at 64, 
faced the added uncertainty of retirement.
    Through the People's Emergency Center (PEC), a nonprofit community 
development and service agency, Theodora was given the chance to 
purchase a computer for $120, take an eight-week training course, and 
get wireless broadband access for $10 per month. How did something so 
basic, which most of us take for granted, change their lives?
    Maya and her mother were able to research kidney diseases and 
correspond with patients and doctors in the United States and the 
United Kingdom. Theodora now uses the Internet to help sell a line of 
candles to people in Philadelphia and across the country. And little 
Taah, who participated in an associated youth ``digital connector'' 
program, emerged as ``the technical director'' in her third grade 
class, and is now energized and thriving in school. In the words of 
Gloria Guard, President of PEC, which provides wireless broadband 
access to the Cox family and over 100 homes in their neighborhood, 
``making technology available is like a pebble in a pond.'' We want to 
create many more such ripples, and we want them to grow to waves over 
time.
    But we cannot get there without the Wireless Philadelphia program 
we have put in place. Too many of our families cannot afford what the 
incumbent providers offer, and they should not be left behind because 
our city lacks true competitive alternatives. For example, I recently 
saw a Verizon advertisement, offering DSL Internet service, for $21.95 
per month and increasing to $29.95 per month starting in the fourth 
month, for a comparable speed of service to what will be offered 
through Earthlink in Wireless Philadelphia for as little as $10 per 
month. And then of course there is an added cancellation fee for 
subscribers who terminate their service within a twelve-month period.
    By contrast, Wireless Philadelphia service will include outdoor 
wireless as well as indoor service. And we will provide it for much 
less cost. And for those needy citizens without access to computers, we 
have programs in place to get them started. Like earlier generations of 
citizens, they are not going to be denied access to the electricity of 
their day.
    In closing, let me end where I began. We know that without 
affordable high-speed broadband access, communities across the country 
will be left behind as the world moves from an industrial to an 
information-driven economy. We know that without new technology we 
cannot achieve our digital inclusion objectives, as we seek to bring 
all of our citizens at every economic and educational level into the 
Internet age. We know that local government leadership can work 
creatively with the private sector to make universal access happen. And 
we know that Congress can help to assure our ability to achieve these 
vital goals. Please let us work together to achieve them.
    Thank you for your consideration of our views.

    The Chairman. Thank you very much. I don't know who's 
running the time. Let's run 10 minutes on each one of us for 
the whole panel, and then we'll go back and see if we have 
questions later. Is that all right? Did you have an opening 
statement you want to make?
    Senator Ensign. I'll do that when I have questions.
    The Chairman. Well, Ms. Neff, I find that very interesting. 
I come from a state that's one-fifth the size of the United 
States. Not many people live in the cities, about half of them. 
What do you do in Pennsylvania with the people that don't live 
in cities? This municipal service that's free of taxes that 
will still receive Universal Service assistance won't pay 
Federal taxes, won't pay city taxes. How can we fit that into 
our national system?
    Ms. Neff. Actually, EarthLink will pay city taxes, will pay 
Federal taxes as a corporation, and they would ride a revenue-
sharing model with Wireless Philadelphia to help us then do the 
digital inclusion as, you know, the digital divide is local, 
and our neighborhood revitalizations are local, and we've 
looked to a model where EarthLink and Municipal Networks 
division will provide a wholesale access to other companies 
that do pay taxes and provide services.
    The Chairman. Is that right, Mr. Berryman, you think you 
can provide that service to the whole Nation?
    Mr. Berryman. We'd like the opportunity to try, Senator.
    The Chairman. I don't understand. You're providing services 
through a 501(c)(3) corporation, aren't you?
    Mr. Berryman. They're our partner.
    The Chairman. Your partner, you provide them the services, 
right?
    Mr. Berryman. No, we provide the citizens of Philadelphia 
the service.
    The Chairman. But you're contributing to this 501(c)(3) 
corporation as part of the cost, right?
    Mr. Berryman. That's correct.
    The Chairman. But you're still only charging $10 a month?
    Mr. Berryman. Only for the digital inclusion which is a 
limited number of people in the city of Philadelphia. The rest 
will pay a market rate that EarthLink will be a retail seller 
for as well as others that will come onto the network as 
wholesalers.
    The Chairman. Will those people be outside of the city or 
inside the city?
    Mr. Berryman. They'll be within, at least to start, within 
the 135 square miles of the city.
    The Chairman. And do you believe you're eligible for 
Universal Service funding?
    Mr. Berryman. Do we believe we're eligible for it? I don't 
think so.
    The Chairman. You plan to claim it, right? Do you plan to 
seek Universal Service assistance?
    Mr. Berryman. No.
    The Chairman. What do the rest of you think about the 
concept of municipalities offering broadband services under 
these circumstances? Have you faced the problem in your city, 
your states? Mr. Boone, you said you did. Do you have a similar 
situation with regard to Philadelphia?
    Mr. Boone. At this point, what we're facing, again, is 
primarily against a municipality directly, and the municipality 
itself is the entity that's providing the service, so it isn't 
through any other form of partnership with any other entity. 
That municipality has clearly said that it does not intend to 
serve the rural areas. And yes, they are receiving Universal 
Service.
    The Chairman. I'm not opposed to such circumstances. In my 
state, the state owns the ferries. In my state, the state owns 
the railroad because no one else would operate either one. But 
in your situation, Mr. Berryman, weren't there competitors 
offering service within the city of Philadelphia?
    Mr. Berryman. There are. There is the local phone company, 
Verizon, and the cable company, Comcast. They're offering those 
services today.
    The Chairman. Thank you. My staff points out that no one's 
getting Universal Service yet on broadband, but we believe it 
will come. I apologize for not being clear. Any of the rest of 
you have any comments about this system? You'd prefer to stay 
out of the fight, right? All right.
    Mr. Boone. Could I answer your question?
    The Chairman. Yes, sir.
    Mr. Boone. Just as I listened to the different comments and 
about recognizing how this is kind of a cable franchise, I 
guess in Iowa, at least a cable franchise is a nonexclusive, 
and I guess one of the difficult things that I have with some 
of the partnership opportunities that may exist between city 
and private enterprise would be that once that partnership has 
begun, in effect, the winner has been chosen. It's difficult 
unless there's a true open access network that the municipal 
government is offering, they really have chosen who the private 
winner will be, and I just think that makes it awfully 
difficult again, especially when I think about the very small 
rural areas that I serve.
    The Chairman. Pardon me. Excuse me. I'm told Senator Ensign 
has to go to the floor.
    Senator Ensign. Yes.
    The Chairman. I would yield to you, my friend.

