[Senate Hearing 109-699]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-699
 
                        RURAL TELECOMMUNICATIONS

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 7, 2006

                               __________

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



                    U.S. GOVERNMENT PRINTING OFFICE
30-299                      WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

       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 March 7, 2006....................................     1
Statement of Senator Allen.......................................    59
Statement of Senator Burns.......................................     1
    Prepared statement...........................................     3
Statement of Senator Dorgan......................................     4
Statement of Senator Lott........................................     6
Statement of Senator E. Benjamin Nelson..........................     4
    Prepared statement...........................................     5
Statement of Senator Pryor.......................................    10
    Prepared statement...........................................    10
Statement of Senator Stevens.....................................     1

                               Witnesses

Baum, Ray, Commissioner, Public Utility Commission of Oregon.....    54
    Prepared statement...........................................    56
Dorr, Hon. Thomas, Under Secretary, Rural Development, Department 
  of Agriculture; accompanied by Jim Andrew, Administrator, Rural 
  Utilities Service..............................................     7
    Prepared statement...........................................     8
Garcia, Joe, Governor, Ohkay Owingeh; President, National 
  Congress of American Indians (NCAI)............................    35
    Prepared statement...........................................    37
Goldstein, Mark, Director, Physical Infrastructure Issues, U.S. 
  Government Accountability Office...............................    46
    Prepared statement...........................................    48
Johnson, Mark K., Commissioner, Regulatory Commission of Alaska..    17
    Prepared statement...........................................    18
Mundie, Craig, Senior Vice President, Chief Technical Officer, 
  Advanced Strategies and Policy, Microsoft Corporation..........    28
    Prepared statement...........................................    30
Sarjeant, Lawrence E., Vice President, Federal Legislative and 
  Regulatory Affairs, Qwest Communications International, Inc....    25
    Prepared statement...........................................    26
Squires, William, Senior Vice President/General Counsel, 
  Blackfoot Telecommunications Group.............................    20
    Prepared statement...........................................    22

                                Appendix

Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared 
  statement......................................................    75
Response to written questions submitted by Hon. Ted Stevens to 
  Hon. Thomas Dorr...............................................    76
Smith, Hon. Gordon H., U.S. Senator from Oregon, prepared 
  statement......................................................    75


                        RURAL TELECOMMUNICATIONS

                              ----------                              


                         TUESDAY, MARCH 7, 2006

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:05 a.m. in 
room SD-562, Dirksen 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 welcome you all. We've had a series of 
hearings on communications, and today we're going to look at 
the crucial issue of rural communications.
    This hearing will address the issues other than the 
Universal Service Fund, which we already held hearings on. 
These issues that we will listen to today relate to ensuring 
that all Americans, whether they live in urban, rural, or 
insular areas, have access to basic and advanced communications 
at comparable quality and at reasonably comparable rates.
    We have a range of issues: the roles and grants by the 
Department of Agriculture; intercarrier compensation, the 
system of a phone company paying another phone company to carry 
its traffic; the potential for the use of unlicensed spectrum 
to accelerate broadband deployment; and the challenges of 
improving communications service on tribal lands and in very 
rural areas. All of these topics have our attention, but the 
issue of intercarrier compensation is particularly important as 
we consider revising our communications law. Intercarrier 
compensation reform has huge implications for all carriers, but 
small rural phone companies, who rely heavily upon the revenues 
from access charges, stand to lose the most if reform is not 
carefully crafted. Also, the issue of deploying broadband to 
all of America remains one of special concern to this 
committee.
    Now, our Co-Chairman is not here today. If he has a 
statement, we'll place it in the record and call on Senator 
Burns.
    Do you have an opening statement?

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. Well, I do. And while we're waiting on the 
Under Secretary of Agriculture, I would say that Tom Dorr and I 
were on RFDTV last night talking about this very subject of 
communications in rural areas.
    If you can remember back, in the 1996 Act, whenever--we 
were all highly involved in that--we just had a dickens of a 
time getting any broadband language into that bill, let alone 
rural or whatever. And--because the Internet--that's only 10 
years ago--was not really high on anybody's radar screen here 
in Congress. Those of us who represent and live in rural areas 
knew how important it was, because we were still on dial-up. It 
was really primitive, most of us paying long-distance charges 
plus, paid for the service. And we knew that it would one day 
be the cornerstone of economic development in rural areas. So, 
this isn't our first rodeo when we start talking about 
communications in rural areas.
    Technology provides a greater chance to live where you want 
to now and still hold a good job. Many people, tired of the 
congestion of highways, prefer not to commute; they want to 
telecommute, and that was a big subject here not too long ago. 
So, if a community does not have broadband across this country, 
then they are at a huge competitive disadvantage. It is just 
that simple.
    I think it was pointed out last night on the television 
show on that panel. We went for an hour talking about what is 
important and what is not important for our rural areas. And it 
came down to the bottom line, if you just don't have broadband 
communications, you just can't get there.
    Although Internet penetration has grown in rural 
communities, the gap still exists between them and their urban 
communities. The gap appears to be narrowing. According to one 
study released in February of this year, 24 percent of rural 
Americans had high-speed Internet communications at home in 
2005, compared to 39 percent of normal adult Americans in the 
more urban areas. Now, that sends a positive message that we're 
growing. But we can do better.
    When we talked about the RUS section of the farm bill, 
there was great debate on how much money we should invest in 
rural America through the Rural Utilities Fund. And now that 
becomes even more important, and I would imagine it will be 
talked about again next year, in the year 2007, when we rewrite 
the farm bill.
    I'm particularly concerned about telephone and Internet 
service on tribal lands. I have seven reservations in my state, 
and they're still behind the time, because of deployment of 
broadband in their areas. And according to the GAO report, only 
69 percent of Native American households on tribal lands had 
telephone service, compared to 98 percent for the rest of the 
country. And, of course, when the Chairman said, this morning, 
that we've already had a hearing on Universal Service, 
Universal Service plays a key role in order to get these 
services onto our reservations. And I would surmise that 
Universal Service will probably play the largest role in the 
deployment of broadband into our tribal lands and rural areas.
    So, we need to provide some incentives for companies to 
continue to expand broadband facilities and ensure that all 
Americans have access to Internet regardless of where they 
live. And we can provide such incentives if we can continue to 
support and show the strong support we have for Universal 
Service. It's just as important as the broadband deployment. 
Universal service is just as important as voice. And it's just 
as important as electricity was, way back in the 1930s, of 
wiring America for electricity.
    So, I applaud the Chairman for having this hearing this 
morning. I hope the information that we gather here would point 
us in a direction making policy where that deployment can be 
made into rural areas.
    And I thank you. And I will submit the rest of my statement 
for the record, Mr. Chairman.
    [The prepared statement of Senator Burns follows:]

   Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana

    Broadband deployment is more vital than ever for the future of 
rural areas like Montana. Access to the Internet is indispensable in 
providing the same opportunities for rural Americans. Without Internet 
access rural residents cannot participate in the Nation's educational 
and health care systems that exist for Americans in urban areas. 
Without Internet access, every American cannot fully participate in the 
Internet economy.
    Technology provides a greater chance to live where you want and 
hold a good job. Many people, tired of the congestion on the highways, 
prefer to telecommute. If a community doesn't have broadband, they're 
at a huge competitive disadvantage--it's that simple.
    In the 21st Century, how do rural areas compete against low-wage 
foreign workers? We ensure that U.S. workers can obtain broadband 
services at affordable prices no matter where they live. The GAO 
recently agreed--recommending the government invest in more broadband 
infrastructure to improve the U.S. workforces' human capital and skill 
level.
    Although Internet penetration has grown in rural communities, a gap 
still exists between them and suburban and urban communities. The gap 
appears to be narrowing. According to a Pew Internet & American Life 
Project Survey released in February of this year, 24 percent of rural 
Americans had high-speed Internet connections at home in 2005, compared 
with 39 percent of non-rural adult Americans. In 2003, only 9 percent 
of rural residents had broadband at home.
    That, to me, sends a positive message about the availability of 
broadband access in rural areas and the demand for those services--but 
we can do better. The U.S. currently lags behind some countries in 
broadband access--this is unacceptable.
    I am also particularly concerned about telephone and Internet 
service to tribal lands. According to a recent GAO report, only 69 
percent of Native American households on tribal lands had telephone 
service, compared to 98 percent of the rest of America.
    And we don't even know Internet subscribership statistics, 
apparently because the information is not currently collected. That is 
why I am an original co-sponsor of legislation that will require this 
information to be kept.
    We need to provide incentives for companies to continue to expand 
broadband facilities and ensure that all Americans have access to the 
Internet regardless of where they live.
    One way I'll provide such an incentive is to continue my support of 
Universal Service. The nearly 100-year commitment Congress and this 
Nation have had to Universal Service has been indispensable in Internet 
deployment in rural areas.
    Recently I proposed legislation, S. 2256--or the NetUSA bill--
addressing Universal Service. My proposed legislation will speed up 
deployment of broadband to rural areas and preserve and improve 
Universal Service.
    Wireless telecommunications is also a key component in deploying 
both voice and broadband services to rural America. In a letter last 
month to FCC Chairman Kevin Martin, I noted the importance to rural 
America of smaller spectrum licensing areas. Creating some smaller 
service areas for licensed spectrum would create an incentive to build-
out in rural areas.
    I applaud Chairman Stevens for scheduling this hearing, and look 
forward to working with my colleagues on issues that are so vital to 
the future of rural America.

    The Chairman. Senator Dorgan?

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you very much.
    We have an Energy hearing downstairs about three floors, 
and I'm going to have to go back to that hearing in a few 
minutes, but I wanted to, first of all, thank you for holding 
this hearing.
    And I agree that the first and most important hearing is on 
Universal Service, for those of us that care about rural 
telecommunications. And we've had that hearing. Now we need, of 
course, to find a way to shore up that funding base and make 
sure Universal Service support is available and is going to be 
fixed in the longer term.
    But I remain worried that in rural areas we will continue 
to be left behind in the information revolution and in rural 
telecommunications. My colleague from Montana pointed out that 
there is about 50 percent greater penetration on high-speed 
interconnections--Internet connections in the cities than there 
are in rural states--24 percent in rural America, to 39 percent 
in urban and suburban dwellers. Forty-nine percent, almost one-
half, of North Dakotans have access to only one broadband 
provider. And so, there's still a lack of competition in those 
areas.
    And it's also the case that medicine, education, and 
business all rely on advanced networks. And, to the extent 
that, in medicine, education, and business, as they rely on 
advanced networks, those networks are not as available in rural 
areas as they are in urban areas, it predicts and predetermines 
that the economic development and the economic opportunity will 
exist in urban areas. That's why there is such a desperate need 
here to make sure that we don't have a digital divide and we're 
not leaving areas behind.
    Senator Burns and I wrote the Rural Broadband Loan Program 
in the 2002 farm bill that's worked in some cases, in fits and 
starts. But we need to do much, much more.
    Senator Smith, Senator Pryor and I have introduced S. 1583, 
the Universal Service for the 21st Century Act, which also 
includes some provisions dealing with broadband.
    Let me just, finally, point out that Mr. Mundie, from 
Microsoft is here. I know they've been vocal in the need for 
network neutrality in order to spur the growth of the Internet 
and broadband deployment. And I share that view. That's going 
to be another controversial issue before this committee.
    And, finally, I notice the President of the Congress of 
American Indians is with us today. Again, I'm interested in 
testimony about how we can aid tribal governments in tribal 
lands in improving their conditions by advancing their 
telecommunications networks. And I look forward to working with 
them on that, as well.
    Mr. Chairman, thank you very much.
    The Chairman. Thank you.
    Senator Ben Nelson?

             STATEMENT OF HON. E. BENJAMIN NELSON, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Ben Nelson. Thank you, Mr. Chairman. And, again, 
thank you for holding this hearing on rural telecommunications 
issues. Obviously, coming from a state like Nebraska, I have 
more than a slight interest in the subject of this hearing 
today.
    Obviously, telecom reform has to address the needs of every 
American consumer, regardless of where they live, whether it's 
urban or rural. Rural areas, like Nebraska and others, can't be 
left behind as the process moves forward. Technology is part of 
the answer.
    And I'd like to ask that my complete statement be included 
as part of the record, and I'll abbreviate it.
    The Chairman. It will be. All the statements will be 
printed in the record.
    Senator Ben Nelson. Thank you.
    Universal Service has really been, in many respects, an 
important deployment of communications infrastructure in the 
rural areas. And I believe we need to ensure the long-term 
viability of the Fund. So, I'm looking forward to how that'll 
be handled today.
    Centuries ago--a century-plus ago, I should say--we went 
through rural electrification with the REA legislation, 
recognizing that rural areas are very often the last to be 
connected, whether it's for electricity, for Internet, whatever 
it may be. And one of the best ways we can deal with that is 
through the Universal Service Fund, but we need to modernize it 
to promote deployment of new communications technologies, as 
well. It's not just collecting dollars, it's making sure that 
they are appropriately spent.
    In addition, I think technology holds a great deal of 
future for rural America, but I think we need to do the 
following three things:
    We need to ensure the stability of Universal Service in 
order to preserve affordable telephone service in rural areas--
obviously, they don't seem to pay for themselves, it's got to 
have that sort of protection--but also to continue support for 
schools, libraries, and rural healthcare providers, because so 
much more is involved than simply having, if you will, 
telephone service. It's telephone service for convenience, but 
also for other areas.
    Second, we need to promote private investment in deployment 
of broadband, Internet, and other advanced telecommunications 
services in rural America.
    Three, we need to encourage increased wireless coverage, an 
introduction of new wireless services to rural America.
    And, of course, at the end of the day, we want to be sure 
that we are encouraging, promoting competition, which, in the 
final analysis, when competition will work, many of these 
problems will be satisfied. But, in the interim, I think, it's 
more than priming the pump, it's making sure that the pump 
works. So, I want to make certain that we focus on these issues 
today.
    And thank you very much, Mr. Chairman.
    [The prepared statement of Senator Ben Nelson follows:]

            Prepared Statement of Hon. E. Benjamin Nelson, 
                       U.S. Senator from Nebraska

    Mr. Chairman, thank you for holding this hearing on rural 
telecommunications. Obviously, coming from Nebraska, I have a 
particular interest in the issues that will be discussed here today.
    As the Committee holds hearings this year with an eye on developing 
telecom reform legislation, I am pleased with the attention that has 
been given to what telecom reform may mean for rural areas of the 
country.
    I believe any telecom reform must address the needs of every 
American consumer regardless of where they live. Rural areas like 
Nebraska cannot be left behind.
    Technology holds enormous economic promise to rural America, and 
innovation and competition must be encouraged in even the most remote 
areas of our country.
    Last week, the Committee held hearings to explore how Universal 
Service is being challenged by technological changes and what possible 
reforms to the program should be considered.
    Universal Service has been important for deployment of 
communications infrastructure in rural areas of this Nation, and I 
believe we must ensure the long-term viability of the fund.
    Therefore, I look forward to the discussion today on Intercarrier 
Compensation, given the impact reforms in this area may have on the 
Universal Service Fund.
    I believe Universal Service should be modernized to promote 
deployment of new communications technologies, such as broadband 
Internet, in rural areas.
    I see the development and deployment of new communications 
technologies as a catalyst for economic development that can fuel 
growth and progress in rural states like Nebraska.
    In order to tap into the infinite potential technology holds for 
rural America, I believe we need to do the following:

        1. Ensure the stability of Universal Service in order to 
        preserve affordable telephone service in rural areas, and for 
        all Americans, as well as to continue support for schools, 
        libraries and rural health-care providers.

        2. Promote private investment in and deployment of broadband 
        Internet and other advanced telecommunications services, in 
        rural America.

        3. Encourage increased wireless coverage and introduction of 
        new wireless services to rural America.

    We must ensure that everyone--regardless of where they live--
benefits from modernization of our telecom laws.
    Thank you, Mr. Chairman. I look forward to the testimony.

    The Chairman. Thank you, Senator.
    Senator Lott?

                 STATEMENT OF HON. TRENT LOTT, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. Thank you, Mr. Chairman, for having this 
hearing as we continue to look at all of the various important 
areas that will be involved in our telecommunications 
legislation.
    When we passed the Act in 1996, which I was very much 
involved in, we established a lot of rules and regulations 
under which the industry should play. We wanted to encourage 
more competition and technological development. Some people 
would be critical, but I think we succeeded beyond our wildest 
imagination. Technology has really changed the industry. So, 
we've got to pass legislation, new legislation, to make every 
American have better access and choice in this field.
    I think it's important that we move on this in the next 
couple of months. And an important component will be what we do 
in the rural area. And, of course, we've been having hearings 
on the USF fund. And so, we'll continue to work on that.
    There has been criticism directed at the USDA program 
regarding the Rural Broadband Access Loan and Guarantee 
Program. And we've got to find a way to ensure this program 
works as it was intended.
    And we also must act to ensure that the Indian Country 
areas stop lagging behind the rest of the Nation. Therefore, we 
want to get some suggestions from you, Mr. Dorr. I look forward 
to hearing your testimony.
    The Chairman. Thank you very much.
    Mr. Dorr is here now. Mr. Dorr, we welcome you. All the 
statements of the witnesses today will be printed in the record 
in full as though read. We hope you will summarize yours as 
much as possible.

   STATEMENT OF HON. THOMAS DORR, UNDER SECRETARY FOR RURAL 
  DEVELOPMENT, DEPARTMENT OF AGRICULTURE; ACCOMPANIED BY JIM 
                    ANDREW, ADMINISTRATOR, 
                    RURAL UTILITIES SERVICE

    Mr. Dorr. I certainly will.
    Let me apologize for being late. I've learned that when a 
tree falls in the forest, no one may hear it, but if they 
decide to cut up two of them in Washington, D.C., there's a 
traffic jam.
    [Laughter.]
    Mr. Dorr. But, Chairman Stevens and Members of the 
Committee, first of all, I do apologize for being late. And I 
do appreciate the work that all of you are doing, especially 
this group of hearings regarding these communications issues 
and policies.
    First, I would like to introduce the gentleman at my right, 
who is our administrator for the utilities programs responsible 
for administering the broadband program, Mr. Jim Andrew, native 
of Millen, Georgia. And I think he's going to bring a great 
deal of leadership to this program.
    From my standpoint, I am especially pleased that you are 
holding this hearing today regarding rural telecommunications, 
which, in today's digital global economy, includes telephony, 
data transmission, video transmission, and even mobility.
    A key opportunity for rural communities today arises from 
the communications revolution, especially broadband. The title 
of your hearing is ``Rural Telecommunications,'' but, in 
today's digital global economy, broadband and 
telecommunications simply cannot be separated.
    Information technology is producing the most dramatic 
decentralization of information in human history. Today, data 
can be easily shared across great distances. We no longer need 
everyone in the same building so they can talk or shuffle paper 
from desk to desk. Administrative structures, manufacturing and 
distribution networks, can, in fact, be decentralized. And, to 
a degree unprecedented in history, people are going to have 
choices about where to live and how to work. And the same is 
true of businesses. From a rural development perspective, this 
leverage is something I like to call ``place.'' It lets you 
effectively live locally and compete globally.
    Bottom line, broadband has the potential to make rural 
communities more competitive than they have been in 
generations. The Administration recognizes this potential, and 
we are making significant progress toward President Bush's call 
for universal affordable access to broadband technology by 
2007.
    Over the last 5 years Rural Development has, in fact, 
invested $4.2 billion toward this goal. The Rural Broadband 
Access Loan Program began making loans in 2003. And, to date, 
we have approved 53 applications, for an approximate total of 
$850 million. Demand for the program remains strong, and we 
have streamlined the application process to ensure that we 
respond to all applications as quickly and efficiently as 
possible. Our specialists have reviewed all applications 
received under this program, and one-third of those 
applications met the eligibility requirements and received 
approval for funding.
    Over a third of the Community Connect Broadband Grants made 
by USDA Rural Development, 27 out of 75, have gone to tribal 
entities. As one example, the Havasupai, down in the bottom of 
the Grand Canyon, the last community in the United States to 
get mail by mule. Last year, USDA presented a check for $1.3 
million to install wireless broadband Internet service. At the 
other end of the country, in Hughes, Alaska, USDA did the same 
for a native village of 78 people. Projects like this open the 
door to economic development. And, in Hughes, for example, the 
tribe is going to use its website to facilitate the sale of 
arts and crafts, as well as value-added seafood products, and 
residents are attempting to earn income by providing data-
processing services. In addition, videoconferencing will 
enhance educational and healthcare options.
    These investments play an important role in Rural 
Development's holistic approach to providing an array of 
capital investment that totals approximately $14 billion 
annually. We are helping rural families and businesses increase 
their economic opportunities, as well as to improve their 
quality of life.
    The broadband program authorized by the Farm Bill is in the 
third year of loans. Rural Development is looking at both the 
process and the structure of the broadband program. With this 
review of all aspects of the broadband program, we will make 
the changes we can, and may suggest others to make this program 
more user friendly while protecting the taxpayer investment in 
broadband deployment.
    This is a dynamic industry, as you've indicated, and you 
can listen to the news or look at the newspaper each day, and 
read of new inventions and new innovations. But broadband is 
not an end in and of itself, it is a tool to be used. It helps 
to bridge barriers of time and distance that rural America has 
faced through the years.
    We are witnessing the changes one village or town, one 
business, one family at a time. Rural America is transforming. 
It's not going to happen overnight, but if we do our jobs 
right, I am convinced that smaller cities, smaller towns in 
rural areas, including tribal lands, have a very bright future 
ahead.
    Thank you. And I'm prepared to answer any questions you may 
have.
    [The prepared statement of Mr. Dorr follows:]

     Prepared Statement of Thomas Dorr, Under Secretary for Rural 
  Development, Department of Agriculture; accompanied by Jim Andrew, 
                 Administrator, Rural Utilities Service

    Chairman Stevens and Members of the Committee, I appreciate the 
work you are doing and especially this group of hearings regarding 
communications issues and policies. From my standpoint, I am especially 
excited that you are holding this hearing today regarding rural 
telecommunications, which in today's digital global economy, includes 
telephony, data transmission, video transmission, and even mobility.
    A key opportunity for rural communities today arises from the 
communications revolution, especially broadband. The title of your 
hearing is ``Rural Telecommunications,'' but in today's digital, global 
economy, broadband and telecommunications cannot be separated.
    Information Technology (IT) is producing the most dramatic 
decentralization of information in human history. Today, data can be 
shared easily across great distances.
    We no longer need everyone in the same building so they can talk, 
or shuffle paper from desk to desk. Administrative structures, 
manufacturing, and distribution networks can be decentralized.
    To a degree unprecedented in history, people are going to have 
choices about where to live and how to work. The same is true of 
businesses. From a rural development perspective, this leverages 
``Place.'' It lets you live locally and compete globally.
    Bottom line, broadband has the potential to make rural communities 
more competitive than they have been in generations. The Administration 
recognizes this potential, and we are making significant progress 
toward President Bush's call for universal, affordable access to 
broadband technology by 2007.
    Small businesses and individual knowledge workers in remote 
communities can now be just a click away from the global marketplace. 
With a modem, you can do business with anyone in the world. Through our 
rural telecommunications and broadband programs, USDA Rural Development 
is helping rural communities get connected.
What Have We Seen in the Rural Development Programs?
    The programs under the authority of USDA Rural Development that 
play a role in bringing high-speed telecommunications services to Rural 
America include the telecommunications loan program, started in 1949, 
the Broadband Access Loan Program, authorized by the 2002 Farm Bill, 
the Community Connect Grant Program funded through the Distance 
Learning and Telemedicine Authority, and the Distance Learning and 
Telemedicine Grant Program, which makes use of high speed 
telecommunications.
    The Rural Broadband Access Loan Program began making loans in 2003. 
To date, we have approved 53 applications for an approximate total of 
$850 million. Demand for the program remains strong, and we have 
streamlined the application process to ensure that we respond to all 
applications as quickly and efficiently as possible. Our specialists 
have reviewed all applications received under this program, and one-
third of those applications met the eligibility requirements and 
received approval for funding. For Fiscal Year 2006, over $650 million 
in broadband loan funding is available for new applications.
    The approved applications cover a wide range of technologies 
including digital subscriber line, fiber-to-the-home, hybrid fiber 
coax, wireless and broadband over powerline facilities. Of the loans 
that have been approved approximately 23 percent have been to start-up 
entities. Other entities receiving loans include existing independent 
telephone companies, cable companies and broadband companies.
    Statistics compiled from the approved loans indicate that 41 
percent of the communities included in the applications did not have 
access to broadband service, and 49 percent of the communities had 
limited access to these services. The average penetration rates (usage 
percentages) for the unserved communities are projected to be 42 
percent of households passed and for the underserved communities 12 
percent of households passed. (The 12 percent comes from both new users 
and users that switch from other providers. Information is not yet 
available for how much overall community use has increased.)
    As good stewards of the taxpayers' money, we must make loans that 
are likely to be repaid. One of the challenges in determining whether a 
proposed project has a reasonable chance of success is validating the 
market analysis of the proposed service territory and ensuring that 
sufficient resources are available to cover operating expenses 
throughout the construction period until such a time that cash flow 
from operations become sufficient.
    The loan application process that we have developed ensures that 
the applicant addresses these areas and that appropriate resources are 
available for maintaining a viable operation.
    The broadband program authorized by the Farm Bill is in the third 
year of loans. Rural Development is looking at both the process and the 
structure of the broadband program. With this review of all aspects of 
the broadband program, we will make the changes we can and may suggest 
others to make this program more user friendly while protecting the 
taxpayer investment in broadband deployment.
    In addition, USDA Rural Development requires any infrastructure 
built under the traditional telecommunications program to be broadband 
capable. This requirement has been in place since the mid 1990s to 
ensure quality service to rural citizens. USDA's goal is to provide the 
best quality service possible at a reasonable price for rural citizens.
Native American Tribal Lands
    Over a third of the Community Connect Broadband Grants made by USDA 
Rural Development--27 out of 75--have gone to tribal entities. As one 
example, the Havasupai--down in the bottom of the Grand Canyon--is the 
last community in the United States to get mail by mule. Last year, 
USDA presented a check for $1.3 million to install wireless broadband 
Internet service. At the other end of the country, in Hughes, Alaska, 
USDA did the same for a native village of 78 people.
    Projects like this open the door to economic development. In 
Hughes, for example, the tribe is going to use its website to 
facilitate the sale of arts and crafts as well as value-added seafood 
products. Residents will be able to earn income by providing data 
processing services. Videoconferencing will enhance educational and 
health care options.
    The Pew Report that was released the first part of 2006, reports 
some different trends than we have seen in previous years. In the past, 
we have seen figures that indicated Internet usage was tied to income, 
education, and age.
    The numbers we are seeing in this report indicate that availability 
is the number one factor affecting Internet usage. If broadband service 
is available, rural citizens and businesses seem to have as high a 
usage rate as any urban area.
    There are some other issues. On average, it costs three times more 
to provide service to rural customers, than to customers located in 
urban areas. Availability and affordability cannot be separated. 
Competition improves affordability, and often, the quality of service. 
Lack of density and the remote nature of many communities add problems 
not found in urban areas. Problems such as dealing with environmental 
challenges or providing wireless service through mountainous areas, all 
add to the cost of deployment.
    This is a dynamic industry. You can listen to the news or look at 
the newspaper each day and read of new inventions and new innovations. 
But broadband is not an end in its self. It is a tool to be used. It 
helps to bridge barriers of time and distance that rural America has 
faced through the years.
    We are witnessing the changes. One village or town . . . one 
business . . . one family at a time, Rural America is transforming.
    It won't happen overnight--but if we do our jobs right, I am 
convinced that smaller cities, small towns, and rural areas, including 
Tribal Lands, have a very bright future ahead.

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    The Chairman. A mike? I didn't know I needed a mike, but--
sorry.
    [Laughter.]
    Senator Pryor. Mr. Chairman, I'll just submit my statement 
for the record.
    Thank you.
    [The prepared statement of Senator Pryor follows:]

   Prepared Statement of Hon. Mark Pryor, U.S. Senator from Arkansas
    I believe that government investment and the Universal Service Fund 
is working to enable rural America to play a vital role in the Nation's 
economy. However, much work remains to be done. In my view, support for 
a national, affordable, broadband build out is much like support for 
our Nation's highway system--the payoffs are not always immediate, 
equal or even transparent but inclusion for all Americans is essential.
    In rural Arkansas, and much of rural America in general, the 
challenges for a meaningful national broadband deployment won't be 
easy. It will take more investment and a special understanding of the 
population's limitation. In addition to having a network available, 
many rural Arkansans who want and need to participate in the so-called 
communications revolution--including broadband--are older and 
financially restrained. It is difficult for many to afford computers or 
the monthly Internet expense. These are challenges that I hope that we 
can address along with deployment.
    The future is clear to me--rural American must have broadband to 
create jobs and to stimulate their economies. I look forward to working 
with the Committee on these important issues.