                STATEMENT OF HON. JOHN ENSIGN, 
                    U.S. SENATOR FROM NEVADA

    Senator Ensign. Would you mind? I have to go to the floor 
to manage the point of order. If you wouldn't mind, I just have 
a few questions, and I appreciate the Chair's indulgence. I 
apologize Senators, unfortunately I have 22 things going at the 
same time today. The issues are, I believe, very resolvable. I 
have drafted legislation that I'm sure many of you are familiar 
with it that obviously sides more with encouraging private 
sector investment. That's my bent. Whenever possible, I don't 
like to see government competing with the private sector. I 
think that the private sector, especially where technology is 
concerned, is much more innovative and can respond to changes 
in a faster way. Philadelphia has a little different situation 
where they've contracted with a private company and a little 
different than what Mr. Boone is talking about, and I don't 
have any problem with an agreement like that as long as they 
don't, Mr. Berryman, give you an unfair advantage over other 
private companies. And that's where I think the balance has to 
come in. Nobody else is doing it, if you know, nobody else, the 
ferries, the railroads, infrastructure, if nobody else is out 
there, then I think that it's fine for local governments to do 
it. But if they're willing--the balance I think, needs to come 
in if there are willing providers out there willing to have 
competition that will provide that service in a competitive 
model to the consumer, then we shouldn't have the local 
government be able to give themselves an advantage in a 
situation where there's taxes, regulation, whatever it is just 
because they may want to control it.
    Now, the local governments, if they want to, should be able 
to compete, but it should be on a right-of-first refusal. In 
other words, if somebody else wants to come in, you know, we've 
heard a lot of this, and Michael Dell is one of the people that 
I talked to about this, and he made a very good point that when 
the power lines were taken across the country, they were 
basically mandated because they would skip the small 
communities because it wouldn't be beneficial, for them to do 
that. Well, that makes a heck of a lot of sense that in a case 
like this, to be able to build the networks out, that we have 
to allow municipalities to do this, but if there's a private 
sector out there, that's the point. I think we're the balance 
that we need to strike.
    The Chairman certainly has an interest in this, and we want 
to be able to work as we go forward to get broadband to our 
citizens. Because if we aren't getting broadband to our 
citizens, then we're going to fall farther and farther behind 
in the information age. Right now, we are falling farther and 
farther behind. In some countries the standard is 100 megabits 
per second. In Sweden, I think it's 1,000 megabits per second. 
We have the capabilities, the technology's there. I believe we 
have to get government out of the way in many cases and in 
other places, it has to be in a cooperative-type of a 
situation. So, with that as a general opening statement, maybe 
we could just explore these issues with one or two quick 
questions. Mr. Sahr, you're with the PUC, correct, up in South 
Dakota?
    Mr. Sahr. Yes, Senator.
    Senator Ensign. Was that what I read? So, you're not 
exactly a private sector kind of a guy, but from what I 
understood, that you favored the private sector being able to 
compete. Could you give me your comments on that?
    Mr. Sahr. Well, yes, and I agree with your assessment. If 
you're in a community that completely lacks broadband, I think 
you should look at every single option that's out there, and 
that could include public ownership, and I tried to outline 
that in my comments. The concerns that I have, though, when you 
go beyond those situations is situations like you've described, 
Senator, where maybe some competition is coming in there and 
having some advantages or even if you go a step further without 
some sort of market failure, you could be displacing private 
investment. And when I say private, it could be cooperative 
investment, it could be--it doesn't necessarily have to be 
investment that's strictly in large publicly owned companies. 
And as you're trying to operate networks in high-cost areas 
like in my state and throughout the country, if you start 
carving out these larger markets and for ours, you know, what 
could be a small market here is a large market for us, you 
start carving out these individual markets, not only are you 
going to have an effect within that particular market, but 
also, these are companies that are operating over a wider 
region, it's going to upset their entire cost structure, and I 
think it could end up being detrimental to consumers that are--
especially the ones who are in rural areas. Then suddenly, the 
provider that's serving them is losing market share in larger 
areas. And I hesitate to call it this, but you get a little bit 
of, I guess what I call, cherry picking or if I borrow a term 
from other telecommunications analysis, you have people coming 
in picking up the good markets and not serving the rural areas, 
and that's going to have an----
    Senator Ensign. Just----
    Mr. Sahr.--unwanted effect of increasing rural areas.
    Senator Ensign. Let me see if I understand this, what 
you're saying, because it's actually something I hadn't thought 
about before. I think the point you're making is, let's say for 
instance, in North Dakota, I'm a company that wants to go into 
an area of North Dakota, and there are seven small towns that I 
want to take service to because I've penciled it out, and if I 
can get all seven, it would make financial sense to provide 
them service if I could get all seven. Two of them have decided 
to do their own municipal networks, whether they partner with 
somebody, or they do it on their own, that may prevent the rest 
of the five from getting these new services. Is that what 
you're saying?
    Mr. Sahr. And that would be my concern. If you look at the 
overall expenditures, whether it be private or else be public 
through various funding sources including Universal Service, I 
mean I think suddenly, now we're going to be faced with a 
situation where people in those unserved areas or that are 
losing their better markets may either need more Universal 
Service support, or they may end up having to raise rates to 
the point where it's not possible for consumers to be able to 
afford the service. So, I think the danger of coming in, you 
know, in places where there are not market failures, I think go 
well beyond just the boundaries of that particular municipality 
to even wider service territory situations.
    Senator Ensign. Mr. Boone, what could Congress do to level 
the playing field or if there are local rules that give 
government an unfair advantage, what can we do up here from a 
legislative standpoint?
    Mr. Boone. I think that if the move is to allow municipal 
networks to be built, if that is part of the--if that's a given 
somehow, which I don't necessarily think it has to be, but if 
it is, then I guess I think that part of it comes down to the 
voters and to the people of those communities, do they really 
understand what the city is doing and what they are getting 
into, and I guess some questions that we've looked at in Iowa 
as part of some legislation, you know, to ask the question, how 
much will this cost.
    Senator Ensign. No, but what could we--because we have to 
focus on what we can do, okay, what can we do to make sure the 
cities aren't unfairly competing with you as a company?
    Mr. Boone. I think first of all, again, it gets back to the 
issue of taxes, it gets back to that level playing field that I 
spoke of in my testimony, it comes down to the areas served, 
again, that urban rural aspect is real. As I was driving to the 
airport, the 120-mile drive, I had to get to the airport to get 
here, every 10-15 miles, I'd come across a small community that 
had 1,000 or 2,000 people, and then there would be one or two 
farmsteads between each of those communities per mile. That's a 
tremendous geographic imbalance that, again, I think that we 
have to be able to serve. So I think providing some protections 
in there that say these rural customers have every right to be 
served as do the communities, and I am not even speaking to the 
large, large cities that I even have a hard time really 
comprehending because of where I'm from. It's a difficult 
question, and Universal Service is a key part of that, 
providing, as I say, RUS funding capabilities for private 
entities. And then again, my last point was again to somewhat 
take that unfair anti-competitive balance to make sure that 
that stays fair.
    Senator Ensign. Mr. Chairman, I've used enough time. I 
really do have to get to the floor, and I apologize. I wanted 
to stay for this. I think it's a very important hearing, and I 
appreciate the Chairman, first of all, allowing me to speak out 
of turn, but also for the emphasis and the fairness with which 
you're holding these hearings and the completeness of the 
hearing process that you've brought. You're attacking all of 
the difficult issues.
    I think you've balanced the panel here. You're getting all 
of the different views because it's such a complex area of law, 
it's going to take everybody working together and listening, 
and as you know, as the Chairman, to sit through all of these 
hearings and sit through all the testimony, to really get into 
these issues. I applaud you for that, and I look forward to 
continuing to participate as we go forward in this process. So, 
thank you all very much.
    The Chairman. Well, thank you very much. Senator 
Lautenberg.
    Senator Lautenberg. Yes, for our colleague who's leaving 
the room, he said that he commends you for sitting through and 
so forth, those are the rewards of chairmanship, and I'd like 
to try them.
    In any event, thank you all for appearing here, and Mr. 
Chairman, on the serious side, it is a very interesting panel. 
The mission is, at least purportedly, and I don't mean to be 
cynical, is to get this service to as many people as possible. 
And I come out of the private sector and the computer business. 
Three of us started a company over 50 years ago. It's called 
ADP, Automatic Data Processing. Today, that company that the 
three of us, poor kids from Paterson, New Jersey, fathers who 
worked in the silk mills there, now has 40,000 employees and is 
in 26 countries, and there are days when I wish I was still 
back there, but the reward here is psychic, it's not financial 
certainly.
    One of the things that I sense here, and help me through 
this, and I think Senator Ensign was talking about somewhat, 
and that is how do you deal with areas that have access to a 
wireless connection as opposed to those that are still 
primarily on the wire side, there's a distinct competitive 
advantage there, and Mr. Boone, I've listened carefully to what 
you said and heard you talk about what can happen. In a way, it 
sounds if you're too good because if it's then decided that the 
municipalities are going to take over, you've got an 
infrastructure there that has some value, and you're also the 
marketing disadvantage, distinct disadvantage.
    So, what works in Philadelphia where you have density, 
access, physical access to people, and I marvel at your success 
there, Ms. Neff and also Mr. Berryman, now, does that apply to 
the more rural areas? Aren't there differences in terms of 
investment and who provides the investment? When you talk about 
long distances, and Alaska, I think, probably has that problem 
or that opportunity almost more than any other state, and that 
is that people are so remote in some of these beautiful, 
beautiful places. I love the State of Alaska, but the cost for 
getting that communication there and the obligation, they're 
almost directly in opposition. And the fact is that it's more 
needed there because of the distances that you have to go 
through and the physical obstacles to getting to these places. 
And yet, the cost, of course, is reflected, so Ms. Neff, don't 
you think that the density of Philadelphia, the urban center, 
had a major advantage in terms of being able to put in the 
system, and I asked for the comments of Mr. Boone in particular 
because he focused on the rural side of things. Aren't they 
essentially two different problems with also two greatly 
different costs required for getting these programs into place, 
getting broadband into place?
    Ms. Neff. Well, I believe that affordability is the key 
whether it's rural or a dense urban community like 
Philadelphia. We still have a significant digital divide that 
needs to be overcome, and whether that divide is at the cost 
level or it's by expanse, it's affordability. You could 
probably have broadband coverage in rural communities, but at 
what cost? And we have a technology, and we have private sector 
companies that can have a different return on investment model 
that makes it doable, but for communities like Scottsburg, 
Indiana, that you mentioned, where they were losing the 
mainstay of their economic support because companies needed 
that high-speed broadband access to stay competitive, to be a 
part of a supply chain, then they needed to step in, and that's 
what we need. We need the capability to have that flexibility 
in communities to determine the local communities that have to 
serve the needs of their population to have some impact on how 
their communities can survive. That's why we elect our elected 
officials to work on those decisions. And we believe in 
competition, and that's why we chose our wholesale model in 
Philadelphia where we'll have multiple competitive services. 
Being served by two monopolies virtually was not meeting the 
needs of our communities and that through the competition, 
through, in our case, a private sector wholesale model, which 
worked for Philadelphia because of the needs of our dense urban 
environment. A large percentage of our population, a third of 
our population is not served today, actually, greater than a 
third of our population. When we went out and met with the 
community and talked to them, cost 76 percent of the time was 
the primary reason that they stated that they didn't have 
access to the Internet, then you need to work within your 
community. And so, I said we need to craft policies that are 
flexible that allow the rural communities, if there are no 
providers, to work with providers that are interested in 
serving those----
    Senator Lautenberg. Right.
    Ms. Neff.--communities and give the flexibility----
    Senator Lautenberg. Yes.
    Ms. Neff.--to meet the needs of our community.
    Senator Lautenberg. But if you're the doctor, I think the 
patient is quite different in cases. Mr. Boone, how do you see 
it, I mean the fact that Philadelphia had this arrangement and 
able to be an inviting marketplace to want to get to? What do 
you see when you look out at rural Iowa or Indiana or any other 
place in the country?
    Mr. Boone. Well, again, in rural Iowa, we're a provider of 
broadband service and have been since the year 2000, well 
before the municipality chose to build their network and offer 
broadband. As a representative from CTIA mentioned, there are 
wireless carriers offering broadband. So, there's a competitive 
mix already there. There continue to be spectrum options 
being--that are going to happen in the future which means 
there'll be more potential competitors. And I guess, clearly, 
density makes a difference, and I'm not--so, it's hard for me 
to go and look at the Philadelphia situation and really 
understand that. But in Iowa, in northwest Iowa where I am 
from, there is competition. There are many providers of 
broadband service.
    Senator Lautenberg. That offered wireless?
    Mr. Boone. Offered wireless through a local telephone 
company or through a cable company, many different ways that 
broadband is offered. But ultimately, a question comes down to, 
how do you define broadband. What is the bandwidth that is 
required for it to be called broadband? What we may have called 
broadband 3-4-5 years ago is maybe not so much what we call it 
today. What will it look like 5 years from now, and how will 
that technology continue to evolve and develop?
    Senator Lautenberg. Yes, but you don't have the advantage 
of knowing, but you make business decisions about what you can 
invest and how you can recover your investment, and does it 
hold the profit opportunity for you unless you share it with 
the municipality that has an advantage. I think, that you--the 
Chairman asked a questions about 501(c)(3), and Mr. Berryman, 
you responded by just saying--well, obviously, there is that 
kind of provision that helps you provide the infrastructure 
that gets you to the profitable side of the marketplace. Is 
that not true?
    Mr. Berryman. No, there's no infrastructure that the city 
provides that helps us get profitable.
    Senator Lautenberg. None, because----
    Mr. Berryman. We actually--there's no exclusivity, no 
bonds, no tax-free issues. It's completely our risk at our 
network.
    Senator Lautenberg. Right.
    Mr. Berryman. What we're doing is we're contributing to the 
501(c) so that they can serve the digital inclusion customers.
    Senator Lautenberg. Right, but are they also your 
competitors at the same time?
    Mr. Berryman. No.
    Senator Lautenberg. No, so it's a divided marketplace?
    Mr. Berryman. Our competitors will be wholesalers on our 
network. They'll be people buying wholesale from the network 
and selling it at what they can sell it for on the market.
    The Chairman. No, I think he means is there any other 
entity that's competing with you and providing service in 
Philadelphia?
    Mr. Berryman. Yes, they'll be many. We've signed up 
multiple wholesalers to get on the network and sell wireless 
broadband in retail to the city--to the residents of the city.
    Ms. Neff. And the agreement with EarthLink is not 
exclusive. They have rights to 4,000 poles. The city owns 
125,000 light standards. And so, what we're looking for is an 
equal level playing field so that if somebody else wanted to 
come in and build another infrastructure, they could do so, but 
they would have to meet the universal standards of covering the 
entire city. And so, we're looking at that equality, 
equitableness across people that have interest in our city to 
come in. And then, one of our primary requirements of the 
providers that bid on our network to build it was that they 
provide open access so that our citizens and our businesses 
will have a choice and that can be fixed wireless, mobile 
wireless from any price standards and the speed of performance, 
and we believe we've accomplished that.
    Senator Lautenberg. Yes, and the marketplace is divided 
among several or many providers?
    Mr. Berryman. It will when we bring the network up.
    Senator Lautenberg. Right, and Mr. Boone, who will be your 
competitors? Are there people lusting after the marketplaces 
that you're serving?
    Mr. Boone. Well, apparently some municipalities are, but at 
the same time, again, unlicensed spectrum, there's wireless 
providers we have. There's a wireless competitor that we're 
facing in a community or an exchange, telephone exchange, that 
only has 200 customers, and someone built a wireless network. 
They're competing with us for broadband, and that was the 
private individual that chose to move forward in that way.
    Senator Lautenberg. Right, but--and that's the essence of 
the private system.
    Mr. Boone. I have no problem with that competition.
    Senator Lautenberg. Well, I thought you wanted to block out 
a little bit of that competition.
    Mr. Boone. Well, I think that as it may relate to when I 
have to be competing with the government, that's where I have 
my--that's where I begin to struggle.
    Senator Lautenberg. So, we select out those you don't like 
and take in those that you do, and it's a dilemma because as 
the technology evolves, so does the appetite change because of 
product availability, and I mean the growth of wireless changed 
that equation--the equation substantially. And so, I think 
it's--again, it's a little bit oranges and apples, and when you 
talk about it, cities and the marketplaces as large as 
Philadelphia, and you talk about the more remote places in the 
country who also want and desperately need the service, when 
you talk about the ancillary results, Mr. Chairman. When you 
talk about businesses that make decisions about locating 
someplace, and what kind of tools do they have to work with in 
a marketplace that's in an operating facility that's attracted 
by lots of other standards but left out of some of the 
technology that is so vital in today's world? Mr. Chairman, 
thanks.
    The Chairman. Thank you. I don't think we meant this to be 
a hearing on your bill, but that is one of the issues involved 
in this situation. Is Mr. Berryman going to have a franchise, 
Ms. Neff?
    Ms. Neff. No, it's not a franchise.
    The Chairman. Are there going to be franchises available 
through the city of Philadelphia?
    Ms. Neff. The city of Philadelphia only franchises in the 
cable area. These are agreements to use city-owned assets for 
which EarthLink will pay a fee, so it's additional income to 
the city.
    The Chairman. Let me go back to some of the other issues. 
Yesterday, I commented upon the need, I think, for a Federal/
state joint board to try and work out some of the problems that 
relate to this area. None of you, I think, really commented on 
that. I don't know whether I've possibly reached an agreement 
with you or not. Ms. Munns, you're the president of the 
National Association. What do you think about it?
    Ms. Munns. Well, I appreciate your remarks, and we really 
did appreciate you reaching out because we think that, like 
some other mechanisms, that's one of the things that you could 
use in assuring that rules that were made were not just made in 
Washington, but took into concerns of those issues at the 
state. That's one way that you could set it up. I think the 
real question is when issues come up, how much experimentation 
do you allow before you know that it's time to go to a Federal 
rule on something. Because as I said before, I don't know that 
we're necessarily opposed. We understand the concept of a 
Federal framework, but how do you know what to put into place 
until you've had some experimentation?
    The Chairman. Well, what about the size of the font of the 
bill or the length of the franchise or the necessity for being, 
fair and equal handed, about dealing with separate applications 
for franchises? What about the situation of whether cable is 
going to get a franchise, but over the air, it's not going to 
get a franchise unless they do specific things? Do you agree 
with us that someone has to make some decisions? We can't have 
40,000 different franchises in order to get a competitor into 
an area that has a monopoly right now.
    Ms. Munns. Right, in my comments, I said, you know, we are 
very supportive of technology-neutral kinds of rules. We're 
supportive and understand the need for a Federal framework. 
It's at what point do you go to that, and how much flexibility 
do you allow to deal with new and novel situations or to deal 
with just local concerns? What kind of mechanisms? Do you say 
to people, you can try some experimentation out there, at some 
point, you have the right to petition the FCC, and they will 
take it up and within a certain amount of time, deal with it on 
a national level, allowing the states to continue with what 
they're doing until there is a Federal rule?
    What John Perkins talked about was the truth-in-billing, 
and I think that's a Federal approach to consumer issues. To 
the extent it went, that is a Federal framework. But again, it 
gets to the issue of how much flexibility do you have back at 
the states under that Federal framework, and at what point do 
you move things to the national level, and what point are you 
preemptive and say, these are what the rules are, you can do 
nothing different even if you have consumer complaints or local 
concerns?
    The Chairman. But if we create the authority for a joint 
board, it would have to be done in the bill that we're talking 
about, the Telecom bill. It wouldn't come into effect until 
next year. It's going to be a couple of years before it goes 
down the path and we get some report from the joint board. 
Would your National Association be willing to sit down with our 
staff and work out what kind of subjects can be put within that 
joint board if we created one?
    Ms. Munns. Oh yes, we would. We've had experience with 
joint boards in the past. I think we have a Universal Service 
joint board that we've had a very good experience with sitting 
down and making recommendations.
    The Chairman. Mr. Perkins, what about the consumer 
interests in that?
    Mr. Perkins. NASUCA would welcome the opportunity to be 
part of such a discussion, Senator. I might just add that I 
think that probably the overarching issue that Congress ought 
to reach in this is one that Ms. Munns alluded to and Senator 
Ensign did also, and that's the issue of should Congress even 
get involved in this area of municipal versus private 
enterprise, or is that more properly a state issue that 
individual states ought to be left alone to decide within their 
states whether they're going to allow their municipalities to 
compete or not compete. And I don't have an opinion on that. I 
just throw that out as something I think that the Congress 
ought to consider very heavily as I'm sure you will.
    The Chairman. But if you're in a municipality that's 
already got a football field, and the franchise is going to 
come up for renewal soon, and there's a competitor going to 
come in, do you want to have bidding to see who builds the 
baseball field to provide communication services to that 
municipality?
    Mr. Perkins. Well----
    The Chairman. Our problem is that there seems to be a quid 
pro quo for these franchises that goes beyond communications, 
goes beyond a fee for the municipality, and it's who is willing 
to do things beyond communications. But, by the way, 
ultimately, it comes out at the cost of the consumer, doesn't 
it?
    Mr. Perkins. Sure, absolutely it does, Senator. My only 
point was the issue of not whether that's proper or improper. 
The issue I believe is more should a state legislature deal 
with that issue within its state boundaries, or should Congress 
deal with that issue on a national level, and I was just 
saying----
    The Chairman. Well, I guess I'm sort of Peck's bad boy, but 
you've got cable at 80 percent penetration of all the homes in 
the country. Now, we have broadband coming in, and we have new 
competitors that want to come in and compete with them, and the 
franchise, as I pointed out yesterday, I'm told they're getting 
one a year.
    Mr. Perkins. Right.
    The Chairman. With 40,000 out there to get to compete fully 
on a national basis. Now, am I wrong to think there's a Federal 
interest in seeing to it that there is national as well as 
local competition?
    Mr. Perkins. Well, you've quickly outstripped my knowledge 
in this area, Senator, I'm afraid.
    The Chairman. Ms. Munns.
    Ms. Munns. We were talking earlier about how these 
different platforms did different things like cable did video, 
and the copper wires provided voice and that we really had 
convergence where we're able to deliver same or similar 
services over these same networks. So, we should approach these 
in a technology-neutral way. I think everybody wants these 
services, and we want these services in our communities just as 
quickly as we can get them. I think that the cities will say we 
have some legitimate issues on franchising things, the use of 
city services. And those things should be dealt with, but I 
think what we're trying to do here is get these different 
platforms bringing as many consumer choices to people as we 
can.
    The Chairman. Well, I'm told now that you either got a cell 
phone or the new iPod. And you can pick up television, pick up 
your messaging, pick up your telephone, you can even have them 
stream down a movie and watch it while you're on a bus. Now, if 
I'm in Philadelphia, and I've got one of those, am I going to 
be subject to some problem in Philadelphia? The people that are 
providing that through fixed wire or through cable or through 
the over-the-air today, they're all subject to some form of 
regulation from the Federal Government all the way down to 
cities. These things, these are totally ambulatory systems that 
can do all of those things without a franchise or anybody.
    Now, I think we're going to have to get together and figure 
out what's right and what's wrong. Clearly, the telephone 
systems now that have the ability to go broadband, and we've 
got all this spectrum that's going to be auctioned here soon, 
it's going to be a really rampant competition, but shouldn't, 
somehow or other, we have a framework so it's fair? And I----
    Ms. Munns. I think you're exactly right.
    The Chairman. Aren't you the people we ought to talk to to 
determine what you think is your jurisdiction as opposed to 
what we think we ought to do on a national level? So, I would 
urge your association to see your way clear to work on this 
soon with us. This bill's going to have to start moving in 
March.
    Mr. Perkins. We would welcome that opportunity.
    The Chairman. Thank you. Mr. Altschul?
    Mr. Altschul. Yes, Senator, we----
    The Chairman. You've had a comment before, and I read it in 
the paper or something yesterday about Universal Service 
concepts. You didn't mention that in your statement today.
    Mr. Altschul. Well, we weren't invited to, but I'll be 
happy to mention that. The wireless industry today pays into 
Universal Service. And increasingly, we've been able to expand 
and to----
    The Chairman. Yes, but you said that you weren't getting as 
much out as you pay in.
    Mr. Altschul. That's quite true.
    The Chairman. I don't think anybody does.
    Mr. Altschul. Well, wireline carriers, because of the 
additional amounts that we're paying in, the wireline industry 
in whole is now getting more out than they pay in, for example, 
but there are two things that are going on in Universal 
Service. As intended, it certainly does move funds to support 
high-cost rural areas and build out important services in those 
areas, but it also, across competitive technologies today, is 
moving money from one kind of competitive industry to another.
    And what we support is a system that fulfills everyone's 
goal, which is to encourage these new modern services in high-
cost underserved rural areas, but in a way that also promotes 
the same competitive benefits that consumers in urban areas 
receive and don't think twice about. Today, they have all the 
choices. The same kinds of choices and same benefits of 
competition should be available in all markets.
    The Chairman. Well, I don't intend to prolong this, I 
should just say the PUC group initiated the process which 
started the movement toward Universal Service and interstate 
rate pool, we did that to be able to take the modern world to 
places where they didn't have service at all. We've still got a 
100 villages out of our 241 that don't have any Internet at 
all, but more than half of our Universal Service Fund is being 
spent in the inner core city now to take the service to people 
who can't afford it. And I don't argue with that, except the 
balance is not there anymore, but we still haven't finished the 
job of taking it either in Hawaii or Alaska and the places 
where they're still in the 19th century.
    Mr. Altschul. But we believe wireless has a role----
    The Chairman. I really think, however, that the problem has 
to be addressed from the point of view of who pays now and out 
in the future world for into the Universal Service Fund and who 
gets what out of it. We've got to deal with that. We haven't 
had that full hearing yet, but I hope we will have it, and 
it'll be a provocative one, I'm sure. I do thank you all for 
coming, and I hope that--Ms. Munn said she would discuss with 
your association the concepts we're looking at. We don't want 
to create a joint board if no one's going to come to the party, 
OK? Thank you all very much.
    Ms. Munns. Well, we look for any opportunity to have this 
partnership.
    The Chairman. I hope it will be a very productive 
partnership. Thank you all very much.
    [Whereupon, at 4:11 p.m., the hearing was adjourned.]
                            A P P E N D I X

 Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
    The global marketplace has become reliant on the instantaneous 
exchange of information. Thus, communities across the country are 
recognizing that access to high-speed networks is essential if they are 
to remain competitive.
    However, some communities have found that the locally available 
broadband services are either inadequate or nonexistent, and they have 
stepped forward to provide better access for their citizens.
    Opponents of these government-backed initiatives want to impose 
limitations or prohibit local governments from delivering broadband 
services. They argue that government-backed entities will have an 
unfair advantage over private industry.
    As we examine the many changes in the communications marketplace, 
we must examine the traditional distinctions between intrastate and 
interstate services that also have determined the dividing line for 
state and Federal regulatory authority.
    I look forward to hearing the witnesses' views on the future of the 
telecommunications marketplace and the appropriate local, state, and 
Federal roles. These are difficult questions that will not be resolved 
in a single day, but I am pleased that we will begin the dialog today.
                                 ______
                                 
   Prepared Statement of Hon. John McCain, U.S. Senator from Arizona
    I am pleased the Committee has chosen to review the timely issue of 
municipal broadband networks. Over 200 cities and towns in the Unites 
States plan to deploy community networks over the next year, and 99 
municipalities already have some kind of system in place.
    The State of Arizona boasts the largest approved municipal 
broadband system in the United States. The City of Tempe's wireless 
system will serve all 40 square miles of the city and its population of 
159,000, including the campus of Arizona State University. According to 
Tempe Mayor Hugh Hallman, the system will allow police officers to 
easily access national and state criminal databases from the field, 
permit fire fighters on-scene access to city data of building layouts 
and hydrant placement information, and provide water department 
employees the ability to monitor storage tanks, dams and canals with 
wireless cameras. In addition to these cost saving applications, the 
city's system will provide first responders a second emergency 
communications system in case the primary systems fails in a time of 
need and grant citizens Internet access from anywhere at any time.
    Because several state legislatures were considering legislation 
that would ban municipalities from launching such networks, Senator 
Lautenberg and I introduced the Community Broadband Act this past June. 
This bill would ensure that any town, city, or county that wishes to 
offer high speed Internet services can do so.
    I recognize that our Nation has a long and successful history of 
private investment in communications infrastructure. That history must 
be respected, protected, and continued. However, when private industry 
does not answer the call because of market failures or other obstacles, 
it is appropriate and even commendable, for the people acting through 
their local governments to improve their lives by investing in their 
own future. Fortune Magazine stated in an article dated October 19, 
2005, ``The question of where exactly government ends and the private 
sector begins is one we've wrestled with throughout our Nation's 
history. What would Ben Franklin think about privatizing the post 
office? But at certain moments . . . this dilemma comes to the fore. 
Welcome to another of those moments. The issue: municipally backed WiFi 
[broadband systems].''
    A few incumbent providers of traditional telecommunications 
services have attempted to stop local government deployment of 
community high speed Internet services. Our bill would do nothing to 
limit their ability to compete. In fact, the bill would provide them an 
incentive to enter more rural areas and deploy services in partnership 
with local governments. This partnership will not only reduce the costs 
to private firms, but also ensure wider deployment of rural 
telecommunications services. Additionally, the bill would aid private 
providers by prohibiting a municipality when acting as both 
``regulator'' and ``competitor'' from discriminating against 
competitors in favor of itself.
    Several newspapers have endorsed the concept of allowing 
municipalities to choose whether to offer high-speed Internet services. 
USA Today rightfully questioned in an editorial, ``Why shouldn't 
citizens be able to use their own resources to help themselves?'' The 
Washington Post editorialized that the offering of high speed Internet 
services by localities is, `` . . . the sort of municipal experiment we 
hope will spread.'' The San Jose Mercury News stated that a ban on 
localities ability to offer such services is ``bad for consumers, bad 
for technology and bad for America's hopes of catching up to other 
countries in broadband deployment.'' Finally, the Tampa Tribune 
lectured Federal and State legislators, ``don't prohibit local elected 
officials from providing a service their communities need.''
    I look forward to hearing from the witnesses and hope my colleagues 
will be persuaded by the testimony here today to sign on to S. 1294, 
the Community Broadband Act of 2005.
                                 ______
                                 
         Supplementary Information Submitted by Robert K. Sahr
    Thank you for the opportunity to testify before the Committee on 
Tuesday, February 14, 2006.
    In my testimony and during questions and answers, I discussed the 
effect that municipal entry can have not just on an individual market 
but on the overall cost structure of a provider and, ultimately, to 
consumers outside of the market in question. Craig Anderson, Chairman 
of PrairieWave Communications, Inc., has offered his company's 
perspective on this issue in the attached letter. I hope you find it 
useful.
                                 PrairieWave Communications
                                  Sioux Falls SD, February 21, 2006
Hon. Robert K. Sahr,
Chairman,
South Dakota Public Utilities Commission,
Pierre, SD.
                      Re: Municipal Communications Networks

Dear Bob:

    Thank you for the opportunity to outline our views with respect to 
the ownership and operation of communications networks by rural 
municipalities. We believe that our experience in small community 
development provides us with a unique perspective on the advantages and 
disadvantages of municipal ownership.
    PrairieWave has been in the communications business for over 100 
years, beginning as a small independent local exchange carrier in 1903 
and later becoming a cable television and Internet service provider as 
these technologies became commercially feasible in rural areas in the 
1970s and mid-1990s, respectively. In 1996, in response to the new 
competitive opportunities opened by the Telecommunications Reform Act 
of 1996, PrairieWave, then known as Dakota Telecommunications Group, 
began one of the first competitive broadband expansions in the country. 
Its plan was to bypass incumbent networks and deploy and operate a new 
regionally integrated, facilities-based, last-mile broadband network 
allowing it to deliver innovative bundles of convergent 
telecommunications services directly to homes and businesses in its 
service territory. Today PrairieWave is one of the largest rural 
competitive communications service companies, providing a full range of 
advanced voice, video, Internet and data services to 45 small 
communities in South Dakota, southwestern Minnesota, and western Iowa.
    We realized early in our planning for this expansion that there are 
two fundamental economic considerations underlying small community 
developments:

   First, new convergent communications technologies allow the 
        provisioning of voice, video and Internet/data services over 
        one consolidated network. These multiple revenue streams 
        combine to provide both a reasonable price for subscribers as 
        well as a financial return on investment in the local outside 
        plant, including the construction of individual local customer 
        connections and the installation of customer premise equipment 
        like data modems and video set top boxes. \1\
---------------------------------------------------------------------------
    \1\ I should point out in passing that this fundamental economic 
fact is directly threatened by the ``Net Neutrality'' debate currently 
underway, especially where the third party service like VoIP or video 
streaming simultaneously supplants one or more of these revenue streams 
while demanding free use of the network connection. The result of these 
rules, if adopted in their current form, will effectively halt the 
expansion of broadband networks in rural areas and jeopardize the 
ability of current networks to continue to operate without substantial 
local service rate increases or huge government subsidies. This is 
directly analogous to the current interstate access revenue problems 
experienced with respect to the long distance and cellular industries, 
which unfairly force rural communications companies to subsidize the 
develop of these competitors. For a detailed economic and regulatory 
analysis of this problem, see, generally, Anderson, Craig A., ``Toward 
a Fair Network Access Rate Policy,'' 14 CommLaw Conspectus Journal of 
Communications Law and Policy, 2005, pp. 39-102.