    The Chairman. Thank you very much.
    Well, I do hope that Senators will keep their questions 
short, so we can get this.
    I have one that I'd like to ask you. We still have 150 
villages in Alaska that don't have rapid communication dial-up. 
And you're mentioning loans. Every time I hear that, in India, 
they're answering the phones for Hilton and Marriott and 
everyone else, they can't borrow money, because they don't have 
any economy to pay it back. When are you going to look at 
grants for some of our rural areas, rather than loans?
    Mr. Dorr. We have had the Community Grant Program. It's 
approximated about $25 million a year. And we have consistently 
made those grants. I believe that, over the last 3 or 4 years, 
in excess of a third of those grants have gone to tribal 
communities throughout the country, a large number in Alaska. I 
realize that there is substantial need, but, as you know, 
resources are tight.
    The Chairman. Yes, every time I add money, I'm accused of 
adding pork. As a matter of fact, one Senator told me it was 
Eskimo ice cream. But, as a matter of fact, we can't get that 
money without add-ons. We can't get that money without 
earmarks. And now, I read, the President wants the line-item 
veto. If I put the money in, he will veto it anyway. How are we 
ever going to get the 21st century into Alaska unless you make 
some grants up there?
    Mr. Dorr. Well, sir, it's a good question, and we'll look 
into it and see what it takes, and see what the existing 
applications for grants are, and what we're short, and we'll 
get back to you on that.
    The Chairman. Well, give me an answer within about 30 days, 
and clear it with the OMB, and we'll put it in the 
appropriations bill, with your approval, I hope, this year.
    Senator Burns?
    Senator Burns. Well, Secretary Dorr, good to see you again. 
As we were on a show last night, with Orion Samuelson, and it 
was rather enlightening. I just told the Committee, before you 
got here, and those attending this hearing this morning, after 
we went through all the things in economic development in rural 
areas, it come down to the fact that this particular item is 
probably the cornerstone, if they're going to experience any 
growth at all in rural areas.
    I have no questions for you, other than the fact that I 
would have to associate myself with the Chairman this morning--
we just need somebody down there dedicated to the idea. Because 
if we make up our mind to do it, we can do it. But you need 
some people that are highly dedicated, working with incumbents 
and new entrants into rural areas, both wireless and wired. I 
can't see the wired end of it; but the wireless, I can. And the 
technology we have today has dedicated a way to do it.
    I still think the best vehicle is through Universal 
Service. I really believe that that's the area where we really 
need it. We don't only need it as a commercial application. 
Secretary Dorr, you were in Plains, Montana. That little 
critical-access hospital depends on their interact capabilities 
with another medical corridor. And so, it's just absolutely 
important.
    And I think if we can make up our mind, we've done some 
things in the energy bill that will put agriculture into the 
energy business, along with food and fiber. We did that, also, 
in the 2002 farm bill. Now we've got the energy bill positioned 
where it ought to be. There's sort of a method to our madness 
here. And then, when we rewrite the farm bill next year, we 
will have these two items that will have very, very high 
visibility, as far as reenergizing rural America.
    And so, I appreciate your work in that respect. And I know 
what you run into. You run into the same thing we run into, and 
that's called bureaucracy and motivating people. And fear is 
usually the best motivator, and the great fear is that if they 
don't get it done, we're going to fire them.
    [Laughter.]
    Senator Burns. That usually gets their attention right 
away. And that's what we've got to do in this case.
    So, thank you for coming. I appreciate your testimony this 
morning. And I think we know where we want to go. And now we've 
got to work together and make sure we've got a roadmap to get 
there as quickly as we possibly can.
    Thank you very much.
    The Chairman. Senator Nelson?
    Senator Ben Nelson. In many areas of rural Nebraska, 
including some tribal areas in Nebraska, wireless coverage lags 
that experienced in the urban areas. Wireless coverage is 
particularly important to people living in rural areas. In 
addition, we're hoping that wireless will be an economical way 
to get broadband out to those places where it's not currently 
available.
    So, my questions are: How can we encourage better wireless 
coverage, and how can we encourage deployment of wireless 
broadband?
    Mr. Dorr. Well, this is, obviously, a complex and 
complicated issue. That has come up frequently in travels that 
I've had around the country. I usually broach the issue by, 
first of all, asking everyone in the room to, ``Raise your hand 
if you've had the same cell phone longer than 3 years.'' And 
about 10 percent of them do. And then I ask them to raise their 
hand if they've had the same cell service provider longer than 
3 years. And, again, you get, frequently, no more than 10 
percent who do, as well.
    The difficulty with deploying these broadband loans in a 
way in which collateral has something to collateralize them 
with is exemplified by that observation.
    When we are making loans into competitive environments, 
frequently what we're finding is that our traditional telecom 
infrastructure programs to independent and cooperative 
telephone companies in rural America have done a very good job 
over the last several years of deploying broadband and wireless 
connectivity access. It's the medium-sized communities where 
there are stronger, more aggressive competitors, where that 
frequently is less likely to be the case.
    Mr. Andrew is pulling his team together in the process of 
reevaluating all of the guidance that they're using to make 
these loans and grants available. And I have a great deal of 
confidence that they're going to be successful over the next 
couple of months in reevaluating how better to do this.
    Senator Ben Nelson. Well, you wouldn't be suggesting, I 
would imagine, that competition makes it more difficult, if 
people are changing their service provider or they're changing 
their equipment. I would assume that's because competition is 
working. But would that be true in the rural areas, where 
there's less competition?
    Mr. Dorr. I don't think it's an issue of competition so 
much as an issue of technology. The technology is evolving so 
rapidly that when you try to make a loan and collateralize it 
with an existing level of technology, frequently it makes it 
more difficult than one would anticipate.
    So, we have no problem with competition, but it is trying 
to get your arms around the technology in the environment with 
a market share that does make it more difficult to comprehend 
how you make a loan that is well collateralized and that has an 
assurance of being successful.
    I think it's interesting that, over the last 3 years, we've 
actually made $850 million, or thereabouts, of broadband loans 
through the program. And we think most of them are pretty solid 
loans, although time will tell.
    Senator Ben Nelson. Well, it sort of goes to what the 
Chairman was saying earlier about, in some cases, loans may be 
less advisable than outright grants if the objective is to 
still get the modernization and availability of that service to 
certain areas, where loans don't necessarily work as well.
    Mr. Dorr. I think that's something that time will tell, 
quite honestly. It's not like plumbing, electricity, and rural 
water being put into an environment where there was absolutely 
none there in the first place. Now you do have in many cases, 
telephony providers and others, and they're all involved in 
this, one way or the other. The question is, what level of 
bandwidth access can they provide?
    Interestingly enough, the Pew organization just recently 
put out a study that showed that over the last 4 years there's 
been a substantial gain in penetration of broadband access in 
rural America. So, I think this is something that we are, in 
fact, looking at to try to understand better how this occurred.
    Senator Ben Nelson. Well, there are rural areas, and then 
there are rural areas. Nebraska is now categorized as an urban 
state, because of the population base being located in a 
certain quadrant. But the rest of the state is far less urban, 
and is--would totally qualify as rural. Would that Pew study 
really apply to the more--the least populated areas within the 
country?
    Mr. Dorr. I've read through it a couple of times, and I'm 
not exactly sure of the survey sample. But I do think they were 
fairly substantive rural samples that were drawn. So, yes, my 
sense is that it would pretty much typify rural, versus the 
kind of urban that you're talking about.
    Senator Ben Nelson. If we turn to Universal Service, are 
there any improvements that you're looking at to increase the 
capability of Universal Service payments to support any kind of 
increase in technology or service availability?
    Mr. Dorr. There's nothing that I am aware of at this time. 
I don't know if Mr. Andrew is aware of anything.
    Senator Ben Nelson. Would that be something we ought to be 
looking at, or are we going to continue to do what we've always 
done, so we always get what we've always got? Are we--is there 
a way to modernize the availability and the use of Universal 
Service funds?
    Mr. Dorr. Well, I believe that, historically, our telecom 
programs have depended on Universal Service funds to provide 
some of the debt service in these rural areas. The definition 
of ``Universal Service,'' and how extensively it's used, I 
believe, occurs outside of our agency.
    Senator Ben Nelson. And then, finally--and this may be 
outside your area, as well--but do you have any suggestions for 
improvements that we might make to spectrum auctions? Or is 
that outside of your area, as well?
    Mr. Dorr. That is not something that we, at the utility 
programs, typically get involved with, no.
    Senator Ben Nelson. OK. Well, I appreciate your answers. 
And thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Pryor?
    Senator Pryor. Thank you, Mr. Chairman.
    I just have a few questions. I'll try to be brief.
    And, first, for Mr. Goldstein, at the GAO, I just have a 
question, a big-picture question about the accuracy of your 
data. And in your statement you said that--taking some of the 
data that you have, it provides an elementary view of where 
high-speed Internet service subscribers are located. Are you 
saying that you don't have very accurate data about rural 
America in broadband?
    Mr. Dorr. Well, no, I think we do have accurate data 
relative to where our loans are deployed. In fact, we do know 
where those are, yes.
    Senator Pryor. And, in terms of your loans, you know where 
that is, but you may not know where--what areas are getting 
broadband outside of your loan areas. Is that fair to say, or 
do you know?
    Mr. Dorr. No, I think there is an evolving understanding of 
where the underserved areas and the unserved areas are. It's 
been a bit of a trick to get our arms around it, but I think 
they're getting a better handle on that. I would defer to Mr. 
Andrew, if he has anything to add to that.
    Mr. Andrew. Senator, we've been looking at that very 
carefully, where we can get more accurate information that is 
current, because, as we said, this program is evolving daily. 
Every day, somebody comes in my office with a new technology, a 
new idea, a new approach to things. And one day it's one thing, 
and the next day it's changed completely. And we have 
considered doing some studies. But every time we consider that, 
we wonder how long the facts--the information would be factual.
    For example, sir, one person has said to me that maybe 
we've already got broadband coverage in this country now, 
because we've got satellites. If a satellite can reach every 
corner of the country, then do we have coverage? And the answer 
to that is: maybe and maybe not. We're studying that. We know 
that there are more satellites going up.
    But every day, there's new information that comes in about 
people and about technology, and it's changing the face of 
everything we're doing.
    Senator Pryor. OK.
    Mr. Dorr, let me ask you, if I can--I want to ask you about 
the Rural Utility Service that you've been talking about, and 
how it prioritizes its available funding. And the reason I ask 
is, in September 2005 there was a report from the IG there at 
the Department of Agriculture that criticized the RUS for 
failing to target funds to truly rural communities that 
currently lack available broadband service. And I'm just 
curious about how you respond to that, and how you set the 
priorities there.
    Mr. Dorr. We have a clear priority listing. And the first 
priority is the unserved areas. The second priority is the 
underserved areas. And then the third priority is everyone else 
who comes in within the statutory demographic descriptions.
    Senator Pryor. And you're following your own criteria?
    Mr. Dorr. Yes, we are.
    Senator Pryor. Do you know why the IG would be critical of 
RUS and say that you weren't targeting truly rural communities? 
Do you know?
    Mr. Dorr. I'm aware of the IG investigation report, yes.
    Senator Pryor. But do you know why they made that 
statement?
    Mr. Dorr. Well, originally, when the program was developed, 
there was a statutory description of the population that we 
could serve. That was, I believe, in the 2002 farm bill. That 
was changed again in 2004. And, as a result, that guidance was 
utilized in some of the loans that were involved. And due to, 
quite frankly, the lack of applications from these other areas, 
after an extensive outreach initiative that I think involved a 
minimum of four and upwards of maybe six or eight outreach 
efforts across the country, they were doing the best to provide 
those then-underserved areas.
    It's interesting to note that in the unserved areas, we get 
about a 42 percent penetration. In the underserved areas, we 
get about a 12 percent penetration rate. So, there is a clear 
difference in how we address these.
    Senator Pryor. And the last question for you, Mr. Dorr, 
since you mentioned the Pew study, the Internet study, that 
came out, I guess, last month, if I'm not mistaken, I think 
what its conclusions are, that basically in rural America you 
have a lack of infrastructure, and you have lower incomes and 
an older population. So, my question for you, just for your 
thoughts, is, If we do invest in the infrastructure--``we,'' 
the Government, or somehow, through USF or whatever it may be--
if we do invest in infrastructure, does that overcome the 
factors of age and income in rural America?
    Mr. Dorr. I think the study would suggest that in fact, 
economic implications relative to deployment of broadband seem 
to have been mitigated more by availability issues. I think 
those numbers indicated that, in the rural areas, there was 
penetration of about 62 percent, versus urban areas at 70 
percent. Rural broadband high-speed access was 24 percent, 
versus urban at around 39 percent. So, I think it's 
availability, as much as anything.
    Senator Pryor. Mr. Chairman, thank you. That's all I have.
    The Chairman. I don't want to embarrass you, but have you 
been to Alaska?
    Mr. Dorr. Yes, I have, sir.
    The Chairman. Have you been out to the villages?
    Mr. Dorr. Yes, I have.
    The Chairman. You know that under the current situation, 
schools, libraries, and health facilities have high-speed dial-
up, and they have connections. But if you run in the local 
store, you don't have it. In their homes, they don't have it. 
They have a village of 200 people. Schools, libraries, and 
health facilities have it, during their working hours. It's 
there. Have you ever explored what it would cost to make it 
available to the homes in these areas?
    Mr. Dorr. I can't say that we have, no.
    The Chairman. There's a base out there of people who are 
computer competent by the sixth grade. If they work in one of 
those three facilities that have regular communications, 
they're all right. The rest of them go to their homes and sit 
there and twiddle their thumbs and get television 4 hours a 
day. That's an employment force. It's a group of people that 
could do what they do in India or other places in the world. 
Because of communications, they've got enormous employment. I 
just don't understand our system, we won't look into the same 
thing. And this is the same thing in some of the reservations 
in the South 48. But it's just endemic to our area. Two hundred 
and forty villages all have schools, libraries, and health 
facilities hooked up, and that's it.
    I think it's a failure in our system. I would urge you to 
give it some real consideration.
    Anyone else have any other questions?
    [No response.]
    The Chairman. We do thank you very much, and I'm pleased 
that you did take the trouble to get here, despite that 
traffic. We thank you.
    Mr. Dorr. Thank you.
    The Chairman. Our next panel is Mark Johnson, Commissioner 
of the Regulatory Commission of Alaska; Bill Squires, Senior 
Vice President, the Blackfoot Telephone Cooperative, in 
Missoula, Montana; Larry Sarjeant, Vice President for 
regulatory and legislative affairs of Qwest Communications; 
Craig Mundie, Senior Vice President, chief technical officer of 
advanced strategies and policy, at Microsoft; Joe Garcia, 
President of the National Congress of American Indians; Mark 
Goldstein, Director of physical infrastructure issues of the 
U.S. Government Accountability Office, the GAO; and Ray Baum.
    Now, gentlemen, I think if you--we hope there's room for 
you all there.
    [Pause.]
    The Chairman. I hope you heard my statement. Your 
statements will be printed in the record in full. We welcome 
your comments. We tend to listen to each one of you along the 
line, and then we'll have questions from the Senators 
concerning your presentation.
    We thank you all for taking the trouble to come be with us 
this morning. It's another one, I think, of the hearings that 
are very important for us as we get toward the markup of our 
bill, which we hope will occur in the week just before Easter, 
and we'll take it to the floor the week after Easter, we hope. 
But, we'll see.
    Mark, you're first. We appreciate your coming from Alaska, 
and hope you don't mind the comments I just made.

    STATEMENT OF MARK K. JOHNSON, COMMISSIONER, REGULATORY 
                      COMMISSION OF ALASKA

    Mr. Johnson. Thank you, Mr. Chairman and Members of the 
Committee, I appreciate the opportunity to come here today.
    The Chairman. Pull those mikes right up to you. They're 
very distance sensitive.
    Thank you.
    Mr. Johnson. I'll do my best.
    I need to start with a caveat that my comments here today 
are my opinions, only, and are not policy statements of the 
Regulatory Commission of Alaska, nor do I represent the 
Commission here today. That's just one of the limitations of 
being a regulatory commissioner.
    Alaskans have historically faced enormous limitations in 
communicating with themselves and the Lower 48. While 
significant progress has been made in recent years, Congress 
needs to understand that a communications network in rural 
Alaska is still fundamentally different than that which exists 
elsewhere in the United States.
    Most of western and northern Alaska receives services by 
way of geosynchronous satellites. And despite the best efforts 
of the companies that operate these systems, they have 
limitations, in a digital age. I think some of those have been 
highlighted earlier, surely in terms of cost and in terms of 
the ability to transmit data at high rates over those 
facilities.
    Interexchange communications play a relatively more 
important role in the lives of an Alaskan. I think this is 
important for the committee to understand. This is due to the 
limited calling scope in many communities, especially rural 
communities. Interexchange services, be it for telephony or for 
data connectivity to the Internet, are a critical link for many 
Alaskans.
    Alaskans strongly support Universal Service support for 
broadband. Rural Alaskans in particular, can significantly 
benefit from broadband access to educational, medical, and 
other information sources. And I have some experience with 
this. And certainly the telehealth programs that are operating 
in Alaska are improving lives, improving patient outcomes. And 
the educational programs have opened many windows for rural 
residents. And these programs need to be continued.
    If Alaska is going to be a full participant in the evolving 
information economy, we must have a strong communications 
network, which provides services at rates which are reasonably 
comparable to rates paid elsewhere. Congress should not permit 
the establishment of a second-tier status for Alaskan users of 
communications service. And that's particularly true for rural 
areas of Alaska.
    While today's hearing is focused on rural communications 
issues, you should know that urbanized areas in Alaska have 
also developed some of the most contested and dynamic 
competitive markets in the United States. And as a regulatory 
commissioner, that has posed significant challenges for us.
    I do have some observations for the Committee. First of 
all, I want to clarify, a little bit, what's in my written 
statement. Clearly, the Act has some problems and needs 
revisions. But, in my view, they do not require a top-to-bottom 
overhaul. Congress should make a number of key policy judgments 
and statutory changes to address those problems.
    Second, I think that Congress needs to provide for stable 
Universal Service funding by clarifying that the obligation to 
contribute to the Fund should include some of the services now 
regulated under Title I. Both the legislation sponsored by 
Senator Burns and the legislation sponsored by Senator Smith 
contain approaches which could be useful in addressing this 
issue.
    Third, Congress may want to refine the scope of Universal 
Service. And there are principles, in section 254, which define 
what Universal Service should address. But it may be useful, in 
the course of looking at those principles, to consider 
classifying providers or services to sharpen the focus of 
Universal Service programs. From the perspective of Alaska, 
Universal Service policies and programs which are too broadly 
defined may dilute and erode the Universal Service mission. 
Certainly, revenues which are not used efficiently are not in 
the best long-term interest of rural communities.
    Finally, Congress should assign the joint boards of FCC 
commissioners and state regulatory commissioners responsibility 
to develop implementation plans.
    In conclusion, I would urge Congress to start this process 
with a review of the principles contained in section 254. I 
believe that this examination will determine that the 
principles are sound, and, to the extent that changes are 
needed, they can be targeted to solve specific problems.
    Connectivity and the deployment of advanced service for all 
Americans is the goal. Rural areas--in particular, rural areas 
of Alaska--should not be left out of this equation, and can 
benefit significantly from wise decisions by Congress. And I 
believe this result is in the national interest.
    With that, I'd be pleased to entertain any questions the 
Committee may have.
    [The prepared statement of Mr. Johnson follows:]

    Prepared Statement of Mark K. Johnson, Commissioner, Regulatory 
                          Commission of Alaska

    Chairman Stevens, Co-Chairman Inouye and Members of the Committee, 
thank you for the privilege to come before you today.
    I am Mark K. Johnson, member of the Regulatory Commission of 
Alaska. I was appointed to the Regulatory Commission by Governor Frank 
Murkowski in March 2003. I am a member of the telecommunications 
committee of the National Association of Regulatory Utility 
Commissioners and a member of the Joint Federal State Board on 
Jurisdictional Separations.
    At the outset, it must be said that my comments here are my 
opinions only, based on my experience as a regulatory commissioner and 
prior experience in the Alaska telecommunications industry. My comments 
are not policy statements of the Regulatory Commission of Alaska, nor 
do I represent the Commission here today.
    While my professional experience with Alaska communications issues 
began in 1991 when I worked for the Municipality of Anchorage which at 
that time owned the Anchorage Telephone Utility, as someone born in 
Alaska, I have come to know first hand the enormous limitations faced 
by Alaskans in communicating with themselves and the lower 48 states. 
At statehood in 1959 and during the 1960s the government run long 
distance communications system delivered minimal quality service at 
high prices. A telephone call to my grandparents in Oregon was, at 
best, a monthly occurrence and I could say little more than ``hello.'' 
All Alaskans struggled for information and to fulfill the simple human 
desire to remain connected to family and friends and to do business. 
Many rural residents had no service at all.
    Due largely to the leadership of Senator Stevens, the situation has 
improved over the last thirty years, but not to a degree which is 
satisfactory to many. Alaskans living in a number of rural communities 
have only now reached the point where they have basic connectivity to 
the communications systems taken for granted by many other Americans 
for the last fifty years. Following the policy commitment of Congress, 
innovative, resourceful and forward thinking Alaskan communications 
providers, have worked hard to bring about this basic level of service.
    Despite this progress the communications network in rural Alaska is 
still fundamentally different than that which exists in other states.
    While robust interexchange networks of fiber optic cables and 
microwave connections exist for long distance services and digital data 
in the lower forty eight, only a portion of Alaska is served in this 
manner. Most of western and northern Alaska receive communications 
services by way of geosynchronous satellites. This system operates 
reasonably well for basic phone service, albeit at higher costs, but it 
is fair to say that it is stretched to provide the level of 
connectivity, including advanced services and Internet access, enjoyed 
by many areas of the United States.
    With this being said, it must be understood that interexchange 
communications plays a relatively more important role in the lives of 
Alaskans. This is due to the limited calling ``scope'' in many 
communities, especially rural communities. Except for the principal 
cities of Anchorage, Fairbanks and Juneau and other communities along 
the Alaska Railroad or ``Railbelt,'' most Alaskans can call or connect 
to only a limited number of people within the local calling area. In 
many rural communities, the local calling area may be only one or two 
hundred other people. Interexchange services, be it for telephony or 
for data connectivity to the Internet, are a critical link for many 
Alaskans in maintaining contact with the rest of the world.
    Broadband services, which have been made available to rural 
communities through the ``E-rate'' and telehealth programs have opened 
up dramatic new opportunities for rural Alaskans. In the case of 
telehealth, these new services are saving lives and improving medical 
outcomes. The delivery of educational services in rural school 
districts is now improving, with classroom teachers now being able to 
access resources from around the country and around the world. Alaska 
stands with Senator Stevens in his endorsement of Universal Service 
support for broadband.
    If Alaska is going to be a full participant in the evolving 
``information'' economy, we must have a strong communications network 
which provides services at rates which are reasonably comparable to 
rates paid by the citizens of other states. This vital principle is 
embodied in Section 254 (b)(3) of current law. Congress should not 
retreat from this commitment and should not enact policies which permit 
the establishment of a ``second tier'' status for Alaskan users of 
communications services.
    While today's hearing is focused on rural communications issues, I 
would be remiss if I failed to note that in the wake of the 1996 
Telecommunications Act, urbanized areas of Alaska have also developed 
some of the most contested and dynamic competitive markets in the 
United States. While the competitive provisions of the Act have served 
consumers in urbanized areas of Alaska well it has not been without 
burdens. Additionally, and in particular, our state regulatory 
commission has been required to make difficult choices when it comes to 
permitting competitive entry and in implementing the competitive 
provisions in rural markets.
    If Congress undertakes amendment of these competitive provisions, 
it should do so only with extreme care. Given that my commission has 
only recently ruled on some of these matters, I must limit my comments 
in this area. I will suggest that it is in the best interest of 
everyone that if any amendments in this area are to occur they should 
focus upon providing additional clarity and definition to these 
provisions. Conversations with Commissioner Daryl Bassett of Arkansas 
have indicated that this is a general concern for many regulatory 
commissions with rural areas.
Observations and Principles for Consideration
    Please consider the following observations and principles in 
undertaking any amendments to our communications laws:
    1. The 1996 Act does not require a top-to-bottom overhaul.
    Instead, Congress should make a limited number of key policy 
judgments and essential statutory changes to solve agreed-upon 
problems. A large-scale overhaul of the Act will result in significant 
uncertainty for the communications industry and will impair rather than 
enable the increased deployment of advanced services.
    2. Congress should expressly provide for a stable base for 
Universal Service by clarifying that the obligation to contribute to 
the fund should include some services now regulated under Title I.
    This action would eliminate the uncertainty that has developed 
regarding the regulatory treatment of new services. Confidence 
regarding the future of Universal Service programs and the economic 
sustainability of the existing telephony network needs to be restored 
for rural areas. The present uncertainty also inhibits investment in 
new services.
    Both the legislation sponsored by Senator Burns and the legislation 
sponsored by Senator Smith contain approaches which could be useful in 
addressing this issue. Both bills would permit the FCC to craft the 
best approach to establishing a stable source of revenue for Universal 
Service. These bills do not endorse a specific method for funding 
Universal Service but allow the FCC to consider a variety of 
contribution sources. It may also be appropriate to provide that there 
should be a relationship between the contribution level of particular 
services and the benefits that may be received by those services.
    3. Congress may want to consider refinements to the scope of 
Universal Service. This may be fundamentally a political process.
    Currently, Section 254(c)(1) of the Act sets out these principles 
and a process for updating the definition of Universal Service.
    As a state regulatory commissioner, one of the most useful tools in 
carrying out my responsibility under state law is the ability to make 
reasonable classifications of utility service providers and the 
services themselves. Congress may find it useful to, either directly or 
indirectly through the FCC, utilize this tool to sharpen the focus of 
Universal Service programs.
    From the perspective of Alaska, Universal Service policies and 
programs which are too broadly defined may dilute and erode the 
Universal Service mission. As noted, that mission is very important to 
much of Alaska. Similarly, Universal Service revenues which are not 
used efficiently through the various programs are not in the best 
interests of rural communities or the underprivileged.
    4. Congress should assign to joint boards of FCC commissioners and 
State regulatory commissioners responsibility to develop implementation 
plans in key areas. The expertise and the core competencies of state 
commissions should be recognized in administering communications 
policies.
    The first of these boards would be charged with establishing 
reasonable rules and standards which (a) protect consumers and (b) 
minimize the compliance burdens on communications providers. It is my 
understanding that NARUC President Diane Munns of Iowa is developing a 
proposal along these lines.
    The second board is the existing panel on Universal Service. This 
board would likely have new responsibilities following changes to the 
law.
    In making these assignments, Congress should mandate the use of the 
joint board process to ensure roles for both the Federal and State 
commissions and to streamline the administrative process for these 
boards.
    In conclusion, I would urge Congress to start this process with a 
review of the principles contained in Section 254. I believe that this 
review will determine that the principles are sound and, to the extent 
that changes are needed, that they can be targeted to solve specific 
problems. Connectivity and the deployment of advanced services for all 
Americans is the goal. Rural areas, and particularly rural areas of 
Alaska, should not be left out of this equation and can benefit 
significantly from wise decisions by Congress. This result is in the 
national interest.
    I would be pleased to answer any questions the Committee may have.

    The Chairman. Thank you very much.
    Our next witness is Bill Squires.