   Second, the best way to invest in new technologies at a 
        reasonable cost to subscribers is by spreading the costs of 
        that investment over a larger customer base, invoking what is 
        known as economies of scale. This is only possible in a rural 
        environment by interconnecting a number of communities into a 
        single regional communications network, which is exactly what 
---------------------------------------------------------------------------
        PrairieWave has accomplished.

    I have enclosed a map of our service area that illustrates this 
last point. All of our community markets are interconnected with a 
fiber optic backbone network that we own (or lease) and operate.
    You will note in reviewing this map that our service territory 
encircles the city of Beresford, South Dakota (a community of 
approximately 2,000 located approximately 30 miles south of Sioux 
Falls) and abuts and bypasses the community of Brookings, South Dakota 
(a community of approximately 18,500 located on our fiber optic network 
between Sioux Falls and Watertown, South Dakota). Why did we not 
develop these communities as part of our 1996 development plan? They 
meet all of our development criteria and would nicely fit into our 
regional network. But they are differentiated by a single important 
factor: they both own and operate independent municipal telephone 
systems.
    We believe that it is fundamentally unfair for us to compete 
against a municipal owned network and so our board declined to do so. 
There are a number of reasons for our position:

   Municipalities are nonprofit organizations, which allows 
        them to finance and operate a competitive network at a cost 
        advantage that we cannot match. Private companies must operate 
        at an after-tax profit margin sufficient to attract and retain 
        shareholder investment given the risks of such operations, 
        which are often ignored or minimized by municipalities for the 
        reason discussed in more detail below. \2\
---------------------------------------------------------------------------
    \2\ See the February 14, 2006 Testimony of Douglas A. Boone, CEO of 
Premier Communications, before the U.S. Senate Commerce Committee at p. 
32 (describing in detail and quantifying the nonprofit financial 
advantages).

   Municipalities are also the Local Franchise Authorities 
        regulating the cable franchises that we need in order to offer 
        a full bundle of services necessary to cost justify our outside 
        plant investment in any single community. This creates a 
        regulatory asymmetry, since the municipalities themselves are 
        not required to enter into cable franchise agreements for their 
        own cable operations nor comply with the operating and 
        financial burdens imposed on us by these agreements. \3\
---------------------------------------------------------------------------
    \3\ The numerous problems of cable franchising in an environment of 
convergent technologies is yet another competitive issue that demands 
the urgent attention of state and Federal Government and their 
respective regulatory agencies if rural broadband network development 
is to continue. Current regulations are unclear and unevenly applicable 
to all forms of technologies, creating further competitive and 
regulatory asymmetries and resulting financial and market distortions.
---------------------------------------------------------------------------
        This is complicated by the fact that these municipalities are 
        operating in their communities as monopolies, with all the 
        inherent advantages of monopoly pricing (and disadvantages of 
        the lack of market driven innovation and operating discipline). 
        The grant of a competitive franchise to a convergent services 
        provider would directly undermine this monopoly position. We 
        did not believe that the resulting public franchise hearing 
        process would be worth the time, cost and effort involved and 
        that in the end, the process would result in adverse publicity 
        and public hostility to our proposals that would undercut the 
        success of our marketing and sales efforts in the communities.

   Municipalities can use their taxing authority to underwrite 
        low cost financing for network construction and to subsidize 
        network operations. It is interesting to note that the threat 
        of using this authority to raise taxes to cover competitive 
        operations also operates as a powerful incentive for customers 
        to stay with the municipal system rather than switch to a 
        competitive provider. \4\
---------------------------------------------------------------------------
    \4\ See Boone, supra n.2, at p. 2 (describing exactly this threat 
as actually made by the City of Sanborn, Iowa, which built a municipal 
system in direct competition with the incumbent ILEC).

   Municipalities also enjoy the ability to provide the 
        convenience of single billing for telecommunications and other 
        municipally owned services like garbage collection, water and 
---------------------------------------------------------------------------
        other utilities.

    PrairieWave's expansion plan is therefore a real world example of 
the anticompetitive impact of municipal owned communications networks, 
at least in rural areas comprised of relatively small communities. This 
operates to the direct disadvantage of our customer base due to our 
inability to incorporate these communities into our regional network 
thus limiting the full impact of economies of scale. It also 
disadvantages the citizens of these municipalities for several reasons:

   The municipalities are unable to replicate the economies of 
        scale that the residents of our interconnected competitive 
        communities enjoy. Municipalities are required to restrict 
        their operations to their city boundaries, and no single 
        community in our region, including Sioux Falls (a community 
        with a population of approximately 145,000 and the largest 
        community in our state and in our service area) has the 
        resources on its own to provide as large a network footprint as 
        PrairieWave has developed.

   These municipal networks are also exposed to technology and 
        business risks that are better assumed and managed by private 
        communications providers like PrairieWave. Municipal exposure 
        to these risks (and the exposure of their taxpayers) is 
        unnecessary when a private company is willing to build and 
        operate a network in the community. \5\
---------------------------------------------------------------------------
    \5\ It should be noted here that there is often a good reason why 
private companies are not currently building or planning to build 
advanced telecommunications networks in some communities--the business 
and technology models are unproven with high levels of risk. This is 
currently the case with WiFi networks, and the cities that are rushing 
to build municipal WiFi networks are ignoring these perfectly rational 
market decisions at their own peril. See, also, Boone, supra n.2, at p. 
3 (``Many who promote the idea of municipal-owned broadband networks 
are touting their plans as ``no-risk,'' but numerous muncipalities 
around the country who bought into the ``no risk'' idea have found 
themselves unable to support and finance the continual and expansive 
upgrades needed to maintain a local network.''). Boone describes 
specific examples of such problems and cites and quotes a major 
independent study of three municipal networks in Iowa, none of which 
has produced the hoped for return on investment. Id.

   As a result, the services provided by municipal owned 
        networks are not as advanced as those operated by the new 
        private convergent service providers. Internet access speeds 
        and data rates are slower. Video offerings are more limited. 
        And new technologies, like video on demand, interactive video 
        services, and voice over Internet protocol (VoIP) that are 
        provided by PrairieWave in the areas surrounding these 
        municipal systems are largely not available to the residents of 
---------------------------------------------------------------------------
        these communities.

    Once in place, municipal owned networks thus simultaneously 
discourage competition that would otherwise develop and fail to provide 
the benefits of new technologies to their citizens. \6\ They short-
circuit the very market forces that would normally operate to encourage 
private companies like PrairieWave to provide more advanced services at 
a much lower risk to the community and lower cost to their residents.
---------------------------------------------------------------------------
    \6\ PrairieWave is not the only small rural community service 
provider to recognize these problems. See Boone, supra n.2, at pp. 1-2 
(``Government owned networks are not akin to other public utilities. In 
fact, government networks are more akin to City Hall opening a chain of 
grocery stores or gas stations. They typically require heavy taxpayer 
subsidization, which minimizes any net benefit to local residents. They 
also benefit from tax advantages and regulatory exemptions that do not 
apply to private firms. Because they are not subject to the pressures 
and stresses of the marketplace, they often neglect innovation, which 
leads to technological stagnation over time.'')
---------------------------------------------------------------------------
    Which brings us to our last point: Municipal systems might make 
sense where normal market forces cannot provide the proper incentives 
for private companies to provide these services. These would be the 
relatively rare instances of ``market failure'' that might justify a 
community taking the inherent technology and operating risks in an 
effort to provide more advanced communications services to stimulate 
economic development and improve the lifestyle of their residents. For 
this reason, we endorse the methodologies for determining the 
appropriateness of municipal ownership of communications networks 
outlined in your February 14, 2006 testimony to the U.S. Senate 
Commerce Committee, particularly the approach advocated by the South 
Dakota Telecommunications Association of which we are a member. But we 
caution all communities that the technology and operating risks 
associated with today's communications industry are challenging and 
difficult, and should not be lightly dismissed.
    If you have any questions or would like any additional information 
about the issues discussed in this letter, please do not hesitate to 
call.
        Sincerely yours,
                                         Craig A. Anderson,
                         Chairman, PrairieWave Communications, Inc.
                                 ______
                                 
   Prepared Statement of the American Public Power Association (APPA)
    The American Public Power Association (APPA) is the national 
service organization representing the interests of the Nation's more 
than 2,000 state and community-owned electric utilities that serve over 
43 million Americans. These utilities include state public power 
agencies, municipal electric utilities, and special utility districts 
that provide electricity and other services to some of the Nation's 
largest cities such as Los Angeles, Seattle, San Antonio, and 
Jacksonville, as well as some of its smallest towns. The vast majority 
of these public power systems serve small and medium-sized communities, 
in 49 states, all but Hawaii. In fact, 75 percent of publicly-owned 
electric utilities are located in communities with populations of 
10,000 people or less.
    Many of these public power systems were established largely due to 
the failure of private utilities to provide electricity to smaller 
communities, which were viewed as unprofitable. In these cases, 
communities formed public power systems to do for themselves what they 
viewed to be of vital importance to their quality of life and economic 
prosperity. Today, public power systems are meeting the new demands of 
their communities by providing broadband services where such service is 
unavailable, inadequate, or too expensive.
    Public power systems across the country are providing their 
communities with affordable broadband services. Over 600 public power 
systems now provide some kind of advanced communications service, 
whether for internal or external purposes. This is a ten-fold increase 
since Congress enacted the Telecommunications Act of 1996, and the 
number of public power systems providing or planning to provide 
services continues to increase. The services delivered by public power 
systems include high-speed Internet access, voice-over-Internet 
protocol (VoIP), cable television, and local and long distance 
telephony.
    As this Committee begins to formulate policies that would best 
foster a thriving, competitive communications marketplace, where 
affordable broadband service is available to all Americans as rapidly 
as possible, it should recognize the important role publicly owned 
electric utilities can play in achieving President Bush's goal of 
universal broadband deployment by 2007. Public power systems are 
providing a wide array of advanced communications services in 
underserved areas using a wide variety of platforms--fiber-to-the-
subscriber, broadband over power lines, hybrid fiber-coaxial, and 
wireless. They are also fostering a competitive marketplace where 
consumers are benefiting from the availability of advanced 
communications services that are the lifeblood of economic development 
and can support rich educational and employment opportunities, advanced 
health care, regional competitiveness, public safety, homeland 
security, and other benefits that contribute to a high quality of life.
    This statement will provide an overview of why public power systems 
are providing advanced services over broadband networks, how they are 
providing those services, and the types of services being provided. It 
will also provide an overview of the campaigns waged against public 
power systems by the opponents of municipal broadband and the legal 
barriers to entry APPA's members face at the state level. In addition, 
this statement will discuss the policy justifications for allowing 
municipalities to meet the needs of their communities by providing 
affordable broadband services and will refute the arguments made by the 
opponents of municipal broadband.
History Is Repeating Itself: The Parallels Between the Electricity 
        Marketplace a Century Ago and the Broadband Marketplace Today
    Before addressing the reasons why community-owned electric 
utilities are providing broadband services, we think it is important to 
look briefly at the history of the electric utility industry and public 
power. There are many similarities between the early days of 
electrification at the turn of the 19th century and broadband 
deployment today.
    The electric utility industry is 125 years old. When 
electrification first began, many argued that electricity was a luxury. 
While that notion was quickly rebuked as it became widely recognized 
that electricity was a necessity for economic development, public 
health and safety, and quality of life, many smaller and rural 
communities were left behind. Private sector providers rushed to wire 
highly profitable urban areas, but failed to provide service to 
communities that were not attractive investments for private 
enterprise. Because of market failures such as lack of providers, poor 
service, and high prices, communities began creating their own electric 
utilities at a frantic pace.
    The community leaders who proposed public power did not regard this 
as an ideological choice between public versus private, but a pragmatic 
choice between providing this new utility service or watching their 
communities fall by the wayside. Private providers saw things somewhat 
differently. Alarmed by the growth of municipal electric utilities, 
they conducted campaigns to erect barriers to entry. Some of their 
tactics included: (1) advocating a ``natural monopoly'' theory and 
calling for state-regulated monopolies that would preclude direct 
competition between public and private utilities; (2) creating 
political opposition at the local level; and (3) engaging in 
anticompetitive practices such as denial of transmission access and 
predatory pricing. While private providers had some limited success in 
these efforts, public power survived and continues to thrive today.
    The similarities between the electricity marketplace a century ago 
and the broadband marketplace today are striking. Broadband access has 
many of the same fundamental dynamics and characteristics as 
electricity at the end of the 19th century. First, broadband is 
essential for economic development. Businesses must have affordable 
access to it to compete both regionally and globally in the 21st 
century. They will locate and expand where access is available and 
avoid cities and towns where it is not available. Second, broadband 
supports rich educational and employment opportunities, advanced health 
care, and other benefits that contribute to a high quality of life. 
Third, broadband has the same market failures today as electricity 
had--a lack of providers in some areas, or poor service and high cost 
in other areas. Public power systems began stepping in to address these 
market failures at the request of their towns and cities.
Why Public Power Systems Are Providing Essential Broadband Services
    It is a natural progression for communities that own their own 
electric utilities to expand their services to include broadband. While 
public power communities are not the only communities providing 
broadband service, they have resources that make offering such service 
easier. Electric utilities use advanced communications technologies for 
internal purposes, such as monitoring electric distribution networks, 
automated meter reading, and internal wireline and wireless 
communications. It is not very difficult for such utilities to expand 
their communications capabilities to provide external, community-wide 
services when requested to do so by their residents.
    Community demand for services is usually driven by the failure of 
the market to provide specific services at reasonable prices that the 
community needs to grow and prosper. For many APPA members, the reason 
the utility even explored entering the communications marketplace was 
that businesses and residents came to them asking for service. In 
Scottsburg, Indiana, for example, the municipal electric utility 
deployed a wireless broadband network in order to prevent a Chrysler 
repair shop from leaving the town due to a lack of affordable 
broadband. Before pursuing this course of action, the local government 
first asked Verizon to provide the service. Verizon refused because the 
town was too small for the company to justify the investment. Had the 
municipally-owned utility not provided the service, at least 60 jobs 
would have been lost.
    Eight years ago in Provo, Utah, the city government undertook a 
careful study to determine how it could use technology to benefit its 
residents. Local officials decided to reconstruct Provo's traffic 
control systems, significantly upgrade its electric utility monitoring 
and control systems, and bring about broadband interconnectivity 
between all city-owned and operated facilities. As it turned out, all 
of these initiatives depended upon Provo's ability to obtain broadband 
at various locations throughout the city.
    The city approached five private sector companies that held 
franchise rights to provide fiber optic data connectivity. As part of 
their franchise agreements, all of the companies agreed to provide such 
service to all city owned facilities. None of them ever did. Ultimately 
Provo determined the best option would be to build its own city-wide 
fiber optic backbone. Soon after this backbone was completed, local 
schools, small businesses, and others in Provo asked to be connected. 
After careful study and analysis, the Provo City government decided to 
provide true high speed data access to the community at large. Its 
motivation for providing broadband was very similar to the motivations 
of other public power broadband communities.
    Economic development is a key reason for public power entry into 
the communications marketplace. The availability of affordable 
broadband service is critical to retaining existing businesses as well 
as attracting new businesses in today's highly competitive global 
marketplace. In many public power communities, business leaders and 
locally elected officials have approached the private sector about 
providing essential broadband services at affordable rates. In many 
cases, the private sector has responded that it did not have immediate 
plans to provide broadband service or upgrade existing services to meet 
the bandwidth needs of businesses and residents.
    Smaller communities have two choices--wait until an incumbent 
provider decides to provide service, if it does so at all, or build the 
network themselves. Many APPA members have decided to deploy broadband 
networks because they understand that access to advanced services helps 
retain and attract new businesses, creates new jobs, increases 
productivity, allows for telemedicine and telecommuting, and improves 
the quality of life for residents. These communities have recognized 
that if they waited for the private sector to provide affordable 
broadband service, they would fall behind and not be able to compete in 
today's information age.
    Public power systems throughout the United States have seen direct 
economic benefits from deploying broadband networks. They have 
attracted new businesses as well as retained existing businesses 
because of their broadband networks. In Cedar Falls, Iowa, the Mudd 
Group, a marketing, advertising, and public relations firm specializing 
in the automotive industry would have left the city if affordable 
broadband services were not available. Because the municipal electric 
utility constructed a fiber-to-the-business network, Mudd expanded its 
business and soon plans to break ground on a studio to produce digital 
media. TEAM Technologies, a web hosting and data management company, 
moved to Cedar Falls in 1996 because of the city's communications 
infrastructure. In 2004 TEAM finished construction of a multi-million 
dollar data center that provides highly reliable and secure data 
services, including bandwidth and back up storage service for corporate 
clients.
    A 2004 report entitled The Economic and Community Benefits of Cedar 
Falls, Iowa's Municipal Telecommunications Network by Doris Kelly of 
Black and Veatch, which analyzed the economic growth of Cedar Falls and 
the neighboring city of Waterloo, attributed Cedar Falls' higher tax 
base and job growth to the presence of a municipal broadband network. 
\1\ Waterloo and Cedar Falls are very similar communities. What 
distinguishes them from each other is the presence of a municipal 
broadband network. Similarly, a recently published study involving Lake 
County, Florida, showed that public communications projects can have a 
very significant positive impact on the economic development of an 
area. \2\ Clearly, the availability of affordable broadband service is 
an important factor in businesses' decisions to locate to an area, and 
a driver of economic development.
---------------------------------------------------------------------------
    \1\ See Doris Kelly, The Economic and Community Benefits of Cedar 
Falls, Iowa's Municipal Telecommunications Network, Black and Veatch, 
July 6, 2004.
    \2\ George S. Ford and Thomas M. Koutsky, Broadband and Economic 
Development: A Municipal Case Study from Florida, http://
www.aestudies.com/library/econdev.pdf.
---------------------------------------------------------------------------
Technologies Used by Public Power to Provide Essential Broadband 
        Services
    Public power systems that are providing broadband services are 
using a wide variety of technologies to do so. Publicly owned electric 
utilities such as Provo, Utah, Bristol, Virginia, Kutztown, 
Pennsylvania, Jackson, Tennessee, Grant County Public Utility District, 
Washington, and Dalton, Georgia have built fiber-to-the-subscriber 
networks. These ultra-high-speed fiber systems provide users with 
voice, video, and data services as well as give them the ability to 
utilize high bandwidth applications such as real-time video 
conferencing, IP video, and rich multimedia activities such as 
interactive games.
    Other communities such as Wyandotte and Coldwater, Michigan, 
Glasgow, Kentucky, and Muscatine, Iowa, provide broadband service over 
hybrid fiber-coaxial networks similar to those used by cable companies. 
This type of network can provide residents with high-speed Internet 
access using a cable modem, as well as cable television and VoIP 
service. More recently, APPA members have been using wireless 
technology to provide broadband service. Scottsburg, Indiana, 
Owensboro, Kentucky, Coldwater, Michigan, and Spencer, Iowa, are just a 
few of the systems providing wireless broadband.
    In addition, APPA members are also starting to provide broadband 
service using broadband over power line (BPL) technology. Manassas, 
Virginia, is the first municipality in the country to provide its 
residents with BPL service. This technology allows electric utilities 
to use their power lines to provide high-speed Internet access service 
comparable to DSL service, with equal download and upload speeds. This 
exciting technology not only allows public power systems to provide 
affordable Internet access service, but also allows utilities to 
improve the monitoring of their electric distribution networks, which 
increases electric reliability and helps detect outages in real time 
without the need to hear from customers about power outages. Other APPA 
members testing BPL include Hagerstown, Maryland, Princeton, Illinois, 
and Rochester, Minnesota.
Advanced Services Provided by Public Power Systems
    Community-owned electric utilities provide a wide variety of 
services to their residents either directly or in partnership with 
private-sector providers. The types of services APPA members provide 
fall into one of two categories. The first is internal service, which 
is usually a municipal data network that connects municipal 
governmental entities to one another. As of the end of 2005, 272 public 
power systems offered municipal data networking.
    The second category is external service. These services are offered 
to individuals or entities outside of the utility and municipal 
government. External services include fiber leasing, Internet access 
(both high-speed and dial-up), cable television, broadband resale, 
local and long-distance telephony, and VoIP. As of the end of 2005, 105 
systems were providing cable television service, 175 were leasing 
fiber, 132 were Internet service providers, 47 provided long-distance 
telephone, and 57 provided local-phone service. A handful of systems 
are either providing or testing VoIP service.
The Many Benefits of Public Power Broadband
    Many communities have decided to provide residents and businesses 
with critical broadband infrastructure because they recognize the 
growing importance of broadband for commerce, health care, education, 
and improved quality of life. Looking to the early pioneers of 
municipal broadband that have been models to other communities, they 
have seen the many benefits of providing access to an essential 21st 
century service. Some of the key benefits of municipally provided 
broadband service include lower prices, increased competitiveness in 
the communications marketplace, responsiveness to local needs, economic 
development, and universal access.
    In many cities and towns across America, broadband service is too 
expensive for businesses and residents. In Iowa for example, the Iowa 
Utility Board has reported that many communities are charged up to $169 
a month for 1 mega-bits-per-second DSL service. \3\ However, in public 
power communities that are providing broadband service, consumers are 
paying lower rates for such service. In Manassas, Virginia, residents 
can get BPL service for $28.95 a month. In response to the presence of 
a third provider of broadband service (the City of Manassas in 
partnership with COMTek, a telecommunications and information systems 
technology company) both Comcast and Verizon lowered their prices in 
Manassas. Consequently, even those residents who have not switched to 
Manassas' BPL service have received a direct economic benefit from the 
introduction of a third provider in the form of lower prices from the 
incumbent providers.
---------------------------------------------------------------------------
    \3\ See Connecting the Public: The Truth About Municipal Broadband, 
Media Access Project, Consumer Federation of America, Free Press 
available at http://www.mediaaccess.org/
MunicipalBroadband_WhitePaper.pdf (citing http://www.iowatelecom.com/ 
residential services/article.asp?id=220&PID&GPID).
---------------------------------------------------------------------------
    The presence of municipal broadband providers has also resulted in 
a more competitive communications marketplace. Many public power 
broadband networks provide open access to other private sector 
providers. Competitive local exchange carriers and other competitive 
communications companies use municipal networks to deliver services to 
businesses and residents. In fact, the presence of a municipal provider 
can actually increase the number of competitive providers in a 
marketplace. An economic analysis by George Ford of Applied Economic 
Studies found that in Florida, localities that owned their own 
broadband network had more competitive local exchange carriers in the 
marketplace than localities that did not have municipal broadband 
networks. \4\ Rather than crowding out investment, as asserted by the 
opponents of municipal broadband, it appears that the presence of such 
a system actually increases the number of communications providers in 
the market.
---------------------------------------------------------------------------
    \4\ See George S. Ford, ``Does Municipal Supply of Communications 
Crowd Out Private Investment? An Empirical Study,'' Applied Economic 
Studies (February 2005) at http://www.aestudies.com/.
---------------------------------------------------------------------------
    In addition, municipal broadband providers are highly responsive to 
local needs. Residents can have a direct say in the types of services 
provided over broadband networks. Utility managers and locally elected 
officials are available to the public at open meetings to discuss their 
concerns and seek input on how to improve or expand service. Also, 
customer service is locally available to help individuals with setting 
up their service or fixing problems.
    Universal access is another benefit of municipal broadband. Public 
power systems providing broadband services ensure that all residents 
can receive such services and at an affordable rate. Low-income 
neighborhoods are not passed by. Schools and hospitals are provided 
with significant bandwidth to enable rich multimedia applications that 
improve education and health care. For example, in Leesburg, Florida, 
public hospitals can send medical images such as MRIs and x-rays to 
doctors' offices in seconds over the city's optical network.
    Economic development is yet another benefit of municipal broadband. 
As stated earlier, local governments recognize the importance of 
broadband for commerce, education, health care, and quality of life. 
The availability of affordable broadband helps retain and attract 
businesses, leading to more jobs and stimulation of the local economy. 
In Kutztown, Pennsylvania, Saucony Book Shop moved its business from 
Allentown, Pennsylvania, because of the borough's fiber-to-the-
subscriber network. Paisley & Company bath shop also moved to Kutztown, 
opening a shop downtown and advertising its products online. In Provo, 
Utah, Riverwoods Medical Imaging Center employs state-of-the-art 
software to deliver hundreds of digital images to doctors quickly over 
the Internet. Without the bandwidth available over Provo's fiber 
network, Riverwoods would not have been able to provide its digital 
imaging services.
    Local governments are not the only entities that recognize the 
benefits of municipal broadband systems. A large number of 
organizations representing private industry, educational interests, and 
consumers support the ability of municipalities to provide broadband 
services and have publicly expressed their support. Some of the 
entities that support municipal broadband include Tropos Networks, 
Intel, the Fiber to the Home Council, the American Library Association, 
Earthlink, Free Press, Media Access Project, and the Information 
Technology Association of America. These organizations and companies, 
as well as others who are members of the Community Broadband Coalition, 
sent a letter to the Members of the Senate Commerce Committee on 
Monday, February 13, expressing their support for the ability of 
municipalities to provide broadband services and S. 1294, the Community 
Broadband Act. That legislation, introduced by Senators Frank 
Lautenberg (D-NJ) and John McCain (R-AZ), would ensure that communities 
that want to provide broadband services to their citizens can do so. 
APPA strongly supports this legislation and urges the Committee to 
incorporate its language into a broader telecommunications overhaul 
bill.
Legal Barriers to Entry Faced by Municipal Providers of Broadband 
        Services at the State Level
    Just as there was fierce opposition from private enterprise to 
publicly owned electric utilities 125 years ago, today there is fierce 
opposition to publicly owned broadband networks from some in private 
enterprise. Opponents of municipal broadband have used a variety of 
tactics to undermine, discredit, or block the deployment of broadband 
by public power systems. Threatened by the prospect of a public 
provider that is responsive to community needs and charges affordable 
rates, telephone and cable companies, many of which have no plans to 
provide service themselves, have aggressively pushed for legislation in 
state legislatures across the country that would either prohibit 
municipalities from providing broadband services or significantly limit 
their ability to do so by erecting barriers to entry.
    Currently 14 states have enacted laws that either prohibit 
municipalities from providing telecommunications, cable, and/or 
broadband services or limit their ability to do so through barriers to 
entry. At least one bill has already been introduced this year that 
would restrict the ability of municipalities to provide advanced 
communications services to their communities either directly or in 
partnership with other private sector providers. \5\ Fortunately, the 
anti-municipal broadband language was stripped out during committee 
consideration.
---------------------------------------------------------------------------
    \5\ In Indiana, SB 245 as introduced on January 3, 2006, included 
anti-municipal broadband language. That language was later stripped 
during committee consideration earlier this month.
---------------------------------------------------------------------------
    Early measures pushed by the opponents of municipal broadband, 
which include incumbent telephone and cable companies, advocated 
prohibiting municipalities from providing telecommunications and other 
services. Texas, Missouri, and Nebraska enacted laws prohibiting 
municipalities from providing telecommunications services. Arkansas 
enacted legislation prohibiting local governments from providing local 
exchange service and Nevada precludes municipalities with populations 
larger than 25,000 from providing retail telecommunications service.
    Other states have not enacted outright bans, but have instead 
adopted laws that create barriers to entry by significantly restricting 
the ability of municipal entities to provide advanced communications 
services. These statutes impose burdensome procedural and accounting 
requirements, such as referenda, the imputation of certain costs not 
actually incurred, and public disclosure of information to which 
private sector providers are not subject. States that have adopted such 
approaches include Florida, Minnesota, South Carolina, Tennessee, 
Virginia, Wisconsin, and Utah. In addition, Utah and Washington have 
adopted wholesale-only models, which prevent a municipal entity from 
directly providing service to the public.
    The latest approach advocated by opponents of municipal broadband 
is probably the one most familiar to Members of this Committee--the 
right of first refusal--which was adopted by Pennsylvania in late 2004. 
It requires local governments to ask the permission of incumbent 
providers as a condition precedent to providing broadband services to 
the community. If the incumbent telephone or cable company indicates 
that it will provide the service within a certain time frame, the 
municipality is precluded from ever providing the service itself. This 
may appear reasonable at first glance, but as usual, the devil is in 
the details. The law makes data speed the only criteria and thus makes 
no provision for price, quality of service, consumer choice, mobility, 
symmetry, or any other factor, however significant it might be to the 
local community. In other words, nothing in the law provides a remedy 
if the incumbent provider states it will provide the requested service 
in the statutory time period, yet does not actually do so.
Campaigns Waged by Opponents of Municipal Broadband Against Public 
        Power and Other Municipal Providers
    In addition to pushing for anti-municipal broadband legislation at 
the state level, incumbent telephone and cable companies have utilized 
a variety of tactics to undermine and discredit community-owned 
broadband networks. Working with corporate-funded think tanks, 
opponents have maligned municipal broadband projects, asserting they 
are destined to fail, are subsidized by taxpayers, and/or crowd out 
private investment with little to no empirical basis for such 
assertions. In communities where local governments have asked their 
citizens to vote to go forward with projects, incumbent providers have 
spent significant amounts of money on anti-municipal broadband 
campaigns with the knowledge that municipal governments are legally 
precluded from spending any funds to promote projects. For example, in 
the tri-cities area of St. Charles, Batavia, and Geneva, Illinois, the 
Kane County Chronicle (IL) reported that Comcast and SBC spent over 
$300,000 on mailers, push-surveys, full-page newspaper ads, and local 
radio spots full of misinformation on municipal broadband projects. \6\
---------------------------------------------------------------------------
    \6\ See http://www.kcchronicle.com/SportsSection/
310254315460507.php.
---------------------------------------------------------------------------
    Representatives of incumbent companies have also employed scare 
tactics to dissuade local citizenry from supporting community-owned 
broadband projects. At a Lafayette, Louisiana, city-parish council 
meeting, a representative of Cox Communications suggested that if 
Lafayette Utilities Systems (LUS), the city's municipal electric 
utility, went forward with its fiber-to-the-premises project, it could 
invade the privacy of its subscribers by ``allow[ing] LUS to monitor 
people's private phone, Internet or television viewing.'' \7\
---------------------------------------------------------------------------
    \7\ See 2theadvocate.com Durel Defends LUS Plan (May 1, 2004) at 
http://www.2theadvocate.com/cgibin/printme.pl.
---------------------------------------------------------------------------
Arguments Made Against Municipal Broadband
    As was briefly discussed above, opponents of municipal broadband 
have asserted a variety of arguments for why local governments should 
not provide broadband service. Many of these arguments aver that 
municipalities have an unfair advantage because of their position as 
both competitive providers and regulators of services and that public 
entry is contrary to ``level playing field'' principles. Opponents also 
claim that municipal communications systems are failures and that 
municipal governments are too incompetent to operate such 
``complicated'' technologies. A closer look at these arguments reveals 
that they are false.
    One common argument made by opponents of municipal broadband is 
that localities providing such service are competing against the 
private sector companies they regulate. This assertion is quite 
misleading. Municipalities do not, and cannot, favor their own 
municipal service entities. Municipalities do not regulate 
telecommunications service providers or Internet access providers. Such 
regulation occurs at the Federal and State levels, and even there, it 
is disappearing rapidly. Municipalities do issue franchises to cable 
operators, but cable franchising is governed by detailed Federal 
standards, and when municipalities provide cable services themselves, 
they typically assume regulatory burdens that are as extensive, or more 
extensive, than that of the private sector.
    Municipalities also manage public rights of way and other public 
facilities. But Federal and most State laws require municipalities to 
act in a nondiscriminatory, competitively-neutral manner. In short, the 
premise underlying this myth--that municipalities have power to 
regulate in favor of their own services--is simply false.
    A second common argument made by the opponents of municipal 
broadband is that localities have an unfair advantage against private 
sector communications providers because they do not pay taxes. It is 
true that public power systems are treated the same way as other 
governmental and non-profit entities under Federal and State tax law--
they do not pay income taxes because they do not earn profits. At the 
local level, public power utilities are routinely required to make 
payments in lieu of taxes to their local governments that are often 
higher in amount than what the investor owned electric utilities pay in 
taxes. Evidence in Florida and other states indicates that the same is 
likely true of the payments made to local governments by public power 
broadband systems and private sector communications providers. 
Furthermore, public power utilities do not have access to the wide 
variety of tax benefits, such as accelerated depreciation and 
investment tax credits, available to the private sector. In Florida, 
for example, Bell South paid an effective state/local tax rate of 3.4 
percent and Verizon paid 3.6 percent. Florida's municipal electric 
utilities paid an effective rate of 14.6 percent. \8\ It is difficult 
to see how private providers can complain about the tax exempt status 
of public power systems that pay more to state and local governments 
than they do.
---------------------------------------------------------------------------
    \8\ See ``The Case for Municipal Broadband in Florida: Why Barriers 
to Entry Stifle Economic Development, Disadvantage School Children, and 
Worsen Health Care,'' Florida Municipal Electric Association (citing 
FMEA and FCC ARMIS 43-03 (2003)).
---------------------------------------------------------------------------
    A third common argument asserted against municipal broadband is 
that localities have access to low-cost financing. The use of tax-
exempt financing is a perfectly legitimate practice for pubic 
improvement projects. However, in today's market, tax-exempt financing 
is not always available and comes with many onerous burdens. While 
there is some advantage to tax-exempt financing, it may not be terribly 
significant because incumbent cable and telephone companies have access 
to the best commercial rates.
    The opponents of public power broadband also argue that localities 
cross-subsidize communications services at the expense of electric rate 
payers. State and local enterprise laws prohibit municipal electric 
utilities from cross-subsidizing communications and other services with 
electric revenues. Such an argument is also disingenuous when the 
private sector is free to engage in cross-subsidization and routinely 
does so. Predatory pricing by incumbents in communities with municipal 
broadband networks is regional cross-subsidization. They are 
subsidizing service to the residents of those communities where 
competition exists at the expense of customers in localities that do 
not have community-owned broadband networks.
    Yet another claim made against municipal broadband projects is that 
most are financial failures. Think tanks funded by incumbent telephone 
and cable companies have released papers claiming that various 
municipal broadband systems have failed. These ``studies'' are simply 
incorrect. Using flawed analyses, the authors of these ``studies'' 
apply performance criteria applicable to the private sector to 
municipal projects even though municipal projects have fundamentally 
different objectives. Public power systems are not trying to maximize 
profits. Instead, local governments set rates at the lowest level 
possible that will allow the utility to recover its costs and save 
their customers money. Some reports have also analyzed projects not 
operating long enough to generate meaningful data. Opponents routinely 
cite Cedar Falls, Iowa, as a failure in spite of the empirical evidence 
to the contrary. Copies of numerous studies providing point-by-point 
rebuttals to industry claims of municipal ``failures'' are available at 
http://www.baller.com/barriers.html.
    Closely related to the failure argument is the claim that broadband 
networks are too complex a business for public power utilities. To 
assert that 100-year old entities with a long history of running highly 
complex electric systems cannot operate broadband networks is absurd. 
Public power systems that choose to provide broadband service are well 
prepared to provide such service. Many have used communications 
networks to provide internal services and monitor their electric 
distribution systems. In addition, several APPA members have been 
providing cable television service for over 20 years. Frankfort Plant 
Board in Kentucky has been providing cable service since 1954. 
Muscatine, Iowa, was one of the first cable TV operators in the country 
to deploy video on demand service in 2003. Frankfort Plant Board and 
Coldwater, Michigan, both deployed VoIP service in the summer of 2003, 
prior to when many cable MSOs began offering service. Assertions of 
municipal incompetence or lack of ability to manage broadband networks 
are clearly without merit.
Conclusion
    Public power systems throughout the country are meeting their 
communities' needs by providing access to affordable broadband 
services. Recognizing the importance of broadband for commerce, health 
care, education, and improved quality of life, underserved communities 
are constructing their own networks to compete and thrive in today's 
information age. Many benefits accrue from community-owned 
communications systems including lower prices for consumers, increased 
competitiveness in the marketplace, responsiveness to local needs, 
universal access, and economic development. In spite of the obvious 
benefits of municipal broadband, incumbent telephone and cable 
companies have opposed such projects, pushing for legislation at the 
state level to prevent municipalities from providing broadband. Rather 
than work with local governments to provide service or acknowledge that 
municipalities that choose to provide broadband have legitimate reasons 
to do so, incumbent private providers assert disingenuous claims and 
unsubstantiated arguments. As this Committee begins to formulate policy 
on how best to promote a competitive communications marketplace where 
customers have access to a wide variety of Internet protocol-enabled 
services, APPA hopes the Committee will see through the baseless 
assertions of incumbent providers and recognize the important role that 
public power systems can play in providing such services to underserved 
communities.
                                 ______
                                 