  STATEMENT OF WILLIAM SQUIRES, SENIOR VICE PRESIDENT/GENERAL 
          COUNSEL, BLACKFOOT TELECOMMUNICATIONS GROUP

    Mr. Squires. Thank you very much, Mr. Chairman, Members of 
the Committee.
    My name is Bill Squires. I'm the Senior Vice President and 
General Counsel for Blackfoot Telecommunications Group, in 
Missoula, Montana. It's certainly an honor to appear before you 
today. I very much appreciate this opportunity.
    Montana has a long history of having a strong voice in the 
development of rural telecommunications policy. We're very 
thankful for these efforts from our own Senator Burns and from 
the Chairman of this Committee. And, indeed, through all the 
members of the committee, we've ensured that the voice of rural 
residents and people in rural Montana has not been lost in this 
policy debate.
    Mr. Chairman, I would like to focus my comments today on 
what makes rural telecommunications different, what makes it 
unique, the unique challenges that we face in Montana, and, 
indeed, that your service providers in Alaska face, 
particularly on intercarrier compensation issues.
    As part of the implementation of the 1996 Act, the FCC 
created what became known as the Rural Task Force, made up of 
representatives of all aspects of our industry, as well as 
consumer advocates and regulators. The Rural Task Force, in 
January of 2000, documented the unique challenges faced by 
rural carriers. Such unique challenges are, certainly, tackling 
rough terrain. Western Montana has its share of that, as does 
Alaska. Securing investment dollars is a challenge, and lacking 
the benefits of scope and scale, certainly add greatly to our 
challenges and our costs. Those challenges remain today.
    Blackfoot serves over 6,500 square miles in western 
Montana, a place we like to call ``the last best place.'' Our 
service area is approximately five times the size of the State 
of Rhode Island, but has only 29,000 people in residence in 
that 6,500 square miles. So, certainly the vast distances, 
combined with the lack of residents and the lack of scope and 
scale, add to the unique challenges that we face in serving 
rural Montana.
    Economic development is key. And it was mentioned by the 
Chair this morning. Economic development, to us, is helping 
support some rural senior-citizen centers or some rural health 
clinics. We have no Fortune 500 campuses in Trout Creek, 
Montana, a population of 261. We certainly would welcome them.
    But being rural does not mean that we don't have advanced 
services. Blackfoot is proud to have broadband available to 97 
percent of our subscribers. And that's done, in part, through 
the various cost recovery systems that are available. But we're 
taking a long-term view of that. We're lowering our costs by 
rolling out a more efficient network system, a soft-switched 
system, complete Ethernet backbone system, that allows us to 
provide those broadband services at greatly reduced cost. 
Indeed, our Universal Service funding is going to be reduced by 
approximately one-half million dollars this year because of the 
efficiencies that we're trying to build into our services and 
maintaining costs at a reasonable level.
    Cost recovery through intercarrier compensation is still a 
primary component of that cost recovery. As Congress and 
regulators develop intercarrier compensation policy, please 
remember, the cost of allowing other carriers to use our 
networks is not zero. Reasonable cost recovery must be made 
available to rural carriers.
    There is a consensus developing around unified carrier 
compensation, and I believe you'll hear more about that this 
morning. If necessary, I believe that Congress should make 
clear the FCC's authority to adopt and implement a unified rate 
scheme.
    Blackfoot's ready to shoulder its share of the burden in 
resolving these issues. We have undertaken local rate 
rebalancing as part of a company-wide expanded area of service, 
or EAS, deployment. We recognize that our local customers have 
to shoulder some of the burden, but, also, the carriers that 
use our network have to shoulder some of that burden.
    If I could impress upon the Committee one thing today, it 
is that rural is different. We do face unique challenges. We 
face unique responsibilities, as well, to our customers, our 
consumers, our member-owners, to allow them to engage in the 
world economy without migrating out of our area. We very much 
are proud of the services we provide. We're proud of the 
residents that live in western Montana. We want to make sure 
they have the vehicles available to stay there.
    Thank you, again, Mr. Chairman, for the opportunity to 
appear here today. I'd be happy to address any questions you 
may have.
    [The prepared statement of Mr. Squires follows:]

 Prepared Statement of William Squires, Senior Vice President/General 
              Counsel, Blackfoot Telecommunications Group

Executive Summary
    Ten years after passage of the Telecommunications Act of 1996, the 
``rural difference'' continues. The national policy dictating the 
availability of quality communications services at just, reasonable, 
and affordable rates in all regions of the Nation remains as strong 
today as ten years ago. Any reform of Universal Service and 
intercarrier compensation programs must acknowledge that service in 
rural areas is different. It is more expensive due to extreme 
geographical conditions, and rural service providers lack the economies 
of scale enjoyed by urban providers.
    Intercarrier compensation is an integral part of cost recovery for 
rural providers. While past public policy may have dictated that some 
of these rates were set above cost as an offset for local rates, the 
fact remains that the cost of providing access to rural networks is not 
zero. Therefore, any notion of a ``bill and keep'' intercarrier 
compensation regime should be dismissed. Rural providers should also be 
encouraged to explore, and implement where viable, expanded local 
calling areas or other innovative programs to reduce reliance on 
intercarrier compensation. State and Federal regulation should allow 
local carriers such flexibility without undue delay. Finally, Congress 
and regulators must avoid the urge to give voice over Internet protocol 
(VoIP) carriers a free ride on rural networks. In the end, IP is simply 
another stage of evolution in the communications network, and still 
requires that rural carriers have lines to the ultimate end-user. Thus, 
there is a cost associated with VoIP providers' use of rural networks.
Introduction
    Good morning Mr. Chairman, Co-Chairman Inouye, and Members of the 
Committee. My name is Bill Squires, and I am the Sr. Vice President and 
General Counsel for the Blackfoot Telecommunications Group located in 
Missoula, Montana. It is an honor to testify before the Committee this 
morning on Rural Telecommunications. I would also like to thank 
Montana's own Senator Conrad Burns for his work in the Senate over the 
years to ensure that Montanan's have a voice on all technology issues. 
With the support and dedication of the Chair and Co-Chair, and the 
entire Committee, we are able to preserve the quality and affordability 
of telecommunications services for rural Americans.
    Blackfoot is both an incumbent rural telephone cooperative, 
providing service to approximately 17,000 access lines in Western 
Montana since 1954, as well as a competitive local exchange carrier 
providing services to the Missoula market, a town of about 60,000 
people.
    The scope of this hearing is very broad. As such, I would like to 
focus my testimony on a few key issues and policies impacting the rural 
telecommunications industry, particularly in the intercarrier 
compensation arena. However, by their very nature many of these issues 
are intertwined.
The Rural Difference Continues
    Ten years ago Congress passed the Telecommunications Act of 1996 
and many members of this Committee have first-hand knowledge of the 
hard work and deliberation that went into that landmark legislation. 
Interwoven throughout the 1996 Act, and indeed the Communications Act 
of 1934, is the explicit recognition that those providing 
communications services to rural areas of our Nation face unique 
challenges. In fact, these principles were made clear by Congress in 
section 254 of the 1996 Act.
    As part of the implementation of the 1996 Act, the Federal 
Communications Commission (FCC), through a recommendation from the 
Federal-State Joint Board, called for the creation of the Rural Task 
Force (RTF), whose objective was to help identify issues that were 
unique to rural carriers. \1\ The RTF was made up of representatives 
from every aspect of our industry--from large international carriers, 
to cellular companies, to regulators, to consumer advocates, to rural 
companies such as Blackfoot.
---------------------------------------------------------------------------
    \1\ See Federal-State Joint Board on Universal Service, Report and 
Order, CC Docket No. 96-45, FCC 97-157, 12 FCC Rec. 8776, para. 253 
(1997).
---------------------------------------------------------------------------
    In January 2000 the RTF released a white paper documenting the 
``rural difference'' in telecommunications, and the unique challenges 
that rural carriers face, such as providing service in remote areas, 
securing investment dollars and lacking the benefits of scale. \2\ 
Since that white paper's release, not a lot has changed. Today these 
differences play an important role in developing intercarrier 
compensation policy, as those polices are, at least in part, dictated 
by network architecture in rural areas.
---------------------------------------------------------------------------
    \2\ The RTF's ``The Rural Difference'' White Paper is available at: 
http://utilityregulation.com/content/reports/WP2.pdf.
---------------------------------------------------------------------------
    Blackfoot serves over 6,500 square miles of remote Western Montana. 
We like to believe it is the Last Best Place, but placing fiber and 
other facilities in the last, best place is not an easy chore. Our 
service area encompasses a land mass approximately five times the size 
of Rhode Island, but has a population of only 29,000, or a density of 
roughly 4 people per square mile. The average population density of 
non-rural carries is approximately 105 subscribers per square mile. \3\ 
Rural carriers such as Blackfoot incur relatively high loop costs as a 
result of our lack of economies of scale and density. Additionally, the 
costs associated with getting personnel and equipment to remote areas 
is high. And, of course, we do all of this to service the single line 
residences, and the occasional two-line business. There are no Fortune 
500 corporate campuses in Trout Creek, Montana, with a population of 
261. Economic development in rural Montana means helping establish a 
small meeting center for the area senior citizens, or helping build a 
local medical clinic so folks do not have to drive several hours to the 
nearest hospital. We have proudly done these types of projects with the 
help of the Department of Agriculture's Rural Utilities Services (RUS) 
economic development loans.
---------------------------------------------------------------------------
    \3\ Ibid. at pp. 7-14.
---------------------------------------------------------------------------
    Being rural, however, does not mean we lack innovation. And, it 
does not mean we are not aggressively deploying advanced services or 
engaging in progressive planning. Broadband service is available to 97 
percent of our rural customers. At Blackfoot we are not proponents of 
the ``highest cost'' option for such deployment. In fact, we are taking 
a very long-term view of network evolution, which we believe will lead 
to greater efficiencies, lower costs, and therefore less pressure on 
subsidized intercarrier compensation and Universal Service. At 
Blackfoot, we have installed a new softswitch, and are in the process 
of establishing a 100 percent Ethernet backbone network that will allow 
us to push advanced services over greater distances at lower costs.
    As a result of this aggressive innovation, our reliance on Federal 
Universal Service funding is decreasing, and in fact is projected to go 
down by over $500,000 this year. However, it will not, and indeed 
should not, ever completely go away. Similarly, our legitimate right to 
charge for the use of our networks through intercarrier compensation 
will not go away either. Rural is different.
Rural Intercarrier Compensation Issues
Cost Recovery is Paramount
    The rural industry should, and must in my opinion, concede that in 
many instances current access rates still reflect implicit subsidies 
designed by regulators to keep local rates low. However, the fact 
remains that the true costs are not zero! Rural networks like ours have 
enormous transport costs--it may be 35 miles between our end office and 
the customer. And our costs to build those transport and loop 
facilities are high, as well. While our urban counterparts lament the 
need to tear up paved city streets to lay new infrastructure, Blackfoot 
and other rural companies are trudging across mountain tops or 
trenching in an area that never has--nor likely ever will--have a road 
built to access it.
    Establishing a bill and keep access regime does not eliminate the 
subsidies currently built into the system, it merely shifts the 
subsidies. With bill and keep, it is the carriers using rural networks 
for free that become subsidized. This is an important point. Today, we 
use intercarrier compensation to recover our costs. A shift to bill and 
keep removes our ability to recover our costs, and allows those who did 
not pay for the networks to use them for free. Clearly that cannot be 
Congress' intent.
    The National Association of Regulatory Utility Commissioners 
(NARUC) has created, with the FCC's support, a collaborative forum to 
develop workable solutions to intercarrier compensation issues. The 
forum is making progress, and should be urged to quickly reach a 
consensus solution. This Committee should allow that process to unfold. 
Any solution must include unified interstate, intrastate, and local 
carrier compensation rates recognizing urban and rural cost 
differences. If necessary, Congress should expressly give the FCC 
authority to adopt this unified rate scheme.
Expanded Local Calling
    Like many of our rural local exchange company brethren, Blackfoot 
for years has experienced precipitous drops in intrastate carrier 
access minutes due, presumably, to wireless substitution. Last year 
Blackfoot embarked on an aggressive, albeit somewhat controversial and 
painful, Expanded Area Service, or EAS, plan. The intent of 
implementing EAS was to give us more certainty in recovering our costs. 
As part of that plan, we worked with Qwest, CenturyTel and some other 
neighboring ILECs and combined 21 of our exchanges into one local 
calling area. So now, a call from Thompson Falls to Missoula--a 
distance of more than 100 miles--is a local call. Sure our customers 
now pay a little more for local service, but their local calling scope 
is much larger, reducing the amounts they would be paying if those 
calls were toll calls.
    While implementing EAS was a big step towards Blackfoot gaining 
certainty with regards to cost recovery for intrastate services, some 
problems still exist--specifically, we are seeing arbitrage. For 
example, in the year since we have had EAS deployed, we have seen a 
substantive drop in our interstate switched access minutes as toll 
carriers ``readjusted'' their percent interstate usage factors, taking 
advantage of our new EAS region. Ultimately, the point I would like to 
make is as long as there are different termination rates available, 
there are always going to be players finding ways to game the system. 
Establishment of a unified intercarrier compensation rate should 
address and resolve this issue.
VoIP Intercarrier Compensation
    Like most other network providers, we believe that those using our 
network should pay for their use. Companies should not get a free ride 
simply because of the transportation method they use. SONET traffic 
(traditional long distance transport) is like a pick-up truck riding 
the highway (our network) that we built. IP traffic is like a car 
riding the exact same network. Why should one have to pay and the other 
be exempt?
    The issue becomes identifying the types of traffic and rating them 
accordingly. But again, a difference in rates will set-up arbitrage 
opportunities. We appreciate the work NARUC has done in spear-heading 
an industry-wide effort to develop a plan to move toward a unified 
rate. We are hopeful that the final version of that plan will set-up a 
rate scheme that will eliminate arbitrage opportunities and give rural 
carriers like us the ability to fully recover the costs of providing 
quality services to rural America.
Conclusion
    If I could make one point today that remained foremost in the 
Committee members' mind, it would be that rural really is different. 
Every day our trucks roll deep into the Last, Best Place known as 
Western Montana, and our employees help rural Montana connect to, and 
compete in, the world economy. It is hard work for our women and men 
bringing service to Trout Creek, and Alta and Helmville--and they do it 
as well or better than any of the large national carriers. I am proud 
of them.
    For over seventy years it has been the policy of this Nation to 
ensure that consumers in all regions have access to telecommunications 
and information services, including advanced services, that are 
reasonably comparable, in quality and rates, to those available in 
urban areas. To do so, rural carries must be reasonably compensated for 
the use of their networks by other carriers. Blackfoot Telephone 
Cooperative, and the entire rural telecommunications industry, stand 
ready to work with this Committee, Congress, the FCC, and all 
interested parties, to fashion a stable, predictable intercarrier 
compensation system which provides for innovation, competition and 
deployment of advanced services while allowing the fair recovery of the 
costs for such services.
    On behalf of our 17,000 customers in Western Montana, thank you for 
the opportunity to appear before the Committee.

    The Chairman. Well, thank you very much.
    Our next witness is Mr. Larry Sarjeant, Vice President of 
Regulatory and Legislative Affairs, at Qwest Communications.
    Mr. Sarjeant?

  STATEMENT OF LAWRENCE E. SARJEANT, VICE PRESIDENT, FEDERAL 
   LEGISLATIVE AND REGULATORY AFFAIRS, QWEST COMMUNICATIONS 
                      INTERNATIONAL, INC.

    Mr. Sarjeant. Good morning, Mr. Chairman and Members of the 
Committee.
    Qwest has a long history of serving rural communities 
throughout its local service areas, and its experience serving 
rural customers informs its views on rural telecommunications. 
I appreciate the opportunity to share Qwest's views with you 
today.
    Qwest provides local service in 14 States across the 
Central, Mountain, and Pacific time zones. Washington and 
Oregon, east to Minnesota, from Montana south to Arizona and 
New Mexico, Qwest's local service area spans nearly 271,000 
square miles. It has an average of 55 access lines per square 
mile.
    When you consider that this includes metropolitan areas, 
such as Albuquerque, Phoenix, Tucson, Denver, Minneapolis/St. 
Paul, Portland, and Seattle, you realize that much of Qwest's 
local service area must also be rural.
    Despite its substantial rural service area, Qwest is 
considered a ``nonrural carrier.'' It is a classification that 
defies reality in much of Qwest's service area. Even as a non-
rural carrier, Qwest receives a disproportionately low share of 
support from the non-rural carrier USF high-cost model 
mechanism.
    Based on 2006 projections from the Universal Service 
Administrative Company, Qwest's region will receive annual 
high-cost-model support this year in only 4 of 14 states, 
Montana, Nebraska, South Dakota, and Wyoming, in an amount of 
just under $46 million. One non-Qwest state will, alone, 
receive just under $148 million in support from this fund, more 
than three times the amount received by all 14 Qwest states.
    I'd like to acknowledge the efforts of Senator Gordon Smith 
from this Committee to rectify this inequity by introducing S. 
284, the Rural Universal Service Equity Act of 2005 during this 
Congress. But S. 284--and it's important to appreciate this--
will not increase the size of the non-rural high-cost model 
mechanism. It would simply redistribute the available high-cost 
support in a more equitable manner among many more states.
    This measure passed out of this Committee last Congress. It 
is critically important, and should be considered as a part of 
any future Universal Service reform legislation.
    Now, this Committee, based on its hearings last week, is 
well aware of the urgent need for Universal Service reform. The 
program has grown too large to be sustainable. Further, it 
unfairly differentiates between large rural carriers, like 
Qwest, and small carriers serving virtually identical high-cost 
service areas, in determining the amount of high-cost support 
to be received. Additionally, the current contribution base is 
shrinking, and must be broadened just to sustain the Universal 
Service Fund at its current level.
    But as massive a challenge as Universal Service reform 
represents, intercarrier compensation reform threatens to make 
Universal Service reform even more daunting. Intercarrier 
compensation concerns the rules governing payments for exchange 
of traffic between and among interconnecting telecommunications 
carriers. There are multiple intercarrier compensation schemes 
that were developed at different times and under different 
circumstances. There are both interstate and intrastate access 
charge regimes that are regulated by the FCC and state public 
service commissions.
    Among competing local exchange carriers, there are 
reciprocal compensation rules, which allow a local exchange 
carrier to be compensated by another local exchange carrier for 
the termination of local traffic between local customers.
    For years, regulators and the courts have been kept busy 
deciding disputes concerning access charges and reciprocal 
compensation rates. It is necessary and appropriate for the FCC 
to bring rationality and harmony to our intercarrier 
compensation regime.
    Why should Congress be concerned about intercarrier 
compensation reform? It should be concerned, because several 
intercarrier compensation reform proposals presented to the FCC 
would put more upward pressure on the size of the Universal 
Service Fund. Congress can forestall this possibility by 
capping the Universal Service Fund immediately. Past reforms of 
the interstate access charge rules by the FCC removed subsidies 
that historically existed in access rates. Such subsidies were 
not sustainable in a competitive telecommunications market. In 
doing so, the FCC shifted recovery of much of the foregone 
subsidy to the Universal Service Fund. Shifting the subsidies 
from interstate access to the Universal Service Fund was 
necessary and appropriate at that time, but it is neither 
necessary nor appropriate today.
    Qwest has presented an intercarrier compensation reform 
proposal to the FCC that does not rely on increasing the 
overall size of the Universal Service Fund. It is already too 
large. It should not be raised as a part of intercarrier 
compensation reform. Rather, the fund should be capped to 
prevent increases in the future that would jeopardize its 
sustainability.
    Thank you.
    [The prepared statement of Mr. Sarjeant follows:]

  Prepared Statement of Lawrence E. Sarjeant, Vice President, Federal 
Legislative and Regulatory Affairs, Qwest Communications International, 
                                  Inc.

    Good morning Mr. Chairman and Members of the Committee. My name is 
Lawrence Sarjeant, and I am Vice President for Federal Legislative and 
Regulatory Affairs for Qwest Communications International, Inc. 
(Qwest). Qwest and its predecessor companies have a long history of 
serving rural communities throughout its local service areas. I 
appreciate the opportunity to share its views with you at today's 
hearing on rural telecommunications issues.
    Qwest provides local telephone service in fourteen states across 
the Central, Mountain and Pacific time zones. Its local service areas 
extend from Washington and Oregon east to Minnesota and Iowa, and from 
Montana south to Arizona and New Mexico. Qwest's local service area 
spans 270,896 square miles. It provides approximately 14.7 million 
access lines. That translates into an average of 55 access lines per 
square mile. When you consider that included within this average are 
metropolitan areas such as: Albuquerque, NM; Phoenix, AZ; Tucson, AZ; 
Denver, CO; Minneapolis/St. Paul, MN; Portland, OR; and Seattle, WA, 
you realize that much of Qwest's local service area is either rural or 
very rural.
The Non-Rural Mechanism
    Despite its substantial rural service area, under Federal 
Communications Commission rules, and for the purpose of determining 
Universal Service high cost support, Qwest is considered a ``non-
rural'' carrier. It is a classification that defies reality in much of 
Qwest's service area and deprives Qwest's rural customers of their fair 
share of support from the Universal Service High Cost Fund. Even as a 
non-rural carrier, Qwest receives a disproportionately low share of 
support from the non-rural carrier High Cost Model mechanism. Based on 
2006 projections from the Universal Services Administrative Company 
(USAC), Qwest's region will receive annual High Cost Model support this 
year in four of fourteen states--Montana, Nebraska, South Dakota and 
Wyoming--in the total amount of $45,814,833. One non-Qwest state will 
alone receive $147,901,239 in support from this fund, more than three 
times the amount received by all fourteen Qwest states.
    I would be remiss if I did not acknowledge at this point the 
efforts of Senator Gordon Smith to rectify this inequity by introducing 
S. 284, the Rural Universal Service Equity Act of 2005 during the 1st 
Session of this Congress. It should be noted, S. 284 would not increase 
the size of the non-rural High Cost Model mechanism; rather, it would 
simply redistribute the available high cost support in a more equitable 
manner among states with rural, high cost communities. This measure 
passed out of this Committee last Congress by a vote of 13 to 9, and 
Qwest believes that it is as necessary today as it was then. It should 
be considered as a part of any future Universal Service reform 
legislation.
    Having heard from two panels of witnesses last week concerning 
Universal Service contribution and distribution mechanisms, the 
Committee is well aware of the urgent need for Universal Service 
reform. The program has grown too large to be sustainable. Further, it 
unfairly differentiates between large rural carriers like Qwest and 
small rural carriers serving virtually identical high cost service 
areas in determining the amount of high cost support for which a 
carrier is eligible. Finally, the current contribution base is 
shrinking and must be broadened just to sustain the Universal Service 
Fund at its current level. But, as massive a challenge as Universal 
Service reform presents, there is another challenging matter that 
threatens to make Universal Service reform even more daunting. That 
matter is inter-carrier compensation reform.
Inter-Carrier Compensation
    Inter-carrier compensation concerns the rules governing 
compensation for the exchange of traffic between and among inter-
connecting telecommunications carriers. It includes arrangements where 
carriers agree to exchange no compensation while accepting each other's 
traffic ``bill and keep''. Today, we have multiple inter-carrier 
compensation schemes that were developed at different times and under 
different circumstances. For example, arrangements concerning the 
exchange of Internet traffic by Internet backbone networks are largely 
market-based, commercial arrangements. Peering, or bill and keep, is 
common between Internet backbone networks for the exchange of Internet 
traffic. Where long distance services are involved, there are both 
interstate and intrastate access charge regimes that are regulated by 
the FCC and state public service commissions, respectively. Typically, 
long distance carriers pay local exchange carriers to deliver long 
distance calls to local customers. Among competing local exchange 
carriers, there are the reciprocal compensation rules, which allow a 
local exchange carrier to be compensated by another local exchange 
carrier for the termination of local traffic between local customers. 
Under the Telecommunications Act of 1996, reciprocal compensation may 
be in the form of an actual payment or it may be a bill and keep 
arrangement. Since the inception of access charges in the mid-1980s and 
reciprocal compensation in 1996, regulators and the courts have been 
kept busy deciding disputes challenging whether proposed access charges 
and reciprocal compensation rates were just and reasonable. Because 
inter-carrier compensation regimes vary by jurisdiction, arbitrage has 
also become a significant problem.
    Why should Congress be concerned about inter-carrier compensation 
reform? You should be concerned because several inter-carrier 
compensation reform proposals presented to the FCC, if adopted, would 
put more upward pressure on the size of the Universal Service Fund. 
Congress can forestall this possibility by capping the Universal 
Service Fund immediately.
    Past reforms of the interstate access charge rules have been 
undertaken by the FCC in order to remove subsidies that historically 
existed in access rates. This was necessary in an increasingly 
competitive telecommunications market. Such subsidies were not 
sustainable in the long term. In removing subsidies from incumbent 
local exchange carrier access rates, the FCC shifted recovery of much 
of the forgone subsidy to the Universal Service Fund. Price cap carrier 
access reform resulted in the creation of the Interstate Access Support 
(IAS) mechanism ($725,271,912 for 2006 as estimated by USAC) and rate 
of return carrier access reform resulted in the creation of the 
Interstate Common Line Support (ICLS) mechanism ($1,260,864,360 for 
2006 as estimated by USAC). Shifting these subsidies from interstate 
access to the Universal Service Fund back in 2000 and 2001 may have 
been both necessary and appropriate at the time. It is neither 
necessary nor appropriate now.
    Qwest has presented an inter-carrier compensation reform proposal 
to the FCC that does not rely on increasing the amount of Universal 
Service support distributed by the Universal Service Fund. The size of 
the Fund is already considerably higher than is reasonable and should 
not be increased. Further, support should be distributed more fairly 
and the contribution base should be broadened. The total amount of the 
Fund should not be raised as part of an inter-carrier compensation 
reform plan. Rather, it should be capped to prevent increases in the 
future that would further jeopardize the Fund's sustainability. 
Expeditious Congressional action to cap the Fund will ensure that it 
will not become a casualty of inter-carrier compensation reform.
    Thank you.

    The Chairman. Thank you very much.
    Our next witness is Craig Mundie, Senior Vice President of 
Advanced Strategies and Policy for Microsoft.

    STATEMENT OF CRAIG MUNDIE, SENIOR VICE PRESIDENT, CHIEF 
 TECHNICAL OFFICER, ADVANCED STRATEGIES AND POLICY, MICROSOFT 
                          CORPORATION

    Mr. Mundie. Mr. Chairman, Members of the Committee, thank 
you for the opportunity to discuss policies aimed at including 
rural Americans in the broadband Internet age. These policies 
will have a significant impact both on rural communities and on 
our Nation's future economy, government, and society.
    Some of you may recall that I testified on similar topics 
in October 2002. I'm glad to have a chance to appear before the 
Committee again.
    As this Committee knows, the promise of broadband for rural 
America is great. Broadband can provide children in rural areas 
with the best educational tools. It can provide their parents 
with a path to compete in the global economy. It can provide 
grandparents easy access to advanced healthcare without always 
traveling great distances. It can enable young entrepreneurs to 
pursue their dreams without leaving home.
    At Microsoft, we know the potential of rural 
entrepreneurship through direct experience. Five years ago, we 
acquired a business application company based in Fargo, North 
Dakota--Great Plains Software. Today, Microsoft continues to 
consider Fargo an important development center. It would not be 
one without broadband access.
    This is the long-term potential of broadband. It enables 
innovation, and the use of innovations, wherever you are. But 
realizing this potential is not a sure thing. There is the very 
real risk that broadband will not be deployed in many parts of 
rural America, or it will not provide rural consumers the kind 
of access they need, in light of the fact that, in rural 
America, the cost of delivering broadband increases 
dramatically on a per capita basis. Thus, our broadband policy 
must ensure not only that broadband is extended to rural 
Americans, but that it is done efficiently and effectively. 
Policies that come up short could shortchange our overall 
national welfare and our global competitiveness.
    Let me offer four core policy objectives aimed at avoiding 
this gap.
    First, unlicensed spectrum should be part of the solution. 
By pursuing serious spectrum reform, Congress can ensure that 
wireless broadband connections provide an alternative means to 
deliver broadband to all consumers, especially those in rural 
areas. Specifically, spectrum below 1 gigahertz should be 
allocated for unlicensed uses, since that spectrum has the best 
propagation characteristics.
    We also support the adoption of new spectrum-sharing rules 
and increased use of ``smart'' radios to efficiently address 
the potential for interference among licensed and unlicensed 
operations below 1 gigahertz.
    Mr. Chairman, you and Senators Allen, Kerry, Sununu, and 
Boxer, are to be commended for recently introducing bills that 
would put the FCC on this course by requiring the FCC to make 
so-called ``white spaces'' in the TV broadcast spectrum 
available for unlicensed use.
    In addition to benefiting consumers, the deployment of 
broadband over unlicensed spectrum has great potential to 
enhance the communication abilities of first-responders and 
public-safety officials. For example, in the wake of Hurricane 
Katrina, Microsoft sent a team of engineers to Hancock County, 
Mississippi, to work with Federal and local teams on deploying 
wireless communications systems in a few cleared parking lots 
and atop remaining government buildings. While the effort was 
not without its obstacles, the experience demonstrated how 
rapid deployment of unlicensed devices can fill unexpected gaps 
in the Nation's communications infrastructure.
    The second policy objective is the Universal Service Fund, 
which is still important and useful, but clearly needs reform. 
Any new funding mechanism must be stable, sustainable, easy to 
administer, and competitively neutral. We believe that a 
connections-based assessment has the greatest potential to 
satisfy these objectives. A fee would be imposed on every last-
mile connection, whether wireline, cable, or wireless. That 
would reduce regulatory arbitrage, would be easy to administer, 
and would be competitively neutral.
    Third, as I first raised with the Committee here in 2002, 
Congress should ensure that broadband networks do not interfere 
with consumer choice. This policy, which some refer to as ``net 
neutrality,'' ensures that consumers, not network operators, 
decide what content and what services succeed or fail on the 
Internet in the future. Congress should, by statute, safeguard 
the ability of consumers and providers to offer and access 
content without interference, to use applications and services 
on the Internet, and to attach any nonharmful devices to the 
network.
    Finally, we support providing greater incentives for 
broadband deployment through targeted deregulation. To this 
end, we recognize that the current system of video franchising 
needs reform to streamline entry for new competitors and to 
rationalize regulation for all providers. Microsoft looks 
forward to working with the Committee to achieve these goals.
    Thank you, again, for the opportunity to appear here today. 
I look forward to your questions.
    [The prepared statement of Mr. Mundie follows:]

   Prepared Statement of Craig Mundie, Senior Vice President, Chief 
     Technical Officer, Advanced Strategies and Policy, Microsoft 
                              Corporation

    Mr. Chairman, Senator Inouye, and Members of the Committee:
    My name is Craig Mundie, and I am Chief Technical Officer of 
Advanced Strategies and Policy at Microsoft Corporation. I am pleased 
to appear before the Committee to discuss the critical issue of 
ensuring that Americans living in rural areas receive full access to--
and, in turn, can readily benefit from--broadband capacity and the 
Internet-based offerings of the future.
    Microsoft is both a significant bandwidth user and a leading 
provider of Internet-based products and services that use broadband 
connections. Our mission is to create new and innovative capabilities 
for consumers, for small and large businesses, for other technology 
providers and, of course, for government use. From our Windows Server 
System and developer tools, to our business and mobile solutions, to 
our entertainment oriented offerings--like WindowsMedia Center Edition, 
our IPTV platform and Xbox--we are in a great position to give rural 
businesses, consumers and governments the tools they need to get the 
most out of what broadband offers. That is why we strongly support the 
development of robust, reasonably priced broadband services for all 
consumers in all areas of the country. The emergence of broadband 
platforms utilizing the Internet Protocol (IP) technology can deliver 
finally the long-discussed convergence of traditional 
telecommunications offerings and the newer Internet-based services and 
products. The time is near when consumers will no longer see the 
Internet as a distinct medium (where they look for information ``on the 
Internet'' or make ``Internet calls''), but rather they will simply 
communicate and receive content and services without even realizing it 
is being provided in an IP format or via the Internet.
    As this Committee knows, however, while the promise of broadband is 
great, the reality has yet to meet the promise on a wide-scale basis. 
Clearly, broadband has not fully arrived for all Americans, and we 
cannot simply assume that the broadband of tomorrow will maximize the 
connectivity of all citizens. We cannot assume that the broadband of 
tomorrow will reach children in all areas of our country with the best 
educational tools, will provide their parents with a path to the world 
to compete, and will provide their grandparents with easy access to the 
best healthcare without always traveling great distances. All of these 
things are possible, but none is certain. It is imperative, therefore, 
that as this Committee considers how to modernize our laws so they 
reflect the technical and commercial realities of the Internet Age, we 
get our broadband policy right, for rural and urban areas alike. 
Policies that fall short could shortchange our national welfare and, 
equally important, our global competitiveness.
The Benefits That Broadband Can Offer Rural America.
    Rural America in many ways exemplifies both the potential good that 
broadband can deliver and the risks inherent in failing to develop a 
sound broadband policy. Through the innovation of information 
technology companies, content providers, broadband providers and device 
manufacturers, digital services are increasingly available in a variety 
of forms, and the possibilities for connecting to those services in 
rich, unique, and more affordable ways are greater than ever before. 
Simply put, broadband can and has revolutionized how Americans do 
business, interact with government, learn and are entertained. With the 
right connections, distance can no longer be an obstacle to knowledge. 
Geography can no longer be an impediment to the latest medical 
research. The great plains no longer would isolate communities from 
larger economies. With affordable technology as the equalizer, a child 
in rural Alaska can have access to the same information as one in 
suburban Washington, D.C.; an entrepreneur in North Dakota can develop 
a business that competes with Silicon Valley; and a rancher living 200 
miles from downtown Billings can access medical advice as readily as a 
banker living two miles from downtown Boston.
    These sentiments are not merely aspirational. Indeed, as I am sure 
the Chairman knows, a recent study evaluating the Alaska Federal Health 
Care Access Network Telemedicine Project provided the following 
conclusion:

        Evaluation data demonstrated that telemedicine using the AFHCAN 
        resources did increase rural and remote access to healthcare. 
        It facilitated referrer-physician communication, enhanced 
        patient education, improved quality of care for patients, and 
        increased satisfaction of both providers and patients. The vast 
        majority of providers indicated that the equipment was easy to 
        use and made their work more fun. These are not [the] only 
        factors that improved healthcare for patients, but also factors 
        that should influence higher retention of healthcare personnel. 
        \1\
---------------------------------------------------------------------------
    \1\ Executive Summary, Evolution and Summative Evaluation of the 
Alaska Federal Health Care Access Network Telemedicine Project, at 8, 
available at http://www.alaska.edu/health/downloads/Telemed/
03.ExecSummary.pdf.