  Prepared Statement of Ronald Sege, Chief Executive Officer, Tropos 
                                Networks
    Mr. Chairman and Mr. Co-Chairman, and Members of the Committee:
    As the proven leader in delivering ubiquitous, metro-scale WiFi 
mesh network systems throughout the world, we appreciate the 
opportunity to endorse S. 1294, the Community Broadband Act of 2005, 
and urge you to include it as part of any legislation rewriting the 
Telecommunications Act of 1996. In addition, we urge you to free up (or 
direct the Federal Communications Commission to make available) 
additional unlicensed spectrum in the 700 MHz band for use by wireless 
community broadband networks.
    In our view and that of the Community Broadband Coalition, 
municipal broadband networks offer the promise of increased economic 
development and jobs, enhanced market competition, improved delivery of 
e-government services, and accelerated universal, affordable Internet 
access for all Americans. With President Bush having set the goal of 
achieving universal affordable access to broadband technology for all 
Americans by 2007, we need to encourage the development of more 
community broadband networks. Nothing could better help achieve 
universal affordable access for all Americans than enactment of S. 
1294. We thus are grateful to Senators Lautenberg and McCain for 
introducing the legislation and Senators Coleman, Feingold, Graham, and 
Kerry for cosponsoring it.
    In just the past few years, our Nation has lost its broadband 
leadership position. Having been 1st in the world in the 1990s, and 4th 
in 2001, the United States has fallen to 16th among industrialized 
nations in broadband penetration. Unfortunately, only 30 percent of 
U.S. households subscribe to broadband services, a reflection of high 
prices, too few choices, and unavailability of attractive services. 
Many countries that are outpacing us in broadband deployment, including 
Canada, Japan, and South Korea, have successfully combined municipal 
systems with privately deployed networks to bring high-speed broadband 
to their citizens.
    In fact, the only bright spot for the United States is in the 
deployment of broadband wireless access points, where the United States 
continues to rank 1st, in part as a result of the emergence of 
municipal systems. We know this well because we are partnering with 
EarthLink, Motorola, and other leading companies in deploying those 
networks around the country.
    In our experience, municipal broadband projects overwhelmingly 
encompass private entities partnering with local governments to bring 
about facility-based competition. An approach that would work in a 
large metropolitan area may not work in a small rural town. But cities 
and towns of every size should have the freedom to choose how best to 
serve their constituents, especially those who have been underserved or 
face high prices or poor service from incumbent providers.
    Rather than wait for their citizens to be served, many community 
leaders have taken the initiative. As a result, municipal networks are 
rapidly expanding and delivering enhanced services throughout the 
country, using a variety of business models. For example, Corpus 
Christi, Texas is today reading 73 gas meters a second over the city's 
WiFi mesh network. St Cloud, Florida is attracting businesses and 
residents with a city-wide WiFi network. In Philadelphia, we have 
teamed with EarthLink and One Economy Corp. to provide the widest 
possible services to citizens at every economic level and in every 
neighborhood of the city, a network that won't cost the taxpayers of 
Philadelphia a cent. Similarly, we have teamed with Motorola and 
EarthLink to bring the benefits of city-wide wireless broadband to 
homes and businesses in Anaheim, California, also at no cost to 
taxpayers. We are working with city officials in Alexandria, Virginia, 
to test a variety of services and are providing the means for the 
Arlington Police Department to enable its police force to enhance its 
law enforcement capabilities through a network we put up in the 
Courthouse-Clarendon corridor. And we soon hope to help New Orleans 
regain its economic footing as we expand the wireless mesh network that 
we helped build in a matter of days last year.
    In the wake of Hurricane Katrina, our Nation painfully learned how 
a lack of first responder communications hampered rescue efforts in the 
Gulf Coast region. Throughout the Katrina ordeal, we were vividly 
reminded that seemingly mundane changes in telecommunications law can 
have unanticipated but profound effects. To ``protect'' its citizens, 
for example, Louisiana and Florida adopted legislation in recent years 
intended to slow the deployment of municipal broadband networks. In 
theory, the legislation has helped traditional suppliers of fixed 
telecommunications services serve existing and potential new customers 
without competition from local governments. But the public policy 
choices made by the Florida, Louisiana, and other state legislatures 
have hurt and will continue to impede first responder access to 
communications by making it difficult or impossible for cities to 
deploy on-the-spot wireless broadband communication systems.
    New telecommunications options, such as wireless broadband, were 
among the fastest to rebuild vital communications used by first 
responders and citizens in the affected regions of the Gulf Coast. WiFi 
mesh technology will stay up the longest when a catastrophic event 
occurs--whether a hurricane, a tornado, or a terrorist attack--and can 
be back up first to aid in the rescue effort. WiFi mesh and other new 
technologies are far superior to the old way of communicating via 
wires.
    In an environment in which business models, technologies and 
citizen requirements are changing faster than any one service provider 
can embrace, our legislative environment should encourage rapid 
deployment of a full complement of approaches to keeping our citizens 
well connected, well served, and safe. Of all the states looking at the 
issue, only the State of Maine seems to really get it. Last year, the 
Maine Legislature adopted legislation that explicitly confirms that 
municipalities have the authority to become providers of wireless 
Internet services. More states should be encouraged to do so. And they 
should be urged to reject, as the Indiana Legislature has just done, 
proposals to restrict the ability of local governments to serve their 
citizens.
    Beyond this, Congress should free up additional spectrum, 
particularly in the highly efficient 700 MHz band. There is a valuable 
opportunity to expand broadband access in the television ``white 
space,'' but municipal broadband networks will only get access to it if 
the Federal Communications Commission completes the proceeding 
proposing this use. Congress should encourage the Commission to finish 
the work it has begun and make this unlicensed spectrum available.
    Yet we worry that, owing to budget constraints, Congress might go 
in the wrong direction and actually tax unlicensed spectrum, whether or 
not it makes more of it available. The Administration's budget, for 
example, urges Congress to enact a new tax, euphemistically described 
as a ``user fee,'' on unauctioned spectrum licenses. It is hard to 
discern precisely what is intended, but at least the White House has 
publicly said it has no intention of taxing WiFi services that operate 
in unlicensed spectrum.
    And well it should. Unlicensed spectrum has spawned investment and 
innovation. Taxes kill investment and innovation. In fact, even a 
nominal tax on WiFi would eviscerate the business models of new 
broadband entrants. With wireless technology, we are helping stimulate 
the torrid pace of broadband deployment (300 systems to date in the 
United States, with 5 million homes expected to be passed by the end of 
the year). This growth in large part is due to high volume shipments, 
which in turn are possible because the spectrum is free. So, instead of 
promoting broadband, taxing and restricting who can use unlicensed 
spectrum will choke it and hurt economic growth. We can't afford that 
as a Nation.
    With this in mind, let's rethink our current telecom policies and 
choose to encourage a wide range of competitors and a true balance 
between ``old'' line carriers and new technologies, between licensed 
and unlicensed spectrum in the United States. As a practical matter, 
this means enacting laws that encourage municipalities and new entrants 
to quickly build competing broadband infrastructure and it means 
ensuring that all competitors can get access to additional unlicensed 
spectrum.
    For that reason, we again urge you to include S. 1294 as part of 
any legislation that would rewrite the Telecommunications Act of 1996 
and to free up (or direct the Federal Communications Commission to make 
available) additional unlicensed spectrum in the 700 MHz band for use 
by wireless community broadband networks.
    Thank you for your consideration.
                                 ______
                                 