    The U.S. Department of Agriculture Distance Learning and 
Telemedicine program also provides a number of real world case studies 
of how broadband can deliver important educational and health benefits 
to Americans living in remote areas. \2\ For example, under a U.S. 
Department of Agriculture grant, six isolated health clinics in the 
Redwood Coast area of California--which is in the far northwest 
quadrant of the state--will link to a hub site located in Eureka, 
California to provide specialty medical services. According to the 
USDA, the clinics served over 21,000 patients in 2003. Under another 
USDA grant, the Elko County School District in northeastern Nevada 
undertook a project to link the main town of Elko to four end-user 
sites for the purpose of extending additional Advanced Placement (AP) 
courses into rural schools. The project has the potential to reach 
approximately 1,475 students.
---------------------------------------------------------------------------
    \2\ For information on recent DLT grant awards and past success 
stories, see http://www.usda.gov/rus/telecom/dlt/dlt.htm.
---------------------------------------------------------------------------
    Likewise, information technology providers and non-governmental 
organizations have helped deliver the quality-of-life and educational 
benefits of high-speed Internet access to Native American tribes. In an 
example that strikes close to home, the Bill & Melinda Gates Foundation 
collaborated with Verizon and a development organization for Northwest 
tribes to deliver WiFi broadband service to a reservation in the 
Cascade Mountains. The delivery of this WiFi service provided the 
families on the reservation with a private network to share information 
about grant applications, health information and local news; enabled 
telecommuting to jobs in the Seattle area which increased the time 
tribal members spent with their families and in their community; and 
provided the tribal members with the opportunity to enhance their 
education through distance learning classes.
    As each of these examples demonstrates, connecting individuals to 
each other and to innovative services and content in reliable, 
efficient and useful ways provides invaluable tools for self-
improvement and can unleash a tide of economic and social benefits. 
This conclusion is borne out by economic data. A recent economic study 
concluded that ``broadband access does enhance economic growth and 
performance.'' \3\ Specifically, the study found that communities in 
which mass-market broadband was available ``experienced more rapid 
growth in (1) employment, (2) the number of businesses overall, and (3) 
businesses in IT-intensive sectors.'' \4\
---------------------------------------------------------------------------
    \3\ William Lehr, Carlos A. Osorio, Sharon E. Gillett, and Marvin 
Sabu, Measuring Broadband's Economic Impact, Presented at the 33rd 
Research Conference on Communication, Information, and Internet Policy 
(TPRC), Sept. 23-25, 2005, available at http://www.tprc.org/TPRC05/
Sat1040Sess05.htm.
    \4\ Id.
---------------------------------------------------------------------------
    This data and the experience of the last decade also tells us 
something else that is very important about broadband and 
connectivity--namely, that the young entrepreneur living in Fargo, 
North Dakota with the dream for a business does not have to leave home 
to make it happen. That is a profound change from what rural America 
has seen over the past decades. Thus, a small enterprise software 
company--Great Plains Software--with an innovative leader named Doug 
Burgum, can make a home in Fargo and develop his good idea into a 
billion dollar company--one that I'm pleased to say Microsoft acquired 
five years ago. He showed that with today's technology you don't have 
to leave the farm community to make it big in the information economy. 
Other rural states from Maine to Montana have similar stories of high 
technology companies sprouting up. This is arguably the greatest long-
term potential benefit of broadband--the ability to innovate, wherever 
you are, and to deliver your innovations to others, wherever they are.
Policy Measures That Can Support Broadband Deployment and Use in Rural 
        America.
    As I noted, the experience of rural America also highlights the 
risks inherent in failing to develop a sound broadband policy. It does 
so because, quite simply, broadband deployment cannot be taken for 
granted. Further, just because broadband is deployed does not mean it 
will deliver on its full potential. These risks--that broadband will 
not be deployed or, if it is, it will not provide the necessary kind of 
access--tend to grow as the difficulty of delivering the ``last mile'' 
of broadband increases. And that certainly is the case in remote areas 
of the country. As a recent study concluded, there is a real lag in 
high-speed Internet penetration in rural households, and, as a 
consequence, Americans living in rural areas generally utilize the 
Internet less frequently than urban and suburban users. \5\
---------------------------------------------------------------------------
    \5\ Pew Internet and American Life Project, Rural Broadband 
Internet Use, at 2, available at http://www.pewInternet.org/pdfs/
PIP_Rural_Broadband.pdf.
---------------------------------------------------------------------------
    To close this gap, the broadband policy that we develop must ensure 
not only that broadband is extended to rural Americans, but that it is 
done efficiently and effectively. I would like to highlight four core 
policy objectives that Microsoft believes should serve as the basis for 
an effective broadband policy to benefit the nation--both rural and 
urban America.
1. Unlicensed Spectrum
    First, traditional wireline technology (telco or cable) presents 
only a partial solution to the challenge of broadband deployment in 
rural areas. The cost of the ``last mile'' will still be high, and, as 
a result, citizens living in the most remote areas will still face the 
challenge of how to get broadband services. Often, the last mile can be 
much longer than a mile, or even in rural areas where homes are closer 
together, the population density may be too low to attract traditional 
providers. To help address this problem, the Committee should look to 
spectrum reform to ensure that wireless broadband connections can 
provide an alternative means to deliver broadband to all consumers, 
especially those in rural areas.
    As I have testified previously to this Committee, unlicensed 
technologies can support the transmission of data at high speeds for a 
low cost. That value proposition--higher speeds with relatively cheap 
and fast deployment--is especially compelling in rural areas where 
distance is so frequently the enemy of network efficiencies and a major 
cost and delay driver for broadband deployment. With unlicensed 
spectrum and smart wireless rules, Internet access and other types of 
community communications can be provided in many areas at comparatively 
lower costs. Over the last few years, WiFi technology has proliferated 
in densely populated urban areas and in commercial settings, such as 
book stores and coffee shops, where there is a clear demand to provide 
consumers with more convenient wireless Internet access in places away 
from home and office. There is no technological or even economic 
reason, in my view, that someone sitting in a living room in a small 
town in the White Mountains should not have the same efficient and 
affordable access to broadband as someone sitting at a Starbucks in 
downtown Seattle.
    What is needed to make this happen? In a word: access to spectrum 
and, specifically, access to spectrum below 1 GHz. The equipment exists 
today to deliver wireless broadband in coffee shops and hotels using 
unlicensed bands. And wireless Internet service providers (or WISPs) 
are attempting to use variants of that technology to bridge the last 
mile in rural communities. The problem is that the spectrum available 
today for unlicensed use does not propagate well over long distances. 
Signals can be obstructed by foliage and walls, and the physics of 
today's WiFi spectrum dictate that the signal fades over distance.
    Designating spectrum below 1 GHz for unlicensed use will have many 
benefits. Deployment of unlicensed devices is fast; it's efficient. The 
technology empowers innovators and consumers. It also gets the FCC out 
of the job of picking technology or service provider favorites. 
Instead, it lets the market decide--or lets the community, or even 
individuals, do it for themselves. That means innovation is faster, and 
competition--not the Commission--pushes companies to innovate and 
deploy new services. Moreover, because unlicensed bands are open to 
anyone who buys a compliant device at a retail store and attaches it to 
the network, the capital investment comes when it is needed and is 
fueled by individuals and businesses, not by larger network operators. 
And because buying blocks of spectrum at auction is not required, the 
cost of entry for these services is lowered. Thus, the cost of 
providing these services is extremely low relative to the substantial 
benefits that can accrue as the result of broadband Internet access.
    Congress and the FCC can do more to encourage alternative wireless 
broadband connections using unlicensed spectrum by allocating 
sufficient spectrum below 1 GHz. And we applaud members of this 
Committee, including the Chairman, who have introduced legislation that 
would have the FCC do just that. Spectrum below 1 GHz has excellent 
propagation characteristics. The same spectrum used to deliver high-
quality TV and radio signals long distances to your home would do an 
excellent job delivering high-quality Internet services. The problem of 
propagation losses would be overcome.
    We recognize that using spectrum below 1 GHz for this purpose 
raises concern among incumbents about the potential for interference. 
Therefore, in addition to making spectrum available, we also support 
the adoption of new spectrum-sharing rules to address that potential 
and the use of smarter radios to more efficiently use the spectrum.
    Before proceeding to the next topic, I should emphasize that the 
last few months have also demonstrated how deployment of broadband over 
unlicensed spectrum can enhance public safety--especially in times of 
emergency. In the immediate aftermath of Hurricane Katrina, I sent a 
team of mine to Hancock County, Mississippi--which is where the eye of 
the hurricane hit. My team did what they could to help establish 
wireless networks in conjunction with students and faculty from the 
Navy's post-graduate school out of Monterrey, California. While the 
situation was chaotic, representatives from the school, other companies 
and my team were able to establish wireless connectivity between a 
handful of governmental facilities that had been left standing, as well 
as in the parking lots of aid-distribution centers. The sites were 
networked together, and from them, people were able to access the 
Internet and even make phone calls. The lesson from this experience 
could not be more clear. Not only does high-speed access over 
unlicensed spectrum have great potential to support a multiplicity of 
routine tasks, but it can serve as a critical resource in times of 
crisis.
2. Universal Service Funding Reform
    Second, clearly the question of how to pay for broadband deployment 
in rural areas needs to be addressed. Microsoft recognizes the 
importance of the decades-old Universal Service funding policy to the 
ubiquitous telecommunications infrastructure that we enjoy today; but 
we also see the current funding mechanism as outdated and in need of 
reform. Any new funding mechanism must be stable, sustainable, easy to 
administer and competitively neutral. We believe that a connections-
based assessment mechanism has the greatest potential to satisfy these 
objectives. In essence, this approach would authorize the FCC to assess 
a flat fee on each end-user ``last mile'' wireline or wireless 
connection. This approach is much easier to administer than a numbers 
approach, and it does not artificially tilt consumer decisions. It also 
is more sustainable than a revenues approach. We envision a 
connections-based approach working thus:

   The end-user would be assessed a USF fee on his or her bill, 
        and the provider of the connection would collect and remit the 
        fee.

   The FCC could tier the fee according to the size/capacity of 
        the connection. For example, high bandwidth connections could 
        be assessed a larger fee as compared to voice-grade 
        connections.

   Technological and competitive neutrality would need to be 
        maintained in the way that tiers were defined and assessed. For 
        example, DSL and cable modem should generally have the same 
        assessment when competing for the same consumer. The FCC also 
        could exempt certain connections, such as for Lifeline 
        consumers.

   The FCC then would calculate the amount of the per 
        connection assessment by dividing the amount of USF support by 
        the number of connection assessments.

    There are a number of advantages to this approach. To start, it 
does not run the risk of arbitrage through bundling, in which bundled 
packages of services could either minimize contributions or distort the 
marketplace based on the level and amount of USF assessments. Rather, a 
connections-based approach is completely neutral. The only way to avoid 
the assessment is to forego any connection whatsoever, and if you do 
connect, the assessment will not vary depending on the type of 
connection. The assessments also will be competitively neutral between 
providers of connections on a similar capacity. Importantly, a 
connections-based assessment would be more stable and sustainable than 
an alternative predicated strictly on a methodology that applies to 
today's world but may be obsolete tomorrow (i.e., a numbers-based 
approach). Indeed, connections can be expected to grow as both the 
population and new sources of deployment grow. Finally, we believe that 
a connections-based approach offers significant administrative and 
transparency benefits. In particular, because the approach will 
centralize assessments into a single set of providers in contact with 
end users--in contrast to an approach that divides assessments among 
hundreds of providers operating over the same connection--it will 
reduce administrative costs and make the assessment easier for 
consumers to understand.
    In terms of distribution, we also support a competitively neutral 
approach. And we believe that, here, Congress should not forget that 
spectrum policy also can play a role. To the extent more spectrum is 
made available for the creation of unlicensed, wireless broadband 
connections, costs for digging trenches and for stringing wires can be 
eliminated for the benefit of all types of providers.
3. Connectivity Principles or Net Neutrality
    Third, it is imperative that consumers be able to access any 
Internet site and use any lawful application or device with a broadband 
Internet connection--just as they have been able to do in the 
narrowband world. This principle, which sometimes is referred to as 
``net neutrality'' or the ``Connectivity Principles,'' is really about 
letting consumers decide, and not network operators, what content and 
services succeed or fail on the Internet. Connectivity Principles are 
important as a policy matter--especially in rural areas--because they 
determine whether consumers drive decisions on innovation and 
technology, or whether one lets the network operators affect those 
decisions. We are pleased that the network operators are investing in 
technology and innovation, and we are proud partners with them in 
offering content and services to the public. We just think that other 
companies should continue to be able to offer Internet content and 
services as well.
    I first raised this issue with the Committee in October 2002 and I 
identified four core principles that should be protected by Congress. 
These are the ability of consumers and providers (1) to offer and 
access content without interference; (2) to use applications and 
services on the Internet; (3) to attach any nonharmful personal devices 
to the network; and (4) to obtain clear information about their 
service. It is imperative that these principles be established by 
statute in such a way as to ensure that the consumer always has access 
at some reasonable price to a level of network performance sufficient 
to access the evolving services of this next generation Internet. 
Network operators should not be able to offer preferential use of the 
network to their own services or those of specific network services 
unless the consumer has the potential to buy the meaningful capacity 
for use with services, devices and applications of their choice.
    The broader community feels very strongly about this issue. 
Recently, over 70 major Internet and technology companies, including 
Yahoo!, Google, eBay, Amazon.com, and Interactive Corp., have come 
together on net neutrality and are calling on Congress to ensure that 
the Internet remains a platform open for innovation and progress.
    In the past, Congress ultimately has intervened in the business 
activities of the historical network providers to ensure that the 
consumers had choice and reasonable pricing over time and to further 
ensure that each network operator could not discriminate against 
particular connections or offerings that consumers desired. Congress 
should act now to ensure that such consumer protections carry forward 
gracefully to the converged network we call the Internet, which will 
quickly inherit the union of all the other networks' capabilities and 
services and also allow the creation of many new businesses and 
services that we cannot reasonably forecast. These hallmarks of 
consumer expectations have been, and remain, fundamental to the success 
of the Internet. These basic features defined consumer, private sector 
and governmental experiences on the Internet, and we agree with others 
in the industry that these principles should be carried forward to the 
Internet broadband future.
4. Targeted Deregulation
    Fourth, we support providing greater incentives for broadband 
deployment through targeted deregulation. Like many others, we 
recognize that certain legacy requirements in the Communications Act 
and in the FCC's implementing regulations do not fully account for the 
architectural and commercial realities of today's telecommunications 
landscape. Thus, through the High Tech Broadband Coalition, we 
supported unbundling relief for the incumbent carriers. We likewise 
recognize that the current system of video franchising needs reform to 
streamline entry for new competitors and to rationalize regulation for 
all providers.
A Broad, and a Long, View.
    Broadband has the power to transform society, and nowhere is that 
power greater than for rural communities. If you get the broadband 
policy right, I think ten years from now members of this Committee 
could look back and see that a comprehensive and visionary broadband 
policy may have had as great, or greater, an impact on reshaping and 
renewing rural America as a major farm bill did in years gone by. The 
right policy can create the opportunity for rural communities to be an 
easily-reachable stop on the Internet, and these communities in turn 
could feed network hubs in rural states. Such a network would deliver 
better and more efficient services and create opportunities for 
learning, public services, public safety, communication and innovation, 
which in turn can lead to a virtual cycle of economic and social growth 
within our rural communities. There is no reason that we cannot foster 
the development of more Great Plains Software companies, more 
innovative health and wellness solutions, and more Advanced Placement 
courses for students in small communities. Broadband technology means 
that rural Americans can reach, and be reached, by the rest of the 
country and the rest of the world without ever having to leave home.
    Microsoft looks forward to working with the Committee to achieve 
these goals. Thank you again for the opportunity to appear before you 
today.

    The Chairman. Thank you very much, Mr. Mundie.
    Our next witness is Joe Garcia, President of the National 
Congress of American Indians.

 STATEMENT OF JOE GARCIA, GOVERNOR, OHKAY OWINGEH; PRESIDENT, 
          NATIONAL CONGRESS OF AMERICAN INDIANS (NCAI)

    Mr. Garcia. Good morning, Chairman Stevens and Members of 
the Committee.
    My name is Joe Garcia. I am Governor of Ohkay Owingeh, 
formerly known as San Juan Pueblo, in the State of New Mexico, 
and I am the President of the National Congress of American 
Indians.
    The National Congress of American Indians, NCAI, is the 
oldest and largest national American Indian and Alaska Native 
organization in the U.S. I sit before you today representing 
over 275 tribal governments and hundreds of thousands of 
American Indians and Alaska Native people.
    On behalf of NCAI, thank you for the opportunity to testify 
before you today on an issue that is critical to the future of 
our communities.
    Only 68 percent of the households on tribal lands have a 
telephone, compared to more than 95 percent, nationwide. Less 
than 10 percent have broadband access. Only eight of the more 
than 560 tribes have tribally owned and operated telephone 
companies, and there are only 35 tribal radio stations.
    A strong telecommunications infrastructure is vital to 
every aspect of tribal governance and life. From economic 
development to public safety, education and healthcare, without 
this access, tribal nations simply will not be able to compete 
and fully prosper in the 21st century. Important decisions 
concerning telecommunication and broadcast policy are made here 
in Washington that impact the future of our nations and our 
people. And in the past these decisions have been made largely 
without our input.
    The Communications Act of 1934 and Telecommunications Act 
of 1996 did not mention Indian tribes. This is one of the root 
causes why our lands lag far behind the rest of the Nation in 
virtually every measure of communications connectivity. We know 
that there is an opportunity before us to help all Indian 
Country take historic steps, and it is one we take very 
seriously.
    As Congress looks to change the Nation's telecommunications 
laws to address new and changing technologies, tribal leaders 
have passed a resolution calling on Congress to expressly 
address the communications needs and priorities of tribal 
nations in any rewrite of the Telecommunications Act of 1996. 
We have to have a seat at the table.
    For the past 2 years, NCAI has been holding meetings around 
Indian Country, with the goal of identifying consensus policy 
recommendations that will help close the digital divide that 
persists for Indian communities. Attached to my written 
testimony are two resolutions passed by NCAI last fall that are 
the product of these meetings. These resolutions include a 
number of policy recommendations that I would like to mention 
briefly here. There are four.
    Number one, the rights of tribal governments to assert 
regulatory jurisdiction over telecommunications activities on 
tribal lands is an effective means of protecting the public 
interest of Indian Country and providing universal access to 
telecommunications services. Some tribes already have 
successfully exercised regulatory authority in this area. 
Congress should acknowledge the authority of tribal governments 
to regulate telecommunications activity on tribal lands in any 
future legislation.
    Two, universal access must be made a reality for tribal 
communities. This includes not only traditional wireline 
services, but also broadband. Closing the digital divide is 
critical for tribal governance--self governance, economic 
development, homeland security, education, and healthcare. The 
Universal Service Fund must be protected and strengthened.
    Three, spectrum is an important natural resource that is 
critical for tribal communications services. In the past, 
Federal spectrum management policy has not acknowledged tribal 
sovereignty, self-determination, or the Federal trust and 
responsibility. As a result, very few tribes have been able to 
access licensed spectrum for public safety, telephony, 
community broadband, or broadcast media. Tribal access and 
options for spectrum ownership on tribal lands should be 
addressed.
    Four, many tribes do not have the resources or information 
to be able to plan for the community's telecommunications 
future. The Native American Connectivity Act, S. 535, which was 
introduced by Senator Inouye and cosponsored by Senator 
Cantwell, would establish a flexible block grant funding 
mechanism for the development of telecom and information 
technology capacity in Indian Country. The Native American 
Connectivity Act is the type of flexibility solution that 
tribes need in order to be able to meet the telecommunications 
needs of their communities.
    In conclusion, as Congress revamps the Nation's 
telecommunication policies, a tremendous opportunity exists to 
empower Alaska and Indian tribal governments. We strongly 
encourage Congress to consider how Indian tribes should be 
treated by the Federal telecommunications policies in order to 
remedy the exclusion of tribal communities from the information 
society.
    The National Congress of American Indians and our member 
tribes stand ready to work with you to ensure that Federal 
telecommunications policy develops in a way that best serves 
all members of our society and is consistent with the unique 
status of Indian tribes in the Federal system.
    Thank you very much.
    [The prepared statement of Mr. Garcia follows:]

 Prepared Statement of Joe Garcia, Governor, Ohkay Owingeh; President, 
              National Congress of American Indians (NCAI)

    Good morning Chairman Stevens, Senator Inouye, and Members of the 
Committee. My name is Joe Garcia, and I am Governor of Ohkay Owingeh, 
formerly known as San Juan Pueblo, in the State of New Mexico, and 
President of the National Congress of American Indians (NCAI).
    NCAI is the oldest and largest American Indian and Alaska Native 
organization in the United States. I sit before you today representing 
over 275 tribal governments and hundreds of thousands of Indian people. 
NCAI was founded in 1944 in response to termination and assimilation 
policies that the United States forced upon the tribal governments in 
contradiction of their treaty rights and status as sovereign 
governments. Today NCAI remains dedicated to protecting the rights of 
tribal governments to achieve self-determination and self-sufficiency.
    On behalf of NCAI, thank you for giving me the opportunity to 
testify before you today on an issue that is critical to the future of 
our communities. I am here because only 68 percent of the households on 
tribal lands have a telephone compared to more than 95 percent 
nationwide, because of the more than 560 federally-recognized tribes, 
only 8 have tribally-owned and operated telephone companies, and there 
are only 35 tribal radio stations. Important decisions concerning 
telecommunications and broadcast policy are made here in Washington 
that impact the future of our nations and our peoples. As Congress 
looks to change telecommunications laws to address new and changing 
technologies, tribal leaders are becoming involved to an unprecedented 
extent. The Communications Act of 1934 and Telecommunications Act of 
1996 left tribal roles, needs and abilities unaddressed. This is one of 
the root causes why our lands lag far behind the rest of the Nation in 
virtually every measure of communications connectivity. We know that 
there is an opportunity before us to help all of Indian Country take 
historic steps forward, and it is one we take very seriously.
    A strong telecommunications infrastructure is vital to every aspect 
of tribal governance and life. It provides the foundation for 
successful economic development and serves as an invaluable tool for 
education and training of tribal members. It is a life-saving blessing 
for our elders and others who are now or will be able to receive 
medical care through telemedicine services. It enhances our ability to 
preserve our languages and cultures, and it is a critical component in 
our efforts to play our part in emergency response and homeland 
security preparedness. While much of the country is leaping ahead in 
the digital revolution, Indian communities continue to struggle with 
issues of basic access to telecommunications services. Without this 
access, tribal nations simply will not be able to compete and fully 
prosper in the 21st century.
    The unacceptable state of telecommunications technologies and 
services in Indian Country has been well-documented in prior 
Congressional hearings, including a joint Indian Affairs and Commerce 
Committee Oversight hearing in 2003 and a hearing on the Native 
American Connectivity Act in 2004. I encourage you to review the 
records from these prior hearings for a more thorough background on the 
challenges facing our communities in this area.
    I also encourage you to review the recently issued GAO report, 
which confirmed that basic telephone penetration in Indian Country 
still lags far behind the rest of America and discussed the challenges 
associated with the deployment of telecommunications services on tribal 
lands. In some of our communities as few as 34 percent of homes have 
basic telephone service. As we all recognize, this is not only about 
basic telephone service any more. Although the GAO report found that 
accurate statistics on broadband penetration are not available, we know 
that those statistics are even more dismal. The FCC estimates that 
broadband penetration on Indian lands is less than 10 percent.
    Despite the fact that information technology and telecommunications 
services provide the foundation for tribal nations to effectively 
fulfill their governmental responsibilities to their citizens, tribal 
governments were not mentioned in the Telecommunications Act of 1996. 
NCAI Resolution 05-068 (attached), which was passed at the NCAI annual 
session in November of last year, calls on Congress to expressly 
address the communications needs and priorities of tribal nations in 
any re-write of the Telecommunications Act of 1996.
    The most significant barriers to telecommunications and information 
technology development on tribal lands include: geographic isolation, 
remoteness and low population densities; lack of capital for 
infrastructure development; lack of access to training, technical 
assistance and planning resources; high unemployment and poverty rates; 
low educational attainment rates; and public policies that limit the 
ability of tribal governments to determine their respective 
telecommunications destinies.
    For the past two years, NCAI has collaborated with the Native 
Networking Policy Center to convene a series of sessions around Indian 
Country with the goal of identifying policies that are necessary to 
overcome these barriers. Attached to my written testimony are the two 
resolutions passed by NCAI last fall that are the product of these 
convenings.
    Because so much background information on the extent of the 
telecommunications crisis in Indian Country is readily available, the 
remainder of my testimony will focus on the consensus 
telecommunications policy priorities that have been identified by 
tribal leaders.
Telecommunications Policy for Tribal Communities
    NCAI has a vision that equitable, affordable, and universal access 
to telecommunications services, including evolving and emerging 
technologies on tribal lands, will be available to American Indian and 
Alaskan Native communities by the year 2010. A number of policy changes 
have been identified by tribal leaders that will help make this vision 
a reality.
Acknowledgment of Tribal Regulatory Authority
    The rights of tribal governments to assert regulatory jurisdiction 
over telecommunications activities on tribal lands is an effective 
means of protecting the public interest of Indian Country and providing 
universal access to telecommunications services. Some tribes are 
already successfully exercising regulatory authority in this area. The 
failure of current law, however, to acknowledge tribal regulatory 
authority, has engendered regulatory instability and ambiguity, 
creating numerous barriers to deploying critical telecommunications 
infrastructure and services and resulting in numerous cases of dispute 
and litigation regarding:

   Designating eligible telecommunications carrier status, 
        which enables a telecommunications company to access Universal 
        Service Fund dollars and be held accountable to service 
        requirements and public interest and consumer rights 
        obligations.

   Determining the size of local calling areas, which has led 
        to long distance charges for calls from one community to 
        another within a single reservation.

   Purchasing exchanges, which enable tribes to start their own 
        telecommunications companies and provide telephony and 
        broadband services to their communities.

   Assessing possessory interest taxes against right-of-ways, 
        which prevent Tribal governments from deriving important 
        sources of revenue. \1\
---------------------------------------------------------------------------
    \1\ See, e.g., Western Wireless Corporation Petition for 
Designation as an Eligible telecommunications Carrier for the Pine 
Ridge Reservation in South Dakota, CC Docket 96-45 (2001); Cheyenne 
River Sioux Tribe Telephone Authority v. Public Utilities Commission of 
S.D., 595 N.W.2d 604 (S.D. 1999); Cheyenne River Sioux Tribe Telephone 
Authority and US WEST Communications, Inc. Joint Petition for Expedited 
Ruling Preempting South Dakota Law, CC Docket 98-6 (2002); West River 
Telecommunications v. Henry, et al. A4-02-126, (2003).

    In the current broadband era, social, political, economic and 
public safety discourse are all digitally mediated, and thus, dependent 
upon telecommunications services. Now, more than ever, 
telecommunications services are essential to preserving the political 
and economic integrity and viability of tribes, as well as ensuring the 
public safety of tribal members and others living on tribal lands. It 
is clearly within the public interest on tribal lands for tribal 
governments to exercise their regulatory authority as they are the 
entities that are best able to determine the most effective and 
efficient management of telecommunications activities on tribal lands.
    Recommendation:

   Acknowledge the authority of tribal governments to regulate 
        telecommunications activity on tribal lands.

Tribal Access to Spectrum
    In the past, Federal spectrum management policies have not 
acknowledged tribal sovereignty, self-determination, or the Federal 
trust responsibility. As a result, very few tribes have been able to 
access licensed spectrum for public safety, telephony, community 
broadband or broadcast media. Instead, the telecommunications industry 
has purchased spectrum licenses throughout Indian Country with very 
little benefit to the public interest of tribes, Native American 
consumers, or non-tribal citizens living on tribal lands.
    NCAI's coordination with the FCC and the telecommunications 
industry has shown us why gaining access to wireless spectrum is so 
important for Indian Country. Access to spectrum will ensure that 
American Indians are not left behind as technology advances in the 21st 
century. It will enable us to bridge the ``digital divide'' that 
persists for many Indian people in part because basic utilities 
infrastructures are lacking in Indian Country, making it harder to 
start a business in tribal areas. While the telecommunications industry 
has made strides in recent years in providing services to tribal 
peoples, 70+ years of telecommunications infrastructure build-out has 
not benefited tribal citizens to the same extent that it has benefited 
the rest of the Nation. The financial incentives simply do not exist 
for industry to fully serve tribal communities.
    Tribal governments, however, because of their responsibilities as 
governments, do have this incentive and are best situated to inform and 
assist the Federal Government in the most efficient use of spectrum on 
tribal lands nationwide. Like water, minerals, and timber, spectrum is 
a valuable natural resource for tribal communities, and the Federal 
Government should consult with tribes about spectrum management on 
tribal lands and ensure that tribal communities have access to this 
resource for purposes of tribal governance and economic development.
    Spectrum access will also enable tribal governments to better 
provide for the public safety of their communities and to play their 
part in protecting our homeland. For telecommunications infrastructure 
and information technology to be developed and utilized in a manner 
that meets the social, civic, economic, educational and cultural needs 
of American Indian and Alaskan Native communities and the non-Native 
citizens living on the tens of millions of acres of Indian land across 
the country, Federal telecommunications policy must respect the right 
of tribal governments to self- determination. Tribal governments are 
uniquely positioned to know what works best for their communities. 
Access to spectrum is a prerequisite for these decisions at the tribal 
level.
    Recommendations:

   Require government-to-government consultation for spectrum 
        management on tribal lands.

   Ensure tribal access and options for ownership and 
        management of spectrum on tribal lands for telephony, broadband 
        and broadcast media.

Making Universal Service a Reality
    Without the Universal Service Fund, telecommunications and 
information services on tribal lands would not be affordable or 
available for the vast majority of American Indian and Alaska Native 
households. Reforming the Universal Service Fund (USF), as a means to 
protect and preserve the Fund, is essential in sustaining and further 
developing the communications capacities of tribal governments. In 
particular, the deployment of broadband services to tribal communities 
is essential to the future economic, social and civic viability of 
those communities. Currently, there are many inefficiencies and waste 
in the USF. To ensure that the Fund is targeted to hard-to-serve and 
high-cost service communities, the Act should be amended to increase 
scrutiny of how the fund is being used, ensure parity of requirements 
and contributions, and eliminate waste in the Fund.
    Section 254(b) of the Telecommunications Act of 1996 defines the 
goals for Universal Service (e.g., affordable access to 
telecommunications and advanced services for all Americans--including 
low-income families who live in rural and insular areas). Yet, nowhere 
in this section is an ``unserved community'' defined. Likewise, Section 
214(e)3 states that if no common carrier will provide the services that 
are supported by Federal Universal Service support mechanisms under 
section 254(c) to an unserved community that requests such service, the 
Federal Communications Commission (with respect to interstate 
services), or a State commission (with respect to intrastate services), 
is given the authority to order the ``best able'' carrier or carriers 
to provide service to an unserved community which has requested 
services.
    Without a specific definition or criteria for ``unserved 
community'' there is no standardized or explicit method for determining 
what an unserved community is, which has resulted in ineffective policy 
and unfortunate consequences. For example, there is no explicit means 
to enforce service requirements to unserved communities. It also 
promotes ``cream skimming'' and other industry abuses of the Universal 
Service Fund.
    Recommendations:

   Preserve and protect the USF.

   Amend Sections 254(b)3 and 214(e)3 of the Act to define an 
        unserved area as one in which service penetration is 15 percent 
        below the nationwide penetration rate for any communications 
        service; or 5 percent below national rural penetration rate for 
        any communications service, whichever rate is higher.

   Provide access to broadband and telephony for all American 
        Indians and Alaska Natives.

   Ensure that all telecommunications and information service 
        providers that use the public switched telecommunications 
        network equally contribute to the USF. All eligible 
        telecommunications carriers ought to be held to carrier-of-
        last-resort standards and requirements, regardless of the 
        technology being used.

Tribally-Driven Solutions
    Many tribes throughout Indian Country have prioritized the 
development of a sound telecommunications infrastructure. Those same 
tribes generally are among the most successful in carrying out 
diversified development of all kinds within their communities. It is no 
question that high telephone penetration rates and easier access to the 
Internet are hallmarks of healthy economies and healthy communities. 
But most tribes do not have sufficient resources or information to be 
able to decide and plan for their telecommunications future.
    The Native American Connectivity Act, S. 535, which was introduced 
by Senator Inouye and co-sponsored by Senator Cantwell, would establish 
a flexible block grant funding mechanism for the development of 
telecommunications and information technology capacities in Indian 
Country. Grants would support infrastructure development, training and 
technical assistance, planning, assessments and research, and the 
development of tribal telecommunications regulatory authorities. The 
Native American Connectivity Act is the type of flexible solution that 
tribes need to be able to meet the telecommunications needs of their 
communities.
    In addition to giving tribes the resources to develop 
telecommunications capacity as governments, opportunities to enter the 
market as providers or coordinate with those who agree to serve our 
unique and diverse needs must be ensured. In the past, barriers to 
entry have occurred in the actions of state regulatory bodies and the 
requirements of Federal granting programs. For example, small rural, or 
tribal, carriers that purchase their facilities from large incumbent 
carriers inherit the same restricted regulatory status as the seller, 
which bars them from accessing the vital Universal Service high cost 
loop support that enables many rural carriers to sustain their 
operations. If our communities are to be served and cared for, our own 
ability to provide services must be respected and protected by 
everyone, especially our Federal trust and treaty partners.
    Recommendation:

   Enact and fully fund the Native American Connectivity Act, 
        S. 535.

   Remove barriers to entry for tribes seeking to become 
        providers of telecommunications services on their lands.

   Permit tribal governments purchasing facilities on their 
        reservations from large incumbent carriers to be eligible for 
        Universal Service high cost loop support.

Media
    Broadcast media has proven to be the most powerful, dynamic and 
valuable means of communicating to broad audiences simultaneously. 
Native radio stations are essential institutions in their communities 
and serve a critical role in providing news and information about 
tribal governance, health, public safety, and community events. It is 
often the only place on a reservation where people can hear programming 
for and by people of Native communities. Native radio is also central 
to Native language and cultural preservation.
    Unfortunately, Native Americans suffer from a broadcast media 
(e.g., television and radio) divide more than any other minority group 
in the United States. This divide is a result of a number of factors: a 
lack of content produced and distributed by Native Americans; a lack of 
access to community-relevant and culturally-relevant content; and, in 
relation to the low occurrence of Native American media ownership, a 
lack of access to broadcast spectrum and the prohibitive cost of 
licenses.
    Recommendations:

   Promote broadcast media ownership by Indian Tribes, Alaska 
        Natives and Native Hawaiians to support local radio diversity.

   Establish a Native American media fund that will assist 
        Tribes, Alaska Natives and Native Hawaiians with broadcast 
        media capacity building, content production and content 
        distribution.

   Set aside adequate spectrum for commercial and non-
        commercial broadcast media use on every reservation.

Conclusion
    As Congress revamps the Nation's telecommunications policies, a 
tremendous opportunity exists to empower Indian tribal governments to 
close the expanding digital divide in tribal communities. We strongly 
encourage Congress to consider how Indian tribes should be treated by 
the Federal telecommunications policies in order to remedy the 
exclusion of tribal communities from the Information Society. The 
National Congress of American Indians and our member tribes stand ready 
to work with you to ensure that Federal telecommunications policy 
develops in a way that best serves all members of our society and is 
consistent with the unique status of Indian tribes in the Federal 
system.

    The National Congress of American Indians Resolution #TUL-05-068
TITLE: Resolution to Ensure Tribal Governments are Included in the 
        Rewrite of the 1996 Telecommunications Act
    WHEREAS, we, the members of the National Congress of American 
Indians of the United States, invoking the divine blessing of the 
Creator upon our efforts and purposes, in order to preserve for 
ourselves and our descendants the inherent sovereign rights of our 
Indian nations, rights secured under Indian treaties and agreements 
with the United States, and all other rights and benefits to which we 
are entitled under the laws and Constitution of the United States, to 
enlighten the public toward a better understanding of the Indian 
people, to preserve Indian cultural values, and otherwise promote the 
health, safety and welfare of the Indian people, do hereby establish 
and submit the following resolution; and
    WHEREAS, the National Congress of American Indians (NCAI) was 
established in 1944 and is the oldest and largest national organization 
of American Indian and Alaska Native tribal governments; and
    WHEREAS, the 1934 Communications Act, as Amended by the 1996 
Telecommunications Act (the Act), does not include Tribal governments, 
or acknowledge tribal sovereignty, self-determination and the Federal 
trust responsibility; and
    WHEREAS, the Act does not acknowledge the inherent sovereign right 
of tribal governments to regulate telecommunications on tribal lands; 
and
    WHEREAS, the absence of tribal governments and the lack of 
acknowledgement of tribal sovereignty, self determination and the 
Federal trust responsibility in the Act has put in place a mechanism 
for infringing upon the sovereignty of tribal governments, the public 
interests of tribes and the consumer rights of Native Americans living 
on tribal lands; and
    WHEREAS, the absence of tribal governments and the lack of 
acknowledgement of tribal sovereignty, self determination and the 
Federal trust responsibility in the Act has engendered regulatory 
instability and ambiguity, posing numerous barriers to deploying 
critical telecommunications infrastructure and services and resulting 
in numerous cases of dispute and litigation; and
    WHEREAS, the United States Congress is in the process of 
redrafting, and or, amending the Act; and
    WHEREAS, there is a unique opportunity during the redrafting, and 
or, amending of the Act for the United States Congress to ensure that 
tribal governments are included in the Act, and that tribal 
sovereignty, the right of tribal governments to regulate 
telecommunications on tribal lands, self-determination, and the Federal 
trust responsibility are appropriately acknowledged; and
    WHEREAS, it is crucial that tribal governments, tribal government 
representatives, tribal leaders, intertribal organizations, such as 
NCAI, and Native American organizations play an active role to ensure 
that tribal governments be included in the Act, and that tribal 
sovereignty, the right of tribal governments to regulate 
telecommunications on tribal lands, self-determination, and the Federal 
trust responsibility be appropriately acknowledged in the Act.
    NOW THEREFORE BE IT RESOLVED, that the NCAI does hereby support 
that tribal governments be included in the Act, and that tribal 
sovereignty, the right of tribal governments to regulate 
telecommunications on tribal lands, self-determination, and the Federal 
trust responsibility be appropriately acknowledged in the Act; and
    BE IT FURTHER RESOLVED, that NCAI does hereby commit to work with 
tribal governments, tribal government representatives, tribal leaders, 
intertribal organizations and Native American organizations to ensure 
that tribal governments be included in the Act, and that tribal 
sovereignty, the right of tribal governments to regulate 
telecommunications on tribal lands, self-determination, and the Federal 
trust responsibility be appropriately acknowledged in the Act; and
    BE IT FURTHER RESOLVED, that this resolution shall be distributed 
to all tribal government legislative bodies and Indian Country 
information and telecommunications technology stakeholders; and
    BE IT FURTHER RESOLVED, that NCAI does hereby request the Executive 
Committee to authorize the creation of a Tribal Telecommunications 
Taskforce to draft a Tribal Title for inclusion in the re-write of the 
Telecommunications Act of 1996; and
    BE IT FINALLY RESOLVED, that this resolution shall be the policy of 
NCAI until it is withdrawn or modified by subsequent resolution.

                             CERTIFICATION

    The foregoing resolution was adopted at the 2005 Annual Session of 
the National Congress of American Indians, held at the 62nd Annual 
Convention in Tulsa, Oklahoma on November 4, 2005 with a quorum 
present.
    Adopted by the General Assembly during the 2005 Annual Session of 
the National Congress of American Indians held from October 30, 2005 to 
November 4, 2005 at the Convention Center in Tulsa, Oklahoma.
    The National Congress of American Indians Resolution #TUL-05-109
TITLE: Statutory Changes to the Communications Act for 
        Telecommunications Service to Tribal Communities
    WHEREAS, we, the members of the National Congress of American 
Indians of the United States, invoking the divine blessing of the 
Creator upon our efforts and purposes, in order to preserve for 
ourselves and our descendants the inherent sovereign rights of our 
Indian nations, rights secured under Indian treaties and agreements 
with the United States, and all other rights and benefits to which we 
are entitled under the laws and Constitution of the United States, to 
enlighten the public toward a better understanding of the Indian 
people, to preserve Indian cultural values, and otherwise promote the 
health, safety and welfare of the Indian people, do hereby establish 
and submit the following resolution; and
    WHEREAS, the National Congress of American Indians (NCAI) was 
established in 1944 and is the oldest and largest national organization 
of American Indian and Alaska Native tribal governments; and
    WHEREAS, Tribal communities are the last communities to be served 
in America; and
    WHEREAS, Tribal governments are not fully included in 
telecommunications policy deliberations affecting them; and
    WHEREAS, the Federal Communications Commission's Tribal Policy 
Statement has not been clarified or fully implemented; and
    WHEREAS, Tribal communities are disparately underserved among all 
American communities and the Federal Government needs to enforce the 
Communications Act mandate to provide Universal Service to all 
communities, without discrimination; and
    WHEREAS, the Communications Act requires service to ``unserved 
areas'' but does not define what an ``unserved area'' is; and
    WHEREAS, the Communications Act calls for regulatory authorities to 
act to serve the ``public interest'' but the ``public interest'' is not 
defined and tribal communities are not part of any defined ``public 
interest''; and
    WHEREAS, most tribes do not have sufficient information or 
resources to be able to decide and plan for their telecommunications 
future; and
    WHEREAS, there is presently a lack of clarity as to the forum in 
which a tribe may seek eligible carrier status; and
    WHEREAS, Tribal governments that purchase telecommunications 
facilities from large incumbent carriers inherit the same restricted 
regulatory status as the seller and are thus barred from attaining 
critical Universal Service high cost loop support that other legacy 
carriers enjoy; and
    WHEREAS, the Universal Service Fund is the most important revenue 
source to a rural telecommunications carrier; and
    WHEREAS, the wireless spectrum is public property that the Federal 
Government converts to private property to deploy telecommunications 
service; and
    WHEREAS, the private ownership of wireless spectrum over Indian 
lands does not enable tribal communities to own or to access radio 
spectrum; and
    WHEREAS, the preservation of universal and public access to 
spectrum over Indian lands will enable tribes to use the spectrum to 
meet public, homeland security and safety needs; and
    WHEREAS, tribal communities have a right to receive parity of 
telecommunications services with non-Indian communities; and
    WHEREAS, individuals, entities, tribal governments, state 
governments or any other entity should be able to present findings in a 
regulatory proceeding that an ETC incumbent carrier has not provided 
fair and reasonable service to a tribal community; and
    WHEREAS, a finding by a regulatory authority that an Eligible 
Telecommunications Carrier (one that receives Universal Service 
funding) serving a tribal community has failed to abide by the 
requirements of the Communications Act or has discriminated against a 
tribal community should cause that carrier to lose its authority to 
receive Universal Service support or any other Federal or state 
government support, benefit or credit given to the carrier; and
    WHEREAS, a tribal community, that is found to be the victim of 
discrimination by or the failure by the Eligible Telecommunications 
Carrier (ETC) to comply with the Communications Act's requirements, 
should be able to choose which new provider should be the ETC to serve 
the tribal community.
    NOW THEREFORE BE IT RESOLVED, that the NCAI does hereby support the 
following and attached provisions for statutory changes to the 
Communications Act for Telecommunications Service to tribal 
Communities; and
    BE IT FURTHER RESOLVED, that this resolution shall be the policy of 
NCAI until it is withdrawn or modified by subsequent resolution.

                             CERTIFICATION

    The foregoing resolution was adopted at the 2005 Annual Session of 
the National Congress of American Indians, held at the 62nd Annual 
Convention in Tulsa, Oklahoma on November 4, 2005 with a quorum 
present. Joe Garcia, President ATTEST: Juana Majel, Recording Secretary
    Adopted by the General Assembly during the 2005 Annual Session of 
the National Congress of American Indians held from October 30, 2005 to 
November 4, 2005 at the Convention Center in Tulsa, Oklahoma.

Communications Act Changes to Meet Tribal Needs
    1) Recognize the needs of Indian Tribes and the Federal 
Responsibility to Tribes in the Communications Act and acknowledge the 
authority of tribal nations to choose the appropriate forum for carrier 
approval.

Issue: Tribal communities are the last communities to be served. In 
addition, tribal governments are not included in telecommunications 
policy deliberations affecting them.
Amend: the Communications Act--mission statement--to include Indian 
sovereign nations in the coverage of the Act; expressly state the 
United States' trust responsibility to Indian sovereign nations and 
communities under the Communications Act; and amend section 214(e)(6) 
to permit tribal nations to choose the appropriate forum for Eligible 
Telecommunications Carrier approval.
Reason: The FCC has not made a priority of connecting tribal 
communities nor solved the disparity of services to tribal communities. 
If the trust responsibility to tribes were clarified, and if tribes 
were participants in policy decisions that impact their communities, 
tribes may finally attain access to telecommunications service. In 
addition, all tribes should be able to choose the appropriate forum for 
regulation, in keeping with their sovereign status.

    2) Target telecommunications service, support and Federal 
incentives at ``unserved areas,'' thereby serving tribal communities, 
as required by the ``public interest'' mandate of the Commincations 
Act.

Issue: Tribal communities are disparately underserved among all 
American communities. The Federal Government needs to deliver on the 
Communications Act mandate to provide Universal Service to all 
communities, without discrimination.
Amend the Act to Define ``unserved areas'' as: 15 percent below 
nationwide service penetration average for that service or 5 percent 
below nationwide rural area service penetration average for that 
service, or the higher of the two averages. And, require the FCC to 
target services to ``unserved areas'' or tribal communities as part of 
the regulatory guideline for serving and protecting the ``public 
interest.''
Reason: The Communications Act of 1934 mandates providing 
telecommunications service to all Americans at reasonable and 
affordable rates, with parity of service provided to urban areas. Up to 
30-40 percent of tribal communities do not have voice service and up to 
95 percent of tribal communities do not have broadband service 
essential for participation in the mainstream economy. Under current 
state and Federal regulatory frameworks, tribal and rural communities 
will remain ``un-served.'' This provides a trigger for Federal action.

    3) Provide resource support to tribes to plan for tribal 
telecommunications needs and learn about tribal options.

Issue: Most tribes do not have sufficient information or resources to 
be able to decide and plan for their telecommunications future.
Proposal: Create authority to permit loans to be used for feasibility 
and assessment studies for building or upgrading a tribal 
telecommunications infrastructure, and provide resources for 
educational seminars for tribes to learn how to meet their 
telecommunications needs.
Reason: tribes need to learn how telecommunications can be the platform 
upon which all tribal services, economic development and social 
services can be delivered. Understanding the specific needs of a 
community, including the right telecommunications services for the 
tribe, requires planning and assessment. Many tribes cannot afford this 
crucial planning and feasibility study.

    4) Remove a crucial regulatory barrier to tribes starting their own 
telecommunications services by allowing tribes Universal Service high 
cost support that other independent carriers enjoy.

Issue: Small rural (tribal) carriers that purchase their facilities 
from large incumbent carriers (mainly Regional Bell Operating 
Companies) inherit the same restricted regulatory status as the 
seller--barring them from attaining vital Universal Service high cost 
loop support.
Proposal: Permit tribal governments purchasing facilities on their 
reservation from large incumbent carriers to be eligible for Universal 
Service high-cost loop support.
Reason: the high cost loop support of the Universal Service Fund is the 
most crucial revenue source enabling telecommunications carriers in 
rural markets to sustain their operations. Current rules permit some 
construction costs to be recaptured, but does not provide the same 
revenue support that rural providers established before May 1997 enjoy. 
This fix--access to support that legacy companies receive--will enable 
tribes to serve themselves as a tribal enterprise. Not fixing this 
provision makes it impossible for tribes to operate their own services.

5) Protect the Universal Service Fund and eliminate inefficient use of 
the Fund.

Issue: There are many inefficiencies and waste in the Universal Service 
Fund (USF). To ensure that the Fund is targeted to hard-to-serve and 
high-cost service communities, we need to apply good government and 
efficiency principles.
Amend: the Act to increase scrutiny of how the Fund is being used, 
ensure parity of requirements and contributions, and eliminate waste in 
the Fund.

        A) Require contribution into the Fund by all who use the Public 
        Service Telecommunications Network (PSTN) system;

        B) Permit fund support only to service providers that 
        contribute to the USF;

        C) Hold all carriers, regardless of technology, to the same 
        carrier requirements and standards of reliability;

        D) Target and prioritize ``unserved areas'' for connectivity: 
        permit new Competitive Eligible Telecommunications Carriers 
        (CETCs)--those seeking USF monies where tribally owned operated 
        or authorized services are already provided--to serve only 
        ``unserved areas'' to avoid overlap of funding to carriers 
        trying to serve the same areas or serving customers already 
        connected;

        E) When serving ``unserved areas'' hold all carriers or 
        providers who receive support funding or regulatory benefits, 
        e.g., Tribal Bidding Credits, to concrete service outcomes, 
        based on customers actually connected;

        F) Assess what portion of USF funds are reinvested in the same 
        service area as the allocations were derived from;

        G) Require all carriers to use only real and actual 
        infrastructure costs to be used for USF cost calculations.

Reason: The Universal Service Fund is the primary source of revenues 
enabling rural exchange carriers to serve the high-cost rural markets. 
The job of reaching ``unserved areas'' in rural communities is not 
done. Yet the fund is over-extended and newer demands and services are 
being placed on the Fund. We need to ensure that all providers that 
receive support from the fund pay equitably into it and we need to 
eliminate any disparity of requirements or outcomes between differing 
technologies and providers. We need to re-affirm the principle that 
scarce Universal Service funds should be targeted (prioritized) for 
``unserved areas'' of the country, not permit overlap of its use by 
funding competing USF carriers trying to serve the same customers, or 
fund new CETCs to serve those customers already connected. Those 
receiving USF funding or government credits must show actual 
connectivity to continue to receive benefits.

    6) Give Tribes the Equal Opportunity to Own and Operate Spectrum 
Services by permitting the same public financing to tribes for wireless 
services that rural wireline providers enjoy.

Issue: The key to rural provision of telecommunications services is 
managing the economics of operating services and finding financing for 
business startups. The Department of Agriculture's Rural Utility 
Service loans were essential to the proliferation of rural local 
exchange services. Yet in the wireless arena, there is no public source 
of financing for or public ownership of spectrum services for spectrum 
allocations.
Amend: the Communications Act to authorize loans for tribal governments 
to borrow public funds to purchase licenses in spectrum auctions to 
serve their tribal communities.
Reason: Spectrum is the gateway for many future telecommunications 
services and for many innovative uses of technology. RUS is a public 
financing source for purchase of wire-line facilities and regulatory 
territories. However, there is no similar public financing for the 
purchase of wireless spectrum in auctions. Only deep-pocketed private 
sector providers purchase spectrum and hold spectrum licenses. We think 
that tribal communities, with their lack of connectivity in 
predominantly ``unserved areas,'' need ownership options to manage 
connectivity for their communities.

    7) Protect tribal universal access to spectrum by keeping future 
spectrum on tribal lands public so all can use it.

Issue: Tribal communities comprise most of the ``unserved areas'' of 
America, with the least access to telecommunications services. Each 
deployment of radio spectrum licenses public property for private use--
through the auction of licenses. In the new medium, many new 
technologies and innovations will emerge. However, each radio spectrum 
auction further bars access of tribes to the outside world and 
precludes spectrum use for critical tribal needs.
Amend: the Communications Act--invoking the Act's new tribal trust 
responsibility--to reserve spectrum over tribal areas as public 
property, keeping ``open spectrum areas'' for public--and tribal--use.
Reason: We need to change the telecommunications regulatory environment 
to give tribal and rural communities a chance at connectivity. Under 
current rules, the most precious public spectrum are taken out of the 
public domain for private profit and private use. In Tribal cultures, 
this violates the sharing of public resources. At this important 
juncture, the allocation of new medium can provide connectivity and new 
hope for the least-served Americans. If spectrum over tribal rural 
communities continues to be sold to private high-bidders, tribes will 
remain unconnected to the outside world and few tribes would be able to 
own spectrum services. By keeping spectrum public for universal access 
by tribal communities, tribes can reinforce the stewardship of public 
resources. Reserving spectrum on tribal lands for use by all users and 
providers, the world may dramatically change for tribal communities. 
Reserving public spectrum on tribal lands will also enhance the 
deployment of homeland security and public safety networks.

    8) Protect tribal consumers in ``unserved areas'' by sanctioning 
Eligible Telecommunications Carriers that fail to meet the 
Communications Act's requirements and give tribes an option to choose 
alternate providers for the tribal community.

Issue: Rural customers and tribal communities remain ``unserved.'' This 
is a violation of the Communications Act to provide parity of service 
or connectivity with urban areas. Carriers or companies receiving 
Universal Service support or Federal regulatory benefits or credits 
must be held to the Act's mandates to connect ``unserved'' communities. 
Failure to meet the Act's requirements--based on outcome assessments--
should trigger options for a tribal community in ``unserved areas'' to 
choose an alternative service or a competitive provider.
Amend: the Communications Act to: (1) enable private parties or any 
party of interest to challenge the performance of ETC's in ``unserved 
areas.'' And, (2) upon proof of failure of the carrier to meet the 
Act's requirement to provide ``fair and affordable rates'' or parity of 
service to that ``unserved area,'' the FCC or state shall terminate the 
ETC status of the carrier; and (3) permit the community to choose an 
alternative ETC provider and cause the FCC to issue a certificate of 
convenience (to serve the ``public interest'') to the new carrier; and 
(4) receive the same support or Federal benefit the predecessor enjoyed 
serving that tribal ``unserved area''.
Reason: In rural areas, Universal Service funding is the essential 
revenue source for rural telecommunications carriers to operate a 
business. In addition, many service companies are receiving Federal 
regulatory credits, benefits or rebates, an important advantage for 
providers competing in rural markets. When a carrier receives Universal 
Service funding or Federal benefits, failure by that carrier to meet 
the Communications Act's mandates to serve an ``unserved area'' or upon 
proof that a provider has discriminated against a community in an 
``unserved area,'' the carrier should lose the support funding or 
return the regulatory benefits it has received. Moreover, tribal 
communities or customers in an ``unserved area'' ought to have a choice 
of an alternative carrier or means of service meet the needs of that 
community in the ``unserved area''. The new provider or service ought 
to enjoy the same level of support or Federal benefits provided to the 
predecessor.