  Prepared Statement of Henry Garrett, Mayor, City of Corpus Christi, 
                                 Texas
    Thank you, Mr. Chairman and Members of the Committee, for the 
opportunity to share the experience and vision of the City of Corpus 
Christi, Texas in this proceeding. We applaud the Committee for 
acknowledging the emerging trend of municipal networks across the 
Nation (and indeed, the entire world), and we urge the Committee to 
recognize the importance of continuing to allow--if not encouraging--
cities and towns to implement creative solutions to local issues for 
the benefit of their citizens.
    Before turning to the specifics about our City's municipal network 
project, I believe it is important to view my support for the project 
and my statements generally against the backdrop of my lifelong 
involvement in public service: I spent six years in the Airforce 
Reserves, 26 years as a Corpus Christi Police Officer, six years as 
Chief of Police, and six years as a City Council Member at Large. My 
staff and others involved in the day-to-day operation and planning of 
this project are, like you, public servants first and foremost. Our 
objective, therefore, is not short-term profit, but rather to meet the 
public safety, economic development, educational, and other basic needs 
of the citizens whom we serve. We, like many other public officials 
around the country who have deployed or intend to deploy municipal 
networks, view these efforts as public works projects, and approach the 
issue from a public and long-term viewpoint that is essential to 
harmonize with the narrower, but dynamic, viewpoint of private 
investment.
    Our initial vision for this project centered on a WiFi-based 
Automated Meter Reading (AMR) network, with the objectives of reducing 
costs and lead time, increasing data integrity, improving customer 
service, and mitigating risks associated with reading utility meters. 
With these goals, the City commissioned an engineering study in 2003 
that showed a positive return on investment realized through labor 
savings from the elimination of meter readings by municipal personnel. 
A pilot project to validate the projected returns is completed, and 
approximately 24 square miles are already under this WiFi cloud, with 
more than 3,000 automated water and gas meters. The pilot has proved to 
be very successful, and build out of the remaining 123 square miles is 
scheduled for completion around August 1 of this year. The City has 
authorized approximately $7 million for this AMR network.
    Our $8 million AMR network investment has given us a network with 
far more capacity than the meter reading operations require. 
Accordingly, our vision for the use of the network continues to evolve, 
and we believe we can use the network to provide myriad benefits to 
residents and businesses throughout Corpus Christi. As a consequence of 
this and the evolution of our vision, the City is now in discussions 
with all city departments, a large number of governmental agencies, and 
private sector corporations on how they might benefit from and take 
part in the maintenance, operation, and application support for the 
network.
    On the public safety front, we envision using the WiFi cloud in 
conjunction with private carrier networks to replace our 800 MHz data 
system. The City already purchased software that will allow public 
safety vehicles to seamlessly roam between the WiFi and other networks 
with data speeds 10 to 150 times faster than the 800 MHz system. This 
use can be expanded to other City departments at low cost.
    The improved data speeds will enable the City to make better use of 
existing technologies and applications, and will reduce the cost of 
others. For example:

        1. Public Safety: The system will enable the transfer of ``mug 
        shots'' and streaming video to patrol vehicles, and will 
        provide officers access to criminal history and the capability 
        to perform crime analysis in the field.

        2. Public Works and Utilities: The system will provide in-the-
        field access to the Work Management and Geographical 
        Information Systems, making a wealth of data available at the 
        fingertips of field crews.

        3. Building Inspections and Code Enforcement: The system will 
        provide field access and update capabilities for inspectors, 
        reducing time required to build and to take corrective actions.

        4. Lower the cost of the Automated Vehicle Locator System 
        (AVL), allowing its use in numerous other departments.

    The WiFi cloud will provide invaluable Homeland Security benefits. 
It will allow us to fortify first responders with video, location 
information and seamless access to information. It will improve 
cooperative enforcement and video surveillance efforts between the City 
and the Port of Corpus Christi, the 5th largest port in the United 
States. It will also enable cooperative applications with the nearby 
oil refining community, one of the Nation's largest petroleum areas.
    The system will provide numerous other community benefits as well. 
The technology of WiFi, when deployed on a metropolitan scale, is 
ideally suited to address the digital divide, and remedy the economic, 
social, and educational problems that follow when all citizens are not 
given reasonable access to the Internet. The City and the Corpus 
Christi Independent School District are actively pursuing 
implementation of a system that will allow increased parental 
involvement through the use of the WiFi system, and the City has formed 
a partnership with members of the information technology industry, 
various governmental agencies, and a large hospital system to provide a 
testbed for new, cutting-edge uses of WiFi.
    Broadband connectivity is still in its infancy in the U.S., and as 
a consequence, the foundations for an appropriate governance strategy 
are not yet firm. We believe that empowering local elected officials 
and citizens carries with it numerous benefits, including the creative 
dynamic of local knowledge applied to local situations, public safety 
innovation, Homeland Security advancement, basic services improvement, 
opportunities for private service providers, and a guarantee of equal 
access. In the City of Corpus Christi, we have a clear desire to 
consider a variety of models of partnership with the private sector, 
and in fact the City, together with Northrup Grumman, recently received 
the U.S. Conference of Mayors Award for Excellence in Public/Private 
Partnerships.
    In short, it appears that our vision and our success is limited 
only by our imagination, and we ask the Committee to recognize the 
inherent good of continuing to allow, or even encouraging, local public 
servants to exercise creative approaches to local communications 
issues.
    Thank you for the opportunity to submit these comments, and my 
staff and I would be pleased to assist the Committee and its staff in 
any way as you consider these issues.
The following attachments to this prepared statement have been retained 
        in 
        Committee files:

    Briefing paper entitled: ``The City of Corpus Christi, Texas: A 
Compelling Case for Municipal Communications Systems.''

    Resolution of the City Council of the City of Corpus Christi, Texas 
approving formation of the CC Digital Community Development 
Corporation, and approving its Articles of Incorporation and Bylaws.

    Partnership Prospectus for the City of Corpus Christi Citywide 
Cellular WiFi Network.

    Legal Memorandum prepared by The Baller Herbst Law Group entitled: 
``Key Legal Issues Affecting Community Broadband Projects.''
                                 ______
                                 
         Prepared Statement of Edison Electric Institute (EEI)
    Mr. Chairman and Members of the Committee:
    Edison Electric Institute (EEI) is pleased to submit this statement 
for the record to the Committee. EEI is the premier trade association 
for U.S. shareholder-owned electric companies and serves international 
affiliates and industry associates worldwide. EEI's members serve 97 
percent of the ultimate customers in the shareholder-owned segment of 
the industry and 71 percent of all electric utility ultimate customers 
in the Nation.
    EEI member companies share a longstanding common commitment to 
maintaining the safety, security, reliability, and structural integrity 
of the Nation's critical electric infrastructure, which is essential 
not only to the electric industry but also to the cable and 
communications industries that are attached to it. That is why we have 
concerns with the ``pole attachment'' provision [Section 13 (f)(1)] of 
the ``Broadband Investment and Consumer Choice Act'' [S. 1504] 
introduced by Senators Ensign and McCain, which addresses the rates, 
terms, and conditions for access by third parties to electric utility 
poles, ducts, conduits, and rights-of-way.
    Under current law, cable and telecommunications companies are 
allowed to attach their wires to utility poles at subsidized rates. S. 
1504 would perpetuate--and expand--preferential access rights and 
subsidized rates that now benefit telecommunications and cable 
companies, while failing to address critical infrastructure issues 
caused by increasing numbers of legitimate and illegitimate pole 
attachments. Not only would the proposed legislation exacerbate an 
already unfair cost burden on electric utilities and their customers, 
but it also could threaten the safety, integrity, and reliability of 
the electric distribution system.
    As this Committee considers comprehensive legislation on broadband 
and other telecommunications matters, it should address important 
safety and reliability issues associated with the attachment of third-
party facilities to utility-owned critical wireline infrastructure and 
should require all parties to pay a fair share of the costs of that 
infrastructure.
Background
    The Nation's electric distribution systems--including poles, ducts, 
conduits, and rights-of-way--deliver power along millions of miles of 
lines to neighborhoods, businesses, and consumers, and are a key part 
of the Nation's critical energy infrastructure. These facilities were 
designed and built originally to provide reliable and affordable 
electricity.
    Responsibly sharing utility infrastructure avoids the wasteful 
duplication of facilities on public or private rights-of-way and 
reduces costs and other impacts on consumers. Electric and telephone 
utilities historically have shared their network facilities through 
mutual ``joint use'' agreements. Today, electric utilities own and 
operate the majority of the facilities to which telephone, cable, and 
other telecommunications companies attach their wires.
    The Pole Attachment Act Amendment of 1978 (Section 224) limited the 
rates utilities could charge cable companies for their attachments to 
utility poles and other electric distribution facilities. In the 1996 
Telecommunications Act, Congress amended Section 224 to require that 
electric utilities allow nondiscriminatory access at below-cost 
regulated rates for other entities (except incumbent local phone 
companies) seeking attachments to poles, ducts, conduits, and rights-
of-way. The lowest regulated rates--which cover only a fraction of a 
fair share of the actual costs associated with establishing and 
maintaining the poles--are reserved for cable companies, which were 
seen at the time as ``nascent service providers'' that needed a 
subsidy. As a result, for example, an electric utility that averages 
$80 per pole in annual maintenance and carrying charges is only 
permitted to recover from a cable TV company less than $6 of the annual 
costs associated with owning the pole.
    Legislation currently pending in Congress would expand the list of 
entities eligible for mandatory access and require the lowest 
subsidized cable rates under Section 224 to be available to all cable, 
telecommunications, and broadband providers. S. 1504 would expand 
Section 224 to benefit all ``video service providers, regardless of the 
nature of the services provided,'' not just cable television systems as 
under current law. The result would be a windfall, in the form of 
subsidized pole attachment rates equal to those already enjoyed by 
cable TV companies, for incumbent telecommunications companies that now 
pay negotiated rates for pole attachments.
    Ironically, the communications industries that would benefit from 
preservation and expansion of Federal pole attachment subsidies can 
hardly be described as ``nascent'' any longer. Virtually all of the 
major companies that would reap the benefits of mandatory access and 
subsidized rates are today listed in the Fortune 500, are worth 
billions of dollars, and continue to grow through mega-mergers and 
acquisitions.
Critical Infrastructure Issues Need To Be Addressed
    Electric utility poles, ducts, and conduits are key components of 
the transmission and distribution network that provides our Nation with 
reliable electric service. This network has long been recognized as a 
core infrastructure system critical to the Nation's economy and 
homeland security. Public safety agencies, energy production and 
delivery companies, financial markets, telecommunications companies, 
and transportation, health care, water, and sanitation providers all 
depend on reliable electric and communications services.
    Telephone, cable, and other telecommunications companies routinely 
attach their wires to electric distribution infrastructure. The rapid 
development of new communications technologies and the massive increase 
in demand for communications services, coupled with the numerous 
competitive entrants seeking to deploy those technologies and provide 
such services, have dramatically increased the number, size, and weight 
of communications facilities seeking to attach to the critical 
infrastructure. This universe of existing and potential pole 
attachments raises a number of issues.

   Pole attachments affect the structural integrity, safety, 
        security, and reliability of electric distribution 
        infrastructure.

   Pole attachments increase operation and maintenance costs 
        for electric utilities and their customers.

   Pole attachments cause increased susceptibility to damage 
        caused by ice and wind storms and other natural disasters.

   Pole attachments increase restoration times following 
        natural disasters and other emergencies. For example, each 
        additional wire and device attached or strung along a 
        distribution network adds physical stresses (e.g., weight, wind 
        loading, etc.) to the poles, resulting in an extra layer of 
        complexity and risk from the standpoint of reliability, safety, 
        and maintenance. When a pole is damaged by a storm or other 
        catastrophic event, restoring service is more complex. This 
        complexity is further multiplied when thousands of poles in a 
        large utility system need to be replaced after a widespread 
        natural disaster, such as a hurricane, ice storm, or 
        earthquake.

    The Nation's electric utilities are fully capable of managing the 
shared use of their infrastructure to minimize these risks, but they 
cannot do so effectively in the current regulatory climate, which 
overemphasizes near-term deployment of telecommunications services to 
the detriment of the long-term safety, security, reliability, and 
integrity of the critical wireline infrastructure. For example, under 
present law and regulation, existing communications wires can be 
overlashed again and again with additional cables without an 
engineering evaluation of the ability of the poles to withstand the 
increased wind or ice loading and without any prior notice to the pole 
owner. When inventorying pole attachments, electric utilities routinely 
discover thousands, even tens of thousands, of attachments made to 
their poles without notice or authorization. These practices create a 
public safety issue, because the resulting pole loads may not be in 
compliance with good utility practice or the National Electrical Safety 
Code (NESC), which is the basic guideline on which most utility 
engineering standards are based.
    Historically, promoting a rapid move to competition--not 
infrastructure protection--has been the primary policy goal of Federal 
pole attachment legislation and regulation. Federal legislation enacted 
in 1978 and 1996 focused almost exclusively on access and subsidized 
rates for cable television and telecommunications companies. Safety, 
integrity, and reliability issues important to the protection of 
critical electric and telecommunications infrastructure to date have 
not been addressed adequately by Congress or the Federal Communications 
Commission (FCC).
    Competition is an important goal, and indeed some electric 
utilities plan to provide a competitive ``third link'' to customers 
through the deployment of broadband over power line (BPL) technology. 
But without a safe and reliable electric utility infrastructure, which 
powers and supports cable and communications networks, even existing 
competition will be stymied. Pole attachment legislation must protect 
critical wireline infrastructure that supports both electric and 
communications services by providing for agreements between the 
parties; certification of the number of attachments; pre-attachment 
notification; and payment of ``make-ready'' (e.g., planning, 
engineering, and construction costs) and fair on-going maintenance 
costs.
Unfair Cost Subsidies Imposed on Electric Utilities and Their Customers
    The Federal approach to pole attachment policy and regulation has 
focused on mandating access at rates far below fully allocated costs, 
in order to promote the deployment of new technologies and to foster 
competition. Unfortunately, that policy has not only undermined the 
safety, security, reliability, and integrity of the critical wireline 
infrastructure upon which both electric and communications service 
depends, but it has unfairly forced electric utility customers to 
subsidize cable and telecommunications companies.
    The cable industry can afford to pay its fair share for maintaining 
critical electric infrastructure, as can the other communications 
companies that make up the $1 trillion telecommunications industry. 
Every user of these facilities should pay its full and fair share of 
the actual costs of building and safely maintaining the facilities.
    Under current law, federally regulated pole attachment rates do not 
permit utilities to recover all of the costs actually related to 
supporting and managing such attachments. If pole attachment revenues 
are not sufficient to cover all costs, the difference is made up from 
rates paid by electric customers. The result is a subsidy borne by 
electric utility customers, including low-income customers who do not 
use the cable or new telecommunications products. Pole attachment 
revenues offset utility distribution system costs, and thus are not a 
source of profit for the utility.
    The bottom line is that when the Federal Government requires pole 
attachment rates to be set far below market or even replacement rates, 
they become a subsidy for the attaching entities, at the expense of 
utility customers. To expand the FCC's class of entities entitled to 
subsidized pole attachment rates likely would lead to higher electric 
rates for electric utility customers in order to benefit large, highly 
profitable media and telecommunications conglomerates. This is unfair, 
and distorts critical infrastructure priorities by favoring broadband 
and video at the expense of electricity service.
    Electric utilities also attach their equipment to telephone company 
poles, for which they pay a negotiated rate. Providing a lower 
subsidized rate to telecommunications providers would not only abrogate 
these longstanding reciprocal agreements, but would create a 
significant disparity in the rates that electric utilities are charged 
to attach to telecommunications poles versus what telecommunications 
providers are charged for their attachments to electric utility poles.
    Pole attachment legislation should eliminate--not expand--pole 
attachment subsidies to communications giants now borne by electric 
customers. The best way to prevent subsidies is to allow the parties to 
negotiate the rates, terms, and conditions for any attachments. 
Negotiated agreements, particularly joint use agreements between 
electric and telephone utilities, should not be abrogated. Regulated 
rates should apply only where existing agreements have expired 
according to their terms and the parties are unable to reach agreement, 
and should be phased in over a reasonable transition period to ensure 
that electric consumers are held harmless from rate increases. 
Regulated pole attachment rates should be technology-neutral so that 
all attaching entities pay the same rate regardless of the technology 
involved, and also must ensure that all costs of critical wireline 
infrastructure are shared proportionately among users. When allocating 
pole attachment costs, Congress should ensure that each entity pays for 
the space it uses. In addition, each paying entity (including the pole 
owner) should share equally in the cost of all other space on the pole 
(including space below ground level).
State Utility Commissions Should Be Allowed an Appropriate Role in 
        Regulating Pole Attachments
    State commissions have decades of experience regulating retail 
electric service, including many rules and standards related to utility 
poles, ducts, and conduits. State commissions also regulate local 
telecommunications service.
    Unlike nationwide telecommunications and cable services, pole 
attachments affect local facilities and raise local reliability issues. 
The safety, integrity, and reliability of this critical wireline 
infrastructure are largely dependent on local circumstances (e.g., 
geography, weather) and failures have local consequences (e.g., service 
interruptions, power outages).
    State commissions are well positioned to oversee and regulate these 
attachments while balancing the electricity and telecommunications 
policy issues. And, states have proven they are capable of regulating 
pole attachments. Nineteen states already do so under current law.
    States already are responsible for regulating the retail electric 
facilities subject to Federal pole attachment rules--no Federal agency 
has a similar role. From their long history of telecommunications and 
electric utility regulation, states are well prepared to handle all 
pole attachment issues and appropriately balance the interests of 
utility customers, telecommunications customers, and the public at 
large.
    At the very least, states should be allowed to continue to regulate 
pole attachments and should be allowed a greater role in implementing 
and enforcing uniform pole attachment safety, reliability, engineering, 
and rate standards, and resolving disputes between utilities and 
attaching entities. If a state chooses not to regulate pole 
attachments, the FCC should regulate according to the uniform standards 
outlined above.
Conclusion
    As the threats to the structural integrity of critical wireline 
infrastructure grow, the electric utility industry believes that it is 
time to revise the current public policy regarding pole attachments. 
Instead of forcing electric utility customers to subsidize the likes of 
Time Warner, Comcast, Cox, and the former Bell companies, Congress 
should:

        (1) Emphasize the protection of critical wireline 
        infrastructure and public safety, and establish certain 
        fundamental criteria for installing or modifying attachments to 
        critical infrastructure.

        (2) Provide for an equitable sharing of the costs associated 
        with the ownership of shared critical infrastructure among 
        those who benefit from its use.

        (3) Set minimum notification, certification, and other 
        requirements for gaining access to critical wireline 
        infrastructure.

        (4) Allow continued and, where appropriate, expanded 
        jurisdiction over the shared use of local critical 
        infrastructure to the same state agencies that already regulate 
        the safety, reliability, and cost of local electric and 
        communications utility distribution systems and protect 
        electric and communications consumers.

    EEI and its member companies appreciate this opportunity to outline 
our concerns with the pole attachment provisions of S. 1504 and other 
proposed legislation. We look forward to working with the Members of 
the Committee on Commerce, Science, and Transportation to address the 
issues we have raised.

                                  
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