    The Chairman. Thank you very much, Mr. Garcia.
    Our next witness is Mark Goldstein, Director of Physical 
Infrastructure Issues of the GAO.

        STATEMENT OF MARK GOLDSTEIN, DIRECTOR, PHYSICAL 
            INFRASTRUCTURE ISSUES, U.S. GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Mr. Goldstein. Thank you, Mr. Chairman and Members of the 
Committee.
    I'm pleased to be here today to discuss the findings and 
recommendations of GAO's January 2006 report, Challenges to 
Assessing and Improving Telecommunications for Native Americans 
on Tribal Lands.
    According to the 2000 Census, about 588,000 Native 
Americans were residing on tribal lands. Telephone 
subscribership rates on these lands have historically lagged 
behind the overall national rate. In 1990, only 47 percent of 
Native American households on tribal lands had telephone 
service, compared to about 95 percent of households nationally.
    In our report, we discuss, one, the current status of 
telecommunications subscribership for Native Americans living 
on tribal lands; two, Federal programs available for improving 
telecommunications on these lands; three, barriers to 
improvements; and, four, the ways in which some tribes are 
addressing these barriers.
    To address these issues, we reviewed FCC and Census data, 
and interviewed officials at Federal agencies that support 
telecommunications on tribal lands. We interviewed officials 
representing telecommunications providers and industry 
organizations. We interviewed officials of 26 tribes in the 
lower 48 States and 12 Alaska regional native nonprofit 
organizations chosen on the basis of demographics and other 
factors, such as actions being taken on their lands to improve 
telecommunications. We also visited six tribal lands to learn 
more about the challenges the tribal members were facing and 
actions they were taking to improve their telecommunications 
services.
    In summary, we found the following:
    One, the most recent Census data from the year 2000 
indicate that the telephone subscribership rates for Native 
American households on tribal lands was still substantially 
below the national average. About 69 percent of these 
households in the lower 48 States had telephone service, which 
is about 29 percentage points less than the national rate of 
about 98 percent. About 87 percent of Native American 
households in Alaska native villages had telephone service, 
also considerably below the national rate. We do not know the 
rate for Internet subscribership for tribal lands, due to a 
lack of such data from either the Census Bureau or the Federal 
Communications Commission.
    Two, the Department of Agriculture's Rural Utilities 
Service and the FCC have several general programs to improve 
telecommunications in rural areas and make service affordable 
for low-income groups, which would include tribal lands and 
their residents. In addition, FCC created some programs 
targeted to tribal lands, including programs to provide 
discounts on the cost of telephone service to residents of 
tribal lands and financial incentives to encourage wireless 
providers to serve tribal lands. However, we found that FCC is 
not collecting sufficient data to assess the extent to which 
its efforts to increase telecommunications deployment and 
subscribership on these lands are succeeding. Also, one of 
FCC's programs to support telecommunications for libraries has 
legislatively based eligibility rules that preclude tribal 
libraries in at least two states from being eligible for this 
funding.
    Three, Native American officials, service providers, and 
others cited several barriers to improving telecommunications 
on tribal lands. The most frequently mentioned were the rugged 
rural terrain of tribal lands and the tribes' limited financial 
resources. These barriers increase the cost of deploying 
infrastructure and limit the ability of service providers to 
recover their costs. Other barriers cited include the shortage 
of technically trained tribal members and the service 
providers' difficulty in obtaining rights of way to deploy 
their infrastructure on tribal lands.
    Fourth, some tribes are making significant progress in 
addressing these barriers. For example, we found that several 
tribes are moving toward owning or developing their own 
telecommunications systems using Federal grants, loans, or 
partnering with the private sector. Some are focusing on 
wireless technologies, which can be less expensive to deploy 
over rugged terrain. Two tribes of the six tribes we visited 
are bringing in wireless carriers to compete with wireline 
carriers on price and service. In addition, some tribes have 
developed ways to address the need for technical training, and 
one tribe we visited has worked to expedite the tribal 
decisionmaking process for rights-of-way approvals.
    In a draft of our report, which we provided for agency 
comment, we recommended that the FCC determine what data is 
needed to assess progress toward the goal of providing access 
to telecommunications services to Native Americans living on 
tribal lands, and how this data should be collected, and then 
report to Congress on its findings. FCC agreed that more data 
is needed, but maintained that it is not the organization best 
positioned to determine what data should be collected. Given 
FCC's response, we added, as a matter for Congressional 
consideration, that Congress should consider directing FCC to 
determine what additional data is needed to help assess 
progress toward the goal of providing access to 
telecommunications services, including high-speed Internet, for 
Native Americans living on tribal lands, to determine how this 
data should regularly be collected, and to report to Congress 
on its findings.
    We also suggested that, to facilitate Internet access for 
tribal libraries, Congress should consider amending the 
Communications Act of 1934 to allow libraries eligible for 
library services and technology funds provided by the Director 
of the Institute of Museum and Library Sciences to either a 
state library administrative agency or to a federally 
recognized tribe to be eligible under the e-rate program.
    This concludes my statement, Mr. Chairman. I'd be happy to 
answer any questions that you or Members of the Committee may 
have.
    [The prepared statement of Mr. Goldstein follows:]

Prepared Statement of Mark Goldstein, Director, Physical Infrastructure 
             Issues, U.S. Government Accountability Office

    Mr. Chairman, Mr. Co-Chairman, and Members of the Committee:
    I am pleased to be here today to discuss the findings and 
recommendations of our January 2006 report, Challenges to Assessing and 
Improving Telecommunications for Native Americans on Tribal Lands. \1\ 
According to the 2000 Census, about 588,000 Native Americans were 
residing on tribal lands. \2\ Telephone subscribership rates on these 
lands have historically lagged behind the overall national rate. In 
1990, only 47 percent of Native American households on tribal lands had 
telephone service compared to about 95 percent of households 
nationally. In our report we discuss: (1) the current status of 
telecommunications subscribership for Native Americans living on tribal 
lands; (2) Federal programs available for improving telecommunications 
on these lands; (3) barriers to improvements; and (4) the ways in which 
some tribes are addressing these barriers.
---------------------------------------------------------------------------
    \1\ GAO-06-189, (Washington, D.C., Jan. 11, 2006). Available 
through GAO's website (www.gao.gov).
    \2\ For our report, GAO defined tribal lands as lands that include 
any federally recognized Indian tribe's reservation, off-reservation 
trust lands, pueblo, or colony, and Alaska Native regions established 
pursuant to the Alaska Native Claims Settlement Act, Pub. L. No. 92-
203, 85 Stat. 688 (1971) (codified as amended at 43 U.S.C. 
Sec. Sec. 1601 et seq.) Tribal lands do not include Oklahoma Tribal 
Statistical Areas, and the population figure of 588,000 does not 
include the 325,000 Native Americans living on OTSAs. The source of the 
data that GAO used throughout this report was the Census 2000 American 
Indian and Alaska Native Summary File. The term ``Native Americans'' is 
used to refer to people who identified themselves as American Indians 
and/or Alaska Natives alone or in combination with one or more races.
---------------------------------------------------------------------------
    To address these issues, we reviewed Census data and interviewed 
officials at Federal agencies that support telecommunications on tribal 
lands. We also interviewed officials representing telecommunications 
providers and industry organizations. Additionally, we interviewed 
officials of 26 tribes in the lower 48 states and 12 Alaska regional 
native nonprofit organizations, chosen on the basis of demographics and 
other factors, such as actions being taken on their land to improve 
telecommunications. We also visited 6 tribal lands to learn more about 
the challenges the tribal members were facing, and actions they were 
taking to improve their telecommunications services. \3\ We performed 
our work in accordance with generally accepted government auditing 
standards from August 2004 to December 2005. For more information about 
the methodology used, see our report, Challenges to Assessing and 
Improving Telecommunications for Native Americans on Tribal Lands.
---------------------------------------------------------------------------
    \3\ The six tribes are: Coeur D'Alene Tribe of the Coeur D'Alene 
Reservation, Idaho; Confederated Tribes and Bands of the Yakama Nation, 
Washington; Eastern Band of Cherokee Indians of North Carolina; Oglala 
Sioux Tribe of the Pine Ridge Reservation, South Dakota; Mescalero 
Apache Tribe of the Mescalero Reservation, New Mexico; and Navajo 
Nation in Arizona, New Mexico, and Utah.
---------------------------------------------------------------------------
    In summary, we found that:

   The most recent census data, from the year 2000, indicate 
        that the telephone subscribership rate for Native American 
        households on tribal lands is still substantially below the 
        national rate. About 69 percent of these households in the 
        lower 48 states had telephone service, which is about 29 
        percentage points less than the national rate of about 98 
        percent. About 87 percent of Native American households in 
        Alaska native villages had telephone service, also considerably 
        below the national rate. We do not know the rate for Internet 
        subscribership for tribal lands due to a lack of such data from 
        either the Census Bureau or the Federal Communications 
        Commission (FCC).

   The Department of Agriculture's Rural Utilities Service and 
        the FCC have several general programs to improve 
        telecommunications in rural areas and make service affordable 
        for low-income groups, which would include tribal lands and 
        their residents. In addition, FCC created some programs 
        targeted to tribal lands, including programs to provide 
        discounts on the cost of telephone service to residents of 
        tribal lands, and financial incentives to encourage wireless 
        providers to serve tribal lands. However, we found that FCC is 
        not collecting sufficient data to assess the extent to which 
        its efforts to increase telecommunications deployment and 
        subscribership on these lands are succeeding. Also, one of 
        FCC's programs to support telecommunications for libraries has 
        legislatively based eligibility rules that preclude tribal 
        libraries in at least two states from being eligible for this 
        funding.

   Native American officials, service providers, and others 
        cited several barriers to improving telecommunications on 
        tribal lands. The most frequently mentioned were the rural, 
        rugged terrain of tribal lands and the tribes' limited 
        financial resources. These barriers increase the costs of 
        deploying infrastructure and limit the ability of service 
        providers to recover their costs. Other barriers cited include 
        the shortage of technically trained tribal members and the 
        service providers' difficulty in obtaining rights of way to 
        deploy their infrastructure on tribal lands.

   Some tribes are making significant progress in addressing 
        these barriers. For example, we found that several tribes are 
        moving toward owning or developing their own telecommunications 
        systems using Federal grants, loans, or partnering with the 
        private sector. Some are focusing on wireless technologies, 
        which can be less expensive to deploy over rural rugged 
        terrain. Two tribes of the six tribes we visited are bringing 
        in wireless carriers to compete with wireline carriers on price 
        and service. In addition, some tribes have developed ways to 
        address the need for technical training, and one tribe we 
        visited has worked to expedite the tribal decision-making 
        process for rights-of-way approvals.

    Our report has two matters for congressional consideration. First, 
Congress should consider directing FCC to determine what additional 
data is needed to help assess progress toward the goal of providing 
access to telecommunications service on tribal lands, including 
advanced services such as high-speed Internet, and how this data should 
collected. Second, Congress should consider amending the Communications 
Act of 1934 to facilitate and clarify the eligibility of tribal 
libraries for funding under FCC's telecommunication support program for 
libraries.
    I would now like to present additional detail on the results of our 
work.

Background
    Tribal lands vary dramatically in size, demographics, and location, 
ranging from the Navajo Nation, with 24,000 square miles and over 
176,000 Native American residents, to tribal land areas in California 
comprising less than 1 square mile with fewer than 50 Native American 
residents. Most tribal lands are located in rural or remote locations, 
though some are near metropolitan areas. Also, some tribal lands have a 
significant percentage of non-Native Americans residing on them.
    Tribes are unique in being sovereign governments within the United 
States. Their sovereign status has been established by the U.S. 
Constitution, treaties, and other Federal actions. To help manage 
tribal affairs, tribes have formed governments or subsidiaries of 
tribal governments that include schools, housing, health, and other 
types of corporations. In addition, the Bureau of Indian Affairs (BIA) 
in the Department of the Interior has a fiduciary responsibility to 
tribes and assumes some management responsibility for all land held in 
trust for the benefit of the individual Native American or tribe.
    Native American tribes are among the most economically distressed 
groups in the United States. According to the 2000 Census, about 37 
percent of Native American households had incomes below the Federal 
poverty level--more than double the rate for the U.S. population as a 
whole. Residents of tribal lands often lack basic infrastructure, such 
as water and sewer systems, and telecommunications systems.
    The Federal Government has long acknowledged the difficulties of 
providing basic services, such as electricity and telephone service, to 
rural areas of the country. The concept of universal telephone service 
has its origins in Section 1 of the Communications Act of 1934, as 
amended, (Communications Act) which states that the FCC was created 
``for the purpose of regulating interstate and foreign commerce in 
communication by wire and radio so as to make available, so far as 
possible, to all people of the United States, a rapid, efficient, 
nationwide, and worldwide wire and radio communication service with 
adequate facilities at reasonable charges. . . .'' \4\ The goal of 
Universal Service is to ensure that all U.S. residents have access to 
quality telephone service regardless of their household income or 
geographic location. A 1995 report by the Census Bureau based on 1990 
census data noted that about 47 percent of Native American households 
on tribal lands had telephone service, compared to about 95 percent of 
households nationally. \5\ In June 2000, the FCC Chairman noted that 
telephone subscribership among the rural poor was roughly 20 percent 
lower than the rest of the Nation, while Native Americans living on 
tribal lands were only half as likely as other Americans to subscribe 
to telephone service.
---------------------------------------------------------------------------
    \4\ 47 U.S.C. Sec. 151.
    \5\ Bureau of the Census, Housing of American Indians on 
Reservations--Equipment and Fuels, Statistical Brief, S/B95-11, 
(Washington, D.C.: April 1995).
---------------------------------------------------------------------------
Tribal Telephone Subscribership Rate is Substantially Below the 
        National Level and Internet Subscribership Is Unknown
    As of 2000, the telephone subscribership rate for Native American 
households on tribal lands had improved since 1990, but was still 
substantially below the national rate, while the rate for Internet 
subscribership on tribal lands was unknown due to a lack of data. 
According to data from the 2000 decennial census, about 69 percent of 
Native American households \6\ on tribal lands in the lower 48 states 
had telephone service, which was about 29 percentage points less than 
the national rate of about 98 percent. About 87 percent of Native 
American households in Alaska native villages had telephone service, 
also considerably below the national rate. Telephone subscribership 
rates for Native American households on individual tribal lands in 2000 
varied widely. A few tribal lands had rates above the national level, 
but the majority of them had rates below the national level. To get a 
better understanding of telephone subscribership rates by individual 
tribe and population size, we reviewed data for the 25 tribal lands 
with the highest number of Native American households. These 25 tribal 
lands represent about 65 percent of all Native American households, as 
shown in Census 2000 data, and had a range in telephone subscribership 
rates from 38 percent for the Navajo Nation Reservation and Off-
Reservation Trust Land (located in Arizona, New Mexico, and Utah) to 94 
percent for the Turtle Mountain Reservation and Off-Reservation Trust 
Land (located in Montana, North Dakota, and South Dakota).
---------------------------------------------------------------------------
    \6\ The Census 2000 data in this report are for the American Indian 
and Alaska Native alone or in combination with one or more other races. 
Households are classified by the race of the householder. When the term 
Native American households is used, it refers to the total number of 
occupied housing units where the race of the householder is American 
Indian and/or Alaska Native alone or in combination with one or more 
other races.
---------------------------------------------------------------------------
    While Census data indicate that the average subscribership rate for 
Native Americans on tribal lands has increased from about 47 percent of 
households in 1990 to about 69 percent in 2000, changes in telephone 
subscribership rates since the 2000 decennial census are not known. In 
order to provide more current data, the U.S. Census Bureau (Census 
Bureau) has begun to gather telephone subscribership data through a 
new, more frequent survey that will provide demographic and 
socioeconomic data on communities of all sizes, including tribal lands. 
However, because it will take time to accumulate a large enough sample 
to produce data for small communities, annual reports will not be 
available for all small communities, including tribal lands, until 
2010.
    The rate of Internet subscribership for Native American households 
on tribal lands is unknown because neither the Census Bureau nor FCC 
collects this data at the tribal level. One survey performed by the 
Census Bureau that collects data on Internet subscribership can provide 
estimates for the Nation as a whole, but the survey's sample cannot 
provide reliable estimates of Internet subscribership on tribal lands. 
The Census Bureau's new survey will provide data on tribal lands but 
does not include a question on Internet subscribership. Without current 
subscribership data, it is difficult to assess progress or the impact 
of Federal programs to improve telecommunications on tribal lands.
    FCC collects data on the deployment of advanced telecommunications 
capability in the United States, but this data cannot be used to 
determine Internet subscribership rates for tribal lands. \7\ Pursuant 
to section 706 of the Telecommunications Act of 1996, FCC is required 
to conduct regular inquiries concerning the availability of advanced 
telecommunications capability for all Americans. To obtain this data, 
FCC requires service providers to report a list of the zip codes where 
they have at least one customer of high-speed service. Because the 
providers are not required to report the total number of their 
residential subscribers in each zip code, because tribal lands do not 
necessarily correspond to zip codes, and because these data do not 
include information on ``dial-up'' users (i.e., those who access the 
Internet without a broadband connection), these data cannot be used to 
determine the number of residential Internet subscribers on tribal 
lands. The FCC has recognized that its section 706 data collection 
efforts in rural and undeserved areas need improvement to better 
fulfill Congress' mandate. \8\
---------------------------------------------------------------------------
    \7\ Section 706(c)(1) of the Telecommunications Act of 1996 defines 
advanced telecommunications, without regard to any transmission media 
or technology, as high-speed, switched, broadband telecommunications 
capability that enables users to originate and receive high-quality 
voice, data, graphics, and video telecommunications using any 
technology. See, Pub. L. No. 104-104, Title VII, Sec. 706, Feb. 8, 
1996, 110 Stat. 153, reproduced in the notes under 47 U.S.C. Sec. 157.
    \8\ Local Telephone Competition and Broadband Reporting, 19 FCC Rcd 
22340 (2004).
---------------------------------------------------------------------------
Native Americans Can Benefit from Several General and Tribal-Specific 
        Federal Programs to Improve Telecommunications Services
    The Department of Agriculture's Rural Utilities Service and FCC are 
responsible for several general programs designed to improve the 
Nation's telecommunications infrastructure and make services affordable 
for all consumers, which can benefit tribes and tribal lands. The Rural 
Utilities Service has grant, loan, and loan guarantee programs for 
improving telecommunications in rural areas. FCC has several programs 
(known as ``Universal Service'' programs) to make telephone service 
more affordable for low-income consumers and consumers living in areas, 
such as rural areas, where the cost to provide service is high.
    In addition to these general programs, FCC has recognized the need 
to make special efforts to improve tribal telecommunications and 
established four programs specifically targeted to improving 
telecommunications for residents of tribal lands. The Tribal Land 
Bidding Credit program provides financial incentives to wireless 
service providers to serve tribal lands. The Indian Telecommunications 
Initiative disseminates information to tribes and tribal organizations 
on telecommunications services on tribal lands, including Universal 
Service programs and other areas of interest. Enhanced Link-Up, which 
provides a one-time discount on the cost of connecting a subscriber to 
the telephone network and Enhanced Lifeline, which provides ongoing 
discounts on the cost of monthly service, provide more support per 
customer than the regular Link-up and Lifeline programs. As with FCC's 
other Universal Service programs, the service providers are reimbursed 
from FCC's Universal Service Fund for the discounts they give to the 
programs' participants.
    Regarding Enhanced Lifeline, we found that, at present, data 
provided to the program administrator \9\ from the service providers 
can be broken out by state, but not by tribal land, because the 
reporting form does not ask service providers to indicate the number of 
participants and amount of funding by tribal land. Because FCC does not 
have data on program participation and funding by individual tribal 
land, some basic questions cannot be answered: what percentage of 
residents of particular tribal lands are benefiting from the programs 
and how have the participation rates on individual tribal lands changed 
over time?
---------------------------------------------------------------------------
    \9\ FCC designated a not-for-profit corporation, the Universal 
Service Administrative Company (USAC) to carry out the day-to-day 
operations of the Universal Service programs, although FCC retains 
responsibility for overseeing the programs' operations and ensuring 
compliance with the commission's rules.
---------------------------------------------------------------------------
    An additional Universal Service program, known as E-rate, provides 
discounts on telecommunications services for schools and libraries 
nationwide. One of our key findings is that some tribal libraries are 
not eligible to receive E-rate funds because of an issue involving 
Federal eligibility criteria. The current statutory provision under the 
Communications Act does not allow tribal libraries to obtain E-rate 
funding for libraries unless the tribal library is eligible for 
assistance from a state library administrative agency under the Library 
Services Technology Act (LSTA). In at least two cases, tribes have not 
applied for E-rate funds because their tribal libraries are not 
eligible for state LSTA funds.
Multiple Barriers Exist to Improving Telecommunications on Tribal Lands
    Tribal and government officials, Native American groups, service 
providers, and others with whom we spoke cited several barriers to 
improving telecommunications service on tribal lands. The rural 
location and rugged terrain of most tribal lands and tribes' limited 
financial resources were the barriers to improved telecommunications 
most often cited by the officials of tribes and Alaska Native Villages 
we interviewed. Generally, these factors make the cost of building and 
maintaining the infrastructure needed to provide service higher than 
they would be in urban settings. For example, more cable per customer 
is required over large, sparsely populated areas, and when those areas 
are mountainous, it can be more difficult and costly to install the 
cable. The Rural Task Force, formed by the Federal-State Joint Board on 
Universal Service, \10\ documented the high costs of serving rural 
customers in a report issued in January 2000, which stated that the 
average telecommunications infrastructure cost per customer for rural 
providers was $5,000, while the average infrastructure cost per 
customer for non-rural providers was $3,000. \11\ Officials from 17 
tribes and 11 Alaska regional native non-profit organizations we 
interviewed told us that the rural location of their tribe is a 
telecommunications barrier.
---------------------------------------------------------------------------
    \10\ Section 254 of the Telecommunications Act of 1996 required FCC 
to institute the Federal-State Joint Board on Universal Service. 47 
U.S.C. Sec. 254(a)(1). The board makes recommendations to implement the 
Universal Service provisions of the Act. The board is comprised of FCC 
commissioners, state utility commissioners, and a consumer advocate 
representative.
    \11\ Rural Task Force, The Rural Difference: Rural Task Force White 
Paper 2, (Washington Utilities and Transportation Commission, January 
2000), http://www.wutc.wa.gov/rtf (downloaded August 25, 2005).
---------------------------------------------------------------------------
    Tribes' limited financial resources are also seen as a barrier to 
improving telecommunications services on tribal lands. Many tribal 
lands--including some of those we visited, such as the Navajo, the 
Mescalero Apache, the Yakama, and the Oglala Sioux--have poverty rates 
more than twice the national rate, as well as high unemployment rates. 
The 2000 U.S. Census showed that the per capita income for residents on 
tribal lands was $9,200 in 1999, less than half the U.S. per capita 
income of $21,600. Officials of 33 of the 38 Native American entities 
we interviewed told us that lack of financial resources was a barrier 
to improving telecommunications services.
    These two barriers, the rural location of tribal lands (which 
increases the cost of installing telecommunications infrastructure) and 
tribes' limited financial resources (which can make it difficult for 
residents and tribal governments to pay for services) can combine to 
deter service providers from making investments in telecommunications 
on tribal lands, resulting in a lack of service, poor service quality, 
and little or no competition. For example, a representative of the 
company that provides service to the Coeur d'Alene tribe told us that 
high-speed Internet was only available in certain areas of the Coeur 
d'Alene tribal land and that there were cost issues in providing this 
service to the more remote and less densely populated parts of the 
reservation. Another provider's representative told us that providing 
digital subscriber lines (DSL) \12\ to most parts of the Eastern Band 
of Cherokee's reservation would not be profitable because the land is 
rugged and to connect many of those who live out in remote rural areas 
would require an investment that would be difficult to justify.
---------------------------------------------------------------------------
    \12\ Digital Subscriber Line is a broadband connection that 
provides greater capacity for faster data transmission than can be 
provided over a conventional telephone line.
---------------------------------------------------------------------------
    The third barrier most often cited by tribal officials is a 
shortage of technically trained tribal members to plan and implement 
improvements on tribal lands. Officials of 13 of the 38 Native American 
tribes and tribal organizations we interviewed told us that lack of 
telecommunications training and knowledge among tribal members is a 
barrier to improving their telecommunications. Some of these officials 
said they needed more technically trained members to plan and oversee 
the implementation of telecommunications improvements, as well as to 
manage existing systems. An official of the Coeur d'Alene tribe, who 
has technical training, also told us that tribes without technically 
trained staff would be at a disadvantage in negotiating with service 
providers. This official added that having tribal members trained in 
telecommunications was necessary to ensure that a tribe's planned 
improvements included the equipment and technology the tribe wanted and 
needed.
    A fourth barrier cited by tribal officials and other stakeholders 
is the complex and costly process of obtaining rights-of-way for 
deploying telecommunications infrastructure on tribal lands, which can 
impede service providers' deployment of telecommunications 
infrastructure. In part, this is because BIA must approve the 
application for a right-of-way across Indian lands and to obtain BIA 
approval, service providers are required to take multiple steps and 
coordinate with several entities during the application process.
Tribes Are Addressing Barriers to Improved Telecommunications in 
        Different Ways.
    From our interviews of officials of 26 tribes and 12 Alaska 
regional native nonprofit organizations, we found that 22 are 
addressing the need to improve their telecommunications services by 
developing or owning part, or all, of their own local 
telecommunications network. Some of those we spoke to told us that they 
were doing this because their provider was unwilling to invest in 
improved telecommunications services, in part due to the barriers of 
the tribe's rural location, rugged terrain, and limited financial 
resources. An additional 10 tribes told us that they have considered or 
are considering owning part or all of their telecommunications systems.
    The tribes we visited are using Federal grants, loans, or other 
assistance, long-range planning, and private-sector partnerships to 
help improve service on their lands. In addition, some tribes have 
addressed these barriers by focusing on wireless technologies, which 
can be less costly to deploy across large distances and rugged terrain. 
For example, the Coeur d'Alene Tribe in Idaho is using a Rural 
Utilities Service grant to overcome its limited financial resources and 
develop its own high-speed wireless Internet system.
    Some tribes are addressing the shortage of technically-trained 
tribal members to plan and implement improvements on tribal lands 
through mentoring and partnerships with educational institutions. For 
example, the Yakama Nation has proposed to connect a local university 
to its telecommunications system in exchange for technical training for 
its staff. The Mescalero Apache Tribe has improved its technical 
capacity by hiring technically trained staff and pairing them with less 
trained staff, creating a technical mentoring program.
    To help reduce the time and expense required to obtain a right-of-
way across tribal lands, one tribe is developing a right-of-way policy 
to make the tribal approval process more timely and efficient. Also, a 
BIA official acknowledged that portions of the Federal regulations for 
rights-of-way over Indian lands, including the section on 
telecommunications infrastructure, are outdated. BIA is currently 
revising the regulations to better apply to modern utility 
technologies, including advanced telecommunications infrastructure, 
though the timeframes for completion of this work have not been 
established.
    Our report, Challenges to Assessing and Improving 
Telecommunications for Native Americans on Tribal Lands, contains more 
information on these and other tribal initiatives, as well as detailed 
case studies of six tribes' efforts to improve their telecommunications 
infrastructure and services.

Summary
    Under the principles of Universal Service, as established by 
Congress, FCC has recognized the need to promote telecommunications 
deployment and subscribership on tribal lands. Despite improvements in 
both deployment and subscribership of telecommunications services, as 
of 2000, Native American households on tribal lands still lag 
significantly behind the rest of the Nation. Progress in dealing with 
the underlying causes of this problem is difficult to assess because of 
a paucity of current information about both deployment and 
subscribership of telecommunications for Native Americans on tribal 
lands. Moreover, this lack of adequate data makes it difficult for FCC 
and Congress to assess the extent to which Federal efforts designed to 
increase telecommunications deployment and subscribership on these 
lands are succeeding.
    We found there is a statutory provision in the Communications Act 
which precludes some tribal libraries from benefiting from a Universal 
Service program. The Act stipulates that a library's eligibility for E-
rate support is dependent on whether the library is eligible for 
certain state library funds. Yet the tribal libraries in at least two 
states are precluded under state law from being eligible for such 
funds, which has the effect of making these libraries ineligible to 
apply for E-rate funds. FCC officials told us that modifying the 
Federal eligibility criteria to resolve this situation would require 
legislative action by the Congress. Clarifying this issue could help 
bring high-speed Internet access to more residents of tribal lands 
through their tribal libraries.
    In a draft of our report, Challenges to Assessing and Improving 
Telecommunications for Native Americans on Tribal Lands, provided for 
agency comment, we recommended that FCC determine what data is needed 
to assess progress toward the goal of providing access to 
telecommunications services to Native Americans living on tribal lands 
and how this data should be collected, and then report to Congress on 
its findings. FCC agreed that more data is needed buy maintained that 
it is not the organization best positioned to determine what that data 
should be. Given FCC's response, we added as a matter for congressional 
consideration that Congress should consider directing FCC to determine 
what additional data is needed to help assess progress toward the goal 
of providing access to telecommunications services, including high-
speed Internet, for Native Americans living on tribal lands; determine 
how this data should regularly be collected; and report to Congress on 
its findings. We also suggested that to facilitate Internet access for 
tribal libraries, Congress should consider amending the Communications 
Act of 1934 to allow libraries eligible for Library Services and 
Technology Act funds, provided by the Director of Institute of Museum 
and Library Sciences to either a state library administrative agency or 
to a federally recognized tribe, to be eligible for funding under the 
E-rate program.
    This concludes my statement, Mr. Chairman. I would be pleased to 
answer any questions that you or other Members of the Committee may 
have about our findings.

    The Chairman. Thank you very much.
    Our last witness is Mr. Ray Baum, Commissioner of the 
Public Utility Commission, Salem, Oregon.
    Mr. Baum?

STATEMENT OF RAY BAUM, COMMISSIONER, PUBLIC UTILITY COMMISSION 
                           OF OREGON

    Mr. Baum. Mr. Chairman and Members of the Committee, I am 
Commissioner Ray Baum of the Oregon Public Utility Commission. 
I am also chair of the NARUC Task Force on Intercarrier 
Compensation. Finally, I am a member of the Federal/State Joint 
Board on Universal Service.
    Today I hope to do three things: convince you that 
intercarrier compensation reform is extremely important and 
closely tied to Universal Service reform; make you aware of the 
major role that our Task Force is playing and give you a status 
report on our activities; and talk about some broad principles 
that I believe should guide us as we undertake intercarrier 
compensation and Universal Service reform.
    As you know, intercarrier compensation includes all the 
different fees that carriers charge each other for the use of 
their networks to originate and terminate their calls. There's 
a great deal of money involved. Our estimate is that the 
intercarrier compensation total is about $10 billion per year. 
In comparison, the universal high-cost fund is $4.2 billion, 
and the total Federal Universal Service program is $7.1 
billion. As a revenue stream to carriers as a whole 
intercarrier compensation is more important than Federal 
Universal Service funding.
    The bad news is that intercarrier compensation is in 
serious jeopardy. Here's the rub--and this is the chart that 
shows you what it is--there are widely varying charges for 
doing essentially the same thing, originating/terminating calls 
on local networks. Competition from wireless carriers and VoIP 
are eroding them. Carriers that have to pay these charges find 
various ways of avoiding the charges or paying a lesser charge 
than actually applies, a phenomenon called ``arbitrage.'' 
Traffic increasingly arrives at the local exchange carriers' 
network without the information that's necessary to bill for 
it, the ``phantom traffic'' problem.
    What's the link to Universal Service? If carriers lose 
intercarrier compensation revenues, policymakers have three 
basic choices.
    Number one, make the companies absorb the losses. Larger 
companies might be able to do this, if they're given price 
flexibility, but it would likely be disastrous for small 
carriers, because losses would be too great to absorb or make 
up elsewhere.
    Second option, allow consumer rates to go up. Most plans 
that we've reviewed require consumer rates to go up to some 
degree, via increasing the Federal subscriber line charge. But 
how far can you go before you threaten affordability?
    Number three, recover some of the lost revenues from the 
Universal Service Fund. Many proposals that we have reviewed 
shift between $1 billion and $2 billion to the USF. These are 
large numbers. To even be considered, there would first have to 
be contribution reform.
    There are no easy choices. The Intercarrier Compensation 
Task Force was created by the NARUC leadership in 2004 to 
address this critical issue. The goal of the Task Force has not 
been to create official NARUC policies, but, rather, to 
facilitate consensus. We have held 12 2-day stakeholder 
workshops in all regions of the country. About 50 stakeholders 
attend, representing all segments of the industry, consumer 
groups, and state regulators. The Task Force made the decision 
in January to designate a small subgroup of 11 stakeholders 
that would develop a proposal and bring it back to the broader 
group. They tell me that they are very close to agreement on a 
proposal for reform. I have scheduled a meeting of the Task 
Force tomorrow at the FCC for a status report from the group.
    Let me turn, finally, to the principles I believe should 
guide intercarrier compensation and USF reform.
    First, any intercarrier compensation reform must constitute 
substantial steps toward unified access charges at rates that 
are economically viable in a competitive market environment. 
Regarding Universal Service reform, the fund must be more 
accountable. Reform needs to focus on the consumer, not on the 
company. The goal is to provide benefits to consumers and 
accountability to ratepayers. This would require implementing 
policies in the use of USF that encourage consolidation in 
high-cost areas and the use of the most efficient technologies 
where practical. USF should not be used to substitute for 
services that could be provided through competition, but, in 
some high-cost rural areas where competition makes no sense, 
just one carrier should be subsidized.
    The task force has proposed that states be given authority 
to determine the distribution of Universal Service funds 
eligible to carriage within our jurisdiction, subject to FCC 
guidelines and approval, under a state allocation mechanism, or 
block grant approach. This is where the states can do a better 
job than the FCC, because states possess the essential 
knowledge regarding our states, the status of our consumers, 
and the carriers who serve them.
    Bringing access charges down and taking steps toward 
unification of rates is critical to the preservation of the 
concept of Universal Service so that all Americans, regardless 
of where they live, can participate in the broadband-driven 
economy that is a reality for many consumers today and the 
future for all. If we can't get there, we need to get as close 
as we can, and we need to set policies that allow us to make 
further progress in the future.
    Thank you, Mr. Chairman. I would be happy to answer 
questions.
    [The prepared statement of Mr. Baum follows:]

Prepared Statement of Ray Baum, Commissioner, Public Utility Commission 
                               of Oregon
    Mr. Chairman and Members of the Committee. I am Commissioner Ray 
Baum of the Public Utility Commission of Oregon. I also Chair the NARUC 
Task Force on Intercarrier Compensation. Finally, I am a member of the 
Federal-State Joint Board on Universal Service. Today, I hope to do 
three things:

        1. Convince you that intercarrier compensation reform is 
        extremely important and closely tied to Universal Service 
        reform;

        2. Make you aware of the major role that our task force is 
        playing and give you a status report on our activities;

        3. Talk about some broad principles that, in my view, should 
        guide us as we undertake intercarrier compensation reform.

    Intercarrier compensation comes about because many calls aren't 
carried exclusively on one network all the way from the calling to the 
called party. Intercarrier compensation includes all of the different 
fees carriers pay to each other for the use of their networks to 
originate and/or terminate their calls. It includes interstate access 
charges paid to the originating and terminating local exchange carrier 
for interstate long distance calls. It also includes intrastate access 
charges for intrastate long distance calls. It includes reciprocal 
compensation for the transport and termination of ``local'' calls. 
Finally, it includes traditional Extended Area Service (EAS) agreements 
for the exchange of local calls between local telephone companies.
    There's a great deal of money involved. Our estimate is that 
intercarrier compensation totals about $10 billion per year. In 
comparison the Universal Service high cost fund is $4.2 billion and the 
total Federal Universal Service program is about $7.1 billion. As a 
revenue stream to the carriers as a whole, intercarrier compensation is 
more important than Federal Universal Service funding.
    The bad news is that this intercarrier compensation is in serious 
jeopardy. Here's the rub. All of these different payments for use of 
local networks are essentially for the same thing--originating and 
terminating calls. These widely varying charges for the same thing grew 
up in a regulated monopoly environment to meet various jurisdictional 
and ratemaking purposes. Competition from wireless services and VoIP 
are eroding them. Carriers that have to pay the charges find various 
ways of avoiding the charges or paying a lesser charge than actually 
applies--a phenomenon called arbitrage. Traffic increasingly arrives at 
the local exchange carrier's network without the information that is 
necessary to bill for it--the phantom traffic problem.
    To give you a sense of just how serious the rate differences are, 
consider the following. Small incumbent carriers typically charge about 
1.8 cents per minute for terminating interstate toll calls and about 
5.1 cents per minute for terminating intrastate toll calls. These same 
carriers may charge just a few tenths of cent for terminating some 
local calls and nothing at all for other local calls, particularly EAS 
calls. You can see the opportunities this creates and why reform is 
necessary.
    Author Thomas Friedman got it right when he wrote in his book The 
World is Flat:

        As consumers get more VoIP choices, the competition will be 
        such that telecom companies won't be able to charge for time 
        and distance much longer. Voice will become free. What phone 
        companies will compete for, and charge for, will be the add-
        ons.

    At least in their current form, access charges probably don't 
survive in a flat world.
    What's the link to Universal Service? If carriers lose intercarrier 
compensation revenues, policy-makers only have so many choices. We can 
make the companies absorb the losses, we can allow consumer rates to go 
up, or we can recover some of the lost revenues from the Universal 
Service Fund. Let me consider each of these in turn.
    Letting the companies absorb the losses may be an attractive option 
to some and, if the companies were given pricing flexibility, might 
well be a good option for some of the larger carriers. For some of the 
smaller, rural carriers, however, the consequences would likely be 
disastrous because the losses would be too great to absorb or make up 
elsewhere.
    Allowing consumer rates to go up is a part of most plans for 
intercarrier compensation reform that I have seen. Typically, these 
proposals increase the mandatory Federal Subscriber Line Charge that we 
all pay on our monthly bills for telephone service. Some proposals 
increase the SLC from the current $6.50 to $10 and allow for 
deaveraging so that some consumers would pay even more than $10. Some 
argue that increases of this magnitude would be a threat to 
affordability, a key component of Universal Service.
    Finally, a portion of the losses from intercarrier compensation 
reform can be shifted to the Federal Universal Service Fund. Many 
proposals shift from $1 to $2 billion to the USF. Given that the entire 
High Cost Fund is about $4.2 billion, these are large numbers. Before 
this could even be considered, there would have to be contribution 
reform that would broaden the base of contributors to USF.
    I hope I have convinced you of the importance of intercarrier 
compensation reform and of its tight linkage to Universal Service.
    The Intercarrier Compensation Task Force was created by the NARUC 
leadership in 2004 to address this critical issue from a state 
perspective. The Task Force's approach has been to actively engage all 
stakeholders from the beginning in order to develop consensus. The goal 
of the Task Force has not been to create official NARUC policies, but 
rather to facilitate consensus. We have held twelve, typically two-day, 
stakeholder workshops in all regions of the country. Typically, about 
50 stakeholders attend representing all segments of the industry, 
consumer groups, and state regulators. It has been a constructive 
process, stakeholders have a better appreciation of each others' 
positions and there has been some narrowing of the issues. However, it 
is very difficult to negotiate with fifty people participating, so, 
after consulting with the Task Force, I made the decision in January to 
designate a smaller group of eleven stakeholders from large, mid-size 
and rural carriers, as well as a consumer representative that would 
develop a proposal and bring it back to the broader group. They have 
been working feverishly since that time, holding meetings and calls on 
a nearly continuous basis. They tell me they are very close to 
agreement on a proposal for reform. I have scheduled a meeting of the 
Task Force tomorrow for a status report from the group.
    If this group comes forward with a proposal, the other stakeholders 
and the Task Force will decide whether to support it, oppose it, or 
take no position. NARUC as a whole may or may not take a position.
    Let me turn finally to the principles that I believe should guide 
intercarrier compensation reform. Some time ago, at the request of the 
stakeholders, the Task Force developed a discussion proposal. It 
contained the following principle:

        Intercarrier compensation for origination and termination 
        should be unified at rates that . . . are economically viable 
        in a competitive market environment. Unified means that the 
        rates should be the same for all traffic in both interstate and 
        intrastate jurisdictions, the same for all interconnecting 
        carriers, and the same for exchange and exchange access 
        interconnection.

    This does not mean that every local company would charge the same 
rate. Some high cost carriers might charge a higher rate to terminate a 
call, but to avoid arbitrage, that rate would have to be the same for 
all comers, whether long-distance or local, wireless or wireline, VoIP 
or circuit-switched.
    For this Task Force member at least, this statement is what we are 
about. It recognizes that, in order for unification to occur, 
intrastate intercarrier compensation rates must be brought in line with 
interstate rates. While not the subject of today's hearing, I want to 
note that the Task Force proposal also envisioned that states would be 
given the authority to determine the distribution of Universal Service 
funds to eligible carriers within our jurisdictions under a State 
Allocation Mechanism (block grant). This is an area where we can do a 
better job than the FCC because we possess essential knowledge 
regarding our states and the carriers who serve them.
    Unfortunately, it appears that we may not be able to get all the 
way to unified rates for the foreseeable future. The impact on the 
Universal Service Fund and consumers rates may be simply too great. 
Here's the issue. Congress mandated in Section 252 a cost standard for 
traffic subject to Section 251. That has resulted in low, cost-based 
rates for local transport and termination. Bringing access charges down 
to that level, which would be required for unification, is very costly.
    If we can't get there, we need to get as close as we can and we 
need to set policies that allow us to make further progress in the 
future.
    All carriers are probably not going to be able to get to the same 
point at the same time. Smaller carriers start with much higher access 
charges than larger carriers. They are more dependent on access charge 
revenues. This means that we may have to establish different ``tracks'' 
for large and small carriers as we progress toward the ultimate goal.
    Thank you, Mr. Chairman, and I would be happy to answer any 
questions.



    The Chairman. Well, thank you very much.
    There is a vote on. Please set the clock for 7 minutes, and 
we'll ask each witness to respond with short answers, as 
possible.
    Senator Allen will commence.

                STATEMENT OF HON. GEORGE ALLEN, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Allen. Thank you, Mr. Chairman. I'm sorry I had to 
be presiding over the Senate and didn't get to hear everyone's 
testimony here this morning.
    And I know there's been a focus--I guess I'll have to do 
this in stereo or something--focus on the Universal Service 
Fund. And I was reading the first testimony, and the key here 
is to try to get broadband to all communities, but, in this 
case, out in the country, in rural areas. And I look at the 
Internet as the greatest invention since the Gutenberg press. 
It empowers individuals, it's great for commerce, it's great 
for telemedicine, it's great for education. And I think we need 
to encourage broadband deployment.
    I've been looking at ways, and will continue to look at 
ways, innovative ways, to encourage broadband deployment and 
penetration. That's why, last week or so, Senator Kerry and I, 
in a bipartisan group of Senators, along with Senators Sununu, 
Dorgan, and Boxer, introduced the Wireless Innovation Act of 
2006. And the purpose of this Wireless Integration Act of 2006 
is to unleash the power of advanced technological innovation to 
facilitate the development of wireless broadband Internet 
services, specifically. And I'd like some of you to comment on 
this, particularly those with, say, Microsoft, Mr. Mundie, 
since you all may be involved in it.
    What our legislation does is, it allocates certain areas 
within the broadcast spectrum that are otherwise unassigned or 
unused--they're known as ``white spaces''--for wireless 
broadband and other innovative services. Now, using these white 
spaces to deliver broadband across the country, I think, 
creates a new opportunity for innovators and entrepreneurs to 
provide competitive broadband service at extremely low cost. I 
think this is particularly compelling in rural areas, and, for 
that matter, inner cities, where cost or distance are a factor. 
And in rural deployment, one of the big problems, obviously, 
whether it's fiberoptics or whether it's wirelines, is a lot of 
distance, there's a lot of dirt that needs to be dug up between 
light bulbs. But with wireless approaches, distances can be 
achieved, or the distances do not become the same problem. And 
the same for cities, not digging up streets. But I know the 
focus here is on rural.
    It has been the goal of Congress to make sure the Internet 
is as accessible as possible to as many people as possible, 
including rural areas. We introduced this WIN Act and the 
Chairman also introduced a measure to facilitate wireless 
broadband services. Do you--particularly Mr. Mundie--do you 
agree with this legislation, that it would go a long way to 
ensuring that rural America is connected?
    Mr. Mundie. Yes, Senator Allen. In my remarks, both written 
and verbal, I endorsed the idea that unlicensed spectrum, in 
particular, should be part of the solution, and commended the 
acts that you mentioned as moving in the right direction.
    I pointed out that it's particularly important, due to the 
distances that you mentioned, and particularly in rural 
environments, that spectrum be made available below 1 
gigahertz, where the propagation characteristics are well 
suited to low-power, but long-distance transport.
    These unlicensed bands allow a level of entrepreneurship in 
the formation of new wireless Internet connectivity that 
traditionally have not formed when the spectrum was auctioned. 
And that's why we not only think that making spectrum available 
below 1 gigahertz is critical, but making it available in the 
unlicensed model is equally critical in achieving the 
objectives that you mentioned.
    Senator Allen. For any other witness, including Mr. 
Mundie--thank you, Mr. Mundie, and I'm sorry I missed your 
testimony--if some others would want to comment on this--would 
you see this Wireless Innovative Act, if it were enacted into 
law, increasing broadband penetration, but do you also think it 
would reduce the price of broadband in rural areas?
    Mr. Mundie or--yes, sir, Mr. Garcia?
    Mr. Garcia. Yes, thank you for the opportunity.
    We need to be sure that--the infrastructure that's in place 
throughout America differs from region to region, from city to 
city, from rural areas to suburban areas to big cities. And so, 
if the infrastructure is taken care of, then adding the next 
level with wireless should be--I think technology would be a 
simple thing to do. And so, there wouldn't be a whole lot of 
costs in developing that, but it needs to be a universal 
effort, if you will, or a national effort, in order to do it. 
It can't be just in one area or one state or one region. It 
needs to be complete throughout the Nation. But it's doable 
with technology, and I think that the costs could be held 
pretty low if it was done in the right way. Now, whatever the 
right way, I don't know what that would be, but it would 
require more partnerships with a lot of other companies. The 
people that provide the services currently and any up-and-new-
coming ones that may be forming, as well as tribal governments.
    And, in terms of spectrum, part of the problem we faced in 
the spectrum allocation was that the spectrum was all bought 
out, talking about television and whatnot, and so any newcomers 
didn't have any access to spectrum, because it was already 
bought out, whether it was completely used or not. And so, in 
this case, we want to be sure that spectrum is available to 
tribes, even if they aren't completely ready to pursue that 
kind of a development. You know, maybe 2-3 years from now, if 
we decided that we want to have our own company, then that 
spectrum ought to be available. But if it's all been bought 
out, then we're back in the same boat.
    Senator Allen. Thank you for your----
    Mr. Garcia. Thank you.
    Senator Allen.--comments. The white spaces will differ from 
area to area, just like the Washington, D.C., area would have a 
different white space area than, let's say, Bristol tri-cities 
area of Virginia and upper east Tennessee. So, it will vary 
from place to place. The point is that there will be those who 
clearly purchase for spectrum, and that's very valuable 
spectrum. This is all occasioned by the transition from analog 
to digital. But for those areas that are unlicensed, unused, it 
wouldn't be that the government would say that a tribe or a 
state gets it. It'll go to entrepreneurs. And there may be 
tribal entrepreneurs or those who want to serve Indian lands, 
and that would be a way of handling it, just for a point of 
clarification.
    Yes, Mr. Mundie?
    Mr. Mundie. Senator Allen, I do think that the use of 
unlicensed spectrum would ultimately reduce the overall cost of 
providing this, certainly in the rural areas. It could, in 
fact, ultimately reduce the costs even in metropolitan areas.
    There was an article in the paper this morning noting that 
both, I think, AT&T and T-Mobile are now availing themselves, 
in new cell phone products, of the ability to switch 
dynamically between the unlicensed WiFi bands and their 
licensed spectrum in the traditional cellular network. This, in 
essence, reduces the costs even of a traditional cellular 
operator, because they, too, have equal right to use unlicensed 
spectrum. So, by eliminating the need for people to participate 
in auctions, it lowers the overall up-front investment that's 
required, and, I think, thereby, will create a great many more 
opportunities.
    Senator Allen. Thank you, Mr. Mundie.
    Yes, sir, Mr. Baum?
    Mr. Baum. Senator Allen, the Oregon Commission would take 
the position that in order to be qualified to receive USF, 
you'd have to be providing broadband. And that means----
    Senator Allen. Say that again? I didn't----
    Mr. Baum. In order to be qualified to receive USF, you'd 
have to be providing broadband, or have a plan within 3 to 5 
years to do so. That would be part of the reform that we would 
advocate for the USF fund itself.
    Now, having said that, one of the problems that's raised by 
Mr. Sarjeant was, What do you do for the exchanges where the 
carrier is not a small carrier? Because small carriers have 
done a better job of providing broadband in their high-cost 
rural areas than the larger companies have. You're going to 
have to reimburse those larger companies a little differently 
than before going forward. But that would incent the 
deployment, and they'd be looking for those high--or those 
cutting-edge technologies as a way to deploy it, to minimize 
the cost. But it would be--it would be a requirement, to 
receive USF.
    Senator Allen. Thank you. That's an interesting nuance.
    My time is expired for questioning. Thank you all, 
gentlemen, for your testimony and insight.
    Senator Burns. [presiding] You're the only one here. How do 
you expire your own time?
    Senator Allen. Because I'm going to have self-discipline. 
I'm wearing George Washington cufflinks today, so I'm going 
to----
    [Laughter.]
    Senator Allen.--show self-discipline. And I only went over 
2 minutes, but just because of added testimony from our 
esteemed witnesses.
    Senator Burns. Have you voted?
    Senator Allen. Yes, I've voted.
    Senator Burns. You voted. OK.
    Senator Allen. Have you voted?
    Senator Burns. I have voted.
    Senator Allen. All right.
    Senator Burns. Mr. Johnson, you were saying that your 
villages that are in the outlying areas of Alaska rely quite a 
lot on satellite communications. Now, I know you can receive 
from satellite--does each village have their own uplinking 
capabilities?
    Mr. Johnson. Yes, Senator. The facilities permit two-way 
transmit of data and telephony.
    Senator Burns. OK. Now, is it the back haul that's the 
expensive part of it?
    Mr. Johnson. We may be dealing with the terminology, but 
certainly the----
    Senator Burns. I'm saying, in other words, if I'm an 
operator, and I live in Anchorage, and I communicate with you, 
you have the ability, then, to uplink the return conversation 
on the two-way interact. In other words, it runs two ways.
    Mr. Johnson. Certainly, yes, it's duplex. It functions 
well----
    Senator Burns. Just like----
    Mr. Johnson.--in that regard.
    Senator Burns. Just like a wired line.
    Mr. Johnson. Yes, sir.
    Senator Burns. OK.
    Mr. Johnson. Although it has to be transmitted to the 
satellite, which results in a delay. But, yes, it does work in 
that way.
    Senator Burns. Well, the delay's not very much, though, is 
it?
    Mr. Johnson. Technical advances have improved the 
functioning of the satellites, so that the signals don't have 
to be what we call ``double hopped'' in the case of telephony, 
but there is a lag, and it is a technical problem.
    Senator Burns. In data?
    Mr. Johnson. Yes, sir.
    Senator Burns. It just seems like, to me, if there's e-
rate, and you've got satellite service in communications in 
your libraries and schools, why isn't there a central location 
to either wire in or use wireless or WiFi or WiMax in a village 
in order to plug into that? Why is that not happening?
    Mr. Johnson. Technically, that's certainly something we can 
do. The provision, for example, in the school, is intended to 
be used for the school, for educational purposes.
    Senator Burns. OK.
    Mr. Johnson. And the program has not permitted general 
usage of the facilities, because once again, that's not the 
purpose of the program. The program is to support the 
educational function, not to support just general usage of the 
capability.
    Now, I should add that, the issue becomes one of capacity. 
Certainly, there's sufficient satellite capacity to support 
telehealth and educational needs. But if we are going to try to 
provide this service to everyone that might want it, assuming 
it's affordable, over a satellite, it would probably be a 
discussion. But I don't think we have the current capacity 
overhead to do that, at this point.
    Senator Burns. You don't know what bandwidth is available 
to each village through schools, libraries, and your healthcare 
facilities?
    Mr. Johnson. At one time, I knew that answer. It is 
provided for that there is a given capacity that's made 
available. But obviously more users require more bandwidth. And 
there is a limited amount of throughput that you can obtain on 
a given satellite.
    Senator Burns. OK. Mr. Squires, explain to me, on 
compensation, intercarrier compensation--seems like that's been 
a discussion in Montana for a long time. For this committee, 
how do we take care of that?
    Mr. Squires. It certainly has been a topic of discussion 
for a long time in our state, as you know very well, Senator. 
You heard the story of the three-legged stool during the 
hearings that you held on USF last week. Intercarrier 
compensation is but one of those legs. The other two, of 
course, being Universal Service funding and local rates. As I 
mentioned in the summary of my testimony, I think we've 
tackled, at least from my company's standpoint, the local rate 
issue by rebalancing some of those local rates. Indeed, our 
local rates now exceed the local rates of Qwest, the RBOC that 
neighbors our service territory.
    But for intercarrier compensation, as I mentioned, the cost 
certainly is not zero. There is a cost associated with that. I 
think the way that we go about tackling that, Senator, to 
address your question, is to give the Commission, the FCC, the 
authority to implement a unified rate for intercarrier 
compensation in both the interstate and intrastate 
jurisdictions. The discussion has been that there will be a 
unified rate that would apply to rural carriers and a unified 
rate that would apply to nonrural carriers.
    I believe that that's the way to approach the problem. I 
think that we need to get away from the divergent rates in 
order to address the arbitrage problems that are clearly going 
on. We saw that in our EAS implementation. All of a sudden, the 
interstate percentage of use was swapped around as carriers 
tried to arbitrage our EAS system. So, I think a unified rate, 
and clear authority in the Commission to implement that, is the 
first major step in addressing the issue.
    Senator Burns. OK. Thank you very much.
    Mr. Mundie, I was interested in your testimony. You said 
rural areas are important to you, and then you bought Great 
Plains--and I'm familiar with those people--and Fargo, North 
Dakota. Well, to us that live in Montana, Fargo is not rural.
    [Laughter.]
    Mr. Mundie. It's all relative, sir.
    Senator Burns. It's not even relevant. But I'll tell you 
the challenges we have, though. And I think probably Mr. 
Garcia, Mr. Squires and Mr. Morrison understand. The cities of 
a thousand people, that's rural. And then we have some smaller 
areas--then they go out from there, into the rural areas. 
That's our greatest challenge. And I realize that's our 
highest-cost challenge.
    I was interested in Mr. Baum saying that in Oregon it's a 
requirement for a company to have a plan or is actively 
deployed in broadband before they can receive universal funds.
    Mr. Baum. That's what we propose to do, recommend that the 
joint board do, and the FCC do, in the reform of the USF 
mechanisms for both the rural and nonrural carriers.
    Senator Burns. OK.
    Mr. Baum. It is in the Federal statute, but the FCC has 
interpreted it to not include broadband deployment as part of 
the services provided by USF. It's explicitly excluded by FCC 
rule. So, we want to include it and then give companies 3 to 5 
years to do it, because some of the companies, particularly the 
RBOCs, the Bell companies, haven't been as good at building out 
broadband as some of our small companies.
    Senator Burns. That is true.
    Mr. Baum. But you're going to probably have to change the 
mechanism by which you fund those high-cost areas for the 
bigger companies, because they're undersubsidized right now. 
And so, that's going to have to happen in connection with it to 
make it actually work. But you have to incent them to do it. 
You don't get it unless you have a broadband plan--deployment 
plan, in place.
    Senator Burns. Tell me how eastern Oregon is doing.
    Mr. Baum. Well, if you're a small carrier in your town, 
you're doing pretty well. Everybody has broadband for $29.95. 
If you're in a Verizon area, you're capped, or you're trying to 
piggyback on wireless. So, it's a little bit night and day, and 
it's----
    Senator Burns. In other words, you're saying you're doing 
better over in the Willamette Valley than we're doing out east, 
huh?
    Mr. Baum. Well, in some areas out east, like in the city of 
Helix, 300 people, they have broadband to everybody. In the 
city of La Grande, a city of 12,000, broadband's been capped by 
Verizon. They don't have DSL service widely available there. 
They do have some. And they don't have that DSL service 
available up the branch to towns with 2,000 and 3,000 people. 
And that's because they're not built for that kind of service. 
They're a big company, and they don't get subsidized like the 
local rural company does that's 30 miles away in Helix. And so, 
they don't put the money into the exchanges, and it doesn't fit 
their business model, nor does it provide the return their 
investors expect. And you can't blame them for it. It's just 
that their business model is focused on urban/suburban areas, 
where they're doing battle with cable. And they tend to ignore 
the rural areas. And it's just logical for them to do that to 
satisfy Wall Street and the things they have to meet.
    Senator Burns. When you go on up into Willamette, say you 
get down around Eugene and, say, South Cottage Grove--I can 
name all them little towns; you didn't know I knew that, did 
you?
    Mr. Baum. No, I didn't know that.
    Senator Burns.--and Grants Pass, and go right over to 
Medford and----
    Mr. Baum. Yes.
    Senator Burns.--and Ashland, and keep right on going, and--
--
    Mr. Baum. Yes.
    Senator Burns.--and pretty soon you run out of Oregon. 
Those areas--now, is that served by Verizon in that area down 
there?
    Mr. Baum. Qwest serves most of that----
    Senator Burns. OK.
    Mr. Baum.--part of Oregon. And then we have some 
cooperatives and some things scattered through there. But they 
do have--you get outside town 5 or 10 miles, and you have 
problems with broadband service, even in the Willamette Valley.
    Senator Burns. What's it going to take to get that out 
there? Can USF funds influence that?
    Mr. Baum. Yes. I think you're going to have to rebalance 
the fund. And the rebalancing means you're going to have to add 
some money to it after you fix the contribution mechanism, 
because you're moving these charges out in the open, from 
implicit charges out in the open. And part of it's going to 
have to be subsidized by the USF fund. And you have to face 
that reality. But you've got to fix the contribution mechanism 
first. And then you can require--as part of receiving that 
funding, after you rebalance and fix the rural/nonrural carrier 
problem, then you can require them to; ``Hey, if you're going 
to get USF, you've got to have broadband deployment. If you 
don't have it now, you've got to have a 3- to 5-year plan to 
show how you're going to do it.'' And you incent the companies 
to do that. And after you fix the distribution mechanism so it 
treats the exchange that the company serves as per who the 
customer is, not who the company is that serves that exchange.
    Senator Burns. OK. Mr.----
    Mr. Baum. Once you do that----
    Senator Burns.--Mr. Squires, in Montana would that kind of 
a requirement on our USF funds, would you support an idea like 
that, for us, in Montana? That might take a little thought.
    Mr. Squires. Yes, I'm trying to follow all that Mr. Baum 
was saying, Senator. As I understand what Mr. Baum's comment 
was, we would have to move some of the implicit recovery that's 
now in intercarrier compensation into Universal Service 
funding. Certainly that has to be part of the solution. So, for 
our state, in Montana, I do believe that that would be part of 
the answer. If we're going to adopt a unified rate and move 
recovery out of intercarrier compensation, that recovery does 
shift to Universal Service funding, and most likely would 
require a reindexing of the Fund.
    Senator Burns. Mr. Mundie?
    Mr. Mundie. Yes, sir, I wanted to offer one thought 
regarding your comment about Fargo. Indeed, we agree with you 
that Fargo is a metropolitan area----
    Senator Burns. Well, I was kind of kidding you there.
    Mr. Mundie. But there is an important point. To be 
competitive, our employees, who actually mostly live outside of 
the city, in the rural parts around Fargo, they need to be able 
to telecommute to work to be competitive at Microsoft and 
competitive with the cost of labor around the world. And once 
you leave the city, their ability to get that kind of broadband 
connectivity in the farms and others around that area, drops 
off dramatically. So, I think this whole concept of rural has 
to be thought of as even the things around the cities of a 
thousand, or even a couple of hundred thousand, because that's 
where a lot of the workforce, who want to participate in these 
high-tech opportunities, want to reside in those environments. 
And so, I think these issues of spectrum, unlicensed or 
otherwise, novel models of providing access, allowing 
entrepreneurship to occur out there, they're all critical, even 
in those areas surrounding the places where we are able to 
operate the businesses, but the employees themselves are still 
not getting what they want.
    Senator Burns. That is true, when we started doing a 
transportation bill and everything else, we got to talking 
about telecommuting and its impact. Out here, Route 395, 
between here and, let's say, Springfield, Virginia, from 6 in 
the morning until 9 o'clock is the world's largest parking lot. 
We cannot out-build America's love for the automobile. I mean, 
you could put three more lanes out there, and they'd just fill 
them up. What we've said, with the impact on the environment, 
automobiles, and everything else, now we're estimating out 
here--I think I saw a little transportation study in Virginia 
where almost 30 percent of the people only come in to their 
offices 3 days out of the week. The rest of the time, they 
telecommute. And that number keeps growing especially when 
you've got better services, if you've got DSL into your 
neighborhood, you can still do your work from home, especially 
if you're in the information business. So, what we did on that 
transportation bill was the right thing to do, but that was way 
back when, and nobody heard of anything like that before. But 
I'm glad we're moving in that direction.
    I want to thank all the witnesses today. I enjoyed your 
testimony very much as we move this forward. I will tell you, 
there will be a lot more emphasis put on broadband and 
broadband services in this next bill than we had in the 1996 
bill, because I think there's not a Member of Congress now 
that's not aware of--oh, you want to do something?
    The Chairman. [presiding] I'd like to ask some questions.
    [Laughter.]
    Senator Burns. Oh. OK. These chairmen, they really get 
unhandy every now and again, folks.
    [Laughter.]
    Senator Burns. But--well, I was just ending up mine, and 
then you can have it.
    [Laughter.]
    Senator Burns. But thank you very much, Mr. Chairman, for 
holding this hearing.
    The Chairman. Thank you.
    No one's mentioned the Antideficiency Act yet. I think we 
ought to take a good long look at what we're doing, because, 
very clearly, the White House and OMB seem to think that this 
tax spending is subject to the Antideficiency Act, that right 
now they tell me they think they can overcome it temporarily. 
I've got news for them, it's not subject to the Antideficiency 
Act. And if it takes a specific amendment to this bill to say 
that, we're going to have to do it.
    This is a means of equalizing the cost of 
telecommunications. And it surges and drops and surges and 
drops depends on a lot upon demand.
    But, beyond that Mr. Mundie, what you and Senator Burns 
were just talking about sort of worries me a little bit. 
Telecommuting for people who live in an urban situation like 
this, in a megalopolis like this, if you consider this total 
area here, tremendous population, that's a demand we hadn't 
figured on, in terms of this Universal Service cost. And if 
broadband is going to be assured to people who live 20 miles 
out of town, we're going to subsidize that for this fund, they 
may be right that this is subject to Antideficiency Act 
concepts, because that's a surge I don't think we're prepared 
to take on right now.
    Making it available--making broadband coverage available, 
obviously, is one of the necessities, but isn't the first 
necessity to assure that every American has telecommunications?
    Mr. Mundie. Yes, sir, I certainly believe that the concept 
of Universal Service, as the name implies, is that everyone 
should be provided some basic communications capability. When 
the concept was created, it was about assuring everybody had 
essentially equal cost to the consumer of getting a black 
telephone.
    I think the real question at hand for the United States 
right now is, what is the Internet equivalent of a black 
telephone? In other words, what is the basic Internet access 
capability that all Americans should be entitled to get at a 
nominally effective price? And I want to point out that I think 
that that question should be asked in the context of 
international competition, not the big cities in the United 
States versus the rural part of the United States, but the 
United States against Japan, Korea, China, India, and others. 
And I think both of these are important questions.
    If it turns out that the native people in Alaska or the 
tribal people, or the people in the rural parts of the 
country--if they don't have broadband, broadband that's 
competitive with that which is going to be made available in 
these other countries, their ability to participate as 
telecommuting workers, if you will, or outsourced workers, to 
the major enterprises of the world, will not be competitive. 
Today, we can move work to India easier than we can move it to 
many places in Montana or Alaska. And so, if these people, who 
are well trained and basically fully skilled, can't be put into 
the global workforce because of the lack of telecommunications 
capability, then they are going to be condemned to essentially 
a declining standard of living, and the country with it, 
overall.
    So, I think these concepts are not only critically 
important to get right relative to our own domestic policy, but 
I think they have to be indexed to what the world is defining 
as competitive telecommunications.
    The Chairman. Do any of you disagree about the fact that 
the funds should be continued with a connection-based fee 
schedule? Any of you disagree with that?
    Mr. Johnson?
    Mr. Johnson. Mr. Chairman, I believe that the best approach 
enables the FCC to take a look at a variety of contribution 
methodologies and make their best judgment as to how they ought 
to put that together. But I think it's too early to embrace 
that particular concept----
    The Chairman. But if we leave it up to them to set, the 
OMB's right, that it is a tax rather than a fee agreed to and 
set by the communications industry. Do you disagree with that? 
I don't think we ought to let it be taken up to the point where 
an FCC can set it, and another FCC, depending on the political 
hue of that FCC, can change that. This is not a tax, this is a 
company-based--or industry-based plan. It was an interstate 
rate pool. As a matter of fact, it came into being because 
Senator Inouye and I demanded that Alaska and Hawaii be 
included in the long-distance telephone system. Did you know 
that? I don't know if you knew that.
    Mr. Johnson. OK.
    The Chairman. And the industry found a way, through an 
interstate rate pool. Now, we've taken the interstate rate 
pool, and, because of the Snowe-Rockefeller amendment, we made 
these monies available to schools, libraries, and health 
facilities. But, again, that was for interconnection, it wasn't 
for operations or something else. It was still for 
communications services.
    Now, if we're going to have communications services, then, 
somehow or other, this total collective industry ought to 
decide who's going to pay into this fund. Do you disagree? 
Anyone disagree? You seem to be shaking your head, Mr. Johnson.
    Mr. Johnson. It's a detail inquiry. It's the kind of 
decision that Congress can make. I'll just say that.
    The Chairman. We thought we made it once. But, still, 
they're saying that this existing system is subject to the 
Antideficiency Act. You know what that means? That means the 
time comes when they put a level on it, and you can't pay any 
more out. And someone has to decide who gets the money that's 
under the line and who doesn't get paid. I don't think that's a 
ubiquitous system. If any bureaucrat--I don't care whether he's 
in the White House or the OMB or FCC--can make the decision who 
doesn't get the service, that is not a Universal Service, in my 
judgment.
    Yes, sir, Mr. Garcia?
    Mr. Garcia. Yes, sir. I'd like to address a piece of that, 
that the highest priority ought to be for the unserved 
communities, the unserved peoples in the United States of 
America. The next priority ought to be the underserved. And the 
next priority, then, would be the rest of America, as was said 
earlier today.
    But in terms of the Universal Service Fund, I don't know if 
the Universal Service Fund's intent is to subsidize operations, 
which I think it is, more so than development or expansion of 
services provided by companies. Now, the smaller companies--if 
the criteria is one of revenue and profit and economics, if you 
will, the criteria is that, then the companies that are going 
to expand are the ones that are going to be bringing the 
revenues; and so, they're not going to look at the underserved 
or the unserved areas as a means for expansion. And so, the 
Universal Service Fund is what's available, but I don't believe 
that it is meant for expansion or for development thereof, 
because the funds just aren't adequate enough. Whereas, if the 
criteria is not driven by revenues and profits, which the big 
companies are looking at, you know that a large company that's 
based out of an area like Washington, D.C., is not going to set 
up shop out there in New Mexico or Arizona in a remote area, 
because economically it's not feasible.
    The Chairman. Mr. Garcia, it was my understanding it was 
for the connection. When we talked about Universal Service 
Fund, it was to assure there was a connection for everybody. 
And the Snowe-Rockefeller amendment talks about the connection 
to schools, libraries, and health facilities, the ability to 
carry that service. If you look at what's happened in our state 
when we have telemedicine, instead of sending a crew of doctors 
into a village, we have a health aide there, and the health 
aide has the woman stand in front of this facility, and they 
take a photograph--an X-ray, and they send that X-ray by e-mail 
down to Anchorage, or even over to Mayo's, and they decide 
whether that woman has to come to a hospital. Before, we sent 
teams of doctors around. We reduced costs in one area of 
government by a system run by the industry itself.
    I agree with you on the priorities but what we should say 
is that the absolute rule is that every American must be 
connected to this new telecommunications system, or 
communications system. And Mr. Mundie has it right, if we're 
going to be part of the global economy, then everyone in our 
country has to have access to the global economy.
    Now, if that happens, I would urge some of your 
commissioners to look at this with us--Who's going to watch the 
payments out of that fund? Congress can't do that. And you all 
can't do that either, as commissioners. But we ought to have 
some standard somewhere. We've heard stories about portions of 
buildings that had to be torn down in order to rebuild so that 
they could be wired into the system of communications. And that 
was considered to be a cost of wiring, of making the 
communications available to those buildings. I hope that's a 
thing of the past, because that was not what we understood that 
the Fund would be used for. But, still, there ought to be a 
system here where someone watches that. Should we say that the 
state commissions should watch that?
    Mr. Johnson. Certainly, the state commissions are closest 
to the needs of their individual states. It is a shift. It's a 
new responsibility. But I think that state commissions, with 
perhaps some guidance from the FCC, in terms of national 
standards, would be good administrative agencies--or agencies 
to oversee that.
    The Chairman. What do you think about that, Mr. Baum?
    Mr. Baum. Well, I think that's one of the key ways to solve 
your problem. Once you rebalance the Fund and figure out what 
you want to pay for, or the FCC does, then the FCC could 
determine what each state's allocation should be, then that 
state commission, subject to FCC guidelines and approval, would 
then be responsible for making sure that broadband deployment 
occurs to their consumers, based on the specific needs of their 
states.
    They wouldn't be able to get beyond that fund, so to speak. 
It would be set, and make allowances for the geography 
differences in Alaska and other places that are insular in 
nature. Once those are taken into consideration, then the state 
would have a responsibility to make sure that the money was 
spent properly. They would audit those funds, making sure that 
broadband deployment occurred in the underserved areas, and 
then they'd have the ability, then, to designate the carriers 
that would receive those funds and make sure that they are 
spent properly.
    The Chairman. Let me interrupt you right there. No one's 
addressed that yet today, either. And that is, we have a 
carrier, let's say it's the carrier of last resort. A 
competitor comes in. We've raised this question in other 
hearings, so I'm sure you all know what it is. The existing 
carrier probably has a higher cost than the new competitor. 
Currently, today, with a new carrier, it gets USF funds. They 
get the same amount the existing carrier gets, which, by 
definition, is greater than their cost. Do you all agree, we 
should find some way to deal with that?
    Mr. Baum. Well, there's a couple of ways to deal with it. 
One of them is, is you adopt the cost of the most cost-
effective carrier, which is what these wireless folks----
    The Chairman. Well, that's going to put one carrier out of 
business.
    Mr. Baum. That's correct. So, the better approach would be 
to either turn it over to a state commission to decide which 
one of those carriers should serve that area. It might not even 
be able to serve one.
    The Chairman. Well, we want competition, don't we?
    Mr. Baum. Well----
    The Chairman. Why should we let the commission decide which 
carrier's going to survive?
    Mr. Baum. Because some areas are so high cost to serve that 
they might not need more than one carrier. When we get multiple 
CETC designations, we tend to balloon the fund.
    The Chairman. If we decide that, that would mean there 
would never be competition for that existing carrier. Do we 
really want to decide that?
    Mr. Baum. Only in certain areas that can't be served 
economically by two carriers, that are lucky to support, 
economically, one.
    The Chairman. But----
    Mr. Baum. Other areas, you'd have competition.
    The Chairman. You look nervous, Mr. Mundie. You agree?
    [Laughter.]
    Mr. Mundie. No, sir. There are two things we have to really 
contemplate now. One is that the rate at which the technology 
continues to change is much higher than it was in the period of 
time where many of these traditional voice-based systems were 
created. I mean, you know, we had the Telecom Act of, what was 
it?--1933; and the next time we wrote one was 1996. The fact 
that we're contemplating another one now, 10 years later, 
indicates the rate of change. That rate of change, I think, 
particularly including wireless communications, is actually 
going to increase, not decrease, during this period of time.
    The Chairman. Well, we hope we draft a bill that will 
accommodate changes in communications better than we did in 
1996.
    Mr. Mundie. So, I might suggest that we need to think of 
the country in three places, the major metropolitan areas, the 
Congress and the FCC need to think of them as being competitive 
on a global basis. They'll set the standard for what is going 
to be considered competitive telecommunications in the country. 
The second tier down is a place where it is, I'll say, possible 
at any given moment in time to expect that there would be 
multiple solutions, whether wired, wireless, or multiple other 
technologies. And then the third is essentially at a moment in 
time where it really is not economic to ask more than one 
person to try to build the combination of infrastructure and 
distribution to do it. In that case, I think we might be better 
off to have reverse auctions, you know, for some stipulated 
amount of money, for the third tier, that only give a temporary 
grant of that funding. And at the end of that time, if they're 
still the only person who wants it, it can be renewed, but if 
other people want to come in, based on new technologies, there 
should be a natural expiration. And I think that the people who 
decide to bid on those businesses should contemplate that 
model.
    In the middle category, where there are two different ones, 
I think we need to move more to a model where the consumer is 
essentially the one that's directing his choice to the carrier 
and technology that they want, rather than making essentially a 
bureaucratic- or commission-based decision as to how these 
funds should be allocated.
    The Chairman. Well, where there are competing carriers, 
fine. We've got the situation, in most rural areas, where 
there's one carrier.
    Mr. Mundie. And that's why I think there's two components 
to how to improve that situation. One is, if there's only one 
carrier of the kind that we traditionally think of as carriers, 
then, you know, we should probably let them get access to 
whatever funding's going to be available through some reverse 
auction process, so it at least draws out other people.
    I think the other thing is, essentially, this unlicensed 
spectrum. It is another grant, equivalent to money, that will 
bring out people with new ways of providing those services, 
whether it's the community itself--as Mr. Garcia said, some of 
the tribes are essentially starting to operate their own 
networks. I think we've seen, in many places--and we are seeing 
in many places outside the United States--that local 
communities will step up and do these things for their own 
account, if they don't have to overcome the issues of spectrum 
access, auctions and other things, in order to be given access. 
And because of the rapid growth of high-volume, low-cost 
computing and telecommunications equipment, particularly in the 
wireless area, this is possible to a degree that wasn't 
possible in the past.
    The Chairman. I'm sorry to do this to you, but I've got a 
series of questions that we wanted to have answered. So, if you 
wouldn't mind, just let me ask them, and give me your answer, 
as quickly as possible, or, if you want to send it in, it's all 
right.
    Mr. Garcia, you, yourself, mentioned the problem of rights 
of way across tribal lands. This is a substantial problem in 
many areas. Should we legislate on that?
    Mr. Garcia. Could you repeat the first part of the 
question, sir?
    The Chairman. I said, you mentioned, yourself, the problem 
about rights of way on tribal lands. Several others have, also, 
today, discussed that. Should we legislate that FCC or someone 
has the right to require tribes to give us rights of way across 
tribal lands?
    Mr. Garcia. No, I don't think so. I think this goes back to 
sovereignty of the tribes and good government-to-government 
relations or government-to-corporate business functions. And 
there are methods in place that tribes can use to come to 
agreements and come to terms in contractual or lease agreements 
and whatnot. And so, I think that part ought not to be 
legislated.
    The Chairman. Well, even Federal lands are available, even 
state lands are available. There aren't any other lands in the 
country that aren't subject to rights of way for 
communications. And you're saying that Indian lands should be 
immune from any type of access, other than what the tribes say 
is OK. And that means that there's going to be a toll at the 
bridge, right? They're going to charge a lot more than others 
charge for their rights of way. I assume you've read Mr. 
Goldstein's report.
    Mr. Garcia. No, I think it should be within reason, but it 
is the opportunity to go into a partnership in contractual 
agreements as many rights of ways and lease agreements occur. 
And what is a fair, price to pay, if you will, for another 
right of way in any other part of the country or any other 
lands where we have infrastructure power development or power 
crossings or gas lines or what have you. It should be within 
the rights of the tribal government to determine those 
agreements.
    The Chairman. All right.
    Mr. Baum, I was interested in this. And do you think we 
should have an industry-led solution to this problem you've 
outlined, or should we try to get the FCC to solve it?
    Mr. Baum. Well, we're going to try the industry solution. 
And that's what the Task Force has done, is they've turned this 
matter over to the group of stakeholders, and they're going to 
present, we hope, tomorrow, a proposal that moves us forward to 
resolve this on an industry-based solution.
    The Chairman. Is there a timeframe on that?
    Mr. Baum. We hope to have the report tomorrow to the other 
stakeholders, and then we gave them until the end of this 
month, or March 31st, to come to our task force with a plan 
that's been endorsed by specific companies that have agreed to 
it, and at that point in time, our task force would take that 
up, as state commissioners, and then we would--we have the 
option of referring that to the FCC for further consideration.
    The Chairman. Mr. Sarjeant, do you think we should give 
some incentive to companies to help resolve the high costs of 
certain areas? We seem to assume that there are high-cost 
areas, but in the past, most companies tried to solve their own 
problems. It looks like, as this becomes more ubiquitous, in 
terms of a total system, that we may lose that company 
initiative. Should there be some incentive to companies to try 
to resolve the high cost of the areas in which they operate?
    Mr. Sarjeant. Senator, I think the answer to that is, yes, 
but in a limited and targeted way. And you allude to our 
history, which, as we grew up in a monopoly world, a larger 
company that may have had a mix of service areas, both low- and 
high-cost, could average out the cost across the high- and low-
cost areas and come up with a composite cost for each area. But 
as we've moved out of the monopoly environment, and we've moved 
into a competitive environment, companies like Qwest see 
astounding competition in rural--in our urban areas, in 
particular, and our suburban areas, and we can no longer 
subsidize the cost of serving higher areas.
    So, in the higher-cost areas, a company like Qwest would 
need the same type of incentive as a rural company serving the 
same higher-cost area, which is why we've urged the FCC to look 
at the possibility of merging the different high-cost funds it 
has today into one, and then provide those funds, as a block 
grant, to the states who are close to the ground and can make 
the judgments based on their actual knowledge of who is served, 
and let them administer it under some Federal guidelines which 
would be consistent across the country.
    The Chairman. OK. Last question, for you, Mark and Mr. 
Squires. We have real problems in rural areas on this 
intercarrier compensation. Now, you've heard Mr. Baum say the 
Task Force is going to have this meeting. Do you think that the 
rural areas--in terms of intercarrier compensation, are so 
large that we should not let the industry, on a national basis, 
solve it? Or do you think we should have to have a rural, sort 
of, caucus look at this problem of intercarrier compensation in 
rural areas?
    Mr. Johnson. Senator, I think--based on our unique market 
structure, I believe we need to have a special look at how a 
proposed industrywide solution would affect Alaska. Absent 
that, I have always been afraid that we would be disadvantaged 
substantially. So, that's my short answer.
    The Chairman. Mr. Squires?
    Mr. Squires. Mr. Chairman, it is complicated, as you 
indicated, but I do believe that the industry, in working with 
the FCC, can fashion a solution to this problem. With that 
said, there are rural issues that have to be addressed within 
that solution. I believe the industry and the FCC can address 
those, either through the use of a joint board or other rural 
caucus. I think we're close enough to a solution that the 
industry and the FCC can tackle the problem.
    The Chairman. Mr. Baum, my comment to--the mega-companies, 
working together, have this intercarrier compensation problem, 
but it's nothing like it is when you get into rural areas. So, 
I hope that you focus on the difference in the rural areas, in 
terms of what you're doing here this week.
    Mr. Baum. Mr. Chairman, it's a key requirement, for the big 
carriers to include and address the interests that are 
represented by the Rural Alliance, which is the group 
representing rural carriers. So, right now I think rural 
carriers would be very happy with the way the plan is going. It 
will be friendly toward rural carriers, in keeping them in a 
position where they can continue to provide the service they 
have been to their consumers. So, we'd be very cognizant of 
that, and realize that that's important to the Commerce 
Committee and yourself.
    The Chairman. Well, thank you all very much. I think this 
is a key issue for this telecom bill. If we can get an 
agreement on Universal Service, we can get a bill. But there is 
still a lot of opposition in Universal Service, per se, in the 
Congress. I hope you all keep that in mind.
    Thank you for coming. I appreciate your courtesy.
    [Whereupon, at 12:10 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
    As we think about the challenges facing rural America, and in 
particular those faced on remote tribal lands, we should remember that 
it was not all that long ago when large sections of the country did not 
have electricity let alone phone service. As a nation, we determined 
that some services were so essential not only to a community's well-
being, but to that of the Nation, that they must be deployed 
everywhere, even if the undertaking required government support.
    Financial realities often prohibit the private investment necessary 
to build communications systems in remote parts of our Nation. Indeed, 
these concerns prompted members of this Committee to draft section 254 
of the 1996 Telecommunications Act, which explicitly created the 
Universal Service Fund. I am, and will continue to be, a strong 
supporter of the Universal Service Fund. As our Nation continues to 
become more dependent upon the instantaneous exchange of information, 
Universal Service will continue to help provide all Americans with 
access to high-speed communications and all its benefits.
    To reach that future, however, we need to consider reforms that 
will strengthen current support mechanisms, rationalize our current 
system of intercarrier payments, and eliminate opportunities for 
arbitrage. We are fortunate today to have two state communications 
regulators among the witnesses today to advise us on these issues.
    Native Americans and tribal communities face particular difficulty 
accessing advanced communications services. Today's hearing also allows 
us to review their situation in particular, and it also allows us to 
reaffirm the trust relationship between the United States government 
and tribal communities. Toward that end, I am particularly pleased, Mr. 
Chairman, that the General Accounting Office has been invited to share 
the results of their recent report on the challenges faced by Native 
Americans in providing communications services on tribal lands.
    In response to this report, I am introducing legislation today 
along with my colleagues Senators Dorgan, Burns, and McCain to clarify 
the eligibility of certain tribal libraries for e-rate funds. The 
legislation also addresses the lack of reliable data regarding Internet 
subscribership in sparsely populated areas of the country, including 
data for residents on tribal lands. It is my hope that progress on this 
legislation, along with S. 585, the Native American Connectivity Act 
currently pending before the Senate Indian Affairs Committee, will help 
us meet our trust responsibilities.
    Finally, today's hearing gives us the opportunity to consider how 
innovative, low-cost technologies, such as those used by wireless 
Internet service providers or ``WISPs'', are attempting to bridge the 
digital divide in rural America. With that Mr. Chairman, I thank you 
for holding this hearing and look forward to the witnesses' testimony.
                                 ______
                                 
  Prepared Statement of Hon. Gordon H. Smith, U.S. Senator from Oregon

    Thank you, Chairman Stevens and Co-Chairman Inouye, for convening 
this hearing on rural telecommunications.
    We have talked quite a bit about the need for telecommunications 
reform this Congress. Last week, we held two hearings on the crisis 
facing the Universal Service system, a program designed largely to 
bring advanced telecommunications services to rural areas.
    We have also held hearings on the need for video franchise reforms 
that will promote competition and broadband deployment. The theme of 
these and other telecommunications hearings this session has been the 
need for reform now. Not in 2007. Not in 2008. Now.
    The Commerce Committee has scheduled a mark-up on March 16th. I 
urge the Committee to add telecommunications reform bills to the agenda 
and to schedule additional mark-ups on telecommunications bills 
immediately following the St. Patrick's Day recess. We must move bills 
out of the Committee in a matter of weeks if the Senate is to take up 
telecommunications reform before the end of our short legislative year.
    I would like to make one other point regarding rural 
telecommunications and our elderly population. Many older Americans 
face barriers to interacting with their communities and keeping in 
touch with loved ones because they do not have access to affordable 
telecommunication services. As Chairman of the Special Committee on 
Aging, I am especially interested in ensuring that our Nation's seniors 
living in rural areas are able to maintain their independence and 
experience the benefits provided through telecommunications. The 
Universal Service Fund provides an important service for low income 
elderly citizens, allowing them to perform a wide range of 
communications, from contacting police and medical professionals in 
times of emergency, to talking with friends and family members. The 
Universal Service Fund is an essential program for this segment of our 
population who otherwise would become increasingly isolated from their 
communities and families.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Ted Stevens to 
                            Hon. Thomas Dorr

    Question. Mr. Dorr, the RUS Rural Broadband Grants and Loans 
programs are a key activity geared to extending broadband technology 
and services to rural and underserved America. Even though these 
programs are touted as technology neutral, it is my understanding that 
no satellite broadband technology or service provider has been afforded 
access to either the grants or the loans administered under RUS for 
rural broadband deployment. Given that satellite technology can reach 
all of rural America, what changes are needed in the scope of these RUS 
programs so that satellite broadband technology can be treated on a 
level playing field for RUS Grants and Loans programs as other 
technologies?
    Specifically, what needs to be changed so that customer-owned 
equipment, such as satellite broadband transceivers and modems, can be 
financed under the RUS Rural Broadband Grants and Loans programs?
    Answer. Mr. Chairman, thank you for your very good question 
regarding the use of satellite technology in providing broadband 
service. Rural Development has not received an application for 
satellite technology to be used to deploy broadband service, either in 
Alaska or any where else.
    As you point out in your question, the Broadband Program is 
technology neutral by statute. We have, in fact, had meetings with 
three different satellite companies that provide broadband service.

                                  
